The deteriorating economy and strengthening U.S. dollar hit Cambridge software developer Pegasystems, which reported a surprise drop in second-quarter sales and said it would be below its previous forecast for 2022. The company said it would cut spending by $100 million as a result, but without layoffs.
Revenue fell 16% to $274 million, more than $50 million lower than expected by Wall Street analysts. And analysts expected the company to report 5 cents a share of adjusted earnings. Instead, he lost 38 cents per share.
“This year has proven to be an extremely volatile trading environment,” longtime chief executive Alan Trefler said in a call with analysts. Customers are reducing their orders for Pegasystems software, which is used to automate IT tasks in financial services, healthcare, manufacturing and other industries.
Pegasystems’ stock price fell 15% on Thursday after the deficit was announced and is down 64% this year.
In February, Pegasystems said it expected sales for the year to reach nearly $1.5 billion, growing to $280 million, or 24%, from 2021. It now expects growth $160 million or less, an increase of just 13%.
“This quarter appears to be the first shoe to fall in Pega’s history fundamentally and we are concerned that more pain may occur as we were surprised by the degree of difficulty in closing deals during the quarter,” noted l analyst Daniel Ives of Wedbush Securities.
The company is not alone among software companies to suffer from the weak economy. Microsoft’s revenue rose just 12% in the second quarter, less than analysts expected and the slowest growth rate in two years. Google Chief Executive Sundar Pichai said it was slowing hiring amid slowing sales growth, and Apple was also cutting spending.
With Pegasystems’ sales falling short of expectations, chief financial officer Ken Stillwell said the company is looking to cut spending for the rest of the year to lessen the impact on profitability.
The company will seek to reduce operating costs and corporate structure, Stillwell said. “However, there are no plans for corporate downsizing, property closures or other drastic measures,” Stillwell said in an email. “We will continue to hire, but we will carefully assess the needs for new positions or replacements.”
The company started the year with 6,133 employees, up 6% from the start of 2021.
Pegasystems gave no update on its legal battle with rival software developer Appian. In May, a Virginia jury awarded Appian $2 billion in damages for stolen trade secrets. Pegasystems is seeking to overturn the verdict, and both parties have filed various lawsuits with the court over the past two months.
Aaron Pressman can be contacted at aaron.pressman@globe.com. Follow him on Twitter @ampressman.
