PagerDuty, Inc.

Good afternoon, folks. Sorry for the delay. We've had some technical difficulties with Zoom, but we're going to get going here in just two seconds. Go ahead, Tony.

All right. So apologies again for the delay. We will start with the safe harbor right about now. Good afternoon, and thank you for joining us to discuss PagerDuty's second quarter fiscal year 2025 results. 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, future revenue, operating margins, net income, cash balance and total addressable market, 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 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 Form 10-K-A, as well as our subsequent filings made with the SEC. With that, I will turn the call over to Jennifer.

Good afternoon. Thanks for your patience, and thanks for joining us today. PagerDuty delivered a solid second quarter with revenue growth within our guidance range at 8% and non-GAAP operating margin four points above the range at 17%. This was our eighth consecutive record quarter of non-GAAP profitability. We increased annual recurring revenue by approximately $11 million to $474 million. We've stabilized ARR growth at 10% year-on-year for a third consecutive quarter, as well as dollar-based net retention at 106% quarter-over-quarter. Both results were supported by improving new and expansion bookings, especially in our enterprise segment. As we've shared in recent quarters, PagerDuty is scaling by addressing the critical operations needs of the enterprise segment with our Operations Cloud, a multi-product platform helping the largest companies in the world improve resilience and modernize their digital operations. I'm encouraged by the signals in both the market and the business that validate our strategy. In fact, the value segment of accounts with ARR greater than $500,000 grew more than 20% as we executed a more effective cross-selling and upselling strategy. During the quarter, we signed a record number of multi-year agreements representing nearly a third of renewal ARR, despite the volatile macro environment. While we still experienced increased scrutiny and multiple approval levels when selling into the enterprise segment, which can lengthen sales cycles, our focus is paying off. Our enterprise segment's first half dollar-based net retention ended 10 points above that of our SMB segment. Many of the Global 2000 companies suffered the negative effects of major incidents in the past quarter. When these incidents occur, global innovation and customer service get disrupted as IT teams and development teams around the world work day and night to diagnose and recover impacted systems costing billions in lost labor and lost time. For our customers and the broader market, recent major technology failures are a wake-up call, a reminder that suffering negative business impacts from widespread incidents is not a question of if, but when. Nearly two-thirds of enterprise leaders we surveyed this year saw customer-facing incidents rise 43% year-over-year. The systematic fragility that triggers these events exposes an existential threat we see across industries where aging infrastructure, growing technical debt, and manual processes persist. This challenge is compounded by the increasing proliferation of complexity as CICD, distributed architecture, and generative AI co-development all become mainstream. With recent global outages and technology disruptions, these recent global outages and technology disruptions underscore the pivotal role our platform plays. When the world is down, customers rely on PagerDuty to identify issues, orchestrate, and increasingly automate the best possible response to quickly contain and reduce business impact. The July 19th outage tested our platform on a massive scale. The operations cloud rose to the occasion. We saw an over 1400% increase in incident workflows initiated on that day alone. And we maintained high availability, speed, and fidelity without incurring significant cost surges. Our reliability is the result of our history of investment and innovation, and it's why companies trust us to deliver operational resilience in their most vulnerable moments. Improving operational resilience to protect customer experience and revenues while mitigating risk and the cost of major incidents has up-leveled incident management to a CEO imperative, similar to that of what we saw with cybersecurity in the past. PagerDuty's Operations Cloud scales resiliently to address each of these challenges for enterprise companies. Anecdotally, many of our customers have communicated a renewed preference for choosing a best in breed incident management offering and an increased sense of urgency to be better prepared for major incidents. It's early, but we expect to see some benefit in demand over time. Our customers across verticals and regions are also increasingly subject to heightened regulation requiring automation and controls to mitigate risk and support compliance. From DORA in the EU to diverse data and privacy oversight demands worldwide, regulation has become a long-term demand driver for the operations cloud. The financial services vertical exemplified this trend in Q2, with several six- and seven-figure strategic expansions and overall ARR growth above 20%. For example, a global banking institution based in North America strengthened their operations cloud journey by expanding usage of incident management, AIOps, and automation in Q2. At over $4 million of ARR, they are targeting a 30% reduction in incident duration through automated, customizable workflows by partnering with PagerDuty. The ROI over three years is estimated to exceed 500%. Strategic platform agreements like this demonstrate the progress of our product to platform transition and the power of AI underpinning our platform. During the quarter, new products, including AIOps, automation, CSOps or customer service ops, and premium support contributed 65% of net new ARR. Two additional financial services customers signed strategic six and seven figure expansions in Q2. Based in Europe and Australia respectively, these financial leaders optimized for resilience at scale and chose the operations cloud to grow and protect their revenue. We also closed a high six-figure expansion, including AIOps and customer service operations with a large workforce management software provider to help the company accelerate their operations modernizations efforts. On the hardware side, a computer drive manufacturer and data storage company expanded the size and scope of their relationship by nearly doubling their incident management coverage and adding AIOps. With these products, the customer is targeting an ROI of over 300% in the next three years. The expanded feature set addresses the real-time operations challenges presented by complex modern environments like machine learning, flexible data ingestion, and end-to-end event-driven automation. environments that are common within our million-dollar ARR cohort of customers. During the quarter, we also hosted five global customer events to build awareness and educate enterprise leaders and practitioners on both the technical and financial benefits of the Operations Cloud. One of the highlights of this series was the positive response to PagerDuty Advance, a suite of generative AI capabilities embedded in the PagerDuty Operations Cloud platform, which we made generally available at the end of July. These Gen AI offerings can save enterprise teams hundreds of hours equating to millions of dollars in annual savings. For example, instead of wasting precious time updating leaders and responders as they join an in-progress incident response, Those coming in late can use simple prompts for summarization of key incident information. And we offer tight integration with both Slack and Teams to efficiently keep work where it happens. PagerDuty Advanced can also anticipate diagnostic questions and suggest troubleshooting steps for responders, automating work and minimizing the financial impact at a time when the average incident costs an enterprise approximately $800,000 per incident. Generative AI postmortems and AI-generated runbooks are progressing well in early access. Together, they further equip enterprise companies to accelerate digital transformation while automating time-consuming tasks and recommended actions at every step of the incident lifecycle. We also released new integrated capabilities across the operations cloud, like the combination of dynamic escalation policies connected to incident workflows. Using our proprietary data model, this solves the common challenge of not being able to match a problem to the most knowledgeable, well-equipped responder instantly. This requires deep knowledge and correlation on events, past incidents, and people, and as such, delivers a differentiated, more complete incident lifecycle offering. From a social impact perspective, we announced our third impact accelerator cohort focused on crisis response services through PagerDuty.org. These nonprofits provide emergency response services to support people in urgent crises, and they leverage PagerDuty to ensure availability of critical online services to their communities. These are an ideal and important PagerDuty use case. Overall, we're encouraged by the gains we've made to scale our enterprise business. This progress moderates the effects of lower growth and higher volatility in SMB. These positive trends validate our strategy and reinforce our optimism in PagerDuty's long-term market opportunity. As we progress through the back half of the year, we remain confident that we can increase dollar-based net retention and professional services attach rates. From an ARR perspective, the elevated awareness of our value proposition following recent IT outages, along with quarterly highs in multi-product and multi-year agreements, culminated in a strong close in the first half. This reinforces my confidence in our ability to exceed 10% ARR growth in FY25. I would like to express my gratitude to our shareholders for their ongoing support, our customers for their trust, and our dedicated employees and partners for their commitment to revolutionizing operations. With that, I'll turn the call over to Howard and look forward to your questions.