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What changed in PagerDuty, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of PagerDuty, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+425 added−458 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-16)

Top changes in PagerDuty, Inc.'s 2024 10-K

425 paragraphs added · 458 removed · 316 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeBeginning with new hires, our rewards and recognition programs honor and celebrate the contributions employees make in giving their time, expertise, or capital. Ninety-five percent of our employees participated in volunteering or giving back in 2022.
Biggest changeOur volunteer time off policy offers employees 20 hours annually to volunteer and vote. In 2023, we launched a gift matching program to amplify employee donations to eligible nonprofit organizations, providing a capped 1:1 match for employee contributions. Beginning with new hires, our rewards and recognition programs celebrate the contributions employees make in giving their time, expertise, or capital.
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 evolved from an on-call tool into a platform for digital operations, which resides at the center of a company’s technology ecosystem.
Through different methods of listening, such as our quarterly Engagement surveys, we gather specific feedback on drivers of engagement to better create an engaging and equitable experience for all Dutonians. Our People Development team equips our leaders with the coaching and training necessary to have conversations with our employees to empower them to own and drive their career development goals.
Through different methods of listening, such as our quarterly Engagement surveys, we gather specific feedback on drivers of engagement to better create an engaging and equitable experience for all Dutonians. Our team equips our leaders with the coaching and training necessary to have conversations with our employees to empower them to own and drive their career development goals.
We offer a wide selection of benefits including, but not limited to, medical, dental, and vision benefits, flexible spending and health savings accounts, generous paid time-off and leave programs, and retirement plans. We also provide emotional well-being services through our Employee Assistance Program and a variety of other behavioral health support applications.
We offer a wide variety of benefits including, but not limited to, medical, dental, and vision benefits, flexible spending and health savings accounts, generous paid time-off and leave programs, and retirement plans. We also provide emotional well-being services through our Employee Assistance Program and a variety of other behavioral health support applications.
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 an organization.
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 infrastructure and operations, security, customer service, and executive stakeholder roles across an organization.
We have embedded machine learning, automation, insights, and best practices across our products to help our customers realize value quickly. • Proactive. We are leading a shift from efficient response to proactive and predictive action to help teams prevent incidents from occurring. • Combine process automation and team mobilization.
We have embedded machine learning, automation, AI, insights, and best practices across our products to help our customers realize value quickly. • Proactive. We are leading a shift from efficient response to proactive and predictive action to help teams prevent incidents from occurring. • Combine process automation and team mobilization.
A Pledge 1% member since 2017, we commit 1% of equity, 1% of product, and 1% of employee time to advance positive community impact. In June 2018, we fulfilled our equity pledge by issuing a warrant to purchase shares of our common stock to the Tides Foundation to fund our philanthropic giving.
As a Pledge 1% member since 2017, we commit 1% of equity, 1% of product, and 1% of employee time to advance positive community impact. In June 2018, we fulfilled our equity pledge by issuing a warrant to purchase shares of our common stock to the Tides Foundation to fund our philanthropic giving.
Regulatory We are subject to a number of U.S. federal and state and foreign laws and regulations that involve matters central to our business. These laws and regulations may involve privacy, data protection, intellectual property, competition, consumer protection, export taxation, or other subjects.
Regulatory We are subject to a number of U.S. federal and state and foreign laws and regulations that involve matters central to our business. These laws and regulations may involve data privacy, security, intellectual property, competition, consumer protection, export, taxation, or other subjects.
In addition to internal development, we can expand our product portfolio and offerings through acquisitions. • Grow our international presence. We intend to build on our success to date and grow our sales outside North America, particularly throughout EMEA, Asia Pacific, and Japan.
In addition to internal development, we can expand our product portfolio and offerings through acquisitions. • Grow our international presence. We intend to build on our success to date and grow our sales outside North America, particularly in EMEA, Asia Pacific, and Japan.
The renewals team works proactively to reduce churn/downgrade and provide customers with a positive on-time renewal experience. Research and Development Our research and development team consists of our user experience, product management, engineering and technical operations teams.
The renewals team works proactively to reduce customer churn and downgrade and provide customers with a positive on-time renewal experience. Research and Development Our research and development team consists of our user experience, product management, engineering and technical operations teams.
We announce material information to the public about us, our products and services and other matters through a variety of means, including our website (www.pagerduty.com), the investor relations section of our website (investor.pagerduty.com), our blog (pagerduty.com/blog), press releases, filings with the Securities and Exchange Commission, public conference calls, and social media, including our Twitter account (twitter.com/pagerduty), the Twitter account @jenntejada and Facebook page (facebook.com/pagerduty), in order to achieve broad, non-exclusionary distribution of information to the public.
We announce material information to the public about us, our products and services and other matters through a variety of means, including our website (www.pagerduty.com), the investor relations section of our website (investor.pagerduty.com), our blog (pagerduty.com/blog), press releases, filings with the Securities and Exchange Commission, public conference calls, and social media, including our X (formerly Twitter) account (twitter.com/pagerduty), the X account @jenntejada and Facebook page (facebook.com/pagerduty), in order to achieve broad, non-exclusionary distribution of information to the public.
To calculate our total addressable market, we multiply our estimate of 75 million potential users by our applicable product average revenue per user. We believe that we have approximately 1% penetration worldwide within these markets. In addition to our core use cases, we are seeing customers use our platform across their business operations and industrial operations.
To calculate our total addressable market, we multiply our estimate of 80 million potential users by our applicable product average revenue per user. We believe that we have approximately 1% penetration worldwide within these markets. In addition to our core use cases, we are seeing customers use our platform across their business operations and industrial operations.
We will continue to target our potential customers with community building and marketing programs that include digital campaigns, our user events, broader industry events, customer marketing activities, and user meet-ups. • Expand usage within our existing customer base across development, IT operations, security operations, customer service and support, as well as with new user groups such as business and industrial operations.
We will continue to target our potential customers with community building and marketing programs that include digital campaigns, our user events, executive programming, broader industry events, customer marketing activities, partner marketing, and user meet-ups. • Expand usage within our existing customer base across development, IT infrastructure and operations, security operations, customer service and support, as well as with new user groups such as business and industrial operations.
Our open technology and broad range of integrations ensures that we can effectively co-exist with our customer’s technology. 7 Table of Contents • Enhanced productivity.
Our open technology and broad range of integrations ensures that we can effectively co-exist with our customers' technology. 7 Table of Contents • Enhanced productivity.
Customer Success We are committed to the success of our customers. This means delivering performance improvements that enable our customers to drive their digital initiatives. The key to delivering recurring value is rapid implementation with a focus on continuous improvement throughout our relationship.
Customer Success We are committed to the success of our customers. This means delivering performance improvements that enable our customers to mature their digital initiatives. The key to delivering recurring value is rapid implementation of our PagerDuty capabilities with a focus on continuous improvement throughout our relationship.
Employee Engagement and Development We are deeply committed and invested in ensuring our employees are provided with the resources and tools to not only thrive at PagerDuty, but to work better together as a distributed global company.
Employee Engagement and Development 12 Table of Contents We are deeply committed and invested in ensuring our employees are provided with the resources and tools to not only thrive at PagerDuty, but to work better together as a distributed global company.
We continue to invest in our business and had a net loss attributable to PagerDuty of $128.4 million and $107.5 million for the fiscal years ended January 31, 2023 and 2022, respectively. Our Platform and Key Customer Benefits We have invested aggressively in research and development to build innovative products that deliver value to our customers.
We continue to invest in our business and had a net loss attributable to PagerDuty of $75.2 million and $128.4 million for the fiscal years ended January 31, 2024 and 2023, respectively. Our Platform and Key Customer Benefits We have invested aggressively in research and development to build innovative products that deliver value to our customers.
Our cloud-native platform is differentiated based on a broad range of attributes: 6 Table of Contents • Built for real time. Our platform manages today’s complex and contemporary digital services. These are hybrid cloud and microservice based environments that are constantly changing state.
Our cloud-first platform is differentiated based on a broad range of attributes: • Built for real time. Our platform manages today’s complex and contemporary digital services. These are hybrid cloud and microservice based environments that are constantly changing state.
There is no concept of queued tickets or queued work on our platform because we are built to understand these situations and solve incidents within seconds or minutes, not hours or days. • Nearly 14 years’ of data from over 15,200 paying customers.
There is no concept of queued tickets 6 Table of Contents or queued work on our platform because we are built to understand these situations and solve incidents within seconds or minutes, not hours or days. • Nearly 15 years of data from over 15,000 paying customers.
We have delivered 99.98% uptime to our customers over the past 24 months. Security is a critical customer requirement, and we have adopted governance, access control, and vulnerability testing to support the needs of our most sophisticated customers. • Designed for the user. Our software is instant on and easy to adopt and use.
We have delivered 99.98% availability to our customers over the past 24 months. Security is a critical customer requirement, and we have governance, robust access control policies and vulnerability management to support the needs of our customers. • Designed for the user. Our software is instant on and easy to adopt and use.
We estimated that in 2022, there were approximately 75 million potential users worldwide in the development, IT operations, customer service and support, and security operations segments, comprised of approximately: • 25.0 million development personnel • 21.0 million IT operations personnel • 27.0 million customer service and support personnel • 2.0 million security operations personnel We estimate our total addressable market is over $38 billion.
We estimated that in 2023, there were approximately 80 million potential users worldwide in the development, IT infrastructure and operations, customer service and support, and security operations segments, comprised of approximately: • 29.0 million development personnel • 22.0 million IT operations personnel • 27.0 million customer service and support personnel • 2.0 million security operations personnel We estimate our total addressable market is over $38 billion.
Our policy is to require employees and independent contractors to sign agreements assigning to us any inventions, trade secrets, works of authorship, developments, and other processes generated by them on our behalf and agreeing to protect our confidential information. In addition, we generally enter into confidentiality agreements with our vendors and customers.
Our policy is to require employees and independent contractors to sign agreements assigning to us any inventions, trade secrets, works of authorship, developments, and other processes generated by them on our behalf and agreeing to protect our confidential information.
We are continually investing in our global workforce to further drive diversity and inclusion, provide fair and market-competitive pay and benefits to support our employees’ well-being, and foster their growth and development. As of January 31, 2023, we had 1,166 employees, of which approximately 65% were in the United States and 35% were in our international locations.
We are continually investing in our global workforce to further drive diversity and inclusion, provide fair and market-competitive total rewards to engage our employees, support our employees’ well-being, and foster their growth and development. As of January 31, 2024, we had 1,182 employees, of which approximately 59% were in the United States and 41% were in our international locations.
We regularly evaluate our compensation and benefits to ensure we are providing a package that is competitive with a constantly changing market, as well as meets the needs of our employees. Aligned with our company strategy and objectives, our compensation programs include fixed base pay and opportunities for short-term and long-term incentives for those eligible.
We regularly evaluate our total rewards programs to ensure we are providing an employee value proposition that is competitive with a constantly changing market, as well as meets a hierarchy of needs of our employees. Aligned with our company strategy and objectives, our compensation programs include fixed base salary and opportunities for short-term and long-term variable incentives for those eligible.
The ERGs are the cultural backbone of our vibrant community and support our ID&E efforts through education, awareness, and celebration. Additional components of our strategy include an ID&E Ambassador Program, which provides a global perspective on cultural and business norms for every region, and ID&E Guiding Principles to promote model leadership across all levels.
Additional components of our strategy include an ID&E Ambassador Program, which provides a global perspective on cultural and business norms for every region, and ID&E Guiding Principles to promote model leadership across all levels.
With the recent forming of our Culture & Strategy team, our mission is to increase employee engagement throughout the entire employee lifecycle through intentional listening, activating our company values and practice, and communicating our employee value proposition to employees, customers and partners.
Our focus is to increase employee engagement throughout the entire employee lifecycle through intentional listening, activating our company values and practice, and communicating our employee value proposition to employees, customers and partners.
We provide in-depth instructor-led courses to certify our customers and partners on products, technology, and best practices. The support teams respond to our customers’ queries related to our products via a multi-channel environment from no-fee to paid 24/7 support with service-level agreements. Technical industry experts, architects, and consultants assist customers with rapid deployment with workflow optimization and PagerDuty best practices.
For continuous learning, we provide in-depth instructor-led and self-paced courses to certify our customers and partners on products, technology, and best practices. The support teams respond to our customers’ queries related to our products via a multi-channel environment from no-fee to paid 24/7 support with service-level agreements.
Our customers depend on us for their digital operations needs. When their systems fail, we need to be operational. We have built multiple redundancies into our infrastructure, including multiple cloud regions, communications network, and a single DNS provider from a leading cloud provider. We run entirely in production, with no maintenance windows, so our customers can rely on always-on delivery.
Our customers depend on us for their digital operations needs. When their systems fail, we need to be operational. We have built multiple redundancies into our infrastructure, including multiple cloud regions, availability zones, and communications, with no maintenance windows, so our customers can rely on our always-on platform.
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 any system or device.
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 any system or device. This allows technical teams to collect digital signals from any system or platform in their environment without the effects of context switching.
Our Growth Strategies • Land new customer s. We will continue to target new customers by leveraging our trusted brand and efficient go-to-market strategy that combines self-serve viral adoption with a focused direct sales effort. We will continue to build on our partner ecosystem to drive awareness and adoption of our products.
Our Growth Strategies • Land new customers . We will continue to target new customers by leveraging our trusted brand and efficient go-to-market strategy that combines self-serve viral adoption for all customers with a focused direct sales effort for potential large and enterprise customers and by leveraging channel sales.
These two teams work together to provide a holistic experience where our employees feel 12 Table of Contents engaged and connected to our company's goals, as well as seeing themselves growing and developing within our organization.
We strive to provide a holistic experience where our employees feel engaged and connected to our company’s goals, as well as seeing themselves growing and developing within our organization.
We assist our customers by enhancing their ability to operate in real time via cross functional workflows in engineering, IT, security, customer support, executive leadership, and across their entire employee base. Companies are typically on a digital operations maturity journey that we model in five stages: manual, reactive, responsive, proactive, and preventative.
We assist our customers by enhancing their ability to operate in real-time via cross-functional workflows in engineering, IT, security, customer support, executive leadership, and across their entire employee base.
Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; adverse publicity and reputational damage; loss of revenue or profits; loss of customers or sales; decrease the price of our common stock; and other adverse business consequences.
Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; adverse publicity and reputational damage; loss of revenue or profits; loss of customers or sales; decrease the price of our common stock; and other adverse business consequences.” Geographic Information For a description of our revenue and long-lived assets by geographic location, see Note 15, “Geographic Information” of the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K.
The self-service, low friction nature of our offering allows us to expand our reach into other regions where we see significant opportunity. Our international operations generated 24% of our revenue in the fiscal year ended January 31, 2023. Our Market Opportunity Our platform has demonstrated core use cases across development, IT operations, customer service and support, and security operations.
The self-service, low friction nature of our offering allows us to expand our reach into other regions where we see significant opportunity. Our international operations generated 28% of our revenue in the fiscal year ended January 31, 2024. • Grow our U.S. Public Sector and Federal presence.
The PagerDuty Operations Platform consists of the following products, which empowers teams to address broader digital operations management requirements. • PagerDuty Incident Response. PagerDuty Incident Response provides a real-time view across the status of a digital service while incorporating noise reduction to remove false positives. Templated, automated runbooks guide major incidents while task automation automates diagnostics and remediation wherever possible.
The PagerDuty Operations Cloud consists of the following products that empower teams to address broader digital operations management requirements. • PagerDuty Incident Management. PagerDuty Incident Management provides a real-time view across the status of a digital service while incorporating intelligent noise reduction to remove false positives.
Additional information on our diversity and inclusion strategy, and diversity metrics and programs can be found on our website at https://www.pagerduty.com/careers/diversity/. Nothing on our website shall be deemed incorporated by reference into this Form 10-K. Compensation, Benefits, and Well Being We offer equitable, competitive compensation and benefits that support our employees’ overall well-being and attract and retain high performing talent.
Additional information on our global engagement and belonging strategy and programs can be found on our website at https://careers.pagerduty.com/diversity-inclusion Nothing on our website shall be deemed incorporated by reference into this Form 10-K.
We collect data and digital signals from virtually any software-enabled system or device and leverage powerful machine learning to correlate, process, and predict opportunities and issues. Using incident response, event management, and automation, we bring together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are.
Using incident management, process automation, AI operations and customer service operations, we bring together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are.
We deployed approximately $1.4 million in the fiscal year ended January 31, 2023, including the launch of the PagerDuty Impact Accelerator to help tech-forward organizations in our focus areas of time-critical health and climate equity amplify their impact by providing unrestricted funding, product credits and discounts, technical pro bono support, and voice amplification.
The PagerDuty.org Fund amplifies partner impact through unrestricted funding, donated product, and technical employee pro bono expertise in our core areas of Time-Critical Health and Climate. We deployed approximately $1.3 million in the fiscal year ended January 31, 2024, to advance the work of tech-forward organizations in our areas of focus.
Sales and Marketing We employ a highly efficient go-to-market strategy that combines viral adoption through word of mouth, user-centric content marketing, and grass roots brand development with a high-velocity inside sales model that drives both the initial land of new customers and the subsequent expansion into broader use cases, increased users, and premium functionality.
We leverage viral adoption through word of mouth, user-centric content marketing, and grass roots brand development with a high-velocity programmatic and product led sales motion for both the initial land of new customers and the subsequent expansion of smaller and mid-market customers.
In our view, the majority of organizations are in one of the first three stages, which means issues are primarily discovered only through customer reports. To assist companies in the advancement of their digital journeys, our Customer Success team is structured to provide expertise through the entire customer lifecycle from onboarding, adoption of our platform, business value realization and renewal.
To assist companies in the advancement of their digital journeys, our Customer Success team is structured to provide expertise through the entire customer lifecycle from onboarding, adoption of our platform, business value realization, and renewal. Technical industry experts, architects, and consultants assist customers with rapid deployment using workflow optimization and PagerDuty best practices.
Inclusion, Diversity, and Equity Our vision is to build an equitable world where we transform critical work so all teams can delight their customers and build trust. We seek to enable employees of all backgrounds to be champions, facilitators, and practitioners of Inclusion, Diversity, and Equity (“ID&E”) everywhere.
Inclusion, Diversity, and Equity Our vision is to build an equitable world where we transform critical work so all teams can delight their customers and build trust. As an organization, we believe that we have a responsibility to leave the world in a better space than where we found it.
Social Impact and Environmental, Social and Governance (“ESG”) Initiatives We launched PagerDuty.org in 2018 to ensure a sustainable contribution to the communities in which we live, work, and serve by integrating social impact and ESG goals across our business.
Global Impact and Environmental, Social and Governance Initiatives We launched PagerDuty.org in 2018 to help make a sustainable contribution to the communities in which we live, work, and serve by adding value to the planet and society, and therefore, to the company. PagerDuty.org empowers mission-driven teams to build a more equitable world and sustainable future.
Customers may begin their journey on the PagerDuty platform with the Free plan for less than 5 users and grow into full Digital Operations capabilities, streamlining incident response, automating diagnosis and remediation. Status Pages is available as an add-on to these Plans to enhance and automate the end-user engagement in managing an incident.
Customers may begin their journey on the PagerDuty platform with the Free plan for up to 5 users and grow into full Digital Operations capabilities with thousands of users.
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.
Those same integrations connect with popular collaboration tools and business applications as well as all types of technology stacks to drive automation of work. We generate revenue primarily from cloud-hosted subscription fees. We also generate revenue from term-license software subscription fees. PagerDuty has a land-and-expand business model that leads to viral adoption of our products and subsequent expansion.
While we had 15 issued patents and 13 patent applications pending examination in the United States as of January 31, 2023 that, with respect to the issued patents, are expected to have terms ending between 2033 and 2040, and we actively seek patent protection covering inventions originating from our company, we do not believe that we are materially dependent on any one or more of our patents.
We had 20 issued patents and 28 patent applications pending examination in the United States as of January 31, 2024 that, with respect to issued patents, are expected to have terms ending between 2033 and 2042. We pursue the registration of domain names, trademarks, and service marks in the United States and in various jurisdictions outside the United States.
We use diverse marketing tactics to engage with prospective customers, including email marketing, event marketing, digital advertising, social media, public relations, and community initiatives. We also host and present at regional, national, and global events, including our PagerDuty Summit, to engage both customers and prospects, deliver product training, share best practices, and foster community.
We also host and present at regional, national, and global events to engage both customers and prospects, deliver product training, share best practices, and foster community. Our technical leaders and evangelists frequently speak as subject matter experts at market-leading developer events like DevOps Days.
These teams drive expansion to additional users, new use cases, and add-on products, as well as the upsell to higher value plans. Our business has experienced rapid growth since our inception. For the fiscal years ended January 31, 2023 and 2022, our revenue was $370.8 million and $281.4 million, respectively.
The PagerDuty Field organization is focused on selling the PagerDuty platform across IT, development, and customer service operations teams. Our business has experienced rapid growth since our inception. For the fiscal years ended January 31, 2024 and 2023, our revenue was $430.7 million and $370.8 million, respectively.
We believe that we compete favorably with respect to all of these factors and that we are well positioned as a leader in the category of digital operations management. Intellectual Property We rely on a combination of trade secrets, patents, copyrights, and trademarks, as well as contractual protections, to establish and protect our intellectual property rights.
Larger competitors, in particular, possess the operational flexibility to bundle competing products and services within broader software offerings, often presenting them at a reduced price. Intellectual Property We rely on a combination of trade secrets, patents, copyrights, and trademarks, as well as contractual and other protections, to establish and protect our intellectual property rights.
Further, we continue to empower PagerDuty Employee Resource Groups and global champions to fund organizations and issues aligned to their community through our Dutonian-led grantmaking program. Our volunteer time off policy offers employees 20 hours annually to volunteer, vote, and participate in non-partisan voter engagement efforts and peaceful demonstration.
Further, we continue to empower PagerDuty Employee Resource Groups and global impact champions to deploy funds to organizations and issues aligned to their community through our employee-led community grantmaking program. Our Employee Impact programs are designed to engage employees in these sorts of initiatives throughout their tenure, beginning with new hire onboarding.
We intend to increase our inside and field sales and customer success efforts as well as leverage partners to continue to drive adoption across our existing customers. 8 Table of Contents • Introduce new products and functionality.
We will continue to advance our sales and customer success efforts and how we work with partners to demonstrate to customers how increased adoption of teams and users on the platform and new adoption of products and solutions with the platform can drive value through revenue growth and reduced risk and cost. 8 Table of Contents • Introduce new products and solutions.
Our sales teams are organized by geography, consisting of the Americas, EMEA, Asia Pacific, and Japan, as well as by target organization size. Our core Incident Response and Customer Service Operations products offer pricing plans aligned with our customers’ needs and the maturity of their digital operations: Free, Professional, Business, and Digital Operations.
Our global sales teams focus on both new customer acquisition and up-selling and cross-selling additional products to our existing customers. Our sales teams are organized by geography, consisting of the Americas, EMEA, Asia Pacific, and Japan, as well as by target company size and industry vertical.
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Item 1. Business Overview PagerDuty is a digital operations management platform that manages urgent and mission-critical work for a modern, digital business. 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.
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Item 1. Business Overview PagerDuty, Inc. is a global leader in digital operations management, enabling customers to achieve operational efficiency at scale and transform critical work for modern enterprises.
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PagerDuty was founded to support the DevOps movement by breaking down silos between technical teams, like developers and operators, enabling a culture of accountability and collaboration. Our platform’s initial focus was on the software developers who are the owners and architects of the customers’ digital experience and enterprises’ digital transformation.
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The PagerDuty Operations Cloud combines AIOps, Automation, Incident Management, and Customer Service Operations into a flexible, resilient and scalable platform to increase innovation velocity, protect revenue, reduce cost, and mitigate the risk of operational failure. Today, nearly every business is a digital business.
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To drive adoption and earn trust within the developer community, our platform is designed to find, adopt, and scale with a rapid return on investment (“ROI”) for our users.
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We collect data and digital signals from virtually any software-enabled system or device and leverage powerful machine learning (ML) to correlate, process, and predict opportunities and incidents.
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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.
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An increasing focus for our go-to-market motion, including our field sales team, is serving enterprise customers. These teams drive expansion to additional users, new use cases, and additional products, as well as upgrades to higher-value plans. Our mid-market and enterprise customers account for the majority of our revenue today.
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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.
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The PagerDuty Operations Cloud combines AIOps, Automation, Incident Management, and Customer Service Operations into a flexible, resilient, and scalable platform to increase innovation velocity, protect revenue, reduce cost, and mitigate the risk of operational failure. PagerDuty harnesses the power of technology to put people first: scaling teams with automation and keeping them in-context and in-flow.
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We provide our customers with a complete platform that spans end-to-end digital operations management needs: harness digital data, make sense of data, automate, respond and engage teams, and analyze and learn from a team’s actions. We have continued to extend our core capabilities around on-call management and incident response to include AI Ops and automation.
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We empower users to take the right actions in real time, every time an incident occurs.
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If human intervention is required, it provides advanced incident response capabilities to quickly identify and mobilize the right responders while equipping responders with context, recommendations, and remediation to accelerate resolution of issues.
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With PagerDuty, users can shift towards a proactive, AI-powered approach to improve operational resilience by automating response, accelerating resolution, and preventing future occurrences with a unified platform that manages incidents end-to-end - from automated precision response, to business-wide orchestration, to major incident learning. • AIOps .
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We also keep all users in the loop during an incident, providing templated stakeholder updates as well as PagerDuty Status Pages to communicate with end-users. • PagerDuty Process Automation.
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PagerDuty AIOps empowers users to gain powerful context and noise reduction at scale by applying machine learning to correlate and automate the identification of incidents from billions of events.
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PagerDuty Process Automation products empower users with the ability to create automated workflows and runbooks that span different scripts, tools, APIs, and system commands to safely hand off the knowledge required to use these tools correctly and consistently. With this self-service functionality, organizations can safely extend operations privileges to other teams and business units. • PagerDuty Event Intelligence.
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Customers ingest and normalize events from any source, and extract signal from the noise with intelligent alert grouping, enrichment and triage support, change intelligence, and dynamic routing leading to fewer incidents and faster resolution. • Process Automation. PagerDuty Process Automation provides a centralized design time and run time environment for orchestrating automated workflows that span across departments, technologies, and networks.
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PagerDuty Event Intelligence (“AI Ops”) applies machine learning to correlate and automate the identification of incidents from billions of events. Event Intelligence groups related events into a single incident, performs advanced suppression to prevent notification of non-actionable events, and continuously learns from similar incidents to provide teams better context and insight.
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Users can speed up operations and resolve incidents faster while lowering operating costs, and reducing risk and liability. With self-service functionality, organizations can safely extend operations privileges to other teams and business units. • Customer Service Operations. PagerDuty for Customer Service makes it easy to orchestrate, automate, and scale your response to customer impacting issues.
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Our Event Intelligence capabilities allow teams to reduce manual work and be more productive. • PagerDuty for Customer Service. PagerDuty for Customer Service makes it easy to orchestrate, automate, and scale your response to customer impacting issues.
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We will continue to build on our partner ecosystem to drive value, awareness, sales, and adoption of our products.
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Development and IT professionals often make an initial purchase of our platform for a small number of users and then expand users over time. We will continue to work with customers to demonstrate how additional users can help accelerate organizational benefits. We see significant growth opportunities within the development, IT operations, security operations, and customer service.
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Our direct sales efforts are focused on enterprise and large customers with solution and value led engagement for executives and technology buyers. At small and midsize companies, development and IT professionals often make an initial purchase of our platform for a small number of users and then expand users and add products over time.
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We also target senior IT and business operations management at companies from mid-market to the largest enterprises through inside and field sales strategies to pursue larger-scale deployments. Our global sales teams focus on both new customer acquisition and up-selling and cross-selling additional products to our existing customers.
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In August 2023 we announced our approval for “In Process” status within the Federal Risk and Authorization Management Program (FedRAMP®) and are listed as “In Process” in the FedRAMP Marketplace. Our Market Opportunity Our platform has demonstrated core use cases across development, IT infrastructure and operations, customer service and support, and security operations.
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AI Ops add-ons, PagerDuty Event Intelligence and PagerDuty Automation Actions, are also available for a more incremental upgrade as an alternative to upgrading to the full Digital Operations plan. Customers can also take an automation first approach, beginning their PagerDuty journey with subscriptions to PagerDuty Process Automation (previously Rundeck) or its SaaS counterpart, PagerDuty Runbook Automation.
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Sales and Marketing We employ a go-to-market strategy organized around the size of company and industry vertical. We principally deploy a high-touch sales led motion for enterprise customers in our key verticals, and largely a programmatic and product led motion for smaller and mid-market customers.
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Our technical leaders and evangelists frequently speak as subject matter experts at market-leading developer events like DevOps Days. Competition PagerDuty has largely competed to replace manual work and homegrown systems.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFrom time to time, the Option Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes (and are likely to do so following any conversion of the Notes, any repurchase of the Notes by us on any fundamental change repurchase date, any redemption date, or any other date on which the Notes are retired by us, in each case, if we exercise our option to terminate the relevant portion of the Capped Calls).
Biggest changeFrom time to time, the Option Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2025 Notes or the 2028 Notes, as the case may be, with respect to the Capped Calls corresponding to the 2025 Notes or the 2028 Notes, as applicable (and are likely to do so on each exercise date of the Capped Calls, which are scheduled to occur during the observation period relating to any conversion of the 2025 Notes on or after April 1, 2025 or any conversion of the 2028 Notes on or after June 15, 2028, in each case, that is not in connection with a redemption, or following our election to terminate any portion of the Capped Calls in connection with any repurchase, redemption, exchange or early conversion of the 2025 Notes or the 2028 Notes).
If the assumptions that we use to plan our business are incorrect or change in reaction to changes in our market, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability.
If the assumptions that we use to plan our business are incorrect or change in reaction to market changes, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability.
As a result, we may be unable to renew our subscriptions with existing customers or attract new business from existing customers, which would have an adverse effect on our business, revenue, gross margins, and other operating results, and accordingly, on the trading price of our common stock.
As a result, we may be unable to renew our subscriptions with existing customers or attract new business from existing customers, which would have an adverse effect on our business, revenue, gross margins, and other operating results, and accordingly, the trading price of our common stock.
The effectiveness of these programs has varied over time and may vary in the future due to competition for key search terms, changes in search engine use, changes in the search algorithms used by major search engines and the European Union’s General Data Protection Regulation (“EU GDPR”), the United Kingdom’s GDPR (“U.K. GDPR”) and other similar privacy initiatives.
The effectiveness of these programs has varied over time and may vary in the future due to competition for key search terms, changes in search engine use, changes in the search algorithms used by major search engines and the European Union’s General Data Protection Regulation (“EU GDPR”), the United Kingdom’s GDPR (“U.K. GDPR”) and other similar data privacy initiatives.
Some of these indemnity agreements provide for uncapped liability and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, results of operations, and financial condition.
Some of these agreements provide for uncapped liability and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, results of operations, and financial condition.
Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock; • require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer; • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • establish that our board of directors is divided into three classes, with each class serving three-year staggered terms; • prohibit cumulative voting in the election of directors; • provide that our directors may be removed for cause only upon the vote of sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock; • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and 47 Table of Contents • require the approval of our board of directors or the holders of at least sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock to amend our bylaws and certain provisions of our certificate of incorporation.
Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock; • require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer; • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • establish that our board of directors is divided into three classes, with each class serving three-year staggered terms; • prohibit cumulative voting in the election of directors; 47 Table of Contents • provide that our directors may be removed for cause only upon the vote of sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock; • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and • require the approval of our board of directors or the holders of at least sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock to amend our bylaws and certain provisions of our certificate of incorporation.
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. 29 Table of Contents Our current and future international business and operations involve a variety of risks, including: • recession or economic downturn globally or in the jurisdictions in which we do business; • inflation, as well as changes in existing and expected rates of inflation, which may vary across the jurisdictions in which we do business; • changes in a specific country’s or region’s political or economic conditions; • health epidemics or pandemics, such as the COVID-19 pandemic, influenza and other highly communicable diseases or viruses; • 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.
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. 29 Table of Contents Our current and future international business and operations involve a variety of risks, including: • recession or economic downturn globally or in the jurisdictions in which we do business; • inflation, as well as changes in existing and expected rates of inflation, which may vary across the jurisdictions in which we do business; • changes in a specific country’s or region’s political or economic conditions; • health epidemics or pandemics, influenza and other highly communicable diseases or viruses; • 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 data privacy and 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.
Our ability to expand sales of our platform depends on several factors, including potential customer awareness of our platform; the timely completion, introduction, and market acceptance of enhancements to our platform or new products that we may introduce; our ability to attract, retain, and effectively train inside and field sales personnel; our ability to develop or maintain integrations with partners; the effectiveness of our marketing programs; the costs of our platform; and the success of our competitors.
Our ability to expand sales subscriptions of our platform depends on several factors, including potential customer awareness of our platform; the timely completion, introduction, and market acceptance of enhancements to our platform or new products that we may introduce; our ability to attract, retain, and effectively train inside and field sales personnel; our ability to develop or maintain integrations with partners; the effectiveness of our marketing programs; the costs of our platform; and the success of our competitors.
We face substantial competition from in-house solutions, open source software, manual processes, and software providers that may compete against certain components of our offering, as well as established and emerging software providers. With the introduction of new technologies and market entrants, we expect that the competitive environment will remain intense going forward.
We face substantial competition from in-house solutions, open-source software, manual processes, and software providers that may compete against certain components of our offering, as well as established and emerging software providers. With the introduction of new technologies and entrants, we expect that the competitive environment will remain intense going forward.
If a third party is able to obtain an injunction preventing us from accessing third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our software or cease business activities related to such intellectual property.
If a third party is able to obtain an injunction preventing us from accessing third-party intellectual property rights, or if we cannot license or develop alternative technology for any aspect of our business found to be infringing, we would be forced to limit or stop sales of our software or cease business activities related to such intellectual property.
Any inability to license third-party technology in the future would have an adverse effect on our business or operating results and would adversely affect our ability to compete. We may also be contractually obligated to indemnify our customers in the event of infringement of a third party’s intellectual property rights.
Any inability to license third-party technology in the future would have an adverse effect on our business or operating results and would adversely affect our ability to compete. We may also be contractually obligated to indemnify our customers in the event of a finding of infringement of a third party’s intellectual property rights.
If we are unable to meet the stated service-level commitments, including failure to meet the uptime and delivery requirements under our customer subscription agreements, we may be contractually obligated to provide these customers with service credits which could significantly affect our revenue in the periods in which the uptime or delivery failure occurs and the credits are applied.
If we are unable to meet the stated service-level commitments, including our failure to meet the uptime and delivery requirements under these customer subscription agreements, we may be contractually obligated to provide these customers with service credits which could significantly affect our revenue in the periods in which the uptime or delivery failure occurs or when the credits are applied.
Certain data privacy and security obligations may require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive information. While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective.
Additionally, certain data privacy and security obligations may require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive data. While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective.
Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Notes) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.
Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change (as defined in the relevant indenture governing the Notes) at a repurchase price equal to 100% of the principal amount of the relevant Notes to be repurchased, plus accrued and unpaid interest, if any.
Remote work has also become more common and has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers and devices outside our premises or network, including working at home, while in transit and in public locations.
Remote work has become more common and has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers and devices outside our premises or network, including working at home, while in transit and in public locations.
If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve the anticipated benefits from such acquisitions, due to a number of factors, including: • acquisition-related costs, liabilities, or tax impacts, some of which may be unanticipated; • difficulty integrating and retaining the personnel, intellectual property, technology infrastructure, and operations of an acquired business; 42 Table of Contents • ineffective or inadequate, controls, procedures, or policies at an acquired business, including cybersecurity risks and vulnerabilities; • multiple product lines or services offerings, as a result of our acquisitions, that are offered, priced, and supported differently; • potential unknown liabilities or risks associated with an acquired business, including those arising from existing contractual obligations or litigation matters; • inability to maintain relationships with key customers, suppliers, and partners of an acquired business; • lack of experience in new markets, products or technologies; • diversion of management’s attention from other business concerns; and • use of resources that are needed in other parts of our business.
If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve the anticipated benefits from such acquisitions, due to a number of factors, including: • acquisition-related costs, liabilities, or tax impacts, some of which may be unanticipated; • difficulty integrating and retaining the personnel, intellectual property, technology infrastructure, and operations of an acquired business; • ineffective or inadequate, controls, procedures, or policies at an acquired business, including cybersecurity risks and vulnerabilities; • multiple product lines or services offerings, as a result of our acquisitions, that are offered, priced, and supported differently; • potential unknown liabilities or risks associated with an acquired business, including those arising from existing contractual obligations or litigation matters; • inability to maintain relationships with key customers, suppliers, and partners of an acquired business; • lack of experience in new markets, products or technologies; • diversion of management’s attention from other business concerns; and • use of resources that are needed in other parts of our business.
Our failure to repurchase the Notes at a time when the repurchase is required by the indenture governing the Notes or to pay any cash payable on future conversions as required by such indenture would constitute a default under such indenture.
Our failure to repurchase the Notes at a time when the repurchase is required by the relevant indenture governing the Notes or to pay any cash payable on future conversions as required by such indenture would constitute a default under such indenture.
In addition, if the market for our platform and products grows more slowly than anticipated, or if demand for our digital operations platform does not grow as quickly as anticipated, whether as a result of competition, pricing sensitivities, product obsolescence, technological change, unfavorable economic conditions, bank failures, uncertain geopolitical environment, budgetary constraints of our customers, or other factors, our business, results of operations, and financial condition would be adversely affected.
In addition, if the market for our platform and products grows more slowly than anticipated, or if demand for our digital operations platform does not grow as quickly as anticipated, whether as a result of competition, pricing sensitivities, product obsolescence, technological change, unfavorable economic conditions, uncertain geopolitical environment, budgetary constraints of our customers, or other factors, our business, results of operations, and financial condition would be adversely affected.
Because we recognize revenue from the majority of our subscriptions over the term of the relevant agreement, downturns or upturns in sales are not immediately reflected in full in our operating results.
Because we recognize revenue from the vast majority of our subscriptions over the term of the relevant agreement, downturns or upturns in sales are not immediately reflected in full in our operating results.
We may not be able to successfully manage the growth of our business if we are unable to improve our internal systems, processes, and controls. We need to continue to improve our internal systems, processes, and controls to effectively manage our operations and growth.
We may not be able to successfully manage the growth of our business if we are unable to improve our internal systems, processes, and controls. We need to continue improving our internal systems, processes, and controls to effectively manage our operations and growth.
Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations. Under current U.S. tax law, federal NOL carryforwards generated in tax years ending on or prior to December 31, 2017 are only permitted to be carried forward for 20 years.
Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations. Under current U.S. tax law, federal NOL carryforwards generated in tax years ending on or prior to December 31, 2017 are only 31 Table of Contents permitted to be carried forward for 20 years.
In particular, we compete with many other companies for software developers with high levels of experience in designing, developing, and managing cloud-based software, as well as for skilled sales and operations professionals. While the market for such personnel is particularly competitive in Silicon Valley, it is also competitive in other markets where we maintain operations, including Canada and Portugal.
In particular, we compete with many other companies for software developers with high levels of experience in designing, developing, and managing cloud-based software, as well as for skilled sales and operations professionals. While the market for such personnel is particularly competitive in Silicon Valley, it is also competitive in other regions where we maintain operations, including Canada and Portugal.
Any of the previously identified or similar threats could cause a security incident, production downtime or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information or our information technology systems, or those of the third parties upon whom we rely.
Any of the previously identified or similar threats could cause a security incident, production downtime or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our or our customers’ sensitive data or our information technology systems, or those of the third parties upon whom we rely.
Although we are not currently subject to any such investigations, if investigations targeted at other companies result in determinations that practices we follow are unlawful, including practices related to use of machine- and customer-generated data or AI, we could be required to change our products and services or alter our business operations, which could harm our business.
Although we are not currently aware of any such investigations, if investigations targeted at other companies result in determinations that practices we follow are unlawful, including practices related to use of machine- and customer-generated data or AI, we could be required to change our products and services or alter our business operations, which could harm our business.
In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. We are subject to evolving and increasingly stringent U.S. and foreign laws, regulations, rules, contractual obligations, policies and other legal obligations related to data privacy and security.
In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security.
A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our existing and future indebtedness.
A default under the relevant indenture or the fundamental change itself could also lead to a default under agreements governing our existing and future indebtedness.
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. Our international operations may subject us to potential adverse tax consequences. We are expanding our international operations to better support our growth into international markets.
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. Our international operations may subject us to potential adverse tax consequences. We are continuing to expand our international operations to better support our growth into international markets.
In addition, we expect to continue to expend substantial financial and other resources on: • sales and marketing, including expansion to serve customers internationally; • our technology infrastructure, including systems architecture, scalability, availability, performance, and security; 15 Table of Contents • product development, including investments in our product development team and the development of new products and new functionality for our platform; • acquisitions or strategic investments; • international expansion; and • general administration, including increased legal, accounting, and compliance expenses associated with being a public company.
In addition, we expect to continue to expend substantial financial and other resources on: • sales and marketing, including expansion to serve customers internationally; • our technology infrastructure, including systems architecture, scalability, availability, performance, and security; • product development, including investments in our product development team and the development of new products and new functionality for our platform; • acquisitions or strategic investments; • international expansion; and • general administration, including increased legal, accounting, and compliance expenses associated with being a public company.
Some of our actual and potential competitors have been acquired by other larger enterprises and have made or may make acquisitions or may enter into partnerships or other strategic relationships that may provide more comprehensive offerings than they individually had offered or achieve greater economies of scale than us.
Some of our actual and potential competitors have been acquired by other larger enterprises and have made or may make acquisitions or may enter into partnerships or other strategic relationships that may provide more comprehensive offerings than they individually had offered or achieve greater economies of scale than we have.
The occurrence of any defects, errors, disruptions in service, or other performance problems with our software, whether in connection with day-to-day operations, upgrades, or otherwise, could result in: • loss of customers; • lost or delayed market acceptance and sales of our products; • delays in payment to us by customers; • injury to our reputation and brand; • legal claims, including warranty and service level agreement claims, against us; or • diversion of our resources, including through increased service and warranty expenses or financial concessions, and increased insurance costs.
The occurrence of any defects, errors, disruptions in service, or other performance problems with our software, whether in connection with day-to-day operations, upgrades, or otherwise, could result in: • loss of customers; • lost or delayed market acceptance and sales of our products; • delays in payment to us by customers; • injury to our reputation and brand; • legal claims, including warranty and service level agreement claims, against us; or 22 Table of Contents • diversion of our resources, including through increased service and warranty expenses or financial concessions, and increased insurance costs.
In January 2018, the Federal Communications Commission, or the FCC, repealed “network neutrality” rules, which barred internet service providers from blocking or slowing down access to online content, protecting services like ours from such interference. The 2018 decision was largely affirmed by the U.S.
In January 2018, the Federal Communications Commission (the “FCC”) repealed “network neutrality” rules, which barred internet service providers from blocking or slowing down access to online content, protecting services like ours from such interference. The 2018 decision was largely affirmed by the U.S.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, data protection, and other losses.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, data, and other losses.
The market for digital operations management solutions, particularly enterprise-grade solutions, is in an early stage of development, and it is uncertain whether this market will develop, and even if it does develop, how rapidly it will develop, how much it will grow, or whether our platform will be widely adopted.
The market segment for digital operations management solutions, particularly enterprise-grade solutions, is still in an early stage of development, and it is uncertain whether this market will develop, and even if it does develop, how rapidly it will develop, how much it will grow, or whether our platform will be widely adopted.
Further, we often depend on individuals within an organization who initiate the trial versions of our products being able to convince decision makers within their organization to convert to a paid version. Many organizations have complex and multi-layered purchasing requirements.
Further, we often depend on individuals within an organization who initiate the trial or free versions of our products being able to convince decision makers within their organization to convert to a paid version. Many organizations have complex and multi-layered purchasing requirements.
With mid-market and enterprise customers, the decision to subscribe to our platform frequently may require the approval of multiple management personnel and more technical personnel than would be typical of a smaller organization, and accordingly, sales to mid-market and enterprise customers may require us to invest more time educating these potential customers.
With mid-market and enterprise customers, the decision to subscribe to our platform frequently may require the approval of multiple management personnel and more technical personnel than would be typical of a smaller organization, and accordingly, sales to mid-market and enterprise customers may require us to invest more time educating these decision makers.
If a new or revised visa program is implemented, it may impact our ability to recruit, hire, retain or effectively collaborate with qualified skilled personnel, including in Canada, which could adversely impact our business, operating results and financial condition.
If a new or revised U.S. visa program is implemented, it may impact our ability to recruit, hire, retain or effectively collaborate with qualified skilled personnel, including in Canada, which could adversely impact our business, operating results and financial condition.
We may experience difficulties in managing improvements to our systems, processes, and controls in connection with the implementation of third-party software or otherwise, which could impair our ability to provide products to our customers in a timely manner, limit us to smaller deployments of our products, increase our technical support costs or cause us to be unable to timely and accurately report our financial results in accordance with the rules and regulations of the SEC.
We may experience 32 Table of Contents difficulties in managing improvements to our systems, processes, and controls in connection with the implementation of third-party software or otherwise, which could impair our ability to provide products to our customers in a timely manner, limit us to smaller deployments of our products, increase our technical support costs or cause us to be unable to timely and accurately report our financial results in accordance with the rules and regulations of the SEC.
In particular, we intend to continue to expend significant funds to further develop our platform, including by introducing new products and functionality, and to expand our inside and field sales teams and customer success team to drive new customer adoption, expand use cases and integrations, and support international expansion.
In particular, we intend to continue to expend significant funds to further develop our platform, including by introducing new products and functionality, and to expand our inside and field sales and customer success teams to drive new customer adoption, expand use cases and integrations, and continue international expansion.
Some of our competitors offer their solutions at a lower price, which has resulted in pricing pressures.
Some of our competitors offer their solutions at a lower price than our solutions, which has resulted in pricing pressures.
In addition, although we carry various insurance policies, our insurance may not be adequate to cover our indemnification obligations or to indemnify us for all liability that may be imposed or otherwise protect us from liabilities or damages with respect to claims alleging compromises of customer data, and any such coverage may not continue to be available to us on acceptable terms or at all.
In addition, although we carry various insurance policies, our insurance may not be adequate to cover our indemnification obligations or to indemnify us for all liability that may be imposed or otherwise protect us from liabilities or damages with respect to claims alleging infringement of our intellectual property or compromises of customer data, and any such coverage may not continue to be available to us on acceptable terms or at all.
We compete on the basis of a number of factors, including: • platform functionality and breadth of offering; • integrations; • performance, security, scalability, and reliability; • real-time response, workflow, and automation capabilities; • focus on modern, contemporary digital services and operations; • brand recognition, reputation, and customer satisfaction; • ease of implementation and ease of use; and • time-to-value, total cost of ownership, and return on investment.
We compete on the basis of a number of factors, including: • platform functionality and breadth of offering; • integrations; • performance, security, scalability, and reliability; 18 Table of Contents • real-time response, workflow, and automation capabilities; • focus on modern, contemporary digital services and operations; • brand recognition, reputation, and customer satisfaction; • ease of implementation and ease of use; and • time-to-value, total cost of ownership, and return on investment.
For example, the European Union’s General Data Protection Regulation (“EU GDPR”), the United Kingdom’s GDPR (“UK GDPR”), and Canada’s Personal Information Protection and Electronic Documents Act (“PIPEDA”) and Canada’s Anti-Spam Legislation (“CASL”) impose strict requirements for processing the personal information of individuals.
For example, the European Union’s General Data Protection Regulation (“EU GDPR”), the United Kingdom’s GDPR (“UK GDPR”), and Canada’s Personal Information Protection and Electronic Documents Act (“PIPEDA”) and Canada’s Anti-Spam Legislation (“CASL”), impose strict requirements for processing personal data.
Our agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, inadequate data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our platform or other contractual obligations.
Our agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, inadequate data privacy and security, damages caused by us to property or persons, or other liabilities relating to or arising from our platform or other contractual obligations.
Noncompliance with applicable regulations or requirements could also limit the features in our platform related to 38 Table of Contents SMS text messaging or other communications in various jurisdictions, result in loss of customers, and subject us to customer litigation or investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions, or other collateral consequences.
Noncompliance with applicable regulations or requirements could also limit the features in our platform related to SMS text messaging or other communications in various jurisdictions, result in loss of customers, and subject us to customer litigation or investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions, or other collateral consequences.
If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.
If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a 38 Table of Contents significant diversion of management’s attention and resources and an increase in professional fees.
Furthermore, if our customers are materially negatively impacted by these factors, such as being unable to access their existing cash to fulfill their payment obligation to us due to future bank failures, our business could be negatively impacted.
Furthermore, if our customers are materially negatively impacted by these factors, such as being unable to access their existing cash to fulfill their payment obligations to us due to future bank failures, our business could be negatively impacted.
Similarly, our subscription sales could be adversely affected if customers or users within these organizations perceive that features incorporated into competitive products reduce the need for our products or if they prefer to purchase other products that are bundled with solutions offered by other companies, including our partners, that operate in adjacent markets and compete with our products.
Similarly, our subscription sales could be adversely affected if customers or users within these organizations perceive that features incorporated into competitive products reduce the need for our products or if they prefer to purchase other products that are bundled with solutions offered by other companies, including our partners, that operate in adjacent market segments and compete with our products.
Our recent hires and planned hires may not become as productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where we do business.
Our recent hires and planned hires may not become as productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the geographies where we do business.
These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. A subset of users never convert from the trial version of a product to a paid version of such product.
These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. A subset of users never convert from the trial or free version of a product to a paid version of such product.
We cannot predict the outcome of lawsuits and cannot assure you that the results of any such actions will not have an adverse effect on our business, operating results, or financial condition. 34 Table of Contents Our industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights.
We cannot predict the outcome of lawsuits and cannot assure you that the results of any such actions will not have an adverse effect on our business, operating results, or financial condition. Our industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights.
For instance, the recently enacted Inflation Reduction Act, or IRA, imposes, among other rules, a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on certain corporate stock repurchases.
For instance, the Inflation Reduction Act, or IRA, imposes, among other rules, a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on certain corporate stock repurchases.
As a result, our operating results could suffer due to: • any decline in demand for our incident response product; • the failure of our broader platform and other products to achieve market acceptance; • the market for our digital operations platform not continuing to grow, or growing more slowly than we expect; • the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our platform and products; • technological innovations or new standards that our platform and products do not address; 18 Table of Contents • sensitivity to current or future prices offered by us or our competitors; and • our inability to release enhanced versions of our platform and products on a timely basis.
As a result, our operating results could suffer due to: • any decline in demand for our incident management product; • the failure of our broader platform and other products to achieve market acceptance; • the market for our digital operations platform not continuing to grow, or growing more slowly than we expect; • the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our platform and products; • technological innovations or new standards that our platform and products do not address; • sensitivity to current or future prices offered by us or our competitors; and • our inability to release enhanced versions of our platform and products on a timely basis.
From time to time, there may be changes in our management team resulting from the hiring or departure of executives and key employees, which could disrupt our business. Our senior management and key employees are employed on an at-will basis. We currently do not have “key person” insurance on any of our employees.
From time to time, there may be changes in our management team resulting from the hiring or departure 23 Table of Contents of executives and key employees, which could disrupt our business. Our senior management and key employees are employed on an at-will basis. We currently do not have “key person” insurance on any of our employees.
Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products 33 Table of Contents and use information that we regard as proprietary to create products and services that compete with ours.
Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours.
If we incur more debt, it would result in increased fixed obligations and would also subject us to covenants or other restrictions that could impede our ability to flexibly operate our business. Risks Related to Ownership of Our Common Stock Our stock price may be volatile, and the value of our common stock may decline.
If we incur more debt, it would result in increased fixed obligations and would also subject us to covenants or other restrictions that could impede our ability to flexibly operate our business. 43 Table of Contents Risks Related to Ownership of Our Common Stock Our stock price may be volatile, and the value of our common stock may decline.
If a court were to find either choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. Item 1B. Unresolved Staff Comments None.
If a court were to find either choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. Item 1B. Unresolved Staff Comments None. 48 Table of Contents
The nature of our business exposes us to inherent liability risks. Our platform and related products, including our Event Intelligence and Process Automation, are designed to provide quick, reliable alerts, to communicate information frequently during critical business events, such as information relevant to mitigating the damaging effects of system problems, and to automatically remediate systems problems.
The nature of our business exposes us to inherent liability risks. Our platform and related products, including AIOps and Process Automation, are designed to provide quick, reliable alerts, to communicate information frequently during critical business events, such as information relevant to mitigating the damaging effects of system problems, and to automatically remediate systems problems.
As a result, our stockholders bear the risk of future issuance of debt or equity securities reducing the value of our common stock and diluting their interests. Concentration of ownership of our common stock among our existing executive officers, directors, and principal stockholders may prevent new investors from influencing significant corporate decisions.
As a result, our stockholders bear the risk of future issuance of debt or equity securities reducing the value of our common stock and diluting their interests 45 Table of Contents Concentration of ownership of our common stock among our existing executive officers, directors, and principal stockholders may prevent new investors from influencing significant corporate decisions.
In addition, the United States has recently experienced historically high levels of inflation. The rising inflation may increase our supply, employees and facilities costs and decrease demand for our products.
In addition, the United States has recently experienced historically high levels of inflation. The rising inflation may increase our supply, employee and facilities costs and decrease demand for our products.
Compliance with new or modified laws and regulations could increase our cost of conducting the business, limit the opportunities to increase our revenue, or prevent us from offering products or services.
Compliance with new or modified laws and regulations could increase our cost of conducting the business, limit the opportunities to increase our revenues, or prevent us from offering products or services.
The first fiscal quarter of each year is usually our lowest billings and bookings quarter. In fact, billings and bookings during our first fiscal quarter are typically lower than the prior fiscal fourth quarter. We believe that this results from the procurement, budgeting, and deployment cycles of many of our customers, particularly our 21 Table of Contents enterprise customers.
The first fiscal quarter of each year is usually our lowest billings and bookings quarter. In fact, billings and bookings during our first fiscal quarter are typically lower than the prior fiscal fourth quarter. We believe that this results from the procurement, budgeting, and deployment cycles of many of our customers, particularly our enterprise customers.
Overall growth of our revenue depends on a number of factors, including our ability to: • price our digital operations platform effectively so that we are able to attract new customers and expand sales to our existing customers; • expand the functionality and use cases for the products we offer on our platform; • maintain or increase the rates at which customers purchase and renew subscriptions to our platform; • provide our customers with customer support that meets their needs; • continue to introduce our products to new markets outside of the United States; • successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform; and • increase awareness of our brand on a global basis and successfully compete with other companies.
Overall growth of our revenue depends on a number of factors, including our ability to: • price our digital operations platform effectively so that we are able to attract new customers and expand sales to our existing customers; • expand the functionality and use cases for the products we offer on our platform; • maintain or increase the rates at which customers purchase and renew subscriptions to our platform; • provide our customers with customer support that meets their needs; • continue to introduce our products to new markets; • successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform; and 15 Table of Contents • increase awareness of our brand on a global basis and successfully compete with other companies.
Additionally, even if we are able to develop a patch or other fix to address such vulnerabilities, such a fix may be difficult to push out to our customers or otherwise be delayed. Additionally, our business depends upon the appropriate and successful implementation of our service by our customers.
Additionally, even if we are able to develop a patch or other fix to address such vulnerabilities, such a fix may be difficult to push out to our customer-facing services or otherwise be delayed. Additionally, our business depends upon the appropriate and successful implementation of our service by our customers.
The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business.
The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results 26 Table of Contents in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business.
If we elect to satisfy our conversion obligation on the Notes solely in shares of our common stock upon conversion of the Notes, we will be required to deliver the shares of our common stock, together with cash for any fractional share, on the second business day following the relevant conversion date.
If we elect to satisfy our conversion obligation on the Notes solely in shares of our common stock upon 44 Table of Contents conversion of the Notes, we will be required to deliver the shares of our common stock, together with cash for any fractional share, on the second business day following the relevant conversion date.
Any difficulties or delays in implementing these controls could impact our ability to timely report our financial results. For these reasons, we may encounter difficulties in the timely and accurate reporting of our financial results, which would impact our ability to provide our investors with information in a timely manner.
Any difficulties or delays in 46 Table of Contents implementing these controls could impact our ability to timely report our financial results. For these reasons, we may encounter difficulties in the timely and accurate reporting of our financial results, which would impact our ability to provide our investors with information in a timely manner.
Responding to such claims, regardless of their merit, can be time consuming, costly to defend, and damaging to our reputation and brand. We use open source software in our products, which could subject us to litigation or other actions. We use open source software in our products.
Responding to such claims, regardless of their merit, can be time consuming, costly to defend, and damaging to our reputation and brand. 34 Table of Contents We use open-source software in our products, which could subject us to litigation or other actions. We use open-source software in our products.
We cannot predict whether the FCC order or other state initiatives will be enforced, modified, overturned, or vacated by legal action of the court, federal legislation, or the FCC.
We cannot predict whether the state initiatives will be enforced, modified, overturned, or vacated by legal action of the court, federal legislation, or the FCC.
At the same time, re-adoption of network neutrality rules could affect the services used by us and our customers by restricting the offerings made by internet service providers or reducing 28 Table of Contents their incentives to invest in their networks.
At the same time, re-adoption of network neutrality rules could affect the services used by us and our customers by restricting the offerings made by internet service providers or reducing their incentives to invest in their networks.
In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences.
In addition, noncompliance with 35 Table of Contents anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences.
As a result, we are required to devote significant management effort and incur additional 45 Table of Contents expenses, which include higher legal fees, accounting and related fees and fees associated with investor relations activities, among others, to ensure compliance with the various reporting requirements. These requirements may also place a strain on our systems and processes.
As a result, we are required to devote significant management effort and incur additional expenses, which include higher legal fees, accounting and related fees and fees associated with investor relations activities, among others, to ensure compliance with the various reporting requirements. These requirements may also place a strain on our systems and processes.
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, 2023, 2022, and 2021 customers outside of the United States generated 24%, 24%, and 24%, respectively, of our revenue.
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, 2024, 2023, and 2022 customers outside of the United States generated 28%, 24%, and 24%, respectively, of our revenue.
In addition, the current regulatory environment related to immigration is uncertain, including with respect to the availability of H1-B and other visas.
In addition, the current regulatory environment related to immigration is uncertain, including with respect to the availability of H1-B and other U.S. visas.
Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our sensitive information and information technology systems, and those of the third parties upon which we rely.
Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our or our customers’ sensitive data and information technology systems, and those of the third parties upon which we rely.
Government demand and payment for our offerings are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings. Further, governmental and highly regulated entities may demand contract terms that differ from our standard arrangements and may require expensive and time- consuming compliance efforts.
Government demand and payment for our offerings are affected by public 39 Table of Contents sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings. Further, governmental and highly regulated entities may demand contract terms that differ from our standard arrangements and may require expensive and time- consuming compliance efforts.
Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, and customer requirements. An existing competitor or new entrant could introduce new technology that reduces demand for our platform. In addition to product and technology 19 Table of Contents competition, we face pricing competition.
Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, and customer requirements. An existing competitor or new entrant could introduce new technology that reduces demand for our platform. In addition to product and technology competition, we face pricing competition.
If we are unable to enhance our platform or develop 22 Table of Contents new functionality to keep pace with rapid technological and regulatory change, our business, results of operations, and financial condition could be adversely affected.
If we are unable to enhance our platform or develop new functionality to keep pace with rapid technological and regulatory change, our business, results of operations, and financial condition could be adversely affected.
Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their 35 Table of Contents employees and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.
Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.
In addition to the other risks described herein, factors that may affect our operating results include the following: • fluctuations in demand for or pricing of our platform due to customers reducing their expenditures, whether as a cost-cutting measure or a result of their insolvency or bankruptcy, and whether due to inflationary pressures, rising global interest rates, bank failures, the ongoing COVID-19 pandemic or other reasons; • our ability to attract new customers; • our ability to retain our existing customers; • customer expansion rates; • the pricing and quantity of subscriptions renewed; • the timing of our customer purchases; 20 Table of Contents • fluctuations or delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors; • changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions; • potential and existing customers choosing our competitors’ products or developing their own solutions in-house; • our ability to control costs, including our operating expenses; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions; • the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments, and other non-cash charges; • the amount and timing of costs associated with recruiting, training, and integrating new employees and retaining and motivating existing employees; • the effects of acquisitions and their integration; • general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate; • the impact of new accounting pronouncements; • changes in the competitive dynamics of our market, including consolidation among competitors or customers; • significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our platform; and • awareness of our brand and our reputation in our target markets.
In addition to the other risks described herein, factors that may affect our operating results include the following: • health epidemics or pandemics; • fluctuations in demand for or pricing of our platform due to customers reducing their expenditures, whether as a cost-cutting measure or a result of their insolvency or bankruptcy, and whether due to inflationary pressures, rising global interest rates, bank failures, or other reasons; • our ability to attract new customers; • our ability to retain our existing customers; • customer expansion rates; • the pricing and quantity of subscriptions renewed; • the timing of our customer purchases; • fluctuations or delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors; • changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions; • potential and existing customers choosing our competitors’ products or developing their own solutions in-house; • our ability to control costs, including our operating expenses; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions; • the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments, and other non-cash charges; • the amount and timing of costs associated with recruiting, training, and integrating new employees and retaining and motivating existing employees; • the effects of acquisitions and their integration; • general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate; • the impact of new accounting pronouncements; • changes in the competitive dynamics of our market, including consolidation among competitors or customers; • significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our platform; and • awareness of our brand and our reputation in our target markets. 20 Table of Contents Any of these and other factors, or the cumulative effect of some of these factors, may cause our results of operations to vary significantly.
We rely upon our marketing strategy of offering a 14-day free trial and “freemium” plan, a free version of PagerDuty, for less than five users and an open source version of PagerDuty Process Automation as well as other inbound, lead-generation strategies to generate new sales opportunities. Most of our customers start with the free version of our products.
We rely upon our marketing strategy of offering a 14-day free trial and “freemium” plan, a free version of PagerDuty, for customers with up to five users, and an open source version of Rundeck Automation as well as other inbound, lead-generation strategies to generate new sales opportunities. Most of our customers start with the free version of our products.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters is located in San Francisco, California, and consists of approximately 59,000 square feet of space under a lease that is expected to expire in 2025. We also have office locations in Atlanta, Georgia; Toronto, Canada; London, England; Sydney, Australia; Lisbon, Portugal; and Tokyo, Japan.
Biggest changeItem 2. Properties Our corporate headquarters is located in San Francisco, California, and consists of approximately 42,113 square feet of space under a lease that is expected to expire in fiscal 2026. We also have office locations in Atlanta, Georgia; Toronto, Canada; Santiago, Chile; London, England; Sydney, Australia; Lisbon, Portugal; and Tokyo, Japan.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings 48 Table of Contents From time to time, we are involved in various legal proceedings arising from the normal course of business activities.
Biggest changeItem 3. Legal Proceedings From time to time, we are involved in various legal proceedings arising from the normal course of business activities.
We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows, or financial condition. Item 4. Mine Safety Disclosures Not applicable. 49 Table of Contents Part II.
We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows, or financial condition. Item 4. Mine Safety Disclosures Not applicable. 50 Table of Contents Part II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs discussed above, we have never declared or paid a cash dividend on our common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future. 50 Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. [Reserved]
Biggest changeAs discussed above, we have never declared or paid a cash dividend on our common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future. 51 Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds None. Item 6. [Reserved]
The following graph compares (i) the cumulative total stockholder return on our common stock from April 11, 2019 (the date our common stock commenced trading on the NYSE through January 31, 2023 with (ii) the cumulative total return of the Standard & Poor (S&P) 500 Index and S&P Software & Services Select Industry Index over the same period, assuming the investment of $100 in our common stock and in both of the other indices on April 11, 2019 and the reinvestment of dividends.
The following graph compares (i) the cumulative total stockholder return on our common stock from April 11, 2019 (the date our common stock commenced trading on the NYSE through January 31, 2024 with (ii) the cumulative total return of the Standard & Poor (S&P) 500 Index and S&P Software & Services Select Industry Index over the same period, assuming the investment of $100 in our common stock and in both of the other indices on April 11, 2019 and the reinvestment of dividends.
Holders of Record As of January 31, 2023, we had 30 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Holders of Record As of January 31, 2024, we had 25 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table sets forth our consolidated statements of operations data for the periods indicated: Year Ended January 31, 2023 2022 2021 (in thousands) Revenue $ 370,793 $ 281,396 $ 213,556 Cost of revenue (1) 70,434 48,361 30,686 Gross profit 300,359 233,035 182,870 Operating expenses: Research and development (1) 134,876 95,690 64,566 Sales and marketing (1) 195,622 161,624 122,155 General and administrative (1) 99,238 77,432 62,431 Total operating expenses 429,736 334,746 249,152 Loss from operations (129,377) (101,711) (66,282) Interest income 4,765 2,946 4,232 Interest expense (5,433) (5,398) (9,965) Other expense, net (19) (2,757) (794) Loss before benefit from (provision for) income taxes (130,064) (106,920) (72,809) Benefit from (provision for) income taxes 839 (535) 3,906 Net loss $ (129,225) $ (107,455) $ (68,903) Net loss attributable to redeemable non-controlling interests (802) — — Net loss attributable to PagerDuty, Inc. $ (128,423) $ (107,455) $ (68,903) ______________ 58 Table of Contents (1) Includes stock-based compensation expense as follows: Year Ended January 31, 2023 2022 2021 (in thousands) Cost of revenue $ 6,827 $ 3,751 $ 1,702 Research and development 39,012 23,764 11,095 Sales and marketing (1) 29,804 19,012 14,733 General and administrative 34,264 23,506 15,701 Total $ 109,907 $ 70,033 $ 43,231 ______________ (1) Stock-based compensation expense above includes a one-time stock-based compensation expense of $3.1 million related to the modification of certain stock option awards in the fiscal year ended January 31, 2021.
Biggest change(Provision for) benefit from income taxes also includes the benefit associated with the reduction in our valuation allowance from the increase in the deferred tax liability associated with acquired intangible assets from our acquisitions. 58 Table of Contents Results of Operations The following table sets forth our consolidated statements of operations data for the periods indicated: Year Ended January 31, 2024 2023 2022 (in thousands) Revenue $ 430,699 $ 370,793 $ 281,396 Cost of revenue (1) 77,832 70,434 48,361 Gross profit 352,867 300,359 233,035 Operating expenses: Research and development (1) 139,769 134,876 95,690 Sales and marketing (1) 196,769 195,622 161,624 General and administrative (1) 112,575 99,238 77,432 Total operating expenses 449,113 429,736 334,746 Loss from operations (96,246) (129,377) (101,711) Interest income 22,101 5,383 762 Interest expense (6,500) (5,433) (5,398) Gain on partial extinguishment of convertible senior notes 3,699 — — Other expense, net (433) (637) (573) Loss before benefit from (provision for) income taxes (77,379) (130,064) (106,920) Benefit from (provision for) income taxes 12 839 (535) Net loss $ (77,367) $ (129,225) $ (107,455) Net loss attributable to redeemable non-controlling interest (2,178) (802) — Net loss attributable to PagerDuty, Inc. $ (75,189) $ (128,423) $ (107,455) Adjustment attributable to redeemable non-controlling interest 6,568 — — Net loss attributable to PagerDuty, Inc. common stockholders $ (81,757) $ (128,423) $ (107,455) ______________ (1) Includes stock-based compensation expense as follows: Year Ended January 31, 2024 2023 2022 (in thousands) Cost of revenue $ 7,586 $ 6,827 $ 3,751 Research and development 44,800 39,012 23,764 Sales and marketing 30,345 29,804 19,012 General and administrative 44,421 34,264 23,506 Total $ 127,152 $ 109,907 $ 70,033 59 Table of Contents The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue: Year Ended January 31, 2024 2023 2022 Revenue 100 % 100 % 100 % Cost of revenue 18 19 17 Gross profit 82 81 83 Operating expenses: Research and development 32 36 34 Sales and marketing 46 53 57 General and administrative 26 27 28 Total operating expenses 104 116 119 Loss from operations (22) (35) (36) Interest income 5 1 — Interest expense (2) (1) (2) Gain on partial extinguishment of convertible senior notes 1 — — Other expense, net — — — Loss before benefit from (provision for) income taxes (18) (35) (38) Benefit from (provision for) income taxes — — — Net loss (18) % (35) % (38) % Net loss attributable to redeemable non-controlling interest (1) — — Net loss attributable to PagerDuty, Inc.
Investing Activities Cash used in investing activities for the fiscal year ended January 31, 2023 of $86.2 million consisted of purchases of investments of $212.2 million, cash paid for the Catalytic acquisition, net of cash acquired, of $66.3 million, purchases of property and equipment of $4.6 million primarily for purchases of computers for new employees and to support new international office space, capitalization of internal use software costs of $3.8 million, and cash paid for an asset acquisition of $1.8 million, partially offset by proceeds from maturities of investments of $202.6 million.
Cash used in investing activities for the fiscal year ended January 31, 2023 of $86.2 million consisted of purchases of investments of $212.2 million, cash paid for the Catalytic acquisition, net of cash acquired, of $66.3 million, purchases of property and equipment of $4.6 million primarily for purchases of computers for new employees and to support new international office space, capitalization of internal use software costs of $3.8 million, and cash paid for an asset acquisition of $1.8 million, partially offset by proceeds from maturities of investments of $202.6 million.
Financing Activities Cash used in financing activities for the fiscal year ended January 31, 2023 of $6.4 million consisted primarily of $28.7 million in employee payroll taxes related to vesting of restricted stock units, partially offset by proceeds from the exercise of stock options of $10.5 million, proceeds from our ESPP of $9.9 million, and $1.9 million of cash received from the non-controlling shareholder of PagerDuty K.K.
Cash used in financing activities for the fiscal year ended January 31, 2023 of $6.4 million consisted primarily of $28.7 million in employee payroll taxes related to vesting of restricted stock units, partially offset by proceeds from the exercise of stock options of $10.5 million, proceeds from our ESPP of $9.9 million, and $1.9 million of cash received from the non-controlling shareholder of PagerDuty K.K.
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.
Since our founding in 2009, we have expanded our capabilities from a single product focused on on-call management for developers to a multi-product platform that crosses silos into IT infrastructures and operations, security, customer service, and executive stakeholder roles across the organization.
As such, we have developed a loyal customer base, with total ARR churn representing less than 5% of beginning ARR for the fiscal year ended January 31, 2023. Our ARR churn rate represents lost revenue from customers that were no longer contributing revenue at the end of the current period but did contribute revenue in the equivalent prior year period.
As such, we have developed a loyal customer base, with total ARR churn representing less than 5% of beginning ARR for the fiscal year ended January 31, 2024. Our ARR churn rate represents lost revenue from customers that were no longer contributing revenue at the end of the current period but did contribute revenue in the equivalent prior year period.
Our 10 largest customers represented approximately 9% of our revenue for the fiscal year ended January 31, 2023, and no single customer represented more than 10% of our revenue in the same period, highlighting the breadth of our customer base. We serve a vital role in our customers’ digital operations and grow with them as their needs expand.
Our 10 largest customers represented approximately 9% of our revenue for the fiscal year ended January 31, 2024, and no single customer represented more than 10% of our revenue in the same period, highlighting the breadth of our customer base. We serve a vital role in our customers’ digital operations and grow with them as their needs expand.
We also intend to continue to add headcount to our research and development team to develop new and improved products, features, and functionality. Although these investments may adversely affect our operating results in the near term, we believe that they will contribute to our long-term growth.
We also intend to continue adding headcount to our research and development team to develop new and improved products, features, and functionality. Although these investments may adversely affect our operating results in the near term, we believe that they will contribute to our long-term growth.
While sales of subscriptions to our Incident Response product account for a significant majority of our revenue, we intend to continue to invest in building additional products, features, and functionality that expand our capabilities and facilitate the extension of our platform to new use cases.
While sales of subscriptions to our incident management product account for a significant majority of our revenue, we intend to continue to invest in building additional products, features, and functionality that expand our capabilities and facilitate the extension of our platform to new use cases.
For a discussion of the year ended January 31, 2022 compared to the year ended January 31, 2021, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended January 31, 2022.
For a discussion of the year ended January 31, 2023 compared to the year ended January 31, 2022, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended January 31, 2023.
The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31 and January 31. In this section, we discuss the results of our operations for the year ended January 31, 2023 compared to the year ended January 31, 2022.
The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31 and January 31. In this section, we discuss the results of our operations for the year ended January 31, 2024 compared to the year ended January 31, 2023.
We generally bill monthly subscriptions monthly and subscriptions with terms of greater than one year annually in advance. We expand within our existing customer base by adding more users, creating additional use cases, and upselling higher priced packages and additional products. Once our platform is deployed, we typically see 52 Table of Contents significant expansion within our customer base.
We generally bill monthly subscriptions monthly and subscriptions with terms of greater than one year annually in advance. We expand within our existing customer base by adding more users, creating additional use cases, and upselling higher priced packages and additional products. Once our platform is deployed, we typically see significant expansion within our customer base.
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 56 Table of Contents of acquired developed technology, and allocated overhead costs for facilities, information technology, and other allocated overhead costs.
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.
Changes in operating assets and liabilities reflected cash 65 Table of Contents outflows from a $26.2 million increase in deferred contract costs due to commissions paid on new bookings, a $21.6 million increase in accounts receivable due a combination of timing of cash collections and a growth in billings, and payments for operating lease liabilities of $5.3 million.
Changes in operating assets and liabilities reflected cash outflows from a $26.2 million increase in deferred contract costs due to commissions paid on new bookings, a $21.6 million increase in accounts receivable due a combination of timing of cash collections and a growth in billings, and payments for operating lease liabilities of $5.3 million.
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.
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 56 Table of Contents 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.
Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, adverse effects on our business and general economic conditions due to the current COVID-19 pandemic, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Form 10-K.
Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, adverse effects on our business and general economic conditions due to those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Form 10-K.
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, amortization of acquired intangible assets, and restructuring costs.
A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP. Non-GAAP Gross Profit and Non-GAAP Gross Margin We define non-GAAP gross profit as gross profit excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of acquired intangible assets, and restructuring costs.
These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable.
These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset.
As of January 31, 2023, we had more than 15,200 paying customers globally, ranging from the most disruptive startups to established Fortune 100 companies across every industry including software and technology, telecommunications, retail, travel and hospitality, media and entertainment, and financial services.
As of January 31, 2024, we had more than 15,000 paying customers globally, ranging from the most disruptive startups to established Fortune 100 companies across every industry including software and technology, telecommunications, retail, travel and hospitality, media and entertainment, and financial services.
This has allowed us to achieve gross margin of over 80% for the fiscal year ended January 31, 2023. Our strong gross margins allow us the flexibility to invest more in our platform and go-to market function while maintaining strong operating leverage on our path to profitability.
This has allowed us to achieve gross margin of over 81% for the fiscal year ended January 31, 2024. Our strong gross margins allow us the flexibility to invest more in our platform and go-to market function while maintaining strong operating leverage on our path to profitability.
We may in the future enter into arrangements to acquire or invest in 64 Table of Contents 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.
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.
Last 12 Months Ended January 31, 2023 2022 2021 Dollar-based net retention rate for all customers 120 % 124 % 121 % 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.
Last 12 Months Ended January 31, 2024 2023 2022 Dollar-based net retention rate for all customers 107 % 120 % 124 % Components of Results of Operations Revenue We generate revenue primarily from cloud-hosted software subscription fees with the majority of our revenue derived from such arrangements. We also generate revenue from term-license software subscription fees.
Our customers use our products across a broad range of use cases such as Engineering, IT Operations, Security, and Customer Service. Of these customers, 752 customers contribute annual recurring revenue (“ARR”) in excess of $100,000, and 50 customers contribute ARR in excess of $1,000,000.
Our customers use our products across a broad range of use cases such as Engineering, IT Operations, Security, and Customer Service. Of these customers, 804 customers contribute annual recurring revenue (“ARR”) in excess of $100,000, and 58 customers contribute ARR in excess of $1,000,000.
Macroeconomic Environment Our business and financial performance may be subject to the effects of the worldwide macroeconomic conditions, including, but not limited to global inflation and the rise in interest rates, existing and new laws and regulations, recession or economic downturn globally or in the jurisdictions in which we do business, the COVID-19 pandemic, volatility in foreign currency exchange rates, and bank failures.
Macroeconomic Environment Our business and financial performance may be subject to the effects of the worldwide macroeconomic conditions, including, but not limited to global inflation and the rise in interest rates, existing and new laws and regulations, recession or economic downturn globally or in the jurisdictions in which we do business, health epidemics or pandemics, volatility in foreign currency exchange rates, and bank failures.
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.
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.
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 61 Table of Contents purposes.
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.
Cash used in operating activities for the fiscal year ended January 31, 2022 of $6.0 million primarily related to our net loss of $107.5 million, adjusted for non-cash charges of $103.4 million and net cash outflows of $1.9 million due to changes in our operating assets and liabilities.
Cash used in operating activities for the fiscal year ended January 31, 2022 of $6.0 million primarily related to our net loss of $107.5 million, adjusted for noncash charges of $103.4 million and net cash outflows of $1.9 66 Table of Contents million due to changes in our operating assets and liabilities.
Our future capital requirements will depend on many factors, including the effects of the worldwide macroeconomic conditions, including but not limited to, global inflation and the rise in interest rates, existing and new laws and regulations, recession or economic downturn globally or in the jurisdictions in which we do business, ongoing geopolitical conflict in Ukraine and other areas of the world, the COVID-19 pandemic, volatility in foreign currency exchange rates, our subscription growth rate, subscription renewal activity, including the timing and the amount of cash received from customers, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market adoption of our platform.
Our future capital requirements will depend on many factors, including the effects of the worldwide macroeconomic conditions, including but not limited to, global inflation and the rise in interest rates, existing and new laws and regulations, recession or economic downturn globally or in the jurisdictions in which we do business, volatility in foreign currency exchange rates, our subscription growth rate, subscription renewal activity, including the timing and the amount of cash received from customers, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market adoption of our platform.
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.
Additionally, research and development expenses include outside services, depreciation of equipment used in research and development activities, acquisition-related expenses, and allocated overhead costs. We expect that our research and development expenses will increase in dollar value as our business grows.
As of January 31, 2023, we had over 15,200 paying customers spanning organizations of a broad range of sizes and industries, compared to over 14,500 as of January 31, 2022. Expanding Within our Customer Base The majority of our revenue is generated from our existing customer base.
As of January 31, 2024, we had over 15,000 paying customers spanning organizations of a broad range of sizes and industries, compared to over 15,200 as of January 31, 2023. Expanding Within our Customer Base The majority of our revenue is generated from our existing customer base.
As of January 31, 2023 2022 2021 Customers 15,244 14,865 13,837 Customers greater than $100,000 in ARR 752 594 426 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.
As of January 31, 2024 2023 2022 Customers 15,039 15,244 14,865 Customers greater than $100,000 in ARR 804 752 594 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 was 120% for the fiscal year ended January 31, 2023. We have an efficient operating model, which comes from a combination of our cloud-native architecture, optimal utilization of our third-party hosting providers, and prudent approach to headcount expansion.
Our dollar-based net retention rate was 107% for the fiscal year ended January 31, 2024. 53 Table of Contents We have an efficient operating model, which comes from a combination of our cloud-native architecture, optimal utilization of our third-party hosting providers, and prudent approach to headcount expansion.
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 Income Interest income consists of accretion income and amortization expense on our available-for-sale investments and income earned on our cash and cash equivalents and interest earned on our short-term investments which consist of U.S. Treasury securities, commercial paper, corporate debt securities, and U.S. Government agency securities.
Cash Flows The following table shows a summary of our cash flows for the periods presented : Year Ended January 31, 2023 2022 2021 (in thousands) Net cash provided by (used in) operating activities $ 16,980 $ (6,021) $ 10,095 Net cash (used in) provided by investing activities $ (86,165) $ 17,376 $ (49,320) Net cash (used in) provided by financing activities $ (6,413) $ (736) $ 254,367 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.
Cash Flows The following table shows a summary of our cash flows for the periods presented : Year Ended January 31, 2024 2023 2022 (in thousands) Net cash provided by (used in) operating activities $ 71,974 $ 16,980 $ (6,021) Net cash (used in) provided by investing activities $ (30,525) $ (86,165) $ 17,376 Net cash provided by (used in) financing activities $ 51,600 $ (6,413) $ (736) 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.
Year Ended January 31, 2023 2022 2021 (dollars in thousands) Gross profit $ 300,359 $ 233,035 $ 182,870 Add: Stock-based compensation 6,827 3,751 1,702 Employer taxes related to employee stock transactions 163 131 54 Amortization of acquired intangible assets 7,401 1,120 373 Restructuring costs 357 — — Non-GAAP gross profit $ 315,107 $ 238,037 $ 184,999 Gross margin 81 % 83 % 86 % Non-GAAP gross margin 85 % 85 % 87 % Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin We define non-GAAP operating income (loss) as loss from operations excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of acquired intangible assets, acquisition-related expenses, which include transaction costs, acquisition-related retention payments, which are not necessarily reflective of operational performance during a given period, and restructuring costs.
Year Ended January 31, 2024 2023 2022 (dollars in thousands) Gross profit $ 352,867 $ 300,359 $ 233,035 Add: Stock-based compensation 7,586 6,827 3,751 Employer taxes related to employee stock transactions 199 163 131 Amortization of acquired intangible assets 8,614 7,401 1,120 Restructuring costs 137 357 — Non-GAAP gross profit $ 369,403 $ 315,107 $ 238,037 Gross margin 82 % 81 % 83 % Non-GAAP gross margin 86 % 85 % 85 % Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin We define non-GAAP operating income (loss) as loss from operations excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of acquired intangible assets, restructuring costs, and acquisition-related expenses, which include transaction costs, acquisition-related retention payments, and asset impairment, which are not necessarily reflective of operational performance during a given period.
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. Benefit from (Provision for) Income Taxes Benefit from (provision for) income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business.
Other (Expense) Income, Net Other (expense) income, net primarily consists of foreign currency transaction gains and losses. Benefit from (Provision for) Income Taxes Benefit from (provision for) income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business.
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.
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.
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 Rundeck and Catalytic, to the extent applicable, beginning on the acquisition dates of October 1, 2020 and March 8, 2022, respectively.
In addition, we are continually seeking to improve our methodology, which may result in future changes to our key metrics. Our key metrics include the results of Jeli and Catalytic, to the extent applicable, beginning on the respective acquisition dates of November 15, 2023 and March 8, 2022.
The increase was primarily driven by an increase in personnel expenses of $33.1 million as a result of increased headcount and salaries to support our continued investment in our platform and restructuring costs, an increase of $5.1 million in costs to support the continued growth of the business and related infrastructure, which included allocated overhead costs, and an increase of $1.0 million in travel related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic.
The increase in research and development expense was primarily driven by an increase in personnel expenses of $5.4 million as a result of increased headcount and salaries to support our continued investment in our platform, an increase of $1.7 million in costs to support the continued growth of the business and related infrastructure, which included allocated overhead costs, and an increase of $0.6 million in travel related costs as a result of increased travel.
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.
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 62 Table of Contents from similarly-titled non-GAAP measures used by other companies.
As of January 31, 2023, we had deferred revenue of $209.1 million, of which $204.1 million was recorded as a current liability and expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
As of January 31, 2024, 65 Table of Contents we had deferred revenue of $228.2 million, of which $223.5 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.
Other expense, net decreased by $2.7 million for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022, primarily due to higher accretion income on our cash, cash equivalent and investment balances. Non-GAAP Financial Measures In addition to our results determined in accordance with U.S.
Other expense, net decreased by $0.2 million for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023, primarily due to higher unrealized losses on our foreign cash balances in the prior period. Non-GAAP Financial Measures In addition to our results determined in accordance with U.S.
Significant judgment is required in arriving at this period of benefit. We determined the period of benefit by taking into consideration our customer contracts, technology, and other factors.
Significant judgment is required in arriving at this period of benefit. We determined the period of benefit by taking into consideration our customer contracts, technology, and other factors. Business Combinations and Valuation of Intangible Assets We apply the acquisition method of accounting for business combinations.
We will continue to invest in building brand awareness as we further penetrate our addressable markets. Our financial performance will depend in large part on the overall demand for our platform, particularly demand from mid-market and enterprise customers, and our ability to meet the evolving needs of our customers.
Our financial performance will depend in large part on the overall demand for our platform, particularly demand from mid-market and enterprise customers, and our ability to meet the evolving needs of our customers.
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.
The increase in revenue was attributable to a combination of growth from both new and existing customers.
On June 25, 2020, we issued $287.5 million aggregate principal amount of convertible senior notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
On October 13, 2023, we issued $402.5 million aggregate principal amount of the 2028 Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
We continuously monitor geopolitical conflicts around the world and their effects on our business. While we do not believe the ongoing Russia-Ukraine conflict will have a material impact on our business and results of operations, our business and results of operations could be materially impacted if the Russia-Ukraine conflict continues or worsens, leading to greater global economic disruptions and uncertainty.
While we do not believe the ongoing Russia-Ukraine conflict or the conflict in Israel and the surrounding areas will have a material impact on our business and results of operations, our business and results of operations could be materially impacted if these conflicts continue or worsen, leading to greater global economic disruptions and uncertainty.
We define non-GAAP net income (loss) attributable to PagerDuty, Inc. as net loss attributable to PagerDuty, Inc. excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of debt issuance costs, amortization of acquired intangible assets, acquisition-related expenses, which include transaction costs and acquisition-related retention payments, which are not necessarily reflective of operational performance during a given period, restructuring costs, and the associated tax impact of these items, where applicable.
We define non-GAAP net income (loss) attributable to PagerDuty, Inc. common stockholders as net loss attributable to PagerDuty, Inc. common stockholders excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of debt issuance costs, amortization of acquired intangible assets, acquisition-related expenses, which include transaction costs, acquisition-related retention payments, and asset impairment, restructuring costs, adjustment attributable to redeemable non-controlling interest, gain on partial extinguishment of convertible senior notes, and income tax adjustments, which are not necessarily reflective of operational performance during a given period.
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. As of January 31, 2023, our principal sources of liquidity were cash and cash equivalents and investments totaling $477.0 million.
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.
Cash provided by operating activities for the fiscal year ended January 31, 2021 of $10.1 million primarily related to our net loss of $68.9 million, adjusted for non-cash charges of $74.2 million and net cash inflows of $4.8 million due to changes in our operating assets and liabilities.
Cash provided by operating activities for the fiscal year ended January 31, 2024 of $72.0 million primarily related to our net loss of $77.4 million, adjusted for non-cash charges of $175.8 million and net cash outflows of $26.5 million due to changes in our operating assets and liabilities.
Research and Development Year Ended January 31, 2023 2022 Change % Change (dollars in thousands) Research and development $ 134,876 $ 95,690 $ 39,186 41 % Percentage of revenue 36 % 34 % Research and development expenses increased by $39.2 million, or 41%, for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 and increased as a percentage of revenue.
Research and Development Year Ended January 31, 2024 2023 Change % Change (dollars in thousands) Research and development $ 139,769 $ 134,876 $ 4,893 4 % Percentage of revenue 32 % 36 % Research and development expenses increased by $4.9 million, or 4%, for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023 and decreased as a percentage of revenue.
General and Administrative Year Ended January 31, 2023 2022 Change % Change (dollars in thousands) General and administrative $ 99,238 $ 77,432 $ 21,806 28 % Percentage of revenue 27 % 28 % General and administrative expenses increased by $21.8 million, or 28%, for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 and decreased as a percentage of revenue.
General and Administrative Year Ended January 31, 2024 2023 Change % Change (dollars in thousands) General and administrative $ 112,575 $ 99,238 $ 13,337 13 % Percentage of revenue 26 % 27 % 61 Table of Contents General and administrative expenses increased by $13.3 million, or 13%, for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023 and decreased as a percentage of revenue.
Sales and Marketing Year Ended January 31, 2023 2022 Change % Change (dollars in thousands) Sales and marketing $ 195,622 $ 161,624 $ 33,998 21 % Percentage of revenue 53 % 57 % 60 Table of Contents Sales and marketing expenses increased by $34.0 million, or 21%, for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 and decreased as a percentage of revenue.
Sales and Marketing Year Ended January 31, 2024 2023 Change % Change (dollars in thousands) Sales and marketing $ 196,769 $ 195,622 $ 1,147 1 % Percentage of revenue 46 % 53 % Sales and marketing expenses increased by $1.1 million, or 1%, for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023 and decreased as a percentage of revenue.
Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions.
Under this method of accounting, all assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions.
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.
We expect that our sales and marketing expenses will generally increase in dollar value and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts.
These teams drive expansion to additional users, new use cases, and add-on products, as well as upsell to higher value plans.
These teams drive expansion to additional users, new use cases, and add-on products, as well as upsell to higher value plans. The PagerDuty field organization is focused on selling the PagerDuty platform across IT, DevOps, and customer service operations teams.
Goodwill is evaluated for impairment at the consolidated level, as we operate as a single reporting unit. Acquired intangible assets consist of identifiable intangible assets, including developed technology, customer relationships, and tradename, resulting from our acquisition. Acquired intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives.
These estimates are inherently uncertain and unpredictable Acquired intangible assets consist of identifiable intangible assets, including developed technology, customer relationships, and tradename, resulting from our acquisition. Acquired intangible assets are recorded at fair value on 68 Table of Contents the date of acquisition and amortized over their estimated useful lives.
We define non-GAAP operating margin as non-GAAP operating income (loss) as a percentage of revenue. 62 Table of Contents Year Ended January 31, 2023 2022 2021 (dollars in thousands) Loss from operations $ (129,377) $ (101,711) $ (66,282) Add: Stock-based compensation (1) 109,907 70,033 43,231 Employer taxes related to employee stock transactions 3,096 3,017 1,609 Amortization of acquired intangible assets 10,237 3,500 1,167 Acquisition-related expenses 4,559 2,108 2,437 Restructuring costs 5,035 — — Non-GAAP operating income (loss) $ 3,457 $ (23,053) $ (17,838) Operating margin (35) % (36) % (31) % Non-GAAP operating margin 1 % (8) % (8) % ______________ (1) Stock-based compensation expense above includes a one-time stock-based compensation expense of $3.1 million related to the modification of certain stock option awards in the fiscal year ended January 31, 2021.
Year Ended January 31, 2024 2023 2022 (dollars in thousands) Loss from operations $ (96,246) $ (129,377) $ (101,711) Add: Stock-based compensation 127,152 109,907 70,033 Employer taxes related to employee stock transactions 3,498 3,096 3,017 Amortization of acquired intangible assets 11,510 10,237 3,500 Acquisition-related expenses 1,800 4,559 2,108 Restructuring costs 8,677 5,035 — Non-GAAP operating income (loss) $ 56,391 $ 3,457 $ (23,053) Operating margin (22) % (35) % (36) % Non-GAAP operating margin 13 % 1 % (8) % 63 Table of Contents Non-GAAP Net Income (Loss) Attributable to PagerDuty, Inc.
We collect data and digital signals from virtually any software-enabled system or device and leverage powerful machine learning to correlate, process, and predict opportunities and issues. Using incident response, event management, and automation, we bring together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are.
Using incident management, process automation, AI operations, and customer service operations, we bring together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are.
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.
General and administrative General and administrative expenses consist primarily of personnel costs and outside services fees for finance, legal, human resources, information technology, and other administrative functions. In addition, general and administrative expenses include non-personnel costs, such as legal, accounting, and other professional fees, hardware and software costs, certain tax, license and insurance-related expenses, acquisition-related expenses, and allocated overhead costs.
Cash used in investing activities for the fiscal year ended January 31, 2021 of $49.3 million consisted of purchases of investments of $222.0 million, cash paid for the Rundeck acquisition, net of cash acquired of $49.7 million, purchases of property and equipment of $4.0 million primarily to support additional office space for our San Francisco and Atlanta offices and purchases of computers for new employees, and capitalization of internal use software costs of $0.8 million.
Investing Activities Cash used in investing activities for the fiscal year ended January 31, 2024 of $30.5 million consisted of proceeds from maturities of investments of $218.3 million partially offset by purchases of investments of $217.0 million, $24.1 million cash paid for the acquisition of Jeli, net of cash acquired, capitalization of internal use software costs of $5.4 million, and purchases of property and equipment of $2.2 million primarily for purchases of computers for new employees.
Interest Expense 57 Table of Contents Interest expense consists primarily of contractual interest expense and amortization of debt issuance costs on our 1.25% Convertible Senior Notes (the “Notes”) due 2025. Refer to Note 9 , “Debt and Financing Arrangements” for additional details.
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 that were outstanding from the beginning of the year and partially 57 Table of Contents extinguished in October 2023.
Cost of Revenue and Gross Margin Year Ended January 31, 2023 2022 Change % Change (dollars in thousands) Cost of revenue $ 70,434 $ 48,361 $ 22,073 46 % Gross margin 81 % 83 % Cost of revenue increased by $22.1 million, or 46%, primarily due to an increase of $7.4 million in personnel expenses as a result of increased headcount and salaries, an increase of $6.3 million in amortization of intangible assets related to acquisitions, increases of $4.2 million in hosting, software, and telecom costs and $1.4 million in allocated overhead costs, both of which were to support the continued growth of the business and related infrastructure, and an increase of $1.1 million in other expenses, primarily related to merchant fees.
Growth from existing customers was attributable to increases in the number of users and upsell of additional products and services. 60 Table of Contents Cost of Revenue and Gross Margin Year Ended January 31, 2024 2023 Change % Change (dollars in thousands) Cost of revenue $ 77,832 $ 70,434 $ 7,398 11 % Gross margin 82 % 81 % Cost of revenue increased by $7.4 million, or 11%, primarily due to an increase of $1.8 million in amortization of internally developed software, an increase of $1.7 million in higher hosting, software, and telecom costs, an increase of $1.5 million in personnel expenses as a result of increased headcount and salaries, an increase of $1.2 million in amortization of acquired intangible assets related to acquisitions, and an increase of $1.0 million in other expenses, primarily related to outside services.
Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. Revenue Recognition We generate revenue primarily from cloud-hosted subscription fees with the majority of our revenue from such arrangements. We also generate revenue from term license software subscription fees.
Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. Revenue Recognition We enter into contracts with our customers that may include promises to transfer multiple services, software licenses, support and professional services.
Cash provided by financing activities for the fiscal year ended January 31, 2021 of $254.4 million consisted primarily of net proceeds of $278.2 million related to the issuance of the Notes, proceeds from the exercise of stock 66 Table of Contents options of $14.1 million, and proceeds from our ESPP of $6.0 million.
Financing Activities Cash provided by financing activities for the fiscal year ended January 31, 2024 of $51.6 million consisted primarily of $390.8 million proceeds from issuance of our 2028 Notes, net of issuance costs paid, proceeds from the ESPP purchase of $10.3 million, proceeds of $9.9 million from the exercise of stock options, and a $1.8 million of cash received from the non-controlling shareholder of PagerDuty K.K.
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 also generate revenue from term-license software subscription fees. PagerDuty has a land-and-expand business model that leads to viral adoption of our products and subsequent expansion. An increasing focus for our go-to-market motion, including our field sales team, is serving enterprise customers. Our mid-market and enterprise customers account for the majority of our revenue today.
As of January 31, 2023, we had non-cancellable purchase commitments with certain service providers totaling approximately $61.3 million, principal and interest payments in conjunction with the Notes of $296.5 million, and lease payments of $20.0 million. Refer to Note 10 , “Commitments and Contingencies” for additional information.
Contractual Obligations and Commitments Our estimated future obligations consist of purchase commitments, and principal and interest payments related to the Notes. As of January 31, 2024, we had non-cancellable purchase commitments with certain service 67 Table of Contents providers totaling approximately $39.8 million, and principal and interest payments in conjunction with the Notes of $489.5 million.
(34.6) % (38.2) % (32.3) % ______________ Note: Certain figures may not sum due to rounding. 59 Table of Contents Comparison of the Years Ended January 31, 2023 and 2022 Revenue Year Ended January 31, 2023 2022 Change % Change (dollars in thousands) Revenue $ 370,793 $ 281,396 $ 89,397 32 % Revenue increased by $89.4 million, or 32%, for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022.
Comparison of the Years Ended January 31, 2024 and 2023 Revenue Year Ended January 31, 2024 2023 Change % Change (dollars in thousands) Revenue $ 430,699 $ 370,793 $ 59,906 16 % Revenue increased by $59.9 million, or 16%, for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023.
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 for the year ended January 31, 2023 includes the Current Period ARR of Catalytic customers to the extent that they were PagerDuty customers as of 12 months prior to period end.
We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the dollar-based net retention rate.
Interest Expense Year Ended January 31, 2023 2022 Change % Change (dollars in thousands) Interest expense $ (5,433) $ (5,398) $ (35) 1 % Interest expense was consistent for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 and was related to contractual interest and amortization of debt issuance costs for the Notes.
Interest Expense Year Ended January 31, 2024 2023 Change % Change (dollars in thousands) Interest expense $ (6,500) $ (5,433) $ (1,067) (20) % Interest expense increased by $1.1 million for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023.
Year Ended January 31, 2023 2022 2021 (in thousands) Net loss attributable to PagerDuty, Inc. $ (128,423) $ (107,455) $ (68,903) Add (Less): Stock-based compensation (1) 109,907 70,033 43,231 Amortization of debt issuance costs (2) 1,839 1,805 7,808 Employer taxes related to employee stock transactions 3,096 3,017 1,609 Amortization of acquired intangibles assets 10,237 3,500 1,167 Acquisition-related expenses 4,559 2,108 2,437 Restructuring costs 5,035 — — Income tax effect of non-GAAP adjustments (2,556) — (5,017) Non-GAAP net income (loss) attributable to PagerDuty, Inc. $ 3,694 $ (26,992) $ (17,668) ______________ (1) Stock-based compensation expense above includes a one-time stock-based compensation expense of $3.1 million related to the modification of certain stock option awards in the fiscal year ended January 31, 2021.
Year Ended January 31, 2024 2023 2022 (in thousands) Net loss attributable to PagerDuty, Inc. common stockholders $ (81,757) $ (128,423) $ (107,455) Add (Less): Stock-based compensation 127,152 109,907 70,033 Amortization of debt issuance costs 2,078 1,839 1,805 Employer taxes related to employee stock transactions 3,498 3,096 3,017 Amortization of acquired intangibles assets 11,510 10,237 3,500 Acquisition-related expenses 1,800 4,559 2,108 Restructuring costs 8,677 5,035 — Adjustment attributable to redeemable non-controlling interest 6,568 — — Gain on partial extinguishment of convertible senior notes (3,699) — — Income tax effects and adjustments (3,273) (2,556) — Non-GAAP net income (loss) attributable to PagerDuty, Inc. $ 72,554 $ 3,694 $ (26,992) ______________ Free Cash Flow We define free cash flow as net cash (used in) provided by operating activities, less cash used for purchases of property and equipment and capitalization of internal-use software costs.
Non-cash charges primarily consisted of stock-based compensation of $43.2 million, amortization of our deferred contract costs of $11.0 million, amortization of debt discount and issuance costs of $7.8 million, depreciation and amortization of property and equipment and capitalized implementation costs of $5.3 million, and noncash lease expense of $4.4 million.
Non-cash charges primarily consisted of stock-based compensation of $127.2 million, amortization of our deferred contract costs of $20.6 million, depreciation and amortization of property and equipment, capitalized implementation costs, and acquired intangible assets of $20.2 million, a $8.4 million impairment of property and equipment, net and lease right of use assets and liabilities related to leased office space, noncash lease expense of $4.4 million, and amortization of debt issuance costs of $2.1 million, offset by a $3.7 million gain on partial extinguishment of 2025 Notes and other net gains of $3.2 million, which consist primarily of accretion on investments.
Year Ended January 31, 2023 2022 2021 (in thousands) Net cash provided by (used in) operating activities $ 16,980 $ (6,021) $ 10,095 Less: Purchases of property and equipment (4,637) (3,457) (4,038) Capitalization of internal-use software costs (3,836) (3,353) (810) Free cash flow $ 8,507 $ (12,831) $ 5,247 Net cash (used in) provided by investing activities $ (86,165) $ 17,376 $ (49,320) Net cash (used in) provided by financing activities $ (6,413) $ (736) $ 254,367 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 our Notes.
There are a number of limitations related to the use of free cash flow as compared to net cash provided by (used in) operating activities, including that free cash flow includes capital expenditures, the benefits of which are realized in periods subsequent to those when expenditures are made. 64 Table of Contents Year Ended January 31, 2024 2023 2022 (in thousands) Net cash provided by (used in) operating activities $ 71,974 $ 16,980 $ (6,021) Less: Purchases of property and equipment (2,164) (4,637) (3,457) Capitalization of internal-use software costs (5,384) (3,836) (3,353) Free cash flow $ 64,426 $ 8,507 $ (12,831) Net cash (used in) provided by investing activities $ (30,525) $ (86,165) $ 17,376 Net cash provided by (used in) financing activities $ 51,600 $ (6,413) $ (736) Liquidity and Capital Resources As of January 31, 2024, our principal sources of liquidity were cash and cash equivalents and investments totaling $571.2 million.
Interest Income and Other Expense, Net Year Ended January 31, 2023 2022 Change % Change (dollars in thousands) Interest income $ 4,765 $ 2,946 $ 1,819 62 % Other expense, net $ (19) $ (2,757) $ 2,738 (99) % Interest income increased by $1.8 million for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022, primarily due to favorable interest rates on our cash, cash equivalent and investment balances in the fiscal year ended January 31, 2023.
Interest Income, Gain on Partial Extinguishment of Convertible Senior Notes and Other Expense, Net Year Ended January 31, 2024 2023 Change % Change (dollars in thousands) Interest income $ 22,101 $ 5,383 $ 16,718 311 % Gain on partial extinguishment of convertible senior notes $ 3,699 $ — $ 3,699 n/m Other expense, net $ (433) $ (637) $ 204 n/m ______ n/m - not meaningful Interest income increased by $16.7 million for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023, primarily due to higher accretion income on our available-for-sale investments, higher investment balances and favorable interest rates on our cash, cash equivalent and investment balances in the fiscal year ended January 31, 2024.
Changes in operating assets and liabilities reflected cash inflows from a $34.7 million increase in deferred revenue, resulting from increased billings for subscriptions, an $11.2 million increase in accrued compensation primarily due to increased headcount, and a $0.5 million decrease in accounts payable and accrued expenses and other liabilities.
Changes in operating assets and liabilities reflected cash outflows from an $18.8 million increase in deferred contract costs due to commissions paid on new bookings in line with revenue growth, a $13.3 million decrease in accounts payable and accrued compensation, a $10.7 million increase in accounts receivable, and a $6.0 million in payments for operating lease liabilities.
Our customers in Russia represented an immaterial portion of our net assets and total consolidated revenue both as of and for the fiscal year ended January 31, 2023. Since its inception, the COVID-19 pandemic has posed a variety of challenges to our day-to-day operations.
Our customers in regions impacted by conflict represented an immaterial portion of our net assets and total consolidated revenue both as of and for the fiscal year ended January 31, 2024. We will continue to monitor the direct and indirect impacts of these or similar circumstances on our business and financial results.
This was partially offset by purchases of the Capped Calls of $35.7 million and $8.2 million in employee payroll taxes related to vesting of restricted stock units. Contractual Obligations and Commitments Our estimated future obligations consist of purchase commitments, principal and interest payments related to the Notes, and payments for our leases.
These amounts were partially offset by $223.7 million in repurchases of our 2025 Notes, $55.1 million for purchase of capped calls related to convertible senior notes, $50.0 million for repurchase of common stock, and $32.4 million in employee payroll taxes paid related to vesting of restricted stock units.
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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, 51 Table of Contents reduce noise, predict and avoid performance degradation, improve productivity, and accelerate digital transformation. Today, nearly every business is a digital business.
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Overview PagerDuty is a global leader in digital operations management, enabling customers to achieve operational efficiency at scale and transform critical work for modern enterprises.
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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.
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The PagerDuty Operations Cloud combines AIOps, Automation, Incident Management, and Customer Service Operations into a flexible, resilient, and scalable platform to increase innovation velocity, protect revenue, reduce cost, and mitigate the risk of operational failure. 52 Table of Contents Today, nearly every business is a digital business.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe Notes have a fixed annual interest rate of 1.25%; accordingly, we do not have economic interest rate exposure on the Notes. However, the fair market value of the Notes is exposed to interest rate risk.
Biggest changeAs of January 31, 2024, we had $57.5 million and $402.5 million aggregate principal outstanding of 2025 Notes and 2028 Notes, respectively. The 2025 Notes and 2028 Notes have a fixed annual interest rate of 1.25% 1.5%, respectively; accordingly, we do not have economic interest rate exposure on the Notes.
Primarily all of our sales are denominated in U.S. dollars, and therefore substantially all of our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Canada, the United Kingdom, Australia, Switzerland, and Portugal.
Primarily all of our sales are denominated in U.S. dollars, and therefore substantially all of our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Canada, the United Kingdom, Australia, Switzerland, Japan, Chile and Portugal.
As of January 31, 2023, a hypothetical 10% relative change in interest rates would not have a material impact on our consolidated financial statements. Foreign Currency Exchange Risk Our reporting currency and the functional currency of our wholly owned foreign subsidiaries is the U.S. dollar.
As of January 31, 2024, a hypothetical 10% relative change in interest rates would not have a material impact on our consolidated financial statements. Foreign Currency Exchange Risk 69 Table of Contents Our reporting currency and the functional currency of our wholly-owned foreign subsidiaries is the U.S. dollar.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of January 31, 2023, we had cash, cash equivalents and investments totaling $477.0 million, invested in money market funds, U.S. Treasury securities, commercial paper, and corporate debt securities. Our cash and cash equivalents are held for working capital purposes. Our investments are made for capital preservation purposes.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of January 31, 2024, we had cash, cash equivalents and investments totaling $571.2 million, invested in money market funds, U.S. Treasury securities, commercial paper, and corporate debt securities. Our cash and cash equivalents are held for working capital purposes. Our investments are made for capital preservation purposes.
Generally, the fair market value of the fixed interest rate of the Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair market value of the Notes fluctuates when the market price of our common stock fluctuates.
However, the fair market value of the Notes is exposed to interest rate risk. Generally, the fair market value of the fixed interest rate of the Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair market value of the Notes fluctuates when the market price of our common stock fluctuates.
The fair market value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period. Refer to Note 5 , “Fair Value Measurements” to our consolidated financial statements for more information.
The fair market value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period. Refer to Note 5, “Fair Value Measurements” to our consolidated financial statements for more information. Changes in interest rates impact the fair value of marketable debt securities.
In addition, we may sell these investments at any time for use in its current operations or for other purposes, even prior to maturity. As of January 31, 2023, our available-for-sale investments are recorded as current on our consolidated balance sheets. In June 2020, we issued the Notes with an aggregate principal amount of $287.5 million.
In addition, we may sell these investments at any time for use in its current operations or for other purposes, even prior to maturity. As of January 31, 2024, our available-for-sale investments are recorded as current on our consolidated balance sheets.

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