ITEM 1.
|
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
130,568
|
|
|
$
|
70,594
|
|
Marketable securities
|
|
|
63,812
|
|
|
|
63,167
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and marketable securities
|
|
|
194,380
|
|
|
|
133,761
|
|
Trade accounts receivable, net of allowance of $6,189 and $4,126
|
|
|
191,161
|
|
|
|
265,028
|
|
Income taxes receivable
|
|
|
34,864
|
|
|
|
14,155
|
|
Other current assets
|
|
|
17,679
|
|
|
|
12,188
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
438,084
|
|
|
|
425,132
|
|
Property and equipment, net
|
|
|
39,849
|
|
|
|
38,281
|
|
Deferred income taxes
|
|
|
73,459
|
|
|
|
69,898
|
|
Long-term other assets
|
|
|
5,982
|
|
|
|
3,990
|
|
Intangible assets, net
|
|
|
34,755
|
|
|
|
44,191
|
|
Goodwill
|
|
|
72,941
|
|
|
|
73,164
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
665,070
|
|
|
$
|
654,656
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
12,535
|
|
|
$
|
14,414
|
|
Accrued expenses
|
|
|
39,681
|
|
|
|
36,751
|
|
Accrued compensation and related expenses
|
|
|
53,869
|
|
|
|
60,660
|
|
Deferred revenue
|
|
|
160,931
|
|
|
|
175,647
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
267,016
|
|
|
|
287,472
|
|
Income taxes payable
|
|
|
4,774
|
|
|
|
4,263
|
|
Long-term deferred revenue
|
|
|
6,130
|
|
|
|
10,989
|
|
Other long-term liabilities
|
|
|
15,449
|
|
|
|
16,043
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
293,369
|
|
|
|
318,767
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, 1,000 shares authorized; no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, 200,000 shares authorized; 77,839 shares and 76,591 shares issued and
outstanding
|
|
|
778
|
|
|
|
766
|
|
Additional
paid-in
capital
|
|
|
146,728
|
|
|
|
143,903
|
|
Retained earnings
|
|
|
227,953
|
|
|
|
198,315
|
|
Accumulated other comprehensive loss
|
|
|
(3,758
|
)
|
|
|
(7,095
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
371,701
|
|
|
|
335,889
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
665,070
|
|
|
$
|
654,656
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
2
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
$
|
41,793
|
|
|
$
|
68,833
|
|
|
$
|
195,220
|
|
|
$
|
207,849
|
|
Maintenance
|
|
|
62,204
|
|
|
|
55,038
|
|
|
|
180,759
|
|
|
|
163,174
|
|
Services
|
|
|
75,818
|
|
|
|
58,931
|
|
|
|
225,063
|
|
|
|
179,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
179,815
|
|
|
|
182,802
|
|
|
|
601,042
|
|
|
|
550,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
|
1,276
|
|
|
|
1,313
|
|
|
|
3,826
|
|
|
|
3,646
|
|
Maintenance
|
|
|
6,716
|
|
|
|
6,659
|
|
|
|
20,945
|
|
|
|
18,889
|
|
Services
|
|
|
61,739
|
|
|
|
52,465
|
|
|
|
180,925
|
|
|
|
154,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
69,731
|
|
|
|
60,437
|
|
|
|
205,696
|
|
|
|
177,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
110,084
|
|
|
|
122,365
|
|
|
|
395,346
|
|
|
|
373,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
70,209
|
|
|
|
67,032
|
|
|
|
217,384
|
|
|
|
202,126
|
|
Research and development
|
|
|
41,031
|
|
|
|
38,036
|
|
|
|
121,089
|
|
|
|
108,530
|
|
General and administrative
|
|
|
13,133
|
|
|
|
11,725
|
|
|
|
38,174
|
|
|
|
34,067
|
|
Acquisition-related
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
2,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
124,373
|
|
|
|
116,867
|
|
|
|
376,647
|
|
|
|
347,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income from operations
|
|
|
(14,289
|
)
|
|
|
5,498
|
|
|
|
18,699
|
|
|
|
25,983
|
|
Foreign currency transaction (loss)/gain
|
|
|
(552
|
)
|
|
|
1,082
|
|
|
|
(793
|
)
|
|
|
2,764
|
|
Interest income, net
|
|
|
144
|
|
|
|
172
|
|
|
|
470
|
|
|
|
650
|
|
Other income/(expense), net
|
|
|
|
|
|
|
(1,237
|
)
|
|
|
287
|
|
|
|
(4,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income before (benefit)/provision for income taxes
|
|
|
(14,697
|
)
|
|
|
5,515
|
|
|
|
18,663
|
|
|
|
24,506
|
|
(Benefit)/provision for income taxes
|
|
|
(12,885
|
)
|
|
|
2,214
|
|
|
|
(17,952
|
)
|
|
|
6,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(1,812
|
)
|
|
$
|
3,301
|
|
|
$
|
36,615
|
|
|
$
|
18,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.03
|
)
|
|
|
0.04
|
|
|
|
0.47
|
|
|
|
0.24
|
|
Diluted
|
|
|
(0.03
|
)
|
|
|
0.04
|
|
|
|
0.44
|
|
|
|
0.23
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
77,691
|
|
|
|
76,278
|
|
|
|
77,258
|
|
|
|
76,323
|
|
Diluted
|
|
|
77,691
|
|
|
|
79,548
|
|
|
|
82,717
|
|
|
|
79,401
|
|
Cash dividends declared per share
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
See notes to unaudited condensed consolidated financial statements.
3
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net (loss)/income
|
|
$
|
(1,812
|
)
|
|
$
|
3,301
|
|
|
$
|
36,615
|
|
|
$
|
18,237
|
|
Other comprehensive income/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on
available-for-sale
marketable securities, net of tax
|
|
|
22
|
|
|
|
(174
|
)
|
|
|
148
|
|
|
|
168
|
|
Foreign currency translation adjustments
|
|
|
549
|
|
|
|
(169
|
)
|
|
|
3,189
|
|
|
|
(1,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income/(loss), net of tax
|
|
|
571
|
|
|
|
(343
|
)
|
|
|
3,337
|
|
|
|
(1,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss)/income
|
|
$
|
(1,241
|
)
|
|
$
|
2,958
|
|
|
$
|
39,952
|
|
|
$
|
17,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
4
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,615
|
|
|
$
|
18,237
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(2,607
|
)
|
|
|
(2,841
|
)
|
Depreciation and amortization
|
|
|
18,703
|
|
|
|
17,896
|
|
Stock-based compensation expense
|
|
|
39,929
|
|
|
|
30,634
|
|
Foreign currency transaction loss/(gain)
|
|
|
793
|
|
|
|
(2,764
|
)
|
Other
non-cash
|
|
|
(89
|
)
|
|
|
153
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
80,580
|
|
|
|
3,940
|
|
Income taxes receivable and other current assets
|
|
|
(25,943
|
)
|
|
|
(11,904
|
)
|
Accounts payable and accrued expenses
|
|
|
(8,546
|
)
|
|
|
(16,678
|
)
|
Deferred revenue
|
|
|
(25,639
|
)
|
|
|
(17,698
|
)
|
Other long-term assets and liabilities
|
|
|
130
|
|
|
|
1,581
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
113,926
|
|
|
|
20,556
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(25,687
|
)
|
|
|
(22,614
|
)
|
Proceeds from maturities and called marketable securities
|
|
|
23,124
|
|
|
|
21,838
|
|
Sales of marketable securities
|
|
|
|
|
|
|
62,283
|
|
Payments for acquisitions, net of cash acquired
|
|
|
(297
|
)
|
|
|
(49,113
|
)
|
Investment in property and equipment
|
|
|
(9,106
|
)
|
|
|
(15,253
|
)
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(11,966
|
)
|
|
|
(2,859
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Dividend payments to shareholders
|
|
|
(6,941
|
)
|
|
|
(6,883
|
)
|
Common stock repurchases for tax withholdings for net settlement of equity awards
|
|
|
(34,113
|
)
|
|
|
(10,398
|
)
|
Common stock repurchases under share repurchase programs
|
|
|
(2,986
|
)
|
|
|
(25,750
|
)
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities
|
|
|
(44,040
|
)
|
|
|
(43,031
|
)
|
Effect of exchange rates on cash and cash equivalents
|
|
|
2,054
|
|
|
|
(1,309
|
)
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
59,974
|
|
|
|
(26,643
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
70,594
|
|
|
|
93,026
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
130,568
|
|
|
$
|
66,383
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
5
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Pegasystems Inc. (together with
its subsidiaries, the Company) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) regarding interim
financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (U.S.) for complete financial statements and should be read
in conjunction with the Companys audited financial statements included in the Annual Report on Form
10-K
for the year ended December 31, 2016.
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited
financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim
periods presented are not necessarily indicative of the results expected for the full year 2017.
2. NEW ACCOUNTING PRONOUNCEMENTS
Stock-Based Compensation
In May 2017, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2017-09
Stock Compensation (Topic 718), Scope of Modification Accounting to
clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of
the award (as equity or liability) changes as a result of the change in terms or conditions. The effective date for the Company will be January 1, 2018. The Company does not expect the adoption of this standard to have a material effect on its
financial position or results of operations.
Financial Instruments
In June 2016, the FASB issued ASU
No. 2016-13,
Financial InstrumentsCredit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including trade accounts receivable, upon initial recognition of that
financial asset using a forward-looking expected loss model, rather than an incurred loss model for credit losses. Credit losses relating to
available-for-sale
debt
securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of other-than-temporary impairments. The effective date for the Company will be
January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and related disclosures.
Leases
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic 842), which requires lessees to record most leases on their balance sheets, recognizing a lease liability for the obligation to make lease payments and a
right-of-use
asset for the right to use the underlying asset for the lease term. The effective date for the Company will be January 1, 2019, with early adoption
permitted. The Company expects that most of its operating lease commitments will be subject to this ASU and recognized as operating lease liabilities and
right-of-use
assets upon adoption with no material impact to its results of operations and cash flows.
Revenue
In May 2014, the FASB issued ASU
No. 2014-09,
Revenue from Contracts with Customers (Topic 606). This
ASU amends the guidance for revenue recognition, creating the new Accounting Standards Codification Topic 606 (ASC 606). ASC 606 requires entities to apportion consideration from contracts to performance obligations on a relative
standalone selling price basis, based on a five-step model. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration which the entity expects to
receive in exchange for the good or service. In addition, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Company has elected the full retrospective adoption model, effective January 1, 2018. The Companys quarterly results beginning with the quarter
ending March 31, 2018 and comparative prior periods will be compliant with ASC 606. The Companys Annual Report on Form
10-K
for the year ended December 31, 2018 will be the Companys first
Annual Report that will be issued in compliance with ASC 606.
6
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has made significant progress on quantifying the impact of its adoption and identifying necessary
changes to our policies, processes, systems, and controls.
The Company expects the following impacts:
|
|
|
Currently, the Company recognizes revenue from term licenses and perpetual licenses with extended payment terms over the term of the agreement as payments become due or earlier if prepaid, provided all other criteria
for revenue recognition have been met, and any corresponding maintenance over the term of the agreement. The adoption of ASC 606 will result in revenue for performance obligations being recognized as they are satisfied. Therefore, revenue from the
term and perpetual license performance obligations with extended payment terms is recognized when control is transferred to the customer. Any unrecognized license revenue from these arrangements, included in deferred revenue at December 31,
2015, will not be recognized in revenue in future periods but as a cumulative adjustment to retained earnings. Further, term license revenue from new arrangements executed in 2016 and 2017 will be recognized in full in the year that control of
the license is transferred to the customer instead of over the term of the agreement. Revenue from the maintenance performance obligations is expected to be recognized on a straight-line basis over the contractual term. Due to the revenue from
term and perpetual licenses with extended payment terms being recognized prior to amounts being billed to the customer, the Company expects to recognize a net contract asset on the balance sheet.
|
|
|
|
Currently, the Company allocates revenue to licenses under the residual method when it has Vendor Specific Objective Evidence (VSOE) for the remaining undelivered elements, which allocates any future credits
or significant discounts entirely to the license. The adoption of ASC 606 will result in future credits, significant discounts, and material rights under ASC 606, to be allocated to all performance obligations based upon their relative selling
price. Under ASC 606, additional license revenue from the reallocation of such arrangement considerations will be recognized when control is transferred to the customer, which is generally upon delivery of the license.
|
|
|
|
Currently, the Company does not have VSOE for fixed price services, time and materials services in certain geographical areas, and unspecified future products, which results in revenue being deferred in such instances
until such time as VSOE exists for all undelivered elements or recognized ratably over the longest performance period. The adoption of ASC 606 eliminates the requirement for VSOE and replaces it with the concept of a stand-alone selling price. Once
the transaction price is allocated to each of the performance obligations, the Company can recognize revenue as the performance obligations are delivered, either at a point in time or over time. Under ASC 606, license revenue will be recognized when
control is transferred to the customer, professional services revenue will be recognized over time based on input or output measures that reflect the Companys performance on the contract. This will result in the acceleration of professional
services revenue when compared to the current practice of ratable recognition for professional services when there is a lack of VSOE.
|
|
|
|
Sales commissions and other third party acquisition costs resulting directly from securing contracts with customers are currently expensed when incurred. ASC 606 will require these costs to be recognized as an asset
when incurred and to be expensed over the associated contract term. As a practical expedient, if the term of the contract is one year or less, the Company will expense these costs as incurred. The Company expects this change to impact its
multi-year cloud offerings and term and perpetual licenses with additional rights of use that extend beyond one year.
|
|
|
|
ASC 606 provides additional accounting guidance for contract modifications whereby changes must be accounted for either as a retrospective change (creating either a catch up or deferral of past revenues), prospectively
with a reallocation of revenues amongst identified performance obligations, or prospectively as separate contracts which will not require any reallocation. This may result in a difference in the timing of the recognition of revenue as compared to
how contract modifications are recognized currently.
|
|
|
|
There will be a corresponding effect on tax liabilities in relation to all of the above impacts.
|
7
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. MARKETABLE SECURITIES
The Companys marketable securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
32,764
|
|
|
$
|
12
|
|
|
$
|
(17
|
)
|
|
$
|
32,759
|
|
Corporate bonds
|
|
|
31,079
|
|
|
|
12
|
|
|
|
(38
|
)
|
|
|
31,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,843
|
|
|
$
|
24
|
|
|
$
|
(55
|
)
|
|
$
|
63,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
36,746
|
|
|
$
|
|
|
|
$
|
(139
|
)
|
|
$
|
36,607
|
|
Corporate bonds
|
|
|
26,610
|
|
|
|
1
|
|
|
|
(51
|
)
|
|
|
26,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,356
|
|
|
$
|
1
|
|
|
$
|
(190
|
)
|
|
$
|
63,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017, the Company did not hold any investments with unrealized losses that are considered to be
other-than-temporary.
As of September 30, 2017, remaining maturities of marketable debt securities ranged from October 2017 to September 2020, with
a weighted-average remaining maturity of approximately 14 months.
4. DERIVATIVE INSTRUMENTS
In May 2017, the Company discontinued its forward contracts program; however, it will continue to evaluate periodically its foreign exchange exposures and may
re-initiate
this program if it is deemed necessary.
The Company has historically used foreign currency forward
contracts (forward contracts) to hedge its exposure to fluctuations in foreign currency exchange rates associated with its foreign currency denominated cash, accounts receivable, and intercompany receivables and payables held primarily
by the U.S. parent company and its United Kingdom (U.K.) subsidiary.
At December 31, 2016, the total notional value of the
Companys outstanding forward contracts was $128.4 million.
The fair value of the Companys outstanding forward contracts was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(in thousands)
|
|
Recorded In:
|
|
|
Fair Value
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
Other current assets
|
|
|
$
|
628
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
Accrued expenses
|
|
|
$
|
883
|
|
As of September 30, 2017, the Company did not have any forward contracts outstanding.
The Company had forward contracts outstanding with total notional values as of September 30, 2016 as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Euro
|
|
|
21,810
|
|
British pound
|
|
£
|
5,919
|
|
Australian dollar
|
|
A$
|
19,515
|
|
United States dollar
|
|
$
|
59,450
|
|
8
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The income statement impact of the Companys outstanding forward contracts and foreign currency
transactions was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Gain (loss) from the change in the fair value of forward contracts included in other income
(expense), net
|
|
$
|
|
|
|
$
|
(1,237
|
)
|
|
$
|
286
|
|
|
$
|
(4,955
|
)
|
Foreign currency transaction (loss) gain from the remeasurement of foreign currency assets and
liabilities
|
|
|
(552
|
)
|
|
|
1,082
|
|
|
|
(793
|
)
|
|
|
2,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(552
|
)
|
|
$
|
(155
|
)
|
|
$
|
(507
|
)
|
|
$
|
(2,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company records its money market funds, marketable securities, and forward contracts at fair value on a recurring basis. Fair value is an exit price,
representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.
As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows: (Level 1) observable inputs such as
quoted prices in active markets for identical assets or liabilities; (Level 2) significant other inputs that are observable either directly or indirectly; and (Level 3) significant unobservable inputs on which there is little or no market data,
which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The Companys money market funds are classified within Level 1 of the fair value hierarchy. The Companys marketable securities classified
within Level 2 of the fair value hierarchy are valued based on a market approach using quoted prices, when available, or matrix pricing compiled by third party pricing vendors, using observable market inputs such as interest rates, yield
curves, and credit risk. The Companys foreign currency forward contracts, which were all classified within Level 2 of the fair value hierarchy, are valued based on the notional amounts and rates under the contracts and observable market
inputs such as currency exchange rates and credit risk. If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance
occurs. There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2017.
9
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Companys assets and liabilities measured at fair value on a recurring basis consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
|
Total
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
655
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
655
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
|
|
|
$
|
32,759
|
|
|
|
|
|
|
|
|
|
|
|
32,759
|
|
Corporate bonds
|
|
|
|
|
|
|
31,053
|
|
|
|
|
|
|
|
|
|
|
|
31,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
63,812
|
|
|
|
|
|
|
|
|
|
|
$
|
63,812
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
458
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
458
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
|
|
|
$
|
36,607
|
|
|
|
|
|
|
|
|
|
|
$
|
36,607
|
|
Corporate bonds
|
|
|
|
|
|
|
26,560
|
|
|
|
|
|
|
|
|
|
|
|
26,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
63,167
|
|
|
|
|
|
|
|
|
|
|
$
|
63,167
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
|
628
|
|
Fair Value Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
|
|
|
$
|
883
|
|
|
|
|
|
|
|
|
|
|
$
|
883
|
|
For certain other financial instruments, including accounts receivable and accounts payable, the carrying value approximates
their fair value due to the relatively short maturity of these items.
Assets Measured at Fair Value on a Nonrecurring Basis
Assets recorded at fair value on a nonrecurring basis, such as property and equipment and intangible assets, are recognized at fair value when they are
impaired. During the nine months ended September 30, 2017 and 2016, the Company did not recognize any impairments of its assets recorded at fair value on a nonrecurring basis.
6. TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Trade accounts receivable
|
|
$
|
164,530
|
|
|
$
|
234,473
|
|
Unbilled trade accounts receivable
|
|
|
32,820
|
|
|
|
34,681
|
|
|
|
|
|
|
|
|
|
|
Total trade accounts receivable
|
|
|
197,350
|
|
|
|
269,154
|
|
Allowance for sales credit memos
|
|
|
(6,189
|
)
|
|
|
(4,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
191,161
|
|
|
$
|
265,028
|
|
|
|
|
|
|
|
|
|
|
Unbilled trade accounts receivable primarily relate to services earned under time and materials arrangements and to license,
maintenance, and cloud arrangements that have commenced or been delivered in excess of scheduled invoicing.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the nine months ended September 30, 2017 as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Balance as of January 1,
|
|
$
|
73,164
|
|
Purchase price adjustments to goodwill
|
|
|
(354
|
)
|
Currency translation adjustments
|
|
|
131
|
|
|
|
|
|
|
Balance as of September 30,
|
|
$
|
72,941
|
|
|
|
|
|
|
10
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Intangible assets are recorded at cost and are amortized using the straight-line method over their estimated
useful lives as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Range of
Remaining
Useful Lives
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related intangibles
|
|
|
4-10 years
|
|
|
$
|
63,158
|
|
|
$
|
(43,205
|
)
|
|
$
|
19,953
|
|
Technology
|
|
|
7-10
years
|
|
|
|
58,942
|
|
|
|
(44,140
|
)
|
|
|
14,802
|
|
Other intangibles
|
|
|
|
|
|
|
5,361
|
|
|
|
(5,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
127,461
|
|
|
$
|
(92,706
|
)
|
|
$
|
34,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related intangibles
|
|
|
4-10
years
|
|
|
$
|
63,091
|
|
|
$
|
(37,573
|
)
|
|
$
|
25,518
|
|
Technology
|
|
|
3-10
years
|
|
|
|
58,942
|
|
|
|
(40,269
|
)
|
|
|
18,673
|
|
Other intangibles
|
|
|
|
|
|
|
5,361
|
|
|
|
(5,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
127,394
|
|
|
$
|
(83,203
|
)
|
|
$
|
44,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of intangibles assets is reflected in the Companys unaudited condensed consolidated statements of
operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Cost of revenue
|
|
$
|
1,232
|
|
|
$
|
1,642
|
|
|
$
|
3,871
|
|
|
$
|
4,626
|
|
Selling and marketing
|
|
|
1,873
|
|
|
|
1,867
|
|
|
|
5,608
|
|
|
|
5,274
|
|
General and administrative
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,105
|
|
|
$
|
3,599
|
|
|
$
|
9,479
|
|
|
$
|
10,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future estimated amortization expense related to intangible assets as of September 30, 2017 is as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Remainder of 2017
|
|
$
|
2,846
|
|
2018
|
|
|
11,347
|
|
2019
|
|
|
5,555
|
|
2020
|
|
|
2,659
|
|
2021
|
|
|
2,637
|
|
2022 and thereafter
|
|
|
9,711
|
|
|
|
|
|
|
|
|
$
|
34,755
|
|
|
|
|
|
|
8. ACCRUED EXPENSES
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Outside professional services
|
|
$
|
13,447
|
|
|
$
|
10,204
|
|
Income and other taxes
|
|
|
5,947
|
|
|
|
10,422
|
|
Marketing and sales program expenses
|
|
|
4,679
|
|
|
|
3,707
|
|
Dividends payable
|
|
|
2,336
|
|
|
|
2,298
|
|
Employee related expenses
|
|
|
4,715
|
|
|
|
3,806
|
|
Other
|
|
|
8,557
|
|
|
|
6,314
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,681
|
|
|
$
|
36,751
|
|
|
|
|
|
|
|
|
|
|
11
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. DEFERRED REVENUE
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Term license
|
|
$
|
5,636
|
|
|
$
|
15,843
|
|
Perpetual license
|
|
|
20,844
|
|
|
|
23,189
|
|
Maintenance
|
|
|
105,588
|
|
|
|
112,397
|
|
Cloud
|
|
|
18,805
|
|
|
|
13,604
|
|
Professional Services
|
|
|
10,058
|
|
|
|
10,614
|
|
|
|
|
|
|
|
|
|
|
Current deferred revenue
|
|
|
160,931
|
|
|
|
175,647
|
|
Perpetual license
|
|
|
4,085
|
|
|
|
7,909
|
|
Maintenance
|
|
|
828
|
|
|
|
1,802
|
|
Cloud
|
|
|
1,217
|
|
|
|
1,278
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred revenue
|
|
|
6,130
|
|
|
|
10,989
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
167,061
|
|
|
$
|
186,636
|
|
|
|
|
|
|
|
|
|
|
10. STOCK-BASED COMPENSATION
Stock-based compensation expense is reflected in the Companys unaudited condensed consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Cost of revenues
|
|
$
|
3,613
|
|
|
$
|
3,117
|
|
|
$
|
10,913
|
|
|
$
|
8,711
|
|
Selling and marketing
|
|
|
3,976
|
|
|
|
3,468
|
|
|
|
11,482
|
|
|
|
9,395
|
|
Research and development
|
|
|
3,420
|
|
|
|
2,260
|
|
|
|
10,306
|
|
|
|
7,480
|
|
General and administrative
|
|
|
2,480
|
|
|
|
1,983
|
|
|
|
7,228
|
|
|
|
4,706
|
|
Acquisition-related
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation before tax
|
|
$
|
13,489
|
|
|
$
|
10,818
|
|
|
$
|
39,929
|
|
|
$
|
30,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
(4,129
|
)
|
|
$
|
(3,227
|
)
|
|
$
|
(12,231
|
)
|
|
$
|
(8,917
|
)
|
During the nine months ended September 30, 2017, the Company issued approximately 1,299,000 shares of common stock to its
employees and 18,000 shares of common stock to its
non-employee
directors under the Companys stock-based compensation plans.
During the nine months ended September 30, 2017, the Company granted approximately 1,052,000 restricted stock units (RSUs) and 1,520,000
non-qualified
stock options to its employees with total fair values of approximately $47.5 million and $20.6 million, respectively. This includes approximately 175,000 RSUs which were granted in connection
with the election by employees to receive 50% of their 2017 target incentive compensation under the Companys Corporate Incentive Compensation Plan in the form of RSUs instead of cash. Stock-based compensation of approximately $7.7 million
associated with this RSU grant will be recognized over a
one-year
period beginning on the grant date.
The Company
recognizes stock based compensation on the accelerated recognition method, treating each vesting tranche as if it were an individual grant. As of September 30, 2017, the Company had approximately $56.8 million of unrecognized stock-based
compensation expense, net of estimated forfeitures, related to all unvested RSUs and unvested stock options that is expected to be recognized over a weighted-average period of 2.1 years.
11. EARNINGS PER SHARE
Basic earnings per share is
computed using the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding during the applicable period, plus the
dilutive effect of outstanding options and RSUs, using the treasury stock method. Certain shares related to some of the Companys outstanding stock options and RSUs were excluded from the computation of diluted earnings per share because they
were anti-dilutive in the periods presented, but could be dilutive in the future.
12
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The calculation of the Companys basic and diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(in thousands, except per share amounts)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(1,812
|
)
|
|
$
|
3,301
|
|
|
$
|
36,615
|
|
|
$
|
18,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
77,691
|
|
|
|
76,278
|
|
|
|
77,258
|
|
|
|
76,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/earnings per share, basic
|
|
$
|
(0.03
|
)
|
|
$
|
0.04
|
|
|
$
|
0.47
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(1,812
|
)
|
|
$
|
3,301
|
|
|
$
|
36,615
|
|
|
$
|
18,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
1,933
|
|
|
|
3,519
|
|
|
|
1,851
|
|
RSUs
|
|
|
|
|
|
|
1,337
|
|
|
|
1,940
|
|
|
|
1,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of assumed exercise of stock options and RSUs
|
|
|
|
|
|
|
3,270
|
|
|
|
5,459
|
|
|
|
3,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, assuming dilution
|
|
|
77,691
|
|
|
|
79,548
|
|
|
|
82,717
|
|
|
|
79,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/earnings per share, diluted
|
|
$
|
(0.03
|
)
|
|
$
|
0.04
|
|
|
$
|
0.44
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding stock options and RSUs excluded as impact would be anti-dilutive
|
|
|
7,232
|
|
|
|
296
|
|
|
|
219
|
|
|
|
368
|
|
In periods of loss, all equity awards are excluded, as the inclusion of any equity awards would be anti-dilutive.
12. GEOGRAPHIC INFORMATION AND MAJOR CLIENTS
Geographic Information
Operating segments are
defined as components of an enterprise, about which separate financial information is available that is evaluated regularly by the chief operating decision maker (CODM) in deciding how to allocate resources and in assessing performance.
The Company develops and licenses software applications for customer engagement and its Pega
®
Platform, and provides consulting services, maintenance, and training related to its offerings. The Company derives substantially all of its revenue from the sale and support of one group of similar products and servicessoftware that provides
case management, business process management, and real-time decisioning solutions to improve customer engagement and operational excellence in the enterprise applications market. To assess performance, the Companys CODM, who is the chief
executive officer, reviews financial information on a consolidated basis. Therefore, the Company determined it has one reportable segmentCustomer Engagement Solutions and one reporting unit.
The Companys international revenue, based upon the clients location, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
U.S.
|
|
$
|
95,087
|
|
|
|
53
|
%
|
|
$
|
111,274
|
|
|
|
61
|
%
|
|
$
|
351,330
|
|
|
|
59
|
%
|
|
$
|
308,049
|
|
|
|
56
|
%
|
Other Americas
|
|
|
8,722
|
|
|
|
5
|
%
|
|
|
7,952
|
|
|
|
4
|
%
|
|
|
30,243
|
|
|
|
5
|
%
|
|
|
49,494
|
|
|
|
9
|
%
|
U.K.
|
|
|
18,485
|
|
|
|
10
|
%
|
|
|
21,490
|
|
|
|
12
|
%
|
|
|
68,003
|
|
|
|
11
|
%
|
|
|
77,181
|
|
|
|
14
|
%
|
Other EMEA
(1)
|
|
|
28,100
|
|
|
|
16
|
%
|
|
|
23,656
|
|
|
|
13
|
%
|
|
|
76,958
|
|
|
|
13
|
%
|
|
|
67,314
|
|
|
|
12
|
%
|
Asia Pacific
|
|
|
29,421
|
|
|
|
16
|
%
|
|
|
18,430
|
|
|
|
10
|
%
|
|
|
74,508
|
|
|
|
12
|
%
|
|
|
48,618
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
179,815
|
|
|
|
100
|
%
|
|
$
|
182,802
|
|
|
|
100
|
%
|
|
$
|
601,042
|
|
|
|
100
|
%
|
|
$
|
550,656
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes Europe, the Middle East and Africa, but excludes the United Kingdom.
|
13
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Major Clients
Clients accounting for 10% or more of the Companys total revenue were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Total revenue
|
|
$
|
179,815
|
|
|
$
|
182,802
|
|
|
$
|
601,042
|
|
|
$
|
550,656
|
|
Client A
|
|
|
10.6
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
*
|
Client accounted for less than 10% of total revenue.
|
Clients accounting for 10% or more of the
Companys total trade accounts receivable were as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Total trade accounts receivable
|
|
|
197,350
|
|
|
|
269,154
|
|
Client A
|
|
|
12.4
|
%
|
|
|
*
|
|
*
|
Client accounted for less than 10% of total trade account receivable
|
14
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forward-Looking Statements
This Quarterly Report on Form
10-Q
contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements about our future
financial performance and business plans, the adequacy of our liquidity and capital resources, the continued payment of quarterly dividends by the Company, and the timing of revenue recognition under license and cloud arrangements and are described
more completely in Part I of our Annual Report on Form
10-K
for the year ended December 31, 2016.
These
forward-looking statements are based on current expectations, estimates, forecasts, and projections about the industry and markets in which we operate, and managements beliefs and assumptions. In addition, other written or oral statements that
constitute forward-looking statements may be made by us or on our behalf. Words such as expect, anticipate, intend, plan, believe, could, estimate, may,
target, strategy, is intended to, project, guidance, likely, usually, or variations of such words and similar expressions are intended to identify such
forward-looking statements.
These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are
difficult to predict. Important factors that could cause actual future activities and results to differ materially from those expressed in such forward-looking statements include, among others, variation in demand for our products and services and
the difficulty in predicting the completion of product acceptance and other factors affecting the timing of license revenue recognition; reliance on third party relationships; the potential loss of vendor specific objective evidence for our
consulting services; the inherent risks associated with international operations and the continued uncertainties in international economies; the Companys continued effort to market and sell both domestically and internationally; foreign
currency exchange rates; the financial impact of any future acquisitions; the potential legal and financial liabilities and reputation damage due to cyber-attacks and security breaches; and management of the Companys growth. These risks, and
other factors that could cause actual results to differ materially from those expressed in such forward-looking statements, are described more completely in Part I of the Companys Annual Report on Form
10-K
for the year ended December 31, 2016 as well as other filings we make with the Securities and Exchange Commission
We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks. New
information, future events or risks may cause the forward-looking events we discuss in this report not to occur or to materially change.
Business
overview
We develop, market, license, and support software applications for marketing, sales, service, and operations. In addition, we license our
Pega
®
Platform for clients that wish to build and extend their own applications. The Pega Platform assists our clients in building, deploying, and evolving enterprise applications, creating an
environment in which business and IT can collaborate to manage back office operations, front office sales, marketing, and/or customer service needs. We also provide consulting services, maintenance, and training for our software. Our software
applications and Pega Platform can be deployed on Pega, partner, or customer-managed cloud architectures.
Our clients include Global 3000 companies and
government agencies that seek to manage complex enterprise systems and customer service issues with greater agility and cost-effectiveness. Our strategy is to sell a client a series of licenses, each focused on a specific purpose or area of
operations in support of longer term enterprise-wide digital transformation initiatives.
Our license revenue is primarily derived from sales of our
applications and our Pega Platform. Our cloud revenue is derived from the licensing of our hosted Pega Platform and software application environments. Our consulting services revenue is primarily related to new license implementations.
Financial and Performance Metrics
Management evaluates
our financial performance, based a number of select financial and performance metrics. The performance metrics are periodically reviewed and revised to reflect any changes in our business. Historically, Recurring Revenue and License and Cloud
Backlog have been our primary performance metrics. However, due to the change in the revenue recognition patterns of term license arrangements as a result of the expected implementation of the new revenue accounting standard (See Note 2) in the
first quarter of 2018, we have started tracking Annual Contract Value (ACV), a new performance measure.
15
Select Financial Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands,
except per share amounts)
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Total revenue
|
|
$
|
179,815
|
|
|
$
|
182,802
|
|
|
|
(2,987
|
)
|
|
|
(2
|
)%
|
|
$
|
601,042
|
|
|
$
|
550,656
|
|
|
$
|
50,386
|
|
|
|
9
|
%
|
Operating margin
|
|
|
(8
|
)%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
3
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
Diluted (loss)/earnings per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.07
|
)
|
|
|
(175
|
)%
|
|
$
|
0.44
|
|
|
$
|
0.23
|
|
|
$
|
0.21
|
|
|
|
91
|
%
|
Cash flow provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,926
|
|
|
|
20,556
|
|
|
|
93,370
|
|
|
|
454
|
%
|
Select Performance Metrics
Annual Contract Value (ACV)
The change
in ACV measures the growth and predictability of future cash flows from committed term license, cloud, and maintenance arrangements as of the end of the particular reporting period.
ACV is the sum of the following two components:
|
|
|
Term and Cloud contract value divided by the number of committed contract years
|
|
|
|
Quarterly Maintenance revenue reported for the current three months ended period multiplied by 4.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Term License and Cloud ACV
|
|
$
|
200,180
|
|
|
$
|
163,408
|
|
|
$
|
36,772
|
|
|
|
23
|
%
|
Maintenance ACV
|
|
|
248,816
|
|
|
|
220,152
|
|
|
$
|
28,664
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term License, Cloud and Maintenance ACV
|
|
$
|
448,996
|
|
|
$
|
383,560
|
|
|
$
|
65,436
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Recurring Revenue
A measure of the predictability and repeatability of our revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Recurring revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term license
|
|
$
|
21,678
|
|
|
$
|
28,919
|
|
|
$
|
(7,241
|
)
|
|
|
(25
|
)%
|
|
$
|
106,170
|
|
|
$
|
102,115
|
|
|
$
|
4,055
|
|
|
|
4
|
%
|
Maintenance
|
|
|
62,204
|
|
|
|
55,038
|
|
|
$
|
7,166
|
|
|
|
13
|
%
|
|
|
180,759
|
|
|
|
163,174
|
|
|
$
|
17,585
|
|
|
|
11
|
%
|
Cloud
|
|
|
13,354
|
|
|
|
10,873
|
|
|
$
|
2,481
|
|
|
|
23
|
%
|
|
|
36,914
|
|
|
|
30,640
|
|
|
$
|
6,274
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring revenue
|
|
$
|
97,236
|
|
|
$
|
94,830
|
|
|
$
|
2,406
|
|
|
|
3
|
%
|
|
$
|
323,843
|
|
|
$
|
295,929
|
|
|
$
|
27,914
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue as a percent of total revenue
|
|
|
54
|
%
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
54
|
%
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
License and Cloud Backlog
A measure of the continued growth of our business as a result of future contractual commitments by our clients.
License and Cloud Backlog is the sum of the following two components:
|
|
|
Deferred license and cloud revenue as recorded on the Companys balance sheet. (See Note 9 Deferred Revenue)
|
|
|
|
License and cloud contractual commitments, which are not recorded on our balance sheet because we have not yet invoiced our clients, nor have we recognized the associated revenue. (See Future Cash Receipts from
Committed License and Cloud Arrangements which can be found in Liquidity and Capital Resources contained elsewhere in this Quarterly Report on Form
10-Q
for additional information)
|
License and cloud backlog may vary in any given period depending on the amount and timing of when the arrangements are executed, as well as
the mix between perpetual, term, and cloud license arrangements, which may depend on our clients deployment preferences. A change in the mix may cause our revenues to vary materially from period to period. A higher proportion of term and cloud
license arrangements executed will generally result in revenue being recognized over longer periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Deferred license and cloud revenue on the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term license and cloud
|
|
$
|
25,658
|
|
|
|
51
|
%
|
|
$
|
19,627
|
|
|
|
42
|
%
|
|
|
31
|
%
|
Perpetual license
|
|
|
24,929
|
|
|
|
49
|
%
|
|
|
27,653
|
|
|
|
58
|
%
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred license and cloud revenue
|
|
|
50,587
|
|
|
|
100
|
%
|
|
|
47,280
|
|
|
|
100
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License and cloud contractual commitments not on the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term license and cloud
|
|
|
450,535
|
|
|
|
91
|
%
|
|
|
352,804
|
|
|
|
94
|
%
|
|
|
28
|
%
|
Perpetual license
|
|
|
46,459
|
|
|
|
9
|
%
|
|
|
23,483
|
|
|
|
6
|
%
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license and cloud commitments
|
|
|
496,994
|
|
|
|
100
|
%
|
|
|
376,287
|
|
|
|
100
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license (term and perpetual) and cloud backlog
|
|
$
|
547,581
|
|
|
|
|
|
|
$
|
423,567
|
|
|
|
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total term license and cloud backlog
|
|
|
476,193
|
|
|
|
87
|
%
|
|
|
372,431
|
|
|
|
88
|
%
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Critical accounting policies
Managements Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. and the rules and regulations of the SEC for interim financial reporting. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of
current conditions, and expectations of what could occur in the future given available information.
There have been no changes in our critical accounting
policies as disclosed in our Annual Report on Form
10-K
for the year ended December 31, 2016. For more information regarding our critical accounting policies, we encourage you to read the discussion
contained in Item 7 under the heading Critical Accounting Estimates and Significant Judgments and Note 2 Significant Accounting Policies included in the notes to the Consolidated Financial Statements contained in our
Annual Report on Form
10-K
for the year ended December 31, 2016.
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Total revenue
|
|
$
|
179,815
|
|
|
$
|
182,802
|
|
|
$
|
(2,987
|
)
|
|
|
(2
|
)%
|
|
$
|
601,042
|
|
|
$
|
550,656
|
|
|
$
|
50,386
|
|
|
|
9
|
%
|
Gross profit
|
|
$
|
110,084
|
|
|
$
|
122,365
|
|
|
$
|
(12,281
|
)
|
|
|
(10
|
)%
|
|
$
|
395,346
|
|
|
$
|
373,609
|
|
|
$
|
21,737
|
|
|
|
6
|
%
|
Total operating expenses
|
|
$
|
124,373
|
|
|
$
|
116,867
|
|
|
$
|
7,506
|
|
|
|
6
|
%
|
|
$
|
376,647
|
|
|
$
|
347,626
|
|
|
$
|
29,021
|
|
|
|
8
|
%
|
(Loss)/income from operations
|
|
$
|
(14,289
|
)
|
|
$
|
5,498
|
|
|
$
|
(19,787
|
)
|
|
|
(360
|
)%
|
|
$
|
18,699
|
|
|
$
|
25,983
|
|
|
$
|
(7,284
|
)
|
|
|
(28
|
)%
|
Operating margin
|
|
|
(8
|
)%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
3
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
(Loss)/income before (benefit)/provision for income taxes
|
|
$
|
(14,697
|
)
|
|
$
|
5,515
|
|
|
$
|
(20,212
|
)
|
|
|
(366
|
)%
|
|
$
|
18,663
|
|
|
$
|
24,506
|
|
|
$
|
(5,843
|
)
|
|
|
(24
|
)%
|
Revenue
Software license revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Perpetual license
|
|
$
|
20,115
|
|
|
|
48
|
%
|
|
$
|
39,914
|
|
|
|
58
|
%
|
|
$
|
(19,799
|
)
|
|
|
(50
|
)%
|
|
$
|
89,050
|
|
|
|
46
|
%
|
|
$
|
105,734
|
|
|
|
51
|
%
|
|
($
|
16,684
|
)
|
|
|
(16
|
)%
|
Term license
|
|
|
21,678
|
|
|
|
52
|
%
|
|
|
28,919
|
|
|
|
42
|
%
|
|
|
(7,241
|
)
|
|
|
(25
|
)%
|
|
|
106,170
|
|
|
|
54
|
%
|
|
|
102,115
|
|
|
|
49
|
%
|
|
|
4,055
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license revenue
|
|
$
|
41,793
|
|
|
|
100
|
%
|
|
$
|
68,833
|
|
|
|
100
|
%
|
|
$
|
(27,040
|
)
|
|
|
(39
|
)%
|
|
$
|
195,220
|
|
|
|
100
|
%
|
|
$
|
207,849
|
|
|
|
100
|
%
|
|
($
|
12,629
|
)
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The mix between perpetual and term license arrangements executed in a particular period varies based on
clients deployment preferences. A change in the mix may cause our revenues to vary materially from period to period. A higher proportion of term license arrangements executed will generally result in license revenue being recognized over
longer periods. Additionally, some of our perpetual license arrangements include extended payment terms or additional rights of use, which may also result in the recognition of revenue over longer periods.
The decrease in perpetual license revenue in the three months ended September 30, 2017 was primarily due to a decrease in the average value of perpetual
arrangements executed and a lower percentage of perpetual arrangements executed and recognized in revenue in the current period. The decrease in perpetual license revenue in the nine months ended September 30, 2017 was primarily due to a lower
percentage of perpetual arrangements executed and recognized in revenue.
The decrease in term license revenue in the three months ended
September 30, 2017 was primarily due to a large term license renewal for which the second year of the term was recognized as revenue in the three months ended September 30, 2016. If the second year of this term license arrangement was not
paid in advance in the three months ended September 30, 2016, term license revenue would have decreased 2%. The increase in term license revenue in the nine months ended September 30, 2017 was primarily due to broad based growth amongst
new and existing customers offset by a large term license arrangement which was prepaid and recognized in revenue in the three months ended March 31, 2016. If this term license arrangement was not prepaid and recognized in revenue in the three
months ended March 31, 2016 term license revenue would have increased 26%.
The aggregate value of future revenue expected to be recognized during
the remainder of the year under existing noncancellable perpetual arrangements not reflected in deferred revenue was $13.3 million as of September 30, 2017 compared to $3.9 million as of September 30, 2016.
The aggregate value of future revenue expected to be recognized during the remainder of the year under existing noncancellable term and cloud arrangements not
reflected in deferred revenue was $37.7 million as of September 30, 2017 compared to $26.7 million as of September 30, 2016. For additional information see Future Cash Receipts from Committed License and Cloud
Arrangements which can be found in Liquidity and Capital Resources.
Maintenance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Maintenance
|
|
$
|
62,204
|
|
|
$
|
55,038
|
|
|
$
|
7,166
|
|
|
|
13
|
%
|
|
$
|
180,759
|
|
|
$
|
163,174
|
|
|
$
|
17,585
|
|
|
|
11
|
%
|
The increases were primarily due to the continued growth in the aggregate value of the installed base of our software and
strong renewal rates significantly in excess of 90%.
Services revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Consulting services
|
|
$
|
61,535
|
|
|
|
81
|
%
|
|
$
|
46,829
|
|
|
|
80
|
%
|
|
$
|
14,706
|
|
|
|
31
|
%
|
|
$
|
183,447
|
|
|
|
82
|
%
|
|
$
|
144,263
|
|
|
|
80
|
%
|
|
$
|
39,184
|
|
|
|
27
|
%
|
Cloud
|
|
|
13,354
|
|
|
|
18
|
%
|
|
|
10,873
|
|
|
|
18
|
%
|
|
|
2,481
|
|
|
|
23
|
%
|
|
|
36,914
|
|
|
|
16
|
%
|
|
|
30,640
|
|
|
|
17
|
%
|
|
|
6,274
|
|
|
|
20
|
%
|
Training
|
|
|
929
|
|
|
|
1
|
%
|
|
|
1,229
|
|
|
|
2
|
%
|
|
|
(300
|
)
|
|
|
(24
|
)%
|
|
|
4,702
|
|
|
|
2
|
%
|
|
|
4,730
|
|
|
|
3
|
%
|
|
|
(28
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services
|
|
$
|
75,818
|
|
|
|
100
|
%
|
|
$
|
58,931
|
|
|
|
100
|
%
|
|
$
|
16,887
|
|
|
|
29
|
%
|
|
$
|
225,063
|
|
|
|
100
|
%
|
|
$
|
179,633
|
|
|
|
100
|
%
|
|
$
|
45,430
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting services revenue is primarily generated from new license implementations. Our consulting services revenue may
fluctuate in future periods depending on the mix of new implementation projects we perform as compared to those performed by our enabled clients or led by our partners.
The increases in consulting services revenue were primarily due to higher billable hours during the three and nine months ended September 30, 2017 driven
by a large project which began in the second half of 2016.
Cloud revenue represents revenue from our Pega Cloud offerings. The increases in cloud revenue
were primarily due to continued growth of our cloud client base.
19
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Software license
|
|
$
|
40,517
|
|
|
$
|
67,520
|
|
|
$
|
(27,003
|
)
|
|
|
(40
|
)%
|
|
$
|
191,394
|
|
|
$
|
204,203
|
|
|
$
|
(12,809
|
)
|
|
|
(6
|
)%
|
Maintenance
|
|
|
55,488
|
|
|
|
48,379
|
|
|
|
7,109
|
|
|
|
15
|
%
|
|
|
159,814
|
|
|
|
144,285
|
|
|
|
15,529
|
|
|
|
11
|
%
|
Services
|
|
|
14,079
|
|
|
|
6,466
|
|
|
|
7,613
|
|
|
|
118
|
%
|
|
|
44,138
|
|
|
|
25,121
|
|
|
|
19,017
|
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
110,084
|
|
|
$
|
122,365
|
|
|
$
|
(12,281
|
)
|
|
|
(10
|
)%
|
|
$
|
395,346
|
|
|
$
|
373,609
|
|
|
$
|
21,737
|
|
|
|
6
|
%
|
Software license gross profit %
|
|
|
97
|
%
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
98
|
%
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
Maintenance gross profit %
|
|
|
89
|
%
|
|
|
88
|
%
|
|
|
|
|
|
|
|
|
|
|
88
|
%
|
|
|
88
|
%
|
|
|
|
|
|
|
|
|
Services gross profit %
|
|
|
19
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
20
|
%
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit %
|
|
|
61
|
%
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
66
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
The decrease in total gross profit in the three months ended September 30, 2017 was primarily due to a shift in the mix
of license arrangements executed from perpetual to term licenses and an increase in lower margin services revenue.
The increase in total gross profit in
the nine months ended September 30, 2017 was primarily due to increased total revenue.
The increases in service gross profit percent in the three
and nine months ended September 30, 2017 was driven by a large project which began in the second half of 2016 and several additional large projects for which costs were recognized in 2016 but whose associated revenue was not recognized until
after September 30, 2016.
Operating expenses
Selling and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Selling and marketing
|
|
$
|
70,209
|
|
|
$
|
67,032
|
|
|
$
|
3,177
|
|
|
|
5
|
%
|
|
$
|
217,384
|
|
|
$
|
202,126
|
|
|
$
|
15,258
|
|
|
|
8
|
%
|
As a percent of total revenue
|
|
|
39
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
36
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
Selling and marketing headcount, end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
934
|
|
|
|
875
|
|
|
|
59
|
|
|
|
7
|
%
|
Selling and marketing expenses include compensation, benefits, and other headcount-related expenses associated with our
selling and marketing personnel as well as advertising, promotions, trade shows, seminars, and other programs. Selling and marketing expenses also include the amortization of customer related intangibles.
The increase in the three months ended September 30, 2017 was primarily due to an increase in compensation and benefits of $1.8 million, driven by
increased headcount and equity compensation, partially offset by a decrease in sales commissions associated with the lower value of new license arrangements executed during the three months ended September 30, 2017.
The increase in the nine months ended September 30, 2017 was primarily due to an increase in compensation and benefits of $12.7 million,
respectively, driven by increased headcount and equity compensation, and an increase in employee travel and entertainment, partially offset by a decrease in brand marketing program expenses of $2.2 million.
The increase in headcount reflects our efforts to increase our sales capacity to target new accounts in existing industries, as well as to expand coverage in
new industries and geographies and to increase the number of sales opportunities.
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Research and development
|
|
$
|
41,031
|
|
|
$
|
38,036
|
|
|
$
|
2,995
|
|
|
|
8
|
%
|
|
$
|
121,089
|
|
|
$
|
108,530
|
|
|
$
|
12,559
|
|
|
|
12
|
%
|
As a percent of total revenue
|
|
|
23
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
Research and Development headcount, end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,474
|
|
|
|
1,437
|
|
|
|
37
|
|
|
|
3
|
%
|
20
Research and development expenses include compensation, benefits, contracted services, and other
headcount-related expenses associated with the creation and development of our products, as well as enhancements and design changes to existing products and integration of acquired technologies.
The increases in the three and nine months ended September 30, 2017 were primarily due to increases in compensation and benefits of $2.9 million and
$12.6 million, respectively, attributable to increased headcount and equity compensation.
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
General and administrative
|
|
$
|
13,133
|
|
|
$
|
11,725
|
|
|
$
|
1,408
|
|
|
|
12
|
%
|
|
$
|
38,174
|
|
|
$
|
34,067
|
|
|
$
|
4,107
|
|
|
|
12
|
%
|
As a percent of total revenue
|
|
|
7
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
General and administrative headcount, end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407
|
|
|
|
371
|
|
|
|
36
|
|
|
|
10
|
%
|
General and administrative expenses include compensation, benefits, and other headcount-related expenses associated with
finance, legal, corporate governance, and other administrative headcount. They also include accounting, legal, and other professional consulting and administrative fees. The general and administrative headcount includes employees in human resources,
information technology, and corporate services departments, whose costs are partially allocated to other operating expense areas.
The increases in the
three and nine months ended September 30, 2017 were primarily due to increases in compensation and benefits of $0.4 million and $4 million, respectively, attributable to increased headcount and equity compensation. The increase in the
nine months ended September 30, 2017 was partially offset by a decrease of $1.5 million in legal fees.
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Cost of revenues
|
|
$
|
3,613
|
|
|
$
|
3,117
|
|
|
$
|
496
|
|
|
|
16
|
%
|
|
$
|
10,913
|
|
|
$
|
8,711
|
|
|
$
|
2,202
|
|
|
|
25
|
%
|
Selling and marketing
|
|
|
3,976
|
|
|
|
3,468
|
|
|
|
508
|
|
|
|
15
|
%
|
|
|
11,482
|
|
|
|
9,395
|
|
|
|
2,087
|
|
|
|
22
|
%
|
Research and development
|
|
|
3,420
|
|
|
|
2,260
|
|
|
|
1,160
|
|
|
|
51
|
%
|
|
|
10,306
|
|
|
|
7,480
|
|
|
|
2,826
|
|
|
|
38
|
%
|
General and administrative
|
|
|
2,480
|
|
|
|
1,983
|
|
|
|
497
|
|
|
|
25
|
%
|
|
|
7,228
|
|
|
|
4,706
|
|
|
|
2,522
|
|
|
|
54
|
%
|
Acquisition-related
|
|
|
|
|
|
|
(10
|
)
|
|
|
10
|
|
|
|
(100
|
)%
|
|
|
|
|
|
|
342
|
|
|
|
(342
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation before tax
|
|
$
|
13,489
|
|
|
$
|
10,818
|
|
|
$
|
2,671
|
|
|
|
25
|
%
|
|
$
|
39,929
|
|
|
$
|
30,634
|
|
|
$
|
9,295
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
(4,129
|
)
|
|
$
|
(3,227
|
)
|
|
$
|
(902
|
)
|
|
|
28
|
%
|
|
$
|
(12,231
|
)
|
|
$
|
(8,917
|
)
|
|
$
|
(3,314
|
)
|
|
|
37
|
%
|
The increases were primarily due to the increased value of our annual periodic equity awards granted in March 2016 and 2017.
These awards generally have a five-year vesting schedule.
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Cost of revenue
|
|
$
|
1,232
|
|
|
$
|
1,642
|
|
|
$
|
(410
|
)
|
|
|
(25
|
)%
|
|
$
|
3,871
|
|
|
$
|
4,626
|
|
|
$
|
(755
|
)
|
|
|
(16
|
)%
|
Selling and marketing
|
|
|
1,873
|
|
|
|
1,867
|
|
|
|
6
|
|
|
|
|
%
|
|
|
5,608
|
|
|
|
5,274
|
|
|
|
334
|
|
|
|
6
|
%
|
General and administrative
|
|
|
|
|
|
|
90
|
|
|
|
(90
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
268
|
|
|
|
(268
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,105
|
|
|
$
|
3,599
|
|
|
$
|
(494
|
)
|
|
|
(14
|
)%
|
|
$
|
9,479
|
|
|
$
|
10,168
|
|
|
$
|
(689
|
)
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decreases in amortization of intangibles in the three and nine months ended September 30, 2017 were due to the
amortization in full of certain intangibles acquired through past acquisitions.
21
Non-operating
(expense)/income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Foreign currency transaction (loss)/gain
|
|
$
|
(552
|
)
|
|
$
|
1,082
|
|
|
$
|
(1,634
|
)
|
|
|
n/m
|
|
|
$
|
(793
|
)
|
|
$
|
2,764
|
|
|
$
|
(3,557
|
)
|
|
|
n/m
|
|
Interest income, net
|
|
|
144
|
|
|
|
172
|
|
|
$
|
(28
|
)
|
|
|
(16
|
)%
|
|
|
470
|
|
|
|
650
|
|
|
|
(180
|
)
|
|
|
(28
|
)%
|
Other (expense)/income, net
|
|
|
|
|
|
|
(1,237
|
)
|
|
$
|
1,237
|
|
|
|
(100
|
)%
|
|
|
287
|
|
|
|
(4,891
|
)
|
|
|
5,178
|
|
|
|
n/m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(408
|
)
|
|
$
|
17
|
|
|
$
|
(425
|
)
|
|
|
n/m
|
|
|
$
|
(36
|
)
|
|
$
|
(1,477
|
)
|
|
$
|
1,441
|
|
|
|
(98
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/m - not meaningful
In
May 2017, we discontinued our forward contracts program; however, we will continue to evaluate periodically our foreign exchange exposures and may
re-initiate
this program if it is deemed necessary.
Historically, we have used foreign currency forward contracts (forward contracts) to hedge our exposure to fluctuations in foreign currency
exchange rates associated with our foreign currency denominated cash, accounts receivable, and intercompany receivables and payables held primarily by the U.S. parent company and its United Kingdom (U.K.) subsidiary. See Note 4
Derivative Instruments of this Quarterly Report on Form 10-Q for additional information.
The total change in the fair value of our foreign
currency forward contracts recorded in other income (expense), net, during the three months ended September 30, 2016 was a loss of $1.2 million. The total change in the fair value of our foreign currency forward contracts recorded in other
(expense)/income, net, during the nine months ended September 30, 2017 and 2016 was a gain of $0.3 million and a loss of $5 million, respectively.
(Benefit)/provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
(Benefit)/provision for income taxes
|
|
$
|
(12,885
|
)
|
|
$
|
2,214
|
|
|
$
|
(15,099
|
)
|
|
|
n/m
|
|
|
$
|
(17,952
|
)
|
|
$
|
6,269
|
|
|
$
|
(24,221
|
)
|
|
|
n/m
|
|
Effective income tax rate
|
|
|
88
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
(96
|
)%
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
n/m - not meaningful
The
(benefit)/provision for income taxes represents current and future amounts for federal, state, and foreign taxes.
The increase in the effective income
tax rate in the three months ended September 30, 2017 is primarily due to the significant increase of $3.5 million in excess tax benefits generated by our stock compensation plans on significantly lower income before (benefit)/provision
for income taxes, which decreased by $20.2 million.
The decrease in the effective income tax rate in the nine months ended September 30, 2017
is primarily due to the significant increase of $19.1 million in excess tax benefits generated by our stock compensation plans, on significantly lower income before (benefit)/provision for income taxes, which decreased by $5.8 million.
The inclusion of excess tax benefits as a component of the provision for income taxes may increase volatility in the effective tax rates of future
periods as the amount of excess tax benefits from share-based compensation awards varies depending on our future stock price in relation to the fair value of awards, the timing of RSU vesting and exercise behavior of our stock option holders, and
the total value of future grants of share-based compensation awards.
22
Liquidity and capital resources
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
113,926
|
|
|
$
|
20,556
|
|
Investing activities
|
|
|
(11,966
|
)
|
|
|
(2,859
|
)
|
Financing activities
|
|
|
(44,040
|
)
|
|
|
(43,031
|
)
|
Effect of exchange rate on cash
|
|
|
2,054
|
|
|
|
(1,309
|
)
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
$
|
59,974
|
|
|
$
|
(26,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Total cash, cash equivalents, and marketable securities
|
|
$
|
194,380
|
|
|
$
|
133,761
|
|
We believe that our current cash, cash equivalents, marketable securities, and cash flow from operations will be sufficient to
fund our operations, our dividend payments, and our share repurchase program for at least the next 12 months.
As of September 30, 2017,
approximately $61.1 million of our cash and cash equivalents was held in our foreign subsidiaries. If it becomes necessary to repatriate these funds, we may be required to pay U.S. tax, net of any applicable foreign tax credits, upon
repatriation. We consider the earnings of our foreign subsidiaries to be permanently reinvested and, as a result, U.S. taxes on such earnings are not provided. It is impractical to estimate the amount of U.S. tax we may be required to pay upon
repatriation due to the complexity of the foreign tax credit calculations. There can be no assurance that changes in our plans or other events affecting our operations will not result in materially accelerated or unexpected expenditures.
Cash provided by operating activities
The primary
drivers during the nine months ended September 30, 2017 were net income of $36.6 million and $80.6 million from trade accounts receivable, largely due to increased cash collections and the timing of billings.
The primary driver during the nine months ended September 30, 2016 was net income of $18.2 million.
Future Cash Receipts from Committed License and Cloud Arrangements
As of September 30, 2017, none of the amounts shown in the table below had been billed and no revenue had been recognized.
The below amounts for 2018 and subsequent periods may not be recognized in the periods shown below as a result of the adoption of the new revenue recognition
standard (ASC 606). (See Note 2. New Accounting Pronouncements contained elsewhere in this Quarterly Report on Form
10-Q
for additional information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
(in thousands)
|
|
Term and cloud
contracts
|
|
|
Perpetual contracts
(1)
|
|
|
Total
|
|
Remainder of 2017
|
|
$
|
37,723
|
|
|
$
|
13,274
|
|
|
$
|
50,997
|
|
2018
|
|
|
150,629
|
|
|
|
21,213
|
|
|
|
171,842
|
|
2019
|
|
|
125,165
|
|
|
|
10,033
|
|
|
|
135,198
|
|
2020
|
|
|
85,939
|
|
|
|
1,572
|
|
|
|
87,511
|
|
2021
|
|
|
38,203
|
|
|
|
367
|
|
|
|
38,570
|
|
2022 and thereafter
|
|
|
12,876
|
|
|
|
|
|
|
|
12,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
450,535
|
|
|
$
|
46,459
|
|
|
$
|
496,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These amounts are for perpetual licenses with extended payment terms and/or additional rights of use.
|
Total
contractual future cash receipts due from our existing license and cloud arrangements were approximately $376.3 million as of September 30, 2016.
23
Cash used in investing activities
During the nine months ended September 30, 2017, we purchased $25.7 million of marketable debt securities and made investments of $9.1 million
in property and equipment, partially offset by proceeds received from maturities of marketable debt securities (including called marketable debt securities) of $23.1 million.
During the nine months ended September 30, 2016, we acquired OpenSpan for $48.8 million, net of cash acquired, and invested $15.3 million
primarily in internally developed software and leasehold improvements at our corporate headquarters, partially offset by proceeds received from the sales of marketable debt securities of $62.3 million.
Cash used in financing activities
We used cash
primarily for repurchases of our common stock, share repurchases for tax withholdings for the net settlement of our equity awards, and the payment of our quarterly dividend.
Since 2004, our Board of Directors has approved annual stock repurchase programs that have authorized the repurchase in the aggregate of up to
$195 million of our common stock. Purchases under these programs have been made on the open market.
The following table is a summary of our
repurchase activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
(in thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Authorization Remaining
Under Publicly Announced
Share Repurchased
Programs
|
|
|
Shares
|
|
|
Amount
|
|
|
Authorization Remaining
Under Publicly Announced
Share Repurchased
Programs
|
|
Balance as of January 1,
|
|
|
|
|
|
|
|
|
|
$
|
39,385
|
|
|
|
|
|
|
|
|
|
|
$
|
40,534
|
|
Authorizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,879
|
|
Repurchase for net settlement of tax under stock-based compensation
|
|
|
682
|
|
|
|
(34,791
|
)
|
|
|
|
|
|
|
414
|
|
|
|
(10,791
|
)
|
|
|
|
|
Repurchases paid under authorized share repurchase program
|
|
|
68
|
|
|
|
(2,986
|
)
|
|
|
(2,986
|
)
|
|
|
1,028
|
|
|
|
(25,530
|
)
|
|
|
(25,530
|
)
|
Repurchases unsettled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
(177
|
)
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Period
|
|
|
750
|
|
|
$
|
(37,777
|
)
|
|
$
|
(2,986
|
)
|
|
|
1,448
|
|
|
$
|
(36,498
|
)
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30,
|
|
|
|
|
|
|
|
|
|
$
|
36,399
|
|
|
|
|
|
|
|
|
|
|
$
|
40,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the share repurchases made under our repurchase programs, we net settled the majority of our employee stock
option exercises and RSU vestings, which resulted in the withholding of shares to cover the option exercise price and the minimum statutory tax withholding obligations.
During the nine months ended September 30, 2017 and 2016, option and RSU holders net settled a total of 2.4 million shares and 1.6 million
shares, respectively, of which only 1.3 million shares and 0.8 million shares, respectively, were issued to the option and RSU holders. The balance of the shares were surrendered to us to pay for the exercise price with respect to options
and the applicable taxes for both options and RSUs. During the nine months ended September 30, 2017 and 2016, instead of receiving cash from the equity holders, we withheld shares with a value of $23.7 million and $10.1 million,
respectively, for the exercise price of options.
Dividends
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
(per share)
|
|
2017
|
|
|
2016
|
|
Dividends Declared
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
Dividends Paid
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
It is our current intention to pay a quarterly cash dividend of $0.03 per share, however, the Board of Directors may terminate
or modify this dividend program at any time without notice.
24