PagerDuty, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended October 31, 2021; comparisons are with the corresponding 2020 periods. PagerDuty provides a digital operations management platform, with revenue primarily from cloud-hosted subscriptions. Fiscal 2022 ends January 31, 2022.
Key financial metrics
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $71.8 million | $53.8 million | $202.9 million | $154.3 million |
| Gross margin | 83% | 86% | 83% | 86% |
| Operating loss | $24.8 million | $21.8 million | $74.5 million | $47.9 million |
| Net loss | $26.3 million | $20.6 million | $78.6 million | $46.8 million |
| Net loss per share, diluted | $0.31 | $0.26 | $0.94 | $0.59 |
| Operating cash flow | $2.7 million | $4.8 million | $(7.4) million | $6.7 million |
| Free cash flow | $1.8 million | $4.5 million | $(11.4) million | $3.0 million |
At October 31, 2021, cash and cash equivalents were $359.7 million and investments were $185.5 million, totaling $545.3 million. Current assets were $626.2 million and current liabilities were $195.9 million. Convertible notes had $287.5 million principal outstanding and a $280.6 million net carrying value; they bear 1.25% interest and mature July 2025. Deferred revenue was $142.9 million, including $137.4 million current.
Changes versus the prior comparable period
- Quarterly revenue grew 33%; nine-month revenue grew 32%, reflecting new and existing customer growth, expansion in users and products, and contribution from Rundeck.
- Customer count rose to 14,486 from 13,725; customers above $100,000 ARR increased to 543 from 401. Dollar-based net retention improved to 124% from 119%.
- Gross margin declined three percentage points to 83% in both the quarter and nine-month period. Cost of revenue rose faster than revenue, driven primarily by personnel, hosting and infrastructure costs.
- Operating expenses increased 24% in the quarter and 34% for the nine months. Operating losses widened in absolute dollars; nine-month net loss also increased.
- Nine-month operating cash flow shifted from $6.7 million provided to $7.4 million used. Increased deferred contract costs and other operating cash needs outweighed higher deferred revenue and noncash adjustments.
Outlook, commentary and notable items
- Management said existing cash, investments and subscription cash flows are expected to fund working capital and capital expenditures for at least the next 12 months. No specific revenue or earnings guidance is provided in this filing.
- 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 COVID-19 uncertainty, potential variability in small and midsize business demand, and uncertainty about the effectiveness of virtual marketing and sales activity. It reported no material adverse financial-statement impact from COVID-19 in the periods presented.
- PagerDuty early adopted ASU 2020-06 on February 1, 2021. This changed convertible-note accounting and increased reported debt carrying value by $61.7 million at adoption, while reducing additional paid-in capital. It also reduced interest expense versus the prior-year periods; it did not affect cash flows or operating results upon adoption.
- Stock-based compensation was $17.8 million in Q3 and $47.9 million for the nine months. The company reported $208.2 million of unrecognized RSU compensation expense at quarter-end.
- The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and no material changes in contractual obligations. Disclosure controls were assessed as effective at a reasonable assurance level.
Important facts for investors to verify
- Whether revenue growth and retention remain strong as customer expansion, renewal timing and market demand evolve.
- Whether gross-margin pressure and operating-expense growth moderate, and how stock-based compensation affects reported losses and dilution.
- Whether operating cash flow and free cash flow improve, given negative nine-month results and rising deferred contract costs.
- The terms, conversion conditions and potential dilution associated with the $287.5 million convertible notes, and the effect of the accounting-standard adoption on comparisons.
- How COVID-19, customer mix, sales-cycle variability and continued investment affect future results; management cautions that interim results are not necessarily indicative of full-year performance.