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 PagerDuty. These consistent results illustrate the durability of our growth, our multibillion-dollar market opportunity and our adaptive -- 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 for the full -- and full year profitability for next year, FY '24, 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, higher return on investment and an average payback period of 2 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 PagerDuty. Even with the current macro uncertainty, we see strong demand and in a favorable competitive environment as our teams generated a healthy pipeline…

Thank you, Jen, and good day to everyone joining us on this afternoon's call. Second quarter results demonstrated the strength of our digital operations platform and our operational agility while sustaining growth of 34%, accelerated progress against our plan to be profitable in Q4. We believe companies want a partner they can trust to innovate and perform at scale in order to enhance the competitiveness of their business, and that's what PagerDuty delivers. As I present our results for the quarter, unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release that was posted before the call. Revenue was $90 million in the second quarter, up 34% year-over-year, a modest acceleration over Q2 of the prior fiscal year. International revenues were 23% of total revenues. We delivered dollar-based net retention in Q2 of 124% compared to 126% in the same period 1 year ago. This marks the seventh consecutive quarter of DBNR above 120%, and we expect to continue to be at or above 120% throughout this fiscal year. Q2 ended with 689 customers with annual recurring revenue or ARR over $100,000, up 38% from a year ago. Total paid customers increased by 7% annually to 15,174 compared to 6% in the year ago period. Free and paid companies on our platform grew to over 22,000, an increase of 23% year-over-year with free continuing to provide a funnel for future paid growth. Q2 gross margin of 84% remained within our target range of 84% to 86%. Our operating loss was $3 million or negative 4% of revenue, an improvement compared to a loss of $10 million or negative 15% of revenue in the same quarter last year. Compared to our second quarter guidance,…

Very nice quarter and a really nice progress on profitability, just kind of feel good to have positive free cash flow coming in into the system. I wanted to ask about the guide and sort of the conservatism in that guide. I think that's a key question a lot of investors are wondering about our numbers coming down low enough. So Howard, I was wondering if you could talk us through kind of the guidance methodology, where is there excess conservatism? How can we get comfortable that this is like the right guide for the full year is not going to come lower? And then on the other side of the tent, how much flexibility is there on OpEx to protect that path towards profitability? And sustain that profitable stance for FY '24? Is there room to perhaps flex OpEx down further to sustain that? Or you need these investment levels for the long term, and this is kind of where you're going to be investing on a go-forward basis?

Yes. Well, thanks, Keith. There's a lot in that question. So I'll try and unpack that piece by piece. So at the outtake, what I would say is from a guidance perspective, we haven't changed our approach. What we are looking at when we contemplate the rest of the year, we know that the tailwinds that have always driven our business remain the tailwinds, whether that's digital acceleration, DevOps transformation or cloud adoption or cloud migration. Those still remain true, and so we're seeing a strong demand signal, and we're balancing that with some of the elongation we're seeing in sales cycles for larger deals. So we have factored into our guidance for the full year from a -- sorry, as you can see from the billings perspective, that there is some duration extension in terms of deals. And just as a reminder, most of our deals actually closed within 90 days whereas the larger deals, of course, can take longer. And those are the ones that we're seeing are being subject to increased scrutiny or maybe higher levels of diligence or where the deals are still there, but it's just the process of prioritization of that work is changing. So we're seeing a little bit of that, and we factored that into the view that we've taken from a top line perspective. What I would say in terms of -- from a OpEx and from an efficiency perspective, this is not something new for us in terms of how we've been thinking about the path to profitability. We've been progressively over the last few quarters, and you've heard me talk about this, been thinking about how do we put in place structural change that helps us be more efficient. So this is not just a one-off event. So we've been using an increasing amount of automation within our G&A functions. We've been creating incremental capacity through exploring options for lower cost locations, and we're rapidly ramping in those areas. So that allows us to build capacity that we need to drive the business. So a number of initiatives on that front to help us have confidence in the view that we've expressed around Q4 being profitable on a non-GAAP basis and setting us up to be profitable on a non-GAAP basis next year.

Got it. And if I could sneak one in for Jen, just on the competitive environment. It seems like some of the IT operations management vendors and ITSM vendors out there are talking more about in-service response and trying to kind of close the loop and help close the loop for their customers. Is there any change that you're seeing in that competitive environment? Or is that the digital operations platform that you guys are putting out there just so far ahead of what the more basic functionality that some of these guys have that is not really competitive environment as of yet?

I think the operative word in your question is talking. There's a lot of talking about participating in this market. There always has been. And I say this, I feel like I've said this every quarter, I'm going to say it again, I've never seen a more favorable competitive environment because we continue to expand our lead from our product differentiation perspective and build on a long-standing foundation of trust around resiliency. And when you then look at our 700 integrations, we've just built a number of deep moats from purely a product perspective. In this environment, I think that becomes even more important because resiliency and availability of the customer service to capture every penny of revenue coming in the door matters, as does productivity and efficiency of those workers. Because while I think retention for us has -- of employees and technical employees has improved that the talent market is definitely getting better, I would say technical talent for our customers is still at a huge shortage. And so they want to improve that productivity and make sure those folks are working on product, are working on customer-facing initiatives and that they're not losing time, trust and revenue through major incidents. Tony Righetti;Vice President, Investor Relations: Okay. Next, going to Joel Fishbein with Truist.

Excellent execution, and congrats to you guys. I wanted to ask about the ROI story that you were telling, Jennifer. I thought that, that was pretty intriguing. And I know you called out customers, but I think that there's probably a lot more that you can talk about. Can you talk about how you're measuring ROI and what they're using prior to beginning in PagerDuty and helping us with that because I think that, that really tells the story and the importance of maybe weathering through some of this choppy team if none of us can control, that would be helpful.

For sure. For sure. And I think one of the appeals of SaaS platforms is that they're easier to deploy, right? They're more intuitive. And in the case of PagerDuty, we're designed almost like a consumer application, but with an enterprise infrastructure and back-end sitting behind it. And I think where that lends itself in an environment like this is our customers see an incredible -- incredibly fast implementation. It's not like trying to deploy a huge traditional enterprise software platform over years, which is like pushing a wheel barrel uphill, right? This is more happens within hours, days and weeks as opposed to years. We see almost immediate ROI. I mean we recently we ran a bake-off against another competitor at a customer, and they saw an improvement in mean time to acknowledge and mean time to respond, 50% over the other provider without doing any customizations in the first few days of having it up and running. And so that immediate ROI leads to a lot of trust. The payback period is, on average, 2 months. The example that I shared with you there is based on our top 100 customers, so our larger customers that have made significant investments that then see those very significant returns in a short period of time. And I think that lends itself well to customers that are looking for immediate ROI, immediate improvement in efficiency that they can measure and quantify, right? So we're putting our money where our mouth is. And you tend to see that return come from a couple of different areas. One, just reducing the amount of manual work that developers have to undertake so they get back to innovation. Two, you reduce the time lost to incidents and the revenue risk during those outages, and we've -- as consumers who have become heavily reliant on-demand services have seen how quickly you can lose loyalty and lose money and lose subscribership when that happens, right? And then I'd say the last area is we're also helping our customers consolidate some of their providers because we give them one view of all of their observability tools, an automated way to orchestrate work across their teams and the ability to close the loop in not just responding to but resolving an issue and learning from it, and that's really driven by all of the automation that we've built into our platform. Tony Righetti;Vice President, Investor Relations: And next, we'll move to Matt Hedberg with RBC.

Jen, you said something interesting. You said we're part of the mission-critical infrastructure for a lot of organizations. And I think in time, maybe more scrutiny. Can you double click on that just because I think it's a really important point?

Matt, I think what you asked is -- you're hard to hear. I think you asked about my comments around being part of a mission-critical decision, and I also have talked about essential infrastructure and drilling into what that means. Is that right?

That's correct.

Okay. So when you think about incident response, right, it's become more and more important to our customers because their consumers, their end users' demands have risen. They are less patient when something goes wrong. They will quickly switch the cost to change for them, particularly in the consumer space is much lower. So they'll switch to a competitor if their experience is not good. And as I mentioned to Joel's question, like revenue can be lost very quickly. And so availability and uptime reliability of the digital products and services that really define your brand, but also deliver your revenue has become if not job 1, job 2, right up there with security is the way I would think about it. And it's getting harder and harder to manage. So most of our customers are seeing an increasing number of incidents because they're dealing with more complexity in their infrastructure, in their digital operations environment. And I'd even argue that with the great resignation of the past, there's also a lot of new employees in organizations. So ramping employees to understand the technology gets harder. So anywhere you can automate the work to detect issues before they become revenue-impacting incidents to manage those incidents well when they do occur and to learn from them and prevent that very costly incident from happening in the future is a really important investment and not something that we're seeing our customers back away from at this moment. The second thing that I would say is developers actually care deeply about the kinds of tools they're asked to use in their environment. And if you put them on a mission-critical job and say this product can never go down, this platform must be available all the time to our users, to our customers. But then you say, here's some crappy tools or we're going to have you manage this with an Excel spreadsheet and a phone tree, like they are very unhappy. So a lot of our developer community, champion PagerDuty all the way through their senior management because they trust it, they want to work with it and it enables them to do their jobs more effectively. And so again, in the talent war that we've been in, it's really important to make sure that your technical community has the products and services they want to use and that will enable them to be more effective and more productive in their jobs. And one of the things I loved about PagerDuty when I first learned about it when I joined over 6 years ago was how quantifiable the ROI is, how easy it is to identify the waste that we reduce in terms of employee productivity, the efficiency that we create in terms of how employees identify and address and learn from incidents that happen. But most important, the way it can improve revenue generation and protect revenue in terms of managing the customer experience.

That's super helpful. And maybe it was a nice segue into my second question. You talk about the importance of uptime and reliability, and you also said the competitive environment has never been better. I think one of your larger competitors had an outage at some point here not long ago. When things like that happen, does that bring even more customer inquiry your way?

All software is imperfect, and everybody has outages and incidents, and so we try and live up on the high road when it comes to talking about these sort of issues. But for sure, trust in a platform like ours is paramount, and I think it only takes a single incident that isn't well responded to, to leave the customer wondering if they have the right partner. And that, of course, creates opportunities for us. Having said that, I think that there are other ways to identify customers. We've certainly seen customers coming to us because of the influx and demand for a platform that does more than just on call, right, more than just moving the work around, actually automating the work itself, actually helping customers become proactive and prevent incidents from happening, not just responding from them -- responding to them faster but truly resolving them and preventing them from causing you problems in the future. And that's where when I talk about expanding our lead through innovation. We started in on call many, many years ago, 13 years ago. We added automated incident response. We've built on top of that AIOps, including analytics, and then deployed automation into almost every part of our platform. And this is the automation of complex challenges in the business. It's not like robotic process automation, where you're simply automating workflows or mundane tasks. We're actually learning from the events that flow through those 700 integrations and enabling teams to get better and better with each incident that occurs.

Congrats on the results. Tony Righetti;Vice President, Investor Relations: [Operator Instructions] Next, we're going to hear from Rob Oliver over at Baird.

Can you guys hear me okay?

Yes. Nice to see you.

Okay. Great. Just my question is actually for you and just a little bit more color around some of your commentary relative to EMEA and some of those elongated sales cycles. There certainly appears there's an element of counter cyclicality to your business, which is solid. On the other hand, you guys are not immune to some of these macro impacts. So I'm wondering in terms of more color, was that new logos? Was it expansions? And anything else you might add there? And then on top of that, obviously, in his time with you guys, David Justice has done a great job. And are there any adjustments or changes on the fly that you're seeing your team make to adjust to this new environment?

Well, the first thing I'd say is I'm super encouraged by the demand that we continue to see, really strong demand and strong pipeline for all of our products and services. And I think that's a tribute to having a product-led growth strategy, right, where our product actually drives a lot of the demand. I'm excited because we welcomed the new CMO into the business, Katherine Calvert, and she's been with us for about a quarter. We saw -- continue to see really great execution around our velocity land-and-expand motion. That's become very predictable and reliable for us. And the digital operations business to incident response and AIOps performed exceptionally well during the quarter. In EMEA, what we saw is some additional diligence on deals. And I think that's really driven by kind of the combination of inflation, a very strong U.S. dollar and the ongoing conflict in Russia, which is creating just a lot of uncertainty there. From a large deal perspective, we still saw large deals closing, and we didn't lose large deals, but what we saw with some of our large deals taking a little bit longer. And remember that most of our typical sales cycles are around 90 days. So I know a lot of software companies are talking about longer. I'm not talking about months and years, I'm talking about days. So -- but it is notable, and it is something for us to be aware of. I think in thinking about how our leadership team has responded to this, we've really stayed on the course that we've been on since the early days of COVID. And by the way, I'll mention that this macro uncertainty, while it is a little tricky, it's nothing compared to what we saw in the first quarter of COVID. Our customers have a plan in place. They know how to run in a hybrid environment. They've got products and services to sell and jobs to do, and they're still up against a pretty challenging talent shortage. And so very different than that environment. And so our team is really staying the course with the plan that says we're going to continue to improve our efficiency; we're going to invest in sustainable, high-growth; we're going to continue to invest in innovation to expand the lead that we have today. And a lot of that is around the area of automation throughout the platform, including our process automation. So we're really -- I think the plans that we put in place over the last several quarters have put us in a very strong position both from a competitive perspective and from the perspective of dealing with whatever is coming in our way.

Great. That's really helpful color. I just had a very quick follow-up, Howard, for you. Just -- and I know you've already added some color around the lower in-quarter expenses. But could you add maybe a bit more around some of those sources of margin leverage, where they're coming from, whether it be hiring, buildings, infrastructure, other areas where you guys have the ability to kind of accelerate that path to profitability nicely? Appreciate it.

Rob, so the areas that we've seen, as I mentioned. The one has really been a focus around sales productivity. How do we make it easier for our salespeople to sell, and how do we create capacity globally to be able to support that sales motion. And getting the balance right between quota and nonquota carrying folks is the way that we look about that -- look at that. In fact, Q2 was a record hiring quarter for us. So we've continued to hire, but we've been doing so with a very intentional approach. We're certainly gaining leverage through the use of automation within a number of our functions, particularly within the G&A functions, which are certainly helping us get the work done without having to add headcount at the same rate. So that's a positive for us. And also our location strategy opening up the offices in Lisbon and in Chile. Those have also helped us have access to a broader talent market and also allowing us to use -- follow the sun model more effectively. And all of these are little elements of efficiency that are structural that are there for the long term. And so the changes that we're seeing and that we've been making around making our organization more resilient, our organization structure more agile are really setting us up for the future. Tony Righetti;Vice President, Investor Relations: We will go next to Chad Bennett with Craig-Hallum.

So just following up on the last question, I'm not sure if I heard the answer or not. Just on -- Jennifer, on the elongated sales cycles on the enterprise side and then maybe the EMEA issues you saw or additional kind of sign-offs you saw there. Again, was that more new logo-driven or expansion-driven?

No. Generally, I think on the expansion side of things, that's where our sales team spends the vast majority of their time. But again, I just -- for context, when we talk about some of our larger deals taking longer to close, it doesn't necessarily mean they're an enterprise, right, because we do a lot of -- some of our biggest enterprise customers grow by starting small and seeing multiple POs over time. And I think that is one of the benefits of our business that makes us resilient in this environment, as we don't need huge deals in any segment to be successful.

Yes. And just because if you look at the $100,000-plus customer growth, I'm not sure kind of what internal expectations were, but it looked pretty solid year-over-year and so just trying to reconcile. And also, if you think about not that you guide for quarterly billings or you guide for quarterly billings, but we don't know what your guide would have been for this quarter, all else equal. I mean the 20% to 25% growth versus maybe a 25% to 30% in normal times, is that kind of 5% delta? Again, you don't guide. But 5% delta, is that encompassing kind of everything you're seeing today or you saw in the quarter? Or is it assuming things get even a little bit worse? Is there any color there?

Yes. So Chad, I'll jump in on that one. The approach that we've taken there is that in the back half of the last quarter, we started seeing a little bit of this effect for some of these deals. And to Jen's point, a lot of those customers, we saw a 38% growth in customers above $100,000. A lot of those customers get above $100,000 there doing lots of smaller deals. So our high-velocity transaction business across all segments remain strong. What we did see is that some of those larger deals took longer. And so in coming up with our estimate with respect to billings for this quarter, we did extrapolate the -- some of the extension in duration that we had started to see into the view that we have with it.

Nice job on the quarter. Tony Righetti;Vice President, Investor Relations: Next, we have Andrew Sherman with Cowen.

It's Andrew on for Derrick. So Jen, you guys sell mostly into developers but also customer service. Does it feel like budget priority within the developer in DevOps arena is more resilient than other buying centers? And what's your sense on where budget priorities are the highest right now?

I don't think we've seen like a shift in demand or budget across our different personas. But I think that's more about the problems we solve per se than the personas themselves because I think one of the things that's really changed in the last few years is our customers really understand all the way up to the CEO and in some cases, the Board of the Audit Committee that incidents cost them a lot of money, some that's really measurable in the immediate term and something that's measurable in the long term. And when I think about this, the long-term tailwinds that we've always talked about have remained well intact in this environment. And that's digital acceleration, cloud adoption and DevOps transformation. No one is stopping or slowing their projects in those areas because they remain critical to the business. The other thing is because of the more than 700 applications and monitoring systems, observability, cloud providers that we connect to, we're really well stitched into our customers. We become essential infrastructure, and I think that shows up in our gross retention and in our low churn and increasingly in our net dollar retention. And as I mentioned before like -- unlike in COVID, where we saw a lot of different buying centers to freeze to try and take stock and recover in the early days of the sort of COVID market impact, we're not seeing that behavior. Now having said I've worked in ERP, I've worked in supply chain, I've worked in a lot of other parts of software over my career, I would not want to be selling discretionary apps or apps that are a feature, not a product, not a platform and don't solve, like I said, these mission-critical problems. I think things related to incident response, security, customer service, like customer experience are going to continue to be really important in this environment because most of our customers' revenue generation has moved to their digital products and services, and so it's just become more important for them.

Great. And then, Howard, I wanted to ask about the price hikes and if there's any contribution from that in the back half implied in guidance. And I think 20% of customers are billed monthly. So did that have any impact to Q2? And how should we think about the impact of those rolling in over the next few quarters?

Sure. So on the pricing side, there are 2 dimensions to this. We introduced a price increase back in March, which was primarily for new customers to the platform, so related to new customer acquisition, and that is still in play and has had a positive impact. We also introduced modest increases on renewal, which we spoke about last quarter, and that's again in process and working well, and that's factored into our view through the end of the year. And I think then on your -- what was your final point there, final question that you had, Andrew?

Just impact of how they'll roll out over the next few quarters.

Yes. So I think those are both in train. They're continuing to -- their mechanisms are working well, and the value that we deliver to our customers is really obvious. The ROI information that Jen shared in her prepared remarks means that the value we're delivering to customers is high, and so we're not seeing any resistance. Tony Righetti;Vice President, Investor Relations: [Operator Instructions] Matt Stotler, we're going to come over to you. Matt with William Blair.

Maybe just one to start off with on the kind of free to paid customer conversion. Obviously, you guys haven't talked about specific rates, but are you seeing any change in that rate of conversion or the ability to convert customers in this environment? Do you have any thoughts on how it's going to trend going forward?

So Matt, this has always been like a long-term program for us in terms of how we thought about free and the conversion, capturing developers early in their use of PagerDuty or other potential responders and then making sure that they have such a good experience that they convert. And we've seen -- in terms of new customer acquisition, we've seen good, healthy trends, and so that funnel is still working for us. We take a long-term view on that, though, because we know that our expectation isn't that we've seen like a rapid transition in terms of free. But when we look at our mid-market and enterprise segments, which free has allowed us to focus on, we saw really strong customer acquisition in the mid-market and the enterprise in this last quarter.

Got you. That's helpful. And then maybe just a quick follow-up on the partner ecosystem. Obviously not a huge contributor today but something that you guys have talked about as being a place where you're investing. As you kind of look forward and look to be maybe a little -- I guess look for efficiencies as you continue to invest in go-to-market going forward, how is the partner channel fit to that? And what are you prioritizing in this environment on that side of things?

Sure. I mean, I think we talked in the past about our partnerships with AWS and Salesforce, particularly around DevOps for AWS and then our customer service ops solution for Salesforce, and those will continue to be both product and go-to-market partners that are important to us and that we're spending a lot of time with. I mentioned Dreamforce, I think, on the call. And we'll also be spending quite a bit of time at Reinvent. I always tell Andy and Adam that Reinvent is like where our people are. It's like coming into our own village, all the developers there. But we also think about our technology partners, so we talk about integrations every quarter. I think sometimes it's easy to underestimate how expansive that is for our ecosystem, the fact that we don't have to build all those integrations that a customer may have a use case and use our API to build their own integrations, which then opens opportunity up for other customers and users. And so that will continue to be an important area of investment for us. And then increasingly, as we look at expanding into new regions and new verticals, partners become more and more important. So we have put a venture together with a partner in Japan to try and accelerate our expansion into that market, for instance. But I would say that we try to be very focused in this area as opposed to sort of the spray-and-pray model. Because in my experience, a lot of partner efforts have been measured by activity, not output, and I'm really looking to figure out how we impact our overall customer experience and grow the effectiveness and efficiency of our go-to-market organization by having the right blend between direct and channel partnership. Tony Righetti;Vice President, Investor Relations: It looks like we have exhausted our questions today. I want to thank everybody for your participation. Howard, thank you. Jen, can I pass it over to you for any final thoughts for this quarter?

Yes. So, I just want to say thank you, everyone, for joining us. We remain very positive on the demand that we see going forward and very proud of our execution, and we just appreciate the trust that our customers place in us, and I want to thank all of the PagerDuty employees for all of their hard work and wish everybody a safe and long holiday weekend. Thank you.