PagerDuty, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended April 30, 2022. PagerDuty provides a digital operations management platform and generates revenue primarily from cloud-hosted subscriptions. Comparisons are with the three months ended April 30, 2021 unless otherwise noted.
Financial and operating highlights
| Metric | Q1 FY2023 | Prior year | Change / context |
|---|---|---|---|
| Revenue | $85.4 million | $63.6 million | Up 34%; growth from new and existing customers, including more users and product upsells |
| Gross profit / margin | $69.7 million / 82% | $53.2 million / 84% | Margin down 2 percentage points |
| Operating expenses | $102.1 million | $74.4 million | Up 37%; R&D +52%, sales and marketing +22%, G&A +52% |
| Operating loss | $(32.5) million | $(21.2) million | Operating margin worsened to (38)% from (33)% |
| Net loss / diluted loss per share | $(32.8) million / $(0.38) | $(22.6) million / $(0.27) | Loss widened; basic and diluted EPS were the same |
| Non-GAAP operating loss | $(2.3) million | $(5.6) million | Non-GAAP operating margin improved to (3)% from (9)% |
| Operating cash flow / free cash flow | $(3.0) million / $(5.8) million | $1.6 million / $(0.4) million | Free cash flow is a company-defined non-GAAP measure |
| Cash, equivalents and investments | $467.5 million | $543.4 million at Jan. 31, 2022 | Includes cash and equivalents of $273.9 million and investments of $193.6 million |
| Convertible senior notes | $281.5 million net carrying amount | $287.5 million principal | 1.25% notes mature July 1, 2025 |
Stock-based compensation was $24.9 million, versus $13.6 million a year earlier. Deferred revenue was $167.3 million at April 30, 2022, including $162.9 million current. Billings for the quarter were $81.6 million.
PagerDuty reported 15,040 customers, up from 13,918, and 655 customers with more than $100,000 in ARR, up from 458. Dollar-based net retention was 126%, versus 121%. International revenue was $20.6 million, compared with $15.8 million; no individual non-U.S. country represented 10% or more of revenue.
Material changes and unusual items
- Cost of revenue rose 51%, faster than revenue, reflecting higher hosting and infrastructure costs, personnel costs, and acquired-intangible amortization; gross margin declined.
- Operating expenses increased with headcount, salaries, infrastructure and other costs. G&A also included higher acquisition-related and consulting costs; sales and marketing included increased travel as restrictions eased.
- On March 8, 2022, PagerDuty acquired Catalytic, a workflow automation provider, for $68.8 million in cash consideration. The acquisition added $47.1 million of preliminary goodwill and $21.8 million of identifiable intangible assets. Catalytic’s reported contribution was immaterial.
- A $0.7 million impairment charge was recorded for internal-use software that would not be placed in service after technology acquired from Catalytic replaced it. The Catalytic acquisition also generated a $1.3 million deferred tax benefit.
- Investing cash outflow was $70.4 million, including $66.3 million paid for the acquisition, net of cash acquired. Total cash, cash equivalents and restricted cash declined $75.9 million during the quarter.
Outlook, risks and contingencies
Management stated that cash, investments and expected subscription cash flows should be sufficient for working capital and capital expenditures for at least the next 12 months. The filing provides no specific revenue, earnings or margin guidance. Management expects investments in research and development and sales and marketing to continue; it expects G&A to decline as a percentage of revenue over the longer term.
Risks discussed include economic weakness and reduced IT spending, inflation and cost increases, competitive pricing, COVID-19 effects and uncertainty, and international expansion, regulatory, currency and cybersecurity risks. PagerDuty said the Russia-Ukraine conflict had not had a material impact to date, but worsening global disruption could affect results. No material pending legal proceedings or material changes to contractual obligations were reported. Management concluded disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether revenue growth and retention continue, particularly growth among higher-ARR customers.
- Whether gross-margin pressure and rapid growth in operating expenses moderate, and how stock-based compensation affects the widening GAAP loss.
- Cash generation and liquidity after the Catalytic acquisition, including the timing of deferred-revenue renewals and operating cash flows.
- Final Catalytic purchase-accounting values, which were preliminary, and the acquisition’s future contribution and integration costs.
- Terms and potential conversion or repayment implications of the $287.5 million principal amount of notes due in 2025.