PagerDuty, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 31, 2021 (the filing’s fourth quarter ended January 31, 2021). Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
PagerDuty sells subscription-based digital operations management software, primarily through cloud-hosted subscriptions. Its land-and-expand model targets businesses of all sizes; mid-market and enterprise customers contribute most revenue. The company reported 13,837 customers and more than 500 integrations. It acquired DevOps automation provider Rundeck on October 1, 2020.
Financial and operating metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $213.6 | $166.4 |
| Gross profit / gross margin | $182.9 / 86% | $141.8 / 85% |
| Operating loss / operating margin | $(66.3) / (31)% | $(55.6) / (33)% |
| Net loss | $(68.9) | $(50.3) |
| Operating cash flow | $10.1 | $(0.2) |
| Free cash flow, non-GAAP | $5.2 | $(5.3) |
- Revenue rose 28%, primarily from growth in existing customers, including more users and product upsells, and from new customers. Gross margin increased one percentage point, which management attributed to cloud infrastructure efficiency.
- Operating expenses grew 26% to $249.2 million. GAAP losses widened; management cited continued investment in product, sales and marketing, and personnel. Non-GAAP operating loss improved to $19.4 million from $28.4 million; non-GAAP measures exclude, among other items, substantial stock-based compensation.
- Cash, cash equivalents and investments totaled $560.3 million at year-end, compared with $351.4 million a year earlier. Working capital was $465.6 million. Management said available liquidity and subscription cash flows should fund working capital and capital expenditures for at least 12 months.
- PagerDuty issued $287.5 million of 1.25% convertible senior notes due 2025. Their net balance-sheet carrying value was $217.5 million after debt discount and issuance costs; the notes’ estimated fair value was $409.8 million. The company also spent $35.7 million on capped calls intended to reduce potential conversion dilution, subject to a cap.
- Customer count increased to 13,837 from 12,774; customers with over $100,000 ARR increased to 426 from 323. Dollar-based net retention was 121%, versus 122%; management reported total ARR churn below 5% for FY2021.
Fourth-quarter snapshot
For the three months ended January 31, 2021, revenue was $59.3 million, versus $45.9 million a year earlier. Gross margin was 84%, compared with 86%. Operating loss was $18.4 million versus $11.8 million, and net loss was $22.1 million versus $10.4 million. Quarterly results included higher operating expenses and interest expense related to the notes.
Material changes, outlook and risks
- The Rundeck acquisition cost $95.5 million in cash and stock consideration and added $72.1 million of goodwill. Acquisition-related transaction costs and acquired-intangible amortization affected FY2021 results.
- COVID-19 disrupted customer activity: management reported increased churn and fewer users at some customers, with particular uncertainty around small and medium businesses, customer spending, contract duration, collections and sales cycles. Remote work and virtual events also changed operations and marketing activities. The full future impact was uncertain.
- Management plans continued spending on research and development, sales and marketing, customer success and international expansion, which may weigh on near-term profitability. The filing provides no numerical revenue or earnings guidance.
- Key risks include persistent operating losses, competition and pricing pressure, reliance on On-Call Management for substantially all revenue, customer renewal and expansion, service availability and cybersecurity, privacy and regulatory compliance, and the ability to integrate acquisitions.
- The company reported $303.7 million of scheduled principal and interest payments on the notes over the next five years, alongside operating lease commitments of $35.4 million and purchase commitments of $24.5 million. Note conversion, repurchase provisions and potential share issuance may affect liquidity and dilution.
- No pending legal proceeding was identified as likely to have a material adverse effect. The independent auditor gave unqualified opinions on the financial statements and internal control; Rundeck was excluded from the year-end internal-control assessment while being integrated.
Important facts for investors to verify
- Whether revenue growth, customer expansion and 121% net retention remain durable, particularly as COVID-related customer and user trends develop.
- How much of reported operating cash flow and free cash flow depends on advance billings and deferred revenue, and whether collections and receivables remain sound.
- The continuing impact of stock-based compensation, acquisition costs and note-related interest expense on GAAP losses and share dilution.
- Rundeck’s integration, growth contribution, and whether acquired goodwill and intangible assets remain recoverable.
- The conversion, capped-call and repayment terms of the 2025 notes, including potential cash needs or dilution under relevant scenarios.