Q3 2020 Earnings Call
Good afternoon. My name is in it and I'll be your conference operator say at this time I would like to welcome everyone to the pager duty third quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you like to ask a question during that time simply press star from on the number.
One under telephone keypad, if you like to withdraw your question Chip you press the pound Lucky. Thank you I'll now turn the conference over to Stacy Foreigner. One. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call disgust pager duties fiscal third quarter financial result.
With me on today's call or Jennifer to hotter paid or do you chairperson and Chief Executive Officer, and Howard Wolfson companies Chief Financial Officer.
Statements made on this call include forward looking statements.
Forward looking statements involve known and unknown risks and uncertainties that may cause our actual results performance or achievements to be materially different from those expressed or implied by the forward looking statements.
Forward looking statements represent our management's beliefs and assumptions only as of the date such statements are made and we undertake no obligation to update these forward looking statements.
In addition, during today's call, we will discuss non-GAAP financial measures.
These non-GAAP financial measures are in addition to and not a substitute board are superior to measures of financial performance prepared in accordance with gap.
There are number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalent.
For example, other companies may calculate nongaap financial measures differently or may use other measures to evaluate their performance.
All of which could reduce the usefulness of our non-GAAP financial measures of tools for comparison.
Reconciliation between GAAP and non-GAAP financial measures is available in our earnings release.
Further information on these and other factors that could affect the Companys financial results are included in filings, we make with the Securities and Exchange Commission from time to time, including the section titled Risk factors in the company's most recent quarterly Form 10-Q previously previously filed with the FCC.
Now I'd like to turn the call over to our CEO Jennifer to hotter Jennifer.
Stacy and thank you everyone for joining us this afternoon on our third quarter earnings call.
Three was a strong quarter as revenue grew 37% year over year to $43 million I'd like to share three highlights in the quarter first customer growth remains consistently strong as we scale. We ended the quarter with over 12400 customers up 15% year over year grocers remained remarkably steady over the past seven.
Orders, we also saw sustained robust growth with our enterprise and midmarket customers that have annual recurring revenue or error above $100000 growing 49% year over year similar to the growth we delivered in the second quarter. These two customer metrics that show a sustained growth rate on an increasing based demonstrate the durability in our revenue growth.
Next we put some terrific large strategic deals in the quarter continuing to solidify our leadership position in enterprise.
Now partnering with two of the three largest contract defense contractors in the world and two of the five largest investment banks after new win in each of these sectors. These wins both fortune 100 companies have a combined value of almost 2 billion an error.
The requirements you do business in huge multinational highly regulated verticals are not inconsequential and our multiyear enterprise Tech investments born in the cloud architecture and go to market mild set us apart.
Both companies chose us for breadth of our platform, especially our machine learning and automation based features our ease of use our proven resiliency and security and scale and a referenceable enterprise track record for value realization.
Our go to market teams continue to win expansion business in our base through a laser focus on customer success, resulting in an 81% increase in customers that spend over $500000 and there are a year with us.
This quarter, we won a significant expansion partnership with a large global software company headquartered in Europe . The relationship started with the U.S. subsidiary and they have now expanded users and upgraded to the digital operations package in the European business to support their global growth and enhance the trust their customers face in their software and services.
We continue to see growing demand for our digital operations, our free as customers realize measurable value through reducing incidence and by advancing their digital transformation effort.
Underscore the expansive and it really addressable market, we see in digital operations management. This quarter were 45% of the net new air our was attributed to the digital operations package. This bundle includes our platform our workflows in modern incident response, our AI absolution event intelligence, which Leverages machine.
Turning to automate work visibility, which quantifies business impact in real time analytics product, which provides recommendations on improving digital operations management and metrics to benchmark against other teams.
We are proud ever revenue growth rate and net dollar retention as they rank highly within our peer group that said, we see an opportunity to stabilize our dollar based network had net revenue retention.
As we mentioned in Q2, we front loaded sales hires in the first half of the year to increase our sales capacity. However, we didn't ramp those sales people is fastened as effectively as we could have in territories with significant expansion upside and this impacted sales productivity, which put pressure on our expansion revenue is an execution issue that we're working on not a comp.
Petition issue evidenced by our customer retention read that has remained constant at well above 95%, meaning we churns far less than 5% of customer air are in any given year.
And also validated by our gross margin that remains best in class at 85% for the last six quarters over the last few months, we implemented the following initiatives that are delivering early but encouraging improvements in more effectively ramping sales people first we doubled down on sales enablement leadership program and tools to ramp new reps faster.
Second we continue our efforts to simplify and differentiate our platform and messaging and increased will increasingly noisy market, including were clearly articulating a return on investment for pager duty and making self service and discovery of new products easier for all of our customers.
Finally, I'm very excited to share that we've strengthened our senior leadership team in sales with the appointment of our first Chief revenue Officer, Dave Justice High caliber global sales leader from Salesforce and Cisco was significant depth in commercial enterprise sales and experience in infrastructure security in customer service they will join us.
Early January and I expect him to be an excellent complement and partner to our CMO, Julie Herendeen, who has expertise in gross digital and high velocity VTB marketing.
We remain incredibly excited about our opportunity to extend our lead and digital operations management, a market, where we see a total addressable market of at least 25 billion for incident response alone and $100 billion. When you consider all the teams across the company that are part of managing digital operations. Let me explain what we mean by digital ops and why.
Peter duty is in a unique position.
And all these on world and customer patients result in every company needing to be a technology company. As a result, our customers can do you need to move more of their services to the cloud constantly iterating on their apps to provide the best customer experience.
In parallel with this market transition modern work has changed with mix shifting from planned and structured work to emergent mission critical spontaneous and unstructured work.
Page or did he is the only partner that Leverages machine learning to orchestrate teams on complex issues across multiple business units in geography, converting a dealership data into insightful action in seconds in minutes.
Digital operations are increasingly costly and complex to manage and the stakes are high where a minute of disruption in cost 200000 $500000. In revenue. This requires a long term partner that sits above the rest of the technology ecosystem acting as a central nervous system orchestrating all these critical workflows simultaneously and cutting through the noise.
Pager duties in the unique position to work for large complex enterprises as well as innovative startups, because we've been architected for the cloud with enterprise grade resilience and security at scale.
Well, our customers frequently start with on call management to accelerate their agile transformation, we increasingly see customers adopting or additional digital operations management products to support their digital transformation programs in business outcomes.
The GAAP initially started with 1500 pager duty business platform seats to support a devops you build it you own it culture.
Early success with pager duty led the company to add another 1000 users.
As we expanded our product capabilities with greater intelligence and automation gap saw that they could realize further value by leveraging our digital operations package to reduce major incidents that could cost millions of dollars GAAP now uses pager duty to directly connect product and I teams as well is distribution centers, creating smarter more streamlined approach to handling incident.
We estimate that this digital operations upgrade will save GAAP millions of dollars per year.
There are several great solutions in the market that address different and sometimes related challenges associated with digital transformation, including many of the company's went public. This year, we recognize it can be hard to discern how we complement each other.
I'm companies like our customers data dog fiscal have dynamics, new relic show you. The health of all your IP services in a single pane of glass others like service now I'm sure. We'll give you standard were close to route your customer service and helped us ticketing.
These are all valuable services, but when there's an unpredictable customer facing time sensitive mission critical work analytics and sequential ticketing are limited by manual detection lack of speed and flexibility and the absence of data driven intelligent work orchestration pager to these different because we go beyond finding a signal.
In the noise to automate and orchestrate the cross functional work of people all the way through to a resolution in service of the and customer experience.
Only PGT can do this because as the central nervous system of the software ecosystem, we consume a super set of data from all the different technology services, our customers use through over 350 integrations to build a holistic understanding of our customers digital health.
When we recognize symptoms of a service becoming unhealthy we pattern matched the situation again 10 years of data on how I T services perform and how humans respond to them. So we can bring together a small team only the right owners and subject matter experts armed with the right detailed technical and business contacts and help from me I'd be thought to me.
Asian to action solutions and resolve issues proactively.
I want Fannie customer and partner Sumo logic illustrate this point well they expanded their use of pager duty in the third quarter by purchasing or digital operations package as assaf business relied heavily relied on heavily by developers to understand the performance of their application. It's critical their platform is highly reliable at scale.
They use page 30 to orchestrate teams for immediate response incentives when seconds matter and increasingly leverage PGT prevent events from storming to become major customer disrupting yet issue.
Now that we set the stage for you in terms of the sizable opportunity and explain why pager duties in such a unique position well talk about how we capture the opportunity by winning in enterprise, increasing our revenue from new products and validating our position as a horizontal platform.
First we need to win in enterprise, where today, we serve 58% of the fortune 100 after adding another two companies this quarter and 38% of the Fortune 500 in these accounts significant expansion opportunity exist for both user Upsells and new product cross sell.
Enterprise like our other segments is greenfield and a growing opportunity for us our deals are largely uncontested as our competitors lack the product depth track record and resilience of scale to service segment.
Our cloud native Architected for highly resilient 24 by seven operation and I've never had a maintenance window, we implement change in production because our customers can't afford even moments, where they lack visibility and awareness of their digital operation. This is one of the many critical requirements to support the always on world and it's one of the reasons our customers country.
Can you Trust us as a mission critical platform partner, you're in and you're out.
In addition to our strength in self service and small and medium sized businesses, we see significant upside in Midmarket and enterprise. This is precisely where sales execution comes into play our enterprise sales motion builds on but differs from a frictionless direct to developers sales motion with our field. These teams engaging with developer teams and senior leadership alike.
Addressing the strategic needs of economic buyers and the technical needs a product users for enterprise ever been market customers realizing value quickly, while meeting security administration and compliance requirements of large businesses is critical our solution meet these need as illustrated by a recent I'd see study that shows pager duty enterprise pest.
Summers averaged $3.6 million in annual visits savings and revenue risk mitigation.
Four month payback period, and a 731% ROI over three years as we strengthened our senior sales leadership with the appointment of Dave Justice as Chief revenue Officer, We will help more of the global 2000 manage their digital operation optimizing revenue and customer experience and significantly reducing operational expense in the <unk>.
Yes.
Next we are increasing or revenue from new products.
After an incident response, our <unk> <unk> or [laughter], our AI off solution event intelligence.
The ability for situational awareness and analytics for measuring operational and team health and productivity all of which build upon data and learnings from our platform.
We also announced two new capabilities this quarter intelligent dashboards and intelligent triage intelligent dashboards is newer analytics product and never just tenures data through spotlights recommendation engine. The teams can use for future improvements such as stopping on actionable alerts fixing repeat issues and improving escalation practices. It.
Also provides managers with built in benchmarks to see how their teams compare appears in the organization and across the industry.
Intelligent tree on his new within event intelligence and provides additional context issues. So teams know how to prioritize their work and can reduce the time between detection resolution of an issue significantly cutting outage time in mitigating the risk of business impact.
All of our products help businesses mature their digital operations and deliver greater return when customers use these products they mature from reacting to incidence more efficiently to proactively managing their digital operation and preventing problems before they arise.
As I mentioned before we've also seen some great signals here recently with regards to our ability to up sell these products at 45% of the net new air our we've lived in the quarter was attributed to the digital operations bundle.
Last but not least we continue to validate our position as a horizontal platform.
We mean by horizontal is that customers increasingly apply her solutions to teams and challenges well beyond the purview of Dev ops and I T.
In the third quarter, we launch pager de for customer service in partnership with Salesforce and then does.
Just following the launch of pager duty for security operations in February customer service management is a significant opportunity for us as those teams that are on the front lines of ensuring customer experience and rapidly resolving customer impacting issue is a cross functional effort.
Being a horizontal platform also means being applicable all companies with time sensitive critical work I mean that brings to mind another new customer partnership we initiated in the corner with a top 20 U.S. City municipality.
Think about essential services like power gas and water. We're always on is both physical and virtual must have historically the city would be notified of issues by a customer with little visibility into the underlying causes service outages were costly and it would take upwards of 45 minutes to coordinate teams after a power outage before.
Were they even start to treat largely issue.
He didn't pager do either city redesigned digital operations with the health of our health of our expert service team. So they can address issues quickly and proactively and Peter duty mountaineer and Peter duty mater incident response.
Uh huh with paid or do you do modern incident response the city can automatically run response plays to resolve issues before customers are impacted significantly reducing the time from detection to resolution and mitigating revenue impact.
One additional highlight from the quarter with our annual summit industry Conference in San Francisco, where we built significant sales pipeline valued in the million. This is our biggest unless somebody yet with over 1200 attendees a 40% increase from the previous year customers were supportive and excited about the new innovations, we announced and our investments in customer service through.
Super integrations with sales forces Anda.
As we close the calendar year, we have Peter do you want to wish her entire community of users customers employees partners and shareholders, a safe happy and an eventful holiday period over the holidays, we will continue to help our customers reduce the financial customer and employee impact of emergent work.
We're also keenly aware that the holidays can be difficult for those in need so an honor our customers. We're supporting the delivery of time sensitive health care for those need by donating $25000. Each two village reach and medic mobile two of our pager duty Dot work partners.
With that I'd like to turn the call overdue, our CEO Howard Wolfson, Howard our CFO the if Howard Wilson. Thank you Jennifer.
We're pleased with a third quarter fiscal 2020 results revenue for the third quarter increased 37% year over year to 42.8 million, beating the high end about guidance.
Strong new customer acquisition, new product adoption and healthy growth in international geographies, particularly EMEA all contributed to our strong results.
non-GAAP gross margins, we took industry leading remained strong at 85%.
non-GAAP EPS came in at negative 10 cents per share inline with our guidance.
We continue to add to our track record of managing capital efficiency generating positive cash, but again this quarter.
We saw a 15% increasing total customers on a year over year basis to 12436 customers.
We were pleased to see further evidence of our success in the enterprise with customers above $100000, an hour or up 49% year over year to 303 customers.
As Jane mentioned growth in both total customers and larger customers were in line with the growth grades we have exhibited for several quarters now demonstrating our ability to grow bigger base.
I don't a base net revenue retention for the quarter with 129%. This metric will fluctuate relative to the amount of new business versus expansion, we do in a quarter.
And the baby abilities of customer buying patterns.
As Jim mentioned in her remarks, some of the challenges we faced with ramping new sales reps has led to sub optimal execution on the expansion opportunity in our installed base, which has created some downward pressure on this matrix.
However, we are pleased to see our tenured sales reps continue to drive significant new and expansion deals. For example, we added two new customers in the Fortune 100, bringing us to 58, an increase the number of customers who spend over $500000 in annual recurring revenue with us about 81% year over year.
Yeah.
In fact, this quarter was our largest quota for annual recurring revenue from new customers.
International revenue grew 52% year over year. This was an exceptional quarter Crimea region, including one of our largest deals for the culture with a global enterprise software company based in Europe .
I'll now turn to the detailed financial results. These results are on a non-GAAP basis, our GAAP financial results along with a reconciliation between GAAP and non-GAAP results can be found earnings release.
In the third quarter non-GAAP gross margin was 85% inline with the third quarter of last year.
Cod Native architecture, Devops approach to production and programmatic approach to customer success drives our efficient operating model.
We look to run our business at between 84% and 86 the same gross margins.
When it comes to managing the operating expense side of the business, we take a balanced approach to growth and profitability.
In the near term, we have more focusing on investing in areas that will help us scale our growth as we like look to take advantage of the opportunity ahead of us.
Over the long term as we scale, we expect to reap the benefits of operating leverage.
In the third quarter non-GAAP operating expenses were $46 million compared to $32 million in the third quarter fiscal 2019.
non-GAAP research and development expenses come Q3 were $11 million compared to $8 million in the same year ago period, representing an increase of 39% year over year.
Innovation has been and we'll continue to be a top priority for us as we continue to extend our lead in real time operations.
We expect R&D to increase in Q4, poking total dollars and as a percentage of revenue.
non-GAAP sales and marketing expenses for Q3 were $25 million and grew by 43% compared to Q3 of fiscal 2019 of $18 million.
As we discussed on our Q2 earnings coal we plan for incremental discretionary spend for our annual industry Conference, we set a new record for attendance and sales pipeline generation.
And for above the line advertising for our brand campaign.
We expect sales and marketing to decline in Q4 back to a run rate close to Q2 and should decrease as a percentage of revenue as we continue to scale, our sales team and improve productivity.
non-GAAP general and administrative expenses for Q3 were $9 million for the quota and increased 37% year over year more modest increase in the two previous quarters, given our investment in head count and systems in the latter part of it by 19 in anticipation of being a public company, we expect general and administrative expenses to increase.
Slightly in Q4.
Our non-GAAP operating loss in the quarter was $9 million compared to loss of $6 million in the same quarter last year on non-GAAP operating margin was negative 22% in Q3 and negative 18% in the same period of last year, primarily driven by investments in go to market and increases in research and develop.
Over the longer term, we expect improvement in operating margin.
non-GAAP net loss for the third quarter was $8 million or a net loss of 10 cents per basic share compared to non-GAAP net loss of $5 million or a loss of 24 cents per share in the third quarter of last year.
The drop in interest rates negatively impacted EPS by about a penny this quarter.
We generated $3.4 million in operating cash flow in the third quarter compared to 2.8 million in the prior year.
Free cash flow was 2.3 million in Q3 compared to $200000 last year.
Free cash flow margin was a public to 5% compared to positive 1% in Q3 last year.
Working capital improvements were a major driver here as we continue to manage capital efficiently.
As we mentioned on our last earnings call, we used to be expecting an increasing capital expenditures related to office build up this will negatively impact free cash flow in the short term.
Our long term basis, we will work towards sustainable free cash flow.
Turning to the balance sheets, we ended the quarter with $346 million.
Cash cash equivalence and investments up $218 million from the ended the fiscal year 2019.
This was primarily driven by proceeds raised initial public offering as well as positive working capital.
Moving onto guidance for the fourth quarter fiscal 2020 and the full fiscal year 2020 .
Revenues expected to be in the range of $44.5 million to $45.5 million for the fourth fiscal quarter and would see our full fiscal year 2020 and in the range of 160 $566 million.
non-GAAP net loss per share is expected to be in the range of six to seven cents for the fourth fiscal quarter and in the range of 38 to 39 cents for the full fiscal year 2020 .
Basic shares outstanding for Q4, and the full year fiscal 2020 are expected to be 77 million and 65 million respectively.
With that Jennifer will make some closing comments.
Thanks Howard.
In closing I'd just spent the last three days in Las Vegas, with our partner Amazon Web services, and a number of our largest and most innovative customers at eight ws reinvent.
Every conversation reinforce the importance of cloud adoption and digital transformation Andi guess, he also reminded us in his keno Tuesday of how early we are in the cloud migration journey with only 3% of the World 3.7 trillion dollar I T spend in the cloud today, 97% that market is still on Prem.
And with cloud migration being one of pager duties, most popular customer use cases, I've never been more optimistic about the opportunity we have in front of US we're focused on the long game a building a company that generates measurable value for our customers through innovation itself, the big problems and on delivery durable growth on a cash official business model.
Given the innovation, we continue to build into our platform. This quarter's uptake on digital operations management and our growth in enterprise.
Truly an exciting time per patron.
Operator, you can now please open the call up for Q Nay, we're happy to take your questions.
Ladies and gentlemen, as a reminder, that star one if you have an audio question.
Our first question swine Oh.
Oh hauling it varied from William Blair.
Hey, guys. Thanks to my questions and congrats on the David Justice are obviously, you did great things. It's just one salesforce or was that your does that should bode well. So nice job. There I guess I wanted to touch on on sales and sort of the things you brought up here in terms of execution and as you guys think by building a business for a long term I don't care about the next couple of quarters because these things.
You take some time as you look.
He says I'm playing out over the next say 12 to 24 months, maybe a couple of years not to give some color or understanding of your confidence levels of returning to sort of be MDR. Our growth rate you had and not all retention rate you had the growth rate you had.
Driven by sort of that proven himself first let me just some understanding of how you think them play out over the next 12 24 in sort of what gives you confidence in those returns we're trying to close rates. Thank you.
Sure. It you know well I'll start with market demand and the market opportunity because we're in a very strong leadership position, we're extending a particularly as it relates to Midmarket and enterprise, where our direct go to market motion is unique in that we can land customer through self service expand the rapidly at lower values, but then.
Deploy a direct sales organization. It really provides a strong focus on customer success and when you start with a strong market position in a market, where there's credit like a growing demand in my view and then add to that the fact that we're going from strength to straight from a product perspective, where we build.
The trust and the foundation of our business on our first product on call management, but are starting to see real validation of our ability to expand the platform to help companies solve problems beyond Dev ops and I T in areas like customer service a in security and others that we're very excited about that opportunity to grow.
Within the base that we've already landed and not a single one of those customers is sold out its early days in the journey with all of them. So bringing on a strong leader like Dave who comes to us with significant at scale Global <unk> Global leadership experience. The also the technical domain expertise I think is create presenter really unique.
Opportune. It gives me a lot of confidence I'd also mention that our sales team is doing very good job, we still had a terrific quarter growing at 37%, we're still very efficient in the way we know about it and are landing larger deals you look at our customer cohorts up over 100, K growing at 49% and customers over 500 K growing at age.
The 1% that's a very strong base to to drive our execution improvement on top of so I feel I feel very optimistic about our ability to stabilize that net dollar retention rate and continue to build our position in what I think is a very early but exciting market.
John It got it and then one quick follow up obviously, you sort of roll a number of very compelling use case based solutions, especially for cloud operations be for customer business intelligence business response, sorry, I just want to understand early interest no solutions and the pricing monetization strategy flow solutions. Thank you.
Sure Bond, there's been very strong interest in those solutions because they were built out in the basis of custard, a man or customers told US things like you know and were when we're working through an incident that had the technology centric origin, we need to be able to communicate with the balance of the business. So that they can start to execute on the commercial response whether that.
Communicating with their customers managing the legal or the public risk associated with these incidents that can have a material impact on business and so business response for instance was designed to take the intelligence is happening within a response automate the communication of that intelligence, you don't take responders away from solving.
Really big important problem again stakeholders in the loop quickly so that they can take action and I think the important thing there is that it is about the ability to drive action automatically through the right people in their rate moments and so we're talking about micro second seconds in minutes. So there's been strong interest in that there's a very strong interest in pager.
I'd for security impact that again came from demand where customers are already using us since you're even though we weren't design for that so we've really built out our integration stack there to support.
Those teams who are trying to work collectively with VIP and Dev ops organization to make sure there coordinated and improving their response times and reducing.
The threat of of visits loss within their businesses and what we're seeing the other thing I would just that is.
As we as we develop our ability to engage more effectively with senior leadership across our customer base and we're talking about CIO CTO is even in some cases.
So they're asking for a broader platform of services, where they can take that success they've seen within the developer and I T community and drive that kind of efficiency operational improvement and execution capability across the other teams within their organization and I think that conversation tends to start with trust on the base.
So the users that are already using page the luchsinger duty and they want to see that business impact in other parts of the organization.
And then bonds. This is how it I might just means on the pricing aspect of this I'm sure times all up platform is not a this the southern represent new products for US. This is the great thing about these new use cases as they emerge the the platform being a horizontal platform that can be applicable to any number of used.
Cases means that the same pricing applies regardless of the use case and so we essentially the work that we do is to ensure that we have the right kinds of integrations available to support. This use case, all we work with customers as they build custom integrations using I'll open a yard to be able to access the platform approach.
Please.
Is it safe to say you could expect to monetize through the expansion of new users in new teams and new functions or divisions in a business that we don't serve today and in some cases in services, where we're going to help those organizations get up and running.
Gotcha Gotcha very helpful. Thank you guys appreciate it.
Thank you thanks phone.
And your next question is one of Matt Hedberg from RBC capital markets.
[noise], Okay guys. Thanks for taking my question John It looks like it looks like Dave is Great addition to the team and it was certainly good to see the growth in large deals I think that was really impressive obviously growing faster than even revenue.
I'm curious on the sales Rep productivity, obviously, you noted that there aren't wrapping quick enough, but tenured reps are doing better I'm curious if you can comment on it you know with the capacity that you've added you do you have the right mix of newer reps I guess you secondarily, how quickly do expect this cohort to ramp under Dave's leadership and.
Was there any or the broader changes the Dave needs to make it really position yourself for this next leg of growth.
I think we need to continue to do we do well and but I do it very efficiently and quickly. So you know, we we front loaded hiring in the first two quarters of the year and we did not digest the elephant fast enough and so it took some of our rep a longer period of time to ramp, but having said that.
I'm really pleased with their progress and how they're coming up to speed. Some of the deals. We mentioned today came from Baird relatively new reps, who are working under more tenured managers until I think that creates a platform for us to continue to improve.
And I think Dave will come into the business and look to lean into things that we do well and identify new process new opportunities to improve and build process, where we don't have process and ensure that the way we go to market and engaged with our customers continues to be focused on their success and on value, but really continuing that she.
Lift from selling on the basis of technology and feature and function in selling on the basis of driving business outcomes and realizable quantifiable value.
I think it's it's like any other fast growing business. There always new things you have to learn how to do as you get bigger and things that we can be better at and be smarter and despite the execution issues. We are we delivered a terrific quarter and I'm very proud of that I think it gives gave a really good foundation to start from and hit the ground run.
Okay.
[noise]. That's that's helpful and then the digital operation disclosure was super helpful.
I'm wondering can you talk about what happens to spend when a customer <unk> more of this platform approach and maybe what the sales cycles look like I assume that's more of like an up sell like maybe there's a new so into a new account, but curious on how does it feel cycles for these more broader platform sales versus point b cells.
Sure it depends if anything it varies from one customer to the next so you know one example, I can think of with a a large retailer. They started on our our first solution with several hundred users they expanded to over a thousand users. They started to see the benefits of event intelligence.
In particular in a trial the benefits of automation and machine learning, which which allow you to do things like see a series of alerts that would historically be treated like five or six separate work streams using machine learning, we consolidate those alerts and recognize that they are actually one particular issue and get that to the small cross functional.
Team that can resolve and instead of getting 100 people involved in a process, which is inefficient takes a long time and so they they thought through a trial the benefit of that simple example of machine learning and automation and that led to them exploring other solutions in the platform. The other area, where we see a lot of interest, particularly from leadership CIO than sito's.
Our analytics product, which helps you understand the true cost of your operations and al. So for instance, we see a lot of customers that use the cloud to abstract legacy system. So that they don't have to invest dollars replatforming, there and can ship that investment into new customer facing application innovation. Unfortunately, what can often.
Happen is those legacy platforms are actually creating drags for all of their other new services and you think you may see saving yourself $5 million year, you're actually costing yourself $30 million in in unplanned work and lost revenue due to disruption. So analytics brings all of that to the surface and also can help you heat map.
The health of your team so recognize people who may be burning out sooner benchmark one team against another to understand why you have some teams that are very efficient unproductive and some that aren't and you know that's tied to real operational expense and topline deliverables and so lots of interest there in having a single source of the truth, where historically.
All that information has been delivered executives manually and so I think that's the other shift Matt is that we tend to see a more senior buyer getting involved in the process of a platform play and because more and more of the CIO than TCOS, leading these large organizations are very technical they recognize the value of pager duty being loved by there.
I look for community and our technology and innovation being well ahead of the rest of the market and so there's a lot of confidence that comes with that.
The sales cycle doesn't necessarily have to be dramatically longer either often in an expansion situation. It. It plays within the average of our traditional sales cycle. We have recently seen some larger lands with big multinational companies, where they start on digital operations as opposed to starting with the.
Entry point, we'd like to see more of that because we think those customers realize value faster.
Super helpful. Thanks, a lot.
Thank you.
And our next question this line of Rishi Jaluria from D.A. Davidson.
Hi, guys.
Thank you for taking my questions. Just first I was wondering if you could talk about traction with your patrons any for customer service and what expectations you have for the next 12 months say.
Yes, we've had St. Thank you for the question Hana, It's nice to hear a female voice and acumen in Q.
I would say that we've had very good traction we only just released to pager duty for customer service in September at our event and I think both we and Salesforce have been very encouraged by the results I think within the first few weeks, we saw over 30, new customers sign up to those services and these are customers that hadn't been.
Using us within their customer service teams in the past I think that's really good early indicator, but we won't be providing detail on that as it's every line item in the future having said that if you just think about how how these set of problems play themselves out and customer service identifying a customer issue before the customer does it for you is really important.
Value proposition for our customers and then resolving customer cases that process that you need to go into one looks a lot like an incident resolution process. So our customer service teams kind of see that as being analogist and leverage with their learning from their developer counterparts, and two more and more of the problems that.
Mercers teams are trying to solve for their in customers have a technology centric origin something in the App didn't work my order Didnt get delivered as I'd add that arise Mike hard in shopping or whatever the case, maybe so there the customer service teams are now inextricably linked with the App development and I T teams in a business and that's providing.
A lot of momentum there.
Okay, Great that's helpful.
Like you have a lot of opportunities inside the base and with new customers. I was wondering if you could talk about how you prioritize.
Alan.
Yeah, well the good thing is because we have a self service land motion through our digital marketing engine.
There you don't always have to trade off one for the other the vast majority of our customers land by coming to us through a qualified search they already have a set of problems. They know our reputation they start with a trial and experienced the product and then they swipe of credit card and go I'm in so that doesn't take time away from the sales are up and then our sales.
Teams are more focused on pure expansion and really driving upside and occasionally our sales teams will engage with the new land like of the large defense contractor I mentioned, where they wanted more help they didn't want to start with an online travel they really wanted to be handheld through the process and I in that particular case, you know we came out.
With a much larger lands so it sort of it sort of varies but we see both landing new customers, especially in Midmarket and enterprise, where the expansion opportunity as much larger as as an area, where we want to continue to focus by simplifying what our product does and how it works and driving account based marketing.
Two prospects that we think it'd be interesting and at the same time continuing to make it really easy for both customers and prospects I like to discover our product discover new products and try them online if they don't want to engage with a salesperson and if you've met.
Elevators, they often don't really want to talk to salespeople. They just want to use the product and Gol and so I think the last thing I would underscore there is our growth its products led we win on the basis of the breadth of our platform the depth of our technology and our track record for delivery and that's something that will not continue to change we're very focused.
On innovation on listening hard to what customers are asking for but also thinking.
About what's around the corner from land and preempting some of the things, we think they're going to need in the future.
Great. Thank you guys so much.
And our next question line of Keith Weiss from Morgan Stanley .
Hey, guys.
She said.
Just new customer additions.
Two questions.
In terms of this company ward.
In addition to this huge.
Yes.
<unk>.
On the capabilities or.
Looking for him to bring the equation versus all what you guys.
100 that.
Patch to be overall, we can number one and number two on the.
The reduction in is the net expansion rate all the issues you have there.
You should just noticed anything happens kind of existing sales reps again repeat itself into account and then you expansion comes from him keeping going.
Okay.
But if I love you need so.
And why like you see all that's ramping up having machine that expansion what am I getting wrong in that region in terms of the connection between an you guys.
So I mean I have no train repeat your question because the line that was a little difficult to here I think your first the first part of your question it was about.
What additional qualities are capabilities the steam justice bring to the table for our existing organization. Let me start there. So first of all at Dave brings not just sales leadership experience. The general leadership experience from from two of the best performing enterprise software companies on the planet and.
Whenever we look to bring new here into the organization. It starts with company leadership. It starts with can we find someone who is a terrific fit to the culture, who can help us recruit the best talent, but more importantly will also develop our talent internally and Dave has very strong reputation for developing leadership within the organization that he's.
Then, but as I mentioned he also has the unique combination of both global go to market experience in all of the segments that we.
Engage in but also deep domain expertise and those two things together are quite hard to come by he complements Steven Sean's who's been with us for some time been largely focused on scaling a direct sales organization that frankly didn't exist when even got here I and some of our other leaders who have been at smaller companies.
Or run smaller parts of the organization within those companies Dave comes to us with significant scale, but within the large companies. He's been in he's built a number of important businesses. So he led the security go to market organization for Cisco is it acquired a number of new businesses. It really started to build out more of a software slip.
Print there and he is leading one of the largest parts of the go to market organization for Salesforce. Most read recently and we think they're both terrific companies that we admire so I think he brings scale. He's got a lot of experience in leading in the future that we want to build for ourselves, but he's also spent time in.
Modern hsas and seize the opportunity to to build build the machine. That's on solvable here and I'm very excited about just his fit to our culture, which is one there's very oriented around customer championship and that is designed around taking the lead and.
Not waiting TV App, and importantly centers around inclusive leadership, so I think he's going to be a great addition to an already strong team that I'm very very proud of I think your second question was really hard to understand so what I think I heard you say was you know can you break down what's driving some of the pressure.
On a net dollar retention and yeah.
Is that right.
Yes, I'm, sorry about that back on it so I'm trying to understand the connection I normally associate that expansion with like an existing sales Rep has already sold I count continues to see.
The counts I was trying to understand why like new sales guys ramping up would be.
Back on net expansion versus kind of like new customer additions, where it looks like you guys did really well.
So our our direct to go to market sales organization is not you know hundreds of people, it's pretty units, it's it's pretty it's still emerging.
And what I would say is as you grow a sales organization scale, Oregon, an organization years, you're changing territories and so I mean, those territories down and dividing them as you add more capacity. So you often have a new rep in a territory that another rep, whose maybe been promoted into management has run in the past so that new rapids essentially three.
I mean with a new set of accounts and coming up to speed up on the product in the services in the market and our buyers are very technical. So they also have to be you know deeply technically engaged as well and it's shortly our reps have ramped very efficiently and very quickly, but as we've added more reps I think we've just had two.
Dymatize that enablement process more effectively and so that's been put some of the pressure on that dollar attention where the expansion opportunities. There. We're just not executing on it as quickly as we could and having to provide you know management oversight to help help bring those those reps up to speed faster our existing.
Tenured reps, who have been here one year two years three years in our existing or are there still performing at the same and you know high productivity levels. We saw on path. So we feel really good about our ability to get them. There, we just need to improve the process around it.
And then the last mentioned that had some pressure on our retention is just the flow through of some of those large competitors and we mentioned last quarter, a that left Uh huh.
Got it doesn't really well thanks.
Oh, thank you.
Once again, ladies and gentlemen, good luck to ask an audio question you may do so by pressing star followed by the number one under telephone keypad.
Our next question is from line overall Bolivar from Baird.
Great. Thank you guys for taking my question one for Jennifer and then a quick follow up thought for Howard.
You mentioned on the call and again, you mentioned last quarter as well that most of your deals are still on contested I'm, assuming when you get to the sort of scale loved the large banking and large.
Aerospace and defense contractor, that's probably not the case or what I'm curious to know is [noise], where there are other vendors clearly in there does do you guys being an independent sort of neutral third party resonate in the sale and could we drilled down a little bit more into the sales process also thought it was a really unique that.
The aerospace and defense contractor had not been a cluster before with a large Alicia initial land so would love to get a little bit more color on on those deals on the sales motion.
Sure. So you are so so a couple of things one. Thank you for the question because I actually like talking about as far as profit. So your exact you're absolutely right that our customers. Appreciate the fact that we are a neutral third party that we take signals from any software enabled environment I, probably not only the 300.
50, plus the box integrations, we've built but custom integrations that customers will build using our APC ickes and they like the fact that they're coming in through kind of one one catchment then being consolidated and correlated to using our machine learning our event intelligence to turn those those events into it.
Fateful actionable work that can then gets orchestrator the right people. So that neutrality. We believe is very important or customers reinforced that the first part of your question, though around the at the presumption that as you move into larger enterprise, it's actually more competitive the opposite is actually the case as we move up into larger enterprise.
There's nobody else there because there isn't another platform that is proven at scale with tens of thousands of users and highly regulated environment that does what we do and is liked by the user community and so we really don't see much competition. There in the case of the defense contractor that you.
Mentioned, it's a great example of whenever more tenured reps, who has been a tremendously successful selling our first product, but learn through some other customer relationships about the opportunity to go more broad in the account to new use cases, and it's taken that knowledge and applied it and been working with this particular contractor.
For a period of time and helping them to see one what's the size of the problem like how much does it cost you when something doesn't work the way it supposed to work and you know these could be machine automation systems. These can be life and death situation not just I T and technology situation. So there it's a high stakes game reliable.
Pretty interests becomes very very important in that and I think this particular sales person who were very proud of lienhard into that value proposition, but also really through the process I think one of things I'm. Most proud of about our sales culture and the team that Stephen in or sales leaders have built to date is that these are people that generally want to partner.
With their customers and and health and be successful they're in their respective with partners and thought partners, they're often hands on helping customers get up and running and that lends to a long term mindset and a long term relationship that I don't think you can get too in 100% friction friction lisenby.
I think you need that kind of account management and relationship, but we try and do it in a very efficiently.
Did I answer the whole question.
[noise] you do it. Thank you that's great Jennifer really appreciate the color and then just a quick follow up Howard for you you did call out and media.
Particularly healthy in the quarter. It I know sounds like you guys signed up a pretty exciting deal with a Fuller software company was was it more broad based and Dan and can you talk a little bit to that as a trend or was it more of its kind of that deal [noise].
Yes. It does was actually interesting. This is a global software company, where we will already.
Broadly deployed within one of the subsidiaries and that they thought it that process with us which ends up being a little bit longer than our regular process. Because they were 80 rigorous thing tens of evaluation they subsidiary had been using.
More of outstanding offering and hadn't taken the full set of offerings, including the event intelligence and button in the fall in some of those components and so in this deal. The team is very Barra intends to be evaluating what they were going to get out of that in terms of both management capability and the ability to be more proactive with a busy.
And so.
There was an example of all that a customer then who strategically five up for digital operations, playing with it you to being able to deploy across a fairly broad set of uses the upside but with a very large population that we could still get too.
Great very helpful. Thank you both very much.
Okay.
And once again, ladies and gentleman that star one das can audio question.
And there are no final questions at this time.
I'll now turn the conference back over to Miss Finerman for closing remarks.
Great and thank you everyone and thank you for taking the time for our calling it a lot of you're busy with many other calls today and have a great night happy holiday.
Ladies and gentlemen, this does conclude or coal you may now disconnect.