Information technology operations management firm PagerDuty Inc. made strong gains in extended trading today, its stock rising more than 11% after posting third-quarter results and a revenue outlook for the current quarter that beat expectations.

The company reported a loss before certain costs such as stock compensation of $24.8 million, or 7 cents per share. Revenue for the period rose about 34% from a year ago, to $71.8 million.

Wall Street had forecast a bigger loss of nine cents per share on lower sales of $70.2 million.

PagerDuty founder and Chief Executive Jennifer Tejada (pictured) called the company’s performance in the quarter “outstanding,” delivering record-breaking revenue.

“Our product innovation continues to accelerate across use cases and departments as we empower enterprises to mature their digital operations and deliver superior customer experiences,” she said.

PagerDuty is in the so-called observability business, selling a cloud monitoring platform that’s used to notify developers and engineers of any technical issues with their applications and the infrastructure they run on. The company’s also sells tools used to troubleshoot any issues that are found as quickly as possible, helping its customers to avoid any downtime.

During the quarter PagerDuty updated its Operations Cloud with a number of new capabilities in its fall product release.

Observability tools such as PagerDuty’s are in strong demand, and that was evident with the company’s impressive customer growth. PagerDuty reported that the number of customers spending more than $100,000 a year on its products grew by 35%, to 543. Overall, its customer base grew 6% year-over-year, to 14,486.

Those new customers included some big names, including Albertsons Companies, Inc., Cox Automotive Inc. and Shopify Inc.

PagerDuty’s success isn’t only from customer growth, though. It’s also squeezing more money from its existing users. It reported a dollar-based net retention rate of 124% at the end of the quarter, up from 119% a year ago. Net retention rate is a key metric that represents how much revenue growth or churn a company has over time from its existing customer base.

Holger Mueller of Constellation Research Inc. told SiliconANGLE PagerDuty’s growth is powered by the need of enterprises becoming software companies, which requires them having to automate their software supply chains. He said the company’s books look healthy and that it is managing its costs well, even with its research and development costs growing by 50%.

“It’s rare that we see smaller software vendors invest so much in R&D to the point their spending outgrows that of marketing and sales spend by almost double, and that’s a good sign,” Mueller said. “Still, PagerDuty continues to run at a loss, with its loss per share growing by 5 cents. But that is a price investors are likely willing to pay as long as PagerDuty continually innovates.”

The company gave investors even more reason to be cheerful when it issued its fourth-quarter guidance. PagerDuty said it’s expecting a loss of five to six cents per share on revenue of $75.5 million to $76.5 million. That’s better than expected, with Wall Street modeling a loss of eight cents per share on revenue of $73.7 million.

For the full year, PagerDuty raised its revenue guidance, saying it now sees annual sales in a range of $278.5 million to $279.5 million, versus the $275 million analyst forecast.

Photo: SiliconANGLE