Business context and reporting period
PagerDuty, Inc. provides a digital operations management platform, primarily through cloud-hosted subscriptions. This unaudited Form 10-Q reports the quarter and six months ended July 31, 2021, the second quarter of fiscal 2022, compared with the corresponding 2020 periods. Amounts below are in U.S. dollars.
Financial and operating performance
| Metric | Quarter ended July 31, 2021 | Prior-year quarter |
|---|---|---|
| Revenue | $67.5 million | $50.7 million |
| Gross profit and margin | $55.6 million; 82% | $44.1 million; 87% |
| Operating loss | $28.5 million | $13.4 million |
| Net loss | $29.7 million; $0.35 per share | $14.7 million; $0.19 per share |
- Quarterly revenue rose 33%; management attributed growth to new and existing customers, including Rundeck, and expansion in users and products.
- For the six months, revenue was $131.1 million, up 30%; net loss was $52.2 million versus $26.1 million. Operating cash flow was negative $10.0 million versus positive $1.9 million, and free cash flow was negative $13.2 million versus negative $1.5 million.
- Quarterly operating expenses rose to $84.0 million from $57.5 million. Sales and marketing was the largest expense at $40.8 million; quarterly stock-based compensation was $16.5 million.
- At July 31, cash and cash equivalents were $354.5 million and investments were $192.3 million, totaling $546.8 million. Current assets were $623.8 million and current liabilities $179.2 million.
- Convertible senior notes had $287.5 million principal and a $280.2 million carrying amount; they bear 1.25% interest and mature July 2025. Total liabilities were $493.3 million.
- Deferred revenue was $134.0 million, compared with $101.2 million a year earlier. Customers numbered 14,169 versus 13,346; customers with over $100,000 ARR numbered 501 versus 369. Dollar-based net retention was 126%, up from 116%.
Changes, outlook, risks, and unusual items
- Revenue growth accompanied lower GAAP gross margin, down five percentage points to 82%, as cost of revenue increased 80%, including higher personnel and infrastructure costs. Operating and net losses widened as expenses grew faster than revenue.
- Management said cash, investments, and subscription cash generation should support working capital and capital expenditures for at least the next 12 months. No specific revenue or earnings guidance is provided in the filing.
- Management cited COVID-19 uncertainty, including possible effects on customer demand, sales cycles, small and medium businesses, and marketing activity. The company continued remote work and travel restrictions; management reported no material adverse financial-statement impact to date.
- Management identified continued investment in product development, infrastructure, sales and marketing, and customer support. It also noted a risk that subscription growth, renewals, customer payment timing, and spending needs could affect future capital requirements.
- General and administrative expense included mostly non-recurring strategic consulting fees. Rundeck-related acquisition amortization and expenses also affected comparisons.
- PagerDuty early adopted ASU 2020-06 in February 2021, changing convertible-note accounting and increasing the reported debt carrying amount. Adoption did not affect the statements of operations or cash flows.
- The filing reports no material pending legal proceedings and no material changes to previously disclosed risk factors. Management assessed disclosure controls as effective at a reasonable assurance level.
Important facts for investors to verify
- Whether revenue growth and the improved customer retention metric continue, and how much growth is attributable to Rundeck versus organic expansion.
- Whether gross margin stabilizes as hosting, personnel, and other delivery costs rise.
- Whether operating cash flow and free cash flow improve, given the widening GAAP losses and substantial stock-based compensation.
- The implications of the $287.5 million convertible notes, including conversion, dilution, and repayment terms.
- Whether the company’s liquidity remains adequate under changing customer demand, renewal, and spending conditions.