Shares in Pegasystems Inc. fell slightly in late trading today after the business process management software provider reported mixed earnings results.

For its first quarter ended March 31, Pegasystems reported earnings before costs such as stock compensation of 23 cents per share, down 61% from 59 cents per share in the same quarter of last year. Revenue fell 14% from a year ago, to $352.47 million. Analysts had been expecting adjusted earnings of 38 cents per share and revenue of $349.74 million.

The mixed headline results were reflected in Pegasystems’ income figures, with the company seeing increased interest in its cloud product while its software licensing headed in the opposite direction. Revenue from the company’s Pega Cloud cloud offering was up 19% year-over-year, to $107.9 million, while its subscription licensing revenue fell 39%, to $84.5 million. Pegasystems also saw a 13% drop in consulting revenue, to $53 million.

The growth in cloud revenue while subscription licensing dropped was part of a move announced by Pegasystems back in 2017 to shift its offerings to the cloud from more traditional software. In the fourth quarter of 2017, when the company announced its cloud transition, its trailing-12-months cloud revenue was just $51 million, compared with $402 million now.

While Pegasystems continues to go through its cloud transformation, the company is also seeing an improvement in key metrics such as operating cash flow, which rose 351% in the quarter, and free cash flow rose 325%. Annual contract value also rose 13%, or 15% on a constant currency basis.

“Our team delivered well on our three most important financial metrics of ACV growth, free cash flow and backlog,” Ken Stillwell, chief operating officer and chief financial officer of Pegasystems, said in the company’s earning release. “There’s great excitement throughout our team on our journey to becoming a Rule of 40 company.” That’s a reference to a general rule of thumb that successful companies’ combined growth rate and profit margins should add up to 40.

For its outlook, Pegasystems said it expects full financial year 2023 adjusted earnings of $1.50 a share on revenue of $1.4 billion. Analysts had expected 62 cents and $1.38 billion.

The surprise outlook was not enough to overcome the earnings miss in the quarter, with Pegasystems shares down about 1.5% in after-hours trading.

Image: Pegasystems