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spk01: Good afternoon, and thank you for joining us to discuss PagerDuty's fourth quarter and fiscal full year 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 based on the environment as we currently see it. which involve known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements. These 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. 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.
spk07: Thank you, Tony, and thank you to everyone for joining us today. Before I speak to our results, I want to acknowledge that our thoughts and support are with the people of Ukraine and those impacted by the ongoing conflict there. In a challenging macro environment, we continued to deliver consistent growth and strong results across the board, closing a terrific Q4 on a tough comp and a fantastic full year result that exceeded our top and bottom line guidance. We entered the new fiscal year with great momentum. Strong demand for our digital operations platform persists, driven by long-term tailwinds, cloud adoption, DevOps transformation, digital acceleration, and the increasing appetite for automation in light of rising costs and a tight talent market. PagerDuty's Q4 results continue a trend of consistently strong company performance over the last several quarters, with the hallmarks of growth acceleration and improved operating leverage. Q4 revenue grew 32% year-over-year to $79 million, our third consecutive quarter of growth above 30%. FY22 total revenue was $281 million, also growing 32%, compared to 28% growth in the prior year. For the fifth consecutive quarter, we achieved dollar-based net retention above 120%. Our accomplishments this quarter and throughout FY22 are a testament to our leadership and to our teams anticipating the needs of our customers. PagerDuty's digital operations platform is central to our customers' growth strategies, helping them advance their digital maturity. We are efficiently capturing demand through product innovation as well as a sustained focus and execution of our customer-facing teams whose daily efforts drive loyalty and expansion within our customer base. Exceptional results in Q4 were driven by an increase throughout the year in multi-product adoption, incident response user expansion, and customer loyalty with gross retention rates consistently above 95%. In short, we are building momentum in our business by closing larger and more comprehensive deals. More than half of our annual recurring revenue now comes from customers utilizing two or more PagerDuty products. Both event intelligence and automation are each growing at 70% or more year over year. As PagerDuty customers realize rapid time to value, they expand their use of our platform across the enterprise, beyond their DevOps teams, and they upgrade to advanced functionality like AIOps and automation that deliver compounding return on investment. Through consistent product innovation and go-to-market execution, we've built a foundation for durable, efficient growth. Average ARR per customer increased during each quarter of FY22 and exited the fourth quarter above $20,000. Customers spending more than $100,000 annually with PagerDuty grew 39% year-over-year, and those spending more than $1 million grew by 65%. The continued shift towards digital first across industries creates more opportunity for increased penetration within all of our customer verticals. As businesses navigate a hybrid work environment, our customers prioritize investment to better manage mission-critical work. This work is urgent, unstructured, and underserved by current IT service management or traditional automation solutions. Other platforms rely on humans to detect or identify issues and fail to account for the complex dependencies in modern digital infrastructure. Modern work is no longer ticket-based. It's driven by events and incidents. PagerDuty is purpose-built to efficiently facilitate and automate the type of work that's essential to modern business success, who needs to perform it, and how it will be managed. We're investing in more flexible workflow automation that serves new use cases and augments our current offerings for dev and IT teams. With our acquisition of Catalytic, we complement our leadership in DevOps workflow automation with a no-code offering that brings the same value to teams in business functions like sales, marketing, and finance. We're thrilled to welcome Sean, Ravi, and the entire Catalytic team to PagerDuty. An IDC survey released at the end of 2021 reinforces the need for this approach. More than half of all developers surveyed reported their organizations have more than 100 services in production at any given time. Service proliferation is rapidly outpacing the capacity of technical workers as talent becomes more expensive and difficult to acquire and hard to retain. These trends underscore the need for machine learning and automation that offer productivity, efficiency and innovation. Our focused innovation has cemented PagerDuty as the market standard for both DevOps automation and digital operations. We've expanded our reach to customer service operations, IT, and more broadly, process automation. Increasingly, our customers deploy two or more PagerDuty products, relying on our platform to mature their digital operations. PagerDuty's combination of incident response, AIOps, customer service ops and automation provides the time and efficiency for our users to prioritize both innovation and availability. In a world of unstructured data from a wide range of sources, we now enable more than 650 integrations, converting data to high fidelity, actionable signals, orchestrating and automating time sensitive work across the business. In Q4, we ship general availability for both event orchestration and round-robin scheduling. Event orchestration intelligently suppresses noise so teams can focus on the most critical signals and enables automated incident diagnoses and remediation. This lowers the cost of the response and the risk of the incident itself. Round-robin scheduling allows centralized and decentralized teams to implement flexible automated on-call responsibilities. We believe no other platform is more flexible and resilient at scale than PagerDuty or provides quicker time to value with compounding return on investment over time. We deployed new capabilities throughout the fiscal year, extending our incident response, AIOps, and process automation solutions, which are now leveraged by teams in DevOps, ITOps, security operations, and business operations. Our fourth paid offering, customer service operations, continues to gain market traction with several high-value deals closed in the second half of FY22. This further diversifies our product revenue by addressing a substantial market opportunity with customer support teams. The integration of Catalytic into our platform accelerates our product roadmap and opens new addressable opportunities within our customer base. As our platform serves more needs across enterprises, we expect multi-product adoption to continue its upward trajectory in FY23. With customer ops and flexible no-code workflows, non-technical employees, citizen developers, and leaders across the entire business can leverage PagerDuty to anticipate and manage their most critical work. This will enable more accessible, agile, and scalable workflows to operations outside of DevOps IT and security. We increasingly see this with our customers. In Q4, we significantly expanded our work with a cloud-native digital marketplace customer operating in more than 460 cities across Asia with ambitions to enter additional markets in the coming years. The organization has been a PagerDuty customer since 2014, and including its activity in the last quarter has expanded its business with us more than 70 times, purchasing additional licenses, upgrading to digital operations, and more recently, adding our enterprise automation product. They currently utilize over 800 integrations between PagerDuty and other services within the company's ecosystem. As a result, the company has realized an annual benefit of $3.4 million with PagerDuty. Looking forward to FY23, we're focused on advancing our mission to revolutionize operations and build customer trust by anticipating the unexpected in an unpredictable world. Time has never been more fleeting or valuable, and talent comes at an increasingly high price. It's more important than ever for customers to identify mission-critical, time-sensitive opportunities and manage the complex data and systems that underpin their products and end customer experiences. The Operations Cloud is built on the foundation of PagerDuty's digital operations platform, extended by our integration ecosystem, leveraging our proprietary dataset, and enabling both orchestration and automation. We believe the Operations Cloud will rapidly become the standard for modern enterprises. It's cloud native, designed to simplify the complex, built for distributed organizations, easy to deploy, and trusted by developers and technical leaders behind your favorite brands. We continue to scale efficiently and improve our operating leverage and expect to be non-GAAP profitable for the full year FY24. We expect to realize this goal through continued investment in product-led growth, our land and expand flywheel, and activating new routes to market. PagerDuty remains the only cloud native platform that combines real-time incident response with time-critical AIOps insights and automation to help teams across leading enterprises revolutionize their operations. Our exceptional results and momentum over the last several quarters demonstrate durable multi-engine growth. Our vision for an equitable world guides our strategy, our investments, and our focus on our customers and our users. We will continue to develop our inclusive culture and to lead with our values, delivering great products for our users and high performance for our stakeholders, while working to improve the communities around us through our social impact programs. In FY22, 92% of Daytonians volunteered their time or made charitable contributions, including to several causes matched by the company. Through PagerDuty.org, we acquired new nonprofit customers focused on disaster response, addressing homelessness, and child literacy. I encourage you to learn more about our efforts in our upcoming annual impact report. This week also recognizes Equal Pay Day in the United States. I'm incredibly proud of our commitment to and our success in achieving pay equity within one penny between male and female employees and within two pennies across race and ethnicity and hope others will follow our lead. We enter FY23 with incredible momentum, a testament to not only our leadership team, but to the incredible work of Daytonians around the globe. Throughout FY22, our teams ran together to innovate relentlessly in service of our customers, demonstrating the value of new products as they gained traction in the market and built the foundation for further growth. I deeply appreciate the leaders who bet on us, our more than 1 million users, and our customer champions. In an unpredictable and fast-changing environment, they place their trust in PagerDuty to drive their digital transformation and maintain the integrity of their operations. Given long-term tailwinds and consistently strong execution, I am very confident in our ability to continue growing efficiently and sustainably as the operations cloud becomes the standard for modern enterprises. With that, I'll turn to Howard, and I look forward to your questions.
spk05: Thank you, Jen, and good day to everyone joining us on this afternoon's call. We're proud of our outstanding fourth quarter and full fiscal year results. The growth demonstrates our success in growing our mid-market and enterprise segments, expanding number of use cases for the PagerDuty platform, and traction for our new products, including event intelligence, automation, and customer service operations. Revenue was $79 million for the fourth quarter, up 32% year over year, an acceleration of 300 basis points over Q4 of fiscal year 2021. International revenue grew at 32% and represents 24% of total revenues. Our dollar-based net retention rate in Q4 was 124%, compared to 121% in the same period one year ago. We have delivered DBNR above 120% for five consecutive quarters and expect to be at or above 120% over the next year. We continue to gain momentum in mid-market and enterprise through ongoing strong innovation and go-to-market execution. Q4 ended with 594 customers with ARR over $100,000, up 39% from a year ago. Additionally, our customers with ARR over a million dollars increased to 43, up 65% compared to Q4 of last year. This is the number we provide on an annual basis. We ended Q4 with 14,865 paid customers, up 7% compared to a year ago. This is a moderate acceleration sequentially, and it is worth noting that Q4 anniversary is the introduction of our free tier, which was first offered late in Q3 of FY21. Free and paid companies on our platform grew to over 20,000, an increase of 27% year over year, with free continuing to provide a funnel for future paid growth. Our highest tier plan digital operations increased to 23% of our total ARR, up from 21% a year ago, This metric is the conservative proxy for platform adoption, but it does not entirely capture customers using more than one paid product. Our professional and business plans can be augmented with event intelligence and process automation and customer service are available on a standalone basis. To that end, and to provide some additional insight, approximately 51% of our ARR comes from customers using two or more paid products. This is up from 47% in FY21 and from 32% in FY20. We will update this metric on an annual basis. Our Q4 non-GAAP gross margin was 84% and within our target range. This percentage is down marginally on a sequential basis due to a slight uptick in hosting and messaging fees during the quarter. Non-GAAP operating loss improved to $2 million or 3% of revenue compared to a loss of $5 million or 8% of revenue in the same quarter last year. Primarily, the result of sustainable sales and marketing efficiency gains and economies of scale across GNA. In terms of cash flow for the quarter, cash from operations was $1 million, and free cash flow was negative $1 million. Now for the full fiscal year. Revenue was $281 million, up 32% year over year, as we accelerated growth from 28% last year. Non-GAAP gross margin was 85%, down approximately 200 basis points from 87%. Non-GAAP operating loss was $23 million or 8% of revenue compared to a loss of 18 million or 8% of revenue a year ago. This year includes approximately $4 million of expenses related to a limited return to office and increasing travel compared to the prior year, which was the first year of the pandemic. Operating cash flow was negative $6 million compared to $10 million a year ago. Free cash flow was negative $30 million compared to positive $5 million in fiscal 2021. And headcount increased to 950, up 21% year over year. Turning to the balance sheet, we ended the quarter with $543 million in cash, cash equivalents and investments. Total deferred revenue ended the quarter at $170 million, up 31% year over year. Quarterly billings were $106 million, which was an increase of 30% year over year, exceeding the high end of the range we provided during last quarter's call. This included approximately $2 million of early renewals. We expect billings growth for Q1 to be in the range of 25% to 30%. On a trading 12 months basis, billings were $322 million, an increase of 28% compared to a year ago and above the top of the range provided during our last call. As a reminder, the comfortable period Q4 of FY21 included a one-time benefit of approximately $6 million from early renewals. We expect trading 12 months billings growth exiting the first quarter to be at or above 30% over last year. Before moving on to guidance, I would like to introduce the second annual metric, annual recurring revenue, or ARR. Given the increasing scale of pager duty and inherent fluctuation in quarterly billings, we wanted to provide additional color on the fiscal year. We exited Q4 with $326 million in annual recurring revenue, which was an increase of 32% year over year. Turning now to our guidance, which includes top and bottom line considerations for the acquisition of Cadillac, which closed on March the 8th, as well as our expectations for increases to certain line items that were suppressed during the past year owing to the pandemic. For the first quarter fiscal 2023, we expect revenue in the range of $81.5 to $83.5 million, representing a growth rate of 28% to 31%. non-GAAP net loss per share in the range of $0.09 to $0.08, with basic shares outstanding of approximately $87 million. This implies a non-GAAP operating margin in the range of negative eight to negative seven. For the full fiscal year 2023, we're initiating revenue guidance for the full year of $360 to $366 million, representing a growth rate of 28 to 30%. We expect non-GAAP net loss per share of 23 to 17 cents, with basic shares outstanding of approximately 88 million. This implies a non-GAAP operating margin of negative 6 to negative 4%. Before moving to Q&A, I would like to provide some details to assist with modeling FY23. Non-GAAP operating margin is expected to turn positive in the fourth quarter as merit increases, payroll taxes, summit, our annual user event, our first half occurrences. To put a finer point on the trend, we expect each quarter of FY23 to be an improvement of the corresponding FY22 quarter. We expect cash from operations and free cash flow to follow a pattern similar to last year, with Q2 being the low and Q4 the high. Seasonal factors influencing cash during the first half are bonus payouts in Q1, interest payments on convertible debt, annual merit increases, and ESPP. And we expect non-GAAP gross margin to be in our target range between 84% and 86%. I want to thank our customers for their trust in us and our team for delivering an outstanding fiscal year of product innovation and four quarters of terrific go-to-market execution. Our innovation investments are designed to actualize our vision to transform critical work and revolutionize operations as the operations cloud for the modern enterprise, while continuing to scale toward non-gap profitability. I continue to remain confident in our business and performance, given the market demand, the acceleration of our product innovation, strong tailwinds, and our consistent execution. With that, I will open up the call for Q&A.
spk03: Okay, we ask that our analysts that have questions for the team do raise their hand. We have a a number of hands raised already. We're going to turn first to Sanjit Singh at Morgan Stanley.
spk08: Great. Congrats to the team on an exceptional year. Accelerating growth was really great to see, and the guidance was good, too. So, Jen, maybe from your end, what is coming together across the product portfolio? I was wondering if you could address a couple of things on the execution side of the house, the free-to-paid side, conversion and sort of the adoption of some of the add-on products, whether it's Rundeck, you mentioned customer service. What are you seeing in terms of the trend lines there on the uptake on the add-on products?
spk07: Sure. Well, it's great to hear from you, and thanks for being here today. We are incredibly proud of the result this year, and I'm incredibly proud of our team and super appreciative of our customers. But it's the story we've been telling, long-term tailwinds, digital accelerations not going away, cloud adoption continues, DevOps transformation. Most of our customers are still early in that journey. And now we're seeing macro impacts like inflation where people are trying to figure out how they're going to get more out of their current operating expenses. And that creates, I think, a broader appetite for automation. And we're definitely seeing that. In particular, the ongoing digitization of every business. has meant that customer service ops is becoming increasingly more interesting for our customers because they can't solve problems in a brick and mortar environment. They can't wait hours for tickets to get through queues. They actually have to resolve things in a very time sensitive way. And their teams are distributed by design due to hybrid work and the flexibility that many employers have offered their employees. And I think that will continue to be the case because even as some people bring their folks back into the office, everybody won't be in the office on the same day and people have moved out of urban locations. We also have built this really healthy foundation by extending our lead in incident response. And that kind of creates the platform for product attach. These things kind of go together like hand in glove. And the consistent innovation that we've seen in a very focused way I think has really led our customers to count on us. for anything that's specific to what I call real time digital operations. So just a lot of the macro moving in our favor. Finally, I would just say really strong execution on the part of our teams, whether it's our customer support and customer service teams who maintain best in class gross retention and huge customer loyalty, or our sales teams who have done a really good job of really focusing on solution selling and selling value and improving execution across the board or the product teams that are really speeding up all of our innovation. And I like what I'm seeing from a free to paid conversion perspective. As you know, free really creates an opportunity for customers to try our product, get used to it, to understand the value that it can create before they have to invest. And I think we're getting better and better at managing that conversion process and have a lot of focus around it right now.
spk04: I appreciate all of that.
spk05: And so if you just look at the numbers, you know, the number of customers that are above 100K, that grew 39%. Above a million grew by 65%. And we're seeing double-digit customer growth in enterprise and mid-market. So that's working as designed and planned. And the results are showing up in those numbers, including our dollar-based net retention.
spk08: Makes all sense, and I appreciate all the color. The follow-up question, and maybe it's sort of two parts, one for Jen, one for Howard, is just around the catalytic acquisition. Jen, I was wondering if you could walk us through the rationale of why it makes sense for Patriot to move into more of these business workflows associated with finance teams, sales teams, and marketing teams. And then for Howard, is there any comment you have that you can help us understand the contribution aspect of catalytic to the full year guide, whether in terms of ARR or in terms of revenue, the contribution that's assumed in the guidance. And from there, I'll see the floor. Thank you very much.
spk07: Thank you. And I'll point to our customers. I mean, they're already pulling us in that direction. We have customers today that use us in legal, in finance, in sales, marketing, in human resources, et cetera. So we could see the demand, but we also know that those customers have requirements for more intuitive, more flexible workflows. The DevOps workflow that our platform was built around is very determinant. And so creating more flexible workflows and offerings that serve, like I said, the citizen developer or the less technical user has become important to our customers, and they're telling us that. So, Catalytic is all about a strategic product acquisition. It accelerates our roadmap. It provides a no-code offering that can serve some of these new use cases. It also enabled us to acquire a great team in Chicago to expand our development capabilities. I'm a Midwesterner, so I feel really good about that. I'll let Howard talk a little bit about how this works from a financial perspective.
spk05: Sure. And yes, significant acquisition for us from a strategy perspective, but immaterial from a financial perspective. This was a young early startup, not profitable, but certainly we see from a top line contribution, less than $5 million in revenue. So probably around 1% of our total revenue number for the year. And from a bottom line perspective, the guidance that we're given incorporates the incremental expense that we see bringing in with catalytic.
spk03: Okay, next we'll hear from Sterling Auti at JPMorgan. Sterling, come on and join us.
spk12: Well, thanks for letting me join you. And just actually going to ask one question from my side. And it's really about the competitive landscape. I think, you know, the earnings release timely in light of ServiceNow's announcement. of incident response under light step. Can you give us a sense of when you look at that solution, how does it compare and contrast as well as it feels like some of the other traditional competition out of Atlassian and Splunk is kind of faded and just wondering if there's any update around win rates more generally.
spk07: Yeah, the competitive landscape for us continues to be favorable, and it improves as we innovate. And I think the focus in our innovation around not just incident response more broadly, incident management, AI ops, now customer service ops, just lays a much broader foundation for us to grow upon. And if you think about the integration ecosystem that we built, it also sees PagerDuty being a really essential infrastructure for our customers from a technical perspective. So we don't see customers taking risks to make changes. And I think, you know, other players that are out there have much earlier, less proven, less resilient processes. products. And so we continue to see very good success from a competitive position. The bottom line is there isn't anybody out there that sort of can offer the breadth, the depth at the scale and the resiliency of the PagerDuty platform. And we are seeing this real convergence of incident response, AI ops, and automation coming together where our offering is unparalleled. And I think there's a lot to be said for customer loyalty as well. We work every day to earn the trust of our customers and they demonstrate that in their continued work with us.
spk12: Makes sense. Thank you, guys.
spk07: Thank you.
spk03: Okay, thank you. Moving on on our list, we are going to hear from Joel Fishbein from Truist.
spk02: Hey, thank you, and congratulations on the great results as well. And this is sort of a follow-up to Sterling's question, which is, you know, Rundeck version 4.0 is coming out, the release. I'd love, Jennifer, if you could just tell us what's new in that that may enhance your, you know, competitive positioning. I think that would be interesting.
spk07: Well, Rundeck, so we call this process automation now as well. I hope that doesn't confuse people, but really proud of what the teams have accomplished in really integrating Rundeck more closely into our framework with Rundeck Actions or Runbook Actions and also delivering it as a cloud solution. So it means it's really easier for our customers to trial, easy for customers to buy. and easier to apply what was historically known as Rundeck to use cases that go beyond DevOps and IT ops and can be used across IT and across other parts of the organization. So easier use in the cloud, driving direct actions integrated into PagerDuty. So what you're seeing is more seamless automation of the incident response in the PagerDuty incident response workflow. and easier to try and acquire. So one of the things I'm excited about is Rundeck as a land motion for us as a company.
spk05: Great. Thank you so much. And Joel, you should come to our summit event in June since I have publicity because you'll hear more about some of these exciting product innovations. I will be there.
spk07: Howard is on top of it today.
spk03: Thank you, Joel. Moving on to Bhavan. Sari, let me bring you on.
spk13: Thank you, and I'll echo my congrats. Two quick questions, one a little tactical. I know, Jennifer, you touched on inflation, but obviously there's probably a recession in Europe. And we've certainly heard from companies saying our large customers are in cash conservation mode, everything else. Some sense of what you're seeing, you know, deal flow-wise, new bookings-wise, because revenues, it is what it is. You guys have fairly quick close rates to the SMB or mid-market. But some sense of what you're seeing in Europe, given what's happening and the protracted potential outcome there.
spk07: Yeah, well, let's talk a little bit about that. I mean, the tailwinds remain the same. And I think in a recessionary environment, people will continue to look for ways to automate more and more of their operations, to leverage the cloud, to reduce their production costs, et cetera. So I think we'll continue to see some of those strategic efforts that are underway. I think inflation is potentially a tailwind for automation as well because you've got the combination of rising talent costs and then the challenge of rising supply costs overall. And I'll speak to Europe just for a second. You know, when we think about what's going on in Ukraine and Russia, that represents a very immaterial amount of our business. More broadly, Europe represents roughly 12, 13% of total revenue, and we haven't seen a change in the buying signal. So we continue to see our customers there looking for support in maturing their digital operations and moving away from more manual process to things where they can drive efficiencies across their business.
spk13: That's helpful. Thank you. And then a broader question. I think a couple people touched on it a little bit, but as you look at this operations cloud, And historically, business has been separate. You have transactional operations businesses and you have analytics businesses. But as I look at the data and look at the insights, there's this concept of moving up like sort of that Maslow's hierarchy of data, right? So collection is a big part, but you've already addressed collection. How do you think about getting to that prescriptive kind of the top part of that pyramid, which is I'll prescribe it, I'll predict it. And is that part of the roadmap in three years, five years?
spk07: How should we think about your- We already do that today, Bob. I mean, that was a big part of what Event Intelligence brought to our product set when we first started out with that product and now more broadly have invested in an AIOps solution. So- In the PagerDuty platform, we leverage machine learning across a deep, more than a decade of data, proprietary data set to not only predict that things are going to occur, but make recommendations on how to improve the scenario or prevent an incident from happening again. And that's already a big part of our offering, and it's one of the reasons why we see our AIOps solution and our automation solution both growing over 70% in the last year. And I think we're very, very early kind of to use a cliche tip of the iceberg there. I think there is much more opportunity for that as teams get more comfortable, as customers get more comfortable relying on platforms like event intelligence and automation that provides safe self-healing where you can see the automation that's going to run. It's easy to roll back. It's integrated into your overall workflow. And I think they're starting to recognize the benefit of the platform learning and providing more value every time an incident runs across it, which is very different than any of the other offerings that have been mentioned earlier in the call.
spk13: Yeah, no, it's helpful. We'll call the tip of Maslow's pyramid. There you go.
spk06: I'm always trying to climb to the peak. That's part of the game.
spk13: No, no, I appreciate that. Thank you.
spk06: Pleasure.
spk03: Excellent. Thanks. We're going to hear next from Chad Bennett at Craig Helen. Chad, if you'd join us.
spk10: Hey, thanks for taking my questions. Hey, Chad. Hey, Howard. So can we get an update, you know, looking at the fourth quarter and maybe the last year now that we've completed the year in terms of where SecOps and where customer service ops penetration kind of went from and to and kind of how that you know, kind of sales execution, sales process, progress during the year and kind of where we ended and what we think potentially we could, you know, that business or that use case could do in the upcoming year from a growth standpoint.
spk07: I'll start that. And Howard, if you want to jump in, let me know. From a customer service ops perspective, that's still a very early product. But what we are seeing is more of a top-down sale there. So some significant deals in the back half of the year, which has been great. And a few of those deals have been referred by leaders from one company to another. So the problem is definitely like a senior leadership problem. It's not just a user issue. And that's somewhat unique to the platform for us. From a security perspective, what's really interesting about security is kind of a shift in the last really six months, just given the heightened sort of vulnerability and threat environment. What we're seeing is a focus on security resiliency. So it's not just about trying to prevent a hacker breach from happening. We know it's going to happen. It's how well and how quickly can you respond and put yourself in a position that you can keep your customers and and your data safe. And that has seen a lot of adoption of PagerDuty in DevSecOps teams and security ops, but we don't separate those users from our regular incident response users. There isn't a separate SKU there today. We don't have a separate SKU for security operations center. Not to say we wouldn't do something there in the future, but I think that continues to be part of our growth story, but it's more integrated into our traditional incident response numbers.
spk05: Yeah, and what I would add, Chad, like as Jen said, we've been seeing good traction in both those areas. We have periodically shared those numbers in terms of how we've seen that growth. They have both continued to grow each quarter, but we hadn't planned to give an update on the specific numbers for this call.
spk10: Okay, and then maybe a quick follow-up on net expansion and net retention. So, Howard, you know, I think up until now, you know, and it's great to see the two-plus product disclosure and that 51% of ARR. But I think up until now, the majority of net expansion has been driven by users, if I'm correct, kind of historically. But we have a pretty good kind of 51% two-plus product number. I guess my question would be, You know, how should we think about net expansion going forward, you know, kind of the user-based net expansion versus cross-sell, up-sell platform kind of growth or net expansion? And, you know, I know I've harped on you before on it, but what would make net expansion go backwards?
spk05: So let me get to your first part of the question. What I would say is that our growth is still driven principally by adding new users. But what's interesting is how we've seen the shift over the last few years is it's not just users of one product. It's used as either of our digital operations plan, which represents two products, or it's adding additional products like event intelligence, and more recently, automation customer service ops. So if you had to think about it, it still uses primarily and then adding on the additional product. So that's, I guess, is not unusual in terms of how that flow would work. In terms of looking forward on dollar-based debt expansion, we are really pleased with the progress that we've seen in terms of getting above 120% for five quarters now. And our view is that that's sustainable. And we see ourselves being above that number. you know into this this next year uh in terms of what could make that go backwards would be you know high levels of customer um churn right or you know customers downgrading so you know just in terms of pure pure mechanics and what i would say is if you look at our gross retention number it's consistently being above 95 percent yeah you know the guidance i'm giving to folks is 120 or above you know for the next year just howard being howard
spk10: I appreciate it. Thank you much. Nice job on the quarter again.
spk03: Thanks, Ted. Wonderful. Next we'll hear from Derek Wood at Cohen. Derek, if you'd like to join us.
spk09: Yep. Great to see everyone. Congrats on a great finish to the year. Wanted to start on the kind of the go-to-market and product strategy with Catalytic. Will that be a separate SKU or do you plan to absorb that into the a core product line, and if the latter, any sense as to how long that'll take? And I guess from a go-to-market, will you ever think about having dedicated sales teams to go after the line of business, or will this be part of the bag for core AEs?
spk07: Well, we're looking at that all right now. I mean, with Rundeck, we initially kept Rundeck separate just to allow it to gain some momentum and make sure that we didn't disrupt their product roadmap as they were coming into the company. With Catalytic, we learned a lot from Rundeck. So there's some functionality with Catalytic today that we would like to deploy to all of our customers. The flexibility and the flexible workflows are what they call smart workflows. can be leveraged in a lot of different ways by DevOps and IT teams, whether it's centralized or decentralized. So, Catalytic accelerates some of the work that we were already doing to improve the flexibility in our workflows and just make it easier for customers to connect to everyone, connect to everything and get work detected and done faster in a more traditional incident response or DevOps perspective and increasingly an IT operations perspective. So, and at the same time, like we anticipate working with Catalytics customers to understand like where they're getting the most value from their business use cases and then hope to replicate that and bring them on to the PagerDuty platform. And they have some really interesting customers like Mayo Clinic and Bosch, et cetera. So we think we're going to learn a lot there, but it's still very early days.
spk09: Helpful caller. Thanks. And Jen, you mentioned activating new routes to market as a key focus going forward. I guess so as it pertains to the channel, where are you most focused on in terms of investing in partnerships and anything new we should be thinking about going into the new year?
spk07: Yeah, we're looking at accelerating some of the efforts that we have as strategic partners. As I've mentioned in the past, AWS has been a great channel to market and we're sort of doubling down with them to continue to expand our reach to both customers that we serve today, but also from a customer acquisition perspective, particularly within mid-market and enterprise. And even AWS Marketplace has been a good platform for us as we look at the startups that see us as part of the five or six things they need in their startup toolkit. So strategic relationships like that will continue to be important. Working with partners to get to regions that we're not currently in today. I mean, we really have a lot of opportunity in the broader global footprint to go after, and we don't need to do all of that ourselves. So looking at new regional markets where we don't have to put people in the street, we can work with partners will be really important as well. And Dave, our sales leadership, I think is doing a really good job of thinking about how we prioritize those. And you can expect to hear more about that in the future.
spk09: Great, congrats.
spk06: Thank you so much. I hope I'll see you at Summit in June. Been a long time.
spk09: Yeah, you bet. Yeah.
spk03: Okay, a couple more folks. We'll hear next from Srinik Kothari. I hope I said that right for you. Go ahead.
spk00: Yeah, that's right. This is Srinik. On for Rob. Really, really great quarter. Strong momentum driven by the multi-product. So as a follow-up to some of the earlier questions, I think by Pawan and Chad, Sorry if I might have missed out, but did you break out the NRR for large customers this time around? Like how is it trending versus it was about 130% or so last quarter and then a follow up?
spk05: So, Shreddy, I think you're referring to we've previously sort of broken down our dollar-based net retention. Is that what your question is? We haven't provided that breakdown this quarter. We see healthy dollar-based net retention across all our segments, 124% for the quarter.
spk07: Yeah, I think I would point you to if you look at our customer cohorts that are spending one hundred thousand dollars in ARR or a million dollars in ARR growing thirty nine percent and sixty five percent respectively. We're feeling really good about those numbers. And, you know, I give a shout out to the go to market teams because they have done a really good job of striking the balance between. getting large deals done, large strategic deals, multi-product deals, multi-year deals done, and at the same time, continuing to drive the flywheel of transactional small deals, which, you know, make our revenue run rate, you know, more predictable.
spk00: Got it. Thanks, Jen. Thanks, Howard. So one quick follow-up. I know you mentioned or touched upon it a little bit. The paying customer base growth picked up considerably. to like about 8% year on year and sequentially also really good. And in terms of the conversion, I just wanted to understand like how much follow through I was seeing from the top of the funnel in terms of conversion rate trends. I know you touched upon a bit, but just wanted to understand like the trends versus last quarter's.
spk05: Sure. So we haven't provided specific numbers on the Shrenik, as you know, but the model as designed is doing what we expect. So part of the thesis behind this was to create a funnel that would help feed the overall number of companies on our platform and allow us to get early visibility into mid-market and enterprise customers that we could then look to convert. And when we look at the growth in our enterprise and mid-market customers, double digit growth, so significantly higher than the overall growth in our paying customer base. And that's exactly the result that we're looking for.
spk07: Yeah, and I would just add to that that, you know, I'm still pretty excited about the fact that when we look at free and paid growth together, that's at 27%, and we're also still seeing average revenue per customer go up above $200K.
spk05: $20K.
spk07: Sorry, $20K. I added a zero.
spk05: Thank you, Howard. $200K would be good.
spk07: $20K would be awesome, but we're not there yet.
spk00: Got it, got it. Thanks a lot, Jan, Howard. Appreciate it. Thanks, Freddie.
spk03: Thank you. And we'll round things out today with Matt Hedberg. Matt, coming over to you.
spk11: Okay, thanks. Hey, Howard, I really like the ARR disclosure. That's something I think we've been asking for a while, so I certainly do appreciate that. Is that something that you're going to update us on a quarterly basis? You know, and I guess, like, theoretically, should that help smooth out co-terming and be sort of a better growth metric than billings?
spk05: So our plan is to provide it on an annual basis, Matt, just because we feel that there's some of the movements by quarter effectively could be, you know, could end up disclosing proprietary movement from a company perspective. So we're thinking about this on an annual basis. But obviously, I think when people look at that, triangulate that with the billings information that we'll be sharing, they're going to have a much better view. And we'll continue to provide guidance around our quarterly billings and trailing 12-month billings to give you that more complete picture.
spk11: Maybe then, I guess, how should we interpret ARR then in terms of like, is it, does it, it sounds like you're not going to give a quarterly because there may be some volatility in there as opposed to kind of being more of a smoothed out metric.
spk05: Yeah, that is correct. I mean, it's not so much volatility, but it does give you an indication of the starting point where we are, you know, at the start of this year. And it will help you then see the progression that we make in each quarter relative to billings as we provide the billings through the course of the year.
spk11: Got it. Thanks a lot, guys.
spk07: Thanks, Matt. I'd also point out that we have, I think for the first time, shared our outlook on our timed profitability. I mean, we are confident and committed to profitability by FY24. So in addition to sharing an annual ARR number, we're very excited about not only the growth acceleration we've seen last year, the momentum that we have going into this year, particularly in mid-market and enterprise, and the fact that we are seeing leverage at scale and expect to continue to improve our operating leverage while we sustain these growth rates. So pretty exciting times for the company.
spk03: Currently have no further analyst questions. Jennifer, if you'd like to take us home.
spk07: Great. Well, first of all, I just want to say thank you, everyone, for being here today. In closing, FY22 was an outstanding year for the company. Our accelerated growth and sustained performance provides an excellent foundation for durable growth in the years ahead. We are committed to non-gap profitability in FY24, and we remain focused on earning the trust of our customers every day. Thank you and be well.
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