Q1 2023 PagerDuty Inc Earnings Call
On the back of several user expansion with the addition of event intelligence they've already achieved 22% reduction in events, we projected expected ROI of nearly $2 million in the first year. This rapid speed to value is a hallmark of pager duty products.
In our March product release, we highlighted new process automation solutions now generally available process automation on Prem Ford auto enhances security stability and usability, while making it simple for our customers to handle incident response and service request to use cases across geographically distributed infrastructure.
<unk>, including those who require zero trust communication.
We also released Pedro duty run book automation, our new cloud native SaaS offering.
That provides customers with a fast start to process automation that is both highly secure and available without having to manage automation infrastructure.
These releases build on our incident response, and AI ops offerings and enable enterprises to accelerate their digital operations for manual and reactive towards proactive and preventative.
<unk> is the only cloud native digital operations platform to combine automation across observer ability engagement in action with the ability to service diverse teams across the enterprise.
The integration of automation is an essential step in bringing customers along their digital operations maturity journey.
Process automation customers start by using page are easy to capture and automate common repetitive tasks and to diagnose and remediate recurring incidents for example, automating diagnostics to fixed and online shopping cart failure Kwan.
Quantifiable cost savings and efficiency gains then spur expansion of pager duty beyond Dev ops.
And as our teams to realized gains in other areas of the business, most commonly security and customer service.
Sailpoint and identity security platform has been a patriot <unk> customer for nearly a decade this quarter. They deployed Pedro duty event intelligence. In addition to expanded use of incident response for their customer support teams.
This enabled them to consolidate what were 50 individual incidents into a single incident and achieve an 85% reduction in overall incidents, while improving their time to acknowledge and resolve them paid.
Peter to these helping sailpoint achieve their true surface ownership and to communicate to customers more proactively during incidents.
Regardless of company size or existing commitments, our customers tend to repeatedly expand our relationship as they move up the digital operations maturity curve, even our largest customers expand their investment in Pedro duty through new product adoption user expansion and new use cases.
Every customer presents a new expansion opportunity as digital acceleration initiatives span the entire enterprise.
Demonstrating this land and expand motion a leading financial service institution launch pager duty in 2019 with an initial purchase for group delivering applications for high value clients, then expanded rapidly across other teams through several additional purchases to over $1 million in IRR as it became evident that teams on page <unk>.
Solving issues up to 75% faster they made an additional seven figure investment this quarter. They added thousands of new users standardizing on page or duty for incident response, and deployed AI ops and automation across multiple teams.
Relationships like this drive our high dollar based net retention rate a measure of our durable and growing relationships with our customers.
Pedro <unk> operations cloud now offers for land products and multiple cross sell and upsell expansion opportunities, while delivering value for customers at all five stages of their digital maturity curve, either manual reactive responsive proactive and preventative.
This quarter, we bolstered our executive leadership team with two key hires Catherine caliber join Pedro duty as our Chief marketing officer, bringing deep experience in brand building and go to market execution for award winning SaaS companies. She owns extending our leadership by developing brand awareness trust and demand for paid your duties operations cloud in the.
<unk> C suite and with developers across the world's most innovative startups and largest industry leaders.
We also appointed Shelley web as the company's new senior Vice President and General Counsel, Shelly Fortifies, our position around security and privacy. She has deep leadership experience and legal and policy strategy across litigation contracts M&A and compliance while being highly regarded for driving impactful business results with top customers and strategic partners.
In April <unk> released our second annual impact report detailing the company's ongoing commitment to philanthropy, our employee engagement and volunteerism and our ESG commitments in 2021, we deployed funding to more than 660 organizations globally, 75% of which were led by women and leaders of <unk>.
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92% of Daytona and volunteer time or donated to a cause resulting in more than 5000 volunteer hours.
We also announced the launch of Pedro due the impact labs, a new program that provides funding product credits volunteer technical support to time critical health partners with a specific focus on leveraging our product and technical expertise to ensure critical time sensitive care to patients in need.
Our social impact work also reminds our teams that success for our customers extends beyond financial returns pager duty customer can bridge cognition is a UK based neuroscience company that quantify the cognitive health of patients for health care organizations Pedro duty enables them to quickly identify suicide risk factors.
Through patient survey data and engage clinicians if patients need immediate attention, while ensuring HIPAA and GDP are compliance using Pedro duty can bridge cognition delivers real value and saves lives.
Our mission to revolutionize our operations and build customer trust by anticipating the unexpected in an unpredictable world has never been more timely or relevant given the economic background companies need to grow profitably by both increasing their velocity and improving their efficiency. We are in the best position.
And at the right time with a proven resilient scaled cloud native platform to address the needs of the digital first economy.
The current environment calls for heightened financial discipline, and we are actively evaluating our expenses to ensure an agile lean cost structure that supports our ongoing investments in innovation and growth. We are committed to delivering both durable topline growth, while improving our operating leverage as we scale and to become profitable in <unk>.
Q4, and for the full year in FY 'twenty four.
Our focus will remain on customer success, we exist to empower teams with the time and efficiency to build the future we anticipate sustained demand for our products and services as our customers seek to efficiently accelerate their digital businesses and more efficiently manage their operations in an evolving macroeconomic climate.
Traveling to see our teams and customers has reinforced my confidence in our people our customers and partners and our multiple engines for growth.
Our vision for an equitable world, where we transform critical work. So all teams can delight their customers and build trust is realized more each day, we're excited to share more about Pedro duty at our annual Summit series, beginning on June 7th and encourage our investors to join us virtually.
With that I'll turn the call over to Howard and I look forward to your questions.
Thank you, Jim and good day to everyone joining us on this afternoons call.
We continued our cadence of strong execution and delivered rock solid financial results in the first quarter of fiscal 2023.
An environment of skills talent and rising costs.
By adding functionality of the page beauty digital operations management platform covering the full platform of detection to ultra remediation is allowing customers to revolutionize the operations.
Overall, the value proposition of our platform and incident response.
All customer service ops automation continues to resonate with customers, who are intent on driving innovation efficiency and productivity.
As we expand our platform, we open up new avenues for both land and add on opportunities such as with our new process automation releases this past quarter.
As I'll go through our results for the quarter unless otherwise stated all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release that was posted before the call.
Revenue was $85 million in the first quarter up 34% year over year.
The next generation of more than 600 basis points over Q1 of the prior fiscal year.
International revenues remained sequentially unchanged at 24% of total revenues.
We delivered dollar based net retention in Q1 at 126% compared to 121% in the same period one year ago.
This marks the sixth consecutive quarter of <unk> above, 120% and we expect to continue to be at or above 120%.
Throughout this fiscal year.
Q1 ended with 655 customers with annual recurring revenue or <unk> over $100000 up 43% from a year ago.
We ended Q1 with 15000 fortified customers up 8% compared to a year ago, our second quarter of sequential increase.
Free and paid companies on our platform grew to over 21000.
An increase of 26% year over year with free continuing to provide a funnel for future growth.
Our Q1 gross margin of 84% because once again within our target range of 84% to 86% and we expect gross margin for Q2 to be at a similar level as Q1.
Operating loss was $2 million or 3% of revenue an improvement compared to a loss of $6 million or 9% of revenue in the same quarter last year.
Compared to our first quarter guidance operating margin was favorable due to improved sales and marketing efficiency and head count growth shifting materially to the second quarter.
We reiterate our expectations for basically breakeven in Q4 and non-GAAP profitability in FY 'twenty four.
One final note on operating margin before moving to cash the joint venture announced after the close of Q1 to establish page Judy Japan with our partner in Japan.
As expected to reduce full fiscal year operating margin by approximately 100 basis points.
Now to cash.
First quarter cash from operations was negative $3 million and free cash flow was negative $6 million.
As a reminder, Q2 is seasonally our highest cash consumption period due to outflows from STP annual vanda renewals payments on our convertible debts and summit.
Similar to last year, we expect operating cash flow and free cash flow to improve in Q3 and Q4.
Turning to the balance sheet, we ended the quarter with $467 million in cash cash equivalents and investments the sequential decrease in this metric is from our acquisition of catalytic which closed during Q1.
Total deferred revenue ended the quarter with $167 million.
Up 33% year over year.
Quarterly calculated billings were $82 million, which was an increase of 38% year over year exceeding the high end of the range. We provided during last quarter's call.
This included approximately $3 million of benefit from early renewals and revenue from catalytic.
We expect billings growth for Q2 to be in the range of 25% to 30%.
On a trailing 12 months basis fundings were $344 million, an increase of 34% compared to a year ago and above the estimate previously provided.
We expect trailing 12 month's billings growth exiting the second quarter to be at or above 30% over last year.
Turning now to our guidance.
For the second quarter of fiscal 2023, and we expect revenue in the range of $87 million to $89 million representing.
Representing a growth rate of 29% to 32%.
Net loss per share in the range of nine to eight cents with basic shares outstanding of approximately 88 million. This implies an operating margin in the range of negative nine to negative 8%.
For the full fiscal year 2023, we are increasing revenue guidance to $364 million to $369 million representing.
Representing a growth rate of 29% to 31%.
We are improving guidance for net loss per share to 21% to 17 with basic shares outstanding of approximately $89 million. This implies an operating margin of negative five to negative 3%.
We continued to deliver strong revenue growth, while actively driving efficiencies across the company, we've improved operating margin year over year, and we will continue to do so each quarter.
Ensuring our lean cost structure. So we can continue to fund innovation as a leadership priority.
I want to thank our customers for their trust in us and our team for delivering another outstanding quarter of product innovation and go to market execution.
I remain confident in our business and performance given the current market demand the acceleration of our product innovation strong tailwind and our consistent execution.
With that I will open up the call for Q&A.
Thank you and to our analysts please feel free to raise your hand, so that you can be added to the queue.
And first of all are going to turn to Matt Hedberg with RBC.
Bring you up Matt go ahead.
Hey, this is similar to the swap for Matt Hedberg. Thanks for taking our question I was wondering if you could talk a little bit more about the overall demand environment and how you feel about the pipeline in the second half.
Sure. Thanks for being here today I'll take this and Howard if you want to add anything please do.
We continue to see a very strong demand environment, we haven't seen any change in the demand signals from our customers.
I think that is driven by the long term tailwind that we've talked about before digital acceleration Dev ops transformation and cloud adoption. These digital transformation projects are multiyear projects and theyre going to continue.
I'd also say that.
Our customers are looking for solutions that help them automate reduce their costs their cash burn and improve their productivity and the investments that we've made in innovation over the last several years have really put us in a good position for this moment and frankly I would add that Pedro duty really has become a central.
Infrastructure for most of our customers so.
We see them continuing to invest and in fact like I said double down in areas like event intelligence customer service ops and automation so so far.
Very consistent demand environment.
Great. Thank you.
Pleasure.
Okay and next we'll be going to Sanjay <unk> with Morgan Stanley .
Please go ahead.
I would say.
Thank you for taking the questions I'm really very.
Very clean and crisp and a well executed quarter in Q1 I just wanted to pick up on just how you guys were thinking about a potential slowdown I think in your script Jen said the demand environment looks looks pretty great. Great to you. Some companies are just trying to embed the risk of a potential slowdown in to their guidance and so maybe Howard maybe comment on how you.
Our lease term encapsulating, maybe some of those risks.
Into the guide and then for Jim The question for you would be around.
One hand, the value proposition is around automation, we have a slide that supply demand imbalance between engineers in the number of services that is engineered support when you sort of a long term tailwind for the.
Same time, we're seeing a lot of companies sort of.
Go through layoffs, if you look at the tech space to pick up and layoffs over the last three or four weeks has dramatically increased I wonder if you can sort of give us. Your views is that does that represent a risk to the business of the near term versus what seems like a clear value proposition that we're going to have to automate more so put all of these mission critical services.
Yes, I mean, obviously, we're going to continue to monitor the the macro environment very carefully we're spending a lot of time talking to customers kind of understanding where they are at the mostly what I'm hearing in the market is still a very tight talent market for software engineers people have moved most of their revenue models to digital experiences. This.
Digital transformation efforts are still well and truly in train and in fact in some cases being accelerated because they they deliver long term cost savings and productivity improvements.
So we continue to see this like I said strong demand for applications and services that help you improve the productivity of your existing head count free them up to focus on important innovation work and in fact Interop work is a big part of the problem and it's not going to go away regardless of the market cycle. We're in.
I've lived through a few of these market cycles I'm old enough to have been around for 2000, 2008 et cetera, and in this case, our customers have stronger balance sheets, they're like I said very committed to their digital transformation programs because they are business imperative and we have become essential infrastructure and so we saw.
See strong pipeline looking ahead, we see customers that.
Continue to look to us to help them find ways to improve their productivity and shrink there.
Their spend where they can and that's where we're staying focused and you can see that in.
Both the stickiness of our platform gross retention above 95% for years right when I talk about central infrastructure.
The structure and likewise strong attached but to your point.
We like other companies are going to be judicious about our expenses and our discretionary spend really focused on having an agile cost base that we can grow from and remain very committed to both profitability in Q4 and for the full year FY 'twenty four but also in continuing to.
To improve our operating leverage as we demonstrate that we are a durable growth company I really appreciate that Hudson. Thank you very much.
My pleasure.
Okay next we'll hear from Matt Stotler with William Blair Go ahead.
Hey, John Hey, Howard Thanks for taking the questions.
Maybe just to start with one of my other catalytic acquisitions, you've talked about this a little bit already it seems like a very compelling extension of.
What are the workloads that you can address them through your finance HR supply chain et cetera.
Once again, maybe it's just more granular thoughts on how this expands I guess if I can.
Will your Tam or your wallet share within the customer base as well as the stickiness of the platform.
I can take a crack at that and then Howard if you want to jump in I mean first of all one of the things that catalytic does for US is it allows us to increase the flexibility in the workflows for our existing customers. So it brings more applicability and I think utility to our incident response teams and is super important because the types of incidents that theyre seeing.
Being the the capability and the skill sets of the types of people working on those as sort of widely variable and so that's super important but to your point. It also enables us to add users across the business for different types of use cases and by having flexible no code workflow offering it.
Also means that we're not governed by our own ability to create vertical lies workflows our products and so I think that does expand our tam over time, but we're very focused on making sure that we can continue to grow with our core audience and enable those adjacent teams to start to build for themselves and over time build an ecosystem of different use.
Cases on the platform and you can start to see early leading indicators of that in our integration ecosystem, where I mentioned, we had an integration for robotics provider this quarter in an integration and data operations. So those things are just starting starting to build on top of the platform without us having to drive them directly.
Yes.
Just add that youll be able to see some of the ways in which catalytic is already starting to be embedded in that platform at our summit events that start next week. So we're not selling catalytic today as a standalone product, but the intent as we discussed when we did the acquisition was we need to put that technology into the platform and then to be able to drive.
The different use cases, where a customer is already taken us to have different use cases, but this just makes it a whole lot easier.
Alright, that's super helpful.
Then just one follow up on the partner ecosystem, obviously, you've talked about AWS recently bought.
Thank you for the past 12 18 months, we've also had deloitte.
Tom Yes side on the ISP side, Microsoft Salesforce and others.
Any update on that ecosystem the influence that ecosystem is having on your business and how you see some of those key partnerships trending going forward.
So we really try and be focused and prioritized key partners and one of the reasons that we've talked specifically about sales force for instance is because they've been a great partner as we've rolled out our customer service operations offering. So we really look for for our partners who are the best at what they do and who have <unk>.
Values and kind of a shared value proposition, where we can go to the market together in a very strategic way I think our customers have grown to really depend on us for highly reliable scaled offerings that very quickly deliver a return on investment and so youll continue to see us be very focus there similar with AWS.
Yes.
An obvious large opportunity around cloud adoption and cloud migration, there and again shared values that shared audience. So just a good pairing and we're going to continue to double down and likewise look for opportunities with other partners, where it's meaningful for us, but we focus is really important to me right now keeping our teams.
Focus on the priorities that can deliver near and long term return on investment Super important.
Thanks for taking the questions.
Thanks, Matt.
Okay next hearing from Chad Bennett, Chad from Craig Hallum.
Hey, guys. Thanks for taking my questions Okay.
Sure.
It looks like I'm glowing growing about your quarter, but im not really growing so do you really like your background Chad.
Anyway to branding I have to say that because I know it looks not so anyways.
The.
Very clean quarter like like a prior questioner said in the secondary metrics look.
Very very strong.
One of the secondary metrics look very strong was the customers over 100 Grand ACD.
Almost double year over year in uncharacteristically up.
From Q4 sequentially.
20% or 10, Mike.
What I mean, what kicked in this quarter.
In terms of that for Q1 to.
Come out of the gate I think that strong was there something from a cross sell up sell standpoint that obviously kicked off on net retention.
Or just customers just a cohort graduating up to that 100 K plus.
Plus class late because theres something that really triggered that type of strength into Q1.
I think it's really the consistency with which we're executing even our transactional business Chad like so many of our customers start small they land with a small deal that then those teams expand usage then it becomes the standard.
Engineering, and then and then they start to look to add new products. They often trade up to digital operations management and then over time, we see other teams like customer service ops come into play as well and I think we're just doing that more and more effectively.
If you think about over the last call. It 12 quarters all of the innovation and investment that we've talked about youre starting to see those investments really start to pay out.
I'm, just really proud of both our engineering teams and our go to market teams, because we push them really hard over the last couple of years. It is great to see the attach rate.
More than 50% of our customers have more than two products. It's good to see the multi product platform strategy really coming to life Howard I don't know if you'd have anything to add yes, I would add in.
As a product led growth company I think we're seeing the benefits of that showing up too because we've made it easier for customers to make smaller incremental purchases right. So they don't have to then do the big ticket purchase like out of the gate. They can do a small purchase but then they can easily grow with us. So self service is available to all of them.
Our customers not only in the SMB space and also we've improved our product and product discovery, so that an existing customer for example.
Can trial event intelligence and can see whether it makes sense for them. So that also means that its making multi product more accessible and so that really complements the efforts of the sales team because now the product is helping do some of the lifting so the sales team is really being set up well to be able to engage with the customer and funding that.
The customer I can already see the valuable got it and then maybe one follow up with a couple of sub segments for Howard So 126% net expansion popped up and I think historically, you've always said the main driver of net expansion has always been user growth right.
But we like Jennifer said ton of product innovation over the last two plus years.
<unk> got run deck, you've got AI ops, you've got customer service.
And a lot of things going on event intelligence and so forth.
How do you think about cross sell upsell in terms or I guess.
Is it moving the needle on net expansion in a bigger way and how should we think about that going forward yes.
Phil you've highlighted the combination effects. So user expansion is still the most obvious way because.
The success with one team often leads us to success with another team, but as we've been able to broaden the platform and to be truly multi product that is playing a bigger part. So we are seeing an increasing number of customers.
Using multiple products and that's <unk>.
They are all coming from multi product customers have continued to increase as we said.
On the last call the end of Q4.
Over 50% of our <unk> is coming from customers with two or more products. So that's definitely proving to be an additional driver from a an.
<unk> perspective, but the other dimension not to lose sight of it is things like customer service ops, but we've created like a new land with customer service ops, we've created a new land with automation and those effectively are able to come into page Judy on their own to begin with and so there's multiple ways of expanding with page Judy.
It's not as though you have to start an incident response and go from there.
Can actually saw it in another place and expand from there.
Got it got it well thanks.
Great job again.
Thank you Dana.
Okay and next we'll hear from Shannon cutlery.
Hey, Yeah, that's shrunk from from Baird, Congrats on a great great clean quarter.
Great Great enterprise and Midmarket execution that would just elaborate on John .
Sure.
Firstly, the overall being does from a growth is really strong at 88% year on your relative to typical seasonal trends as well just relative to the 100 gig customer expansion in certain solid really strong.
Just kind of wondering.
The enterprise go.
Go to market execution Super solar, but can you talk about the dynamic at play for our customers a little dawn market are less than 100 gig.
Are you seeing more of macro it player on the lower end of the market that we have been hearing from from other places or was there any other dynamics. The top of the funnel is still very strong growing price explore scientists with that.
Howard sequentially going through any one policy.
So just curious like is there any macro effect or do you see.
Little bit Downmarket.
So when we look at our F&B business or a very small business segment that tends to be tech startups think about it that way it tends to be.
Smaller companies or smaller teams that are using us for project work and in fact in Q1 that business is very strong we refer to that as PD online internally and the team there is executing incredibly well and again I would have to attribute much of that to our product led growth motion and the fact that those vary.
Small customers can self serve try the product starting free if that's what they prefer discover new capability and then Pedro duty very quickly becomes the standard inside of their business and grows with them. So.
We haven't seen a change in demand signal there and in fact that segment has been performing very robustly.
Got it thanks for the color John and just one quick follow up on the international side, you guys have called it out as a key growth driver.
The expansion on <unk>.
Taken initiatives there there was like essentially Florida focus on all the total if I heard that right.
Just wondering about any forex impact on like on constant currency, what that look any different.
Robert look like.
Yes sure.
For us as a company.
Today, most of that while all of our contracts are in your install base. So no matter, where our customers are they contract with us in in USD So far.
FX exposure for US is really limited largely to expenses. However, we do look very closely at our customers and whether the change in the or the strengthening of the U S. Dollar is having a negative impact like is it impacting on the ability to buy and.
<unk> seen to date is that the value that we drive for our customers is just so high that the fact that its becoming more expensive in local currencies has not had any material impact on the engagement over to Marc.
Got it got it.
Thanks Howard.
Congrats again on the Gregoire I appreciate it. Thank you. Thank you.
So it looks like that does it for questions today, Jennifer to you for final comments.
Well I just wanted to first say, how confident I am in our future and optimistic I am about our ability to continue to build a durable and overtime profitable growth company. I also just wanted to recognize our teams for their great execution and our employee.
Resource groups, who recently have celebrated Asian American and Pacific Islander Heritage month last month, and have just kicked off as well pride month that Pedro duty.
These teams work really hard in addition to their day jobs to make sure that we are celebrating <unk> within our company and around our community and I personally appreciate it with that I just wanted to say, thanks to our customers and our shareholders and wish you all a great day, thanks for being with us today.