PagerDuty, Inc.

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the PagerDuty OneQ FY 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I will now turn the call over to Karen Walker, SBP of Finance of PagerDuty, you may begin your conference.

Thank you, Mike. Good afternoon, and thank you for joining us on today's conference call to discuss the financial results of PagerDuty's first quarter of fiscal 2020. With me on today's call are Jennifer Tejada, PagerDuty's chairperson and chief executive officer, and Howard Wilson, the company's chief financial officer. Statements made on this call include forward-looking statements. Forward-looking statements 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 such statements. Forward-looking statements represent management's beliefs and assumptions only as of the date such statements are made, and we undertake no obligation to update these forward-looking statements. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance. all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings release. Further information on these and other factors that could affect the company's financial results are included in filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in the company's Form S-1 previously filed for the SEC. Now I'd like to turn the call over to our CEO, Jennifer Tejada. Jennifer?

Thank you, Karen, and thank you everyone for joining us today on our very first earnings call. We had a strong start to our first fiscal quarter as a public company, and we're excited to share our Q1 results with you. I'll start with a few financial highlights, then provide an overview of our business model, and finally discuss our engines for growth. Our year-over-year revenue growth continued to accelerate in Q1 to 49%, delivering a record $37.3 million in revenue and robust 85.7% non-GAAP gross margins, an improvement of 100 basis points over the same year-ago period. These solid results were driven by continued demand and execution across industry verticals and customer segments, especially enterprise. We ended the quarter with 11,680 customers, adding a record 468 net new customers, Complimented by consistently strong expansion within existing accounts. Overall, it was a terrific start. I'm both appreciative of our customers' trust and loyalty and proud of our team and their execution. We pioneered the digital operations management category, and this quarter's results provide compelling validation of our continued leadership. The growing demand for digital operations management, the fundamental need to orchestrate real-time, critical work, is driven by a number of macro trends. First, the modern consumer is experience-driven and impatient. Companies must meet consumers' increasing expectations for a perfect experience. Second, every company is becoming a software company. Digital transformation has become a top three CEO priority at not only large companies, but also at mid-size and late-stage growth companies. Third, companies are migrating their digital operations to the cloud and building cloud infrastructure. This is very powerful, but it is hard and it increases complexity and requires companies to change the way they do things. Fourth, DevOps is increasingly mainstream and proving to be a strategic enabler. We see DevOps principles being adopted across multiple business functions, from security operations to business operations. And finally, developer and associated technology headcount is growing rapidly. much faster than other occupations, and we benefit from our customers' organic headcount growth. These trends all present tailwinds for PagerDuty. Our cloud-native real-time operations platform provides actionable insights across an increasingly complex, far-reaching technology ecosystem, intelligently orchestrating immediate work across teams. PagerDuty's unique platform combines machine data with any software-enabled environment or device, and human behavioral data along with workflow information and business metrics to automate and orchestrate mission critical work in seconds. This powerful combination ensures the right people work on the right problem or opportunity at the right time so businesses can keep revenues flowing, cut operational downtime and keep their employees and customers engaged and happy. PagerDuty supports teams in their moments of truth. when seconds make the difference between delighting or alienating an important customer. Applying Agile and DevOps best practice to the challenge of detecting unforeseen issues and managing urgent critical work has been a game changer for companies undergoing a digital transformation. By automating and orchestrating work that previously took days and cost millions of dollars to minutes with imperceptible business impact, PagerDuty has changed incident management from linear reactive response to dynamic proactive prevention. Our platform allows our customers, from the most innovative disruptors to the largest industry leaders, to improve their operations immediately supported by over 350 out-of-the-box integrations. This API-based interoperability supports modern open work, making it easy for users to create workflows and integrate incident information into collaboration and service management products like Slack, Zendesk, and Salesforce while strengthening PagerDuty's unique position as the central nervous system for the digital ecosystem. Let me give you a quick example of how this works. Imagine you're online shopping for a Golden State Warriors jersey. You do a quick search, find an online store or shopping app you like, and it seems like a straightforward transaction. It's a slick user interface. You can do it on your phone. But when you go to checkout, nothing happens. You get the dreaded spinner, or as my daughter refers to it, the wheel of death. What's sitting behind you, your seemingly simple transaction, is an increasingly complicated set of order management, dynamic pricing, and payment applications, underpinned by a very complex infrastructure and usually a mix of cloud and on-premise networking technology. Here's what's happening in the background at the e-commerce company when your checkout screen freezes. Several monitoring applications simultaneously fire alerts to different teams. New Relic and Astonix send a developer team an issue with the application. Datadog sends an IT team a network alert, while Zendesk or Salesforce alerts the sales customer service people that ticketing volume is increasing. And at the same time, Amazon CloudWatch admin team that server capacity is an issue. These disparate, often globally dispersed teams then work these events in silos, unaware they're all troubleshooting components of a single related issue that's fast becoming a customer issue with negative top and bottom line consequences. Meanwhile, you, the consumer, have given up and gone to a competitive app to buy your warrior swag. Hence, getting this right is not only mission critical, but an imperative to survive today's hyper-competitive world. With paid platform, e-commerce company command alerting to consolidating separate events into single incidents, intelligently orchestrating work across the right team, automating responses through machine , and reviewing the optimal health of teams and services to drive continuous improvement. PagerDuty helps companies transform their digital operations to improve the end consumer experience, protect revenue, and reduce unplanned operational expense. The market opportunity for digital operations management is significant. We estimate the incident management market alone is a $25 billion TAM that we serve with our core offering. Not only is it large and growing, many of our new customers are greenfield opportunities. As companies use the full capability of digital operations management and apply PagerDuty to an infinite number of use cases, this TAM increases substantially. With less than 1% penetration, we have just begun to scratch the surface of the enormous potential of this market. PagerDuty has multiple engines for growth, giving us confidence we can advance our lead and further penetrate this market, providing we continue to execute well. These include, one, our viral platform for real-time operations founded in DevOps, two, PagerDuty's broad applicability and ease of use leading to new use cases, three, our new product automation, four, our land and expand go-to-market motion, and finally, our early efforts in regional expansion. Let's start with DevOps. PagerDuty's cloud-native platform was designed based on DevOps best practices for time-critical, unplanned events in an increasing, complex, data-overloaded world where other solutions were built before the advent of the cloud. It's uniquely architected for resilience, proven at scale and tested daily by progressive tech companies like Elastic and Netflix, and huge, highly regulated companies like Royal Bank of Canada and the world's largest e-commerce players. Rather than automating forms into linear workflows, which is slow, siloed, and static, PagerDuty applies DevOps principles, including swarm-based collaboration, empathy, empowerment, and learning, orchestrating action dynamically, and creating a learning loop with every incident. The platform and all of our products are mobile-first, designed for the user with immediate time to value through industry-leading integrations and intuitive self-service implementation. Our newest products augment our core platform by providing operational insights for teams and benchmarking for leaders in analytics, delivering real-time visibility of customer and cross-service impact during an incident, offering actionable stakeholder and status communications to speed collaboration, and automating previously manual tasks with machine learning-based event intelligence. The platform addresses challenges presented by increasing technology complexity, and the need to orchestrate work in service of protecting the brand and customer experience. The broad applicability of PagerDuty's platform is another engine for growth, made possible by our intuitive, easy-to-adopt user experience. This makes it quick and simple for teams to deploy PagerDuty for problems well beyond the purview of technical teams. I highlighted Good Egg's real-time produce quality use case for many of you on the roadshow, and if you haven't had the chance, I encourage you to read about our partnership with them in our S-1. During Q1, we continue to see new applications of our real-time operation solution outside of development and IT. Following a two-week trial, one of the world's largest oil and gas companies adopted PagerDuty to supply fuel trucking terminals in most of their 14 countries. With a throughput capacity of 5 million barrels a day, resolving operational issues in minutes versus hours directly benefits the bottom line and enables a safer work environment for employees. Prior to PagerDuty, communication for maintenance and emergency support along with coordination between operations and foreign fuel supply terminals could take hours to resolve. Using our platform for real-time operations, incidents such as fuel spills, inoperative pumps, safety issues, or operational concerns are now resolved in minutes, preventing potential crises from occurring. Innovating new products on the PagerDuty platform, enhancements to our existing products, and increasing the number of integrations have also contributed to growth. Last year, we launched analytics, visibility, and event intelligence. These new offerings have enabled our customers to go beyond on-call scheduling and incident management to facilitate digital transformation, proactively managing their digital services at scale, and preventing issues from disrupting customers and business outcomes. Analytics, Visibility, and Event Intelligence utilize machine learning and human response data to identify and resolve potential incidents, mitigating both financial and reputational risk. While it's still early, we've seen growing adoption from our new products across all segments. In Q1, one of the leading hypergrowth electric scooter companies decided to replace a competitor's product because it failed to scale reliably with them. They came to PagerDuty to support their real-time operations and immediately adopted modern incident response and began using the platform across three teams, DevOps, IT, and security. We launched several new features and enhancements in the first quarter. For event intelligence, we introduced advanced event automation, intelligent alert grouping enhancements, and alert grouping previews, reducing the signal-to-noise ratio, incident counts, and unplanned work. In addition to adding one-touch conferencing to moderate incident response for connecting teams quickly, we introduced status communications for the intelligent enterprise to keep impacted teams informed and launch live service updates via mobile devices to allow stakeholders to receive urgent business-oriented status updates. At the 2019 RSA Conference in March, we announced more than 25 integrations and integration features specifically designed for SecOps teams. We also released enhancements to our existing integrations to support hybrid ops for medium and large companies where IT development and customer support teams need to collaborate on time-sensitive responses. These included new, deeper workflow integrations for Slack and ServiceNow, providing fast, context-rich information about incidents, with the bidirectional support allowing users on different teams and tooling to collaborate seamlessly and save time and resolve issues before they impact customers. Our hybrid go-to-market model drives efficient growth. Most of our customers land through self-serve and expand over time. It's often a single developer team in an organization who purchases PagerDuty to improve the reliability of a service in their charge. Use expands virally within the first team, then to additional teams, and ultimately additional departments, as they see the personal and team value of being on the platform. Departmental and company-wide initiatives like DevOps and digital transformation or cloud migration often catalyze more significant expansion to customer support, security, and business operations for both incident management as well as other department-specific applications of our technology. We complement self-service adoption with a high-velocity Salesforce primarily focused on expansion. Our inside sales teams serve the mid-market and SMB segments from metropolitan hubs, while the enterprise segment is served by an experienced, high-velocity field sales team. Our hybrid self-service sales-assisted model reduces friction and leads to a very strong net retention rate, which has consistently been above 135 for over the last year and was 137% in Q1. In several key accounts, we saw expansion with existing teams, as well as expansion to new departments, including Zoom, who, like PagerDuty, recently made their public debut. Zoom is focused on ensuring happy customers by providing a seamless experience to their customers, which means preventing outages and interruptions. Zoom's PagerDuty engagement started with a single development team billing on a month-to-month basis and has expanded more than six-fold, with an existing and new teams across development, security, customer support, and customer success. By deploying our platform, Zoom increased the uptime for their Conference in Cloud platform. Additionally, a large public enterprise software platform company expanded their PagerDuty deployment to include their product teams and operations centers. While this company has been a customer for many years, recent reliability and availability challenges associated with scale became CEO priorities. PagerDuty helps this market leader prevent business impacting outages and improve overall customer experience and retention while reducing SLA liability. While most of our customers are acquired online, our Salesforce engages directly in enterprise accounts and periodically lands large deals. Last quarter, we were pleased to welcome a Fortune 100 Global Investment Bank as a PagerDuty customer. We won a seven-figure multi-year contract for two different use cases. The bank is both modernizing incident management across shared services and also using PagerDuty to improve reliability for a high-volume retail business. We've replaced legacy homegrown tools to help optimize their entire digital operations management lifecycle, decrease system outage time, and to ultimately increase revenue and uptime. Finally, our early effort in regional expansion delivered strong growth in international markets in Q1, with Q1 year-over-year growth exceeding our domestic growth rate. Cemex, which is one of the world's largest cement makers based in Mexico, became a new customer. Like the aforementioned oil and gas company, Cemex adopted PagerDuty to facilitate the on-demand delivery of cement, a time-sensitive, business-critical operation. We expanded our deployment with a global recruiting services company based in Japan. A significant number of indispensable microservices are tied to their consumer-facing job search engine. In just a few years, their PagerDuty user base grew by nearly 10 times, including global site reliability engineering teams. Last quarter, they implemented event intelligence across teams in Japan and North America to address the proliferation of inbound events and free up their teams for innovation efforts. Our results this quarter reinforce the breadth and depth of our community engagement. PagerDuty is loved and trusted by hundreds of thousands of users for whom we focus our design, usability, and value proposition. It is a company imperative to build an innovative, inclusive, equitable, and socially responsible company that reflects this community. We've been intentional in developing a diverse board and leadership team, an inclusive, collaborative, and transparent culture, and a talented, diverse workforce. In February, we opened our sixth office in Atlanta, and important cross-functional hub. We selected Atlanta to both create access and jobs for local underrepresented people seeking careers in the tech industry and to acquire talent from richly diverse local top engineering and business schools. In Q1, Rathi Murthy, CTO of The Gap and an experienced digital transformation leader, joined our board, bringing us close to gender parity, which we've already achieved in our leadership team. We believe codifying inclusivity is an important contributor to our outsized performance, our high employee engagement and retention, and our trustful relationship with our users, customers, and partners. Our IPO in April saw the funding of our 1% pledge, positioning PagerDuty.org, to support a growing number of nonprofits in achieving their social impact mission. To conclude, revenue and customer growth acceleration continued in Q1. We are early in our mission to elevate teams to the outcomes that matter, and we remain encouraged by market signals and momentum. I am proud of both our results and how we've achieved them through inclusive leadership with relentless focus on our users' time to value and success. With that, I'd now like to turn the call over to our CFO, Howard, who will walk you through the financial results.