Q2 2022 PagerDuty Inc Earnings Call

Over 50%.

Our solid top line beat was driven by accelerating demand for both our new automation offering and our comprehensive digital operations plan, especially in the enterprise and mid market segments to date, 15% of our Midmarket and enterprise customers have attached digital ops event intelligence or automation and.

Recurring revenue for our digital ops plan was up over 100% and now represents more than 20% of our total <unk>.

Customers spending more than $1 million with Pedro duty are up 63% year over year, the number of customers investing more than $500000 of paint your duty is up 34% and those investing more than $100000 are up 36%.

Nearly 18000 companies now run on page or duty, including over 65 of the Fortune 100, and over 45% of the Fortune 500 within our largest customers, we still see significant room to grow both within and beyond engineering and I T.

Pedro duty continues to focus on and influence the developer community in both large companies and startups, while many others have and will attempt to enter our market our competitive differentiation is stronger today than it has ever been and we continue to innovate and extend our leadership.

For over a decade, we've innovated on behalf of developers and their interests, while delivering unmatched resilient subscale for large enterprises, our technology ecosystem now over 600 integration strong is supported by recent investments in automation and 12 years of proprietary data driving our machine learning models.

These are deep durable competitive advantages that have established loyalty with our large and growing customer base.

Pedro did he has strengthened its position as the leading choice for the most disruptive founders are startup and small business segment performed exceptionally well after being impacted by Covid uncertainty last year in Q2, F&B annual recurring revenue for both new business and expansion came in well above pre COVID-19 levels.

While the pandemic continues to disrupt organizational plans adaptability flexibility and proactive operations have become core business imperatives.

Pedro duty is essential infrastructure for managing increasing complexity in the service of customer experiences and while nothing is certain we expect post pandemic benefits, including the builder economy and head count growth to continue to fuel our momentum.

Across our annual summit in Investor Day in June we highlighted paid your dues original total addressable market starting with the 25 billion dollar Tam for Oncor automation incident management and Dev ops, our entrance into the broader automation market has expanded that Tam to $36 billion. This significant investment in automation.

<unk> capabilities has fueled our growth along with customer service security operations, and AI ops and enabled our customers to apply our platform to an even more diverse set of use cases.

Q2 provided more evidence that the trends driving paid your duty success continued to accelerate companies are moving to a digital first orientation to match the needs and expectations of their customers. This evolution is a multi year effort for most large companies even with the acceleration we saw during the pandemic we measure this transition.

For our customers using an operational maturity framework simply put operational maturity determines an organization's readiness and ability to ship from reactive mode to proactive and increasingly predictive operations.

Most large organizations start on the far left with central IC op centers standing at the ready to react and to manually manage issues as they arise.

The most innovative and operationally mature companies identify patterns through automation predicting potential issues and then leveraging teams to prevent these issues from impacting their customers and business.

The vast majority of enterprises are very early in this journey, creating a long runway for growth for Patriot duty. Our Tam now includes both upstream and downstream automation within and beyond incident management, allowing for an infinite number of critical work use cases.

Paid your duties automation solutions performed exceptionally well this quarter with new unique customer lands like Citigroup inspect famers and cross sales into existing paid your duty customers Fedex discovery, Netflix Bose and one of the largest communications companies in the world.

We added over 250, net new paying customers to our platform in the corner in the quarter, our free offering has reduced friction for customers and low value segment and while this has impacted the total paid customer growth rate. It has expanded total companies on our platform by nearly 33% year over year and also has enabled us.

To shift our paid customer acquisition focus to much higher value Midmarket and enterprise segments new.

New customers include a fortune 100, Industrials company Greyhound bus lines and user testing a late stage private consumer insights startup, which was also win back from a competitor.

During the quarter thousands of our existing clients expanded their business Pedro duty, including Anheuser Busch Carvana Fedex Mastercard trip actions Snowflake and a fortune 200 fast food leader.

One of the three largest communications companies in the World has leveraged paid your duty for I T and engineering and this quarter added automation to improve customer service for over 200 million visitors to their web app in the first rollout paid your duty automation reduce critical incident response from several hours to under an hour, which is projected to save the comes.

Millions in cost and revenue improvement.

A fortune 200 asset manager expanded during Q2 from a traditional incident response use case in engineering to implementation across data operations site reliability engineering and their Central Command Center. This customer now Leverages paid your duty to support 55000 internal investment professionals.

Regional expansion remains a terrific growth engine with significant upside for our key international revenue grew 41% year over year up from 38% last quarter and now accounts for about a quarter of our total revenue magnitude software in the Netherlands, New Zealand Kiwi rail are now both part of our customer base we are.

Also added Brazil's largest electronics and furniture retailer.

International expansions included a fortune 100 European based multinational health care Innovation Company, Buntings Group, Australia, and New Zealand's leading retailer of home improvement in outdoor products and one of Canada's largest banks scotiabank.

In August we appointed Jim Brennan to Vice President of Pedro duties EMEA region Chill previously led the $3 billion of hybrid cloud suffer group for IBM across 26 countries and was most recently the F. C. P for EMEA sales that metadata.

Accelerating the journey to operational maturity for our customers is the objective of our four strategic product pillars highlighted at Investor day by our Chief product Officer Shaun Scott.

Each of these pillars deliver flexibility connect everyone connect everything and automate everything drives our product development.

Delivering flexibility means effectively orchestrating critical work in real time with the distributed workforce the ability to assemble teams across Dev ops I T. SEC ops and customer service is the only way to address critical issues that affect the customer experience.

This quarter, one of the world's most well known and fast food companies implemented paid your duties digital operations plan to automate drive through order, taking accelerate revenue and reduce customer wait times.

Modern enterprises demand flexibility and connection cloud player runs one of the world's largest networks to help make the internet faster safer and more reliable for millions of businesses. They are a longtime patriot or the customer with their entire engineering organization on the platform cloud player adopted paid your duty for customer service.

This along with our Salesforce application, so now customer facing teams can mobilize in real time.

Patriot EDI for customer service connect service teams those on the front lines of the customer experience with engineering teams in order to both address incidents quickly and communicate effectively to customers. This is just one more way Pedro duty supports cloud players mission of helping to build a better internet.

During the quarter, we published new capabilities to empower full service ownership dynamic service graph enables our users to instantly map visualized and act on business and technical service dependencies across their entire digital environment.

Did you have any customers with service graph gain visibility into the health of their organizations the ability to assess the impact of an incident and quickly identified probable causes we link teams and data streams to derive insights that spur intelligent action.

Connecting everything means layering traditional observer ability and monitoring functions from diverse data sources prioritizing the real real time actions that matter. The most our ecosystem of now over 600 active connectors is unmatched, enabling us to act as the central nervous system for our customers, while making life easier for.

<unk> the.

The combination of our domain agnostic approach to AI ops, our technology ecosystem and up and down stream automation positions us to be the operations cloud for modern enterprises, we continually expand our relationships with leading technology partners like Cisco, who recently featured its partnership with patron duty in times square.

Our event intelligence solution draws connection between the incidents that can interrupt business operations and theyre likely cause here, we focus on speeding meantime to resolution, reducing interruptions and delivering return on investments an IDC study from earlier this year calculated page or do these customers getting an average annual benefit of nearly three.

$5 million for organization, and almost 800% ROI with a payback period of two months.

Our final product pillars, automate everything where it is and toil and further speeding response times by delivering intelligent automation that frees human experts to spend time innovating instead of responding this quarter. The autonomous car unit of a fortune 50 automobile manufacturer deployed paid your duty automation previous.

They're small I tee off teams supported more than 2500 employees. The group spent the majority of their time on I T tickets and low value activities with Patriot duty, they're projecting improved meantime to resolution additional flexibility to meet global scalability needs and projecting average return on investment of more than a quarter of a million.

In year one.

We are very proud of our results for Q2 accelerating our growth to 33% and we remain very confident in our momentum that it will continue as the market meets our leading product vision to be the operations cloud for modern enterprise.

We also acknowledge many of the communities, we work with still face the devastating impacts of Covid and more recently those from fires and weather in July Pedro redeployed $1 million in funding product credits and volunteer technical assistance to support organizations working to equitably deliver COVID-19 vaccines and vaccine.

Asian in underserved communities.

We continue to build on our commitment to inclusion and diversity and equity as a business Foundation for paid your duty last week, we appointed our first chief diversity officer to our leadership team Roche on kindred.

In early October we will release, our second annual IV any report a transparent look at our employee composition pay equity and diversity initiatives in.

In summary, Q2 was an inflection point for paint or duty with our acceleration illustrating the durability of our growth the long term potential for our platform and the legacy that we are building.

Patriot is ushering in a new operating model for the modern enterprise, one focused on predicting and proactively managing issues as they arrive one that relies on automation versus people to detect and address critical work that drive business outcomes. One that requires a powerful combination of AI ops and automation on a digital.

<unk> platform that is easy to use fast to deploy delivers payback in week. This weeks not years and delivers market leading return on investment.

We've spent over a over a decade, earning the trust of our users and our customers something we seek to earn every day by ensuring their success.

Thank you to our incredibly talented do Tony <unk>, who worked very hard to make these results look easy.

Or were you Howard.

Thank you Jay.

Our financial results demonstrate.

Demonstrate our success in building the operation.

Enterprise.

Once again patient duty exceeded the high end of our guidance as topline growth accelerated.

A reliable execution in the face of the pandemic is also a tailwind including carbon adoption Dev ops transformation and digital innovation.

And this gives us confidence in our plans to become a billion dollar company.

Revenue of $58 million with 33% year over year, driven by consistent execution in the enterprise and mid market segments.

New logos and so many of Fortune 500 names edits users to the platform, including Abbott laboratories.

Global and booking holdings.

There's a fixed figure expansion deal with one of the world's largest airline carriers, who are projecting higher debate up the productivity that set of rates and migration to the cloud.

And a six month payback with a 449% ROI as a result of using our platform.

If you do the bottoms of bad news across all verticals, but we continue to see strength within software and technology financial services and retail and wholesale.

We also see continued new use cases.

Across different teams with 12% of our paid customers using us for customer service at 20% using us for security use cases. In addition to the development of our team.

International revenue one of our four levers of growth grew 41% year over year.

International has grown from 23% of total revenue a year ago to nearly 25% this quarter.

As the macro trends of digital transformation gave us adoption towards migration accelerate globally companies in the international lots of using page a duty to Oklahoma legacy manual processes.

Some highlights in the quarter include a new six figure that in the EMEA region with a large media and broadcast company and a.

A large six figure multiyear deal in a P. J concept at two eight.

AWS with the Royal Automobile club of Queensland, 100, plus skill luxury advocacy group in Australia.

And they continue to gain share in enterprise and mid market, we are seeing sweet underlying signals of spring.

Lastly, durability revenues with customers on term arrangements, representing 87%, if our revenue versus 86% a year ago and 80% two years ago.

Second our remaining performance obligations, which grew 45% the same period, a year ago protecting them make any multiyear deals.

So we are seeing customers predictably increases came in this page Judy.

Customers spending over 100, K, yet in customer spending over 500, K, yeah grew by 36% from 34% respectively.

Our average AR.

Customer increase the game for the 18th consecutive quarter.

Our dollar based net retention increased 26% up 10 percentage points year over year, and five percentage points quarter over quarter.

Our enterprise followed by a potential increase to 130%.

For fiscal year 2022.

Total dollar based net retention to vary by quarter in the range of 118 charging people things.

Trailing 12 month billings of $277 million research the same from a year ago and up seven percentage points sequentially, making this the highest year over year growth since Q1 of FY 'twenty one.

Fortunately billings increased 36% year over year, However, as a reminder.

We focus on trailing 12 month billings to eliminate some of the noise associated with the variable timing of renewals and coach.

We expect Q3 billings to grow between 25, and 35% and trailing 12 month billings exiting Q3 to be at or above 29%.

The number of companies on the postpaid.

Both paid and free grew by close to 33% from the same period a year ago.

Conversion rates from free to paid some change being better than expected and the offering is creating a local paid customer acquisition. A few recent examples of conversion of the Massachusetts <unk>.

And all the minerals and joined our platform through the freemium funnel and have converted to paying customers.

I will now turn to the details of non-GAAP financial results.

Our EPS loss for certain things and our operating margin was negative 15%. Both ahead of our Q2 guide and you hit it okay.

Gross margins remain if can class about 84% for the quarter.

With our target range of 84% to 86%.

For the quarter operating expenses were $57 million compared to $48 million a year ago, primarily due to investments in sales and marketing and product.

Research and development expenses were $17 million or 25% of revenue compared to $13 million or 26% of revenue in the same in Europe.

We continue to gain basically expanding our platform, including the areas of AI ops automation customer service and our integration and workflow ecosystem.

Sales and marketing expenses were $36 million or 53% of revenue compared to 25 million or 48% of breaking even.

Yeah.

As we discussed on our last full marketing expenses increased in the quarter, primarily due to our annual page Judy signage as well as the launch of our brand campaign.

We expect sales and marketing as a percentage of revenue to be lower in the remainder of fiscal year.

General and administrative expenses were $15 million for the quarter or 22% of revenue compared to $10 million or 20% of revenue in the play yet.

This increase was a result of a one time non recurring strategic consulting fees.

We anticipate exiting the year with an expense to revenue ratio of G&A in the high teens.

Our Q2 operating loss of $10 million compared to a loss of $3 million in the same quarter last year operating margin was negative 16% compared to a negative 6% in Q2 of fiscal 2021.

Q2, net loss came in at $11 million, a net loss of 13 cents per share compared to a net loss of $3 million and net loss per share in the second quarter of last year.

Turning to the balance sheet, we ended the quarter with $547 million in cash cash equivalents and investments.

Cash used in operations was $12 million or negative 17% of revenue compared to net cash provided by operating activities of $2 million or 4% of revenue in the same quarter a year ago.

Free cash flow was negative $13 million and negative 19% of revenue compared to $1 million or 3% revenue in the second quarter of fiscal 2021.

As a reminder, there were significant movements over Q2 last year, which we previewed we pulled forward our largest pipeline generating event page and do these pilots from Q3 into Q2 made the semi annual interest payment on our convertible debt and were impacted by timing of some payments standard operational items in Q2.

Turning now to our guidance.

For the third quarter of fiscal 'twenty 'twenty, two with revenue in the range of $69 million to $71 million, which at the midpoint represents a 30% Europe.

Both ways.

Non-GAAP net loss per share in the range of nine to 10 states with basic shares outstanding.

$5 million this implies a non-GAAP operating margin in the range of negative non tonight in different states.

For the full fiscal year 'twenty 'twenty, two we expect revenue of 270 screens to Johnson 76 million.

At the midpoint represents a 29% year over year growth rates.

Non-GAAP net loss per share of 35 to 30 nonsense.

Shares outstanding of approximately 84 million.

This implies a non-GAAP operating margin of negative 10 to negative 11%.

We looked at Q3 and the rest of the year with confidence given our leadership position the market demand and the demonstrable value, we can deliver to our customers as shown in this quarter's results.

I will open up the pole for Q&A.

Okay.

Yeah.

Okay wonderful and we do have some hands up from our analysts already as a reminder, our chokes. Please raise your hand to be cute.

And we had a request from Bhavan.

Suri from William Blair them too.

First Bob on if you'll go ahead and on mute.

Thank you.

Yes.

Hey, guys.

Brad, especially congrats on the country and the enterprise.

Fantastic.

Yes, I had a question around really the initiatives.

Oh right right. So.

We've gone through the pandemic and now we look back.

What I'm, saying how is page Judy change we've got the addition of the head of sales et cetera, but where do you go from here. How do you think the challenges of the past year or impact of the opportunity and your go to market. These are we what we've seen through that process. So I'd love to think through strategically what's happened and how you rebar.

We architected and how you think about going forward given the pandemic.

Sure well as.

I've mentioned in past calls you know I think the pandemic accelerated a number of tailwind that we're already in paid your duties favor and we've talked about these digital transformation, a dev ops cloud migration all important as the pandemic evolves because unfortunately, it's not over yet you know I have a lot of empathy for people in many areas.

But you're still unable to be vaccinated and dealing with the Delta virus I think the world and our customers have settled into what I would call a new normal and that new normal is distributed work. It's hybrid work and it's a heavy focus on turning your business into a digital business meeting consumers and customers wherever they are.

You are right, whether that's in a physical location or you know on the curve, where they're picking up the goods and services or 100% online and that kind of flexibility and need to adapt is another strong tailwind for Pedro duty because it means all these companies are now putting digital transformation and that customer experience manager.

<unk> incidents very quickly so they don't impact businesses at the top of their priority list. So we've seen a really strong you know buying signal to that extent for our company. You know we were already 20% distributed when the pandemic hit we're now nearly 50% distributed and I think also has settled into I think what is really good.

Motion seeing our business accelerated by being able to execute a distributed team and so I think our culture has really lent itself toward helping our business become more efficient, helping our people become more effective and yet still managing the human needs of our employees. It's been a tough couple of years on everybody. He meant.

Health is important our physical health is important in fact, my whole team and I are currently participating in a step challenge, which is not going very well because I've been sitting in this chair all day, but net net I would say is as you look at how I think this pandemic will evolve we're seeing the hottest talent market ive seen in my career.

That means a lot of employee mobility and historically employee mobility has been good for paid your duty when paid your tea leaves users leave one company and go to the next they often drag our services with them. I also think head count growth has historically been a tailwind for paid Judy and could be good for us in the future I talked a little bit about.

Maturity and I think the thing we haven't articulated as well in the past the point I wanted to make today is even with the acceleration. It takes large companies a long time to move from being entirely reactive and just trying to react faster to a really proactive stance, where they're leveraging machine learning.

In analytics to get out in front of and automate issues within their digital ecosystem and that's that's the rule that we're now playing and I see a lot of growth and upside and runway for paid your duty as a result of that journey that we are we are working with customers on.

That's really helpful and I appreciate the color on the other question that comes up a lot this competitive environment and pricing and you have one competitor that is even though prices in Europe.

One not every month.

Is there has there been any change in the competitive.

This comes up all the time and you know you might as well just to address it.

Has pricing going back to are you thinking about pricing what do you think about it a lot just kept honestly with all the counter you can.

What do you see all but one of customers staying at one of the things from competitors are offering something substantially cheaper and how do you view that opportunity or environment forward risk.

Thanks for the question, Bob and candidly speaking you know the market has been talking about competitors like some Kaiser so dave's going to pop up out of nowhere and kills danger duty and our growth has accelerated our Hungary specifically.

Yes.

[laughter] I will tell you that I have never been more confident in our competitive position, particularly as it relates to our product position. The success that we've had in enterprise the loyalty of our enterprise customers and the differentiation with which we go about helping customers not only modernize their IP.

But increasingly automate their I T and speed the ability for their companies and to deliver on the brand experience and meet the needs of their customers and we've done that by spending over a decade building deep trust and credibility with developers and FRE and four deaths, we are that Super set platform.

That's essential deeply integrated into their infrastructure across observer ability monitoring bogging orchestration et cetera, and you know we're also very fast to deploy you know compared to platforms that take the months and years to deploy and cost hundreds of thousands if not millions of dollars of at a point, where we're fast and easy to.

Deploy across our business, which is why you see us virally growing into new use cases and in enterprise because we are deeply integrated into those organizations youre seeing our net dollar retention expand so you know I I'm very comfortable with our competitive position you see we've been able to maintain best in class gross margins and frankly.

I see pricing for us is the future lever, but like that that is just one of many growth engines that we have in the business and I'm confident in the durability of our growth.

Wireless of of what's happening in the competitive landscape, which to your point has not changed dramatically.

No and I appreciate the candor I won't hold you to you say you're going to increase prices I'll, let Howard you laid out I said it couldn't know either.

Thank you I really appreciate together Gratulation, there's really good numbers.

Yeah.

Okay next we have a request to go to Mr. Keith Weiss with Morgan Stanley Keith you can feel free to on mute. Please <unk>.

Excellent. Thank you guys. Thanks for taking my question and really nice quarter, I'm really a breakout for prepaid or duty for from my perspective.

I wanted to ask about the dollar based net retention rate and a first half to Jennifer a second half to Howard.

This portfolio has definitely expanded oh over the past year.

Further what was it that caused that step function change and dollar based net retention rate. This quarter was it just the products got to a level of maturity of the sales process has got an in place too.

To really effectively bring that to market, where the customers just ready for this now can you help us understand kind of what that catalyst for us, but it doesn't hasn't really nice increase and the question for Howard is why being such a Debbie downer on the guidance like why can't we.

125 further into FY 'twenty two.

Okay, well I'll I'll start and I'll, let Debbie Downer take the second question, but I have to give Howard a lot of credit. He is very disciplined and you know it keeps me on a short leash so what.

When we talk about net dollar retention I think the things that are driving page or do these expansion or a combination of really seeing momentum in the cross sell of our new products and services. You know, we've we've talked about the growth of our digital operations platform being over 100%. This quarter, we've seen really strong demand for automation and AI ops, which I'm excited about.

We just launched our customer service offering a few quarters ago and seeing a lot of interest there as well. So it's a combination of cross sell but also user expansion across new use cases, and not just use cases, we built products war, but also use cases that our customers identify and you can see that in our user growth, which was up over 50%. So we're.

To see that horizontal surface area growth across our customer base, which we've been talking about for many quarters and you know is really just starting to manifested itself in the market and the last thing I'll mention is our teams are executing really well like I am very proud of the way paid your duties employees have come together, despite a difficult environment.

One that's filled with surprises seemingly all the time and the macro just keeping their heads down and focusing on the things that are important to our customers on champion our customers. So I think execution is a big part of it and I'm just really proud of the team.

Excellent.

And Keith you know my comment too.

Got it.

Enterprise database, its attention and 126% the title with the great results and we're very proud of that.

But as you know we do live in a world, where it's hard to predict exactly which cohort would expand on which time line. So we feel very comfortable with the guidance that they've given us saying that the range of 118 to 24, obviously high <unk>.

Got it and just to be clear are there any onetime items that occurred in Q2 that you think arent repeat on a go forward basis or is it just more conservatism on predicting the future is.

It's really just a case of which cohorts will expand at which point in time. So I think it was nice to have something unique events in Q2.

Perfect. Thank you so much.

Okay. Thank you and next we have Mr. Rob Oliver with Baird.

Great. Thank you guys. Appreciate it Jennifer one for you and then I had a follow up for you Howard So Jen I remember talking about maybe a year ago and you know some of your peers in the public market were seeing already that inflection and you guys werent seeing it quite yet and I remember you, saying something along the lines of well you know a company sort.

Each with what's going on and then they're gonna turned to start to invest Europe and it really feels like that you know it has come to fruition here with the inflection that you've called out so.

So just maybe to follow up on pizza Provence questions, a little bit I wanted to drill down a little bit further on that enterprise inflection.

When you look at some of you guys broke out some of the data out there you know 20% of your customers taking security I think 12 doing customer service can you talk a little bit about where you're seeing the most cross sell within organizations and or is it really just the general patriot duty value proposition.

Hey enterprises have expanded their SaaS best of breed offerings, a lot suddenly they're sitting on sprawl. It's chaotic they really need help. So can you talk about that where we are where we are with kind of what the key drivers are an enterprise well.

Well, let me first talk about my perspective from the market and spending time with customers what I see in the market as our customers in a in a race to deliver great experiences for their end consumers and those consumers patience is wearing very thin they have lots of choices. There are a lot of industry is being disrupted and customer.

<unk> brand experience are paramount in the environment, we're in where people are living and working in a hybrid way and so we've seen a little things like how long it takes to acknowledge an issue how long it takes to resolve an issue we call that meantime to acknowledge meantime to resolve is now showing up in the Ceos.

Office, and then audit committee, how many instances you have how long did it take those incidents to be solved. So it had these have become really strategic initiatives and really strategic issues for business. So that's that's part of it I would also say that our customers are in a position now now that they have settled into kind of as I mentioned this new normal.

To re engage in really strategic transformational initiatives and what Pedro duty does this change the way organizations operate right. That's not a small undertaking even though our product is easy to adopt and easy to deploy there is a cultural shift that needs to be taken it needs to take place and so that is also part of what's.

Happening the other thing I would say as you know, we're very horizontal offering, but we've demonstrated strength by acquiring and expanding customers in just about every major industry. So we've talked a lot about strength in financial services. This quarter, we saw strength in retail and we started to see travel come back for instance, Oh.

We've also talked about how important it is for us to continue to influence the developer because developers inside large organizations are leading the way and so our focus on the developer on the developer to user experience is part of what's driving that new user growth and then the last thing I, probably should just mentioned around user growth is the fact that no.

Not only are is incident response, and incident management and more broadly operations, becoming a business issue not a technology issue, we're seeing more different types of leadership and people across businesses business people joining.

The platform being part of or wanting to observe what's happening when an incident is going on so we're also seeing an increase in users that are coming to us as we call them stakeholders and that's that's helping to drive user growth.

I think I would also just just jumped in there again just to come and the one thing we've seen from not only the user expansion, but also the attach upon new product so our digital operations plan.

Above 20% type of L. R.

The outstanding growth in our event intelligence offering we've seen excellent momentum with our automation offering we're seeing now that you know of our enterprise mid market customers like a 15% attach rate.

New products. So that's all I think testament to using pay for beauty of the platform with the full breadth of our offering delivers the highest value and for enterprise and mid market customers and solving big problems. They want the best most efficient solution and no one can compete with us.

Great. Yes, that's helpful Howard and Jim. Thank you, Yeah, I think at the analyst day.

Analyst Day, you guys broke out of it was 200 million of the 1 billion target.

At the time, but I think we were trying to figure that out it looks like you are on the road there Howard and is that in my last question was going to be on the variability of dollar based net revenue retention is and is that why Howard is it because of we're going to see I mean.

The cadence of renewals of certain customers, taking new products at certain times co terms things like that because it's a pretty wide rich. Thanks, Yeah, and I think you know what I would say yeah for context from a context perspective, you know we have a lot of opportunity in our existing base. So our customers continue to expand with us we see.

With roughly a third of our customers and enterprise expand with us each quarter, it's difficult to know exactly by how much they can expand with us each quarter and to be able to predict exactly which customers from that cohort will expand and that's why we've given that branch and we've been consistent in providing that range I mean in Europe.

Hypnosis with progressive being increased in a boarder base of hypertension each quarter.

Our low point to now at a at a.

But when you think of industry, leading we were in the.

At the top.

They saw in terms of what they do it. So we certainly are looking at it knowing that enterprise is going to be the big driver there and the performance they would be above that 118 to 124.

Thank you guys again I appreciate it.

Hey, wonderful nextera heading over to Chad Bennett, Mr. Bennett with Craig Hallum I will bring you on can you on mute go ahead. Thank you.

Can you hear me okay.

Yes, Hi, Chad.

So not not to steal anybody's Thunder on the net expansion net retention.

And Howard are Jennifer, but Howard is a big part of the acceleration.

<unk> last July quarter of 116%.

Getting that off the trailing I mean, again, you guys and I view that as a positive by the way that that you know now we can go but this is a big part of it.

Yeah.

I mean, if you had to the mechanics of looking at how it number changed or evolved if suddenly you know it's all based on your comparison is love it.

And it makes the compare is yet, but if you look at the overall momentum in our business, which is showing up in the revenue and billings did you have to look at those things together and that is why we can al.

Hosting the strong us dollar based retention, but also why wouldn't they look at this we know that there is some variability that exists from call. It support.

And then just a follow up on that which again I view as a positive thing and I need a little bit more on raising the range for the year by a couple hundred bps, but that's just me but.

I just think.

You know are we really I I know, you're seeing great cross sell and up sell it both in terms of use cases, right customer service and security, but also in terms of products in automation and intelligence and whatnot.

Right.

You know from a used cases.

Spansion standpoint, youre seeing increasing penetration but.

I think it's still pretty early right in terms of the actual impact on the net expansion year or whether it's 100 bps or what am I correct in that and do we have more I mean could we see significant acceleration just as these products become more of a needle mover in the revenue.

Yeah.

Yeah.

Want to comment on that and I can follow up.

But yes, we are.

All early [laughter] Honda, 100%, we were very early I mean, these are pretty nascent products and I'm like when I think about new products almost as small businesses and you know how happy would I be on the return of the investments that we're making for building a standalone business. So for digital operations to be 20% of our total air is you know.

Just an outcome I'm thrilled with and that also has kind of helped us build the muscle to become a multi product platform, which by the way. That's a transition that's not easy when you're a SaaS company that has a single product moving to that multi product platform and we've talked a lot about themes like bringing our 12 years of proprietary data to bear across.

Different use cases, it's about continuing to keep our user experience simple and easy to you know drive easy Onboarding and quick payback in and quick RLI and we're doing all those things while solving very complex problems and maintaining four nines of resiliency and reliability at a scale serving.

The largest enterprises in the world the biggest brands you've ever engaged with them. So that when you think about how the sausage gets me there that is not easy and I am actually thrilled about how we're managing through that transformation and that's what's driving a lot of the momentum in our business. So I absolutely expect these new <unk>.

Use cases, and the products and services that support them and support our platform across use cases like apps and automation will will become a more important part of our business overtime for sure having said that I just want to remind people that even on call automation and incident response, it's still a very early market most of our lands.

Are still Greenfield you know most of our customers, we're serving just a handful of the employees and their business and so when I look at just the expansion opportunity within our own customer base I get very excited about that and see a lot of runway.

So just one last thing so it sounds like I know in the first half of the year. Jennifer you. We're unbelievably excited about and you were seeing the pipeline and what was transpiring and you knew the roadmap and an introduction, but you made it a point on both calls or multiple calls as saying, we're gonna consistently we've consistently targeted 30% plus.

It's growth on the top line.

I assume you're sticking by that going forward.

We're a company that tries to do what we say we're going to do so yes, I am and that's all Howard will probably let me say up [laughter] I will say that you know in the quarter, we made big investments in marketing, particularly pulling our summit conference earlier into the year to build pipeline early.

In the ear and I'm really excited about the back half.

Thanks, so much nice job.

Thank you.

Okay.

We have Mr. Matt Hedberg with RBC. Please.

Please go ahead.

Oh, Hey, Thanks for taking my question guys. You know you know can you just got done talking about the huge expansion opportunity in your base, but I can't help but wonder you've had a lot of success with security and customer service, but if you look at other sort.

Opportunities in the organization, how do you think about like the finance department or HR I Love in Italy.

Wash rinse repeat a little bit yeah.

Yeah, absolutely. It is an a and part of that is the brand challenge right. So if you're watching CNBC, you'll be seeing Pedro news first televised commercial and we're doubling down on digital branding to help employees across the organization learn about how page or did he can help them. It's not just about uptime, but you should expect to see us selling more.

Stories about the different ways that Pedro Danny can be leveraged and I'd also say that our we have a lot of customers that use us in places like finance or legal or physical security marketing et cetera, and in fact, we have programs within paid your D. D. Together routine to use paid your duty for.

<unk> their business operations as opposed to just you know technical operations, SEC ops or customer service off so the goal. The long term mission is to become the operations cloud for the modern enterprise and that's across the organization.

And by the way I Love your T shirt for those of you who can't see thank you Matt. His Teeshirt says uneventful days are beautiful days and has a lovely patriot lives on the back that's one of them.

And I apologize my video little Blips here right now and then I guess for Howard you know gross margins at 84% are within the range, but they are a little bit lower.

Than than what we've seen historically and you can read into that just kind of maybe the lower end of the historic range.

I would say Mitch as we've spoken about previously.

We weren't intentional about making investments, particularly around customer support and success to better serve our enterprise customers. So this has been a year, where we have focused on how do we ensure that we can deliver the kind of experience that they need which then supports our very high retention rates and a very low churn.

Supports the eye.

Dollar based net retention and also helps get rid of some of the noise.

Around.

Renewals and timing, which was like from phones going off.

With all that noise, but certainly it's been really about driving trip.

When we can deliver the reliable service to our customers, but to be able to ensure that they're getting the best experience using our product.

Thanks, guys.

Thank you.

Okay, a couple of our analysts looking forward to joining him on the go to Mr. Rajiv Agarwal with J P. Morgan I will bring it up onto the stage.

Hey, guys just for Umpqua Sterling. Thanks for taking up the question. So I was wondering like can you give more colors on watch the uptake on advanced Martinez.

Sorry, Richard I think you asked what's the uptake on the on our newer products is that correct Yep Yep.

I wanted to.

Yeah sure So Russia, you know the.

The digital operations plan represents the most comprehensive offering in terms of it includes our defense intelligence machine learning based product and our analytics and a number of other features so we track that very closely to understand to what extent, we are gaining traction with it that digital operations and represent.

Hum.

20% of our annual recurring revenue when we looked at one of our other standalone products E. <unk>, which is an add on used by our customers. We sold that growing at over 100%. This last quarter in terms of being able to in fact close to 200% in terms of being able to the adoption of that.

Automation product is a product as well, but it's growing very rapidly. So those products are all part of customers being able to manage those operations clog environment, making sure that they can manage their digital operations, most effectively and if you put all those things together you can manage all the way.

The detection of an issue to remediation with with ensuring that you're using machines to get as much of the work done and only having humans involved when you execute dmitry.

Yeah makes sense and then can you give the color on that.

Uh huh.

So going to the field.

Yeah Yeah.

Yeah.

Yes, I mean as I said, it's been a very hot talent market and our recruiting team has been working on overdrive, but we are on hiring plan right now and we're really trying to be thoughtful about making sure that in our in our speed to add head count to the business. We also are making sure we hire the best people in the market and.

To build on the diverse and inclusive culture that we already have and so we're leveraging our remote work very effectively so almost all of our jobs specs are open in terms of location and also looking at other locations around the world that we can leverage to just reduce the impact of a very very competitive talent market.

But as I said this the mobility that we're seeing are in employees across the globe also is potentially a tailwind for paid your duty as a paid your duty users leave one company and go to the next and take Patriot to deal with them.

It makes sense. Thanks, thanks for the soft goods.

Thank you.

Okay and Mr. Kingsley Crane from Vandenberg Goodbye to bring you on to group.

Hi can you hear me.

I can't really.

Hi, everyone.

In the past we've seen some competitors move off P. D. When they've released their own incident management solution. So, it's especially encouraging she did it all to expanding their usage. This quarter. When you look across Europe service are you seeing those two products computer actually be deployed in tandem.

No Theyre generally deployed in tandem were observer ability is part of a super set of incoming a signal that we then manage and consolidate and use machine learning to deploy the right signal and orchestrate the right team on the problem at the moment and their dog has been a great partner.

Okay.

Yeah.

Yeah.

Okay and will have a final call for any remaining questions I don't see any remaining Hans feel free to unused and joined the conversation. If you have a question.

Without any further questions Shannon Howard I'd love to turn it over to you for any final comments.

Sure well I just wanted to say one thank you to everybody for joining us today on the call and a big Thank you and appreciation for all of our customers and our partners, including our technology ecosystem, who who really are the reason that we're here and Oh, we're only successful when our customers are successful and lots of a warm.

[noise] wishes to all of those who are not having such as an easy time with everything that's going with on with the fires and floods and and the pandemic to all of you I wish you good health and we look forward to seeing you next quarter.

Thank you.