Q4 2020 Earnings Call

March 18, 2020

Jennifer Tejada: As developer and operations teams shift to distributed working, we have seen some interest in leveraging PagerDuty to ensure ongoing digital performance and uptime. In addition to sharing best practices with our community, we've kicked off several philanthropic initiatives through our social impact program, pagerduty.org.

At this time I would like to welcome everyone to the pager duty fourth quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question answer session.

Jennifer Tejada: Today, we are announcing that we are providing 20 free platform team licenses to healthcare companies to aid them in managing surge in their digital environments and supporting them and their crisis response teams. The last few days have been extraordinary, culminating this week in metro area lockdowns, federal travel bans, and record-setting market disruption.

Ask a question during the session you'll need to press star one on your telephone please be advised that today's conference is being recorded.

Your core or any further assistance. Please press star zero. Thank you.

Now turn the conference over to Stacy Feit, a minute Vice President Investor Relations. Please go ahead.

Thank you good afternoon, and thank you for joining us on today's conference call to discuss pager gates fiscal fourth quarter and year end financial results.

Jennifer Tejada: It's too early in the cycle to have clarity on the true medium and long-term impact of this fluid macro environment. This makes it increasingly difficult to forecast the market and the subsequent impact on our business. This is a situation that's changing by the day. While we see some early indicators of changing demand signals, we see nothing material to date. While our business is not subject to significant industry concentration outside of software and tech, which represents a third of our revenue, we have a meaningful business in retail, e-commerce, and financial services, and it's too early to call how these industries will fare. Additionally, we cannot measure or ignore the potential for disruption or market productivity decline that may come from ongoing mandatory work from home policies, school and business closures, and illness.

With me on today's call her Jennifer Hata, pager duties chairperson, and Chief Executive Officer, and Howard Wolfson, The company's Chief Financial Officer.

I would also like you mentioned that we are joining you remotely today from our home offices I've been informed from our conference call provider that there have been some technical difficulties with the increased Internet you, we apologize for any difficulties and if there's any clarification needed. Please reach out to us at investor a teacher duty dotcom.

Jennifer Tejada: While our business is not subject to significant industry concentration outside of software and tech, which represents a third of our revenue, we have a meaningful business in retail, e-commerce, and financial services, and it's too early to call how these industries will fare. Additionally, we cannot measure or ignore the potential for disruption or market productivity decline that may come from ongoing mandatory work from home policies, school and business closures, and illness.

He wants me 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.

Jennifer Tejada: We remain unwavering in our mission to help companies manage their digital operations more effectively. Outages and poor customer experiences are financially unacceptable, even more so in the current environment. Thousands of centralized operations teams have been distributed overnight as a result of Coronavirus, and addressing these challenges is PagerDuty's core expertise. The addressable market we pioneered and serve remains large and early when we estimate at $100 million, and we know our customers and prospects need our resilient, scalable platform to manage mission-critical unplanned work now more than ever. We've recently seen examples of customers self-service licenses to expand new teams rapidly, but it's too early to tell whether this is material or coincidental. What we do know is our customers trust us and value the efficiency, cost savings, and customer experience assurance we help them achieve.

Forward looking statements represent our management's beliefs and assumption 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 for or superior to measures of financial performance prepared in accordance with gap.

Jennifer Tejada: The addressable market we pioneered and serve remains large and early when we estimate at $100 million, and we know our customers and prospects need our resilient, scalable platform to manage mission-critical unplanned work now more than ever.

There are a number of limitations related to the use of these non-GAAP financial measures versus our closest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use measures to evaluate their performance all of which could reduce usefulness of our non-GAAP financial measures as tools for comparison.

Jennifer Tejada: We've recently seen examples of customers self-service licenses to expand new teams rapidly, but it's too early to tell whether this is material or coincidental. What we do know is our customers trust us and value the efficiency, cost savings, and customer experience assurance we help them achieve.

A reconciliation between GAAP and non-GAAP financial measures is available in our earnings release.

Jennifer Tejada: Turning to the quarter, we are proud of our strong year-end results, with Q4 revenue increasing 36% year over year, and full year revenue growing 41% over fiscal 2019. We recently achieved a major milestone, surpassing 500,000 users on our platform, with our average revenue per user increasing again this year for the third consecutive year. This underscores both the value that PagerDuty delivers to users and the successful adoption of our platform by customers of all sizes across verticals and geographies. Cloud adoption, the need to manage increasing complexity, mainstream DevOps adoption, and progressing digital transformation continued to create tailwinds for us in fiscal 2020 as we extended our lead in digital operations management. As trust is increasingly a valuable currency for consumers, PagerDuty helps our customers establish and sustain trust with their customers.

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 and the company's most recently most recently filed form 10-Q previously filed with the FCC.

Now I'd like turn the call over to our CEO Jennifer to Hada Jennifer.

Thank you Stacy.

We are living and working in an unprecedented environment as we can probably be evolving global impact of the cobot 19 pandemic. We hope you are all safe and well and appreciate you being on the call today.

Jennifer Tejada: Cloud adoption, the need to manage increasing complexity, mainstream DevOps adoption, and progressing digital transformation continued to create tailwinds for us in fiscal 2020 as we extended our lead in digital operations management. As trust is increasingly a valuable currency for consumers, PagerDuty helps our customers establish and sustain trust with their customers.

I patron duty, we've undertaken a number of measures demand it effectively through this especially as it relates to protecting our people engaging our customers and supporting them as they respond to the people economic and business impacts.

And also doing we can't as a quarter communities and slow the virus.

Jennifer Tejada: During the year, we also saw a meaningful uptake of our new products. As a reminder, these include Modern Incident Response to orchestrate real-time work across distributed teams, our AIOps solution, Event Intelligence, Visibility for situational awareness, and our advanced analytics solution for optimizing operational and team health and productivity. Demand for all of our new products was particularly strong from new enterprise customers as they leverage unique data, automation, and learnings from our platform. Of the top 100 new customers we partnered with in fiscal 2020, 68 of them subscribed to more than one product. In Q4, we continued to advance our roadmap and deepen our competitive moats. We deployed new market-first features in our Service Directory, a single dynamic repository for service information which accelerates full service ownership across teams.

On March 10th we enacted a mandatory work from home policy alongside traveling event restrictions already in place and we have at enacted a crisis governance operating framework.

Given we designed products for an AD work and incident response, we were well prepared to a great extent for remote distributed work.

You're able to focus on helping our customers as many of them transition to work from home.

Jennifer Tejada: Demand for all of our new products was particularly strong from new enterprise customers as they leverage unique data, automation, and learnings from our platform. Of the top 100 new customers we partnered with in fiscal 2020, 68 of them subscribed to more than one product. In Q4, we continued to advance our roadmap and deepen our competitive moats. We deployed new market-first features in our Service Directory, a single dynamic repository for service information which accelerates full service ownership across teams.

As a developer as developer and operations teams shifted distributed working has seen some interest in leveraging paid or major duty to ensure ongoing digital performance and outside.

In addition to sharing best practices with our community we picked off several philanthropic initiatives through her social impact ramping your duty dot work.

Today, we are announcing that we are providing 20 free platform team licenses to health care company to aid them in managing surge in their digital environments and supporting them and their crisis response teams.

Jennifer Tejada: This includes new information objects like current service health, trended service performance, service ownership, service-specific incident history, event rules, and new runbooks. We released the latest version of our Salesforce integration, opening up several new use cases by enabling Salesforce customers to go beyond our previous Service Cloud integration, connecting PagerDuty to Salesforce Marketing Cloud, Salesforce Commerce Cloud, Quip, and more. We also released new enhancements to make real-time workflows more customizable and flexible for various teams and operating models. These enhancements address the challenges of hybrid ops environments, where companies have both centralized IT teams and DevOps teams with very different processes. This allows DevOps teams to leverage Agile for distributed work while also supporting seamless coexistence with centralized IT ops teams, all on the PagerDuty platform. Business Response is a new feature that's particularly relevant at this time.

The last few days have been extraordinary coordinating this week in Metro area, Lockdowns federal travel ban and record setting market disruption.

It's too early in the cycle have clarity on the true medium and long term impact of the fluid macro environment. It makes it increasingly difficult to forecast market and the subsequent impact on our business. This is the situation that's changing by the day.

Jennifer Tejada: We also released new enhancements to make real-time workflows more customizable and flexible for various teams and operating models. These enhancements address the challenges of hybrid ops environments, where companies have both centralized IT teams and DevOps teams with very different processes.

And what we see some early indicators of changing demand signals, we see nothing material to date.

While our business is not subject to significant industry concentration outside of sovereign pack, which represents a third of our revenue we haven't been business and retail E Commerce and financial services and it's too early to call. How these industries will fare.

Jennifer Tejada: This allows DevOps teams to leverage Agile for distributed work while also supporting seamless coexistence with centralized IT ops teams, all on the PagerDuty platform. Business Response is a new feature that's particularly relevant at this time.

Additionally, we cannot measure or ignore the potential for disruption in her remarks productivity decline that may come from ongoing mandatory work from home policies school and business closures and illness.

Jennifer Tejada: Business Response allows stakeholders, like leaders in senior management, to receive context on the health of business services in real time in an easy-to-use app on their mobile device. We launched this functionality in July and have already seen 60% of eligible customers use this feature set. In Q4, we continued to make progress in enterprise while also serving the world's most innovative companies. We landed or expanded business with Anheuser-Busch, Booking.com, American Express, Netflix, Vanguard, CrowdStrike, ADP, Snowflake, Peloton, Autodesk, Shopify, and TripActions to name a few. In enterprise, we signed an expansion deal with a top 20 internet retailer and Fortune 500 company that was already using Modern Incident Response. Knowing Wayfair's ability to delight customers looking for variety and stylish, affordable home furnishings, the customer was using a homegrown system that was manual, disjointed, and time-consuming.

We were union unwavering unarmed person to help companies manage their digital operations more effectively outages and poor customer experiences are financially unacceptable even more so in the current environment thousands of centralized operations teams have been distributed overnight as the result of color on the virus and addressing these challenges is paid.

Ladies core expertise the addressable market would be pioneered inserv remains large an early on we estimate on <unk> billion dollars, and we know where customers and prospects meet our resilient scalable platform to manage mission critical unplanned work now more than ever.

Jennifer Tejada: We landed or expanded business with Anheuser-Busch, Booking.com, American Express, Netflix, Vanguard, CrowdStrike, ADP, Snowflake, Peloton, Autodesk, Shopify, and TripActions to name a few. In enterprise, we signed an expansion deal with a top 20 internet retailer and Fortune 500 company that was already using Modern Incident Response. Knowing Wayfair's ability to delight customers looking for variety and stylish, affordable home furnishings, the customer was using a homegrown system that was manual, disjointed, and time-consuming.

We recently seen examples of customer self serving licenses to extend new teams rapidly, but it's too early to tell whether this is material or coincidental. What would you know is our customers trust us and value the efficiency cost savings and customer experience assurance, we help them the chief.

Turning to the quarter, we're proud of her strong yearend results with Q4 revenue, increasing 36% year over year and full year revenue growing 41% over fiscal 2019.

Jennifer Tejada: The new CTO led the initiative to transform legacy systems to best-in-breed platforms. Now, Event Intelligence automatically groups incidents, substantially reducing the time to mobilize a team, resulting in significant cost savings, which we estimate to be over $2 million in labor costs alone per year. The CTO advised us that competitors did not offer these capabilities or comparable cost savings. Last quarter, we also built on our strong leadership foundation, hiring Joe Militello, formerly at Pivotal, as our first Chief People Officer to help us deliver on our people's first cultural value while scaling the business. Dave Justice, our new Chief Revenue Officer, started in December and has been focused on sales leadership and execution, especially in the enterprise and mid-market. Dave is partnering closely with Julie Herendeen, our CMO, and already strengthening our high-velocity land-and-expand go-to-market motion.

We recently achieved major milestones, surpassing 500000 users on our platform with our average revenue per user increasing again this year for the third consecutive year that underscores both the value that hatred is delivered users and the successful adoption of our platform by customers of all sizes across verticals and geographies.

Cloud adoption need to manage increasing complexity mainstream Dev ops adoption and progressing digital transformation continued to create tailwinds for us in fiscal 2020, as we extended our lead and digital operations management.

As trust is increasingly valuable currency for consumers Peter de helps our customers and I wish insisting Crunch trust with their customers.

During the year, we also saw meaningful uptake of our new product. As a reminder, these include modern incident response to orchestrate real time work across distributed teams.

Jennifer Tejada: On this note, I'm pleased that performance for tenured salespeople remains strong and that the initiatives we put in place in the past two quarters, including new sales enablement programs and tools to support overall rep effectiveness, are bearing positive results. Dave has recently hired a new head of sales operations and has applied increased standardization and rigor to our sales process. In Q4, we saw several teams deliver excellent performance, and we continue to focus on bringing all of our teams up to the same high standard. Looking to fiscal 2021, we remain focused on the tremendous opportunity ahead of us, while we see both challenge and opportunity in the current environment. In order to extend this lead, we are focused on three priorities. First, continuing to win in enterprise and mid-market. Second, becoming the de facto platform for real-time work.

Our AI obsolete Sheena then intelligence.

He for situational awareness and our advanced analytic solution for optimizing operational and team health and productivity.

Demand for all for new products was particularly strong from new enterprise customers as they leverage unique data automation and learnings from her platform.

Topped 100, new customers and we partnered with in fiscal 2000 2068 of them subscribe to more than one product.

In Q4, we continued to advance our roadmap and deepen our competitive boats, we deployed new markets first feature in our service directory.

I now make repository for service information, which accelerates full surface ownership across teams. This includes new information objects like current service health trended service performance service ownership sort of specific incident history event rules and new run books.

Jennifer Tejada: Third, continuing to expand our reach beyond DevOps and IT teams. First, the world's largest companies rely on PagerDuty. With nearly 60% of the Fortune 100 and 9 of the Fortune 10 as customers, enterprise and mid-market continue to present significant growth opportunity. PagerDuty is uniquely positioned to solve the complex problems of the world's largest companies, balancing being easy to use and deploy with demands of scaled resilience, security, and advanced features that speed automation and transformation. Our user-friendly e-commerce model, combined with our platform approach, has led to both rapid growth and retention in the high 90s as industry leaders tightly integrate to and standardize on the PagerDuty platform. Our success in enterprise demonstrates that PagerDuty has become an essential component of the world's enterprise infrastructure.

We released the latest version of our Salesforce integration opening up several new use cases by enabling salesforce customers to go beyond our previous service cloud integration connecting paper duty to Salesforce marketing cloud Commerce cloud quit and more we also released enhancements to make real time workflows more customizable and play.

Well for various he was an operating model. These enhancements address the challenges hybrid ops environments, where companies have both centralize I T team and Dev ops teams with very different processes. This allows dev ops teams to leverage agile for distributed work, while also supporting seamless coexistence centralized I'd ops team.

On the paid you're getting platform.

Vince response in the new feature that particularly relevant at this time business response allow stakeholders like leaders and senior management received effects on the health of business in real time.

Jennifer Tejada: For example, a Fortune 500 human resources software company began using PagerDuty two years ago, growing from a 20-user self-service land-and-expand to 2,500 users this year. They started like many of our large customers do, in a team of developers responsible for mobile applications. However, as the company continues its digital transformation journey, they require platforms that enable them to innovate faster, orchestrate and automate urgent mission-critical work, and provide great customer experiences in every moment. In anticipation of a strategic product launch, they sought an enterprise-grade platform that could scale with their growth and replaced a lower-cost, less feature-rich solution with PagerDuty's Digital Operations Management bundle. Adopting our incident management product as well as visibility and analytics gives leaders and stakeholders real-time context into performance and reliability at all times.

In an easy to use app on their mobile device, we launched for functionality in July and have already seen 60% of eligible customers use this feature set.

In Q4, we continued to make progress in enterprise also serving the world's most innovative companies, we landed or expanded business with Anheuser Busch booking Dotcom American Express Netflix Vanguard crowd strike NBP Snowflake pellet, Tom Autodesk Shopify entered.

Actions to name a few.

In enterprise, we signed an expansion dealing with the top 20 Internet retailer and Fortune 500 company. It was already using modern incident response.

No one for its ability to delight customers looking for variety and I wish affordable home furnishing the customer was using a homegrown system that was manual disjointed and time consuming.

Jennifer Tejada: Second, we are focused on becoming the de facto platform for real-time work across small, medium, and large companies. As we've discussed before, there are many providers that help companies monitor infrastructure and analyze logs to understand the health of parts of IT or services or that route standardized non-critical workflows with ticketing solutions. These are all valuable services, some of which we use in our day-to-day operations. However, when companies face issues that are unpredictable, customer-facing, and time-sensitive, they need a real-time solution that orchestrates teams, machines, and data in a coordinated, automated way. This is especially important for distributed teams and for teams responsible for revenue-generating applications and technology.

The new CTL led the initiative to transform they get these legacy systems to best in breed platforms now and then intelligence automatically groups incidence substantially reducing the time to mobilize the team, resulting in significant cost savings, which we estimate to be over $2 million in labor costs alone per year.

The CTO advised us that competitors did not offer these capabilities for comparable cost savings.

Last quarter. We also built on her strong leadership foundation hiring Jo mill at Telo, formerly a pivotal as our first chief people officer to help deliver on our people first cultural value.

Jennifer Tejada: PagerDuty uniquely addresses these needs by leveraging machine learning, a decade of data, and best practices to automatically bring together the right people with the right information to solve problems and address opportunities as they occur. To date, our competitive moats include our trusted reputation for delivering resilience at scale, PagerDuty's ease of use, and the platform security and out-of-the-box interoperability across cloud and on-prem technology environments. In FY20, we deepened these moats, investing in Business Response, Service Directory, a best-in-class mobile user experience, and the largest integration ecosystem in the category. We continue to execute on an ambitious roadmap this year, further leveraging machine learning in new ways, building additional automation and auto remediation features, improving our user experience, and expanding our application ecosystem to support developers and users across functions. These product investments address critical challenges that our customers face in digital transformation, including DevOps, ITOM, and AIOps.

Feeling the business.

They've justice, our new Chief revenue Officer started in December and that's been focused on sales leadership in execution, especially in the enterprise and Midmarket.

David hurt wrinkle, let's see what do we hear in getting or CNO and already strengthening our high velocity land and expand the market motion.

Our next node I'm pleased that performance for tenured sales people remain strong and that the initiatives we put in place in the past two quarters, including new sales enablement programs and tools to support over all rep effectiveness are bearing positive results.

Dave has recently hired and you had a failed operations and have increased standardization and rigor to our sales process.

Thank you for its off several teams deliver excellent performance and we continue to focus on bringing all of our people up to the same high standards.

Looking to fiscal 2021 remains focused on the tremendous opportunity ahead of us well, we see both challenge and opportunity in the current environment.

In order to extend this lead we're focused on three priorities first continuing to win enterprise and Midmarket.

Jennifer Tejada: Our third priority is to continue expanding our platform beyond DevOps and IT teams. While customers usually initiate service with PagerDuty within DevOps, 16% of our customers apply PagerDuty to additional mission-critical work in other functions like security and customer service, especially when issues that impact reputational risk come into play. As we've seen increasing demand, we've invested in integrations and workflows to support new use cases like PagerDuty for customer service in partnership with Salesforce and Zendesk, as well as PagerDuty for security operations. You can expect to see us advance our roadmap in these areas through continued investment in our robust APIs, our developer ecosystem to encourage devs to build more functionality on top of PagerDuty, and in strategic partnerships. An example of this is a global enterprise software company used by property and casualty insurance carriers that provides essential information for its customers to power their businesses.

Second becoming the de facto platform for real time work and third continuing to expand our reach beyond <unk>.

First the world's largest companies rely on pager duty with nearly 60% of fortune 109 of the fortune pen as customers enterprise and Midmarket continued to present significant growth opportunity.

The uniquely positioned to solve the complex problems and <unk> largest companies bouncing being easy to use employed with man scaled resiliency and security and advanced features that speed automation and transformation.

Our user friendly E Commerce model combined with our platform approach has led to both rapid growth in retention in the high Ninetys as industry leaders tightly integrate to and standardized on the page or do you platform. Our success in enterprise demonstrates the Patriot. If he has become an essential component of the world Enterprise infrastructure.

Jennifer Tejada: Reliability is of the utmost importance as their customers expect perfection for this long time PagerDuty customer. They started using PagerDuty in their cloud operations team, then expanded to product development and engineering to support the company's cloud adoption initiative. More recently, the company rolled out PagerDuty to their customer support representatives, who are now empowered with real-time context and information to manage inbound inquiries from their customers more quickly and effectively. In the midst of an unpredictable macro environment and the coronavirus pandemic, PagerDuty's heritage as a distributed company built for real-time, unpredictable incidents sees us well prepared to maintain business continuity as all of our teams now work remotely. To date, the coronavirus situation has not diminished our ability to provide services to customers, and we remain committed to the high levels of service and reliability our customers expect.

For example, a fortune 500 human resources software company began using page 32 years ago growing from a 20 users self service land to 2500 users. This year you started like many of our large customers due in a team of developers responsible for mobile applications. However, as the company continues.

Digital transformation journey, it require platforms and enable them to innovate faster orchestrate automate urgent mission critical work and provide great customer experiences in every moment.

Anticipation of a strategic product launch they thought and enterprise grade platform that could scale with their growth and replaced a lower cost left feature rich solution with pager do these digital operations management bundle adopting our incident management product as well as visibility and analytics good leaders stakeholders leaders and stakeholders real time.

Contacts into performance and reliability at all times.

Jennifer Tejada: PagerDuty is for people, and we are at our best when the rest of the world is down. In uncertainty and volatility, we still see opportunity. We are clear-eyed and pragmatic. We remain focused on our long-term objective of building an enduring company and are optimistic about the large market that remains in front of us. With that, I'd now like to turn the call over to our CFO, Howard, who will walk us through the financial results. Howard?

Second we are focused on becoming the de facto platform for real time work across small medium and large companies.

As we've discussed before there are many providers that helps companies monitor infrastructure and analyze logs to understand the help parts of IP or services or that route standardized noncritical workflows with ticketing solutions. These are all valuable services some of which we use in our day to day operations. However, when companies face issues that are I'm pretty.

Howard Wilson: Thank you, Jennifer. We are pleased with our Q4 fiscal 2020 results. Revenue for the Q4 increased 36% year-over-year to $45.9 million, beating the high end of our guidance. Growth was driven by new customers, new users, and new product adoption. Our non-GAAP gross margins, which are industry-leading, were at 87%. Our non-GAAP EPS came in at -$0.03 per share ahead of our guidance. Once again, we managed cash with operating cash flow of $2 million in the Q4. We saw a 14% increase in total net customer additions on a year-over-year basis to 12,774 customers, in line with the growth rates we've seen over the last 2 years.

Actable customer facing and time sensitive they need a real time solution that orchestrates team machines and data in a coordinated automated way. This is especially important for distributed teams and for teams responsible for revenue generating applications and technology.

He really uniquely addresses these needs by leveraging machine learning a decade of data and best practice automatically bringing together the right people with the right information to solve problems and address opportunities as they occur.

They are competitive both include our trusted reputation for delivering resilience at scale pager to ease of use and the platform security and out of the box interoperability across cloud and on Prem technology environment.

And that's why 20, we deepened these notes investing in business response surface directory, a best in class mobile user experience and the largest integration ecosystem in the category.

Howard Wilson: We had 20 more customers with ARR above $100,000 in Q4, taking us to 323 customers, a growth rate of 42% year over year. Customers with over $1 million in ARR increased by 50% year over year to 18 in the quarter. Both of these metrics demonstrate our strength in upper mid-market and enterprise. Our dollar-based net retention rate for the quarter was 122%. This healthy net retention rate represents our customers' commitment to us, our high renewal rates, and low churn. We attribute most of the decline from the Q3 number to pockets of sales execution in specific territories where we've not managed to cover our existing accounts as effectively. From a competitive perspective, we're pleased to see churn remaining below 5% on an annualized basis.

We continued to execute on an ambitious roadmap is here for the leveraging machine learning in new ways building additional automation and auto remediation features improving or user experience and expanding our application ecosystem to support developers and users across functions.

These product investments address critical challenges that our customers face in digital transformation, including Devolves, Hi, Tom and <unk>.

Our third priority to continue expanding our platform beyond that up and I teach.

Well customers, usually initiate service with major doing with endeavor up 16% of our customers apply pager due to additional mission critical work in other functions like security and customer service, especially when issues that impact reputation rest come into play.

As we've been increasing command, we've invested in integrations and workflows to support new use cases like pager duty for customer service in partnership with Salesforce and data as well it paid dirty for security operations, you can expect to see us in advance our road map in these areas through continued investment in our robust cpis our developer ecosystem too.

Howard Wilson: Annual revenue, average revenue per customer increasing for 8 successive quarters, with average revenue per user continuing a two-year positive trend, and our non-GAAP gross margins continuing above 85%. We continue to drive our programs to improve sales, productivity, and ramp so that our newer sales reps can perform as well as our more experienced reps who have continued to perform at high levels of productivity. With the improvements we are seeing, we expect dollar-based net retention in Q1 to land within a range of 120% to 123%. Our international revenue grew 52% year over year in line with last quarter. Once again, we had another exceptional quarter in Europe, an example of a territory where our sales team continues to perform well and where we continue to invest in sales.

Kurt attempts to build more functionality on top of major duty and strategic partnership.

An example of this is a global enterprise software company use by property and casualty insurance carriers provides and central information for its customers to power their businesses.

Liability utmost importance as their customers expect perfection. This long time pay TV customer.

Are you using paper duty in their cloud operations team, then expanded the product development and engineering to support the company's cloud adoption that shift more recently the company rolled up here getting to their customer support representatives were now at power in real time contact information to manage inbound inquiries from for customers more quickly and effectively.

Howard Wilson: I will 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 in our earnings release. In Q4, non-GAAP gross margin was 87%. We are proud that we can be so efficient in delivering a highly scalable, reliable, resilient, and secure platform to over 12,700 customers around the world with high levels of redundancy in a complex technology environment supporting over 350 integrations. Our best in class growth margins are made possible by our cloud-native architecture, our DevOps approach to production, and programmatic approach to customer success and support. We anticipate continuing to deliver growth margins between 84% and 86%. Given the large market opportunity in digital operations, we look to invest in areas that help capture share.

In the midst of an unpredictable macro environment and the Corona virus pandemic either do these heritage and the distributed company built for real time unpredictable incidence and unpredictable incident sees us well prepared to maintain business continuity as all of our team now work remotely to date the virus situate.

One has not diminished our ability to provide services to customers and we remain committed to the high level in service and reliability our customers expect.

Pager duty is for people and we are at our best when the rest of the world is down in uncertainty and volatility with they'll see opportunity, we're clear eyed and pragmatic we remain focused on our long term objective building an enduring company and are optimistic about the large market that remains in front of.

With that I'd now like turn the call over to our CFO, Howard who will walk us through the financial results Howard.

Howard Wilson: However, over the long term, as we scale, we expect to reap the benefits of our operating leverage. In Q4, non-GAAP operating expenses were $44 million compared to $32 million in Q4 of fiscal 2019. A 36% increase, which was in line with our revenue growth of 36%. Non-GAAP research and development expenses for Q4 were $12 million compared to $8 million in the same year ago period, representing an increase of 46% year over year. As Jen mentioned, two of our priorities for fiscal 2021 are to be the de facto platform for real time work in digital operations and expand our reach beyond DevOps and IT teams. Therefore, we will continue to invest in product innovation.

Thank you Jennifer.

We're pleased with our fourth quarter fiscal Twentytwenty It was all.

Revenue for the fourth quarter increased 36% year over year to $45.9 million, beating the high end about God.

Growth was driven by new customers news uses and new product adoption.

Our non-GAAP gross margins, which are industry, leading were 87%.

Non-GAAP EPS came in at negative three cents, a shade hit about guidance.

Once again, we manage cash.

With operating cash flow of $2 million in the fourth quarter.

We saw a 14% increase in total net customer additions on a year over year basis to 12774 customers.

Howard Wilson: Non-GAAP sales and marketing expenses for Q4 were $22 million and grew by 41% compared to Q4 of fiscal 2019 of $16 million. On an absolute basis, this number came down quarter over quarter, the prior quarter reflecting expenses of our annual industry conference. We intend to build on our investments in this area, especially when it comes to making it easier for our customers to do business with us, expanding our capabilities to deliver a unique online experience throughout the customer journey. Given the improvements we've seen recently in sales force productivity, we will continue to invest in sales and sales enablement. Non-GAAP general and administrative expenses for Q4 were $10 million for the quarter and increased 16% year over year, a significant improvement from the 37% year over year increase we reported in Q3.

And with the growth rates, we've seen over the last two years.

We had 20 more customers with a or are above $100000 into full taking us to 323 custom has a growth rate of 42% year over year.

Custom lives with over $1 million, an hour or increased by 50% year over year to 18 in the quarter.

Both of these metrics demonstrate upstream in up the Midmarket and enterprise.

I don't have base net retention rate for the quarter was 122%.

This helping it retention great represents our customers can listen to us.

Oh high renewal rates and low churn.

We attribute most of the decline from the third quarter number two pockets of sales execution in specific to.

Well, we've talked manage to cover our existing accounts as effectively.

Howard Wilson: Our non-GAAP operating loss in the quarter was $4 million, compared to a loss of $3 million in the same quarter last year. Our non-GAAP operating margin was -9% in Q4 and -9% in the same period of last year. Non-GAAP net loss for Q4 was $3 million or a net loss of $0.03 per basic share, compared to a non-GAAP net loss of $3 million or a net loss of $0.14 per share in Q4 of last year. We generated $2 million in operating cash flow in Q4 compared to just over $600,000 in the prior year. This represents three straight quarters of positive operating cash flow. Free cash flow was -$180,000 in Q4, roughly the same compared to last year.

From a competitive it's basically a piece of he turned remaining below 5% on an annualized basis.

Annual revenue average revenue per customer increasing eight successive quarters with average revenue per use a continuing to get positive crane.

Non-GAAP gross margins continuing above 85%.

We continue to drive out programs to improve so productivity in rent so that on new sales reps can perform as well as a more experience with good continue to perform at high levels of productivity.

With the improvements we are seeing weeks big dollar based need for change in the first quarter two land within a range of 120 223 things.

Our international revenue grew 52% year over year inline with last quarter.

Howard Wilson: Free cash flow margin was slightly negative at 0.4% compared to -0.6% in the same quarter last year. As we previously mentioned, capital expenditures did increase by $1.2 million to almost $2 million for the quarter as we recently completed the build out of our new Atlanta offices. Turning to the balance sheet, we ended the quarter with $351 million in cash equivalents, and investments, up $224 million from the end of fiscal year 2019. This was primarily driven by proceeds raised in our initial public offering, as well as positive working capital. Before moving on to guidance, I would like to make a comment on the impact of the coronavirus. As of today, we have not seen any direct material impact pertaining to coronavirus.

Once again, we had another exceptional quality in Europe. An example of a territory, where our sales team continues to perform well and way we continue to invest in sales.

I will now turn to the detailed financial results.

These results are on a non-GAAP basis.

<unk> financial results, along with a reconciliation between GAAP and non-GAAP results can be found in our earnings release.

In the fourth quarter non-GAAP gross margin was 87%.

We are proud that we can be so efficient in delivering a highly scalable reliable resilient and secure platform to over 12700 customers around the world with high levels of redundancy in a complex technology environment supporting over 350 integration.

Howard Wilson: As Jen mentioned, we have implemented a temporary work from home policy across all our locations and either postponed, canceled, or moved to virtual participation in sales pipeline generating events. All of this in an effort to support our community. At this time, it is difficult to accurately assess any impact beyond Q1. We are of course monitoring the situation daily with a view to understanding the impacts from top of funnel to bookings, to revenue, to capital allocation, and cash flow. When we look at the full year, we have assessed the exposure of our business to some of the highly impacted industries such as travel and hospitality, manufacturing, and energy, and we have limited exposure today. We have also reviewed daily and weekly trends in our web traffic, trial volume, conversion, and pipeline and have seen no material change at the current time.

I'll basing costs gross margins and made possible by cloud native architecture, our devops approach to production and programmatic approach to customer success and support.

We anticipate continuing to deliver gross margins between 84 and 86 things.

Given the large market opportunity and digital operations, we look to invest in areas that help capture share.

However over the long term as we scale, we expect to reap the benefits of the operating leverage in the fourth quarter non-GAAP operating expenses were $44 million compared to $32 million in the fourth quarter fiscal 2019, 36% increase which was in line with our revenue growth of 36 the things.

Non-GAAP research and development expenses for Q4 were $12 million compared to $8 million in the same yieldcos period, representing an increase of 46 to think you're right yeah.

Howard Wilson: However, given the uncertainty at this time, it is very difficult to assess the potential future impact from significant major macroeconomic shifts that could arise from coronavirus. Our guidance for revenue is as follows. For Q1 of fiscal 2021, revenue is expected to be in the range of $48 to 49 million, representing a growth rate of 29% to 31% year over year. For the full year fiscal 2021, revenue is expected to be in the range of $208 to 213 million, representing a growth rate of 25% to 28% year over year.

As Dan mentioned to ballpark equal fiscal 2021 ought to be the de facto platform for real time work in digital operations and expand our reach beyond Devops and teaching. Therefore, we will continue to invest in product innovation.

Non-GAAP sales and marketing expenses in Q4 with $22 million and group up what do you want the same compared to Q4 fiscal 2019 of $16 million.

On an absolute basis. This number came down quarter over quarter apply a quarter, reflecting expenses of <unk> annual industry conference.

We intend to build on our investments in this area, especially when it comes to making it easier for our customers do business with us expanding our capabilities to deliver a unique online experience throughout the customer journey.

Howard Wilson: Non-GAAP net loss per share is expected to be in the range of -$0.08 to -$0.09 for Q1 and in the range of -$0.25 to -$0.31 for the full fiscal year 2021. Basic shares outstanding for Q1 and the full year fiscal 2021 are expected to be 78 million and 79 million, respectively. I want to make a few additional remarks about guidance. Our current EPS guidance for the year assumes a non-GAAP operating margin of -10% to -12% for the fiscal year. This represents an improvement of six points at the midpoint over the -17% we posted in fiscal 2020. Although we plan on investing in the business, especially in R&D as well as go-to-market, we will be prudent in managing our costs.

Given the improvements you've seen recently and Salesforce productivity, we will continue to invest in sales and sales enablement.

Non-GAAP general and administrative expense for Q4 with $10 million for the quota and increased 16% year over year significant improvement from the 37% year over year increase we reported in the third quarter.

Our non-GAAP operating loss in the quarter was $4 million compared to a loss of $3 million in the same quarter last year.

Non-GAAP operating margin was negative 9% in Q4 and negative on facility in the same period as last year.

Non-GAAP net loss for the fourth quarter was $3 million over net loss of three cents per basic share compared to non-GAAP net loss of $3 million or in this loss of 14 cents per share in the fourth quarter of last year.

Howard Wilson: Our current EPS guidance for the year also assumes a significant decline in other income, which primarily includes interest income and cash taxes from $5.9 million in fiscal 2020 to $0.9 million in fiscal 2021, owing to a lower interest rate environment, an increase in interest expense related to the adoption of the new lease standard, and increases in taxes. With that, I will open up the call for Q&A.

We just raising team is involved with an operating cash flow into fourth quarter compared to just over 600000 in the party yet.

This represents three straight quarters of positive operating cash flow.

Free cash flow was negative $180000 into full roughly the same compared to last year.

Free cash flow margin was slightly negative and theyll <unk>, 0.4% compared to negative they would 0.6% in the same quarter last year.

Operator 3: As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from Matt Hedberg with RBC Capital Markets. Your line is open.

Operator: As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from Matt Hedberg with RBC Capital Markets. Your line is open.

As we previously mentioned capital expenditures did increase by 1.2 million to almost 2 million for the quarter as we recently completed the buildout of our new Atlanta office.

Matt Hedberg: Oh, hey, guys. Thanks for taking my questions. Obviously our thoughts go out to everybody impacted by COVID at this point. You know, Jen, you know, I wanted to just drill into a comment you made earlier. I mean, obviously you guys had good results this Q4, and you said that there's some, maybe some early indication of a change in demand, but then you said, you know, no, there's nothing much more, you know, not much to note, I believe you said. I'm wondering if you can expand a little bit more on that comment. Also, you guys have a strong e-commerce model. You know, maybe talk to us about how you're set up to do better than others with less travel.

Turning to the balance sheet, we ended the quarter with 351 million in cash cash equivalents any business up 224 million from the end of fiscal year 29 team.

This was primarily driven by proceeds raised you know initial public offering as well as positive working capital.

Before moving on to guidance I would like to make a comment on the impacted to learn about.

As of today, we have not seen any direct material impact pertaining to collect about.

Jennifer Tejada: Hi, Matt, and thanks so much for your question. I hope all of you are well and safe as well. We appreciate you being with us today. We know that it's a pretty challenging time out there in the market. Thanks for your question regarding that. I think the way that we think about it is we look at our pipeline on a daily basis. We look at things like our web traffic as well as our trials and the conversion rate on those trials. All of that looks healthy and frankly looks normal in a kind of traditional run rate. In some cases, we've even had customers reaching out to us through self-service to buy emergency new seats to spin up new teams because they're now distributed or because they're using us for crisis response.

As Jane mentioned, we have implemented a temporary work hung policy across all our location.

And either postponed canceled we'll move to virtual participation in sales topline generating event.

All this in an effort to support our community.

At this time it is difficult to actually with the assays any impact beyond the first quarter.

We are of course monitoring the situation day, the with the future understanding the impact from top of funnel to bookings to revenue to capital allocation and cash flows.

When we look at the food Yeah, we have a 50 exposure of our businesses some of the highly impacted industries, such as prevalent hospitality manufacturing in energy and we have limited exposure today.

Jennifer Tejada: On the other hand, we've had you know very small number of deals delay or push out a month because either their legal teams are super busy, or they have budget uncertainty. That's no different than what we would see in any quarter. Again, like not material, could be coincidental, could be kind of like everyday business. We just wanna be transparent, but at the same time say we can't find a material change today. We feel good about the health of the pipeline we have going into Q1. Frankly, it's been interesting in talking to the sales team over the last couple of days, there's a lot of activity. They're setting a lot of virtual meetings. We have very healthy transaction volume in the last couple of weeks.

We have also with your daily and weekly trends, you know with traffic trial volume conversion and pipeline and have seen no material change at the current time.

However, given the uncertainty at this time it is very difficult to assist the potential future impact from significant major macroeconomic ships that could arise from corona buyers.

Oh God and school revenue is as follows.

Well the first quarter fiscal 2021 revenue is expected to be in the range of 48 million to $49 million, representing a growth rate of 29% to 51% year over year.

Well the full year fiscal 2021 live news expected to be the range of $208 million to $213 million, representing a growth rate of 25% to 28% year over year.

Jennifer Tejada: To your point, the benefit of being self-service is that our customers don't require a sales rep if they wanna add new teams or spin up new capability with new licenses. Likewise, the vast majority of our land comes through e-commerce. In times like this, when you're looking for a platform that can help you manage surge because you're a food delivery service or crisis response because your team is now distributed, PagerDuty fits squarely in there, in that space and has, I think, a very strong reputation for reliability in an environment that's increasingly uncertain.

Non-GAAP net loss per share is expected to be in the range of eight to nine cents will the first fiscal quarter.

In the range of 25 to 31 same school the full fiscal year 2021.

Basic shares outstanding for Q1, and the full year fiscal 2021 are expected to be 78 million and 79 million respectively.

I want to make a few additional remarks about guidance our current EPS guidance for the year assumes a non-GAAP operating margin of negative thing to negative 12% for the fiscal year.

Matt Hedberg: That's great. I mean, I think it really speaks to how mission critical your platform is for people getting work done. I think it'll be great to see how it performs here. Maybe, Howard, a follow-up for you. Obviously, really strong gross margins and a question that we get, and I know you get all the time is the competitive landscape. It doesn't appear to me that there was really any impact from discounting, just kinda given your strong gross margins. Maybe can you talk a little bit more? Everybody always asks about Splunk and Atlassian. Maybe a little bit more there. Is there anything happening from a pricing perspective that you're seeing?

This represents an improvement of six points at the midpoint of the negative 17% we posted in fiscal Twentytwenty.

Although we plan on investing in the business, it's fishing R&D as well as go to market, we will be prudently managing our costs.

Okay Dps guidance will be it also assumes a significant decline in other income, which primarily includes interest income and cash taxes from 5.9 million in fiscal 2022 0.9 million in fiscal Twentytwenty, one owing to a low interest rate environment, an increase in interest it.

Howard Wilson: Yeah. Well, thanks, Matt. You know, there's really been no material change in the environment in terms of pricing or competition. Obviously, there's always some measure of competition. We see, you know, some of the folks that you mentioned from time to time, often though in the SMB side of the market rather than in the enterprise. I think for us, when we look at, you know, one, the gross margins that you mentioned, but also just the fact that our, you know, average revenue per user, you know, continues to go up, if we look at that trend line over the last couple of years, I think it's clear that customers are seeing the value that we're delivering. I think that, you know, we've always had competitors who would compete on price. We've always taken the angle that we compete on value.

It's related to the adoption of the new east ended and increases in Texas.

With that I will open up the coal for today.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby only compiled acuity roster.

Your first question comes from Matt Hedberg with RBC capital markets. Your line is open.

Hey, guys. Thanks for taking my questions and loves our thoughts go out to everybody.

Howard Wilson: I think even some of the studies that have been done, you know, we had IDC do a study for us, which showed that for enterprise customers, that they could achieve over $3.56 million in annual business value with an ROI of 731%. I think there's a clear business value case, and particularly when you know, are dealing with those larger enterprises.

Cold at this point.

No I wanted to drill into a comment you made earlier I mean, obviously, that's a good results this Q or.

Maybe some early indication of the change the math because when you said, there's nothing much more you know not much to notably sort of worn.

Yeah, a little bit more on that common and also shows how the strong commerce model you, maybe maybe talk to them and how you're set up to do better than others with with west travel.

Matt Hedberg: Thanks a lot, guys. Best of luck.

Hi, Matt and thanks, So much for your question, then and I Hope all of you are well unsafe as well. We appreciate you being with US today, we know that it's a pretty challenging time out there in the market.

Howard Wilson: Thanks. Thanks, Matt.

Operator 3: Your next question comes from Sterling Auty with J.P. Morgan. Your line is open.

Operator: Your next question comes from Sterling Auty with J.P. Morgan. Your line is open.

Sterling Auty: Yeah, thanks. Hi, guys. Both in your prepared remarks and in your answer to Matt, I guess I walk away thinking that you didn't actually, you know, provide any cushion in the numbers from COVID-19. Is that the right interpretation? Or did you estimate, you know, especially with some of the exposures, even in those smaller industries, did you actually build in some impact into the guidance?

So thanks for your question regarding regarding that I think weighted we think about it is we look at our pipeline on a daily basis, we look at things like our web traffic as well as our trials and the conversion rate on those trials and all of that looks healthy and frankly looks normal <unk> kind of traditional.

Run rate in some cases, we even had customers reaching out to us through service the by emergency new seats to spin up new teams, because they're now distributed or because they are using us for crisis response.

Jennifer Tejada: Yeah. Hi, Sterling. This is Jen. I'll start off, and then Howard can jump in if he'd like. It's a great question. You know, I will tell you that we have been modeling scenarios day in and day out for the last several days. The market has been evolving very quickly. We've used our traditional methodology, but then also tried to look at all the leading indicators that we can see in our environment. Since we're a SaaS business, you know, a large portion of our deals are created and closed in the same quarter. It's difficult to look 2 and 3 quarters out and have any certainty around what things could look like.

On the other and we've had a.

You know very small number of deals or delay or push out a month because either their legal teams are super busy or are they have budget uncertainty, but that's no different than what we would see in any quarter. So again like not material could be coincidental could be kind of like everyday business. So.

I just want to be transparent about the same I'm, saying, we can't find a material change today, we feel good about help pipeline we have.

The Q1, and frankly, it's been interesting and talking with the sales team over the last couple of days, there's a lot of activity there setting a lot of virtual meeting I'm very healthy transaction volumes in the last couple of weeks and to your point the benefit of being self service is that our customers don't require and sales rep. If they want to add new t.

Jennifer Tejada: We don't have a crystal ball, and because we do feel good about the healthy pipeline we have going into Q1, what we've tried to do is be very balanced. I will tell you that, you know, initially we were looking at a higher guidance, and just given the nature of what's happening in the market, where we think there could be risk around employee productivity across the industry or cost-cutting measures, et cetera, we just applied some balance in thinking about that. We feel good about the prudent and balanced guidance we put in place.

Even though we're spin up.

New capability with new licenses and likewise, the vast majority of our land comes through E Commerce and in times like this when you're looking for a platform that can help you managed surge because your food delivery service or crisis response, because you are team is now distributed no pager duty fits squarely in there.

Sterling Auty: Great.

Howard Wilson: Yeah. No, I think that's Jen. I would, sorry, Sterling. I was just gonna add, you know, the one thing. We have taken a very specific look at industries, and obviously something, you know, like, travel and hospitality and energy, are areas of exposure, maybe parts of manufacturing. When we look at sort of travel and, hospitality and energy, that's kind of less than 3% of our revenues today. We have sort of tried to factor in some, you know, modest changes in the behavior in certain sectors. Obviously we haven't been able to, you know, build guidance around some, you know, dramatic macro change.

In that space and has I think at very strong reputation for liability in an environment that increasingly uncertain.

That's great I mean, I think it really speaks to I think you know mission critical your platform is for for people getting worked on and I think it'll be great to see outperforms here and maybe how were to follow for you. Obviously really strong gross margins in a question that we get can I know you get all the time is the competitive landscape.

Doesn't appear to me that there was really any impact some discounting just kind of given your strong gross margins, but maybe can you talk a little bit more everybody else always escobal squawking at last year, maybe you little bit more there and or is there any is there anything happening for pricing perspective, you're saying.

Sterling Auty: That makes sense. Then just one follow-up, you know, net dollar retention. Thank you for the guidance, by the way. I think that makes sense. How much of that, where it's kind of settling out, is that you are starting to see those larger deal size initially, so maybe taking some of the expand and putting it in the land versus anything else? 'Cause it sounds like your gross retention was very high.

Yes, thanks, but I'm you know, there's really been no material change in environment in terms of pricing or competition. Obviously, there's always some measure of competition we see.

Some of the folks that you mentioned from time to time, often though in the SMB side of the market rather than in the enterprise and I think for us when we look at one of the gross margins that you mentioned, but also just the fact that.

Howard Wilson: Yeah. I think you point to a couple of things. I think we have definitely seen, and I think I might have mentioned this on the last call, we have seen an increase in larger lands, which means that the runway for the expansion changes, right? Particularly as we've moved more of our business into the enterprise. That's been, you know, that's a positive for us as a company since we've seen like good traction in terms of our new business. That does mean that window for expansion is a little bit longer.

Average revenue per use a continues to go up if we look at that trend line over the last couple of years I think it's good it's clear that customers are seeing the value that we delivering and I think that you know we've we've always had competitors who would compete on price. We've always taken the angle that we compete on bad you and I think even some of the studies that have been done.

We had I'd see due to study for us which showed that for enterprise customers that they could achieve.

Oh, the 3.5 to 6 million in annual business value with an ROI of 731%. So I think there's a kid business value case, and particularly when you are dealing with those large enterprise.

Howard Wilson: That being said, you know, we have been transparent about the fact that we did have, you know, with some of the changes that we made in the sales team in H1, which have now started to settle down, we did have some pockets of sales territory that, you know, were not being covered as effectively as we would like.

Thanks, a lot guys best of luck.

Thanks. Thanks.

Sterling Auty: Makes sense. Thank you.

Your next question comes from Sterling Auty with JP Morgan Your line is open.

Operator 3: Your next question comes from Rob Oliver with Baird. Your line is open.

Operator: Your next question comes from Rob Oliver with Baird. Your line is open.

Yeah, Hi, guys I'm, hoping your prepared remarks and in your answer to Matt I guess I walk away thinking that you didn't actually.

Rob Oliver: Thank you very much for taking my question. Just a couple. First for Jen. Jen, I know Howard got a question earlier on the competitive landscape regarding pricing, but I just wanted to maybe dive in a little bit deeper. On last quarter's call, you had mentioned, I believe, that the competitive landscape had gotten a bit noisy. You did not use that term this quarter, and I just wanted to get a sense for if you've noticed any, you know, change in the competitive landscape, and certainly sounds as if you guys feel a little bit more confident about it, and just wanted to see what if in fact changed. Thanks.

Provide any cushion in the numbers from co bid 19 is that the right interpretation or did you estimate, especially with some of the exposures even in those smaller industries did you actually building some impact into the the guide.

Hi, Sterling. This is Dan I'll start off and then Howard can jump in if he'd like.

Question and you know I will tell you that we have been modeling scenarios day in day out for the last several days than market has been evolving very quickly. So weve provider, we view darker additional methodology, but then also tied to look at all the leading indicators that we can see in our environment and since we're a SaaS.

Jennifer Tejada: I thank you, Rob, for your question, and I hope you're doing well. We have not seen a significant change, and in fact, I think we're starting to hit our stride in being more articulate about the digital operations management category and about our positioning in terms of what we do from a real-time work perspective compared to others out there that help reduce some of the confusion in the market. We are very consistent in the fact that we usually land within the developer community and then start to expand beyond DevOps to security, IT, customer service, and other areas.

Ask business you know a large portion of our yields are created and closed in the same quarter Oh, it's difficult to look to in three quarters out and have any certainty around what things could look like we don't have a crystal ball and and because we do feel good about the healthy pipeline we have.

Jennifer Tejada: You know, I would say that there's a great network effect that we're starting to see where customers who've used PagerDuty at one company become leaders at a large, you know, enterprise that's going through transformation, and they see PagerDuty as a must-have. I also think that the market increasingly is getting more sophisticated itself in understanding the difference between a highly scalable, reliable, easy-to-use solution that's deeply integrated into most of, you know, the enterprise infrastructure in the world versus a lower cost offering. I'd also just point out that and we say this over and over again, but I don't think we can say it enough, that the vast majority of our deals are greenfield and do land through e-commerce.

Going into Q1, what we've tried to do is be very balanced.

But I will tell you that you know initially we were looking at a higher guide and just given the nature of that happening in the market, where we think there could be risk around a employee productivity across the industry or cost cutting measures et cetera, and we just we just applied imbalance and thinking about that but we feel we feel.

Hi, good about the prudent and balanced guideline guidance, we put in place.

Thanks, Jay and I would Oh, sorry, setting I was just kinda edge you know the one thing we have taken a very specific look at industries, and obviously, if something like travel and hospitality and energy.

Hi areas of exposure, maybe parts of manufacturing, but when we look at sort of travel and hospitality in energy that's kind of lift from Threeq stayed about revenues today. So we have sort of try to factoring some get a modest changes in the behavior in certain sectors, but obviously, we haven't been able to get a bold.

Jennifer Tejada: It's a large market where it's significantly under-penetrated, and we see a tremendous amount of opportunity.

Rob Oliver: Thanks, Jen. Appreciate it. Howard, one for you. I know you've been pointing us towards those enterprise deals which, you know, constitute a larger upfront land. As we look at the billings growth this quarter, which was solid, you know, we saw a jump in like long-term deferred revenues. Just curious if that's consistent with the move towards the enterprise, if that's something we should expect to continue or if there were any other factors at play in that mix of short-term and long-term deferred. Thank you guys very much, and appreciate it.

Needs around some dramatic macro change.

That makes sense and then just one follow up you know net dollar retention Ah. Thank you for the guidance by the way as it does that make sense, but.

How much about where it's kind of settling out is that you are starting to see those larger deal size. Initially so maybe taking some of the expand and putting it in the way.

Howard Wilson: Sure. Thanks, Rob. Rob, I think in terms of, you know, obviously when we look at the growth of the number of customers that we have, you know, above 100K, you know, we now have, you know, 323 there. We saw, you know, 58% growth in our customers above 500K. You know, 50% growth in our customers above $1 million. Those are all pointing to the fact that we are, you know, gaining a stronger foothold in the enterprise. I think that is going to be, you know, that's going to play out in terms of us finding these larger deals with bigger organizations, and that is going to change that profile.

Versus anything else because it sounds like your gross retention was very hot.

Yes, So I think you point to a couple of things I think we have definitely seen and I think I might have mentioned this on the last call. We have seen an increase in larger lands, which means that the runway for the expand changes why particularly as we move more about business into the enterprise. So that's being you know that's a positive for west.

As a company since we've seen like good traction intensive.

On your business and that doesn't mean that that window for expansion is a little bit longer that being said, we have being transparent about the fact that we did have with some of the changes have been made in the sales team in the only half of the year, which have not subject to settle down we did have some pockets of sales territory that you know.

Rob Oliver: Thanks again, guys.

Howard Wilson: Okay.

Operator 3: Your next question comes from Sanjit Singh with Morgan Stanley. Your line is open.

Operator: Your next question comes from Sanjit Singh with Morgan Stanley. Your line is open.

Not being covered the they face if you good luck.

Sanjit Singh: Hi, thank you for taking the question and hope everyone on the team is safe during this time. Jen, on your script, you sort of mentioned some interesting metrics around the expansion outside of DevOps. I think 16% of customers outside of DevOps, you hit 500,000+ users. As we sort of stand here, you know, a year plus out of IPO, can you talk to some of the usage use cases, the usage activity on the platform? Like, how is usage of the PagerDuty platform different today versus a year ago, two years ago? What are sort of the emerging use cases that you're seeing?

Makes sense. Thank you.

Your next question comes from Rob Oliver with Baird. Your line is open.

Thank you very much for taking my question I'm just a couple of first for Gen. Jenna Howard Gotta question earlier on the competitive landscape regarding pricing, but I just wanted to maybe dive in a little bit deeper on last quarter's call. You had mentioned I believe that the competitive landscape had gotten to a bit noisy you did not use.

That turned this quarter and I just wanted to get a sense for up if you've noticed any.

Change and the competitive landscape and certainly sounds as if you guys feel a little bit more confident about it and just wanted to see what if in fact change. Thanks.

Jennifer Tejada: Thanks, Sanjit, for the question, and I hope you're well. I would just say two years ago, I think we were well known as being a solution for DevOps, for the developer community and operations teams for managing on-call management and automating real-time work within the developer community. I think the engineering community has really led the way in helping other parts of the organization see the opportunity to leverage a platform that can connect into almost any modern software environment, help detect issues or opportunities, orchestrate the right people in moments to drive the right outcome for the business, and increasingly leverage machine learning to identify things before they become major issues, so start to move from being purely reactive to preventative. The rest of the organization starts finding ways to apply that technology.

I think you route for your question and I hope, you're doing well and we we have not seen a significant change and in fact, I think we're starting to hit our stride and being more articulate about the digital operations management category and about our positioning in terms of what we do from a real time work perspective can pay.

Hard to others out there that that help or do some of the confusion in the market. We are very consistent and the fact that we usually land within the developer community and then start to expand beyond Devops to security and I T and customer service and other areas I you know.

I would say that are there's a great network effect that we're starting to see where customers you've used Pedro duty at one company become leaders at a large enterprises going through transformation and they see pager duty as the must have and I also think that that the being in the market increasingly.

Jennifer Tejada: Some examples would be where we have customers that are using our Salesforce integration within their customer service organization. It starts with just being able to have visibility and context to an issue with a consumer-facing application or consumer-facing digital product to realizing that the same platform that their developer peers use could be leveraged for reducing customer caseload or the response time to support customer issues. In security, we see many SecOps teams and DevSecOps teams using PagerDuty within their SOC, their security operations center, but also from more of a distributed and proactive perspective to deploy kind of a DevSecOps mindset in everything that they do. We have really unique use cases. We've talked about one in the past where a large oil and gas organization uses us to manage the efficiency of their fuel trucking terminals.

Is is getting more sophisticated itself and in understanding the difference between a highly scalable reliable easy to use solution. That's the deeply integrated into most of you know enterprise infrastructure in the world versus a lower cost offering I'd also just point out that and we say this over and over again.

But I don't think we can say in enough that the vast majority of our deal or Greenfield and do land through E Commerce, It's a large.

Market, where it's significantly underpenetrated and we see a tremendous amount of opportunity.

Thanks, I appreciate it and then Howard one for you I know you've been pointing us towards those <unk>.

Enterprise deals, which constitute a larger.

Front land I should we look at the [noise] the billings growth this quarter, which was solid we saw jump in like long term deferred revenues and just curious if that's consistent with the move towards the enterprises. If that's something we should expect to continue or if there were any other factors at play in that mix of short term.

Jennifer Tejada: We have a payments customer that uses us for their physical security team as well as legal. We have a large software company that uses us to manage the real-time workflow across the legal team when they're trying to finalize contracts across business units. The common stream is it's a real-time, unpredictable burst of work in a distributed organization. You don't necessarily know who the right people are you need. PagerDuty figures that out for you. It orchestrates the work, it captures everything that goes on in that workflow and enables you to learn from that and go forward. I think one of the things we did this year was really improve our mobile user experience.

The long term deferred thank you guys very much appreciate it.

Sure. Thanks, Rob.

So Rob I think in terms of you know obviously when we look at the if we just look at the growth of the number of customers that we have above 100 K. you know we now have 323, they we sold.

A 58% growth in our customers about 500, K, 50% broken out customers above a million dollars. Those are all pointing to the fact that we are gaining a stronger foothold in the enterprise and so I.

Jennifer Tejada: We are the only platform that allows you to run an entire incident from a mobile device, which makes it easier for more and more non-technical users to start leveraging PagerDuty. Of course, recently we're hearing more and more stories about customers using us in their crisis response teams, given what's going on, and using us to try and spin up distributed tech ops teams who have historically been together in a network operations center.

I think that is going to be it that's going to play out in terms of finding these larger deals with bigger organizations and that is going to change that profile.

Thank you Doug.

Okay.

Your next question comes from Sanjit Singh with Morgan Stanley. Your line is open.

Hi, Thank you for taking my question and hope a every one of the team is a is stay faltering during this time.

Sanjit Singh: Very interesting, and it makes total sense. Then for my follow-up question, for Howard, I guess I'm gonna try and bundle two of these questions into one, if you don't mind, Howard. What I'm trying to think through as we think about how the environment could unfold over the next couple of quarters, when I think about the business being self-service and at the same time more of the business coming from larger customers, whether it's larger mid-market customers or enterprise customers, how do I marry those two things together in the sense that can these large enterprise customers expand in a way that's meaningful to the business in terms of your new business via self-service motion? Or do they need more handholding, more direct sales presence?

Just on your script, you sort of mentioned some some interesting metrics around or be expansion outside of devops, 60% of customers outside of Devops off you hit 500000, plus users and so as we sort of step and here you know I'm a year plus out of IPO can you talk to somebody usage.

Use cases, the usage activity all the plot for Mike How's usage of the teacher duty platform on different today versus a year ago two years ago, what are sort of the emerging use cases that you're saying.

Thank you find it for the question and I hope, you're well and so I would just say two years ago. I think we were well known as being a solution for Dev ops for the developer community and operation teams for managing on call management, and automating real time work within the developer community.

Sanjit Singh: I just wanna sort of think through that. The follow-up to that is in a situation where things do take another leg down, what is sort of the contingency operating plan in terms of how you're thinking about managing the model.

I think as as a in the engineering community has really led the way in helping other parts of the organization see the opportunity to leverage a platform that can connect into almost any modern software environment help detect.

Howard Wilson: Right. Well, thanks, Sanjit, and good to hear from you, as always. I think you've hit on a very interesting point because I think, you know, just to remind folks, the majority of our lands actually come through our e-commerce or self-service model, and that's been something that's kind of a mainstay of the business. What we did do about two years ago is we actually implemented the ability for customers to self-serve regardless of whether they were new or existing, and being able to cover that regardless of their size. We've definitely seen, you know, more of our customers using that self-service motion to acquire. In fact, we even had within this past quarter, you know, deals within the hundreds of thousands that were actually happening via self-service.

Issues or opportunities orchestrate the right people in moments to drive the right outcome for the business and increasingly leverage machine learning to identify things before they become major issues. So start to move from being a purely reactive to preventative then the rest the organization starts finding ways to apply that technique.

Allergy and some examples would be where we have customers that are using our salesforce integration within their customer service organization and it starts with just being able to have visibility in context to an issue with the consumer facing application or consumer facing digital product to realizing that the same platform that there.

Howard Wilson: Where the customer was actually making that purchase online and was able to then complete that transaction without having to sign an order form or do any paperwork. We certainly have that capability there. I think we need to continue to educate our customer base on the fact that that is available to them and that that is a mechanism that they can use. We do see a steady stream. It's one of the things I watch every day is a steady stream of online transactions as they come in. To your second question, in terms of trying to think about, you know, contingency in the model, obviously we've built out a number of different scenarios. We don't have that crystal ball, which I wish we did.

Developer peers use could be leveraged for reducing customer caseload or the response time to support a customer issues in security, we see many SEC ops teams Endeavours checkouts team using pager duty within their Soc their security operations Center, but also for more of a distributed and proactive first.

Active to deploy it kind of a dead set tops mindset in everything that they do and then we have really unique use cases, we've talked about one in the past where a large oil and gas organization uses us to manage the efficiency of their fuel trucking terminals.

Howard Wilson: We've tried to build out a number of scenarios to help us sort of assess how those impacts could play out. Right now it's just modeling. Like, we don't have enough data, real data. We don't have enough history as a company to be able to take into account some of the impacts that we may see over time.

We have payments customer that uses us for their physical security team as well as legal we have a large software company that uses us to manage the real time worked well across the legal team when they're trying to finalize contracts across business units and the common stream is it's and real time unpredictable burst of work.

Jennifer Tejada: By history, Sanjit, Howard means we, the company's not old enough to have been through the many recessions Howard and I have lived through.

I'm in a distributed organization you don't necessarily know who the right people are unique page or do you figured that out for you. It orchestrate the work it captures everything that goes on in that work flow and enables you to learn from that and go for it and I think.

Howard Wilson: Right.

Jennifer Tejada: You know, the one thing that's certain about a difficult environment is you know that at some point in time it will end. I think a lot of what we're focused on is making sure we continue to think like a growth company. We apply a growth mindset. We continue to invest sensibly in product innovation and sales and marketing. That we keep a very close handle on expenses and a watch daily, as we mentioned, and in some cases weekly on leading indicators. Know that at some point in time, the certain thing about a market environment like this is it's gonna end and we need to come out of it strong and you know continue on our path to building an enduring company.

One of the things we did this year was was really improve our mobile user experience. We are the only platform that allows you to run an entire incident from mobile device, which makes it easier for more and more non technical users to start leveraging pager duty and of course recently, we're hearing more and more stories about customers using us in their crisis response.

James.

Given what's going on and using us to try and spin up.

Distributed Tech ops teams, who have historically been together in a network operation Center.

Howard Wilson: Yeah. I think one thing maybe just to. The one thing I would just add is that, you know, we have a history of being really capital efficient. You know, we have been very successful in terms of managing, even in periods of very high growth, managing our cash very carefully. You know, we've had three quarters now being cash flow positive. If we look at, you know, the full year, we were almost cash flow positive for the full year. On a free cash flow basis, you know, we're around 3% negative for the full year. Because we have, you know, that mantra and that approach, I think that puts us in good stead as things unfold in the economy.

Very interesting and makes total subs and then for my follow up question for Howard, Yes, It would probably bundle tools. These two questions until into one if you don't mind, Howard, but what I'm trying to think through as we think about how the environment could unfold over the next over the next couple of quarters.

Well, they think about the business being self service and at the same time more that business coming from larger customers, whether it's largely memory customers or enterprise customers, how do I marry those two things together the subset CAD. These large enterprise customers expand.

Sanjit Singh: Appreciate all the color, Jen and Howard. Thank you very much.

Howard Wilson: Thanks, Sanjit.

Jennifer Tejada: Thanks, Sanjit.

In a way to us meaningful to the business in terms in terms of new business via Sercel. This motion or do they need do they need more hand, holding more direct sales process is sort of think through that and the the follow up to that is in a situation where things do take.

Operator 3: Your next question comes from Rishi Jaluria with D.A. Davidson. Your line is open.

Operator: Your next question comes from Rishi Jaluria with D.A. Davidson. Your line is open.

Rishi Jaluria: Hey, Jennifer and Howard, thank you so much for taking my questions. I'll echo my colleagues in hoping that everyone's doing well and staying safe.

Howard Wilson: Thanks, Rishi.

Rishi Jaluria: Want to start with a comment, Howard, that you made on travel, hospitality, energy being less than 3% of revenue. Maybe if you could expand a little bit on that. Does that include, you know, things that might be on the surface considered tech companies, but under the hood are in, you know, travel, transport, hospitality, et cetera? If you think of like a reference customer like Priceline or any of the OTAs, something like Airbnb or something like Uber and Lyft, that, you know, again, we think of as tech companies on the surface, but under the hood are things that are gonna be really impacted by kind of social distancing and the fact that cities like ours are in lockdown mode. Then I've got a follow-up.

Another leg down what is sort of the.

<unk> operating plan in terms of how you're thinking about managing the model.

Right well well thanks centered in and good to hear from you has always so I think you've hit on a very interesting point because I think you know just to remind folks the majority of our lands actually come through E Commerce self service model.

And that's been coming with being kind of a mainstay of the business. What we did do about two years ago is we actually implemented the other people customers to self serve regardless of whether they were new or existing and being able to cover that regardless of the fives and so we're definitely seeing you know more about customers using that's also.

Howard Wilson: Yeah. Sure, Rishi. I think you've hit upon an interesting thing. You know, it's a challenge of industry classifications, right? That comes in. When we're talking about travel and hospitality, it's those folks that would fall more fairly and squarely within the line, you know, within the likes of traditional travel and hospitality, hotel groups, airlines, those types of functions. Where you have that crossover platform type of companies like, you know, the likes of the ridesharing companies and so forth, they do fall within a different bucket. From our perspective, what we're doing is the models that we've been running, the scenarios that we've been looking at. We're trying to sort of be fairly granular in terms of trying to pull those out.

It's motion to acquire in fact, we even had within this past quarter, we had no deals within the hundreds of thousands that would actually happening I'm biased filtered and so where the customer was actually making that purchase online and was able to then complete that transaction without having to find an order form will do any paperwork. So.

We certainly had that capability day, I think we need to continue to educate.

Our customer base on the fact that that is available to them and that that is a mechanism that they can use but we do see a steady stream. It's one of the things I watch every day and the steady stream of online transactions as they come in.

To your second question in terms of trying to think about you know contingency in the model. Obviously, we built out a number of different scenarios, we don't have that crystal ball, which I wish we did but we we've tried to build out a number of scenarios to help us sort of assess how those impacts could play out but right now it's just.

Rishi Jaluria: Okay. Got it. That's helpful. And then just thinking through the net expansion rate, you know, talked about 120% to 123% number for next quarter, which means we could see some stability or even at the high end of that range improvement relative to what we saw this quarter. Maybe going beyond Q1, how should we be thinking about this metric? Is there, I guess, a possibility to expect that number to tick up, you know, A, because of better sales execution, and then B, the fact that you're gonna be lapping, you know, the impact of the two large customers who moved off PagerDuty onto their own acquired solutions. Thanks.

Modeling right, we don't have enough data real data, we didn't have enough history as a company.

To be able to take into account some of the impact that we may see over time.

And by history.

Histories Dungy Howard means we the company's not old enough to have been true the many recession Howard and I have lived through but you know the one thing that's or certain about a difficult environment is you know that at some point in time. It will end and I think a lot of what we're focused on is making sure. We continue to think like a growth company, we apply a growth mindset.

Howard Wilson: Yeah. Thanks, Rishi. You know, for now, you know, we're taking the view that we would like to provide some or set expectations around what we'd see for this next quarter. Given the uncertainty in the current market, we feel that it would not be prudent for us to try and stretch beyond this next quarter.

We continue to invest sensibly in product innovation and sales and marketing that we keep a very close handle on expenses and a watch daily as we mentioned in in some cases weekly and on leading indicators, but know that at some point in time to certain thing about a market environment. Like this is it's going to end and we need to come out of it strong.

Rishi Jaluria: Okay. That's helpful. Thank you so much.

Operator 3: Again, if you would like to ask a question, press star one on your telephone. Your next question comes from Bhavan Suri with William Blair. Your line is open.

Operator: Again, if you would like to ask a question, press star one on your telephone. Your next question comes from Bhavan Suri with William Blair. Your line is open.

And and you know continue on our path to building an enduring company.

Bhavan Suri: Hey, guys. Thanks for taking my question. I guess I just want to take a step back and obviously we're going through some crazy times, but I'd love to understand the conversations you might be having with large enterprises, existing or new, that say, "Okay, right now we can't do anything because we're dealing with our infrastructure and our demands and remote people, but this is clearly something we should have had in place or should have in place coming out of it." Sort of let's fast-forward, and again, none of us actually know when, but let's fast-forward some point in time, like when you look at the potential demand or the conversations or the interest, what are customers saying?

Yeah, and I understand the thing maybe just the one thing I'd just add is that you know we have a history of being really capital efficient we have been very successful in terms of men managing even in periods of very high growth managing our cash very carefully we've had three quarters now being cash flow positive. If we look at the full year.

We've almost cash but positive for the full year on a free cash flow basis.

We're around 3% negative for the full year. So because we have you know that men trend that approach I think that puts us in good stead.

As things unfold in the economy.

Appreciate all the color John Howard Thank you very much.

Bhavan Suri: Are you seeing that from customers saying, "Hey, you know, a system that monitors all this and manages it for us and tells us what's gonna happen alerts us," is there sort of a conversation that's happening with large enterprises there, or is it still too early? I'd love to understand sort of how you might be thinking about that, how you hear about it. Obviously, we're all optimistic, but love to understand what's actually happening.

Thanks, Thanks Sanjay.

Your next question comes from Rishi Jaluria with D.A. Davidson Your line is open.

Hi, Alan Thank you so much for for taking my questions and I'll Echo.

All these im hoping that everyone's doing well and staying shape.

I want to strike a with a call me.

How would that you made on travel hospitality energy being less than 3% of revenue, maybe which spanned a little bit on that does that include you know things that might be on the showcase continuing tech companies, but under the Hood already you know travel transport hospitality et cetera. So if you think of like a reference.

Jennifer Tejada: Thanks for the question. We just had a conversation with a very large customer this past week, and the conversation went something like this: We're looking for other ways to find cost savings so we can invest more in PagerDuty because we think over time, PagerDuty will reduce significant costs for us this year. We're looking to deploy it more broadly across the organization than it has been in the past, and we're trying to accelerate that as a result of the current environment. That is one data point, and it is very early days. Another example I'll give you is a company that provides navigational capability that recently self-served tens of licenses, even though they're fully deployed on a recent purchase that they've done with us in the past.

Customer like price line or any B O T age or something like it'll be in b or something like we're bringing labs that that you know again, we think about kept companies on the surface, but put under the hood or are things I think it'd be really impacted by kind of social distancing and thought that so these like ours or RM Lockdown mode, and then I've got a follow up.

Yeah sure mission and I think you've hit upon an interesting thing you know, it's a challenge of industry classification Spike that comes in so so when we look at sort of those when we told me about travel and hospitality. It's those folks that would fall more failure in squarely within the line you know.

Jennifer Tejada: We checked in with the account team, and essentially they have a new distributed team that is used to be in a central NOC and is now out in the wild in their home. So they're bringing that team onto PagerDuty. We've also seen the acquisition, like the new logo engine is holding up. Like I said, trials are holding up, and there's a lot of conversation around using PagerDuty for use cases outside of DevOps and IT, and one being crisis response. I can speak to how we're using PagerDuty as an organization in this kind of environment.

Within the likes of traditional traveling hospitality hotel groups Airlines those types of functions, where you have that cross platform topic companies like you know the likes of the watch and companies and so forth. They do fall within within a different buckets and from our perspective, what are we doing is modeled that we'd been running with an already.

You mean, we'd be looking at be trying to sort of be fairly granular intends to try to pull those pull those out.

Okay got it got a won't helpful and nothing just thinking through the net expansion rate.

Jennifer Tejada: We're using PagerDuty within our crisis response governance team, our crisis leadership team and the four work streams underneath that that include employees in public affairs, financial management, engaging our customers, and then product and system stability. All of those teams are on PagerDuty rotation, such that if we needed to get immediate information across those teams quickly to derive immediate action, that will happen on the PagerDuty platform. It's not happening across 16 communication platforms, SMS, et cetera. It's also highly reliable so that we know we can get in contact with the right people for the right issues. I do think that there's the potential to see more than that. Again, you know, I would just encourage everybody to be balanced in the way they think about this because it is early.

Talking about a 120% to 22% number for next quarter, which would you need that you some stability or even at the high into that range improvement relative to what we saw this this quarter, maybe going beyond Q1, how should be thinking about this metric in keep it here I guess, a possibility you expect that number to kick off the a because of.

<unk> federal sales execution on Monday, the fact that you wouldn't be lapping the impact of the two large customers who moved off pager duty onto their own applied solutions. Thanks.

Yeah. So so thanks Rishi you know its wouldn't out you know weve, taking a view that we would like to provide.

From a well set expectations around what we'd see for this next quota I'm given the the uncertainty in the current market, we feel that it would would not be prudent for us to try and spread beyond the that beyond this next quarter.

Jennifer Tejada: We don't have a crystal ball. The way I thought about the world a week ago is different than the way I thought about the world yesterday, which is different today. I think the most important thing is that we have a team and a culture that is used to managing unpredictable, big incidents that is expected to be highly resilient. We're pretty calm in this environment, even though it's psychologically, I think, difficult for most individuals. I've been really proud of how our team responded. We gave them 24 hours' notice on 9 March 2020 that they would work from home, and we really haven't skipped a beat. That's not to say that it's not hard for folks. I mean, I see kids in the Zoom. You know, people are staring into the Zoom machine hour after hour.

Okay. That's helpful. Thank you so much.

Again, if you would like to ask a question press Star one on your telephone. Your next question comes from that uncertain with William Blair. Your line is open.

Hey, guys. Thanks for taking my question I guess I just want to take a step back.

And obviously, we're going through some some some crazy times, but but I'd love to understand.

The conversations you might be having with large enterprises existing or new that's say, okay. Right now we can't do anything because we're doing with our infrastructure our demands in remote people.

Jennifer Tejada: Thank you, Eric, for making this possible for us. I think, you know, we're in a better position than other companies might be, just given our culture and the way we work.

This is clearly something we should have had in place or should I haven't place coming out of it and so sort of well, let's fast forward and I get none of us actually no, but lets us for at some point in time like when you look at the potential demand of the conversations will be interest what our customer saying are you seeing that from customers, saying, Hey, you know.

Bhavan Suri: Yeah, no, I appreciate the calm, even keel given the volatility. We've all, I'm sure, everyone on this phone has dealt with the kids in the background of the Zoom, given circumstances. I guess one quick one for either you or Howard. You know, you've enacted a number of productivity measures, especially getting Dave Justice on board and everything else, to address net retention and net expansion rates. Obviously, the guidance feels pretty stable. Where do you think you are in terms of rolling those out? Is this still pretty early? Do we expect net retention rates or expansion rates to potentially, again, excluding current COVID and everything else, would you assume they go up? Do you think we're in the first inning?

A system that monitors all this imagine that for US. It tells is what's going to happen alerts US is is there sort of a a conversation happening.

With large enterprises, there or is it still too early I love jumped up sort of how how you might be thinking about how you're here about color. Obviously, we're optimistic loved it sounds like what's actually happening.

We we just had a kinda. Thanks for the question, we just had a conversation with a very large customer this past week.

And the conversation when something like this that we're looking for other ways to find cost saving so we can invest more in pager duty because we think over time pager did you will reduce significant cost for us. This year. So we're looking to deploy it more broadly across the organization than it has been in the past and we're trying to accelerate that as a result will occur.

Bhavan Suri: Do you feel those have been done well over this quarter? Do you think Q1 is a you know a stable place? How should we think about those? Thank you.

Jennifer Tejada: I'll take a crack at that, and then Howard can jump in. You know, Dave has been with us for eight weeks, but he's been just a fantastic add to the team. His priorities have been really focusing on finalizing some key leadership positions, on making investments in EMEA, which has performed really well in enterprise as well as customer success, making sure that we have a very strong alignment in marketing with account-based marketing, as well as leveraging our self-service capability, and really also bringing operational rigor to the table, which I think, you know, is super important as we look to become a more disciplined organization. You know, again, I will just say I'm really proud of our sales team.

And environment now that has one data point and it is very early days and another example, I'll give you as a company that provides navigational capability that recently.

On self served tens of licenses, even though they're they're fully deployed on a recent purchase that they've done with us in the path and we checked in with the account team and essentially they have a new distributed team that is is used to be in a central knock. It is now out in the wild in their home and so they're they're putting bringing that team on the.

Pager duty, we've also seen the acquisitions like the new logo engine is holding up like I said trials are holding up and and there's a lot of conversation around using pager duty for use cases outside of Dev ops, and I T and one being crisis response, and I can speak to how we're using page.

Jennifer Tejada: We were very fortunate that we were able to be together this year for sales kickoff before COVID-19 hit. You know, there is a lot of positivity, a lot of accountability, and ownership in the tone of people. Really, I think a sense that we have the right product for the right set of problems in the right moment in the market. Looking past Q1 is just really hard to do given the level of uncertainty. We're gonna just continue to focus on executing on what's in front of us, on improving productivity and ensuring that our salespeople are well-equipped, that the marketing messaging we put out into the market is easy to understand, and that the product continues to be very easy to use, very secure, and very resilient, you know, in the current circumstances.

Duty.

As an organization in this kind of environment. So we are using paid you're getting within our crisis response governance teams are Christ leadership team and the for work streams underneath that they include.

Employees in public Affairs financial management, engaging our customers and then product into some stability all those teams around pager de rotation such that if we needed to get immediate information across those teams quickly to drive immediate action that will happen on the page 30 platform, it's not happening.

Across 16 communication platforms, SMS et cetera.

It's also highly reliable so the we know we can get in contact with the right people for for the right issues and I do think that there's there's the potential to see more than that but again you know I would just encourage everybody to be balanced in the way. They think about this because it is early we don't have a crystal ball the way I thought about the world week.

Howard Wilson: Yeah. I guess just one, you know, quick comment. As I mentioned to Rishi, we, you know, we see the $120 to $123 rate that we're providing for Q1 as being sort of the zone for Q1. We haven't provided any view beyond that at this time.

Bhavan Suri: Got it. Thank you, guys. Appreciate it.

Go is different than the way I thought about the world yesterday, which is different today and I think the most important thing is that.

Jennifer Tejada: Thank you.

Howard Wilson: Thank you.

Operator 3: Your next question comes from James Wang with ARK Invest. Your line is open.

Operator: Your next question comes from James Wang with ARK Invest. Your line is open.

We have a team and a culture that is used to managing unpredictable big incidents that is expected to be highly resilient and so we're pretty calm a in this environment, even though its psychologically I think difficult for most individuals and I've been really proud of how our team responded we gave them 24.

James Wang: Hi, Jennifer. You quoted the $100 billion TAM as your kind of long-term target for digital operations management. Right now, I think many people view PagerDuty as a fairly narrow slice of the product that's addressed. Could you maybe talk about kind of how the R&D, where that focus is, what you need to build out, what's kind of the ultimate vision for what you need to build to achieve to penetrate that TAM?

I was notice on March 9th or two that they would work from home and we really haven't skipped a beat and that's not to say that it's not hard for folks I mean, I see kids in the zoom. A you know people are are staring into the zoo machine hours. After hour [laughter]. Thank you Eric for for making as possible for us by that but I think.

Jennifer Tejada: Sure. Thanks for the question. As I said earlier, you know, one of our priorities this year is to become the de facto platform for real-time work. You know, that points to a couple of things. One, it's continuing to validate our shift from a single product company to a multi-product platform. I think we mentioned that of the top 100 new customers we brought on board, 68 of them took more than one product. The digital operations management SKU, which really takes you from traditional on-call automation to proactive Event Intelligence, really leveraging predictive machine learning capabilities, visibility to give stakeholders across the business context in what's happening, and analytics, which really truly help you understand the cost of services. These are things that people are adopting as a part of that digital operations SKU.

You know, we're we're in a better positioned than other companies might be just given our culture and the way we work.

Yeah, I know I appreciate that.

The com, even keel given the volatility and we've all I'm sure everyone. On this phone is dealt with the kids in the back on the zoom.

Just given the circumstances.

Yes, one one quick one for for either you or Howard, but do you know you talked a number of productivity measures, especially given that David just onboard and everything else.

To address that retention and net expansion rate obviously, the the the guidance feels pretty stable where do you think you are in terms of rolling those out there's still pretty early do we expect net death rates or expense rate.

Jennifer Tejada: We actually feel really good about the progress that we're making there. We also think it's okay that the entry point into our product is that core solution because it is the most reliable, and I think most well-known, and functional solution out in the market. I think what's also interesting is as that solution becomes intertwined and part of core infrastructure for large companies, people are, you know, not looking to change it, they're looking to build on it. Our customers are talking to us about how they leverage more and more great platforms to serve them, and ours interoperates very effectively with others. From a product innovation perspective, as I mentioned, Service Directory, which we announced last fall, is the first of its kind.

Actually again ex current coded and everything else would you assume they go off do you think <unk>. The first inning you feel those have been done well over this quarter and do you think Q1 is a.

Stable place how should we think about those thank you.

I'll take a crack event and then Howard can jump in Dave has been with us for eight weeks, but he's been just a fantastic add to the team.

His priorities have been really focusing on finalizing some key leadership position on making investments in EMEA, which has performed really well in enterprise as well as customer success, making sure that we have very strong alignment in in marketing with account based marketing and as well as leveraging or self service cave.

Ability and really also bringing operational rigor to the table, which I think you know is super important as we look to become a more disciplined organization and so you know I I'm I'm really again I will just say I'm really proud of of our sales team. We're very fortunate that we were able to be together.

Jennifer Tejada: It's a virtual dynamic directory of services, which is really important in distributed architectures where you're using virtualization. You may spin up services quickly and spin them down when you no longer need them. What's really important about it is it also brings into account the people element, the people ownership of those services, so that when you need to do something, you know who you need to do that. Then, you know, we're gonna continue to invest in the developer ecosystem. One of the things that's maybe not well known about PagerDuty is developers build capabilities and applications on top of PagerDuty all the time, and we haven't created an opportunity for them to expose those to other users.

This year for sales kick off before Covidien 19 hit and and your there's a lot of positivity a lot of accountability and ownership in the tone of people and really I think that sense that we have the right product for the rights set of problems in the right moment in the market.

Jennifer Tejada: The dev ecosystem, I think, will be important in the future as well to really bring the power of the community to the platform.

But looking past Q1 is just really hard to do given the level of uncertainty. So we're going to just continue to focus on executing on what's in front of house on improving productivity and and ensuring that our salespeople are well equipped that the marketing messaging, we put out into the market is easy to understand and that the.

Jennifer Tejada: The dev ecosystem, I think, will be important in the future as well to really bring the power of the community to the platform.

James Wang: Thank you.

Operator 3: There are no final questions at this time. I'll now turn the conference back over to Ms. Feinerman for closing remarks.

Operator: There are no final questions at this time. I'll now turn the conference back over to Ms. Feinerman for closing remarks.

He needs to be very easy to use very secure in very resilient casino in in the current circumstances.

Jennifer Tejada: Thank you, operator, and thank you all for joining us today. We did hear some comments that the call was choppy, and some of you might have missed something. We will look to post a transcript of this call, so you will be able to follow along. You are always welcome to reach out to us at investor@pagerduty.com. Thank you very much and have a nice day.

Stacey Finerman: Thank you, operator, and thank you all for joining us today. We did hear some comments that the call was choppy, and some of you might have missed something. We will look to post a transcript of this call, so you will be able to follow along. You are always welcome to reach out to us at investor@pagerduty.com. Thank you very much and have a nice day.

Yeah, and I guess, just one quick comment as I mentioned to me. She we you know we see the 120 to 123 ways that we providing for Q1.

As being sort of the design for Q1, we haven't provided any view on beyond that at this time.

Operator 3: This concludes today's conference call. You may now disconnect.

Operator: This concludes today's conference call. You may now disconnect.

Got it. Thank you guys appreciate it.

Thank you. Thank you.

Your next question comes from James Swing with Arc invest your line is open.

Hi, Jennifer you quoted the 100 billion dollar time as you were kind of long term targets are due to operational management on the right now I think many people view pager duties, a fairly narrow slice of off the product. That's that's addressed you maybe talk about kind of how how the R&D where that focus is what you need to build.

About what's kind of ultimate vision for what you need to build to achieve to penetrate that Tim.

Sure. Thanks for the question as I said earlier, one of our priorities. This year is to become the de facto blocks warm for real time work you know that points to a couple of things one it's continuing to validate our shift from a single product company to a multiproduct platform and I think we mentioned that of the top 100, new customers Weve.

Brought on board 68 of them took more than one product that the digital operations management skew, which really really takes you from traditional on call automation to proactive and then intelligence really leveraging predict and machine learning capabilities visibility to give stakeholders across.

The business contacts and what's happening and analytics, which really truly help you understand the cost of services. These are things that people are adopting as a part of that digital operations skews. So I actually think we actually feel really good about the progress that we're making there.

And we also we also think it's okay that the entry point into our product is that is that core solution. Because it is the most reliable and I think most well known and functional took losing out in the market. I think what's also interesting is as that solution becomes intertwined and part of Q.

Core infrastructure for large companies people are you know not looking to change that they're looking to build on it and our customers are talking to us about how they leverage more and more great platforms to serve them and ours operate their entire operates very effectively with others from a product innovation perspective as I mentioned.

Service Directory, which we announced last fall is the first of its kind it's a.

Virtual dynamic directory of services. It was really important then distributed architectures, where you're using virtualization you may spin up services quickly and send them down we no longer need them, what's really important about it is it also brings into account the up people element. The people ownership of those services that when you need to do something.

You know who you need to do that a and then you know we're going to continue to invest in the developer ecosystem. One of the things, it's maybe not well known about Pedro duty as developers build capabilities and applications on top of pager due to all the time and we haven't created an opportunity for those them to expose those to other users and so the Dev ecosystem I think we'll be in poor.

Certain in the future as well to really bring the power of the community to the platform.

Thank you.

Yes.

And there are no final questions at this time I'll now turn the conference back over to Miss vitamin for closing remarks.

Thank you operator, and thank you all for joining US today, we didn't hear some comments that the call. This choppy in some of you might have missed something we well loved to post a transcript of this I guess calls the we'll be able to follow along and you are always welcome to reach out tasks and investor He for duty dotcom. Thank you very much and have an 8-K.

This concludes today's conference call you may now disconnect.

[noise].

Q4 2020 Earnings Call

Request a DemoDemo

PagerDuty

Earnings