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Why is this CFO one of the few willing to publicly predict his company's 2009 financial results?
Sarah Johnson, CFO.com | US
April 8, 2009
Craig Dynes, senior vice president and CFO of enterprise-software company Pegasystems, generally feels removed from the daily news grind of corporate bankruptcy, layoffs, government bailouts, and criticism over how much executives of poorly performing firms receive in bonuses.
It has nothing to do with him. Indeed, Dynes tells CFO.com, he often wonders if he's in "a parallel universe" when he steps into his office each day after listening to dire business news on his way to work.
Last month, Dynes was one of the few finance executives who had profitable financial results to relay and who was willing to provide earnings guidance for this year during the annual conference call with investors. His predictions came despite the fact, he said at the time, that "there is no escaping the news about current economic conditions. The continual news coverage of layoffs, stock market results, and doom and gloom is overwhelming."
His company is in growth mode, with plans to boost its sales and marketing team this year, after expanding the group by 37 people in 2008. "We're not in that sort of hunker-down, weather-the-storm environment," he tells CFO.com. Pegasystems, a Cambridge, Mass.-based company that specializes in business process management solutions, recorded $212 million in revenue last year, an increase of 31 percent over the prior year.
Dynes predicts the company will pass the $250 million mark this year and collect a profit of at least $17 million, compared to the $11 million in net income realized in 2008. The 25-year-old company also managed to sign a record number of new license agreements in the fourth quarter, which bodes well for future revenue tied to its professional-services business. At the same time, Dynes acknowledges that 30 percent growth year over year won't be a sustainable goal. It's easy to "fall into the trap" of complacency, he says.
Dynes, who brought his mixed background of tech work and finance to Pegasystems three years ago, oversees both the finance and IT departments. His previous roles include CFO of software firm Demandware, CEO of Narad Networks, and CFO of SilverStream Software. He began his career at KPMG's Canadian firm and later dabbled on the IT side, writing code for a startup software company, where he also did sales.
For now, Dynes attributes his current company's near immunization from the U.S. economy's ills to the fact that Pegasystems has managed to convince potential clients that its products can save them money — obviously a top-of-mind issue these days. The company automates business rules and policies, which can reduce the time it takes companies to complete their own customer deals, for instance, or streamline processes for giving certain clients incentives.
Some of the company's revenue — which comes from software licenses, maintenance fees, and professional services — is predictable, such as its non-cancellable, five-year agreements, while the timing of the rest of it fluctuates, leading Dynes' finance team to reforecast every month. Still, Dynes says changes to the company's business model in recent years has given it "a higher rate of predictability that's really helped in this economy."
How the company's salespeople do their selling has also plays a role; the company changed its sales tactics in recent years, and the effect seems to be working. They focus on business heads of individual departments who will use the products, rather than solely trying to romance the IT folks who will implement the systems and won't truly realize their potential benefits.
"We target the businesspeople, not IT, and address the specific business problems they're having right now," Dynes says. Moreover, rather than trying to nail down megadeals, the Pegasystems sales team is going after piecemeal projects that — because of their smaller size — result in quicker turnarounds for clients. Plus, particularly during the downturn, these projects are more palatable for decision-makers in penny-pinching mode, according to Dynes.
To be sure, Dynes does feel some economic heat from customers, who are taking longer to sign deals because their own internal processes for approving projects has recently changed. Whereas clients would typically need the approval of three people before inking a deal with Pegasystems, now they need to get double the amount of signatures before giving their vendors the go-ahead. Tech companies more than ever need a "compelling case" to get clients to open up their tight spending budgets, and they have to go "through more levels of approval to get the deal done," Dynes says, adding, "There's been some changes in the market, certainly, as our customers are having a hard time."
However, his clients are paying their bills for the most part. Dynes says he hasn't seen much effect on his accounts receivable from the downturn and has in fact seen some improvements. Days billed outstanding, on a quarterly basis, was at 56 days for last quarter, down from 63 days during the same period in 2007. He attributes the improved metric to more tightly written contracts.
Dynes also has more flexibility these days with a thick cash cushion. Pegasystems has $167 million in cash and no debt. Three weeks ago, it issued a quarterly dividend of 3 cents per share.
As for the future, Pegasystems intends to build up its sales team so that the rosy revenue numbers will keep coming in, through 2010. Sometimes Dynes himself gets involved in selling when he is occasionally brought in to help negotiate a deal. He believes meeting with customers and seeing how his company's products operate in practice supports his CFO role. "It really helps me explain to investors why we are continuing to sell software in today's market," he says.