PagerDuty, Inc. [PD] Filings

10-Q 1 pd-20231031.htm 10-Q pd-20231031

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, 2023


☐			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

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 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 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, a smaller reporting company, or an emerging growth company. See the 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

Accelerated filer

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 13(a) of the Exchange 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 29, 2023, was 91,892,322.

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PAGERDUTY, INC.

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PART I - FINANCIAL INFORMATION


Item 1	Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	7
	Condensed Consolidated Statements of Comprehensive Loss	8
	Condensed Consolidated Statements of Stockholders’ Equity	9
	Condensed Consolidated Statements of Cash Flows	11
	Notes to Condensed Consolidated Financial Statements	12
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3	Quantitative and Qualitative Disclosures about Market Risk	44
Item 4	Controls and Procedures	45

Part II - OTHER INFORMATION


Item 1	Legal Proceedings	46
Item 1A	Risk Factors	46
Item 2	Unregistered Sale of Equity Securities and Use of Proceeds	51
Item 6	Exhibits	51
	Signatures	53

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (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;

•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 and our ability to meet longer-term expected future cash requirements and obligations, through a combination of cash flows from operating activities and available cash and short-term investment balances;

•anticipated charges and future cost savings in connection with our real estate rationalization;

•our ability to effectively identify, acquire, and integrate complementary companies, technologies, and assets, including our ability to successfully integrate artificial intelligence and machine learning in our offerings;

•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 for the year ended January 31, 2023, filed with the SEC on March 16, 2023 (“Annual Report”). 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

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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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

PAGERDUTY, INC.

Condensed Consolidated Balance Sheets

(in thousands) (unaudited)


	As of October 31, 2023		As of January 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	380,307	$	274,019
Investments	195,006		202,948
Accounts receivable, net of allowance for credit losses of $1,285 and $2,014 as of October 31, 2023 and January 31, 2023, respectively	71,106		91,345
Deferred contract costs, current	18,893		18,674
Prepaid expenses and other current assets	15,742		13,350
Total current assets	681,054		600,336
Property and equipment, net	18,746		18,390
Deferred contract costs, non-current	24,495		27,715
Lease right-of-use assets	10,120		13,982
Goodwill	118,862		118,862
Intangible assets, net	28,807		37,224
Other assets	4,646		1,364
Total assets	$	886,730	$	817,873
Liabilities, redeemable non-controlling interest, and stockholders’ equity
Current liabilities:
Accounts payable	$	6,763	$	7,398
Accrued expenses and other current liabilities	13,323		11,804
Accrued compensation	28,833		41,834
Deferred revenue, current	192,920		204,137
Lease liabilities, current	6,088		5,904
Total current liabilities	247,927		271,077
Convertible senior notes, net	447,389		282,908
Deferred revenue, non-current	3,499		4,914
Lease liabilities, non-current	8,391		12,704
Other liabilities	4,933		4,184
Total liabilities	712,139		575,787
Commitments and contingencies (Note 10)
Redeemable non-controlling interest (Note 3)	5,472		1,108
Stockholders’ equity:
Common stock, $0.000005 par value; 1,000,000,000 shares authorized; 94,219,644 and 91,178,671 shares issued and 91,888,642 and 91,178,671 outstanding as of October 31, 2023 and January 31, 2023, respectively	—		—
Additional paid-in capital	745,114		719,816
Accumulated other comprehensive loss	(1,712)		(1,592)
Accumulated deficit	(524,283)		(477,246)
Treasury stock at cost, 2,331,002 and — shares as of October 31, 2023 and January 31, 2023, respectively	(50,000)		—
Total stockholders’ equity	169,119		240,978
Total liabilities, redeemable non-controlling interest, and stockholders’ equity	$	886,730	$	817,873

See Notes to Condensed Consolidated Financial Statements

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PAGERDUTY, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022
Revenue	$	108,720	$	94,203	$	319,582	$	269,827
Cost of revenue	19,705		18,007		57,474		52,090
Gross profit	89,015		76,196		262,108		217,737
Operating expenses:
Research and development	34,272		35,004		104,221		100,307
Sales and marketing	49,630		47,118		143,155		143,001
General and administrative	25,955		26,616		77,547		77,316
Total operating expenses	109,857		108,738		324,923		320,624
Loss from operations	(20,842)		(32,542)		(62,815)		(102,887)
Interest income	4,522		1,382		11,300		2,760
Interest expense	(1,454)		(1,360)		(4,184)		(4,072)
Gain on partial extinguishment of convertible senior notes	3,970		—		3,970		—
Other income (expense), net	673		(172)		2,982		(1,326)
Loss before (provision) benefit from income taxes	(13,131)		(32,692)		(48,747)		(105,525)
(Provision) benefit from income taxes	41		(112)		197		1,302
Net loss	$	(13,090)	$	(32,804)	$	(48,550)	$	(104,223)
Net loss attributable to redeemable non-controlling interest	(324)		(262)		(1,513)		(362)
Net loss attributable to PagerDuty, Inc.	$	(12,766)	$	(32,542)	$	(47,037)	$	(103,861)
Adjustment attributable to redeemable non-controlling interest	2,359		—		4,088		—
Net loss attributable to PagerDuty, Inc. common stockholders	$	(15,125)	$	(32,542)	$	(51,125)	$	(103,861)
Net loss per share, basic and diluted, attributable to PagerDuty, Inc. common stockholders	$	(0.16)	$	(0.36)	$	(0.55)	$	(1.18)
Weighted average shares used in calculating net income (loss) per share, basic and diluted	93,104		89,285		92,257		88,200

See Notes to Condensed Consolidated Financial Statements

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PAGERDUTY, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022
Net loss	$	(13,090)	$	(32,804)	$	(48,550)	$	(104,223)
Unrealized gain (loss) on investments	227		(1,050)		295		(1,952)
Foreign currency translation adjustments	(151)		(374)		(415)		(515)
Total comprehensive loss	$	(13,014)	$	(34,228)	$	(48,670)	$	(106,690)
Less comprehensive loss attributable to redeemable non-controlling interest:
Net loss attributable to redeemable non-controlling interest	(324)		(262)		(1,513)		(362)
Foreign currency translation adjustments, attributable to redeemable non-controlling interest	6		2		8		5
Comprehensive loss attributable to redeemable non-controlling interest	(318)		(260)		(1,505)		(357)
Comprehensive loss attributable to PagerDuty, Inc.	$	(12,696)	$	(33,968)	$	(47,165)	$	(106,333)

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PAGERDUTY, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)


	Three Months Ended October 31, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount								Shares	Amount
Balances as of July 31, 2023	93,249,291	$	—	$	779,192	$	(1,788)	$	(511,517)	—	$	—	$	265,887
Issuance of common stock upon exercise of stock options	245,778	—		973		—		—		—	—		973
Vesting of restricted stock units, net of employee payroll taxes	724,575	—		(9,786)		—		—		—	—		(9,786)
Other comprehensive income	—	—		—		76		—		—	—		76
Purchases of capped calls related to convertible senior notes	—	—		(55,102)		—		—		—	—		(55,102)
Common stock repurchased	—	—		—		—		—		(2,331,002)	(50,000)		(50,000)
Stock-based compensation	—	—		32,196		—		—		—	—		32,196
Adjustment to redeemable non-controlling interest	—	—		(2,359)		—		—		—	—		(2,359)
Net loss attributable to PagerDuty, Inc.	—	—		—		—		(12,766)		—	—		(12,766)
Balances as of October 31, 2023	94,219,644	$	—	$	745,114	$	(1,712)	$	(524,283)	(2,331,002)	$	(50,000)	$	169,119


	Nine Months Ended October 31, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount								Shares	Amount
Balances as of January 31, 2023	91,178,671	$	—	$	719,816	$	(1,592)	$	(477,246)	—	$	—	$	240,978
Issuance of common stock upon exercise of stock options	1,026,320	—		7,954		—		—		—	—		7,954
Vesting of restricted stock units, net of employee payroll taxes	1,688,670	—		(25,772)		—		—		—	—		(25,772)
Issuance of common stock in connection with the Employee Stock Purchase Plan	325,983	—		6,292		—		—		—	—		6,292
Other comprehensive loss	—	—		—		(120)		—		—	—		(120)
Purchases of capped calls related to convertible senior notes	—	—		(55,102)		—		—		—	—		(55,102)
Common stock repurchased	—	—		—		—		—		(2,331,002)	(50,000)		(50,000)
Stock-based compensation	—	—		96,014		—		—		—	—		96,014
Adjustment to redeemable non-controlling interest	—	—		(4,088)		—		—		—	—		(4,088)
Net loss attributable to PagerDuty, Inc.	—	—		—		—		(47,037)		—	—		(47,037)
Balances as of October 31, 2023	94,219,644	$	—	$	745,114	$	(1,712)	$	(524,283)	(2,331,002)	$	(50,000)	$	169,119

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	Three Months Ended October 31, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balances as of July 31, 2022	88,928,089	$	—	$	672,126	$	(1,712)	$	(420,142)	$	250,272
Issuance of common stock upon exercise of stock options	328,471	—		2,137		—		—		2,137
Vesting of restricted stock units, net of employee payroll taxes	709,089	—		(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, 2022	89,965,649	$	—	$	696,169	$	(3,136)	$	(452,684)	$	240,349


	Nine Months Ended October 31, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balances as of January 31, 2022	86,758,380	$	—	$	616,467	$	(669)	$	(348,823)	$	266,975
Issuance of common stock upon exercise of stock options	1,513,581	—		8,728		—		—		8,728
Vesting of restricted stock units, net of employee payroll taxes	1,349,991	—		(22,187)		—		—		(22,187)
Shares issued related to an asset acquisition	62,972	—		—		—		—		—
Issuance of common stock in connection with the Employee Stock Purchase Plan	280,725	—		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, 2022	89,965,649	$	—	$	696,169	$	(3,136)	$	(452,684)	$	240,349

See Notes to Condensed Consolidated Financial Statements

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PAGERDUTY, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended October 31,
	2023		2022
Cash flows from operating activities
Net loss attributable to PagerDuty, Inc. common stockholders	$	(51,125)	$	(103,861)
Net loss and adjustment attributable to redeemable non-controlling interest (Note 3)	2,575		(362)
Net loss	(48,550)		(104,223)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	15,016		12,778
Amortization of deferred contract costs	15,286		14,178
Amortization of debt issuance costs	1,456		1,376
Gain on partial extinguishment of convertible senior notes	(3,970)		—
Stock-based compensation	94,910		86,478
Non-cash lease expense	3,425		2,913
Tax benefit related to release of valuation allowance	—		(1,330)
Other	(1,426)		1,686
Changes in operating assets and liabilities:
Accounts receivable	18,983		3,048
Deferred contract costs	(12,285)		(16,323)
Prepaid expenses and other assets	(2,674)		(2,934)
Accounts payable	(1,002)		(1,117)
Accrued expenses and other liabilities	767		(1,350)
Accrued compensation	(13,086)		(624)
Deferred revenue	(12,547)		8,635
Lease liabilities	(4,484)		(3,783)
Net cash provided by (used in) operating activities	49,819		(592)
Cash flows from investing activities
Purchases of property and equipment	(1,193)		(3,755)
Capitalization of internal-use software costs	(3,812)		(2,725)
Business acquisition, net of cash acquired	—		(66,262)
Asset acquisition	—		(1,845)
Purchases of available-for-sale investments	(151,984)		(155,310)
Proceeds from maturities of available-for-sale investments	164,064		149,625
Purchases of non-marketable equity investments	(200)		—
Net cash provided by (used in) investing activities	6,875		(80,272)
Cash flows from financing activities
Proceeds from issuance of convertible senior notes, net of issuance costs	391,543		—
Purchases of capped calls related to convertible senior notes	(55,102)		—
Repurchases of convertible senior notes	(223,471)		—
Investment from redeemable non-controlling interest holder	1,781		1,908
Proceeds from employee stock purchase plan	6,292		5,736
Proceeds from issuance of common stock upon exercise of stock options	8,390		8,459
Employee payroll taxes paid related to net share settlement of restricted stock units	(25,772)		(22,187)
Repurchase of common stock	(50,000)		—
Net cash provided by (used in) financing activities	53,661		(6,084)
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash	(451)		(504)
Net increase (decrease) in cash, cash equivalents, and restricted cash	109,904		(87,452)
Cash, cash equivalents, and restricted cash at beginning of period	274,019		349,785
Cash, cash equivalents, and restricted cash at end of period	$	383,923	$	262,333
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	380,307		262,333
Restricted cash in other long-term assets	3,616		—
Total cash, cash equivalents and restricted cash	$	383,923	$	262,333

Supplemental cash flow data:
Cash paid for income taxes	$	507	$	130
Cash paid for interests	$	1,797	$	1,797
Non-cash investing and financing activities:
Purchase of property and equipment, accrued but not yet paid	$	991	$	828
Stock-based compensation capitalized in internal use software	$	1,105	$	947
Bonuses capitalized in internal use software	$	111	$	263
Issuance costs included in accrued expenses	$	965	$	—
Receivables for cash in-transit on stock options	$	—	$	269

See Notes to Condensed Consolidated Financial Statements

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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, 2023 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, 2023, included in the Annual Report.

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 statement 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, 2023 are not necessarily indicative of the results to be expected for the full year ending January 31, 2024 or for any other interim period, or for any future year.

The Company’s fiscal year ends on January 31. References to fiscal 2024, for example, refer to the fiscal year ending January 31, 2024.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 fair value of acquired assets and assumed liabilities, stock-based compensation, and estimates related to the Company’s revenue recognition, such as the assessment of performance obligations in the Company’s 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.

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 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, 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. The Company’s cash, cash equivalents, and available-for-sale investments are spread across several different financial institutions.

No single customer accounted for more than 10% of the total accounts receivable balance as of October 31, 2023 or January 31, 2023. No single customer represented 10% or more of revenue for the three and nine months ended October 31, 2023 or 2022.

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 15, “Geographic Information” for information regarding the Company's long-lived assets and revenue by geography.

Related Party Transactions

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 $3.8 million and $1.6 million to entities associated with related parties during the nine months ended October 31, 2023 and 2022, respectively. Other related party transactions were not material for the three and nine months ended October 31, 2023 and 2022.

Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies as compared to those described in the Annual Report, other than as set forth below.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Restricted Cash

The Company has classified cash that is not available for use in its operations as restricted cash. Restricted cash consists primarily of collateral for letters of credit related to security deposits for the Company’s office facility lease arrangements. As of October 31, 2023, the Company had restricted cash of $3.6 million, all of which was classified as non-current. The Company had no restricted cash as of January 31, 2023.

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.

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 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. During the three and nine months ended October 31, 2023, the Company recorded an adjustment attributable to the redeemable non-controlling interest of $2.4 million and $4.1 million. There were no adjustments attributable to the redeemable non-controlling interest recorded during the three and nine months ended October 31, 2022.

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,				Nine Months Ended October 31,
	2023		2022		2023		2022
	(in thousands)
Balance at beginning of period	$	3,431	$	1,811	$	1,108	$	—
Investment by redeemable non-controlling interest	—		—		1,781		1,908
Net loss attributable to redeemable non-controlling interest	(324)		(262)		(1,513)		(362)
Adjustment to redeemable non-controlling interest	2,359		—		4,088		—
Foreign currency translation adjustments	6		2		8		5
Balance at end of period	$	5,472	$	1,551	$	5,472	$	1,551

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

4. Cash, Cash Equivalents, and Investments

Cash, cash equivalents, and investments consisted of the following:


	As of October 31, 2023		As of January 31, 2023
	(in thousands)
Cash and cash equivalents
Cash	$	72,035	$	67,151
Money market funds	297,294		206,868
Commercial paper	8,978		—
U.S. Treasury securities	2,000		—
Total cash and cash equivalents	$	380,307	$	274,019
Available-for-sale investments:
U.S. Treasury securities	$	50,516	$	51,387
Commercial paper	12,617		34,798
Corporate debt securities	113,620		108,827
U.S. Government agency securities	18,253		7,936
Total available-for-sale investments	$	195,006	$	202,948

The following tables summarize the Company’s investments’ adjusted cost, net unrealized losses, and fair value by significant investment category as of October 31, 2023 and January 31, 2023. Gross realized gains or losses from sales of available-for-sale securities were not material for the three and nine months ended October 31, 2023.


	As of October 31, 2023
	Cost Basis		Unrealized Loss, Net		Estimated Fair Value
	(in thousands)
Available-for-sale investments:
U.S. Treasury securities	$	50,519	$	(3)	$	50,516
Commercial paper	12,622		(5)		12,617
Corporate debt securities	114,616		(996)		113,620
U.S. Government agency securities	18,393		(140)		18,253
Total available-for-sale investments	$	196,150	$	(1,144)	$	195,006


	As of January 31, 2023
	Cost Basis		Unrealized Loss, Net		Estimated Fair Value
	(in thousands)
Available-for-sale investments:
U.S. Treasury securities	$	51,400	$	(13)	$	51,387
Commercial paper	34,926		(128)		34,798
Corporate debt securities	110,063		(1,236)		108,827
U.S. Government agency securities	8,000		(64)		7,936
Total available-for-sale investments	$	204,389	$	(1,441)	$	202,948

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following tables present the Company’s available-for-sale securities by contractual maturity date as of October 31, 2023 and January 31, 2023:


	As of October 31, 2023
	Cost Basis		Recorded Basis
	(in thousands)
Due within one year	$	141,549	$	140,839
Due between one to five years	54,601		54,167
Total	$	196,150	$	195,006


	As of January 31, 2023
	Cost Basis		Recorded Basis
	(in thousands)
Due within one year	$	139,443	$	138,625
Due between one to five years	64,946		64,323
Total	$	204,389	$	202,948

As of October 31, 2023, the Company had 104 securities in an unrealized loss position with an aggregate fair value of $199.1 million, of which $44.5 million were in a continuous unrealized loss position for more than 12 months. As of January 31, 2023, the Company had 81 securities in an unrealized loss position with an aggregate fair value of $174.1 million, of which $39.9 million were in a continuous unrealized loss position for more than 12 months.

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. 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.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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:


	As of October 31, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Money market funds	$	297,294	$	—	$	—	$	297,294
U.S. Treasury securities	—		52,516		—		52,516
Commercial paper	—		21,595		—		21,595
Corporate debt securities	—		113,620		—		113,620
U.S. Government agency securities			18,253		—		18,253
Total	$	297,294	$	205,984	$	—	$	503,278
Included in cash equivalents							$	308,272
Included in investments							$	195,006


	As of January 31, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Money market funds	$	206,868	$	—	$	—	$	206,868
U.S. Treasury securities	—		51,387		—		51,387
Commercial paper	—		34,798		—		34,798
Corporate debt securities	—		108,827		—		108,827
U.S. Government agency securities	—		7,936		—		7,936
Total	$	206,868	$	202,948	$	—	$	409,816
Included in cash equivalents							$	206,868
Included in investments							$	202,948

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, 2023 and January 31, 2023, 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, 2023, the estimated fair value of our outstanding 1.25% Convertible Senior Notes due 2025 (the “2025 Notes”) was approximately $53.5 million and the estimated fair value of our 1.5% Convertible Senior Notes due 2028 (the “2028 Notes” and, together with the 2025 Notes, the “Notes”) was approximately $395.3 million. The fair values were 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.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

6. Property and Equipment, Net

Property and equipment, net, consisted of the following:


	As of October 31, 2023		As of January 31, 2023
	(in thousands)
Leasehold improvements	$	11,445	$	15,585
Computers and equipment	8,817		9,426
Furniture and fixtures	3,796		4,730
Capitalized internal-use software	15,998		10,971
Gross property and equipment (1)	40,056		40,712
Accumulated depreciation and amortization	(21,310)		(22,322)
Property and equipment, net	$	18,746	$	18,390

(1) Gross property and equipment includes construction-in-progress for leasehold improvements and capitalized internal-use software of $5.4 million and $6.0 million that had not yet been placed in service as of October 31, 2023 and January 31, 2023, 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 $2.1 million and $1.8 million for the three months ended October 31, 2023 and 2022, respectively. Depreciation and amortization expense was $6.3 million and $5.1 million for the nine months ended October 31, 2023 and 2022, respectively.

In the nine months ended October 31, 2023, the Company recorded an impairment charge of $0.4 million related to leasehold improvements abandoned in the period. The impairment charge was recorded in general and administrative expenses on the consolidated statement of operations. 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.

7. Deferred Contract Costs

Deferred contract costs, which primarily consist of deferred sales commissions, were $43.4 million and $46.4 million as of October 31, 2023 and January 31, 2023, respectively. Amortization expense for deferred contract costs was $5.1 million and $4.9 million for the three months ended October 31, 2023 and 2022, respectively. Amortization expense for deferred contract costs was $15.3 million and $14.2 million for the nine months ended October 31, 2023 and 2022, respectively. There was no impairment charge related to the costs capitalized for the periods presented.

8. Leases

Operating Leases

The Company has entered into various non-cancellable operating leases for its office spaces with lease periods expiring between fiscal 2026 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.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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.

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.

In the nine months ended October 31, 2023, the Company entered into a sublease of one office location. The sublease has a remaining lease term of less than two years. Sublease income, which is recorded as a reduction of rent expense, was immaterial for the nine months ended October 31, 2023.

The following table presents information about leases on the condensed consolidated balance sheet.


	As of October 31, 2023		As of January 31, 2023
	(in thousands)
Assets
Lease right-of-use assets	$	10,120	$	13,982
Liabilities
Lease liabilities	6,088		5,904
Lease liabilities, non-current	8,391		12,704

As of October 31, 2023, the weighted average remaining lease term was 3.3 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 the condensed consolidated statement of operations.


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022
	(in thousands)
Operating lease expense	$	1,089	$	1,371	$	3,760	$	4,293
Short-term lease expense	567		484		1,335		1,342
Variable lease expense	270		285		867		957

The following table presents supplemental cash flow information about the Company’s leases.


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	1,612	$	1,601	$	4,934	$	4,840

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

In the nine months ended October 31, 2023, the Company recorded an impairment charge of $0.8 million to the right-of-use asset associated with the subleased office, which is the amount by which the carrying value of the right-of-use asset exceeded its estimated fair value. The estimated fair value was based on the present value of the estimated cash flows that could be generated from subleasing the property for the remaining lease term. The impairment charge was recorded in general and administrative expenses on our condensed consolidated statement of operations. There were no impairment charges recorded in the three months ended October 31, 2023 and 2022 and there were no impairment charges recorded in the nine months ended October 31, 2022.

9. Debt and Financing Arrangements

2025 Convertible Senior Notes

On June 25, 2020, the Company issued an aggregate principal amount of $287.5 million of 2025 Notes in a private offering pursuant to an Indenture dated June 25, 2020 (the “2025 Indenture”).

The 2025 Notes are senior, unsecured obligations of the Company and accrue interest payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2021, at a rate of 1.25% per year. The 2025 Notes will mature on July 1, 2025, unless such notes are converted, redeemed or repurchased earlier. The 2025 Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election in the manner and subject to the terms and conditions provided in the 2025 Indenture.

In October 2023, the Company paid $223.5 million to repurchase $230.0 million of aggregate principal amount of the 2025 Notes with a carrying value of $227.5 million, net of unamortized issuance costs of $2.6 million. The Company recorded a gain on partial extinguishment of the 2025 Notes in the three and nine months ended October 31, 2023 of $4.0 million in the condensed consolidated statements of operations.

2028 Convertible Senior Notes

In October 2023, the Company issued an aggregate principal amount of $402.5 million 2028 Notes in a private offering pursuant to an Indenture dated October 13, 2023 (the “2028 Indenture” and, together with the 2025 Indenture, the “Indentures”). The total net proceeds from the debt offering, after deducting debt issuance costs of $12.0 million, paid or payable by the Company, were $390.4 million.

The 2028 Notes are senior, unsecured obligations of the Company and accrue interest payable semiannually in arrears on April 15 and October 15 of each year, beginning on April 15, 2024, at a rate of 1.50% per year. The 2028 Notes will mature on October 15, 2028, unless such notes are converted, redeemed or repurchased earlier. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2028 Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in respect to the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2028 Notes being converted, in the manner and subject to the terms and conditions provided in the 2028 Indenture.

Additional Terms of the Notes

Holders of the Notes may convert all or any portion of their Notes at their option at any time prior to the close of business on April 1, 2025, with respect to the 2025 Notes, or June 15, 2028, with respect to the 2028 Notes, only under the following circumstances:

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

•During any fiscal quarter commencing after the fiscal quarter ended October 31, 2020, with respect to the 2025 Notes, or the fiscal quarter ending January 31, 2024, with respect to the 2028 Notes (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the relevant conversion price on each applicable trading day;

•During the five business day period after any ten consecutive trading day period (the measurement period) in which the “trading price” (as defined in the relevant Indenture) per $1,000 principal amount of 2028 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the relevant conversion rate on each such trading day;

•If the Company calls such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

•Upon the occurrence of specified corporate events, as noted in the Indenture.

On or after April 1, 2025, with respect to the 2025 Notes, or June 15, 2028, with respect to the 2028 Notes, until the close of business on the second scheduled trading day immediately preceding the relevant maturity date, holders of the Notes may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances.

The initial conversion rate for the 2025 Notes is 24.95 shares of common stock per $1,000 principal amount of 2025 Notes, which is equivalent to an initial conversion price of approximately $40.08 per share of common stock. The initial conversion rate for the 2028 Notes is 36.56 shares of common stock per $1,000 principal amount of 2028 Notes, which is equivalent to an initial conversion price of approximately $27.35 per share of common stock. The conversion rate for the Notes is subject to adjustment under certain circumstances in accordance with the terms of the relevant Indenture, but will not be adjusted for accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or convert its notes called (or deemed called) for redemption during the related redemption period (as defined in the relevant Indenture), as the case may be.

The Company may not redeem 2025 Notes prior to July 6, 2023 or the 2028 Notes prior to October 20, 2026. The Company may redeem for cash all or any portion of the Notes, at its option, with respect to the 2025 Notes, on a redemption date occurring on or after July 6, 2023 and prior to the 41st scheduled trading day immediately preceding the maturity date of the 2025 Notes, or with respect to the 2028 Notes, on a redemption date occurring on or after October 20, 2026 and prior to the 61st scheduled trading day immediately preceding the maturity date of the 2028 Notes, if the last reported sale price of the common stock has been at least 130% of the relevant conversion price for the Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Notes or the 2028 Notes.

If the Company undergoes a fundamental change (as defined in the relevant Indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Indentures governing the Notes contain customary terms and covenants, including that upon certain events of default occurring and continuing, the trustee or the holders of at least 25% in aggregate principal amount of the outstanding 2025 Notes or 2028 Notes may declare the entire principal of all such 2025 Notes or 2028 Notes plus accrued and unpaid interest to be immediately due and payable.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Accounting for Notes

The Company accounts for the Notes each as a single liability in accordance with Accounting Standards Update 2020-06 “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The Notes are classified as long-term liabilities as of October 31, 2023. Issuance costs are being amortized to interest expense over the contractual term of the Notes at an effective interest rate of 2.13% for the 2028 Notes and 1.91% for the 2025 Notes.

The net carrying amount of the Notes as of October 31, 2023 and as of January 31, 2023 was as follows:


	As of October 31, 2023						As of January 31, 2023
	(in thousands)
	2025 Notes		2028 Notes		Total		2025 Notes
Principal	$	57,500	$	402,500	$	460,000	$	287,500
Less: unamortized issuance costs	(621)		(11,990)		(12,611)		(4,592)
Net carrying amount	$	56,879	$	390,510	$	447,389	$	282,908

Interest expense recognized related to the Notes is as follows:


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022
	(in thousands)
Contractual interest expense	$	931	$	899	$	2,728	$	2,696
Amortization of debt issuance costs	523		461		1,456		1,376
Total interest expense related to the Notes	$	1,454	$	1,360	$	4,184	$	4,072

Capped Call Transactions

In connection with the offering of the 2025 Notes, the Company entered into privately negotiated capped call transactions (the “2025 Capped Calls”) with certain financial institution counterparties and in connection with the offering of the 2028 Notes, the Company entered into separate privately negotiate capped call transactions (the “2028 Capped Calls” and, together with the 2025 Capped Calls, the “Capped Calls”). The Capped Calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2025 Notes or the 2028 Notes, as applicable, with such reduction or offset, as the case may be, subject to a cap based on the cap price of such Capped Calls. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the 2025 Notes or the 2028 Notes, as applicable. The Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $35.7 million incurred to purchase the 2025 Capped Calls and the cost of $55.1 million incurred to purchase the 2028 Capped Calls were each recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheet. The Capped Calls will not be remeasured as long as they continue to meet the conditions for equity classification.

The 2025 Capped Calls each have an initial strike price of approximately $40.08 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2025 Notes. The 2025 Capped Calls have an initial cap price of $61.66 per share, subject to certain adjustments. The 2025 Capped Calls cover, subject to anti-dilution adjustments, approximately $7.20 million shares of our common stock. The 2025 Capped Calls are subject to automatic exercise over a 40 trading day period commencing on May 2, 2025, subject to earlier termination under certain circumstances.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The 2028 Capped Calls each have an initial strike price of approximately $27.35 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2028 Notes. The 2028 Capped Calls have an initial cap price of $42.90 per share, subject to certain adjustments. The 2028 Capped Calls cover, subject to anti-dilution adjustments, approximately 14.7 million shares of our common stock. The 2028 Capped Calls are subject to automatic exercise over a 60 trading day period commencing on July 20, 2028, subject to earlier termination under certain circumstances.

10. 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 material legal proceedings nor is it aware of any pending or threatened litigation that could reasonably be expected to have a material adverse effect on its business, 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.

In the ordinary course of business, the Company may agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. As permitted under Delaware law, the Company has entered into indemnification agreements with its directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon the Company to provide indemnification under such agreements, and there are no claims that the Company is aware of that could have a material effect on its consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.

11. Deferred Revenue and Performance Obligations

The following table presents the changes to the Company’s deferred revenue:


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022
	(in thousands)
Deferred revenue, beginning of period	$	196,605	$	169,534	$	209,051	$	170,224
Billings	108,534		104,384		306,950		278,462
Deferred revenue assumed in the Catalytic acquisition	—		—		—		856
Revenue recognized	(108,720)		(94,203)		(319,582)		(269,827)
Deferred revenue, end of period	$	196,419	$	179,715	$	196,419	$	179,715

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

For the three months ended October 31, 2023 and 2022, the majority of revenue recognized was from the deferred revenue balances at the beginning of each quarter. For the nine months ended October 31, 2023 and 2022, approximately half of revenue recognized was from the deferred revenue balance at the beginning of the period.

As of October 31, 2023, future estimated revenue related to performance obligations for cloud-hosted and term-license software subscriptions with terms of more than one year that are unsatisfied or partially unsatisfied at the end of the reporting periods was approximately $206.0 million. The Company expects to satisfy the 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 one year.

12. Common Stock and Stockholders’ Equity

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 initial public offering (“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 October 31, 2023 and January 31, 2023, the Company was authorized to grant up to 31,519,241 shares and 28,881,327 shares of common stock, respectively, under the 2019 Plan.

The Company currently uses authorized and unissued shares to satisfy stock award exercises and settlement of Restricted Stock Units (“RSUs”) and Performance Stock Units (“PSUs”). As of October 31, 2023 and January 31, 2023, there were 17,224,509 shares and 13,581,239 shares available for future issuance under the Stock Plans, respectively.

Shares of common stock reserved for future issuance are as follows:


			October 31, 2023
Outstanding stock options and unvested RSUs and PSUs			13,886,605
Available for future stock option, RSU, and PSU grants			17,224,509
Available for Employee Stock Purchase Plan (“ESPP”)			3,557,026
Total common stock reserved at October 31, 2023			34,668,140

Common Stock Repurchase

In October 2023, the Company repurchased a total of 2,331,002 shares of the Company’s common stock through open market purchases at an average per share price of $21.45 for a total repurchase price of $50.0 million. The cost of repurchased shares are recorded as Treasury Stock in the condensed consolidated balance sheets.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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, 2023	6,150,981	$	10.61	5.3 years	$	117,986
Granted	—	$	—
Exercised	(1,026,320)	$	7.75
Canceled	(71,995)	$	33.51
Outstanding at October 31, 2023	5,052,666	$	10.86	4.7 years	$	52,696
Vested as of October 31, 2023	4,843,446	$	10.24	4.6 years	$	52,052

No stock options were granted during the three and nine months ended October 31, 2023. The aggregate intrinsic value of stock options exercised during the three months ended October 31, 2023 and 2022 was $4.9 million and $6.4 million, respectively. The aggregate intrinsic value of stock options exercised during the nine months ended October 31, 2023 and 2022 was $20.9 million and $37.0 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 October 31, 2023, there was approximately $2.7 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 1.3 years.

Restricted Stock Units

A summary of the Company’s RSU activity and related information is as follows:


	Number of RSUs	Weighted Average Grant Date Fair Value Per Share
Outstanding at January 31, 2023	8,012,482	$	32.55
Granted	4,008,591	$	31.52
Vested	(1,671,952)	$	32.51
Forfeited or canceled	(2,599,165)	$	33.23
Outstanding at October 31, 2023	7,749,956	$	31.80

The fair value of RSUs is based on the fair value of the underlying shares on the date of grant. The Company accounts for forfeitures as they occur.

As of October 31, 2023, there was $234.1 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.4 years based on vesting under the award service conditions.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Performance and Market Stock Units

The Company grants PSUs to certain employees of the Company for which the ultimate number of units that will vest are determined based on the achievement of market and/or performance conditions at the end of the stated performance period.

In April 2023, the Company granted shares of PSUs to certain employees of the Company, which are to vest based on the level of achievement of a Company target related to PagerDuty’s operating plan and the relative growth of the per share price of the Company’s common stock as compared to the S&P Software & Services Select Index over the one-year performance period. The PSUs vest over a three-year period, subject to continuous service with the Company. The number of shares of the Company’s common stock that will vest based on the performance and market conditions can range from 0% to 200% of the target amount. Compensation expense for PSUs with performance conditions is measured using the fair value at the date of grant, and may be adjusted over the vesting period based on interim estimates of performance against the performance condition. Compensation expense for PSUs with market conditions is measured using a Monte Carlo simulation approach. Expense is recorded over the vesting period under the graded-vesting attribution method.

During the three months ended April 30, 2023, the compensation committee of the Board certified the results of PagerDuty’s operating plan for the fiscal year ended January 31, 2023. Based on the results, the PSUs granted in April 2022 (“2022 PSU Awards”) were cancelled as the target was not met.

A summary of the Company’s PSU activity and related information is as follows:


	Number of PSUs	Weighted Average Grant Date Fair Value Per Share
Outstanding at January 31, 2023	825,058	$	33.27
Granted(1)	594,290	$	34.98
Vested	(16,718)	$	41.17
Forfeited or canceled	(152,606)	$	35.71
Performance adjustment for 2022 PSU Awards	(698,983)	$	29.22
Outstanding at October 31, 2023	551,041	$	35.18
(1)This amount represents awards granted at 100% attainment.

As of October 31, 2023, total unrecognized stock-based compensation cost related to PSUs was $6.9 million. This unrecognized stock-based compensation cost is expected to be recognized using the accelerated attribution method over a weighted-average period of approximately 1.3 years.

Employee Stock Purchase Plan

The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions over 24-month offering periods beginning June 15 and December 15 of each year, with each offering period consisting of four six-month purchase periods. 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 value of the Company’s common stock as of the beginning of the offering period or (2) the fair market value of the Company’s common stock on the purchase date, as defined in the ESPP.

During the three months ended October 31, 2023 and 2022, the Company recognized $1.3 million and $1.2 million, respectively, of stock-based compensation expense related to the ESPP. During the nine months ended October 31, 2023 and 2022, the Company recognized $4.7 million and $3.4 million, respectively, of stock-based compensation expense related to the ESPP.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

During the three months ended October 31, 2023 and 2022, the Company withheld $2.0 million and $2.1 million, respectively, in contributions from employees. During the nine months ended October 31, 2023 and 2022, the Company withheld $7.8 million and $7.7 million, respectively, in contributions from employees.

During the three and nine months ended October 31, 2023, 325,983 shares of common stock were issued under the ESPP at a weighted average purchase price of $19.30 per share. During the three and nine months ended October 31, 2022, 280,725 shares of common stock were issued under the ESPP at a weighted average purchase price of $20.43 per share.

Stock-Based Compensation

Stock-based compensation expense included in the Company’s condensed consolidated statements of operations is as follows:


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022
	(in thousands)
Cost of revenue	$	1,820	$	1,937	$	5,860	$	4,948
Research and development	11,128		10,824		34,002		30,066
Sales and marketing	8,094		8,004		22,362		22,533
General and administrative	10,786		10,679		32,686		28,931
Total	$	31,828	$	31,444	$	94,910	$	86,478

13. Net Loss per Share

The following table presents the calculation of basic and diluted net loss per share attributable to PagerDuty, Inc. common stockholders:


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022
	(in thousands, except per share data)
Numerator:
Net loss attributable to PagerDuty, Inc. common stockholders	$	(15,125)	$	(32,542)	$	(51,125)	$	(103,861)
Denominator:
Weighted average shares used in calculating net income (loss) per share, basic and diluted	93,104		89,285		92,257		88,200
Net loss per share, basic and diluted, attributable to PagerDuty, Inc.	$	(0.16)	$	(0.36)	$	(0.55)	$	(1.18)

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 stock 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 October 31,
	2023	2022
	(in thousands)
Shares subject to outstanding common stock awards	13,354	16,970
Restricted stock issued to acquire key personnel	44	63
Shares issuable pursuant to the ESPP	188	202

Additionally, as of October 31, 2022, using the conversion rate of 24.9507 shares of common stock per $1,000 principal amount of notes, the potentially dilutive shares that were not included in the diluted per share calculations related to the 2025 Notes was 7,173 million.

In October 2023, the Company provided written notice to the trustee and the note holders of the 2025 Notes that it had irrevocably elected to settle the principal amount of its convertible senior notes in cash and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in respect to the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2025 Notes being converted. As described in Note 9, “Debt and Financing Arrangements,” upon conversion of the 2028 Notes, the Company will pay cash up to the aggregate principal amount of the 2028 Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in respect to the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2028 Notes being converted. As of October 31, 2023, the conversion options of the Notes were out of money and as a result, there were no potentially dilutive shares related to the conversion of the Notes.

14. 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, our foreign operations which are subject to tax rates that differ from those in the U.S., as well as the benefit for non-U.S. income tax credits.

The Company recorded an immaterial income tax benefit for the three months ended October 31, 2023 and an income tax expense of $0.1 million for the three months ended October 31, 2022, respectively. The Company recorded an income tax benefit of $0.2 million and $1.3 million for the nine months ended October 31, 2023 and 2022, respectively. The income tax benefit for the nine months ended October 31, 2022 was primarily due to the deferred tax benefit of $1.3 million associated with the Company’s acquisition in the prior period.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

15. Geographic Information

Revenue by location is generally determined by the billing address of the customer. The following table sets forth revenue by geographic area:


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022
	(in thousands)
United States	$	79,487	$	72,267	$	232,576	$	206,127
International	29,233		21,936		87,006		63,700
Total	$	108,720	$	94,203	$	319,582	$

PagerDuty, Inc. [PD] Filings
10-Q	[2023-12-01]
10-Q	[2023-09-01]
10-Q	[2023-06-02]
10-K	[2023-03-16]
10-Q	[2022-12-02]
10-Q	[2022-09-02]
10-Q	[2022-06-03]
10-K	[2022-03-17]
10-Q	[2021-12-08]
10-Q	[2021-09-03]
10-Q	[2021-06-04]
10-K	[2021-03-19]
10-Q	[2020-12-04]
10-Q	[2020-09-03]
10-Q	[2020-06-05]
10-K	[2020-03-19]
10-Q	[2019-12-06]
10-Q	[2019-09-06]
10-Q	[2019-06-07]
S-1	[2019-03-15]