PagerDuty, Inc. — Form 10-Q Summary
Business context and reporting period. PagerDuty provides a digital operations management platform, with revenue primarily from cloud-hosted and term-license software subscriptions. This filing covers the fiscal second quarter and six months ended July 31, 2022; the fiscal year ends January 31. Financial statements are unaudited.
Financial performance and position
| Metric | Three months ended July 31, 2022 | Prior-year quarter | Six months ended July 31, 2022 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $90.3 million | $67.5 million | $175.6 million | $131.1 million |
| Gross profit / margin | $71.9 million / 80% | $55.6 million / 82% | $141.5 million / 81% | $108.7 million / 83% |
| Operating loss | $(37.9) million | $(28.5) million | $(70.3) million | $(49.7) million |
| Net loss attributable to PagerDuty | $(38.5) million | $(29.7) million | $(71.3) million | $(52.2) million |
| Basic and diluted loss per share | $(0.44) | $(0.35) | $(0.81) | $(0.63) |
Quarterly revenue grew 34%, primarily from new customers and expansion among existing customers, including more users and additional products. The filing reports dollar-based net retention of 124%, compared with 126% a year earlier. Customers increased to 15,174 from 14,169; customers with more than $100,000 in ARR rose to 689 from 501.
Quarterly non-GAAP operating loss was $3.4 million (4% negative margin), versus $9.9 million (15% negative margin) a year earlier. For the six-month period, non-GAAP operating loss was $5.7 million (3% negative margin), versus $15.6 million (12% negative margin). These company-defined non-GAAP measures exclude, among other items, stock-based compensation and acquired-intangible amortization.
Cash from operating activities was $2.8 million in the quarter and $(0.1) million for six months. Free cash flow, as defined by the company, was $1.0 million for the quarter and $(4.8) million for six months. Six-month stock-based compensation expense was $55.0 million, up from $30.1 million.
At July 31, cash and cash equivalents were $278.3 million and investments were $192.5 million, or $470.8 million combined. The company reported $287.5 million principal amount of 1.25% convertible senior notes due July 2025, carried at $282.0 million net of issuance costs. Current liabilities were $226.1 million; deferred revenue totaled $169.5 million, including $166.5 million current. Management said available liquidity and expected subscription cash flows should fund working capital and capital expenditures for at least 12 months.
Material changes and notable items
- Operating expenses increased across research and development, sales and marketing, and general and administrative functions, primarily reflecting higher personnel costs and headcount. Quarterly operating expenses rose to $109.8 million from $84.0 million.
- Gross margin declined to 80% from 82% for the quarter and to 81% from 83% for six months. The filing attributes higher cost of revenue to hosting and infrastructure, personnel, and acquired-intangible amortization.
- PagerDuty acquired Catalytic, a workflow automation provider, in March 2022 for $68.8 million in cash. The acquisition added $46.7 million of preliminary goodwill and $21.8 million of identifiable intangible assets. Its results were immaterial to the reported statements. A $0.7 million impairment charge was recorded for internal-use software displaced by acquired technology.
- In May 2022, the company formed PagerDuty K.K. in Japan with a 51% controlling interest and consolidated the joint venture. The non-controlling interest was $1.8 million at period end.
- Billings were $92.5 million in the quarter versus $75.5 million in the prior-year quarter; six-month billings were $174.1 million versus $135.2 million. Deferred revenue at quarter-end was $169.5 million, up from $134.0 million a year earlier.
Outlook, risks, and contingencies
The filing does not provide a clear numerical revenue or earnings guidance range. Management expects research and development, sales and marketing, and general and administrative expenses to increase in dollars as the business grows; sales and marketing is expected to remain the largest operating expense for the foreseeable future. Management cited investment in the platform and customer support, and continued international expansion, as priorities.
Risks discussed include inflation, economic weakness and reduced IT spending, customer demand and renewal trends, COVID-19-related uncertainty, competition, and the costs and complexity of international operations. The company said Russia-related customer exposure was immaterial and did not then expect a material business impact from the conflict, while warning that broader economic disruption or cyber threats could affect operations. No material pending legal proceedings or material changes to contractual obligations were reported. Management stated disclosure controls were effective at a reasonable assurance level.
Investor verification points
- Track whether 34% revenue growth and expansion among existing customers persist, particularly alongside the decline in net retention to 124%.
- Assess the trend in gross margin and operating losses as hosting, personnel, acquisition-related amortization, and other operating costs rise.
- Reconcile operating cash flow and free cash flow with reported losses, deferred contract costs, deferred revenue, and cash collection timing.
- Monitor the effect of stock-based compensation and share issuance on dilution; the filing reports 34.5 million shares reserved for future issuance and other awards.
- Follow Catalytic integration, final purchase-accounting valuations, and the Japan joint venture’s performance and redemption provisions.
- Review liquidity against the $287.5 million convertible-note principal due in 2025 and the company’s stated funding needs and risks.