Attached files
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On April 21, 2010, Pegasystems Inc. (“Pegasystems” or “the Company”) acquired Chordiant Software, Inc. (“Chordiant”), a leading provider of customer relationship management software and services. The aggregate purchase consideration was $160 million, which consisted of $156.8 million in cash and stock options with a fair value of $3.2 million.
The following unaudited pro forma condensed combined balance sheet as of March 31, 2010 was prepared as if the acquisition had occurred on that date and combines the Company’s historical unaudited condensed consolidated balance sheet with the historical unaudited condensed consolidated balance sheet of Chordiant as of March 31, 2010. The following unaudited pro forma condensed combined statements of operations for the twelve months ended December 31, 2009 and for the three months ended March 31, 2010 were prepared as if the acquisition had occurred on January 1, 2009 and combine the Company’s historical condensed consolidated statements of operations with Chordiant’s historical unaudited condensed consolidated statements of operations for the twelve months ended December 31, 2009 and for the three months ended March 31, 2010, respectively. Chordiant’s historical statement of operations for the twelve months ended December 31, 2009 has been derived from its audited financial statements for the year ended September 30, 2009 and its unaudited statement of operations for the three months ended December 31, 2009.
The unaudited pro forma combined financial information of the Company and Chordiant is based on estimates and assumptions, which have been made solely for purposes of developing such pro forma information. The estimated pro forma adjustments arising from this completed acquisition are derived from the purchase consideration and preliminary purchase price allocation and do not necessarily represent the final purchase price allocation. The pro forma data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been consummated as of January 1, 2009. The pro forma adjustments included herein reflect only those adjustments that are directly attributable to the Chordiant acquisition and factually determinable, and with respect to the following unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the Company. The unaudited pro forma condensed combined financial statements do not reflect any adjustments for anticipated synergies resulting from the acquisition.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2010
(in thousands)
| Historical Pegasystems |
Historical Chordiant |
Pro Forma Adjustments |
Pro Forma Combined | |||||||||||||
| Assets | ||||||||||||||||
| Current Assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 201,065 | $ | 49,900 | $ | (156,834 | ) | (1) | $ | 94,131 | ||||||
| Marketable securities |
1,000 | — | — | 1,000 | ||||||||||||
| Total cash, cash equivalents, and marketable securities |
202,065 | 49,900 | (156,834 | ) | 95,131 | |||||||||||
| Trade accounts receivable, net |
42,333 | 15,618 | — | 57,951 | ||||||||||||
| Short-term license installments |
2,727 | — | — | 2,727 | ||||||||||||
| Deferred income taxes |
2,481 | 1,221 | 1,307 | (2) | 5,009 | |||||||||||
| Income taxes receivable and other current assets |
9,792 | 1,913 | (755 | ) | (3) | 10,950 | ||||||||||
| Total current assets |
259,398 | 68,652 | (156,282 | ) | 171,768 | |||||||||||
| Long-term license installments, net |
2,685 | — | — | 2,685 | ||||||||||||
| Property and equipment, net |
10,013 | 1,388 | (602 | ) | (4) | 10,799 | ||||||||||
| Long-term deferred income taxes and other assets |
8,667 | 4,909 | (10,905 | ) | (2), (3) | 2,671 | ||||||||||
| Intangible assets, net |
301 | — | 128,210 | (5) | 128,511 | |||||||||||
| Goodwill |
2,391 | 22,608 | (3,390 | ) | (6) | 21,609 | ||||||||||
| Total assets |
$ | 283,455 | $ | 97,557 | $ | (42,969 | ) | $ | 338,043 | |||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||
| Current Liabilities: |
||||||||||||||||
| Accounts payable |
$ | 2,815 | 5,064 | $ | — | $ | 7,879 | |||||||||
| Accrued expenses |
11,452 | 4,354 | 386 | (7) | 16,192 | |||||||||||
| Accrued compensation and related expenses |
12,253 | 3,766 | — | 16,019 | ||||||||||||
| Deferred revenue |
42,129 | 28,184 | (13,511 | ) | (8) | 56,802 | ||||||||||
| Total current liabilities |
68,649 | 41,368 | (13,125 | ) | 96,892 | |||||||||||
| Income taxes payable |
4,930 | 525 | — | 5,455 | ||||||||||||
| Deferred tax liability, long-term |
— | — | 17,180 | (2) | 17,180 | |||||||||||
| Other long-term liabilities |
1,776 | 523 | 1,180 | (7) | 3,479 | |||||||||||
| Deferred revenue, long-term |
— | 7,652 | (3,875 | ) | (8) | 3,777 | ||||||||||
| Total liabilities |
75,355 | 50,068 | 1,360 | 126,783 | ||||||||||||
| Stockholders’ equity: |
||||||||||||||||
| Common stock |
370 | 30 | (30 | ) | (9) | 370 | ||||||||||
| Additional paid-in-capital |
122,399 | 287,580 | (284,420 | ) | (9), (1) | 125,559 | ||||||||||
| Retained earnings (deficit) |
84,516 | (242,173 | ) | 242,173 | (9) | 84,516 | ||||||||||
| Accumulated other comprehensive income |
815 | 2,052 | (2,052 | ) | (9) | 815 | ||||||||||
| Total stockholders’ equity |
208,100 | 47,489 | (44,329 | ) | 211,260 | |||||||||||
| Total liabilities and stockholders’ equity |
$ | 283,455 | $ | 97,557 | $ | (42,969 | ) | $ | 338,043 | |||||||
See accompanying notes
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2009
(in thousands except per share amounts)
| Historical Pegasystems |
Historical Chordiant |
Pro Forma Adjustments |
Pro Forma Combined | |||||||||||||
| Revenue: |
||||||||||||||||
| Software licenses |
$ | 115,934 | $ | 21,953 | $ | (6,285 | ) | (10) | $ | 131,602 | ||||||
| Maintenance |
50,099 | 36,231 | (9,661 | ) | (10) | 76,669 | ||||||||||
| Professional services |
97,980 | 18,126 | (899 | ) | (10) | 115,207 | ||||||||||
| Total revenue |
264,013 | 76,310 | (16,845 | ) | 323,478 | |||||||||||
| Cost of revenue: |
||||||||||||||||
| Cost of software license |
121 | 436 | (310 | ) | (10) | 247 | ||||||||||
| Cost of maintenance |
6,203 | 5,064 | (30 | ) | (13) | 11,237 | ||||||||||
| Cost of professional services |
84,613 | 16,044 | (223 | ) | (10) | 100,434 | ||||||||||
| Amortization of intangibles |
— | 1,211 | 6,882 | (11) | 8,093 | |||||||||||
| Total cost of revenue |
90,937 | 22,755 | 6,319 | 120,011 | ||||||||||||
| Gross profit |
173,076 | 53,555 | (23,164 | ) | 203,467 | |||||||||||
| Operating expenses: |
||||||||||||||||
| Selling and marketing |
74,378 | 25,664 | 7,574 | (11) | 107,616 | |||||||||||
| Research and development |
38,862 | 19,092 | (230 | ) | (13) | 57,724 | ||||||||||
| General and administrative |
18,017 | 13,397 | (333 | ) | (11),(12), (13) | 31,081 | ||||||||||
| Restructuring costs |
— | 144 | — | 144 | ||||||||||||
| Total operating expenses |
131,257 | 58,297 | 7,011 | 196,565 | ||||||||||||
| Income (loss) from operations |
41,819 | (4,742 | ) | (30,175 | ) | 6,902 | ||||||||||
| Foreign currency transaction gain (loss) |
2,083 | (814 | ) | — | 1,269 | |||||||||||
| Interest income, net |
3,144 | 258 | (1,817 | ) | (14) | 1,585 | ||||||||||
| Installment receivable interest income |
347 | — | — | 347 | ||||||||||||
| Other income, net |
22 | 48 | — | 70 | ||||||||||||
| Income (loss) before provision for income taxes |
47,415 | (5,250 | ) | (31,992 | ) | 10,173 | ||||||||||
| Provision (benefit) for income taxes |
15,203 | 3,817 | (11,431 | ) | (15) | 7,589 | ||||||||||
| Net income (loss) |
$ | 32,212 | $ | (9,067 | ) | $ | (20,561 | ) | $ | 2,584 | ||||||
| Earnings per share |
||||||||||||||||
| Basic |
$ | 0.89 | $ | 0.07 | ||||||||||||
| Diluted |
$ | 0.85 | $ | 0.07 | ||||||||||||
| Weighted-average number of common shares outstanding |
||||||||||||||||
| Basic |
36,208 | 36,208 | ||||||||||||||
| Diluted |
38,113 | 38,113 | ||||||||||||||
| Cash dividends declared per share |
$ | 0.12 | $ | 0.12 | ||||||||||||
See accompanying notes
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2010
(in thousands except per share amounts)
| Historical Pegasystems |
Historical Chordiant |
Pro Forma Adjustments |
Pro Forma Combined |
|||||||||||||||
| Revenue: |
||||||||||||||||||
| Software licenses |
$ | 30,343 | $ | 2,810 | $ | (681 | ) | (10) | $ | 32,472 | ||||||||
| Maintenance |
15,086 | 8,880 | (791 | ) | (10) | 23,175 | ||||||||||||
| Professional services |
29,655 | 5,471 | (133 | ) | (10) | 34,993 | ||||||||||||
| Total revenue |
75,084 | 17,161 | (1,605 | ) | 90,640 | |||||||||||||
| Cost of revenue: |
||||||||||||||||||
| Cost of software license |
31 | 122 | (90 | ) | (10) | 63 | ||||||||||||
| Cost of maintenance |
1,937 | 1,255 | — | 3,192 | ||||||||||||||
| Cost of professional services |
24,468 | 4,517 | (66 | ) | (10) | 28,919 | ||||||||||||
| Amortization of intangibles |
— | — | 2,023 | (11) | 2,023 | |||||||||||||
| Total cost of revenue |
26,436 | 5,894 | 1,867 | 34,197 | ||||||||||||||
| Gross profit |
48,648 | 11,267 | (3,472 | ) | 56,443 | |||||||||||||
| Operating expenses: |
||||||||||||||||||
| Selling and marketing |
21,893 | 5,457 | 1,894 | (11) | 29,244 | |||||||||||||
| Research and development |
11,626 | 4,858 | (7 | ) | (13) | 16,477 | ||||||||||||
| General and administrative |
5,059 | 4,971 | (152 | ) | (11), (12), (13) |
9,878 | ||||||||||||
| Acquisition-related costs |
1,508 | — | — | 1,508 | ||||||||||||||
| Restructuring costs |
— | 200 | — | 200 | ||||||||||||||
| Total operating expenses |
40,086 | 15,486 | 1,735 | 57,307 | ||||||||||||||
| Income (loss) from operations |
8,562 | (4,219 | ) | (5,207 | ) | (864 | ) | |||||||||||
| Foreign currency transaction loss |
(3,074 | ) | (145 | ) | — | (3,219 | ) | |||||||||||
| Interest income, net |
513 | 25 | (271 | ) | (14) | 267 | ||||||||||||
| Installment receivable interest income |
52 | — | — | 52 | ||||||||||||||
| Other income, net |
241 | 16 | — | 257 | ||||||||||||||
| Income (loss) before provision for income taxes |
6,294 | (4,323 | ) | (5,478 | ) | (3,507 | ) | |||||||||||
| Provision (benefit) for income taxes |
2,443 | 264 | (2,029 | ) | (15) | 678 | ||||||||||||
| Net income (loss) |
$ | 3,851 | $ | (4,587 | ) | $ | (3,449 | ) | $ | (4,185 | ) | |||||||
| Earnings (loss) per share |
||||||||||||||||||
| Basic |
$ | 0.10 | $ | (0.11 | ) | |||||||||||||
| Diluted |
$ | 0.10 | $ | (0.11 | ) | |||||||||||||
| Weighted-average number of common shares outstanding |
||||||||||||||||||
| Basic |
36,873 | 36,873 | ||||||||||||||||
| Diluted |
38,702 | (1,829 | ) | (16) | 36,873 | |||||||||||||
| Cash dividends declared per share |
$ | 0.03 | $ | 0.03 | ||||||||||||||
See accompanying notes
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NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
| A. | Basis of Pro Forma Presentation |
The pro forma data included herein is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been consummated as of January 1, 2009. The pro forma adjustments included herein reflect only those adjustments that are directly attributable to the Chordiant acquisition and factually determinable, and with respect to the following unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the Company. The preliminary allocations of the purchase price consideration to tangible and intangible assets acquired and liabilities assumed herein were based upon preliminary valuations and our estimates and assumptions are still subject to change.
| B. | Preliminary Purchase Price Allocation |
A summary of the preliminary purchase price allocation for the acquisition of Chordiant is as follows (in thousands):
| Total purchase consideration: |
|||
| Cash |
$ | 156,834 | |
| Stock options |
3,160 | ||
| Total purchase consideration |
$ | 159,994 | |
| Allocation of the purchase consideration: |
|||
| Cash |
$ | 49,900 | |
| Other current assets |
19,304 | ||
| Other assets |
2,165 | ||
| Identifiable intangible assets |
128,210 | ||
| Goodwill |
19,218 | ||
| Total assets acquired |
218,797 | ||
| Current liabilities |
28,243 | ||
| Deferred tax liability, long-term |
24,555 | ||
| Other long-term liabilities |
6,005 | ||
| Net assets acquired |
$ | 159,994 | |
The valuation of the acquired assets and assumed liabilities has not been finalized by the Company and these values are subject to change in the final purchase price allocation.
| C. | Pro Forma Adjustments (Dollars in thousands): |
The following pro forma adjustments are included in the unaudited pro forma condensed combined balance sheet as of March 31, 2010:
| 1) | Adjustment to record cash consideration paid and stock options granted in connection with the acquisition. |
| 2) | Adjustment to record the estimated net deferred tax liability associated with acquired assets and assumed liabilities. |
| 3) | Adjustment to eliminate historical deferred costs and deferred commissions of Chordiant as of March 31, 2010 to their estimated fair value. |
| 4) | Adjustment to reduce the historical property and equipment of Chordiant as of March 31, 2010 to its estimated fair value. |
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| 5) | Adjustment to record fair value of intangible assets acquired as follows: |
| Preliminary Fair Value | Preliminary Estimated Useful Life (in Years) | ||||
| Customer relationships |
$ | 75,743 | 10 | ||
| Technology |
52,101 | 7 | |||
| Tradename |
366 | 1 | |||
| $ | 128,210 | ||||
| 6) | Adjustment to record goodwill of $19,218 as a result of purchase consideration in excess of the fair value of assets acquired and liabilities assumed and to eliminate the historical goodwill of Chordiant. |
| 7) | Adjustment to eliminate historical deferred rent obligations of Chordiant and record the fair value of above market lease obligations as of March 31, 2010. |
| 8) | Adjustment to reduce the historical deferred revenue of Chordiant as of March 31, 2010 to the estimated fair value of the obligation. |
| 9) | Adjustment to eliminate the historical stockholders’ equity of Chordiant. |
The following pro forma adjustments are included in the unaudited pro forma condensed combined statement of operations for the twelve months ended December 31, 2009 and for the three months ended March 31, 2010:
| 10) | Adjustment to reduce historical Chordiant revenue for fair value adjustments related to acquired deferred revenue and deferred costs. |
| 11) | Adjustment to eliminate historical amortization of Chordiant intangible assets, net of adjustment to record amortization expense for the $128,210 of acquired identifiable intangibles assets on a straight-line basis. For purposes of the pro forma adjustments presented, the Company has used an estimated weighted-average useful life of the acquired identifiable intangible assets of 8.8 years, and has assumed straight-line amortization will be used. The valuation and estimated useful life for the acquired intangibles are not finalized and may change in the final purchase price allocation. |
| 12) | Adjustment to reduce rent expense by $466 and $117 for the twelve months ended December 31, 2009 and three months ended March 31, 2010, respectively, for above market operating lease obligations. |
| 13) | Adjustment to reduce depreciation expense for fair value adjustments made to acquired property and equipment, including a reduction to general and administrative expenses of $232 and $35 for the twelve months ended December 31, 2009 and three months ended March 31, 2010, respectively. |
| 14) | Adjustment to reduce interest income by applying the Company’s 1.70% and 0.25% historical rate of return for the twelve months ended December 31, 2009 and three months ended March 31, 2010, respectively, to the assumed net decrease in cash used to pay for the acquisition. |
| 15) | Adjustment to record the income tax effect on the pro forma adjustments at the historical Chordiant statutory rate. The pro forma combined provision for income taxes does not reflect the amounts that would have resulted had the Company and Chordiant filed consolidated income tax returns during the periods presented. |
| 16) | Adjustment to eliminate historical dilutive weighted-average common shares of Pegasystems as their inclusion would be anti-dilutive as a result of the pro forma combined net loss for the three months ended March 31, 2010. The weighted-average dilutive impact of the total 241,000 stock options granted in connection with the acquisition is not material to any period presented. |
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