Pegasystems Inc (PEGA)

Interest coverage

Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Earnings before interest and tax (EBIT) US$ in thousands 149,471 102,316 -154,005 -136,602 -105,533
Interest expense US$ in thousands 6,835 6,876 7,792 7,956 19,356
Interest coverage 21.87 14.88 -19.76 -17.17 -5.45

December 31, 2024 calculation

Interest coverage = EBIT ÷ Interest expense
= $149,471K ÷ $6,835K
= 21.87

The interest coverage ratios for Pegasystems Inc. over the specified period exhibit a notable trend indicative of significant financial challenges followed by a substantial turnaround.

During the fiscal years ending on December 31, 2020, 2021, and 2022, the company exhibited negative interest coverage ratios of -5.45, -17.17, and -19.76, respectively. Negative ratios in these years imply that the company's earnings before interest and taxes (EBIT) were insufficient to cover its interest expenses, revealing that Pegasystems was experiencing operating losses or severely constrained profitability, thus adversely impacting its interest-paying capacity. The increasingly negative figures suggest worsening financial stress and an inability to meet interest obligations from operating income alone.

However, a significant shift occurred by December 31, 2023, where the interest coverage ratio turned positive at 14.88. This indicates that by this time, Pegasystems had achieved a level of profitability sufficient to comfortably cover its interest expenses, reflecting a marked improvement in operational performance and cash flow generation. The further increase anticipated for 2024 to 21.87 underscores continued strengthening of earnings relative to interest obligations.

In summary, the historical data reveals a period of financial distress characterized by negative interest coverage ratios, followed by a robust recovery in 2023 and an outlook of sustained profitability and financial stability in the subsequent year. This turnaround suggests effective management strategies or operational enhancements that have substantially improved the company's ability to generate earnings capable of meeting interest commitments.