PagerDuty, Inc. Q3 FY2021 earnings

PagerDuty posted third quarter fiscal 2021 revenue of $53.8 million, up 25.8% from the prior-year quarter. GAAP gross profit was $46.1 million, up 27.6%, and GAAP gross margin was 85.7%, up 1.2 percentage points. The revenue increase came from both new and existing customers, with expansion driven by more users and upsell of additional products. That expansion showed up in the customer metrics. PagerDuty had 13,725 customers as of October 31, 2020, compared with 12,436 a year earlier. Customers with more than $100,000 in annual recurring revenue reached 401, up from 303.

The company continued to invest heavily, and GAAP losses widened. GAAP operating loss was $21.8 million, and that loss widened from the prior-year quarter. GAAP operating margin was negative 40.6%, down 1.6 percentage points from a year earlier. GAAP net loss was $20.6 million, also wider than the prior-year quarter. GAAP diluted loss per share was $0.26. Operating expenses rose across research and development, sales and marketing, and general and administrative. Management said the general and administrative increase included outside services tied mostly to transaction costs for the Rundeck acquisition.

PagerDuty completed the Rundeck acquisition on October 1, 2020. Rundeck provides DevOps automation for enterprise, and the deal expands the platform beyond incident response into automation and self-healing. The company also reached more than 500 partner ecosystem integrations, a record quarter for channel partner sell-through, and formed a global strategic alliance with Tata Consultancy Services. PagerDuty introduced its free plan during the quarter, and the number of companies using the platform, both paid and free, grew by 18%.

Forward-looking indicators were mixed. Remaining performance obligations were $97.2 million, up 45.3% from the prior-year quarter. Deferred revenue was $107.7 million, up 33.6%. Dollar-based net retention rate for all customers was 119% for the last 12 months ended October 31, 2020, down from 129% a year earlier. Management attributed some pressure to COVID-19, including greater variability in demand from small and medium business customers, increased churn, and a decline in users tied to workforce reductions. It also warned of possible declines in customer demand, reduced customer spend or contract duration, and lengthened payment terms.

Cash generation improved. Operating cash flow was $4.8 million in the quarter, up 41.1% from the prior-year quarter. Year-to-date operating cash flow was $6.7 million, up 439.5% from the prior-year period. Capital expenditures were $0.11 million in the quarter, down 90.6% from the prior-year quarter. On a non-GAAP basis, free cash flow was $4.5 million, or 8.4% of revenue, compared with $2.3 million, or 5.3% of revenue, in the prior-year quarter. Non-GAAP operating loss was $6.3 million, and non-GAAP net loss was $6.9 million. Non-GAAP net loss per share was $0.09, compared with $0.10 in the prior-year quarter.

For the fourth quarter of fiscal 2021, PagerDuty guided to year-over-year revenue growth of 24% to 26% and non-GAAP net loss per share of $0.12 to $0.11 on approximately 82 million shares. For the full fiscal year 2021, the company guided to 27% year-over-year revenue growth and non-GAAP net loss per share of $0.30 to $0.29 on approximately 80 million shares. PagerDuty said it has not reconciled its forward-looking non-GAAP net loss per share to GAAP net loss per share because certain items are out of its control or cannot be reasonably predicted, and a reconciliation for that forward-looking measure is not available without unreasonable effort.