Q3 2024 PagerDuty Inc Earnings Call
With me on today's call are Jennifer to Hata pay duties chairperson and Chief Executive Officer, and Howard Wilson, Chief Financial Officer.
Before we begin let me remind everyone that statements made on this call include forward looking statements based on the environment as we currently see it which involve known and unknown risks and uncertainties that may cause our actual results performance or achievements to be materially different from.
From those expressed or implied by the forward looking statements.
These forward looking statements include our growth prospects future revenue operating margins net income cash balance and total addressable market among others and represent our management's beliefs and assumptions only as of the date such statements are made and we undertake no obligation to update these.
During today's call, we will discuss non-GAAP financial measures, which are in addition to and not a substitute for or superior to <unk>.
Measures of financial performance prepared in accordance with GAAP.
A reconciliation between gone 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 security Exchange Securities and Exchange Commission.
Including our most recently filed Form 10-K as well as other subsequent filings made with the SEC.
With that I will turn the call over to Jennifer.
Okay.
Good afternoon, and thank you for joining us today <unk> delivered solid Q3 top and bottom line results above the high end of our guidance ranges with 15% revenue growth and a non-GAAP operating margin of 14% year.
Year over year operating margin expanded by over 1000 basis points as we continued to demonstrate our commitment to profitable growth.
Long term demand rain remained strong as all enterprises seek to address similar high priority challenges first their customers are digital and expect real time modern experiences and services, but their operations are antiquated command and control Emmanuel crossing this operations CASM is critical to protect and grow.
Revenue in an increasingly digital on demand marketplace.
Second all businesses seek to do more with less in the face of an ongoing skills shortage.
This is led to an increased appetite for automation and demand for generative AI in order to reduce costs and achieve operational efficiency at scale.
And third check that and complexity continue to rise, creating material risk of operational and business failures driving demand for automated and intelligent incident management solutions.
Solving these priorities is critical for technology and business leaders, especially in enterprise and has increased the demand for the Patriot 80 operations club.
New customer acquisition in enterprise and mid market and strengthened strategic customer expansions were the highlight of the quarter, surpassing results from Q1 and Q2 of this fiscal year.
Among the contributions to strengthen new business was a record setting win with a long standing enterprise software customer. This operations cloud expansion included all four products incident management.
I ops automation and customer service apps to at over $1 million of air are each and showcases page eight platform value proposition to increase productivity protect revenue and reduce risk by advancing operational maturity and resilience for enterprises.
Enterprise, our strongest performing segment during the corner remains our strategic focus notwithstanding a few unusual but sizeable renewal issues in Q3 enterprise dollar based net retention was more than 500 basis points above that of F&B.
Customer retention and growth in enterprise have also been more resilient over the past 12 months. These key metrics reinforce our prioritization of resources and our confidence in our global enterprise strategy product development and go to market efforts.
Macro volatility and uncertainty continues to pressure budgets and slow customer decision, making while our customers remain highly engaged with nearly a third of enterprise and mid market customers expanding with us in the quarter there.
They continue to apply a conservatism to expanses and seek ways to reduce overall it spend while protecting investments for critical functionality and operations in the past we've seen similar behaviors. We were rewarded by focusing on long term relationships rather than short term gains and that will continue to be our approach.
Approach.
New and expansion are our was the strongest of the fiscal year reinforcing that even in a challenging operating environment the operations cloud value proposition resonates.
That said turning downgrade dollars were unfavorable to our target and cream created a headwind to total business generated during the quarter.
We are addressing the higher risk of downgrades in turn my first systematically identifying risks and engaging with customers earlier in the renewal lifecycle second by providing flexible multi year pricing solutions for customers who demonstrate knee.
And third working with customers to optimize their use of the operations cloud to maximize business value.
As centralized decision, making has become the norm for our customers. We continue to evolve our enterprise motion. This is included increased focus on C suite buyers with centralized purchasing authority positioning centered around the financial value proposition of the operations cloud and enterprise pricing to support scaled expansion across all.
Products. This account management approach complements our high velocity land and expand motion.
On technical champions and practitioners and has enabled us to methodically improve the quality and quantity of enterprise wins.
Focus on enterprise leadership with our persistent pace of innovation underpins, an increasingly efficient enterprise go to market practice.
During the third quarter, our generative AI program continue to advance we now have four intuitive features and early access including AI generated run book automation status updates Postmortems and a new slack based chat interface to make it even easier to engage with our capabilities.
These capabilities are the first of the family of generative AI use cases, we're calling patria duty co pilot and make it possible for Patriot duty customers to use generative AI across the operations cloud from event ingest to resolution.
Our strategy is to take a platform approach to leveraging generative AI across all products instantiating. It as a core privative developers and employees can build upon with a common secure gateway and customer opt into interface packaged as Pedro duty co pilot.
Our current primary goal is customer engagement and input available through our early access program to date the feedback on design and usage have been very positive.
Also in Q3, we expanded our customer service operations solution to include private status pages and service now C. S. M case automation.
These enhancements immediately connect customer service agents to paid your duty in product, enabling customer facing teams to more quickly close customer cases without context switching there.
This level of visibility and engagement into live incident management is a workflow requested by our largest and most complex customers.
And AI ops, we rolled out several significant enhancements specifically for central I T teams, including network operation centers and site reliability engineering teams.
These additions enable teams to improve operational resilience using automation to analyze and action vast volumes of data immediately with measurable results. During the quarter. These went into early access and are oversubscribed.
And finally on the product development front, we closed the acquisition of Chile earlier, this month and I want to welcome Nora Jones and the team to pay duty incorporating jellies talented team and technology will further differentiate the operations cloud as a system of action going beyond instant response to drive quantifiable improvements and pre.
Activity in resilience jelly turns every incident into a learning opportunity by completing a lifecycle of incident management, particularly first service reliability management and I T with deep actionable analysis enriched learning and proactive improvement customer reaction to this combination has been incredibly positive and we look.
Forward to expanding our incident management offering rapidly as a result.
Incorporating product innovation into our enterprise go to market produces enduring customer commitments to the operations cloud.
Recall that in Q2, our global semiconductor supplier identified are no code workflow automation as a unique solution to reduce manual work and human error in pursuit of eliminating tens of millions of dollars in non value added annual costs.
Our focus on enterprise continue to scale in Q3, resulting in a multi year eight figure record setting win as well as an additional seven figure operations cloud expansion.
In both cases strong executive alignment combined with a proven track record in serving technical champions proved instrumental in navigating their centralized decision making processes.
With a large enterprise software customer, we tightly aligned across multiple business units on their surface ownership journey to save tens of millions of dollars in operational costs and provide a best in class customer experience for their end users our team identified a high priority business problems in collaboration with executives.
Two anchor Patria duty as a strategic partner to scale across technology and customer service teams, we estimate $25 million in annual savings through operational efficiency reduction in manual work and revenue protection from churn.
Our rapidly growing global cyber security leader also partnered with paid your duty to reduce the strain on its teams by increasing productivity through automation.
This is aligned with the Ceos objectives to improve customer service and reduce manual processes throughout the organization.
These examples are representative of a growing number of strategic wins are competitive differentiators, including our functional advantage resilience at scale short term short time to value and low total cost of ownership provide an ROI that we believe outpaces. The narrow set of use cases served by homegrown low cost and platform.
Petters.
We've begun piloting new bundling and pricing strategies to support more seamless user adoption and expand the surface area of the operations cloud within our customers in some cases. This has reduced sales cycle time generated pipeline and reduce retention risk we plan to scale several initiatives over the next few quarters.
Earlier this week at AWS re invent Pedro duty was recognized as the AWS marketplace partner of the year for North America. This honor recognized us as a partner whose business model embraces specialization innovation and cooperation over the past year. This recognition validates the strategic nature of the op.
<unk> cloud and modernizing operations, we plan to refine and deepen our technical and consulting partner relationships across the globe to unlock more value as we scale partnerships in FY 'twenty five.
During Q3, we also welcomed Eric Johnson as our new CIO, Eric comes to US from survey Monkey and is focused on leading paid your duties critical it infrastructure data management enterprise systems and evangelism with fellow Cio's. Prior to this he had served as the CIO and senior Vice President at both Darkies time and talent.
We were honored to be recognized by fortune in three best places to work categories. This quarter, including best workplaces in technology, that's medium workplaces and paid your duties employees ranked us as a great place to work. Additionally, Patriot. It. He was named one of the top 10 companies to work for in particular <unk>.
Finally, we were named the definitive leader in CAGR homes incident response radar.
To summarize while the environment remains tough we significantly advance the operations cloud and enterprise and solid momentum and expansion are our while it's too early to call a market recovery, we do see several green shoots, including enterprise and mid market stabilization and demand for strategic operations cloud engagements, we're proud of.
Our operating margin improvement and intend to continue to drive further margin expansion, but make no mistake. We are focused on growth. We expect the initiatives we have in place to position us well for growth Reacceleration during the next fiscal year we've.
We've made great progress on our mission to revolutionize operations and I want to thank our teams for their commitment and our customers who trust paid your duty to manage and automate their most critical work with that I'll turn the call over to Howard and I look forward to your questions.
Okay.
Thank you Jan and good day to everyone joining us on this afternoons call.
In Q3, we delivered solid results above the guidance ranges, we provided in Hoboken talk on the bottom line, we continue to adjust effectively to the economic environment with improvements in new business and enterprise and mid market. Both in terms of new acquisition and expansion.
Cautious spending by customers continue to impact of the SNB.
<unk> costs increased negotiation around renewals.
Several large six.
Figure confections as quota all providing evidence of page judy's key role in enabling our customers to mature and modernize their technology environments.
Multiyear initiatives focused on profitable growth continue to deliver operating margin improvements.
<unk> thousand basis points improvements this 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 $109 million in the third quarter.
<unk> percent year over year contribution from international was 27% of total revenues an increase from the 23% seen in Q3 of last year.
Annual recurring revenue exiting Q3 grew 13% year over year to $439 million.
We delivered 110% dollar based net retention in Q3 compared to 123% in the same period one year ago.
<unk> and our expectation for Q4 and approximately 106%.
Customers spending over $100000 in annual recurring revenue grew to 778 up 10% from a year ago.
Total customer count of 15049 declined year over year by 1% as demand among F. N B N V S. B accounts remain uneven.
Free and paid customers on our platform grew to over 27000, an increase of approximately 18% compared to Q3 of last year.
Q3, gross margin was 85% and with 84% to 86% target range.
Operating income improved by 1000 basis points to $15 million or 14% of revenue.
This compares to $3 million or 3% of revenue in the same quarter last year.
Revenue upside along with a one quarter delay in realizing approximately $2 million of nonrecurring expenses contributed positively to the operating income results.
In terms of cash flow for the quarter cash from operations was $17 million or 16% of revenue and free cash flow was $15 million or 14% of revenue.
Turning to the balance sheet, we ended the quarter with $575 million in cash cash equivalents and investments.
Total deferred revenue ended the quarter at $196 million up 9% year over year.
Quarterly calculated billings were $109 million, an increase of 4% year over year and below the range of 8% to 10% provided during last quarter's call.
On a trailing 12 months basis billings were $437 million, an increase of 14% compared to a year ago and in line with our estimates.
With respect to Q4, we expect 12 month's billings growth to be approximately 10%.
Turning to our guidance.
While the fourth quarter of fiscal 2024, we expect revenue in the range of 109, and a half to 111 and a half million dollars, representing a growth rate of 8% to 10%.
Net income per diluted share attributable to paint to do to ink in the range of 14 to 15 cents. This implies an operating margin of 18, 9%.
On a full fiscal year 2020, full we're increasing our revenue expectation to a range of $429 million to $431 million, representing a growth rate of 16%. This compares to the range previously provided of 426, two points and $13 million.
And net income per diluted share I'm trying to go to page of duty Inc. Remains between 72 and 73 cents. This implies an operating margin of 13%.
The changes we have made adjusting to the macroeconomic environment over the past two quarters are yielding results.
We are driving a new level of engagement with our customers outside of the renewal cycle.
To ensure the successful and support their business priorities.
In enterprise and mid market investments enablement are leading to improved new customer acquisition strongly expansion metrics increase and longtime multiyear commitments and strategic operations called multi product transactions.
Our long term view of the business has us focused on continuing to deliver profitable growth as we revolutionize operations with our customers.
With that I'll open the call for Q&A.
Yeah.
Okay. Thank you team and we're going to hear first from Rob Oliver of Robert Please go ahead.
Great. Thank you guys can you hear me okay.
Yes, we can.
Okay, Okay, great and I apologize for the bad connection in order to keep myself all video Hi, Jan Hi, Howard So I'll squeeze in two quick ones and then I'll mute out in case that includes the connection to the first Gen is on just your comments around Green shoots I was wondering if you could add a little bit more color I know you mentioned enterprise and just.
What you know that that's a statement we've heard from a couple of people. This week and I just would love to hear what it is that gives you the comfort to kind of call that out, but whether it be pipelines conversations and then my follow up is for Howard just around the slowing in the hundred thousand customers.
You had it into your final fiscal quarter of the year, if theres any comments around pipeline I know sort of last quarter. The thought was perhaps the setup was a big Conservative would you guys didn't pass through the beat so just wondering if there was any change in the macro or how we should think about that number sorry to squeeze it both in thank you guys very much no worries. Thanks for the question Rob.
I've been spending a lot of time with customers I've seen over 100 customers last couple of quarters I just came back from Aws's reinvent in Las Vegas. This week and you know I'm tremendously encouraged by just the level of engagement around more strategic operations cloud discussions I think the while the the operating environment.
He needs to be demanding it's actually driving this focus on doing more with less and it's really what people's appetite for automation and I think the long term relationships that we've had with customers has led to them really turning to us as they understand what's available to them in the broader operations cloud platform.
We've seen enterprise and mid market really stabilize and continue to perform we saw really great new and expansion this quarter from an enterprise perspective, and I talked about a record deal and it for very significant operations cloud expansion and that we did in my prepared remarks, so just when I think.
The larger deal opportunity in more strategic operations product opportunities, we see the initiatives that we've had underway for several quarters, taking hold and resulting in stronger big deal pipeline. I'd also say that our customers are starting to get a handle on their budgets and while the market is still volatile and that causes some.
Cautious spend behavior, we see more of that in F&B and lower mid market.
And you know more reengagement or around strategic discussions in enterprise and so that along with the way our teams are adapting well to the environment.
Is encouraging and gives us a lot of confidence.
Yeah, and Rob just to pick up on that because that actually ties in James' comments ties into your question around customers above 100, K. So we saw 10% growth in customers above 100, K, which is a little slower than what we've seen in prior quarters and they were really two dynamics at play in this the one is that we did see.
Strong expansion growth and strong new acquisition in the enterprise and mid market, which was positive in terms of helping customers matriculate into that space, but at the same time, we have seen some customers having to constrain their spending at renewal and as a result of that that has meant that we haven't seen the same level of growth or expansion into.
And to that cohort.
When I look forward and particularly into Q4 and into next year, we've really laid the foundations for being able to improve our performance in the enterprise and mid market enterprise today is 60%, it's approaching 60% of our IRR. This is a customer base, where we have we see gross return.
Hum above 90% and so it's an area of focus for us and that will contribute positively as we expand those customers into increasingly number within that about 100 K call.
Okay, Rob says thanks via chat and thanks, so much Rob Oliver next we're going to Canaccord Genuity with Kingsley cream Kingsley. Please go ahead.
Hey, thanks, good to see everyone.
Okay.
Thank goodness, so similar theme last quarter, we discussed how a secret that traditionally created a nice catalyst for upsell.
Now that you have more headwinds in seed growth shall.
Now requiring some more strategic repositioning from a sales force I'm just.
Just from a process standpoint, how do you feel like that's growing and how receptive customers spend it up.
Yeah, it's going well I mean, you know when we do a good job of positioning our pricing and packaging for volume and growth our customers don't really think about seat based pricing because they're already bought into paid your duty as their standard for real time operations across either their engineering I T or security.
Organization, and I think we're getting better and better at meeting customers, where they are I mean, no question in a down market, where you're seeing less head count growth for instance, a seat based pricing can be a headwind, but I think we're managing that and adapting to that quite well and you see that in some of these strategic.
Large expansion deals that are multi product, where we're getting you know beyond the phrase sort of isn't it just licensing the estate, but actually the instantiating ourselves as a platform for action.
Yeah.
Okay. Okay, yeah that makes a lot of sense.
Second one would just be onto a pilot.
It looks like a great packaging for.
Instead of a few great products.
But I just wanted to be clear I mean like do you have any initial thoughts on pricing.
The contribution to revenue.
Is there any overlap with AI ops.
Yeah, I remember that AI has been foundational in our platform for more than a decade, you know as you think about AI ops and how we help customers consolidate and correlate events automatically how we automatically and intelligently orchestrate work to the right small few people instead of hundreds of people on a live call and even.
How we automate run books or how we are increasingly automating an entire resolution monetizing AI is not new to US and then there's still a lot of opportunity just within the core platform from a monetization perspective in particular with our new AI SKU, but it's been out since April from a generative AI perspective, our goal is to get input and make sure.
Sure that we can deliver generative AI capabilities with the level of fidelity that our customers expect from a high resilience brought platform that they use when things are not going so well. So we really want to make sure. We're managing noise effectively before we G. A any of our features and I and we're also looking at.
Generally of AI as a way to engage users across all of the different feature sets in the platform so engagement and usage as our first priority and as we learn you will and we will start to surface some of the pricing and packaging for those products and services in the future.
Okay really helpful. Thanks for the time thank.
Thank you.
Okay.
Moving right along next to Craig Hallum, We have Chad Bennett, Chad if you want to switch on and go ahead.
Thanks for taking my question. So just curious I know you've talked about.
Howard I'm kind of billings growth a quarter ahead, the last few quarters at least.
Just curious kind of how you're thinking about seasonality of deferred in the into the fourth quarter here and just billings growth overall.
Yeah sure so.
As you know tenant billings growth for us that fluctuate a lot from quarter to quarter.
Which is partly why we tend to focus more on the trailing 12 months metric as a way for us to try and get some of the noise out of that when we look into Q4. This is.
Our biggest quarter from a renewals perspective for a high volume of renewals take place in Q4 and the other thing that we are factoring in is just the momentum that we're seeing around doing these larger deals that are often multiyear deals some of them with a man from upfront payments.
Those are giving us a view on on how we think about billings for this for this quarter and also had to set up that that gives us more next year.
Okay.
But I mean is it is it fair to say that that probably there there's more pressure on billings in the fourth quarter on a year over year basis than third.
I think like from a comparison perspective it tends to be Q4 is a large quarter for us in Q4 last year was a large.
Quota for us So you know the.
He is from a comp perspective, it will be tougher got it and then maybe just just one in terms of the insights you've gleaned and I know you gave some of it on the call, but just on the the headwinds on the renewals and kind of the the seat moderation and then maybe maybe a little bit of a <unk>.
Scrutiny on spin I guess it.
Is there is there any feedback you've received I'm not sure how much you receive on renewals of people just.
Our enterprises, just indicating hey.
Maybe we don't need as many developers on this tool or on this platform as we thought we did.
And maybe we can do more with less is that part of it or not so much no and that's that's thanks for the question Chad that's not what we're hearing and I you know I'm I'm involved in a lot of our large renewals and in fact, you know we do have a large customer that decides to.
Like Shortener invest left with us in a renewal I, usually reach out and try and understand what their issues were and and we try and learn from it and to be clear when we talk about turning downgrades. It's primarily downgrades is primarily our customers who are reducing their spend because either their head count has actually declined as.
The result of the macro environment or their access to funding from a budgeting perspective has actually been significantly constrained in most cases and I think Howard mentioned this in the past we've we've always encouraged our customers to to add seats or add product as they need to we've never tried to sell ahead of their demand and in most cases.
As we see customers, adding as soon as they they have new budgets available, but Pedro duty absolutely remains essential infrastructure for our customers and Howard pointed out that in enterprise you know our gross retention remains above 90% and oftentimes what we'll see customers do is they'll they'll reduce their spend in certain area that keeps.
Their most critical services on page or duty and then over the course of a couple of months or quarters come back to us and start adding some of those services back on but there will always be customers, who are price sensitive and who may fall prey to a less featured lower cost offering, but it's it's usually more just about less.
Access to capital cost of money, you know, our resources constrained or or in some cases head count reduction.
Got it I appreciate the color Jen Thanks Howard.
Youre welcome and I think I'll, just add one thing Chad to jan's comment to think about it because I've been involved in a few of these renewal discussions and I'm not saying that this is the trend across every customer, but we actually find some customers who need more uses of paint to duty, but they aren't in a position to actually increase their spend so what we have attempts.
To do much like we did in in the early days of Covid as we tend to be supportive of our customers. So sometimes we actually have to help them <unk> through a tougher economic environment and be supportive. So that they can in fact, rather have more users on the platform rather than being less and that's full works positively for us.
The company if I look at our average revenue per customer has gone up every quarter. Since we went public we continuing to see customers continue to expand with us even if it's at modest levels and our view is really about trying to ensure that particularly for the enterprise and the mid market that we are providing them what they need to retain them.
As customers, because we know that economic cycles will change and circumstances and needs will change and we want to be available interesting. Thank you much.
Okay. Thank you very much Chad our next we're going to other representative from Morgan Stanley, We believe that it's Oscar Saavedra.
Yeah, Hey, guys. Thank you it's Oscar.
Yeah.
Hey, how are you. So thank you for taking my question and congrats on a good quarter.
I wanted to touch back on the four.
Full year revenue guidance.
So if I do the math it looks like you are more than flow through the the beat in the quarter.
But also your <unk> declined by about 4% sequentially to 110.
And now you're guiding to 106 before Q, so I'm just sort of wondering like.
Is that a function of the initial guidance as well.
It was super Conservative when you cut it down back in Q1 or are you seeing a better environment.
Then maybe they did back then now in <unk>.
Expecting to sign more new logos Howard if I can if I can jump in I would say what I think we've adapted effectively to an environment. That's largely the same and we're seeing better results.
And that's what's driving our confidence also like I said some of the green shoots that we talked about earlier the ops operations cloud value proposition really resonating stabilization in enterprise and in mid market and a number of you know some longer term initiatives that we've had in place taking hold whether that's our operating margin.
Improvement efforts or are really enabling our sales organization.
Two really felt to complement our our land and expand high velocity motion with a top down a C level more strategic selling motion.
And in fact, you know we've been investing recently in branding and building more awareness around the operations cloud and Pedro duty as a platform for action and we're starting to see a benefit as customers.
Really understand that we have far more to offer than simply incident response, However, I'll, let you jump in.
Sure and I think I was going to make some of the comments along you know our view is really about improving.
Our execution, our view has always been trying to control what we can control and I think the adjustments that we've made over the past two quarters in particular have put us in a good place. So when I look at Q4 I think there are a couple of things to keep in mind, we've put an increased focus on customer acquisition in the Midmarket and the enterprise so.
That's an area, where we know for a long time, we were actually going to be able to sustain a higher value and higher growth.
We expect that in Q4, there will be a positive contribution from from landing those customers in the mid market and in the enterprise and at higher values, but it doesn't contribute positively to dollar based net retention this year.
We also do have from a revenue mix perspective, we have a few elements that react positively to 222 revenue within the quarter. For example, if we if.
Delivering services within the quarter. It leads to some positive revenue or if we have a process automation and self managed environments deals done that also has a positive contribution to revenue. So we factor all of those in.
The guidance that we gave it's not purely a strength flow through from the IRR.
Got it thank you.
Thanks Oscar.
Okay, and I do want to remind our analysts feel free to raise your hand, if you have comments or questions for the team next we're going to hear from RBC, we have neustar mittal.
Hey, Thanks for taking my questions here. This is intercept from Matt Hedberg I have.
Hi, maybe just to start with can you talk more about the acquisition of jelly and how that adds value to the bigger deals that form and then how should we think about its contribution from a revenue or margin perspective.
Yeah, I'll touch on that strategy of the acquisition and then Howard can touch on the financials. I mean, we are really thrilled and excited to bring jelly into the paid are dutiful, mostly because our customers are super excited about it we've had a strong cadence of making strategic acquisitions that both accelerate our roadmap and give us.
Access to fantastic technical talent and jelly picks both those boxes, but even I have been like positively surprised by how excited our customers are about this one of the reasons I joined Patriot 80, many years ago was because it was beloved by developers and we're hearing a very a similar.
Or eat those from customers about jelly, which elli does is it enables developers I T personnel and S. R is to learn immediately from an incident and apply those learnings to prevent those large major incidents from happening again to prove them. The overall resilience of there.
Operations and production going forward and to do it pretty seamlessly and and so far I mean, it's only been a couple of weeks, but we're culturally with really well aligned as companies and there are a number of features including some jelly slack integrations for instance that our customers have been asked.
<unk> four so it really did accelerate a lot of efforts that we were going to invest anyway, but the strong sort of brand preference that jelly has in the market that connection to developers and sort of the immediate ROI. They see from Jelly gives me a lot of a lot of encouragement and optimism about what the the few.
Could look like it is a small they are a very small company and so I know Howard would say it'll be immaterial to revenue, but we do expect that it's going to help us advance our overall incident management posture and growth in the future.
Yeah. Thanks, Ken I'll, just add a little bit of additional commentary be this was actually of a Q4 event. So it will be reflected as a subsequent event in our 10-Q, which will be released within the next day or so typically the day after earnings so youll be able to see some of the details on that.
Just at a high level commentary from a materiality perspective from a revenue contribution it really is small not doesn't really move the needle.
And we've factored in both the revenue and the the expense components into the guidance that we provided but when I look at it.
I'm more optimistic about what value it brings for US next year, because we believe that leveraging our go to market capabilities, along with a really great technology that the <unk> team has has built.
Allow us to accelerate the use of Jamie and that will be positive to us from a sales perspective.
Got it that's helpful. And then one more on fiscal 'twenty five I know, you're not providing official guidance on it yet but can you provide any guidepost on building blocks. We should think we should keep it keep in mind as we think about next year's model.
Yeah, sure and I said, we're not providing guidance yet as you say, but this is how I would think about it.
We're expecting to exit Q4, with trailing 12 month's billings at around 10%. So I think that's a good place a good starting point for you in terms of thinking about modeling with the the increasing demand that we're seeing and the improvement that we expect to see both in terms of our own execution.
We are expecting <unk> growth to accelerate over the year. So we will end up at a higher are all quiet strength exiting next year to where we are ending this year. So that's how I would think about it from a revenue modeling a modest improvement over that period of time, but we would certainly look as well to continue to expand our operating.
Margins are not at a 1000 basis points a year, but certainly looking to continue the path of expanding our margins.
Perfect. Thank you.
Thank you.
Okay team and I think that does it for us a close of questions Jennifer will turn it back over to you for any final comments. Please sure well I just want to thank you all for joining us today and remind you that we continue to be focused on the long term building a durable profitable growth company.
We're incredibly excited about the operations cloud opportunity and confident in our ability to execute so thank you all for joining us and have a great day.