Good afternoon and thank you for joining us to discuss PagerDuty's First 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, and thanks for joining us today. PagerDuty delivered a solid first quarter, with revenue growth near the midpoint of our guidance range at 8%, and non-GAAP operating margin four points above the range at 14%. This was our seventh consecutive quarter of non-GAAP profitability. We increased annual recurring revenue by approximately $11 million to $463 million. ARR growth stabilized at 10% for a second consecutive quarter, strengthened by improving new and expansion ARR. We continue to see momentum in large multiyear, multiproduct contracts with customers spending more than $100,000 growing 6%, while both customers spending more than $500,000 and $1 million grew in the high teens. The impact of the macro environment can be seen in pressure on gross retention due to capital constraints, particularly in SMB. However, continued improvement in large deal execution as enterprise customers embrace the Operations Cloud again this quarter, demonstrated both product-to-market fit and the potential for upside as the macro improves. Dollar-based net retention came in as expected at 106%. Based on our net new ARR momentum and current retention, we remain confident that both DBNR and ARR growth will strengthen in the second half of this year, enabling the business to exit the year above Q1 levels. The success of our go-to-market teams in providing multiproduct solutions to large customers is evidenced by more than 60% of our net new ARR for the quarter composed of customers investing in products in addition to incident management, such as AIOps, Automation and Customer Service Ops. Our platform enables enterprises to modernize their business and technology processes and culture, standardize automation practices, transform incident management and automate operations. This solution-to-market fit enabled strong multiproduct pipeline creation in Q1, supporting our confidence in improving both growth and productivity throughout the remainder of the year. In…

Thank you, Jen, and good day to everyone joining us on this afternoon's call. 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. At a high level, the progress we're making in closing large multiproduct enterprise deals, both new lands and expansions, and the improved visibility as we build a strong multiquarter pipeline were highlights for the quarter. However, SMB continues to be a headwind to growth with high levels of churn and downgrades. International is showing signs of stabilizing, represented by several six-figure deals in Europe and APJ with large enterprise customers. And our recent appointment of a new leader for EMEA will allow us to capitalize on the momentum. Revenue for the quarter was within our guidance range at $111 million, up 8% year-over-year. The contribution from International was 27% of total revenues, a modest change from the 28% seen in Q1 of last year. Annual recurring revenue exiting Q1 grew 10% year-over-year to $463 million. We delivered 106% dollar-based net retention in line with our Q1 expectations. Successful expansions with a number of key customers were somewhat offset by continued challenges in SMB and select downgrades in some larger customers, symptomatic of cautious constraint spending consistent with the macro volatility. Our DBNR expectation for Q2 is to remain flat at 106%, with this metric moving higher in the second half of FY'25. Customers spending over $100,000 in annual recurring revenue grew to 811, up 6% from a year ago. In addition, cohorts at the $500,000 and $1 million mark each grew in the high teens. Total paid customers increased to 15,120 compared to 15,089 in the year ago period. Free and paid companies…

Thank you, Howard, and Jennifer. Team go ahead and raise your hand to submit questions. We're going to turn first to Matthew Hedberg with RBC. Matthew, please go ahead.

Hey, guys. This is Simran on from Matt. Thanks for taking our question and congrats on the quarter. Just one for me. You talked a little bit about the confidence that you have in second half reacceleration. Can you double click on your thoughts on this? And what are these drivers of acceleration that you see in a difficult macro backdrop? Thanks.

Yes. So thanks for the question, and nice to hear from you. The difficult macro has kind of become the new normal for us. And we have really focused over the last several quarters on controlling the controllables. That includes continuing our efforts to focus on enterprise, which are paying off. We see stronger multiquarter pipeline. We see stronger multiproduct and multiyear contract results. And in fact, our largest spend cohorts are our highest growing. Our customers spending $0.5 million and $1 million grew in the high teens this last quarter. From a macro perspective, the problems we solve are getting bigger and harder to solve. Tech debt is increasing. AI is even driving some of the scale and complexity that our customers have to contend with, not to mention the fact that they're all concerned about uncertainty or the responsibility associated with anticipating problems in leveraging AI. We believe that is going to actually drive more incidents on the platform. And all of this is happening while businesses increase their reliance on technology to drive revenue. And so when we look out, we look at our ability to execute the fact that we have been building stronger multiproduct, multiyear pipeline and we see the market meeting us from a demand perspective.

Yes. And I think, Jen, just one thing I would add, which is probably a little bit more operational. Jen has referenced the multiproduct pipeline. It's also multiquarter. So one of the changes that we've adjusted to in this economic environment, that deals do take longer. And so what's very encouraging to us is that we now see pipeline placed many quarters out. In fact, we have pipeline growing for Q1 of next year. And that's been a change for the business from being a business that was highly transactional, high velocity, often with pipeline visibility only out one quarter. Well, now we have pipeline visibility stretching out much further. Our team is adjusting to the fact that larger deals take longer, business justification is more important. And so we're setting the stage for us to be able to have far better visibility, and that gives us confidence. When we look into the back half of the year, we're confident that we will see ARR growth accelerate.

Thanks. Congrats again.

Thank you.

Thank you.

Thanks Team. Next, we're going to hear from Rob Oliver at Baird. Rob, please go ahead.

Rob, you're on mute.

Great. Thanks. I think I'm off now. Hey, guys. How are you?

Good. Thank you.

Hi, Rob.

Good. Good to see you. So my question, Jen, is for you on the AIOps solution because, obviously, a competitive space. But it seems like you guys have a few things going on here, which are relatively new, which are helping you attack the market in a different way. One is the bundling solution through the new incident response for enterprise and another is via pricing. So I was hoping you could maybe give us a little bit more color on both those because it does appear and obviously, with the Salesforce deal in the past, that's different. I think that was kind of a renewal as well or correct me if I'm wrong, but you guys appear to have a bit more momentum here and I'd love to get color on those two things and the extent to which they're both drivers.

Sure. Thanks for the question. I think it's worth mentioning and reminding people that the AIOps has been in the market now for several years. AI and machine learning have been foundational to our platform and something that we have been fine-tuning over time. And it means that the product and the efficacy of the product just gets better and better. Every time an incident or an event transits on the platform, the platform learns, right? And so that's positioned us very differently from other players that are just trying to enter the market or entering the market at a small scale. The second thing that I would say is that we're the only platform that deeply integrates AIOps into the event management process along with automation, a connection or a bridge to customer teams. And now with the addition of Jeli, the ability to learn from events after they run and apply that insight immediately to avoid issues in the future. These are all things that, historically, have been very disconnected, require tons of manual effort, often require investment in third-party outsourcing, and in an environment where people are looking for ways to improve their return on capital, increase their efficiency and their use of OpEx, which is constrained. I think this has become more and more important. I've mentioned also in previous calls that we're seeing our customers show an increased appetite for automation, where a year ago, when we were talking about AIOps and automation, some of them were protecting headcount, protecting budgets. Now they're being asked to do more or the same with less. The last thing that I would say is that over the last couple of years, we've expanded our AIOps offering to serve feature sets for both developers and Central Ops teams, which means it's flexible enough for any developer to use in a production environment, but scalable to support Centralized Ops teams and SREs, and that's also enabled us to move further into large, large enterprise, where you kind of have these two different communities.

Got it. Okay. That's really helpful, Jen. And if I can squeeze one more in. Just -- I know you guys have tried to temper my excitement around the Fed opportunity just because it's going to take a little bit of time. And I know we're not expecting anything major in the numbers for this year. That having been said, congrats on that first big win and that's exciting. And now you guys are free to run. So can you just maybe lay out like how we should think about success at Fed for PagerDuty? Because from spending time down in DC, it certainly seems like there would just be a tremendous fit for what you guys do down there right now, given all of the mayhem of digital transformation, the dollars that are flowing. So just -- it sounds like you've got somewhat hired or close to hired. Should we expect you'd be working through a Federal partner? Anything else you can add? Thank you.

Sure. Thanks for the question. And I am also very excited about FedRAMP and our opportunity in the federal market. And actually really pleased as a daughter of a veteran and the granddaughter of two veterans, really pleased to have the Veteran Affairs Department as our sponsor. And it's a lot of hard work over multiple years from the team to get to this place. So ATO is just a piece of it. I think the bigger opportunity is that if you look at the government and the federal government in particular, what you see is a significant issue with technical debt and aging infrastructure, and at the same time, a huge requirement to not just digitize offerings but modernize the way these departments operate in service of the constituencies they serve. And so the problem that we see in enterprise is metaphorically very similar to the problem we see in Federal and there is a real sense of urgency there. Having said that, you nailed it, we're very early. We have hired a new Head of Public sector, but we can't announce the person yet. And of course, we've brought Teresa Carlson on to our Board, which I think kind of overstates or underpins the investment that we're making in the space to bring someone who is such a pro in that segment of the market onto the Board. We also have a number of customers from state and local government and from public sector already. So we've been able to learn about what they're looking for. Only a small percentage of this year's forecast is made up from the public sector market. So I would expect to see that really come into play next year.

Got it. Very helpful. Thanks, guys. Appreciate it.

Thank you.

Great. Thank you. Next, we're going to Jacob Zerbib, William Blair. Jacob, please.

Yeah. Hi, guys. This is Jacob Zerbib on for Jake Roberge. Thank you for taking the questions and congrats on the quarter. So on customer additions in the quarter, there was a nice sequential improvement. Can you talk about what's driving the strength there, especially given the weakness with SMBs? Thank you. And then I got one follow-up.

Yes. Frankly, it's focus. It's focus. And we've worked over the last several quarters to really refine our narrative with customers and rather than focusing on technical proficiency and technology. Well, technology is a great competitive advantage for us. What our customers' privilege right now is operating efficiency and finding ways to automate, finding ways to deliver greater returns on their capital. And so really focusing efforts to take the compelling ROI that we have proven year after year, the very short time to value and articulate that in a way both in our product and through our engagement with customers that enable them to not just rationalize and justify an investment, but communicate the returns that they're getting relative to some bigger investments they might have to make on larger platforms that take much longer time to deliver, even pay back much less on return on investment. So I think really speaking in the language of efficiency has been important to our customers on that front. And I also think the enterprise incident management SKU is a little bit more accessible for some customers. It gives you both incident response, some automation, a few features from AIOps and the benefit of Jeli's feature set, which is very -- we're finding very popular amongst our users. Altogether, I think also demonstrating some flexibility around pricing has been important too.

Yes. And I think, Jacob, I would just add to that. We have multiple motions around customer acquisition today, and that falls into a product-led growth motion, which is available across all segments, but primarily tends to appeal to the SMB space. And that's where we often end up seeing small companies land in free, but there, we have a very focused effort around the enterprise side of things with a dedicated acquisition team that works in harmony with our product-led growth motion. So for us, we're keen to drive the incremental customer growth, but it's more -- when we look at it across all segments, we look at the total, free and paid. But then internally, we have a look at it just, are we making progress from the enterprise because we can see the value that we're getting out of those enterprise accounts. With this increased focus that we've had, as Jen referenced, the cohorts that have matriculated to the 500,000 and the 1 million ranks have actually -- we're seeing upper teens growth in terms of count, but we're seeing above 20% growth in ARR out of those cohorts. So that is a good indication of the strength in enterprise.

Got it. Thanks. And just a quick follow-up on that. So nice to see the increase in multiyear deals as a percentage of ARR. How should we think about the drivers between new customer lands versus existing expansions? Thank you.

Yes. So I think the way that I would think about it is our largest opportunity for multiyear does exist within expansion. Often at the time of renewal, we have -- we've been engaging with customers around a longer-term commitment. And when our sales team goes in with either a new product solution around a customer's problem or where the customer is looking to simply increase their footprint with us, that's often an opportunity to engage around multiyear. So I'd say that the bulk of the multiyear growth will come out of those activities. But now even for new deals with enterprise customers out of the gate, we're positioning the multiyear engagement and that's certainly bearing fruit. One of the examples that Jen referenced was a large health care provider. This was a large land. It started out as a multiyear and that's how their relationship with us has begun.

Got it. Thank you.

Okay, team. Next, we're going to hear from Andrew Sherman at TD Cowen. Andrew, please go ahead.

Great. Thanks. Hey congrats on the quarter. I wanted to ask, there's been a lot of investor angst about seat-based models given comments and results from some other companies. Anything you can say about how seat growth has trended and kind of what you're seeing at customers and ways you can expand even if seats are not growing as fast as they used to be? But yes, just what are you seeing on that side of the business?

Sure. Great question, and nice to see you, Andrew. One thing, I've been in the software industry a long time, and one thing I would say is that not all software is created equally. So the perception of value from a seat-based license for one type of software, say, infrastructure versus another type of software -- application software may be determined to be less discretionary than the other. And in our case, we're providing infrastructure software that helps our customers manage their most mission-critical systems and services. And those services, frankly, in an environment where budgets are tight and a lot of ways have become even more mission-critical. And so part of it is that there's a certain level of usage that our customers feel is essential and will protect even when they're under pressure. In the case where sometimes we do see downward pressure because there's no budget availability or capital constraints exist, we'll find customers trying to work with us to figure out how they can still maintain coverage and pay us what we would expect for the software. And so we've learned as customers get bigger and bigger to try and create a more flexible pricing environment such that, call it, the unit price that we're charging them is more closely aligned to value and they worry less about how many seats and more about are they getting the return on investment and do they have the coverage they need across their infrastructure. That's included us doing things like business value assessments to help them think about how their needs are going to change and grow based on their services environment based on their infrastructure setup, which is very different than just saying, like, how many people are you going to have? We'll license all those people,…

And I think what I would just add from tactically how that shows up, Andrew, is that we're now seeing like a blend of metrics with customers. So obviously the user metric is where we started, but we now have an increasing portion of our base that's using consumption metrics, which were associated with our AIOps offering, which is proving popular. And we also, as we contemplate the introduction of our Generative AI offerings, those will be on a consumption model. And then together with that, for large enterprise customers and large deals, we're coming up with more flexible licensing arrangements that allow them the ability to use multiple products without the same constraints and restrictions that we would have previously applied under a pure user-based model.

Yes, that's great. Great answer. That's all I had actually. Thank you.

Thanks, Andrew.

Okay, team. Thank you. Next from BofA, Koji Ikeda.

Yes. Hey, guys. Thanks for taking the questions. Great to see you.

Hi, Koji.

Hi. A couple for me here. So I wanted to ask just real quick, what was the SMB mix of ARR this quarter? I think last quarter was 16%, but it sounded like demand in this segment remains challenged.

Yes. So Koji, that's still around the 16% mark.

Okay. Got it. Thank you for that. And then kind of a bigger picture question here, either for you, Howard or Jennifer, either one's fine. When reading the press release, I was noticing some of the customer land and expand wins. Some of those customers in there, when we've done our checks, we've heard from end users out there that maybe some of these vendors could do something like PagerDuty if they wanted to. But here they are. They just showed up on your press release being your customers. And so I thought that was super interesting.

Koji, if I had $1 for every time someone said that to me over the last eight years, I would be incredibly wealthy. It looks easier than it is. And that's perfectly fine.

What is it about PagerDuty specifically that makes it hard for what looks like an adjacent vendor to maybe try and enter your category?

I'll tell you what. I mean, one, I think our name, PagerDuty, really describes the first product that we launched 15 years ago. We have grown to a multiproduct, enterprise-grade, incredibly resilient and secure platform now that helps automate and manage operations for the largest brands in the world. So it's a very different product than where we started. But brand recognition often starts with the first product, which was on-call, right? Even managing on-call automation requires a level of scalability and resilience and fidelity that is very hard to achieve. And some of the adjacent players that you mentioned have made attempts to try and build this and found it's very difficult because you require a very resilient architecture to deal with billions of events with no maintenance windows. We're a 15-year-old company that's never had a maintenance window. It would be like 911, the emergency room and the ambulance service telling you they were going to take Sunday off to do maintenance. We have to be up and running all the time. That is incredibly difficult to do at 84-plus percent gross margins. So there are a number of technical and architectural barriers to entry just on our core product. But we've then used and leveraged the data we've collected over time and the experience that we've built over time to add a robust AIOps offering, an automation solution that serves multiple use cases. We bridged Customer Service Ops and built applications that integrate into the most popular CRM solutions. So when you actually look at the whole platform, there isn't a competitor that can do it. What is most different, though, is the compelling ROI and our short time to value. So while some customers may think that they could go to a less costly lower touch solution, they end up spending far more in total cost of ownership in building custom integrations and requiring third parties to support them and in maintaining that solution over time. We integrate to over 700 applications, ticketing systems, cyber environments out of the box. And so we're just in a very different position from a technology perspective. And we're working really hard to sort of change the brand perception that we're a company that does notifications as opposed to a company that offers a robust cloud native operations platform that can help you cross that chasm from purely modernizing your technology to modernizing the way you operate in service of your customers.

Got it. Thank you very much. Thanks for taking the questions.

My pleasure.

Okay, group, one last call for questions. Please raise your hand if you'd like to be queued. Oscar Saavedra with Morgan Stanley, we're coming to you. Come on in.

Excellent. Great to see you, Jen and Howard. This is not Oscar.

Thanks. I was like, Oscar, you changed.

I'm still sitting in for Sanjit Singh. This is actually Keith Weiss.

Nice to see you Keith.

So good to see you guys. I mean it's so good to see a solid print in this Q1 earnings season, which has been a literal minefield. And really, it's great to see net new ARR growing again. And what I was hoping to maybe kind of summarize the call with was like get your view on the equation of kind of what's driving both sort of the return to growth in net new ARR, but also kind of your confidence in the long-term. Macro still seems really shaky. But I'd like to get your view on it. Like how much of this is macro maybe stabilizing? It definitely sounds like the products are starting to resonate. And we hear a lot about the interest in AIOps, you hear a lot about the interest in automation. So it sounds like product being out there is part of the equation. But it also sounds like a big part of the equation is just better execution, right? You have your rhythms better. The pricing model is now matching better to what the customers are looking at. So there's multiple parts of the equation going on. And I'd just love to get your view on like how we should weigh those various elements and what the equation for, what you saw in the quarter was, but also what you're expecting for the rest of the year?

Yes. I appreciate you saying all that, Keith. I mean, a couple of things. One, I would say that this difficult macro is our new normal. And we have really focused for the last five quarters on controlling the controllables and trying to just ignore the noise and focus on the things that we can command, can control, can change, can improve. I am super proud of our team, and we have a really strong leadership team with quite a bit of tenure and quite a bit of expertise in this space, who I think have done a really good job of articulating what we do from a financial return on investment perspective, helping customers embrace automation in an approachable way as opposed to a sort of magical way. Like we've really tried to stay away from the hype of the auto magic generative AI and stay focused on use cases that are big, expensive problems that need to be solved for our customers. We've really tried to meet our customers where they are, which means working with them if they do need to spend less for a period of time in order to come back and invest long-term with us as a partner. We will always favor the long-term customer relationship over the short-term gain. And we're not perfect. You never get all of those right. But what I've seen over the years is when a customer has to reduce their spend with you, they're appreciative of you staying with them and going the long haul and they come back and reward you for that later. So playing the long game, I think, has been important. You mentioned product-to-market fit. I think we are making the Operations Cloud a reality. We are demonstrating through the efficacy of our products…

Got it. Yes. The tight focus on ROI. If I had to define like a dividing line between who is actually doing well in this environment and who is not. Like an ability to well define the ROI of the solution and well show ROI seems to be one of like the winning combination in this environment. A question for you, Howard. As we add these new licensing types and then we add sort of consumption elements, it's probably too early, but is there anything that we should be aware of in terms of how we're thinking about our models and the seasonality dynamics of our models on a go-forward basis as the revenue types start to mix, if you will?

Yes. I don't think that the revenue types themselves are making a difference. But as more of our business is coming from the enterprise and the larger deals, that creates a certain difference in seasonality. Like we find that more deals entered to drift towards the end of a quarter or end of the year. So we're starting to see that with these longer sales cycles -- often customers, when they're making larger purchases, they operate with a different level of urgency to when they are making shorter purchases. So I think we're seeing a little bit of that already happen. And so that means that whereas often, we would have reasonably even months within a quarter. Normally, the first two quarters were lighter, but still reasonable. We see that the third month tends to be the heavier quarter. And that means that you're getting less revenue coming out early in the quarter, tends to then be flowing on a little bit later. So the revenue lag, it's not pronounced now, but there's certainly a little bit of that happening.

Got it. Again congratulations on a really solid start to the year.

Thank you.

Thanks, Keith.

All right, team. We've done it again. Jennifer, I'll turn it over to you for any closing comments, please.

Yes. Well, I just want to say thank you to everybody who attended today for your time and interest. Thank you to our shareholders and our customers, our partners and especially the PagerDuty employees who have worked really hard to deliver a solid quarter. We look forward to seeing you during the quarter and next quarter as well. Have a great day.