PagerDuty, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Three and six months ended July 31, 2023. PagerDuty provides a digital operations management platform and earns most revenue from cloud-hosted subscriptions. Comparisons below are to the corresponding 2022 periods unless otherwise noted. Dollar amounts are in millions except per-share data.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | First half FY2024 | First half FY2023 |
|---|---|---|---|---|
| Revenue | $107.6 | $90.3 | $210.9 | $175.6 |
| GAAP gross margin | 82% | 80% | 82% | 81% |
| Operating loss | $(26.2) | $(37.9) | $(42.0) | $(70.3) |
| Net loss | $(22.6) | $(38.6) | $(35.5) | $(71.4) |
| Net loss per share, diluted | $(0.26) | $(0.44) | $(0.39) | $(0.81) |
| Operating cash flow | $10.8 | $2.8 | $32.9 | $(0.1) |
| Free cash flow (non-GAAP) | $8.7 | $1.0 | $29.6 | $(4.8) |
Q2 revenue increased 19%; first-half revenue increased 20%. Management attributed growth to new customers and expansion within existing customers, including more users and additional products. Q2 GAAP operating margin improved to negative 24% from negative 42%. Non-GAAP operating income was $14.3 million for the quarter and $30.3 million for the first half, versus losses of $3.4 million and $5.7 million, respectively. Non-GAAP measures exclude specified expenses and are not GAAP results.
Q2 operating cash flow improved year over year. For the first half, the $32.9 million operating cash inflow included $63.1 million of stock-based compensation and benefited from $24.4 million of collections-related reduction in accounts receivable; it was partly offset by lower deferred revenue and other working-capital outflows.
Financial position and business indicators
- At July 31, 2023, cash and cash equivalents were $298.6 million and investments were $205.9 million, totaling $504.5 million. Current assets were $602.9 million and current liabilities $239.6 million.
- Convertible notes had $287.5 million principal outstanding and a $283.8 million net carrying value. The unsecured notes bear 1.25% interest and mature July 1, 2025.
- Deferred revenue was $196.6 million, down from $209.1 million at January 31, 2023. The filing reports $170.7 million of remaining performance obligations for qualifying subscriptions, with most expected to be recognized within 24 months.
- Customers numbered 15,146 versus 15,174 a year earlier; customers exceeding $100,000 in ARR rose to 773 from 689. Dollar-based net retention fell to 114% from 124%.
- International revenue was $29.4 million in Q2, compared with $21.2 million a year earlier.
Material changes, outlook, and risks
- Interest income rose to $3.7 million in Q2 from $0.8 million, primarily reflecting higher rates and investment balances; this helped reduce the net loss but is rate-sensitive.
- Stock-based compensation was $35.5 million in Q2 and $63.1 million in the first half. Share dilution and the substantial unrecognized compensation expense are relevant to assessing earnings quality.
- General and administrative expense included real-estate impairment charges; the filing identifies $0.8 million for a subleased office right-of-use asset and $0.4 million for abandoned leasehold improvements. Q2 restructuring costs were $1.3 million.
- Management said available liquidity and expected subscription cash flows should support working capital and capital expenditures for at least 12 months, and longer-term needs through operating cash flows and available liquidity. The filing provides no quantified revenue or earnings guidance.
- Management cited macroeconomic uncertainty, customer spending and renewal trends, competition, and the need to adapt to technology and regulation. Disclosed risks include cybersecurity incidents affecting PagerDuty, customers, or third-party providers, and risks related to AI/ML implementation.
- The company reported no material pending legal proceedings, no material changes to contractual obligations, and effective disclosure controls as of quarter-end.
Most important facts for investors to verify
- Whether customer retention and expansion stabilize, given the decline in net retention to 114% and slightly lower total customer count.
- Whether improved operating cash flow and non-GAAP profitability persist, accounting for working-capital timing and stock-based compensation.
- The scale of ongoing dilution and the treatment of substantial stock-based compensation in non-GAAP results.
- Liquidity, investment portfolio exposure, and the company’s capacity to address the $287.5 million notes due in 2025.
- Whether real-estate and restructuring charges, customer credit losses, or macroeconomic and cybersecurity risks produce further effects.