Pegasystems Earnings: Blowout Period and Good Outlook Drive Big Increase in Margin Assumptions

No-moat Pegasystems reported fourth-quarter results significantly above our expectations for revenue and profitability. Its flagship product, Pega Cloud, achieved strong growth in annual contract value, or ACV, along with margin growth beginning to show as the firm’s subscription model transition wraps up. The two headcount reductions that Pegasystems undertook during the year have clearly been effective as gross margin was ahead of our expectations while operating expenses were well below. Management credits bringing its sales and client success teams together and placing an emphasis on cross-selling and upselling existing customers. We think the firm's outstanding quarter indicates a strong product and appropriate strategy decisions, and believe this can be the beginning of a new chapter for Pegasystems as financial results normalize upon the completion of its model transition.