Q4 2025 PagerDuty Inc Earnings Call
You have joined the meeting as an attendee and will be muted throughout the meeting.
Speaker Change: Good afternoon, and thank you for joining us to discuss Pagerduty's fourth quarter and full fiscal year.
Howard Wilson: 2025 Results. With me on today's call, our Jennifer Tejada, Pagerduty's Chairperson and Chief Executive Officer, and Howard Wilson, our Chief Financial Officer.
Howard Wilson: Before we begin, let me remind everyone that statements made on this call include four looking statements.
Howard Wilson: 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 those expressed or implied by the four-looking statements.
These forward-looking statements include our growth prospects.
Howard Wilson: Future revenue, operating margins, net income, cash balance, and total addressable market among others And represent our management's belief and assumptions only as the dates such statements are made and winter take no obligation to update these [inaudible]
Howard Wilson: During today's call, we will discuss non-GAAP financial measures which are in addition to in not a substitute for or superior to.
Howard Wilson: Measures of financial performance prepared in accordance with GAP. A reconciliation between GAP and non-GAAP financial measures is available in our earnings release, which can be found on our investor relations website.
Howard Wilson: Further information on these and other factors that could cause the company's financial results to differ materially are included in the filings we make with the Securities Exchange Commission, including our most recently filed form 10kA, as well as our other subsequent filings made with the SEC.
With that, I will turn the call over to Jennifer
Jennifer: Thank you, Tony, and good afternoon, and thanks for joining us today. I probably share that Pagerduty delivered our third consecutive year of non-GAAP profitability, demonstrating the fundamental strength and durability of our business model.
Jennifer: With free cashflow margin expanding from 15 to 23%, we see the culmination of the fiscal year as a clear testament to our operational discipline and efficient growth strategy.
Jennifer: Looking at Q4 specifically, I'm pleased to report we exceeded our guidance ranges, delivering $121 million in revenue, and a strong non-GAAP operating margin of 18%.
Jennifer: We added $11 million in incremental AR, bringing our total annual recurring revenue to $494 million million.
Jennifer: While we're seeing some near term moderation and growth as we evolve our enterprise sales transformation, the fundamental drivers of our business remain strong. Our strategic position at the center of digital operations gives me confidence in our ability to build momentum into the second half of the fiscal year.
Jennifer: Enterprise Traction continues to improve as we execute on our strategic shift towards multi-year product platform partnerships.
Jennifer: The power of our operations cloud is evident in expanding product adoption with multi-product customers now driving 65% of total ARR up from 62% last year and marking a substantial seven percentage point increase since fiscal 2023.
these customer relationships.
Jennifer: Continue to validate our strategy, with 72 customers now exceeding $1 million NARR
Jennifer: And 849 customers investing more than $100,000 annually. Most notably, ARR from customers spending over $100,000 through 12% year-and-year. Now representing 71% of total ARR.
Jennifer: The combination of our expanding platform capabilities, strong customer relationships, and significant headroom for growth within our install base underscores the opportunity ahead of us.
Jennifer: Let me share the three catalysts that will drive further AR growth and diversification, particularly in our strategic account spending more than $100,000 $100,000.
Jennifer: First, we're laser focus on optimizing our field organization's efficiency. This includes executing an enterprise sales transformation and ensuring our new strategic reps reach full productivity.
Jennifer: Second, we've delivered new platform monetization strategies that further extend our competitive differentiators and better align with the transformative value we delivered to customers, including our new AI capabilities and frictionless packaging structure.
Jennifer: Third, we're building momentum in our commercial segment through targeted digital acquisition and proven retention programs that consistently deliver results.
Jennifer: The fundamental opportunity ahead remains robust. We continue to see a $50 billion total addressable market as organizations accelerate their digital operations modernization to avoid the escalating cost of a disruption.
Jennifer: We successfully executed several key initiatives in fiscal 2025, but I want to be clear, our revenue performance did not meet our initial expectations, primarily due to go to market execution that fell short of our historically high standards.
Jennifer: While we are in a meaningful transition to an enterprise-focused top-down value-selling motion, we also adapted to a volatile macro-environment. We've seen encouraging proof points with several strategic wins, however we haven't scaled this motion across our entire enterprise organization at the pace we intended.
Jennifer: This transformation of our go-to-market approach in the face of these macrohead winds has created near-term pressure on growth. While this transition hasn't been easy and we failed work ahead, the early success we're seeing from our ramps enterprise representatives is a strong signal that we're on the right path. [inaudible]
Jennifer: As you know, I spend a significant portion of my time with customers, and what's encouraging and becoming increasingly evident is that operational maturity and resilience are no longer nice to have. They're becoming central to the enterprise business strategy and revenue acquisition.
Jennifer: We're seeing this play out in compelling new use cases, customers leveraging our platform for customer service operations, using PD Advanced for predictive incident management, and implementing automated remediation and scale.
Jennifer: The addressable market is substantial and we're still in the early innings of this opportunity [inaudible]
Jennifer: The numbers tell a compelling story. AIOPS, Automation, and customer service operations maintain over 40% contribution to incremental ARR for two consecutive quarters. This validates our platform strategy, widens our competitive modes, and shows how our product creates tangible value for customers.
Speaker Change: While market demand remained strong, we instituted a number of changes during the second half of FY25 to improve our execution. In addition to sales leadership improvements across most of our theaters, I became more directly involved with teams to drive three key improvements.
Speaker Change: Transforming our good market practices, redefining our approach to sustainable value capture, and sharpening our product team's focus on monetizing our innovation.
Speaker Change: That said, I want to be clear that while we're executing with urgency and the majority of these changes are underway, we expect the financial impact on materialized gradually over time. Given this reality and our commitment to operational discipline, we've taken a pragmatic approach to our full-year outlook. [inaudible]
Speaker Change: The piece of our platform innovation also represents our sense of urgency and commitment to building on our leadership position in the future.
Speaker Change: Just weeks into FY26, we announce the game-changing expansion of our AI capabilities that puts Pagerduty at the forefront of intelligent operations with new Pagerduty AI agents.
Speaker Change: These AI agents are just another chatbot or basic automation tool. They're sophisticated partners that work alongside you and responders to intelligently identify triage and resolve high value operational issues.
Speaker Change: We're launching these three specialized agents, one focused on site reliability engineering, another on operations analyst, analysis, and a third on scheduling optimization, all powered by our proprietary technology, our foundational data model, and deeply integrated into our automation workflows.
Speaker Change: What's exciting is how these innovations align with what our enterprise customers are telling us they need
Speaker Change: Intelligent Automation that enhances human capability on a highly secure and resilient platform.
Speaker Change: Our customers now partner with us to mature beyond response to prevention and revenue optimization.
Speaker Change: To accelerate adoption, we've democratized access to our AI and automation capabilities by streamlining our incident management plans [inaudible]
Speaker Change: This advance embeds these powerful features across all paid tiers because we believe every organization, regardless of size, should have access to enterprise-grade AI-centric digital operations capabilities within a single secure and scalable platform.
Speaker Change: We also introduced an AI use case library featuring field-tested prompts and deepening our integration with several key ecosystem partners, including Slack, Zoom, and Amazon Q. These integration partnerships are key differentiators and exciting because they see new use cases across our customer base.
Speaker Change: Our platform innovation strategy, coupled with our maturing, solution selling approach, contributed to a sequential improvement in large deal momentum in Q4.
Speaker Change: This performance demonstrates our position as the digital operations leader trusted by the world's largest and most innovative companies. Let me share a few customer highlights from the quarter that showcased how enterprises are expanding their use of Pagerduty and the measurable value we're delivering.
Speaker Change: One of North America's largest financial institutions, a long-standing customer, recently made a significant three-year enterprise-wide commitment to Pagerduty, following there's a successful initial deployment of AIOPS across digital, wealth management, and capital markets.
Speaker Change: The results speak for themselves, a 28% reduction in incident duration and 43% decrease in human effort through our AI-driven automation capabilities.
Speaker Change: With a projected ROI of 400%, this expansion across the full Pagerduty Operations Cloud validates Pagerduty strategic role and digital operations, and demonstrates our platform drives measurable value at scale.
Speaker Change: I'm excited to highlight a global semiconductor supplier, a leader in AI innovation who significantly expanded their partnership with Pagerduty to standardize incident management across their AI, cloud, and data center operations.
Speaker Change: What's compelling about this expansion is how they're leveraging our platform to automate real-time response, to improve system resilience, and to reduce overall operational overhead. All critical capabilities for supporting their groundbreaking AI initiatives.
Speaker Change: The scale of this commitment, more than tripling their seven-figure investment in less than two years, is impressive. It's exactly the kind of strategic partnership that demonstrates the transformative value we deliver to the world's largest and most innovative companies [inaudible]
Speaker Change: A year up I'm thrilled to share that a major telecommunications provider scaled to become a million dollar air hour customer in just their first year with Pagerduty.
Speaker Change: What's no worthy about this win is that they chose to expand with us over incumbent and solidators, specifically because of our platform's ability to deliver rapid time to value, manage unstructured data, and deliver superior operational outcomes.
Speaker Change: Within just six months, we've successfully integrated with their existing ITSM infrastructure an automated end-to-end incident workflows across IT and network operations, supporting hundreds of responders without requiring additional headcount.
Speaker Change: This is the perfect example of why customers choose Pagerduty over legacy vendors. We deliver specialized operational intelligence and automation that generic IT tools simply cannot match. Our seamless integration with existing tools continues to be a key differentiator in these competitive enterprise opportunities.
Speaker Change: One final example comes from a global media enterprise that expanded to become a multi-million-dollar partner to become a multi-million-dollar partner.
Speaker Change: Their relationship is compelling, given how they've leveraged the capabilities of PD advance.
Speaker Change: to transform their digital operations. This customer journey illustrates how it illustrates well, how our investments in enterprise incident management, from enhanced security and authentication to AI and advanced workflow capabilities are meeting the sophisticated needs of complex large-scale operations.
Speaker Change: This pattern of expansion isn't unique in highly regulated industries, operational resilience is mission critical. Organizations are choosing Pagerduty not only for incident management but as their strategic platform for intelligent digital operations.
Speaker Change: Turning to our market momentum, we kicked off Pagerduty onto our 2025 in London last month with upcoming events across Sydney, Tokyo and San Francisco markets that represent significant enterprise opportunities
Speaker Change: These events are powerful forums where enterprise leaders and practitioners experience first-hand the full capabilities of our operations cloud platform.
Speaker Change: Featured at these events are the testimonials of our customers who are leveraging our latest innovations to drive compelling operational transformation We intentionally shifted the series to key one this year positioning us to build pipeline momentum early and capitalize on the growing enterprise demand we're seeing across these key regions [inaudible]
Speaker Change: The timing is especially important as we continue to evolve our enterprise go-to-market motion. These events give us the opportunity to engage directly with both executives and users, demonstrate our expanded platform value proposition, and reinforce our position as leader in digital operations.
Speaker Change: Our culture of community responsibility or notable recognition, again, this quarter, including Fortune's best workplaces for parents and the 2025 Big Innovation Award. Our impact segment serving education and nonprofit customers through 25% to nearly 600 organizations globally.
Speaker Change: I'm excited about the most recent additions we've made to strengthen our leadership team. We welcome David Williams as SVP of product to drive our AI and automation initiatives, bringing you the exceptional experience in scaling enterprise SaaS platforms, and indeed, AI expertise from his entrepreneurial background.
Speaker Change: And this week we announced Allison Corley as our chief customer officer with nearly three decades of customer success leadership from companies like Smartsheet, Workday, and Microsoft
Speaker Change: Additionally, Sarah Franklin joined our board in December with her impressive track record as the CEO of Lattice and former President and Chief Marketing Officer of Salesforce.
Speaker Change: where she helped scale the business while building the vibrant trailblazer community. These appointments come at a pivotal time as we innovate on PD Advanced and accelerate enterprise expansion. I'm confident the combined experience will support us in our pursuit of the significant market opportunity ahead. I'm confident the combined experience will support us in our pursuit of the significant market opportunity ahead.
Speaker Change: Lastly, we've initiated a search for Chief Revenue Officer as part of our ongoing effort to refine our revenue strategy and to ensure our leadership, people, processes and systems are optimally positioned to sustain and grow our market share.
Speaker Change: As a part of this transition, Jeremy Comet, or SEP of Global Field Operations, will be leaving Pagerduty at the end of fiscal Q1 Over the past eight years, Jeremy has been an invaluable leader and we're grateful for his dedication, his vision, and his strong foundation he has helped to build
Speaker Change: While we face some execution challenges, we've taken decisive action to improve sales efficiency and fully capture the value of expanding our operations cloud platform. The catalyst for growth are in place. We strengthen our leadership team, enhance our go-to-market motion, and we're seeing strong early interest in our AI agents from enterprise customers.
Speaker Change: Looking ahead, I'm confident in our strategy and our ability to execute. We're laser focused on three priorities, building and converting a robust pipeline, accelerating enterprise adoption, and demonstrating our platform innovations drive measurable customer value.
Speaker Change: The fundamentals of our business remain strong with the strategic initiatives we put in place combined with our track record for operational discipline were well positioned to capture the significant market opportunity ahead.
Speaker Change: I'll close by thanking our customers who are achieving remarkable results with our platform and our dedicated employees who make these outcomes possible, our strategic partners and our shareholders for their continued support as we accelerate our enterprise transformation.
Speaker Change: With that, I'll turn the call to Howard and look forward to your questions.
Howard Wilson: Thank you, Jen, and good day to everyone joining us on this afternoon's call. Unless otherwise stated, all references to our expenses and operating results on this call are on a non-GAAP basis, and are reconciled to our gap results in the earnings release that was posted on our fixed relations with 5 before the call.
Howard Wilson: As Jen articulated, we expect the catalyst for high performance to be consistent improvements in sales productivity.
Howard Wilson: Over the past 12 months, we have successfully reconfigured our sales organization to be an enterprise focused sales team, hiring to the right profile of quota carriers while remaining within the existing expense envelope. The strategy we will maintain throughout FY26.
Howard Wilson: With a significant portion of quoted carriers joining in the second half, our focus has shifted from hiring, onboarding, and enablement to rigorous account management and sales execution.
Howard Wilson: As a greater mix of our field becomes fully ramped in proactively championing the Operations Cloud, we are laying the foundation for increased momentum in the second half.
Howard Wilson: Today's announcement of a new $150 million share repurchase program is a clear signal of confidence from our board and management team in the FY26 plan and the durability of our free cash flow.
Howard Wilson: Please note the $100 million repurchase program announced in Q2 of FY25 was completed during the fourth quarter.
Howard Wilson: Moving to results, revenue for the quarter was $121 million at 9% euro over year. International revenue increased 10% annually, contributing 28% of total revenue.
Howard Wilson: Annual Recurring Revenue, exiting Q4, grew 9% year-over-year to $494 million.
Howard Wilson: We delivered 106% dollar-based net retention, fractionally below our expectation for the full fiscal year.
Howard Wilson: I'm encouraged by the improving trend of annualized growth retention over the past four quarters.
Howard Wilson: As well as enterprise dollar-based net retention, continuing to outpace the commercial segment by approximately 10% points.
Howard Wilson: Customers spending over $100,000 in annual recurring revenue grew to $849, up 6% from a year ago. This was our strongest quarterly performance of the fiscal year with 24 additions to the cohort.
Total paid customers increased by 64, to 15,114 in Q4
Howard Wilson: In terms of metrics that we provide on an annual basis, Headcard increased to 1242 plus 5%
Howard Wilson: Customers with annual recurring revenue over a million dollars increased to 72 up 24% compared to Q4 last year.
Howard Wilson: Handle recurring revenue from customers using two or more paid products with 65% up from 62% in FY 24.
Howard Wilson: Andrew, recurring revenue contribution from instant management to a 70% of the total, compared to 73% in FY 24.
Howard Wilson: And the contribution from our $100,000 cohort was 71% up from 70% in FY24.
Howard Wilson: Q4 growth margin was 86% at the high end of our 84 to 86% target range.
Howard Wilson: Operating income was $22 million or 18% of revenue compared to $11 million or 10% of revenue in the same quarter last year
Howard Wilson: The art performance relative to our guidance was driven by the ladies in headcount starts and timing of marketing and consulting expenses.
Howard Wilson: In terms of cash flow for the quarter, cash from operations was $31 million or $26% of revenue, and free cash flow was $29 million or $24% of revenue.
Howard Wilson: Turning to the balance sheet, we ended the call to a $571 million in cash, cash equivalence and investments.
Howard Wilson: On a trading 12-man basis, Billings worth $485 million, an increase of 8% compared to a year ago.
Howard Wilson: With respect to Q1, we anticipate 12-man spellings growth to be approximately 8%.
Howard Wilson: At the end of Q4, total remaining performance obligations were approximately $440 million. Of this amount, the approximately $202 million or 69% is expected to be recognized over the next 12 months.
Howard Wilson: As a reminder, as of FY25, our RPO disclosure includes contracts with an original term of less than 12 months.
Howard Wilson: Applying the current definition to the year ago period, total RPO increased 21% on a light-for-lark basis over Q4 F by 24, which would have been $364 million
to provide some context before turning to guns.
Howard Wilson: Importantly, we have daily revenue recognition and Q1 of FY26 is three days shorter than Q4 of FY25. The impacts of this is approximately $3 million less revenue in Q1 and $3 million higher revenue in the remainder of the year.
Howard Wilson: For the first quarter of fiscal 2026, we expect revenue in the range of $118 to $120 million, representing a growth rate of 6 to 8%.
Howard Wilson: Net income could allow you to share attributable to Pagerduty Inc in the range of 18 to 19 cents. This implies an operating margin of 15%.
Howard Wilson: For the fourth fiscal year 2026, we're initiating guidance of revenue in the range of $500 to $507 million, representing a growth rate of 7 to 8%.
Howard Wilson: A net income per due to chair attributable to Pagerduty Inc. in the range of 90 to 95 cents. This implies an operating margin of 19 to 20%.
Howard Wilson: Before moving to questions I would like to provide assistance with modeling FY26.
Howard Wilson: Firstly, we plan to fully update and share our long-term projections later this year.
Howard Wilson: However, in advance of doing that, we have updated our long-term operating margin target, increasing it from 20% to 30%
Howard Wilson: Specifically with respect to FY26, EPS guidance incorporates a non-GAAP tax rate of 22% for each quarter of FY26, which represents approximately 4 cents of EPS in Q1 and 21 cents in FY26.
Howard Wilson: Interest Payments on our 2028 Convertible Notes are made semi-annually in the Rears in Q1 and Q3.
Howard Wilson: And the remaining balance of $58 million from our 2025 convertible notes is due in the second quarter.
Howard Wilson: Reflecting on the fiscal year, we encountered certain challenges by able-we strategically implemented targeted initiatives that have enabled us to eliminate inefficiencies and deliver enhanced capabilities across the operations cloud.
Howard Wilson: While we expect revenue momentum to build steadily, our focus on driving incremental ARR across both enterprise and commercial segments positions us with a resilient foundation for sustained long-term growth of fiscal year.
With that, I will open up the call for Q&A.
Thank you, team. Howard and Jen.
We are returning to questions and we have...
Speaker Change: The panelists have already raised their hand to the rest of our panelists. Please go ahead and raise your hand to be included in the queue and we're going to turn first to Andrew Sherman at TD Cowan. Andrew, please go ahead.
Oh, great. Thanks. Good to see you.
Andrew Sherman: Jen, maybe just giving all the macro changes in the last six weeks or so would love to hear an update on what you're seeing in the market and any change to your business. I don't think you have much government business, but would love to hear any observations on that till.
Speaker Change: Yeah, I think it's too soon to tell whether the current tariff environment will have a derivative effect on how customers approach.
Standing, so we've consistently seen customers looking for platforms with...
Speaker Change: A higher ROI, short payback period and the ability to see true efficiency. And efficiency has been a theme in almost all of the large deals that we've done.
Speaker Change: Although I'd also say that our customers and mature their digital aspects of their business such that when I talk to
Speaker Change: And so I think for us it just is going to continue to be a focus on execution, making sure
Speaker Change: We're delivering great account engagement with our largest accounts that we understand the challenges that they're facing and that we have multi-threaded relationships with those with those customers, but at this point we're kind of used to a volatile macro, so it's sort of business as usual.
Okay, great.
Speaker Change: One more for you. You have a bunch of new sales leaders in the different regions. You're now looking for a CRO.
you've kind of migrated.
Speaker Change: Everyone to the same enterprise playbook, but they were just touch on how those reps were ramping to productivity. Do you need to hire more reps?
Any other go-to-market tweaks to start the year at all.
Speaker Change: Sure, it's a great question. Thank you for that. So we made a number of leadership changes over the course of the year across many of our major theaters and those folks have now been in the seat and really understand the product and platform and have also been leading you know what I'd call a talent rotation. If you think about it historically our enterprise play. Thank you very much.
Speaker Change: Still leveraged our high velocity land and expand motion and we started with a single product and would add on other products
Speaker Change: But buying behavior changed, and that required us to build more of a top-down platform.
Speaker Change: Value Led Sale and so part of the talent rotation that we've been through over the course of the last couple of quarters has been to identify top down platform reps who have experienced and a significant track record also with networks and relationships. Let's go.
Speaker Change: in our largest customers and known hires where the profile has been updated. We're seeing them ramp faster than the existing cohort and become productive sooner, particularly around large deals.
Speaker Change: So, we have a number of hires already made that will be ramped through the back half of this year and I think that puts us in a good position from a capacity perspective. It's also fair to say and I know our failed leadership team would
Speaker Change: I say this is true. I am laser focused on identifying opportunities for increased effectiveness and productivity as well as efficiencies. So that's ramped, that's piped conversion, piped quality, making sure that we standardize.
Speaker Change: The way we go to market, but also inspecting our largest accounts to ensure that our account engagement is meets the high standards that our customers expect because when we have strong account engagement, we grow and we see, you know, that platform effect take hold. [inaudible]
Great. Thanks, Jen. Thank you.
Speaker Change: Thanks, team. We are moving next to Koji Ikeda from Bank of America. Koji, please join us.
Yep, hey, thanks guys. Thanks for taking the questions for the questions.
Koji Ikeda: So maybe the first one there on the competitive front, we saw on the news out there that one of the legacy vendors tucked away in a larger organization might be going end of life here pretty shortly and so from a high level, how should we be thinking about this as a potential opportunity for Pagerduty?
Koji Ikeda: Well, I think the first thing to think about is despite increasing competitive intensity, which has been primarily in the product marking space and in the sales
Side of things, we've continued to improve our retention levels
Koji Ikeda: We also, I believe have the strongest and most differentiated platform for large enterprise, but I'm not really surprised by this move because we've seen it before, we've seen it when other acquisitions have been made and then retired and I think it just goes to the end of this move.
and some of the...
Koji Ikeda: that were able to scale reliably and securely for a large enterprise and deliver the type of resilience that these customers expect when it really matters. And that's hard to do. It's an expensive exercise and we've been able to do it while delivering solid gross margins above 85%.
Koji Ikeda: I think when we, I said this earlier, but when we...
Do a good job from an account engagement perspective
Practitioners, but also...
Strategic and Economic Buyers David
Koji Ikeda: We win very effectively, and so it's about scaling those standards for go-to-market, those standards for account engagement
Koji Ikeda: Throughout our install base and really going after the value capture and monetization of the platform innovation we've already invested on to capture some of that white space opportunity within the install base. [inaudible]
Speaker Change: Got it. Thank you. And maybe a follow-up for Howard. You know, when I look at the guide and I quickly kind of punch in numbers in our model, I think it does imply.
Koji Ikeda: Accelerating growth in the second half just based on the commentary to what the sales capacity is at the right way to think about the guide and then outside of sales capacity ramping what also are you seeing maybe in the pipeline that's giving you the confidence to guide like that [inaudible]
Speaker Change: Yeah, sure, so thanks Koji, and maybe just give you how I've thought about guidance for this year, some of the building blocks for us.
Speaker Change: With us exiting the year with an ARR growth rate of 9%, I factored that into how we would see the evolution of ARR through the year, including incremental ARR being added through the year that would lead to an acceleration in the back half of the year so that you're quite right in terms of expecting that trajectory.
Speaker Change: When I look at Q1 in isolation, I would think that the incremental error that we will deliver will still result in a high single digit.
Level, growth rate in our R4Q1, so…
We're thinking about this phasing as-
Speaker Change: The hiring that we did in the back half of the year comes fully online to be able to then support the higher growth through the back half of the year. What gives me confidence in that is one we've seen
Speaker Change: improved management of both our pipeline from a velocity and from a quality perspective, and we expect the initiatives that we have around that to continue with the sales leadership that we have brought on board recently. And then I think the other aspect of it is when I just look at the numbers in terms of the success we've had.
with Customers above 100K. [inaudible]
Speaker Change: Where we've had a growth rate in our R of those customers of 12% year over year.
Speaker Change: And we've seen that become a large portion of 71% of our ARR. It proves that the strategic focus that we have on the enterprise is what really is going to to underpin our growth. So, those factors together have been factored into how we've thought about guidance for the year.
Speaker Change: Okay, thank you, Koji, and we're moving next to Sanjit Singh from Morgan Stanley , Sanjit, please join us.
Sanjit Singh: Yeah, thank you for taking the question and just talking about some of the metrics on how the business is evolving. You're now getting
Sanjit Singh: 30% of your AR outside of incident management. I was wondering if you can provide any color and detail on what offerings are sort of leading the charge in that 30% bucket number one. And then Jen, Pagerduty Advanced, what is that?
Sanjit Singh: doing to your deal sizes from an uplift perspective when they are included in your familiar expansion opportunities.
Sure. So, from a product perspective, to a product perspective,
Sanjit Singh: AIOPS has really been an important attach product for us because…
Sanjit Singh: Unlike some of the point solutions out there. There were some of ...
Sanjit Singh: Some of the observability plays that you'll see, RAAO's solution is
Sanjit Singh: deeply integrated into the entire operational workflow, from detection to automated triage, the orchestration of bringing the right people into a response and increasingly the right agents into a response, and then the automation all the way through to resolution, right? When you try and use a point solution, or you just look at it from an insights perspective, you're not actually closing the loop on the work that has to get done.
to both prevent
Sanjit Singh: You know financial challenges or costs in your business but also to in order to optimize the revenue that you're trying to generate through your digital assets. So...
Sanjit Singh: That, I think, has been a really important and strategic plane for us to continue to grow not only how our customers invest with us, but how they think about the platform.
Sanjit Singh: Automation is another, and automation isn't just a process automation solution that we have, but also automated incident workflows.
Sanjit Singh: across the board. And I think the role that P.D. advances playing is really helping our responders to compress the amount of time it takes.
to diagnose her triage and then respond to an incident.
Sanjit Singh: to also be more efficient in how they communicate more broadly with the organization, with their customers.
Sanjit Singh: about what are happening. And so right now it's more of an efficiency builder, but as customers get used to using it and we drive more features through PD advance as well as agents, I think you'll start to see that have an impact on growth and you'll recall that we're we are testing we're actually we're in market with consumption based.
Sanjit Singh: pricing in this case and so I think it's a really good complement to the current flexible pricing model that we have.
Speaker Change: And that makes a ton of sense. The one quick follow-up was…
Speaker Change: When we looked at some of your customer highlights this quarter, I saw the term multi-year.
Agreed, Matt, right?
Speaker Change: kind of across the board. Is that a shift? Is this part of the market chip that you guys are making? Is this something intentional? Or is this something that the customer is naturally applying you towards? Is it not a way to drive increased? [inaudible]
Speaker Change: Gross retention and stickiness in terms of the retention rates. This has been very intentional. If you remember, the vast majority of our business that was termed was a single year, and that was kind of part of that.
Speaker Change: Land and expand high velocity, frictionless motion but as we got into larger enterprise .
Speaker Change: I think harder than people might imagine to change a platform like ours outward deeply integrated in some cases all the way through to runtime.
Speaker Change: Agreements. What we found was our customers were highly engaged and, you know, very well aligned in that regard. So it has been a concerted effort that we measure and, you know, we have a significant portion now of our term contracts.
Speaker Change: that are multi-year. And that's something we're going to continue to focus on. The number one, the first principle there too, is long-term relationships are more profitable and they tend to be more valuable on both sides.
Speaker Change: And I would just add to that, you know, not only does the signal...
Speaker Change: It's a strategic relationship from our perspective for the custom made also signals a strategic relationship. So we've seen, you know, since we started with this initiative going back two years we've seen an increase each quarter in terms of the number of contracts that are covered from a multiyear perspective. [inaudible]
Speaker Change: That's great. Great, great, great color. I appreciate it. Thank you so much. Thanks, Andrew.
Speaker Change: Thank you. Moving next to Kingsley Crane, Kingsley from CGS. Go ahead, Kingsley, thanks.
Kingsley Crane: Hey Jen, hey Howard. Thanks for taking the question. I hope my video isn't spotty, but I want to touch on Pagerduty advance.
Speaker Change: When I think about the naming of a Genetic SRE and a Genetic Operations Analyst, I think it affects the question, do you feel like these capabilities are compiling enough to...
Speaker Change: Demonstrate replacement of an analyst at the customer level. Just kind of curious if that's how they're in position and then how to think about customer ROI and how that flows into pricing.
Speaker Change: and I think what's important is a lot of incident responds.
is working through complexity and trying to understand dependencies.
to identify...
Contributing factors to a failure is very rarely straightforward forward.
Speaker Change: and very rarely are major incidents isolated to a single team. And so you have these kind of unique
Speaker Change: Data Issues, or problem solving issues where a single responder doesn't have visibility to what's going on across teams.
Speaker Change: But an agentic responder leveraging a foundational data model could get to at least get pointed in the right direction faster and start to make suggestions recommendations.
Take down what I would call simpler tasks first. [inaudible]
Speaker Change: but also support the process of complex problem solving. So we see these things being complimentary as opposed to more of a replacement orientation. And at the same time, you know, we see customers looking to reduce the blast radius of major incidents, meaning how long an incident runs, the impact that an incident has across their customer base or their risk profile, whether it's compliance, for instance, or, you know, issue
Speaker Change: around customer trust and so anything that you can do to help teams resolve
Speaker Change: A problem faster, but also learn from it and prevent it from happening again is important and that's something that we've done by including Kelly's feature set inside of our instant management solution. [inaudible]
Speaker Change: that are repeatable, menial, lower value that these agents can pick up. That I don't think will reduce the need for talented engineers to be part of these major incidents when they happen because they do require a lot of these solutions require high judgment.
Speaker Change: Yeah, that's really interesting. And then, second one, you talked last quarter about incentivizing some customers initially with some free credits to use GNI. It's a good response there, just kind of curious if that initiative continued in Q4 and what kind of response you saw.
Howard Wilson: How are all of you taking care of? Yes, so, so, Kingsley, what we've done is that in terms of some of the most recent packaging announced and said we've made in fact just last month in February , that in fact was a change in our lineup to be able to provide all paid customers with access to the operations card, and that included elements, of course, of PD advance. So all customers end up with a, you're like a certain amount of usage that they can get before the, the, the, the, the,
They would then convert to pain, but incremental use of... [inaudible]
Howard Wilson: We believe that's a strong model for lying customers to be able to understand the value that they're going to get within their own environment, with their context and can see what it will surface for them and that's leading to really good discussions and expansion on deals as a result of them having that access.
Thank you.
Speaker Change: Okay, thank you. Moving next to JP Morgan, we have Angela Mbora joining us. Angela, let me go ahead.
Oh, great.
Speaker Change: Yeah, thank you for taking the questions, but if you guys...
Speaker Change: Jennifer, I'm going to ask you a little bit on the field execution you had highlighted or talked about and prepared the most couple of times
Speaker Change: Could you maybe elaborate exactly what execution issues have you kind of faced and what are you doing as you step into the New Year?
specifically to fix those issues.
Speaker Change: and then Howard, maybe talk about just the booking skaters that you've seen and I'm trying to think about the assumptions around the guidance around NRR and are you baking in a little bit of a caution given what we have seen over the last two weeks on macro.
Sure, so I'll start from a sales execution perspective.
Speaker Change: You know, what we've talked about is one, having to adapt to a change in the way our customers buy So historically, we were able to grow in enterprise meaningfully [inaudible]
Speaker Change: With that land and expand high velocity motion, really targeting the technical user, the technical buyer within the organization.
who needed to change the profile of Rep.
Speaker Change: to be successful. We've found that when we've done that, we've hired a rep who has the background of selling multi-product platforms top-down through more of a traditional technology leaders organization. They're more successful in selling the operations cloud in driving a multi-year, six or seven figure agreement, and so we've been going through that talent rotation.
Speaker Change: And we've also found that the more experienced a rep is in that sort of top-down-felling motion, the more likely they are to ramp faster than previous cohorts [inaudible]
Speaker Change: So that's one part of it. I think the second part of it is when you're not selling high in the organization and you can rely on the DevOps community almost in a singular way, you don't really have visibility to what else is going on inside of a large organization and by...
Speaker Change: By engaging more closely in building account management that is multithreaded across personas that really helps us understand what's going on in the entire picture for the CIO or CTO, we've been able to better match to their budgeted initiatives. And again, when we do that, our success rates
Speaker Change: Are Higher. And so that's a big part of what we're doing. It is more about transforming to a true platform sales motion. Even simple things like
Speaker Change: Attaching Services and making sure that customers are deployed effectively because even though our platform is relatively simple to deploy compared to large legacy platforms these organizations that we're deploying into themselves are complex and they sometimes have a lot of work to do with them.
Speaker Change: You know, need more support in doing that, but in the land and expand frictionless motion you're not telling a lot of services So it's just it's really more the evolution of how the market moved how we need to move as a result of that and are having the opportunity to monetize a multi product platform. [inaudible]
Speaker Change: to sustainably capture value at the same time that the market requires a different vendor support model. I guess it's a good way to put it.
Speaker Change: Yeah, and I think just to add on to Jen's comments, because as a CFO , I want to make sure that we're not doing this at a rate that's going to be too expensive.
Speaker Change: So, you know, we're committed to improving ourselves in marketing efficiency, even to the extent that, you know, as we entered this year, we made some changes to reduce our run rate so that we could in fact continue our evolution into this [inaudible]
Speaker Change: Full Enterprise Sales Motion, but really by optimizing the existing spin that we had. So this hasn't been like it's not an additive expense that we're going through, but rather it's the case that we've been reconfiguring the resources that we have to be able to deliver this alignment.
with how our customers are all by.
Speaker Change: And then I think pendulum to your question, you know, how to think about bookings, bookings through the year, we've taken a view on bookings that that
participates a number of things taking place.
Speaker Change: One is based on the success that we've already seen with our larger customers. We want to build on that success with our larger customers. So we've seen, if you like, the enterprise health indicators such as the one I mentioned around customers above 100K growing at a faster rate.
then the customers that we have below that.
Speaker Change: So we will continue our efforts in that space and our sales team is really focused on enterprise customers and being able to grow that base and we have a significant percentage of reps who we hide within the back half of last year who will be ramping through the first
Speaker Change: Two-quarters and we expect to see them contributing to our overall growth in...
There are particularly in the back half of the year.
Speaker Change: Along with that, in terms of our commercial motion, we've taken another look at how can we take advantage of some of the recovery we've seen in the commercial, the SMB space in particular, and so we have a renewed digital first experience that we're delivering there. We've had packaging that now makes a lot of the product accessible even to customers who are in that SMB space so that they can get broader use of the platform at a reasonable [inaudible]
Speaker Change: Price. So we anticipate being able to use that motion to in fact also contribute to our growth and that will ramp through the year as well.
Speaker Change: Just to be clear, for the guidance that you've provided, are you assuming a similar macro than what you have seen or are you taking what I would call like a prudent view? Obviously you can never, you know, anticipate everything and even within the current environment we've...
Speaker Change: Try to sort of model impacts and try and understand how things could play out. They're not always very clear for software and technology, as you would know, into the power that will play out. But we have tried to indeed factor in a view that...
Speaker Change: There's something that we can control and our focus is on what can we control and how can we drive performance through those elements.
Thank you very much. Thanks, Panjilam.
Thank you. Thank you.
Speaker Change: Thank you, and next we'll hear from Nick Altmann, Ms. Koshabank. Nick, please...
Speaker Change: Join us. Hey, awesome. Thank you. I wanted to go back to Sanjit's question around 30% of ARR exiting the year being outside of incident management.
Speaker Change: When we think about the ARR sort of framework or the color you provided, and we look at the 2025 ARR mix, I think it implies like...
Speaker Change: A little bit over 60% of the net new ARR in the year was from outside of incident management and so
Speaker Change: When you think about this year's guide, and kind of what you're baking in for NetNewARR...
Speaker Change: How should the mix look in 2026 versus this year's maybe kind of unpack the assumptions around incident management versus non incident management as it pertains to a
Speaker Change: Net new error. And before Howard jumps in on guidance, I just want to make a clarifying point.
Speaker Change: Call it horizontal use cases, and probably the best example is
Speaker Change: The AI-centric operations that they now are trying to manage. They're managing rag models, LLMs, their own agents.
Speaker Change: their own AI-driven apps. And what you're seeing through that is a ton of increased complexity. And so that, for instance, is an example of you might still use our core incident management solution, but it's going to drive net new usage because it's a different use case than a traditional use case.
Speaker Change: The same thing is true for security operations. We have a lot of security teams that leverage our products and services.
Speaker Change: for something that would be considered outside of the core of technology-generated incident management.
Speaker Change: As we adopt more of a blended consumption and seat base or platform usage model, we'll start to get some of the benefit of
Howard Wilson: That seemed technology to different problems across the organization. So, sorry, how would go ahead?
Howard Wilson: Yeah, well, you started with exactly what I was going to say around the use cases, so yeah, and I think that's an important part Nick because as we thought about this in terms of the sales teams area focus.
Speaker Change: Certainly being able to drive those new use cases that utilize our full operations management approach, which includes instant management is going to be key. If we just look back over the last couple of quarters we've consistently seen.
I'm
Speaker Change: More than 40% of the incremental ARR in the quarter coming from AI ops automation and customer service ops offerings. So, when we've looked into this next year, we expect that that trend will continue, that it will still continue to be a strong contributor to the incremental piece.
and as we factor in newer offerings like
Speaker Change: Peter Advance, which is small today, you know, that will start taking, will become an added sub-share to that piece outside of instant management. And as we move into monetizing agentic AI, that will, again, will probably add a mix into what would be incident management
Speaker Change: Okay, now that's super helpful. And then just the clarification question. Appreciate the color on ARR this year. If we look at the net new ARR seasonality for 2025 versus 2024, it's a little bit different.
Speaker Change: Obviously, there's some of the go-to-market stuff you mentioned. Macro is still a little bit cautious. But anything else we should be keeping in mind is we look at sort of the net new ARRC's reality for 2026.
Speaker Change: You know, this last year it was kind of roughly equal each quarter. My expectation is that it will probably ramp gradually through the year as we move through the end of the year, given some of the changes that we've made in terms of the sales team. So that will mean that we'll start to see that increased.
Gradually through the year.
Thank you.
Speaker Change: And one last call to our panelists to raise their hands in the Zoom platform to be queued for any remaining questions we do have another from Jeff Van Rhee at Craig Hallum. Just go ahead.
Speaker Change: Great. Thanks for taking the questions. Say, guys, good to see you. Sorry about the light you're catching sunset just perfectly behind me here. So, so be it. Just a few for you. Maybe how we're just on the on the pipeline. I think you commented last quarter. The pipeline was up 50% year. You're just any update on the state of pipeline here.
Howard Wilson: We've entered this year with strong pipeline because I've factored in the pipeline for the full year against the four year guidance range that we have provided. The Q1 pipeline that we started the quarter with was higher than what we had the year before. We've got the team to focus a lot more on the quality of pipeline and how do we improve pipeline velocity so that you don't see this pattern of deals moving just from one quarter to the next.
Howard Wilson: So, certainly, you know, we're in a good place, but my perspective of course is that
Howard Wilson: Sales teams need to keep on building pipeline and marketing teams need to keep on contributing to that pipeline And hence our focus even in bringing some of our events like PD on tour or Pagerduty on tour to earlier in the year so that we can actually leverage some of that earlier creation of pipeline in the year to benefit this school And hence our focus even in bringing some of our events like PD on tour or Pagerduty on tour or Pagerduty
Speaker Change: Yeah, is the intensified focus on all the sales changed?
Speaker Change: I guess two questions. More a result of your dissatisfaction with the legion side or with the close rates and the way you're managing cycles as they go through. And then maybe just kind of a long lines of that question. It's just kind of a soft observation, but it seems last year mid year you were a little more satisfied with the execution in terms of how you are addressing the move to selling to procurement and the CFO type sale. And it seems now there's more there's less satisfaction. [inaudible]
Speaker Change: So maybe just kind of take those two on if you would. I'm never satisfied. There's always an opportunity for us too.
Speaker Change: Continue to improve our execution. What I would say, you know, if you look at our cohort over 100K and our cohorts sending more than a million dollars, like
Speaker Change: Those are examples of where we're executing very well, where we're delivering higher retention rates, we're delivering higher growth rates, we're building more strategic relationships, their multi-product platform multi-year [inaudible]
Relationships
Speaker Change: and what I want to see is a scale that across the entire install base.
in an accelerated way and in a very efficient way.
and Mark Rothenberg.
but as our customers...
Speaker Change: CS is a more strategic vendor. We have to be consistent.
Speaker Change: In the way we engage, in the way we build networks across multiple personas, in the way we deliver and deploy our products and services, and in the way we ensure our customers know they've realized value.
Speaker Change: I think they're going to continue to be offered to need for us to evolve our pricing to better align our pricing with the value we actually demonstrate and deliver for our customers, and that's something that we're working on. But as we've improved, as I mentioned, the rep profile and brought in leaders who are experienced in an enterprise platform kind of top down motion, we're seeing really promising results. So it's about scaling that and it's about doing it with the value we're seeing. We're seeing really promising results. We're seeing really promising results.
Speaker Change: That was a lot of efficiency and an iron productivity and that's what we're going to be laser focused on. [inaudible]
Speaker Change: and a lot of AI startups who are starting to become customers of us in that segment. And we'll grow into the larger customers and hopefully enterprise customers one day too.
Speaker Change: Great. Well, thanks for taking the questions and for tolerating them. Yeah, thanks so much. See you guys. Thank you.
Speaker Change: Thank you, Jeff. Thank you all of our panelists for joining and Howard and Jennifer will wrap up here and then turning over to you for any final remarks.
Jen: Thanks, Josh. Well, thank you all once again for joining us today. Our strategic focus on innovation with our strengthening leadership team and enhance go-to-market motion positions as well for future growth.
Jen: Our momentum of our tenured enterprise field reps demonstrates the compelling value of our platform, particularly in our large and strategic enterprise customers [inaudible]
Jen: We remain committed to executing our strategy while building on the strong foundation of customer success employee dedication and partner collaboration and doing it effectively and efficiently. I sincerely appreciate your continued engagement as we advance our mission to revolutionize digital operations. Thank you and have a great day.