Good afternoon, and thank you for joining us to discuss PagerDuty's First Quarter Fiscal 2022. With me on today's call are Jennifer Tejada, PagerDuty's Chairperson and Chief Executive Officer; and Howard Wilson, our Chief Financial Officer. Statements made on this call include forward-looking statements, 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. Forward-looking statements 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. There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as a tool 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 the filings we make with the Securities and Exchange Commission. With that, I'll turn the call over to Jennifer.

Thank you, Christine, and thank you to all of you for joining us today. What a difference a year has made for PagerDuty. We're seeing industries, companies, and communities actively recovering after more than 15 months of hardship and uncertainty. We recognize the effects of the pandemic continue to challenge many regions around the world. Yesterday, PagerDuty, along with coalition partners, launched the Go Give One challenge to raise $5 million for international COVID-19 vaccine distribution. We know the only way forward is together. At the same time, reopening trends, coupled with the ongoing tailwinds of digital acceleration, DevOps transformation, and cloud adoption, are directly benefiting PagerDuty's business. The growth of hybrid work, the combination of remote and co-located work is emerging as a new tailwind for our business as companies build new muscle to manage the increased complexity of decentralized collaboration and geographically distributed work. Building off a strong close to fiscal 2021, we beat both our top and bottom line guidance for the first quarter. Year-over-year revenue growth was 28%, demonstrating the resilience of our business through the pandemic. Total dollar-based net retention was 121%, and enterprise dollar-based net retention was above 125%. As we progress to a post-pandemic world, PagerDuty is well positioned as one of the few key platforms that CIOs and CTOs are investing in for the future. We are on a path to becoming a $1 billion leader, focused on modern digital operations. This success is a testament to the ingenuity of our customers, users, partners, and employees. We deeply appreciate their trust, confidence, and dedication. In the last year, the world had to embrace new ways to work. Today, every company is a software company, managing a complex digital ecosystem. Digital operations are now business operations, with PagerDuty as a central infrastructure for our customers. As a result, our deal sizes are growing. Compared to the same period a year ago, the number of customers investing more than $1 million is up 55%, and customers investing more than $100,000 with us are up 32%. The macro environment and market landscape continued to move in our favor. We're deepening the trust and loyalty of our core developer users while many customers expand the use of PagerDuty for customer service and SecOps teams. Our investment in AIOps and automation enables teams to prevent unnecessary work and empowers our users to intelligently mobilize their teams in critical moments. These and other new capabilities provide unmatched real-time context and visibility around incidents. Our vision to move teams beyond the incident response towards proactive orchestration of their expertise on time-sensitive, mission-critical challenges is fast becoming a reality. PagerDuty is evolving into the leading ubiquitous platform for real-time work as users and teams apply our technology to a diverse and growing set of use cases across teams and functions throughout a business. Our growth in enterprise reflects these advantages with average revenue per user in expansion transactions up approximately 40% over last year, returning to pre-pandemic levels. Our capabilities fortify organizational resiliency. Just as over 70% of IT decision-makers have named digital resiliency as a top priority for this year according to a recent IDC survey. This is true across vertical industries where we've continued to see momentum, including financial services, software and Internet, automotive, e-commerce, and more recently, healthcare and biotech. Our freemium offering continues to drive new platform usage. New free and paid accounts on the platform grew by nearly 30%. We saw particular strength in mid-market with new logos up 33% over last year and new users per logo at the highest point in three years. Our land and expand flywheel continues to deliver growth with both disruptive innovators and industry leaders due to our thought leadership and credibility within the developer community. In Q1, we added new enterprise customers, including Albertsons, Jaguar Land Rover, and Truist Financial; startups, Drizly, Lunchbox, and Pony.ai became PagerDuty customers this quarter as well. We expanded our relationship with customers including Bell Canada, KPMG New Zealand, and LegalZoom. It's especially encouraging to see our largest customers expand their investments in PagerDuty at the fastest rate of all of our customer segments. Total ARR for customers investing over $1 million with us grew by 59% year-over-year and 13% quarter-over-quarter, demonstrating the significant expansion opportunity with existing customers as we expand across functions, managing different kinds of real-time work.

Thank you, Jen. We started the year strong with results that exceeded the high end of our guidance, and our momentum continues. The last three quarters of solid execution and robust business momentum give us confidence that we can accelerate the topline, while maintaining best-in-class gross margins and improve operating margins over the long term. Revenue of $64 million grew 28% year-over-year, driven by strong expansion, particularly in the enterprise and mid-market, with customers adding users, adding new products, and upgrading to our digital operations plan. We continue to see strong growth in software and technology, financial services, retail, media and entertainment, and telecommunications with above-average growth in healthcare, life sciences, and biotech. The transportation sector, negatively impacted by the pandemic, is showing evidence of recovery, but travel and hospitality seem to be taking longer. International revenue grew 38% year-over-year to a total of 25% of our revenue. A major contributor to our growth is expansion within our existing customer base. Our EMEA region was particularly successful driving high rates of adoption of the digital operations plan this quarter. And we saw predictable user expansion in APJ with one example being a large enterprise bank growing with PagerDuty for the fourth consecutive quarter.

Thank you for responding to my questions. Howard, I wanted to touch on billings, particularly for the quarter. I remember you mentioning that there were some early renewals in the fourth quarter, which likely caused a boost in billings during that period. Can you provide any insights on the extent of that impact, whether it's negative for the current quarter or if it could be normalized over the past few quarters, and what the billings growth rate would look like?

So, Chad, we haven't specifically broken it down that way. You can see that our billings fluctuate from quarter-to-quarter. And as we had seen within Q4, we did bring forward some of those and that did create the 41% growth rate in billings in Q4. That's the reason why we look at the trailing 12 months and also why we decided to provide some guidance on where we see billings falling in each quarter. So, for Q2, we see it falling within the range of 25% to 35% growth. And that's because we are dealing with, one, renewals that represent potential for billings; we have a co-term arrangement with our customers. That also means that there's some fluctuation. So it's hard to predict exactly which will co-term. But when we look at the longer-term view, the trailing 12 months at the end of Q2, we see that being at or above 27%. So, that lines up more with the growth rates that we see from a revenue perspective.

In some cases, those are new logos, but in most cases, it is expansion. The vast majority of our customers start out on a DevOps use case and then realize that they can leverage PagerDuty's platform for unstructured, real-time, mission-critical work in other areas. Customer service has become quite a natural adjacency. You may recall that last year in September at Summit, we announced PagerDuty for Customer Service as a separate SKU, and we've started to provide more product marketing and more education for customers around that, where historically, adoption had been largely organic and kind of viral within accounts.

Hey, guys. Yes, thank you for taking my questions. Good to see you. So maybe a couple of higher-level questions. One, you talked about continued penetration of the installed base as being kind of a primary opportunity for growth going forward, and you gave some helpful examples, including that one in the previous answer there. How do you think about what overall penetration looks like in the installed base today? And what are your initiatives to kind of continue to recognize that opportunity over time?

I think this is something we don't talk enough about the fact that we don't have a single customer that's sold out, because we look at the ability to penetrate customers across their entire engineering workforce, which includes developers as well as IT, then we see expansion into security teams and security operations centers, customer service, et cetera. We also see a lot of customers using us for use cases that we don't imagine in different parts of the organization. There's a large software company that uses us, for instance, in legal, a large financial services company that uses us for physical security, another software company that I know that uses us for managing the process of closing out commercial contracts at the end of the quarter. So as more and more of these use cases develop across the organization, we see the TAM expanding inside customers. The other thing that I would say is developer headcount continues to grow. I mean, despite some of the challenges we saw over the last year, as every company becomes a software company, we see more developers, more tech workers getting hired, and those are natural users for PagerDuty. So there's even growth within headcount growth. So I think it's very early in terms of the penetration, even with our largest customers. And you can see that in just the expansion rate of our customers that invest over $1 million in a year with us.

Yes. So the comment I would make is that we do have a seasonality in terms of our renewals at the best of times. And Q1 is typically our smallest quarter and Q4 is our largest. So, from a billings perspective, the available base is smaller. And so that affects billings. And also, because we have the pull forward, that was the other impact. So I would say that, that's an important context when you think about billings. When we look at our business, though, our churn rates remained really low. So, our renewal rate is above 95%, right? So business is strong in terms of our existing base. If you look at our dollar-based net retention at 121%, we're clearly expanding. But then the new business additions are also tracking really well. So, we're seeing strength in terms of new business, and that gives us the confidence, both in terms of our guidance, but also being prepared to give the kind of billings guidance that we are doing now.

Great. Thanks. Can you guys hear me okay?

Yes.

Thank you for your time. Jen, I have a broad question for you followed by a follow-up. You have been a prominent leader throughout the pandemic regarding work-related issues, having participated in several panels on work-life balance and remote work. I know you connect with many other CEOs in Silicon Valley and beyond. Given the current uncertainty about the future, I'm interested in your insights, as you likely have a good sense of the situation. What are you hearing about where employees might eventually land?

It really depends on the type of company. Companies with a strong digital business model, like SaaS, software, the Internet, and apps, are already adapted to digital settings. There isn't much pressure for these teams to return to the office, and employees are seeking flexibility. Many have relocated to more scenic areas outside of urban centers, preferring the freedom to work wherever they choose. However, they still value in-person collaboration and the enjoyment of being together. In contrast, other industries are more insistent on having staff back in the office due to necessity or a traditional culture that favors co-location. CEOs are experimenting to determine whether to require employees to be in the office a few days a week with their team or to embrace a digital-first model that allows remote work for the majority of the time with occasional team gatherings. I've encountered a wide range of policies and ideas regarding this issue.

Thank you for the helpful insights. Howard, I have a follow-up question for you. You mentioned the success of the Freemium model and conversion rates. You also discussed Rundeck and expressed satisfaction with its performance, along with the growth of the software developer community, which is somewhat unique to our industry. I'm curious to know if you've identified any patterns within the Freemium user base, especially considering you have a significantly larger pool of over 60,000 nonpaying Rundeck users. Are there any trends you're observing that could help make that user base more cohesive?

I think the thing that's been fascinating to look at with our free offering is just how easy it's become for developers to start using the platform. It seems strange that when we had an offering that I called the almost-free offering when people were paying $120 for a year for five users, that created a barrier. So when I look through the list of companies each week as we have more users on the free offering, it looks like a list of startup companies. You can read through the list, you can tell from the name, some of the crazy names that these must all be startups, and a lot of them are clearly identified in tech. The thing that is interesting to us is just to see that the acknowledgment that developers had around PagerDuty as being a key part of how they work. It's certainly manifesting itself in free. And so we feel very positive about that trend in terms of seeing that we actually have created more access. And for those early-stage companies that are going to be the next big disruptive player, they're already PagerDuty customers in a sense, and that's an important part of our competitive moat.

I'd just like to ask one quick one. So, when we think about PD as the central nervous system of the enterprise, there's a lot of companies that also like to think of themselves as that title. So, longer term, I would like to hear more on the strategy for continuing to be that for enterprises and then how important automation with things like Rundeck is to that?

So, a couple of thoughts. One, in order for us to really help our customers manage and detect unstructured mission-critical work from anywhere, we have to have the broadest, most independent domain-agnostic ecosystem to pull from. And that is one of PagerDuty's deep moats. When you think about the observability players that are trying to nibble around the edges, maybe the cloud players, the ticketing systems, et cetera, what they're all trying to do is skate to where the puck is going, and I'll lean on our Canadian heritage here, we invented the digital ops category. We invented the hockey game that these folks are trying to play in. So, I really feel like we have a distant lead there that by treating integrations as a product, they essentially become the gateway to workflow. But we're talking about workflow oriented around very time-sensitive work that has to get done quickly, and we must orchestrate expertise very quickly. Uptime is money. It's millions of dollars that dissipate in seconds when you don't get this right. So I do think that we have a very good opportunity to lead as the center of the digital ecosystem or digital nervous system for our customers, and we're seeing that. They're deploying us as critical infrastructure inside their businesses where we're integrated to hundreds of services within their business. That then enables us to open up another mode or competitive defense, where we can build products and services around service dependencies and around more service management, service automation, full-service ownership in a way that other players are not able to do. They're often not architected around both a cloud-native and hybrid service environment. They’re often architected around people or this MVB, et cetera. So I think it puts us in a great position, but again, something that we can talk more about at Analyst Day and at Summit. Generally speaking, though, Kingsley, what I'd say is our acceleration and some of the virality of our product come through that ecosystem. It sort of starts with one person wanting to integrate PagerDuty to a specific service, and then they realize how easy it is to literally drag and drop to connect to multiple team members, multiple services, and it grows from there. And that virality, that ease of use and quick time to value is clearly one of the things driving momentum in our business. Well, I just want to say thank you to everybody who listened today. I hope you will join us at Summit on June 22 and for our Analyst Day. We are thrilled with the momentum in the business. As I mentioned, we believe and are very confident that the business can accelerate on the back of these macro long-term tailwinds that we see. And I'm especially proud of our team who have remained very resilient through an incredibly difficult time. And I just want to say thank you. Thank you to our team and to our customers for continuing to partner with us and hold us to a high standard and help us to get better every day.

And with that, we will conclude today's call. Thank you, everybody. Please enjoy the rest of your day.