PagerDuty, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended April 30, 2020; comparison is with the three months ended April 30, 2019. PagerDuty sells subscriptions to its digital-operations and incident-response platform.
Financial performance and liquidity
| Metric | Q1 FY2021 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $49.8 million | $37.3 million | Up 33% |
| Gross profit / margin | $42.8 million / 86% | $31.8 million / 85% | Margin up 1 percentage point |
| Operating loss | $12.6 million | $12.7 million | Improved $0.1 million |
| Net loss | $11.5 million | $12.1 million | Improved $0.6 million |
| Net loss per share | $0.15 | $0.37 | Per-share comparison affected by higher weighted-average shares after the 2019 IPO |
| Cash from operating activities | $(0.2) million | $(7.6) million | Cash use decreased |
| Free cash flow | $(2.9) million | $(8.8) million | Cash use decreased |
Sales and marketing remained the largest operating expense at $26.7 million, up 26%; research and development was $15.0 million, up 38%; and general and administrative expense was $13.7 million, up 10%. Stock-based compensation rose to $8.3 million from $4.8 million. Management attributed the 1-point gross-margin improvement to cloud-infrastructure efficiency. Non-GAAP operating loss was $4.3 million, versus $7.9 million, but excludes stock-based compensation.
At April 30, cash and cash equivalents were $139.5 million and investments were $211.4 million, totaling $350.8 million. Current assets were $407.3 million and current liabilities were $122.2 million. The filing reports no conventional borrowings; balance-sheet lease liabilities totaled $34.9 million. Deferred revenue was $96.4 million, including $91.6 million current. Management said available liquidity and subscription cash flows should support working capital and capital expenditures for at least 12 months.
Business trends and material changes
- Revenue growth was driven primarily by expansion among existing customers—more users and product upsells—and, to a lesser extent, new customers.
- Customers increased to 13,060 from 11,680; customers with more than $100,000 in ARR increased to 348 from 242.
- Dollar-based net retention declined to 121% from 137%, indicating slower expansion and/or greater contraction within the existing-customer cohort.
- International revenue was $11.5 million, compared with $7.8 million; U.S. revenue was $38.3 million, compared with $29.5 million.
- The company adopted the lease accounting standard on February 1, 2020, recognizing operating right-of-use assets and lease liabilities; the filing says adoption did not affect operations or cash flows. It also adopted the expected-credit-loss standard, with no material financial-statement impact.
Outlook, risks, and contingencies
The filing provides no specific revenue, earnings, or margin guidance. Management said COVID-19’s future effect was uncertain and might not be visible in reported results until later periods. Risks cited include reduced customer spending or users, particularly among small and medium businesses and affected industries; delayed or shortened contracts, slower collections, longer sales cycles, and less effective virtual marketing and sales. Offices had closed, employees shifted to remote work, and travel and in-person events were restricted. The company deferred employer payroll taxes under the CARES Act and said the Act was not expected to materially affect its financial statements.
Management reported no material pending legal proceedings and no material change in contractual obligations during the quarter. Customer service-level agreements may provide credits for missed uptime targets, but no material related liability was recorded. Management described disclosure controls as effective at a reasonable-assurance level and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether the COVID-19-related risks subsequently affected customer retention, expansion, collections, sales cycles, or revenue growth.
- Whether the decline in dollar-based net retention to 121% persisted, and how customer and high-ARR customer counts developed.
- Whether operating cash flow and free cash flow improved sustainably, apart from working-capital timing and noncash stock compensation.
- The effect of rising stock-based compensation and dilution; 16.8 million options and unvested RSUs were outstanding at quarter-end.
- Lease commitments and liquidity: quarter-end lease liabilities were $34.9 million, while cash and investments totaled $350.8 million.