Q1 2026 PagerDuty Inc Earnings Call

Good afternoon, and thank you for joining us to discuss <unk> first quarter fiscal year 2026 results with me on today's call are Jennifer to holiday pay duties chairperson and Chief Executive Officer, and Howard Wilson, Our 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 those expressed or implied by the forward looking statements. These.

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 measures of financial performance prepared in accordance with GAAP a reconciliation between GAAP and non-GAAP financial measures is available in our earnings release, which can be found on our investor Relations website.

Further information on these and other factors that could cause the company's financial results to differ materially are included in filings, we make with the securities and Exchange Commission, including our most recently filed Form 10-K as well as our subsequent filings made with the SEC.

With that I will turn the call over to Jennifer.

Jennifer: Thanks, Tony Good afternoon, and thank you everyone for joining us today in the first quarter <unk> delivered revenue of $120 million, representing 8% growth at the top of our guidance range.

Jennifer: Our relentless focus on disciplined cost and investment management continued to yield results with non-GAAP operating margin, reaching 20%.

Jennifer: Exceeding our target by 500 basis points given the substantial process. We have made on optimizing our bottom line performance, we have a clear path to GAAP profitability.

Jennifer: Annual recurring revenue increased to $496 million with 7% growth year over year dollar based net retention was 104%, reflecting higher than expected customer downgrades in our enterprise segment and elevated churn in our commercial business. These results reflect transitional dynamics in our go to market notion.

Jennifer: And are not at the standard that we expect from ourselves we are collectively committed to more consistent sales and marketing execution and efficiency and have taken immediate and comprehensive action to improve overall topline results. We did achieve significant improvement in net new paid customers driven by our new commercial digital acquisition strategy leading.

Jennifer: Two our largest increase in eight quarters.

Jennifer: While many of our enterprise relationships spanned several years, we're evolving our coverage model, we're moving from a tactical and transactional approach to building more strategic cross company relationships with our customers. This transition requires us to more effectively scale, our pre and post sales practices, including more comprehensive customer roadmap planning.

Jennifer: And we're structuring professional services and product adoption frameworks. In addition, we left progressing leading with AI from a platform perspective, and developing deeper and more senior relationships from a customer perspective, while we do this well in many large accounts, we can and will scale up more effectively this is a critical focus for <unk>.

Jennifer: <unk> marketing and customer success organizations.

Jennifer: Under the leadership of our new Chief customer Officer, we're executing on this transformation through enhanced wholesale enterprise engagement. These improvements combined with streamlined upgrade mitigate migration planning will enable our enterprise customers to accelerate value realization, while leveraging more of our platform. While these changes will take.

Jennifer: Time were confident they will strengthen enterprise relationships and drive adoption of our advanced capabilities, including an enterprise incident management and our AI solution set Pedro duty advance.

Jennifer: Our Blackberry strategic value continues to resonate with customers as demonstrated by expansion activity across approximately a quarter of our enterprise accounts in Q1.

Jennifer: This broad based expansion reflects the ongoing adoption of Patriot <unk> operations cloud across our customer portfolio and provides a foundation for future growth as these customers mature their digital operations journey.

Jennifer: When critical milestone in our enterprise sales transformation is approaching as more than 60% of our enterprise reps will have been in their role for at least a full year by the end of Q2. This shift reflects our ongoing efforts to expand our sales rep profile to that of a modern enterprise value centric sales executives.

Jennifer: Based on our historical sales ramping data and the anticipated anticipated appointment of a new chief revenue officer, we expect the increased seniority and experience of our maturing sales force to drive meaningful improvement in enterprise contribution to the second half of the fiscal year.

Jennifer: We also strengthened our strategic partnership with AWS announcing our collaboration agreement and expanding our integration capabilities earlier. This month, our platform now seamlessly integrates with Amazon in Q business, Amazon bedrock and AWS incident manager, serving nearly 6000 joint customers are.

Jennifer: Selling example of this is TUI group, the world's largest integrated travel company, which achieved a significant reduction in incident recovery time through our integrated solutions with the cost of a single disruption for an enterprise typically costing nearly $800000.

Jennifer: Our public sector expansion achieved fed ramp low authorization, enabling federal agencies to leverage our AI and automation capabilities, while meeting stringent security requirements. We're actively pursuing fed ramp moderate authorization for further expand our public sector presence, where we already serve over 700 entities.

Jennifer: In addition, we have engaged new partners to support our public sector strategy, including federal state and local entities.

Jennifer: We hosted page or duty onto our 2025, our global customer event series in Q1 to drive demand for the back half of the year.

Jennifer: Attendance increased 40% year over year, and we were pleased with the positive response to our expanded platform value proposition as well as the significant interest in our new AI products.

Jennifer: From a product standpoint, we're evolving our pricing to reduce friction and increase flexibility for customers to leverage all the products on our platform that illusion of our pricing and packaging includes flexible enterprise pricing and the inclusion of AI and automation capabilities across all of our incident management plans building.

Jennifer: Building on our spring release momentum, we're expanding our AI offerings through the partner ecosystem, our new solutions leverage generative AI to automatically summarize incident nodes and post incident reviews, enabling faster issue resolution and organizational learning, our new AI scribe agent Leverages transcripts from zoom.

Jennifer: Microsoft teams to help operations teams summarized calls for better execution faster resolution and protecting revenue and reducing costs. We remain on track to launch three additional AI agents this quarter furthering our commitment to enhance operational maturity and effectiveness for our customers through AI and automation.

Jennifer: Our experienced enterprise sales reps routinely land platform commitments by leveraging the value proposition of the operations cloud the traction we're gaining in emerging native AI vertical in the emerging native AI vertical demonstrates that our platform is mission critical infrastructure for companies building and scaling AI operate.

Jennifer: <unk>.

Jennifer: While we believe the Tam supports multiple winners a roadmap of innovation and proven resilience that scale continue to differentiate us in the market, particularly given the significant greenfield opportunity ahead.

Jennifer: Let me share a few examples that demonstrate our enterprise momentum in strategic sectors.

Jennifer: And the rapidly expanding native AI segment, a leading AI research and development company selected paid your duty for a six figure multiyear commitment. This win underscores the platform's ability to support mission critical AI operations, including <unk> and agents, while meeting the most demanding scale security and reliability requirements.

Jennifer: Their selection of pager duty over other vendors validates the strength and scalability of our enterprise grade platform and strategic relevance in this transformative market.

Jennifer: In financial services, a major enterprise customer expanded their Patriot 80 deployment with a significant six figure upsell to an existing million dollar customer as part of their operations modernization initiatives. We successfully defended and expanded this relationship winning against both established platform players and emerging challenges the competitive with.

Jennifer: It is particularly meaningful as this customer is known for early adoption of innovative technologies and their selection of pager duty as their strategic platform for digital operations validates our market leading position. The trust, we built through consistent platform performance and deep customer engagement combined with our proven ability to increase engineering productivity.

Jennifer: [noise] at scale enabled us to win additional business in.

Jennifer: In a landmark land, a global financial market infrastructure company, which processes could trillions of dollars in security transactions annually chose Pedro duty for a seven figure multi year digital operations transformation. This strategic displacement of several vendors validates our enterprise platforms unique combination of AI.

Jennifer: Ops automation incident management customer service apps and differentiated value proposition in the most sophisticated operating environments. The customer's decision to consolidate their digital operations on our platform for automation and incident management exemplifies our market leadership and mission critical enterprise environments.

Jennifer: Where reliability and scale up and security are Paramount.

Jennifer: Our international execution exhibited steady progress as well evidenced by a major expansion with Europe's leading payment services provider and a competitive platform win with a prominent Japanese education leader, both representing meaningful meaningful six figure commitments.

During the quarter, we continued to support our impact partners, including watch duty, a mobile app and web platform that provides real time wildfire fire information and safety alerts in over 22 states and more to more than 16 million active users who rely on page or duty to ensure we can support them in achieving their life saving.

Jennifer: Mission, our social impact work aligns with our mission to revolutionize operations and supports our ability to hire and retain great talent.

Jennifer: Progressing in meeting the sustainability requirements of our large enterprise customers, including achieving a 90% reduction in our scope, one and scope two carbon emissions against the FY2023 baseline this quarter.

Speaker Change: We recently welcomed Dan party to pay your duties board of directors, Don brings deep operational and financial expertise from his extensive executive leadership experience, including his role as the chairman and CEO of American Airlines, and Vice Chairman and CFO of doubt his deep understanding of enterprise transformation and operational excellence are valuable.

Speaker Change: As we execute our platform vision and enterprise growth strategy.

Speaker Change: Our search for a new Chief revenue officer is progressing well with several accomplished enterprise leaders in advanced stages of consideration.

Jennifer: As we look ahead, we're focused on three key priorities first demonstrating product market fit for our AI offerings through monetization.

Jennifer: Enhancing our enterprise engagement model to drive improved retention and expansion with our strategic accounts and third leveraging automation and AI within our own operations to scale more efficiently and accelerate our path to durable growth and GAAP profitability. This balanced approach helps us to capture the significant enterprise opportune.

Jennifer: <unk> ahead.

Jennifer: This quarter's results reflect both organizational transitions and go to market execution challenges, we've taken decisive actions to strengthen our go to market motion and improve the return on sales and marketing investments.

Jennifer: Sentimental drivers of our business remained strong as Patriot continues to differentiate itself as the trusted enterprise operations platform, enabling customers to scale their AI and automation initiatives. We are confident that our enterprise strategy combined with our demonstrated commitment to operational discipline and strategic capital allocation.

Jennifer: <unk> will drive long term value creation.

Speaker Change: I want to thank our customers for their continued partnership and our shareholders for their support as well as our employees for their customer focus and dedication and with that I'll turn the call over to Howard and look forward to your questions.

Speaker Change: Okay.

Howard Wilson: Thank you, Jim and good day to everyone joining us on this afternoons call.

Howard Wilson: 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 GAAP results in the earnings release that was posted on our Investor Relations website people on the call.

Howard Wilson: Before reviewing our first quarter financial results I want to highlight a meaningful inflection point in our business model transformation.

Howard Wilson: More than 60% of our enterprise reps would have being with page Judy for at least a year by the end of the second quarter, reflecting our strategic investment in experienced enterprise talent focused on higher value more profitable customer relationships.

Howard Wilson: Our strong operational discipline, evidenced by non-GAAP operating margins of 20%. This quarter. We expect these maturing investments to drive meaningful improvement in our financial performance and advanced our steady progress toward GAAP profitability next fiscal year.

Howard Wilson: Moving on to results.

Howard Wilson: Revenue for the quarter was $120 million up 8% year over year.

Howard Wilson: International revenue increased 11% annually contributing 28% of total revenue.

Howard Wilson: Annual recurring revenue exiting Q1 grew 7% year over year to $496 million.

Howard Wilson: We delivered 104% dollar base retention DB NR was negatively impacted by lower gross retention in the enterprise segment. We expect dollar based net retention to remain between three and five and 5% throughout fiscal 2026.

Howard Wilson: Customer spending over advertising dollars in annual recurring revenue was up 5% year over year, resulting in 848 by quarter end.

Howard Wilson: Total paid customers grew to 15247 in Q1, having 127 net new customers, our strongest quarterly customer acquisition in eight quarters.

Howard Wilson: This improvement was driven by targeted enhancements in our commercial segment, where we launched a new digital activation program and lowered the cost to acquire.

Howard Wilson: Korean paint companies on our platform grew to over 32000, an increase of approximately 9% compared to Q1 of last year.

Howard Wilson: Q1 gross margin was 86% at the high end of our 84% to 86% target range.

Howard Wilson: Operating income was $24 million or 20% of revenue compared to $15 million or 14% of revenue in the same quarter last year.

Howard Wilson: The outperformance compared to our guidance was primarily due to lower payroll and other personnel costs.

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 quarter with $597 million in cash cash equivalents and investments.

Howard Wilson: On a trailing 12 months basis.

Howard Wilson: As for $492 million, an increase of 7% compared to a year ago in line with our targets for the quarter.

Howard Wilson: With respect to Q2, we anticipate trailing 12 month's billings growth to be approximately 7%.

Howard Wilson: At the end of Q1 total <unk> was approximately $430 million, increasing 11% year over year of this amount approximately $302 million or 70% is expected to be recognized over the next 12 months.

Howard Wilson: Now turning to guidance for the second quarter of fiscal 2026, we expect revenue in the range of 122, and a half to 124 and a half million dollars.

Howard Wilson: Representing a growth rate of 6% to 7%.

Howard Wilson: And net income per diluted share attributable to page due to ink in the range of 19% to 20 cents.

Howard Wilson: Implies an operating margin of 17%.

Howard Wilson: For the full fiscal year 2026, we now expect revenue in the range of $493 million to $499 million, representing a growth range of 5% to 7%. This compares to the range previously provided of 500 to 507 million dogs.

Howard Wilson: And net income per diluted share attributable to <unk>, Inc. In the range of 95 cents to a dollar.

Howard Wilson: Implies an operating margin of 20% to 21%.

Howard Wilson: This compares to our prior guide of 90 to 95 cents and 19% to 20% respectively.

Howard Wilson: Looking ahead, our strong balance sheet with nearly $600 million in cash and investments provides us significant flexibility to execute on our priorities, while returning capital to shareholders through a $150 million share repurchase program.

Howard Wilson: This balanced approach to capital allocation combined with improving sales and marketing efficiency as our enterprise reps ramped positions us well to deliver improved growth.

Howard Wilson: Half of our fiscal 2026.

Howard Wilson: With that I will open up the call for Q&A.

Speaker Change: Thank you Howard and Jennifer we're going to invite our panelists to ask their questions and we'll turn first to Mr. Rob Oliver O for a bird, Rob if youll come online with us.

Rob Oliver: You guys hear me okay.

Speaker Change: We do.

Speaker Change: Okay great.

Speaker Change: Rob.

Speaker Change: How are your Howard.

Speaker Change: I'm trying to turn on my camera and it doesn't appear to want to come on.

Speaker Change: There you are there you are.

Speaker Change: There was a little slow today.

Howard Wilson: So.

Speaker Change: Thank you for taking my questions I guess first question for you you know obviously you guys called out the <unk>.

Speaker Change: Some of the enterprise pressure that Youre seeing you know obviously the pace of innovation right now within the ICA, Sweden in particular within Dev ops is pretty rapid given the emergence of generative AI and I know you said you know.

Speaker Change: Proving market fit or the language that you guys used for your Jennie O solutions is one of your goals.

Howard Wilson: Could you talk a little bit about how much of this is execution and how much of this is people, perhaps holding back and looking at what are the solutions might be out there is there a little hesitancy on the part of some enterprises given just how rapid.

Speaker Change: Evolution of this market is on committing to multi year contracts anything youre seeing there would be helpful. And then I had a follow up for Howard sure and thanks for your question, it's primarily execution.

Speaker Change: We undertook an initiated significant transformation in the quarter. It led to some gaps in the way we engage customers. The combination of moving some reps out of the business, bringing new reps into the business Reassigning territories as you often do at the beginning of the year just led to some of those coverage gaps and that's on us.

Howard Wilson: I don't I think that's an anomaly as opposed to an ongoing issue and what we see when I look at what gives me confidence is the fact that new logo growth this quarter, which really signals demand, particularly from native AI companies, but also from large companies that are making investments in AI infrastructure.

Howard Wilson: In AI offerings, and even using AI internally those new logos grew by grew more than we've seen in the last two quarters. The last two years eight quarters, the changes and the investments that we're already making in sales are leading to early indicators of what I think will be stronger executions reader.

Howard Wilson: Back half of the air and as Howard mentioned more than 60% of our reps in the back half will be entering their second year or more with us. So we're we're gaining experience and these are reps that come to us with a more of a modern enterprise sales capability, a value centric selling motion and a top down.

Howard Wilson: It's a relationship driven capability with with the C level folks that are making the decisions that you're talking about we've proven I think the value of the operations cloud with these large transformative deals I talked today about a financial market infrastructure company that did a seven figure deal with us I'm really leveraged.

Howard Wilson: The entire operations cloud, we talked about a large yellow lab provider now that also landed with us as opposed to working with them.

Howard Wilson: Pension or other vendors out there. So I don't think it's about the decision making process I think it's about us getting ourselves to the table and effectively demonstrating what we know works replicating what we've done with transformative ops called deals elsewhere and scaling that through the organization and as you know we've had success in increasing the percentage of Ara.

Howard Wilson: Our that's covered in multiyear deals and.

Howard Wilson: The last thing I would say that gives me a lot of confidence around this and also you know hasnt been very focused on execution as we built a very strong financial base. So we will continue to focus on improving our efficiency, we have a clear path to GAAP profitability and sales and marketing efficiency and a return on it.

Howard Wilson: <unk> is a specific focus going forward.

Howard Wilson: Great.

Speaker Change: That's really helpful. Thanks, John I appreciate it and then Howard I had a quick follow up for you and that was just around the.

Howard Wilson: The full year guidance implies you know.

Howard Wilson: Revenue growth exiting the year at 5%. So I'd just be curious to hear from you.

Howard Wilson: Essentially how sort of derisked that feels to you I guess a different way of asking the question would be.

Speaker Change: What sort of precautions or or or extra considerations did you did.

Speaker Change: You bring to bear in that guidance relative to where we were at the beginning of the year. Thank you both very much yeah sure Rob I would describe the guidance that we provided as being prudent.

Speaker Change: The primary input to that clause based on the organizational transitions and some of the go to market execution challenges. We had in Q1 that obviously has a flow on effects in terms of revenue through the rest of the year.

Speaker Change: On the basis of that I reviewed what our current view would be in terms of that transition and the pace of those transitions and as a result of that has affected in that whilst we would see improvements in terms of bookings through the back half of the year as our sales reps continue to ramp that we would.

Speaker Change: Need to have a different guidance range to reflect some of the the early part of the year.

Speaker Change: Thanks, Rob.

Speaker Change: Thank you and next we'll turn to such a thing <unk> with Morgan Stanley.

Jamie: Great. Thank you everyone. This is jamie on for subjects.

Jamie: It'd be great to just get a sense of what kind of adoption trends, you're seeing in new modules, such as major duty advanced AD enterprise plus.

Speaker Change: Hey, Jamie it's it's still early days I mean, some of the things that we're seeing in terms of adoption of our generative AI solution is one we have customers that.

Speaker Change: Are very willing to experiment and other customers have to go through a significant process to get permission to experiment, but when you look at the the products themselves. I mean, one they are class leading applications that now have a chat native experience and a lot of our customers are working.

Speaker Change: N teams are in slack and really want to leverage best in class incident management and automation applications, we enable them to do that without moving around we're bringing unmatched data and machine learning to the table. So other vendors you know, we'll talk about incident management or automation that they their dataset does not compete.

Speaker Change: In terms of our ability to orchestrate the entire incident lifecycle by leveraging proprietary workflow events people and embedded machine learning data.

Speaker Change: To deliver that automation and response and one of the things that we changed in the last quarter was we started to see the access to some of those newer features in all of our pricing packages historically to discover and try some of those things you had to be and you know one of the higher packages and I think that's created that's removed some friction from trial.

Speaker Change: We're also making it easier to access our products by.

Speaker Change: Enabling customers to opt out as opposed to requiring them to opt in so that reduces some of the friction in the product led growth slow, but the feedback from both our early access partners and customers who are using the generative AD products has been very strong and these are products generally V. I is a big time saver.

Speaker Change: It's additive to the humans that are under stress trying to respond to and diagnose an event. We're really excited about the adjourn take offering where you're gonna be picking up whole tasks and workflows and really taking work off the plate of responders and frankly, I think youll need less responders and lots of people capacity.

Speaker Change: Being interrupted during their day to manage these these big incidents. So I'm excited about that and overall very good reaction at Patriot IDIOM tour. It was probably the thing that we heard the most discussion about from customers how do I get my hands on this how do I get my team's starting to use. This you know what do I need to do to.

Speaker Change: To make that work. So it's still early days for days for us, but with a lot of confidence around the combination of our generative AI offering and our.

Speaker Change: Our agenda offering that's coming out this quarter.

Speaker Change: Great. Thank you so much and then just as a quick follow up you know would you be able to just give any additional color on the demand trends you're seeing.

Speaker Change: A portion of the business versus enterprise.

Speaker Change: Yeah. We've seen him. This is now two quarters of I would say in an improving demand signal from F&B, where you know over previous quarters, we were seeing a real deceleration, we're seeing new logos back new customers landing again, and I think a big part of it is access to capital that you know there were seeing.

Speaker Change: <unk> leadership from that segment of the native AI companies that are well funded that are growing fast that are adding employees quickly. But also are looking for a modern highly scalable highly secure operations platform because they can afford risk around them operational issues.

Speaker Change: So stated with their agents their applications their infrastructure their L. EMS and we've also seen that trend crossover into enterprise you've heard us talk in the past about large semiconductor providers that are working with us and investing and expanding multiple quarters. During the year. So from a from a sector person.

Speaker Change: Active I would say you know F&B continue to strengthen from one quarter to the next I think us separating our commercial segment, which is really a digital first motion and moving that under our CRO to in order to refine our focus on enterprise is also an important cause.

Speaker Change: It means we can continue to evolve our product led growth motion that drives a lot of top of funnel acquisition and maturity, but also be laser focused on the enterprise transformation that we are working through.

Speaker Change: Excellent. Thank you so much for the question.

Speaker Change: My pleasure.

Speaker Change: Okay team next we'd like to hear from Miller jump at Truest Miller. Please go ahead.

Speaker Change: Hey, thanks for taking the questions.

Speaker Change: So I guess I'd like to also just dig in a little bit more on the enterprise churn you all have talked about.

Speaker Change: Particularly if you could give any more color on how broad based this was in the customer base and then maybe just in terms of the scope of the deals like.

Speaker Change: From a linearity perspective really like was this something that kind of popped up at the end of the quarter. Obviously April was a crazy month and you know what.

Speaker Change: Or do you see it now.

Speaker Change: Clearly you are in the same hey, Brian was in yeah, just to just to distinguish the two so we saw them more churn elevated churn in F&B and that's you know that that tends to be our long tail. Those are smaller customers et cetera. In enterprise issue was downgrades and I mean, we had some anomalistic things happen.

Speaker Change: This quarter for instance, we had a handful of customers that where we saw downgrades in terms of seats because two companies merged together and those mergers where synergistic and resulted in just less total employees and we saw that across several regions I think it was more a coincidence than.

Speaker Change: A trend we also saw some companies that I think.

Speaker Change: We're being more cautious because of just the ongoing uncertainty in the macro environment I mean, I would say that the macro continues to be uncertain.

Speaker Change: For some folks and it's a lot of it is driven by different reasons than maybe the uncertainty was driven by two quarters ago, but it's still uncertainty and so where we need to be more proactive in helping customers understand how we become part of that solution to help them find it.

Speaker Change: Additional operating margin help them create efficiencies help them reduce the amount of people necessary to do things free people up to to build innovation and deliver topline revenue and that's something that I'm confident you know our enterprise sales forces is scaling towards and certainly our top reps do that very very.

Speaker Change: Effectively.

Speaker Change: To your point on seasonality our quarters have become more backend loaded as we've shifted our focus to enterprise in April was a little bit of a weird month, but.

Speaker Change: I would say that our performance really driven by our execution as opposed to anything macro related and we're committed to addressing that quickly.

Speaker Change: And I would just add to that that we've introduced.

Speaker Change: Produce a number of <unk> changes.

Speaker Change: Chief customer officer joined US, which is really changing the way in which we think about renewal management and a formal proactive way.

Speaker Change: I think those changes from an operational perspective will will help mitigate some of the type of retention that we saw in our retention issues that we saw in Q1.

Speaker Change: It's really helpful. If I could just sneak in one more for Howard.

Speaker Change: Given given that it's the enterprise. We've got you know I think really constructive pipeline commentary you gave at the beginning of this year as well as reps, becoming more mature as we move through this quarter.

Speaker Change: Curious just how that translates into your expectations for net retention rate as we move through the year and maybe what's baked in there.

Speaker Change: General characterization, yes sure.

Speaker Change: The way we've been thinking about net retention for this year is we expect it to be in a range of three times and 5%.

Speaker Change: Part of that is because we.

Speaker Change: When you look at net retention, it's a trailing metric for us of any shortfall that you might have in one period been carries through into the next period. So when we look at it we've modeled into it.

Speaker Change: So that the effects from Q1 through the rest of the year and taken into account. How we would you expect to see rigs ramp as we go through Q2 Q3 and into Q4 and that's with that perspective, we would expect to see some change or shift in the dollar based expansion through the year.

Speaker Change: Say is what's positive is that we have a lot of opportunity for expansion without customers. So even in this quarter, we sold 25% about enterprise customers expand with us, albeit small expansion opportunities then I often look at our customers who spend more than 100, K with us and they only represent 6% of off.

Speaker Change: Our total base.

Speaker Change: The opportunities there for us to get a whole lot more customers into the cohort spending more than 100, K. So our enterprise.

Speaker Change: <unk> health team have a lot of opportunity ahead of them since we have this.

Speaker Change: Great base of customers today, who are ripe for expansion.

Speaker Change: And that goes well with the increase that we see in terms of new customer acquisition.

Speaker Change: Thank you very much.

Mountain Bullock: And next thank you I will turn to mountain Bullock with Bofa.

Speaker Change: Please go ahead.

Janet Howard: Great Hi, Janet Howard.

Speaker Change: This is Matt Bullock on for Koji Ikeda, Thanks for taking the question.

Speaker Change: I wanted to touch on billings so.

Speaker Change: It looked like a pretty strong quarter billings accelerated to 7% year over year versus 5% last quarter, but TTM billings decelerated a tech I know you guide to TTM billings, but maybe could you help us think about what the better indicator is for the underlying strength of the business going forward.

Speaker Change: Yes, the trailing 12 month's billings tends to align more closely with our annual recurring revenue number. So that gives you a clearer picture than the quarterly billings because that hopefully billings are often subject to a lot of fluctuation because of the way in which we we co term without customers.

Speaker Change: Okay.

Speaker Change: Understood. Thank you.

Andrew Sherman: Okay next we are going to hear from Andrew Sherman T D. Cowen Anders please join us.

Speaker Change: Oh, great. Thanks, Jim Howard sale.

Speaker Change: Hum.

Speaker Change: Sting when Jan on the AI Research company six figure wins and maybe just some more color on how this deal came about is this a big household name we would all be familiar with what products and use cases are they using is there room for additional expansion from here or anything like that yeah. We work with several of the household names.

Speaker Change: You would be familiar with in the AI World and we're getting a lot of confidence from our ability to win.

Speaker Change: These folks are incredibly highly valued and they have a lot of the line in terms of their delivery and execution and there are pure tech companies. So the technology needs to work and it's not perfect and we all know that all technologies complicated increasingly more complicated doesn't work all the time, but when you're also dealing with a combination of.

Speaker Change: L. L M building infrastructure to support those Ela lens, managing agents and applications associated with those L. L M.

Speaker Change: It's a new operating frontier and we're perfectly poised to meet that challenge right. Now so we're finding as long as we are with the right technical leader, who has a vision for what their operations need to look like and it's also thoughtful about end user experience and the cost of failure.

Speaker Change: And what that looks like that if there's a clear path in this new set of use cases.

Speaker Change: Around managing the operations of your AI investments, whether they're your hardware investments or energy consumption or applications or agents.

Speaker Change: Is one of the things that is expanding our Tam and so where we're starting to see kind of traditional like I just need to manage my my plot for my products and services as well initially I need to have people well orchestrated if something does go wrong to wait how can I integrate directly into some of these products and services to improve the road.

Speaker Change: Buses and the reliability of the service to the end user themselves and in.

Speaker Change: In some ways you can think about it as and adjacent very similar metaphorically use case to incident management, but the stakes are a lot higher the technology is more complicated and time is much more important the cost of time is much higher and the last thing that I would say is there's a lot of.

Speaker Change: Certainty around the industry associated with security reliability and resilience and so some of the smaller.

Speaker Change: Smaller players just can't rise to that occasion from a technology perspective.

Speaker Change: Makes sense nice.

Speaker Change: How do I get one more for you Joe how it had been non incident management products perform in the quarter that had been a pretty good growth driver for you and most of the last year.

Speaker Change: Just curious how that trended this quarter, Yeah, Hey, I off continues to sort of be at the front of the home and it's interesting to me when people ask me about our AI products. It always theres a lot of currency and newness in that question, but we've been at this a I thing for now eight and a half year.

Speaker Change: So our AI ops offering is becoming increasingly mature and we're also seeing new use cases around it develop and I'll give you. An example of one where customers are asking us to help them understand or identify ways. They can reduce the cost of observer ability spend. So you know people are writing here.

Speaker Change: <unk> checks for observer ability theres, a lot of signals coming in or a lot of events coming into their infrastructure teams and ops teams to try and manage and not all of that event flow is is signal a lot of it's noise and most of our customers are using 510, 15 observer ability players to try and match.

Speaker Change: <unk> their operational environment. So AI at one of the use cases for AI ops is looking at how do I manage that cost better and that that's it better get a higher return on investment by really understanding where I'm getting signal versus where I'm getting where I'm, sending noise unnecessarily and so as that product matures, we're seeing more use cases.

Speaker Change: Then simply during incident or post incident analysis, we're also seeing customers use AI ops to.

Speaker Change: Really try and stack, where you can understand like where is there for agility or tech that driving the most cost what should they be prioritizing in terms of burning down that tech debt or you know where my day.

Speaker Change: Push or prioritize some investment to reduce operational risk across their technology ecosystem and and so even as I described these cases customers are coming at it from very different places in the continuum of just getting started to being operationally mature and really fine tuning.

Speaker Change: Excellent. Thank you.

Speaker Change: No problem.

Speaker Change: Thank you and next from Craig Hallum, we'll hear from Daniel Hibshman.

Jane Howard: Jane Howard good to see you.

Speaker Change: Hi, Daniel Daniel.

Speaker Change: Just wanted to start off with just with the profitability God I don't think we've really touched on that too much yet in terms of revising that upward. You know is this cost cuts in certain areas is this not layering in investment previously expected just costs coming in later, but what if anything needs action just kind of walk walk us through that no assurance.

Speaker Change: So Daniel we have a track record of.

Speaker Change: Improving operating margins, so I take a long term programmatic view around how do we help.

Speaker Change: Ensure that the investments, we're making are delivering and that we were able to become more efficient.

Speaker Change: Overtime, and so certainly as we've looked through the the rest of this year and into next year. The investments that we've made to date will provide us with capacity to be able to exceed our growth goals, but also ensure that we continue to invest in innovation. So we've taken a view on.

Speaker Change: On an operating margin for this year and in fact, if you look at our long term operating margin goal of 30%.

Speaker Change: We have a view around how do we in fact I'm sure that will be continuing to to be a profitable growth company that means that when I look through our sales and marketing from an efficiency perspective, we have an opportunity to be more efficient.

Speaker Change: So that's an area that we will continue to focus on and of course for us the bigger picture is that milestone around getting to GAAP profitability and that gradients were effective all of us.

Speaker Change: Taking a serious look at how do we.

Speaker Change: Prove will reduced stock based compensation for example, where we've seen a reduction even in this quarter. It was.

Speaker Change: Seven.

Speaker Change: Seven percentage points lower than what it was in Q1 of last year and continuing to then manage things like dilution in share issuance as part of that process. So for us. It's a long term view and continuing to put in place in a programmatic a multifaceted approach to ensure that we get to to improving operating margins.

Speaker Change: Okay. Thanks, Howard and then just in terms of clarifying the messaging around it.

Speaker Change: Robin. The first question was asking about in terms of the guide implying a bit of a D. So and in the revenue growth rate by the back half to around call. It five 6% by Q4, and we discussed on the call here you know some expected improvements through the back half from you know hopefully you know see our ROE coming in your reps ramping just talk me.

Speaker Change: Through the they're the message to get that clear in terms of expecting some other D cell and revenue, but also expecting improvement just where should we be looking for that improvement if not in the revenue top line is that internal things so that like quota attainment sales cycles and should we be looking at an AOR just.

Speaker Change: That are flying around that that is correct. So we would expect to see because most of our revenue is subscription based we would expect to see improvements in the bookings, which won't translate into in too much benefit for revenue within this year. So just the nature of.

Speaker Change: The revenue recognition model means and what we get to recognize is reduced as we go further through the year and having the back half of the you're expecting to see that improvement in execution reflected in bookings.

Speaker Change: In IRR effectively in the back half of it means that that revenue benefit largely flows into next year.

Speaker Change: Okay.

Speaker Change: That makes total sense. Thanks Howard thanks.

Speaker Change: Daniel.

Speaker Change: Thank you.

Speaker Change: We do have a couple of more analysts signed up just a reminder to our team out there if you'd like to ask a question. Please he assumed to raise your hand. If you have joined US of panelists said is next we're going to hear from Jay Didnt Patel, Jade and is with excuse me J P. Morgan.

Speaker Change: Great. This is Jason on for pendulum Boris Thanks for taking my question.

Speaker Change: Just a quick one I understand the trailing 12 month billings guide of 7% in Q2.

Speaker Change: But can you talk about how youre thinking about the rest of the year should we expect more stable trends there could you see some acceleration thanks.

Speaker Change: Yes, hi, Jason So in terms of billings growth, we haven't provided any guidance beyond that.

Speaker Change: The the numbers that we've provided in terms of this this next quarter on a trailing 12 month basis, but directly the way that we're thinking about it is that in line with our sales reps ramping we would expect to see overall.

Speaker Change: Bookings performance in the back half of the year than we would in the front half of the year. That's typically translate into improvements from a billing perspective, and we would expect to see it show up in an improvements from an IRR perspective.

Speaker Change: Great. Thank you.

Speaker Change: Okay team it looks like we're rounding it out with Jacobs.

Speaker Change: I'm William Blair, Jacob if you'd like to join us.

Speaker Change: Yes.

Speaker Change: This is Jacob on for Jacob Bears and thanks for taking my question I just wanted to touch on what Youre seeing in terms of visibility from a large customer. So you previously highlighted that.

Speaker Change: The product deals are starting to give you more visibility into the pipeline, but just given some of the moving pieces sales in the broader macro has anything changed on that front.

Speaker Change: No I think the enterprise market environment and demand for the multi product platform and in fact multi year term deals continues to be strong and this is really about us executing and the thing that gives me confidence as I look at some of the transformative deals we do each quarter and we talk about.

Speaker Change: A few of them are in prepared remarks, it really is about replicating and scaling.

Speaker Change: Just sort of recipe that works there, but there is the demand for our products and services, particularly our AI enhanced incident management and AI ops as well as automation continues to be very strong in some of our customers move faster than others, some move slower than others and we saw.

Speaker Change: Some of that pace pick up in the native AI segment of customers and then we will see some customers that mature much more slowly, but I think.

Speaker Change: And the opportunity to capture that demand is within our control we've expanded our tam by adding new products and services to the platform. We're seeing a lot of interest in our AI centric products, but we also see that new use case for helping our customers manage their AI product services and <unk>.

Speaker Change: And so.

Speaker Change: I'm very confident about our ability to accelerate growth in the back half.

Speaker Change: And to do so while maintaining and delivering on our commitment to improve our efficiency to get to a GAAP profitability and to increase the total shareholder return that we're delivering to our shareholders.

Speaker Change: Got it thank you.

Speaker Change: Thank you.

Speaker Change: Team, we had one more hand go up if you'll allow it.

Speaker Change: I think we have a member and from Scotiabank.

Speaker Change: Okay.

Nick: And for Nick.

Speaker Change: So just maybe talk to me thanks.

Speaker Change: Hey, John and Howard you have John governments on for Nick and Thanks for taking my question.

Speaker Change: So as we think about the potential for a R to reaccelerate back to double digits can you maybe just talk about what the biggest lever there is that need improvement from gross expansion improvement is it more on the retention side and the follow up is the customer adds continued to be solid. So can you just comment.

Speaker Change: On how that U E R from expansion in the upsell should trend versus new customers as we think about the path to reacceleration, yeah, our customers tend to land small and grow over time historically in that transactional.

Speaker Change: Model that that served us very well over many many years, but as we've transitioned to more of a strategic enterprise motion. The lands are getting bigger, but they take longer I think the area of focus for US very clearly is one making sure that we retain our strategic customers and then we grow those customers.

Speaker Change: Her through ensuring their value realization, and that's where having Alison our new chief customer officer in place to sort of mature the post sale services post sale adoption support that I think helps us.

Speaker Change: To get there I think there is a tremendous amount of untapped white space within our base alone, but we also rely on what has historically been a strong e-commerce kind of a product led motion for those labs. So it's I would never say, it's one or the other but retention and expansion of our Mo.

Speaker Change: The strategic large enterprise customers and execution around that demand that we see in the market is our focus doing that more efficiently is also important.

Speaker Change: Is that helpful.

Speaker Change: Super helpful. Thanks, guys, great. Thank you.

Speaker Change: Jim It looks like we've made it to the end of our questions Jennifer will turn it to you for any final remarks. Thank you. Thank.

Speaker Change: Thank you all for joining us today I know, it's a busy earnings week and we just really appreciate your time and most of all I really appreciate our shareholders and our customers for their continued partnership and support and appreciate the customer obsession and dedication of our employees. So I hope you all have a great day, thanks for joining us.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Goodbye.