PagerDuty(PD) - 2024 Q1 - Quarterly Report

FORM 10-Q Filing Information This section details the filing information for PagerDuty, Inc.'s Form 10-Q, including the reporting period, filer status, and outstanding common stock shares - The document is a Quarterly Report on Form 10-Q for PAGERDUTY, INC., covering the quarterly period ended April 30, 2023[1][2] - PagerDuty, Inc. is a large accelerated filer, with its Common Stock (PD) registered on the New York Stock Exchange[3][4] - As of May 31, 2023, the total number of common stock shares outstanding was 92,205,332[4] Special Note Regarding Forward-Looking Statements This section highlights the inherent risks and uncertainties associated with forward-looking statements in the report, cautioning against undue reliance - This Form 10-Q contains forward-looking statements regarding future operating results, financial position, business strategy, market growth, and objectives, which involve substantial risks and uncertainties[10][11] - Key risks include the impact of economic downturns, rising inflation, market volatility, the COVID-19 pandemic, and trends in business metrics and financial measures[12] - Readers are cautioned not to rely on these statements as predictions of future events, and the company disclaims any duty to update them after the filing date[13][14] PART I - FINANCIAL INFORMATION This part presents PagerDuty's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter Item 1. Financial Statements (Unaudited) This section presents PagerDuty, Inc.'s unaudited condensed consolidated financial statements for the period ended April 30, 2023, including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and specific financial line items Condensed Consolidated Balance Sheets This table presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of April 30, 2023, and January 31, 2023 | Metric | As of April 30, 2023 (in thousands) | As of January 31, 2023 (in thousands) | | :-------------------------------- | :---------------------------------- | :---------------------------------- | | Total Assets | $801,831 | $817,873 | | Total Current Assets | $590,226 | $600,336 | | Cash and cash equivalents | $300,605 | $274,019 | | Investments | $194,527 | $202,948 | | Accounts receivable, net | $61,125 | $91,345 | | Total Liabilities | $548,863 | $575,787 | | Total Current Liabilities | $245,328 | $271,077 | | Deferred revenue, current | $197,383 | $204,137 | | Total Stockholders' Equity | $252,476 | $240,978 | Condensed Consolidated Statements of Operations This table outlines the company's financial performance, including revenue, cost of revenue, gross profit, and net loss for the three months ended April 30, 2023 and 2022 | Metric | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Revenue | $103,246 | $85,371 | | Cost of revenue | $17,936 | $15,716 | | Gross profit | $85,310 | $69,655 | | Loss from operations | $(15,800) | $(32,457) | | Net loss | $(12,838) | $(32,820) | | Net loss attributable to PagerDuty, Inc. | $(12,218) | $(32,820) | | Net loss per share, basic and diluted | $(0.13) | $(0.38) | Condensed Consolidated Statements of Comprehensive Loss This table details the company's comprehensive loss, including net loss and other comprehensive income (loss) components for the three months ended April 30, 2023 and 2022 | Metric | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net loss | $(12,838) | $(32,820) | | Unrealized loss on investments | $380 | $(848) | | Foreign currency translation adjustments | $(66) | $— | | Total comprehensive loss | $(12,524) | $(33,668) | | Comprehensive loss attributable to PagerDuty, Inc. | $(11,908) | $(33,668) | Condensed Consolidated Statements of Stockholders' Equity This table presents changes in stockholders' equity, including additional paid-in capital and accumulated deficit, as of April 30, 2023, and January 31, 2023 | Metric | As of April 30, 2023 (in thousands) | As of January 31, 2023 (in thousands) | | :-------------------------------- | :---------------------------------- | :---------------------------------- | | Total Stockholders' Equity | $252,476 | $240,978 | | Additional Paid-in Capital | $743,218 | $719,816 | | Accumulated Deficit | $(489,464) | $(477,246) | - Stock-based compensation for the three months ended April 30, 2023, was $27.89 million, contributing to the increase in additional paid-in capital[23] Condensed Consolidated Statements of Cash Flows This table summarizes cash flows from operating, investing, and financing activities for the three months ended April 30, 2023 and 2022 | Metric | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used in) operating activities | $22,152 | $(2,985) | | Net cash provided by (used in) investing activities | $8,563 | $(70,357) | | Net cash used in financing activities | $(4,069) | $(2,584) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $26,586 | $(75,926) | | Cash, cash equivalents, and restricted cash at end of period | $300,605 | $273,859 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and breakdowns for the figures presented in the condensed consolidated financial statements, covering accounting policies, specific asset/liability categories, and other financial disclosures - These notes provide detailed explanations and breakdowns for the figures presented in the condensed consolidated financial statements, covering accounting policies, specific asset/liability categories, and other financial disclosures[26][30] Note 1. Description of Business and Basis of Presentation This note describes PagerDuty's digital operations management platform and the basis for preparing its financial statements - PagerDuty, Inc. is a digital operations management platform that uses machine learning to manage urgent and mission-critical work, correlating data and digital signals to resolve issues and act on opportunities rapidly[28] - The financial statements are prepared in accordance with U.S. GAAP and SEC rules for interim reporting, consolidating results of the company and its controlled subsidiaries[30][31] - The company's fiscal year ends on January 31[33] Note 2. Summary of Significant Accounting Policies This note outlines the company's key accounting policies, including those for financial instruments, credit risk, and operating segments - The company's financial instruments (cash, investments, accounts receivable) are exposed to credit risk, but cash and investments are diversified across high-credit quality institutions[37] - No single customer accounted for more than 10% of total accounts receivable or revenue for the three months ended April 30, 2023 or 2022[38] - PagerDuty manages its operations as one operating segment, with the CEO as the chief operating decision maker[39] Note 3. Redeemable Non-Controlling Interest This note details the redeemable non-controlling interest arising from the PagerDuty K.K. joint venture established in May 2022 - In May 2022, PagerDuty established a joint venture, PagerDuty K.K., obtaining a 51% controlling interest and consolidating its financial results[42] | Metric | Three Months Ended April 30, 2023 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | | Balance at beginning of period | $1,108 | | Net loss attributable to redeemable non-controlling interest | $(620) | | Foreign currency translation adjustments | $4 | | Balance at end of period | $492 | Note 4. Cash, Cash Equivalents, and Investments This note provides a breakdown of the company's cash, cash equivalents, and available-for-sale investments, including their composition and maturity | Category | As of April 30, 2023 (in thousands) | As of January 31, 2023 (in thousands) | | :-------------------------- | :---------------------------------- | :---------------------------------- | | Cash and cash equivalents | $300,605 | $274,019 | | Investments (Available-for-sale) | $194,527 | $202,948 | | Total | $495,132 | $476,967 | - The company's available-for-sale investments primarily consist of U.S. Treasury securities, commercial paper, and corporate debt securities[44] - As of April 30, 2023, $148.8 million of available-for-sale investments were due within one year, and $45.7 million were due between one to five years[47] Note 5. Fair Value Measurements This note explains the fair value hierarchy used for financial assets and liabilities, detailing their classification and valuation - Financial assets are measured at fair value using a hierarchy (Level 1, 2, 3) based on observable inputs[49][50][51] | Category | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | As of April 30, 2023 | | | | | | Money market funds | $235,444 | $— | $— | $235,444 | | U.S. Treasury securities | $— | $51,463 | $— | $51,463 | | Commercial paper | $— | $31,124 | $— | $31,124 | | Corporate debt securities | $— | $106,498 | $— | $106,498 | | U.S. Government agency securities | $— | $7,928 | $— | $7,928 | | Total | $235,444 | $197,013 | $— | $432,457 | - The estimated fair value of the 1.25% Convertible Senior Notes due 2025 was approximately $304.9 million as of April 30, 2023, classified as Level 2[56] Note 6. Property and Equipment, Net This note presents the gross and net values of property and equipment, along with associated depreciation and amortization expenses | Category | As of April 30, 2023 (in thousands) | As of January 31, 2023 (in thousands) | | :-------------------------- | :---------------------------------- | :---------------------------------- | | Gross property and equipment | $42,471 | $40,712 | | Accumulated depreciation and amortization | $(24,136) | $(22,322) | | Property and equipment, net | $18,335 | $18,390 | - Depreciation and amortization expense was $1.8 million for the three months ended April 30, 2023, up from $1.6 million in the prior year period[59] Note 7. Deferred Contract Costs This note details the deferred contract costs and their amortization expense for the reporting periods | Metric | As of April 30, 2023 (in thousands) | As of January 31, 2023 (in thousands) | | :-------------------------- | :---------------------------------- | :---------------------------------- | | Deferred contract costs | $44,800 | $46,400 | - Amortization expense for deferred contract costs increased to $5.0 million for the three months ended April 30, 2023, from $4.5 million in the prior year period[60] Note 8. Leases This note outlines the company's operating lease arrangements, including right-of-use assets, lease liabilities, and lease expenses - The company has entered into various non-cancellable operating leases for its office spaces with lease periods expiring between fiscal 2024 and fiscal 2029[61] | Metric | As of April 30, 2023 (in thousands) | As of January 31, 2023 (in thousands) | | :-------------------------- | :---------------------------------- | :---------------------------------- | | Lease right-of-use assets | $12,806 | $13,982 | | Lease liabilities, current | $5,892 | $5,904 | | Lease liabilities, non-current | $11,226 | $12,704 | | Lease Expense Type | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :----------------------- | :--------------------------------------------- | :--------------------------------------------- | | Operating lease expense | $1,358 | $1,523 | | Short-term lease expense | $571 | $360 | | Variable lease expense | $355 | $314 | Note 9. Debt and Financing Arrangements This note describes the company's 1.25% Convertible Senior Notes due 2025, including their carrying amount and related interest expense - The company issued $287.5 million in 1.25% Convertible Senior Notes due 2025 in June 2020, with net proceeds of $278.2 million[71] | Metric | As of April 30, 2023 (in thousands) | As of January 31, 2023 (in thousands) | | :-------------------------- | :---------------------------------- | :---------------------------------- | | Principal amount of Notes | $287,500 | $287,500 | | Less: unamortized issuance costs | $(4,137) | $(4,592) | | Net carrying amount | $283,363 | $282,908 | | Interest Expense Type | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Contractual interest expense | $879 | $878 | | Amortization of debt issuance costs | $455 | $447 | | Total interest expense related to the Notes | $1,334 | $1,325 | Note 10. Commitments and Contingencies This note addresses the company's legal proceedings, service-level agreements, and indemnification obligations, noting no material liabilities - The company is not currently a party to any material legal proceedings and does not anticipate any pending or threatened litigation that would materially affect its financial condition[85] - PagerDuty provides service-level agreements to customers but has not incurred significant liabilities related to these agreements to date[86] - The company indemnifies customers, vendors, and directors/officers, but no material demands have been made under these agreements[87] Note 11. Deferred Revenue and Performance Obligations This note details deferred revenue balances and future estimated revenue from unsatisfied performance obligations for subscriptions | Metric | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Deferred revenue, beginning of period | $209,051 | $170,224 | | Billings | $96,000 | $81,600 | | Revenue recognized | $(103,246) | $(85,371) | | Deferred revenue, end of period | $201,805 | $167,309 | - As of April 30, 2023, future estimated revenue from unsatisfied performance obligations for cloud-hosted and term-license subscriptions was approximately $182.8 million, with the majority expected to be satisfied over the next 24 months[89] Note 12. Common Stock and Stockholders' Equity This note provides information on the company's equity incentive plans, shares available for issuance, and stock-based compensation expense - The company has two equity incentive plans (2010 Stock Plan and 2019 Equity Incentive Plan), with 16,708,400 shares available for future issuance as of April 30, 2023[90][91] | Metric | As of April 30, 2023 | | :------------------------------------------ | :------------------- | | Outstanding stock options and unvested RSUs and PSUs | 16,268,721 | | Available for future stock option, RSU, and PSU grants | 16,708,400 | | Available for Employee Stock Purchase Plan ("ESPP") | 3,883,009 | | Total common stock reserved | 36,860,130 | | Stock-Based Compensation Expense | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Cost of revenue | $1,876 | $1,224 | | Research and development | $10,101 | $8,675 | | Sales and marketing | $5,951 | $6,381 | | General and administrative | $9,617 | $8,629 | | Total | $27,545 | $24,909 | Note 13. Net Loss per Share This note presents the calculation of net loss per share, including weighted average shares and potentially dilutive securities | Metric | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss attributable to PagerDuty, Inc. (in thousands) | $(12,218) | $(32,820) | | Weighted average shares (in thousands) | 91,522 | 87,127 | | Net loss per share, basic and diluted | $(0.13) | $(0.38) | - Basic and diluted net loss per share are the same because the company was in a loss position, making potential common stock anti-dilutive[103] | Potentially Dilutive Securities (in thousands) | As of April 30, 2023 | As of April 30, 2022 | | :--------------------------------------------- | :------------------- | :------------------- | | Shares subject to outstanding common stock awards | 15,674 | 17,451 | | Convertible senior notes | 7,173 | 7,173 | | Restricted stock issued to acquire key personnel | 63 | 70 | | Shares issuable pursuant to the ESPP | 295 | 208 | | Total | 23,205 | 24,902 | Note 14. Income Taxes This note details the income tax benefit and the company's valuation allowance on deferred tax assets | Metric | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Income tax benefit | $106 | $1,204 | - The decrease in income tax benefit was primarily due to a $1.3 million deferred tax benefit from an acquisition in the prior year period[108] - The company maintains a full valuation allowance on its net federal and state deferred tax assets due to the unlikelihood of realization[107] Note 15. Geographic Information This note breaks down revenue by geographic area and the location of long-lived assets | Geographic Area | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | | United States | $74,834 | $64,766 | | International | $28,412 | $20,605 | | Total Revenue | $103,246 | $85,371 | - The United States accounted for the majority of revenue, and no other individual country represented 10% or more of revenue[109] - As of April 30, 2023, 88% of the company's long-lived assets were located in the United States[109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a narrative analysis of PagerDuty's financial condition and results of operations for the three months ended April 30, 2023, compared to the prior year, covering business overview, key metrics, revenue and expense trends, non-GAAP measures, and liquidity. The company reported a significant reduction in net loss and improved operating cash flow, driven by revenue growth and expense management Overview This section describes PagerDuty's digital operations management platform, its evolution, and its revenue generation model - PagerDuty is a digital operations management platform that helps modern digital businesses manage urgent and mission-critical work, evolving from an on-call tool to a multi-product platform for digital operations[111][114] - The platform collects data and digital signals from over 700 integrations, leveraging machine learning for incident response, event management, and automation to resolve issues rapidly[113][115] - Revenue is primarily generated from cloud-hosted subscription fees, with a 'land-and-expand' business model targeting small, medium, mid-market, and enterprise customers[116] Macroeconomic Environment This section discusses the impact of global macroeconomic conditions on the company's business and financial performance - The company's business and financial performance are subject to global macroeconomic conditions, including inflation, rising interest rates, recession risks, the COVID-19 pandemic, foreign currency volatility, and recent bank failures[117] - The Russia-Ukraine conflict has not had a material impact on the business to date, but the company continues to monitor its potential effects[118] Key Business Metrics This section presents key performance indicators such as customer count and dollar-based net retention rate, reflecting market penetration and customer value - Key metrics include the number of customers, particularly those with over $100,000 in annual recurring revenue (ARR), and dollar-based net retention rate, which reflect market penetration and customer value[121][124][126] | Metric | As of April 30, 2023 | As of April 30, 2022 | | :-------------------------------- | :------------------- | :------------------- | | Customers | 15,089 | 15,040 | | Customers greater than $100,000 in ARR | 764 | 655 | | Metric | Last 12 Months Ended April 30, 2023 | Last 12 Months Ended April 30, 2022 | | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Dollar-based net retention rate for all customers | 116% | 126% | Components of Results of Operations This section details the primary drivers of revenue, cost of revenue, and operating expenses, including personnel and stock-based compensation - Revenue is primarily from cloud-hosted and term-license software subscriptions, recognized ratably over the contractual term, typically one year. Professional services revenue is immaterial[130][131] - Cost of revenue includes personnel, cloud infrastructure, payment processing, and amortization of software and acquired technology. Gross margin may fluctuate due to revenue and investment timing[132][133] - Operating expenses (R&D, S&M, G&A) are largely driven by personnel costs, including stock-based compensation and sales commissions. R&D and S&M are expected to increase in dollar value, while G&A is expected to decrease as a percentage of revenue long-term[134][135][136][137][138] Results of Operations (Comparison of Three Months Ended April 30, 2023 and 2022) This section provides a detailed comparison of financial performance, highlighting revenue growth, changes in expenses, and improvements in net loss | Metric | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Revenue | $103,246 | $85,371 | | Cost of revenue | $17,936 | $15,716 | | Gross profit | $85,310 | $69,655 | | Research and development | $33,508 | $31,289 | | Sales and marketing | $43,801 | $45,552 | | General and administrative | $23,801 | $25,271 | | Loss from operations | $(15,800) | $(32,457) | | Interest income | $3,123 | $548 | | Other income (expense), net | $1,067 | $(790) | | Net loss attributable to PagerDuty, Inc. | $(12,218) | $(32,820) | - Revenue increased by 21% year-over-year, driven by growth from both new and existing customers, including increased users and upsell of additional products and services[147] - Loss from operations decreased by 51% and net loss attributable to PagerDuty, Inc. decreased by 63% year-over-year, indicating improved operational efficiency[144] Non-GAAP Financial Measures This section presents non-GAAP financial measures used for performance evaluation, excluding certain GAAP expenses, and reconciles them to GAAP results - Non-GAAP financial measures are used to evaluate operating performance, providing consistency and comparability, but exclude significant GAAP expenses like stock-based compensation and amortization of acquired intangibles[157] | Metric | Three Months Ended April 30, 2023 (in thousands) | Three Months Ended April 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Non-GAAP gross profit | $89,482 | $72,095 | | Non-GAAP gross margin | 87% | 84% | | Non-GAAP operating income (loss) | $16,053 | $(2,301) | | Non-GAAP operating margin | 16% | (3)% | | Non-GAAP net income (loss) attributable to PagerDuty, Inc. | $19,298 | $(3,547) | | Free cash flow | $20,845 | $(5,835) | - Free cash flow significantly improved to $20.8 million for the three months ended April 30, 2023, compared to a negative $5.8 million in the prior year, reflecting enhanced liquidity[165][167] Liquidity and Capital Resources This section discusses the company's principal sources of liquidity, cash flow from operations, and sufficiency of capital for future needs - The company's principal sources of liquidity are cash, cash equivalents, and investments, totaling $495.1 million as of April 30, 2023[171] - Management believes existing liquidity and cash from subscriptions will be sufficient for working capital and capital expenditures for at least the next 12 months[171] - Net cash provided by operating activities significantly improved to $22.2 million for the three months ended April 30, 2023, compared to a net cash used of $3.0 million in the prior year[173][175] Contractual Obligations and Commitments This section confirms no material changes to contractual obligations and commitments since the last Annual Report - There were no material changes to contractual obligations and other commitments during the three months ended April 30, 2023, as disclosed in the Annual Report[179] Critical Accounting Policies and Estimates This section highlights the use of estimates in financial reporting and confirms no significant changes to critical accounting policies - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, and actual results could differ significantly[181] - No significant changes to critical accounting policies were identified that materially impacted the condensed consolidated financial statements[182] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no material changes in the company's market risk profile compared to the disclosures in its Annual Report - No material changes in market risk were reported compared to the previous Annual Report[183] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of April 30, 2023, concluding they were effective at a reasonable assurance level. The report acknowledges inherent limitations in internal control systems and states no material changes occurred in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of April 30, 2023[184][185] - The effectiveness of internal controls is subject to inherent limitations, and management recognizes that no system can provide absolute assurance[186] - No material changes in internal control over financial reporting occurred during the quarter ended April 30, 2023[187] PART II - OTHER INFORMATION This part covers other information including legal proceedings, risk factors, equity sales, exhibits, and corporate signatures Item 1. Legal Proceedings PagerDuty is not a party to any material pending legal proceedings and does not anticipate any litigation that would have a material adverse effect on its financial condition, results of operations, or cash flows - The company is not involved in any material pending legal proceedings[189] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously described in the company's Annual Report. Readers are advised to consider these risks, as they could adversely affect the business and stock price - No material changes to the risk factors were reported compared to the Annual Report[191] Item 2. Unregistered Sale of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds occurred[193] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, certifications, and XBRL interactive data files, which are incorporated by reference or filed herewith - The report includes an Exhibit Index listing various documents, such as corporate governance documents, officer certifications (31.1, 31.2, 32.1), and XBRL data files[194][197] Signatures The report is duly signed on behalf of PAGERDUTY, INC. by its Chief Executive Officer, Chief Financial Officer, and Senior Vice President, Finance and Chief Accounting Officer, certifying its submission - The report is signed by Jennifer G. Tejada (CEO), Owen Howard Wilson (CFO), and Mitra Rezvan (SVP, Finance and Chief Accounting Officer)[202]