Company Quick10K Filing
PagerDuty
Price28.24 EPS-1
Shares76 P/E-54
MCap2,146 P/FCF-1,087
Net Debt-176 EBIT-39
TEV1,970 TEV/EBIT-50
TTM 2019-10-31, in MM, except price, ratios
10-Q 2020-10-31 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 pagerdutyq32019ex311.htm
EX-31.2 pagerdutyq32019ex312.htm
EX-32.1 pagerdutyq32019ex321.htm

PagerDuty Earnings 2019-10-31

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

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
_________________________
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-38856
PAGERDUTY, INC.
(Exact name of registrant as specified in its charter)
_________________________
Delaware
 
27-2793871
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
600 Townsend St., Suite 200
San Francisco, CA 94103
(844) 800-3889
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
_________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.000005 par value
 
PD
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x No  o
Indicate by check mark whether the registrant has submitted electronically on its corporate Web site every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
x
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  x
The total number of shares of common stock outstanding as of November 29, 2019, was 77,230,071.




PAGERDUTY, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Part II - OTHER INFORMATION





SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Form 10-Q, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which statements involve substantial risk and uncertainties. All statements contained in this report other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “likely,” and similar expressions are intended to identify forward-looking statements.
Forward-looking statement contained in this Form 10-Q include, but are not limited to, statements about our expectations regarding:
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)
 
October 31, 2019
 
January 31, 2019
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
176,347

 
$
127,875

Accounts receivable, net of allowance for doubtful accounts of $1,024 and $2,360 as of October 31, 2019 and January 31, 2019, respectively
29,205

 
33,538

Investments
169,744

 

Deferred contract costs, current
8,251

 
6,002

Prepaid expenses and other current assets
9,985

 
5,422

Total current assets
393,532

 
172,837

Property and equipment, net
10,031

 
5,772

Deferred contract costs, non-current
14,667

 
11,470

Other assets
1,767

 
7,155

Total assets
$
419,997

 
$
197,234

Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
5,254

 
$
7,657

Accrued expenses and other current liabilities
6,827

 
7,145

Accrued compensation
15,669

 
10,050

Deferred revenue, current
78,582

 
63,957

Total current liabilities
106,332

 
88,809

Deferred revenue, non-current
2,042

 
147

Other liabilities
7,132

 
4,185

Total liabilities
115,506

 
93,141

Commitments and contingencies (Note 7)

 

Redeemable convertible preferred stock

 
173,023

Stockholders’ equity (deficit):
 
 
 
Common stock

 

Additional paid-in capital
473,308

 
59,938

Accumulated other comprehensive loss
(50
)
 

Accumulated deficit
(168,767
)
 
(128,868
)
Total stockholders’ equity (deficit)
304,491

 
(68,930
)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
$
419,997

 
$
197,234

See Notes to Condensed Consolidated Financial Statements

4


PAGERDUTY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2019
 
2018
 
2019
 
2018
Revenue
$
42,750

 
$
31,229

 
$
120,425

 
$
83,993

Cost of revenue
6,634

 
4,599

 
18,226

 
12,396

Gross profit
36,116

 
26,630

 
102,199

 
71,597

Operating expenses:
 
 
 
 
 
 
 
Research and development
12,619

 
14,578

 
35,160

 
30,101

Sales and marketing
27,425

 
18,738

 
72,378

 
47,351

General and administrative
12,765

 
9,264

 
38,464

 
30,052

Total operating expenses
52,809

 
42,580

 
146,002

 
107,504

Loss from operations
(16,693
)
 
(15,950
)
 
(43,803
)
 
(35,907
)
Interest income
1,427

 
318

 
4,283

 
596

Other income, net
245

 
372

 
346

 
1,087

Loss before provision for income taxes
(15,021
)
 
(15,260
)
 
(39,174
)
 
(34,224
)
Provision for income taxes
(244
)
 
(115
)
 
(725
)
 
(310
)
Net loss
$
(15,265
)
 
$
(15,375
)
 
$
(39,899
)
 
$
(34,534
)
Comprehensive loss:
 
 
 
 
 
 
 
Unrealized loss on investments
(50
)
 

 
(50
)
 

Total comprehensive loss
$
(15,315
)
 
$
(15,375
)
 
$
(39,949
)
 
$
(34,534
)
Net loss per share, basic and diluted
$
(0.20
)
 
$
(0.71
)
 
$
(0.65
)
 
$
(1.63
)
Weighted average shares used in calculating net loss per share, basic and diluted
75,992

 
21,598

 
61,628

 
21,226

See Notes to Condensed Consolidated Financial Statements

5


PAGERDUTY, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
(unaudited)
 
Three Months Ended October 31, 2019
 
Redeemable Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated
Deficit
 
Total
Stockholders’
Equity (Deficit)
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balances as of July 31, 2019

 
$

 
76,227,101

 
$

 
$
462,665

 
$

 
$
(153,502
)
 
$
309,163

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

 

 
920,730

 

 
2,965

 

 

 
2,965

Vesting of restricted stock units, net of shares withheld for employee payroll taxes

 

 
897

 

 

 

 

 

Employee payroll taxes withheld related to vesting of restricted stock units

 

 

 

 
(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, 2019

 
$

 
77,148,728

 
$

 
$
473,308

 
$
(50
)
 
$
(168,767
)
 
$
304,491



6


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

 
$
173,023

 
 
23,189,921

 
$

 
$
59,938

 
$

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

 

 
 
2,086,075

 

 
5,750

 

 

 
5,750

Vesting of restricted stock units, net of shares withheld for employee payroll taxes

 

 
 
1,080

 

 

 

 

 

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

 

 
 

 

 
(14
)
 

 

 
(14
)
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



7


PAGERDUTY, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
(unaudited)
 
Three Months Ended October 31, 2018
 
Redeemable Convertible
Preferred Stock
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Total
Stockholders’
Deficit
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Balances as of July 31, 2018
36,000,534

 
$
83,204

 
 
22,546,188

 
$

 
$
44,473

 
$
(107,286
)
 
$
(62,813
)
Issuance of common stock upon exercise of stock options and restricted stock agreements, net of repurchases

 

 
 
400,087

 

 
707

 

 
707

Exercise of common stock warrants

 

 
 
101,905

 

 
473

 

 
473

Issuance of Series D redeemable convertible preferred stock, net of issuance costs of $181
5,272,811

 
89,819

 
 

 

 

 

 

Vesting of early exercised options

 

 
 

 

 
337

 

 
337

Stock-based compensation

 

 
 

 

 
10,176

 

 
10,176

Net loss

 

 
 

 

 

 
(15,375
)
 
(15,375
)
Balances as of October 31, 2018
41,273,345

 
$
173,023

 
 
23,048,180

 
$

 
$
56,166

 
$
(122,661
)
 
$
(66,495
)
 
Nine Months Ended October 31, 2018
 
Redeemable Convertible
Preferred Stock
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Total
Stockholders’
Deficit
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
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

 

 
 
1,240,923

 

 
1,305

 

 
1,305

Warrant issued in conjunction with charitable contribution

 

 
 

 

 
6,217

 

 
6,217

Exercise of common stock warrants

 

 
 
101,905

 

 
473

 

 
473

Issuance of Series D redeemable convertible preferred stock, net of issuance costs of $181
5,272,811

 
89,819

 
 

 

 

 

 

Vesting of early exercised options

 

 
 
 
 

 
547

 

 
547

Stock-based compensation

 

 
 

 

 
15,862

 

 
15,862

Net loss

 

 
 

 

 

 
(34,534
)
 
(34,534
)
Balances as of October 31, 2018
41,273,345

 
$
173,023

 
 
23,048,180

 
$

 
$
56,166

 
$
(122,661
)
 
$
(66,495
)
See Notes to Condensed Consolidated Financial Statements



8


PAGERDUTY, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Nine Months Ended October 31,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net loss
$
(39,899
)
 
$
(34,534
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
1,675

 
1,254

Amortization of deferred contract costs
5,499

 
3,055

Stock-based compensation
19,392

 
15,862

Warrant issued in conjunction with charitable contribution

 
6,217

Other
(383
)
 
664

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
4,333

 
(6,245
)
Deferred contract costs
(10,945
)
 
(8,924
)
Prepaid expenses and other assets
(4,864
)
 
(2,448
)
Accounts payable
(1,386
)
 
319

Accrued expenses and other liabilities
2,464

 
2,127

Accrued compensation
5,619

 
2,840

Deferred revenue
16,520

 
13,577

Net cash used in operating activities
(1,975
)
 
(6,236
)
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(3,190
)
 
(3,078
)
Capitalized internal-use software costs

 
(224
)
Purchases of held-to-maturity investments
(45,736
)
 

Proceeds from held-to-maturity of investments
8,950

 

Purchases of available-for-sale investments
(132,706
)
 

Net cash used in investing activities
(172,682
)
 
(3,302
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

 
89,819

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 repayment of promissory note
515

 

Proceeds from issuance of common stock upon exercise of stock options
5,750

 
1,305

Proceeds from early exercised stock options, net of repurchases

 
2,234

Proceeds from issuance of common stock upon exercise of warrants

 
473

Employee payroll taxes paid related to net share settlement of restricted stock units
(14
)
 

Net cash provided by financing activities
220,734

 
93,831

Net increase in cash, cash equivalents and restricted cash
46,077

 
84,293

Cash, cash equivalents and restricted cash at beginning of period
130,323

 
46,451

Cash, cash equivalents and restricted cash at end of period
$
176,400

 
$
130,744

 
 
 
 
Supplemental cash flow data:
 
 
 
Cash paid for taxes
$
53

 
$
45

Non-cash investing and financing activities:
 
 
 
Vesting of early exercised options
$
1,007

 
$
547

Purchase of property and equipment, accrued but not yet paid
$
347

 
$
338

Costs related to initial public offering, accrued but not yet paid
$
342

 
$
245

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
$
176,347

 
$
128,296

Restricted cash - included in other assets
$
53

 
$
2,448

Total cash, cash equivalents and restricted cash
$
176,400

 
$
130,744

See Notes to Condensed Consolidated Financial Statements

9


PAGERDUTY, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
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’ equity (deficit). The results of operations for the three and nine months ended October 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

10


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, 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, 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 October 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 nine months ended October 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
The Company’s investments are classified as available-for-sale and held-to-maturity and consist of highly liquid investments, primarily U.S. Treasury securities, commercial paper, and corporate debt securities. The Company determines the appropriate classification of its investments at the time of purchase and reevaluates such designation at each balance sheet date.
The Company periodically evaluates its short-term investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time the investment has been in a loss position, the extent to which the fair value is less than the Company’s cost basis, and the financial condition and near-term prospects of the

11


investee. If the Company determines that the decline in an investment’s fair value is other-than-temporary, an impairment loss is recognized in earnings equal to the difference between the investment’s amortized cost and fair value at such date. Realized gains and losses are reported in other income, net, in the condensed consolidated statements of operations. No impairment charges have been recognized to date.
Held-to-Maturity
The Company’s held-to-maturity investments consist of investments with maturities over three months from the date of purchase and less than 12 months from the date of the balance sheet and are classified as short-term. 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.
Available-for-Sale
The Company classifies its available-for-sale investments, including those with stated maturities beyond twelve months, as short-term based on their highly liquid nature and because they represent the investment of cash that is available for current operations. In addition, the Company may sell these investments at any time for use in its current operations or for other purposes, even prior to maturity. The Company's available-for-sale investments are recorded at fair market value each reporting period. Unrealized gains and losses on these available-for-sale investments are reported as a separate component of accumulated other comprehensive income in the accompanying condensed consolidated balance sheet until realized.
Related Party Transactions
Certain members of the Company’s Board of Directors serve as directors of, or are executive officers of, and in some cases are investors in, companies that are customers or vendors of the Company. The Company recognized revenue from the sales of its product to a related party of $0.2 million and $0.6 million in the three and nine months ended October 31, 2019 and were immaterial in the three and nine months ended October 31, 2018. Other Related party transactions were not material as of either October 31, 2019 or January 31, 2019, or for the three and nine months ended October 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

12


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 has completed its process to identify the population of lease arrangements and is nearing the completion of applying the new guidance to each arrangement. The Company is also in the process of determining the incremental borrowing rate for each arrangement. While the adoption remains in progress, the Company expects that adoption will result in the recognition of right-of-use assets and lease liabilities that were not previously recognized, which will increase total assets and liabilities on its consolidated balance sheet.
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. Investments
The following table summarizes the carrying value of the Company’s investments as of October 31, 2019 (in thousands):     
 
Cost Basis
 
Unrealized Gain (Loss), Net
 
Recorded Basis
Available-for-sale investments:
 
 
 
 
 
U.S. Treasury securities
$
29,915

 
$
16

 
$
29,931

Commercial paper
13,898

 
(3
)
 
13,895

Corporate debt securities
89,000

 
(63
)
 
88,937

Total available-for-sale investments
$
132,813

 
$
(50
)
 
$
132,763

Held-to-maturity investments:

 

 

U.S. Treasury securities
9,017

 

 
9,017

Commercial paper
10,443

 

 
10,443

Corporate debt securities
17,521

 

 
17,521

Total held-to-maturities investments
36,981

 

 
36,981

Total investments
$
169,794

 
$
(50
)
 
$
169,744


Gross realized gains or losses from sales of available-for-sale securities were not material for the three and nine month ended October 31, 2019.
All of the Company’s held-to-maturity securities have a contractual maturity of less than one year. The following table presents the contractual maturities of the Company’s available-for-sale securities as of October 31, 2019:
 
Cost Basis
 
Recorded Basis
Due within one year
$
83,432

 
$
83,426

Due between one to five years
49,381

 
49,337

 
$
132,813

 
$
132,763


The Company had no investments as of January 31, 2019.

13


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 (in thousands):
 
As of October 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Money market funds
$
159,047

 
$

 
$

 
$
159,047

U.S. Treasury securities

 
38,948

 

 
38,948

Commercial paper

 
24,338

 

 
24,338

Corporate debt securities

 
116,431

 

 
116,431

Total
$
159,047

 
$
179,717

 
$

 
$
338,764

Included in cash equivalents
 
 
 
 
 
 
169,020

Included in investments
 
 
 
 
 
 
169,744


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 nine months ended October 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 October 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.

14


5. Property and Equipment, Net
Property and equipment, net, consisted of the following (in thousands):
 
October 31, 2019
 
January 31, 2019
Leasehold improvements
$
10,295

 
$
6,512

Computers and equipment
4,046

 
2,998

Capitalized internal-use software
389

 
389

Furniture and fixtures
1,947

 
1,239

Gross property and equipment (1)
16,677

 
11,138

Accumulated depreciation and amortization
(6,646
)
 
(5,366
)
Property and equipment, net
$
10,031

 
$
5,772

(1) Gross property and equipment includes construction-in-progress for leasehold improvements of $2.6 million and $0.2 million that had not yet been placed in service as of October 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 $0.5 million for the three months ended October 31, 2019 and 2018 and $1.6 million and $1.3 million for the nine months ended October 31, 2019 and 2018, respectively.
6. Deferred Contract Costs
Deferred contract costs, which primarily consist of deferred sales commissions, were $22.9 million and $17.5 million as of October 31, 2019 and January 31, 2019, respectively. Amortization expense for the deferred costs was $2.1 million and $1.2 million for the three months ended October 31, 2019 and 2018, respectively, and $5.5 million and $3.1 million for the nine months ended October 31, 2019 and 2018, respectively. There was no impairment charge related to the costs capitalized for the periods presented.
7. 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 $0.4 million during the three months ended October 31, 2018 and $1.1 million for the nine months ended October 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 $6.5 million as of October 31, 2019, of which $0.7 million was included within accrued expenses and other current liabilities and $5.8 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 $1.8 million and $1.3 million for the three months ended October 31, 2019 and 2018, respectively, and $4.7 million and $3.6 million for the nine months ended October 31, 2019 and 2018, respectively.

15


As of October 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
$
1,490

2021
5,671

2022
6,364

2023
6,502

2024
6,683

Thereafter
15,848

Total
$
42,558


Total future minimum lease payments under non-cancellable operating leases as of October 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.
8. 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 October 31, 2019, the Company has granted stock options, RSAs, and RSUs.

16


As of October 31, 2019 and January 31, 2019, respectively, the Company was authorized to grant up to 13,049,689 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 stock options to existing employees with 50 percent of these options vesting over four years from the grant date and 50 percent vesting over five years from the grant date.
The Company currently uses authorized and unissued shares to satisfy stock award exercises. As of October 31, 2019 and January 31, 2019, there were 12,249,794 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:
 
October 31, 2019
Stock options and unvested RSUs outstanding
15,643,007

Available for future stock option and RSU grants
12,249,794

Available for ESPP
1,850,000

Total common stock reserved at October 31, 2019
29,742,801


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

 
8.0 years
 
$
142,840

Granted
3,773,315

 
$
15.87

 
 
 
 
Exercised
(2,091,575
)
 
$
2.67

 
 
 
 
Canceled
(755,794
)
 
$
8.34

 
 
 
 
Outstanding at October 31, 2019
14,932,168

 
$
7.28

 
8.0 years
 
$
234,653

Vested as of October 31, 2019
6,563,556

 
$
3.41

 
7.2 years
 
$
128,502


Stock options granted during the three months ended October 31, 2019 and 2018 had a weighted average grant date fair value of $11.72 and $5.50 per share, respectively. The aggregate intrinsic value of stock options exercised during the three months ended October 31, 2019 and 2018 was $21.8 million and $4.0 million, respectively.
Stock options granted during the nine months ended October 31, 2019 and 2018 had a weighted average grant date fair value of $10.84 and $4.60 per share, respectively. The aggregate intrinsic value of stock options exercised during the nine months ended October 31, 2019 and 2018 was $52.5 million and $8.6 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.

17


As of October 31, 2019 and January 31, 2019, respectively, there was approximately $52.5 million and $30.6 million of total unrecognized compensation cost related to unvested stock options granted under the Stock Plans, which will be recognized over a weighted average period of 3.4 years and 2.7 years, respectively.
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
711,509

 
$
30.69

Vested, net of shares withheld for employee payroll taxes
(1,080
)
 
$
32.51

Canceled
(2,108
)
 
$
46.26

Outstanding at October 31, 2019
708,321

 
$
30.64


As of October 31, 2019, there was $20.9 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 3.8 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 $1.5 million and $3.7 million of stock-based compensation expense related to ESPP during the three and nine months ended October 31, 2019, respectively beginning upon the IPO in April 2019. As of October 31, 2019, $4.1 million has been withheld on behalf of employees for a future purchase under the ESPP.
There were no purchases for the three and nine months ended October 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 nine months ended October 31, 2018 and this amount is included in general and administrative expense in the accompanying condensed consolidated statement of operations.
Common Stock Transfer
During the three and nine months ended October 31, 2018, certain of the Company’s investors acquired outstanding common stock from current or former employees at a purchase price greater than or equal to the estimated fair value at the time of the transactions. For the shares acquired at a price in excess of fair value during the three and nine months

18


ended October 31, 2018, the Company recorded stock-based compensation expense for the difference between the price paid and the estimated fair value on the date of the transactions of $5.5 million. The Company recorded $3.8 million of this expense in research and development expense, $1.4 million in general and administrative expense and $0.3 million in sales and marketing expense. In connection with these stock transfers, the Company either waived or assigned its rights of first refusal or other transfer restrictions applicable to such shares.
There were no such transactions during the three or nine months ended October 31, 2019.
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 October 31,
 
Nine Months Ended October 31,
 
2019
 
2018
 
2019
 
2018
Cost of revenue
$
303

 
$
71

 
$
773

 
$
202

Research and development
1,462

 
6,567

 
3,760

 
7,680

Sales and marketing
2,295

 
1,198

 
6,084

 
2,964

General and administrative(1)
3,287

 
2,340

 
8,775

 
5,016

Total
$
7,347

 
$
10,176

 
$
19,392

 
$
15,862

(1) Stock-based compensation expense above does not include $6.2 million of non-cash charitable contribution expense.
9. Deferred Revenue and Performance Obligations
The following table presents the changes to the Company’s deferred revenue (in thousands):
 
Three Months Ended October 31,