Q1 2021 PagerDuty Inc Earnings Call
At this time I would like to welcome everyone to the paper duty first quarter 2021 earnings call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Ask a question during the session you need the press star one on your telephone please be advised that todays conference is being recorded if required any persistence. Please press star zero. Thank you I'll now turn the conference over to Stacy funding. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss Pedro <unk> fiscal first quarter of 2021.
With me on today's call or Jennifer to hotter Patric duty chairperson and Chief Executive Officer, and Howard Wolfson, The company's Chief Financial Officer.
Statements made on this call include forward looking statements forward looking statements involve known and unknown risks and uncertainties that may cause our actual results performance or achievements to be materially different from those expressed or implied by the forward looking statements forward looking statements represent our management's beliefs and assumptions.
As of the date such statements are made and we undertake no obligation to update these forward looking statements.
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 compared in accordance with gap.
There are a number of limitations related to the use of these non-GAAP measures are since our closest GAAP equivalents. For example, other companies may calculate nongaap financial measures differently or maybe other measures to evaluate their performance.
All of which could reduce the usefulness of our non-GAAP financial measures at the talk for comparison, a reconciliation between GAAP and non-GAAP financial measures is available in our earnings release.
Further information on these and other factors that could affect the Companys financial results are included in the filings we make with the Securities Exchange Commission from time to time, including the section titled Risk factors and the company's most recently form 10-Q.
Now I'd like to turn the call over to our CEO Jennifer to hotter Jennifer.
Thank you Stacy and thank you everyone for joining us today I hope that you your families and your colleagues are safe and healthy we like many of you are in our 13th week working from home I'm appreciative of our team has adapted to progressed our mission and the power industry has come together sharing ideas solving unprecedented challenges and protect.
Our employees and community this incredible human experiment, which we're all just a small part has provided lessons that leave us forever changed lessons encourage resilience creativity camaraderie and efficiency, but also lessons in loss in the cost of being under prepared uncoordinated and the human cost of time for paid.
Duty dependent I can recession have reinforced our values, which center around leadership inclusion in equality accountability innovation and the success of our customers and our people. We've always believed trust and timer societies, most valuable currencies and never has this been more true our mission to elevate.
Teams to the work that matters, most is more relevant than ever as every business seek survival sites to protect its hard one customers and adapt to operate more efficiently and safely in order to protect lives and jobs.
When the pandemic began earlier this year every business was compelled out of necessity to become an operations company going digital overnight relying on cloud based services and driving 100% of revenue through digital E. Commerce in a matter of days global enterprises had to find ways to meet customer expectations under Unprecedent.
Good surges in web an app traffic, while supporting enterprise productivity responsiveness and security all while their employees work from home.
This is digital operations, a mega trend that prieto that was unfolding over years and is now transforming in weeks and months even in some of the most traditional industries.
Pager beauty was built for this when we designed the platform to automatically detect the unpredictable coordinate disparate teens to troubleshoot difficult problem was under pressure and resolve mission critical issues in minutes, we created the digital operations management category.
Over the last decade, our platform has become an essential component of critical infrastructure for many of the world's most innovative and admired companies and increasingly the central nervous system for the digital ecosystem.
We uniquely correlate digital events for our customers from the cloud web App infrastructure, I O T insecurity and translate them into action that reduces cost protect digital revenue and ensures our customers can meet the expectation of their customers.
With digital acceleration in remote work detecting in responding to incidents as well is preventing them has become even more central to weathering the current environment and to long term business success.
Today I will discuss how we have adapted to this unique environment I'll highlight our strong results recap our spring platform release I'll review, how we are progressing our priorities and I'll talk about a few things we're doing to help our customers and community emerged from the crisis stronger.
In February we implemented a crisis management framework with work streams focused on employee safety customer engagement scenario planning platform innovation resiliency and business continuity. During the first week of March our leadership team made the decision to close all of our global offices and within 24 hours, we transition to an entirely.
The remote workforce.
Having already been 20% remote with a distributed engineering team a cloud native platform, a zero Trust Securities dance and a very strong culture with highly engaged employees. We made this transition relatively seamlessly.
In fact, we've seen increased productivity in some parts of the business, where we leveraged modern cloud platforms to engage customers and agile product development and Dev ops methodology to innovate.
While it's too early to measure the relative impact we pivoted all of our customer in industry events to digital including our inaugural AMEA summit coming up this month and our fifth annual summit event in September.
More generally we've led with empathy and put people first substantially increasing engagement levels of employees and customers don't get me wrong in no way has this been easy and I'm keenly aware that every person experiences the current environment differently based on their circumstances, we expect to continue to face uncertainty unpredictable challenges.
And potential headwinds, which I will discuss shortly.
That said I'm very proud of our team, especially the way they quickly adapting to serve our customers remotely and of our corresponding results as we remain clear ride and pragmatic in the first fiscal quarter of 2021 [noise].
Revenue for the first quarter increased 33% on a year over year basis to $50 million and our focus on operating leverage continued to pay off as we dramatically improved our non-GAAP operating margin by 12 percentage points year on year.
In addition to posting strong growth in what tends to be a seasonably lighter quarter. We ended the period nearly breakeven on operating cash flow demonstrating the long term durability of our business.
Our healthy new customer acquisition continued to show strength validating the large an early total addressable market for digital operations management.
Hey duty is an essential cloud service for digital businesses. We ended Q1 with 13060 customers growing 12% year over year in a tough market and while we experienced more churn than usual in SMB. We also had a very strong new logo acquisition results in enterprise. Despite market dynamics, we continued to see robust year on year grow.
Growth in new customer air are above 55% as companies doubled down on operations seeking easy to deploy solutions that accelerate digital business, while reducing cost.
Trust is paramount for our customers and our sustained investments in reliability resilience in security at scale became increasingly relevant a threat vectors and remote users multiplied our customers remained incredibly loyal with renewal rates consistently high at over 95% and even higher for enterprise customers we're too.
Really grateful for the trust that our customers, placing <unk> and not only did we continued to deliver our services in Q1 without interruption. We also accelerated our roadmap and several initiatives to support coded specific use cases like crisis management virtual network operations, and providing free licenses for health care customers.
[noise] businesses cannot afford missed opportunities or disruption and because of this major incident management now has the attention of Ceos and boards pay duty has become a necessity because our platform empowers users build and maintain trust with their customers.
During Q1, our customers saw incidence bike anywhere from two to 11 times. The incident frequency, we observed because it yet in the face of more incentives than usual our customers resolve them, 20% faster by leveraging pager duty to proactively anticipate and address incidents ensuring that they continue to serve their customers in the phase.
Most of cost cutting remote working in growing digital demand.
There was no better example of this then zoom communications, where Erik young and his team has scaled to support not only the day lives of businesses going remote but also the distance learning as many of our children Zunes corporate CIO Sunil made and said that pager do these automation and intelligence has made their teams so efficient and effective.
That they've actually improved their time to resolve incidents despite the massive increase in people using them.
Winston Churchill said never waste a crisis, and we believe digital acceleration and the imperative to improve operational performance will continue well beyond this pandemic as companies learn from the rapid pivots. They undertook this quarter, we expect digitization cloud adoption Devops security distributed.
Architecture and remote working to continue to advance post vaccine.
All of these accelerating mega trends are tailwinds for us and drivers for investment in pager duty, especially as recovery begins.
According to a recent fortune study, 63% of Fortune 500, Ceos believed the crisis will accelerate their digital transformation.
As a result, we see leaders increasing their focus on efficiency and productivity seeking more automation across their businesses.
We advanced our automation roadmap inner spring release, adding new capability to our eight iops solution announcing the general availability of intelligent tree arash launching new integration and enhancing our dynamic surface directory and business response solutions. So that more teams across the company can benefit from pager duty.
Our customers challenges not a lack of data, but rather how to make sense. If at all in second and to address the root cause of an issue.
Peter to these advanced capabilities now recommend resolution tactics trigger run books orchestrate actions that provide diagnostics and even result problems without human intervention.
During the quarter, we published new bi directional integrations with I.T. automation partners plant thought I O run deck, NIH, who building on our successful ADW S. event bridge integration and strengthening our position as a central nervous system for the digital enterprise.
A timely example of resolution automation is faced life, a technology platform that enables faith based organization to transform in person gatherings into online experiences.
Religious organizations have been unable to kongregate for worship due to shelter in place orders. So the company saw a dramatic increase in usage thousands of their users joined online services.
They began to using our EOP solution events intelligence to reduce the that noise leverage contacts and direct time sensitive work the engineering teams.
After only two months fake life was able to reduce the number of incidents being routed to engineering teams by over 36% automating manual work, reducing labor costs by an estimated $114000 per year and preventing incidents from disrupting customers experience.
If you can automate work you don't have to rely on static workflows in Q1, we launched a new integration with Microsoft teams that enables responders and stakeholders to resolve incidents and stay informed the pager duty in teams rather than switching between services.
Not only are users automatically alerted the incidence. They also receive context on the incident, including whether it has happened before how it was resolved and who worked on it previously user in account permission or think between teams and pager duty, ensuring secure communication and safe information sharing now all incident response activities in P.
I mean are captured in pager duties post mortem application saving time and improving the quality of information used to help team members prevent future incident and continuously improve.
Intelligent tree as part of our event intelligence product provides visibility in coordination for teams working related incidents as well as providing valuable context from past or related incidents in a distributed world where teens own and operate separate but interconnected services intelligent tree edge insurers each team understands how there.
It was impacts those operated by others and vice versa. It significantly reduces duplicative and counterproductive efforts between team and according to benchmarking by I'd G cuts time to resolve from 80 minutes to as little as five.
We're confident that the macro trends I mentioned earlier present tailwind for pager duty over the medium and long term and at the same time, we balance our optimism and position of strength with the potential headwinds we see in the near term the diversity of segments and verticals within our customer base presents the strength with less than 7% or there are coming from the.
Most impacted industries.
That said, we've seen delays in some enterprise and midmarket opportunities as large companies grapple with both the economic impact to their business models and conservative spending in light of market uncertainty. We expect these companies to accelerate their investments in digital operations. When the time is right for them and are focused on building long term partnerships.
While we saw noticeable increase in churn in our small business segment, which is about 20% of our air our our overall churn remains best in class below 5% on an annualized basis.
We may continue to see higher than usual churn in this segment given the economic backdrop.
Reiterating the long term relevance and durability of our business software and technology advertising and marketing E Commerce Federal in Nashville government consumer products and services healthcare industrial in manufacturing and nonprofit segments. All delivered strong growth sequentially software and technology was particularly strong.
In Q1, with the who's who of modern B to B platforms, expanding their business pager duty, including Salesforce Shopify Twilio data dog, Dropbox, Cisco Sep Octa, Docusign Netta, Workday Napier and Hashi core.
We also saw encouraging signs from our customers, whose need for pager duty dramatically increased as a result at the pandemic one large mid western electronics retailer increased their pager duties, then as a result of pivoting to curbside pickup.
Education customers like for Sarah and the University of Texas also increased their spend to prevent service interruptions as online demand increase.
We remain focused on the priorities, we communicated on past calls winning in enterprise validating our position as the de facto platform for real time work and expanding our reach beyond Dev ops and I T. In Q1, we continued to make progress and enterprise well our credibility in supporting digital acceleration and distributed team orchestration for both new.
At quarter use cases led to new customer wins, including Labcorp, Carrefour emphasis NBC universal and Chanel.
We announced our new partner program for managed service providers kicking off of care soft estimate connect consulting and be core. This program will help enterprises scale and accelerate their digital transformation initiatives and extend the reach of our go to market strategy for Midmarket and enterprise.
Our international investments continue to pay off, especially in enterprise or EMEA team has done an excellent job in leading with pager de value proposition to secure new customers and expansion deals. One example is a leading European retail bank with tens of thousands of employees and millions of customers previously the bank relied on.
Many legacy monitoring solutions that created a dilutive alert we estimated that 70% of these alerts on actionable noise, but without processing automation significant time and money were being wasted with pay dirty deployed alerts were reduced by 85% in the meantime to respond to incidence was reduced from 30 minutes to five.
Resulting in significant operational efficiencies.
According to our estimates the save the customer $3 million annually, a 338% return on investment.
Many of our customers seek to turn disruption into opportunity and we see this industry is experiencing increased demand such a streaming media grocery delivery distance learning and health care companies in these sectors need to handle real time issues more efficiently to ensure great customer experiences for instance, a long term Pedro.
Customer in the food delivery space continues to expand every quarter, but this quarter being no exception.
[noise] discovery Inc. with a global reach in more than 220 countries has seen unprecedented demand for their brands like plc food network and HGTV as well as digital services like motor trend on the man and discovery go they expanded their business with us in Q1 standardizing on pager duty across there does it.
No product team to manage their digital operations.
Automating previously manual incident management post mortem and operations reporting work. They now automatically route all critical unplanned work through our platform, reducing incidents by 94% and reducing the time to knowledge and incident from 54 to five minutes. So teams can focus on new products in innovation.
Personally I was thrilled to watch discovery broadcast the recent space launch last Saturday.
While we never could have imagined oppose coded world. It has accelerated opportunities for us to expand our platform beyond Devops and IP team.
Some examples include crisis management, frontline healthcare workers identification logistics and supply chain operations management.
I'm sure. Many of you like me have found exercise and wellness important during shelter in place on demand fitness is in all of our homes with few brands more pervasive then telecom.
For years peloton has been using pager duty manage its digital services.
Customer demand grew peloton began using pager duty to track shipments to their customers, ensuring a smooth the delivery process and increasing overall efficiency and productivity.
We continue to see longtime customers apply paid to read into new use cases, including customer service, where time matters a cloud based observe ability company recently expanded its use of pager duty to its customer support and experienced management team to manage urgent escalations for their most important customers last quarter, we added.
26, new integrations published by partners across a range of use cases, including Dev IP security and Aiotv with total integrations now over 375.
In the quarter, we took proactive measures to reduce our expense run rate and reallocate capital, resulting from traveling event cancellation.
We continued to hire and grow our workforce in a balanced way, including several new go to market leaders, which we announced in recent weeks last week, we welcomed meant ULA telegraphed to the leadership team as our first chief customer officer.
With our strong balance sheet and low burn rate, we continue to make prudent investments in go to market and product innovation that we believe will deliver market share gain and robust business returns.
Although current circumstances limited our ability to interact in person during the quarter, we're not limited in our ability to support those directly impacted by the pandemic. We were honored to support frontline responders such as in the state of Virginia, where pager did he was used to stand up an emergency I T helped us for field based intensive care units.
We also partnered with the European Government Health service testing program for covert 19, enabling effect of support of all regional drive through test sites and online registration. We now provide 20 for by seven situational awareness for a complex system supporting the National Cobot 19 response by enabling teams to quickly detect and resolve issues.
Ensuring efficient and effective patient care.
We remain committed to supporting our communities through our 1% pledge in Q1 pager duty Dot work made financial contributions to the CDC Foundation medicine, some frontiers, the U.N. Foundation, who fun and stopped the spread all aligned with our focus on improving time critical global Health. In addition, our employees country.
And you to participate in community service. Despite lockdown in March I was able to join many of my colleagues in pager duties first virtual volunteer week, our team organize 20 volunteer opportunities with 11 Global partners.
Thank you to the do Tony into gave over 450 hours in a single week to help others.
We continue to extend our lead this quarter growing efficiently despite unprecedented conditions in the absence of a widely available vaccine the market remains volatile and uncertain well. We are certain about is our unwavering commitment to our customer success. The long term durability of our business underpinned by a large and growing market opportunity.
Our central position in the digital ecosystem are easy to deploy platform, our low friction land and expand business model and our strong balance sheet.
Most of all pager duty is differentiated by our culture and people who have shown incredible resilience grid ingenuity and compassion through every turn in our journey, we're prepared to whether whatever comes and to seize our advantage and emerge strong.
Finally, I feel it's important to mention that all of US a page or do you stand with the black community against racism violence and hate now and into the future. We will continue to advocate for change through financial support like our recent contributions to black lives matter and the NAACP through setting an example, inclusive lead.
Your ship and by demanding a quality in the tech industry and social justice in our communities.
With that I'd now like to turn the call over to our CFO, Howard who will walk through the financial results Howard.
Thank you Jennifer.
We're pleased with off first quarter fiscal 2021 results.
Revenue for the first quarter increased 53% year over year to approximate the $50 million, beating the high end about guidance.
We had another good quarter international with revenue growing 47% year over year.
New customer acquisition was strong increasing 12% on a year over year basis to 13060.
For us this demonstrates the trust customers have enough tech home to manage these services support the business deal with a spike in incidence will pivot to more of the business online.
Our non-GAAP gross margin for the quarter was 87% above our target range and remains industry leading.
We saw significant improvement in on non-GAAP operating loss margin to just under 9% Don from 21% in the first fiscal quarter of Twentytwenty.
Our non-GAAP EPS came in at negative four cents per share well ahead of our guidance as we managed expenses prudently in the life to the code at 19 pandemic.
After the delivering three consecutive quarters of positive operating cash flow. Our Q1 operating cash flow was near breakeven at approximately negative $200000.
Despite the macro backdrop, we continue to see growth with our largest customers with new customer adds in enterprise Exeter raising over the last three coaches.
We added 25, more customers with a or or above $100000 compared to Q4, if why 20, taking us to 348 customers a growth rate of 44% year over year.
[noise] customers with over $500000 in they are increased by 46% year over year to 57 in the quarter.
I don't a base net retention rate for the quarter was 121% inline with the range. We provided you know Q1 earnings cool <unk> hundred 2200, 23%.
This healthy Nick retention rate represents our customers commitment to us a high renewal rates and flow Chen.
In future quarters, we're lucky to report on make retention rate as falling within a range.
Reflecting the current economic environment lighting, the quota we saw some large customers poets expansion discussions as they attempted to the realities of an open my promote well workforce and the sudden business impact could stay at home orders.
Well both in the short term, we may see some downgrades from budget cuts and they also we believe that pager duty represents a strong partner in this environment as we can support customers the goals through automation.
Labour cost reduction and support could distribute it teams.
As we mentioned last quarter, the diversity of our customer base is a springs.
Some industries, such as software and technology media, and entertainment and health care or showing good momentum.
However, we have seen some impact in Directv affected industries, such as prevalent hospitality.
Consultation and logistics and energy and utilities.
Combined these make up approximately 7% about a or or.
In addition, we have seen SMB companies, which represent approximately 20% of all air or coming under increasing pressure with an increase in churn.
Despite this we are pleased that our churn our all representing customers. He has left us remains below 5% on an annualized basis.
I'll now turn to the detailed financial results.
These results are on a non-GAAP basis, our guests financial results along with a reconciliation between GAAP and non-GAAP results can be found in our earnings release.
In the first quarter non-GAAP gross margin was 87%.
Best in class gross margins are made possible by cost native architecture, Devops approached production and programmatic approach to customer success.
Our goal is to deliver gross margins between 84, and 86% and you should anticipate us to that in this range in future quarters.
We also expect that over the long term as we scale, we will reap the benefits of operating leverage.
In the first quarter non-GAAP operating expenses were $47 million compared to 14 million in the first quarter fiscal twentytwenty, and 19% increase which was significantly lower than our revenue growth of 33%.
Non-GAAP research and development expense for Q1 with fishing billion dollars compared to $10 billion in the same year ago period, representing an increase of 28% year over year.
We will continue to invest and product innovation, both dollar capabilities, particularly in automation and a high ops.
Non-GAAP sales and marketing expense for Q1 were $24 million and grew by 24% compared to Q1 fiscal Twentytwenty 20 million follows.
This equates sales and marketing as a percentage of revenue improving to 49 substantial revenue down from 53 to say degree of a new.
Given the evolving market dynamics, we've obviously move towards more digital marketing and we'll continue to monitor the best irreducible spending in order to drive ROI.
Non-GAAP general and administrative expenses from Q1 with $10 billion for the quarter remaining flat year over year, reducing expenses at the San Diego Graving, you to 20% as we continue to scale and improve overall operating margin.
Our non-GAAP operating loss in the quarter was $4 million compared to a loss of $8 million in the same quarter last year.
Non-GAAP operating margin was negative 9% in Q1 significant improvement from the negative 21% diesel in the same period of last year as we continue to scale operation.
Non-GAAP net loss for the fiscal two or $3 million or Nick loss of four cents per share compared to a non-GAAP net loss of $7 million or NIS loss of 22 cents per share in the first quarter of last year.
We reported negative $185000 in operating cash flow in the first quarter compared to negative 8 million policy in the prior year.
We're pleased with our ability to manage costs in such turbulent times.
Free cash flow was negative $3 million in Q1, an improvement compared to the negative $9 million free cash flow loss, we reported in Q1 fiscal twentytwenty largely driven by the year over year improvement in operating cash flow will sit by incremental capex to compete the build out about Atlanta office.
We catch the margin was negative six to St compared to negative 23% in the same quarter last year.
Turning to the balance sheet, we ended the quarter with $351 million in cash cash equivalents and investments essentially flat compared to the end of fiscal year Twentytwenty.
Now before I discuss guidance I'd like to comment on what we have seen customer and prospect base.
Over the past quarter, we've seen some new patterns emerge.
From an industry perspective, we've seen some verticals continue to expand even accelerating and others contract.
However, we've seen more pronounced general trends in terms of company size.
For example, we've seen strong customer acquisition in the enterprise, but a noticeable slowing and expansion in some of that customers.
Whereas in SMB, we've seen good customer acquisition and expansion, but higher churn.
While we still see strong demand for our platform and strong retention rates at the same time. We're also seeing some headwinds in this evolving Macquarie environment.
And as such we continue to take a balanced approach to quarterly and annual guidance.
We're broadening the range of full year guidance for revenue lowering the bottom end of the range and maintaining the top end of the range. We provided you know Q4 earnings call.
Well the second quarter fiscal Twentytwenty, one we expect revenue in the range of $50 million to $51 million, which at the midpoint would represent a 25% growth waste from the second fiscal quarter of Twentytwenty.
Non-GAAP net loss per share is expected to be in the range of six to seven cents for the second fiscal quarter with basic shares outstanding from Q2 expected to be 79 billion.
This implies an operating loss margin of 10% to 12%.
For the full year fiscal Twentytwenty, one we expect revenue in the range of 240 $213 billion, which at the midpoint represents a 25% growth grateful to full year 2021.
Non-GAAP net loss per share is expected to be in the range of 25 to 30 cents and this implies an operating loss margin of 10% to 12% basic shares outstanding are expected to be 79 million.
We have very well placed for continued growth we have a loyal customer base the subscription based business model and our digital operations management offerings like even more relevant as companies face increasing reliance on the digital assets.
We have a strong balance sheet and willing based but you know platform and don't go to market capabilities with a view to extending our leadership with that I will open up to pull for today.
As a reminder to ask the question, we'll need to press star one on your telephone to withdraw your question press the pound or how sticky.
Our first question comes from five in Surrey, with William Blair <unk> Co. Your line is open.
You guys are taking my question.
Good to see sort of.
Attached rates stabilize.
And the upside in the quarter just thinking.
So that I just wanted to talk a little bit around at the sales enablement productivity been rolling out a bunch of so many initiatives to address execution, the specialty, especially activity I sound like it sounds like from the comment you. Just said you made some progress there just a little more about what is the nature of those initiatives and sort of.
Then incremental during the quarter that David Johnson hubs made and then what level, that's what you're seeing stopping a couple of quarters now it doesn't productivity picking up.
Hello.
Hi, Jane you made comments.
Hi, Bob invite you like your that Hey, I mean again I spoke about our drops you do or.
No no. Thank you think you sound like every Washington, <unk>, Yes, I did work. So David then here, Dave Justice is our new Chief revenue officer, Although I suspect it feels the honeymoon as well and truly over he's been here for almost five months and he's brought a tremendous amount of rigor and process to our sales organization, which has been.
Great can see one of the biggest contributions I think he's made to date has been and deepening our leadership bench. So we have brought in a new head of sales operations. The new head of North America. Most recently, we announced and Judy Medulla tell Raya, who will be leading customer success in professional services and I think they'll all.
All those things bode well to continuing to improve sales productivity.
You know new era, with very strong in the quarter, which I'm thrilled about that demonstrates the demand in the market and our focus on hiring the right profiles and ramping them.
More effectively is definitely starting to pay off on having said that with the macro condition, sometimes it's hard to see causalities. So we look at pipeline and pipeline is very strong. We're also having a lot of conversations with customers. So I've seen 15 customers in the last two weeks for instance, and it's nice to see.
C b engagement with customers continue despite the economic backdrop finally, I would say that we've spent quite a bit of investment in enabling our sales force to focus on value not really demonstrate in quantifiable business value, which is extremely timely I guess in this environment, where we have.
Customers that are really looking for cost efficiency improvements in productivity and this is something that pager duty delivers in a highly qualified away. So that's also led to some in Brazil.
No that's great and I'm going to add one more to that as you talk about the enable them to value prop partner program. So if you reach back you just developed expanded partner program for emphasized consultants I must be.
Some new partners you added just an update and ecosystem a strategy and then maybe I know it's early but the early interest you're seeing from the guys. You just out of a prospective partners around deploying sort of this type of solution a more broadly within enterprises.
Well. Thank you I really appreciate you picking up on that because partnerships and expanding our ecosystem has been an area of focus this year, but it's still quite early for us we largely been an independent.
Distribution business for a most of our our lifetime as a company what I would say is all of these partners see a tremendous opportunity to support customers as they have accelerated their digital transformation. So I mentioned in my prepared comments that many of our customers are pulling forward strategic projects.
Historically, they would have planned to unfold over years now in two months and weeks and there's a lot of change management and transformation that comes with that so I think our partner see an opportunity to.
To be part of the journey with pagers, particularly as digital operations management Dev ops transformation and cloud adoption all become accelerated macro trends within these customers and we continue to invest in partnerships with the cloud service providers as well so I'm really encouraged with both the level of interest.
But also you know the the opportunity which is very early for us at this point.
Awesome. Thank you guys. Appreciate you taking my questions. Thank you.
Your next question comes from Matt Hedberg with RBC capital markets. Your line is open.
Oh, great. Thanks for taking my questions and glad you guys are all doing well Gen. Given me you guys are it's a mission critical piece of software and platform you guys provide especially in light of coal that I guess I'm wondering twofold can you talk a little bit more about some color on the delays used you saw on expansion. But then also can you come onto.
Or pipeline growth and maybe some demand trends through may given what sounds like strong culture customers' interest you know due to cold it.
Sure and you know, it's a mixed bag when you look across segments. I mean enterprises continued to be a strong segment for us and new you know where I frequently mentioned that we don't see a lot of competition on the land or customer acquisition motion were often replacing a greenfield environment and so we definitely saw that demand signal a where.
We are new customers are saying, Oh shoot I really need an incident management environment I need to do a better job managing my digital operations and this is because a lot of prospects and customers were literally moving to 100% ecommerce environments. The overnight out of necessity, just given cobot any economic backdrop.
And well. We also we also saw in that was some enterprise customers, who had their hands full dealing with their digital transition or their transition to working from home or their requirements and look at how all of their physical environments like manufacturing environments et cetera needed to be manage so.
You just saw a lot of people really struggling staff all of the sort of time critical issues that they had as a result of co bid sort of unfolding the way it did and some of those some of those customers said, hey, I need some more time to get this done we had a couple of deals slip because we couldn't get availability from their legal team to even a final.
Documents because they were working on organizational restructuring for instance, I, but we didnt see deals go away. We just saw deals delay and I think that's important and I think as customers get into back into a group where they can focus on strategic initiatives et cetera, you know, we still see that business being there and long term.
Terms the all of these tailwinds working in our favor whether we're talking about accelerated cloud adoption. The digital acceleration I mentioned the need to managed security in a hybrid environment.
And then how do you know the shift to E. Commerce, I think many of our customers who shifted to 100% ecommerce are not going to shift back to the brick by brick and mortar balance had they had before so all of those things bode well for us a long term and you know from a pipeline perspective, we see transactions like the number of transactions.
The volume looking good but if it remains to be seen how how long, it's gonna take us to close out and and you know seat drive those transactions into business.
That makes a lot of sense I mean, it just seems like you're relevancy is even more important today and maybe there's some pauses now, but but that certainly could accelerate post coated.
I guess you know Howard you know I know billings isn't a perfect measure for you guys for lots of reasons, but you calculated billings it looks like it grew sort of mid Thirtys. You know that was even above where your revenue grew can you talk about what drove strong girls deferred revenue.
Yeah, So, but you know as as I've mentioned, when we try to previously billings of course, we're pleased when we see a number like this it's around 35 at the same rise and even when we look at it on a.
Trailing 12 months basis. It also to survive the 35% Mark So that's a good place for us to be I think for us. So it's always there's a cyclical nature to billings given both the timing of renewals and also the fact that we have this model they customers typically co term when they expand so we.
At this constant realignment that happens.
But we have seen some good positive trends, we've seen some customers who have been month to month customers make the transition.
To being annual customers, so again, not a huge swallow the both those kinds of things are always public says.
Super helpful. Thanks, guys.
Thanks, Matt Thanks, Matt.
Your next question comes from Sterling Auty with JP Morgan Your line is open.
Hi, guys. So just wondering what did you experience in terms of initial deal size in the quarter, especially during you know, what's the pandemic with setting.
In terms of the in terms of deal size I think we saw people moved quickly on smaller transactions and take more time to look at larger transactions. What I have seen you know, particularly in the last several weeks is a continued interest in strategic deals.
But a real focus on wanting to make sure the value proposition can be quantified and I and a shift in a lot of the conversation from we need the technology, we need the Dev ops methodology to I want to improve my labor costs I want to improve my cost efficiency I need to increase my productivity all of my network Operation Center workers, just went home and their distributed I needed to help me with that.
So there is a little bit of a I think a shift in focused in that regard and you know like I said, when you look across our customer base across the different industry verticals in the different segments, they're all experiencing this ER and downtick in the recession associated with it in different ways. So our small business has been hit harder.
There are a lot of our enterprise customers you know some of those verticals are doing very well and in fact accelerating their initiatives. So it really how kind of treat every customer differently.
Okay, and then Oh isn't true, but you need I think remarks in your prepared remarks about critical about them.
Something maybe you're standing to do so the club car or are you looking to get into more the segment that we traditionally see everbridge computing.
[noise], that's a great question.
And I just wanted to make sure you can hear me, Okay, Mr., because you were breaking up a little bit and my quicker.
Oh, it's a little choppy, but not bad.
Okay.
But what we see a isn't number for customers who are already using up for bid. This response, meaning the escalation of an issue from the technology team to business leadership work communications marketing legal risk management use us for crisis management, So really orchestrating their leadership to make sure.
Employees were healthy and all et cetera, we have it explicitly gone after the mass notification market that we have seen customer pull up into that you.
More frequently as a result of cold and it kind of just depends on the Sir.
I think what is really important figured he is already there in your engineering organization into your I T organization and its trusted.
It's a natural adjacency to then leverage it for four other time sensitive urgent a important work across the business.
Got it thanks.
Your next question comes from Rob Oliver with Baird. Your line is open.
Great. Thank you guys very much for taking my question [noise], John Churchill also said give us the tools and we'll get the job done. So it sounds like you guys are falling into that category, sorry history buff I guess I love that Guy I, almost what that could there [laughter], yes, I guess world craving that so as you know I'm I wanted to double.
On a little bit on job is somewhat where some of my or other called the researchers have been asking about which is on outcomes from the nature somebody new wins. This quarter you know you mentioned.
Our dream retailer going curbside, I think I'm, probably bought a couple of chromebooks for my kids at that retailer. So just wanted to get a sense for you know how much of of of the of the lands or expansions. This quarter were you know so called crisis buys or were these you know where these things that were already in the pipeline just trying to separate out kind of because clearly there's you know.
The two sides to the koby corn and there's always that reacted quickly to do something so just trying to maybe a tease that out a little bit.
Yeah, I think it a couple of thoughts one we saw some verticals perform really well in the quarter verticals like software technology retail with particular E. Commerce plays I was on the phone today with a customer who is a large retailer that have over 2000 stores and and they they have been seen as an ISP.
Entrails service during this time period, and there you know undertaking quite a bit of strategic initiative around their digital business and they've continued to grow with up and that's an example of a customer that has has really continued to invest in digitization and serving their operations really effectively because at the end of the day these customer.
Relationships are so hard fought they've got to make sure they deliver when they have that opportunity whether its curbside or online or you know. The example of pellet time using us to support logistics to ensure a customer happiness with you know the entire life cycle and so most of our deals are created and close in the quarter with.
The exception of our large enterprise deal I would say that a lot of them, we're cool that irrelevant, but all coated does it make the need to be able to identify an issue respond quickly manage your digital operations effectively more relevant more important and you know we saw a lot of customer accelerate.
Eight their cloud adoption, we saw many customers lever just because they had to build after overnight to move to 100% ecommerce environment and paid your duty you know is the essential critical part of infrastructure to support those digital services and I said this in my prepared comments, but I'm not sure if everybody gets it at all.
These companies become digital they'd be they're running services and they become operations companies and that's what we do for a living so I think it it just really underscores the opportunity in the Tam and the relevance that we serve and and the potential long term for these tailwinds to be very strong for us as customers get.
More comfortable making larger investments again.
Great. That's really helpful and I just had one quick follow up for I would just on the B S. It'd be churn side, you know any any color around that in terms of.
Obvious that there are going to be some attributes that are going to be pressured are gonna have to rationalize usage across the board any feedback I'm sure you guys or you know aggressively asking those customers you know why they turned it and you guys are not the cheaper solution in the market, maybe it's okay that those customers leave but just get a sense.
You know what do those were competitive whether it was macro related or any color. There would be helpful. Thank you guys very much.
Yes sure. Thanks, Rob you know from the analysis, if you've had today it seems as though a large percentage. If this has been macro related I think the pressure that's being felt a amongst the SMB companies and for US we look at it can be as companies with revenue under 50 million.
They have been under a lot of scripts through this crisis and it's not surprising that they would be looking to Eva.
Cut costs in some way, we'll look for some sort of savings and so we haven't been too surprised by that but you know whilst we mentioned that it hasn't been an overwhelming amount. So if if I have to give you some indication.
The turned that we've had audits SMB remains below 10% on an annualized basis.
Thanks, a lot.
Your next question comes from Rishi Jaluria with D.A. Davidson Your line is open.
Hi, guys. This is hana on her she today. Thank you for taking my question.
So in terms of customer concentration can you talk about the dynamics, you're seeing there I'm just curious about the balance between inbound customer requests wanting to deploy pager duty persons alpha indirect sales versus your self serve motion.
Well I'll I'll start with that Hana and Howard you can jump in as you as you'd like to you and Hannah It's nice to have you on the call today. The vast majority of our lands come through our digital ecommerce environment. These tend to be very well qualified buyers. There developer there people are responsible for application services or.
Infrastructure that want to make sure they have the eyes and ears and can very quickly detect and get in front of issues just before they become there's that's impacting incidence and our customers are able to grow in a frictionless way with us and one of the customers that was actually speaking with today was talking about how they love it when a solution.
And grows organically inside the business, because the product and so utilitarian and users love It and adopted and then they can take a more strategic approach and grow it over time and that's how a lot of our customers land and expand they land through digital E. Commerce. They then grow organically to a point, which a sales person will get involved.
Okay and start to look for strategic initiatives like cloud and cloud migration or new application development and product launches Dev ops transformation, I et cetera, where you start to see more standardization on the product. So it really is a mix, but we continue to.
See a lot of visits come to pager duty through word of mouth through the reputation of our business because we built trust over many many years such that a lot of her users are with us in their fourth or fifth company, where they brought pager duty a in into that organization.
Great. That's really helpful. And then what kind of assumptions around a recovery do you have built into guidance and what kind of turn assumptions from the SMB segment are you building and do you see a stabilizing or maybe increasing a little going forward.
Yes, so I had all I'll take that intensive you know when we look at Oh guidance for the full yeah. It's we don't have the crystal ball that we would very much like to have in terms of being able to.
Be very specific and deterministic around the impact from the different areas, but we have done though is we have looked at the affected industries and as I mentioned in my prepared remarks, we didnt have exposure of about 7% to pay or all related to directly impacted industries and when we look at.
SMB.
As I mentioned it shouldn't be is about 20% of our annual recurring revenue and we've seen.
Increased levels of trying to me, but nothing terribly dramatic.
In fact, if and be the other thing we've seen is being.
The increase rates of acquisition and expansion in SMB. So it's almost a tale of two cities within within isn't be right. Now. So we try to take into account most the macro to the extent that we can understand is and as you would expect this is changing almost day to day, and we've talked to be balanced and prudent into.
Ends up coming up with a view for the full year and for this next quarter that incorporates the different aspects, but we're feeling confident about our guidance will that the full year based on what we can see today.
Great. Thank you both.
Thanks Anna.
Thank you Donna.
Oh.
Our next question comes from Suntrust Bank. Your line is open.
Hi, This is mark on the on percentage. It. Thanks for taking my question I guess to quickly a kind of.
Follow up on that last question about assumptions embedded into guidance is there a maybe quickly is there any kind of way we should be thinking about net expansion into next quarter and you and you kind of book ends the put on that or should we think about it kind of decreasing again I know there's still some of this kind of overhang from the competitor churn so anything to kind of put a booking.
That would be helpful.
Yeah. Thanks, Mark you know as we mentioned last quarter, we've provided a range for natural tension in terms of that being between respected into land within a range of 122.
123, and we came into the husband 21 thing, but when we look at this current environment, we feel it's very difficult to to guide to a number of specific number right now so.
What was good for us in this last quarter I can't tell you what happened in Q1 was that we did see expansion if and be a we did see some difference in behavior is like one it applies company.
Lot of software company, where we had anticipated will play into large expansion because of cobot 19 that they ended up taking a position where they just renewed a multimillion dollar.
Agreement with us and they've deferred doing bed expansion once we through some of this classes. So where is it at this stage not providing guidance, but pleased with a high renewal rates, we continue to see and the positive aspects of expansion that we'd be seen in segments like SMB.
Sure and I'd I'd add to that one one thing that I think gives us a lot of confidence around the durability of our gross is how well the pager TD platform has performed well being tested under unprecedented demand many of our customers have seen a surge in traffic we talked about the Zoom example, where there were seeing 11 times and number of it.
Incidence and the product is performing very well so when I am talking to customers. What I'm hearing is a lot of appreciation a lot of confidence a desire to want to do more when the time is right for those those customers and I and that gives me a real sense of confidence around the durability of our growth long term and the fact that.
We play the long game I think these tailwinds of did you know tech companies, becoming more digital moving towards E commerce accelerating their cloud accelerating their digital transformation that all bodes very well for us over the long term.
Perfect and then maybe just a quick follow up that really strong 100, K plus there are customer growth in the quarter. Obviously just in apologies. If you kind of hit on this already but was that primarily driven by like an adoption of the new products like and then intelligence visibility I'm you know the whole suite or is that more from the seat expansion side.
In this quarter or maybe even just like net new large enterprises, realizing the importance of digital operations management, particularly in today's world.
It's it's both to be Frank we had a very strong new logo acquisition quarter for enterprise that which we're really pleased to see because that creates a lot of expansion opportunity for us in the future. We also saw very strong adoption our customers starting to really leverage event intelligence, where it's reducing the.
And now noise the number alerts coming into teams that historically have been inaccurate and actionable in ways that a lot of money. So that creates a huge labor cost savings and productivity uplift and then we also saw some really great seat expansion like the there's a large insurance company in the Midwest they've been a customer without since 2016 they added four.
100 users in the past quarter, just across a number of teams where they're already in multiple development team and wanted to improve their application support given their moved to being more E. Commerce oriented in this environment. So we're seeing kind of shrank fell around what would you didn't mention that question with me.
[music] use cases, and we've seen some really interesting new use cases, including where we're working with a a government health organization and Europe to help them with their code that testing as well as you know customer service. These cases with the observe ability customer that I mentioned, so the multiple engines for growth that we have talked about in the past.
Continue to give us.
A lot of opportunity to both expand our user base on the core product, which as I said has become really essential critical infrastructure for our customers. But then also expand our surface area with new products and new use cases within the customer and then finally, we saw good strength with our European team again this year, they they've continued to really.
Deliver strong performance for us.
Awesome. Thank you.
Thank you Miss smoke.
[laughter].
And there are no final questions at this time I'll now turn the conference back over to assignments for closing remark.
Thank you everybody for taking the time to join our call today have a great night.
This concludes todays conference call you may now disconnect.
[music].