Good afternoon and thank you for joining us to discuss PagerDuty’s Fourth Quarter and Fiscal Full Year 2022. With me today – 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.

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 persist, driven by long-term tailwinds, cloud adoption, DevOps transformation, digital acceleration and the increasing appetite for automation in light of rising costs in 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%. FY ‘22 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 FY ‘22 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…

Thank you, Jen and good day to everyone joining us on this afternoon’s call. We are proud of our outstanding fourth quarter and full fiscal year results. The growth demonstrates our success in growing our mid-market and enterprise segments, the 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 1 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 $1 million increased to 43, up 65% compared to Q4 of last year. This is a 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 up at late in Q3 of FY ‘21. 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 a conservative proxy for platform adoption, but…

Okay. We ask that our analysts that have questions for the team do raise their hand. We have a number of hands raised already. We’re going to turn first to Sanjit Singh at Morgan Stanley.

Great. Congrats to the team on an exceptional year, accelerating growth. It 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 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?

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 acceleration is 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 are 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 if some people bring their folks back into the office, everybody won’t be in the office in the same day and people have moved out of urban locations. We also built this really healthy foundation by extending our lead in incident response. And that kind of creates the platform for product attached. 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. Now 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 team, so 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 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. I think we’re getting better and better at managing that conversion process and have a lot of focus around it right now.

I appreciate…

Maybe I can just jump in and add. The thesis behind free was really around capturing the broader market. But our focus is really around how do we ensure that we capture the mid-market and enterprise customers because that accounts for more than 80% of our ARR. And so if you just look at the numbers, the number of customers that are above $100,000, that grew 39%; above $1 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.

Makes some 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 can walk us through the rationale of why it makes sense for PagerDuty to move into more of these business workflows associated with finance teams, sales teams and marketing teams? And then for Howard, if you could make – is there any comment you have that you can help us understand the contribution of Catalytic to the full year guide, whether in terms of ARR, in terms of revenue, the contribution that’s assumed in the guidance? And from there, I’ll cede the floor. Thank you very much.

Thank you. And I’ll point to our customers. I mean, they are already pulling us in that direction. We have customers today that use us in legal and finance and sales, marketing, in human resources, etcetera. 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 are 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.

Sure. And I guess, a 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’ve given incorporates the incremental expense that we see bringing in with Catalytic.

Understand. Thank you, Howard.

Okay. Next, we will hear from Sterling Auty at JPMorgan. Sterling, come on and join us.

Well, thanks for let me join you. And just actually going to ask one question from my side, and it’s really about the competitive landscape. I think the earnings release timely in light of ServiceNow’s announcement of incident response under Lightstep. Can you give us a sense of when you look at that solution, how does that compare and contrast? As well as – it feels like some of the other traditional competition out of Atlassian and Splunk has kind of faded. And just wondering if there is any update around win rates more generally?

Yes. 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, AIOps, 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 really essential infrastructure for our customers from a technical perspective. So we don’t see customers taking risks to make changes. And I think other players that are out there have much earlier, less proven, less resilient 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, AIOps and automation coming together, where our offering is unparalleled. And I think there is 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.

Makes sense. Thank you, guys.

Thank you.

Thank you.

Okay. Thank you. Moving on, on our list, we are going to hear from Joel Fishbein from Truist.

Hi, thank you and congratulations on the great results as well. And this is sort of a follow-up to Sterling’s question, which is Rundeck Version 4.0 is coming out of the release. I’d love Jennifer, if you could just tell us what’s new in that, that may enhance your competitive positioning. I think that would be interesting.

Well, Rundeck – so we call this Process Automation now as well, if that – 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 ITOps 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.

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.

Howard is on top of it today.

Thank you, Joel. Moving on to Bhavan Suri, let me bring you on.

Thank you. And I’ll add my congrats. Two quick questions. One of them, tactical, I know Jennifer, you touched on inflation, but obviously, there is probably a recession in Europe. And we certainly heard from companies saying our large customers are in cash conservation mode, everything else, some sense of what you’re seeing, deal-flow wise, new bookings wise, because revenues, it is what it is. You guys have fairly quick close [indiscernible] during the SMB or mid-market, but some sense of what you are seeing in Europe, given what’s happening and the protracted potential outcome there?

Yes. 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, etcetera. So I think we will 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. 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.

No, that’s helpful. Thank you. And then a broader question, I think you probably would have touched on it a little bit, but as you look at this Operations Cloud and historically, business have been separate, you have transactional operations businesses and you have analytics businesses. But as I look at the data, and I look at the insights, there is this concept of moving up like sort of that Maslow’s hierarchy of data, right. So, collection is a big part. But you already addressed collection. How do you think about getting to that prescriptive, kind of the top part of that pyramid, which is I will prescribe it, are predicted? And is that part of the roadmap in 3 years, 5 years? How should we think about your…?

We already do that today, Bhavan. 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 AIOp 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. So – 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 are very, very early kind of to use a 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 provide 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 are 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.

It’s helpful. We will call it the tip of Maslow’s pyramid.

There you go. I am always trying to climb to the peak. Like that’s the best part of the game.

No, I appreciate that. Thank you.

Pleasure.

Excellent. Thanks. We are going to hear next from Chad Bennett at Craig-Hallum. Chad?

Hey. Thanks for taking my questions. Hi Jen. Hi Howard. So, can we get an update, looking at the fourth quarter and maybe the last year, now that we have 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 kind of sales execution, sales process, progress during the year and kind of where we ended? And what we think potentially that business or that use case could do in the upcoming year from a growth standpoint?

I will 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 are seeing is a focus on security resiliency. So, it’s not just about trying to prevent a hack or a 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 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 a 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.

Yes. And what I would add, Chad, as Jen said, we have been seeing good traction in both those areas. We have periodically shared those numbers in terms of how we have seen that growth. They have both continued to grow each quarter, but we haven’t planned to give an update on the specific numbers for this call.

Okay. And then maybe a quick follow-up on net expansion or net retention. So Howard, I think up until now, and it’s great to see the two-plus product disclosure in that 51% ARR. But I think up until now, the majority of net expansion has been driven by users, if I am correct, kind of historically. But we have a pretty good kind of 51% two-plus product number. I guess my question would be, how should we think about net expansion going forward, the kind of the user base net expansion versus cross-sell, up-sell platform kind of growth or net expansion in – I know I have harped on you before on it, but what would make net expansion go backwards?

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, right. But what’s interesting is how we have seen the shift over the last 2 years is it’s not just users of one product. It’s users 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’s still users 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 net expansion, like we are really pleased with the progress that we have seen in terms of getting above 120% for five orders now. And our view is that, that’s sustainable. And we see ourselves being above that number into this next year. In terms of what could make that go backwards would be high levels of customer churn, right, or customers downgrading. So, just in terms of pure mechanics. And what I would say is if you look at our gross retention number, it’s consistently been above 95%. Yes. The guidance I am giving to folks is 120% or above for the next year.

Just Howard being Howard. I appreciate it. Thank you, nice job on the quarter again.

Thanks, Chad.

Wonderful. Next, we will hear from Derrick Wood at Cowen. Derrick, if you would like to join us.

Yes. Great to see everyone. Congrats on a great finish to the year. I 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 a core product line? And if the latter, any sense as to how long that will take? And I guess from a go-to-market, you ever think about having dedicated sales teams to go after line of business, or will this be part of the bag for core AEs?

Well, we are 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 is some functionality with Catalytic today that we would like to deploy to all of our customers. The flexibility and the flexible workflows or 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 in IT operations perspective. So – and at the same time, like we anticipate working with Catalytic’s customers, understand like where they are 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, etcetera. So, we think we are going to learn a lot there, but it’s still very early days.

Helpful color. Thanks. And then, Jen, you mentioned activating new routes to market is 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?

Yes. We are looking at accelerating some of the efforts that we have with strategic partners. As I have mentioned in the past, AWS has been a great channel to market, and we are 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 start-ups that see us as part of the five or six things they need in their start-up tool kit. So, strategic relationships like that will continue to be important. Working with partners to get to regions that we are 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 feet 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.

Great. Congrats.

Thank you so much. I hope I will see you at Summit in June, been a long time.

Yes. You bet. Yes.

Okay. A couple more folks. We will hear next from Shrenik Kothari. I hope I said that right for you. Go ahead.

Yes, that’s right. This is Shrenik on for Rob. Really, really great quarter, strong momentum driven by the multiproduct. So, as a follow-up to some of the earlier questions, I think by Bhavan and Chad. Sorry, if I might have missed that, 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.

So Shrenik, I think you are referring to – we have 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.

Yes. I think I would point you to, if you look at our customer cohorts that are spending $100,000 in ARR or $1 million in ARR growing 39% and 65% respectively, we are feeling really good about those numbers. And 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, multiproduct deals, multiyear deals done and at the same time, continuing to drive the flywheel of transactional small deals, which make our revenue run rate more predictable.

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 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 are you seeing from the top of the funnel in terms of conversion rate trends? I know you touched upon it a bit, but just wanted to understand like the trends versus last quarters.

Sure. So, we haven’t provided specific numbers on this, 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 on both. And when we look at the growth in our enterprise and mid-market customers, that’s double-digit growth. So, significantly higher than the overall growth in our paying customer base. And that’s exactly the result that we are looking for.

Yes. And I would just add to that, that I am still pretty excited about the fact that when we look at free and paid growth together, that’s at 27%. And we are also still seeing average revenue per customer go up above $200,000. So…

$20,000.

Sorry, $20,000. I added a zero. Thank you, Howard.

$200,000 would be good. But $20,000 for now.

$200,000 will be awesome, but that’s not – we are not there yet. Yes.

Got it. Thanks a lot Jen and Howard.

Thanks Shrenik.

Thank you. And we will round things out today with Matt Hedberg. Matt, turning over to you.

Hey. Thanks. Howard, I really like the ARR disclosure, something I think we have been asking for a while. So, I certainly do appreciate that. Is that something that you are going to update us on a quarterly basis? And I guess theoretically, should that help smooth out co-terming and be sort of a better growth metric than billings?

So, our plan is to provide it on an annual basis Matt, just because we feel that there is – some of the movements by quarter effectively could be – could end up disclosing proprietary movement from a company perspective. So, we are thinking about this on an annual basis. But obviously, I think when people look at that, triangulate that with the billings information that we will be sharing, they are going to have a much better view. And we will continue to provide guidance around our quarterly billings and trailing 12-month billings to give you that more complete picture.

Maybe then I guess how should we interpret ARR then in terms of like is it – it sounds like you are not going to give it quarterly because there may be some volatility in there as opposed to kind of being more of a smooth metric?

Yes. 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 at the start of this year. And it will help you then see the progression that we are making each quarter relative to billings as we provide the billings through the course of the year.

Got it. Thanks a lot guys.

Thanks, Matt. I would also point out that we have, I think for the first time, shared our outlook on our time to profitability. I mean we are confident and committed to profitability by FY ‘24. So, in addition to sharing an annual ARR number, we are very excited about not only the growth acceleration we have 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.

Currently, we have no further analyst questions. Jennifer, if you would like to take us home?

Great. Well, first of all, I just want to say thank you, everyone, for being here today. In closing, FY ‘22 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-GAAP profitability in FY ‘24, and we remain focused on earning the trust of our customers every day. Thank you and be well.