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spk00: Good afternoon, and thank you for joining us to discuss PagerDuty's third quarter in fiscal 2022. With me on today's call are Jennifer Tejada, PagerDuty's chairperson and chief executive officer, and Howard Wilson, our chief financial officer. Before we begin, let me remind everyone that statements made on this call include forward-looking statements which involve known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements. These forward-looking statements include our growth prospects and future revenue, among others, and 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'll turn the call over to Jennifer.
spk01: Thank you, Christine, and thanks, everyone, for joining us today. Q3 was an outstanding quarter for PagerDuty, delivering record revenue of $72 million, growing 33% year over year with continued momentum, especially in enterprise and mid-market. Dollar-based net retention remained above 120% for the fourth consecutive quarter. Our product, sales, and marketing teams delivered an outstanding quarter across the board, and I am especially appreciative to our customers who continue to demonstrate their trust and loyalty in PagerDuty by expanding their relationships with us. During the quarter, we increased our surface area across customers' digital operations and demonstrated the value of PagerDuty as the operations cloud for the modern enterprise. Importantly, we drove strong performance across all product lines, including incident response, AIOps, automation, and saw landmark success with our customer service operations offering. PagerDuty's Digital Operations Cloud empowers enterprises to deliver superior customer experiences by providing intelligent incident response and operational automation that increase uptime, reduce costs, and improves customer satisfaction. As customers expand their use of PagerDuty beyond DevOps, the platform tackles workflows across the enterprise and for multiple personas, technical, executive, back office or front office, wherever critical unstructured work arises. This enables leaders to keep their teams focused on forward-looking innovation that drives end customer trust and ultimately revenue and growth. We innovate successfully across use cases and departments. And as we do that, PagerDuty grows from the foundation of digital infrastructure to enterprise wide operations cloud, a company's primary platform for engagement. Our platform is seamless to deploy and purpose built to manage the increasingly complex environments and time critical challenges underpinning the digital economy. In Q3, we continue to grow both our foundational presence in DevOps and IT and our functional use cases horizontally and vertically up to executive leadership. We successfully executed against the $36 billion total addressable market within our customer base and have created multiple engines for durable growth as well as deepened our competitive moats. Increasingly effective execution of our land and expand motion against strong demand from enterprise and mid-market, as well as a favorable competitive environment, saw third quarter financial results exceed the high end of our guidance ranges and consensus, with revenue for the quarter at a pager duty record $72 million, and our non-GAAP operating margin improving by 400 basis points over last year, also ahead of guidance and consensus. In addition, new customers in the enterprise and mid-market segments grew 13% year-over-year during the quarter, and the number of customers spending more than $100,000 in ARR with pager duty grew 35% year-over-year. With the backdrop of favorable macro conditions, including digital acceleration, the talent shortage requiring increased productivity, increasing cyber threats, and ongoing cloud migration trends, we are confident this momentum will continue and are therefore raising our top and bottom line guidance for the full year. Companies across all industries continue to adopt a digital-first outlook and invest to progress their digital operations, with the software, retail, and financial services verticals driving PagerDuty's growth in Q3. Broad industry traction, almost immediate time to value, clear monetization of new products, and renewal rates above 95% form the foundation of our durable revenue growth as we scale. More than 19,000 free and paid customers, both the largest companies and the most disruptive startups in the world, now run on pager duty. The introduction of our free tier last year removed barriers to entry for startups and small businesses while enabling our go-to-market teams to focus on high-value mid-market and enterprise customers. According to research from our recent survey of global technology industry leaders, 72% indicate they are accelerating digital transformation in their organization. PagerDuty helps customers address the challenges of digital acceleration by operationalizing customer trust. In Q3 alone, two Fortune 200 companies turned to PagerDuty, a consumer financial services company that deployed our platform to drive standardization and a public utility that introduced PagerDuty to leverage automation for a better customer experience. These clients predict ROI between 400 and 650% within three years with payback periods as short as three months. In addition, a multi-billion dollar automotive technology company now relies on PagerDuty to unify its incident management practices. Time to value is a competitive advantage for PagerDuty as the platform can be deployed within minutes due to ease of use and native interoperability with today's complex systems. Through first-class APIs, it connects to services across an enterprise's ecosystem immediately, providing visibility, workflows, insights, and automation that translate to value in days and weeks rather than years. With more than 625 pre-built platform integrations, PagerDuty quickly becomes embedded in and automates our customers' operational systems, workflows, software telemetry, and culture, And no other platform is more reliable, secure, and resilient at scale than PagerDuty. Enterprises trust PagerDuty because we continually demonstrate increasing value and reliability, delivering rapid ROI, and earning the confidence of senior leaders. Developers choose PagerDuty because of our relentless focus on not only their organization's goals, but also the user experience that improves their quality of work and life. Over time, these have proven to be deep, sustainable, competitive modes for us. PagerDuty has powered digital-first businesses for over a decade, freeing teams up to focus on innovating for their customers by accelerating and transforming their digital operations from reactive to proactive and preventative. By applying AI to harness both a deep understanding of human workflows and our rich proprietary data set combined with automation and event intelligence, PagerDuty reduces both the volume of work and the time it takes to complete tasks. This quarter, we saw new customers such as Burberry launch PagerDuty to reduce response times to customer issues and improve the consumer experience. In a digital-first economy, the way we work has changed permanently. Now mission critical work is managed by teams distributed across geographies and time zones, underserved by traditional ticketing workflows. PagerDuty uses machine learning to anticipate the needs of our customers and identifies, escalates, automates, and resolves critical issues for these businesses before customers, employees, or the business's reputation are impacted. This quarter, a Fortune 50 global technology company expanded their relationship with PagerDuty, adopting our customer service operations offering in an effort to continually improve the quality of their customer service and experience. Previously, the customer was unable to manage code red incidents effectively, leading to customer escalations that reached its senior executives. Customer service leadership at the company chose PagerDuty to help them improve service levels for premium customers. Our pace of innovation continues to accelerate with product teams launching new PagerDuty applications for Salesforce Service Cloud and Datadog in the quarter. We kicked off Q4 with our fall product launch, which extends our platform to include intelligent automation, injecting control and logic at the event layer. PagerDuty's new event orchestration differentiates our AIOps offering, reducing manual processes to gain operational efficiencies, while our just launched service standards enables account owners to enforce best practices at scale for all of their managed services. PagerDuty Automation can currently be deployed in a customer's environment, and it's also now available as a cloud service, providing the high availability, security, and scalability our customers expect from us. We now provide the only cloud-native platform that combines real-time incident response with time-critical AIOps insights and automation to help enterprises more quickly realize their digital-first strategies. Typically, our customer cohorts follow an adoption pattern that maps to a digital operations maturity curve. Most organizations start by manually and reactively managing issues as they arise. The most mature companies predict and prevent issues before they even impact customers or the bottom line. Most PagerDuty customers are still early on this curve, providing a long runway for growth within our existing customer base. Our platform accelerates the speed with which enterprises evolve their digital operations. And as customers move up the curve from manual to reactive towards proactive and preventative, both their annual investment with PagerDuty and their ROI expand. As our product expands virtually across use cases, PagerDuty emerges as the operations cloud and a standard platform for engagement across the enterprise. Guidewire, a nearly $10 billion technology platform that serves the property and casualty insurance industry, has been a PagerDuty customer since 2013. In Q3, Guidewire expanded their use of event intelligence and deployed our customer service operations application for Salesforce Service Cloud to support ongoing cloud migration efforts and to streamline operations in order to meet rising customer expectations. Guidewire's customer and cloud operations organization needed a comprehensive and reliable system to manage their increasingly complex digital operations. PagerDuty is their central partner. to detect and resolve issues before their customers experience them. Today, 17 teams at Guidewire, including the senior executive team, use PagerDuty to centralize and integrate all of their monitoring tools, increase cross-team collaboration for time-sensitive incidents, and automate action on mission-critical items. This is a typical customer journey across our installed base. Initial deployments rapidly demonstrate value, leading to expanded PagerDuty use across multiple teams within the organization. Last week, we released PagerDuty's second annual inclusion, diversity and equity report. Our company's commitment to equity remains unwavering as it's foundational to our values, part of our mission and culture and embedded in our business strategy. We are more innovative, higher performing and more successful when we reflect the diverse communities we serve. The report is a transparent account of our progress in building an equitable, diverse and inclusive board, company and culture which we share both to hold ourselves to high standards and to hopefully inspire other companies in their own ID&E journeys. While I'm proud of some of the milestones we have achieved, like gender pay equity and one of the most diverse boards in the industry, we have more work to do and remain committed to leading the industry by example. Finally, PagerDuty is poised for a record revenue result in FY22 with annual growth accelerating, a $36 billion TAM, and a strong demand environment in front of us. We have an incredible team, terrific partners, and customers we admire. While our results speak for themselves, I wanted to reiterate our vision, the mission we are on, and our purpose, which inspire our innovation and our drive to ensure our customer success over the long term. We envision an equitable world where we transform critical work so all teams can delight their customers and build trust. We're on a mission to revolutionize operations and build customer trust by anticipating the unexpected in an unpredictable world. And importantly, our greater purpose is to empower teams with the time and efficiency to build the future. Trust is central in all of this. something we seek to earn every day. And I want to thank our customers, our Newtonians, our partners and shareholders for placing their trust in us. With that, I'll turn the call over to Howard and I look forward to your questions.
spk05: Thank you, Jen. And good day to everyone joining us. Our financial results for Q3 demonstrate our continued momentum and success in becoming the operations cloud for the modern enterprise. Consistent execution in the enterprise and mid-market led to another strong quarter with revenue of $72 million, an increase of 33% year over year and above the high end of our guidance range. International revenue grew at 36% and represents 24% of total revenues. Our high dollar-based debt retention rate at 124% is driven by consistent user expansion, plan upgrades, and new product purchases. Our rate of 124% compared to 119% in the third quarter of last year was at the high end of the range that we guided to in our Q2 call. We expect net dollar-based retention to fluctuate from quarter to quarter and are confident we will achieve at or above 120% in Q4. We ended Q3 with 14,486 paid customers, up 6% compared to a year ago. As a result of focused targeting of product innovation and go-to-market efforts, we saw paid enterprise and mid-market customers up 13% year over year. In addition, the number of total companies on the platform exceeded 19,000 at the end of the quarter, up 29% compared to a year ago. You may recall when we introduced our free tier a year ago, our intention was to drive focus on higher value logo acquisition in the enterprise and mid-market and remove barriers for entry in SMB. This is working well as we see good growth in enterprise and mid-market and strong growth in overall companies on the platform with a more efficient land motion for startups and SMBs. General strength and momentum in enterprise and upper mid-market continued in Q2 as 543 customers achieved more than $100,000 of ARR on pager duty, up 35% compared to a year ago. The growth in this cohort represents both new logos and expansions. Our digital operations plan, which bundles both our core and new offerings, including AIOps, but excludes automation, grew 65% year over year, representing approximately 22% of our total ARR, up from 18% a year ago, demonstrating success in upsell and expansion in our customer base, especially in the enterprise and mid-market. For Q3, our non-GAAP gross margin remained best in class as we scale at 85% within our target range of 84 to 86%. And this demonstrates the efficiency of our infrastructure, our differentiated, scalable, resilient architecture and programmatic approach to customer support and success. Non-GAAP operating income improved to a loss of $5 million or 7% of revenue compared to a loss of $5.9 million or 11% of revenue in the same quarter last year. Overall, our non-GAAP net loss per share was $0.07, a penny better than $0.08 in the third quarter of last year. In terms of cash flow for the quarter, cash from operations was $3 million and free cash flow was $2 million. We expect cash from operations and free cash flow to decline sequentially due to Q4 outflows attributed to our employee stock purchase program of $5 million and the semi-annual interest on our convertible debt of $2 million. Free cash flow will also include San Francisco-related leasehold improvement expenditures of approximately $1 million. Turning to the balance sheet, we ended the quarter with $545 million in cash, cash equivalents, and investments. Total deferred revenue ended the quarter at $143 million, up 33% year over year. Quarterly billings were $81 million, which was an increase of 34% year over year at the high end of the range we provided of 25 to 35%. As a reminder, in Q4 of FY21, total deferred revenue included a benefit of approximately $6 million from early renewals. This creates a tough comparison this year, as we anticipate these contracts to renew again in Q4, and we do not foresee any early renewal benefit again this fiscal year. Given this, we expect that quarterly billings growth will be in the range of 20 to 25%. On a training 12 months basis, Billings grew by 31% to $297 million compared to a year ago. We expect training 12 months Billings exiting the fourth quarter to grow at approximately 25% compared to Q4 of the prior fiscal year. Turning now to our guidance. For the fourth quarter fiscal 2022, we expect revenue in the range of $75.5 to $76.5 million, representing a growth rate of 27% to 29%. Non-GAAP net loss per share in the range of $0.05 to $0.06, with basic shares outstanding of approximately $86 million. This implies a non-GAAP operating margin in the range of negative four to negative six. For the full fiscal year 2022, we're increasing revenue guidance for the full year to $278.5 to $279.5 million, representing a growth rate of 30 to 31%. We expect non-GAAP net loss per share of 33 to 34 cents, with basic shares outstanding of approximately 84 million. This implies a non-GAAP operating margin of negative 9%. I want to thank our customers for their trust in us and our team for delivering continued momentum with a strong third quarter financial results, strengthening our position as the operations cloud for the modern enterprise. This underpins our confidence in continuing to deliver durable revenue growth. With that, I will open up the call for Q&A.
spk01: Before you do that, Howard, I was going to make some closing remarks, if that's okay.
spk05: Sure.
spk01: So very quickly, I just wanted to summarize Q3 was a terrific quarter with continued momentum, accelerating annual growth and a confident outlook driven by a positive macro environment, product innovation and room to expand in our base. Great execution by our teams. We have become the standard for incident response, providing a strong core business that we are building new products and services on top of. And our business grows durably as we advance our position as the operations cloud in the modern enterprise. With that, I will turn it over for questions. Sorry about that.
spk05: Thank you, Jane.
spk04: Excellent. Thank you. We're going first to Sterling Auti with JP Morgan. Sterling, go ahead, please.
spk02: Yeah, thanks. Hi, guys. So I think it was about this time last year you talked about the premium model. So just pricing in general. Just curious, did you make any modifications at this point this year and how are you thinking about that moving forward?
spk01: Well, the Freemium model has continued to be a great learning and kind of growth opportunity for us as a business. You know, remember, our original goal was to make it easier for developers and the most disruptive startups to leverage PagerDuty and build that into their infrastructure. And as you know, we have very strong retention. So as those customers grow, it creates the opportunity for us to grow with them. What that's done by automating that part of the funnel, it's freed up resources to focus on more expansive mid-market and enterprise customers And that's allowed us to learn more and more about how we can push our high velocity motion up market, which has created some great efficiencies for us. So we continue to learn, but we are really happy with how the free trial or how the free tier is working alongside of our free trial, which converts our customers to paid as well.
spk02: And then Howard, one follow up for you in terms of notice the incremental operating margin, the incremental operating leverage that you generated, not only in the quarter, but also in the guidance for the fourth quarter, is that purposeful or where are you in kind of your hiring plans
spk05: Yes, thanks Sterling. It certainly is purposeful. We in fact have been doing really well in terms of hiring. Q3 was a record hiring quarter for us, which of course covered across the business, you know, engineering, sales and other functions as well. But we have been looking at how do we deliver better efficiency in terms of sales and marketing and G&A. We obviously always try to keep our R&D expenditure around the 25% of revenue, which we expect to do within Q4. But certainly been looking for efficiencies in the other two areas without compromising on the growth opportunity.
spk02: Makes sense. Thank you. Thanks, Sterling.
spk05: Thanks, Sterling.
spk04: Thank you. We'll go to Rob Oliver with Baird next.
spk06: Hey, this is Srinath Kothari on for Rob. He had a conflict, sorry. So you announced the Rundeck Cloud and AWS partnership a couple of weeks back. And so just curious how Rundeck is doing at the new logos. Is that still a factor or is it still kind of more expansions with existing accounts? I think that's a question for Jen, maybe.
spk01: Thanks for the question. Well, first of all, really excited about both the announcement of PagerDuty Automation available in a cloud offering. We think that opens up opportunities for customers that prefer to deploy through the cloud as opposed to in their own environments. And Rundeck has continued to perform very well in terms of both new customer land and expansion. I think most important, bringing automation into our platform alongside of incident response, AIOps, and now customer service operations really makes the platform much more complete as a total operations cloud for a customer and really differentiates the platform competitively. So we're happy with how that is going. Equally, I'm really thrilled with the way our partnership with AWS has advanced. So, you know, we've historically worked with AWS in Marketplace. We've doubled down with them from a go-to-market perspective. Customers can retire AWS-committed spend on PagerDuty licenses and Now the AWS Salesforce can also retire a quota against pager duty consumption. So a great channel opportunity for us. And, you know, that's continued to be a very, a very good relationship for us from both a product and a go-to-market perspective. So excited on both fronts.
spk06: Thanks, Jen. Really helpful. So just a quick follow-up for Howard here. So I remember you mentioned the, that the expansion rate last quarter had some contribution from the joint customers from Rundeck as well. So I just wanted to understand the dynamic there, like the NRR coming at the high end of the guide, can unpack that a little bit with Rundeck and comps.
spk05: Yeah, sure. So I think just for context, you know, Rundeck remains like from a size perspective. It doesn't move the needle materially in terms of that dollar-based net retention. So I think you have to see it in the context of a larger business, which is now, you know, over 300 million in ARR. But certainly the contribution is there and we've seen both the expansion with customers acquiring Rundeck and one customer that comes to mind for me this quarter was Zscaler, who had been a digital operations customer and then added the automation PagerDuty Automation or Rundeck into the mix for them so that they can broaden their footprint to be able to cover all the way from detection to auto remediation in delivering like a good experience. So we definitely seen that motion happening where existing PagerDuty customers are adding to to their footprint with us by adding automation. But it's just in general across the board, upgrading the plans, taking on the new products and adding new users is contributing to that really strong DBNR.
spk06: Got it. Thanks a lot, Howard and Jan. Congrats again for the great work. Thank you.
spk01: Thank you.
spk04: Thank you. Next, we'll be hearing from Keith Weiss at Morgan Stanley.
spk09: Excellent. Very nice quarter, guys. And thanks for taking the question. One for Jen and then one for Howard. Jen, you talked about a favorable competitive environment in the quarter. Does that denote anything had changed in the competitive environment or is that more so a page of duty comment that with sort of the product innovation you guys are putting out, you've expanded sort of the competitive gap and that's what you guys are benefiting from?
spk01: Well, we continue to see lands be greenfield as we have in the past. And in fact, we've seen the competitive environment improve where because of the breadth of the platform, we're not seeing as much discussion around other vendors because there isn't anybody that's bringing AIOps and automation and incident response together. So frankly, it's improved and we're thrilled to see the investments that we've made, particularly in mid-market and enterprise where product perspective pay off. And again, I think it's an early and nascent market. Our customers still have a lot of work to do to support their digital first sort of customer experiences. And I think PagerDuty is the right platform at the right time to help them solve some of those new problems that they're experiencing.
spk09: Got it. Outstanding. And Howard, actually two questions for you. One is just a clarification. Can you just walk us through the pull forward dynamic that you were talking about in terms of billing for Q4? I just want to make sure that we're clear on that. And are there any other kind of periods of pull forward that we should be aware of? And then the actual, that's just a clarification. The question is the durability of dollar-based net expansion. You've had multiple quarters of a really good dollar-based net expansion. Is the mid-120s, is that a more durable rate on a go-forward basis now?
spk05: All right, so I'll start with the billings and then I'll come back to the dollar-based net retention. So in terms of billings, the adjustment that I was referring to there was really around in Q4 of last year, we had unusually high growth in billings for the quarter at 41%. And part of that was driven by $6 million of early renewals, which would have renewed in Q1 of the next year. Obviously those are gonna renew in Q4 of this year. So we don't have that same benefit. So if I back out that $6 million and do a comparison on a trailing 12-month basis, in fact, we will exit the year at around 30% in terms of billing growth. So that was a pull forward. And we're not anticipating anything unusual like that this coming – this quarter.
spk03: Perfect.
spk05: And then on the dollar-based net retention, you know, 124 is a really strong result. And we think that for, you know, companies that's our size and scale, being able to deliver a sustainable 120% is best in class. And so for us, we are focusing our efforts on maintaining that level. And this will be, Q4 will be our fifth quarter of being above 120%. Excellent.
spk09: Thank you very much, guys. Great quarter.
spk04: Thanks, Keith.
spk05: Thanks, Keith.
spk04: Okay, hearing next from Chad Bennett with Craig Callum.
spk11: Great. Hey, guys. Thanks for taking my questions. Hey, Chad. Hey, so I guess just on digital ops plan and how that performed relative to expectations in the quarter, it's still putting up really good growth, but obviously, you know, decelerated from doubling year over year last quarter to 65%. And I think as a percentage of ARR at 22%, it's kind of been here. Just kind of how did that perform, whether it's from a net new logo sell standpoint or from a net expansion standpoint and How do you expect that, probably more importantly, to grow over the next year?
spk05: Yes, so I'll take that, Jen, and you can chime in. So we are really happy with the performance of our digital operations plan. It ties in really closely with the long runway that we have with our customers in terms of as they progress through the different phases of digital operations maturity, the digital operations plan becomes a very natural fit to help them move to those more proactive and predictive approaches. So for almost every customer that we have, there's this opportunity for them to expand by taking on the digital operations plan. So we continue to see really good momentum with the digital operations plan. We had multiple upgrades on the digital operations plan within within the corporate customers going from business to digital ops, as well as new lands. So there's good momentum there. We feel that 22% of our total ARR represents a real indication of products attached, if you like, and we expect to continue to see that perform well.
spk11: Okay. And then, I don't know, I'll give this a shot, but can you speak to enterprise net expansion in the quarter, Howard, or if it was at 130 range?
spk05: Yeah, so for this quarter, we decided just to focus in terms of our metrics to make sure that it was easier and clear for people to focus on the overall view, which is the view that we've shared at the 124% range for the quarter. Okay.
spk11: Then maybe last one, if I could. So we're up to almost 550 customers, over 100,000, an ACV, I guess you'd call it. Obviously, you have a significant number of paid customers. Is there any reason to believe, you know, over the next couple of years that that over $100,000 cohort, You know, it's been growing kind of mid 30%. It seems like we're still like first, second inning where that should grow at that growth rate for the next few years. Is that too aggressive?
spk05: um so what i would say is that we we've seen a very steady increase every quarter right obviously it's uh and that's been very predictable it's part of our you know durable growth um as a company is the fact that we continue to see customers moving through the cohorts and you know we don't always share the numbers above 500k and above a million but we see a similar pattern of customers making that progress and so Again, it ties into the very long runway that we have with the majority of our customers to be able to continue to do that. So we don't anticipate that that should suddenly change. We will continue to grow our customers and see that they'll continue to add products, add users, take our more advanced offerings. Got it.
spk11: Thanks much. Nice job on the quarter.
spk09: Thank you, Chad.
spk04: Thank you. Next, we'll hear from Derek Wood with Cohen. Derek, if I could have you, if you want to switch on your video.
spk08: Yeah, great. Great, thanks. Good to see you, team PagerDuty. Hi, Derek. First one for Jen, I think you mentioned that you had a landmark quarter in customer service. Could you just double-click what was special about this quarter, you know, why you're seeing maybe adoption kicking into a new gear and perhaps comment on what kind of early demand you're seeing with the Salesforce offering?
spk01: Yeah, we're really excited about where we are from a customer service perspective because when you build an adjacent product based on kind of this analogous problem set, like if you think about how tech teams detect and deal with incidents, it's very similar to how customer service teams learn about customer issues and have the time sensitive challenge of having to like diagnose them, figure out how to deal with them and then communicate them. And so PagerDuty is a natural fit for that problem. And Salesforce has been a terrific partner in helping us bring together what we can do from a mission critical time sensitive work automation perspective within Salesforce Service Cloud. What's been really exciting to see are some of the larger wins that we've experienced. So one in particular I mentioned in my prepared remarks was a Fortune 50 company where we did a seven-figure deal that was created and closed in the quarter through a reference from another executive. And I think it just points to how strategic customer service has become in a world where you have to win the customer over and over again and demonstrate trust and build their loyalty in a few seconds of a customer experience. If that doesn't work well, it's very costly for the company. This quarter, that particular customer expanded from more of a traditional PagerDuty implementation to adding our customer service offering, and that's seen them really reduce the existence of these code red issues that make their way all the way up to leadership. where it's not a very efficient way to handle a problem if you have to get your executive team involved in it. And so you're saving time, you're saving money, you're improving the overall executive experience. And I think what was exciting about that was, like I said, it was kind of a self-referencing deal. And we see Salesforce and that partnership as creating a tremendous opportunity because they are all over enterprise and they are the platform of record for customer service and customer management. So we're pretty excited about that. And what's interesting about the product is you can do all the things that you can do inside of PagerDuty without leaving Service Cloud environment. So no context switching, easy to use in a time sensitive environment and very quick time to value. So I think even at this particular customer, more expansion opportunity.
spk08: Perfect. Great to hear. Howard, maybe one for you. It looks like the new customer generation has stepped up nicely the last couple of quarters. I know these are probably a lot of them are at the lower end, but can you remind us how quickly you tend to maybe strike an expansion deal after you land a new customer? And then, you know, so given that uptick in new customer generation, does that give you better visibility into growth in future quarters?
spk05: It absolutely does. And I think this has been the beauty of the free tier for us, because what that does is that it gives us visibility into that customer's lifecycle earlier than we would have previously. Because with our two-week trial that we had before, at two weeks, if they didn't convert, they were gone. Like we didn't see them. Whereas now we actually have them using the product and we're getting far better at understanding the signals that indicate when the salesperson needs to be involved. And so often we are able to watch that maturation process until they land. And it's not unusual for us to see a customer do multiple expansions in their first 12 months. So they'll often start with maybe, if it's a smallish company, they may start with a small team, maybe 10 users, maybe 20 users, but then they do within that first 12 months as they bring more teams onto the platform. There's a good spurt of growth. And then obviously, depending on the size of the organization and depending on what's happening in the organization, it could then be driven by increased plan or plan upgrades or increased product adoption. And what we also find is that we often, we still typically start in debt. And often Dev takes us into other parts of the business. And that is a pattern that we just repeat every quarter in terms of getting there. And the example that Jen referenced at Guidewire is a really good example of us being in the Dev team, then into the IT team, into business teams, into the executive. It's a pattern that we see repeated. Great. Well done. Congrats. Thank you. Thanks, Derek.
spk01: Thanks, Derek.
spk04: Next, we will hear from Matt Swanson with RBC. Matt, go ahead.
spk03: Yeah, thank you. It's obviously on for Matt Hedberg. Obviously, really great to hear about all the success in CS. So maybe following up on Derek's question and your answer, Jen, about the analogous problem set, when we think about beyond CS security and IT ops, is there a fourth use case where you see kind of those same themes that show as logical adjacency, maybe finance or HR. Like you mentioned, the talent shortage is pretty broad right now, and it seems like a lot of people could use your help.
spk01: You're exactly right. And, you know, there are infinite use cases across the enterprise and business operations. We've seen them in sales, marketing. Our teams are pretty ingenious even in how they use PagerDuty. And I think the common thread is you're talking about this shift in the way work shows up for an individual person. It used to be structured. You used to walk in and look at your calendar in the office and just go from one meeting to the next. a lot of work that comes at you is unpredictable, it's unstructured, it requires collaboration across teams across the business who are not within swivel chair reach to where you are and requires intelligent routing and orchestration and increasingly more and more automation because every company I work with is looking to improve productivity over time and retain the people that they have and make sure they can up level those people's work to the most important, most innovative work. And so that's where I think automation has become really important. I think you're going to continue to hear more about the challenge of time sensitive customer service issues. Today, there was a public cloud outage and companies are depending increasingly on public cloud services on SaaS products and software isn't perfect. And those systems that you rely on are out of your control, when one of them isn't having a good day, you need to be able to very quickly detect that issue, understand the dependencies of those services, and not just respond from a technology perspective, but be able to communicate with your customers and help them understand kind of where you are in that arc. And you don't want to be in the doghouse with your customers because one of the services that you subscribed to failed. And that's where PagerDuty being scalable and resilient and secure and always available in an environment like that is super important. For instance, during the outage that happened this morning, we saw more than eight times the event transit on the platform and didn't flinch. We can undertake a lot of pressure in our system because of all of the redundancy that we built into that product. And that also allows us, I think, to be reliable for other different types of use cases, whether it's employee onboarding and offboarding, managing web conversion from a growth marketing perspective, or managing urgent issues in finance or other parts of the business. So the more we can do to make our platform flexible, to make it easy to use, to reduce the sort of developer jargon that's in the UX and make it easier for just all types of employees, the better. And automation is a big part of that.
spk03: That's great. And then maybe as a follow-up, that actually is a follow-up to that question, sometimes kind of a rarity. From your analyst day, you talked a little bit about automation as a new landing zone in the customers. And as this talent shortage feels less like something you can like push through for a couple months and new kind of more of like a new normal, which is another overused buzzword now, are you seeing automation being the new land? into customers? And what is that doing maybe from like a sales philosophy standpoint?
spk01: We are, and I think it's very early days for us because a number of the automation use cases that Rundeck, you know, has designed, is designed for and that it has managed very effectively have nothing to do with incident response. That's obviously a place where our sales organization will naturally go, but because our automation solution starts with an open source community, there's opportunity to discover lots of different new automation use cases and then trade up into our enterprise offering. So I do believe that can continue to be a new land opportunity for us and you know, over time, part of the reason we've built a cloud-based automation service is so we can also build a freemium funnel and a try to buy motion that is self-surfaced over time. That is not something we've done yet, but I think a great opportunity for us to build out that land motion in the future for automation.
spk03: All right, fantastic. Yeah, it seems like it could build your product roadmap for you over time. Congratulations on the quarter.
spk01: Thank you.
spk04: Thanks, Matt. Okay. I want to remind our analysts that you can raise your hand if you do have a question for the team here. We have a couple hands still raised. Bhavan Suri, we'll hear from next. If you want to switch your camera on. Thanks.
spk07: Great. Thanks. Thanks for taking my question. I wanted to follow up on the previous questions, Jen, a little bit. You bought Runbook, but you're talking a lot about automation. I'd love to
spk01: Robin, I think you're muted. We lost you.
spk07: Yeah, odd. I don't know why I'm muted. But anyway, where does the lines you want to draw about what you're automating versus a broader automation platform? So IT ops, DevOps, there's broad automation platforms in their service. Now there's a ton of automation. You've got some of these workflow orchestration engines that do that too. And so where do you draw the line today? And maybe does that line blur and you start taking over some of those markets? How should we think about how your vision is 10 years down the road?
spk01: Yeah, our vision as the operations cloud is to take on more and more of the time sensitive, unstructured mission critical work that has to happen across an organization. And that is not functionally or use case specific. Like we absolutely intend to expand our surface area. across the enterprise. And we specialize in that unexpected kind of unpredictable unstructured work because of our ability to be able to diagnose it and intelligently route it, orchestrate it across teams. And increasingly, you know, automate the response, not just the detection or the orchestration. But that's a really important point that we have always been in the automation business. We maybe didn't characterize it that way. But if you think about what we do using 625 agents. integrations that sort of listen and see everything that's going on in the digital ecosystem to find signal in the noise and determine whether something is a major incident about to happen or an event storm about to become a major incident, or actually something you shouldn't worry about and should just hit the snooze button on. That's a form of automation, intelligently routing that work to the right six people instead of getting 100 people on a call. That's automation. And increasingly, like every time an incident or an event runs on the PagerDuty platform, the platform is capturing that information in our proprietary data set, learning from it and getting smarter and helping you institutionalize getting smarter as a company on how you respond And, and increasingly like proactively prevent bad things from happening but maybe also address opportunities in a more time effective way and more efficient way for your team so automation has always been a big part of pager duty strategy and is going to continue to be a very big part of where we go and I think You know, one of the differences between us and maybe the ticketing systems and the project management solutions that are out there is that we were designed for distributed teams. We are cloud native from the beginning. We interoperate with just about everything in the ecosystem. We're flexible and very easy to use. So it means you can swarm to something and give the person closest to the problem a the accountability and the responsibility and the visibility to act effectively in the moment. And the next time you can automate that and have the machine do it for you. So we're not in RPA. We're not moving into some of those spaces that replace business process optimization. But I do think that more and more of the type of work that we solve for is how work happens in the workplace now as the result of COVID and distributing work, remote work, et cetera. And so that's, you know, when I think about the macro environment, the way work has changed has been a tailwind for us.
spk07: Yeah, yeah. Let me flip that a little bit differently. You know, you started working with partners, and the basic alerting functionality, there's not a lot of services involved. But as you think about this automation, you think about Deloitte, and I think you recently announced, was it Tata? And you think about these guys, While the incident response piece is really important, the automation, like the this is happening, this needs to be the next person, that collaboration, is that where they're seeing the focus and the interest from those guys, or is it across the board, and how are the partnerships coming along?
spk01: I mean, most of the partners that we work with are supporting customers in big, chunky digital transformation projects. Sometimes they'll employ us as part of the cloud migration side of that solution, but sometimes it'll be around the cultural change and the change management associated with doing work a different way, not relying on people in a network operations center manually watching blinking lights and escalating things, et cetera. It varies from partner to partner, but we do see that as an opportunity in the future to engage more readily with some of those more traditional systems integrators or strategy firms that are out there.
spk07: Got it. That was really helpful. Thanks and congrats.
spk01: Thank you. Thanks. Bye-bye.
spk04: Okay, folks. Looks like Kingsley Crane with Barenberg gets to come with the final question for the group today. unless we see any hands go up additionally. Kingsley, please go ahead.
spk10: Thanks for taking my question. This is Ed Maggion for Kingsley Crane. You expected to see a range of NRR between 118 to 124. You came in at the high end of the range here. Do you believe the higher momentum here was a function of feature adoption or seed growth? And we'd love to better understand the mix here and if it's been different from the last few quarters and the momentum there. Thanks.
spk05: Yeah, thanks, Ed. So, you know, for us, it's always a mix of factors that are driving that growth. So obviously, you know, given just the improvement that we've seen in the adoption of the digital operations plan, that's been a contributor. We've seen an increasing number of page duty customers adopt the page duty automation or the Rundeck solution. So that's been a contributor. But the largest contributor is still user seed expansion. So we're not sold out in terms of users at any customer. So every customer has the opportunity to deploy us into another team. And that certainly gets fed by, you know, if it's in dev, maybe adding to IT or security or customer service. And we also starting to see customers using us in other business type circumstances. So those are the elements that actually build into that expansion within the customer base.
spk10: Very helpful. And then another angle here. Last quarter, you discussed momentum and customers spending more than 500K and a million dollars with you guys. Any color you want to share in these trends during the quarter help us further reconcile the enterprise or is it going to be the same answer as we got for the NRR for the enterprise?
spk05: Yes, so what I will say is we're seeing good momentum above 500K and above a million, but we are focusing people's attention on our key metric, which is the greater than 100K, which has, you know, grew by 35% year over year. Oh, well, thanks for the questions.
spk10: That's it for me. Congrats on the quarter.
spk05: Thanks. Thanks a lot, Ed. Thank you.
spk04: Okay, that looks like it for questions from the analyst team. Jennifer, we'll turn it over to you for final remarks, please.
spk01: Well, I'd like to thank all of you for joining us today and just reiterate how proud we are of the record quarter that we've delivered and how confident and optimistic we are in the outlook going forward. You know, I personally have been involved in this business, I'm in my sixth year, and I have never been more excited about the opportunity. We're really living up to the promises that we've made about becoming the platform that becomes, you know, the platform for engagement within our customers' environments. And this vision around the operations cloud is finally coming to fruition, which is personally very exciting, but wouldn't happen were it not for customers placing their trust in us and our Detonians, our employees who work every day to re-earn that trust. So I just want to congratulate our team, say thank you to our customers, our investors, and wish all of you a very healthy, happy holiday and a prosperous new year. Thank you.
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