PagerDuty, Inc 10-Q for FY2024 Q1
PagerDuty, Inc. (PD)
10-Q
2023-06-02
For: 2023-04-30
View Original
Added on
April 08, 2026
About this 10-Q
PagerDuty, Inc filed this 10-Q on June 2, 2023, covering the quarter ended April 30, 2023 (FY2024 Q1).
Headline figures
Quarter ended April 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $103.25M
- up 20.9% from $85.37M a year earlier
- Net loss
- $12.22M
- compared with a net loss of $32.82M a year earlier
- Diluted EPS
- -$0.13
- compared with -$0.38 a year earlier
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 April 30, 2023
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
(Exact name of registrant as specified in its charter)
_________________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(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 | ||||||||||||
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 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
x | Accelerated filer | o | ||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange 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 May 31, 2023, was 92,205,332 .
PAGERDUTY, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 | ||||||||
Item 2 | ||||||||
Item 3 | ||||||||
Item 4 | ||||||||
Part II - OTHER INFORMATION
Item 1 | ||||||||
Item 1A | ||||||||
Item 2 | ||||||||
Item 6 | ||||||||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (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 Form 10-Q 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,” “target,” and similar expressions are intended to identify forward-looking statements.
Forward-looking statement contained in this Form 10-Q include, but are not limited to, statements about our expectations regarding:
•the impact of an economic downturn or recession, rising inflation or significant market volatility in the global economy on our customers, partners, employees and business;
•the effect of uncertainties related to the novel coronavirus and resulting COVID-19 pandemic on U.S. and global markets, our business, operations, revenue results, cash flow, operating expenses, demand for our solutions, sales cycles, customer retention, and our customers’ businesses;
•trends in key business metrics, including number of customers and dollar-based net retention rate, and non-GAAP financial measures and their usefulness in evaluating our business;
•trends in revenue, cost of revenue, and gross margin;
•trends in operating expenses, including research and development, sales and marketing, and general and administrative expense, and expectations regarding these expenses as a percentage of revenue;
•our existing cash and cash equivalents and cash provided by sales of our subscriptions being sufficient to support working capital and capital expenditures for at least the next 12 months and our ability to meet longer-term expected future cash requirements and obligations, through a combination of cash flows from operating activities and available cash and short-term investment balances;
•anticipated charges and future cost savings in connection with our recently announced reduction in headcount and real estate rationalization;
•our ability to successfully identify, acquire, and integrate complementary companies, technologies, and assets;
•our ability to service the interest on our convertible notes and repay such notes, to the extent required;
•our efforts to maintain proper and effective internal controls;
•our ability to expand our operations and increase adoption of our platform internationally;
•our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
•the increased expenses and administrative workload associated with being a public company; and
•other statements regarding our future operations, financial condition, and prospects and business strategies.
Such forward-looking statements are based on our expectations as of the date of this filing and are subject to a number of risks, uncertainties and assumptions, including but not limited to, risks detailed in the “Risk Factors” section of this Form 10-Q and in our Annual Report on Form 10-K for the year ended January 31, 2023, filed with the SEC on March 16, 2023 (“Annual Report”). 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)
(unaudited)
| As of April 30, 2023 | As of January 31, 2023 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Investments | |||||||||||
Accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Deferred contract costs, current | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Deferred contract costs, non-current | |||||||||||
| Lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities, redeemable non-controlling interest, and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Accrued compensation | |||||||||||
| Deferred revenue, current | |||||||||||
| Lease liabilities, current | |||||||||||
| Total current liabilities | |||||||||||
| Convertible senior notes, net | |||||||||||
| Deferred revenue, non-current | |||||||||||
| Lease liabilities, non-current | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Redeemable non-controlling interest (Note 3) | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities, redeemable non-controlling interest, and stockholders’ equity | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements
5
PAGERDUTY, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue | $ | $ | |||||||||
| Cost of revenue | |||||||||||
| Gross profit | |||||||||||
| Operating expenses: | |||||||||||
| Research and development | |||||||||||
| Sales and marketing | |||||||||||
| General and administrative | |||||||||||
| Total operating expenses | |||||||||||
| Loss from operations | ( | ( | |||||||||
| Interest income | |||||||||||
| Interest expense | ( | ( | |||||||||
| Other income (expense), net | ( | ||||||||||
| Loss before benefit from income taxes | ( | ( | |||||||||
| Benefit from income taxes | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Net loss attributable to redeemable non-controlling interest | ( | ||||||||||
| Net loss attributable to PagerDuty, Inc. | $ | ( | $ | ( | |||||||
| Net loss per share, basic and diluted, attributable to PagerDuty, Inc. | $ | ( | $ | ( | |||||||
Weighted average shares used in calculating net loss per share, basic and diluted | |||||||||||
See Notes to Condensed Consolidated Financial Statements
6
PAGERDUTY, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Unrealized loss on investments | ( | ||||||||||
| Foreign currency translation adjustments | ( | ||||||||||
| Total comprehensive loss | $ | ( | $ | ( | |||||||
| Less comprehensive loss attributable to redeemable non-controlling interest: | |||||||||||
| Net loss attributable to redeemable non-controlling interest | ( | ||||||||||
| Foreign currency translation adjustments, attributable to redeemable non-controlling interest | |||||||||||
| Comprehensive loss attributable to redeemable non-controlling interest | ( | ||||||||||
| Comprehensive loss attributable to PagerDuty, Inc. | $ | ( | $ | ( | |||||||
7
PAGERDUTY, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
| Three Months Ended April 30, 2023 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive (Loss) Income | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances as of January 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Vesting of restricted stock units, net of employee payroll taxes | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss attributable to PagerDuty, Inc. | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balances as of April 30, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Three Months Ended April 30, 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances as of January 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options and restricted stock agreements | — | — | — | ||||||||||||||||||||||||||||||||
| Vesting of restricted stock units, net of employee payroll taxes | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balances as of April 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
8
PAGERDUTY, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss attributable to PagerDuty, Inc. | $ | ( | $ | ( | |||||||
| Net loss attributable to redeemable non-controlling interest (Note 3) | ( | ||||||||||
| Net loss | ( | ( | |||||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of deferred contract costs | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Stock-based compensation | |||||||||||
| Non-cash lease expense | |||||||||||
| Tax benefit related to release of valuation allowance | ( | ||||||||||
| Other | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Deferred contract costs | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses and other liabilities | ( | ( | |||||||||
| Accrued compensation | ( | ( | |||||||||
| Deferred revenue | ( | ( | |||||||||
| Lease liabilities | ( | ( | |||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Capitalization of internal-use software costs | ( | ( | |||||||||
| Business acquisition, net of cash acquired | ( | ||||||||||
| Purchases of available-for-sale investments | ( | ( | |||||||||
| Proceeds from maturities of available-for-sale investments | |||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from issuance of common stock upon exercise of stock options | |||||||||||
| Employee payroll taxes paid related to net share settlement of restricted stock units | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
| Supplemental cash flow data: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Purchase of property and equipment, accrued but not yet paid | $ | $ | |||||||||
| Stock-based compensation capitalized in internal use software | $ | $ | |||||||||
| Bonuses capitalized in internal use software | $ | $ | |||||||||
| Receivables for cash in-transit on stock options | $ | $ | |||||||||
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. was incorporated under the laws of the state of Delaware in May 2010.
PagerDuty is a digital operations management platform that manages urgent and mission-critical work for a modern, digital business. PagerDuty collects data and digital signals from virtually any software-enabled system or device and leverages powerful machine learning to correlate, process, and predict opportunities and issues. Using incident response, event management, and automation, the Company brings together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are.
As used herein, “PagerDuty”, “we”, “our”, “the Company” and similar terms include PagerDuty, Inc., unless the context indicates otherwise.
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, 2023 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, 2023, included in the Annual Report.
The condensed consolidated financial statements include the results of the Company, its wholly owned subsidiaries, and subsidiaries in which the Company holds a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, the information contained herein reflects all adjustments necessary for a fair statement of the Company’s financial position, results of operations and comprehensive loss, statements of stockholders’ equity, and cash flows. The results of operations for the three months ended April 30, 2023 are not necessarily indicative of the results to be expected for the full year ending January 31, 2024 or for any other interim period, or for any future year.
The Company’s fiscal year ends on January 31. References to fiscal 2024, for example, refer to the fiscal year ending January 31, 2024.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s most significant estimates and judgments involve the period of benefit for amortizing deferred contract costs, the determination of the allowance for credit losses, fair value of acquired assets and assumed liabilities, and estimates related to the Company’s revenue recognition, such as the assessment of performance obligations in the Company’s revenue arrangements and the fair value assigned to each performance obligation, among others. Management bases its estimates on historical experience and on various other assumptions which management believes to be
10
2. Summary of Significant Accounting Policies
Concentrations of Risk and Significant Customers
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents, available-for-sale investments, and accounts receivable. All of the Company’s cash and cash equivalents and investments are invested in money market funds, United States (“U.S.”) Treasury securities, commercial paper, corporate debt securities, or U.S. Government agency securities that management believes to be of high credit quality. The Company’s cash, cash equivalents, and available-for-sale investments are spread across several different financial institutions.
No single customer accounted for more than 10% of the total accounts receivable balance as of April 30, 2023 or January 31, 2023. No single customer represented 10% or more of revenue for the three months ended April 30, 2023 or 2022.
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 billed $3.8 million and $1.2 million to entities associated with related parties during the three months ended April 30, 2023 and 2022, respectively. The Company recognized $3.2 million in accounts receivable associated with related parties as of April 30, 2023. Other related party transactions were not material for the three months ended April 30, 2023 and 2022.
Significant Accounting Policies
There have been no significant changes to the Company’s significant accounting policies as compared to those described in the Annual Report.
3. Redeemable Non-Controlling Interest
In May 2022, the Company established a joint venture, PagerDuty K.K, which is a variable interest entity. The Company obtained a 51 % controlling interest and has consolidated the financial results of the joint venture.
The following table summarizes the activity in the redeemable non-controlling interest for the period indicated below:
| Three Months Ended April 30, 2023 | |||||
| (in thousands) | |||||
| Balance at beginning of period | $ | ||||
| Net loss attributable to redeemable non-controlling interest | ( | ||||
| Foreign currency translation adjustments | |||||
| Balance at end of period | $ | ||||
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4. Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and investments consisted of the following:
| As of April 30, 2023 | As of January 31, 2023 | ||||||||||
| (in thousands) | |||||||||||
| Cash and cash equivalents | |||||||||||
Cash | $ | $ | |||||||||
Money market funds | |||||||||||
| Commercial paper | |||||||||||
| Total cash and cash equivalents | $ | $ | |||||||||
| Available-for-sale investments: | |||||||||||
| U.S. Treasury securities | $ | $ | |||||||||
| Commercial paper | |||||||||||
Corporate debt securities | |||||||||||
| U.S. Government agency securities | |||||||||||
| Total available-for-sale investments | $ | $ | |||||||||
The following tables summarize the Company’s investments’ adjusted cost, net unrealized losses, and fair value by significant investment category as of April 30, 2023 and January 31, 2023. Gross realized gains or losses from sales of available-for-sale securities were not material for the three months ended April 30, 2023.
| As of April 30, 2023 | |||||||||||||||||
| Cost Basis | Unrealized Loss, Net | Estimated Fair Value | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Available-for-sale investments: | |||||||||||||||||
| U.S. Treasury securities | $ | $ | ( | $ | |||||||||||||
| Commercial paper | ( | ||||||||||||||||
| Corporate debt securities | ( | ||||||||||||||||
| U.S. Government agency securities | ( | ||||||||||||||||
| Total available-for-sale investments | $ | $ | ( | $ | |||||||||||||
| As of January 31, 2023 | |||||||||||||||||
| Cost Basis | Unrealized Loss, Net | Estimated Fair Value | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Available-for-sale investments: | |||||||||||||||||
| U.S. Treasury securities | $ | $ | ( | $ | |||||||||||||
| Commercial paper | ( | ||||||||||||||||
| Corporate debt securities | ( | ||||||||||||||||
| U.S. Government agency securities | ( | ||||||||||||||||
| Total available-for-sale investments | $ | $ | ( | $ | |||||||||||||
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| As of April 30, 2023 | |||||||||||
| Cost Basis | Recorded Basis | ||||||||||
| (in thousands) | |||||||||||
| Due within one year | $ | $ | |||||||||
| Due between one to five years | |||||||||||
| Total | $ | $ | |||||||||
| As of January 31, 2023 | |||||||||||
| Cost Basis | Recorded Basis | ||||||||||
| (in thousands) | |||||||||||
| Due within one year | $ | $ | |||||||||
| Due between one to five years | |||||||||||
| Total | $ | $ | |||||||||
As of April 30, 2023, the Company had 88 securities in an unrealized loss position with an aggregate fair value of $171.8 million, of which $32.3 million were in a continuous unrealized loss position for more than 12 months. As of January 31, 2023, the Company had 81 securities in an unrealized loss position with an aggregate fair value of $174.1 million, of which $39.9 million were in a continuous unrealized loss position for more than 12 months.
When evaluating investments for impairment, the Company reviews factors such as the extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not that the Company will be required to sell, the investment before recovery of the investment’s amortized cost. No impairment loss has been recorded on the securities included in the tables above, as the Company believes that any decrease in fair value of these securities is temporary and the Company expects to recover at least up to the initial cost of the investment for these securities. The Company has not recorded an allowance for credit losses, as the Company believes any such losses would be immaterial based on the high-grade credit rating for each of its marketable securities as of the end of each period.
5. 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.
13
| As of April 30, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Treasury securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Included in cash equivalents | $ | ||||||||||||||||||||||
| Included in investments | $ | ||||||||||||||||||||||
| As of January 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Treasury securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Included in cash equivalents | $ | ||||||||||||||||||||||
| Included in investments | $ | ||||||||||||||||||||||
The Company’s assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy.
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of April 30, 2023 and January 31, 2023, the Company’s Level 2 securities were priced by pricing vendors. These pricing vendors utilize observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities.
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable approximate fair value due to their short-term maturities and are excluded from the fair value table above.
Convertible Senior Notes
As of April 30, 2023, the estimated fair value of our 1.25 % Convertible Senior Notes due 2025 (the “Notes”) was approximately $304.9 million. The fair value was determined based on the quoted price for the Notes in an inactive market on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.
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6. Property and Equipment, Net
Property and equipment, net, consisted of the following:
| As of April 30, 2023 | As of January 31, 2023 | ||||||||||
| (in thousands) | |||||||||||
| Leasehold improvements | $ | $ | |||||||||
| Computers and equipment | |||||||||||
| Furniture and fixtures | |||||||||||
| Capitalized internal-use software | |||||||||||
Gross property and equipment (1) | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
(1) Gross property and equipment includes construction-in-progress for leasehold improvements and capitalized internal-use software of $5.1 million and $6.0 million that had not yet been placed in service as of April 30, 2023 and January 31, 2023, respectively. The costs associated with construction-in-progress are not amortized until the asset is available for its intended use.
Depreciation and amortization expense was $1.8 million and $1.6 million for the three months ended April 30, 2023 and 2022, respectively.
7. Deferred Contract Costs
8. Leases
Operating Leases
The Company has entered into various non-cancellable operating leases for its office spaces with lease periods expiring between fiscal 2024 and fiscal 2029. The operating 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.
Lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease right-of-use assets also include any lease payments made and exclude lease incentives such as tenant improvement allowances.
The operating leases typically include non-lease components such as common-area maintenance costs. The Company has elected to include non-lease components with lease payments for the purpose of calculating lease right-of-use assets and liabilities, to the extent that they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments.
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The following table presents information about leases on the condensed consolidated balance sheet.
| As of April 30, 2023 | As of January 31, 2023 | ||||||||||
| (in thousands) | |||||||||||
| Assets | |||||||||||
| Lease right-of-use assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Lease liabilities | |||||||||||
| Lease liabilities, non-current | |||||||||||
As of April 30, 2023, the weighted average remaining lease term was 3.6 years and the weighted average discount rate used to determine the net present value of the lease liabilities was 3.8 %.
The following table presents information about leases on the condensed consolidated statement of operations.
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Operating lease expense | $ | $ | |||||||||
| Short-term lease expense | |||||||||||
| Variable lease expense | |||||||||||
The following table presents supplemental cash flow information about the Company’s leases.
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | |||||||||
9. Debt and Financing Arrangements
Convertible Senior Notes
On June 25, 2020, the Company issued $287.5 million in aggregate principal amount of the Notes in a private offering pursuant to an Indenture dated June 25, 2020 (the “Indenture”). The total net proceeds from the debt offering, after deducting initial purchaser discounts and debt issuance costs, paid or payable by the Company, were $278.2 million.
The Notes are senior, unsecured obligations of the Company and accrue interest payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2021, at a rate of 1.25 % per year. The Notes will mature on July 1, 2025, unless such notes are converted, redeemed or repurchased earlier. The Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election in the manner and subject to the terms and conditions provided in the Indenture.
Holders of the Notes may convert all or any portion of their Notes at their option at any time prior to the close of business on April 1, 2025, only under the following circumstances:
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•During any fiscal quarter commencing after the fiscal quarter ended October 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;
•During the five business day period after any ten consecutive trading day period (the measurement period) in which the “trading price” (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;
•If the Company calls such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
•Upon the occurrence of specified corporate events, as noted in the Indenture.
On or after April 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Notes may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances.
The conversion rate will initially be 24.9507 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $40.08 per share of common stock. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture, but will not be adjusted for accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with a fundamental change, as defined in the Indenture.
The Company may not redeem the Notes prior to July 6, 2023. The Company may redeem for cash all or any portion of the Notes, at its option, on a redemption date occurring on or after July 6, 2023 and prior to the 41 st scheduled trading day immediately preceding the maturity date, if the last reported sale price of the common stock has been at least 130 % of the conversion price for the Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.
If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, the trustee or the holders of at least 25 % in aggregate principal amount of the outstanding Notes may declare the entire principal of all the Notes plus accrued and unpaid interest to be immediately due and payable.
The Company accounts for the Notes as a single liability in accordance with ASU 2020-06 “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.”
The carrying amount of the Notes is $283.4 million as of April 30, 2023, with principal of $287.5 million, net of unamortized issuance costs of $4.1 million. The Notes are classified as long-term liabilities as of April 30, 2023. The issuance costs related to the Notes are being amortized to interest expense over the contractual term of the Notes at an effective interest rate of 1.93 %.
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| As of April 30, 2023 | As of January 31, 2023 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Principal | $ | $ | ||||||||||||||||||
| Less: unamortized issuance costs | ( | ( | ||||||||||||||||||
| Net carrying amount | $ | $ | ||||||||||||||||||
Interest expense recognized related to the Notes is as follows:
| Three Months Ended April 30, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Contractual interest expense | $ | $ | |||||||||||||||
| Amortization of debt issuance costs | |||||||||||||||||
| Total interest expense related to the Notes | $ | $ | |||||||||||||||
Capped Call Transactions
In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions (the “Capped Calls”) with certain financial institution counterparties. The Capped Calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. The Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $35.7 million incurred to purchase the Capped Calls were recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheet.
The Capped Calls each have an initial strike price of approximately $40.08 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of $61.66 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 7.2 million shares of our common stock. The Capped Calls are subject to automatic exercise over a 40 trading day period commencing on May 2, 2025, subject to earlier termination under certain circumstances.
10. Commitments and Contingencies
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.
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11. Deferred Revenue and Performance Obligations
The following table presents the changes to the Company’s deferred revenue:
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Deferred revenue, beginning of period | $ | $ | |||||||||
| Billings | |||||||||||
| Deferred revenue assumed in the Catalytic acquisition | |||||||||||
| Revenue recognized | ( | ( | |||||||||
| Deferred revenue, end of period | $ | $ | |||||||||
For the three months ended April 30, 2023 and 2022, the majority of revenue recognized was from the deferred revenue balances at the beginning of each quarter.
As of April 30, 2023, future estimated revenue related to performance obligations for cloud-hosted and term-license software subscriptions with terms of more than one year that are unsatisfied or partially unsatisfied at the end of the reporting periods was approximately $182.8 million. The Company expects to satisfy the substantial majority of these unsatisfied performance obligations over the next 24 months and the remainder thereafter. The Company applied the optional exemption for subscriptions with terms of less than one year.
12. Common Stock and Stockholders’ Equity
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 initial public offering (“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. As of April 30, 2023 and January 31, 2023, the Company was authorized to grant up to 33,695,949 shares and 28,881,327 shares of common stock, respectively, under the Stock Plans.
The Company currently uses authorized and unissued shares to satisfy stock award exercises and settlement of Restricted Stock Units (“RSUs”) and Performance Stock Units (“PSUs”). As of April 30, 2023 and January 31, 2023, there were 16,708,400 shares and 13,581,239 shares available for future issuance under the Stock Plans, respectively.
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| April 30, 2023 | |||||
| Outstanding stock options and unvested RSUs and PSUs | |||||
| Available for future stock option, RSU, and PSU grants | |||||
| Available for Employee Stock Purchase Plan (“ESPP”) | |||||
| Total common stock reserved at April 30, 2023 | |||||
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, 2023 | $ | $ | |||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
| Canceled | ( | $ | |||||||||||||||||||||
| Outstanding at April 30, 2023 | $ | $ | |||||||||||||||||||||
| Vested as of April 30, 2023 | $ | $ | |||||||||||||||||||||
The intrinsic value for options exercised is the difference between the market value of the stock and the exercise price of the stock option at the date of exercise.
As of April 30, 2023, there was approximately $5.8 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 1.6 years.
Restricted Stock Units
A summary of the Company’s RSU activity and related information is as follows:
| Number of RSUs | Weighted Average Grant Date Fair Value Per Share | ||||||||||
| Outstanding at January 31, 2023 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited or canceled | ( | $ | |||||||||
| Outstanding at April 30, 2023 | $ | ||||||||||
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The fair value of RSUs is based on the fair value of the underlying shares on the date of grant. The Company accounts for forfeitures as they occur.
As of April 30, 2023, there was $295.0 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.7 years based on vesting under the award service conditions.
Performance and Market Stock Units
The Company grants PSUs to certain employees of the Company for which the ultimate number of units that will vest are determined based on the achievement of market and/or performance conditions at the end of the stated performance period.
In April 2023, the Company granted shares of PSUs to certain employees of the Company, which are to vest based on the level of achievement of a Company target related to PagerDuty’s operating plan and the relative growth of the per share price of the Company’s common stock as compared to the S&P Software & Services Select Index over the one-year performance period. The PSUs vest over a -year period, subject to continuous service with the Company. The number of shares of the Company’s common stock that will vest based on the performance and market conditions can range from 0 % to 200 % of the target amount. Compensation expense for PSUs with performance conditions is measured using the fair value at the date of grant, and may be adjusted over the vesting period based on interim estimates of performance against the performance condition. Compensation expense for PSUs with market conditions is measured using a Monte Carlo simulation approach. Expense is recorded over the vesting period under the graded-vesting attribution method.
During the three months ended April 30, 2023, the compensation committee of the Board certified the results of PagerDuty’s operating plan for the fiscal year ended January 31, 2023. Based on the results, the PSUs granted in April 2022 (“2022 PSU Awards”) were cancelled as the target was not met.
| Number of PSUs | Weighted Average Grant Date Fair Value Per Share | |||||||||||||
| Outstanding at January 31, 2023 | $ | |||||||||||||
Granted(1) | $ | |||||||||||||
| Vested | ( | $ | ||||||||||||
| Forfeited or canceled | ( | $ | ||||||||||||
| Performance adjustment for 2022 PSU Awards | ( | $ | ||||||||||||
| Outstanding at April 30, 2023 | $ | |||||||||||||
(1)This amount represents awards granted at | ||||||||||||||
As of April 30, 2023, total unrecognized stock-based compensation cost related to PSUs was $23.0 million. This unrecognized stock-based compensation cost is expected to be recognized using the accelerated attribution method over a weighted-average period of approximately 1.7 years.
Employee Stock Purchase Plan
The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions over 24 -month offering periods beginning June 15 and December 15 of each year, with each offering period consisting of four six-month purchase periods. 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 common stock as of the beginning of the offering period or (2) the fair market value of the Company’s common stock on the purchase date, as defined in the ESPP.
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During the three months ended April 30, 2023 and 2022, the Company recognized $1.8 million and $1.1 million, respectively, of stock-based compensation expense related to the ESPP.
During the three months ended April 30, 2023 and 2022, the Company withheld $3.7 million and $5.7 million, respectively, in contributions from employees.
During the three months ended April 30, 2023 and 2022 there were no
Stock-Based Compensation
Stock-based compensation expense included in the Company’s condensed consolidated statements of operations is as follows:
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Cost of revenue | $ | $ | |||||||||
| Research and development | |||||||||||
| Sales and marketing | |||||||||||
| General and administrative | |||||||||||
| Total | $ | $ | |||||||||
13. Net Loss per Share
The following table presents the calculation of basic and diluted net loss per share attributable to PagerDuty, Inc.:
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands, except per share data) | |||||||||||
| Numerator: | |||||||||||
| Net loss attributable to PagerDuty, Inc. | $ | ( | $ | ( | |||||||
| Denominator: | |||||||||||
Weighted average shares used in calculating net loss per share, basic and diluted | |||||||||||
| Net loss per share, basic and diluted, attributable to PagerDuty, Inc. | $ | ( | $ | ( | |||||||
Since the Company was in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common stock outstanding would have been anti-dilutive.
22
Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
| As of April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Shares subject to outstanding common stock awards | |||||||||||
| Convertible senior notes | |||||||||||
| Restricted stock issued to acquire key personnel | |||||||||||
| Shares issuable pursuant to the ESPP | |||||||||||
| Total | |||||||||||
14. Income Taxes
The Company's provision for income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.
The Company's quarterly tax provision, and estimate of its annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income (or loss) relates, changes in how the Company does business, and tax law developments. The Company's estimated effective tax rate for the year differs from the U.S. statutory rate of 21% as a result of our U.S. losses for which no benefit will be realized, our foreign operations which are subject to tax rates that differ from those in the U.S., as well as the benefit for non-U.S. income tax credits.
The Company recorded an income tax benefit of $0.1 million and $1.2 million for the three months ended April 30, 2023 and 2022, respectively. The decrease in the Company’s income tax benefit for the three months ended April 30, 2023, relative to the prior period, was primarily due to the deferred tax benefit of $1.3 million associated with our acquisition during the three months ended April 30, 2022.
15. Geographic Information
Revenue by location is generally determined by the billing address of the customer. The following table sets forth revenue by geographic area:
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| United States | $ | $ | |||||||||
| International | |||||||||||
| Total | $ | $ | |||||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q and in our Annual Report. You should review the sections titled “Special Note Regarding Forward-Looking Statements” above in this Form 10-Q for a discussion of forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report. The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31 and January 31.
Overview
PagerDuty is a digital operations management platform that manages urgent and mission critical work for a modern, digital enterprise. We empower teams to respond rapidly to incidents to resolve or avoid customer issues, reduce noise, predict and avoid performance degradation, improve productivity, and accelerate digital transformation.
Today, nearly every business is a digital business. As such, organizations are under pressure to enhance their digital operations in order to meet escalating customer expectations, resolve incidents proactively and free up time for innovation projects. This means critical, time sensitive, and unpredictable work needs to be detected and orchestrated.
We collect data and digital signals from virtually any software-enabled system or device and leverage powerful machine learning to correlate, process, and predict opportunities and issues. Using incident response, event management, and automation, we bring together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are.
Since our founding in 2009, we have expanded our capabilities from a single product focused on on-call management for developers to a multi-product platform that crosses silos into IT operations, security, customer service, and executive stakeholder roles across the organization. We have evolved from an on-call tool into the platform for digital operations, which resides at the center of a company’s technology ecosystem.
We have spent more than a decade building deep product integrations to our platform, and our ecosystem now includes over 700 direct integrations to enable our customers to gather and correlate digital signals from virtually any software-enabled system or device. This allows technical teams to collect digital signals from any system or platform in their environment, and without the effects of context switching. Those same integrations connect with popular collaboration tools and business applications, as well as all types of technology stacks to drive automation of work.
We generate revenue primarily from cloud-hosted subscription fees. We also generate revenue from term-license software subscription fees. We have a land-and-expand business model that leads to viral adoption of our products and subsequent expansion. Our online self-service model is the primary mechanism for landing new customers and enabling teams to get started without assistance. We complement our self-service model with high-velocity inside sales focused on small and medium businesses, a commercial team focused on mid-market customers, and a field sales team focused on enterprise customers. Our mid-market and enterprise customers account for the majority of our revenue today. These teams drive expansion to additional users, new use cases, and add-on products, as well as upsell to higher value plans.
Macroeconomic Environment
Our business and financial performance may be subject to the effects of the worldwide macroeconomic conditions, including, but not limited to global inflation and the rise in interest rates, existing and new laws and regulations, recession or economic downturn globally or in the jurisdictions in which we do business, the COVID-19 pandemic, volatility in foreign currency exchange rates, and recent bank failures.
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We continuously monitor geopolitical conflicts around the world and their effects on our business. While we do not believe the ongoing Russia-Ukraine conflict will have a material impact on our business and results of operations, our business and results of operations could be materially impacted if the Russia-Ukraine conflict continues or worsens, leading to greater global economic disruptions and uncertainty. Our customers in Russia represented an immaterial portion of our net assets and total consolidated revenue both as of and for the three months ended April 30, 2023 and January 31, 2023.
We will continue to monitor the direct and indirect impacts of these or similar circumstances on our business and financial results. For additional information on the potential impact of macroeconomic conditions on our business, see Item 1A, “Risk Factors”.
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Key Business Metrics
We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
While these numbers are based on what we believe to be a reasonable representation of our customer base for the applicable period of measurement, we rely on a third party to validate legal entities, which uses the best available data at period end, and therefore is subject to change as new information becomes available. In addition, we are continually seeking to improve our methodology, which may result in future changes to our key metrics.
Our key metrics include the results of Catalytic, Inc. (“Catalytic”) to the extent applicable, beginning on the acquisition date of March 8, 2022.
Number of Customers
We believe that the number of customers using our platform, particularly those that have subscription agreements for more than $100,000 in annual recurring revenue (“ARR”), are indicators of our market penetration, particularly within enterprise accounts, the growth of our business, and our potential future business opportunities. We define ARR as the annualized recurring value of all active contracts at the end of a reporting period. We define a customer as a separate legal entity, such as a company or an educational or government institution, that has an active subscription with us or one of our partners to access our platform. In situations where an organization has multiple subsidiaries or divisions, we treat the parent entity as the customer instead of treating each subsidiary or division as a separate customer. Increasing awareness of our platform and its broad range of capabilities, coupled with the fact that the world is always on and powered by increasingly complex technology, has expanded the diversity of our customer base to include organizations of all sizes across virtually all industries. Over time, enterprise and mid-market customers have constituted a greater share of our revenue.
| As of April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Customers | 15,089 | 15,040 | |||||||||
| Customers greater than $100,000 in ARR | 764 | 655 | |||||||||
Dollar-based Net Retention Rate
We use dollar-based net retention rate to evaluate the long-term value of our customer relationships, since this metric reflects our ability to retain and expand the ARR from our existing customers. Our dollar-based net retention rate compares our ARR from the same set of customers across comparable periods.
We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end (“Prior Period ARR”). We then calculate the ARR from these same customers as of the current period end (“Current Period ARR”). Current Period ARR includes any expansion and is net of downgrades or churn over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the dollar-based net retention rate. The calculation of dollar-based net retention rate includes the Current Period ARR of Catalytic customers to the extent that they were PagerDuty customers as of 12 months prior to period end.
| Last 12 Months Ended April 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
Dollar-based net retention rate for all customers | 116 | % | 126 | % | |||||||||||||||||||
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Components of Results of Operations
Revenue
We generate revenue primarily from cloud-hosted software subscription fees with the majority of our revenue from such arrangements. We also generate revenue from term-license software subscription fees. Our subscriptions are typically one year in duration but can range from monthly to multi-year. Subscription fees are driven primarily by the number of customers, the number of users per customer, and the level of subscription purchased. We generally invoice customers in advance in annual installments for subscriptions to our software. Revenue related to our cloud-hosted software subscriptions is recognized ratably over the related contractual term beginning on the date that our platform is made available to a customer. For our term-license software subscriptions, we recognize license revenue upon delivery and software maintenance revenue ratably, typically beginning on the start of the contractual term of the arrangement.
Due to the low complexity of implementation and integration of our platform with our customers’ existing infrastructure, revenue from professional services has been immaterial to date.
Cost of Revenue
Cost of revenue primarily consists of expenses related to providing our platform to customers, including personnel expenses for operations and global support, payments to our third-party cloud infrastructure providers for hosting our software, payment processing fees, amortization of capitalized internal-use software costs, amortization of acquired developed technology, and allocated overhead costs for facilities, information technology, and other allocated overhead costs. We will continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capability of our platform and ensure that our customers are realizing the full benefit of our offerings. The level and timing of investment in these areas could affect our cost of revenue in the future.
Gross Profit and Gross Margin
Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand the capacity of our third-party cloud infrastructure providers and our continued efforts to enhance our platform support and customer success teams.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel expenses are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense, and sales commissions. Operating expenses also include amortization of acquired intangible assets, acquisition-related expenses, allocated overhead costs for facilities, shared IT related expenses, including depreciation expense, and certain company-wide events and functions.
Research and development
Research and development expenses consist primarily of personnel costs for our engineering, product, and design teams. Additionally, research and development expenses include contractor fees, depreciation of equipment used in research and development activities, acquisition-related expenses, and allocated overhead costs. We expect that our research and development expenses will increase in dollar value as our business grows.
Sales and marketing
Sales and marketing expenses consist primarily of personnel costs, costs of general marketing activities and promotional activities, travel related expenses, amortization of acquired intangible assets, allocated overhead costs, and bad debt expense. Sales commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a subscription with a customer are deferred and amortized on a straight-line basis over the
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expected period of benefit, which we have determined to be four years. We expect that our sales and marketing expenses will increase in dollar value and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts.
General and administrative
General and administrative expenses consist primarily of personnel costs and contractor fees for finance, legal, human resources, information technology, and other administrative functions. In addition, general and administrative expenses include non-personnel costs, such as legal, accounting, and other professional fees, hardware and software costs, certain tax, license and insurance-related expenses, acquisition-related expenses, and allocated overhead costs. We expect that our general and administrative expenses will increase in dollar value as our business grows. However, we expect that our general and administrative expenses will decrease as a percentage of our revenue over the longer term as we expect our investments to allow for improved efficiency for future growth in the business.
Interest Income
Interest income consists of income earned on our cash and cash equivalents and interest earned on our short-term investments which consist of U.S. Treasury securities, commercial paper, corporate debt securities, and U.S. Government agency securities.
Interest Expense
Interest expense consists primarily of contractual interest expense and amortization of debt issuance costs on our 1.25% Convertible Senior Notes due 2025 (the “Notes”). Refer to Note 9, “Debt and Financing Arrangements” for additional details.
Other Income (Expense), Net
Other income (expense), net primarily consists of accretion income and amortization expense on our available-for-sale investments and foreign currency transaction gains and losses.
Benefit from Income Taxes
Benefit from income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized. Benefit from income taxes also includes the benefit associated with the reduction in our valuation allowance from the increase in the deferred tax liability associated with acquired intangible assets from our acquisition during the three months ended April 30, 2022.
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Results of Operations
The following table sets forth our condensed consolidated statements of operations data for the periods indicated:
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Revenue | $ | 103,246 | $ | 85,371 | |||||||
Cost of revenue(1) | 17,936 | 15,716 | |||||||||
| Gross profit | 85,310 | 69,655 | |||||||||
| Operating expenses: | |||||||||||
Research and development(1) | 33,508 | 31,289 | |||||||||
Sales and marketing(1) | 43,801 | 45,552 | |||||||||
General and administrative(1) | 23,801 | 25,271 | |||||||||
| Total operating expenses | 101,110 | 102,112 | |||||||||
| Loss from operations | (15,800) | (32,457) | |||||||||
| Interest income | 3,123 | 548 | |||||||||
| Interest expense | (1,334) | (1,325) | |||||||||
| Other income (expense), net | 1,067 | (790) | |||||||||
| Loss before benefit from income taxes | (12,944) | (34,024) | |||||||||
| Benefit from income taxes | 106 | 1,204 | |||||||||
| Net loss | $ | (12,838) | $ | (32,820) | |||||||
| Net loss attributable to redeemable non-controlling interest | (620) | — | |||||||||
| Net loss attributable to PagerDuty, Inc. | $ | (12,218) | $ | (32,820) | |||||||
______________
(1) Includes stock-based compensation expense as follows:
| Three Months Ended April 30, | |||||||||||
| 2023 | 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 | |||||||
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The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of revenue:
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue | 100 | % | 100 | % | |||||||
| Cost of revenue | 17 | 18 | |||||||||
| Gross profit | 83 | % | 82 | % | |||||||
| Operating expenses: | |||||||||||
| Research and development | 32 | 37 | |||||||||
| Sales and marketing | 42 | 53 | |||||||||
| General and administrative | 23 | 30 | |||||||||
| Total operating expenses | 98 | 120 | |||||||||
| Loss from operations | (15) | (38) | |||||||||
| Interest income | 3 | 1 | |||||||||
| Interest expense | (1) | (2) | |||||||||
| Other income (expense), net | 1 | (1) | |||||||||
| Loss before benefit from income taxes | (13) | (40) | |||||||||
| Benefit from income taxes | — | 1 | |||||||||
| Net loss | (12) | (38) | |||||||||
| Net loss attributable to redeemable non-controlling interest | (1) | % | — | ||||||||
| Net loss attributable to PagerDuty, Inc. | (12) | % | (38) | % | |||||||
__________
Note: Certain figures may not sum due to rounding.
Comparison of the Three Months Ended April 30, 2023 and 2022
Revenue
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | % Change | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Revenue | $ | 103,246 | $ | 85,371 | $ | 17,875 | 21 | % | |||||||||||||||
Revenue increased by $17.9 million, or 21%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. The increase in revenue was attributable to a combination of growth from both new and existing customers. Growth from existing customers was attributable to both increases in the number of users and upsell of additional products and services.
Cost of Revenue and Gross Margin
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | % Change | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | 17,936 | $ | 15,716 | $ | 2,220 | 14 | % | |||||||||||||||
| Gross margin | 83 | % | 82 | % | |||||||||||||||||||
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Cost of revenue increased by $2.2 million, or 14%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, primarily due to an increase of $1.4 million in personnel expenses as a result of increased headcount and salaries and an increase of $0.9 million in amortization of acquired intangible assets, primarily related to the acquisition of Catalytic.
Research and Development
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | % Change | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Research and development | $ | 33,508 | $ | 31,289 | $ | 2,219 | 7 | % | |||||||||||||||
| Percentage of revenue | 32 | % | 37 | % | |||||||||||||||||||
Research and development expenses increased by $2.2 million, or 7%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. The increase was primarily driven by an increase in personnel expenses of $3.5 million as a result of increased headcount and salaries to support our continued investment in our platform, partially offset by a $0.7 million decrease in the impairment charge related to software development not placed in service in the three months ended April 30, 2022.
Sales and Marketing
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | % Change | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Sales and marketing | $ | 43,801 | $ | 45,552 | $ | (1,751) | (4) | % | |||||||||||||||
| Percentage of revenue | 42 | % | 53 | % | |||||||||||||||||||
Sales and marketing expenses decreased by $1.8 million, or 4%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. This decrease was primarily due to a decrease of $0.9 million in costs to support the business and related infrastructure, which included allocated overhead costs, due to lower headcount as a result of the restructuring event and a decrease of $0.7 million in travel and other program related costs.
General and Administrative
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | % Change | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| General and administrative | $ | 23,801 | $ | 25,271 | $ | (1,470) | (6) | % | |||||||||||||||
| Percentage of revenue | 23 | % | 30 | % | |||||||||||||||||||
General and administrative expenses decreased by $1.5 million, or 6%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. The decrease was driven by a decrease of $2.2 million in outside services related to transaction costs for the acquisition of Catalytic in the prior year and a decrease of $0.3 million in travel and other program related costs. This was partially offset by an increase of $1.4 million in personnel expenses as a result of increased headcount and salaries.
Interest Expense
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| Three Months Ended April 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | % Change | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Interest expense | $ | 1,334 | $ | 1,325 | $ | 9 | 1 | % | |||||||||||||||
Interest expense was consistent for the three months ended April 30, 2023 compared to the three months ended April 30, 2022 and related to contractual interest and amortization of debt issuance costs for the Notes.
Interest Income and Other Income (Expense), Net
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | % Change | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Interest income | $ | 3,123 | $ | 548 | $ | 2,575 | 470 | % | |||||||||||||||
| Other income (expense), net | $ | 1,067 | $ | (790) | $ | 1,857 | 235 | % | |||||||||||||||
Interest income increased by $2.6 million and other income, net increased by $1.9 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. The increase was primarily due to higher interest rates and accretion on our cash, cash equivalent and investment balances in the current year.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance. We use the below referenced non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their U.S. GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with U.S. GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by U.S. GAAP to be recorded in our financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by our management about which expenses are excluded or included in determining these non-GAAP financial measures. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit as gross profit excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of acquired intangible assets, and restructuring costs. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue.
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| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Gross profit | $ | 85,310 | $ | 69,655 | |||||||
| Add: | |||||||||||
| Stock-based compensation | 1,876 | 1,224 | |||||||||
| Employer taxes related to employee stock transactions | 72 | 7 | |||||||||
| Amortization of acquired intangible assets | 2,087 | 1,209 | |||||||||
| Restructuring costs | 137 | — | |||||||||
| Non-GAAP gross profit | $ | 89,482 | $ | 72,095 | |||||||
| Gross margin | 83 | % | 82 | % | |||||||
| Non-GAAP gross margin | 87 | % | 84 | % | |||||||
Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin
We define non-GAAP operating income (loss) as income (loss) from operations excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of acquired intangible assets, acquisition-related expenses, which include transaction costs, acquisition-related retention payments and asset impairment, and restructuring costs, which are not necessarily reflective of operational performance during a given period. We define non-GAAP operating margin as non-GAAP operating income (loss) as a percentage of revenue.
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Loss from operations | $ | (15,800) | $ | (32,457) | |||||||
| Add: | |||||||||||
| Stock-based compensation | 27,545 | 24,909 | |||||||||
| Employer taxes related to employee stock transactions | 1,197 | 652 | |||||||||
| Amortization of acquired intangible assets | 2,806 | 1,842 | |||||||||
| Acquisition-related expenses | 161 | 2,753 | |||||||||
| Restructuring costs | 144 | — | |||||||||
| Non-GAAP operating income (loss) | $ | 16,053 | $ | (2,301) | |||||||
| Operating margin | (15) | % | (38) | % | |||||||
| Non-GAAP operating margin | 16 | % | (3) | % | |||||||
Non-GAAP Net Income (Loss) Attributable to PagerDuty, Inc.
We define non-GAAP net income (loss) attributable to PagerDuty, Inc. as net income (loss) attributable to PagerDuty, Inc. excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of debt issuance costs, amortization of acquired intangible assets, acquisition-related expenses, which include transaction costs, acquisition-related retention payments and asset impairment, restructuring costs, and the associated tax impact of these items, where applicable, which are not necessarily reflective of operational performance during a given period,.
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| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Net loss attributable to PagerDuty, Inc. | $ | (12,218) | $ | (32,820) | |||||||
| Add (Less): | |||||||||||
| Stock-based compensation | 27,545 | 24,909 | |||||||||
| Employer taxes related to employee stock transactions | 1,197 | 652 | |||||||||
| Amortization of debt issuance costs | 455 | 447 | |||||||||
| Amortization of acquired intangible assets | 2,806 | 1,842 | |||||||||
| Acquisition-related expenses | 161 | 2,753 | |||||||||
| Restructuring costs | 144 | — | |||||||||
Income tax effect of non-GAAP adjustments | (792) | (1,330) | |||||||||
| Non-GAAP net income (loss) attributable to PagerDuty, Inc. | $ | 19,298 | $ | (3,547) | |||||||
Free Cash Flow
We define free cash flow as net cash provided by (used in) operating activities, less cash used for purchases of property and equipment and capitalization of internal-use software costs. In addition to the reasons stated above, we believe that free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash in excess of our capital investments in property and equipment in order to enhance the strength of our balance sheet and further invest in our business and potential strategic initiatives. A limitation of the utility of free cash flow as a measure of our liquidity is that it does not represent the total increase or decrease in our cash balance for the period. We use free cash flow in conjunction with traditional U.S. GAAP measures as part of our overall assessment of our liquidity, including the preparation of our annual operating budget and quarterly forecasts and to evaluate the effectiveness of our business strategies, and to assess its liquidity.
There are a number of limitations related to the use of free cash flow as compared to net cash provided by (used in) operating activities, including that free cash flow includes capital expenditures, the benefits of which are realized in periods subsequent to those when expenditures are made.
| Three Months Ended April 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by (used in) operating activities | $ | 22,152 | $ | (2,985) | |||||||
| Less: | |||||||||||
| Purchases of property and equipment | (235) | (2,078) | |||||||||
| Capitalization of internal-use software costs | (1,072) | (772) | |||||||||
| Free cash flow | $ | 20,845 | $ | (5,835) | |||||||
| Net cash provided by (used in) investing activities | $ | 8,563 | $ | (70,357) | |||||||
| Net cash used in financing activities | $ | (4,069) | $ | (2,584) | |||||||
Liquidity and Capital Resources
Since inception, we have financed operations primarily through sales of our cloud-hosted software subscriptions, net proceeds we have received from sales of equity securities, and the issuance of the Notes.
On April 15, 2019, upon the closing of our IPO, we 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.
On June 25, 2020, we issued $287.5 million aggregate principal amount of the Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The total net proceeds from the sale of
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the Notes, after deducting the initial purchasers’ discounts and debt issuance costs of $9.3 million, and purchases of the Capped Calls of $35.7 million, were $242.5 million.
As of April 30, 2023, our principal sources of liquidity were cash and cash equivalents and investments totaling $495.1 million. We believe that our existing cash and cash equivalents, investments, and cash provided by sales of our subscriptions will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations, through a combination of cash flows from operating activities and available cash and short-term investment balances. Our future capital requirements will depend on many factors, including the effects of the worldwide macroeconomic conditions, including but not limited to, global inflation and the rise in interest rates, existing and new laws and regulations, recession or economic downturn globally or in the jurisdictions in which we do business, ongoing geopolitical conflict in Ukraine and other areas of the world, the COVID-19 pandemic, bank failures, volatility in foreign currency exchange rates, our subscription growth rate, subscription renewal activity, including the timing and the amount of cash received from customers, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market adoption of our platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations, and financial condition.
A significant majority of our customers pay in advance for our cloud-hosted and term-license software subscriptions. Therefore, a substantial source of our cash is from our deferred revenue, which is included in the liabilities section of our condensed consolidated balance sheet. Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As of April 30, 2023, we had deferred revenue of $201.8 million, of which $197.4 million was recorded as a current liability and expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
Cash Flows
The following table shows a summary of our cash flows for the periods presented:
| Three Months Ended April 30, | |||||||||||
| 2023 | 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) | |||||||
Operating Activities
Our largest source of operating cash is cash collection from sales of our cloud-hosted and term license software subscriptions to our customers. Our primary uses of cash from operating activities are for personnel expenses, marketing expenses and hosting and software expenses. In the last several years, we have had periods in which we generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from both private and public sales of equity securities and issuance of the Notes.
Cash provided by operating activities for the three months ended April 30, 2023 of $22.2 million primarily related to our net loss of $12.8 million, adjusted for non-cash charges/benefits of $38.0 million and net cash outflows of $3.0 million due to changes in our operating assets and liabilities. Non-cash charges/benefits consisted of stock-based compensation of $27.5 million, amortization of our deferred contract costs of $5.0 million, depreciation and amortization of property and equipment, capitalized implementation costs, and acquired intangible assets of $4.7 million, non-cash lease expense of $1.2 million, other benefits of $0.9 million, which consist primarily
35
of accretion on investments and bad debt expense, and amortization of debt issuance costs of $0.5 million. Changes in operating assets and liabilities reflected cash outflows from a $18.7 million decrease in accounts payable, accrued expenses and other liabilities, and accrued compensation, a $7.2 million decrease in deferred revenue resulting from decreased billings for subscriptions, a $3.4 million increase in deferred contract costs due to commissions paid on new bookings in line with revenue growth, a $2.2 million increase in prepaid expenses and other assets related to timing of payments made in advance for future services, and $1.5 million in payments for operating lease liabilities. These amounts were offset by a $30.0 million decrease in accounts receivable due to timing of cash collections.
Investing Activities
Cash provided by investing activities for the three months ended April 30, 2023 of $8.6 million consisted primarily of proceeds from maturities of investments of $49.0 million, offset by purchases of available-for-sale investments of $39.1 million, capitalization of internal-use software of $1.1 million, and purchases of property and equipment of $0.2 million primarily for purchases of computers for new employees.
Financing Activities
Cash used in financing activities for the three months ended April 30, 2023 of $4.1 million consisted of $8.8 million in employee payroll taxes paid related to vesting of restricted stock units, offset by proceeds of $4.8 million from the exercise of stock options.
Contractual Obligations and Commitments
There were no material changes during the three months ended April 30, 2023 to our contractual obligations and other commitments, as disclosed in our Annual Report.
For further information on our commitments and contingencies, refer to Note 10, “Commitments and Contingencies” in the condensed consolidated financial statements contained within this Form 10-Q.
Indemnification Agreements
In the ordinary course of business, we may agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. As permitted under Delaware law, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements, and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
There have been no significant changes to our critical accounting policies described in Part II, Item 7 in our Annual Report, that had a material impact on our condensed consolidated financial statements and related notes.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our market risk as compared to the disclosures in Part II, Item 7A in our Annual Report .
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation and supervision of our chief executive officer and our chief financial officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on such evaluation, our chief executive officer and chief financial officer have concluded that as of such date, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.
Limitations on the Effectiveness of Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended April 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as described above.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material pending legal proceedings. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business.
Item 1A. Risk Factors
Our business involves significant risks, some of which are described below. You should carefully consider the following risks, together with all of the other information in this Form 10-Q, including our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q. Any of the following risks could have an adverse effect on our business, results of operations, financial condition or prospects, and could cause the trading price of our common stock to decline. Our business, results of operations, financial condition or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.
There have been no material changes to the Risk Factors described under “Part I—Item 1A. Risk Factors” in our Annual Report.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Items 3, 4, and 5 are not applicable and have been omitted.
Item 6. Exhibits
The documents listed in the Exhibit Index of this Form 10-Q are incorporated by reference or are filed with this Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
40
EXHIBIT INDEX
Exhibit Number | Description | Form | File No. | Incorporated by Exhibit Reference | Filing Date | |||||||||||||||||||||||||||
| 8-K | 001-38856 | 3.1 | April 15, 2019 | |||||||||||||||||||||||||||||
| 8-K | 001-38856 | 3.2 | April 15, 2019 | |||||||||||||||||||||||||||||
| 8-K | 001-38856 | 10 | December 2, 2021 | |||||||||||||||||||||||||||||
| Filed herewith | ||||||||||||||||||||||||||||||||
| Filed herewith | ||||||||||||||||||||||||||||||||
| Filed herewith | ||||||||||||||||||||||||||||||||
| Furnished herewith | ||||||||||||||||||||||||||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | Filed herewith | ||||||||||||||||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | Filed herewith | ||||||||||||||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | Filed herewith | ||||||||||||||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | Filed herewith | ||||||||||||||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | Filed herewith | ||||||||||||||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | Filed herewith | ||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, and 101.PRE). | |||||||||||||||||||||||||||||||
* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
† Indicates a management contract or compensatory plan.
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PAGERDUTY, INC. | |||||||||||
Date: June 2, 2023 | By: | /s/ Jennifer G. Tejada | |||||||||
| Jennifer G. Tejada | |||||||||||
| Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
Date: June 2, 2023 | By: | /s/ Owen Howard Wilson | |||||||||
| Owen Howard Wilson | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
Date: June 2, 2023 | By: | /s/ Mitra Rezvan | |||||||||
| Mitra Rezvan | |||||||||||
| Senior Vice President, Finance and Chief Accounting Officer | |||||||||||
| (Principal Accounting Officer) | |||||||||||
42
PagerDuty, Inc.
600 Townsend Street, Suite 200 San Francisco, CA 94103
March 25, 2022
Dear Shelley Webb,
On behalf of PagerDuty, Inc., a Delaware corporation (the “Company”), I am pleased to offer you the position of Senior Vice President Legal, General Counsel of the Company. We believe that you will add substantially to the team and contribute greatly to the ultimate success of the Company by providing the Company with the same extraordinary leadership and vision that you have demonstrated throughout your career. The existing PagerDuty team and I look forward to your help in building PagerDuty into a great company.
We understand and appreciate the nature of the commitment you are making to join the Company, and we want you to do so with great confidence. You have the qualities that distinguish successful executives: leadership, vision, high integrity, intelligence, a bias to action, and a desire to make a difference. We are extremely enthusiastic about your accepting this offer.
The terms of your employment with the Company are as set forth in the agreement (“Agreement”) below:
1.Position.
(a)You will become Senior Vice President Legal, General Counsel, reporting directly to the Chief Executive Officer.
(b)You agree that, to the best of your ability and experience, you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that (i) you will devote substantially all of your business time and attention to the business of the Company, (ii) the Company will be entitled to all of the benefits and profits arising from or incident to all such work services, (iii) you will not render commercial or professional services of any nature to any person or organization without the prior written approval of the Company’s Board of Directors (the “Board”), and (iv) you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Notwithstanding the above, you may continue, on your own time, at your own expense and so as to not interfere with your duties and responsibilities at the Company to (i) serve as an advisory board member or board of directors member at other companies that are not competitive in any manner with the Company, (ii) accept speaking or
PagerDuty Offer of Employment | ||
presentation engagements in exchange for honoraria, and (iii) participate in civic, educational, charitable or fraternal organizations. This Agreement does not prevent you from owning one percent (1%) or less of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange and is a competitor or potential competitor of the Company.
2.Start Date. The effective date of your full-time employment will be April 25, 2022 (the “Start Date”) working out of our San Francisco.
3.Compensation.
(a)Base Salary. You will be paid a semi-monthly salary at a rate of $16,666.66, which is equivalent to $400,000 United States dollars (“USD”), on an annualized basis, commencing on the Start Date, which will be paid semi-monthly in accordance with the Company's normal payroll procedures.
(b)Variable Compensation.
Short-Term Incentive: You will be eligible to earn a bonus at a target of 55% of your base salary on an annualized basis in accordance with the PagerDuty, Inc. Short-Term Incentive Program. Please note that financial objectives and milestones may change over time. In order to earn and be paid a bonus (or portion thereof), you must have been employed within 90 days of the end of the applicable bonus period and you must remain employed with the Company until the payment date of each applicable bonus. For the avoidance of doubt, in the event that your employment with the Company terminates for any reason prior to the payment date of any bonus, you will not earn or be paid any bonus that has not yet been paid as of your employment termination date. The Company, in its sole discretion, will determine whether you are entitled to a bonus (or portion thereof) and the amount of such bonus, and its determination will be final and binding.
(c)Annual Review. Your compensation will be reviewed annually as part of the Company’s performance achievement review process. The Company does not guarantee any increase in compensation as part of the annual review.
(d)Equity Awards. In connection with the commencement of your employment, and subject to approval by the Board or a duly authorized committee thereof, you will be granted equity awards with a target value of USD $5,550,000 (the “Target Value”), consisting of (1) 70% in Restricted Stock Units (“RSUs”) and
(2) 30% in Performance Stock Units (“PSUs”) measured at 100% of “target” attainment of the relevant Performance Metrics (as defined below).
The number of RSUs will be determined by dividing (i) the dollar amount equal to 70% of the Target Value by (ii) the average of the closing price of the Company’s common stock on the New York Stock Exchange for the 30 trading days prior to the date of grant (the “30-Day Average”), with the resulting number of RSUs rounded down to the nearest whole number.
PagerDuty Offer of Employment | ||
The target number of PSUs will be determined by dividing (i) the dollar amount equal to 30% of the Target Value by (ii) the 30-Day Average, with the resulting number of PSUs rounded down to the nearest whole number.
With regard to the RSUs, your vesting commencement date will be the effective date of the grant (“Grant Date”), which will typically be no later than three (3) months after your hire date. 1/16th of the total RSUs shall vest each quarter following the Grant Date, so that the RSUs shall be fully vested four (4) years after the Grant Date, subject to your Continuous Service (as defined in the Company’s 2019 Equity Incentive Plan (the “Equity Plan”) on each vesting date.
With regard to the PSUs, vesting will be subject to the Company’s achievement of certain predetermined performance metrics over a specified performance period (“Performance Metrics”), as determined by the Board or a duly authorized committee thereof, as well as your Continuous Service through the vesting date, unless otherwise provided in your PSU award agreement.
Notwithstanding the foregoing, the RSUs and PSUs shall be subject to the terms and conditions of the Equity Plan and the applicable award agreement.
You should consult your tax advisor about the tax implications associated with accepting this offer of RSUs and PSUs.
4.Benefits. As an employee, you will also be eligible to receive certain employee benefits as outlined in Attachment A, including paid time off, medical, dental, life, and long-term disability insurance. You will also be eligible to participate in our 401(k) plan and 2019 Employee Stock Purchase Plan. You should note that the Company may modify job titles, salaries and benefits from time to time as it deems necessary.
5.Confidential Information and Invention Assignment Agreement. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company’s standard Confidential Information and Invention Assignment Agreement, a copy of which is enclosed as Attachment B for your review and execution (the “Confidentiality Agreement”).
6.Background Checks. The Company reserves the right to conduct background investigations and/or reference checks on all of its potential employees. Your job offer, therefore, is contingent upon a clearance of such a background investigation and/or reference check, if any.
7.Evidence of Employment Eligibility. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.
PagerDuty Offer of Employment | ||
8.Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause or advance notice. Any contrary representations which may have been made to you are superseded by this offer. This is the full and complete agreement between you and the Company on this term. Although your job duties, title,
compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Chief Executive Officer or Board.
9.Termination of Employment and Severance Benefits.
(a)Termination of Employment. Except for the severance benefits provided below, the Company's obligations under this Agreement may be terminated upon the occurrence of any of the following events:
(i)The Company’s determination that it is terminating your employment for Cause (as defined in the PagerDuty, Inc. Executive Severance and Change in Control Policy attached hereto as Attachment C (the “Policy”)) (“Termination for Cause”);
(ii)The Company’s determination that it is terminating your employment without Cause, which determination may be made by the Company at any time at the Company’s sole discretion, for any reason (“Termination Without Cause”);
(iii)Upon the effective date of your resignation of employment with the Company without Good Reason or such earlier date as the Company may provide following notice of your resignation without Good Reason (“Voluntary Termination”);
(iv)As a result of your death or Disability (as defined in the Policy); or
(v)Your resignation for Good Reason (as defined in the Policy).
(b)Severance Benefits. Subject to approval by the Compensation Committee and/or Board, you will be eligible to receive benefits as a Tier 2 Participant in accordance with the Policy.
(i)Voluntary Termination. If, at any time, you experience a Voluntary Termination or a Termination for Cause, or if either party terminates your employment as a result of your death or Disability, you will receive your base salary accrued through your last day of employment, as well as any unused vacation (if applicable) accrued through your last day of employment. Under these circumstances, you will not be entitled to any other form of compensation from the Company, including any severance benefits pursuant to the Policy, other than
PagerDuty Offer of Employment | ||
your rights to the vested portion of your equity and any other rights to which you are entitled under the Company’s benefit programs.
10.Withholding Taxes. All forms of compensation referred to in this letter are subject to applicable deductions, withholding and payroll taxes.
11.Miscellaneous Provisions.
(a)Choice of Law. With the exception of the “Arbitration” section below, the validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the state in which you primarily work for the Company, without giving effect to the principles of conflicts of law.
(b)Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
(c)Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without such provision.
(d)Acknowledgment. You acknowledge that you have had the opportunity to discuss this matter with and obtain advice from your private attorney, have had sufficient time to, and have carefully read and fully understand all the provisions of this Agreement, and are knowingly and voluntarily entering into this Agreement.
(e)Arbitration. Except as provided below, to ensure the rapid and economical resolution of disputes that may arise in connection with your employment with the Company, and in exchange for the mutual promises contained in this Agreement, you and the Company agree that any dispute, claims, causes of action, or controversies, in law or equity, arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, or your employment with the Company or the termination of your employment, shall be settled pursuant to the Federal Arbitration Act, 9 U.S.C. § 1-16, to the fullest extent permitted by law, by final, binding and confidential arbitration conducted by the American Arbitration Association (“AAA”) or its successor, to be held in within fifty (50) miles of your principal place of employment at the time the claim accrued in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the AAA (the “Rules”). The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is
PagerDuty Offer of Employment | ||
based. The arbitrator shall be authorized to award all relief that you or the Company would be entitled to seek in a court of law. The Company shall pay all AAA arbitration fees in excess of the administrative fees that you would be required to pay if the dispute were decided in a court of law. The arbitrator may grant injunctions or other relief in such dispute or controversy. Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction.
This arbitration section shall be governed by the Federal Arbitration Act. The arbitrator shall apply to the merits of any dispute or claim in arbitration the substantive law as applicable to the claim(s) asserted, without reference to rules of conflict of law.
In addition, all claims, disputes, controversies, or causes of action under this section, whether by you or the Company, must be brought in an individual capacity, and shall not be brought as a plaintiff (or claimant) or class member in any purported class or representative proceeding, nor joined or consolidated with the claims of any other person or entity. The arbitrator may not consolidate the claims of more than one person or entity, and may not preside over any form of representative or class proceeding. To the extent that the preceding sentences regarding class claims or proceedings are found to violate applicable law or are otherwise found unenforceable, any claim(s) alleged or brought on behalf of a class shall proceed in a court of law rather than by arbitration. This section shall not apply to any action or claim that cannot be subject to mandatory arbitration as a matter of law, including, without limitation, claims brought pursuant to the California Private Attorneys General Act of 2004, as amended, the California Fair Employment and Housing Act, as amended, and the California Labor Code, as amended, and claims alleging sexual harassment or a nonconsensual sexual action or sexual contact, to the extent any such claims are not permitted by applicable law(s) to be submitted to mandatory arbitration and the applicable law(s) are not preempted by the Federal Arbitration Act or otherwise invalid (collectively, the “Excluded Claims”). In addition, nothing herein precludes you from filing charges or complaints with the National Labor Relations Board, the Equal Employment Opportunity Commission, or other similar administrative agency. In the event you intend to bring multiple claims, including one of the Excluded Claims listed above, the Excluded Claims may be filed with a court, while any other claims will remain subject to mandatory arbitration. You will have the right to be represented by legal counsel at any arbitration proceeding.
YOU HAVE READ AND UNDERSTAND THESE PROVISIONS, WHICH DISCUSS ARBITRATION. YOU UNDERSTAND THAT BY SIGNING THIS AGREEMENT, YOU AND THE COMPANY AGREE TO SUBMIT
PagerDuty Offer of Employment | ||
ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF, OR YOUR EMPLOYMENT WITH THE COMPANY OR TERMINATION OF YOUR EMPLOYMENT WITH THE COMPANY, TO BINDING ARBITRATION TO THE EXTENT PERMITTED BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF YOUR RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i)ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(ii)ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT;
(iii)ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
To accept the Company's offer, please sign and date this letter in the space provided below. A duplicate original is enclosed for your records. If you accept our offer, your first day of employment will be on or before 04/25/2022. This Agreement, along with any agreements relating to proprietary rights between you and the Company, forms the complete and exclusive statement of the terms of your employment with the Company and supersedes any prior representations or agreements including, but not limited to, any representations made during your recruitment, interviews or pre-employment negotiations, whether written or oral. Changes in your employment terms, other than those changes expressly reserved to the Company’s or the Board’s discretion in this Agreement, require a written modification approved by the Company and signed by a duly authorized officer of the Company (other than you). If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination shall not affect any other provision of this Agreement and the provision in question shall be modified so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible under
PagerDuty Offer of Employment | ||
applicable law. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement, or rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder. This Agreement may be delivered and executed via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act or other applicable law) or other transmission method and shall be deemed to have been duly and validly delivered and executed and be valid and effective for all purposes.
Please sign and date this Agreement and the enclosed Confidentiality Agreement and return them to me on or before Monday, March 28, 2022 if you wish to accept employment at the Company under the terms described above. This offer of employment will terminate if it is not accepted, signed and returned by 5pm Pacific, March 28, 2022.
I look forward to your favorable reply and to working with you at PagerDuty.
PagerDuty, Inc.: | Employee: | |||||||
By: /s/ Joseph Militello | /s/ Shelley Webb | |||||||
Name: Joseph Militello | Name: Shelley Webb | |||||||
Title: Chief People Officer | ||||||||
Date: 3/25/2022 | Date: 3/27/2022 | |||||||
Attachment A: Benefits Summary
Attachment B: Confidential Information and Invention Assignment Agreement
Attachment C: Executive Severance and Change in Control Policy
PagerDuty Offer of Employment | ||
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jennifer G. Tejada, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PagerDuty, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: June 2, 2023
/s/ Jennifer G. Tejada
Jennifer G. Tejada
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Owen Howard Wilson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PagerDuty, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: June 2, 2023
/s/ Owen Howard Wilson
Owen Howard Wilson
Chief Financial Officer
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jennifer G. Tejada, the Chief Executive Officer of PagerDuty, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of PagerDuty, Inc. for the fiscal quarter ended April 30, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of PagerDuty, Inc.
Date: June 2, 2023
/s/ Jennifer G. Tejada
Jennifer G. Tejada
Chief Executive Officer
(Principal Executive Officer)
I, Owen Howard Wilson, the Chief Financial Officer of PagerDuty, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of PagerDuty, Inc. for the fiscal quarter ended April 30, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of PagerDuty, Inc.
Date: June 2, 2023
/s/ Owen Howard Wilson
Owen Howard Wilson
Chief Financial Officer
(Principal Financial Officer)