PagerDuty, Inc.

Good afternoon. My name is Chantelle, and I'll be your conference operator today. At this time, I would like to welcome everyone to the PagerDuty first quarter 2021 earnings 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. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. Thank you. I will now turn the conference over to Stacey Flanneman. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss PagerDuty's fiscal first quarter of 2021. 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 Thank you. Thank you. 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 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 a tool 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 the filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in the company's most recently formed 10-Q. Now I'd like to turn the call over to our CEO, Jennifer Tejada.

Jennifer? Thank you, Stacy, and thank you everyone for joining us today. I hope that you, your families, and your colleagues are safe and healthy. We, like many of you, are in our 13th week working from home. I'm appreciative of how our team has adapted to progress our mission and of how our industry has come together, sharing ideas, solving unprecedented challenges, and protecting our employees and community. This incredible human experiment, of which we are all just a small part, has provided lessons that leave us forever changed. Lessons in courage, resilience, creativity, camaraderie, and efficiency, but also lessons in loss in the cost of being underprepared, uncoordinated, and the human cost of time. For PagerDuty, the pandemic and recession have reinforced our values, which center around leadership, inclusion and equality, accountability, innovation, and the success of our customers and our people. We have always believed trust and time are society's most valuable currencies, and never has this been more true. Our mission to elevate teams to the work that matters most is more relevant than ever as every business seeks survival, fights to protect its hard-won customers and adapts to operate more efficiently and safely in order to protect lives and jobs. When the pandemic began earlier this year, every business was compelled out of necessity to become an operations company, going digital overnight. relying on cloud-based services and driving 100% of revenue through digital e-commerce. In a matter of days, global enterprises had to find ways to meet customer expectations under unprecedented surges in web and app traffic while supporting enterprise productivity, responsiveness, and security, all while their employees work from home. This is digital operations, a megatrend that pre-COVID was unfolding over years and is now transforming in weeks and months. even in some of the most traditional industries. PagerDuty was built for this. When we designed a platform to automatically detect the unpredictable, coordinate disparate teams to troubleshoot difficult problems under pressure, and resolve mission-critical issues in minutes, we created the digital operations management category. Over the last decade, our platform has become an essential component of critical infrastructure for many of the world's most innovative and admired companies. and increasingly the central nervous system for the digital ecosystem. We uniquely correlate digital events for our customers from the cloud, web, apps, infrastructure, IoT and security and translate them into action that reduces costs, protects digital revenue and ensures our customers can meet the expectations of their customers. With digital acceleration and remote work, detecting and responding to incidents as well as preventing them has become even more central to weathering the current environment and to long-term business success. Today, I will discuss how we have adapted to this unique environment. I'll highlight our strong results, recap our spring platform release, I'll review how we are progressing our priorities, and I'll talk about a few things we are doing to help our customers and community emerge from the crisis stronger. In February, we implemented a crisis management framework with workstreams focused on employee safety, customer engagement, scenario planning, platform innovation and resiliency, and business continuity. During the first week of March, our leadership team made the decision to close all of our global offices, and within 24 hours we transitioned to an entirely remote workforce. Having already been 20% remote with a distributed engineering team, a cloud-native platform, a zero-trust security stance, and a very strong culture with highly engaged employees, we made this transition relatively seamlessly. In fact, we've seen increased productivity in some parts of the business, where we leverage modern cloud platforms to engage customers and agile product development and DevOps methodology to innovate. While it's too early to measure the relative impact, we pivoted all of our customer and industry events to digital, including our inaugural EMEA summit coming up this month and our fifth annual summit event in September. More generally, we've led with empathy and put people first, substantially increasing engagement levels with employees and customers. Don't get me wrong, in no way has this been easy, and I'm keenly aware that every person experiences the current environment differently based on their circumstances. We expect to continue to face uncertainty, unpredictable challenges, and potential headwinds, which I will discuss shortly. That said, I am very proud of our team, especially the way they quickly adapted to serve our customers remotely, and of our corresponding results as we remain clear-eyed and pragmatic in the first fiscal quarter of 2021. Revenue for the first quarter increased 33% on a year-over-year basis to $50 million, and our focus on operating leverage continued to pay off as we dramatically improved our non-GAAP operating margin by 12 percentage points year-on-year. In addition to posting strong growth in what tends to be a seasonably lighter quarter, We ended the period nearly break-even on operating cash flow, demonstrating the long-term durability of our business. Our healthy new customer acquisition continued to show strength, validating the large and early total addressable market for digital operations management. PagerDuty is an essential cloud service for digital businesses. We ended Q1 with 13,060 customers, growing 12% year-over-year in a tough market. And while we experienced more churn than usual in SMB, We also had a very strong new logo acquisition result in enterprise. Despite market dynamics, we continued to see robust year-on-year growth in new customer ARR above 55% as companies doubled down on operations, seeking easy-to-deploy solutions that accelerate digital business while reducing costs. Trust is paramount for our customers, and our sustained investments in reliability, resilience, and security at scale became increasingly relevant as threat vectors and remote users multiplied. Our customers remained incredibly loyal with renewal rates consistently high at over 95% and even higher for our enterprise customers. We are truly grateful for the trust that our customers place in us. And not only did we continue to deliver our services in Q1 without interruption, we also accelerated our roadmap and several initiatives to support COVID-specific use cases like crisis management, virtual network operations, and providing free licenses for healthcare customers. Businesses cannot afford missed opportunities or disruptions, and because of this, major incident management now has the attention of CEOs and boards. PagerDuty has become a necessity because our platform empowers users to build and maintain trust with their customers. During Q1, our customers saw incidents spike anywhere from 2 to 11 times the incident frequency we observed pre-COVID. Yet in the face of more incidents than usual, our customers resolve them 20% faster by leveraging PagerDuty to proactively anticipate and address incidents, ensuring that they continue to serve their customers in the face of cost cutting, remote working, and growing digital demand. There is no better example of this than Zoom Communications, where Eric Yan and his team have scaled to support not only the deluge of businesses going remote, but also the distance learning of many of our children. Zoom's corporate CIO, Sunil Madan, said that PagerDuty's automation and intelligence has made their teams so efficient and effective that they've actually improved their time to resolve incidents despite the massive increase in people using Zoom. Winston Churchill said, never waste a crisis, and we believe digital acceleration and the imperative to improve operational performance will continue well beyond this pandemic. As companies learn from the rapid pivots they undertook this quarter, We expect digitization, cloud adoption, DevOps, security, distributed architecture, and remote working to continue to advance post-vaccine. All of these accelerating megatrends are tailwinds for us and drivers for investment in PagerDuty, especially as recovery begins. According to a recent Fortune study, 63% of Fortune 500 CEOs believe the crisis will accelerate their digital transformation. As a result, we see leaders increasing their focus on efficiency and productivity, seeking more automation across their businesses. We advanced our automation roadmap in our spring release, adding new capability to our AIOps solution, announcing the general availability of intelligent triage, launching new integration, and enhancing our dynamic service directory and business response solutions so that more teams across the company can benefit from PagerDuty. Our customers' challenge is not a lack of data, but rather how to make sense of it all in seconds and to address the root cause of an issue. PagerDuty's advanced capabilities now recommend resolution tactics, trigger runbooks, orchestrate actions that provide diagnostics, and even resolve problems without human intervention. During the quarter, we published new bi-directional integrations with IT automation partners Pliant.io, Rundeck, and IAHOO. Building on our successful AWS EventBridge integration and strengthening our position as the central nervous system for the digital enterprise. A timely example of resolution automation is Faithlife, a technology platform that enables faith-based organizations to transform in-person gatherings into online experiences. Religious organizations have been unable to congregate for worship due to shelter-in-place orders. So the company saw a dramatic increase in usage as thousands of their users joined online services. They began using our AIOps solution, Event Intelligence, to reduce event noise, leverage context, and direct time-sensitive work to engineering teams. After only two months, Faithlife was able to reduce the number of incidents being routed to engineering teams by over 36%, automating manual work, reducing labor costs by an estimated $114,000 per year, and preventing incidents from disrupting customers' experience. If you can automate work, you don't have to rely on static workflows. In Q1, we launched a new integration with Microsoft Teams that enables responders and stakeholders to resolve incidents and stay informed with PagerDuty in Teams rather than switching between services. Not only are users automatically alerted to incidents, they also receive context on the incident, including whether it has happened before, how it was resolved and who worked on it previously. User and account permissions are synced between teams in pagerDuty, ensuring secure communication and safe information sharing. Now, all incident response activities in teams are captured in pagerDuty's postmortem application, saving time and improving the quality of information used to help team members prevent future incidents and continuously improve. Intelligent triage, part of our event intelligence product, provides visibility and coordination for teams working related incidents, as well as providing valuable context from past or related incidents. In a distributed world where teams own and operate separate but interconnected services, intelligent triage ensures each team understands how their service impacts those operated by others and vice versa. It significantly reduces duplicative and counterproductive efforts between teams. And according to benchmarking by IDG, Cuts time to resolve from 80 minutes to as little as five. We are confident that the macro trends I mentioned earlier present tailwinds for PageDuty over the medium and long term. And at the same time, we balance our optimism and position of strength with the potential headwinds we see in the near term. The diversity of segments and verticals within our customer base presents a strength, with less than 7% of ARR coming from the most impacted industries. That said, We've seen delays in some enterprise and mid-market opportunities as large companies grapple with both the economic impact to their business models and conservative spending in light of market uncertainty. We expect these companies to accelerate their investments in digital operations when the time is right for them and are focused on building long-term partnerships. While we saw a noticeable increase in churn in our small business segment, which is about 20% of our ARR, Our overall churn remained best in class, below 5% on an annualized basis. We may continue to see higher than usual churn in this segment given the economic backdrop. Reiterating the long-term relevance and durability of our business, software and technology, advertising and marketing, e-commerce, federal and national government, consumer products and services, healthcare, industrial and manufacturing, and nonprofit segments all delivered strong growth sequentially. Software and technology was particularly strong in Q1, with the who's who of modern B2B platforms expanding their business with PagerDuty, including Salesforce, Shopify, Twilio, Datadog, Dropbox, Cisco, SAP, Okta, DocuSign, NetApp, Workday, Zapier, and HashiCorp. We also saw encouraging signs from our customers whose need for PagerDuty dramatically increased as a result of the pandemic. One large Midwestern electronics retailer increased their PagerDuty spend as a result of pivoting to curbside pickups. Education customers like Coursera and the University of Texas also increased their spend to prevent service interruptions as online demand increased. We remain focused on the priorities we communicated on past calls, winning an enterprise, validating our position as the de facto platform for real-time work, and expanding our reach beyond DevOps and IT. In Q1, we continued to make progress in enterprise, while our credibility in supporting digital acceleration and distributed team orchestration for both new and core use cases led to new customer wins, including LabCorp, Carrefour, Infosys, NBC Universal, and Chanel. We announced our new partner program for managed service providers, kicking off with Kerasoft, Estuit, Connect Consulting, and vCore. This program will help enterprises scale and accelerate their digital transformation initiatives and extend the reach of our go-to-market strategy for mid-market and enterprise. Our international investments continue to pay off, especially in enterprise. Our EMEA team has done an excellent job in leading with PagerDuty's value proposition to secure new customers and expansion deals. One example is a leading European retail bank with tens of thousands of employees and millions of customers. Previously, the bank relied on many legacy monitoring solutions that created a deluge of alerts. We estimated that 70% of these alerts were unactionable noise, but without process and automation, significant time and money were being wasted. With PagerDuty deployed, alerts were reduced by 85%, and the mean time to respond to incidents was reduced from 30 minutes to 5, resulting in significant operational efficiencies. According to our estimates, this saved the customer $3 million annually, a 338% return on investment. Many of our customers seek to turn disruption into opportunity, and we see this in industries experiencing increased demand, such as streaming media, grocery delivery, distance learning, and healthcare. Companies in these sectors need to handle real-time issues more efficiently to ensure great customer experiences. For instance, a long-term PagerDuty customer in the food delivery space continues to expand every quarter, with this quarter being no exception. Discovery, Inc., with a global reach in more than 220 countries, has seen unprecedented demand for their brands like TLC, the Food Network, and HGTV, as well as digital services like Motor Trend On Demand and Discovery Go. They expanded their business with us in Q1, standardizing on pager duty across their digital product team to manage their digital operations. automating previously manual incident management, postmortem, and operations reporting work. They now automatically route all critical unplanned work through our platform, reducing incidents by 94% and reducing the time to acknowledge an incident from 54 to 5 minutes. So teams can focus on new products and innovations. Personally, I was thrilled to watch Discovery broadcast the recent space launch last Saturday. While we never could have imagined the post-COVID world, it has accelerated opportunities for us to expand our platform beyond DevOps and IT teams. Some examples include crisis management, frontline healthcare worker identification, logistics, and supply chain operations management. I am sure many of you, like me, have found exercise and wellness important during shelter-in-place. On-demand fitness is in all of our homes, with few brands more pervasive than Peloton. For years, Peloton has been using PagerDuty to manage its digital services. As customer demand grew, Peloton began using PagerDuty to track shipments to their customers, ensuring a smooth delivery process and increasing overall efficiency and productivity. We continue to see long-time customers apply PagerDuty to new use cases, including customer service, where time matters. A cloud-based observability company recently expanded its use of PagerDuty to its customer support and experience management team to manage urgent escalations for their most important customers. Last quarter, we added 26 new integrations published by partners across a range of use cases, including dev, IT, security, and IoT, with total integrations now over 375. In the quarter, we took proactive measures to reduce our expense run rate and reallocate capital resulting from travel and event cancellation. We continue to hire and grow our workforce in a balanced way, including several new go-to-market leaders, which we announced in recent weeks. Last week, we welcomed Manjula Telraya to the leadership team as our first Chief Customer Officer. With our strong balance sheet and low burn rate, we continue to make prudent investments in go-to-market and product innovation that we believe will deliver market share gains and robust business returns. Although current circumstances limited our ability to interact in person during the quarter, we are not limited in our ability to support those directly impacted by the pandemic. We were honored to support frontline responders, such as in the state of Virginia, where PagerDuty was used to stand up an emergency IT help desk for field-based intensive care units. We also partnered with a European government health service testing program for COVID-19, enabling effective support of all regional drive-through test sites and online registration. We now provide 24 by 7 situational awareness for a complex system supporting the national COVID-19 response by enabling teams to quickly detect and resolve issues, ensuring efficient and effective patient care. We remain committed to supporting our communities through our 1% pledge. In Q1, PagerDuty.org made financial contributions to the CDC Foundation, Medicines on Frontiers, the UN Foundation Who Fund, and Stop the Spread, all aligned with our focus on improving time-critical global health. In addition, our employees continued to participate in community service despite lockdowns. In March, I was able to join many of my colleagues in PagerDuty's first virtual volunteer week. Our team organized 20 volunteer opportunities with 11 global partners. A big thank you to the Duttonians who gave over 450 hours in a single week to help others. We continue to extend our lead this quarter, growing efficiently despite unprecedented conditions. In the absence of a widely available vaccine, the market remains volatile and uncertain. What we are certain about is our unwavering commitment to our customer success. The long-term durability of our business underpinned by a large and growing market opportunity, our central position in the digital ecosystem, our easy-to-deploy platform, our low-friction land and expand business model, and our strong balance sheet. Most of all, PagerDuty is differentiated by our culture and people who have shown incredible resilience, grit, ingenuity, and compassion through every turn in our journey. We are prepared to weather whatever comes. and to seize our advantage and emerge strong. I'd now like to turn the call over to our CFO, Howard, who will walk through the financial results. Howard?