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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
_________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-38856
PAGERDUTY, INC.
(Exact name of registrant as specified in its charter)
_________________________
Delaware
27-2793871
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
600 Townsend St., Suite 200
San Francisco, CA 94103
(844) 800-3889
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
_________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.000005 par valuePDNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x No  o
Indicate by check mark whether the registrant has submitted electronically on its corporate Web site every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  x
The total number of shares of common stock outstanding as of November 30, 2022, was 89,975,860.


PAGERDUTY, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Part II - OTHER INFORMATION



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Form 10-Q, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which statements involve substantial risk and uncertainties. All statements contained in this Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “likely,” “target,” and similar expressions are intended to identify forward-looking statements.
Forward-looking statement contained in this Form 10-Q include, but are not limited to, statements about our expectations regarding:
the impact of an economic downturn or recession, rising inflation or significant market volatility in the global economy on our customers, partners, employees and business;
the effect of uncertainties related to the novel coronavirus and resulting COVID-19 pandemic on U.S. and global markets, our business, operations, revenue results, cash flow, operating expenses, demand for our solutions, sales cycles, customer retention, and our customers’ businesses;
trends in key business metrics, including number of customers and dollar-based net retention rate, and non-GAAP financial measures and their usefulness in evaluating our business;
trends in revenue, cost of revenue, and gross margin;
trends in operating expenses, including research and development, sales and marketing, and general and administrative expense, and expectations regarding these expenses as a percentage of revenue;
our existing cash and cash equivalents and cash provided by sales of our subscriptions being sufficient to support working capital and capital expenditures for at least the next 12 months;
our ability to successfully identify, acquire, and integrate complementary companies, technologies, and assets;
our ability to service the interest on our convertible notes and repay such notes, to the extent required;
our efforts to maintain proper and effective internal controls;
our ability to expand our operations and increase adoption of our platform internationally;
our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
the increased expenses and administrative workload associated with being a public company; and
other statements regarding our future operations, financial condition, and prospects and business strategies.
Such forward-looking statements are based on our expectations as of the date of this filing and are subject to a number of risks, uncertainties and assumptions, including but not limited to, risks detailed in the “Risk Factors” section of this Form 10-Q and in our Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission, or the SEC, that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions,


the future events and trends discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely on forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or may not occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update any of these forward-looking statements for any reason after the date of this Form 10-Q or to conform these statements to actual results or revised expectations.


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
PAGERDUTY, INC.
Condensed Consolidated Balance Sheets
(in thousands)
As of October 31, 2022As of January 31, 2022
(unaudited)
Assets
Current assets:
Cash and cash equivalents$262,333 $349,785 
Investments197,104 193,571 
Accounts receivable, net of allowance for credit losses of $1,515 and $1,809 as of October 31, 2022 and January 31, 2022, respectively
72,628 75,279 
Deferred contract costs, current18,007 16,672 
Prepaid expenses and other current assets13,545 9,777 
Total current assets563,617 645,084 
Property and equipment, net18,339 18,229 
Deferred contract costs, non-current26,968 26,159 
Lease right-of-use assets15,141 20,227 
Goodwill118,862 72,126 
Intangible assets, net40,029 23,133 
Other assets1,054 1,490 
Total assets$784,010 $806,448 
Liabilities, redeemable non-controlling interest, and stockholders’ equity
Current liabilities:
Accounts payable$7,692 $9,505 
Accrued expenses and other current liabilities12,884 13,640 
Accrued compensation34,955 35,327 
Deferred revenue, current175,380 162,881 
Lease liabilities, current6,438 5,637 
Total current liabilities237,349 226,990 
Convertible senior notes, net282,445 281,069 
Deferred revenue, non-current4,335 7,343 
Lease liabilities, non-current14,155 20,912 
Other liabilities3,826 3,159 
Total liabilities542,110 539,473 
Commitments and contingencies (Note 12)
Redeemable non-controlling interest (Note 3)1,551  
Stockholders’ equity:
Common stock
  
Additional paid-in capital696,169 616,467 
Accumulated other comprehensive loss(3,136)(669)
Accumulated deficit(452,684)(348,823)
Total stockholders’ equity240,349 266,975 
Total liabilities, redeemable non-controlling interest, and stockholders’ equity$784,010 $806,448 
See Notes to Condensed Consolidated Financial Statements
5

PAGERDUTY, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

Three Months Ended October 31,Nine Months Ended October 31,
2022202120222021
Revenue$94,203 $71,760 $269,827 $202,887 
Cost of revenue18,007 12,039 52,090 34,433 
Gross profit76,196 59,721 217,737 168,454 
Operating expenses:
Research and development35,004 24,554 100,307 68,062 
Sales and marketing47,118 40,176 143,001 118,224 
General and administrative26,616 19,808 77,316 56,680 
Total operating expenses108,738 84,538 320,624 242,966 
Loss from operations(32,542)(24,817)(102,887)(74,512)
Interest income1,382 705 2,760 2,306 
Interest expense(1,360)(1,350)(4,072)(4,045)
Other expense, net(172)(729)(1,326)(1,931)
Loss before (provision for) benefit from income taxes(32,692)(26,191)(105,525)(78,182)
(Provision for) benefit from income taxes(112)(150)1,302 (378)
Net loss$(32,804)$(26,341)$(104,223)$(78,560)
Net loss attributable to redeemable non-controlling interest(262) (362) 
Net loss attributable to PagerDuty, Inc.$(32,542)$(26,341)$(103,861)$(78,560)
Net loss per share, basic and diluted, attributable to PagerDuty, Inc.$(0.36)$(0.31)$(1.18)$(0.94)
Weighted average shares used in calculating net loss per share, basic and diluted
89,285 85,092 88,200 83,979 
See Notes to Condensed Consolidated Financial Statements
6

PAGERDUTY, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)

Three Months Ended October 31,Nine Months Ended October 31,
2022202120222021
Net loss$(32,804)$(26,341)$(104,223)$(78,560)
Unrealized loss on investments(1,050)(222)(1,952)(534)
Foreign currency translation adjustments(374) (515) 
Total comprehensive loss$(34,228)$(26,563)$(106,690)$(79,094)
Less comprehensive loss attributable to redeemable non-controlling interest:
Net loss attributable to redeemable non-controlling interest(262) (362) 
Foreign currency translation adjustments, attributable to redeemable non-controlling interest2  5  
Comprehensive loss attributable to redeemable non-controlling interest(260) (357) 
Comprehensive loss attributable to PagerDuty, Inc.$(33,968)$(26,563)$(106,333)$(79,094)
7

PAGERDUTY, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
Three Months Ended October 31, 2022
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balances as of July 31, 202288,928,089 $ $672,126 $(1,712)$(420,142)$250,272 
Issuance of common stock upon exercise of stock options328,471 — 2,137 — — 2,137 
Vesting of restricted stock units, net of employee payroll taxes709,089 — (9,864)— — (9,864)
Other comprehensive loss— — — (1,424)— (1,424)
Stock-based compensation— — 31,770 — — 31,770 
Net loss attributable to PagerDuty, Inc.— — — — (32,542)(32,542)
Balances as of October 31, 202289,965,649 $ $696,169 $(3,136)$(452,684)$240,349 


Nine Months Ended October 31, 2022
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balances as of January 31, 202286,758,380 $ $616,467 $(669)$(348,823)$266,975 
Issuance of common stock upon exercise of stock options1,513,581 — 8,728 — — 8,728 
Vesting of restricted stock units, net of employee payroll taxes1,349,991 — (22,187)— — (22,187)
Shares issued related to an asset acquisition62,972 — — — — — 
Issuance of common stock in connection with the Employee Stock Purchase Plan280,725 — 5,736 — — 5,736 
Other comprehensive loss— — — (2,467)— (2,467)
Stock-based compensation— — 87,425 — — 87,425 
Net loss attributable to PagerDuty, Inc.— — — (103,861)(103,861)
Balances as of October 31, 202289,965,649 $ $696,169 $(3,136)$(452,684)$240,349 
8

Three Months Ended October 31, 2021
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balances as of July 31, 202184,801,124 $ $578,728 $31 $(293,587)$285,172 
Issuance of common stock upon exercise of stock options and restricted stock agreements724,725 — 4,286 — — 4,286 
Vesting of restricted stock units, net of employee payroll taxes269,436 — (7,616)— — (7,616)
Other comprehensive loss— — — (222)— (222)
Stock-based compensation— — 18,110 — — 18,110 
Net loss— — — — (26,341)(26,341)
Balances as of October 31, 202185,795,285 $ $593,508 $(191)$(319,928)$273,389 

Nine Months Ended October 31, 2021
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balances as of January 31, 202182,882,424 $ $614,494 $343 $(248,110)$366,727 
Cumulative effect adjustment due to adoption of ASU 2020-06— — (68,478)— 6,742 (61,736)
Issuance of common stock upon exercise of stock options and restricted stock agreements2,010,991 — 12,508 — — 12,508 
Vesting of restricted stock units, net of employee payroll taxes
677,323 — (18,619)— — (18,619)
Shares issued related to a business combination2,073 — — — — — 
Issuance of common stock in connection with employee stock purchase
plan
222,474 — 4,889 — — 4,889 
Other comprehensive loss— — — (534)— (534)
Stock-based compensation
— — 48,714 — — 48,714 
Net loss
— — — — (78,560)(78,560)
Balances as of October 31, 202185,795,285 $ $593,508 $(191)$(319,928)$273,389 

See Notes to Condensed Consolidated Financial Statements
9

PAGERDUTY, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended October 31,
20222021
Cash flows from operating activities
Net loss attributable to PagerDuty, Inc.$(103,861)$(78,560)
Net loss attributable to redeemable non-controlling interest (Note 3)(362) 
Net loss(104,223)(78,560)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization12,778 6,160 
Amortization of deferred contract costs14,178 10,651 
Amortization of debt issuance costs1,376 1,350 
Stock-based compensation86,478 47,866 
Non-cash lease expense2,913 3,331 
Tax benefit related to release of valuation allowance(1,330) 
Other1,686 2,592 
Changes in operating assets and liabilities:
Accounts receivable3,048 360 
Deferred contract costs(16,323)(16,842)
Prepaid expenses and other assets(2,934)(857)
Accounts payable(1,117)3,836 
Accrued expenses and other liabilities(1,350)(79)
Accrued compensation(624)3,760 
Deferred revenue8,635 12,878 
Lease liabilities(3,783)(3,812)
Net cash used in operating activities(592)(7,366)
Cash flows from investing activities
Purchases of property and equipment(3,755)(1,376)
Capitalization of internal-use software costs(2,725)(2,701)
Business acquisition, net of cash acquired(66,262)(160)
Asset acquisition(1,845) 
Purchases of available-for-sale investments(155,310)(150,608)
Proceeds from maturities of available-for-sale investments149,625 156,616 
Proceeds from sales of available-for-sale investments 27,380 
Net cash (used in) provided by investing activities(80,272)29,151 
Cash flows from financing activities
Investment from redeemable non-controlling interest holder1,908  
Proceeds from employee stock purchase plan5,736 4,889 
Proceeds from issuance of common stock upon exercise of stock options8,459 12,517 
Employee payroll taxes paid related to net share settlement of restricted stock units(22,187)(18,619)
Net cash used in financing activities(6,084)(1,213)
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash(504) 
Net (decrease) increase in cash, cash equivalents, and restricted cash(87,452)20,572 
Cash, cash equivalents, and restricted cash at beginning of period349,785 339,166 
Cash, cash equivalents, and restricted cash at end of period$262,333 $359,738 
Supplemental cash flow data:
Cash paid for income taxes$130 $126 
Cash paid for interests$1,797 $1,797 
Non-cash investing and financing activities:
Purchase of property and equipment, accrued but not yet paid$828 $823 
Stock-based compensation capitalized in internal use software$947 $848 
Bonuses capitalized in internal use software$263 $121 
Receivables for cash in-transit on stock options$269 $9 

See Notes to Condensed Consolidated Financial Statements
10

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Description of Business and Basis of Presentation
Description of Business
PagerDuty, Inc. was incorporated under the laws of the state of Delaware in May 2010.
PagerDuty is a digital operations management platform that manages urgent and mission-critical work for a modern, digital business. PagerDuty collects data and digital signals from virtually any software-enabled system or device and leverages powerful machine learning to correlate, process, and predict opportunities and issues. Using incident response, event management, and automation, the Company brings together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are.
As used herein, “PagerDuty”, “we”, “our”, “the Company” and similar terms include PagerDuty, Inc., unless the context indicates otherwise.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated balance sheet as of January 31, 2022 was derived from the audited consolidated financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended January 31, 2022, included in the Company’s Annual Report on Form 10-K, filed with the SEC.
The condensed consolidated financial statements include the results of the Company, its wholly owned subsidiaries, and subsidiaries in which the Company holds a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of the Company’s financial position, results of operations and comprehensive loss, statements of stockholders’ equity, and cash flows. The results of operations for the three and nine months ended October 31, 2022 are not necessarily indicative of the results to be expected for the full year ending January 31, 2023 or for any other interim period, or for any future year.
The Company’s fiscal year ends on January 31. References to fiscal 2023, for example, refer to the fiscal year ending January 31, 2023.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s most significant estimates and judgments involve the period of benefit for amortizing deferred contract costs, the determination of the allowance for credit losses, the provision for income taxes, including the related valuation allowance and any uncertain tax positions, fair value of acquired assets and assumed liabilities, impairment of goodwill and intangible assets, and estimates related to our revenue recognition, such as the assessment of
11

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
performance obligations in our revenue arrangements and the fair value assigned to each performance obligation, among others. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Foreign Currency Translations
The functional currency for the large majority of the Company's foreign operations is the U.S. dollar, although the Company has one subsidiary use the local currency as its functional currency for the three and nine months ended October 31, 2022. When a consolidated entity’s functional currency is the local currency, the Company translates the foreign functional currency financial statements to U.S. dollars using the exchange rates at the balance sheet date for assets and liabilities, the period average exchange rates for revenues and expenses, and the historical exchange rates for equity.

2. Summary of Significant Accounting Policies
Concentrations of Risk and Significant Customers
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, available-for-sale investments, and accounts receivable. All of the Company’s cash and cash equivalents and investments are invested in money market funds, U.S. Treasury securities, commercial paper, corporate debt securities, or U.S. Government agency securities that management believes to be of high credit quality.
No single customer accounted for 10% of the total accounts receivable balance as of October 31, 2022 or January 31, 2022. No single customer represented 10% or more of revenue for the three and nine months ended October 31, 2022 or 2021.
Segment Information
The Company manages its operations and allocates resources as one operating segment. The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources. Refer to Note 17, “Geographic Information” for information regarding the Company's long-lived assets and revenue by geography.
Related Party Transaction
Certain members of the Company’s Board of Directors serve as directors of, or are executive officers of, and in some cases are investors in, companies that are customers or vendors of the Company. The Company billed $1.6 million and $2.2 million to entities associated with related parties during the nine months ended October 31, 2022 and 2021, respectively. The Company recognized $1.1 million of revenue associated with related parties during the nine months ended October 31, 2021. Other related party transactions were not material for the three and nine months ended October 31, 2022 and 2021.
Significant Accounting Policies
There have been no significant changes to our significant accounting policies as compared to those described in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022 other than as set forth below.
Redeemable Non-Controlling Interest
During the quarter ended July 31, 2022, the Company established a joint venture with Japan Cloud Computing II L.P. (the “Investor”) in Japan (“PagerDuty K.K.”), which is a variable interest entity, obtaining a 51% controlling interest. The Company has consolidated the financial results of the joint venture.
12

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The agreements with the non-controlling interest holders of PagerDuty K.K. contain redemption features whereby the interest held by the non-controlling interest holders is redeemable either (i) at the option of the non-controlling interest holders or (ii) at the option of the Company, both beginning on the tenth anniversary of the initial capital contribution. The balance of the redeemable non-controlling interest is reported at the greater of the initial carrying amount adjusted for the redeemable non-controlling interest's share of earnings or losses and other comprehensive income or loss, or its estimated redemption value. The resulting changes in the estimated redemption amount are recorded with corresponding adjustments against additional paid-in-capital due to the absence of retained earnings. The carrying amount of the redeemable non-controlling interest is recorded on the Company's condensed consolidated balance sheets as temporary equity. There were no adjustments attributable to redeemable non-controlling interest in the three and nine months ended October 31, 2022.
Recently Adopted Accounting Pronouncements
In March 2022, the FASB issued Accounting Standard Update No. 2022-01 (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with Customers). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU is part of the FASB's simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The Company early adopted ASU 2022-01 as of February 1, 2022 using the prospective method. The adoption of the standard impacted the accounting for the acquisition of Catalytic, Inc. (“Catalytic”) requiring the Company to measure acquired contract assets and liabilities in accordance with ASC 606. The adoption of ASU 2021-08 did not have a material impact on the condensed consolidated financial statements.

3. Redeemable Non-Controlling Interest
In May 2022, the Company established a joint venture, PagerDuty K.K, which is a variable interest entity. The Company obtained a 51% controlling interest and has consolidated the financial results of the joint venture.
The following table summarizes the activity in the redeemable non-controlling interest for the period indicated below:
Three Months Ended October 31, 2022Nine Months Ended October 31, 2022
(in thousands)
Balance at beginning of period$1,811 $ 
Investment by redeemable non-controlling interest 1,908 
Net loss attributable to redeemable non-controlling interest(262)(362)
Foreign currency translation adjustments2 5 
Balance at end of period$1,551 $1,551 

4. Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and investments consisted of the following:
13

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of October 31, 2022As of January 31, 2022
(in thousands)
Cash and cash equivalents
Cash
$118,604 $268,091 
Money market funds
141,730 73,194 
Commercial paper1,999 5,500 
U.S. Treasury securities 3,000 
Total cash and cash equivalents$262,333 $349,785 
Available-for-sale investments:
U.S. Treasury securities$50,569 $41,105 
Commercial paper31,638 39,483 
Corporate debt securities
108,964 112,983 
U.S. Government agency securities5,933  
Total available-for-sale investments$197,104 $193,571 
The following tables summarize the Company’s investments’ adjusted cost, net unrealized losses, and fair value by significant investment category as of October 31, 2022 and January 31, 2022. Gross realized gains or losses from sales of available-for-sale securities were not material for the three and nine months ended October 31, 2022.
As of October 31, 2022
Cost BasisUnrealized LossRecorded Basis
(in thousands)
Available-for-sale investments:
U.S. Treasury securities$50,685 $(116)$50,569 
Commercial paper31,918 (280)31,638 
Corporate debt securities111,124 (2,160)108,964 
U.S. Government agency securities5,998 (65)5,933 
Total available-for-sale investments$199,725 $(2,621)$197,104 
As of January 31, 2022
Cost BasisUnrealized Loss, NetRecorded Basis
(in thousands)
Available-for-sale investments:
U.S. Treasury securities$41,147 $(42)$41,105 
Commercial paper39,528 (45)39,483 
Corporate debt securities113,565 (582)112,983 
Total available-for-sale investments$194,240 $(669)$193,571 
The following tables present the Company’s available-for-sale securities by contractual maturity date as of October 31, 2022 and January 31, 2022:
14

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of October 31, 2022
Cost BasisRecorded Basis
(in thousands)
Due within one year$150,320 $148,732 
Due between one to five years49,405 48,372 
Total$199,725 $197,104 
As of January 31, 2022
Cost BasisRecorded Basis
(in thousands)
Due within one year$154,692 $154,455 
Due between one to five years39,548 39,116 
Total$194,240 $193,571 
As of October 31, 2022, there were 92 available-for-sale securities in an unrealized loss position, 27 of which were in a continuous unrealized loss position for the last 12 months. The total unrealized loss related to the 27 securities was $1.0 million. As of January 31, 2022, there were 69 available-for-sale securities in an unrealized loss position, seven of which were in a continuous unrealized loss position for the last 12 months. The total unrealized loss related to the seven securities was $0.7 million.
When evaluating investments for impairment, the Company reviews factors such as the extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not that the Company will be required to sell, the investment before recovery of the investment’s amortized cost. No impairment loss has been recorded on the securities included in the tables above, as the Company believes that any decrease in fair value of these securities is temporary and the Company expects to recover at least up to the initial cost of the investment for these securities. The Company has not recorded an allowance for credit losses, as the Company believes any such losses would be immaterial based on the high-grade credit rating for each of its marketable securities as of the end of each period.

5. Fair Value Measurements
The Company measures its financial assets and liabilities at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value, as follows:
Level 1—Valuations based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2—Valuations based on inputs that are directly or indirectly observable in the marketplace.
Level 3—Valuations based on unobservable inputs that are supported by little or no market activity.
The following tables present information about the Company’s financial assets that are required to be measured or disclosed at fair value using the above input categories:
15

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of October 31, 2022
Level 1Level 2Level 3Total
(in thousands)
Money market funds$141,730 $ $ $141,730 
U.S. Treasury securities 50,569  50,569 
Commercial paper1,999 31,638  33,637 
Corporate debt securities 108,964  108,964 
U.S. Government agency securities 5,933  5,933 
Total$143,729 $197,104 $ $340,833 
Included in cash equivalents$143,729 
Included in investments$197,104 
As of January 31, 2022
Level 1Level 2Level 3Total
(in thousands)
Money market funds$73,194 $ $ $73,194 
U.S. Treasury securities3,000 41,105  44,105 
Commercial paper5,500 39,483  44,983 
Corporate debt securities 112,983  112,983 
Total$81,694 $193,571 $ $275,265 
Included in cash equivalents$81,694 
Included in investments$193,571 
The Company’s assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy.
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of October 31, 2022 and January 31, 2022, the Company’s Level 2 securities were priced by pricing vendors. These pricing vendors utilize observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities.
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable approximate fair value due to their short-term maturities and are excluded from the fair value table above.
Convertible Senior Notes
As of October 31, 2022, the estimated fair value of our 1.25% Convertible Senior Notes due 2025 (the “Notes”) was approximately $282.6 million. The fair value was determined based on the quoted price for the Notes in an inactive market on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

6. Business Combinations
On March 8, 2022, the Company completed the acquisition of Catalytic, a provider of a no-code/low-code workflow automation application. The Company acquired Catalytic for purchase consideration of $68.8 million in cash. The acquisition was accounted for as a business combination and the acquired assets and liabilities were recorded at their preliminary fair values on the acquisition date and any excess was recorded as goodwill. The values
16

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of October 31, 2022, the primary area that remains preliminary relates to the valuation of certain tax-related items.
The following table presents the preliminary fair values of acquired assets and liabilities recorded in the Company’s condensed consolidated balance sheet as of the acquisition date:
(in thousands)
Cash and cash equivalents$2,506 
Accounts receivable and other assets801 
Prepaid and other current assets841 
Intangible assets21,800 
Goodwill46,736 
Accounts payable and other liabilities(408)
Deferred revenue(856)
Other tax liabilities(1,322)
Deferred tax liability(1,330)
Total purchase consideration$68,768 
The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings. Goodwill is not deductible for income tax purposes.
In connection with the acquisition, the Company recognized a net deferred tax liability for approximately $1.3 million, generated primarily from the difference between the tax basis and fair value of the acquired intangible assets, which increased goodwill. As the Company has a full valuation allowance as of October 31, 2022, the Company recorded an income tax benefit for this net deferred tax liability in the condensed consolidated statement of operations for the nine months ended October 31, 2022. Refer to Note 16, "Income Taxes", for further information.
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:
Fair ValueUseful Life
(in thousands)(in years)
Developed technology$19,200 3
Customer relationships$2,600 10
This business combination resulted in increases of $46.7 million to goodwill, $19.2 million to developed technology and $2.6 million to customer relationships. The Company also entered into holdback agreements with the two founders of Catalytic with $3.4 million held back in cash which are subject to the recipients’ continued service with the Company and thus excluded from the purchase price and will be recognized ratably as research and development expense over the required two-year service period.
From the date of the acquisition, the financial results of Catalytic have been included in and are immaterial to the Company’s condensed consolidated financial statements. Pro forma revenue and results of operations have not been presented because the historical results are not material to the condensed consolidated financial statements in any period presented.
17

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company did not complete any other business combinations in the three and nine months ended October 31, 2022.
7. Goodwill and Acquired Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended October 31, 2022 are as follows:
Goodwill
(in thousands)
Balance as of January 31, 2022$72,126 
Goodwill resulting from business combination46,736 
Balance as of October 31, 2022$118,862 
Acquired intangible assets subject to amortization consist of the following:
As of October 31, 2022
CostAccumulated AmortizationNetWeighted Average
Remaining Useful Life
(in thousands)(in years)
Customer relationships$24,400 $(4,709)$19,691 8.1
Developed technology24,800 (6,462)18,338 2.5
Trademarks400 (400) 0.0
Assembled workforce2,527 (527)2,000 1.6
Total acquired intangibles, net$52,127 $(12,098)$40,029 
As of January 31, 2022
CostAccumulated AmortizationNetWeighted Average
Remaining Useful Life
(in thousands)(in years)
Customer relationships$21,800 $(2,907)$18,893 8.7
Developed technology5,600 (1,493)4,107 3.7
Trademarks400 (267)133 0.7
Total acquired intangibles, net$27,800 $(4,667)$23,133 
For the three months ended October 31, 2022 and 2021, amortization expense related to intangible assets was $2.6 million and $0.9 million, respectively. For the nine months ended October 31, 2022 and 2021, amortization expense related to acquired intangible assets was $7.4 million and $2.6 million, respectively.
18

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
8. Property and Equipment, Net
Property and equipment, net, consisted of the following:
As of October 31, 2022As of January 31, 2022
(in thousands)
Leasehold improvements$15,599 $15,392 
Computers and equipment9,168 7,483 
Furniture and fixtures4,774 4,686 
Capitalized internal-use software9,389 6,136 
Gross property and equipment (1)
38,930 33,697 
Accumulated depreciation and amortization(20,591)(15,468)
Property and equipment, net$18,339 $18,229 
(1) Gross property and equipment includes construction-in-progress for leasehold improvements and capitalized internal-use software of $4.6 million and $6.9 million that had not yet been placed in service as of October 31, 2022 and January 31, 2022, respectively. The costs associated with construction-in-progress are not amortized until the asset is available for its intended use.
Depreciation and amortization expense was $1.8 million and $1.3 million for the three months ended October 31, 2022 and 2021, respectively. Depreciation and amortization expense was $5.1 million and $3.4 million for the nine months ended October 31, 2022 and 2021, respectively.
In the nine months ended October 31, 2022, the Company recorded an impairment charge of $0.7 million on its capitalized internal-use software included in construction-in-progress. It was determined that the developed technology would not be placed in service as the technology was replaced with the acquired technology of Catalytic.

9. Deferred Contract Costs
Deferred contract costs, which primarily consist of deferred sales commissions, were $45.0 million and $42.8 million as of October 31, 2022 and January 31, 2022, respectively. Amortization expense for deferred contract costs was $4.9 million and $3.9 million for the three months ended October 31, 2022 and 2021, respectively. Amortization expense for deferred contract costs was $14.2 million and $10.7 million for the nine months ended October 31, 2022 and 2021, respectively. There was no impairment charge related to the costs capitalized for the periods presented.

10. Leases
Operating Leases
The Company has entered into various non-cancellable operating leases for its office spaces with lease periods expiring between fiscal 2023 and fiscal 2029. The operating lease agreements generally provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised.
Lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease right-of-use assets also include any lease payments made and exclude lease incentives such as tenant improvement allowances.
19

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The operating leases typically include non-lease components such as common-area maintenance costs. The Company has elected to include non-lease components with lease payments for the purpose of calculating lease right-of-use assets and liabilities, to the extent that they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments.
Leases with a term of one year or less are not recognized on our condensed consolidated balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The following table presents information about leases on the condensed consolidated balance sheet.
As of October 31, 2022As of January 31, 2021
(in thousands)
Assets
Lease right-of-use assets$15,141 $20,227 
Liabilities
Lease liabilities6,438 5,637 
Lease liabilities, non-current14,155 20,912 
As of October 31, 2022, the weighted average remaining lease term was 3.9 years and the weighted average discount rate used to determine the net present value of the lease liabilities was 3.7%.
The following table presents information about leases on the condensed consolidated statement of operations.
Three Months Ended October 31,Nine Months Ended October 31,
2022202120222021
(in thousands)
Operating lease expense$1,371 $1,401 $4,293 $4,173 
Short-term lease expense