Q2 2023 PagerDuty Inc Earnings Call
Financial measures, which are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.
A reconciliation between GAAP and non-GAAP financial measures is available in our earnings release.
Further information on these and other factors that could cause the companys financial results to differ materially are included in filings, we make with the securities and Exchange Commission.
Including our most recently filed 10-K and 10-Q as well as our subsequent filings made with the SEC.
With that I will turn the call over to Jennifer.
Thanks, Tony and thanks, everyone for joining US today, we continued to execute well in Q2 exceeding the high end of both our top and bottom line guidance ranges.
And another quarter of strong growth and improving efficiency revenue grew 34% year over year and non-GAAP operating margin improved by more than 1000 basis points. This is the fourth consecutive quarter at or above 32% growth and an improvement in year over year operating margin for Pedro duty. These consistent.
<unk> illustrate the durability of our growth our multibillion dollar market opportunity and are adapted our ability to capture efficiencies as we scale.
At a moment when our customers must ensure seamless digital experiences while improving operating efficiency paid yoga. These operations cloud is essential infrastructure that enables developers to balance both priorities our platform accelerates their journeys towards greater digital maturity in service of their business goals.
We remain on track to deliver non-GAAP profitability in Q4, this year and for the full and full year profitability for next year FY 'twenty four thanks to continued demand and trust from our customers and partners as well as the dedication and focus on continuous improvement from our teams around the world.
We are incredibly proud of the trust our customers place in US air our churn remained below 5% and we achieved the seventh consecutive quarter of dollar based net retention above 120%. The combination of rapid implementation high return on investment and an average payback period of two months.
But as Pedro duty in a position of strength, especially in an uncertain macro environment.
Our land and expand motion drove accelerated year over year growth in total paid accounts as well as in accounts spending more than $100000 annually with Patria duty.
Even with the current macro uncertainty, we see strong demand and in a favorable competitive environment as our teams generated a healthy pipeline across our customer segments and regions. We saw longer sales cycles for some larger deals often in process automation and we did experience more diligence on contracts in EMEA the.
Operations business, However, which includes incident response, and AI ops performed exceptionally well growing faster year over year. Our primary growth driver remains our high velocity land and expand business, which grows consistently and reliably quarter after quarter developers continue to champion pager duty as the death.
Vos platform of choice inside their companies are long term tailwind digital acceleration cloud adoption and Dev ops transformation remain top priorities for enterprises digital infrastructures are increasingly complex interdependent and central to key business priorities, we have set the enterprise staff.
<unk> for digital operations management, and we continue to expand our competitive advantage through product innovation.
During a hybrid summit series in June I highlighted the rise of interrupt work across the enterprise our core developer user base is already familiar with the challenges of keeping digital services running customer experience is intact and finding time to innovate today Pedro duties operations cloud is uniquely capable of.
Detecting orchestrating and automating all types of interrupt work across our customers' digital operations, we connect to tech stacks in every corner of the enterprise, making our platform indispensable for our customers from developers.
Security and customer service.
The three recent product announcements demonstrate the power of the operations cloud for modern enterprise.
First we made service standards generally available to paid your duty customers service standards enable organizations to rapidly advance their digital maturity by easily adopting best practices for incident response developers Srs service owners and those responsible for availability and reliability can setup.
And monitor operational quality standards for service.
Second we announced incident workflows, making our platform more flexible and extensible by enabling rapid design and deployment of no code flexible automated steps for major incident response, many of our customers have asked to customize their incident processes for instance, creating an incident specific slack channel.
We're starting a zoom call and then sending a status update every 15 minutes with incident workflows customers can use and out of the box process or define their own with the building blocks. We now provide.
Finally automation actions are now integrated across the entire page your duty platform automation capabilities are available at the time when events are first processed and available to all paid your duty users, including customer service teams to validate diagnose and remediate issues without additional human intervention and without me.
To wake up the experts to run their specialized scripts.
As businesses seek efficiency in their digital operations, while confronted with increasing incidents and leaner teams intelligent automation is essential both automation actions and incident workflows will be generally available later this year.
The Patriot or the ecosystem continues to grow now above 700 integrations.
August we launched AWS plug ins for automated diagnostic actions. These out of the box automation install in minutes and can gather deep telemetry into paid your duties incidents for AWS services.
We also launched automation actions to applications for Salesforce and Zen desk, you'll hear a lot more about the expansion of our customer service operations offering later this month at Dream Force.
In Q2, our global online travel shopping platform renewed and expanded its relationship with Pedro duty after realizing an ROI in excess of 300% in the first year.
<unk> continues to trend up 75% year over year in 2022 for travel companies that means opportunities for revenue growth you have higher stakes in the event of outages and disruptions as the company navigates the post pandemic rebound and travel they renewed for a three year term with more than 5000 users and.
Joined our customer cohorts spending more than $1 million annually.
Automated incident response enabled increased developer productivity and improved availability to ensure great customer experiences.
We saw similar trends in global ecommerce, we're a leading Australian retailer utilizes pager duty for its service deliverability for service delivery and reliability Center of excellence in Q2, the customer grew from 30 to more than 250 users across its ecommerce data and customer divisions the customer.
Realized a 1 million dollar benefit in productivity gains in just six months through more efficient interactions between employees and customers with Pedro do these process automation. The retail giant is now able to update thousands of Android devices across more than 2000 stores every night driving better customer.
<unk> and delivering a 400% return on their investment.
The thousands of users across these two customers comprise a small portion of more than 1 million users on our platform today.
We currently estimate our total global penetration to be below 5% with a large and growing total addressable market compelling unit economics, and we continue to invest while improving both operating leverage and our business model.
Our state of digital operations report released in June and recent research conducted by Ey D. G. Both underscore the demand for and benefits of our operations cloud the problems, we solve spam the enterprise from developers to I T to security and customer service teams Indus.
Industry leaders and innovative startups alike across travel and hospitality financial services retail software.
And technology and telecom, all face increasing complexity more incidents more disruption and more off hours interruptions.
The most digitally mature organizations are better positioned to manage this work and paid your duty advances operations maturity to improve mission critical outcomes more mature organizations acknowledge incidents seven minutes faster on average they mobilized responders 11 minutes quicker they resolve incidents too.
Hours sooner and they experienced 14 fewer hours of downtime every month for.
For a typical top tier Pedro duty customer with an average of 2500 responders. These time savings translate to better customer experience annual savings of up to $9 million and a return on investment of 680%.
Our customers tell us that investments in digital transformation remain mission critical rather than discretionary we see companies across segments and verticals continued to invest in accelerating the resiliency and maturity of their operations, while improving employee productivity and efficiency in this economic climate pager duty is the platform.
They trust to power their transformation.
Champing the customer leading through innovation transforming inclusion diversity in equity and building trust are all cornerstones of Pedro duties legacy during the quarter. We earned recognition on several fronts Giga Om named Pedro duty a leader in its radar for AI ops solutions G tube named Patriot or the best incident.
<unk> platform, including individual award for Best Usability Best results and best return on investment Fortune magazine named Pedro Judy One of the best places to work in the Bay area. We also welcomed former Okta CFO Bill load to the paid your duty Board Bill brings financial expertise deep enterprise background.
On an operational understanding of security and Dev ops.
The shortage for technical talent continues while demands on developers rise all all enterprises are under more pressure than ever from customers for paid your duty. This is manifesting in a robust market opportunity. Our high return on investment solution designed to solve a mission critical problem, where customers are losing revenue.
On every incident is essentially self funding, we remain confident in our ability to execute capture share and increase our operational resilience. We remain focused on sustaining high growth, while accelerating our path to profitability as we progress to our goal of $1 billion of revenue I want to thank our.
Customers for their trust and loyalty our partners for their support and our teams for their ingenuity dedication and drive to solve our customers' greatest challenges with that I'll turn the call over to Howard and look forward to your questions.
Thank you, Jim and good day to everyone joining us on this afternoons call.
Second quarter results demonstrated the strength of our digital operations platform and operational achievements.
While sustaining growing from 34%, we exit a range of progress against our plans to be profitable in Q4.
We believe companies want to partner they can trust to innovate.
And performance scale in order to enhance the competitiveness of papers.
And that's what page of due diligence.
As I presented 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.
I think all the coal.
Revenue was $19 million in the second quarter up 34% year over year, the modest acceleration over Q2 of the five fiscal years.
International revenues were 23% total revenues.
We delivered dollar base may potentially in Q2 of 124% compared to 126% in the same period one year ago.
This marks the seventh consecutive quarter of deeply about above 120% and we expect to continue to be at or above 120 at the same throughout the fiscal year.
Q2 ended with 689 customers with annual recurring revenue or <unk>.
Brian K upsetting.
I'd say, probably a year ago.
Total paid customers increased by 7% annually to 15174 compared to 6% in the yoga apparel.
Free and paid companies on our platform grew to over 22000, an increase of 23% year over year with Greek continuing to provide the funnel for future growth.
Q2 gross margin of 84% remained within our target range of Eddie portrayed and 6%.
Operating loss was $3 million or negative <unk>, 4% of revenue an improvement compared to a loss of $10 million or negative 15% of revenue in the same quarter last year.
Compared to our second quarter guidance operating margin outperformed as we accelerated our scaling initiatives and lower than expected in quota program expenses.
As Dave noted, we expect to deliver basically breakeven Q4 at a profitable FY 'twenty cool.
Now to catch second quarter cash from operations was $3 million compared to a loss of $12 million in Q2 of last year.
Free cash flow was $1 million compared to an outflow of $13 million in the year ago period.
Both cash measures were better than expected primarily due to three factors.
Mixture of collections that had shifted from the first quarter to Q2 as well as a modest reduction in dsos.
Working capital.
And lower overall expenses.
For the second half, we expect free cash flow to be slightly negative in Q3 and breakeven on page eight in the fourth quarter.
Turning to the balance sheet, we ended the quarter with $471 million in cash cash equivalents and investments.
Total deferred revenue ended the quarter at $117 million up 27% year over year.
Poultry calculated billings were $92 million, which was an increase of 23% year over year ending below the 25% to 30% range provided during last quarters call.
An elongation of sales cycles reduced our initial expectations for bookings, which was more common with high dollar opportunities.
Europe also experienced a bit more softness than other geographies.
We expect billings growth from Q3 to be in the range of 20% to 25%. This range extrapolated July trends into Q3, which we feel is appropriate given the uncertain economic environment.
On a trailing 12 months basis billings were $361 million, an increase of 30% compared to a yoga and maybe estimate previously provided.
Trailing 12, month's billings growth exiting the third quarter to be at or above 20% over last year.
Turning now to our guidance and factoring in the current economic conditions.
For the third quarter fiscal 2023, we expect revenue in the range of much $2 million to $94 million.
Representing a growth rate of 28% to 31%.
Net loss per share attributable attributable to paid to do to ink in the range of negative four to negative three cents with basic shares outstanding of approximately 89 million. This implies an operating margin in the range of negative four to negative 3%.
For the full fiscal year 2023, we now expect revenue in the range of $365 million to $370 million, representing a growth rate.
231%.
We're improving guidance for net loss per share attributable to page Beauty, Inc. To 12 to 10 cents with basic shares outstanding of approximately $89 million. This implies an operating margin of negative three to negative 2%.
Before I close I would like to thank our customers when they continued partnership and for our teams across the globe, who try and give them a rapid pace of innovation is designed to actualize, our vision to transform critical work and revolutionize operations.
We remain confident in our business and performance as we continued to scale towards non-GAAP profitability.
I will open up the call for Q&A.
Thank you so much Howard and Walgreens shown up on the screen with you and to our analysts you can.
Please raise your hand, if you'd like to participate in the questions Keith Weiss for calling them to come to you first you can go.
Go ahead with your question please.
Excellent. Thank you guys for taking the question and very nice quarter.
Really nice progress on profitability, that's got if you'll get to a positive free cash flow coming in.
Through the system.
I wanted to ask about the guide and then sort of the conservatism in that God.
I think that's the key question a lot of investors are wondering about our numbers coming down low enough. So Howard I was wondering if you could talk us through kind of the guidance methodology.
Or is there excess conservativism, how can we get comfortable that this is like.
The right Guy for the full year, it's not going to come lower and then on the other side of the fence how much flexibility is there on opex to protect that path towards profitability and sustain that profitable stance for FY 'twenty for is there room to flex.
Books Opex down further after to sustain that or you need these investment level for the long term and this is kind of where you're going to be investing on a go forward basis. Thank you.
Yeah, well, thanks, Keith there's a lot in that question.
I'll try to unpack that piece by piece.
I'll take what I would say is.
Our guidance perspective, we havent changed our approach.
What we are looking at when we contemplate the.
The rest of the year, we know that the tailwind that I've always broken out business remains a tailwind that's digital acceleration Dev ops transformation will cloud adoption of cloud migration those still remain true and so we are seeing a strong demand signal and balancing that with some of the elongation we've seen.
Sales cycles for larger deals.
We have factored into our guidance for the full year from a.
I'm sorry, as you can see from the billings perspective that there is some.
Duration extension in terms of deals and just as a reminder, most of our deals actually close them up in 90 days, whereas the larger deals of course can take longer than those the ones that we're seeing are being subject to increased scrutiny well maybe behind it with diligence when the deals are still there, but it's just the process of prioritization of bad word keeps changing so we're seeing a little bit.
I'll bet and we factored that into into the view that we've taken from a topline perspective, what I would say in terms of from a opex and problem a efficiency perspective. This is not something new for us in terms of how we've been thinking about the path to profitability.
We've been progressively over the last few quarters and you've heard me talk about this and thinking about how do we put in place structural change that helps us be more efficient. So this is not just a one off event. So we've been using an increasing amount of automation within our G&A functions, we've been creating incremental capacity through.
Exploring auctions pool lower cost like patients that can be rapidly ramping in those areas. So that allows us to build capacity that we need to drive the business. So a number of initiatives on that front too to help us have confidence in the view that we've experienced around Q4 being.
Being profitable on a non-GAAP basis, and setting us up to be profitable on a non-GAAP basis next year.
Got it if I could sneak one in for Jim just on the competitive environment. It seems like some of the I T operations management vendors much affirm vendors out there are talking more about incidence response in front to kind of close the loop and help close the loop.
Or for their customers.
Is there any change that you're seeing in the competitive environment or is that the digital operations platform that you guys are putting out there just so far ahead of what the more basic functionality that but somebody's got that that is not really competitive environment as of yet.
I think the operative word in your question is talking Theres a lot of talking about participating in this market. There always has been and I say this I feel like I've said this every quarter, but ill say it again ive never seen a more favorable competitive environment, because we continue to expand our lead from a product differentiation perspective and build on it.
Long standing Foundation of trust around resiliency and Nick you know when you then look at our 700 integrations. We've just built a number of deep moats from purely a product perspective in this environment I think that becomes even more important because resiliency and availability of the customer.
Service capture every penny of revenue coming in the door matters as does productivity and efficiency of those workers because while I think retention for US has of employees and technical employees has improved at the talent market is definitely getting better I would say technical talent for our customers is still at a.
Huge shortage and so they want to improve that productivity and make sure those folks or are working on product are working on customer facing initiatives and they're not losing time trust and revenue through major incidents.
Okay. Thank you so much guys.
Yeah.
Okay next going to Joel Fishbein with Truest, Joe will bring your own.
Thank you for taking my questions and excellent execution and congrats to you guys.
I wanted to ask you about the ROI story that you're telling Jennifer I thought that that was pretty intriguing and I know you called out to customers, but I think that theres, probably a lot more that you can talk about can you talk about how they're how youre measuring ROI.
What they are using prior to bringing in future duty and helping us with that that quickly that that really tells the story on the importance of maybe weathering through some of this.
Choppy tape it none of us can control that.
For sure for sure and I think one of the appeals of SaaS platforms is that they are easier to deploy right, they're more intuitive and in the case of paid your duty were designed almost like a consumer application, but with an enterprise infrastructure and back end sitting behind it and I think where that where that land.
Itself in an environment like this is our customers see an incredible incredibly fast implementation, it's not like trying to deploy a huge a traditional enterprise software platform over a year's which is like pushing a wheelbarrow uphill right. This is more happens within hours days and.
[noise] weeks as opposed to years we.
We see almost immediate RLI I mean, we've recently, we ran a bake off against.
Another competitor at a customer and they saw an improvement in meantime to acknowledge and meantime to respond and 50% over the other provider without doing any customization in the first few days of having it up and running and so that immediately or why it leads to a lot of trust. The payback period is on average two.
Months. The example that I shared with you there is based on our top 100 customers who are larger customers that have made significant investments that then see those very significant returns in a short period of time and I think that lends itself to lend itself well to customers that are looking for immediate RLI immediate.
<unk> inefficiency that they can measure and quantify.
So we're putting our money where our mouth is and you tend to see that return come from a couple of different areas. One just.
Just reducing the amount of manual work that developers have to undertake so they get back to innovation to you reduced the time lost two incidents and the revenue risk during those outages and we've as consumers who have become heavily reliant on on demand services have seen how quickly you can move.
<unk> loyalty and lose money and lose subscriber ship when that happens right and then I'd say the last area is we're also helping our customers consolidate some of their providers because we give them one view of all of their observer ability tools and automated way to orchestrate work across their teams and the ability to close the loop in.
We're in not just responding to but resolving an issue in learning from it and that's really driven by all of the automation that we built into our platform.
Great. Thank you so much thank you.
And as usual.
Okay. Thank you and next we'll move to Matt Hedberg.
RBC.
Please go ahead, great. Thanks, a lot Jim you said something interesting you said because of the mission critical infrastructure for a lot of organizations and I think in time, maybe more items.
Can you can you double click on that because.
Cause I think it's a really important point.
Matt I think what you asked because they're hard to hear I think you asked about my comments around being part of a mission critical decision and I also talked about essential infrastructure.
And drilling into what that means is that right.
Okay. So when you think about incident response rate.
It's become more and more important to our customers because their consumers their end users' demands have risen there less patient when something goes wrong. They will quickly switch. The you know the cost of change for them, particularly in the consumer space is much lower so the switch to a competitor if their experience is not good.
As I mentioned.
To Joel's question like revenue can be lost very quickly and so availability and uptime reliability of the digital products and services that really define your brand, but also deliver your revenue has become if not job one job two right up there with security is the way I would think.
[noise] about it and it's it's getting harder and harder to manage so most of our customers are seeing an increasing number of incidents because they're dealing with more complexity in their infrastructure in their digital operations environment and you know I'd, even argue that with the great resignation of the past Theres also a lot of new employees in the organization.
A ramping in place to understand the technology gets harder so anywhere you can automate the work to detect issues before they become revenue impacting incidents to manage those incidents well when they do occur and to learn from them and prevent that very costly incident from happening in the future.
Is a really important an investment and not something that we're seeing our customers back away from at this moment.
The second thing that I would say is developers actually care deeply about the kinds of tools, they're asked to use in their environment and if you put them on a mission critical job and say you know this this product can never go down this platform must be available all the time to our users to our customers. But then you say here's some crappy tools or we're gonna have you manage this with an excel spreadsheet and.
And a phone tree like they're very unhappy so a lot of our developer community champion paid your duty all the way through their senior management, because they trust that they want to work with it and it enables them to do their jobs more effectively and so again in the talent war that we've been and it's really important to make sure that your your technical community has the <unk>.
<unk> and services, they want to use and that will enable them to be more effective and more productive in their jobs.
One of the things I loved about Pedro to you when I first learned about it when I joined over six years ago was how quantifiable. The ROI is how easy it is to identify the waste that we reduce in terms of employee productivity. The efficiency that we create in terms of how employees identify and address and learn from incidents that happened, but most important the way.
It can improve revenue generation and protect revenue in terms of managing the customer experience.
That's super helpful and maybe it was a nice segue into my second question, you talk about the importance of uptime and reliability.
Also the competitive environment has never been better I think one of your larger competitors had an outage.
You know at some point here not that long ago.
When things like that happen does that does that bring even more customer inquiries your way.
Hmm.
All software is imperfect and everybody has outages and incidents and so.
We try and live up on the high road when it comes to talking about these sort of issues, but for sure trust in a platform like ours is Paramount and I think it only takes a.
A single incident that isn't well responded to to leave a customer wondering if they have the right partner and now of course creates opportunities for us having said that I think that there there are other ways to identify customers that we've certainly seen customers coming to us because of the influx and demand.
And for a platform that does more than just on call right more than just moving the work around actually automating the work itself actually helping customers become proactive and prevent incidents from happening not just responding from them responding to them faster but truly.
All of them and preventing them from causing you problems in the future and that's where when I talk about expanding our lead through innovation. We started an on call. Many many years ago 13 years ago. We added automated incident response, we've built on top of that AI ops, including analytics and then deployed automation into almost every part of <unk>.
Our platform and this is the automation of complex.
Challenges in our business, it's not like robotic process automation, where you're simply automating workflows are mundane tasks were actually learning from the events that flow through those 700 integrations and enabling teams to get better and better with each incident that occurs.
Thanks, John Congrats on the results.
You bet.
Thank you and as we near Labor day, we've got some folks on the road if you're joining us by phone only remember its star nine to raise your hand guard and put your hand up if you're on the phone star nine Max we're going to hear from Rob Oliver over at Baird, Rob come on and join Us.
Great.
Can you guys hear me, Okay, Yeah nice to see you how are you, okay grid I'm doing well.
Are you.
Just my question is actually for you.
Just a little bit more color around some of your commentary relative to <unk>.
And some of those elongated sales cycles, there certainly appears.
If there is an element of counter cyclicality to your business, which is solid on the other hand, you guys are not immune to some of these macro impacts so I'm wondering.
In terms of more color, we've got new logos and expansions.
And anything else you might add there.
And then on top of that obviously you know when his time would you guys. David Justice has done a great job and are there any adjustments or changes on the fly but you are seeing your teammate to adjust to this new environment.
Well the first thing I'd say is I'm super encouraged by the demand that we continue to see really strong demand and strong pipeline for all of our products and services and I think that's a tribute to having a product led growth strategy right, where our product actually drives a lot of the demand.
I'm excited because we welcome welcome to new CMO into the business, Catherine Calvert and she's been with us for about a quarter.
We saw continue to see really great execution around our velocity land and expand motion that's become very predictable and reliable for us.
And the digital operations business incident response, and AI ops performed exceptionally well during the quarter.
In EMEA, what we saw is some some additional diligence on deals and I think that's really driven by kind of a combination of inflation and a very strong U S. Dollar and you know the ongoing conflict in Russia, which is creating just a lot of uncertainty there from a large deal perspective, we still saw large deals closing and we didn't.
Lose large deals, but what we saw with some of our large deals taking a little bit longer and you know remember that most of our typical sales cycles are around 90 days. So I know a lot of software companies are talking about longer I'm not talking about months and years I'm talking about days. So but it is it is notable and it is something for us to be aware of.
I think you in thinking about how our leadership team has responded to this we're really stayed on the course that we've been on since the early days of Covid and by the way I'll mention that this macro uncertainty while well it is a little tricky, it's nothing compared to what we saw in the first quarter of Covid, our customers have a <unk>.
Land in place they know how to run in a hybrid environment, they've got products and services to sell and jobs to do and they are still up against a pretty challenging talent shortage and so are very different than that environment and so our team is really staying the course with the plan that says we're going to continue to improve our efficiency, we're going to invest.
In sustainable high growth, we're going to continue to invest in innovation to expand the lead that we have today and a lot of that is around the area of automation throughout the platform and including.
Including our process automation. So we're really I think the plans that we put in place over the last several quarters have put us in a very strong position both from a competitive perspective and from the perspective of dealing with whatever is coming our way.
Great. That's really helpful color I, just got a very quick follow up Howard for you just and I know you've already added some color around the lower in quarter expenses.
But could you maybe a bit more around some of those sources of margin leverage.
They're coming from whether it be hiring.
Buildings infrastructure other areas, where you guys have the ability to kind of accelerate the path to profitability, mostly appreciate it. Thank you guys.
So the areas that we've seen is as I mentioned you know the one has really been our focus around sales productivity, how do we make it easy cross salespeople to sell and how do we create capacity globally to be able to support that sales motion and getting the balance right between quite a run non quota carrying folks in some way that would mean about that look at that.
In fact, Q2 was a record hiring quarter for us, but we continue to hire but we've been doing so with a very intentional approach we started gaining leverage through the use of automation within number about functions, particularly within the G&A functions, which are certainly helping us get the work done without having to add head count at the same rate. So that's oh.
All of them for us.
It also allocation strategy opening up on the opposite in Lisbon in Chile.
We have also helped us have access to a broader talent market and also allowing us to use a followed the same model more effectively and all of these laws.
Little elements of efficiencies that are structural.
Long term and so the changes that we're seeing are that we'd be making around making.
Organization more resilience out organization structures more agile are really setting us up for the future.
Thank you Bob.
Okay. Thank you we will go next to Chad Bennett with Craig Hallum Chad welcome.
Great. Thanks for taking my question. So just following up on the on the last question I'm not sure.
If I heard the answer or not just on on Jennifer on the.
Elongated sales cycles on the enterprise side, and then maybe the EMEA.
Hum.
These are additional kind of sign up sign offs you saw there.
Again was that more new logo driven or expansion driven.
I'm trying to really I think on the expansion side of things with them.
That's where our sales team spent the vast majority of their time.
But again I just I just for context, when we talk about some of our larger deals taking longer to close it doesn't necessarily mean, they're an enterprise right because we do a lot of some of our biggest enterprise customers grow by starting small and seeing multiple P. O us over time and I think that is one of the benefits of our business.
It makes us resilient in this environment is we don't need huge deals in any segment to be successful.
Uh huh.
Yeah. It just because if you look at the 100 K plus customer growth.
I'm not sure kind of what your internal expectations were but it looked pretty solid year over year.
So just trying to reconciling and also if you think about not that you guide for FERC quarterly Billings are you guide for a quarterly billings, but we don't know what what your guide would have been for this quarter all else equal I mean, the <unk>.
1% to 25% growth.
Versus maybe a 25% to 30 in normal times.
Is that kind of 5% Delta again, you don't guide, but 5% Delta is.
That encompass.
Kind of everything you're seeing today or you saw in the quarter.
Or is it assuming.
Things get even a little bit worse is there any color there.
Thank you.
Yes, so Chad I'll I'll jump in on that one the approach that we've taken there is but and then in the back half of the last quarter. We started seeing a little bit of this effect for some of these deals and to James' point a lot of those customers. We saw a 38% growth in customers above 100, K a lot of those customers get above 100 cadence crew doing lots of smaller deals.
So a high velocity transaction business across all segments remained strong, but we did see is that some of those larger deals took longer and so and coming up with an estimate with respect to billings for this quarter. We did extrapolate the some of the extension in duration that we've started to see into them.
Yeah.
Got it thanks for the color I appreciate it and nice job on the quarter and Chad.
Okay next we have Andrew Sherman with Cowen. Please go ahead.
Hey, guys, Hey, Darren and Sarah Andrew Andrew on for Derrick.
Our next corner.
John you got almost landed developers, but also customer service does it feel like budget priority within the developer and Dev Ops arena is more resilient than other buying centers and what's your sense on where budget priorities are the highest right now I don't think we've seen ish like a shift in demand or budget across.
<unk> are different personas, but do you think that's more about the problems we solve per se than the personas themselves because I think I think one thing that's really changed in the last few years is our customers really understand all the way up to the CEO and in some cases the board the audit committee that incidents costs and a lot of money some that you know.
That's really measurable in the immediate term and something that's measurable in the long term and when I think about this the the long term tailwind that we've always talked about have remained well intact in this environment and that's digital acceleration cloud adoption and Dev ops transformation no one is stopping or.
Slowing their projects in those areas because they remain critical to the business. The other thing is because of the more than 700.
Applications and monitoring systems of durability cloud providers that we connect to where really well stitched into our customers, we become essential infrastructure and I think that that shows up in our in our gross retention in our low churn.
And increasingly in our net dollar retention and as I mentioned before like unlike in Covid, where we saw a lot of different buying centers, just freeze to try and take stock and recover in the early days of of the sort of Covid market impact, we're not seeing that behavior now having said.
I've worked in ERP I've worked in supply chain I've worked in a lot of other parts of software over my career I would not want to be selling discretionary apps or apps that are a feature being and not a not a product not a platform and don't solve like I said. These mission critical problems I think think things related to incident response and security.
Customer service like customer.
Customer experience are going to continue to be really important in this environment because most of our customers revenue generation has moved to their digital products and services and so it's just become more important for them.
Right. Thanks, and then Howard wanted to ask about the <unk>.
Sykes and if there's any contribution from them in <unk>.
In the back half implied in guidance and I think 20% of customers are billed monthly so did that have any impact Q2, and how should we think about the impact of those rolling out over the next few quarters.
Sure. So on the pricing side, there's two dimensions to this we introduced a price increase back in March.
It's primarily for new customers to the platform so related to new customer acquisition and.
And that is still in play and it's had a positive impact. We also introduced modest increases on renewal, which we spoke about last quarter, and that's gagnon prices and working well and that's factored into our view through the through the end of the year.
And I think then on your.
Does your final point there.
Final question that you had Andrew.
And part of how the rollout on the next few quarters, yes. So I think both are both in train by continuing to.
Mechanisms that are working well and the value that we deliver to our customers is really obvious the ROI.
Information maintain share in her prepared remarks means but.
Uhm there went to customers in time, so we're not seeing any resistance.
Great. Thank you.
Thanks, Andrew.
Okay. Thank you and just a reminder, if you'd like to ask a question. There's still time to raise your hand, please feel free to do so at the bottom of the zoom interface. If you happen to be on telephone you can you start nine Matt Stotler, we're going to come over to you Matt with William Blair. Please go ahead.
Yes, good to see thank you taking my questions.
Maybe just one to start off with on.
On the kind of free to paid customer conversion.
Honestly you guys haven't talked about specific rates, but are you seeing any change in that rate of conversion or the ability to convert customers in this environment or do you have any thoughts on how it's going to trend going forward.
Cause I met.
This has always been like a long term program for us in terms of how we've thought about premium the conversion capturing developers early and they use a paid for beauty.
Potential respondents and then making sure that they have such a good experience and they come back and we've seen in terms of new customer acquisition. We've seen good healthy trends in spite of that funnel is still working for us we take a long term view on that though because we know that our expectation isn't that seem like a rapid transition.
In terms of.
Free, but when we look at our mid market and enterprise segments, which has allowed us to focus on we saw really strong customer acquisition.
The mid market and the enterprise systems last quarter.
Got it that's helpful.
And then maybe just a quick follow up on the.
Partner ecosystem.
Obviously, not a huge contributor today, but something that you guys have talked about as being a place where you're investing.
You kind of look forward and looks to be maybe a little I guess look for efficiencies as we continue to invest in go to market going forward, how does the partner channel.
What are you prioritizing in this environment on that side of things.
Sure I mean, I think we've talked in the past about our partnerships with AWS and Salesforce, particularly around.
Dev ops for AWS, and then our customer service ops solution for Salesforce knows will continue to be.
Both product and go to market partners that are important to us and that we're spending a lot of time with I mentioned dream for Us I think.
On the call and will also be spending quite a bit of time at reinvent.
These tell Andy and Adam that reinvent is like where our people are it's like coming into our own village all the developers there.
But we also think about our technology partners. So we talk about integrations every quarter I.
I think sometimes it's easy to underestimate how expansive that is for ecosystem. The fact that we don't have to build all those integrations that a customer may even have a use case and use our API to build their own integrations, which then opens opportunity for other customers and users and so that will continue to be an important area of investment for us and then increasingly.
As we look at expanding into new regions and new verticals.
<unk> become more and more important so we have a.
Put a venture together with a partner in Japan to try and accelerate our expansion into that market for instance, but I would say that we try to be very focused in this area as opposed to sort of the spray and pray model because.
In my experience a lot of our loan partner efforts have been measured by activity not output and I'm really looking to figure out how we impact our overall customer experience and grow the effectiveness and efficiency of our go to market organization by having the right blend between direct and and <unk>.
Partnership.
Very helpful. Thank you.
Okay.
Thanks Manny.
It looks like we have exhausted our questions today I want to thank everybody for your participation Howard. Thank you Jen can I pass it over to you for any final thoughts for this quarter. Yeah. So I just wanted to say thank you everyone for joining us.
We remain very positive on the demand that we see going forward and very proud of our execution. We just appreciate the trust that our customers place in us and I want to thank all of all Pedro duty employees for all of their hard work and wish everybody a safe and a long holiday weekend. Thank you.
Yeah.
Yeah.