PagerDuty, Inc.

This meeting is being recorded.

Thank you, operator, and good afternoon, and thank you for joining us to discuss PagerDuty's second quarter fiscal year 2023 results. With me on today's call are Jennifer Tejada, PagerDuty's chairperson and chief executive officer, and Howard Wilson, PagerDuty's 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 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 this 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 cause the company's financial results to differ materially are included in filings we make with the Securities and Exchange Commission, including our most recently filed 10-K and 10-Q, as well as our subsequent filings made with the SEC. With that, I will turn the call over to Jennifer.

Thanks, Tony, and thanks everyone for joining us today. We continue to execute well in Q2, exceeding the high end of both our top and bottom line guidance ranges. In another quarter of strong growth and improving efficiency, revenue grew 34% year over year and non-GAAP operating margin improved by more than 1,000 basis points. This is the fourth consecutive quarter at or above 32% growth and an improvement in year over year operating margin for pager duty. These consistent results illustrate the durability of our growth, our multi-billion dollar market opportunity, and our ability to capture efficiencies as we scale. At a moment when our customers must ensure seamless digital experiences while improving operating efficiency, PagerDuty's Operations Cloud is essential infrastructure that enables developers to balance both priorities. Our platform accelerates their journeys towards greater digital maturity in service of their business goals. We remain on track to deliver non-GAAP profitability in Q4 this year and full-year profitability for next year, FY24, thanks to continued demand and trust from our customers and partners, as well as the dedication and focus on continuous improvement from our teams around the world. We are incredibly proud of the trust our customers place in us. ARR churn remained below 5%, and we achieved the seventh consecutive quarter of dollar-based net retention above 120%. The combination of rapid implementation, high return on investment, and an average payback period of two months puts PagerDuty in a position of strength, especially in an uncertain macro environment. Our land and expand motion drove accelerated year-over-year growth in total paid accounts, as well as in accounts spending more than $100,000 annually with pager duty. Even with the current macro uncertainty, we see strong demand and in a favorable competitive environment as our teams generated a healthy pipeline across our customer segments and regions. We saw longer sales cycles for some larger deals, often in process automation, and we did experience more diligence on contracts in EMEA. The digital operations business, however, which includes incident response and AIOps, performed exceptionally well, growing faster year over year. Our primary growth driver remains our high-velocity land and expand business, which grows consistently and reliably quarter after quarter. Developers continue to champion PagerDuty as the DevOps platform of choice inside their companies. Our long term tailwinds, digital acceleration, cloud adoption and DevOps transformation remain top priorities for enterprises. Digital infrastructures are increasingly complex, interdependent and central to key business priorities. We have set the enterprise standard for digital operations management, and we continue to expand our competitive advantage through product innovation. During our hybrid summit series in June, I highlighted the rise of interrupt work across the enterprise. Our core developer user base is already familiar with the challenges of keeping digital services running, customer experiences intact, and finding time to innovate. Today, PagerDuty's Operations Cloud is uniquely capable of detecting, orchestrating, and automating all types of interrupt work across our customers' digital operations. We connect to tech stacks in every corner of the enterprise, making our platform indispensable for our customers from developers to IT security and customer service. The three recent product announcements demonstrate the power of the operations cloud for modern enterprise. First, we made service standards generally available to PagerDuty customers. Service standards enable organizations to rapidly advance their digital maturity by easily adopting best practices for incident response. Developers, SREs, service owners, and those responsible for availability and reliability can set up and monitor operational quality standards for service. Second, we announced incident workflows, making our platform more flexible and extensible by enabling rapid design and deployment of no-code flexible automated steps for major incident response. Many of our customers have asked to customize their incident processes. For instance, creating an incident-specific Slack channel or starting a Zoom call and then sending a status update every 15 minutes. With incident workflows, customers can use an out-of-the-box process or define their own with the building blocks we now provide. Finally, automation actions are now integrated across the entire PagerDuty platform. Automation capabilities are available at the time when events are first processed and available to all PagerDuty users, including customer service teams, to validate, diagnose, and remediate issues without additional human intervention and without needing to wake up the experts to run their specialized scripts. As businesses seek efficiency in their digital operations, while confronted with increasing incidents and leaner teams, intelligent automation is essential. Both automation actions and incident workflows will be generally available later this year. The PagerDuty ecosystem continues to grow, now above 700 integrations. In August, we launched AWS plugins for automated diagnostic actions. These out-of-the-box automations install in minutes and can gather deep telemetry into pager duties incidents for AWS services. We also launched automation actions applications for Salesforce and Zendesk. You'll hear a lot more about the expansion of our customer service operations offering later this month at Dreamforce. In Q2, a global online travel shopping platform renewed and expanded its relationship with pager duty after realizing an ROI in excess of 300% in the first year. Travel continues to trend up 75% year over year in 2022. For travel companies, that means opportunities for revenue growth, yet higher stakes in the event of outages and disruptions. As the company navigates the post-pandemic rebound in travel, they renewed for a three-year term with more than 5,000 users and joined our customer cohort, spending more than $1 million annually. Automated incident response enables increased developer productivity and improved availability to ensure great customer experiences. We saw similar trends in global e-commerce, where a leading Australian retailer utilizes PagerDuty for its service delivery and reliability center of excellence. In Q2, the customer grew from 30 to more than 250 users across its e-commerce, data, and customer divisions. The customer realized a $1 million benefit in productivity gains in just six months through more efficient interactions between employees and customers. With PagerDuty's process automation, the retail giant is now able to update thousands of Android devices across more than 2,000 stores every night, driving better customer experience and delivering a 400% return on their investment. The thousands of users across these two customers comprise a small portion of more than 1 million users on our platform today. We currently estimate our total global penetration to be below 5%. We have a large and growing total addressable market, compelling unit economics, and we continue to invest while improving both operating leverage and our business model. Our state of digital operations report released in June and recent research conducted by IDG both underscore the demand for and benefits of our operations cloud. The problems we solve span the enterprise from developers to IT to security and customer service teams. Industry leaders and innovative startups alike across travel and hospitality, financial services, retail software, and technology and telecom all face increasing complexity, more incidents, more disruption, and more off-hours interruptions. The most digitally mature organizations are better positioned to manage this work, and PagerDuty advances operations maturity to improve mission critical outcomes. More mature organizations acknowledge incidents seven minutes faster on average. They mobilize responders 11 minutes quicker. They resolve incidents two hours sooner. And they experience 14 fewer hours of downtime every month. For a typical top-tier PagerDuty customer with an average of 2,500 responders, these time savings translate to better customer experience, annual savings of up to $9 million, and a return on investment of 680%. Our customers tell us that investments in digital transformation remain mission critical rather than discretionary. We see companies across segments and verticals continue to invest in accelerating the resiliency and maturity of their operations while improving employee productivity and efficiency in this economic climate. PagerDuty is the platform they trust to power their transformation. Championing the customer, leading through innovation, transforming inclusion, diversity, and equity, and building trust are all cornerstones of PagerDuty's legacy. During the quarter, we earned recognition on several fronts. GigaOM named PagerDuty a leader in its radar for AI ops solutions. G2 named PagerDuty the best incident response platform, including individual awards for best usability, best results, and best return on investment. Fortune Magazine named PagerDuty one of the best places to work in the Bay Area. We also welcomed former Okta CFO Bill Loesch to the PagerDuty board. Bill brings financial expertise, deep enterprise background, and an operational understanding of security and DevOps. The shortage for technical talent continues, while demands on developers rise, all while enterprises are under more pressure than ever from customers. For pager duty, this is manifesting in a robust market opportunity. Our high return on investment solution, designed to solve a mission-critical problem where customers are losing revenue on every incident, is essentially self-funding. We remain confident in our ability to execute, capture share, and increase our operational resilience. We remain focused on sustaining high growth while celebrating our path to profitability as we progress to our goal of $1 billion of revenue. I want to thank our customers for their trust and loyalty, our partners for their support, and our teams for their ingenuity, dedication, and drive to solve our customers' greatest challenges. With that, I'll turn the call over to Howard and look forward to your questions.