Cambridge software developer slashes expenses amid sales

The worsening economy and strengthening US dollar hit Cambridge software developer Pegasystems, which posted a surprise drop in sales for the second quarter and said it would fall short of its prior 2022 forecast. The company said it would slash its expenses by $100 million as a result — but without layoffs.

Revenue decreased by 16 percent to $274 million, more than $50 million less than Wall Street analysts expected. And analysts expected the company would report 5 cents per share of adjusted earnings. Instead, it lost 38 cents per share.

“This year has turned out to be an extremely volatile business environment,” longtime chief executive Alan Trefler said on a call with analysts. Customers are scaling back orders for Pegasystems’ software, which is used to automate computer tasks in financial services, healthcare, manufacturing, and other industries.

Pegasystems’ stock price dropped 15 percent on Thursday after the shortfall announcement and is down 64 percent this year.

In February, Pegasystems said it expected sales for the year to reach almost $1.5 billion, increasing by as much as $280 million, or 24 percent, from 2021. Now it forecasts growth of $160 million or less, only a 13 percent increase.

“This quarter appears to be the first shoe to drop in the Pega story fundamentally and we fear more pain could be ahead as we were surprised by the degree of difficulty closing deals in the quarter,” analyst Daniel Ives at Wedbush Securities noted.

The company is hardly alone among software companies suffering in the weak economy. Microsoft’s revenue increased only 12 percent in the second quarter, less than analysts expected and the slowest rate of growth in two years. Google chief executive Sundar Pichai said he’s slowing hiring amid slower sales growth, and Apple is also paring its expenses.

With Pegasystems sales falling short of expectations, chief financial officer Ken Stillwell said the company was seeking to slash expenses for the rest of the year to reduce the hit to profitability.

The company will look for cuts in operating costs and business structure, Stillwell said. “However there are no plans for a staff cutback across the company, real estate closings, or other drastic measures,” Stillwell said in an e-mail. “We will continue to hire, however will be carefully evaluating needs for new positions or replacements.”

The company started the year with 6,133 employees, up 6 percent from the beginning of 2021.

Pegasystems gave no update on its legal battle with rival software developer Appian. In May, a jury in Virginia awarded Appian $2 billion in damages over stolen trade secrets. Pegasystems is seeking to overturn the verdict, and both sides have filed various legal motions with the court in the past two months.

Aaron Pressman can be reached at [email protected] Follow him on Twitter @ampressman.