PagerDuty, Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2019 (the first quarter of fiscal 2020; fiscal year ends January 31). PagerDuty provides a subscription-based real-time operations platform. It completed its IPO on April 15, 2019.
Key financial results
| Metric | Q1 FY2020 | Q1 FY2019 | Change |
|---|---|---|---|
| Revenue | $37.3 million | $25.0 million | +49% |
| Gross profit / gross margin | $31.8 million / 85% | $21.1 million / 84% | Margin +1 percentage point |
| Operating expenses | $44.6 million | $28.1 million | +58% |
| Operating loss | $(12.7) million | $(7.0) million | Loss widened |
| Net loss | $(12.1) million | $(6.6) million | Loss widened |
| Basic and diluted loss per share | $(0.37) | $(0.32) | Loss per share increased |
| Operating cash flow | $(7.6) million | $(4.3) million | Cash use increased |
| Free cash flow (non-GAAP) | $(8.8) million | $(4.7) million | Cash use increased |
Revenue growth was driven mainly by expansion within existing customers, including more users and additional functionality, and to a lesser extent by new customers. Gross margin improved slightly. Sales and marketing was the largest operating expense at $21.2 million; general and administrative expense rose 75%, partly reflecting public-company preparation costs. Stock-based compensation was $4.8 million, up from $3.2 million.
Balance sheet and liquidity
- Cash and cash equivalents were $338.0 million at April 30, 2019; including $2.4 million of restricted cash, total cash, cash equivalents and restricted cash was $340.5 million.
- Current assets were $383.6 million and current liabilities were $88.8 million. Current deferred revenue was $66.2 million; total deferred revenue was approximately $66.5 million.
- Total liabilities were $93.3 million. The filing does not report outstanding debt at period-end.
- Operating cash use was $7.6 million and property and equipment purchases were $1.2 million. Financing provided $218.9 million, primarily from the IPO.
- Management stated that existing cash and cash generated from subscriptions should support working capital and capital expenditures for at least the next 12 months.
Material changes and notable items
- IPO and capitalization: PagerDuty sold 9,860,500 shares at $24.00 per share. It reported $213.7 million of net proceeds after underwriting discounts and issuance costs. Existing preferred shares converted into 41.3 million common shares; no preferred shares remained outstanding at quarter-end.
- Customer count increased to 11,680 from 10,139 a year earlier. Customers with more than $100,000 in ARR increased to 242 from 160. Dollar-based net retention was 137%, versus 136%.
- International revenue was $7.8 million, or about 21% of total revenue, compared with $4.8 million, or about 19%, in the prior-year quarter.
- Revenue included $26.3 million previously recorded in deferred revenue, compared with $15.2 million in the prior-year quarter. Estimated remaining performance obligations for subscriptions longer than one year were $48.6 million.
Outlook, risks and contingencies
The filing provides no specific quarterly or annual revenue or earnings guidance. Management expects research and development, sales and marketing, and general and administrative costs to increase in dollars as the business grows; sales and marketing is expected to remain the largest operating expense for the foreseeable future. Management also cites ongoing investment in product development, infrastructure, customer support, sales capacity and international expansion.
- PagerDuty has a history of operating losses and negative operating cash flows and says it may not achieve or sustain profitability. It expects costs to rise and notes that growth may not offset those costs.
- Key business risks include dependence on subscriptions to its On-Call Management product, customer renewal and expansion, competition and pricing pressure, service availability and security, reliance on third-party cloud providers, and privacy and regulatory compliance.
- The company disclosed past service disruptions and a 2015 security incident involving a database of certain user information. It reported no material pending legal proceedings and no expected material adverse legal matter.
- The company has office operating leases extending through fiscal 2029. It reported no material change in contractual obligations during the quarter and no material liability accrued for service-level credits.
- Management said disclosure controls were effective at a reasonable assurance level; no material change in internal control over financial reporting was identified during the quarter.
- PagerDuty is an emerging growth company and expects public-company compliance costs to increase. It was evaluating adoption of the lease accounting standard, which it anticipated would increase recognized assets and liabilities, without a material impact on operating results.
Investor verification priorities
- Track whether revenue growth, customer expansion and the 137% dollar-based net retention rate persist, especially among larger customers.
- Compare operating expense growth with revenue growth and monitor progress toward profitability and lower cash burn.
- Reconcile IPO proceeds across disclosures: the filing reports $213.7 million net proceeds after issuance costs, while cash-flow presentation separately reports IPO proceeds and payments of offering costs.
- Monitor deferred revenue, performance obligations and customer renewals as indicators of future recognized subscription revenue.
- Review execution and costs related to public-company controls, security, service reliability, international operations and upcoming lease accounting adoption.