PagerDuty, Inc.

Welcome, everybody. Thank you for joining us today and good day to you. We're just about to get started. Before we do, just a little bit of housekeeping to let you know how the program runs today. We will have presentations from both PagerDuty CEO and CFO and then move into a Q&A portion. That Q&A portion will be by invitation to our group. and we have those analysts on as panelists in today's session. So we're ready to get started. I'm going to turn it over to Christine Kuhnen to get us started here. Christine, you can take it away.

Great, thank you. Good afternoon and thank you for joining us to discuss PagerDuty's fourth quarter in fiscal 2021. With me on today's call are Jennifer Tejada, PagerDuty's chairperson and chief executive officer and Howard Wilson, our chief financial officer. Statements made on today's call will include forward-looking statements which involve known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expected or implied by the forward-looking statements. Forward-looking statements represent our management's belief 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. 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 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 filings we make with the Securities and Exchange Commission. With that, I will turn the call over to Jennifer.

Thank you, Christine, and thank you all for joining us today. Q4 was an outstanding quarter for PagerDuty. We added $59 million in revenue, re-accelerating growth sequentially to 29% year-over-year as our momentum built to close out an unparalleled year. Thank you so much for joining us. I'm incredibly appreciative of our customers and our partners for their loyalty and trust and grateful to the PagerDuty team whose resilience, commitment, and customer devotion over the last 12 months was both inspiring and delivered a great outcome for our stakeholders. Importantly, Q4 was a strong record-setting quarter for PagerDuty. We closed the largest multi-year expansion in our history, signed our first million-dollar contract in EMEA, expanded our first five-year contract, and achieved record transaction growth in the mid-market. Our results validate our strategic focus and leadership position in the enterprise segment. where dollar-based net retention accelerated above 125%, and overall dollar-based net retention expanded sequentially to 121%, which is in the range we anticipate for fiscal 22. Digital Operations Management Plan accounted for 70% of total net new ARR in the quarter as customers upgraded to advance their operational maturity. For the year, uptake of the Digital Operations Management Plan doubled, now over 20% of our total ARR. Thank you so much for joining us. PagerDuty's modern cloud-native operations platform has become the central nervous system for digital modern businesses. It's designed specifically for mission-critical, emergent work across distributed teams. Traditional workflow and observability solutions fall short in orchestrating the immediate action and proactive prevention of customer and business impacts now required by the real-time nature of our global digital economy, which is clearly here to stay. Our customers have quickly learned that in a world of digital everything, modern dev and IT teams must be prepared for anything. PagerDuty's 2020 Global Developer and IT Operations Report uncovered that nearly 60% of respondents found root cause harder to identify due to increasing app and infrastructure monitoring complexity, and nearly 70% reported struggling with an increase in alert noise on a daily basis. Teams are more distributed than ever, managing increasingly complex hybrid cloud ecosystems with more persistent events caused by a growing volume of security threats, higher velocity deployments, and aging legacy architectures. Our scope within organizations has expanded as more teams engaged in digital operations, usually beginning with DevOps, moving to IT ops, and increasingly deploying across enterprises to include customer service, security, and beyond. Over the course of the year, we saw an increase in transformative work with our customers, where we've become critical infrastructure as teams increased focus on resilience and expanded to new use cases that address unpredictable, unstructured, and urgent opportunities that can make or break the brand experience. One example of this is a North American grocery chain, which sought to efficiently notify customers and employees of food recalls. They rolled out the digital transformation program on PagerDuty's platform to immediately inform 50,000 stakeholders, including checkout staff, in the event of a safety incident, increasing customer safety, satisfaction, and trust. Our go-to-market teams executed well, improving ramp and productivity. During the fourth quarter, trailing 12-month fillings grew 29%, driven by strong expansion, particularly in the mid-market and enterprise. Thank you for joining us. Many of the expansions we saw in the quarter included early renewals as customers added users and upgraded plans in order to execute on their digital transformation and cloud migration initiatives more quickly by leveraging AIOps. Mid-market momentum was also very strong, with our commercial team setting a new bookings record, growing transaction volumes by 48% versus last year. We saw momentum in APJ and EMEA and announced today our first EU data center to support growing demand in the region. Once again, we saw strong expansion in the quarter with many of the largest, fastest-growing software companies in the world like SAP, Intuit, Datadog, and Autodesk. Our leadership and financial services also gained momentum. Morgan Stanley expanded its long-term relationship with PagerDuty, investing in thousands of licenses on our digital operations platform. Another global 100 investment bank steadily expanded over the last two years on our digital operations plan, demonstrating the strength of our long-term relationship and reliable customer expansion. The CIO and CTO championed one of the largest expansions in Q4 for a total of 8,000 users in a three-year, multimillion-dollar contract as they adopt DevOps and full-service ownership and transition to the cloud with a you-ship-it, you-own-it mindset. They expect to realize $10 million of annual benefit from PagerDuty as they retire their homegrown systems and improve efficiencies across the organization. One of our competitive advantages is the diversity of our customer base and leadership across verticals. During the quarter, we landed and expanded with several energy customers where PagerDuty is literally keeping the lights on. One is a major Northeast utility that developed a web app to provide their consumers with winter outage information and service updates. PagerDuty replaced their in-house on-call management solution and was deployed to the entire infrastructure, IT, and development organization with other business groups expected to adopt PagerDuty in the future. Similarly, a new Fortune 500 customer that provides electricity for 3 million customers in the Midwest adopted PagerDuty to modernize their operations by reducing manual processes, which contributed to poor customer outcomes. They're also using PagerDuty to automate time-critical workflows and more effectively measure and improve KPIs. They anticipate they'll realize a 20% reduction in labor costs within customer support and a three-month payback period. While 2020 was uniquely challenging, it also created unique opportunities. Over the course of the year, we deepened our competitive moat on several fronts. We advanced our platform value proposition with the acquisition of Rundeck, bringing machine-based automation and safe self-healing to incident response and other use cases like IT, DevOps, and security. Carrefour Financial Solutions Brazil, the financial services arm of the Fortune 500 global retailer, adopted PagerDuty and Rundeck to anticipate problems and automate incident response through self-healing. With over 10,000 employees, Carrefour aims to accelerate their digital transformation efforts while reducing costs. They turn to us to improve the quality of their service across their IT, infra, monitoring, and service teams in order to deliver increasingly intuitive digital banking experiences to their customers. Another large multinational financial services company adopted Rundeck during the year to automate and standardize on its core financial operations across six data centers. The bank's initial Rundeck users started on our open source offering, then scaled to the paid enterprise plan. Following their initial deployment, the bank expanded PagerDuty and Rundeck globally to manage 24,000 systems, substantially reducing labor costs and enhancing audit tracing capabilities. During the year, customers adopted PagerDuty beyond incident response to service to security and customer service, where users grew 56% and 40% respectively. HashiCorp, LegalZoom, Discovery Communications, and Slack use PagerDuty for customer service. Slack's customer service agents use our platform for full case ownership, escalating customer-facing issues to the right subject matter experts or developers so that they can be resolved quickly. We continue to add to our robust API-based integration ecosystem, accelerating our network effect and cementing our position as the hub for digital operations and incident detection. We continue to expand our ecosystem in the fourth quarter, now connecting with over 530 integrations, including change event partners like BuildKite, GitLab, and Jenkins, and security partners like JFrog. Integrations enable seamless work across platforms and teams when seconds matter. During the year, we distanced our innovation-based lead in developer-centric incident response and management, broadening our AIOps solution with significant enhancements to service directory, change management, incident insight and Slack, and even more bi-directional chat features in Microsoft Teams and Zoom. ARR from event intelligence grew almost 160% over the previous year. New releases in the fourth quarter included automation, self-remediation, and deeper customer service integrations. We launched change impact mapping, which allows developers to easily identify code changes that impact their services and more quickly resolve incidents. This is a game changer for customers because, according to Forrester, change events cause roughly 80% of service disruptions. Our deep integrations with Buildkite for CICD and Microsoft GitHub and GitLab, the largest repositories for source code, make these new capabilities even richer. We launched version 3 of our Zendesk integration, linking Zendesk events to PagerDuty incidents and synchronizing incident priority, details, and escalations from across both platforms instantly. Patriot Duty's resilience and ROI is incomparable. As the accelerated digital transformation and society's increased reliance on the Internet to learn, work, and live tested our platform, the platform delivered. In 2021, we processed 41 billion events and API requests, yet improved our customers' average resolution time by 20%, while sustaining four nines of availability and notification transit times. In the last year, our customers became even more reliant on our platform in the face of a challenging business environment along with digital acceleration. We believe this will lead to ongoing reliable expansion with our customers. According to IDC, PagerDuty's enterprise customers achieved an incredible 800% return on investment over three years, a two-month payback period, and an average of $3.5 million in savings annually by increasing efficiency and productivity within organizations Through facilitating autonomy and service ownership amongst users, reduced time spent on issues within the incident lifecycle led to 27% more productive DevOps teams, 18% productivity improvements for IT and infra teams, and 10% improvements for customer support. Thank you for watching. As our reach expands to employees across the enterprise, our in-app experience becomes even more important. During the fourth quarter, we welcome Sean Scott, our first chief product officer. Sean is a product and e-commerce expert, having spent over 10 years leading the teams responsible for Amazon.com's home and product pages. Most recently, he built the robotics, hardware, and software teams responsible for developing Amazon's fully electric autonomous delivery system called Scout. Sean's consumer product experience will help us to continue to delight our users and accelerate our business through product-led growth. His background dovetails perfectly with our history of growth and innovation through seamless, fast time-to-value, user-centric products. I'm excited to scale our platform and innovation to new use cases under Sean's leadership. We are both confident and optimistic about FY22 as we see the acceleration in secular tailwinds, cloud migration, DevOps transformation, and digital acceleration continuing over the long term. IDC predicts investment in digital transformation will be $2.3 trillion by 2023, almost double today's spend. Thank you so much for joining us. Thank you so much for joining us. I'm incredibly proud of our progress in FY21 and I'm bullish about the future as the market and macro trends meet us. I'm grateful to be part of a leadership team and company that both stands for equality and programmatically invests to achieve it in our company and in the industry. In FY21, our inclusion, diversity, and equity efforts resulted in improved access, representation, pay equity, and greater career opportunities. We continued investment in volunteer support for racial and social equity and inclusive leadership development. To further strengthen inclusive hiring, we launched partnerships with two historically Black colleges and universities, North Carolina A&T and Alabama A&M, and two Hispanic-serving institutions, Florida International University and the University of Houston. Our board of directors is among the most balanced in the tech industry, representing the diverse communities we serve. In Q4, we welcomed our newest director, Bonita Stewart. Bonita currently serves as the vice president of global partnerships at Google and brings decades of experience in marketing and strategic partnerships, which will serve us well as we develop our brand, our market position, and our partner ecosystem. Next week, we're releasing our first social impact report, building on our diversity report published last September, which outlines our progress and underscores the ongoing work we will continue to do. PagerDuty employees are at the heart of our social impact. Their talents, passion, and business expertise extend well beyond the workplace. During the year, 93% of our employees gave back through community service or financial donations, volunteering several thousand hours and donating to support 110 nonprofit organizations globally. We deployed over a million dollars in grants through the PagerDuty.org fund. As we celebrate Black History Month and International Women's Day and stand with the Black and Asian communities against hate and violence, I implore every leader and leadership team to join PagerDuty in allyship in challenging bias and systemic racism and in architecting a more equitable and accessible industry and community. With that, I'll turn the call over to Howard.

Thank you, Jane. We are delighted with our first quarter results and confident and optimistic about the outlook for full year 2022. We outperformed across the board in the quarter. Our revenue grew 29% year over year to $59 million, a solid beat on the high end of our guidance. Expansion within the enterprise and mid-market segment where our customers expanded into new use cases, added new teams, and upgraded to our digital operations offering drove this revenue performance. Our full year revenue of $214 million grew 28% versus a year ago as our sales execution and momentum in the back half of the year delivered a strong finish to the year. Scaling efficiencies and thoughtful capital management So our Q4 non-GAAP EPS improved well ahead of guidance at negative 7 cents per share, a 4 cent beat. For the full year, our non-GAAP EPS was negative 24 cents per share, also ahead of our guidance. Non-GAAP gross margin remained best in class at above 85% for both the quarter and the full year, the high end of our target range, consistent with where it has been for the last four quarters. As Jen highlighted, PagerDuty has become essential infrastructure, enabling our customers' digital initiatives. Consistent customer expansion proves this. Once again, approximately one-third of our enterprise customers expanded with us for the eighth consecutive quarter. Additionally, adoption of our digital operations plan is growing, accounting for 70% of Metnew ARR in Q4. Our enterprise momentum drove year-over-year growth of 34% in customers spending more than $500,000 and 44% in customers spending more than $1 million. All of this re-accelerated dollar-based net retention, which increased to 121%. Taken alone, enterprise dollar-based net retention accelerated to above 125%. Looking ahead to fiscal year 2022, we expect dollar-based net retention to vary by quarter in the range of 118 to 124%. We continue to penetrate the enterprise segment across multiple industries. As of the end of the quarter, we serve over 60% of the Fortune 100 and over 40% of the Fortune 500. Within the Fortune 500, we serve 90% of media, 73% of technology, 33% of financial services, and 52% of retail companies. Our leadership in financial services has expanded significantly, with ARR up 150% over last year in the Fortune 500 and by over 40% for financial services as a whole. While we are seeing the strength in enterprise and mid-market, we are seeing good momentum in S&B, and with the continued success of our free offering, grew the number of companies both paid and free by over 20% year over year. Early renewals, including several large multi-year enterprise deals, drove an uptick in quarterly billings to 41% growth year over year. Given the fluctuations of quarterly billings, we focus on trailing 12-months billings, which grew 29% year over year. Our remaining performance obligations, which grew 59% from the same period a year ago, reflect momentum in multi-year deals, particularly from the enterprise. As more of our business comes from the enterprise, the shift to term contracts continues with 87% of our revenue versus 83% a year ago. At above 95%, we continue to have industry-leading renewal rates. Before turning to operating expenses, I would like to highlight the robust growth in our international markets. Revenue grew 34% year over year to total 24% of our revenue. Despite challenging macro conditions in Europe, our mere region full year revenue grew at over 40% for the third year. We continue to invest to expand our reach internationally and today we announced we are offering European data hosting beginning this summer to support our EMEA customers. We have capitalized expenses in fiscal year 2021 in connection with this project and expect to begin amortizing these expenses into the income statement in the second quarter of fiscal 2022 once we are live. I will now turn to the detailed non-GAAP financial results. As a reminder, a reconciliation between GAAP and non-GAAP results is available in our earnings release. For the full year, operating expenses were $204 million compared to $171 million from a year ago, as we continue to invest in the business. For the quarter, operating expenses were $56 million compared to $44 million in the prior period. This is a 28% increase, primarily due to investments in our go-to-market strategy, offset by COVID-related savings due to reduced travel and office-related costs. Research and development expenses were $14 million compared to $12 million in the same period a year ago, a 14% increase. This continues our investment in innovating on our platform, building on our scalability, reliability, and security. We expect to accelerate investment into fiscal year 2022 with specific focus on solutions for the enterprise, our AI opt-in automation offerings and use case expansion. Sales and marketing expenses were $13 million or 51% of revenue for the quarter compared to 48% of revenue in the prior year. We've been successful redeploying the in-person events budgets to virtual lead generating activities and events. We will align our investments with growth in fiscal 2022, particularly within our partner ecosystem, and expect to see continued expense-to-revenue ratio improvement on an annual basis. General and administrative expenses were $12 million per quarter, or 21% of revenue, in line with the prior year. We made significant investments in infrastructure and compliance over the last few years, and we are achieving economies of scale. Our Q4 operating loss was $5 million compared to a loss of $4 million in the same quarter last year. Our operating margin was negative 9% in line with Q4 of 2020. Q4 net loss came in at $6 million, a net loss of $0.07 per share, compared to a net loss of $3 million, a net loss of $0.03 per share in the fourth quarter of last year. Our full year operating loss was $19 million and our operating loss margin was 9%, an improvement of 8 points over last year. While we managed our investments closely in light of the pandemic, we also benefited from savings in fiscal 2021 as a result of moving from in-person events to virtual events, not travelling and not incurring all costs associated with our offices. In fiscal 2022, we expect some increase in these types of expenses, albeit not at pre-COVID levels. In addition, we will continue to invest in Rundeck integration and innovation, and fiscal 2022 will reflect the full year of owning this business. Turning to the balance sheet, we ended the quarter with $560 million in cash, cash equivalents, and investments. We improved both our operating cash flow and free cash flow for Q4 and the full year with $3 million in positive operating cash flow in the fourth quarter compared to $2 million in the same quarter a year ago. Free cash flow increased by over 100% to $2 million in the fourth quarter driven by positive operating cash flow and the deferral of investments in new and existing offices. For the full year, our operating cash flow was $10 million and our free cash flow was $5 million. This was a major milestone for us, generating positive operating cash flow while continuing to invest in innovation. That said, we expect to dip in and out of positive operating cash flow during FY22 and do not expect to be positive in the first quarter due to timing of certain cash payments. There are a number of cash payments that will occur this fiscal year that are either new or incremental. mainly a $4 million payment related to the acquisition of Rundeck and a full year of interest payments of $4 million associated with our convertible debt issued in June 2021. Beginning in Q1, we will exclude payroll taxes related to equity grants from non-GAAP EPS and recast prior periods to make them comparable on a non-GAAP basis. All other items have a cash flow impact only. While we're optimistic about our early success exiting fiscal 2021 and the acceleration of secular tailwinds for PagerDuty, it is still early in the recovery and our guidance is balanced to reflect this. I'm confident in PagerDuty's prospects for FY22 as we continue to expand our leading market share and grow revenue. As a reminder, historically our first quarter revenue is the lowest percentage of revenue for the full year. For the first quarter fiscal 2022, we expect revenue in the range of $61 million to $63 million, which at the midpoint represents a 25% year-over-year growth rate. Non-GAAP net loss per share in the range of $0.09 to $0.10, with basic shares outstanding at approximately $83 million. This implies a non-GAAP operating loss margin in the range of 10% to 12%. For the full fiscal year 2022, we expect revenue of $264 to $270 million, which at the midpoint represents a 25% growth rate. Non-GAAP met loss per share of $0.36 to $0.43, with basic shares outstanding of approximately $84 million. This implies a non-GAAP operating loss margin of 10% to 12%. Before I turn to Q&A, I'd like to remind you of the tailwinds that drive our business. Digital Acceleration, Cloud Migration, and DevOps Transformation are imperatives critical to our customer success. Pay2Duty's platform plays a unique role at the center of these shifts, redefining workflow, moving teams from an old way to a new way of doing things. We reduce complexity, manage unplanned critical work, improve productivity, and ensure top-line business outcomes. This gives me confidence that we are well positioned to see sustained, robust growth. We look forward to updating you on our longer-term roadmap at our upcoming Analyst Day on June 24th, arranged around our annual summit event. We will be providing more information on details in the coming weeks. With that, I will open up the call for Q&A.

Thank you, and as a reminder to our analysts here, you can raise your hand at the bottom of the Zoom interface, and it looks like some of you may not have that raise hand button, so just send me a chat message, and I'll make sure that you're queued. Matt Hedberg from RBC Capital Markets has had his hand raised early on. Matt, go ahead.

Thank you, guys, and congrats on a great close to the year. The acceleration really across the board was really good to see. You know, there's a lot of things to unpack here, but, you know, success outside of IT ops, we've been talking about this for a long time. You noted some of the adoption of customer service and security, which is great to hear. I'm wondering, is the success you're seeing there, is that largely expansion in your base or cross-sell? Or, in fact, are you starting to land in some of these new use cases as an initial entrance into the PagerDuty family?

Thanks for the question, Matt, and thanks for being here. It's generally expansion within our base, although with the acquisition of Rundeck, we do see that as an opportunity to land customers through the automation use case as well.

That's great. And then, you know, Howard – You mentioned that you're optimistic on fiscal 22. You seem to have a lot of momentum coming out of 21. I'm curious, how do you think about your pipeline here? I mean, it feels like there's building momentum. You're effectively halfway through Q1. Can you just talk about sort of your sense of pipeline generation? Are things accelerating there as well that really support sort of the guide?

Yes, so Matt, you know, I think what we've seen, particularly in the back half of this last year, sales execution has improved significantly under the leadership of Dave Justice. And that includes far more proactive efforts around pipeline generation. We've also seen how we were able to fairly seamlessly move away to new methods of generating pipeline as we move to more virtual events. So we feel very confident in the health of our pipelines. and the mechanisms that we have in place to continue to manage that proactively.

And if I could add to that, Matt, I would say that, you know, I'm confident we can get our growth into the 30s.

I think we have the right strategy.

We have the best product and we have a very experienced team. So I like what we're seeing in terms of trajectory. We're also seeing some early positive signs that the impact of the pandemic is receding. So we're reasonably optimistic. Particularly given our historical strengths in small business and verticals like travel, hospitality, and entertainment, we see those segments reopening as tailwinds for the business. Yeah, I would also say that we're seeing a lot of customers who have had to really shift their business, like a large coffee retailer you might know of where mobile pickup and pay is. has become really important. That's a pandemic-driven shift, but it's here to stay. And that kind of dependence on digital assets becomes another tailwind for us. So we like the velocity that we have going into the year and, you know, feeling good about our go-to-market leadership and with Sean coming on board excited about product innovation as well.

Thanks a lot. Congrats, guys.

Thank you.

Thank you, Matt. And next we'd move to William Blair. Let's see. Trying to locate that video. Bear with me just a sec. There we are. Bhavan Suri, please go ahead.

Thanks. I want to give my congrats to – I guess I wanted to touch a little bit on following up on the previous question about pipeline. You obviously had a – and I know, Howard, you say don't look at billings, but you had a phenomenal billings order. So we won't look at it, but was there something in the quarter that happened? Did you see sort of a set of larger deals? I know you mentioned the commercial business, but just a little more color in what drove fairly material upside in that? And then I've got a question on NDRR.

Sure. So, you know, as I mentioned in my comments, it certainly was a good quarter for Billings. So no one's going to complain about 41% Billings growth year over year. We do note that we did do a number of large multi-year deals within the quarter, and we also had a few renewals that, because of expansion activity, were brought forward. That being said, across the board, all of our teams executed well. We saw a high volume of transactions, even a lot of smaller transactions, and all of that contributed to a healthy billings number.

Gotcha, gotcha. And then if we take the sort of re-acceleration in net dollar retention, and we think about pricing impacts, and we think about concessions you've given, and the loyalty you've talked about, Jennifer and Howard, about customers who give and will come back, are we starting to see that play out? Was this because of the large deals that we saw in net dollar retention and the expansions come in? Help us balance those two out. Are we getting past this? You've seen some early green shoots, but was this because of billings and expansions that drove the net dollar retention rate improvement, or... A combination, or you can piece that out for us. That'd be really helpful, I think.

Sure, so, and Jen may have some comments on this too. I think the way that I would characterize it is, you know, our strength in enterprise is well established. And we continue to see large customers within the enterprise expand with us. And so it's now become quite predictable that we'll have about a third of our customers, enterprise customers, expand with us each quarter. We saw some spend contracting in the early days of the pandemic, but certainly today we're seeing that More of that pre-COVID-like demand is back. And so those customers are expanding with us, and that's contributing to the good net dollar retention rate. However, across all of our segments, we're seeing positive movement. It's not exclusively in the enterprise. Enterprise is above 125%, but we're seeing healthy expansion happening in all of our segments today.

Yeah, I'd add to that that, you know, the success that we're having with the digital operations platform is really driving user expansion within large customers within our base. And I think our customers have learned that that Clydesdale rule applies that, you know, with PagerDuty's ROI, as you add more users, that ROI scales exponentially. Likewise, users recognize that the more users on the platform, the easier their job is. So we're starting to see that network effect at scale. and that makes a meaningful difference. I also just want to recognize our teams again because you look at mid-market setting a pretty significant record on the number of transactions, their transaction growth over the quarter. I love it when I see that because that's the nature of our hybrid go-to-market model at work where you're doing high-velocity transactions and at the same time still able to do large expansions in enterprise. And Dave and his leadership team have done a great job there.

No, no, thank you. Absolutely. And congratulations to Dave and all of your teams. Really nice job. Thanks. Thank you.

Thank you. Next, we'll go to a hand raised from Rishi Jaluria, excuse me, D.A. Davidson. Let me go ahead and add you to the spotlight. All right, wonderful.

Hey, Jennifer and Howard, thank you so much for taking my questions. Great to see the reacceleration in the business. Jennifer, I want to go to a comment you made in response to Matt's question at the very beginning, which is that you're confident you can get your growth into the 30s. I'm not going to hold you to that as guidance. I think that's a great aspirational goal. Thank you. But maybe if you could help us understand, what is it that you're seeing that's giving you confidence in that as a reasonable target? And maybe how should we be thinking about the drivers to achieve there? Is that just a bounce back in macro? Is that relying on more growth in these Non-core use cases, right, talking about security and customer support and maybe some that we're not even talking about today that we might be talking about a year from now. Maybe let's drill into that and then I'll follow up for Howard.

It's definitely a combination of things. I think when we went public, actually, we talked about multiple engines for growth. and I think we really delivered on sort of that mindset. Our new product, if you look at ARR from Digital Operations Management, like that doubled from that plan. Our regional growth's up 40%, so we're starting to see our new investments in the NAPJ come online. User growth's up 40% and then we're really starting to see traction in some of the most, I think, and many more. Thank you so much for joining us. Secondly, as some of the rest of the market recovers, we expect to see them start to invest like they did potentially pre-COVID or even more than they were investing during COVID because they are now more reliant on the digital environment. and so you know I think reopening and even hybrid work is a bit of a tailwind for us because when right now when everybody's working at home it works really well you know where everybody is as soon as half the companies in offices and half the companies remote somewhere you can't find them that those teams feel even more distributed and PagerDuty was built for that um So I think we're going to continue to pull away from the competition like we have been the last couple of years, and that also bodes well for us. But I like how it's all coming together is probably a really good way to put it.

Fantastic. That's great to hear. And then, Howard, I wanted to drill a little bit more into the margin guidance for next year. You know, you are talking about margins declining pretty meaningfully. Maybe can you tell us where are you seeing these – what are the high priorities for The incremental investments and maybe you did touch on this in the prepared remarks, but you obviously expect some bounce back of COVID related savings as travel becomes a little bit more reasonable of an expectation. Kate, can you maybe talk about, you know, how much of those costs are coming back and what your assumptions baked into that margin guidance are and maybe alongside that, just overall, you know, have you turned the corner on at least being sustainably free cash flow positive on a full year basis? Thanks.

Sure. So I would probably unpack it this way, Rishi. When we look at our operating margin, you have identified some of the elements correctly. There was a certain amount of savings that we got this past year related to COVID. But then there were also some proactive measures we put in place this last year in light of the macroeconomic uncertainty where we slowed down certain parts of our activity intentionally. from things like hiring because whilst we wanted to get a better understanding of what was happening in the environment. So now that we are seeing our execution operating so well, our view is that we can take a far more progressive view on investment into this next year. So what that means is, one, we'll have Rundeck, which will be with us for the full year, and we have significant investment in Rundeck through this next year. So that has an impact. which we spoke about at the time of the acquisition. The second is that we're planning to accelerate our investments in engineering because we believe that from an innovation perspective we've delivered a huge amount of value to our customer base within this last year but it's not yet done. We have a number of initiatives such as the European data hosting which is another initiative that is kind of additive to what we're doing. So When you add all of those together, our view is that this is the right time for us to continue to invest in the business, continue to invest and go to market because the demand is clearly there. And that's why we framed our thinking around operating margin in that 10% to 12% range or operating loss 10% to 12%.

I would just add to that. When you look at the solid performance on unit economics for the business and also you look at how early Thank you so much for joining us.

So we will continue to be prudent in how we manage those things. And to your comment on operating cash flow, clearly it's always been a goal for us to be sustainably cash flow positive. We have a few things that are happening this year, like the payments related to the Rundeck acquisition and the full interest payments from the capital raise we did last year that are going to mean that some quarters we won't be, but we will continue to be working to be sustainably cash flow positive.

Wonderful, really helpful. Thank you, Jennifer and Howard.

Thank you.

Thank you so much. Next question came in as a chat request. Derek Wood, I'd like to turn to you. Derek, let me bring you to the spotlight, please. And Derek is from Cohen & Company. Go ahead, Derek. Thank you. Hi, Derek. Hi, Derek.

Great. Hi, long-time listener, first-time caller. So thanks for taking my questions. First, you guys rolled out some new pricing and packaging recently, and I wanted to ask about two things. First, on the pre-tier, we'd love to hear how that's helping build a new customer funnel, and whether you've seen trade downs or that's really just about new funnel generation. And then second, on the simplification of the SKUs, and just would love to hear the dividends from that. and how you expect that to impact the model, specifically net revenue retention rates heading into the new year.

Well, I'll kick off by talking a little bit about free and then Howard can jump in and talk about pricing. On free, that's been a really important new offer for us to try and stimulate trial and more activity in the top of the funnel. And that's going well. When you look at our new accounts, both free and paid, that's up 23% year-over-year. So we like the momentum that we're seeing there. Free has also given us an opportunity to invest in long-term relationships with our small businesses who really struggled this year to, you know, find objects to invest in. and many more. And we're seeing it helpful across all of our segments, not just small business and very small business. And I think with Sean Scott here, you should expect to see us try and build more functionality, more discovery, more capability in the early use of our product, the trial experience, how a customer discovers, how they discover new products, et cetera. Howard, do you want to talk about pricing?

Yeah, and I would add to that, I think the simplification that we did on our pricing structure and our plans has healed the benefits almost immediately because it's made it easier for customers to buy. So the selection process of which plan they should take, they're no longer confounded by is it this plan or this option. The simplicity in that has made it easier for them to progress through the tiers. And I think that's part of why we've seen people make the choice around our digital operations plan. because it's very clear the value they're going to get into it, and we've made it easy for them to buy.

Great. Thanks for the color. If I could squeeze one more in. So you guys have a new product geared for customer service specifically. Could you just explain how that's different from the core and maybe how you'll – Thank you for joining us.

Thank you so much for joining us. Case management, so inbound customer case management is very similar to incident management. But as businesses have become more digital, the urgency, the sort of real-time operations challenge has become a lot harder for our customers because they have less time before a customer will start shouting on Twitter or Reddit or getting angry, wherever they're going to get angry. They don't call and wait on the 1-800 line for you to patiently respond. Thank you for joining us. Thank you for joining us. able to give better information to service agents as well. So that's, you know, these sort of early days. There are some additional use cases that we're working on or serving, but that's kind of the starting point.

Great. Thank you. Congrats on a strong Q4.

Thank you. Nice to have you. Thanks, Derek.

Thank you. Next we'll be hearing from Sterling. Let's see where Sterling went. He's unmuted. There we go. Thank you. Sorry about that. Sterling, here we are with JP Morgan. Go ahead.

I was just trying to hide my video. I was hiding from you. So, guys, I think you've given some of the breadcrumbs to the dance as part of this, but I want to make sure I fully understand. When you look at the success that you had in the enterprise segment in particular and in the quarter, how much of that was coming from – Expansion existing customers, which we saw in the net dollar retention versus how much of that is actually bringing on new enterprise customers in the quarter that might be a result of some of the improved sales execution.

So, Sterling, it is a combination of both. We definitely saw good expansion in the enterprise. The enterprise segment now covers more than 50% of our revenues. And so we certainly saw good expansion, which shows up in the dollar-based net retention rate. But we've also been pleased with the customer acquisition that we've seen in the enterprise and the mid-market segments. So we've been bringing on, much in our land and expand model that we've spoken about for a few years, we've been bringing on enterprises and they're starting with us small in teams and then growing into those cohorts of the 100k and 500k and millions.

And then just maybe as a follow-up, Jennifer, as you think about that, why now? What is it that, you know, these enterprises, is it just they're giving up on in-house solutions that maybe they were trying to use? Is it that it's clear that you've separated from the competition? You know, what are the major, and I'm sure there's a number of them, but what would you say are the one or two things that are causing enterprises to choose you now?

Thank you so much for joining us. Thank you so much for joining us. One other trend that I don't think we talk about enough, which is leadership in these large enterprises are increasingly more technical. You're seeing large traditional companies hire cloud executives from Amazon and Google, etc. You're finding CTOs and CIOs that are developers. We're coders. We have carried the pager, really understand the value of Thank you so much for joining us. Crawling, Walking, and Running. They're putting together a transformative relationship with us from the start, and then the growth comes as they add users and teams and bring them on board.

Got it. Thank you.

Okay. Thank you so much. Going back to some hands raised from Morgan Stanley, we have Sanjit Singh. Sanjit, I'll do the spotlight here.

All right, thank you. Congrats on Q4, and really thank you for all the great metrics this quarter. A lot of things stand out. I think event intelligence being up 160% was a particular standout. And I guess my question for you, Jen, is going back to the IPO, you were really clear with us on what, you know, the marching orders for the company was, which was to move up market and – You know, frankly, being able to monetize your technology lead relative to customers. And I guess it's been a theme of this call so far, but along the dimensions of, you know, sales cycles, deal sizes, how often customers sort of haggle with you on price. Where are you today versus 12 months ago, you know, 18 months ago when you were sort of really starting that journey?

Thank you so much for having me. to support them. They want strategic customer success. They want professional services. They want an experienced account. executive to help them. And I think Dave and the team have done a great job of bringing that to life for us without damaging the velocity of the flywheel at the same token. So like we won't dive in deep into the funnel to get hands on something that can grow on its own. So that's one thing I'm really proud of. The second thing is I think the product team has really struck the balance between getting new features to market, but also continuing to add robust services, and important reliability and resiliency investments to the platform so that we can support the largest customers in the world, the most innovative customers in the world in doing what they need to do at the pace they need to do it, right? And so, you know, one of the challenges that you have as you grow an enterprise, and I've seen this in my career, is you get a lot of customer requests. And they're not always requests you're going to want to build for the rest of the market. So you've really got to strike that balance. And the product teams worked really hard to – Thank you so much for joining us. Thank you so much for joining us. And then the last thing that I would say is we're still being chosen by the most innovative startups on the planet. So if we look at where the developer community looks for influence, we're still the first choice there. And, you know, the market has been very concerned over competition for a very long time. And every quarter we prove that that is not an issue for us. And we're going to continue to prove that until it doesn't come up anymore.

It's coming up less and less. So that's definitely a good sign. That's my follow-up question. As a follow-up question, I wanted to ask about what's going on in security, because it seems like that market is evolving. Kind of like cloud and the DevOps movement gave rise to observability and automated incident response, it seems like Cloud security is on a similar track, and you've seen a lot of M&A security guys requiring log analytics vendors to do that convergence for the stock team. And so I wanted to think about how you were thinking about the security operations team and what your sort of roadmap and the ability to serve those sets of users as they sort of lean into the cloud at a much more accelerated pace coming out of the crisis cycle.

We already serve SecOps teams very well. We don't market ourselves very well in that regard. But we already serve SecOps teams very well because if you think about it, responding to a security breach or a potential threat is the best version of incident response. It's the best example of why it's mission critical, why it's time sensitive, how unpredictable it is, and how often unstructured it is. And the only way you resolve a situation like a breach, a data leak, a potential threat, etc., Thank you for joining us. And then the last thing that I would say is when you look at event intelligence and what we've done with digital operations management, it is about really finding signal in the noise. As these events are coming through, those integration investments that we've made to the security stack, the threat management stack, et cetera, have been really important in diligencing, is this a technology issue, is it a security issue, is it a data issue, et cetera. Thank you so much for joining us. So the timeliness of getting that work done is really important. So that is an area that we will continue to invest in. And I think we have to think about, you know, what's the right business model to do that long term, et cetera. But I'm also always trying to help the team make sure we're not focusing on too many things at once.

And so we're really following where the customer is headed.

And we do see the developer community having a huge influence in the SecOps team and in the SOC.

Great to hear your thoughts. Thanks, Jen.

Thank you.

Currently, we do have two more analysts queued. Chad Bennett next to you and then Kingsley Crane coming to you after. Chad, let me bring you up here. Hi, Jennifer.

Hi, Howard.

Hi, Chad.

Hey, Chad.

How are you?

Great, thank you. How are you?

Good. So, Howard, do you have the CRPO number handy for the quarter?

Yes. Our remaining performance obligation number, I knew the percentage, I will give it to you in just a minute, $121 million. Okay. And that was CRPO? That was, yes.

And that was up how much?

Up 59%. Okay. So CRPO was up the same amount as overall RPO? Oh, sorry. I don't have those numbers with me.

Okay. And then, so just kind of pushing a little bit, pushing you two a little bit on the guide, and I think Jennifer maybe let the cat out of the bag on 30% growth, her expectations, which I love to hear, and everybody wants more. Just for the growth in event intelligence, The growth in the digital ops platform and the acceleration you're seeing in enterprise and the comeback in SMB, the net expansion range you gave Howard of 118 to 121, I guess, and anything can happen in any quarter on that metric, but why would that metric go backwards from where we are today? Is there something under the hood that you're looking at?

Yes, so just the mechanics. So the range that we've provided is 118 to 124. We've seen some steady acceleration over the last two quarters in terms of that number. Part of the reason for why we expect it to fluctuate a bit is our expansions are often related to customers' renewals, right? So that's often a time. So there's a seasonality element to it that can change when when these things, these occur. Sometimes we bring the renewal forward and so there's an early renewal. The other aspect of this is, you know, it's very hard to always be sure exactly which customers in a cohort are going to expand. So whilst we've seen a high level of predictability, particularly in the enterprise, in terms of seeing, you know, roughly a third of our customers expand every quarter, it's hard to know exactly from which cohort how many will expand. But we're We're feeling comfortable with our ability to forecast it, and that's why we've decided this year to give folks a view on where we think we would land between the 118 and 124, expecting that wherever we land on average, enterprise would be higher.

Right, and enterprise is now north of 50% of the business, right?

Correct, yeah.

Okay, so if anything, that number should accelerate, right? Not putting words in your mouth, right? No.

We would expect that, you know, obviously enterprise being a large contributor to that number, as enterprise continues to grow and we see that momentum continue, it would contribute positively to the dollar-based net retention.

Yeah, and I'll jump in there just to add a comment. I mean, I am reasonably optimistic about the macro right now. I use the words right now very intentionally. I mean, who knows what's going to happen in fall? And so I just want to point out that, like, we're still in a very – Volatile, unpredictable macro environment. And, you know, we're obviously thinking about that. You know, my comments around getting back into the 30s, like, that's not a guide. That is, I am confident this company will get back in with three handle in front of it, but I'm not telling you when.

And I mean, I would just say, Chad, last year this time we were having a very different fall, like the world was falling apart. And I was trying to give guidance at that point in time. We decided not to suspend guidance despite the uncertainty. And we've actually made sure that we've exceeded our guidance every quarter. So my view is that I want to make sure that what I have visibility of today and we have reasonable visibility that leads us to give the guide that we do.

Howard also makes a really good point that if you think about PagerDuty on the whole and you think about our team and kind of how we think about our own business, we are durable. It's a very durable business. It's been a pretty predictable business. Our customer expansion, a third of our enterprise customers expanding every quarter have been predictable, and that's because our customers have become reliant on us and they are consistently growing through their user base. and through add-ons. I expect that to continue. So that is one of those things that gives me a lot of confidence.

Fair point from both of you on the guide last year. You were one of the few, I will point out. Just one follow-up real quick. I assume the expectations on new logo contribution for the year in terms of mix have not changed or any kind of different expectations on new logo contribution?

So the way I would frame this is that the real revenue or ARR drivers for us are mid-market and enterprise logos. And those remain for us an area of focus. Obviously, we are keen to add logos in the SMB space and very small business because that's where a lot of these companies start out. But certainly in terms of what actually contributes to our results significantly, it's the up Thank you. Great execution on the quarter and the year. Thanks, Chad.

Okay, thank you. And we do have a hand raised from Kingsley Crane at Barenburg. Kingsley, let's bring you up. And if anybody else has any questions, please shoot me a message if you're unable to raise your hand. But Kingsley is the last hand I see currently.

Hey, Kingsley.

Hey, Kingsley. Hi, good to see you. And thanks for fitting me in. I had a quick one on the user counts of the 700K users. Up 40% is remarkable, you know, higher than 32% growth last year and, you know, growing a little bit faster than revenue. So, you know, as we think about heading towards the 1 million user count, should we expect user count to continue to outpace revenue? You know, how should we think about the drivers, you know, between customer service and you're also seeing a higher percentage of ARR due to digital ops as well, so.

I'll take a crack at it and then you can correct me. So number one, I think what we're seeing is the expansion of new teams across the organizations that we serve, particularly driven by digital operations management plan. Thank you so much for joining us. at the top of the funnel. So those are some of the things that I think are going to drive that user growth up in ways that I think are very positive for the company long term.

Yeah, and the 700,000 users are all paid users that we're referring to there. So this is representative of us becoming more ubiquitous within the organization as we're being used more broadly across an organization in different use cases. So, for example, if you're in a pure customer service type use case, you're not going to The kind of plan that you would need would be a different plan, hence we created a different SKU for it to someone who's in debt. So that accounts for some of the variation there. But I would certainly expect that it will outpace the revenue growth.

Okay, that's helpful. And then last one, already on version 3 of the Zendesk integration, which was recently released, released that shows the pace of software development today. So, I mean, what have you learned recently with this integration and how are you feeding it back into the product?

I mean, one thing we've learned is it's really hard being a customer service agent. Like, if you think about it, If you think about whose jobs have gotten more difficult by being remote and by being at home, a lot of troubleshooting happens when you're sitting together in the same area and your team manager is there and your unit manager is there, et cetera.

Customer service, I think, has been impacted by layoffs.

Thank you so much for joining us. has a huge impact not just on productivity but on the health of that customer service team and ultimately the end consumer experience. And so usability, which is one of the things that we're known for, is really important in that use case. connecting people within the platform they're in, Salesforce Service Cloud, Zendesk, et cetera, and being able to give them everything they need to know about an incident, everything they need to know about who's on it, how long it's taking, et cetera, without them having to pivot into other platforms, super important. And that's where our integration investments, I think, have really made a big difference. But I think we're very, very early here.

Right. Yeah. Well, that's very helpful to hear. All right. And congrats again on a great quarter.

Thank you.

Well, that concludes the questions that we have, folks. Jennifer, I would like to turn it back over to you to send us off with some closing remarks.

Well, first, I just want to thank everybody who's joined the call and thank our analyst community. You all have given us a lot of feedback. We've learned a lot from you in the last couple of years since we were first a tiny newborn public baby in the SaaS industry. So we really appreciate your partnership and your help. Second of all, we do have Summit coming up. We're having Summit at the end of June this year, the last week of June, which is exciting. We'll also be hosting an Analyst Day around that timing, which Howard and the IR team will give you more information. But we look forward to seeing you there and have lots of new, exciting product innovations coming. And then the last thing is I just want to mention my support for the Asian community, given what's just taken place in Atlanta and what we've seen over the last couple of weeks. We do stand with the Asian and the Black community against and hope for a more just and equitable universe. So thanks, everybody. Have a great week.