PagerDuty Inc.

11/27/2024 | Press release | Distributed by Public on 11/27/2024 15:13

Quarterly Report for Quarter Ending October 31, 2024 (Form 10-Q)

pd-20241031
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
_________________________
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-38856
_________________________
PAGERDUTY, INC.
_________________________
(Exact name of registrant as specified in its charter)
Delaware 27-2793871
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
600 Townsend St. , Suite 200
San Francisco, California
94108
(Address of principal executive offices) (Zip Code)
(844) 800-3889
(Registrant's telephone number, including area code)
_________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.000005 per share
PD
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically 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.
Large accelerated filer
x
Accelerated filer
☐
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 November 25, 2024, was 90,155,072.
Table of Contents
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
4
Condensed Consolidated Balance Sheets (unaudited)
4
Condensed Consolidated Statements of Operations (unaudited)
5
Condensed Consolidated Statements of Comprehensive Loss (unaudited)
6
Condensed Consolidated Statements of Stockholders' Equity (unaudited)
7
Condensed Consolidated Statements of Cash Flows (unaudited)
9
Notes to Condensed Consolidated Financial Statements (unaudited)
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
26
Item 3. Quantitative and Qualitative Disclosures about Market Risk
41
Item 4. Controls and Procedures
41
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
43
Item 1A. Risk Factors
43
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
43
Item 3. Defaults Upon Senior Securities
43
Item 4. Mine Safety Disclosures
44
Item 5. Other Information
44
Item 6. Exhibits
45
SIGNATURES
46
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("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 statements 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;
•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;
•our ability to effectively identify, acquire, and integrate complementary companies, technologies, and assets, including our ability to successfully integrate artificial intelligence and machine learning in our offerings;
•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; 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/A for the year ended January 31, 2024, filed with the SEC on March 18, 2024. 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 (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.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PAGERDUTY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
October 31, 2024 January 31, 2024
Assets
Current assets:
Cash and cash equivalents $ 326,440 $ 363,011
Investments 215,722 208,178
Accounts receivable, net of allowance for credit losses of $803 and $1,382 as of October 31, 2024 and January 31, 2024, respectively
75,182 100,413
Deferred contract costs, current 19,632 19,502
Prepaid expenses and other current assets 17,157 12,094
Total current assets 654,133 703,198
Property and equipment, net 19,573 17,632
Deferred contract costs, non-current 24,167 25,118
Lease right-of-use assets 2,436 3,789
Goodwill 137,401 137,401
Intangible assets, net 23,698 32,616
Other assets 5,346 5,552
Total assets $ 866,754 $ 925,306
Liabilities, redeemable non-controlling interest, and stockholders' equity
Current liabilities:
Accounts payable $ 7,116 $ 6,242
Accrued expenses and other current liabilities 15,801 15,472
Accrued compensation 34,474 30,239
Deferred revenue, current 214,058 223,522
Lease liabilities, current 3,550 6,180
Convertible senior notes, net, current 57,332 -
Total current liabilities 332,331 281,655
Convertible senior notes, net, non-current 392,697 448,030
Deferred revenue, non-current 2,659 4,639
Lease liabilities, non-current 6,119 6,809
Other liabilities 4,859 5,280
Total liabilities 738,665 746,413
Commitments and contingencies (Note 10)
Redeemable non-controlling interest (Note 3)
16,493 7,293
Stockholders' equity
Common stock - -
Additional paid-in capital 699,633 774,768
Accumulated other comprehensive loss (502) (733)
Accumulated deficit (586,410) (552,435)
Treasury stock (1,125) (50,000)
Total stockholders' equity 111,596 171,600
Total liabilities, redeemable non-controlling interest, and stockholders' equity $ 866,754 $ 925,306
See accompanying notes to unaudited condensed consolidated financial statements.
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PAGERDUTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Revenue $ 118,946 $ 108,720 $ 346,053 $ 319,582
Cost of revenue 20,268 19,705 59,691 57,474
Gross profit 98,678 89,015 286,362 262,108
Operating expenses:
Research and development 34,267 34,272 106,878 104,221
Sales and marketing 49,272 49,630 148,737 143,155
General and administrative 25,432 25,955 78,800 77,547
Total operating expenses 108,971 109,857 334,415 324,923
Loss from operations (10,293) (20,842) (48,053) (62,815)
Interest income 6,912 6,029 21,408 15,242
Interest expense (2,377) (1,454) (6,888) (4,184)
Gain on partial extinguishment of convertible senior notes - 3,970 - 3,970
Other income (expense), net 346 (834) 212 (960)
Loss before (provision for) benefit from income taxes (5,412) (13,131) (33,321) (48,747)
(Provision for) benefit from income taxes (715) 41 (1,335) 197
Net loss $ (6,127) $ (13,090) $ (34,656) $ (48,550)
Net loss attributable to redeemable non-controlling interest (203) (324) (681) (1,513)
Net loss attributable to PagerDuty, Inc. $ (5,924) $ (12,766) $ (33,975) $ (47,037)
Less: Adjustment attributable to redeemable non-controlling interest 634 2,359 9,881 4,088
Net loss attributable to PagerDuty, Inc. common stockholders $ (6,558) $ (15,125) $ (43,856) $ (51,125)
Weighted average shares used in calculating net loss per share, basic and diluted 91,438 93,104 92,530 92,257
Net loss per share, basic and diluted, attributable to PagerDuty, Inc. common stockholders $ (0.07) $ (0.16) $ (0.47) $ (0.55)
See accompanying notes to unaudited condensed consolidated financial statements.
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PAGERDUTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Net loss $ (6,127) $ (13,090) $ (34,656) $ (48,550)
Unrealized gain on investments 233 227 174 295
Foreign currency translation adjustments (5) (151) 57 (415)
Total comprehensive loss $ (5,899) $ (13,014) $ (34,425) $ (48,670)
Less: comprehensive loss attributable to redeemable non-controlling interest
Net loss attributable to redeemable non-controlling interest (203) (324) (681) (1,513)
Foreign currency translation adjustments attributable to redeemable non-controlling interest - 6 - 8
Comprehensive loss attributable to redeemable non-controlling interest (203) (318) (681) (1,505)
Comprehensive loss attributable to PagerDuty, Inc. $ (5,696) $ (12,696) $ (33,744) $ (47,165)
See accompanying notes to unaudited condensed consolidated financial statements.
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PAGERDUTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
Three months ended October 31, 2024
Common Stock Additional
Paid-in
Capital 		Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit 		Treasury Stock Total
Stockholders'
Equity
Shares Amount Shares Amount
Balance as of July 31, 2024 93,032,895 $ - $ 747,599 $ (730) $ (580,486) (78,764) $ (1,699) $ 164,684
Issuance of common stock upon exercise of stock options 121,465 - 723 - - - - 723
Vesting of restricted stock units, net of employee payroll taxes 792,395 - (8,531) - - - - (8,531)
Other comprehensive income - - - 228 - - - 228
Repurchases of common stock - - - - - (3,830,761) (70,585) (70,585)
Retirement of treasury stock (3,848,109) - (71,159) - - 3,848,109 71,159 -
Excise tax on repurchases of common stock - - (490) - - - - (490)
Stock-based compensation - - 32,125 - - - - 32,125
Adjustment to redeemable non-controlling interest - - (634) - - - - (634)
Net loss attributable to PagerDuty, Inc. - - - - (5,924) - - (5,924)
Balance as of October 31, 2024 90,098,646 $ - $ 699,633 $ (502) $ (586,410) (61,416) $ (1,125) $ 111,596
Nine months ended October 31, 2024
Common Stock Additional
Paid-in
Capital 		Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Treasury stock Total
Stockholders'
Equity
Shares Amount Shares Amount
Balance as of January 31, 2024 95,068,187 $ - $ 774,768 $ (733) $ (552,435) (2,331,002) $ (50,000) $ 171,600
Issuance of common stock upon exercise of stock options 253,351 - 1,527 - - - - 1,527
Vesting of restricted stock units and performance stock units, net of employee payroll taxes 1,878,043 - (22,659) - - - - (22,659)
Issuance of common stock in connection with employee stock purchase plan 312,660 - 5,735 - - - - 5,735
Other comprehensive income - - - 231 - - - 231
Repurchases of common stock - - - - - (5,144,009) (98,648) (98,648)
Retirement of treasury stock (7,413,595) - (147,523) - - 7,413,595 147,523 -
Excise tax on repurchases of common stock - - (490) - - - - (490)
Stock-based compensation - - 98,156 - - - - 98,156
Adjustment to redeemable non-controlling interest - - (9,881) - - - - (9,881)
Net loss attributable to PagerDuty, Inc. - - - - (33,975) - - (33,975)
Balance as of October 31, 2024 90,098,646 $ - $ 699,633 $ (502) $ (586,410) (61,416) $ (1,125) $ 111,596
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PAGERDUTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued)
(in thousands, except share data)
(unaudited)
Three months ended October 31, 2023
Common Stock Additional
Paid-in
Capital 		Accumulated Other Comprehensive Loss Accumulated
Deficit 		Treasury stock Total
Stockholders'
Equity
Shares Amount Shares Amount
Balance as of July 31, 2023 93,249,291 $ - $ 779,192 $ (1,788) $ (511,517) - $ - $ 265,887
Issuance of common stock upon exercise of stock options 245,778 - 973 - - - - 973
Vesting of restricted stock units and performance stock units, net of employee payroll taxes 724,575 - (9,786) - - - - (9,786)
Other comprehensive income - - - 76 - - - 76
Purchases of capped calls related to convertible senior notes - - (55,102) - - - - (55,102)
Repurchases of common stock - - - - - (2,331,002) (50,000) (50,000)
Stock-based compensation - - 32,196 - - - - 32,196
Adjustment to redeemable non-controlling interest - - (2,359) - - - - (2,359)
Net loss attributable to PagerDuty, Inc. - - - - (12,766) - - (12,766)
Balance as of October 31, 2023 94,219,644 $ - $ 745,114 $ (1,712) $ (524,283) (2,331,002) $ (50,000) $ 169,119
Nine months ended October 31, 2023
Common Stock Additional
Paid-in
Capital 		Accumulated Other Comprehensive Loss Accumulated
Deficit 		Treasury stock Total
Stockholders'
Equity
Shares Amount Shares Amount
Balance as of January 31, 2023 91,178,671 $ - $ 719,816 $ (1,592) $ (477,246) - $ - $ 240,978
Issuance of common stock upon exercise of stock options 1,026,320 - 7,954 - - - - 7,954
Vesting of restricted stock units and performance stock units, net of employee payroll taxes 1,688,670 - (25,772) - - - - (25,772)
Issuance of common stock in connection with the employee stock purchase plan 325,983 - 6,292 - - - - 6,292
Other comprehensive loss - - - (120) - - - (120)
Purchases of capped calls related to convertible senior notes - - (55,102) - - - - (55,102)
Repurchases of common stock - - - - - (2,331,002) (50,000) (50,000)
Stock-based compensation - - 96,014 - - - - 96,014
Adjustment to redeemable non-controlling interest - - (4,088) - - - - (4,088)
Net loss attributable to PagerDuty, Inc. - - - - (47,037) - - (47,037)
Balance as of October 31, 2023 94,219,644 $ - $ 745,114 $ (1,712) $ (524,283) (2,331,002) $ (50,000) $ 169,119
See accompanying notes to unaudited condensed consolidated financial statements.
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PAGERDUTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended October 31,
2024 2023
Cash flows from operating activities:
Net loss attributable to PagerDuty, Inc. common stockholders $ (43,856) $ (51,125)
Net loss and adjustment attributable to redeemable non-controlling interest 9,200 2,575
Net loss (34,656) (48,550)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 15,526 15,016
Amortization of deferred contract costs 16,261 15,286
Amortization of debt issuance costs 1,950 1,456
Gain on extinguishment of convertible senior notes - (3,970)
Stock-based compensation 97,079 94,910
Non-cash lease expense 2,538 3,425
Other (3,852) (1,426)
Changes in operating assets and liabilities:
Accounts receivable 24,751 18,983
Deferred contract costs (15,441) (12,285)
Prepaid expenses and other assets (5,079) (2,674)
Accounts payable 603 (1,002)
Accrued expenses and other liabilities (1,302) 767
Accrued compensation 4,002 (13,086)
Deferred revenue (11,386) (12,547)
Lease liabilities (4,505) (4,484)
Net cash provided by operating activities 86,489 49,819
Cash flows from investing activities:
Purchases of property and equipment (1,646) (1,193)
Capitalized internal-use software costs (5,019) (3,812)
Purchases of available-for-sale investments (153,121) (151,984)
Proceeds from maturities of available-for-sale investments 147,827 164,064
Proceeds from sales of available-for-sale investments 2,237 -
Purchases of non-marketable equity investments - (200)
Net cash (used in) provided by investing activities (9,722) 6,875
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs (403) 391,543
Purchases of capped calls related to convertible senior notes - (55,102)
Repurchases of convertible senior notes - (223,471)
Investment from redeemable non-controlling interest holder - 1,781
Repurchases of common stock (97,523) (50,000)
Proceeds from employee stock purchase plan 5,735 6,292
Proceeds from issuance of common stock upon exercise of stock options 1,527 8,390
Employee payroll taxes paid related to net share settlement of restricted stock units (22,659) (25,772)
Net cash (used in) provided by financing activities (113,323) 53,661
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash (109) (451)
Net change in cash, cash equivalents, and restricted cash (36,665) 109,904
Cash, cash equivalents, and restricted cash at beginning of period 366,667 274,019
Cash, cash equivalents, and restricted cash at end of period $ 330,002 $ 383,923
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents $ 326,440 $ 380,307
Restricted cash in other long-term assets 3,562 3,616
Total cash, cash equivalents, and restricted cash $ 330,002 $ 383,923
Supplemental cash flow data:
Cash paid for income taxes $ 580 $ 507
Cash paid for interest $ 7,885 $ 1,797
Non-cash investing and financing activities:
Purchase of property and equipment, accrued but not yet paid $ 537 $ 991
Stock-based compensation capitalized in internal use software $ 1,305 $ 1,105
Bonuses capitalized in internal use software $ 244 $ 111
Issuance costs included in accrued expenses $ - $ 965
See accompanying notes to unaudited condensed consolidated financial statements.
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PAGERDUTY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 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, Inc., together with its wholly-owned subsidiaries and subsidiaries in which PagerDuty, Inc. holds a controlling interest (collectively, the "Company"), provides a digital operations management platform that manages urgent and mission-critical work for a modern, digital business (the "PagerDuty Platform"). The PagerDuty Platform 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.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP" or "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, 2024 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 footnote 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, 2024, included in the Company's Annual Report on Form 10-K/A.
The condensed consolidated financial statements include the results of PagerDuty, Inc., 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, stockholders' equity, and cash flows. The results of operations for the three and nine months ended October 31, 2024 are not necessarily indicative of the results to be expected for the full year ending January 31, 2025 or for any other interim period, or for any future year.
The Company's fiscal year ends on January 31. References to fiscal 2025 refer to the fiscal year ending January 31, 2025.
Reclassification
Certain reclassifications of prior period amounts have been made in the Company's condensed consolidated statements of operations to conform to the current period presentation. The Company has reclassified a portion of other income to the interest income line item on the accompanying condensed consolidated statements of operations. These reclassifications had no effect on the reported results of operations.
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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 fair value of acquired assets and assumed liabilities, stock-based compensation, redemption value of redeemable non-controlling interests, 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 reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Note 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 and cash equivalents, available-for-sale investments, and accounts receivable. All of the Company's 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 10% or more of the total accounts receivable balance as of October 31, 2024 or January 31, 2024. No single customer accounted for 10% or more of revenue for the three and nine months ended October 31, 2024 or 2023.
Segment Information
The Company manages its operations and allocates resources as one operating segment. The Company's chief operating decision maker ("CODM") is its chief executive officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources. Refer to Note 15, Geographic Informationfor information regarding the Company's long-lived assets and revenue by geography.
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 $4.0 million and $3.8 million to entities associated with related parties in the nine months ended October 31, 2024 and 2023, respectively. Accounts receivable associated with related parties as of October 31, 2024 and 2023 and revenue recognized from related party transactions for the three and nine months ended October 31, 2024 and 2023 were not significant.
Significant Accounting Policies
There have been no material changes to the Company's significant accounting policies from those described in the Company's Annual Report on Form 10-K/A.
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Restricted Cash
The Company has classified cash that is not available for use in its operations as restricted cash. Restricted cash consists primarily of collateral for letters of credit related to security deposits for the Company's office facility lease arrangements. At October 31, 2024 and January 31, 2024, the Company had restricted cash of $3.6 million and $3.7 million, respectively, all of which was classified as non-current.
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU expands public entities' segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment's profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 and requires retrospective application to all prior periods. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income statement expenses. This ASU requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The amendment requires that at each interim and annual reporting period, an entity discloses the amounts of certain expenses included in each relevant expense caption. The newly required expense disclosures include certain amounts that are already required to be disclosed under current GAAP in the same disclosure as the other disaggregation requirements. The amendment also requires that an entity discloses a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively and disclose the total amount of selling expenses and, in annual reporting periods, an entity's definition of selling expenses. This ASU is effective for fiscal years beginning after December 15, 2026. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
Note 3. Redeemable Non-Controlling Interest
In May 2022, the Company established a joint venture, PagerDuty K.K. The Company obtained a 51% controlling interest and has consolidated the financial results of the joint venture.
The agreements with the non-controlling interest holders of PagerDuty K.K. contain redemption features whereby the interest held by the non-controlling interest holders is redeemable either: (i) at the option of the non-controlling interest holders; or (ii) at the option of the Company, both beginning on the tenth anniversary of the initial capital contribution. The balance of the redeemable non-controlling interest is reported at the greater of the initial carrying amount adjusted for the redeemable non-controlling interest's share of earnings or losses and other comprehensive income or loss, or its redemption value, which is determined based on a prescribed formula derived from multiple metrics including the annual recurring revenue of PagerDuty K.K. The resulting changes in the estimated redemption amount are recorded with corresponding adjustments against additional paid-in capital due to the absence of retained earnings. The carrying amount of the redeemable non-controlling interest is recorded on the Company's condensed consolidated balance sheets as temporary equity.
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The following table summarizes the activity in the redeemable non-controlling interest for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Balance at beginning of period $ 16,062 $ 3,431 $ 7,293 $ 1,108
Investment by redeemable non-controlling interest - - - 1,781
Net loss attributable to redeemable non-controlling interest (203) (324) (681) (1,513)
Adjustments to redeemable non-controlling interest 634 2,359 9,881 4,088
Foreign currency translation adjustments - 6 - 8
Balance at end of period $ 16,493 $ 5,472 $ 16,493 $ 5,472
Note 4. Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and investments consisted of the following as of the dates indicated (in thousands):
October 31, 2024 January 31, 2024
Cash and cash equivalents:
Cash $ 52,526 $ 55,736
Money market funds 273,914 305,283
Commercial paper - 994
U.S. Treasury securities - 998
Total cash and cash equivalents $ 326,440 $ 363,011
Available-for-sale investments:
U.S. Treasury securities $ 51,574 $ 50,036
Commercial paper 11,453 2,886
Corporate debt securities 120,375 131,259
U.S. Government agency securities 32,320 23,997
Total available-for-sale investments $ 215,722 $ 208,178
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The following tables summarize the amortized cost, net unrealized gains (losses), and fair value of the Company's investments by significant investment category as of the dates indicated (in thousands). Gross realized gains or losses from sales of available-for-sale securities were not material for the three and nine months ended October 31, 2024 and 2023.
October 31, 2024
Amortized Cost Unrealized Gain (Loss), Net Estimated Fair Value
Available-for-sale investments:
U.S. Treasury securities $ 51,509 $ 65 $ 51,574
Commercial paper 11,449 4 11,453
Corporate debt securities 120,376 (1) 120,375
U.S. Government agency securities 32,314 6 32,320
Total available-for-sale investments $ 215,648 $ 74 $ 215,722
January 31, 2024
Amortized Cost Unrealized Gain (Loss), Net Estimated Fair Value
Available-for-sale investments:
U.S. Treasury securities $ 50,012 $ 24 $ 50,036
Commercial paper 2,887 (1) 2,886
Corporate debt securities 131,395 (136) 131,259
U.S. Government agency securities 23,983 14 23,997
Total available-for-sale investments $ 208,277 $ (99) $ 208,178
The following tables present the Company's available-for-sale securities by contractual maturity date as of the dates indicated (in thousands):
October 31, 2024
Amortized Cost
Fair Value
Due within one year $ 149,008 $ 149,157
Due between one to five years 66,640 66,565
Total $ 215,648 $ 215,722
January 31, 2024
Amortized Cost
Fair Value
Due within one year $ 155,423 $ 155,158
Due between one to five years 52,854 53,020
Total $ 208,277 $ 208,178
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As of October 31, 2024, there were 54 securities in an unrealized loss position with an aggregate fair value of $88.8 million, 10 of which were in a continuous unrealized loss position for more than 12 months. The total unrealized loss related to the 10 securities was immaterial. As of January 31, 2024, there were 70 securities in an unrealized loss position with an aggregate fair value of $108.7 million, 33 of which were in a continuous unrealized loss position for more than 12 months. The unrealized loss related to the 33 securities was $0.2 million.
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.
Note 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.
The following tables present information about the Company's financial assets that are required to be measured or disclosed at fair value using the above input categories as of the dates indicated (in thousands):
As of October 31, 2024
Level 1 Level 2 Level 3 Total
Money market funds $ 273,914 $ - $ - $ 273,914
U.S. Treasury securities - 51,574 - 51,574
Commercial paper - 11,453 - 11,453
Corporate debt securities - 120,375 - 120,375
U.S. Government agency securities - 32,320 - 32,320
Total $ 273,914 $ 215,722 $ - $ 489,636
Included in cash equivalents $ 273,914
Included in investments $ 215,722
As of January 31, 2024
Level 1 Level 2 Level 3 Total
Money market funds $ 305,283 $ - $ - $ 305,283
U.S. Treasury securities - 51,034 - 51,034
Commercial paper - 3,880 - 3,880
Corporate debt securities - 131,259 - 131,259
U.S. Government agency securities - 23,997 - 23,997
Total $ 305,283 $ 210,170 $ - $ 515,453
Included in cash equivalents $ 307,275
Included in investments $ 208,178
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.
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The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of October 31, 2024 and January 31, 2024, the Company's Level 2 securities are measured at fair value and classified within Level 2 in the fair value hierarchy because the Company uses quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data or alternative pricing sources and models using market observable inputs to determine fair value.
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 October 31, 2024, the estimated fair value of the Company's outstanding 1.25% Convertible Senior Notes due 2025 (the "2025 Notes") was approximately $55.5 million and the estimated fair value of the Company's 1.50% Convertible Senior Notes due 2028 (the "2028 Notes") was approximately $397.6 million. The fair values were determined based on the quoted price for the 2025 Notes and the 2028 Notes (collectively, the "Notes") in an inactive market on the last trading day of the reporting period and are considered as Level 2 in the fair value hierarchy.
Note 6. Property and Equipment, Net
Property and equipment, net, consisted of the following as of the dates indicated (in thousands):
October 31, 2024 January 31, 2024
Leasehold improvements $ 7,111 $ 11,334
Computers and equipment 9,442 9,135
Furniture and fixtures 3,922 3,989
Capitalized internal-use software 24,825 18,257
Gross property and equipment(1)
45,300 42,715
Accumulated depreciation and amortization (25,727) (25,083)
Property and equipment, net $ 19,573 $ 17,632
(1) Gross property and equipment includes construction-in-progress for leasehold improvements and capitalized internal-use software of $7.9 million and $4.2 million that had not yet been placed in service as of October 31, 2024 and January 31, 2024, 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 $2.2 million and $2.1 million for the three months ended October 31, 2024 and 2023, respectively, and $6.4 million and $6.3 million for the nine months ended October 31, 2024 and 2023, respectively.
In the nine months ended October 31, 2023, the Company recorded an impairment charge of $0.4 million related to leasehold improvements abandoned during the period. The impairment charge was recorded in general and administrative expenses on the condensed consolidated statement of operations. No such impairment charges were recorded during the three and nine months ended October 31, 2024.
Note 7. Deferred Contract Costs
Deferred contract costs, which primarily consist of deferred sales commissions, were $43.8 million and $44.6 million as of October 31, 2024 and January 31, 2024, respectively. Amortization expense for deferred contract costs was $5.6 million and $5.1 million for the three months ended October 31, 2024 and 2023, respectively, and $16.3 million and $15.3 million for the nine months ended October 31, 2024 and 2023, respectively. There was no impairment charge related to the costs capitalized for the periods presented.
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Note 8. Leases
Operating Leases
The Company has entered into various non-cancellable operating leases for its office spaces with lease periods expiring between fiscal 2026 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 lease's 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 Company's operating leases typically include non-lease components such as common-area maintenance costs. The Company has elected a practical expedient that allows it 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.
Leases with a term of one year or less are not recognized on the Company's condensed consolidated balance sheets, but rather are expensed on a straight-line basis over the lease term.
In June 2023, the Company entered into a sublease for a portion of its San Francisco office location. The sublease has a remaining lease term of less than one year. Sublease income, which is recorded as a reduction of rent expense, was not material for the three and nine months ended October 31, 2024.
The following table presents information about leases on the condensed consolidated balance sheet as of the dates indicated (in thousands):
October 31, 2024 January 31, 2024
Assets:
Lease right-of-use assets $ 2,436 $ 3,789
Liabilities:
Lease liabilities, current 3,550 6,180
Lease liabilities, non-current 6,119 6,809
As of October 31, 2024, the weighted average remaining lease term was 3.3 years and the weighted average discount rate used to determine the net present value of the lease liabilities was 4.0%.
The following table presents information about leases on the condensed consolidated statement of operations for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Operating lease expense $ 858 $ 1,089 $ 2,560 $ 3,760
Short-term lease expense 654 567 1,706 1,335
Variable lease expense 273 270 653 867
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The following table presents supplemental cash flow information about the Company's leases for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Cash paid for amounts included in the measurement of lease liabilities $ 1,660 $ 1,612 $ 4,929 $ 4,934
In the nine months ended October 31, 2023, the Company recorded an impairment charge of $0.8 million to the right-of-use asset associated with the subleased office, which is the amount that the carrying value of the right-of-use asset exceeded its estimated fair value. The estimated fair value was based on the present value of the estimated cash flows that could be generated from subleasing the property for the remaining lease term. The impairment charge was recorded in general and administrative expenses on the condensed consolidated statement of operations. There were no impairment charges recorded in the three and nine months ended October 31, 2024.
Note 9. Debt and Financing Arrangements
2025 Convertible Senior Notes
In June 2020, the Company issued an aggregate principal amount of $287.5 million of 2025 Notes in a private offering pursuant to an indenture dated June 25, 2020 (the "2025 Indenture").
The 2025 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 2025 Notes will mature on July 1, 2025, unless such notes are converted, redeemed or repurchased earlier. In October 2023, the Company provided written notice to the trustee and the note holders of the 2025 Notes that it had irrevocably elected to settle the principal amount of its convertible senior notes in cash and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election, in respect to the remainder, if any, of the Company's conversion obligation in excess of the aggregate principal amount of the 2025 Notes being converted.
In October 2023, the Company paid $223.7 million to repurchase an aggregate principal amount of $230.0 million of the 2025 Notes with a carrying value of $227.5 million, net of unamortized issuance costs of $2.6 million.
2028 Convertible Senior Notes
In October 2023, the Company issued an aggregate principal amount of $402.5 million of convertible senior notes in a private offering pursuant to an indenture dated October 13, 2023 (the "2028 Indenture" and, together with the 2025 Indenture, the "Indentures"). The total net proceeds from the debt offering, after deducting initial purchasers' discounts and debt issuance costs of $12.0 million, were $390.4 million.
The 2028 Notes are senior, unsecured obligations of the Company and accrue interest payable semiannually in arrears on April 15 and October 15 of each year, beginning on April 15, 2024, at a rate of 1.50% per year. The 2028 Notes will mature on October 15, 2028, unless such notes are converted, redeemed or repurchased earlier. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2028 Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election, in respect to the remainder, if any, of the Company's conversion obligation in excess of the aggregate principal amount of the 2028 Notes being converted, in the manner and subject to the terms and conditions provided in the 2028 Indenture.
Accounting for the 2025 Notes and the 2028 Notes
The Notes are accounted for as a single liability measured at their amortized cost, as no other embedded features require bifurcation and recognition as derivatives. As of October 31, 2024, the 2025 Notes are classified in current liabilities and the 2028 Notes are classified as non-current liabilities. Issuance costs are amortized to interest expense over the contractual term of the Notes at an effective interest rate of 1.91% for the 2025 Notes and 2.13% for the 2028 Notes.
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The net carrying amount of the Notes was as follows as of the dates indicated (in thousands):
As of October 31, 2024 As of January 31, 2024
2025 Notes 2028 Notes Total 2025 Notes 2028 Notes Total
Principal $ 57,500 $ 402,500 $ 460,000 $ 57,500 $ 402,500 $ 460,000
Unamortized issuance costs (168) (9,803) (9,971) (597) (11,373) (11,970)
Net carrying amount $ 57,332 $ 392,697 $ 450,029 $ 56,903 $ 391,127 $ 448,030
Interest expense recognized related to the Notes was as follows for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Contractual interest expense $ 1,706 $ 931 $ 4,938 $ 2,728
Amortization of debt issuance costs 671 523 1,950 1,456
Total interest expense related to the Notes $ 2,377 $ 1,454 $ 6,888 $ 4,184
Capped Call Transactions
In connection with the offering of the 2025 Notes, the Company entered into privately negotiated capped call transactions (the "2025 Capped Calls") with certain financial institution counterparties. In connection with the offering of the 2028 Notes, the Company entered into separate privately negotiated capped call transactions (the "2028 Capped Calls" and, together with the 2025 Capped Calls, the "Capped Calls"). The Capped Calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the Notes, subject to a cap based on the cap price of such Capped Calls. 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 costs incurred to purchase the 2025 Capped Calls and the 2028 Capped Calls of $35.7 million and $55.1 million, respectively, were recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheets. The Capped Calls will not be remeasured as long as they continue to meet the conditions for equity classification.
The 2025 Capped Calls have an initial strike price of approximately $40.08 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2025 Notes, and an initial cap price of $61.66 per share, subject to certain adjustments. The 2025 Capped Calls cover, subject to anti-dilution adjustments, approximately 7.2 million shares of the Company's common stock. The 2025 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 and may be settled in cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election. The 2025 Capped Calls remain outstanding as of October 31, 2024.
The 2028 Capped Calls have an initial strike price of approximately $27.35 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2028 Notes, and an initial cap price of $42.90 per share, subject to certain adjustments. The 2028 Capped Calls cover, subject to anti-dilution adjustments, approximately 14.7 million shares of the Company's common stock. The 2028 Capped Calls are subject to automatic exercise over a 60 trading day period commencing on July 20, 2028, subject to earlier termination under certain circumstances and may be settled in cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election.
Note 10. Commitments and Contingencies
Legal Matters
From time to time, 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 material legal proceedings nor is it aware of any pending or threatened litigation that could reasonably be expected to have a material adverse effect on its business, financial condition, results of operations, or cash flows.
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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.
In the ordinary course of business, the Company 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 the Company, or from intellectual property infringement claims made by third parties. As permitted under Delaware law, the Company has entered into indemnification agreements with its directors and certain officers and employees that will require the Company, 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 the Company to provide indemnification under such agreements, and there are no claims that the Company is aware of that could have a material effect on its consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive loss, or consolidated statements of cash flows.
Note 11. Deferred Revenue and Performance Obligations
The following table presents the changes to the Company's deferred revenue for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Deferred revenue, beginning of period $ 217,889 $ 196,605 $ 228,161 $ 209,051
Billings 117,774 108,534 334,609 306,950
Revenue recognized (118,946) (108,720) (346,053) (319,582)
Deferred revenue, end of period $ 216,717 $ 196,419 $ 216,717 $ 196,419
For the three and nine months ended October 31, 2024and 2023, the majority of revenue recognized was from the deferred revenue balances at the beginning of each period.
The transaction price allocated to the remaining performance obligations represents all future, non-cancelable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods.
Beginning in the first quarter of fiscal 2025, the Company began to include contracts with an original term of less than 12 months in this disclosure. Such contracts comprised $116 million of remaining non-cancelable performance obligations as of October 31, 2024.
As of October 31, 2024, total remaining non-cancelable performance obligations under cloud-hosted and term-license software subscription contracts with customers was approximately $405 million. Of this amount, the Company expects to recognize revenue of approximately $278 million, or 68.6%, over the next 12 months with the balance to be recognized as revenue thereafter.
Note 12. Common Stock and Stockholders' Equity
Common Stock Repurchases
In October 2023, the Company repurchased a total of 2,331,002 shares of the Company's common stock through open market purchases at an average per share price of $21.45 for a total repurchase price of $50.0 million. During the nine months ended October 31, 2024, these shares were retired.
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In May 2024, the Company's Board of Directors authorized a share repurchase program to repurchase up to $100.0 million of the Company's common stock (the "2024 Share Repurchase Program"). The 2024 Share Repurchase Program does not obligate the Company to acquire a specified number of shares, and may be suspended, modified, or terminated at any time, without prior notice. The repurchases are expected to be executed from time to time through May 2026, subject to general business and market conditions and other investment opportunities, through open market purchases or other legally permissible means, including through Rule 10b5-1 plans. During the three and nine months ended October 31, 2024, the Company repurchased a total of 3,830,761 and 5,144,009 shares, respectively, and subsequently retired 3,848,109 and 5,082,593 shares, respectively. The total shares retired during the three months ended October 31, 2024 includes a portion of shares that were in transit as of the prior quarter end. The cost of the remaining 61,416 shares is recorded as treasury stock in the condensed consolidated balance sheets. As of October 31, 2024, $1.5 million of the total amount authorized to be repurchased remained available.
Equity Incentive Plan
In 2019, the Company adopted the 2019 Equity Incentive Plan (the "2019 Plan"). As of October 31, 2024 and January 31, 2024, the Company was authorized to grant up to 36,096,724 shares and 31,519,553 shares of common stock, respectively, under the 2019 Plan.
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 October 31, 2024 and January 31, 2024, there were 19,799,837 shares and 17,178,454 shares, respectively, available for future issuance under the 2019 Plan.
Shares of common stock reserved for future issuance as of the end of the period noted are as follows:
October 31, 2024
Outstanding stock options and unvested RSUs and PSUs 14,042,039
Available for future stock option, RSU, and PSU grants 19,799,837
Available for Employee Stock Purchase Plan ("ESPP") 3,984,879
Total common stock reserved for future issuance 37,826,755
Stock Options
As of October 31, 2024, there was approximately $0.8 million of total unrecognized compensation cost related to unvested stock options granted under the 2019 Plan, which will be recognized over a weighted average period of 1.2 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, 2024 7,412,056 $ 31.08
Granted 4,410,881 $ 20.97
Vested (2,988,987) $ 30.82
Forfeited or canceled (946,330) $ 30.42
Outstanding at October 31, 2024 7,887,620 $ 25.62
The fair value of the Company's RSUs is expensed ratably over the vesting period, and is based on the fair value of the underlying shares on the date of grant. The Company accounts for forfeitures as they occur.
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As of October 31, 2024, there was $193.0 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.2 years based on vesting under the award service conditions.
Performance Stock Units
The Company grants PSUs to certain employees of the Company, which, in the current fiscal year, are to vest based on the level of achievement of certain targets related to the Company's operating plan over the one-year performance period. In prior periods, PSUs vested based on both the level of achievement of certain targets related to the Company'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 three-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.
In the nine months ended October 31, 2024, the Compensation Committee of the Company's Board of Directors certified the results of the Company's operating plan and relative growth of the per share price of the Company's common stock as compared to the S&P Software & Services Select Index for the fiscal year ended January 31, 2024. Based on the results, the PSUs granted in April 2023 ("2023 PSU Awards") were cancelled as the target was not met.
A summary of the Company's PSU activity and related information is as follows:
Number of PSUs Weighted
Average Grant Date Fair Value Per Share
Outstanding at January 31, 2024 541,992 $ 35.08
Granted(1)
781,813 $ 21.62
Vested (9,050) $ 41.17
Forfeited or canceled (45,108) $ 39.02
Performance adjustment for 2023 PSU Awards (487,834) $ 34.98
Outstanding at October 31, 2024 781,813 $ 27.73
(1) This amount represents awards granted at 100% attainment.
During the three and nine months ended October 31, 2024, the Company recorded stock-based compensation expense for the number of PSUs considered probable of vesting based on the attainment of the performance targets.
As of October 31, 2024, total unrecognized stock-based compensation cost related to PSUs was $9.0 million. This unrecognized stock-based compensation cost is expected to be recognized using the accelerated attribution method over a weighted-average period of approximately 1.3 years.
Employee Stock Purchase Plan
The Company's ESPP generally provides for 24-month offering periods beginning June 15 and December 15 of each year, with each offering period consisting of four six-month purchase periods. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of: (i) the fair market value of the Company's stock as of the beginning of the offering period; or (ii) the fair market value of the Company's stock on the purchase date, as defined in the ESPP.
During the three months ended October 31, 2024 and 2023, the Company recognized $1.1 million and $1.3 million, respectively, of stock-based compensation expense related to the ESPP. During the nine months ended October 31, 2024 and 2023, the Company recognized $3.7 million and $4.7 million, respectively, of stock-based compensation expense related to the ESPP.
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During the three months ended October 31, 2024 and 2023, the Company withheld $2.6 million and $2.0 million, respectively, in contributions from employees. During the nine months ended October 31, 2024 and 2023, the Company withheld $7.7 million and $7.8 million, respectively, in contributions from employees.
During the nine months ended October 31, 2024, 312,660 shares of common stock were issued under the ESPP at a weighted average purchase price of $18.34 per share. During the nine months ended October 31, 2023, 325,983 shares of common stock were issued under the ESPP at a weighted average purchase price of $19.30 per share.
Stock-Based Compensation
Stock-based compensation expense included in the Company's condensed consolidated statements of operations was as follows for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Cost of revenue $ 1,432 $ 1,820 $ 4,696 $ 5,860
Research and development 11,576 11,128 34,640 34,002
Sales and marketing 7,639 8,094 23,702 22,362
General and administrative 11,126 10,786 34,041 32,686
Total stock-based compensation expense
$ 31,773 $ 31,828 $ 97,079 $ 94,910
Note 13. Net Loss per Share
Net loss used for the purpose of determining basic and diluted net loss per share is determined by taking net loss attributable to PagerDuty, Inc., less the redeemable non-controlling interests redemption value adjustment.
The following table presents the calculation of basic and diluted net loss per share attributable to PagerDuty, Inc. common stockholders for the periods indicated (in thousands, except number of shares and per share data):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Numerator:
Net loss attributable to PagerDuty, Inc. common stockholders $ (5,924) $ (12,766) $ (33,975) $ (47,037)
Less: Adjustment attributable to redeemable non-controlling interest
634 2,359 9,881 4,088
Net loss attributable to PagerDuty, Inc. common stockholders $ (6,558) $ (15,125) $ (43,856) $ (51,125)
Denominator:
Weighted average shares used in calculating net income (loss) per share, basic and diluted 91,438 93,104 92,530 92,257
Net loss per share, basic and diluted, attributable to PagerDuty, Inc. common stockholders $ (0.07) $ (0.16) $ (0.47) $ (0.55)
Since the Company was in a loss position for the periods presented, basic net loss per share and diluted net loss per share are the same, as the inclusion of all potential common stock outstanding would have been anti-dilutive.
23
Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands):
As of October 31,
2024 2023
Shares subject to outstanding common stock awards 13,260 13,354
Restricted stock issued to acquire key personnel - 44
Shares issuable pursuant to the ESPP 187 188
Total
13,447 13,586
As described in Note 9, Debt and Financing Arrangements, upon conversion of the Notes, the Company will pay cash up to the aggregate principal amount of the Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election, in respect to the remainder, if any, of the Company's conversion obligation in excess of the aggregate principal amount of the Notes being converted. As of October 31, 2024, the conversion options of the Notes were out of money and as a result, there were no potentially dilutive shares related to the conversion of the Notes.
Note 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 the Company's U.S. losses for which no benefit will be realized, the Company's 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 provision for income taxes of $0.7 million and $1.3 million for the three and nine months ended October 31, 2024, respectively, and a benefit from income taxes of $41.0 thousand and $0.2 million for the three and nine months ended October 31, 2023, respectively.
Note 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 for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
United States $ 85,530 $ 79,487 $ 250,637 $ 232,576
International 33,416 29,233 95,416 87,006
Total $ 118,946 $ 108,720 $ 346,053 $ 319,582
Other than the United States, no other individual country accounted for 10% or more of revenue for the three and nine months ended October 31, 2024 or 2023.
As of October 31, 2024, 63% of the Company's long-lived assets, including property and equipment and right-of-use lease assets, were located in the United States, 21% were located in Canada, 13% were located in Portugal, 2% were located in Chile, and 1% were located in the United Kingdom.
24
As of January 31, 2024, 73% of the Company's long-lived assets, including property and equipment and right-of-use lease assets, were located in the United States, 20% were located in Canada, 4% were located in Portugal, 2% were located in the United Kingdom, and 1% were located in Chile.
Note 16. Subsequent Events
In November 2024, the Company entered into an amended lease agreement for its San Francisco office lease. The amendment: (i) reduces the square footage of the lease premises; and (ii) extends the term of the lease for the remaining portion of the existing lease premises for approximately three years, commencing on March 1, 2025. The annual lease payment during the first year is approximately $1.8 million, escalating approximately 3% each year.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of operations of PagerDuty, Inc. and its wholly-owned subsidiaries, and subsidiaries in which PagerDuty, Inc. holds a controlling interest ("PagerDuty," "we," "us" or "our") should be read in conjunction with our unaudited consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and related notes in our Annual Report on Form 10-K/A for the year ended January 31, 2024. You should review the sections titled "Special Note Regarding Forward-Looking Statements" above in this Quarterly Report on Form 10-Q for a discussion of forward-looking statements 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, adverse effects on our business and general economic conditions as identified below, and those discussed in the section titled "Risk Factors" included in our Annual Report on Form 10-K/A. The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31 and January 31. Except as otherwise noted, all references to 2024 refer to the year ended January 31, 2024.
Overview and Business Model
PagerDuty is a global leader in digital operations management, enabling customers to achieve operational efficiency at scale and transform critical work for modern enterprises. The PagerDuty Operations Cloud combines AIOps, Automation, Incident Management, and Customer Service Operations into a flexible, resilient, and scalable platform to increase innovation velocity, protect revenue, reduce cost, and mitigate the risk of operational failure.
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, proactively resolve incidents, 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 incidents. Using incident management, process automation, AI operations, and customer service operations, 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 infrastructures and 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. PagerDuty has a land-and-expand business model that leads to viral adoption of our products and subsequent expansion. An increasing focus for our go-to-market motion, including our field sales team, is serving 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. The PagerDuty field organization is focused on selling the PagerDuty platform across IT, DevOps, and customer service operations teams.
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, health epidemics or pandemics, volatility in foreign currency exchange rates, and 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 or the conflict in Israel and the surrounding areas will have a material impact on our business and results of operations, our business and results of operations could be materially impacted if these conflicts continue or worsen, leading to greater global economic disruptions and uncertainty. Our customers in regions impacted by conflict represented an immaterial portion of our net assets and total consolidated revenue both as of and for the three and nine months ended October 31, 2024 and 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.
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 metrics 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 using the best available data at period end, and therefore, these metrics are 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 Jeli, Inc. ("Jeli") to the extent applicable, beginning on the acquisition date of November 15, 2023.
Number of Customers
We believe that the number of customers using our platform, particularly those that have subscription agreements for more than $100.0 thousand 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 revenue 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. The total number of customers and the number of customers with greater than $100.0 thousand in ARR were as follows as of the dates indicated:
As of October 31,
2024 2023
Customers 15,050 15,049
Customers with greater than $100.0 thousand in ARR
825 778
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.
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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 dollar-based net retention rate was as follows as of the dates indicated:
Last 12 months ended October 31,
2024 2023
Dollar-based net retention rate for all customers 107 % 110 %
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Results of Operations
Three months ended October 31, 2024 compared to three months ended October 31, 2023
The following table sets forth our results of operations for the periods indicated and as a percentage of revenue (in thousands, except percentages):
Three months ended October 31,
2024 2023
Revenue $ 118,946 100.0 % $ 108,720 100.0 %
Cost of revenue(1)
20,268 17.0 % 19,705 18.1 %
Gross profit 98,678 83.0 % 89,015 81.9 %
Operating expenses:
Research and development(1)
34,267 28.8 % 34,272 31.5 %
Sales and marketing(1)
49,272 41.4 % 49,630 45.6 %
General and administrative(1)
25,432 21.4 % 25,955 23.9 %
Total operating expenses 108,971 91.6 % 109,857 101.0 %
Loss from operations (10,293) (8.7) % (20,842) (19.2) %
Interest income 6,912 5.8 % 6,029 5.5 %
Interest expense (2,377) (2.0) % (1,454) (1.3) %
Gain on partial extinguishment of convertible senior notes - - % 3,970 3.7 %
Other income (expense), net 346 0.3 % (834) (0.8) %
Loss before (provision for) benefit from income taxes (5,412) (4.5) % (13,131) (12.1) %
(Provision for) benefit from income taxes (715) (0.6) % 41 - %
Net loss $ (6,127) (5.2) % $ (13,090) (12.0) %
Net loss attributable to redeemable non-controlling interest (203) (0.2) % (324) (0.3) %
Net loss attributable to PagerDuty, Inc. $ (5,924) (5.0) % $ (12,766) (11.7) %
Less: Adjustment attributable to redeemable non-controlling interest 634 0.5 % 2,359 2.2 %
Net loss attributable to PagerDuty, Inc. common stockholders $ (6,558) (5.5) % $ (15,125) (13.9) %
______________
(1) Includes stock-based compensation expense as follows (in thousands):
Three months ended October 31,
2024 2023
Cost of revenue $ 1,432 $ 1,820
Research and development 11,576 11,128
Sales and marketing 7,639 8,094
General and administrative 11,126 10,786
Total $ 31,773 $ 31,828
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Revenue
We generate revenue primarily from cloud-hosted software subscription fees. 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.
The following sets forth our revenue for the periods indicated (in thousands, except percentages):
Three months ended October 31,
Change
2024 2023
$
%
Revenue $ 118,946 $ 108,720 $ 10,226 9.4 %
Revenue increased primarily due to growth from existing customers, which was driven by an increase in the number of users and upsell of additional products and services.
Cost of Revenue and Gross Margin
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 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.
The following sets forth our cost of revenue and gross margin for the periods indicated (in thousands, except percentages):
Three months ended October 31,
Change
2024 2023
$
%
Cost of revenue $ 20,268 $ 19,705 $ 563 2.9 %
Gross margin 83.0 % 81.9 %
The increase in cost of revenue is primarily due to: (i) an increase of $0.4 million for amortization of internally developed software; (ii) an increase of $0.3 million in personnel costs as a result of an increase in headcount, offset by changes in the components of compensation plans; (iii) an increase of $0.2 million in hosting, software, and telecom costs; and (iv) an increase of $0.2 million in training and travel-related costs; offset by (v) a decrease of $0.5 million in costs to support the business and related infrastructure, which include allocated overhead costs, primarily as a result of decreased lease expenses.
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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.
The following table sets forth our operating expenses for the periods indicated (in thousands, except percentages):
Three months ended October 31,
Change
2024 2023
$
%
Operating expenses:
Research and development
$ 34,267 $ 34,272 $ (5) - %
Sales and marketing
49,272 49,630 (358) (0.7) %
General and administrative
25,432 25,955 (523) (2.0) %
Total operating expenses $ 108,971 $ 109,857 $ (886) (0.8) %
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 outside services, 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 generally increase in dollar value as our business grows.
The change in research and development expenses was not significant period over period.
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 expected period of benefit, which we have determined to be four years. We expect that our sales and marketing expenses will generally increase in dollar value and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts.
Sales and marketing expenses decreased primarily due to: (i) a decrease of $1.0 million in other expenses, primarily related to a training event that occurred during the three months ended October 31, 2023 that did not recur in the current period; (ii) a decrease of $0.9 million in costs to support the business and related infrastructure, which include allocated overhead costs; offset by (iii) an increase of $0.8 million in training and travel-related costs; and (iv) an increase of $0.6 million in marketing costs for media campaigns during the current period.
General and administrative: General and administrative expenses consist primarily of personnel costs and outside services 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.
General and administrative expenses decreased primarily due to: (i) a decrease of $0.4 million in insurance, business taxes, and licenses costs; (ii) a decrease of $0.2 million in costs to support the business and related infrastructure, which include allocated overhead costs; (iii) a decrease of $0.1 million in training and travel-related costs; and (iv) a decrease of $0.1 million in outside services spend due to higher leverage of internal resources; offset by (v) an increase of $0.4 million in personnel expenses, driven largely by an increase in bonuses for general and administrative employees.
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Non-Operating Expenses
The following table sets forth our non-operating income (expenses) for the periods indicated (in thousands, except percentages):
Three months ended October 31,
Change
2024 2023
$
%
Interest income $ 6,912 $ 6,029 $ 883 14.6 %
Interest expense $ (2,377) $ (1,454) $ (923) 63.5 %
Gain on partial extinguishment of convertible senior notes $ - $ 3,970 $ (3,970) (100.0) %
Other income (expense), net
$ 346 $ (834) $ 1,180 (141.5) %
(Provision for) benefit from income taxes
$ (715) $ 41 $ (756) (1,843.9) %
Interest income: Interest income consists of accretion income and amortization expense on our available-for-sale investments and 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 income increased primarily due to accretion on our cash, cash equivalent and investment balances in the current year.
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 "2025 Notes") that were outstanding in the three and nine months ended October 31, 2023 and partially extinguished in October 2023. Interest expense for the three and nine months ended October 31, 2024 also includes the contractual interest expense and amortization of debt issuance costs on our 1.50% Convertible Senior Notes due 2028 (the "2028 Notes") that were issued in October 2023.
Interest expense increased primarily due to contractual interest and amortization of debt issuance costs for the 2028 Notes that were issued in October 2023. The increase was partially offset by a decrease in the amortization of debt issuance costs and interest for the 2025 Notes that were partially extinguished in October 2023 and therefore had less of an impact on the current period.
Gain on partial extinguishment of convertible senior notes: During the three months ended October 31, 2023, the Company recorded a gain on partial extinguishment of convertible senior notes as a result of the October 2023 repurchase of the 2025 Notes. No such gain was recorded during the three months ended October 31, 2024.Refer to Note 9. Debt and Financing Arrangementsin the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further discussion.
Other income (expense), net: Other income (expense), net primarily consists of foreign currency transaction gains and losses.
The change in other income (expense), net was due to fluctuations in foreign currency during the period.
(Provision for) benefit from income taxes: (Provision for) benefit from income taxes consists primarily of income taxes in certain foreign and U.S. 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 for all years presented.
The change in (provision for) benefit from income taxes was primarily driven by foreign, federal, and state income taxes. The provision may fluctuate to the extent the mix of earnings fluctuates between jurisdictions with different tax rates.
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Nine months ended October 31, 2024 compared to nine months ended October 31, 2023
The following table sets forth our results of operations for the periods indicated and as a percentage of revenue (in thousands, except percentages):
Nine months ended October 31,
2024 2023
Revenue $ 346,053 100.0 % $ 319,582 100.0 %
Cost of revenue(1)
59,691 17.2 % 57,474 18.0 %
Gross profit 286,362 82.8 % 262,108 82.0 %
Operating expenses:
Research and development(1)
106,878 30.9 % 104,221 32.6 %
Sales and marketing(1)
148,737 43.0 % 143,155 44.8 %
General and administrative(1)
78,800 22.8 % 77,547 24.3 %
Total operating expenses 334,415 96.6 % 324,923 101.7 %
Loss from operations (48,053) (13.9) % (62,815) (19.7) %
Interest income 21,408 6.2 % 15,242 4.8 %
Interest expense (6,888) (2.0) % (4,184) (1.3) %
Gain on partial extinguishment of convertible senior notes - - % 3,970 1.2 %
Other income (expense), net
212 0.1 % (960) (0.3) %
Loss before (provision for) benefit from income taxes (33,321) (9.6) % (48,747) (15.3) %
(Provision for) benefit from income taxes (1,335) (0.4) % 197 0.1 %
Net loss $ (34,656) (10.0) % $ (48,550) (15.2) %
Net loss attributable to redeemable non-controlling interest (681) (0.2) % (1,513) (0.5) %
Net loss attributable to PagerDuty, Inc. $ (33,975) (9.8) % $ (47,037) (14.7) %
Less: Adjustment attributable to redeemable non-controlling interest 9,881 2.9 % 4,088 1.3 %
Net loss attributable to PagerDuty, Inc. common stockholders $ (43,856) (12.7) % $ (51,125) (16.0) %
______________
(1) Includes stock-based compensation expense as follows (in thousands):
Nine months ended October 31,
2024 2023
Cost of revenue $ 4,696 $ 5,860
Research and development 34,640 34,002
Sales and marketing 23,702 22,362
General and administrative 34,041 32,686
Total $ 97,079 $ 94,910
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Revenue
The following sets forth our revenue for the periods indicated (in thousands, except percentages):
Nine months ended October 31,
Change
2024 2023
$
%
Revenue $ 346,053 $ 319,582 $ 26,471 8.3 %
Revenue increased primarily due to growth from existing customers, which was driven by an increase in the number of users and upsell of additional products and services.
Cost of Revenue and Gross Margin
The following sets forth our cost of revenue and gross margin for the periods indicated (in thousands, except percentages):
Nine months ended October 31,
Change
2024 2023
$
%
Cost of revenue $ 59,691 $ 57,474 $ 2,217 3.9 %
Gross margin 82.8 % 82.0 %
The increase in cost of revenue is primarily due to: (i) an increase of $1.6 million in amortization of internally developed software; (ii) an increase of $1.4 million in outside services spend for the customer service team; (iii) an increase of $0.8 million in hosting, software, and telecom costs; (iv) an increase of $0.6 million in amortization of acquired intangible assets; and (v) an increase of $0.4 million for training and travel-related costs; offset by (vi) a decrease of $1.9 million in personnel costs primarily as a result of changes in the components of compensation plans compared to the prior year; and (vii) a decrease of $0.9 million in costs to support the business and related infrastructure, which include allocated overhead costs.
Operating Expenses
The following table sets forth our operating expenses for the periods indicated (in thousands, except percentages):
Nine months ended October 31, Change
2024 2023 $ %
Operating expenses:
Research and development $ 106,878 $ 104,221 $ 2,657 2.5 %
Sales and marketing 148,737 143,155 5,582 3.9 %
General and administrative 78,800 77,547 1,253 1.6 %
Total operating expenses $ 334,415 $ 324,923 $ 9,492 2.9 %
Research and development: Research and development expenses increased driven primarily by: (i) an increase in personnel costs of $3.3 million as a result of increased bonuses and stock-based compensation for research and development employees during the current period; offset by (ii) a decrease of $0.9 million in outside services spend due to higher leverage of internal resources.
Sales and marketing: Sales and marketing expenses increased primarily due to: (i) an increase of $2.7 million in marketing costs for media campaigns in the current period; (ii) an increase in outside consulting services of $2.6 million; (iii) an increase of $2.2 million in training and travel-related costs; and (iv) an increase of $1.6 million in personnel costs, primarily related to an increase in stock-based compensation, commissions, and bonuses; offset by (v) a decrease of $1.6 million in costs to support the business and related infrastructure, which include allocated overhead costs; (vi) a decrease of $1.2 million in other expenses, primarily related to a training event that occurred during the nine months ended October 31, 2023 that did not recur in the current period; and (vii) a decrease of $0.8 million in bad debt expense.
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General and administrative: General and administrative expenses increased primarily due to: (i) an increase of $2.7 million in personnel costs, primarily driven by increased bonuses and stock-based compensation related to general and administrative employees; and (ii) an increase of $1.0 million in outside services costs; offset by (iii) a decrease of $1.3 million in costs primarily related to prior year real estate impairment charges that did not recur in the current period; and (iv) a decrease of $1.2 million in costs related to insurance, business taxes, and licenses.
Non-Operating Expenses
The following table sets forth our non-operating income (expenses) for the periods indicated (in thousands, except percentages):
Nine months ended October 31,
Change
2024 2023
$
%
Interest income
$ 21,408 $ 15,242 $ 6,166 40.5 %
Interest expense
$ (6,888) $ (4,184) $ (2,704) 64.6 %
Gain on partial extinguishment of convertible senior notes $ - $ 3,970 $ (3,970) (100.0) %
Other income (expense), net
$ 212 $ (960) $ 1,172 (122.1) %
(Provision for) benefit from income taxes
$ (1,335) $ 197 $ (1,532) (777.7) %
Interest income: Interest income increased primarily due to higher interest rates and accretion on our cash, cash equivalent and investment balances in the current year.
Interest expense: Interest expense increased primarily due to contractual interest and amortization of debt issuance costs for the 2028 Notes that were issued in October 2023. The increase was partially offset by a decrease in the amortization of debt issuance costs and interest for the 2025 Notes that were partially extinguished in October 2023 and therefore had less of an impact on the current period.
Gain on partial extinguishment of convertible senior notes: During the nine months ended October 31, 2023, the Company recorded a gain on partial extinguishment of convertible senior notes as a result of the October 2023 repurchase of the 2025 Notes. No such gain was recorded during the nine months ended October 31, 2024. Refer to Note 9. Debt and Financing Arrangementsin the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further discussion.
Other income (expense), net: The increase in other income (expense), net was due to fluctuations in foreign currency during the period.
(Provision for) benefit from income taxes: The change in (provision for) benefit from income taxes was primarily driven by foreign, federal, and state income taxes. The provision may fluctuate to the extent the mix of earnings fluctuates between jurisdictions with different tax rates.
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Non-GAAP Financial Measures
In addition to our results determined in accordance with United States generally accepted accounting principles ("U.S. GAAP" or "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.
Specifically, we exclude the following from historical and prospective non-GAAP financial measures, as applicable:
Stock-based compensation: PagerDuty utilizes stock-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of its stockholders and at long-term retention, rather than to address operational performance for any particular period. As a result, stock-based compensation expenses vary for reasons that are generally unrelated to financial and operational performance in any particular period.
Employer taxes related to employee stock transactions: PagerDuty views the amount of employer taxes related to its employee stock transactions as an expense that is dependent on its stock price, employee exercise and other award disposition activity, and other factors that are beyond PagerDuty's control. As a result, employer taxes related to employee stock transactions vary for reasons that are generally unrelated to financial and operational performance in any particular period.
Amortization of acquired intangible assets: PagerDuty views amortization of acquired intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of purchased intangibles is an expense that is not typically affected by operations during any particular period.
Acquisition-related expenses: PagerDuty views acquisition-related expenses, such as transaction costs, acquisition-related retention payments, and acquisition-related asset impairment, as events that are not necessarily reflective of operational performance during a period. In particular, PagerDuty believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods which may or may not include such expenses.
Amortization of debt issuance costs: The imputed interest rates of the Company's convertible senior notes (the "2025 Notes" and the "2028 Notes" or, collectively, the "Notes") was approximately 1.91% for the 2025 Notes and 2.13% for the 2028 Notes. This is a result of the debt issuance costs, which reduce the carrying value of the convertible debt instruments. The debt issuance costs are amortized as interest expense. The expense for the amortization of the debt issuance costs is a non-cash item, and we believe the exclusion of this interest expense will provide for a more useful comparison of our operational performance in different periods.
Restructuring costs: PagerDuty views restructuring costs, such as employee severance-related costs and real estate impairment costs, as events that are not necessarily reflective of operational performance during a period. In particular, PagerDuty believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods which may or may not include such expenses.
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Gains (or losses) on partial extinguishment of convertible senior notes: PagerDuty views gains (or losses) on partial extinguishment of debt as events that are not necessarily reflective of operational performance during a period. PagerDuty believes that the consideration of measures that exclude such gain (or loss) impact can assist in the comparison of operational performance in different periods which may or may not include such gains (or losses).
Adjustment attributable to redeemable non-controlling interest: PagerDuty adjusts the value of redeemable non-controlling interest of its joint venture PagerDuty K.K. according to the operating agreement. PagerDuty believes this adjustment is not reflective of operational performance during a period and exclusion of such adjustments can assist in comparison of operational performance in different periods.
Income tax effects and adjustments: Based on PagerDuty's financial outlook for fiscal 2025, PagerDuty is utilizing a projected non-GAAP tax rate of 23% in order to provide better consistency across the interim reporting periods by eliminating the impact of non-recurring and period specific items, which can vary in size and frequency. PagerDuty's estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that PagerDuty believes materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses and other significant events.
Non-GAAP gross profit and non-GAAP gross margin
We define non-GAAP gross profit as gross profit excluding the following expenses typically included in cost of revenue: 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.
The following table presents the calculation of non-GAAP gross profit and non-GAAP gross margin for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Gross profit $ 98,678 $ 89,015 $ 286,362 $ 262,108
Add:
Stock-based compensation 1,432 1,820 4,696 5,860
Employer taxes related to employee stock transactions 29 21 112 138
Amortization of acquired intangible assets 2,200 2,087 6,875 6,260
Restructuring costs - - (2) 137
Non-GAAP gross profit $ 102,339 $ 92,943 $ 298,043 $ 274,503
Revenue $ 118,946 $ 108,720 $ 346,053 $ 319,582
Gross margin 83.0 % 81.9 % 82.8 % 82.0 %
Non-GAAP gross margin 86.0 % 85.5 % 86.1 % 85.9 %

Non-GAAP operating income and non-GAAP operating margin
We define non-GAAP operating income as loss from operations excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of acquired intangible assets, restructuring costs, and acquisition-related expenses, which include transaction costs, acquisition-related retention payments, and asset impairment, which are not necessarily reflective of operational performance during a given period. We define non-GAAP operating margin as non-GAAP operating income as a percentage of revenue.
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The following table presents the calculation of non-GAAP operating income and non-GAAP operating margin for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Loss from operations $ (10,293) $ (20,842) $ (48,053) $ (62,815)
Add:
Stock-based compensation 31,773 31,828 97,079 94,910
Employer taxes related to employee stock transactions 452 415 1,729 2,315
Amortization of acquired intangible assets 2,832 2,806 8,917 8,417
Acquisition-related expenses 227 691 749 1,014
Restructuring costs - 132 10 1,534
Non-GAAP operating income $ 24,991 $ 15,030 $ 60,431 $ 45,375
Revenue $ 118,946 $ 108,720 $ 346,053 $ 319,582
Operating margin (8.7) % (19.2) % (13.9) % (19.7) %
Non-GAAP operating margin 21.0 % 13.8 % 17.5 % 14.2 %
Non-GAAP net income attributable to PagerDuty, Inc. common stockholders
We define non-GAAP net income attributable to PagerDuty, Inc. common stockholders as net loss attributable to PagerDuty, Inc. common stockholders 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, adjustment attributable to redeemable non-controlling interest, and income tax adjustments, which are not necessarily reflective of operational performance during a given period.
The following table presents the calculation of non-GAAP net income attributable to PagerDuty, Inc. common stockholders for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Net loss attributable to PagerDuty, Inc. common stockholders $ (6,558) $ (15,125) $ (43,856) $ (51,125)
Add:
Stock-based compensation 31,773 31,828 97,079 94,910
Employer taxes related to employee stock transactions 452 415 1,729 2,315
Amortization of debt issuance costs 671 523 1,950 1,456
Amortization of acquired intangible assets 2,832 2,806 8,917 8,417
Acquisition-related expenses 227 691 749 1,014
Restructuring costs - 132 10 1,534
Gain on extinguishment of convertible senior notes - (3,970) - (3,970)
Adjustment attributable to redeemable non-controlling interest 634 2,359 9,881 4,088
Income tax effects and adjustments (6,310) (466) (16,402) (1,920)
Non-GAAP net income attributable to PagerDuty, Inc. common stockholders $ 23,721 $ 19,193 $ 60,057 $ 56,719
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Free cash flow
We define free cash flow as net cash provided by 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. There are a number of limitations related to the use of free cash flow as compared to net cash provided by 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.
The following table presents the calculation of free cash flow for the periods indicated (in thousands):
Three months ended October 31, Nine months ended October 31,
2024 2023 2024 2023
Net cash provided by investing activities $ 22,073 $ 16,917 $ 86,489 $ 49,819
Purchases of property and equipment (552) (245) (1,646) (1,193)
Capitalization of internal-use software costs (2,078) (1,441) (5,019) (3,812)
Free cash flow $ 19,443 $ 15,231 $ 79,824 $ 44,814
Net cash (used in) provided by investing activities $ (3,101) $ 10,887 $ (9,722) $ 6,875
Net cash (used in) provided by financing activities $ (78,118) $ 54,157 $ (113,323) $ 53,661
Liquidity and Capital Resources
Sources and Uses of Liquidity
As of October 31, 2024, our principal sources of liquidity were cash and cash equivalents and investments totaling $542.2 million. We believe that our existing cash and cash equivalents, investments, and net cash generated from our operating activities will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Since inception, we have financed operations primarily through sales of our cloud-hosted software subscriptions, net proceeds received from sales of equity securities, and the issuance of our 2025 Notes and 2028 Notes. We believe we will meet long-term expected future cash requirements and obligations through a combination of cash flows from operating activities and available cash and short-term investment balances.
Debt and Financing Arrangements
Refer to Note 9, Debt and Financing Arrangements, in the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for discussion of our debt arrangements, including the timing of expected maturity of such arrangements.
Deferred Revenue
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 October 31, 2024, we had deferred revenue of $216.7 million, of which $214.1 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 are met.
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Share Repurchase Program
In May 2024, we announced that our Board of Directors approved a share repurchase program (the "2024 Share Repurchase Program") for the repurchase of shares of our common stock in an aggregate amount of up to $100.0 million. The 2024 Share Repurchase Program does not obligate us to acquire a specified number of shares, and may be suspended, modified, or terminated at any time, without prior notice. The repurchases are expected to be executed from time to time through May 2026, subject to general business and market conditions and other investment opportunities, through open market purchases or other legally permissible means, including through Rule 10b5-1 plans. As of October 31, 2024, we had repurchased a total of 5,144,009 shares, and subsequently retired 5,082,593 of those shares. The cost of the remaining 61,416 shares is recorded as treasury stock in the condensed consolidated balance sheets. As of October 31, 2024, $1.5 million of the total amount authorized to be repurchased remained available.
Future Contractual Obligations
Our estimated future obligations as of October 31, 2024 include both current and long-term obligations. Our debt obligations total $450.0 million, of which $57.3 million is short-term, and the remainder is long-term. Additionally, we had $3.5 million of irrevocable standby letters of credit outstanding which were fully collateralized by our restricted cash, all of which represents a long-term cash obligation. Under our operating leases, we had a current obligation of $3.6 million and a long-term obligation of $6.1 million. Operating lease obligations primarily represent the initial contracted term for leases that have commenced as of October 31, 2024, not including any future optional renewal periods.
Cash Flow Information
The following table sets forth our cash flows for the periods indicated (in thousands):
Nine months ended October 31,
2024 2023
$ Change
Net cash provided by operating activities $ 86,489 $ 49,819 $ 36,670
Net cash (used in) provided by investing activities (9,722) 6,875 (16,597)
Net cash (used in) provided by financing activities (113,323) 53,661 (166,984)
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash (109) (451) 342
Net change in cash, cash equivalents, and restricted cash $ (36,665) $ 109,904 $ (146,569)
Operating Activities
Net cash provided by operating activities improved, primarily due to improvements in our operating loss performance due to the 8.3% increase in revenue and the 40.5% increase in interest income. Cash provided by operating activities is subject to variability period-over-period as a result of timing differences, including with respect to the collection of receivables and payments of accounts payable, and other items.
Investing Activities
Net cash used in investing activities increased, primarily due to an increase in capitalized internal-use software costs and a lower ratio of proceeds from maturities of available-for-sale investments relative to purchases of available-for-sale investments.
Financing Activities
Net cash used in financing activities increased, primarily as a result of an increase in repurchases of common stock and net cash inflow activity related to the conversion of our 2025 Notes which occurred during the nine months ended October 31, 2023 and did not recur during the nine months ended October 31, 2024.
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Off-Balance Sheet Arrangements
Indemnification Agreements
See Note 10, Commitments and Contingencies, in the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of our indemnification agreements.
Letters of Credit
We had $3.5 million of irrevocable standby letters of credit outstanding as of October 31, 2024. Letters of credit are primarily used as a form of security deposits for the spaces we lease.
Effect of Exchange Rates
Our changes in cash can be impacted by the effect of fluctuating exchange rates. Foreign exchange had a negative effect on cash in the nine months ended October 31, 2023, decreasing our total cash balance by $0.5 million as of October 31, 2023, and a negative effect on cash in the nine months ended October 31, 2024, decreasing our total cash balance by $0.1 million as of October 31, 2024.
Critical Accounting Estimates
For a description of our critical accounting estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K/A for the year ended January 31, 2024. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K/A for the year ended January 31, 2024.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our market risk from the information provided in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K/A for the year ended January 31, 2024.
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 Quarterly Report on 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.
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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 October 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on 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 on Forma 10-K/A, as amended by the Risk Factors described under "Part I-Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended July 31, 2024.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Unregistered Sales of Equity Securities
None.
Use of Proceeds
None.
Issuer Purchases of Equity Securities
The following table presents information with respect to our repurchases of common stock during the three months ended October 31, 2024:
Period
Total number of shares purchased(1)
Average price paid per share(2)
Total number of shares purchased as part of publicly announced program(1)
Approximate dollar value of shares that may yet be purchased under publicly announced program (in thousands)(1)
August 1 - 31, 2024 1,040,853 $ 19.21 1,040,853 51,968
September 1 - 30, 2024 1,350,809 $ 17.99 1,350,809 27,671
October 1 - 31, 2024 1,439,099 $ 18.22 1,439,099 1,456
Total
3,830,761 3,830,761
(1) In May 2024, our Board of Directors authorized a stock repurchase program of up to $100.0 million of our common stock. Share repurchases under share repurchase program may be made from time to time on the open market, pursuant to Rule 10b5-1 trading plans, or other legally permissible means. The share repurchase program does not obligate us to acquire a specified number of shares, and may be suspended, modified, or terminated at any time, without prior notice. The number of shares to be repurchased will depend on market conditions and other factors. The share repurchase program is expected to continue through May 29, 2026, unless extended or shortened by the Board of Directors. See Note 12, Common Stock and Stockholders' Equityelsewhere this Quarterly Report on Form 10-Q for additional information related to share repurchases.
(2) Average price paid per share excludes cash paid for commissions.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Arrangements
On September 10, 2024, Dan Alexandru Solomon, a member of the Board of Directors, adopted a trading plan for the sale of the Company's common stock that is intended to satisfy the affirmative defense of Rule 10b5-1(c). The trading plan is set to expire on November 21, 2025 and provides for the sale of up to 550,810 shares of common stock, all of which are subject to the Company's stock price reaching certain price thresholds.
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Item 6. Exhibits
The following exhibits are filed as part of this report or hereby incorporated by references to filings previously made with the SEC.
Incorporated by Reference
Exhibit Number
Description Form File No. Exhibit Filing Date Filed or Furnished Herewith
3.1 8-K 001-38856 3.1 April 15, 2019
3.2 8-K 001-38856 3.2 April 15, 2019
31.1
Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1*
Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
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. X
101.SCH XBRL Taxonomy Extension Schema Document. X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X
101.LAB XBRL Taxonomy Extension Label Linkbase Document. X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
X
* 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.
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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.
(registrant)
November 27, 2024
/s/ Jennifer G. Tejada
Date
Jennifer G. Tejada
Chief Executive Officer
(Principal Executive Officer)
November 27, 2024
/s/ Owen Howard Wilson
Date Owen Howard Wilson
Chief Financial Officer
(Principal Financial Officer)
November 27, 2024
/s/ Mitra Rezvan
Date Mitra Rezvan
Senior Vice President, Finance and Chief Accounting Officer
(Principal Accounting Officer)
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