PagerDuty, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended July 31, 2019; fiscal year ends January 31. All financial amounts below are U.S. dollars. The company provides a cloud-based real-time operations platform, sold primarily through subscriptions. It completed its IPO in April 2019.
Financial and operating results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $40.4 million | $27.7 million | $77.7 million | $52.8 million |
| Gross margin | 85% | 86% | 85% | 85% |
| Operating loss | $14.4 million | $13.0 million | $27.1 million | $20.0 million |
| Net loss | $12.6 million | $12.6 million | $24.6 million | $19.2 million |
| Operating cash flow | $2.2 million provided | $4.7 million used | $5.4 million used | $9.0 million used |
| Free cash flow (non-GAAP) | $1.3 million | $5.0 million used | $7.4 million used | $9.7 million used |
- Q2 revenue grew 45% year over year; six-month revenue grew 47%. Management attributed growth mainly to expansion among existing customers, including more users and additional functionality, and secondarily to new customers.
- Q2 GAAP operating margin was negative 36%, compared with negative 47% a year earlier; non-GAAP operating margin was negative 18%, compared with negative 15%. Non-GAAP measures exclude stock-based compensation and, where applicable, a non-cash charitable contribution.
- Operating expenses rose with investment in hiring, product development, sales and marketing, infrastructure, and public-company readiness. Sales and marketing remained the largest operating expense. Q2 G&A declined 3%, partly because the prior-year quarter included a $6.2 million non-cash charitable warrant expense.
- At July 31, cash and cash equivalents were $306.3 million and current investments were $34.8 million, totaling $341.1 million. Total current assets were $393.7 million; current liabilities were $100.5 million. The filing reports no debt balance on the balance sheet.
- Six-month investing cash use was $36.7 million, mainly purchases of held-to-maturity investments ($34.7 million) and property and equipment ($2.0 million). Financing provided $218.2 million, primarily from the IPO. The company received $213.7 million of IPO net proceeds after underwriting discounts and issuance costs.
- Deferred revenue totaled $77.8 million, including $75.7 million current. The company had $60.1 million of estimated remaining performance obligations for subscriptions longer than one year, with the substantial majority expected to be recognized over the next 24 months.
Changes versus comparable periods
- Customer count increased to 12,045 from 10,454; customers with more than $100,000 in ARR increased to 274 from 181.
- Dollar-based net retention declined to 132% from 138%, indicating slower net expansion of the prior-year customer cohort, though still above 100%.
- Q2 net loss was nearly unchanged year over year, while six-month net loss increased. The six-month operating loss also widened in dollars, despite revenue growth.
- Cash and equity rose substantially following the IPO; preferred stock converted into common stock at IPO completion. Common shares outstanding were 76,285,543 as of August 30, 2019.
Outlook, risks and unusual items
- No specific revenue, earnings, or margin guidance is provided in the filing. Management said cash, investments, and subscription cash generation should support working capital and capital expenditure needs for at least the next 12 months.
- Management expects spending to increase in areas including research and development, sales and marketing, infrastructure, international expansion, and public-company compliance. It cautions that growth may slow and that profitability is not assured.
- Operating lease commitments totaled $43.7 million at July 31, 2019. A new Atlanta office lease signed in July carries $14.4 million of minimum payments through July 2028.
- Key disclosed risks include ongoing losses and negative operating cash flow, reliance on the On-Call Management product for substantially all revenue, competition and customer renewal or expansion risk, service availability and cybersecurity threats, privacy and regulatory compliance, and the costs of scaling and operating as a public company.
- The company reported no material pending legal proceedings and no material claims under its service-level agreements to date. Management said disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth and enterprise customer additions continue, and whether net retention stabilizes or declines further.
- Whether sales and marketing and stock-based compensation growth can translate into improved operating leverage and eventual profitability.
- Cash consumption, customer billings and collections, and the extent to which deferred revenue supports future revenue and liquidity.
- The scale of future lease and other commitments, including the Atlanta lease, and the balance of cash and investments available to fund operations.
- Whether service reliability, security, privacy compliance, and customer retention risks result in outages, credits, lost renewals, or additional costs.