Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the PagerDuty 1Q FY2020 Earnings Conference Call. After the speakers' remarks there will be a question-and-answer session. I will now turn the call over to Karen Walker, SVP of Finance of PagerDuty. You may begin your conference.

Thank you, Mike. Good afternoon and thank you for joining us on today’s conference call to discuss the financial results of PagerDuty’s first quarter of fiscal 2020. With me on today’s call are Jennifer Tejada, PagerDuty’s Chairperson and Chief Executive Officer; and Howard Wilson, the company’s Chief Financial Officer. Statements made on this call include forward-looking statements. Forward-looking statements 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 such statements. Forward-looking statements represent management's beliefs and assumptions only as of the date such statements are made, and we undertake no obligation to update these forward-looking statements. In addition, during today’s call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to these non-GAAP financial measures. First is their closest GAAP equivalent. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate our performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. 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 from time to time, including the section titled risk factors in the company’s Form S-1 previously filed with the SEC. Now, I’d like to turn the call over to our CEO, Jennifer Tejada. Jennifer?

Thank you, Karen. And thank you everyone for joining us today on our very first earnings call. We had a strong start to our first fiscal quarter as a public company, and we’re excited to share our Q1 results with you. I’ll start with a few financial highlights then provide an overview of our business model and finally discuss our engines for growth. Our year-over-year revenue growth continued to accelerate in Q1 to 49%, delivering a record $37.3 million in revenue and robust 85.7% non-GAAP gross margins, an improvement of 100 basis points over the same year ago period. These solid results were driven by continued demand and execution across industry verticals and customer segments, especially enterprise. We ended the quarter with 11,680 customers, adding a record 468 net new customers complemented by consistently strong expansion within existing accounts. Overall, it was a terrific start. I’m both appreciative of our customers' trust and loyalty and proud of our team and their execution. We pioneered the digital operations management category and this quarter's results provide compelling validation of our continued leadership. The growing demand for digital operations management, the fundamental need to orchestrate real-time critical work, is driven by a number of macro trends. First, the modern consumer is experience-driven and impatient. Companies must meet consumers’ increasing expectations for a perfect experience. Second, every company is becoming a software company. Digital transformation has become a top three CEO priority at not only large companies, but also at mid-size and late-stage groups. Third, companies are migrating their digital operations to the cloud and building cloud infrastructure. This is very powerful, but it is hard and it increases complexity and requires companies to change the way they do things. Fourth, DevOps is increasingly mainstream and proving to be a strategic enabler. We see DevOps principles being adopted across multiple business functions from security operations to business operations. And finally, developer and associated technology headcount is growing rapidly, much faster than other occupations and we benefit from our customers' organic headcount growth. These trends all present tailwinds for PagerDuty. Our cloud-based real-time operations platform provides actionable insights across an increasingly complex far-reaching technology ecosystem, intelligently orchestrating immediate work across teams. PagerDuty’s unique platform combines machine data with any software-enabled environment or device and human behavioral data along with workflow information and business metrics to automate and orchestrate mission-critical work in seconds. This powerful combination ensures the right people are working on the right problem or opportunity at the right time, so businesses can keep revenues flowing, cut operational downtime, and keep their employees and customers engaged and happy. Stated to these support teams and their moments of truth. When seconds can make a difference between delighting or alienating an important customer, applying agile and DevOps best practice to the challenge of detecting unforeseen issues and managing urgent critical work has been a game changer for companies undergoing digital transformation. By automating and orchestrating work that previously took days and cost millions of dollars to minutes with imperceptible business impact, PagerDuty has changed incident management from linear reactive response to dynamic proactive prevention. Our platform allows our customers, from the most innovative disruptors to the largest industry leaders, to improve their operations and is immediately supported by over 350 out-of-the-box integrations. This API-based interoperability supports modern open work, making it easy for users to create workflows and integrate incident information into collaboration and service management products like Slack, Zendesk and Salesforce while strengthening PagerDuty's unique position as the central nervous system for the digital ecosystem. Let me give you a quick example of how this works. Imagine you’re online shopping for a Golden State Warriors jersey. You do a quick search, find an online store, and it seems like a straightforward transaction. It’s a slick user interface, you can do it on your phone, but when you go to check out, nothing happens. You get the dreaded spinner, or as my daughter prefers to call it, ‘The wheel of death’. Sitting behind this seemingly simple transaction is an increasingly complicated set of order management, dynamic pricing, and payment applications underpinned by a very complex infrastructure and usually a mix of cloud and on-premise networking technology. This is what’s happening in the background at the e-commerce company when your checkout screen freezes. Several monitoring applications simultaneously fire alerts to different teams. One alert sends a developer team an issue with the application. Another alert sends an IT team a network issue. While at the same time, Salesforce alerts the customer service team that ticketing volume is increasing. Meanwhile, you, the consumer, have given up and gone to a competitor's website to get your Warriors swag. Getting this right is not only mission critical, but an imperative to survive in this hyper-competitive world. With PagerDuty’s platform, the e-commerce company can consolidate separate events into a single incident. Intelligently orchestrating work across the right team, automating responses through machine learning recommendations, and reviewing the incident with the help of teams and services to drive continuous improvement. PagerDuty helps companies transform their digital operations to improve the end consumer experience, protect revenue and reduce unplanned operational expenses. The market opportunity for digital operations management is significant. We estimate the incident management market alone is a $25 billion opportunity that we serve with our core offering. Not only is it large and growing, many of our new customers are greenfield opportunities. As companies use the full capability of digital operations management and apply PagerDuty to an infinite number of use cases, this opportunity increases substantially. With less than 1% penetration, we have just begun to scratch the surface of the enormous potential of this market. PagerDuty has multiple engines for growth, giving us confidence that we can advance our lead and further penetrate this market providing we continue to execute well. These include our viral platform for real-time operations founded in DevOps, PagerDuty's broad applicability and ease-of-use leading to new use cases, our new product automation, our land and expand market notion, and finally, our early efforts in regional expansion. Let’s start with DevOps. PagerDuty's cloud-native platform was designed based on DevOps best practices for time-critical unplanned events in an increasingly complex, data-overloaded world where other solutions were built before the advent of the cloud. It’s uniquely architected for resilience proven at scale and tested daily by progressive tech companies like Elastic and Netflix, and huge highly regulated companies like Royal Bank of Canada and the world's largest e-commerce players. Rather than automating forms into linear workflows, which is slow, siloed, and static, PagerDuty applies DevOps principles, including swarm-based collaboration, empathy, empowerment, and learning, orchestrating action dynamically, and creating a leading loop with every incident. The platform and all of our products are mobile-first, designed for the user with immediate time to value through industry-leading integrations and intuitive self-service implementation. Our newest products augment our core platform by providing operational insights for teams and benchmarking for leaders, delivering real-time visibility of customer and cross-service impact during an incident, offering actionable stakeholder and status communications to speed collaboration, and automating previously manual tasks with machine learning-based Event Intelligence. The platform addresses challenges presented by increasing technology complexity and segment proliferation and the need to orchestrate work in service of protecting the brand and customer experience. The broad applicability of PagerDuty's platform is another engine for growth made possible by our intuitive and easy to adopt user experience. This makes it quick and simple for teams to deploy PagerDuty for problems well beyond the purview of technical teams. I highlighted today a real-time produce quality use case for many of you on the road show and if you haven't had the chance, I encourage you to read about our partnership with them in our S1. During Q1, we continued to see new applications of our real-time operations solution outside of development and IT. Following the two-week trial, one of the world's largest oil and gas companies adopted PagerDuty to manage fuel truck and terminals in most of their 14 countries. With a throughput capacity of 5 million barrels a day, resolving operational issues in minutes versus hours directly benefits the bottom line and enables a safer work environment for employees. Prior to PagerDuty, communication for maintenance and emergency support along with coordination between operations and fuel supply terminals could take hours to resolve. Using our platform for real-time operations, incidents such as fuel spills, operational concerns, and safety issues are now resolved in minutes, preventing potential crises from occurring. Innovating new products on the PagerDuty platform, enhancements to our existing products, and increasing the number of integrations have also contributed to growth. Last year, we launched analytics visibility and Event Intelligence. These new offerings have enabled our customers to go beyond on-call scheduling and incident management to facilitate digital transformation, proactively managing their digital services at scale and preventing issues from disrupting customers and business outcomes. Analytics visibility and Event Intelligence utilize machine learning and response data to identify and resolve potential incidents, mitigating both financial and reputational risk. While it’s still early, we have seen growing production from our new products across all segments. In Q1, one leading hyper-growth electric scooter company decided to replace a competitor's product because it has scaled reliably with them. They came to PagerDuty to support their real-time operations and immediately adopted modern incident response and began using the platform across three teams: DevOps, IT, and security. We launched several new features and enhancements in the first quarter. For Event Intelligence, we introduced advanced event automation, intelligent alert grouping enhancements, and alert grouping previews, reducing the signal-to-noise ratio for accounts and unplanned work. In addition to adding one-touch conferencing to modern incident response for connecting teams quickly, we introduced status communications for the intelligent enterprise to keep impacted teams informed and launch live service updates via mobile devices to allow stakeholders to receive urgent business-oriented status updates. At the 2019 RSA Conference in March, we announced more than 25 integrations and integration features specifically designed for SecOps teams. We also released enhancements to our existing integrations to support hybrid operations for medium and large companies where IT, development, and customer support teams need to collaborate on time-sensitive responses. These included new deeper workflow integrations for Slack and ServiceNow, providing fast context-rich information about incidents with bidirectional support, allowing users in different teams and tooling to collaborate seamlessly and save time in resolving issues before impacting customers. Our hybrid go-to-market model drives efficient growth. Most of our customers land through self-serve and expand over time. It’s often a single developer team in an organization that purchases PagerDuty to improve reliability for a service under their charge, which then expands virally within their first team, then to additional teams, and ultimately additional departments as they see the personal and team value of being on the platform. Departmental and company-wide initiatives like DevOps and digital transformation or cloud migration often catalyze more significant expansion to customer support, security, and business operations for both incident management as well as other department-specific applications of our technology. We complement self-service adoption with a high-velocity sales force primarily focused on expansion. Our inside sales teams serve the mid-market and SMB segments from metropolitan hubs, while the enterprise segment is served by an experienced high-velocity field sales team. Our high-branded self-service sales-assisted model reduces friction and leads to a very strong net retention rate, which has consistently been above 135% for over the last year, with 137% in Q1. In several key accounts, we saw expansions with existing teams as well as expansion to new departments, including Zoom, who like PagerDuty recently made their public debut. Zoom is focused on ensuring happy customers by providing a seamless experience to their customers, which means preventing outages and interruptions. Zoom’s PagerDuty engagement started with a single development team billing on a month-to-month basis, and has expanded more than six-fold with existing and new teams across development, security, customer support, and customer success. By deploying our platform, Zoom increased uptime for their conferencing cloud platform. Additionally, a large public enterprise software platform company expanded their PagerDuty deployment to include their product teams and operation centers. While this company has been a customer for many years, recent reliability and availability challenges associated with scale became CEO priorities. PagerDuty helps this market leader prevent business-impacting outages and improve overall customer experience and retention while reducing SLA liability. While most of our customers are acquired online, our sales force engages directly in enterprise accounts and periodically lands large deals. Last quarter, we were pleased to welcome a Fortune 100 global investment bank as a PagerDuty customer. We've won a seven-figure multi-year contract for two different use cases. The bank is both modernizing incident management across shared services and also using PagerDuty to improve reliability for a high-volume retail business. We’ve replaced legacy home-grown systems to help optimize their entire digital operations management cycle, decrease system outage time, and ultimately increase revenue and uptime. Finally, our early effort in regional expansion delivered strong growth in international markets in Q1 with year-over-year growth exceeding our domestic growth rate. Cemex, which is one of the world's largest cement makers based in Mexico, became a new customer. Like the aforementioned oil and gas company, Cemex adopted PagerDuty to facilitate the on-demand delivery of cement, a time-sensitive business-critical operation. We expanded our deployment with a global recruiting services company based in Japan, where a significant number of indispensable microservices are tied to their consumer-facing job search engines. In just a few years, their PagerDuty user base grew nearly 10 times, including global site reliability engineering teams. Last quarter, they implemented Event Intelligence across teams in Japan and North America to address the proliferation of inbound events and free up their teams for innovation efforts. Our results this quarter reinforce the breadth and depth of our community engagement. PagerDuty is loved and trusted by hundreds of thousands of users for whom we focus our design, usability, and value proposition. It is imperative for our company to build an innovative, inclusive, equitable, and socially responsible organization that reflects this community. We’ve been intentional in developing a diverse board and leadership team and an inclusive collaborative, transparent culture and a talented diverse workforce. In February, we opened our sixth office in Atlanta, an important cross-functional hub. We selected Atlanta to both create access and jobs for local underrepresented people seeking careers in the tech industry and to acquire talent from rich local resources across engineering and business roles. In Q1, Rathi Murthy, Chief Technology Officer of the Gap and an experienced digital transformation leader, joined our board, bringing us closer to achieving gender parity, which we’ve already achieved in our leadership team. We believe that enhancing inclusivity is an important contributor to our performance in high employee engagement and retention, and our trusted relationships with our users, customers, and partners. Our IPO in April saw the funding of our 1% pledge, positioning PagerDuty.org to support a growing number of nonprofits in achieving their social impact missions. To conclude, revenue and customer growth acceleration continued in Q1. We are all in on our mission to elevate teams to the outcomes that matter, and we remain encouraged by market signals and momentum. I am proud of both our results and how we’ve achieved them through inclusive leadership with relentless focus on users’ time to value and success. With that, I’d now like to turn the call over to our CFO, Howard Wilson who will walk you through the financial results. Howard?

Thanks, Jennifer. And thanks again to everyone for joining us today. Since today's earnings conference call is our first, I’ll start by providing a brief overview of our financial model and then I’ll go through our first quarter fiscal 2020 results in detail before moving on to guidance for the second quarter and the full-year fiscal 2020. We offer a cloud-based platform to assess model and we generate revenue primarily by setting one-year subscriptions to our top-grade platform. There are a number of levels to drive our growth, including acquiring new customers, expanding the number of users within a customer and cross-selling additional products. Our subscription fees are based on the products the customer is using and the number of users on the platform. We target businesses of all sizes from SMB to enterprise that are in various stages of their digital revolution from innovative disruptors to large industry leaders. Customers today purchase our offerings through either self-service or direct sales. Our self-service channel allows customers to buy online. This can be customers of any size, industry, or location. Most of our initial customer lands come through the self-service channel. All of our customers are able to expand their footprint online adding users of new products. We complement this with a high-velocity inside sales team that is focused on landing and expanding SMB and mid-market businesses. The sales rates typically target existing customers that have the potential to expand through either upsell or cross-sell or selective new customer acquisition. In addition, we have a field sales team that focuses on high-value relationships with enterprise customers, that is companies greater than a billion dollars in revenue size. Similar to the inside sales team, the field sales team is typically targeting these customers that have the potential to expand further while also being given strategic new customer targets. We set performance expectations around our sales reps’ ability to ramp in six months of joining the team, and we’re able to achieve these targets as a result of the significant investments we’ve made in sales enablement and strong role-specific profile-driven hiring practices, which allow us to match talent more effectively with our needs. As a reminder, we offer four subscription networks to our platform. Starter, platform team, platform business, and enterprise. Customers can then add on additional products such as modern incident response, Event Intelligence, visibility, and analytics. Now, turning to the quarter. We are pleased with this quarter's strong results. As Jennifer noted, total revenue for the quarter was $37.3 million, representing 49% year-over-year growth. We’re excited too about the expansion into geographies outside of the United States. International revenue grew by 63% year-over-year and now represents 21% of our revenues. We're still in the early stages of international expansion and continue to build on our operations in the UK covering EMEA, and in Australia for Asia Pacific and Japan. This quarter was also strong in terms of customer acquisition, adding a record 468 new customers and ending the quarter with a total of 11,680 customers. We continue to see growth with large enterprise customers and ended the quarter with 242 customers with an annual contract value above $100,000, up 51% compared to the same period last year. We were pleased with net revenue retention for the quarter at 137%, compared to 136% for the same quarter last year, reflecting the stickiness of our platform, as well as our existing customers' continued expansion and adoption of our new offerings. We expect to see some fluctuation in net revenue retention from quarter to quarter, but expect it to remain above 130% through this year. Before discussing detailed financial results, I would like to point out that I will be discussing non-GAAP results. Our GAAP financial results along with a reconciliation between GAAP and non-GAAP results can be found in our earnings release. In Q1, non-GAAP gross margin was 85.7%, up from 84.7% in the first quarter of last year. Our cloud-native architecture, DevOps approach to production, and programmatic approach to customer support and success drive our efficient operating model that has allowed us to run our business on gross margins between 84% to 86%. Our strong gross margins allow us to make investments in the long-term growth of our business and we expect gross margins to stay within this range for the remainder of the fiscal year. Turning now to operating expenses. We remain focused on improving the leverage in our business while balancing our investments for growth. While we expect short-term fluctuations and may make strategic investments in the business, we still anticipate that over the longer-term, our revenue will grow at a faster rate than our total operating expenses, which will expand operating margins over time. Operating expenses this quarter reflect an acceleration in our hiring strategy and go-to-market programs and investments to support being a public company. Non-GAAP research and development expenses for Q1 were $10 million, compared to $7 million in the same year-ago period, representing an increase of 43% year-over-year. Innovation remains a top priority for us and we will continue to invest in R&D for the foreseeable future as evidenced by our recent introduction of our visibility and analytics product additions to the PagerDuty platform. Non-GAAP sales and marketing expenses for Q1 were $19.7 million, and grew by 58%, compared to Q1 of fiscal 2019 where expenses were $12.4 million. This increase reflects our planned accelerated hiring strategy and a $1.2 million impact from the shift in timing of the sales and marketing enablement event from Q4 to Q1, due to the change in fiscal year. Adjusting for this amount would have resulted in year-on-year growth of 49%. We continue to invest in our go-to-market operations and expect to see improving operating leverage as our customer base grows and more of our subscription revenue comes from renewals and upsells. We continue to invest in sales enablement and sales team development to improve productivity, automation, and self-service to drive process efficiency, as well as deliver a better customer experience. Non-GAAP general and administrative expenses for Q1 were 10.1 million for the quarter, compared to 5.6 million in the same quarter last year, increasing 81% year-over-year. The growth in G&A was driven by investments in headcount and systems made in anticipation of our public offering. We expect general and administrative expenses to increase slightly over the remainder of the year, but to decrease as a percentage of revenue as we continue to scale our operations. First-quarter non-GAAP operating expenses were $39.9 million, compared to $25 million from a year ago, and increased 59% year-over-year. Excluding the impact of the previously mentioned sales enablement event and an associated company event, which in total was $2 million that shifted from Q4 to Q1 of this year, non-GAAP operating expenses would have been 37.9 million. This represents a 51% increase year-over-year, driven by the investments made in line with our go-to-market strategy and to support being a public company. Our non-GAAP operating loss in the quarter was $7.9 million, compared to a loss of $3.8 million in the same quarter last year. This equates to a negative non-GAAP operating margin of 21.2%, compared to a negative 15.3% in the same period of last year. Excluding the aforementioned sales event and company event, our non-GAAP operating loss would have been $5.9 million, and negative non-GAAP operating margin would have been 15.9%. We do expect improving operating margins over time as we scale the operations and grow both our existing and new customers. Non-GAAP net loss for the first quarter was 7.3 million or a net loss of $0.22 per basic share, compared to a non-GAAP net loss of $3.4 million or a net loss of $0.16 per share in the first quarter of last year. Turning to the balance sheet. We ended the quarter with $338 million in cash and cash equivalents, up $210 million from the end of the fiscal year 2019. This was primarily driven by proceeds raised in our initial public offering, slightly offset by our Q1 operating losses. Free cash flow was negative 8.8 million in Q1, compared to negative 4.7 million last year. Free cash flow margin was negative 23.5%, compared to negative 18.8% for Q1 last year. We expect to make continued progress towards sustainable free cash flow, but it may not be in a linear trajectory given period-to-period fluctuations in billings and working capital and capital expenditure as we expand our U.S. and international offices. Regarding guidance, for the second quarter of fiscal 2020, and the full fiscal year 2020, we expect revenue to be in the range of $38.5 million to $39.5 million for the second fiscal quarter. And our full-year 2020 ends in the range of $161 million to $163 million. Non-GAAP net loss per share is expected to be in the range of $0.09 to $0.10 for the second fiscal quarter, and in the range of $0.37 to $0.38 for the full year fiscal 2020. Basic shares outstanding for Q2 and the full year fiscal 2020 are expected to be 75 million and 65 million, respectively. With that, Jennifer and I are happy to take any of your questions.

Your first question comes from Sanjit Singh from Morgan Stanley.

Hi, thank you for taking the questions, and congrats Jennifer and Howard on a successful IPO and welcome to the public market. Maybe just to start off and since it’s the first call, maybe just to high-level Jennifer as coming out of the IPO starting, just completed in Q1, what are the milestones for fiscal year 2020 that you are looking to achieve that you set for your team and for the organization?

Well, hi Sanjit, and thank you for the question. I appreciate you being on the call today. I think in terms of following the IPO, which as you know is a decent undertaking for a company, we’re really focused on continuing to execute the strategy and the plan that we shared with all of you on the road so effectively. Some of the milestones that we think about in that process are: One, ensuring that we have well-enabled productive capacity in our field to execute on the plan; Two, making sure that we are hitting our product innovation timelines effectively, and I’ve been very proud of the cadence with which the team has rolled out new products and new features, including the security effect that I referred to that we announced at MSA, our hybrid ops solutions that we announced recently as well. And we’re ramping up for our annual industry event, which happens in September, this year September 23 through the 25th. So, those are some of the bigger milestones. We’re paying a lot of attention to new products attach, which again we feel is going well, but it’s still early and we’re also focused on continuing to ramp our effectiveness in business in new markets, particularly EMEA and APJ, which again is going well today, but still early days for us.

That makes a lot of sense, Jennifer, and if I could just unpack some of your comments on new product attach, from your perspective or maybe let me ask it this way, what’s the highest attaching product outside of management today, which were the products you think are the biggest opportunities in driving growth maybe over a multi-year timeframe?

Yes, thanks Sanjit. With regards to new products, we aren't sharing data specifically around the mix of attachment or how those products are coming together. And as I mentioned, we announced Event Intelligence visibility and analytics quite recently in the middle and late last year. We do see a lot of promise in Event Intelligence in particular, because Event Intelligence leverages the 10 years of data that we have collected across human response behaviors, signals, and events, as well as workflows and metrics. And what it really enables and empowers is the shift from just responding more effectively and being reactive, which is what core on-call management really drives, to being predictive, preventive, and proactive for teams. It also reinforces our orchestration capabilities. So, not just finding signal and the noise of the events coming in, but actually orchestrating the right team, the right people on the right problem at the right moment as opposed to getting a bunch of people on the call and trying to manually figure out and triage what’s happening. The combination of Event Intelligence and modern incident response allows our customers to: one, recognize that certain events are starting to become a particular incident before they see the business or the customer impact. And two, to recognize issues that haven’t risen before and automate some of the resolution reality, reducing the triage and the time that it takes to sort of supplement and ensure the best possible customer experience.

Got it. If I can sneak in just one last one before I leave the floor. And that is sort of on the competitive environment, particularly as PagerDuty makes its journey into the larger enterprise space, so as you go into larger customers who are you seeing – most frequently are you seeing custom solutions or legacy players or you begin to see non-traditional players come up in the market, so just a sense of who you are seeing as you move up the market? And that will be all from me. Thank you.

Sure. That’s a great question Sanjit, thanks. From an enterprise perspective I’d say a couple of things. One is, it is a very early market, a lot of customers are still just pulling together automated management processes, so the vast majority of our lands are uncontested. They are greenfield opportunities or replacing a legacy environment, and that could be anything from something as simple as a 150 people in a WhatsApp channel to phone trees and email distribution to more traditional on-prem solutions that just don’t serve the modern digital ecosystem. But most of those deals are uncontested. So, we don’t see a significant amount of competition in enterprise and as we move into areas like Event Intelligence, that’s even less the case.

Your next question comes from the line of Sterling Auty from JP Morgan.

Thanks. Hi, guys. You mentioned the pick-up in the new customers; looking at the new customer trial, is there anything to read into either in terms of the use cases or traction on some of the marketing programs, what drove that performance in the quarter?

Sure. Hi, Sterling. Thank you for the question. In terms of, one we’re really proud of the record outcome in terms of new customer ads. We’ve continued to see momentum and acceleration there. It’s an important growth engine for us. What’s interesting about the new customer acquisition is we see it across all of our segments and across all verticals. We’ve recently seen some momentum for incidents in financial services enterprise which is a harder vertical to crack because of how highly regulated it is and how conservative some of those IT and developer organizations are. At the same time, we are really excited by the fact that while we continue to see a shift in mix to enterprise, we are still landing some of the most innovative disruptive small startups. And so, there really isn’t a signal coming from how those customers look different. I do think the process of preparing for our public offering and the brand awareness that has created for us has helped to extend our brand more broadly into the market, but it often reinforces the fact that the product has an offering that applies to any company that is going through any kind of digital transformation, cloud migration, trying to step up their security stance, modernize IT, or really invest in DevOps. So, there is this broad applicability across the market.

Great. And then one quick follow-up. This year, I think two of your customers actually acquired competitor companies of yours. Are they still on your platform?

Well, we have seen those customers try and move a number of their users off the platform and we saw a chunk of that this last quarter, but we do still have companies that have acquired competitors that remain users of our platform.

Your next question comes from Bhavan Suri from William Blair.

Hi guys, thank you for taking my question and congrats on a good quarter and a good outcome coming out of the IPO. I just wanted to touch on use cases specifically here. You currently achieved the broader set of applications for core use cases, so the on-call management developers etcetera, but the nature of the platform, the horizontal nature opens it up to – plenty about the use case on security IoT, the customer has kind of realized that broad applicability of tapping themselves whereas that we are still trying to do some of the initial functionalities to kind of drive the initial conversations, and then a quick follow-up to that is, are you seeing those use cases broaden up and sort of what are the ones you are seeing? Thanks.

Sure. Thank you, Bhavan. In terms of use cases, our customers really find those applications for our technology to problems they are trying to solve within their organizations. We don't have a specific product organization that drives that or a specific sales organization that does that. In fact, it underscores our intent to continue to improve the usability of our product and make it very easy for customers to apply PagerDuty and its platform to any real-time issue or opportunity that can be signaled through machine data and where work needs to be orchestrated across disparate teams, and we're learning from that process which can be useful in the future. So, some of the use cases that we see are sort of naturally adjacent to IT and development. For instance, security response management, where there is a security threat that response looks a lot like a traditional technology incident response, so that’s naturally adjacent. Customer support teams that come on to our platform because they’re part of an incident response. Workflows are also using PagerDuty for case resolution because consumers are getting more and more impatient and that’s a real-time work orchestration challenge, but increasingly we see teams doing things like using PagerDuty to put teams on call instead of staffing teams in three shifts 24x7 to cover work that they can’t measure or predict ahead of time. We’re seeing some really interesting use cases come out of nonprofits and some of the more industrial customers that we have, like the example I mentioned of the oil and gas customer or Cemex in Mexico, but one of my favorite use cases is Sight Life, which we spoke about in the IPO where they’re leveraging the PagerDuty platform to manage the entire set of workflows from identifying that a cornea has become available through a donor all the way through to transiting and preserving and transplanting that cornea in a recipient. And that has nothing to do with the technology signal, and we certainly didn’t have a product management organization or a sales organization driving that. It speaks to the nature of, one, how infinite the number of potential problems or opportunities that are truly real-time and time-sensitive in nature that companies have, and two, the easier the product is to use, the easier it is to apply, which makes our investment in integrations, which we advanced in more than 350, very important. And the ease of the API environment for customers to build their own integrations is important. We continue to see new use cases as a great growth engine for the business.

Your next question comes from Matt Hedberg from RBC Capital Markets.

Hi, guys. Thanks for taking my questions. Well done on your first quarter out. Jennifer, I wanted to ask you a little bit more on SecOps, you talked a little bit on this call, but you guys announced security operations earlier this year, could you just give us a little sense I know obviously you’ve got a huge opportunity within your core market of incident management, but sort of balancing continued expansion in sort of your core IT on-call management product with some of these new and emerging opportunities in SecOps, and maybe how far can you go in that category because it seems like it’s a great opportunity for you guys?

Thank you. Thanks for the question with regard to security. Not unlike any other team in an organization, I think security teams are under increasing pressure to one: understand at any given moment what’s happening not just across the technology ecosystem, but across the employee base and even physical security; and two, be able to quickly identify an issue or an opportunity as it arises. Historically, the way that used to happen was through a human noticing by monitoring somethings manually and either raising a ticket or manually kicking off a process. So, you can imagine how consuming machine signal correlating that signal with other signals to determine if indeed there is an issue and who needs to be made aware of that issue and what action they should take on that issue, how automating that would become really valuable for security teams. So, what we’ve seen, which is an interesting trend, is that security teams are already using the most basic product from PagerDuty for many years and just started popping on to some of our more advanced capabilities, and doing it themselves. As IT teams and DevOps and DevSecOps started to emerge, you’re starting to see more usage across multiple teams where orchestration becomes more important. The idea is you don't want to distract the whole business as something comes up, particularly as you’re triaging it; you just want the right people working on it at the right time and getting to an answer and a resolution quickly. So, we think that is a broad opportunity among a number of other use cases that we’re excited about.

That’s great. And then maybe one for Howard. The way that the Street has modeled you guys right now, it looks like sort of hitting free cash flow in a modest free cash flow generation exiting fiscal 2021, could you talk about sort of how you think about the financial model, I mean you’ve got, obviously large opportunity, growth opportunity, but maybe offset that with kind of how you think longer-term about margin expansion?

Sure, thanks Matt. The approach that we’ve taken is really around being prudent in how we balance both the growth opportunity that’s out there, which we see as being a large and untapped market with potential time of $25 billion, together with an approach around how we manage our expenses in a way that’s going to help us. One, get to the right cadence in terms of operating cash flow positive and free cash flow positive. For us it’s really a case of keeping a close eye as we move through each quarter on whether the growth rates on the top line justify continuing to invest in the expense line, and leveraging the fact that we have a really good gross margin as the basis or the platform for us to move forward. We expect to, like in FY 2019, we had a couple of quarters that were operating cash flow positive and we had a couple of quarters that were either positive from a free cash flow or very close perspective in FY 2019. We expect to see a similar pattern develop, but we will be keeping an eye on where investment is going to make sense.

Great, thanks a lot, guys. Well done. Your next question comes from Rob Owens from KeyBanc Capital Markets.

Great and thanks for taking my question. Give us a little bit just on the pricing environment. Clearly there is a strong ROI for your solution given the promise that you're solving for end customers, but it’s a bit of an evangelical sale as well. So, just some puts and takes around what you're seeing in terms of the pricing environment. And then I know it’s still a little bit early for those new modules, but what type of pricing left you typically see when you sell those and as well? Thanks.

Thanks Rob. Great questions. In terms of pricing, as Howard mentioned, we offer our products and services in four different packages, which gives customers a lot of flexibility to move at the pace that works for them. What we find is that our customers are living in very different places on a continuum of operational maturity, and as I said, some of them are still using manual phone trees while some are using automation and machine learning. And so, we found that we need to have flexible offerings that allow them to move at their own pace, and in fact try to continue to ensure that we don't either add or reduce friction for them to either add new features or new products or bring users or teams onto the platform. So, we try to keep the barrier to entry reasonably low on our basic standard offerings, but then as they take on products and services that let create more value for them, there is a little bit of an uptick in cost. We find that the value proposition for some of our more expanded services on the platform is highly quantifiable because you can measure it in terms of forensic and the cost associated with a minute of downtime. We’ve had retailers tell us that can be $200,000 to $500,000 a minute range. So time is saved. People’s ways to time reduced, being able to reduce outages. We saw a recent outage this weekend where a large cloud provider was down for several hours and during that we saw traffic on our platform increase over 300% every hour and still had to maintain several lines of reliability and availability through that process. We think we’ve found a fair relationship between the value and the price that’s out in the market. In terms of new products, they do create some price and margin expansion for us for our customers, but they are not the only driver, and like I said, they are early drivers. What happens in most customers is they start with a very small team that lands at a very low price point and lower expenditure. They grow from one team to the next, from one department to the next, and often a top-down initiative like digital transformation or cloud migration will meet the bottoms-up growth of the product within their company, and we’ll start to see their investment grow with us. But that doesn't happen overnight; it tends to happen gradually as these teams mature in how they are digitally transforming or investing in their cloud migration or modernizing IT.

Thank you. Your next question comes from the line of Dylan Reider from Piper Jaffray.

Thanks for taking my question, guys, and congrats on a great first quarter. Just one question from me on the international efforts you guys discussed. Any particular geographies that you are focused on and any differences in the way that you think about going to market, and the competitive landscape abroad versus domestically? Thanks.

Thank you so much, Dylan. In terms of international expansion, we have seen really positive early signs in EMEA. We kicked off our presence in that market in London, but in recent quarters we've seen really good traction and momentum in continental Europe, and so we continue to be excited about that. This could be markets like Amsterdam, Germany, and France, etc. In APJ, we initially wanted to sort of start small and grow in that market. So, we really started out purely focused on Australia and New Zealand and had a strong demand signal there with a number of large ASX-listed companies within our customer base, but we've recently seen quite a bit of momentum in Japan even servicing that through a Japanese speaking team out of Sydney. So, we’re excited about the momentum there as well, but trying to be pragmatic in terms of how we invest the return and then invest with the return integral.

And I think I would just add one thing to that. The nature of the offering being customers can acquire offerings online. We actually find that we have a demand signal before we actually put teams in market. So, before we even opened up offices in Australia or in the UK, we already had hundreds of customers that was an indication that there was – could make good sense for us to put a team on the ground, and so that strategy is one that will continue to execute upon.

Got it. Thanks guys.

Well, thank you everybody for taking the time to join our first call today. And a special thanks to the entire PagerDuty customer and user community, and to the team for solid execution during our first quarter as a public company. We look forward to seeing all of you at upcoming investor conferences and hope you have a great day. Thank you very much.

This concludes today's conference call. You may now disconnect.