PagerDuty Earnings 2019-07-31

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 July 31, 2019



☐	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 August 30, 2019, was 76,285,543.

PAGERDUTY, INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION



Item 1	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	6
	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	19
Item 3	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4	Controls and Procedures	32

Part II - OTHER INFORMATION



Item 1	Legal Proceedings	33
Item 1A	Risk Factors	33
Item 2	Unregistered Sale of Equity Securities and Use of Proceeds	59
Item 6	Exhibits	59
	Signatures	61

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:


•	trends in key business metrics, including number of customers and dollar-based net retention rate, and non-GAAP financial measures and their usefulness in evaluating our business;


•	trends in revenue, cost of revenue, and gross margin;


•	trends in operating expenses, including research and development, sales and marketing, and general and administrative expense, and expectations regarding these expenses as a percentage of revenue;


•	our existing cash and cash equivalents and cash provided by sales of our subscriptions being sufficient to support working capital and capital expenditures for at least the next 12 months;


•	our efforts to maintain proper and effective internal controls;


•	our ability to expand our operations and increase adoption of our platform internationally;


•	our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;


•	the increased expenses and administrative workload associated with being a public company; and


•	other statements regarding our future operations, financial condition, and prospects and business strategies.

Such forward-looking statements are based on our expectations as of the date of this filing and are subject to a number of risks, uncertainties and assumptions, including but not limited to, risks detailed in the “Risk Factors” section of this Form 10-Q. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission, or the SEC, that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

PAGERDUTY, INC.

Condensed Consolidated Balance Sheets

(in thousands)



	July 31,			January 31,
	2019			2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	306,316		$	127,875
Accounts receivable, net of allowance for doubtful accounts of $1,558 and $2,360 as of July 31, 2019 and January 31, 2019, respectively	36,079			33,538
Investments, current	34,805			—
Deferred contract costs, current	7,367			6,002
Prepaid expenses and other current assets	9,126			5,422
Total current assets	393,693			172,837
Property and equipment, net	10,135			5,772
Deferred contract costs, non-current	13,353			11,470
Other assets	1,131			7,155
Total assets	$	418,312		$	197,234
Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	4,302		$	7,657
Accrued expenses and other current liabilities	8,378			7,145
Accrued compensation	12,081			10,050
Deferred revenue, current	75,739			63,957
Total current liabilities	100,500			88,809
Deferred revenue, non-current	2,058			147
Other liabilities	6,591			4,185
Total liabilities	109,149			93,141
Commitments and contingencies (Note 6)
Redeemable convertible preferred stock	—			173,023
Stockholders’ equity (deficit):
Common stock	—			—
Additional paid-in capital	462,665			59,938
Accumulated deficit	(153,502		)	(128,868		)
Total stockholders’ equity (deficit)	309,163			(68,930		)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)	$	418,312		$	197,234

See Notes to Condensed Consolidated Financial Statements

PAGERDUTY, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)



	Three Months Ended July 31,						Six Months Ended July 31,
	2019			2018			2019			2018
Revenue	$	40,361		$	27,744		$	77,675		$	52,764
Cost of revenue	6,106			3,912			11,592			7,797
Gross profit	34,255			23,832			66,083			44,967
Operating expenses:
Research and development	11,635			7,804			22,541			15,523
Sales and marketing	23,786			15,319			44,953			28,613
General and administrative	13,215			13,672			25,699			20,788
Total operating expenses	48,636			36,795			93,193			64,924
Loss from operations	(14,381		)	(12,963		)	(27,110		)	(19,957		)
Interest income	1,967			148			2,856			278
Other income, net	80			326			101			715
Loss before provision for income taxes	(12,334		)	(12,489		)	(24,153		)	(18,964		)
Provision for income taxes	(236		)	(91		)	(481		)	(195		)
Net loss and comprehensive loss	$	(12,570	)	$	(12,580	)	$	(24,634	)	$	(19,159	)
Net loss per share, basic and diluted	$	(0.17	)	$	(0.59	)	$	(0.45	)	$	(0.91	)
Weighted average shares used in calculating net loss per share, basic and diluted	75,433			21,190			54,327			21,036

See Notes to Condensed Consolidated Financial Statements

PAGERDUTY, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)



	Three Months Ended July 31, 2019
	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balances as of April 30, 2019	—	$	—	76,013,403	$	—	$	454,559		$	(140,932	)	$	313,627
Issuance of common stock upon exercise of stock options and restricted stock agreements, net of repurchases	—	—		213,515	—		545			—			545
Vesting of restricted stock units, net of shares withheld for employee payroll taxes	—	—		183	—		—			—			—
Employee payroll taxes withheld related to vesting of restricted stock units	—	—		—	—		(10		)	—			(10		)
Vesting of early exercised options	—	—		—	—		338			—			338
Stock-based compensation	—	—		—	—		7,233			—			7,233
Net loss and comprehensive loss	—	—		—	—		—			(12,570		)	(12,570		)
Balances as of July 31, 2019	—	$	—	76,227,101	$	—	$	462,665		$	(153,502	)	$	309,163



	Six Months Ended July 31, 2019
	Redeemable Convertible Preferred Stock					Common Stock			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity
	Shares		Amount			Shares	Amount		Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity
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	—		—			1,165,345	—		2,785			—			2,785
Vesting of restricted stock units, net of shares withheld for employee payroll taxes	—		—			183	—		—			—			—
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
Employee payroll taxes withheld related to vesting of restricted stock units	—		—			—	—		(10		)	—			(10		)
Vesting of early exercised options	—		—			—	—		672			—			672
Stock-based compensation	—		—			—	—		12,045			—			12,045
Net loss and comprehensive loss	—		—			—	—		—			(24,634		)	(24,634		)
Balances as of July 31, 2019	—		$	—		76,227,101	$	—	$	462,665		$	(153,502	)	$	309,163

PAGERDUTY, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)



	Three Months Ended July 31, 2018
	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Deficit
Balances as of April 30, 2018	36,000,534	$	83,204	22,138,316	$	—	$	35,284	$	(94,706	)	$	(59,422	)
Issuance of common stock upon exercise of stock options and restricted stock agreements, net of repurchases	—	—		407,872	—		292		—			292
Warrant issued in conjunction with charitable contribution	—	—		—	—		6,217		—			6,217
Vesting of early exercised options	—	—		—	—		151		—			151
Stock-based compensation	—	—		—	—		2,529		—			2,529
Net loss and comprehensive loss	—	—		—	—		—		(12,580		)	(12,580		)
Balances as of July 31, 2018	36,000,534	$	83,204	22,546,188	$	—	$	44,473	$	(107,286	)	$	(62,813	)



	Six Months Ended July 31, 2018
	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Deficit
Balances as of January 31, 2018	36,000,534	$	83,204	21,705,352	$	—	$	31,762	$	(88,127	)	$	(56,365	)
Issuance of common stock upon exercise of stock options and restricted stock agreements, net of repurchases	—	—		840,836	—		598		—			598
Warrant issued in conjunction with charitable contribution	—	—		—	—		6,217		—			6,217
Vesting of early exercised options	—	—			—		210		—			210
Stock-based compensation	—	—		—	—		5,686		—			5,686
Warrant issued in conjunction with charitable contribution	—	—		—	—		—					—
Net loss and comprehensive loss	—	—		—	—		—		(19,159		)	(19,159		)
Balances as of July 31, 2018	36,000,534	$	83,204	22,546,188	$	—	$	44,473	$	(107,286	)	$	(62,813	)

See Notes to Condensed Consolidated Financial Statements

PAGERDUTY, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



	Six Months Ended July 31,
	2019			2018
Cash flows from operating activities
Net loss	(24,634		)	$	(19,159	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,046			795
Amortization of deferred contract costs	3,442			1,841
Stock-based compensation	12,045			5,686
Warrant issued in conjunction with charitable contribution	—			6,217
Other	83			451
Changes in operating assets and liabilities:
Accounts receivable	(2,733		)	(8,087		)
Deferred contract costs	(6,690		)	(5,692		)
Prepaid expenses and other assets	(3,411		)	(3,923		)
Accounts payable	(2,712		)	(529		)
Accrued expenses and other liabilities	2,433			(694		)
Accrued compensation	2,031			2,639
Deferred revenue	13,693			11,408
Net cash used in operating activities	(5,407		)	(9,047		)
Cash flows from investing activities
Purchases of property and equipment	(2,019		)	(564		)
Capitalized internal-use software costs	—			(92		)
Purchases of held-to-maturity investments	(34,696		)	—
Net cash used in investing activities	(36,715		)	(656		)
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	(5,208		)	—
Proceeds from repayment of promissory note	515			—
Proceeds from issuance of common stock upon exercise of stock options	2,785			598
Proceeds from early exercised stock options, net of repurchases	—			2,234
Employee payroll taxes paid related to net share settlement of restricted stock units	(10		)	—
Net cash provided by financing activities	218,168			2,832
Net increase (decrease) in cash, cash equivalents and restricted cash	176,046			(6,871		)
Cash, cash equivalents and restricted cash at beginning of year	130,323			46,451
Cash, cash equivalents and restricted cash at end of year	$	306,369		$	39,580

Supplemental cash flow data:
Cash paid for taxes	$	56		$	24
Non-cash investing and financing activities:
Vesting of early exercised options	$	672		$	210
Purchase of property and equipment, accrued but not yet paid	$	1,032		$	2,601
Costs related to initial public offering, accrued but not yet paid	$	737		$	—
Non-cash additions of property and equipment	$	2,364		$	—
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	$	306,316		$	37,132
Restricted cash - included in other assets	$	53		$	2,448
Total cash, cash equivalents and restricted cash	$	306,369		$	39,580

See Notes to Condensed Consolidated Financial Statements

PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

1. Description of Business and Basis of Presentation

Description of Business

PagerDuty, Inc. (the Company or PagerDuty) 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.

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, 2019 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, 2019, included in the Company’s final prospectus related to the Company’s IPO dated April 11, 2019 (Prospectus), filed with the SEC pursuant to Rule 424 (b) under the Securities Act of 1933, as amended. There have been no changes to the Company’s significant accounting policies as described in the Prospectus that have had a material impact on the Company’s condensed consolidated financial statements and related notes, except as described below.

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 redeemable convertible preferred stock and stockholders’ deficit. The results of operations for the three and six months ended July 31, 2019 are not necessarily indicative of the results to be expected for the full year ending January 31, 2020 or for any other interim period, or for any future year.

The Company’s fiscal year ends on January 31. References to fiscal 2020, for example, refer to the fiscal year ended January 31, 2020.

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 expense, period of benefit for amortizing deferred contract costs, the determination of the allowance for doubtful accounts, and the provision for income taxes, including the related valuation allowance and any uncertain tax positions, 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.

Reclassification

Certain reclassifications of prior period amounts have been made in the Company’s condensed consolidated balance sheets and condensed consolidated statements of cash flows to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.

Stock Split

In May 2018, the Company effected a two-for-one stock split of the Company’s redeemable convertible preferred stock and common stock effective May 3, 2018. All redeemable convertible preferred stock and common stock share and per-share amounts for the periods presented in these condensed financial statements have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the periods presented.

2. Summary of Significant Accounting Policies

Segment Information

The Company operates as one operating segment. The Company’s chief operating decision maker 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.

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, and accounts receivable. All of the Company’s cash and cash equivalents and held-to-maturity investments are invested in money market funds, United States (U.S.) Treasury securities, commercial paper, or corporate debt securities that management believes to be of high credit quality.

No customer accounted for more than 10% of the total accounts receivable balance as of July 31, 2019. One customer accounted for 10% of the total accounts receivable balance as of January 31, 2019. No single customer represented 10% or more of revenue for the three and six months ended July 31, 2019 or 2018.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, highly liquid investments with original maturities of three months or less from the date of purchase, and money market funds.

Investments

Investments consist of highly liquid investments, primarily U.S. Treasury securities, commercial paper, and corporate debt securities, with maturities over three months from the date of purchase and less than 12 months from the date of the balance sheet. These investments are classified as held-to-maturity as the Company has the ability and positive intent to hold these investments to maturity. Held-to-maturity investments are carried at amortized cost, which approximates fair value. The Company had $34.8 million of investments classified as held-to-maturity as of July 31, 2019. The Company had no investments as of January 31, 2019.

Related Party Transactions

Certain members of the Company’s Board of Directors serve as directors of, or are executive officers of, and in some cases are investors in, companies that are customers or vendors of the Company. Related party transactions were not material as of either July 31, 2019 or January 31, 2019, or for the three and six months ended July 31, 2019 and 2018.

Deferred Offering Costs

Prior to the IPO, all deferred offering costs were capitalized in other noncurrent assets in the condensed consolidated balance sheets. Deferred offering costs of $6.4 million, primarily consisting of accounting, legal, and other fees related to the Company’s IPO, were offset against IPO proceeds upon the closing of the Company’s IPO in April 2019. As of January 31, 2019, there were $3.3 million of deferred offering costs which are included in other assets in the accompanying condensed consolidated balance sheet as of January 31, 2019.

Recently Adopted Accounting Pronouncements

In July 2018, the FASB issued ASU 2018-09, Codification Improvements. These amendments provide clarifications and corrections to certain ASC subtopics including the following: 220-10 (Income Statement - Reporting Comprehensive Income - Overall), 470-50 (Debt - Modifications and Extinguishments), 480-10 (Distinguishing Liabilities from Equity - Overall), 718-740 (Compensation - Stock Compensation - Income Taxes), 805-740 (Business Combinations - Income Taxes), 815-10 (Derivatives and Hedging - Overall), and 820-10 (Fair Value Measurement - Overall). Some of the amendments in ASU 2018-09 do not require transition guidance and will be effective upon issuance; however, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2019. The amendments that were effective upon issuance of the update did not have an impact on the Company’s condensed consolidated financial statements. The Company early adopted this ASU beginning February 1, 2019 noting that the adoption of the standard had no material impact on its condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases, 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 guidance will be effective for the Company beginning February 1, 2020. The Company is in the initial stage of its assessment of the new standard and is currently evaluating the timing of adoption, the quantitative impact of adoption, and the related disclosure requirements. The Company anticipates the adoption of this standard will result in an increase in its non-current assets and liabilities recorded on the consolidated balance sheets. The adoption of the standard is not expected to have a material impact on the consolidated statements of operations. While the Company is assessing all potential impacts of the adoption of the standard, it currently expects the most significant impact to be the capitalization of right-to-use assets and lease liabilities for its office space leases. The Company does not intend to early adopt the standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, 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. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This guidance will be effective for the Company beginning February 1, 2020. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

3. 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 (in thousands):



	As of July 31, 2019
	Level 1		Level 2		Level 3		Total
Money market funds	$	247,320	$	—	$	—	$	247,320
U.S. Treasury securities	—		4,980		—		4,980
Commercial paper	—		16,358		—		16,358
Corporate debt securities	—		14,967		—		14,967
Total	$	247,320	$	36,305	$	—	$	283,625
Included in cash equivalents							$	248,820
Included in investments							$	34,805

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 did not have any transfers into and out of Level 1 or Level 2 during the six months ended July 31, 2019.

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. As of July 31, 2019 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.

4. Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):



	As of July 31,			As of January 31,
	2019			2019
Leasehold improvements	$	10,194		$	6,512
Computers and equipment	3,917			2,998
Capitalized internal-use software	325			389
Furniture and fixtures	1,968			1,239
Gross property and equipment ⁽¹⁾	16,404			11,138
Accumulated depreciation and amortization	(6,269		)	(5,366		)
Property and equipment, net	$	10,135		$	5,772

⁽¹⁾ Gross property and equipment includes construction-in-progress for leasehold improvements of $2.5 million and $0.2 million that had not yet been placed in service as of July 31, 2019 and January 31, 2019, respectively. The costs associated with construction-in-progress are not amortized until placed in service.

Depreciation and amortization expense was $0.6 million and $0.4 million for the three months ended July 31, 2019 and 2018 and $1.0 million and $0.8 million for the six months ended July 31, 2019 and 2018, respectively.

5. Deferred Contract Costs

Deferred contract costs, which primarily consist of deferred sales commissions, were $20.7 million and $17.5 million as of July 31, 2019 and January 31, 2019, respectively. Amortization expense for the deferred costs was $1.8 million and $1.0 million for the three months ended July 31, 2019 and 2018, respectively, and $3.4 million and $1.8 million for the six months ended July 31, 2019 and 2018, respectively. There was no impairment charge related to the costs capitalized for the periods presented.

6. Commitments and Contingencies

Operating Leases

The Company has entered into various non-cancellable operating leases for its office spaces with lease periods expiring between fiscal 2020 and fiscal 2029. In addition to base rent the Company is also committed to pay a portion of the actual operating expenses under certain of these lease arrangements.

In December 2015, the Company entered into a sublease agreement for its former headquarters in San Francisco, California. The Company received sublease income of $0.3 million during the three months ended July 31, 2018 and $0.7 million for the six months ended July 31, 2018. The lease and related sublease expired in fiscal 2019.

The facility 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. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Deferred rent was $6.2 million as of July 31, 2019, of which $0.8 million was included within accrued expenses and other current liabilities and $5.4 million was included within other liabilities on the condensed consolidated balance sheets. Deferred rent was $3.7 million as of January 31, 2019, of which $0.3 million was included within accrued expenses and other current liabilities and $3.4 million was included within other liabilities on the condensed consolidated balance sheets. Rent expense was $1.6 million and $1.1 million for the three months ended July 31, 2019 and 2018, respectively, and $2.9 million and $2.4 million for the six months ended July 31, 2019 and 2018, respectively.

As of July 31, 2019 the future minimum lease payments by fiscal year excluding sublease income under non-cancellable operating leases are as follows (in thousands):



	Minimum Lease Payments
2020	$	2,742
2021	5,629
2022	6,327
2023	6,502
2024	6,683
Thereafter	15,847
Total	$	43,730

Total future minimum lease payments under non-cancellable operating leases as of July 31, 2019 are primarily comprised of lease payments due under the lease of the Company’s headquarters in San Francisco, California, and leases for the Company’s offices in Toronto, Canada and Atlanta, Georgia.

In July 2019, the Company entered into a non-cancellable operating lease for office space in Atlanta, Georgia, with minimum lease payments of $14.4 million through the lease term of July 2028.

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.

7. Common Stock and Stockholders’ Equity (Deficit)

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. Under the 2019 Plan, the Company’s Board of Directors (the Board) and any other committee or subcommittee of the Board may grant stock options and restricted stock awards (RSAs) and restricted stock units (RSUs) to employees, consultants, and advisors of the Company. Through July 31, 2019, the Company has granted stock options, RSAs, and RSUs. As

of July 31, 2019 and January 31, 2019, respectively, the Company was authorized to grant up to 12,724,831 shares and 23,929,932 shares of common stock under the Stock Plans.

The Company has issued stock options and RSAs to employees and non-employee directors under the 2010 Plan, and certain of these awards allow for early exercise. The Company has issued stock options and RSUs to employees pursuant to the 2019 Plan. Stock options are granted with exercise prices at the fair value of the underlying common stock on the grant date, in general vest based on continuous employment over four years and expire 10 years from the date of grant. RSUs are measured based on the grant date fair value of the awards and in general vest based on continuous employment over four years.

In March 2019, the Company granted 3,041,000 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 July 31, 2019 and January 31, 2019, there were 12,533,564 shares and 2,221,216 shares available for future issuance under the Stock Plans, respectively.

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



	As of July 31, 2019
Stock options and unvested RSUs outstanding	16,278,346
Available for future stock option and RSU grants	12,533,564
Available for ESPP	1,850,000
Total common stock reserved at July 31, 2019	30,661,910

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, 2019	14,006,222		$	4.32	8.2 years	$	142,840
Granted	3,758,093		$	15.82
Exercised	(1,170,845	)	$	2.42
Canceled	(430,936	)	$	7.85
Outstanding at July 31, 2019	16,162,534		$	7.05	8.2 years	$	601,234
Vested as of July 31, 2019	6,588,059		$	3.11	7.3 years	$	270,688

Stock options granted during the three months ended July 31, 2019 and 2018 had a weighted average grant date fair value of $23.08 and $5.13 per share, respectively. The aggregate intrinsic value of stock options exercised during the three months ended July 31, 2019 and 2018 was $10.5 million and $1.8 million, respectively.

Stock options granted during the six months ended July 31, 2019 and 2018 had a weighted average grant date fair value of $10.83 and $4.39 per share, respectively. The aggregate intrinsic value of stock options exercised during the six months ended July 31, 2019 and 2018 was $30.5 million and $4.6 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 July 31, 2019 and January 31, 2019, respectively, there was approximately $59.5 million and $30.6 million of total unrecognized compensation cost related to unvested stock options granted under the Stock Plan, which will be recognized over a weighted average period of 3.5 years and 2.7 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, 2019	—		$	—
Granted	117,966		$	48.04
Vested, net of shares withheld for employee payroll taxes	(183	)	$	46.26
Canceled	(1,971	)	$	46.26
Outstanding at July 31, 2019	115,812		$	48.07

As of July 31, 2019, there was $5.4 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 3.9 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. The initial offering period began April 11, 2019 and will end on June 15, 2021, with purchase dates of December 13, 2019, June 15, 2020, December 15, 2020 and June 15, 2021. The ESPP generally provides for 24-month offering periods beginning June 15 and December 15 of each year, with each offering period consisting of four six-month purchase periods, except for the initial offering period which began on April 11, 2019 and will end on December 15, 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 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.

The Company recognized $1.8 million and $2.2 million of stock-based compensation expense related to ESPP during the three and six months ended July 31, 2019, respectively beginning upon the IPO in April 2019. As of July 31, 2019, $2.6 million has been withheld on behalf of employees for a future purchase under the ESPP.

There were no purchases for the three and six months ended July 31, 2019 related to the ESPP.

Warrant Issued as Charitable Contribution

In fiscal 2019, the Company commenced an initiative to donate product, equity, and employee time for charitable purposes. In June 2018, as part of this initiative, the Company issued to the Tides Foundation a warrant to purchase up to 648,092 shares of the Company’s common stock, exercisable at a price of $0.01 per share. The common stock warrant was automatically net exercised for 647,822 shares of common stock upon the closing of the IPO.

The Company recognized $6.2 million of non-cash charitable contribution expense during the three and six months ended July 31, 2018 and this amount is included in general and administrative expense in the accompanying condensed consolidated statements of operations.

Stock-Based Compensation

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options on the date of grant. 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.

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



	Three Months Ended July 31,				Six Months Ended July 31,
	2019		2018		2019		2018
Cost of revenue	$	327	$	70	$	470	$	131
Research and development	1,437		398		2,297		1,113
Sales and marketing	2,326		914		3,790		1,766
General and administrative⁽¹⁾	3,143		1,147		5,488		2,676
Total	$	7,233	$	2,529	$	12,045	$	5,686

(1) Stock-based compensation expense above does not include $6.2 million of non-cash charitable contribution expense.

8. Deferred Revenue and Performance Obligations

During the three months ended July 31, 2019 and 2018, the Company recognized $28.8 million and $17.9 million of revenue, respectively, which were included in the deferred revenue balance as of April 30, 2019 and 2018, respectively.

During the six months ended July 31, 2019 and 2018, the Company recognized $46.7 million and $26.5 million of revenue, respectively, which was included in the deferred revenue balance as of January 31, 2019 and 2018, respectively.

As of July 31, 2019 and January 31, 2019, 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 $60.1 million and $43.6 million, respectively. The Company expects to satisfy the substantial majority of these unsatisfied performance obligations over the next 24 months and the remainder thereafter. The Company applied the optional exemption for subscriptions with terms of less than a one year.

9. Net Loss per Share

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):



	Three Months Ended July 31,						Six Months Ended July 31,
	2019			2018			2019			2018
Numerator:
Net loss	$	(12,570	)	$	(12,580	)	$	(24,634	)	$	(19,159	)
Denominator:
Weighted average shares used in calculating net loss per share, basic and diluted	75,433			21,190			54,327			21,036
Net loss per share, basic and diluted	$	(0.17	)	$	(0.59	)	$	(0.45	)	$	(0.91	)

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 (in thousands):



	As of July 31,
	2019	2018
Redeemable convertible preferred stock	—	36,001
Shares subject to outstanding common stock options	16,278	13,546
Unvested early exercised stock options	205	470
Warrants to purchase common stock	—	852
Early exercised stock options in exchange for note receivable	—	250
Restricted stock awards purchased with promissory notes	429	510
Shares issuable pursuant to the 2019 Employee Stock Purchase Plan	125	—
Total	17,037	51,629

10. 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 $0.1 million for the three months ended July 31, 2019 and 2018, respectively, and $0.5 million and $0.2 million for the six months ended July 31, 2019 and 2018, respectively. The income tax expense for the three and six months ended July 31, 2019 as compared to the income tax expense for the three and six months ended July 31, 2018, changed primarily due to growth in our foreign operations.

11. Geographic Information

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



	Three Months Ended July 31,				Six Months Ended July 31,
	2019		2018		2019		2018
United States	$	31,592	$	22,223	$	61,060	$	42,441
International	8,769		5,521		16,615		10,323
Total	$	40,361	$	27,744	$	77,675	$	52,764

Other than the United States, no other individual country accounted for 10% or more of revenue for the three and six months ended July 31, 2019 or 2018. As of July 31, 2019, 69% of the Company’s property and equipment was located in the United States and 31% was located in Canada. As of January 31, 2019, 48% of the Company’s property and equipment was located in the United States and 52% was located in Canada.

12. Subsequent Events

The Company has evaluated subsequent events through September 6, 2019.

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 final prospectus related to our initial public offering, or IPO, dated April 11, 2019, or the Prospectus, filed with the SEC pursuant to Rule 424 (b) under the Securities Act of 1933 (File No. 333-230323). 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, 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, providing for real-time operations. We collect digital signals from virtually any software-enabled system or device, correlate and interpret these signals, and combine them with human response data, orchestrating teams to take the right actions in real time.

We mine machine data and human response data to embed analytics, machine learning, and automation within our platform. Our platform learns from every incident, allowing teams to be proactive and incorporate best practices into their operations to improve performance.

Our products help organizations improve operations, accelerate innovation, increase revenue, mitigate security risk, and deliver great customer experience.

Since our founding in 2009, we have expanded our capabilities from a single product focused on on-call management to a real-time operations platform, spanning event intelligence, incident response, on-call management, business visibility, and analytics. We have invested in developing the scalability, reliability, and security of our platform to address the needs of even the largest and most demanding customers. We have over 350 integrations with ecosystem partners that enable our customers to gather and correlate digital signals from virtually any software-enabled system or device.

As of July 31, 2019, we had over 12,000 customers - ranging from startups to Fortune 50 companies. Our customers use our products across a broad range of use cases such as DevOps, Security, IT Operations, Business and Internet of Things.

Our platform is easy to adopt and scalable for businesses of all sizes. We generate revenue primarily through sales of subscriptions to our software. We offer a range of pricing plans aligned with our customers’ needs and their digital operations maturity. We have a land and expand business model that leads to viral adoption of our products and subsequent expansion. Our online self-service model is the primary mechanism for landing new customers, and enabling teams to get started without assistance. We complement our self-service model with a high-velocity inside sales team focused on the midmarket and small and medium business, and a field sales team focused on enterprise customers. These teams drive expansion to additional users, additional teams, and new use cases, as well as upsell premium functionality.

Key Business Metrics

We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

Number of Customers

We believe that the number of customers using our platform, particularly those that have subscription agreements for more than $100,000 in annual recurring revenue, or ARR, are indicators of our market penetration, particularly within enterprise accounts, the growth of our business, and our potential future business opportunities. Increasing awareness of our platform and its broad range of capabilities, coupled with the mainstream adoption of cloud-based, “always on” technology, has expanded the diversity of our customer base to include organizations of all sizes across virtually all industries. Over time, larger customers have constituted a greater share of our revenue.



	As of July 31,
	2019	2018
Customers	12,045	10,454
Customers greater than $100,000 in ARR	274	181

Dollar-based Net Retention Rate

We use dollar-based net retention rate to evaluate the long-term value of our customer relationships, since this metric reflects our ability to retain and expand the ARR from our existing customers. Our dollar-based net retention rate compares our ARR from the same set of customers across comparable periods.

We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end, or Prior Period ARR. We then calculate the ARR from these same customers as of the current period end, or Current Period ARR. Current Period ARR includes any expansion and is net of downgrades or churn over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the dollar-based net retention rate.



	Last 12 Months Ended July 31,
	2019		2018
Dollar-based net retention rate for all customers	132	%	138	%

Components of Results of Operations

Revenue

We generate subscription revenue from customers accessing our platform. Our subscriptions are typically one year in duration but can range from monthly to multi-year. Subscription revenue is driven primarily by the number of customers, the number of users per customer, and the level of subscription purchased. We generally invoice customers in advance in annual installments for subscriptions to our platform. We recognize subscription revenue ratably over the term of the subscription period beginning on the date we grant access to our platform, assuming that all other revenue recognition criteria have been met.

Due to the low complexity of implementation and integration of our platform with our customers’ existing infrastructure, revenue from professional services has been immaterial to date.

Cost of Revenue

Cost of revenue primarily consists of expenses related to providing our platform to customers, including personnel expenses for operations and global support, payments to our third-party cloud infrastructure providers for hosting our software, payment processing fees, amortization of capitalized internal-use software costs, and allocated overhead costs

for facilities, information technology, and other overhead costs. We will continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capability of our platform and ensure that our customers are realizing the full benefit of our offerings. The level and timing of investment in these areas could affect our cost of revenue in the future.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand the capacity of our third-party cloud infrastructure providers and our continued efforts to enhance our platform support and customer success teams.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel expenses are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense, and sales commissions. Operating expenses also include allocated overhead costs for facilities, shared IT related expenses, including depreciation expense, and certain company wide events and functions.

Research and Development

Research and development expenses consist primarily of personnel costs for our engineering, product, and design teams. Additionally, research and development expenses include contractor fees, depreciation of equipment used in research and development activities, and allocated overhead costs. We expect that our research and development expenses will increase in dollar value as our business grows.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs, costs of general marketing activities and promotional activities, travel related expenses, and allocated overhead costs. Sales commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a subscription with a customer are deferred and amortized on a straight-line basis over the expected period of benefit, which we have determined to be four years. We expect that our sales and marketing expenses will increase in dollar value and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts.

General and Administrative

General and administrative expenses consist primarily of personnel costs and contractor fees for finance, legal, human resources, information technology, and other administrative functions. In addition, general and administrative expenses include non-personnel costs, such as legal, accounting, and other professional fees, hardware and software costs, certain tax, license and insurance-related expenses, and allocated overhead costs.

We are incurring additional expenses than we have historically experienced as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and increased expenses for insurance, investor relations, and professional services and to invest in processes and systems. We expect that our general and administrative expenses will increase in dollar value as our business grows. However, we expect that our general and administrative expenses will decrease as a percentage of our revenue over the longer term as we expect our investments to allow for improved efficiency for future growth in the business.

Interest Income

Interest income consists of income earned on our cash and cash equivalents and interest earned on our short term investments which consist of U.S. Treasury securities, commercial paper, and corporate debt securities.

Other Income, Net

Other income, net primarily consists of sublease income related to our San Francisco lease, accretion income on our held-to-maturity investments, and foreign currency transaction gains and losses.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized.

Results of Operations

The following table sets forth our condensed consolidated statements of operations data for the periods indicated (in thousands):



	Three Months Ended July 31,				Six Months Ended July 31,
	2019		2018		2019		2018
Revenue	$	40,361	$	27,744	$	77,675	$

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	2020-10-31	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

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PD 10Q Quarterly Report

PagerDuty Earnings 2019-07-31