Company Quick10K Filing
Price28.24 EPS-1
Shares76 P/E-54
MCap2,146 P/FCF-1,087
Net Debt-176 EBIT-39
TEV1,970 TEV/EBIT-50
TTM 2019-10-31, in MM, except price, ratios
10-Q 2020-10-31 Filed 2020-12-04
10-Q 2020-07-31 Filed 2020-09-03
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 2020-10-01
8-K 2020-09-20
8-K 2020-09-02
8-K 2020-06-22
8-K 2020-06-16
8-K 2020-06-04
8-K 2020-03-18
8-K 2019-12-11
8-K 2019-12-05
8-K 2019-09-18
8-K 2019-09-05
8-K 2019-06-06
8-K 2019-04-15

PD 10Q Quarterly Report

Part I - Financial Information
Part II - Other Information
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 pagerdutyq32020ex311.htm
EX-31.2 pagerdutyq32020ex312.htm
EX-32.1 pagerdutyq32020ex321.htm

PagerDuty Earnings 2020-10-31

Balance SheetIncome StatementCash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin


(Mark One)
For the quarterly period ended October 31, 2020
For the transition period from                      to                     
Commission File Number: 001-38856
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
600 Townsend St., Suite 200
San Francisco, CA 94103
(844) 800-3889
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.000005 par valuePDNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x No  o
Indicate by check mark whether the registrant has submitted electronically on its corporate Web site every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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 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 December 1, 2020, was 81,932,793.

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Item 1
Item 2
Item 3
Item 4
Item 1
Item 1A
Item 2
Item 6

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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 ability to successfully identify, acquire, and integrate companies and assets;
our ability to service the interest on our convertible notes and repay such notes, to the extent required;
our efforts to maintain proper and effective internal controls;
our ability to expand our operations and increase adoption of our platform internationally;
our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
the increased expenses and administrative workload associated with being a public company; and
other statements regarding our future operations, financial condition, and prospects and business strategies.
Such forward-looking statements are based on our expectations as of the date of this filing and are subject to a number of risks, uncertainties and assumptions, including but not limited to, risks detailed in the “Risk Factors” section of this Form 10-Q. 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

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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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Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
(in thousands)
As of October 31, 2020As of January 31, 2020
Current assets:
Cash and cash equivalents$336,657 $124,024 
Accounts receivable, net of allowance for doubtful accounts of $1,479 and $810 as of October 31, 2020 and January 31, 2020, respectively
41,500 37,128 
Investments219,601 227,375 
Deferred contract costs, current11,209 9,301 
Prepaid expenses and other current assets11,926 7,163 
Total current assets620,893 404,991 
Property and equipment, net12,148 12,369 
Deferred contract costs, non-current17,529 16,387 
Lease right-of-use assets25,790 — 
Intangible assets, net27,508  
Other assets2,083 1,651 
Total assets$777,897 $435,398 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$5,111 $6,434 
Accrued expenses and other current liabilities11,337 7,197 
Accrued compensation24,877 13,911 
Deferred revenue, current104,337 87,490 
Lease liabilities, current5,152 — 
Total current liabilities150,814 115,032 
Convertible senior notes, net214,211  
Deferred revenue, non-current3,387 5,079 
Lease liabilities, non-current27,775 — 
Other liabilities7,152 7,349 
Total liabilities403,339 127,460 
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock
Additional paid-in capital599,886 487,008 
Accumulated other comprehensive income634 137 
Accumulated deficit(225,962)(179,207)
Total stockholders’ equity374,558 307,938 
Total liabilities and stockholders’ equity
$777,897 $435,398 
See Notes to Condensed Consolidated Financial Statements

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Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)

Three Months Ended October 31,Nine Months Ended October 31,
Revenue$53,772 $42,750 $154,272 $120,425 
Cost of revenue7,685 6,634 21,285 18,226 
Gross profit46,087 36,116 132,987 102,199 
Operating expenses:
Research and development16,156 12,619 46,705 35,160 
Sales and marketing34,024 27,425 88,271 72,378 
General and administrative17,746 12,765 45,899 38,464 
Total operating expenses67,926 52,809 180,875 146,002 
Loss from operations(21,839)(16,693)(47,888)(43,803)
Interest income974 1,427 3,375 4,283 
Interest expense(4,133) (5,741) 
Other (expense) income, net(449)245 (861)346 
Loss before benefit from (provision for) income taxes(25,447)(15,021)(51,115)(39,174)
Benefit from (provision for) income taxes4,839 (244)4,360 (725)
Net loss$(20,608)$(15,265)$(46,755)$(39,899)
Other comprehensive (loss) income:
Unrealized (loss) gain on investments(422)(50)497 (50)
Total comprehensive loss$(21,030)$(15,315)$(46,258)$(39,949)
Net loss per share, basic and diluted$(0.26)$(0.20)$(0.59)$(0.65)
Weighted average shares used in calculating net loss per share, basic and diluted
79,937 75,992 78,835 61,628 
See Notes to Condensed Consolidated Financial Statements

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Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Three Months Ended October 31, 2020
Common StockAdditional
Accumulated Other Comprehensive IncomeAccumulated
Balances as of July 31, 202079,355,627 $ $546,169 $1,056 $(205,354)$341,871 
Issuance of common stock upon exercise of stock options and restricted stock agreements, net of repurchases782,554 — 3,938 — — 3,938 
Vesting of restricted stock units, net of employee payroll taxes
146,174 — (2,591)— — (2,591)
Shares issued related to a business combination1,499,651  38,875 — — 38,875 
Other comprehensive loss— — — (422)— (422)
Stock-based compensation
— — 13,495 — — 13,495 
Net loss
— — — — (20,608)(20,608)
Balances as of October 31, 202081,784,006 $ $599,886 $634 $(225,962)$374,558 

Nine Months Ended October 31, 2020
Common StockAdditional
Accumulated Other Comprehensive IncomeAccumulated
Balances as of January 31, 202077,793,540 $ $487,008 $137 $(179,207)$307,938 
Issuance of common stock upon exercise of stock options and restricted stock agreements, net of repurchases2,069,446 — 9,709 — — 9,709 
Vesting of restricted stock units, net of employee payroll taxes240,116 — (4,334)— — (4,334)
Vesting of early exercised options— — 507 — — 507 
Equity component of convertible senior notes, net of issuance costs— — 68,478 — — 68,478 
Purchases of capped calls related to convertible senior notes— — (35,708)— — (35,708)
Shares issued related to a business combination1,499,651  38,875 — — 38,875 
Issuance of common stock in connection with employee stock purchase plan181,253 — 3,558 — — 3,558 
Other comprehensive income— — — 497 — 497 
Stock-based compensation— — 31,793 — — 31,793 
Net loss— — — — (46,755)(46,755)
Balances as of October 31, 202081,784,006 $ $599,886 $634 $(225,962)$374,558 


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Three Months Ended October 31, 2019
Common StockAdditional
Accumulated Other Comprehensive LossAccumulated
Balances as of July 31, 201976,227,101 $ $462,665  $(153,502)$309,163 
Issuance of common stock upon exercise of stock options and restricted stock agreements, net of repurchases920,730 — 2,965 — — 2,965 
Vesting of restricted stock units, net of employee payroll taxes897 — (4)— — (4)
Vesting of early exercised options— — 335 — — 335 
Stock-based compensation— — 7,347 — — 7,347 
Other comprehensive loss— — — (50)— (50)
Net loss— — — — (15,265)(15,265)
Balances as of October 31, 201977,148,728 $ $473,308 $(50)$(168,767)$304,491 

Nine Months Ended October 31, 2019
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity (Deficit)
Balances as of January 31, 201941,273,345 $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— — 2,086,075 — 5,750 — — 5,750 
Vesting of restricted stock units, net of employee payroll taxes— — 1,080 — (14)— — (14)
Exercise of common stock warrants— — 737,807 — — — — — 
Repayment of promissory note— — — — 515 — — 515 
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 
Vesting of early exercised options— — — — 1,007 — — 1,007 
Stock-based compensation— — — — 19,392 — — 19,392 
Other comprehensive loss— — — — — (50)— (50)
Net loss— — — — — — (39,899)(39,899)
Balances as of October 31, 2019 $ 77,148,728 $ $473,308 $(50)$(168,767)$304,491 

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Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended October 31,
Cash flows from operating activities
Net loss$(46,755)$(39,899)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization3,352 1,675 
Amortization of deferred contract costs7,894 5,499 
Amortization of debt discount and issuance costs4,493  
Stock-based compensation31,735 19,392 
Non-cash lease expense3,299 — 
Other1,897 (383)
Changes in operating assets and liabilities:
Accounts receivable(3,879)4,333 
Deferred contract costs(10,944)(10,945)
Prepaid expenses and other assets(3,605)(4,864)
Accounts payable(210)(1,386)
Accrued expenses and other liabilities2,224 2,464 
Accrued compensation7,689 5,619 
Deferred revenue12,475 16,520 
Lease liabilities(2,959)— 
Net cash provided by (used in) operating activities6,706 (1,975)
Cash flows from investing activities
Purchases of property and equipment(3,402)(3,190)
Capitalization of internal-use software costs(328) 
Business acquisitions, net of cash acquired(49,656) 
Purchases of held-to-maturity investments (45,736)
Proceeds from maturities of held-to-maturity investments28,040 8,950 
Purchases of available-for-sale investments(153,254)(132,706)
Proceeds from maturities of available-for-sale investments123,352  
Proceeds from sales of available-for-sale investments9,285  
Net cash used in investing activities(45,963)(172,682)
Cash flows from financing activities
Proceeds from issuance of convertible senior notes, net of issuance costs paid of $8,835
Purchases of capped calls related to convertible senior notes(35,708) 
Proceeds from initial public offering, net of underwriters' discounts and commissions 220,086 
Payments of costs related to initial public offering (5,603)
Proceeds from employee stock purchase plan3,558  
Proceeds from repayment of promissory note 515 
Proceeds from issuance of common stock upon exercise of stock options9,709 5,750 
Employee payroll taxes paid related to net share settlement of restricted stock units(4,334)(14)
Net cash provided by financing activities251,890 220,734 
Net increase in cash, cash equivalents, and restricted cash212,633 46,077 
Cash, cash equivalents, and restricted cash at beginning of period124,024 130,323 
Cash, cash equivalents, and restricted cash at end of period$336,657 $176,400 
Supplemental cash flow data:
Cash paid for income taxes$ $53 
Non-cash investing and financing activities:
Vesting of early exercised options$507 $1,007 
Purchase of property and equipment, accrued but not yet paid$274 $347 
Costs related to issuance of convertible senior notes, accrued but not yet paid$470 $ 
Costs related to initial public offering, accrued but not yet paid$ $342 
Non-cash purchases of property and equipment$ $2,364 
Fair value of common stock issued as consideration for a business combination$38,875 $ 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents$336,657 $176,347 
Restricted cash—included in other assets 53 
Total cash, cash equivalents, and restricted cash$336,657 $176,400 

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See Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements
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 and nine months ended October 31, 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.
Convertible Senior Notes


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Notes to Condensed Consolidated Financial Statements
In June 2020, The Company issued $287.5 million aggregate principal amount of 1.25% Convertible Senior Notes due 2025 (the “Notes”). Refer to Note 10, Debt and Financing Arrangements for additional details.
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, fair value of the liability and equity components of the Notes, fair value of acquired assets and assumed liabilities, impairment of goodwill and intangible assets, the incremental borrowing rate for lease liabilities, and estimates related to our revenue recognition, such as the assessment of performance obligations in our revenue arrangements and the fair value assigned to each performance obligation, among others. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
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 three and nine months ended October 31, 2020, 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.
No single customer accounted for 10% of the total accounts receivable balance as of October 31, 2020 or January 31, 2020. No single customer represented 10% or more of revenue for the three and nine months ended October 31, 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

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Notes to Condensed Consolidated Financial Statements
resources. Refer to Note 16, “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.
Convertible Senior Notes
The Notes are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar liability without the conversion option using a market-based approach. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the instrument. The difference between the principal amount and the liability component represents a debt discount that is amortized to interest expense over the respective term of the Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, the allocation of issuance costs incurred between the liability and equity components was based on their relative values.
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 October 31, 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 October 31, 2020 and January 31, 2020.
Business Combinations
The Company applies the acquisition method of accounting for business combinations. Under this method of accounting, all assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition. We allocate the purchase consideration to the net tangible and identifiable intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable.
Goodwill, Acquired Intangible Assets, and Impairment of Long-Lived Assets
Goodwill. Goodwill represents the excess purchase consideration of an acquired business over the fair value of the net tangible and identifiable intangible assets. Goodwill is evaluated for impairment annually in the fourth quarter, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate or a significant decrease in expected cash flows. No impairment charges were recorded during the three and nine months ended October 31, 2020 and 2019.
Acquired Intangible Assets. Acquired intangible assets consist of identifiable intangible assets, primarily developed technology and customer relationships, resulting from our business acquisition. Intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives.

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Notes to Condensed Consolidated Financial Statements
Impairment of Long-Lived Assets. The carrying amounts of our long-lived assets, including property and equipment, lease right-of-use assets, capitalized internal-use software, and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful lives are shorter than originally estimated. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If long-lived assets are considered impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair value. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized or depreciated over the revised estimated useful life.
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. Refer to Note 9, “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 connection with the adoption, for purposes of identifying and measuring impairment, the policy election was made to exclude accrued interest from both the fair value and amortized cost basis of our available-for sale debt securities. Such accrued interest is recorded in prepaid expenses and other current assets.
In January 2017, the FASB released Accounting Standards Update No. 2017-04, Intangibles— Goodwill and Other (“Topic 350”) which simplifies the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Previously, under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments of ASU 2017-04, an entity performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and an impairment charge would be recognized for any amount by which the carrying amount exceeds the reporting unit’s fair value.. The amendments in this update were effective for an entity’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or fiscal year 2021 for the Company. The Company performs their impairment test on goodwill in the fourth quarter of each fiscal year.

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Notes to 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 fiscal year 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.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued Accounting Standard Update No. 2020-06, Debt—Debt with Conversion Options (“Subtopic 470-20”) and Derivatives and Hedging—Contracts in Entity’s Own Equity (“Subtopic 815-40”) (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. ASU 2020-06 also improves and amends the related Earnings Per Share guidance for both Subtopics. The ASU is part of the FASB's simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. ASU 2020-06 will be effective for annual reporting periods beginning after December 15, 2021. Early adoption is permitted, but not before annual reporting periods beginning after December 15, 2020. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

3. Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and investments consisted of the following:
As of October 31, 2020As of January 31, 2020
(in thousands)
Cash and cash equivalents
$214,469 $2,131 
Money market funds
108,200 118,899 
U.S. Treasury securities13,988 2,994 
Total cash and cash equivalents$336,657 $124,024 
Available-for-sale investments:
U.S. Treasury securities$34,055 $24,987 
Commercial paper
29,910 20,132 
Corporate debt securities
155,636 149,248 
U.S. Government agency securities
Total available-for-sale investments$219,601 $199,340 
Held-to-maturity investments:
U.S. Treasury securities$ $9,016 
Commercial paper
Corporate debt securities
Total held-to-maturities investments$ $28,035 
Total investments$219,601 $227,375 

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Notes to Condensed Consolidated Financial Statements
The following tables summarize the Company’s investments’ adjusted cost, net unrealized gains, and fair value by significant investment category as of October 31, 2020 and January 31, 2020. Gross realized gains or losses from sales of available-for-sale securities were not material for the three and nine months ended October 31, 2020.
As of October 31, 2020
Cost BasisUnrealized Gain, NetRecorded Basis
(in thousands)
Available-for-sale investments:
U.S. Treasury securities$34,043 $12 $34,055 
Commercial paper29,910  29,910 
Corporate debt securities155,014 622 155,636 
Total available-for-sale investments$218,967 $634 $219,601 
As of January 31, 2020
Cost BasisUnrealized Gain, NetRecorded Basis
(in thousands)
Available-for-sale investments:
U.S. Treasury securities$24,978 $9 $24,987 
Commercial paper20,128 4 20,132 
Corporate debt securities149,124 124 149,248 
U.S. Government agency securities4,973  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 paper5,985  5,985 
Corporate debt securities13,034  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 October 31, 2020 and January 31, 2020:
As of October 31, 2020
Cost BasisRecorded Basis
(in thousands)
Due within one year$180,262 $180,779 
Due between one to five years38,705 38,822 
Total$218,967 $219,601 
As of January 31, 2020
Cost BasisRecorded Basis
(in thousands)
Due within one year$128,127 $128,169 
Due between one to five years71,076 71,171 
Total$199,203 $199,340 

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Notes to Condensed Consolidated Financial Statements
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:
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 October 31, 2020
Level 1Level 2Level 3Total
(in thousands)
Money market funds$108,200 $ $ $108,200 
U.S. Treasury securities13,988 34,055  48,043 
Commercial paper 29,910  29,910 
Corporate debt securities 155,636  155,636 
Total$122,188 $219,601 $ $341,789 
Included in cash equivalents$122,188 
Included in investments$219,601 
As of January 31, 2020
Level 1Level 2Level 3Total
(in thousands)
Money market funds$118,899 $ $ $118,899 
U.S. Treasury securities2,994 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 

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Notes to Condensed Consolidated Financial Statements
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, 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.
Convertible Senior Notes
As of October 31, 2020, the estimated fair value of the Notes was approximately $291.7 million. The fair value was determined based on the quoted price for the Notes in an inactive market on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

5. Business Combinations
On October 1, 2020, the Company completed the acquisition of Rundeck Inc. (“Rundeck”), a leading provider of DevOps automation for enterprise. The acquisition of Rundeck strengthens our product and will enable our customers to resolve faster, reduce costs, and protect the customer experience. The Company acquired Rundeck for purchase consideration of $95.3 million in a combination of cash and common stock. The total purchase price consisted of the following:
(in thousands)
Cash paid to common and preferred stockholders, warrant holders, and vested option holders$51,581 
Fair value of common stock transferred33,941 
Fair value of assumed options and restricted stock attributable to pre-combination service(1)
Fair value of future cash payments to common stockholders attributable to pre-combination service4,808 
Total purchase consideration$95,264 
(1) The restricted shares are considered to be legally issued and outstanding on the date of issuance.
The fair value of the stock and options recognized as purchase consideration was determined using the closing price of the Company’s common stock on the acquisition date.
In addition to the purchase consideration, a portion of cash and stock for certain Rundeck key personnel attributable to post-combination services is subject to vest over two years from the closing of the acquisition, subject to on-going employee services and achievement of certain performance conditions as follow:
$3.7 million in future cash payments beginning in the fourth quarter of fiscal year 2021, which the     Company will recognize within research and development over the vesting period of two years.
$3.3 million related to the fair value of restricted stock issued that will vest beginning from the acquisition date, which the Company will recognize as stock-based compensation expense over the vesting period of two years. The restricted shares are considered to be legally issued and outstanding on the date of issuance.

In connection with the acquisition, the Company incurred transaction costs of $1.6 million within the general and administrative line of the Condensed Consolidated Statements of Operations.
The acquisition was accounted for as a business combination and the total purchase consideration was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date and the excess was recorded as goodwill. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of October 31, 2020, the primary area that remains preliminary relates to the valuation of certain tax-related items.
The following table presents the preliminary purchase consideration allocation recorded in the Company’s condensed consolidated balance sheet as of the acquisition date:
(in thousands)
Cash and cash equivalents$1,925 
Accounts receivable and other assets1,879 
Intangible assets27,800 
Accounts payable and other liabilities(548)