PagerDuty (PD) 31 Aug 232024 Q2 Earnings call transcript

Good afternoon, and thank you for joining us to discuss PagerDuty's Second Quarter Fiscal Year 2024 Results. With me on today's call are Jennifer Tejada, PagerDuty's Chairperson and Chief Executive Officer; and Howard Wilson, our Chief Financial Officer.

Before we begin, let me remind everyone that statements made on this call include forward-looking statements based on the environment as we currently see it, which involve known and unknown risks and uncertainties that cause -- that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

These forward-looking statements include our growth prospects, future revenue, operating margins, net income, cash balance, and total addressable market, among others, and represent our management's belief and assumptions only as of the date such statements are made, and we undertake no obligation to update these.

During today's call, we will discuss non-GAAP financial measures, which are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. and measures GAAP our available between release. earnings reconciliation non-GAAP is financial in A these factors XX-K the included and the on most made Securities information Further other with including Commission, as results we with our differ our and filings filings Exchange company's filed that to materially well the SEC. are Form in recently make the as financial cause could subsequent

call With over will that, the to turn Jennifer. I

PagerDuty us Good guidance second due delivered margin committed afternoon, points and to basis today. durable thank margin the and operating growth. top with line XX%. by operating of remain growth solid to profitable joining results, bottom on disciplined our for revenue exceeding a execution quarter non-GAAP X,XXX we expanded Year-over-year call you and XX% as

choose grow Our and expenses trust. efficiently to Operations the revenue, digital customers reduce Cloud continue and their experiences operating protect to ensure customer more and

spending on as Confluent, ownership, HubSpot our operations was Cisco Systems, NVIDIA low DocuSign, While short measured, as platform. Santander, real-time of resonated PagerDuty chose and period investment and cost still Banco customer return their Grammarly, high quantifiable payback

Operations rate. X technology nearly highly enterprise throughout faster than and XX% remained for mid-market and software the customers, more Several contributing Our X our partnership ARR quarter which all of investments to account at of travel the a with and their and hospitality, combined XX% with and us. XX% made Cloud, expanding financial in figure total with engaged ARR growth growing services customers

solutions: to objective accelerating their by enterprise digital enable and operations AI. platform. utilizing Customer Process to under clear their traditionally efforts remaining cloud's Incident resilience by meet priority them Automation AIOps, The our manual Ops, pressure, and their cloud-native leveraging savings demonstrated Response, transformation, Service budgets cost automating Despite four core customers our improve

the company in growth Our QX, averages year-over-year In a and above logo better performed and rates enterprise based logo DBNR enterprise also markedly has count of on been net were segment basis. terms resilient dollar retention. and

go-to-market to efforts continue We and to demand enterprise development profitably. capturing grow around product align our strategy,

Enterprise and through technology efficiency automation leveraging customers and people. operations the their productivity improve ecosystems, are increasingly cloud their their interested to processes in of the

long-standing a to with investment global X non-value-added our semiconductor millions figures incorporating the their manual human tens supplier automation no-code to and of quarter, error, in customer of by expanded During dollars us work and annual costs. eliminating reduce workflow

automation has productivity. of real-time both process within PagerDuty's enabled institution. build also workflows Cloud several a sources to we customer automation generate After and concert, PagerDuty global custom earlier is The expecting Solutions integral in multiple the Operations implementation to become teams increase year, financial AIOps, and continued million cost weeks data with with and of to the million grow deploy across year. reduce response, savings process replacing dollar who automation us over $XX by our this cohort incident using Point among to per to are operations

conditions last generation many the we and While macro mentioned quarter conversion. increased adapted we of pipeline these quickly to persist, and trends

customers. contract we stabilized the paid addition, number improved large and of In execution

year-over-year. of by value customers the the PagerDuty of total and paid grew evidence As XX% platform, free

being We our our billion $XX continue long-term to competitive taking innovation and our advantage ability operations expand to a view on TAM customers' our through is capturing transform recognized.

us customers their unplanned to was In automate government an FedRAMP and Process work. partner also Year-to-date, centric of named ever breadth across evaluation wave, industry Gartner who offerings. FedRAMP and leader to put operations reached QX streamline making which status Achieving leader additional and with milestone reports third the highlighting Hype our Cycle first the during in Forrester's agencies federal PagerDuty will commercial categories, recognized enable AIOps process the us unique category. AIOps in nine U.S. have large require it a and were We

ease more that operations We software tech our and to for greater It's and to building toolkit for equates First, on to AI two creates the chasm. cross rapid into software complexity struggling its companies barriers applicability, incorporation remain use tailwinds to the already us: the generative adoption bullish opportunities of and business. broad brings lower the

Second, driving ask of very are where do time cost across generative a tangible The business concrete, with they early are AI savings for more AI see their asked companies. wins makes can and what the be macro benefits the else to less, leaders client efficiencies in to and generative with immediate are CIOs automation and automated. being

unlock and offer value updates three The now intuitive more quarter postmortems that AI degenerative and AI shared last of with preview. broadly. are status we in examples automation AI the comes customer cases use generated

language combined AI-generated use early prompts received now natural automated development. offering, in runbooks our well which is tuning customers have prompt access. been additional with cases in All offers by three are and Our

of our consumption quarter first XXX goals availability, our AIOps opting customers into its package. During based of exceeded nearly with latest version our

global and capabilities, developer as AI-enabled both orchestration, early, event site the ITOps. well in engineering still including the reliability teams support as operations While expanded network community centralized now

cloud for types us to enterprise of value different high operations key critical the revolutionizing operations. the is Making the standard work across

are made This custom use cases operations workflow widening the cloud the beyond engineering. custom templates. progress availability the teams With quarter, and fields, we further of through for aperture fields general incident to we of

breach, monetization expand of PR enterprise incident For capabilities type our service data progress mark trigger an PagerDuty's and in value to against loop our These for for an a exciting trigger higher plans. in security define for types different order across example, a workflows, vision the opportunity incident which can will long-term and can legal. the incident teams customer team offering

PagerDuty's leaders including against state and executives the most operations, services announced team real-time technology their reports overall health. mind. with to SLAs with and are insights impacted, provide critical visibility are Additionally, in provide of insight reports These more powerful which into with health achievement and designed today granular available we teams all capabilities over analytics specifically paying control operational new the customers. maturity,

teams to mission embedded also world and is Automation a equitable more future. PagerDuty sustainable in build how empowers driven

our impact the builder volunteer our quarter, leveraged social This no-code employee hours. automate of to team workflow capture

volunteer than in their XX% Our posting employees quarter. remain participation invested in more the communities,

second consecutive the Bay the the Times recognized one top Francisco in San Business XXX PagerDuty of For the Area. corporate as philanthropists year,

named and one PagerDuty inspiring Additionally, XXXX America Bay of best top Best was as Millennials. in Fortune's the workplaces North for in XX workplace and Workplaces Area

cloud a larger Moving the opportunity the to XXXX. enabled spending non-GAAP and go-to-market that profitable Gartner maintain available to estimates forward, second indicates believe in will to us growth product And we intend exceed deliver significantly development rigor $XXX on and billion services this during term. us application quarter. long we

within undertaking through successfully standardizing playbooks go-to-market partnership are strategic gen events. and the and awareness cloud accelerating operations enterprises, conversations We demand more

The businesses their profitable operating past two and CASM. I championing structural consistent cross want years delivering required our enduring this customers. to customers initiatives teams commitment and loyalty by focus to targets. codified and implemented believe for We achieve a positions operations innovation cloud to thank their long-term the to our for monetize our us operations throughout the for the framework our

turn forward to With I'll that, questions. the look call Howard to and your

as economic results we to call. good revenue on non-GAAP QX, our and this day environment. afternoon's In Jen, you, adjust everyone margin joining the of and we ahead both guidance solid operating to delivered us to continue Thank

was scale the and customers Unless all risk mature, to a our before Cloud the PagerDuty modernize in results cost earnings and release to reconcile the that stated, failure operating digital posted expenses GAAP mid-market otherwise references enterprise their to our non-GAAP high, Our and and call. Operations of and are operational where basis, businesses. choose on to is results continue I'll the

international Revenue in period dollar-based XX% quarter, was XXX% QX an was compared in retention from XX% the increase of year last seen up XXX% delivered We second to contribution in year. in revenues, total $XXX million year-over-year. The from ago. QX the net same one of the XX%

second Our at DBNR or XXX%. above expectation for remains the half

$XXX approximately revenue million, count increase paid in ago. XX,XXX. XX,XXX to $XXX,XXX on a by XX% (ph). the year. and of compared increased over year, of QX up last our year to recurring XX,XXX the of customers Free spending paid grew Total over prior annual to an XX% was and from customers Customers $XX QX to platform sequentially In grew

QX basis million income year. XX% XX%. of of same loss gross million quarter XX% a or the XX% to our target in X% of margin last X,XXX to or $XX Operating end negative $X of to at top compared was improved the points revenue range of revenue

to In revenue of expectations dollars metric our to initial nonrecurring expenses above QX engagements and addition this consulting QX. few outperformance, a spend was from due shifting million to marketing program related to

The quarter, just terms to cash free and was or flow. of cash mentioned the to was $X or X% an expenses XX% led of for shift million improvement million $XX flow cash free of cash from In of revenue, flow I also revenue. operations

anticipate cash, be now remained year but we QX positive. result, As a this point below for to

the cash deferred ended in to up of our with Turning equivalents quarterly We the the XX% with $XXX at revenue creates ended quarter our billings. along million, quarter our $XXX sheet. standard seasonality million year-over-year. and The practices, co-terming renewals fluctuations Total in balance investments. cash,

the we high impacting a predictable contractual past This and reduce smaller where over high quarters expect expansion not quarters the has a arrangements we of continue. two of transactions evident have while In smaller trend see of volume does this to been nature transactions billings. volume of

million. exiting annual To frequent period, providing be end quarter we provide ARR. will to or $XXX transparency QX more XX% ARR this year-over-year during grew on additional updates revenue recurring

prior call. XX% of For billings to consistency increase below quarterly XX% XX% of during range calls, calculated last an provided with and million, $XXX were the year-over-year quarter's

line growth estimates. $XXX QX, approximately between With to of calculated billings billings On were XX-months in expect and a to basis, XX% respect compared and and trailing months XX% be our to growth million, increase with be billings (ph). to XX% XX trading X% a ago we year an

Turning to our guidance.

XX% to of $X.XX and $XXX.X income Page the fiscal the $XXX.X an growth a Duty the in of share diluted attributable XX% X%. Inc. to operating XXXX, expect in per of to range margin revenue For million, $X.XX. rate to million to we of range of X% quarter representing implies third This net

$XXX full is growth This revenue previously $XXX This net XX% to rate an million $XXX be expected PagerDuty, operating XX%. And of remains to in to income the and XX%. between of $X.XX. million to implies $X.XX share to million. diluted For of representing fiscal Inc. provided for a to XX% XXXX the $XXX the compares year of range range to million, margin attributable

We their us recognize would remain on transform to our globe revolutionize long vision the for in our critical to building growth. the profitable term, and the our for innovation customers the teams durable operations. providing trust to committed required across and focused continuous to work dedication on like I place and

I for the open With call that, Q&A. will up

ahead. feel going Morgan our We'll Weiss hand. your on And raise to by Stanley. to Okay. to Thank with feel you. Keith, begin please analysts Keith free line, the free please to

and This the about seats, Sing that (ph) last Sanjit afternoon. quarter. think noted up ask Thank you question. was new had the the SKU for Fiona Good on price wanted The that not is Keith it's Hi. taking SKU AIOps, the interesting thing SKU on for called the I that about is announced Weiss. and to you XXX and on quarter. customers new consumption you in I taking which

So work curious motion co-selling any rest note? about about market? product that the the bringing seen you've this of learnings and you. that might of early with anything to be else the portfolio How Thank does

It's selling motion. for very Thanks natural the question. a

not event Operations the to back solutions. and think other analysis, also integrated it because of only action the is the legacy orchestration, are in which market AIOps compared AI on of advantages event ensures driven competitive not AI that it's analysis for I it the of the but kind that solutions into Cloud, older case enables management one is solutions or of that point deeply

AI automation natural part the into and ops. welcome importantly, incident a of and customer response, even connected of the response automation we process chain it’s combination deliver service even So value insight more that incident the a through Ops,

door So even step in a operations. natural fact, about process it’s and to in customer a actually selling real and, service automation motion opener the good talk further

same and usage patterns but reason SKU see. licensing, to we’re it’s to the be understand with market differ the how early, that You encouraged seat-based from or by may that the learn consumption-based a we’re in what nail we is

Thank very much. you

Sure.

Thank you.

heading Next, on Oliver Rob with Rob, forward. to Baird. please come

I question. ask my afternoon. taking to wanted I just for start. Jen, you, to for guys you, Good Thank it. appreciate one Great.

follow-up a a of sort some could was guys little changes for I I changed that little wondering to adapt on us if what took some Thanks. changes in Howard. you surprise have you particular? a as quick bit color of mentioned provide had of you to the And made macro guys last So which quarter. to of environment, you the for then or call bit those by the

our quarter. throughout and their Sure. execution Well, the team of I'm proud really

As you're have on more market that their having have C-level innovation and messaging up-level of as buyers as were institution. I see of procurement strategic constrained, cloud we and sales deals, sort a and investment And really had a steps strategic very well we've involved more pleased shipping and more a with lot mentioned in and deal operations with been quarter are conversation to budgets aware, teams the the to stronger global in really spending supplier also our and process. this as more transaction the become of one flow large number semiconductor financial with there to

automation, with customers platform all but them spent summer, I over mean a with helps appetite only saw operations an for huge which XX technical and the staffing I this not reducing changes problem, threats. visiting there's I failures, material material that operations of summer customers. is cybersecurity associated operations driven debt, increasingly an or debt in cost whether risk that's and solve security, by

I in the of to large with that think the scale platform so and enterprises overall for moment operations And trying market operations the improve at cost that are experience. and reliable, also need their the customer the highly resilient platform also a we're reduce yet at right right

that And is the And the some CFO in the in. the CIO, have to improved customers in area entire telling CTO, business an Cloud terms even our so to important. operations solve to of that we've and been cases, really, has that trying the think, problems I articulate really story

And can add maybe that I to well. as just

were the things practically, pipeline Rob, to of fine-tuning did our Some approaches around we some really that of management.

So into be that stakeholders account longer and involved. the taking would there approval cycles more

improving both the different pipeline trends we and to QX, rates led that with modestly. QX pipeline to from conversion a around So saw And emphasis creation management. encouraging

moving in as So also a in the notable. mentioned, dramatic flow but improvement, Jen And the it deal direction. wasn't was right large improvement actually was

the laying things to we poised those be economy. think improving So to to us respond well are foundation for an

just -- to the going And on the passing [ on was that year, the was that outlook Howard, to -- that through guide for follow-up the to for philosophy rest the not my be -- of your relatively billings of be ]? are for remarks, weak bounced And the forecasted to prepared then your out obviously, the you year. to know which always around. called guys rest you sort in have I they Nevertheless, be of relative

to what? Thank wanted on that. or just I conservative your So Is thoughts you. get that

Yeah.

we line view a So a guidance, take margin our operating of prudent perspective. from both top and from an

the improvement have indicator that environment as half. revenue into factored the of rest second But slower we’ve half for year, translates of year HX It we in bookings. lagging impact with So year. looked in the lighter impact the like also any an macro obviously the outlook in the revenue in of not of guidance creating we’ve second the at for our in the the the full growth in

really ensure we’ve We we reaccelerate the to continuing I controllables. that improves. as are that a to invest, economy mentioned, are to sales still to growth able the be as we perspective, a operating view capacity, an ensured right see margin we And on from large want taken controlling $XX TAM. have execute And as continuing to we’ve billion we of what the also

guys. again, Thanks Great.

Okay.

to ahead. next please go RBC, -- Moving from [indiscernible]

the to taking for you've my questions show Matt have had [indiscernible] model. it's cost Cash Thanks and This that flow one the quarters. the the to that taken towards Hedberg. guys think strong the fiscal cash free how for leverage more quarter. we progression very about Hi. continued the actions about this 'XX? for see year past is in over talk by I as look remainder for Howard, on good of you you was flow you here. of also couple Can

question, for Thanks the [indiscernible].

that often related, notice that fairly cash we seasonal points the the our quarter. often In the follows terms often -- year. movement percentage does full a free But through are on move few a course of operating over of flow free the trend the cash you'll margin operating in around flow, for of year over terms the better similar it that's

So for that year would better. a full our of be couple expectation would be it points the

QX that think cash saw, than that a away expected from for QX. the free some example, in I as led expense you flow into takes better flow in QX. But that free shift to QX, result, cash

Got it. And change then taking February David and the you recently with had weans. a leaving CRO in Jeremy

have focused what he's you And any quarters him with Now are charge, in two seen disruption on? the organization in of the things given sales change? some

mute. on You're

discussions how a has our really of understands I'm fantastic Jeremy seven job in is a helping cases, having in product fact, the charge and multiproduct has awareness level operations, years. CIO, and business the the on to pleased really someone a nearly In the cloud domain build with to been some settled for more up-leveling who's conversation done sales company in. the expert messaging higher at well sale, strategic force He's he's very with the really around that. for focusing the really deep for leading and CTO, CFO the a He and

impact product particular, that that think with sort in you we of some some be that conversion, fact, pipeline, And institution would of adjusted about mentioned. change team we're in and finance that in done gotten scapegoat have really the I the that management, can see AIOps. very Jeremy of semiconductor we've attach global talked strategic improvement for in agreements supplier, the the in large the new And improvement easy leadership the and I is a a in well. it And his very what of macro. quickly. seeing the to

North in a say I to mid-market over time out level America, I across other was the Europe, and the seen in get excitement been of and their Japan for XX goals with the as well ever week that into the lot the engagement service field around thing operating is high the spend able The et and in that teams And business July. as I've I a leverage later business. have service cetera. customers to part community it operations expense, of enterprise on is as being as revenue of is automation of and able cloud the in of multiproduct reducing And there's platform would their

business the positioned well for are large I So loosen as to budgets to is the be and opportunity long-term up, the on continue economy TAM the that as against. focused think improves, very very reaccelerate to focused, we execute us and available

you. Thank helpful. That’s

Thank you.

Next, we'll go hear Nick, ahead. from please Craig-Hallum. Nick Mattiacci (ph) from

Hi. This Chad is for on questions. for Nick Bennett. taking Thanks our

comments So you guys the deal the some you talk in of could if sort of of linearity last think back cycles willing scrutiny saw quarter, that quarter. start sales through And was to and I elongated any half really mentioned August. on hit about you're QX? saw you wondering provide I you to the the

we're Well, really I'd macro We've hasn't changed that improved itself the say meaningfully. executing. the way

continue to resilient particularly mid-market, high segment We a and a largest pointing see enterprise a been engagement, of transactions and macro level throughout high has is our which environment. of in to volume volatile

you think to in past strength the of add? generally where And that known had SMB want don't hit sort to seen been know, there regard. and knowns expansion, terms count as have has as said, some led available Howard, we the I been in the as I controllables head as just I the in if hardest something investment better hasn't quarter. you of much against seat-based in growth the much executing or controlling has

covered think it, I you've No, Jen.

touch on if And it. could Japan. then curious Got you

since started I there. joint think guys year now it's venture you the a been

view traction provide Just market there? your the any that can on kind comments on opportunity and in you of

success and already week PagerDuty Novason the in people NTT, cases opportunity of DOCOMO customer engagement I the in I with XXX like where really level there. and Yes. hundred had in our with that customers Tokyo Tokyo about Summit over the there. ever some several excited PagerDuty. and and was use and (ph) of talked am team stories registrations attendance, We held his high incredible and about they've July last others first really had

early in still but very excited about opportunity that market, there. it's that our investment So and

you. Thank it. Got

Okay. Thank you.

to Blair. Next, we're from going William a representative

there maybe growth This questions. tied size into one all. Thanks Stotler. of that for Kochar taking Hi, Could PagerDuty's double-click and on in-process just our is how first Maybe Arjun is fits for Matt to you status. for FedRAMP approved market on strategy? FedRAMP long-term the the that (ph) what on opportunity

us the Well, we've of thank of and We've worked been and question. state you been in some customers requirement commercial with have it's able have them the be federal And strength customers is they for for also, have those mid-market important something present number requirements. for. long seen government local our our quite they and over think, an past a to looking a some FedRAMP in this where the segment where large time, years, of I to education lot customers in support that and for SLED for

of some very which and has word, by it and as this I less, but U.S. a guess, we government, a been by large the incident in the think is it really environment incident the voice economic I federal growing relates immature opportunity customer, think So opens yet somewhat sort and large management. less of driven the up what's to response and cyclical somewhat market, the impacted less

that there's that us team a the be done build has there, certification had and lot puts to market. us start think and work far demand gotten in a within we to conversations So have FedRAMP, to opportunity in -- and very I of position to we've to get good think that greenfield that the so those the with

in cohort to more one of the in -- on maybe terms on there? sizes overall on you comparison double-click And focus deal churn, customers. business KPIs multiproduct of your maybe Thanks. Could on the the Great. that

past want customers of in shared than do with Howard, we've two ahead? go products? think percentage more for to the you ARR I

Yeah.

year, increase that of customers products. was of part the more percentage coming that year, haven't topic. we modest on end one taking with adoption the that disclosures cloud at seen two of recently past from operations are the that or of in of the regular shared continue It the anything So we XX%. ARR to past We've But the as more fiscal is product. of a end our was drive number customers as fiscal as of

that increases use a nature. get from think customers we more they And PagerDuty more the are seeing to the as of highly of operations is few I that the that characteristics that leads a retentive value card.

So we retention and dollar-based the highest see far segment. the risk companies net failure those be enterprise tend the the of the larger. in where to And impact of failure is

being so orchestration to incident our for to able of from And detection both go capabilities. with automation only the is can automation platform the them means AR able driven along workflow to unique that solution, response we intelligence and with the our together That's the capabilities use about platform that order and they're from our those the competitive all that enable are remediation, PagerDuty. that differentiator way process

of their empowering critical aspects to most manage able we're customers business. to these the be So

some -- easy AI sorry, for is add consistent process made thing and to new response, lower where platform ticketing as a The then both ownership and customers to very around cost to adjacent but in much of or I'd integrated it the there ecosystem very products our discover the integrations XXX invest almost like Cloud opposed incident also integration get than them needing into automation, is fast, areas immediately of UI through the and workflow our record build the in other total and we've it's integrators both Operations integrations services, Ops environments. from of to just and systems that innovation, through more legacy traditional track for but of value into and over

their are are trying should the who in to end everything lower as important believe our keep super be who or of moving lower to cost at to an another change to who move speed digital, is barriers to entry, pace This competitor. customers with customers instance perfect

on the service technology of modernize a I products And work, the to think market the of and really done of in in economy across behalf their them work an really integrated new and matter service and our services all moments their also customers, human operations in automation So process where our which and call way CASM. them speed these what helps ecosystem, we've matters. speed we we're in It not the only for their with people but that customers. loop faster helps

helpful very color. a That’s Thanks.

My pleasure.

give any couple additional And for There I'm moment just want a Excellent. questions seeing for raise to analysts out hand their join any new from didn't we not we to are yet. there brief to today. And a hands. hear

So, out you Jennifer, could it if for us. Thank close you.

just to all our I our our remind And company, your and durable, And the to ability to want thank say interest seen long you we're in of great and for Well, of everybody you your by want that on to the building to I very execute teams today. and their Sure. say day. growth Have encouraged sort durability and confident mid-market just segment. thank loyalty. customers attendance that a are you term we and focused a on we've in for the just enterprise profitable