PagerDuty Earnings 2020-04-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

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



☐	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.

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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 and Comprehensive Loss	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4	Controls and Procedures	34

Part II - OTHER INFORMATION



Item 1	Legal Proceedings	35
Item 1A	Risk Factors	35
Item 2	Unregistered Sale of Equity Securities and Use of Proceeds	37
Item 6	Exhibits	37
	Signatures	39

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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-

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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)



	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

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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

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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		Additional Paid-in Capital			Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stockholders’ Equity
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		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity (Deficit)
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

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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

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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 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

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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.

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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.

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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

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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:

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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.

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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.

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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

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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

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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

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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

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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	)

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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

Price	28.24	EPS	-1
Shares	76	P/E	-54
MCap	2,146	P/FCF	-1,087
Net Debt	-176	EBIT	-39
TEV	1,970	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

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PD 10Q Quarterly Report

PagerDuty Earnings 2020-04-30