Company Quick10K Filing
PagerDuty
Price28.24 EPS-1
Shares76 P/E-54
MCap2,146 P/FCF-1,087
Net Debt-176 EBIT-39
TEV1,970 TEV/EBIT-50
TTM 2019-10-31, in MM, except price, ratios
10-Q 2020-04-30 Filed 2020-06-05
10-K 2020-01-31 Filed 2020-03-19
10-Q 2019-10-31 Filed 2019-12-06
10-Q 2019-07-31 Filed 2019-09-06
10-Q 2019-04-30 Filed 2019-06-07
S-1 2019-03-15 Public Filing
8-K 2020-06-22
8-K 2020-06-16
8-K 2020-06-04
8-K 2020-03-18
8-K 2019-12-11
8-K 2019-12-05
8-K 2019-09-18
8-K 2019-09-05
8-K 2019-06-06
8-K 2019-04-15

PD 10Q Quarterly Report

Part I - Financial Information
Part II - Other Information
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 pagerdutyq12021ex101.htm
EX-31.1 pagerdutyq12020ex311.htm
EX-31.2 pagerdutyq12020ex312.htm
EX-32.1 pagerdutyq12020ex321.htm

PagerDuty Earnings 2020-04-30

Balance SheetIncome StatementCash Flow
0.50.40.30.20.10.02018201820192020
Assets, Equity
0.10.10.0-0.0-0.1-0.12018201820192020
Rev, G Profit, Net Income
0.30.20.10.0-0.1-0.22018201820192020
Ops, Inv, Fin

Document
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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 April 30, 2020
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 class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.000005 par value
 
PD
 
New 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
o
 
Accelerated filer
o
Non-accelerated filer
x
 
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 June 3, 2020, was 78,704,825.



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 report 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,” 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 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 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. 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 April 30, 2020
 
As of January 31, 2020
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
139,455

 
$
124,024

Accounts receivable, net of allowance for doubtful accounts of $1,490 and $810 as of April 30, 2020 and January 31, 2020, respectively
36,527

 
37,128

Investments
211,352

 
227,375

Deferred contract costs, current
9,769

 
9,301

Prepaid expenses and other current assets
10,209

 
7,163

Total current assets
407,312

 
404,991

Property and equipment, net
13,211

 
12,369

Deferred contract costs, non-current
16,335

 
16,387

Lease right-of-use assets
28,000

 

Other assets
1,461

 
1,651

Total assets
$
466,319

 
$
435,398

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
4,625

 
$
6,434

Accrued expenses and other current liabilities
6,374

 
7,197

Accrued compensation
14,911

 
13,911

Deferred revenue, current
91,648

 
87,490

Lease liabilities, current
4,633

 

Total current liabilities
122,191

 
115,032

Deferred revenue, non-current
4,798

 
5,079

Lease liabilities, non-current
30,260

 

Other liabilities
1,527

 
7,349

Total liabilities
158,776

 
127,460

Commitments and contingencies (Note 8)

 

Stockholders’ equity:
 
 
 
Common stock

 

Additional paid-in capital
497,430

 
487,008

Accumulated other comprehensive income
779

 
137

Accumulated deficit
(190,666
)
 
(179,207
)
Total stockholders’ equity
307,543

 
307,938

Total liabilities and stockholders’ equity
$
466,319

 
$
435,398

See Notes to Condensed Consolidated Financial Statements

5


PAGERDUTY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)
 
Three Months Ended April 30,
 
2020
 
2019
Revenue
$
49,786

 
$
37,314

Cost of revenue
6,963

 
5,486

Gross profit
42,823

 
31,828

Operating expenses:
 
 
 
Research and development
15,014

 
10,906

Sales and marketing
26,736

 
21,167

General and administrative
13,673

 
12,484

Total operating expenses
55,423

 
44,557

Loss from operations
(12,600
)
 
(12,729
)
Interest income
1,353

 
889

Other income, net
19

 
21

Loss before provision for income taxes
(11,228
)
 
(11,819
)
Provision for income taxes
(231
)
 
(245
)
Net loss
$
(11,459
)
 
$
(12,064
)
Other comprehensive income:
 
 
 
Unrealized gain on investments
642

 

Total comprehensive loss
$
(10,817
)
 
$
(12,064
)
Net loss per share, basic and diluted
$
(0.15
)
 
$
(0.37
)
Weighted average shares used in calculating net loss per share, basic and diluted
77,770

 
32,510

See Notes to Condensed Consolidated Financial Statements

6


PAGERDUTY, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
 
Three Months Ended April 30, 2020
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Other Comprehensive Income
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
 
 
Balances as of January 31, 2020
77,793,540

 
$

 
$
487,008

 
$
137

 
$
(179,207
)
 
$
307,938

Issuance of common stock upon exercise of stock options and restricted stock agreements, net of repurchases
729,425

 

 
1,844

 

 

 
1,844

Vesting of restricted stock units, net of employee payroll taxes
3,039

 

 
(46
)
 

 

 
(46
)
Vesting of early exercised options

 

 
316

 

 

 
316

Stock-based compensation

 

 
8,308

 

 

 
8,308

Other comprehensive income

 

 

 
642

 

 
642

Net loss

 

 

 

 
(11,459
)
 
(11,459
)
Balances as of April 30, 2020
78,526,004

 
$

 
$
497,430

 
$
779

 
$
(190,666
)
 
$
307,543



 
Three Months Ended April 30, 2019
 
Redeemable Convertible
Preferred Stock
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Total
Stockholders’
Equity (Deficit)
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Balances as of January 31, 2019
41,273,345

 
$
173,023

 
 
23,189,921

 
$

 
$
59,938

 
$
(128,868
)
 
$
(68,930
)
Issuance of common stock upon exercise of stock options and restricted stock agreements, net of repurchases

 

 
 
951,830

 

 
2,240

 

 
2,240

Exercise of common stock warrants

 

 
 
737,807

 

 

 

 

Issuance of common stock in connection with initial public offering, net of underwriting discounts and issuance costs

 

 
 
9,860,500

 

 
213,697

 

 
213,697

Conversion of convertible preferred stock to common stock in connection with initial public offering
(41,273,345
)
 
(173,023
)
 
 
41,273,345

 

 
173,023

 

 
173,023

Repayment of promissory note

 

 
 

 

 
515

 

 
515

Vesting of early exercised options

 

 
 

 

 
334

 

 
334

Stock-based compensation

 

 
 

 

 
4,812

 

 
4,812

Net loss

 

 
 

 

 

 
(12,064
)
 
(12,064
)
Balances as of April 30, 2019

 
$

 
 
76,013,403

 
$

 
$
454,559

 
$
(140,932
)
 
$
313,627


See Notes to Condensed Consolidated Financial Statements

7


PAGERDUTY, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Three Months Ended April 30,
 
2020
 
2019
Cash flows from operating activities
 
 
 
Net loss
$
(11,459
)
 
$
(12,064
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
1,023

 
470

Amortization of deferred contract costs
2,440

 
1,608

Stock-based compensation
8,308

 
4,812

Non-cash lease expense
1,089

 

Other
743

 
281

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(8
)
 
1,588

Deferred contract costs
(2,856
)
 
(2,782
)
Prepaid expenses and other assets
(2,919
)
 
(1,635
)
Accounts payable
(1,049
)
 
(1,094
)
Accrued expenses and other liabilities
619

 
124

Accrued compensation
1,000

 
(1,315
)
Deferred revenue
3,877

 
2,441

Lease liabilities
(993
)
 

Net cash used in operating activities
(185
)
 
(7,566
)
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(2,713
)
 
(1,190
)
Proceeds from maturities of held-to-maturity investments
15,000

 

Purchases of available-for-sale investments
(32,130
)
 

Proceeds from maturities of available-for-sale investments
30,565

 

Proceeds from sales of available-for-sale investments
3,096

 

Net cash provided by (used in) investing activities
13,818

 
(1,190
)
Cash flows from financing activities
 
 
 
Proceeds from initial public offering, net of underwriters' discounts and commissions

 
220,086

Payments of costs related to initial public offering

 
(3,923
)
Proceeds from repayment of promissory note

 
515

Proceeds from issuance of common stock upon exercise of stock options
1,844

 
2,240

Employee payroll taxes paid related to net share settlement of restricted stock units
(46
)
 

Net cash provided by financing activities
1,798

 
218,918

Net increase in cash, cash equivalents, and restricted cash
15,431

 
210,162

Cash, cash equivalents, and restricted cash at beginning of period
124,024

 
130,323

Cash, cash equivalents, and restricted cash at end of period
$
139,455

 
$
340,485

 
 
 
 
Supplemental cash flow data:
 
 
 
Cash paid for taxes
$

 
$
2

Non-cash investing and financing activities:
 
 
 
Vesting of early exercised options
$
316

 
$
334

Purchase of property and equipment, accrued but not yet paid
$
552

 
$
1,253

Costs related to initial public offering, accrued but not yet paid
$

 
$
2,041

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
 
 
 
Cash and cash equivalents
$
139,455

 
$
338,038

Restricted cash—included in other assets

 
2,447

Total cash, cash equivalents, and restricted cash
$
139,455

 
$
340,485

See Notes to Condensed Consolidated Financial Statements

8


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 acts as the central nervous system for the digital enterprise. PagerDuty harnesses digital signals from virtually any software-enabled system or device, combines it with human response data and orchestrates teams to take the right actions in real time. The Company’s products help organizations improve operations, accelerate innovation, increase revenue, mitigate security risk, and deliver a great customer experience.
As used herein, “PagerDuty”, “we”, “our”, “the Company” and similar terms include PagerDuty, Inc., unless the context indicates otherwise.
Initial Public Offering
On April 15, 2019, the Company completed its initial public offering (IPO), pursuant to which the Company issued and sold 9,860,500 shares of common stock, inclusive of the over-allotment option, at a public offering price of $24.00 per share. The Company received net proceeds of $213.7 million, after deducting underwriters' discounts and commissions of $16.6 million and other issuance costs of $6.4 million. Immediately prior to the closing of the Company’s IPO, all shares of the redeemable convertible preferred stock automatically converted into 41,273,345 shares of common stock.
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, 2020 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, 2020, included in the Company’s Annual Report on Form 10-K, filed with the SEC.
The condensed consolidated financial statements include the results of PagerDuty, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of the Company’s results of operations, financial position, cash flows, and statements of stockholders’ equity. The results of operations for the three months ended April 30, 2020 are not necessarily indicative of the results to be expected for the full year ending January 31, 2021 or for any other interim period, or for any future year.
The Company’s fiscal year ends on January 31. References to fiscal 2021, for example, refer to the fiscal year ended January 31, 2021.
Reclassification
Certain reclassifications of prior period amounts have been made in the Company’s condensed consolidated statements of cash flows to conform to the current period presentation. The Company reclassified the bad debt

9

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

expense line item to the other line item on the accompanying consolidated statements of cash flows. These reclassifications had no effect on the reported results of operations.
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 valuation of the Company’s stock-based awards, including the determination of fair value of common stock (prior to the closing of the IPO) and the fair value of the employee stock purchase plan (ESPP) expense, period of benefit for amortizing deferred contract costs, the determination of the allowance for doubtful accounts, the provision for income taxes, including the related valuation allowance and any uncertain tax positions, and the incremental borrowing rate for lease liabilities, 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.
In December 2019, the novel coronavirus and resulting disease (COVID-19) was reported and in March 2020 the World Health Organization declared it a pandemic. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, and impact on our employees, as discussed in more detail in the Overview section of our Management’s Discussion and Analysis. During the quarter, this uncertainty resulted in a higher level of judgment related to our estimates and assumptions related to the estimate of credit losses for accounts receivable. As of the date of issuance of the financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, judgments, or revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to our financial statements.
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, held-to-maturity investments, available-for-sale investments, and accounts receivable. All of the Company’s cash and cash equivalents and investments are invested in money market funds, United States (U.S.) Treasury securities, commercial paper, corporate debt securities, or U.S. Government agency securities that management believes to be of high credit quality.
One customer accounted for 10% of the total accounts receivable balance as of April 30, 2020. No single customer accounted for more than 10% of the total accounts receivable balance as of January 31, 2020. No single customer represented 10% or more of revenue for the three months ended April 30, 2020 or 2019.
Segment Information
The Company manages 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. See Note 13, “Geographic Information” for information regarding the Company's long-lived assets and revenue by geography.
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, 2020, other than as set forth below.

10

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts. The allowance is based upon historical loss patterns, the age of each past due invoice, and an evaluation of the potential risk of loss associated with delinquent accounts. The allowance also reflects current market conditions and reasonable and supportable forecasts of future economic conditions. As of April 30, 2020, our allowance reflects considerations related to the COVID-19 pandemic and may increase in future periods as we ascertain future impacts to our customers and business. The allowance for doubtful accounts was $1.5 million and $0.8 million as of April 30, 2020 and January 31, 2020.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases, (Topic 842) (ASU 2016-02), which would require lessees to recognize most leases on their balance sheets, whether operating or financing, while continuing to recognize the expenses on their income statements in a manner similar to current practice. The guidance states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The Company adopted the standard using the optional alternative method on a prospective basis with an effective date as of the beginning of the Company’s fiscal year, February 1, 2020, and applied it to the operating leases that existed on that date. Prior year comparative financial information was not recast under the new standard and continues to be presented under ASC 840. The Company elected to utilize the package of practical expedients available for expired or existing contracts which allowed the Company to carryforward historical assessments of (a) whether contracts are or contain leases, (b) lease classification, and (c) initial direct costs. The Company elected to apply the short-term lease exception for all leases. Under the short-term lease exception, the Company will not recognize right-of-use assets or lease liabilities for leases that, at the acquisition date, have a remaining lease term of 12 months or less. As a result of implementing this guidance, the Company recognized a net operating right-of-use asset of $29.1 million and a $35.9 million operating lease liability in its condensed consolidated balance sheets as of February 1, 2020. The adoption of this guidance did not affect our condensed consolidated statements of operations or our condensed consolidated statements of cash flows. See Note 7, “Leases” for further information.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires an entity to utilize a new impairment model known as the current expected credit loss (CECL) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. This guidance also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. The Company adopted the standard as of the beginning of the Company’s fiscal year, February 1, 2020. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820) (ASU 2018-13), which modifies the disclosure requirements for fair value measurements for certain types of investments. We adopted this standard in the first quarter of 2020. The adoption did not have an effect on our consolidated financial statements.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which is intends to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in fiscal 2022, although early adoption is permitted. The Company early adopted the standard as of the beginning of the Company’s fiscal year, February 1, 2020. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements.

11

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)


3. Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and investments consisted of the following:
 
As of April 30, 2020
 
As of January 31, 2020
 
(in thousands)
Cash and cash equivalents
 
 
 
Cash
$
18,510

 
$
2,131

Money market funds
120,395

 
118,899

Commercial paper
550

 

U.S. Treasury securities

 
2,994

Total cash and cash equivalents
$
139,455

 
$
124,024

Available-for-sale investments:
 
 
 
U.S. Treasury securities
$
21,082

 
$
24,987

Commercial paper
10,419

 
20,132

Corporate debt securities
161,804

 
149,248

U.S. Government agency securities
5,000

 
4,973

Total available-for-sale investments
$
198,305

 
$
199,340

Held-to-maturity investments:
 
 
 
U.S. Treasury securities
$
6,012

 
$
9,016

Commercial paper
1,495

 
5,985

Corporate debt securities
5,540

 
13,034

Total held-to-maturities investments
$
13,047

 
$
28,035

Total investments
$
211,352

 
$
227,375


The following tables summarize the Company’s investments’ adjusted cost, net unrealized gains, and fair value by significant investment category as of April 30, 2020 and January 31, 2020. Gross realized gains or losses from sales of available-for-sale securities were not material for the three months ended April 30, 2020.
 
As of April 30, 2020
 
Cost Basis
 
Unrealized Gain, Net
 
Recorded Basis
Available-for-sale investments:
 
 
 
 
 
U.S. Treasury securities
$
20,953

 
$
129

 
$
21,082

Commercial paper
10,415

 
4

 
10,419

Corporate debt securities
161,165

 
639

 
161,804

U.S. Government agency securities
4,993

 
7

 
5,000

Total available-for-sale investments
$
197,526

 
$
779

 
$
198,305

Held-to-maturity investments:

 

 

U.S. Treasury securities
$
6,012

 
$

 
$
6,012

Commercial paper
1,495

 

 
1,495

Corporate debt securities
5,540

 

 
5,540

Total held-to-maturities investments
$
13,047

 
$

 
$
13,047

Total investments
$
210,573

 
$
779

 
$
211,352



12

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 
As of January 31, 2020
 
Cost Basis
 
Unrealized Gain, Net
 
Recorded Basis
Available-for-sale investments:
 
 
 
 
 
U.S. Treasury securities
$
24,978

 
$
9

 
$
24,987

Commercial paper
20,128

 
4

 
20,132

Corporate debt securities
149,124

 
124

 
149,248

U.S. Government agency securities
4,973

 

 
4,973

Total available-for-sale investments
$
199,203

 
$
137

 
$
199,340

Held-to-maturity investments:
 
 
 
 
 
U.S. Treasury securities
$
9,016

 
$

 
$
9,016

Commercial paper
5,985

 

 
5,985

Corporate debt securities
13,034

 

 
13,034

Total held-to-maturities investments
$
28,035

 
$

 
$
28,035

Total investments
$
227,238

 
$
137

 
$
227,375


All of the Company’s held-to-maturity securities have a contractual maturity of less than one year. The following table presents the Company’s available-for-sale securities by contractual maturity date as of April 30, 2020 and January 31, 2020:
 
As of April 30, 2020
 
Cost Basis
 
Recorded Basis
Due within one year
$
133,841

 
$
134,246

Due between one to five years
63,685

 
64,059

Total
$
197,526

 
$
198,305


 
As of January 31, 2020
 
Cost Basis
 
Recorded Basis
Due within one year
$
128,127

 
$
128,169

Due between one to five years
71,076

 
71,171

Total
$
199,203

 
$
199,340


There were no securities in a continuous net loss position for 12 months or longer as of April 30, 2020. When evaluating investments for impairment, we review factors such as length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and our intent to sell, or whether it is more likely than not we 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 we believe that any decrease in fair value of these securities is temporary and we expect to recover at least up to the initial cost of the investment for these securities. We have not recorded an allowance for credit losses, as we believe any such losses would be immaterial based on the high-grade credit rating for each of our marketable securities as of the end of each period.
4. 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:

13

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

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 table presents information about the Company’s financial assets that are required to be measured or disclosed at fair value using the above input categories:
 
As of April 30, 2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Money market funds
$
120,395

 
$

 
$

 
$
120,395

U.S. Treasury securities

 
27,094

 

 
27,094

Commercial paper
550

 
11,914

 

 
12,464

Corporate debt securities

 
167,344

 

 
167,344

U.S. Government agency securities

 
5,000

 

 
5,000

Total
$
120,945

 
$
211,352

 
$

 
$
332,297

Included in cash equivalents
 
 
 
 
 
 
$
120,945

Included in investments
 
 
 
 
 
 
$
211,352


 
As of January 31, 2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Money market funds
$
118,899

 
$

 
$

 
$
118,899

U.S. Treasury securities
2,994

 
34,003

 

 
36,997

Commercial paper

 
26,117

 

 
26,117

Corporate debt securities

 
162,282

 

 
162,282

U.S. Government agency securities

 
4,973

 

 
4,973

Total
$
121,893

 
$
227,375

 
$

 
$
349,268

Included in cash equivalents
 
 
 
 
 
 
$
121,893

Included in investments
 
 
 
 
 
 
$
227,375


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 a remaining maturity of three months or less to be cash equivalents. As of April 30, 2020 and January 31, 2020, 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.

14

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)


5. Property and Equipment, Net
Property and equipment, net, consisted of the following:
 
As of April 30, 2020
 
As of January 31, 2020
 
(in thousands)
Leasehold improvements
$
12,288

 
$
12,257

Computers and equipment
5,617

 
4,431

Furniture and fixtures
3,124

 
2,540

Capitalized internal-use software
389

 
389

Gross property and equipment (1)
21,418

 
19,617

Accumulated depreciation and amortization
(8,207
)
 
(7,248
)
Property and equipment, net
$
13,211

 
$
12,369

(1) Gross property and equipment includes construction-in-progress for leasehold improvements and furniture and fixtures of $0.2 million and $5.1 million that had not yet been placed in service as of April 30, 2020 and January 31, 2020, respectively. The costs associated with construction-in-progress are not amortized until placed in service.
Depreciation and amortization expense was $1.0 million and $0.4 million for the three months ended April 30, 2020 and 2019, respectively.

6. Deferred Contract Costs
Deferred contract costs, which primarily consist of deferred sales commissions, were $26.1 million and $25.7 million as of April 30, 2020 and January 31, 2020, respectively. Amortization expense for deferred contract costs was $2.4 million and $1.6 million for the three months ended April 30, 2020 and 2019, respectively. There was no impairment charge related to the costs capitalized for the periods presented.

15

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

7. Leases
Operating Leases
The Company has entered into various non-cancellable operating leases for its office spaces with lease periods expiring between fiscal 2022 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 our leases do not provide an implicit rate, we use our 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.
Our operating leases typically include non-lease components such as common-area maintenance costs. We have 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. We recognize lease expense for these leases on a straight-line basis over the lease term.
The following tables present information about leases on our condensed consolidated balance sheet.
 
As of April 30, 2020
 
(in thousands)
Assets
 
Lease right-of-use assets
$
28,000

Liabilities
 
Lease liabilities
4,633

Lease liabilities, non-current
30,260


As of April 30, 2020, the weighted average remaining lease term was 6.3 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 our condensed consolidated statement of operations.
 
Three Months Ended
April 30, 2020
 
(in thousands)
Operating lease expense
$
1,442

Short-term lease expense
299

Variable lease expense
302

The following table presents supplemental cash flow information about our leases.
 
Three Months Ended
April 30, 2020
 
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
$
1,138



16

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

As of April 30, 2020, remaining maturities of lease liabilities are as follows:
Year ending January 31,
 
 
(in thousands)
2021
$
4,246

2022
6,303

2023
6,474

2024
6,655

2025
6,854

Thereafter
8,870

Gross lease payments
$
39,402

Less: Imputed interest
(4,509
)
Total
$
34,893


8. Commitments and Contingencies
Legal Matters
From time to time in the normal course of business, the Company may be subject to various claims and other legal matters arising in the ordinary course of business. The Company investigates these claims as they arise and accrues estimates for resolution of legal and other contingencies when losses are probable and estimable. The Company is not currently a party to any legal proceedings and does not anticipate any pending or threatened litigation that would be expected to have a material adverse effect on its financial condition, results of operations, or cash flows.
Warranties and Indemnification
The Company has entered into service-level agreements with a portion of its customers defining levels of uptime reliability and performance and permitting those customers to receive credits if the Company fails to meet the defined levels of uptime. To date, the Company has not experienced any significant failures to meet defined levels of uptime reliability and performance as a result of those agreements and, as a result, the Company has not incurred or accrued any material liabilities related to these agreements in the financial statements.
9. Deferred Revenue and Performance Obligations
The following table presents the changes to the Company’s deferred revenue (in thousands):
 
Three Months Ended April 30,
 
2020
 
2019
Deferred revenue, beginning of period
$
92,569

 
$
64,104

Billings
53,663

 
39,755

Revenue recognized
(49,786
)
 
(37,314
)
Deferred revenue, end of period
$
96,446

 
$
66,545


For the three months ended April 30, 2020 and 2019, the majority of revenue recognized was from the deferred revenue balances at the beginning of each quarter.
As of April 30, 2020 and January 31, 2020, future estimated revenue related to performance obligations for subscriptions with terms of more than one year that are unsatisfied or partially unsatisfied at the end of the reporting periods was approximately $75.2 million and $75.7 million, respectively. The Company expects to satisfy the

17

PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

substantial majority of these unsatisfied performance obligations over the next 24 months and the remainder thereafter. The Company applied the optional exemption for subscriptions with terms of less than a one year.
10. Common Stock and Stockholders’ Equity
Redeemable Convertible Preferred Stock
Immediately prior to the completion of the IPO in April 2019, all shares of redeemable convertible preferred stock then outstanding were converted into 41,273,345 shares of common stock on a one-to-one basis and then immediately reclassified into common stock.
Equity Incentive Plans
The Company has two equity incentive plans: the 2010 Stock Plan (the 2010 Plan) and the 2019 Equity Incentive Plan (the 2019 Plan, collectively the Stock Plans). Upon completion of the Company’s IPO in April 2019, the Company ceased granting awards under the 2010 Plan, and all shares that remained available for future issuance under the 2010 Plan at that time were transferred to the 2019 Plan. The 2019 Plan superseded and replaced the 2010 Plan. As of April 30, 2020 and January 31, 2020, respectively, the Company was authorized to grant up to 17,556,493 shares and 13,126,301 shares of common stock under the Stock Plans.
In March 2019, the Company granted 3,041,000 stock options to existing employees with 50 percent of these options vesting over four years from the grant date and 50 percent vesting over five years from the grant date.
The Company currently uses authorized and unissued shares to satisfy stock award exercises. As of April 30, 2020 and January 31, 2020, there were 13,831,235 shares and 11,841,156 shares available for future issuance under the Stock Plans, respectively.
Shares of common stock reserved for future issuance are as follows:
 
April 30, 2020
Outstanding stock options and unvested RSUs outstanding
16,779,058

Available for future stock option and RSU grants
13,831,235

Available for ESPP
2,417,141

Total common stock reserved at April 30, 2020
33,027,434


Stock Option Activity
Stock option activity is as follows:
 
Number of
Shares
 
Weighted
Average Exercise
Price
 
Weighted
Average
Remaining
Contractual Term
 
Aggregate
Intrinsic Value
 
 
 
 
 
 
 
(in thousands)
Outstanding at January 31, 2020
14,498,045

 
$
7.37

 
7.8 years
 
$
231,300

Granted
140,270

 
$
15.89

 
 
 
 
Exercised
(730,363
)
 
$
2.55

 
 
 
 
Canceled
(540,609
)
 
$
10.54

 
 
 
 
Outstanding at April 30, 2020
13,367,343

 
$
7.59

 
7.6 years
 
$
180,717

Vested as of April 30, 2020
7,421,194

 
$
4.72

 
6.9 years
 
$
121,656



18


The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options on the date of grant. The Company accounts for forfeitures as they occur. The following assumptions were used to calculate the fair value of employee stock option grants made during the periods:
 
Three Months Ended April 30,
 
2020
 
2019
Expected dividend yield

 

Expected volatility
43.3
%
 
42.4% - 42.8%

Expected term (years)
6.1

 
5.5 - 6.9

Risk-free interest rate
0.46% - 0.47%

 
2.32% - 2.48%


Stock options granted during the three months ended April 30, 2020 and 2019 had a weighted average grant date fair value of $6.61 and $10.58 per share, respectively. The aggregate intrinsic value of stock options exercised during the three months ended April 30, 2020 and 2019 was $11.5 million and $19.9 million, respectively.
The intrinsic value for options exercised is the difference between the market value of the stock and the exercise price of the stock option at the date of exercise.
As of April 30, 2020, there was approximately $41.3 million of total unrecognized compensation cost related to unvested stock options granted under the Stock Plans, which will be recognized over a weighted average period of 3.1 years.
Restricted Stock Units
A summary of the Company’s RSU activity and related information is as follow:
 
Number of RSUs
 
Weighted
Average Grant Date Fair Value Per Share
Outstanding at January 31, 2020
1,114,911

 
$
28.10

Granted
2,326,489

 
$
15.89

Vested, net of shares withheld for employee payroll taxes
(3,039
)
 
$
24.88

Canceled
(26,646
)
 
$
28.45

Outstanding at April 30, 2020
3,411,715

 
$
19.78


The Company uses the fair value of RSUs based on the fair value of the underlying shares on the date of grant. The Company accounts for forfeitures as they occur.
As of April 30, 2020, there was $62.7 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 3.7 years based on vesting under the award service conditions.
Employee Stock Purchase Plan
In April 2019, the Board adopted and approved the 2019 Employee Stock Purchase Plan (ESPP), which became effective on April 11, 2019. The ESPP initially reserved and authorized the issuance of up to a total of 1,850,000 shares of common stock to participating employees. Pursuant to the terms of the ESPP, the number of shares reserved under the ESPP increased by 777,916 shares on February 1, 2020. The ESPP generally provides for 24-month offering periods, with each offering period consisting of four six-month purchase periods, except for the initial offering period which began on April 11, 2019 and ended on December 13, 2019. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market

19


value of the Company’s stock as of the beginning of the offering period or (2) the fair market value of the Company’s stock on the purchase date, as defined in the ESPP.
During the three months ended April 30, 2020 and 2019, the Company recognized $1.6 million and $0.4 million of stock-based compensation expense related to ESPP, respectively. During the three months ended April 30, 2020, the Company withheld $1.9 million in contributions from employees. No contributions were withheld on behalf of employees for a future purchase during the three months ended April 30, 2019 due to the timing of payroll deductions.
There were no purchases for the three months ended April 30, 2020 and 2019 related to the ESPP.
Stock-Based Compensation
Stock-based compensation expense included in the Company’s condensed consolidated statements of operations is as follows:
 
Three Months Ended April 30,
 
2020
 
2019
 
(in thousands)
Cost of revenue
$
344

 
$
143

Research and development
2,183

 
860

Sales and marketing
2,285

 
1,464

General and administrative
3,496

 
2,345

Total
$
8,308

 
$
4,812


11. Net Loss per Share
The following table presents the calculation of basic and diluted net loss per share:
 
Three Months Ended April 30,
 
2020
 
2019
 
(in thousands, except per share amounts)
Numerator:
 
 
 
Net loss
$
(11,459
)
 
$
(12,064
)
Denominator:
 
 
 
Weighted average shares used in calculating net loss per share, basic and diluted
77,770

 
32,510

Net loss per share, basic and diluted
$
(0.15
)
 
$
(0.37
)


20


Since the Company was in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
 
As of April 30,
 
2020
 
2019
 
(in thousands)
Shares subject to outstanding common stock awards
16,780

 
16,529

Unvested early exercised stock options
27

 
273

Restricted stock awards purchased with promissory notes
180

 
472

Shares issuable pursuant to the 2019 Employee Stock Purchase Plan
165

 

Total
17,152

 
17,274


12. Income Taxes
The Company's provision for income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.
The Company's quarterly tax provision, and estimate of its annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income (or loss) relates, changes in how the Company does business, and tax law developments. The Company's estimated effective tax rate for the year differs from the U.S. statutory rate of 21% as a result of our U.S. losses for which no benefit will be realized, as well as our foreign operations which are subject to tax rates that differ from those in the U.S.
The Company recorded an income tax expense of $0.2 million and $0.2 million for the three months ended April 30, 2020 and 2019, respectively.
13. Geographic Information
Revenue by location is determined by the billing address of the customer. The following table sets forth revenue by geographic area:
 
Three Months Ended April 30,
 
2020
 
2019
 
(in thousands)
United States
$
38,272

 
$
29,468

International
11,514

 
7,846

Total
$
49,786

 
$
37,314


Other than the United States, no other individual country accounted for 10% or more of revenue for the three months ended April 30, 2020 or 2019. As of April 30, 2020, 87% of the Company’s long-lived assets, including property and equipment and right-of-use lease assets, was located in the United States and 13% was located in Canada. As of January 31, 2020, 76% of the Company’s property and equipment was located in the United States, 23% was located in Canada, and 1% was located in the United Kingdom.
14. Subsequent Events
The Company has evaluated subsequent events through June 5, 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended January 31, 2020, filed with the SEC on March 19, 2020. You should review the sections titled “Special Note Regarding Forward-Looking Statements” above in this Quarterly Report on Form 10-Q for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Factors that could cause or contribute to such differences include, but are not limited to, impacts on our business and general economic conditions due to the current COVID-19 pandemic, those identified below, and those discussed in the section titled “Risk Factors” included in Part II, Item 1A below. The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31 and January 31.
Overview
Our mission is to connect teams to real-time opportunity and elevate work to the outcomes that matter.
We act as the central nervous system for the digital enterprise. We collect machine generated data from virtually any software-enabled system or device, combine it with human response data, correlating and interpreting this data to understand issues and opportunities that need to be addressed in real-time. Using machine learning and automation, we bring together the right people with the right information so they can resolve issues and act on opportunities in minutes