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 ~~July~~October 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38856

PAGERDUTY, INC.

(Exact name of registrant as specified in its charter)

_________________________


Delaware						27-2793871
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

600 Townsend St., Suite 200

San Francisco, CA 94103

(844) 800-3889

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

_________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.000005 par value

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically on its corporate Web site every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

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 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The total number of shares of common stock outstanding as of ~~August 31,~~November 30, 2022, was ~~89,157,841.~~89,975,860.

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PAGERDUTY, INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Part II - OTHER INFORMATION


Item 1	Legal Proceedings	45
Item 1A	Risk Factors	45
Item 2	Unregistered Sale of Equity Securities and Use of Proceeds	48
Item 6	Exhibits	48
	Signatures	50

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Form 10-Q, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which statements involve substantial risk and uncertainties. All statements contained in this Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “likely,” “target,” and similar expressions are intended to identify forward-looking statements.

Forward-looking statement contained in this Form 10-Q include, but are not limited to, statements about our expectations regarding:

•the impact of an economic downturn or recession, rising inflation or significant market volatility in the global economy on our customers, partners, employees and business;

•the effect of uncertainties related to the novel coronavirus and resulting COVID-19 pandemic on U.S. and global markets, our business, operations, revenue results, cash flow, operating expenses, demand for our solutions, sales cycles, customer retention, and our customers’ businesses;

•trends in key business metrics, including number of customers and dollar-based net retention rate, and non-GAAP financial measures and their usefulness in evaluating our business;

•trends in revenue, cost of revenue, and gross margin;

•trends in operating expenses, including research and development, sales and marketing, and general and administrative expense, and expectations regarding these expenses as a percentage of revenue;

•our existing cash and cash equivalents and cash provided by sales of our subscriptions being sufficient to support working capital and capital expenditures for at least the next 12 months;

•our ability to successfully identify, acquire, and integrate complementary companies, technologies, and assets;

•our ability to service the interest on our convertible notes and repay such notes, to the extent required;

•our efforts to maintain proper and effective internal controls;

•our ability to expand our operations and increase adoption of our platform internationally;

•our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

•the increased expenses and administrative workload associated with being a public company; and

•other statements regarding our future operations, financial condition, and prospects and business strategies.

Such forward-looking statements are based on our expectations as of the date of this filing and are subject to a number of risks, uncertainties and assumptions, including but not limited to, risks detailed in the “Risk Factors” section of this Form 10-Q and in our Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission, or the SEC, that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions,

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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 (unaudited)

PAGERDUTY, INC.

Condensed Consolidated Balance Sheets

(in thousands)


		As of July 31, 2022		As of January 31, 2022			As of October 31, 2022		As of January 31, 2022
		(unaudited)					(unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	278,331	$	349,785	Cash and cash equivalents	$	262,333	$	349,785
Investments	Investments	192,464		193,571		Investments	197,104		193,571
Accounts receivable, net of allowance for credit losses of $1,727 and $1,809 as of July 31, 2022 and January 31, 2022, respectively		59,305		75,279
Accounts receivable, net of allowance for credit losses of $1,515 and $1,809 as of October 31, 2022 and January 31, 2022, respectively						Accounts receivable, net of allowance for credit losses of $1,515 and $1,809 as of October 31, 2022 and January 31, 2022, respectively	72,628		75,279
Deferred contract costs, current	Deferred contract costs, current	17,397		16,672		Deferred contract costs, current	18,007		16,672
Prepaid expenses and other current assets	Prepaid expenses and other current assets	12,087		9,777		Prepaid expenses and other current assets	13,545		9,777
Total current assets	Total current assets	559,584		645,084		Total current assets	563,617		645,084
Property and equipment, net	Property and equipment, net	18,502		18,229		Property and equipment, net	18,339		18,229
Deferred contract costs, non-current	Deferred contract costs, non-current	26,211		26,159		Deferred contract costs, non-current	26,968		26,159
Lease right-of-use assets	Lease right-of-use assets	17,925		20,227		Lease right-of-use assets	15,141		20,227
Goodwill	Goodwill	118,862		72,126		Goodwill	118,862		72,126
Intangible assets, net	Intangible assets, net	42,658		23,133		Intangible assets, net	40,029		23,133
Other assets	Other assets	1,021		1,490		Other assets	1,054		1,490
Total assets	Total assets	$	784,763	$	806,448	Total assets	$	784,010	$	806,448
Liabilities, redeemable non-controlling interest, and stockholders’ equity	Liabilities, redeemable non-controlling interest, and stockholders’ equity					Liabilities, redeemable non-controlling interest, and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	6,600	$	9,505	Accounts payable	$	7,692	$	9,505
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	18,268		13,640		Accrued expenses and other current liabilities	12,884		13,640
Accrued compensation	Accrued compensation	28,857		35,327		Accrued compensation	34,955		35,327
Deferred revenue, current	Deferred revenue, current	166,501		162,881		Deferred revenue, current	175,380		162,881
Lease liabilities, current	Lease liabilities, current	5,838		5,637		Lease liabilities, current	6,438		5,637
Total current liabilities	Total current liabilities	226,064		226,990		Total current liabilities	237,349		226,990
Convertible senior notes, net	Convertible senior notes, net	281,984		281,069		Convertible senior notes, net	282,445		281,069
Deferred revenue, non-current	Deferred revenue, non-current	3,033		7,343		Deferred revenue, non-current	4,335		7,343
Lease liabilities, non-current	Lease liabilities, non-current	17,928		20,912		Lease liabilities, non-current	14,155		20,912
Other liabilities	Other liabilities	3,671		3,159		Other liabilities	3,826		3,159
Total liabilities	Total liabilities	532,680		539,473		Total liabilities	542,110		539,473
Commitments and contingencies (Note 12)	Commitments and contingencies (Note 12)					Commitments and contingencies (Note 12)
Redeemable non-controlling interest (Note 3)	Redeemable non-controlling interest (Note 3)	1,811		—		Redeemable non-controlling interest (Note 3)	1,551		—
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock	Common stock	—		—		Common stock	—		—
Additional paid-in capital	Additional paid-in capital	672,126		616,467		Additional paid-in capital	696,169		616,467
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,712)		(669)		Accumulated other comprehensive loss	(3,136)		(669)
Accumulated deficit	Accumulated deficit	(420,142)		(348,823)		Accumulated deficit	(452,684)		(348,823)
Total stockholders’ equity	Total stockholders’ equity	250,272		266,975		Total stockholders’ equity	240,349		266,975
Total liabilities, redeemable non-controlling interest, and stockholders’ equity	Total liabilities, redeemable non-controlling interest, and stockholders’ equity	$	784,763	$	806,448	Total liabilities, redeemable non-controlling interest, and stockholders’ equity	$	784,010	$	806,448

See Notes to 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 July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenue	Revenue	$	90,253	$	67,536	$	175,624	$	131,127	Revenue	$	94,203	$	71,760	$	269,827	$	202,887
Cost of revenue	Cost of revenue	18,367		11,976		34,083		22,394		Cost of revenue	18,007		12,039		52,090		34,433
Gross profit	Gross profit	71,886		55,560		141,541		108,733		Gross profit	76,196		59,721		217,737		168,454
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	34,014		22,909		65,303		43,508		Research and development	35,004		24,554		100,307		68,062
Sales and marketing	Sales and marketing	50,331		40,814		95,883		78,048		Sales and marketing	47,118		40,176		143,001		118,224
General and administrative	General and administrative	25,429		20,294		50,700		36,872		General and administrative	26,616		19,808		77,316		56,680
Total operating expenses	Total operating expenses	109,774		84,017		211,886		158,428		Total operating expenses	108,738		84,538		320,624		242,966
Loss from operations	Loss from operations	(37,888)		(28,457)		(70,345)		(49,695)		Loss from operations	(32,542)		(24,817)		(102,887)		(74,512)
Interest income	Interest income	830		783		1,378		1,601		Interest income	1,382		705		2,760		2,306
Interest expense	Interest expense	(1,387)		(1,378)		(2,712)		(2,695)		Interest expense	(1,360)		(1,350)		(4,072)		(4,045)
Other expense, net	Other expense, net	(364)		(586)		(1,154)		(1,202)		Other expense, net	(172)		(729)		(1,326)		(1,931)
Loss before benefit from (provision for) income taxes		(38,809)		(29,638)		(72,833)		(51,991)
Benefit from (provision for) income taxes		210		(23)		1,414		(228)
Loss before (provision for) benefit from income taxes										Loss before (provision for) benefit from income taxes	(32,692)		(26,191)		(105,525)		(78,182)
(Provision for) benefit from income taxes										(Provision for) benefit from income taxes	(112)		(150)		1,302		(378)
Net loss	Net loss	$	(38,599)	$	(29,661)	$	(71,419)	$	(52,219)	Net loss	$	(32,804)	$	(26,341)	$	(104,223)	$	(78,560)
Net loss attributable to redeemable non-controlling interest	Net loss attributable to redeemable non-controlling interest	(100)		—		(100)		—		Net loss attributable to redeemable non-controlling interest	(262)		—		(362)		—
Net loss attributable to PagerDuty, Inc.	Net loss attributable to PagerDuty, Inc.	$	(38,499)	$	(29,661)	$	(71,319)	$	(52,219)	Net loss attributable to PagerDuty, Inc.	$	(32,542)	$	(26,341)	$	(103,861)	$	(78,560)
Net loss per share, basic and diluted, attributable to PagerDuty, Inc.	Net loss per share, basic and diluted, attributable to PagerDuty, Inc.	$	(0.44)	$	(0.35)	$	(0.81)	$	(0.63)	Net loss per share, basic and diluted, attributable to PagerDuty, Inc.	$	(0.36)	$	(0.31)	$	(1.18)	$	(0.94)
Weighted average shares used in calculating net loss per share, basic and diluted	Weighted average shares used in calculating net loss per share, basic and diluted	88,153		83,895		87,648		83,413		Weighted average shares used in calculating net loss per share, basic and diluted	89,285		85,092		88,200		83,979

See Notes to Condensed Consolidated Financial Statements

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PAGERDUTY, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
Net loss	Net loss	$	(38,599)	$	(29,661)	$	(71,419)	$	(52,219)	Net loss	$	(32,804)	$	(26,341)	$	(104,223)	$	(78,560)
Unrealized loss on investments	Unrealized loss on investments	(54)		(108)		(902)		(312)		Unrealized loss on investments	(1,050)		(222)		(1,952)		(534)
Foreign currency translation adjustments	Foreign currency translation adjustments	(141)		—		(141)		—		Foreign currency translation adjustments	(374)		—		(515)		—
Total comprehensive loss	Total comprehensive loss	$	(38,794)	$	(29,769)	$	(72,462)	$	(52,531)	Total comprehensive loss	$	(34,228)	$	(26,563)	$	(106,690)	$	(79,094)
Less comprehensive loss attributable to redeemable non-controlling interest:	Less comprehensive loss attributable to redeemable non-controlling interest:									Less comprehensive loss attributable to redeemable non-controlling interest:
Net loss attributable to redeemable non-controlling interest	Net loss attributable to redeemable non-controlling interest	(100)		—		(100)		—		Net loss attributable to redeemable non-controlling interest	(262)		—		(362)		—
Foreign currency translation adjustments, attributable to redeemable non-controlling interest	Foreign currency translation adjustments, attributable to redeemable non-controlling interest	3		—		3		—		Foreign currency translation adjustments, attributable to redeemable non-controlling interest	2		—		5		—
Comprehensive loss attributable to redeemable non-controlling interest	Comprehensive loss attributable to redeemable non-controlling interest	(97)		—		(97)		—		Comprehensive loss attributable to redeemable non-controlling interest	(260)		—		(357)		—
Comprehensive loss attributable to PagerDuty, Inc.	Comprehensive loss attributable to PagerDuty, Inc.	$	(38,697)	$	(29,769)	$	(72,365)	$	(52,531)	Comprehensive loss attributable to PagerDuty, Inc.	$	(33,968)	$	(26,563)	$	(106,333)	$	(79,094)

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PAGERDUTY, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)


		Three Months Ended July 31, 2022																		Three Months Ended October 31, 2022
		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Loss			Accumulated Deficit				Total Stockholders’ Equity				Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
		Shares	Amount								Shares								Amount
Balances as of April 30, 2022		87,757,527	$	—			$	639,318						$	(1,517)			$	(381,643)		$	256,158
Balances as of July 31, 2022																			Balances as of July 31, 2022	88,928,089			$	—		$	672,126		$	(1,712)		$	(420,142)		$	250,272
Issuance of common stock upon exercise of stock options	Issuance of common stock upon exercise of stock options	439,346	—		2,785				—			—				2,785			Issuance of common stock upon exercise of stock options	328,471			—		2,137			—			—			2,137
Vesting of restricted stock units, net of employee payroll taxes	Vesting of restricted stock units, net of employee payroll taxes	387,519	—		(6,153)				—			—				(6,153)			Vesting of restricted stock units, net of employee payroll taxes	709,089			—		(9,864)			—			—			(9,864)
Shares issued related to an asset acquisition		62,972	—		—				—			—				—
Issuance of common stock in connection with the Employee Stock Purchase Plan		280,725	—		5,736				—			—				5,736
Other comprehensive loss	Other comprehensive loss	—	—		—				(195)			—				(195)			Other comprehensive loss	—			—		—			(1,424)			—			(1,424)
Stock-based compensation	Stock-based compensation	—	—		30,440				—			—				30,440			Stock-based compensation	—			—		31,770			—			—			31,770
Net loss attributable to PagerDuty, Inc.	Net loss attributable to PagerDuty, Inc.	—	—		—				—			(38,499)				(38,499)			Net loss attributable to PagerDuty, Inc.	—			—		—			—			(32,542)			(32,542)
Balances as of July 31, 2022		88,928,089	$	—	$	672,126			$	(1,712)		$	(420,142)			$	250,272
Balances as of October 31, 2022																			Balances as of October 31, 2022	89,965,649			$	—	$	696,169		$	(3,136)		$	(452,684)		$	240,349


		Six Months Ended July 31, 2022																		Nine Months Ended October 31, 2022
		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Loss			Accumulated Deficit				Total Stockholders’ Equity				Common Stock						Additional Paid-in Capital				Accumulated Other Comprehensive Loss				Accumulated Deficit				Total Stockholders’ Equity
		Shares	Amount								Shares								Amount
Balances as of January 31, 2022	Balances as of January 31, 2022	86,758,380	$	—			$	616,467						$	(669)			$	(348,823)		$	266,975	Balances as of January 31, 2022		86,758,380			$	—			$	616,467			$	(669)			$	(348,823)	$	266,975
Issuance of common stock upon exercise of stock options	Issuance of common stock upon exercise of stock options	1,185,110	—		6,591				—			—				6,591			Issuance of common stock upon exercise of stock options	1,513,581			—				8,728				—				—				8,728
Vesting of restricted stock units, net of employee payroll taxes	Vesting of restricted stock units, net of employee payroll taxes	640,902	—		(12,323)				—			—				(12,323)			Vesting of restricted stock units, net of employee payroll taxes	1,349,991			—			(22,187)				—				—				(22,187)
Shares issued related to an asset acquisition	Shares issued related to an asset acquisition	62,972	—		—				—			—				—			Shares issued related to an asset acquisition	62,972			—			—				—				—				—
Issuance of common stock in connection with the Employee Stock Purchase Plan	Issuance of common stock in connection with the Employee Stock Purchase Plan	280,725	—		5,736				—			—				5,736			Issuance of common stock in connection with the Employee Stock Purchase Plan	280,725			—			5,736				—				—				5,736
Other comprehensive loss	Other comprehensive loss	—	—		—				(1,043)			—				(1,043)			Other comprehensive loss	—			—			—				(2,467)				—				(2,467)
Stock-based compensation	Stock-based compensation	—	—		55,655				—			—				55,655			Stock-based compensation	—			—			87,425				—				—				87,425
Net loss attributable to PagerDuty, Inc.	Net loss attributable to PagerDuty, Inc.	—			—				—			(71,319)				(71,319)			Net loss attributable to PagerDuty, Inc.	—						—				—				(103,861)				(103,861)
Balances as of July 31, 2022		88,928,089	$	—	$	672,126			$	(1,712)		$	(420,142)			$	250,272
Balances as of October 31, 2022																			Balances as of October 31, 2022	89,965,649			$	—		$	696,169			$	(3,136)			$	(452,684)			$	240,349

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		Three Months Ended July 31, 2021																		Three Months Ended October 31, 2021
		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit				Total Stockholders’ Equity				Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
		Shares	Amount								Shares								Amount
Balances as of April 30, 2021		83,595,225	$	—			$	557,843						$	139			$	(263,926)		$	294,056
Balances as of July 31, 2021																			Balances as of July 31, 2021	84,801,124			$	—		$	578,728		$	31		$	(293,587)		$	285,172
Issuance of common stock upon exercise of stock options and restricted stock agreements	Issuance of common stock upon exercise of stock options and restricted stock agreements	749,673	—		5,379				—			—				5,379			Issuance of common stock upon exercise of stock options and restricted stock agreements	724,725			—		4,286			—			—			4,286
Vesting of restricted stock units, net of employee payroll taxes	Vesting of restricted stock units, net of employee payroll taxes	233,752	—		(6,073)				—			—				(6,073)			Vesting of restricted stock units, net of employee payroll taxes	269,436			—		(7,616)			—			—			(7,616)
Issuance of common stock in connection with employee stock purchase plan		222,474	—		4,889											4,889
Other comprehensive loss	Other comprehensive loss	—	—		—				(108)			—				(108)			Other comprehensive loss	—			—		—			(222)			—			(222)
Stock-based compensation	Stock-based compensation	—	—		16,690				—			—				16,690			Stock-based compensation	—			—		18,110			—			—			18,110
Net loss	Net loss	—	—		—				—			(29,661)				(29,661)			Net loss	—			—		—			—			(26,341)			(26,341)
Balances as of July 31, 2021		84,801,124	$	—	$	578,728			$	31		$	(293,587)			$	285,172
Balances as of October 31, 2021																			Balances as of October 31, 2021	85,795,285			$	—	$	593,508		$	(191)		$	(319,928)		$	273,389


		Six Months Ended July 31, 2021																		Nine Months Ended October 31, 2021
		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Loss			Accumulated Deficit				Total Stockholders’ Equity				Common Stock						Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders’ Equity
		Shares	Amount								Shares								Amount
Balances as of January 31, 2021	Balances as of January 31, 2021	82,882,424	$	—			$	614,494						$	343			$	(248,110)		$	366,727	Balances as of January 31, 2021		82,882,424			$	—			$	614,494			$	343			$	(248,110)	$	366,727
Cumulative effect adjustment due to adoption of ASU 2020-06	Cumulative effect adjustment due to adoption of ASU 2020-06	—	—		(68,478)				—			6,742				(61,736)			Cumulative effect adjustment due to adoption of ASU 2020-06	—			—				(68,478)				—				6,742				(61,736)
Issuance of common stock upon exercise of stock options and restricted stock agreements	Issuance of common stock upon exercise of stock options and restricted stock agreements	1,286,266	—		8,222				—			—				8,222			Issuance of common stock upon exercise of stock options and restricted stock agreements	2,010,991			—			12,508				—				—				12,508
Vesting of restricted stock units, net of employee payroll taxes	Vesting of restricted stock units, net of employee payroll taxes	407,887	—		(11,003)				—			—				(11,003)			Vesting of restricted stock units, net of employee payroll taxes	677,323			—			(18,619)				—				—				(18,619)
Shares issued related to a business combination	Shares issued related to a business combination	2,073	—		—				—			—				—			Shares issued related to a business combination	2,073			—			—				—				—				—
Issuance of common stock in connection with employee stock purchase plan	Issuance of common stock in connection with employee stock purchase plan	222,474	—		4,889				—			—				4,889			Issuance of common stock in connection with employee stock purchase plan	222,474			—			4,889				—				—				4,889
Other comprehensive loss	Other comprehensive loss	—	—		—				(312)			—				(312)			Other comprehensive loss	—			—			—				(534)				—				(534)
Stock-based compensation	Stock-based compensation	—	—		30,604				—			—				30,604			Stock-based compensation	—			—			48,714				—				—				48,714
Net loss	Net loss	—	—		—				—			(52,219)				(52,219)			Net loss	—			—			—				—				(78,560)				(78,560)
Balances as of July 31, 2021		84,801,124	$	—	$	578,728			$	31		$	(293,587)			$	285,172
Balances as of October 31, 2021																			Balances as of October 31, 2021	85,795,285			$	—		$	593,508			$	(191)			$	(319,928)			$	273,389

See Notes to Condensed Consolidated Financial Statements

Table of Contents

PAGERDUTY, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


		Six Months Ended July 31,					Nine Months Ended October 31,
		2022		2021			2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net loss attributable to PagerDuty, Inc.	Net loss attributable to PagerDuty, Inc.	$	(71,319)	$	(52,219)	Net loss attributable to PagerDuty, Inc.	$	(103,861)	$	(78,560)
Net loss attributable to redeemable non-controlling interest (Note 3)	Net loss attributable to redeemable non-controlling interest (Note 3)	(100)		—		Net loss attributable to redeemable non-controlling interest (Note 3)	(362)		—
Net loss	Net loss	(71,419)		(52,219)		Net loss	(104,223)		(78,560)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	8,280		4,027		Depreciation and amortization	12,778		6,160
Amortization of deferred contract costs	Amortization of deferred contract costs	9,256		6,812		Amortization of deferred contract costs	14,178		10,651
Amortization of debt issuance costs	Amortization of debt issuance costs	915		898		Amortization of debt issuance costs	1,376		1,350
Stock-based compensation	Stock-based compensation	55,034		30,088		Stock-based compensation	86,478		47,866
Non-cash lease expense	Non-cash lease expense	2,302		2,209		Non-cash lease expense	2,913		3,331
Tax benefit related to release of valuation allowance	Tax benefit related to release of valuation allowance	(1,330)		—		Tax benefit related to release of valuation allowance	(1,330)		—
Other	Other	1,810		1,695		Other	1,686		2,592
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	16,521		6,473		Accounts receivable	3,048		360
Deferred contract costs	Deferred contract costs	(10,033)		(9,485)		Deferred contract costs	(16,323)		(16,842)
Prepaid expenses and other assets	Prepaid expenses and other assets	(1,510)		(2,762)		Prepaid expenses and other assets	(2,934)		(857)
Accounts payable	Accounts payable	(2,226)		1,179		Accounts payable	(1,117)		3,836
Accrued expenses and other liabilities	Accrued expenses and other liabilities	3,243		3,373		Accrued expenses and other liabilities	(1,350)		(79)
Accrued compensation	Accrued compensation	(6,658)		(3,830)		Accrued compensation	(624)		3,760
Deferred revenue	Deferred revenue	(1,546)		4,030		Deferred revenue	8,635		12,878
Lease liabilities	Lease liabilities	(2,783)		(2,504)		Lease liabilities	(3,783)		(3,812)
Net cash used in operating activities	Net cash used in operating activities	(144)		(10,016)		Net cash used in operating activities	(592)		(7,366)
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Purchases of property and equipment	Purchases of property and equipment	(2,940)		(1,291)		Purchases of property and equipment	(3,755)		(1,376)
Capitalization of internal-use software costs	Capitalization of internal-use software costs	(1,737)		(1,917)		Capitalization of internal-use software costs	(2,725)		(2,701)
Business acquisition, net of cash acquired	Business acquisition, net of cash acquired	(66,262)		(160)		Business acquisition, net of cash acquired	(66,262)		(160)
Asset acquisition	Asset acquisition	(1,845)		—		Asset acquisition	(1,845)		—
Purchases of available-for-sale investments	Purchases of available-for-sale investments	(95,468)		(116,103)		Purchases of available-for-sale investments	(155,310)		(150,608)
Proceeds from maturities of available-for-sale investments	Proceeds from maturities of available-for-sale investments	95,200		116,150		Proceeds from maturities of available-for-sale investments	149,625		156,616
Proceeds from sales of available-for-sale investments	Proceeds from sales of available-for-sale investments	—		27,380		Proceeds from sales of available-for-sale investments	—		27,380
Net cash (used in) provided by investing activities	Net cash (used in) provided by investing activities	(73,052)		24,059		Net cash (used in) provided by investing activities	(80,272)		29,151
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Investment from redeemable non-controlling interest holder	Investment from redeemable non-controlling interest holder	1,908		—		Investment from redeemable non-controlling interest holder	1,908		—
Proceeds from employee stock purchase plan	Proceeds from employee stock purchase plan	5,736		4,889		Proceeds from employee stock purchase plan	5,736		4,889
Proceeds from issuance of common stock upon exercise of stock options	Proceeds from issuance of common stock upon exercise of stock options	6,560		7,430		Proceeds from issuance of common stock upon exercise of stock options	8,459		12,517
Employee payroll taxes paid related to net share settlement of restricted stock units	Employee payroll taxes paid related to net share settlement of restricted stock units	(12,323)		(11,003)		Employee payroll taxes paid related to net share settlement of restricted stock units	(22,187)		(18,619)
Net cash provided by financing activities		1,881		1,316
Net cash used in financing activities						Net cash used in financing activities	(6,084)		(1,213)
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash	Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash	(139)		—		Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash	(504)		—
Net (decrease) increase in cash, cash equivalents, and restricted cash	Net (decrease) increase in cash, cash equivalents, and restricted cash	(71,454)		15,359		Net (decrease) increase in cash, cash equivalents, and restricted cash	(87,452)		20,572
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	349,785		339,166		Cash, cash equivalents, and restricted cash at beginning of period	349,785		339,166
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	278,331	$	354,525	Cash, cash equivalents, and restricted cash at end of period	$	262,333	$	359,738

Supplemental cash flow data:	Supplemental cash flow data:					Supplemental cash flow data:
Cash paid for income taxes	Cash paid for income taxes	$	25	$	72	Cash paid for income taxes	$	130	$	126
Cash paid for interests	Cash paid for interests	$	1,797	$	1,797	Cash paid for interests	$	1,797	$	1,797
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Purchase of property and equipment, accrued but not yet paid	Purchase of property and equipment, accrued but not yet paid	$	1,414	$	402	Purchase of property and equipment, accrued but not yet paid	$	828	$	823
Stock-based compensation capitalized in internal use software	Stock-based compensation capitalized in internal use software	$	622	$	516	Stock-based compensation capitalized in internal use software	$	947	$	848
Bonuses capitalized in internal use software	Bonuses capitalized in internal use software	$	188	$	—	Bonuses capitalized in internal use software	$	263	$	121
Receivables for cash in-transit on stock options	Receivables for cash in-transit on stock options	$	30	$	792	Receivables for cash in-transit on stock options	$	269	$	9

See Notes to Condensed Consolidated Financial Statements

Table of Contents

PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Description of Business and Basis of Presentation

Description of Business

PagerDuty, Inc. was incorporated under the laws of the state of Delaware in May 2010.

PagerDuty is a digital operations management platform that manages urgent and mission-critical work for a modern, digital business. PagerDuty collects data and digital signals from virtually any software-enabled system or device and leverages powerful machine learning to correlate, process, and predict opportunities and issues. Using incident response, event management, and automation, the Company brings together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are.

As used herein, “PagerDuty”, “we”, “our”, “the Company” and similar terms include PagerDuty, Inc., unless the context indicates otherwise.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated balance sheet as of January 31, 2022 was derived from the audited consolidated financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended January 31, 2022, included in the Company’s Annual Report on Form 10-K, filed with the SEC.

The condensed consolidated financial statements include the results of the Company, its wholly owned subsidiaries, and subsidiaries in which the Company holds a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of the Company’s financial position, results of operations and comprehensive loss, statements of stockholders’ equity, and cash flows. The results of operations for the three and ~~six~~nine months ended ~~July~~October 31, 2022 are not necessarily indicative of the results to be expected for the full year ending January 31, 2023 or for any other interim period, or for any future year.

The Company’s fiscal year ends on January 31. References to fiscal 2023, for example, refer to the fiscal year ending January 31, 2023.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s most significant estimates and judgments involve the period of benefit for amortizing deferred contract costs, the determination of the allowance for credit losses, the provision for income taxes, including the related valuation allowance and any uncertain tax positions, fair value of acquired assets and assumed liabilities, impairment of goodwill and intangible assets, and estimates related to our revenue recognition, such as the assessment of

Table of Contents

PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

performance obligations in our 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.

Foreign Currency Translations

The functional currency for the large majority of the Company's foreign operations is the U.S. dollar, although the Company ~~had~~has one subsidiary use the local currency as its functional currency for the three and ~~six~~nine months ended ~~July~~October 31, 2022. When a consolidated entity’s functional currency is the local currency, the Company translates the foreign functional currency financial statements to U.S. dollars using the exchange rates at the balance sheet date for assets and liabilities, the period average exchange rates for revenues and expenses, and the historical exchange rates for equity.

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 and cash equivalents and investments are invested in money market funds, U.S. Treasury securities, commercial paper, corporate debt securities, or U.S. Government agency securities that management believes to be of high credit quality.

No single customer accounted for 10% of the total accounts receivable balance as of ~~July~~October 31, 2022 or January 31, 2022. No single customer represented 10% or more of revenue for the three and ~~six~~nine months ended ~~July~~October 31, 2022 or 2021.

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 1 7 ,17, “Geographic Information” for information regarding the Company's long-lived assets and revenue by geography.

Related Party Transaction

Certain members of the Company’s Board of Directors serve as directors of, or are executive officers of, and in some cases are investors in, companies that are customers or vendors of the Company. The Company ~~recognized $1.3~~billed $1.6 million ~~in accounts receivable associated with related parties as of July 31, 2022~~ and ~~billed $2.5~~$2.2 million to entities associated with related parties during the ~~six~~nine months ended ~~July~~October 31, ~~2022.~~2022 and 2021, respectively. The Company recognized $1.1 million of revenue associated with related parties during the nine months ended October 31, 2021. Other related party transactions were not material for the three and ~~six~~nine months ended ~~July~~October 31, 2022 and 2021.

Significant Accounting Policies

There have been no significant changes to our significant accounting policies as compared to those described in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022 other than as set forth below.

Redeemable Non-Controlling Interest

During the quarter ended July 31, 2022, the Company established a joint venture with Japan Cloud Computing II L.P. (the “Investor”) in Japan (“PagerDuty K.K.”), which is a variable interest entity, obtaining a 51% controlling interest. The Company has consolidated the financial results of the joint venture.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 estimated redemption value. 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. There were no adjustments attributable to redeemable non-controlling interest in the three and ~~six~~nine months ended ~~July~~October 31, 2022.

Recently Adopted Accounting Pronouncements

In March 2022, the FASB issued Accounting Standard Update No. 2022-01 (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with Customers). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU is part of the FASB's simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The Company early adopted ASU 2022-01 as of February 1, 2022 using the prospective method. The adoption of the standard impacted the accounting for the acquisition of Catalytic, Inc. (“Catalytic”) requiring the Company to measure acquired contract assets and liabilities in accordance with ASC 606. The adoption of ASU 2021-08 did not have a material impact on the condensed consolidated financial statements.

3. Redeemable Non-Controlling Interest

In May 2022, the Company established a joint venture, PagerDuty K.K, which is a variable interest entity. The Company obtained a 51% controlling interest and has consolidated the financial results of the joint venture.

The following table summarizes the activity in the redeemable non-controlling interest for the period indicated below:


	~~July 31,~~
	~~2022~~
	~~(in thousands)~~
~~Balance at beginning of period~~	$	—
~~Investment by redeemable non-controlling interest~~	~~1,908~~
~~Net loss attributable to redeemable non-controlling interest~~	~~(100)~~
~~Foreign currency translation adjustments~~	3
~~Balance at end of period~~	$	~~1,811~~


	Three Months Ended October 31, 2022		Nine Months Ended October 31, 2022
	(in thousands)
Balance at beginning of period	$	1,811	$	—
Investment by redeemable non-controlling interest	—		1,908
Net loss attributable to redeemable non-controlling interest	(262)		(362)
Foreign currency translation adjustments	2		5
Balance at end of period	$	1,551	$	1,551

4. Cash, Cash Equivalents, and Investments

Cash, cash equivalents, and investments consisted of the following:

Table of Contents

PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)


		As of July 31, 2022		As of January 31, 2022			As of October 31, 2022		As of January 31, 2022
		(in thousands)					(in thousands)
Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Cash	Cash	$	142,170	$	268,091	Cash	$	118,604	$	268,091
Money market funds	Money market funds	132,182		73,194		Money market funds	141,730		73,194
Commercial paper	Commercial paper	—		5,500		Commercial paper	1,999		5,500
U.S. Treasury securities	U.S. Treasury securities	3,979		3,000		U.S. Treasury securities	—		3,000
Total cash and cash equivalents	Total cash and cash equivalents	$	278,331	$	349,785	Total cash and cash equivalents	$	262,333	$	349,785
Available-for-sale investments:	Available-for-sale investments:					Available-for-sale investments:
U.S. Treasury securities	U.S. Treasury securities	$	42,727	$	41,105	U.S. Treasury securities	$	50,569	$	41,105
Commercial paper	Commercial paper	41,906		39,483		Commercial paper	31,638		39,483
Corporate debt securities	Corporate debt securities	105,824		112,983		Corporate debt securities	108,964		112,983
U.S. Government agency securities	U.S. Government agency securities	2,007		—		U.S. Government agency securities	5,933		—
Total available-for-sale investments	Total available-for-sale investments	$	192,464	$	193,571	Total available-for-sale investments	$	197,104	$	193,571

The following tables summarize the Company’s investments’ adjusted cost, net unrealized losses, and fair value by significant investment category as of ~~July~~October 31, 2022 and January 31, 2022. Gross realized gains or losses from sales of available-for-sale securities were not material for the three and ~~six~~nine months ended ~~July~~October 31, 2022.


		As of July 31, 2022							As of October 31, 2022
		Cost Basis		Unrealized (Loss) Gain, Net		Recorded Basis			Cost Basis		Unrealized Loss		Recorded Basis
		(in thousands)							(in thousands)
Available-for-sale investments:	Available-for-sale investments:							Available-for-sale investments:
U.S. Treasury securities	U.S. Treasury securities	$	42,868	$	(141)	$	42,727	U.S. Treasury securities	$	50,685	$	(116)	$	50,569
Commercial paper	Commercial paper	42,134		(228)		41,906		Commercial paper	31,918		(280)		31,638
Corporate debt securities	Corporate debt securities	107,035		(1,211)		105,824		Corporate debt securities	111,124		(2,160)		108,964
U.S. Government agency securities	U.S. Government agency securities	1,998		9		2,007		U.S. Government agency securities	5,998		(65)		5,933
Total available-for-sale investments	Total available-for-sale investments	$	194,035	$	(1,571)	$	192,464	Total available-for-sale investments	$	199,725	$	(2,621)	$	197,104


	As of January 31, 2022
	Cost Basis		Unrealized Loss, Net		Recorded Basis
	(in thousands)
Available-for-sale investments:
U.S. Treasury securities	$	41,147	$	(42)	$	41,105
Commercial paper	39,528		(45)		39,483
Corporate debt securities	113,565		(582)		112,983
Total available-for-sale investments	$	194,240	$	(669)	$	193,571

The following tables present the Company’s available-for-sale securities by contractual maturity date as of ~~July~~October 31, 2022 and January 31, 2022:

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)


		As of July 31, 2022					As of October 31, 2022
		Cost Basis		Recorded Basis			Cost Basis		Recorded Basis
		(in thousands)					(in thousands)
Due within one year	Due within one year	$	156,367	$	155,207	Due within one year	$	150,320	$	148,732
Due between one to five years	Due between one to five years	37,668		37,257		Due between one to five years	49,405		48,372
Total	Total	$	194,035	$	192,464	Total	$	199,725	$	197,104


	As of January 31, 2022
	Cost Basis		Recorded Basis
	(in thousands)
Due within one year	$	154,692	$	154,455
Due between one to five years	39,548		39,116
Total	$	194,240	$	193,571

As of ~~July~~October 31, 2022, there were 7592 available-for-sale securities in an unrealized loss position, ~~twenty-three~~27 of which were in a continuous unrealized loss position for the last 12 months. The total unrealized loss related to the ~~twenty-three~~27 securities was ~~$0.5~~$1.0 million. As of January 31, 2022, there were 69 available-for-sale securities in an unrealized loss position, seven of which were in a continuous unrealized loss position for the last 12 months. The total unrealized loss related to the seven securities was $0.7 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.

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:

Table of Contents

PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)


		As of July 31, 2022									As of October 31, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(in thousands)									(in thousands)
Money market funds	Money market funds	$	132,182	$	—	$	—	$	132,182	Money market funds	$	141,730	$	—	$	—	$	141,730
U.S. Treasury securities	U.S. Treasury securities	3,979		42,727		—		46,706		U.S. Treasury securities	—		50,569		—		50,569
Commercial paper	Commercial paper	—		41,906		—		41,906		Commercial paper	1,999		31,638		—		33,637
Corporate debt securities	Corporate debt securities	—		105,824		—		105,824		Corporate debt securities	—		108,964		—		108,964
U.S. Government agency securities	U.S. Government agency securities	—		2,007		—		2,007		U.S. Government agency securities	—		5,933		—		5,933
Total	Total	$	136,161	$	192,464	$	—	$	328,625	Total	$	143,729	$	197,104	$	—	$	340,833
Included in cash equivalents	Included in cash equivalents							$	136,161	Included in cash equivalents							$	143,729
Included in investments	Included in investments							$	192,464	Included in investments							$	197,104


	As of January 31, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)
Money market funds	$	73,194	$	—	$	—	$	73,194
U.S. Treasury securities	3,000		41,105		—		44,105
Commercial paper	5,500		39,483		—		44,983
Corporate debt securities	—		112,983		—		112,983
Total	$	81,694	$	193,571	$	—	$	275,265
Included in cash equivalents							$	81,694
Included in investments							$	193,571

The Company’s assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy.

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of ~~July~~October 31, 2022 and January 31, 2022, the Company’s Level 2 securities were priced by pricing vendors. These pricing vendors utilize observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities.

The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable approximate fair value due to their short-term maturities and are excluded from the fair value table above.

Convertible Senior Notes

As of ~~July~~October 31, 2022, the estimated fair value of our 1.25% Convertible Senior Notes due 2025 (the “Notes”) was approximately ~~$283.9~~$282.6 million. The fair value was determined based on the quoted price for the Notes in an inactive market on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

6. Business Combinations

On March 8, 2022, the Company completed the acquisition of Catalytic, a provider of a no-code/low-code workflow automation application. The Company acquired Catalytic for purchase consideration of $68.8 million in cash. The acquisition was accounted for as a business combination and the acquired assets and liabilities were recorded at their preliminary fair values on the acquisition date and any excess was recorded as goodwill. The values

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of ~~July~~October 31, 2022, the primary area that remains preliminary relates to the valuation of certain tax-related items.

The following table presents the preliminary fair values of acquired assets and liabilities recorded in the Company’s condensed consolidated balance sheet as of the acquisition date:


	(in thousands)
Cash and cash equivalents	$	2,506
Accounts receivable and other assets	801
Prepaid and other current assets	841
Intangible assets	21,800
Goodwill	~~46,737~~46,736
Accounts payable and other liabilities	~~(409)~~(408)
Deferred revenue	(856)
Other tax liabilities	(1,322)
Deferred tax liability	(1,330)
Total purchase consideration	$	68,768

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings. Goodwill is not deductible for income tax purposes.

In connection with the acquisition, the Company recognized a net deferred tax liability for approximately $1.3 million, generated primarily from the difference between the tax basis and fair value of the acquired intangible assets, which increased goodwill. As the Company has a full valuation allowance as of ~~July~~October 31, 2022, the Company recorded an income tax benefit for this net deferred tax liability in the condensed consolidated statement of operations for the ~~six~~nine months ended ~~July~~October 31, 2022. Refer to Note 1 6 ,16, "Income Taxes", for further information.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:


	Fair Value		Useful Life
	(in thousands)		(in years)
Developed technology	$	19,200	3
Customer relationships	$	2,600	10

This business combination resulted in increases of $46.7 million to goodwill, $19.2 million to developed technology and $2.6 million to customer relationships. The Company also entered into holdback agreements with the two founders of Catalytic with $3.4 million held back in cash which are subject to the recipients’ continued service with the Company and thus excluded from the purchase price and will be recognized ratably as research and development expense over the required two-year service period.

From the date of the acquisition, the financial results of Catalytic have been included in and are immaterial to the Company’s condensed consolidated financial statements. Pro forma revenue and results of operations have not been presented because the historical results are not material to the condensed consolidated financial statements in any period presented.

~~The Company did not complete any other business combinations in the three and six months ended July 31, 2022.~~

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company did not complete any other business combinations in the three and nine months ended October 31, 2022.

7. Goodwill and Acquired Intangible Assets

The changes in the carrying amount of goodwill for the ~~six~~nine months ended ~~July~~October 31, 2022 are as follows:


	Goodwill
	(in thousands)
Balance as of January 31, 2022	$	72,126
Goodwill resulting from business combination	46,736
Balance as of ~~July~~October 31, 2022	$	118,862

Acquired intangible assets subject to amortization consist of the following:


		As of July 31, 2022								As of October 31, 2022
		Cost		Accumulated Amortization		Net		Weighted Average Remaining Useful Life		Cost		Accumulated Amortization		Net		Weighted Average Remaining Useful Life
		(in thousands)						(in years)		(in thousands)						(in years)
Customer relationships	Customer relationships	$	24,400	$	(4,099)	$	20,301	8.4	Customer relationships	$	24,400	$	(4,709)	$	19,691	8.1
Developed technology	Developed technology	24,800		(4,582)		20,218		3.3	Developed technology	24,800		(6,462)		18,338		2.5
Trademarks	Trademarks	400		(367)		33		0.2	Trademarks	400		(400)		—		0.0
Assembled workforce	Assembled workforce	2,527		(421)		2,106		0.8	Assembled workforce	2,527		(527)		2,000		1.6
Total acquired intangibles, net	Total acquired intangibles, net	$	52,127	$	(9,469)	$	42,658		Total acquired intangibles, net	$	52,127	$	(12,098)	$	40,029


	As of January 31, 2022
	Cost		Accumulated Amortization		Net		Weighted Average Remaining Useful Life
	(in thousands)						(in years)
Customer relationships	$	21,800	$	(2,907)	$	18,893	8.7
Developed technology	5,600		(1,493)		4,107		3.7
Trademarks	400		(267)		133		0.7
Total acquired intangibles, net	$	27,800	$	(4,667)	$	23,133

For the three months ended ~~July~~October 31, 2022 and 2021, amortization expense related to intangible assets was ~~$3.0~~$2.6 million and $0.9 million, respectively. For the ~~six~~nine months ended ~~July~~October 31, 2022 and 2021, amortization expense related to acquired intangible assets was ~~$4.8~~$7.4 million and ~~$1.8~~$2.6 million, respectively.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

8. Property and Equipment, Net

Property and equipment, net, consisted of the following:


		As of July 31, 2022		As of January 31, 2022			As of October 31, 2022		As of January 31, 2022
		(in thousands)					(in thousands)
Leasehold improvements	Leasehold improvements	$	15,591	$	15,392	Leasehold improvements	$	15,599	$	15,392
Computers and equipment	Computers and equipment	9,018		7,483		Computers and equipment	9,168		7,483
Furniture and fixtures	Furniture and fixtures	4,708		4,686		Furniture and fixtures	4,774		4,686
Capitalized internal-use software	Capitalized internal-use software	8,000		6,136		Capitalized internal-use software	9,389		6,136
Gross property and equipment (1)	Gross property and equipment (1)	37,317		33,697		Gross property and equipment (1)	38,930		33,697
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(18,815)		(15,468)		Accumulated depreciation and amortization	(20,591)		(15,468)
Property and equipment, net	Property and equipment, net	$	18,502	$	18,229	Property and equipment, net	$	18,339	$	18,229

(1) Gross property and equipment includes construction-in-progress for leasehold improvements and capitalized internal-use software of ~~$3.2~~$4.6 million and $6.9 million that had not yet been placed in service as of ~~July~~October 31, 2022 and January 31, 2022, respectively. The costs associated with construction-in-progress are not amortized until the asset is available for its intended use.

Depreciation and amortization expense was ~~$1.6~~$1.8 million and ~~$1.1~~$1.3 million for the three months ended ~~July~~October 31, 2022 and 2021, respectively. Depreciation and amortization expense was ~~$3.3~~$5.1 million and ~~$2.1~~$3.4 million for the ~~six~~nine months ended ~~July~~October 31, 2022 and 2021, respectively.

In the ~~six~~nine months ended ~~July~~October 31, 2022, the Company recorded an impairment charge of $0.7 million on its capitalized internal-use software included in construction-in-progress. It was determined that the developed technology would not be placed in service as the technology was replaced with the acquired technology of Catalytic.

9. Deferred Contract Costs

Deferred contract costs, which primarily consist of deferred sales commissions, were ~~$43.6~~$45.0 million and $42.8 million as of ~~July~~October 31, 2022 and January 31, 2022, respectively. Amortization expense for deferred contract costs was ~~$4.8~~$4.9 million and ~~$3.6~~$3.9 million for the three months ended ~~July~~October 31, 2022 and 2021, respectively. Amortization expense for deferred contract costs was ~~$9.3~~$14.2 million and ~~$6.8~~$10.7 million for the ~~six~~nine months ended ~~July~~October 31, 2022 and 2021, respectively. There was no impairment charge related to the costs capitalized for the periods presented.

10. Leases

Operating Leases

The Company has entered into various non-cancellable operating leases for its office spaces with lease periods expiring between fiscal 2023 and fiscal 2029. The operating lease agreements generally provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised.

Lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease right-of-use assets also include any lease payments made and exclude lease incentives such as tenant improvement allowances.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The operating leases typically include non-lease components such as common-area maintenance costs. The Company has elected to include non-lease components with lease payments for the purpose of calculating lease right-of-use assets and liabilities, to the extent that they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments.

Leases with a term of one year or less are not recognized on our condensed consolidated balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The following table presents information about leases on the condensed consolidated balance sheet.


		As of July 31, 2022		As of January 31, 2021			As of October 31, 2022		As of January 31, 2021
		(in thousands)					(in thousands)
Assets	Assets					Assets
Lease right-of-use assets	Lease right-of-use assets	$	17,925	$	20,227	Lease right-of-use assets	$	15,141	$	20,227
Liabilities	Liabilities					Liabilities
Lease liabilities	Lease liabilities	5,838		5,637		Lease liabilities	6,438		5,637
Lease liabilities, non-current	Lease liabilities, non-current	17,928		20,912		Lease liabilities, non-current	14,155		20,912

As of ~~July~~October 31, 2022, the weighted average remaining lease term was ~~4.4~~3.9 years and the weighted average discount rate used to determine the net present value of the lease liabilities was 3.7%.

The following table presents information about leases on the condensed consolidated statement of operations.


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Operating lease expense	Operating lease expense	$	1,399	$	1,403	$	2,922	$	2,772	Operating lease expense	$	1,371	$	1,401	$	4,293	$	4,173
Short-term lease expense	Short-term lease expense	498		79		858		169		Short-term lease expense	484		304		1,342		473
Variable lease expense	Variable lease expense	358		202		672		315		Variable lease expense	285		313		957		628

The following table presents supplemental cash flow information about the Company’s leases.

Three Months Ended July 31, Six Months Ended July 31,
2022 2021 2022 2021
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities $ 1,621 $ 1,571 $ 3,239 $ 3,143


	Three Months Ended October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	1,601	$	1,581	$	4,840	$	4,724

11. Debt and Financing Arrangements

Convertible Senior Notes

On June 25, 2020, the Company issued $287.5 million in aggregate principal amount of the Notes in a private offering pursuant to an Indenture dated June 25, 2020 (the “Indenture”). The total net proceeds from the debt offering, after deducting initial purchaser discounts and debt issuance costs, paid or payable by us, were $278.2 million.

The Notes are senior, unsecured obligations of the Company and accrue interest payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2021, at a rate of 1.25% per year. The Notes will mature on July 1, 2025, unless such notes are converted, redeemed or repurchased earlier. The Notes are

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election in the manner and subject to the terms and conditions provided in the Indenture.

Holders of the Notes may convert all or any portion of their Notes at their option at any time prior to the close of business on April 1, 2025, only under the following circumstances:

•During any fiscal quarter commencing after the fiscal quarter ended October 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•During the five business day period after any ten consecutive trading day period (the measurement period) in which the “trading price” (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

•If the Company calls such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

•Upon the occurrence of specified corporate events, as noted in the Indenture.

On or after April 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Notes may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances.

The conversion rate will initially be 24.9507 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $40.08 per share of common stock. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture, but will not be adjusted for accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with a fundamental change, as defined in the Indenture.

The Company may not redeem the Notes prior to July 6, 2023. The Company may redeem for cash all or any portion of the Notes, at its option, on a redemption date occurring on or after July 6, 2023 and prior to the 41st scheduled trading day immediately preceding the maturity date, if the last reported sale price of the common stock has been at least 130% of the conversion price for the Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.

If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, the trustee or the holders of at least 25% in aggregate principal amount of the outstanding Notes may declare the entire principal of all the Notes plus accrued and unpaid interest to be immediately due and payable.

The Company accounts for the Notes as a single liability in accordance with ASU 2020-06 “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”.

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PAGERDUTY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~In accounting for the Notes after adoption of ASU 2020-06, the Notes are accounted for as a single liability, and the~~The carrying amount of the Notes is ~~$282.0~~$282.4 million as of ~~July~~October 31, 2022, with principal of $287.5 million, net of unamortized issuance costs of ~~$5.5~~$5.1 million. The Notes were classified as long-term liabilities as of ~~July~~October 31, 2022. The issuance costs related to the Notes are being amortized to interest expense over the contractual term of the Notes at an effective interest rate of 1.93%.

The net carrying amount of the Notes as of ~~July~~October 31, 2022 and as of January 31, 2022 was as follows:


		As of July 31, 2022		As of January 31, 2022			As of October 31, 2022		As of January 31, 2022
		(in thousands)					(in thousands)
Principal	Principal	$	287,500	$	287,500	Principal	$	287,500	$	287,500
Less: unamortized issuance costs	Less: unamortized issuance costs	(5,516)		(6,431)		Less: unamortized issuance costs	(5,055)		(6,431)
Net carrying amount	Net carrying amount	$	281,984	$	281,069	Net carrying amount	$	282,445	$	281,069

Interest expense recognized related to the Notes is as follows:


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Contractual interest expense	Contractual interest expense	$	919	$	918	$	1,797	$	1,797	Contractual interest expense	$	899	$	898	$	2,696	$	2,695
Amortization of debt issuance costs	Amortization of debt issuance costs	468		460		915		898		Amortization of debt issuance costs	461		452		1,376		1,350
Total interest expense related to the Notes	Total interest expense related to the Notes	$	1,387	$	1,378	$	2,712	$	2,695	Total interest expense related to the Notes	$	1,360	$	1,350	$	4,072	$	4,045

Capped Call Transactions

In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions (the “Capped Calls”) with certain financial institution counterparties (the “Option Counterparties”). The Capped Calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. The Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $35.7 million incurred to purchase the Capped Calls were recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheet.

The Capped Calls each have an initial strike price of approximately $40.08 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of $61.66 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 7.2 million shares of our common stock. The Capped Calls are subject to automatic exercise over a 40 trading day period commencing on May 2, 2025, subject to earlier termination under certain circumstances.

12. 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 accrues estimates for resolution of legal and other contingencies when losses are probable and estimable. The outcomes of legal proceedings are subject to significant uncertainties. The Company is not currently a party to any pending legal proceedings for which management believes the outcome, individually or in the aggregate, would have a material adverse effect on its business, operating results, cash flows, or financial condition.

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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 and comprehensive loss, or consolidated statements of cash flows.

13. Deferred Revenue and Performance Obligations

The following table presents the changes to the Company’s deferred revenue:


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Deferred revenue, beginning of period	Deferred revenue, beginning of period	$	167,309	$	126,056	$	170,224	$	129,972	Deferred revenue, beginning of period	$	169,534	$	134,002	$	170,224	$	129,972
Billings	Billings	92,478		75,482		174,078		135,157		Billings	104,384		80,608		278,462		215,765
Deferred revenue assumed in the Catalytic acquisition	Deferred revenue assumed in the Catalytic acquisition	—		—		856		—		Deferred revenue assumed in the Catalytic acquisition	—		—		856		—
Revenue recognized	Revenue recognized	(90,253)		(67,536)		(175,624)		(131,127)		Revenue recognized	(94,203)		(71,760)		(269,827)		(202,887)
Deferred revenue, end of period	Deferred revenue, end of period	$	169,534	$	134,002	$	169,534	$	134,002	Deferred revenue, end of period	$	179,715	$	142,850	$	179,715	$	142,850

For the three ~~and six~~ months ended ~~July~~October 31, 2022 and 2021, the majority of revenue recognized was from the deferred revenue balances at the beginning of each quarter. For the nine months ended October 31, 2022 and 2021, approximately half of revenue recognized was from the deferred revenue balance at the beginning of the period.

As of ~~July~~October 31, 2022, future estimated revenue related to performance obligations for cloud-hosted and term-license software subscriptions with terms of more than one year that are unsatisfied or partially unsatisfied at the end of the reporting periods was approximately ~~$166.2~~$174.3 million. The Company expects to satisfy the substantial majority of these unsatisfied performance obligations over the next 24 months and the remainder thereafter. The Company applied the optional exemption for subscriptions with terms of less than one year.

14. Common Stock and Stockholders’ Equity

Equity Incentive Plans

The Company has two equity incentive plans: the 2010 Stock Plan (the “2010 Plan”) and the 2019 Equity Incentive Plan (the “2019 Plan”, collectively the “Stock Plans”). Upon completion of the Company’s initial public offering (“IPO”) in April 2019, the Company ceased granting awards under the 2010 Plan, and all shares that remained available for future issuance under the 2010 Plan at that time were transferred to the 2019 Plan. The 2019 Plan superseded and replaced the 2010 Plan. As of ~~July~~October 31, 2022 and January 31, 2022, the Company was

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authorized to grant up to ~~28,197,243~~28,626,857 shares and 23,343,378 shares of common stock, respectively, under the Stock Plans.

~~Table of Contents~~

The Company currently uses authorized and unissued shares to satisfy stock award exercises and settlement of RSUs and PSUs. As of ~~July~~October 31, 2022 and January 31, 2022, there were ~~13,169,290~~13,340,710 shares and 14,185,048 shares available for future issuance under the Stock Plans, respectively.

Shares of common stock reserved for future issuance are as follows:


			~~July~~October 31, 2022
Outstanding stock options and unvested RSUs and PSUs			~~18,175,806~~16,970,374
Available for future stock option, RSU, and PSU grants			~~13,169,290~~13,340,710
Available for ESPP			3,185,930
Total common stock reserved at ~~July~~October 31, 2022			~~34,531,026~~33,497,014

Stock Option Activity

Stock option activity is as follows:


		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value			Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
						(in thousands)							(in thousands)
Outstanding at January 31, 2022	Outstanding at January 31, 2022	8,375,866	$	9.28	6.1 years	$	198,828	Outstanding at January 31, 2022	8,375,866	$	9.28	6.1 years	$	198,828
Granted	Granted	24,882	$	34.22				Granted	24,882	$	34.22
Exercised	Exercised	(1,185,090)	$	5.56				Exercised	(1,513,561)	$	5.77
Canceled	Canceled	(100,688)	$	13.61				Canceled	(136,356)	$	14.62
Outstanding at July 31, 2022		7,114,970	$	9.93	5.7 years	$	113,855
Vested as of July 31, 2022		10,296,537	$	8.00	5.4 years	$	108,894
Outstanding at October 31, 2022								Outstanding at October 31, 2022	6,750,831	$	10.05	5.5 years	$	100,491
Vested as of October 31, 2022								Vested as of October 31, 2022	5,956,791	$	8.49	5.2 years	$	97,979

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options on the date of grant. The Company accounts for forfeitures as they occur. The following assumptions were used to calculate the fair value of employee stock option grants made during the periods:


		Three Months Ended July 31,			Six Months Ended July 31,					Three Months Ended October 31,			Nine Months Ended October 31,
		2022	2021		2022		2021			2022	2021		2022		2021
Expected dividend yield	Expected dividend yield	N/A	—	%	—	%	—	%	Expected dividend yield	N/A	—	%	—	%	—	%
Expected volatility	Expected volatility	N/A	46.5%		47.1%		43.8% - 46.5%		Expected volatility	N/A	46.0%		47.1%		43.8% - 46.5%
Expected term (years)	Expected term (years)	N/A	6.1		6.1		6.1		Expected term (years)	N/A	6.1		6.1		6.1
Risk-free interest rate	Risk-free interest rate	N/A	1.04%		2.50%		1.04% - 1.16%		Risk-free interest rate	N/A	1.11%		2.50%		1.04% - 1.16%

No stock options were granted during the three months ended ~~July~~October 31, 2022. Stock options granted during the three months ended ~~July~~October 31, 2021 had a weighted average grant date fair value of ~~$19.08~~$19.01 per share. The aggregate intrinsic value of stock options exercised during the three months ended ~~July~~October 31, 2022 and 2021 was ~~$9.3~~$6.4 million and ~~$25.6~~$27.3 million, respectively.

Stock options granted during the ~~six~~nine months ended ~~July~~October 31, 2022 and 2021 had a weighted average grant date fair value of $16.46 and ~~$18.23~~$18.76 per share, respectively. The aggregate intrinsic value of stock options exercised during the ~~six~~nine months ended ~~July~~October 31, 2022 and 2021 was ~~$30.6~~$37.0 million and ~~$46.1~~$73.4 million, respectively.

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The intrinsic value for options exercised is the difference between the market value of the stock and the exercise price of the stock option at the date of exercise.

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As of ~~July~~October 31, 2022, there was approximately ~~$12.4~~$9.7 million of total unrecognized compensation cost related to unvested stock options granted under the Stock Plans, which will be recognized over a weighted average period of ~~2.0~~1.8 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			Number of RSUs	Weighted Average Grant Date Fair Value Per Share
Outstanding at January 31, 2022	Outstanding at January 31, 2022	6,028,201	$	34.77	Outstanding at January 31, 2022	6,028,201	$	34.77
Granted	Granted	5,120,478	$	31.95	Granted	5,716,516	$	31.03
Vested	Vested	(608,100)	$	31.88	Vested	(1,310,826)	$	34.09
Forfeited or canceled	Forfeited or canceled	(1,093,403)	$	32.91	Forfeited or canceled	(1,815,857)	$	33.77
Outstanding at July 31, 2022		9,447,176	$	33.64
Outstanding at October 31, 2022					Outstanding at October 31, 2022	8,618,034	$	32.60

The fair value of RSUs is based on the fair value of the underlying shares on the date of grant. The Company accounts for forfeitures as they occur.

As of ~~July~~October 31, 2022, there was ~~$291.4~~$269.0 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of ~~3.1~~2.9 years based on vesting under the award service conditions.

Performance Stock Units

On March 8, 2022, the Compensation Committee of the Board certified the results of PagerDuty’s operating plan for the fiscal year ended January 31, 2022. Based on the results, the PSUs granted in April 2021 (“2021 PSU Awards”) were earned at an attainment of 129%.

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			Number of PSUs	Weighted Average Grant Date Fair Value Per Share
Outstanding at January 31, 2022	Outstanding at January 31, 2022	117,701	$	41.17	Outstanding at January 31, 2022	117,701	$	41.17
Granted(1)	Granted(1)	767,409	$	32.64	Granted(1)	767,409	$	32.64
Vested	Vested	(62,837)	$	41.17	Vested	(40,007)	$	41.17
Forfeited or canceled	Forfeited or canceled	(7,244)	$	40.58	Forfeited or canceled	(42,225)	$	40.66
Performance adjustment for 2021 PSU Awards	Performance adjustment for 2021 PSU Awards	34,332	$	41.17	Performance adjustment for 2021 PSU Awards	34,332	$	41.17
Outstanding at July 31, 2022		849,361	$	33.49
Outstanding at October 31, 2022					Outstanding at October 31, 2022	837,210	$	33.38
(1)This amount represents awards granted at 100% attainment.					(1)This amount represents awards granted at 100% attainment.

The Company grants PSUs to certain employees of the Company for which the ultimate number of units that will vest are determined based on the achievement of performance at the end of the stated performance period. The performance condition is based on the level of achievement of a Company target related to PagerDuty’s operating plan. The PSUs vest over a three-year period, subject to continuous service with the Company. The number of shares of the Company’s stock that will vest based on the performance condition 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

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date of grant and recorded over the vesting period under the graded-vesting attribution method, and may be adjusted over the vesting period based on interim estimates of performance against the performance condition.

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During the three and ~~six~~nine months ended ~~July~~October 31, 2022 and 2021, the Company recorded stock-based compensation expense for the number of PSUs considered probable of vesting based on the expected attainment of the performance targets.

As of ~~July~~October 31, 2022, total unrecognized stock-based compensation cost related to PSUs was ~~$14.9~~$9.4 million. This unrecognized stock-based compensation cost is expected to be recognized using the accelerated attribution method over a weighted-average period of approximately ~~1.5~~1.3 years.

Employee Stock Purchase Plan

In April 2019, the Board of Directors adopted and approved the 2019 ESPP, which became effective on April 11, 2019. The ESPP generally provides for 24-month offering periods beginning June 15 and December 15 of each year, with each offering period consisting of four six-month purchase periods. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s common stock as of the beginning of the offering period or (2) the fair market value of the Company’s common stock on the purchase date, as defined in the ESPP.

During the three months ended ~~July~~October 31, 2022 and 2021, the Company recognized ~~$1.1~~$1.2 million and ~~$1.3~~$0.8 million, respectively, of stock-based compensation expense related to the ESPP. During the ~~six~~nine months ended ~~July~~October 31, 2022 and 2021, the Company recognized ~~$2.2~~$3.4 million and ~~$3.1~~$3.9 million, respectively, of stock-based compensation expense related to the ESPP.

During the three months ended ~~July~~October 31, 2022 and 2021, the Company withheld ~~$3.8~~$2.1 million and ~~$2.0~~$2.2 million, respectively, in contributions from employees. During the ~~six~~nine months ended ~~July~~October 31, 2022 and 2021, the Company withheld ~~$5.6~~$7.7 million and ~~$5.0~~$7.2 million, respectively, in contributions from employees.

During the three ~~and six~~ months ended ~~July~~October 31, 2022 and 2021 there were no purchases related to the ESPP. During the nine months ended October 31, 2022, 280,725 shares of common stock were issued under the ESPP at a purchase price of $20.43 per share. During the ~~three and six~~nine months ended ~~July~~October 31, 2021, 222,474 shares of common stock were issued under the ESPP at a weighted average purchase price of $21.98 per share.

Stock-Based Compensation

Stock-based compensation expense included in the Company’s condensed consolidated statements of operations is as follows:


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Cost of revenue	Cost of revenue	$	1,787	$	1,023	$	3,011	$	1,699	Cost of revenue	$	1,937	$	861	$	4,948	$	2,560
Research and development	Research and development	10,567		5,607		19,242		$	10,047	Research and development	10,824		6,183		30,066		16,230
Sales and marketing	Sales and marketing	8,148		4,401		14,529		$	8,355	Sales and marketing	8,004		4,606		22,533		12,961
General and administrative	General and administrative	9,623		5,445		18,252		$	9,987	General and administrative	10,679		6,128		28,931		16,115
Total	Total	$	30,125	$	16,476	$	55,034	$	30,088	Total	$	31,444	$	17,778	$	86,478	$	47,866

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15. Net Loss per Share

The following table presents the calculation of basic and diluted net loss per share attributable to PagerDuty, Inc.:


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands, except per share data)									(in thousands, except per share data)
Numerator:	Numerator:									Numerator:
Net loss attributable to PagerDuty, Inc.	Net loss attributable to PagerDuty, Inc.	$	(38,499)	$	(29,661)	$	(71,319)	$	(52,219)	Net loss attributable to PagerDuty, Inc.	$	(32,542)	$	(26,341)	$	(103,861)	$	(78,560)
Denominator:	Denominator:									Denominator:
Weighted average shares used in calculating net loss per share, basic and diluted	Weighted average shares used in calculating net loss per share, basic and diluted	88,153		83,895		87,648		83,413		Weighted average shares used in calculating net loss per share, basic and diluted	89,285		85,092		88,200		83,979
Net loss per share, basic and diluted, attributable to PagerDuty, Inc.	Net loss per share, basic and diluted, attributable to PagerDuty, Inc.	$	(0.44)	$	(0.35)	$	(0.81)	$	(0.63)	Net loss per share, basic and diluted, attributable to PagerDuty, Inc.	$	(0.36)	$	(0.31)	$	(1.18)	$	(0.94)

Since the Company was in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common stock outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:


		As of July 31,			As of October 31,
		2022	2021		2022	2021
		(in thousands)			(in thousands)
Shares subject to outstanding common stock awards	Shares subject to outstanding common stock awards	17,412	14,838	Shares subject to outstanding common stock awards	16,970	15,448
Convertible senior notes	Convertible senior notes	7,173	7,173	Convertible senior notes	7,173	7,173
Restricted stock issued to acquire key personnel	Restricted stock issued to acquire key personnel	115	191	Restricted stock issued to acquire key personnel	63	139
Shares issuable pursuant to the 2019 employee stock purchase plan	Shares issuable pursuant to the 2019 employee stock purchase plan	94	72	Shares issuable pursuant to the 2019 employee stock purchase plan	202	163
Total	Total	24,794	22,274	Total	24,408	22,923

16. Income Taxes

The Company's provision for income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.

The Company's quarterly tax provision, and estimate of its annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income (or loss) relates, changes in how the Company does business, and tax law developments. The Company's estimated effective tax rate for the year differs from the U.S. statutory rate of 21% as a result of our U.S. losses for which no benefit will be realized, our foreign operations which are subject to tax rates that differ from those in the U.S., as well as the benefit for non-U.S. income tax credits.

The Company recorded an income tax ~~benefit~~expense of $0.1 million and $0.2 million for the three months ended ~~July~~October 31, ~~2022.~~2022 and 2021, respectively. The Company recorded an income tax benefit of ~~$1.4~~$1.3 million for the ~~six~~nine months ended ~~July~~October 31, 2022, and income tax expense of ~~$0.2~~$0.4 million for the ~~six~~nine months ended ~~July~~October 31, 2021. The income tax benefit recorded in the ~~six~~nine months ended ~~July~~October 31, 2022 was primarily due to a reduction in the Company’s valuation allowance from the increase in the deferred tax liability associated with the acquired intangible assets from the acquisition of Catalytic, resulting in a $1.3 million deferred tax benefit. ~~Income tax expense for the three months ended July 31, 2021 was not material.~~

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17. Geographic Information

Revenue by location is determined by the billing address of the customer. The following table sets forth revenue by geographic area:


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
United States	United States	$	69,096	$	51,019	$	133,860	$	98,761	United States	$	72,267	$	54,287	$	206,127	$	153,048
International	International	21,157		16,517		41,764		32,366		International	21,936		17,473		63,700		49,839
Total	Total	$	90,253	$	67,536	$	175,624	$	131,127	Total	$	94,203	$	71,760	$	269,827	$	202,887

Other than the United States, no other individual country accounted for 10% or more of revenue for the three and ~~six~~nine months ended ~~July~~October 31, 2022 or 2021. As of ~~July~~October 31, 2022, ~~86%~~89% of the Company’s long-lived assets, including property and equipment and right-of-use lease assets, were located in the United States, and ~~14%~~11% were located in Canada. As of January 31, 2022, 86% of the Company’s long-lived assets, including property and equipment and right-of-use lease assets, were located in the United States and 14% were located in Canada.

18. Subsequent Events

The Company has evaluated subsequent events through ~~September~~December 2, 2022.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations together should be read in conjunction with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended January 31, 2022, filed with the SEC on March 17, 2022. 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 and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Factors that could cause or contribute to such differences include, but are not limited to, impacts on our business and general economic conditions due to the current COVID-19 pandemic, those identified below, and those discussed in the section titled “Risk Factors” included in Part II, Item 1A below. The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31 and January 31.

Overview

PagerDuty is a digital operations management platform that manages urgent and mission critical work for a modern, digital enterprise. We empower teams to respond rapidly to incidents to resolve or avoid customer issues, reduce noise, predict and avoid performance degradation, improve productivity, and accelerate digital transformation.

Today, nearly every business is a digital business. As such, organizations are under pressure to enhance their digital operations in order to meet escalating customer expectations, resolve incidents proactively and free up time for innovation projects. This means critical, time sensitive, and unpredictable work needs to be detected and orchestrated.

We collect data and digital signals from virtually any software-enabled system or device and leverage powerful machine learning to correlate, process, and predict opportunities and issues. Using incident response, event

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management, and automation, we bring together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are.

Since our founding in 2009, we have expanded our capabilities from a single product focused on on-call management for developers to a multi-product platform that crosses silos into IT operations, security, customer service, and executive stakeholder roles across the organization. We have evolved from an on-call tool into the platform for digital operations, which resides at the center of a company’s technology ecosystem.

We have spent more than a decade building deep product integrations to our platform, and our ecosystem now includes over 700 direct integrations to enable our customers to gather and correlate digital signals from virtually any software-enabled system or device. This allows technical teams to collect digital signals from any system or platform in their environment, and without the effects of context switching. Those same integrations connect with popular collaboration tools and business applications, as well as all types of technology stacks to drive automation of work.

We generate revenue primarily from cloud-hosted subscription fees. We also generate revenue from term-license software subscription fees. We have a land-and-expand business model that leads to viral adoption of our products and subsequent expansion. Our online self-service model is the primary mechanism for landing new customers and enabling teams to get started without assistance. We complement our self-service model with high-velocity inside sales focused on small and medium businesses, a commercial team focused on mid-market customers, and a field sales team focused on enterprise customers. Our mid-market and enterprise customers account for the majority of our revenue today. These teams drive expansion to additional users, new use cases, and add-on products, as well as upsell to higher value plans.

COVID-19 Update

The COVID-19 pandemic continued during fiscal year ~~2023.While~~2023. While our ~~revenues,~~revenue, billings, and earnings are relatively predictable as a result of our subscription-based business model and the majority of our revenues are generated from annual subscriptions, the effects of the COVID-19 pandemic may have a delayed impact on our results of operations. We continue to ascertain the long-term impact of the COVID-19 pandemic on our business. We continue to focus on supporting our employees, customers, and community.

As our offices ~~begin to reopen,~~have now reopened, we ~~expect to incur~~have incurred incremental expenses ~~as we resume~~related to onsite services and related in-office costs. However, the majority of our employees continue to work remotely in order to minimize the spread of COVID-19 among our employee base and comply with local regulations within the United States and internationally. As we continue to monitor the local regulations related to COVID-19, we have begun to release travel restrictions on business-related travel, allowing certain employees to travel on a voluntary basis. We also continue to offer local employee assistance programs to employees if needed. These changes remain in effect and could extend into future quarters. The impact, if any, of these and any additional operational changes we may implement to facilitate remote work is uncertain, but changes we have implemented have not affected and are not expected to affect our ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures.

Refer to Item 1A, “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our business.

Recent Events

We are closely monitoring the invasion of Ukraine by Russia in February 2022 and its global impacts. While the conflict is still unfolding and the outcome remains highly uncertain, we do not believe the Russia-Ukraine conflict will have a material impact on our business and results of operation. However, if the Russia-Ukraine conflict continues or worsens, leading to greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted. Our customers in Russia represented an immaterial portion of our net assets and total consolidated revenue both as of and for the three and ~~six~~nine months ended ~~July~~October 31, 2022 and January 31, 2022.

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Key Business Metrics

We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

While these numbers are based on what we believe to be a reasonable representation of our customer base for the applicable period of measurement, we rely on a third party to validate legal entities, which uses the best available data at period end, and therefore is subject to change as new information becomes available. In addition, we are continually seeking to improve our methodology, which may result in future changes to our key metrics.

Our key metrics include the results of Catalytic, to the extent applicable, beginning on the acquisition date of March 8, 2022.

Number of Customers

We believe that the number of customers using our platform, particularly those that have subscription agreements for more than $100,000 in annual recurring revenue (“ARR”), are indicators of our market penetration, particularly within enterprise accounts, the growth of our business, and our potential future business opportunities. We define ARR as the annualized recurring value of all active contracts at the end of a reporting period. We define a customer as a separate legal entity, such as a company or an educational or government institution, that has an active subscription with us or one of our partners to access our platform. In situations where an organization has multiple subsidiaries or divisions, we treat the parent entity as the customer instead of treating each subsidiary or division as a separate customer. Increasing awareness of our platform and its broad range of capabilities, coupled with the fact that the world is always on and powered by increasingly complex technology, has expanded the diversity of our customer base to include organizations of all sizes across virtually all industries. Over time, enterprise and mid-market customers have constituted a greater share of our revenue.


		As of July 31,			As of October 31,
		2022	2021		2022	2021
Customers	Customers	15,174	14,169	Customers	15,265	14,486
Customers greater than $100,000 in ARR	Customers greater than $100,000 in ARR	689	501	Customers greater than $100,000 in ARR	710	543

Dollar-based Net Retention Rate

We use dollar-based net retention rate to evaluate the long-term value of our customer relationships, since this metric reflects our ability to retain and expand the ARR from our existing customers. Our dollar-based net retention rate compares our ARR from the same set of customers across comparable periods.

We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end, or Prior Period ARR. We then calculate the ARR from these same customers as of the current period end, or Current Period ARR. Current Period ARR includes any expansion and is net of downgrades or churn over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the dollar-based net retention rate. The calculation of dollar-based net retention rate includes the Current Period ARR of Catalytic customers to the extent that they were PagerDuty customers as of 12 months prior to period end.

Last 12 Months Ended July 31,
2022 2021
Dollar-based net retention rate for all customers 124 % 126 %


	Last 12 Months Ended October 31,
	2022		2021
Dollar-based net retention rate for all customers	123	%	124	%

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Components of Results of Operations

Revenue

We generate revenue primarily from cloud-hosted software subscription fees with the majority of our revenue from such arrangements. We also generate revenue from term-license software subscription fees. Our subscriptions are typically one year in duration but can range from monthly to multi-year. Subscription fees are driven primarily by the number of customers, the number of users per customer, and the level of subscription purchased. We generally invoice customers in advance in annual installments for subscriptions to our software. Revenue related to our cloud-hosted software subscriptions is recognized ratably over the related contractual term beginning on the date that our platform is made available to a customer. For our term-license software subscriptions, we recognize license revenue upon delivery and software maintenance revenue ratably, typically beginning on the start of the contractual term of the arrangement.

Due to the low complexity of implementation and integration of our platform with our customers’ existing infrastructure, revenue from professional services has been immaterial to date.

Cost of Revenue

Cost of revenue primarily consists of expenses related to providing our platform to customers, including personnel expenses for operations and global support, payments to our third-party cloud infrastructure providers for hosting our software, payment processing fees, amortization of capitalized internal-use software costs, amortization of acquired developed technology, and allocated overhead costs for facilities, information technology, and other allocated overhead costs. We will continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capability of our platform and ensure that our customers are realizing the full benefit of our offerings. The level and timing of investment in these areas could affect our cost of revenue in the future.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand the capacity of our third-party cloud infrastructure providers and our continued efforts to enhance our platform support and customer success teams.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel expenses are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense, and sales commissions. Operating expenses also include amortization of acquired intangible assets, acquisition-related expenses, allocated overhead costs for facilities, shared IT related expenses, including depreciation expense, and certain company-wide events and functions.

Research and development

Research and development expenses consist primarily of personnel costs for our engineering, product, and design teams. Additionally, research and development expenses include contractor fees, depreciation of equipment used in research and development activities, acquisition-related expenses, and allocated overhead costs. We expect that our research and development expenses will increase in dollar value as our business grows.

Sales and marketing

Sales and marketing expenses consist primarily of personnel costs, costs of general marketing activities and promotional activities, travel related expenses, amortization of acquired intangible assets, allocated overhead costs, and bad debt expense. Sales commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a subscription with a customer are deferred and amortized on a straight-line basis over the

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expected period of benefit, which we have determined to be four years. We expect that our sales and marketing expenses will increase in dollar value and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts.

General and administrative

General and administrative expenses consist primarily of personnel costs and contractor fees for finance, legal, human resources, information technology, and other administrative functions. In addition, general and administrative expenses include non-personnel costs, such as legal, accounting, and other professional fees, hardware and software costs, certain tax, license and insurance-related expenses, acquisition-related expenses, and allocated overhead costs. We expect that our general and administrative expenses will increase in dollar value as our business grows. However, we expect that our general and administrative expenses will decrease as a percentage of our revenue over the longer term as we expect our investments to allow for improved efficiency for future growth in the business.

Interest Income

Interest income consists of income earned on our cash and cash equivalents and interest earned on our short-term investments which consist of U.S. Treasury securities, commercial paper, corporate debt securities, and U.S. Government agency securities.

Interest Expense

Interest expense consists primarily of contractual interest expense and amortization of debt issuance costs on our 1.25% Convertible Senior Notes due 2025 (the “Notes”). Refer to Note 1 1 ,11, “Debt and Financing Arrangements” for additional details.

Other (Expense) Income, Net

Other (expense) income, net primarily consists of accretion income and amortization expense on our available-for-sale investments and foreign currency transaction gains and losses.

(Provision for) Benefit ~~from (provision for)~~From Income Taxes

~~Benefit~~(Provision for) benefit from ~~(provision for)~~ income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized. ~~Benefit~~(Provision for) benefit from ~~(provision for)~~ income taxes also includes the reduction in our valuation allowance from the increase in the deferred tax liability associated with acquired intangible assets from our acquisitions.

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Results of Operations

The following table sets forth our condensed consolidated statements of operations data for the periods indicated:


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Revenue	Revenue	$	90,253	$	67,536	$	175,624	$	131,127	Revenue	$	94,203	$	71,760	$	269,827	$	202,887
Cost of revenue(1)	Cost of revenue(1)	18,367		11,976		34,083		22,394		Cost of revenue(1)	18,007		12,039		52,090		34,433
Gross profit	Gross profit	71,886		55,560		141,541		108,733		Gross profit	76,196		59,721		217,737		168,454
Operating expenses:	Operating expenses:									Operating expenses:
Research and development(1)	Research and development(1)	34,014		22,909		65,303		43,508		Research and development(1)	35,004		24,554		100,307		68,062
Sales and marketing(1)	Sales and marketing(1)	50,331		40,814		95,883		78,048		Sales and marketing(1)	47,118		40,176		143,001		118,224
General and administrative(1)	General and administrative(1)	25,429		20,294		50,700		36,872		General and administrative(1)	26,616		19,808		77,316		56,680
Total operating expenses	Total operating expenses	109,774		84,017		211,886		158,428		Total operating expenses	108,738		84,538		320,624		242,966
Loss from operations	Loss from operations	(37,888)		(28,457)		(70,345)		(49,695)		Loss from operations	(32,542)		(24,817)		(102,887)		(74,512)
Interest income	Interest income	830		783		1,378		1,601		Interest income	1,382		705		2,760		2,306
Interest expense	Interest expense	(1,387)		(1,378)		(2,712)		(2,695)		Interest expense	(1,360)		(1,350)		(4,072)		(4,045)
Other expense, net	Other expense, net	(364)		(586)		(1,154)		(1,202)		Other expense, net	(172)		(729)		(1,326)		(1,931)
Loss before benefit from (provision for) income taxes		(38,809)		(29,638)		(72,833)		(51,991)
Benefit from (provision for) income taxes		210		(23)		1,414		(228)
Loss before (provision for) benefit from income taxes										Loss before (provision for) benefit from income taxes	(32,692)		(26,191)		(105,525)		(78,182)
(Provision for) benefit from income taxes										(Provision for) benefit from income taxes	(112)		(150)		1,302		(378)
Net loss	Net loss	$	(38,599)	$	(29,661)	$	(71,419)	$	(52,219)	Net loss	$	(32,804)	$	(26,341)	$	(104,223)	$	(78,560)
Net loss attributable to redeemable non-controlling interest	Net loss attributable to redeemable non-controlling interest	$	(100)	$	—	$	(100)	$	—	Net loss attributable to redeemable non-controlling interest	(262)		—		(362)		—
Net loss attributable to PagerDuty, Inc.	Net loss attributable to PagerDuty, Inc.	$	(38,499)	$	(29,661)	$	(71,319)	$	(52,219)	Net loss attributable to PagerDuty, Inc.	$	(32,542)	$	(26,341)	$	(103,861)	$	(78,560)

______________

(1) Includes stock-based compensation expense as follows:


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Cost of revenue	Cost of revenue	$	1,787	$	1,023	$	3,011	$	1,699	Cost of revenue	$	1,937	$	861	$	4,948	$	2,560
Research and development	Research and development	10,567		5,607		19,242		10,047		Research and development	10,824		6,183		30,066		16,230
Sales and marketing	Sales and marketing	8,148		4,401		14,529		8,355		Sales and marketing	8,004		4,606		22,533		12,961
General and administrative	General and administrative	9,623		5,445		18,252		9,987		General and administrative	10,679		6,128		28,931		16,115
Total	Total	$	30,125	$	16,476	$	55,034	$	30,088	Total	$	31,444	$	17,778	$	86,478	$	47,866

Table of Contents

The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of revenue:


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenue	Revenue	100	%	100	%	100	%	100	%	Revenue	100	%	100	%	100	%	100	%
Cost of revenue	Cost of revenue	20		18		19		17		Cost of revenue	19		17		19		17
Gross profit	Gross profit	80	%	82	%	81	%	83	%	Gross profit	81	%	83	%	81	%	83	%
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	38		34		37		33		Research and development	37		34		37		34
Sales and marketing	Sales and marketing	56		60		55		60		Sales and marketing	50		56		53		58
General and administrative	General and administrative	28		30		29		28		General and administrative	28		28		29		28
Total operating expenses	Total operating expenses	122		124		121		121		Total operating expenses	115		118		119		120
Loss from operations	Loss from operations	(42)		(42)		(40)		(38)		Loss from operations	(35)		(35)		(38)		(37)
Interest income	Interest income	1		1		1		1		Interest income	1		1		1		1
Interest expense	Interest expense	(2)		(2)		(2)		(2)		Interest expense	(1)		(2)		(2)		(2)
Other expense, net	Other expense, net	—		(1)		(1)		(1)		Other expense, net	—		(1)		—		(1)
Loss before (provision for) benefit from income taxes	Loss before (provision for) benefit from income taxes	(43)		(44)		(41)		(40)		Loss before (provision for) benefit from income taxes	(35)		(36)		(39)		(39)
(Provision for) benefit from income taxes	(Provision for) benefit from income taxes	—		—		1		—		(Provision for) benefit from income taxes	—		—		—		—
Net loss	Net loss	(43)		(44)		(41)		(40)		Net loss	(35)		(37)		(39)		(39)
Net loss attributable to redeemable non-controlling interest	Net loss attributable to redeemable non-controlling interest	—	%	—		—	%	—		Net loss attributable to redeemable non-controlling interest	—	%	—		—	%	—
Net loss attributable to PagerDuty, Inc.	Net loss attributable to PagerDuty, Inc.	(43)	%	(44)	%	(41)	%	(40)	%	Net loss attributable to PagerDuty, Inc.	(35)	%	(37)	%	(38)	%	(39)	%

__________

Note: Certain figures may not sum due to rounding.

Comparison of the Three Months Ended ~~July~~October 31, 2022 and 2021

Revenue

Three Months Ended July 31,
2022 2021 Change % Change
(dollars in thousands)
Revenue $ 90,253 $ 67,536 $ 22,717 34 %


	Three Months Ended October 31,
	2022		2021		Change		% Change
	(dollars in thousands)
Revenue	$	94,203	$	71,760	$	22,443	31	%

Revenue increased by ~~$22.7~~$22.4 million, or ~~34%~~31%, for the three months ended ~~July~~October 31, 2022 compared to the three months ended ~~July~~October 31, 2021. The increase in revenue was attributable to a combination of growth from both new and existing customers. Growth from existing customers iswas attributable to both increases in the number of users and upsell of additional products and services.

Cost of Revenue and Gross Margin


		Three Months Ended July 31,											Three Months Ended October 31,
		2022			2021			Change		% Change			2022			2021			Change		% Change
		(dollars in thousands)											(dollars in thousands)
Cost of revenue	Cost of revenue	$	18,367		$	11,976		$	6,391	53	%	Cost of revenue	$	18,007		$	12,039		$	5,968	50	%
Gross margin	Gross margin	80		%	82		%					Gross margin	81		%	83		%

Table of Contents

Cost of revenue increased by ~~$6.4~~$6.0 million, or ~~53%~~50%, primarily due to an increase of ~~$1.9~~$2.5 million in personnel expenses as a result of increased headcount and salaries, an increase of $1.7 million in amortization of acquired intangible assets, primarily related to the acquisition of Catalytic, and an increase of ~~$1.7~~$0.9 million in hosting, software, and telecom costs related to the support of the continued growth of the business and related ~~infrastructure, and an increase of $1.6 million in personnel expenses as a result of increased headcount and salaries.~~infrastructure.

Research and Development


		Three Months Ended July 31,											Three Months Ended October 31,
		2022			2021			Change		% Change			2022			2021			Change		% Change
		(dollars in thousands)											(dollars in thousands)
Research and development	Research and development	$	34,014		$	22,909		$	11,105	48	%	Research and development	$	35,004		$	24,554		$	10,450	43	%
Percentage of revenue	Percentage of revenue	38		%	34		%					Percentage of revenue	37		%	34		%

Research and development expenses increased by ~~$11.1~~$10.5 million, or ~~48%~~43%, for the three months ended ~~July~~October 31, 2022 compared to the three months ended ~~July~~October 31, 2021. The increase was primarily driven by an increase in personnel expenses of ~~$9.5~~$8.9 million as a result of increased headcount and salaries to support our continued investment in our platform and a $1.3 million increase in costs to support the growth of the business and related infrastructure, which includes allocated overhead costs.

Sales and Marketing


		Three Months Ended July 31,											Three Months Ended October 31,
		2022			2021			Change		% Change			2022			2021			Change		% Change
		(dollars in thousands)											(dollars in thousands)
Sales and marketing	Sales and marketing	$	50,331		$	40,814		$	9,517	23	%	Sales and marketing	$	47,118		$	40,176		$	6,942	17	%
Percentage of revenue	Percentage of revenue	56		%	60		%					Percentage of revenue	50		%	56		%

Sales and marketing expenses increased by ~~$9.5~~$6.9 million, or ~~23%~~17%, for the three months ended ~~July~~October 31, 2022 compared to the three months ended ~~July~~October 31, 2021. This increase was primarily due to an increase of ~~$9.0~~$6.6 million in personnel expenses driven by headcount growth, increased salaries, and amortization of deferred contract costs, an increase of ~~$2.0~~$0.8 million in costs to support the growth of the business and related ~~to Summit, our 2022 global customer conference series,~~infrastructure which includes allocated overhead costs, and an increase of ~~$1.7~~$0.6 million in travel and other program related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic. This was partially offset by a decrease in outside services of $0.6 million.

General and Administrative


	Three Months Ended October 31,
	2022			2021			Change		% Change
	(dollars in thousands)
General and administrative	$	26,616		$	19,808		$	6,808	34	%
Percentage of revenue	28		%	28		%

General and administrative expenses increased by $6.8 million, or 34%, for the three months ended October 31, 2022 compared to the three months ended October 31, 2021. The increase was driven by an increase of $7.2 million in personnel expenses as a result of increased headcount and salaries and an increase of $0.6 million in outside services. This was partially offset by a decrease of $1.2 million in costs to support the business and related infrastructure which includes allocated overhead costs.

Interest Expense

Table of Contents


	Three Months Ended October 31,
	2022		2021		Change		% Change
	(dollars in thousands)
Interest expense	$	1,360	$	1,350	$	10	1	%

Interest expense was consistent for the three months ended October 31, 2022 compared to the three months ended October 31, 2021 and related to contractual interest and amortization of debt issuance costs for the Notes.

Interest Income and Other Expense, Net


	Three Months Ended October 31,
	2022		2021		Change		% Change
	(dollars in thousands)
Interest income	$	1,382	$	705	$	677	96	%
Other expense, net	$	(172)	$	(729)	$	557	76	%

Interest income increased by $0.7 million and other expense, net decreased by $0.6 million for the three months ended October 31, 2022 compared to the three months ended October 31, 2021. The increase in interest income was primarily due to higher interest rates on our cash, cash equivalent and investment balances in the current year. The decrease in other expense, net was due to higher accretion on our cash, cash equivalent and investment balances in the current year, offset by changes in foreign currency rates.

Comparison of the Nine Months Ended October 31, 2022 and 2021

Revenue


	Nine Months Ended October 31,
	2022		2021		Change		% Change
	(dollars in thousands)
Revenue	$	269,827	$	202,887	$	66,940	33	%

Revenue increased by $66.9 million, or 33%, for the nine months ended October 31, 2022 compared to the nine months ended October 31, 2021. The increase in revenue was attributable to a combination of growth from both new and existing customers. Growth from existing customers was attributable to both increases in the number of users and upsell of additional products and services.

Cost of Revenue and Gross Margin


	Nine Months Ended October 31,
	2022			2021			Change		% Change
	(dollars in thousands)
Cost of revenue	$	52,090		$	34,433		$	17,657	51	%
Gross margin	81		%	83		%

Cost of revenue increased by $17.7 million, or 51%, for the nine months ended October 31, 2022 compared to the nine months ended October 31, 2021. The increase was primarily due to an increase of $5.4 million in personnel expenses as a result of increased headcount and salaries, an increase of $4.5 million in amortization of intangibles related to acquisitions, increases of $4.2 million in hosting, software, and telecom costs and $0.7 million in outside services, both of which are related to the support of the continued growth of the business and related infrastructure, and an increase of $0.9 million in other expenses, primarily related to increased merchant fees.

Table of Contents

Research and Development


	Nine Months Ended October 31,
	2022			2021			Change		% Change
	(dollars in thousands)
Research and development	$	100,307		$	68,062		$	32,245	47	%
Percentage of revenue	37		%	34		%

Research and development expenses increased by $32.2 million, or 47%, for the nine months ended October 31, 2022 compared to the nine months ended October 31, 2021. The increase was primarily driven by an increase in personnel expenses of $26.8 million as a result of increased headcount and salaries to support our continued investment in our platform, a $3.8 million increase in costs to support the growth of the business and related infrastructure, which included allocated overhead costs, an increase of $1.1 million in travel related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic, and an increase of $0.7 million acquisition-related impairment charge related to software development not placed in service.

Sales and Marketing


	Nine Months Ended October 31,
	2022			2021			Change		% Change
	(dollars in thousands)
Sales and marketing	$	143,001		$	118,224		$	24,777	21	%
Percentage of revenue	53		%	58		%

Sales and marketing expenses increased by $24.8 million, or 21%, for the nine months ended October 31, 2022 compared to the nine months ended October 31, 2021.This increase was primarily due to an increase of $21.6 million in personnel expenses driven by headcount growth, increased salaries, and amortization of deferred contract costs, an increase of $4.1 million in travel and other program related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic, and an increase of ~~$1.0~~$3.7 million in costs to support the business and related infrastructure, which ~~includes~~included allocated overhead costs. This was partially offset by a decrease in marketing expenses of ~~$3.8~~$3.6 million primarily due to decreases in brand campaigns and digital ~~marketing.~~marketing and a decrease of $1.1 million in outside services.

General and Administrative


		Three Months Ended July 31,											Nine Months Ended October 31,
		2022			2021			Change		% Change			2022			2021			Change		% Change
		(dollars in thousands)											(dollars in thousands)
General and administrative	General and administrative	$	25,429		$	20,294		$	5,135	25	%	General and administrative	$	77,316		$	56,680		$	20,636	36	%
Percentage of revenue	Percentage of revenue	28		%	30		%					Percentage of revenue	29		%	28		%

General and administrative expenses increased by ~~$5.1~~$20.6 million, or ~~25%~~36%, for the ~~three~~nine months ended ~~July~~October 31, 2022 compared to the ~~three~~nine months ended ~~July~~October 31, 2021. The increase was driven by an increase of ~~$6.9~~$20.9 million in personnel expenses as a result of increased headcount and salaries and an increase of ~~$0.6~~$1.5 million in travel related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic. This was partially offset by a decrease of ~~$2.1 million in outside services, the majority of which was due to non-recurring strategic consulting fees in the three months ended July 31, 2021.~~

~~Interest Expense~~

~~Table of Contents~~

Three Months Ended July 31,
2022 2021 Change % Change
(dollars in thousands)
Interest expense $ 1,387 $ 1,378 $ 9 1 %

Interest expense was consistent for the three months ended July 31, 2022 compared to the three months ended July 31, 2021 and related to contractual interest and amortization of debt issuance costs for the Notes.

~~Interest Income and Other Expense, Net~~

Three Months Ended July 31,
2022 2021 Change % Change
(dollars in thousands)
Interest income $ 830 $ 783 $ 47 6 %
Other expense, net $ (364) $ (586) $ 222 (38) %

Interest income remained consistent and other expense, net decreased by $0.2 million for the three months ended July 31, 2022 compared to the three months ended July 31, 2021, primarily due to higher accretion on our cash, cash equivalent and investment balances in the current year and changes in foreign currency rates.

~~Comparison of the six months ended July 31, 2022 and 2021~~

~~Revenue~~

Six Months Ended July 31,
2022 2021 Change % Change
(dollars in thousands)
Revenue $ 175,624 $ 131,127 $ 44,497 34 %

Revenue increased by $44.5 million, or 34%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021. The increase in revenue was attributable to a combination of growth from both new and existing customers. Growth from existing customers is attributable to both increases in the number of users and upsell of additional products and services.

~~Cost of Revenue and Gross Margin~~

Six Months Ended July 31,
2022 2021 Change % Change
(dollars in thousands)
Cost of revenue $ 34,083 $ 22,394 $ 11,689 52 %
Gross margin 81 % 83 %

Cost of revenue increased by $11.7 million, or 52% for the six months ended July 31, 2022 compared to the six months ended July 31, 2021. The increase is primarily due to increases of $3.3 million in hosting, software, and telecom costs and $0.6 million in outside services, both of which are related to the support of the continued growth of the business and related infrastructure, an increase of $2.9 million in personnel expenses as a result of increased headcount and salaries, and an increase of $2.8 million in amortization of intangibles related to acquisitions.

~~Table of Contents~~

~~Research and Development~~

Six Months Ended July 31,
2022 2021 Change % Change
(dollars in thousands)
Research and development $ 65,303 $ 43,508 $ 21,795 50 %
Percentage of revenue 37 % 33 %

Research and development expenses increased by $21.8 million, or 50%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021. The increase was primarily driven by an increase in personnel expenses of $17.9 million as a result of increased headcount and salaries to support our continued investment in our platform, a $2.4 million increase in costs to support the growth of the business and related infrastructure, which includes allocated overhead costs, an increase of $0.7 million in travel related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic, and a $0.7 million acquisition-related impairment charge related to software development not placed in service.

~~Sales and Marketing~~

Six Months Ended July 31,
2022 2021 Change % Change
(dollars in thousands)
Sales and marketing $ 95,883 $ 78,048 $ 17,835 23 %
Percentage of revenue 55 % 60 %

Sales and marketing expenses increased by $17.8 million, or 23%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021.This increase was primarily due to an increase of $14.9 million in personnel expenses driven by headcount growth, increased salaries, and amortization of deferred contract costs, an increase of $3.4 million in travel and other program related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic, an increase of $2.9 million in costs to support the business and related infrastructure which includes allocated overhead costs, and an increase of $2.0 million in costs related to Summit, our 2022 global customer conference series. This was partially offset by a decrease in marketing expenses of $5.2 million primarily due to decreases in brand campaigns and digital marketing.

~~General and Administrative~~

Six Months Ended July 31,
2022 2021 Change % Change
(dollars in thousands)
General and administrative $ 50,700 $ 36,872 $ 13,828 38 %
Percentage of revenue 29 % 28 %

General and administrative expenses increased by $13.8 million, or 38%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021. The increase was driven by an increase of $13.7 million in personnel expenses as a result of increased headcount and salaries and an increase of $1.3 million in travel related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic. This was partially offset by a decrease of $1.1$2.3 million in costs to support the business and related infrastructure which includes allocated overhead costs.

Interest Expense

Table of Contents

Six Months Ended July 31,
2022 2021 Change % Change
(dollars in thousands)
Interest expense $ (2,712) $ (2,695) $ (17) 1 %


	Nine Months Ended October 31,
	2022		2021		Change		% Change
	(dollars in thousands)
Interest expense	$	(4,072)	$	(4,045)	$	(27)	1	%

Interest expense was consistent for the ~~six~~nine months ended ~~July~~October 31, 2022 compared to the ~~six~~nine months ended ~~July~~October 31, 2021 and related to contractual interest and amortization of debt issuance costs for the Notes.

Interest Income and Other Expense, Net


		Six Months Ended July 31,									Nine Months Ended October 31,
		2022		2021		Change		% Change			2022		2021		Change		% Change
		(dollars in thousands)									(dollars in thousands)
Interest income	Interest income	$	1,378	$	1,601	$	(223)	(14)	%	Interest income	$	2,760	$	2,306	$	454	20	%
Other expense, net	Other expense, net	$	(1,154)	$	(1,202)	$	48	(4)	%	Other expense, net	$	(1,326)	$	(1,931)	$	605	31	%

Interest income ~~decreased~~increased by ~~$0.2~~$0.5 million and other expense ~~remained consistent~~decreased by $0.6 million for the ~~six~~nine months ended ~~July~~October 31, 2022 compared to the ~~six~~nine months ended ~~July~~October 31, 2021. The ~~decrease~~increase in interest income iswas primarily due to ~~lower~~higher interest rates on our cash, cash equivalent and investment balances in the current year. The decrease in other expense, net was due to higher accretion on our cash, cash equivalent and investment balances in the current year, offset by changes in foreign currency rates.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance. We use the below referenced non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their U.S. GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with U.S. GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by U.S. GAAP to be recorded in our financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by our management about which expenses are excluded or included in determining these non-GAAP financial measures. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit as gross profit adjusted for stock-based compensation expense and related employer taxes, and amortization of acquired intangible assets. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue.

Table of Contents


		Three Months Ended July 31,						Six Months Ended July 31,							Three Months Ended October 31,						Nine Months Ended October 31,
		2022			2021			2022			2021				2022			2021			2022			2021
		(in thousands)													(in thousands)
Gross profit	Gross profit	$	71,886		$	55,560		$	141,541		$	108,733		Gross profit	$	76,196		$	59,721		$	217,737		$	168,454
Add:	Add:													Add:
Stock-based compensation	Stock-based compensation	1,787			1,023			3,011			1,699			Stock-based compensation	1,937			861			4,948			2,560
Employer taxes related to employee stock transactions	Employer taxes related to employee stock transactions	34			30			41			56			Employer taxes related to employee stock transactions	38			22			79			78
Amortization of acquired intangible assets	Amortization of acquired intangible assets	2,156			280			3,365			560			Amortization of acquired intangible assets	1,949			280			5,314			840
Non-GAAP gross profit	Non-GAAP gross profit	$	75,863		$	56,893		$	147,958		$	111,048		Non-GAAP gross profit	$	80,120		$	60,884		$	228,078		$	171,932

Gross margin	Gross margin	80		%	82		%	81		%	83		%	Gross margin	81		%	83		%	81		%	83		%
Non-GAAP gross margin	Non-GAAP gross margin	84		%	84		%	84		%	85		%	Non-GAAP gross margin	85		%	85		%	85		%	85		%

Non-GAAP Operating ~~Loss~~Income (Loss) and Non-GAAP Operating Margin

We define non-GAAP operating ~~loss~~income (loss) as loss from operations plus our stock-based compensation expense and related employer taxes, amortization of acquired intangible assets, and acquisition-related expenses, which include transaction costs, acquisition-related retention payments and acquisition-related asset impairment, which are not necessarily reflective of operational performance during a given period. We define non-GAAP operating margin as non-GAAP operating ~~loss~~income (loss) as a percentage of revenue.


		Three Months Ended July 31,						Six Months Ended July 31,							Three Months Ended October 31,						Nine Months Ended October 31,
		2022			2021			2022			2021				2022			2021			2022			2021
		(in thousands)													(in thousands)
Loss from operations	Loss from operations	$	(37,888)		$	(28,457)		$	(70,345)		$	(49,695)		Loss from operations	$	(32,542)		$	(24,817)		$	(102,887)		$	(74,512)
Add:	Add:													Add:
Stock-based compensation	Stock-based compensation	30,125			16,476			55,034			30,088			Stock-based compensation	31,444			17,778			86,478			47,866
Employer taxes related to employee stock transactions	Employer taxes related to employee stock transactions	521			710			1,173			1,391			Employer taxes related to employee stock transactions	583			695			1,756			2,086
Amortization of acquired intangible assets	Amortization of acquired intangible assets	2,961			875			4,803			1,750			Amortization of acquired intangible assets	2,628			875			7,431			2,625
Acquisition-related expenses	Acquisition-related expenses	899			455			3,652			914			Acquisition-related expenses	902			442			4,554			1,356
Non-GAAP operating loss		$	(3,382)		$	(9,941)		$	(5,683)		$	(15,552)
Non-GAAP operating income (loss)														Non-GAAP operating income (loss)	$	3,015		$	(5,027)		$	(2,668)		$	(20,579)

Operating margin	Operating margin	(42)		%	(42)		%	(40)		%	(38)		%	Operating margin	(35)		%	(35)		%	(38)		%	(37)		%
Non-GAAP operating margin	Non-GAAP operating margin	(4)		%	(15)		%	(3)		%	(12)		%	Non-GAAP operating margin	3		%	(7)		%	(1)		%	(10)		%

Non-GAAP Net ~~Loss~~Income (Loss) Attributable to PagerDuty, Inc.

We define non-GAAP net ~~loss~~income (loss) attributable to PagerDuty, Inc. as net loss attributable to PagerDuty, Inc. plus our stock-based compensation expense and related employer taxes, amortization of debt issuance costs, amortization of acquired intangible assets, acquisition-related expenses, which include transaction costs, acquisition-related retention payments and an acquisition-related asset impairment, which are not necessarily reflective of operational performance during a given period, and ~~acquisition-related~~the income tax ~~benefit.~~effect of non-GAAP adjustments.

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		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Net loss attributable to PagerDuty, Inc.	Net loss attributable to PagerDuty, Inc.	$	(38,499)	$	(29,661)	$	(71,319)	$	(52,219)	Net loss attributable to PagerDuty, Inc.	$	(32,542)	$	(26,341)	$	(103,861)	$	(78,560)
Add (Less):	Add (Less):									Add (Less):
Stock-based compensation	Stock-based compensation	30,125		16,476		55,034		30,088		Stock-based compensation	31,444		17,778		86,478		47,866
Amortization of debt issuance costs	Amortization of debt issuance costs	468		460		915		898		Amortization of debt issuance costs	461		452		1,376		1,350
Employer taxes related to employee stock transactions	Employer taxes related to employee stock transactions	521		710		1,173		1,391		Employer taxes related to employee stock transactions	583		695		1,756		2,086
Amortization of acquired intangible assets	Amortization of acquired intangible assets	2,961		875		4,803		1,750		Amortization of acquired intangible assets	2,628		875		7,431		2,625
Acquisition-related expenses	Acquisition-related expenses	899		455		3,652		914		Acquisition-related expenses	902		442		4,554		1,356
Acquisition-related tax benefit		—		—		(1,330)		—
Non-GAAP net loss attributable to PagerDuty, Inc.		$	(3,525)	$	(10,685)	$	(7,072)	$	(17,178)
Income tax effect of non-GAAP adjustments										Income tax effect of non-GAAP adjustments	—		—		(1,330)		—
Non-GAAP net income (loss) attributable to PagerDuty, Inc.										Non-GAAP net income (loss) attributable to PagerDuty, Inc.	$	3,476	$	(6,099)	$	(3,596)	$	(23,277)

Free Cash Flow

We define free cash flow as net cash (used in) provided by ~~(used in)~~ operating activities, less cash used for purchases of property and equipment and capitalization of internal-use software costs. In addition to the reasons stated above, we believe that free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash in excess of our capital investments in property and equipment in order to enhance the strength of our balance sheet and further invest in our business and potential strategic initiatives. A limitation of the utility of free cash flow as a measure of our liquidity is that it does not represent the total increase or decrease in our cash balance for the period. We use free cash flow in conjunction with traditional U.S. GAAP measures as part of our overall assessment of our liquidity, including the preparation of our annual operating budget and quarterly forecasts and to evaluate the effectiveness of our business strategies.


		Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,				Nine Months Ended October 31,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Net cash provided by (used in) operating activities		$	2,841	$	(11,595)	$	(144)	$	(10,016)
Net cash (used in) provided by operating activities										Net cash (used in) provided by operating activities	$	(448)	$	2,650	$	(592)	$	(7,366)
Less:	Less:									Less:
Purchases of property and equipment	Purchases of property and equipment	(862)		(364)		(2,940)		(1,291)		Purchases of property and equipment	(815)		(85)		(3,755)		(1,376)
Capitalization of internal-use software costs	Capitalization of internal-use software costs	(965)		(915)		(1,737)		(1,917)		Capitalization of internal-use software costs	(988)		(784)		(2,725)		(2,701)
Free cash flow	Free cash flow	$	1,014	$	(12,874)	$	(4,821)	$	(13,224)	Free cash flow	$	(2,251)	$	1,781	$	(7,072)	$	(11,443)
Net cash (used in) provided by investing activities	Net cash (used in) provided by investing activities	$	(2,695)	$	36,675	$	(73,052)	$	24,059	Net cash (used in) provided by investing activities	$	(7,220)	$	5,092	$	(80,272)	$	29,151
Net cash provided by financing activities		$	4,465	$	3,412	$	1,881	$	1,316
Net cash used in financing activities										Net cash used in financing activities	$	(7,965)	$	(2,529)	$	(6,084)	$	(1,213)

Liquidity and Capital Resources

Since inception, we have financed operations primarily through sales of our cloud-hosted software subscriptions, net proceeds we have received from sales of equity securities, and the issuance of the Notes.

On April 15, 2019, upon the closing of our IPO, we received net proceeds of $213.7 million, after deducting underwriters' discounts and commissions of $16.6 million and other issuance costs of $6.4 million.

On June 25, 2020, we issued $287.5 million aggregate principal amount of the Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The total net proceeds from the sale of the Notes, after deducting the initial purchasers’ discounts and debt issuance costs of $9.3 million, and purchases of the Capped Calls of $35.7 million, were $242.5 million.

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As of ~~July~~October 31, 2022, our principal sources of liquidity were cash and cash equivalents and investments totaling ~~$470.8~~$459.4 million. We believe that our existing cash and cash equivalents, investments, and cash provided by sales of our subscriptions will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations, through a combination of cash flows from operating activities and available cash and short-term investment balances. Our future capital requirements will depend on many factors, including the effects of the COVID-19 pandemic, our subscription growth rate, subscription renewal activity, including the timing and the amount of cash received from customers, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market adoption of our platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations, and financial condition.

A significant majority of our customers pay in advance for our cloud-hosted and term-license software subscriptions. Therefore, a substantial source of our cash is from our deferred revenue, which is included in the liabilities section of our condensed consolidated balance sheet. Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As of ~~July~~October 31, 2022, we had deferred revenue of ~~$169.5~~$179.7 million, of which ~~$166.5~~$175.4 million was recorded as a current liability and expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

Cash Flows

The following table shows a summary of our cash flows for the periods presented:


		Six Months Ended July 31,					Nine Months Ended October 31,
		2022		2021			2022		2021
		(in thousands)					(in thousands)
Net cash used in operating activities	Net cash used in operating activities	$	(144)	$	(10,016)	Net cash used in operating activities	$	(592)	$	(7,366)
Net cash (used in) provided by investing activities	Net cash (used in) provided by investing activities	$	(73,052)	$	24,059	Net cash (used in) provided by investing activities	$	(80,272)	$	29,151
Net cash provided by financing activities		$	1,881	$	1,316
Net cash used in financing activities						Net cash used in financing activities	$	(6,084)	$	(1,213)

Operating Activities

Our largest source of operating cash is cash collection from sales of our cloud-hosted and term license software subscriptions to our customers. Our primary uses of cash from operating activities are for personnel expenses, marketing expenses and hosting and software expenses. In the last several years, we have had periods in which we generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from both private and public sales of equity securities and issuance of the Notes.

Cash used in operating activities for the ~~six~~nine months ended ~~July~~October 31, 2022 of ~~$0.1~~$0.6 million primarily related to our net loss of ~~$71.4~~$104.2 million, adjusted for non-cash ~~charges~~charges/benefits of ~~$76.3~~$118.1 million and net cash outflows of ~~$5.0~~$14.4 million due to changes in our operating assets and liabilities. Non-cash ~~charges~~charges/benefits primarily consisted of stock-based compensation of ~~$55.0~~$86.5 million, amortization of our deferred contract costs of ~~$9.3~~$14.2 million, depreciation and amortization of property and equipment, capitalized implementation costs, and acquired intangible assets of ~~$8.3~~$12.8 million, non-cash lease expense of ~~$2.3~~$2.9 million, other charges of ~~$1.8~~$1.7 million, which consist primarily of the acquisition-related asset impairment and bad debt expense, amortization of debt issuance costs of $1.4 million, and a tax benefit related to the release of our valuation allowance of $1.3 million. Changes in operating assets and liabilities reflected cash outflows from a ~~$10.0~~$16.3 million increase in deferred contract costs due to commissions paid on new bookings in line with revenue growth, ~~a $6.7 million decrease in accrued compensation and related benefits, $2.8~~$3.8 million in payments for operating lease liabilities, a ~~$1.5~~$2.9 million ~~decrease~~increase in ~~deferred revenue resulting primarily due~~prepaid expenses and other assets related to timing of ~~renewals, and a $1.5~~payments made in

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advance for future services, and a $3.1 million decrease in accounts payable, accrued expenses and other liabilities, and accrued compensation. These amounts were partially offset by a $8.6 million increase in deferred revenue resulting from increased billings for subscriptions, and a $3.0 million decrease in accounts receivable due to timing of cash collections.

Cash used in operating activities for the nine months ended October 31, 2021 of $7.4 million primarily related to our net loss of $78.6 million, adjusted for non-cash charges of $72.0 million and net cash outflows of $0.8 million due to changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $47.9 million, amortization of our deferred contract costs of $10.7 million, depreciation and amortization of property and equipment, capitalized implementation costs, and acquired intangible assets of $6.2 million, and non-cash lease expense of $3.3 million. Changes in operating assets and liabilities reflected cash outflows from a $16.8 million increase in deferred contract costs due to commissions paid on new bookings in line with revenue growth, $3.8 million increase in payments for operating lease liabilities, and a $0.9 million increase in prepaid expenses and other assets related to timing of payments made in advance for future services. These amounts were partially offset by cash inflows from a ~~$16.5 million decrease in accounts receivable due to timing of cash collections.~~

Cash used in operating activities for the six months ended July 31, 2021 of $10.0 million primarily related to our net loss of $52.2 million, adjusted for non-cash charges of $45.7 million and net cash outflows of $3.5 million due to changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $30.1 million, amortization of our deferred contract costs of $6.8 million, depreciation and amortization of property and equipment, capitalized implementation costs, and acquired intangible assets of $4.0 million, and non-cash lease expense of $2.2 million. Changes in operating assets and liabilities reflected cash outflows from a $9.5 million increase ~~in deferred contract costs due to commissions paid on new bookings in line with revenue growth,~~ ~~a $3.8 million decrease in accrued compensation and related benefits, a $2.8~~$12.9 million increase in ~~prepaid expenses and other assets related to timing of payments made in advance~~deferred revenue resulting primarily from increased billings for ~~future services, and $2.5 million~~ ~~in payments for operating lease liabilities. These amounts were partially offset by cash inflows from~~subscriptions, a ~~$6.5 million decrease in accounts receivable due to timing of cash collections, a $4.6~~ $3.8 million increase in accounts payable and accrued expenses and liabilities, and a ~~$4.0~~$3.8 million increase in ~~deferred revenue resulting primarily from increased billings for subscriptions.~~accrued compensation and related benefits.

Investing Activities

Cash used in investing activities for the ~~six~~nine months ended ~~July~~October 31, 2022 of ~~$73.1~~$80.3 million consisted primarily of purchases of available-for-sale investments of ~~$95.5~~$155.3 million, cash paid for the Catalytic acquisition, net of cash acquired, of $66.3 million, purchases of property and equipment of ~~$2.9~~$3.8 million primarily for purchases of computers for new employees and to support office space for our San Francisco office, capitalization of internal-use software of $2.7 million, and cash paid for an asset acquisition of $1.8 ~~million, and capitalization of internal-use software of $1.7~~ million. This was offset by proceeds from ~~sales and~~ maturities of investments of ~~$95.2~~$149.6 million.

Cash provided by investing activities for the ~~six~~nine months ended ~~July~~October 31, 2021 of ~~$24.1~~$29.2 million consisted of proceeds from ~~maturities~~sales and ~~sales~~maturities of investments of ~~$143.5 million. This was partially~~$184.0 million, offset by purchases of available-for-sale investments of ~~$116.1~~$150.6 million, capitalization of internal-use software of ~~$1.9~~$2.7 million, and purchases of property and equipment of ~~$1.3~~$1.4 million primarily for purchases of computers for new employees and to support ~~additional~~ office space for our San Francisco office.

Financing Activities

Cash ~~provided by~~used in financing activities for the ~~six~~nine months ended ~~July~~October 31, 2022 of ~~$1.9~~$6.1 million consisted of $22.2 million in employee payroll taxes paid related to vesting of restricted stock units, offset by proceeds of ~~$6.6~~$8.5 million from the exercise of stock options, proceeds from the ESPP of $5.7 million, and $1.9 million of cash received from the non-controlling shareholder of PagerDuty K.K. ~~This was partially offset by $12.3~~

Cash used in financing activities for the nine months ended October 31, 2021 of $1.2 million consisted of $18.6 million in employee payroll taxes paid related to vesting of restricted stock units,

~~Cash provided~~ partially offset by ~~financing activities for the six months ended July 31, 2021 of $1.3 million consisted of~~ proceeds of ~~$7.4~~$12.5 million from the exercise of stock options and proceeds from the ESPP of $4.9 million. ~~This was partially offset by $11.0 million in employee payroll taxes paid related to vesting of restricted stock units.~~

Contractual Obligations and Commitments

There were no material changes during the ~~six~~nine months ended ~~July~~October 31, 2022 to our contractual obligations and other commitments, as disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on March 17, 2022.

For further information on our commitments and contingencies, refer to Note 1 2 ,12, “Commitments and Contingencies” in the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.

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Indemnification Agreements

In the ordinary course of business, we may agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. As permitted under Delaware law, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements, and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.

Off-Balance Sheet Arrangements

We do not currently have and, as of ~~July~~October 31, 2022 or during the periods presented, did not have any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with U.S. GAAP. In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates.

There have been no significant changes to our critical accounting policies described in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on March 17, 2022, that had a material impact on our condensed consolidated financial statements and related notes.

Recent Accounting Pronouncements

For further information on our recently adopted accounting pronouncements, refer to Note 2, "Summary of Significant Accounting Policies" in the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in our market risk as compared to the disclosures in Part II, Item 7A in our Annual Report on Form 10-K for the year ended January 31, 2022, filed with the SEC on March 17, 2022.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation and supervision of our chief executive officer and our chief financial officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this 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.

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 ~~July~~October 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as described above.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material pending legal proceedings. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business.

Item 1A. Risk Factors

Other than the risk factors below, there have been no material changes from the risk factors described in ~~“Part~~Part I. Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the year ended January 31, 2022. The risks described in “Risk Factors” and in any subsequent Form 10-Qs could materially and adversely affect our business, results of operations, financial condition or prospects, and could cause the trading price of our common stock to decline. These risk factors do not identify all risks that we face— our business, results of operations, financial condition or prospects could also be affected by factors that are not presently known to us or that we currently consider to be immaterial. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our results of operations.

Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers and potential customers. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, rising inflation, rising interest rates, supply chain disruptions, labor shortages, weakening exchange rates, international trade relations, political turmoil, natural catastrophes, health epidemics or pandemics (such as the COVID-19 pandemic), warfare (such as Russia’s invasion of Ukraine), and terrorist attacks on the United States, Europe, the Asia Pacific region, Japan, or elsewhere, could cause a decrease in business investments, including spending on information technology, and negatively affect the growth of our business. In addition, the United States has recently experienced historically high levels of inflation. ~~According to the U.S. Department of Labor, the annual inflation rate for the United States was approximately 9.1% for June 2022.~~ The rising inflation may increase our supply, employees and facilities costs and decrease demand for our products. Competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract our customers. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our products. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within any particular industry or how any such event may impact our business.

Our current operations are international in scope, and we plan further geographic expansion, creating a variety of operational challenges.

A component of our growth strategy involves the further expansion of our operations and customer base internationally. In each of the fiscal years ended January 31, 2022, 2021, and 2020 customers outside of the United States generated 24%, 24%, and 22%, respectively, of our revenue. We currently have offices in Australia, Canada, Portugal, the United Kingdom (U.K.), and the United States. We are continuing to adapt to and develop strategies to address international markets, but there is no guarantee that such efforts will have the desired effect. As of January 31, 2022, approximately 29% of our full-time employees were located outside of the United States. We expect that our international activities will continue to grow for the foreseeable future as we continue to pursue opportunities in existing and new international markets, which will require significant dedication of management attention and financial resources.

Our current and future international business and operations involve a variety of risks, including:

•changes in a specific country’s or region’s political or economic conditions;

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•health epidemics or pandemics, such as the COVID-19 pandemic, influenza and other highly communicable diseases or viruses;

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•continuing uncertainty regarding social, political, immigration, and tax and trade policies in the U.S. and abroad, including as a result of the United Kingdom's withdrawal from the European Union (“EU”);

•the need to adapt and localize our products for specific countries;

•greater difficulty collecting accounts receivable and longer payment cycles;

•potential changes in trade relations, regulations, or laws;

•unexpected changes in laws, regulatory requirements, or tax laws;

•more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information, particularly in Europe;

•differing and potentially more onerous labor regulations, especially in Europe, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

•challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs that are specific to each jurisdiction;

•difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems;

•increased travel, real estate, infrastructure, and legal compliance costs associated with international operations;

•currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;

•limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;

•laws and business practices favoring local competitors or general market preferences for local vendors;

•limited or insufficient intellectual property protection or difficulties enforcing our intellectual property;

•political instability, including military actions;

•terrorist activities;

•exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act, or FCPA, U.S. bribery laws, the UK Bribery Act, and similar laws and regulations in other jurisdictions; and

•adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.

Political actions, including trade protection and national security policies of U.S. and foreign government bodies, such as tariffs, import or export regulations, trade and economic sanctions, quotas or other trade barriers and restrictions could affect our ability to fulfill our contractual obligations and have a material adverse effect on our business. In addition, following Russia’s military invasion of Ukraine in February 2022, NATO deployed additional military forces to Eastern Europe, and the United States, European Union, and other nations announced various sanctions against Russia. The invasion of Ukraine and the retaliatory measures that have been taken, and could be

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taken in future, by the United States, NATO, and other countries have created global security concerns that could result in a regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could adversely affect our business. Further, due to political uncertainty and military actions involving

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Russia, Ukraine, and surrounding regions, we and the third parties upon which we rely may be vulnerable to a heightened risk of security breaches, computer malware, social-engineering attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, and other cyber-attacks, including attacks that could materially disrupt our systems and operations, supply chain, and ability to do business. These attacks are expected to occur in the future.

If any of the above risks materializes, it could harm our business and prospects. In addition, our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to further expand our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Items 3, 4, and 5 are not applicable and have been omitted.

Item 6. Exhibits

The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

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EXHIBIT INDEX

Exhibit

Number

Description

Form

File No.

Incorporated by Exhibit Reference

Filing Date

3.1

Amended and Restated Certificate of Incorporation of PagerDuty, Inc.

8-K

001-38856

3.1

April 15, 2019

3.2

Amended and Restated Bylaws of PagerDuty, Inc.

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

Filed herewith

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

Filed herewith

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

Furnished herewith

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Filed herewith

101.SCH

XBRL Taxonomy Extension Schema Document.

Filed herewith

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

Filed herewith

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

Filed herewith

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

Filed herewith

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

Filed herewith

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, and 101.PRE).

* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on 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.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		PAGERDUTY, INC.

Date: ~~September~~December 2, 2022	By:	/s/ Jennifer G. Tejada
		Jennifer G. Tejada
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~September~~December 2, 2022	By:	/s/ Owen Howard Wilson
		Owen Howard Wilson
		Chief Financial Officer
		(Principal Financial Officer)

Date: ~~September~~December 2, 2022	By:	/s/ Mitra Rezvan
		Mitra Rezvan
		Vice President, Finance and Corporate Controller
		(Principal Accounting Officer)


Item 1	Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Loss	7
	Condensed Consolidated Statements of Stockholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4	Controls and Procedures	44


	Last 12 Months Ended July 31,
	2022		2021
Dollar-based net retention rate for all customers	124	%	126	%