PagerDuty(US:PD)2020-03-19 20:12Part I Business PagerDuty operates a real-time operations platform, serving over 12,000 customers with on-call management and incident response capabilities, driven by a subscription-based growth model - PagerDuty's mission is to act as the central nervous system for digital enterprises by collecting machine-generated data, combining it with human response data, and using machine learning to orchestrate real-time issue resolution1516 Fiscal Year Financial Performance | Metric | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Revenue | $166.4 million | $117.8 million | | Net Loss | $50.3 million | $40.7 million | - As of January 31, 2020, the company serves over 12,000 customers across various industries, including software, telecommunications, retail, and financial services20 - The company's growth strategy focuses on landing new customers through a self-service model, expanding usage within existing customers via direct sales, introducing new products, and growing its international presence, which accounted for 22% of revenue in FY20202133 - PagerDuty estimates its total addressable market to be over $25 billion, based on approximately 85 million potential users across developer, IT, security, and customer support segments34 - The primary competitors are identified as OpsGenie (acquired by Atlassian) and VictorOps (acquired by Splunk), with competition based on platform functionality, performance, brand recognition, and total cost of ownership58 Risk Factors The company faces significant risks including a history of operating losses, intense market competition, single product reliance, and potential service interruptions - The company has a history of net losses, reporting $50.3 million, $40.7 million, and $38.1 million for fiscal years 2020, 2019, and 2018, respectively, with an accumulated deficit of $179.2 million as of January 31, 202073 - Substantially all revenue is derived from the On-Call Management product, making the company vulnerable to declines in demand or the failure of other products to gain market acceptance8485 - The market is highly competitive and fragmented, with competition from in-house solutions, open-source software, and established companies like Atlassian (OpsGenie) and Splunk (VictorOps)87 - The business is exposed to security risks, including a past incident in 2015 where a user information database was compromised; future incidents could damage reputation and lead to significant liabilities113115 - Operations depend on third-party data centers, including AWS and Microsoft Azure, making the company vulnerable to their service interruptions, which could harm customer relationships and revenue120121 - International operations, which generated 22% of revenue in FY2020, expose the company to risks such as currency fluctuations, political instability (including Brexit), and complex regulatory environments like GDPR135137172 - The recent global coronavirus (COVID-19) outbreak is identified as a risk that could decrease technology spending, adversely affect demand for products, and harm business and results of operations132134 Properties The company's corporate headquarters is in San Francisco, with additional offices in Atlanta, Seattle, Toronto, Sydney, and London - Corporate headquarters is in San Francisco, CA, consisting of approximately 59,000 square feet with a lease expiring in 2025211 - Additional office locations are maintained in Atlanta, Georgia; Seattle, Washington; Toronto, Canada; Sydney, Australia; and London, United Kingdom212 Legal Proceedings PagerDuty is not currently a party to any litigation expected to have a material adverse effect on its business or financial condition - The company reports that it is not presently a party to any litigation expected to have a material adverse effect on its business or financial condition213 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PagerDuty's common stock began trading on the NYSE under "PD" on April 11, 2019, with no intention to pay future cash dividends - The company's common stock has been listed on the NYSE under the symbol "PD" since its IPO on April 11, 2019216 - PagerDuty has never declared or paid cash dividends and does not expect to in the foreseeable future, intending to retain future earnings for business operations218 - The April 2019 IPO raised aggregate net proceeds of $213.7 million after underwriting discounts and offering costs223 Selected Consolidated Financial and Other Data This section presents key historical financial and operational data for PagerDuty, including revenue, net loss, customer growth, and retention rates Consolidated Statements of Operations Data (in thousands) | | Year Ended January 31, 2020 | Year Ended January 31, 2019 | Year Ended January 31, 2018 | | :--- | :--- | :--- | :--- | | Revenue | $166,351 | $117,823 | $79,630 | | Gross Profit | $141,772 | $100,568 | $66,913 | | Loss from Operations | $(55,559) | $(42,321) | $(38,316) | | Net Loss | $(50,339) | $(40,741) | $(38,149) | Consolidated Balance Sheet Data (in thousands) | | As of January 31, 2020 | As of January 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $124,024 | $127,875 | | Total Assets | $435,398 | $197,234 | | Deferred Revenue | $92,569 | $64,104 | | Total Stockholders' Equity (Deficit) | $307,938 | $(68,930) | Key Business Metrics | Metric | As of Jan 31, 2020 | As of Jan 31, 2019 | As of Jan 31, 2018 | | :--- | :--- | :--- | :--- | | Total Customers | 12,774 | 11,212 | 9,793 | | Customers > $100k ARR | 323 | 228 | 144 | | Dollar-based Net Retention Rate | 122% | 140% | 134% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting revenue growth, gross margin, increased operating expenses, and strong liquidity - Key performance factors include attracting new customers, expanding within the existing customer base, sustaining product innovation, and continued investment in growth, particularly in sales and R&D250251252253 Comparison of Fiscal Years 2020 and 2019 (in thousands) | Metric | FY 2020 | FY 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $166,351 | $117,823 | $48,528 | 41% | | Gross Profit | $141,772 | $100,568 | $41,204 | 41% | | R&D Expense | $49,011 | $38,858 | $10,153 | 26% | | S&M Expense | $97,350 | $64,060 | $33,290 | 52% | | G&A Expense | $50,970 | $39,971 | $10,999 | 28% | | Loss from Operations | $(55,559) | $(42,321) | $(13,238) | 31% | - The 41% revenue growth in FY2020 was primarily driven by growth from existing customers, including increases in user count and upsells of additional products277 - As of January 31, 2020, the company's principal sources of liquidity were cash, cash equivalents, and investments totaling $351.4 million; a substantial source of cash is from deferred revenue, which was $92.6 million318320 Summary of Cash Flows (in thousands) | | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(173) | $(5,608) | $(11,836) | | Net cash used in investing activities | $(232,070) | $(4,119) | $(822) | | Net cash provided by financing activities | $225,944 | $93,599 | $45,429 | - Critical accounting policies include revenue recognition under Topic 606, deferral and amortization of sales commissions over a four-year period, and stock-based compensation valuation using the Black-Scholes model339340343344 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency exchange, both considered minimal given its financial position and U.S. dollar-denominated sales - The company is exposed to interest rate risk on its $351.4 million portfolio of cash, cash equivalents, and investments; however, a hypothetical 10% change in interest rates is not expected to materially impact the financial statements360362 - Foreign currency exchange risk exists as operating expenses are incurred in local currencies (primarily Canada, UK, Australia), but this risk is not considered significant as most sales are denominated in U.S. dollars; the company does not currently use hedging instruments363 Financial Statements and Supplementary Data This section contains the audited consolidated financial statements for fiscal years 2020, 2019, and 2018, along with the independent auditor's report and detailed notes Consolidated Balance Sheet Highlights (in thousands) | | Jan 31, 2020 | Jan 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $404,991 | $172,837 | | Total Assets | $435,398 | $197,234 | | Total Current Liabilities | $115,032 | $88,809 | | Total Liabilities | $127,460 | $93,141 | | Total Stockholders' Equity (Deficit) | $307,938 | $(68,930) | Consolidated Statement of Operations Highlights (in thousands) | | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Revenue | $166,351 | $117,823 | $79,630 | | Gross Profit | $141,772 | $100,568 | $66,913 | | Loss from Operations | $(55,559) | $(42,321) | $(38,316) | | Net Loss | $(50,339) | $(40,741) | $(38,149) | - The company completed its IPO on April 15, 2019, receiving net proceeds of $213.7 million; immediately prior to the IPO, all redeemable convertible preferred stock converted into 41,273,345 shares of common stock390482 - As of January 31, 2020, the company had federal, state, and foreign net operating loss carryforwards of $142.7 million, $5.8 million, and $2.8 million, respectively, which begin to expire in 2030511 Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of January 31, 2020, with no material changes reported - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of January 31, 2020521 - The report does not include a management assessment of internal control over financial reporting, as permitted for newly public companies522 Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information for these items is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders, to be filed within 120 days of the fiscal year-end528529530531532 Part IV Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Form 10-K, including the index to consolidated financial statements and a detailed exhibit index - This item contains the index to the Consolidated Financial Statements (under Item 8) and a list of all exhibits filed with the report534536