PagerDuty, Inc. Q3 FY2024 Earnings Call

Good afternoon and thank you for joining us to discuss PagerDuty's Third Quarter Fiscal Year 2024 results. With me on today's call are Jennifer Tejada, PagerDuty's Chairperson and Chief Executive Officer; and Howard Wilson, 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 beliefs 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 as well as other subsequent filings made with the SEC. With that, I will turn the call over to Jennifer.

Good afternoon and thank you for joining us today. PagerDuty delivered solid Q3 top and bottom line results above the high end of our guidance ranges, with 15% revenue growth and a non-GAAP operating margin of 14%. Year-over-year operating margin expanded by over 1,000 basis points as we continue to demonstrate our commitment to profitable growth. Long-term demand remains strong as all enterprises seek to address similar high priority challenges. First, their customers are digital and expect real-time modern experiences and services. But their operations are antiquated, command and control and manual. Crossing this operations bottleneck is critical to protect and grow revenue in an increasingly digital on-demand marketplace. Second, all businesses seek to do more with less in the face of an ongoing skill shortage. This has led to an increased appetite for automation and demand for generative AI in order to reduce costs and achieve operational efficiency at scale. And third, tech debt and complexity continue to rise, creating material risk of operational and business failures, driving demand for automated and intelligent incident management solutions. Solving these priorities is critical for technology and business leaders, especially in enterprise and has increased the demand for the PagerDuty operations cloud. New customer acquisition in enterprise and mid-market and strengthened strategic customer expansions were the highlight of the quarter, surpassing results from Q1 and Q2 of this fiscal year. Along the contributions to strengthen new business was a record-setting win with a long-standing enterprise software customer. This operations cloud expansion included all four products: incident management, AIOps, automation, and customer service ops, each at over $1 million of ARR, and showcases our platform's value proposition to increase productivity, protect revenue, and reduce risk by advancing operational maturity and resilience for enterprises. Enterprise, our strongest performing segment during the quarter, remains our strategic focus. Notwithstanding a few unusual but sizable renewal issues in Q3, enterprise dollar-based net retention was more than 500 basis points above that of SMB. Customer retention and growth in enterprise have also been more resilient over the past 12 months. These key metrics reinforce our prioritization of resources and our confidence in our global enterprise strategy, product development, and go-to-market efforts. Macro volatility and uncertainty continue to pressure budgets and slow customer decision-making. While our customers remain highly engaged, with nearly 1/3 of enterprise and mid-market customers expanding with us in the quarter, they continue to apply conservatism to expansions and seek ways to reduce overall IT spend while protecting investments for critical functionality in operations. In the past, we've seen similar behaviors. We were rewarded by focusing on long-term relationships rather than short-term gains, and that will continue to be our approach. New and expansion ARR was the strongest of the fiscal year, reinforcing that even in a challenging operating environment, the operations cloud value proposition resonates. That said, turning down grade dollars were unfavorable to our target and created a headwind to total business generated during the quarter. We are addressing the higher risk of downgrades and churn by first, systematically identifying risk and engaging with customers earlier in the renewal life cycle; second, by providing flexible multiyear pricing solutions for customers who demonstrate a need; and third, working with customers to optimize their use of the Operations Cloud to maximize business value. As centralized decision-making has become the norm for our customers, we continue to evolve our enterprise motion. This has included increased focus on C-suite buyers with centralized purchasing authority, positioning centered around the financial value proposition of the Operations Cloud, and enterprise pricing to support scaled expansion across all products. This account management approach complements our high-velocity land-and-expand motion that focuses on technical champions and practitioners and has enabled us to methodically improve the quality and quantity of enterprise wins. The focus on enterprise leadership, with our persistent pace of innovation, underpins an increasingly efficient enterprise go-to-market practice. During the third quarter, our generative AI program continued to advance. We now have four intuitive features in early access, including AI-generated runbook automation, status updates, postmortems, and a new Slack-based chat interface to make it even easier to engage with our capabilities. These capabilities are the first of the family of generative AI use cases we're calling PagerDuty CoPilot and make it possible for PagerDuty customers to use generative AI across the Operations Cloud from event ingestion to resolution. Our strategy is to take a platform approach to leveraging generative AI across all products, instantiating it as a core primitive developers and employees can build upon. With a common secure gateway and customer opt-in interface packaged as PagerDuty CoPilot. Our current primary goal is customer engagement and input available through our early access program. To date, the feedback on design and usage has been very positive. Also, in Q3, we expanded our customer service operations solution to include private status pages and ServiceNow CSM case automation. These enhancements immediately connect customer service agents to PagerDuty in-product, enabling customer-facing teams to more quickly close customer cases without context switching. This level of visibility and engagement into live incident management is a workflow requested by our largest and most complex customers. In AIOps, we rolled out several significant enhancements specifically for central IT teams, including network operation centers and site reliability engineering teams. These additions enable teams to improve operational resilience using automation to analyze and act on vast volumes of data immediately with measurable results. During the quarter, these went into early access and are oversubscribed. And finally, on the product development front, we closed the acquisition of Jeli earlier this month, and I want to welcome Nora Jones and the team to PagerDuty. Incorporating Jeli's talented team and technology will further differentiate the Operations Cloud as a system of action, going beyond instant response to drive quantifiable improvements in productivity and resilience. Jeli turns every incident into a learning opportunity by completing the life cycle of incident management, particularly for service reliability management in IT, with deep actionable analysis in rich learning and proactive improvement. Customer reaction to this combination has been incredibly positive, and we look forward to expanding our incident management offering rapidly as a result. Incorporating product innovation into our enterprise go-to-market produces enduring customer commitments to the Operations Cloud. Recall that in Q2, a global semiconductor supplier identified our no-code workflow automation as the unique solution to reduce manual work and human error in pursuit of eliminating tens of millions of dollars in non-value-added annual costs. Our focus on enterprise continued to scale in Q3, resulting in a multiyear eight-figure record-setting win as well as an additional seven-figure operations cloud expansion. In both cases, strong executive alignment, combined with a proven track record in serving technical champions, proved instrumental in navigating their centralized decision-making processes. With a large enterprise software customer, we tightly aligned across multiple business units on their service ownership journey to save tens of millions of dollars in operational costs and provide a best-in-class customer experience for their end-users. Our team identified high-priority business problems in collaboration with executives to anchor PagerDuty as a strategic partner to scale across technology and customer service teams. We estimate $25 million in annual savings through operational efficiency, reduction in manual work, and revenue protection from churn. A rapidly growing global cybersecurity leader also partnered with PagerDuty to reduce the strain on its teams by increasing productivity through automation. This aligned with the CEO's objectives to improve customer service and reduce manual processes throughout the organization. These examples are representative of a growing number of strategic wins. Our competitive differentiators, including our functional advantage, resilience at scale, short time to value, and low total cost of ownership, provide an ROI that we believe outpaces the narrow set of use cases served by homegrown, low-cost and platform competitors. We've begun piloting new bundling and pricing strategies to support more seamless user adoption and expand the surface area of the Operations Cloud within our customers. In some cases, this has reduced sales cycle time, generated pipeline, and reduced retention risk. We plan to scale several initiatives over the next two quarters. Earlier this week at AWS re:Invent, PagerDuty was recognized as the AWS Marketplace Partner of the Year for North America. This honor recognizes us as a partner whose business model embraces specialization, innovation, and cooperation over the past year. This recognition validates the strategic nature of the Operations Cloud in modernizing operations. We plan to refine and deepen our technical and consulting partner relationships across the globe to unlock more value as we scale partnerships in FY '25. During Q3, we also welcomed Eric Johnson as our new CIO. Eric comes to us from SurveyMonkey and is focused on leading PagerDuty's critical IT infrastructure, data management, enterprise systems, and evangelism with fellow CIOs. Prior to this, he had served as CIO and Senior Vice President of both DocuSign and Talent. We were honored to be recognized by Fortune in three Best Places to Work categories this quarter, including best workplaces in technology, best medium workplaces, and PagerDuty's employees ranked us as a great place to work. Additionally, PagerDuty was named one of the top 10 companies to work for in Portugal. Finally, we were named the definitive leader in GigaOm's incident response radar. To summarize, while the environment remains tough, we significantly advanced the Operations Cloud and Enterprise and saw momentum in expansion ARR. While it's too early to call a market recovery, we do see several green shoots, including enterprise and mid-market stabilization and demand for strategic Operations Cloud engagements. We are proud of our operating margin improvement and intend to continue to drive further margin expansion. But make no mistake, we are focused on growth. We expect the initiatives we have in place to position us well for growth reacceleration during the next fiscal year. We've made great progress on our mission to revolutionize operations, and I want to thank our teams for their commitment and our customers who trust PagerDuty to manage and automate their most critical work. With that, I'll turn the call over to Howard, and I look forward to your questions.

Thank you, Jen, and good day to everyone joining us on this afternoon's call. In Q3, we delivered solid results above the guidance ranges we provided for both the top and the bottom line. We continue to adjust effectively to the economic environment with improvements in new business in both enterprise and mid-market, both in terms of new acquisition and expansion. Cautious spending by customers continued to impact SMB and caused increased negotiation around renewals. However, several large six- and seven-figure transactions this quarter are providing evidence of PagerDuty's key role in enabling our customers to mature and modernize their technology environments. Our multiyear initiatives focused on profitable growth continued to deliver operating margin improvements with over 1,000 basis points improvement this quarter. Unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release that was posted before the call. Revenue was $109 million in the third quarter, up 15% year-over-year. The contribution from international was 27% of total revenues, an increase from the 23% seen in Q3 of last year. Annual recurring revenue exiting Q3 grew 13% year-over-year to $439 million. We delivered 110% dollar-based net retention in Q3 compared to 123% in the same period one year ago. Our dollar-based net retention expectation for Q4 is approximately 106%. Customers spending over $100,000 in annual recurring revenue grew to 778, up 10% from a year ago. Total customer count of 15,049 declined year-over-year by 1% as demand among SMB and VSB accounts remain uneven. Free and paid customers on our platform, however, grew to over 27,000, an increase of approximately 18% compared to Q3 of last year. Q3 gross margin was 85% and within our 84% to 86% target range. Operating income improved by over 1,000 basis points to $15 million or 14% of revenue. This compares to $3 million or 3% of revenue in the same quarter last year. Revenue upside, along with a one-quarter delay in realizing approximately $2 million of non-recurring expenses, contributed positively to the operating income result. In terms of cash flow for the quarter, cash from operations was $17 million or 16% of revenue, and free cash flow was $15 million or 14% of revenue. Turning to the balance sheet. We ended the quarter with $575 million in cash, cash equivalents, and investments. Total deferred revenue ended the quarter at $196 million, up 9% year-over-year. Quarterly calculated billings were $109 million, an increase of 4% year-over-year and below the range of 8% to 10% provided during last quarter's call. On a trailing 12-month basis, billings were $437 million, an increase of 14% compared to a year ago and in line with our estimates. With respect to Q4, we expect 12-month billings growth to be approximately 10%. Turning to our guidance. For the fourth quarter of fiscal 2024, we expect revenue in the range of $109.5 million to $111.5 million, representing a growth rate of 8% to 10%. And net income per diluted share attributable to PagerDuty, Inc. is expected in the range of $0.14 to $0.15. This implies an operating margin of 8% to 9%. For the full fiscal year 2024, we are increasing our revenue expectation to a range of $429 million to $431 million, representing a growth rate of 16%. This compares to the range previously provided of $426 million to $430 million. And net income per diluted share attributable to PagerDuty Inc. remains between $0.72 and $0.73. This implies an operating margin of 13%. The changes we have made adjusting to the macroeconomic environment over the past two quarters are yielding results. We are driving a new level of engagement with our customers outside of the renewal cycle to ensure they are successful and support their business priorities. In enterprise and mid-market, our investments in enablement are leading to improved new customer acquisitions, stronger expansion metrics, an increase in larger multiyear commitments, and strategic operations cloud multiproduct transactions. Our long-term view of the business has us focused on continuing to deliver profitable growth as we revolutionize operations with our customers.

Okay. Thank you, team, and we're going to hear first from Rob Oliver. Rob, please go ahead.

Thank you, guys. Can you hear me okay?

Yes, we can.

Okay. Great. I apologize for the bad connection and I'm going to keep myself off video. Hi Jen, Hi Howard. So I'll squeeze in two quick ones and then I'll mute out in case I'll lose the connection. So the first, Jen, is on just your comments around green shoots. I was wondering if you could add a little bit more color now you mentioned enterprise and just like that's a statement we've heard from a couple of people this week. And I would love to hear, what it is that gives you kind of the comfort to kind of call that out, whether it be pipelines, conversations? And then my follow-up is for Howard. Just around the slowing in the 100,000 customers. You headed into your final fiscal quarter of the year, if there's any comments around pipeline. I know sort of last quarter, the thought was perhaps the setup was a bit conservative when you guys didn't pass through the beat. So just wondering if there was any change in the macro or how we should think about that number? Sorry to squeeze in both and thank you guys very much.

No worries. Thanks for the question, Rob. I've been spending a lot of time with customers. I've seen over 100 customers in the last couple of quarters. I just came back from AWS' re:Invent in Las Vegas this week. And I'm tremendously encouraged by just the level of engagement around more strategic operations cloud discussions. I think while the operating environment continues to be demanding, it's actually driving this focus on doing more with less. And it's really what people's appetite for automation. And I think the long-term relationships that we've had with customers has led to them really turning to us as they understand what's available to them in the broader operations cloud platform. Secondly, we've seen enterprise and mid-market really stabilize and continue to perform. We saw really great new and expansion this quarter from an enterprise perspective. And I talked about a record deal and a very significant operations cloud expansion that we did in my prepared remarks. So just when I think about the large deal opportunity and more strategic operations cloud opportunities, we see the initiatives that we've had underway for several quarters taking hold and resulting in a stronger big deal pipeline. I'd also say that our customers are starting to get a handle on their budgets. And while the market is still volatile and that causes some cautious spending behavior, we see more of that in SMB and lower mid-market and more reengagement around strategic discussions in enterprise. And so, that, along with the way our teams are adapting well to the environment is encouraging and gives us a lot of confidence.

Yes. To follow up on that, regarding customers exceeding $100,000, we observed a 10% increase in this category, which is a bit slower than previous quarters. There are two main factors influencing this. One is that we experienced strong growth and new acquisitions in the enterprise and mid-market segments, which positively impacted customer transitions to that level. However, some customers have had to limit their spending upon renewal, which has led to a slowdown in growth for this group. Looking ahead, especially into Q4 and next year, we have laid a solid foundation to enhance our performance in the enterprise and mid-market segments. Currently, the enterprise comprises nearly 60% of our annual recurring revenue, with gross retention above 90%. This area is a key focus for us and will contribute positively as we work to increase the number of customers in the over $100,000 category.

Next, we're going to Canaccord Genuity with Kingsley Crane.

Good to see everyone. Yes, good to see you. So a similar theme last quarter, we discussed how seat growth had traditionally created a nice catalyst for upsell. Now that you have more headwinds in seat growth, it's now requiring some more strategic repositioning from the sales force. Just from a process standpoint, how do you feel like that's going? And then how receptive have customers been to that?

Yes, it's going well. I mean when we do a good job of positioning pricing and packaging for volume and growth, our customers don't really think about fee-based pricing because they're already bought into PagerDuty as their standard for real-time operations across either their engineering, IT, or security organization. And I think we're getting better and better at meeting customers where they are. I mean, no question in a down market where you're seeing less head count growth, for instance, seat-based pricing can be a headwind. But I think we're managing that and adapting to that quite well. And you see that in some of these strategic large expansion deals that are multiproduct where we're getting beyond the fray sort of just licensing the estate, but actually instantiating ourselves as a platform for action.

Okay. Yes, that makes a lot of sense. And then the second one would just be on CoPilot. It looks like a great packaging for a set of a few great products. But I just want to be clear, do you have any initial thoughts on pricing and the contribution to revenue? Is there any overlap with AIOps?

Yes, remember that AI has been foundational in our platform for more than a decade. As you think about AIOps and how we help customers consolidate and correlate events automatically, how we automatically and intelligently orchestrate work to the right small few people instead of hundreds of people on a live call, and even how we automate run books or how we are increasingly automating an entire resolution. Monetizing AI is not new to us, and there's still a lot of opportunity just within the core platform from a monetization perspective, in particular with our new AI capabilities that have been out since April. From a generative AI perspective, our goal is to get input and make sure that we can deliver generative AI capabilities with the level of fidelity that our customers expect from a high resilience platform that they use when things are not going so well. So we really want to make sure we're managing noise effectively before we GA any of our features. And we're also looking at generative AI as a way to engage users across all of the different feature sets in the platform. So engagement and usage is our first priority. And as we learn, we will start to surface some of the pricing and packaging for those products and services in the future.

Moving right along, next to Craig Hallum, we have Chad Bennett. Chad, if you want to switch on and go ahead.

So just curious, I know you've talked about Howard kind of billings growth a quarter ahead the last few quarters at least. I'm just curious kind of how you're thinking about seasonality of deferred into the fourth quarter here and just billings growth overall.

Yes, sure. So as you know, Chad, billings growth for us has fluctuated a lot from quarter-to-quarter, which is partly why we tend to focus more on the trailing 12-month metric as a way for us to try and get some of the noise out of that. When we look into Q4, this is our biggest quarter from a renewals perspective. So a high volume of renewals take place in Q4. And the other thing that we are factoring in is just the momentum that we're seeing around doing these larger deals that are often multiyear deals, some of them with a metro upfront payment. Those are giving us a view on how we think about billings for this quarter and also the setup that that gives us for next year.

Okay. But I mean, is it fair to say that probably there's more pressure on billings in the fourth quarter on a year-over-year basis than third?

I believe that when we look at comparisons, Q4 is typically a significant quarter for us, and last year's Q4 was also substantial. Therefore, the comparison this year will be more challenging.

Got it. Can you share any insights you’ve gathered regarding the challenges with renewals, the moderation in seat counts, and increased scrutiny on spending? Have you received any feedback from enterprises indicating they may not need as many developers for this tool or platform as they initially believed, suggesting they might do more with fewer resources? Is that a factor, or is it not significant?

No. Thanks for the question, Chad. That's not what we're hearing. I'm involved in many of our large renewals, and in fact, we do have a large customer that chose to reduce their investment with us in a renewal. I typically reach out to understand their issues and learn from them. To clarify, when we talk about churn and downgrades, it's mainly downgrades, primarily from customers reducing their spend due to either a decline in headcount from the macro environment or significant constraints on their funding. In most cases, as Howard has mentioned before, we've always encouraged our customers to add seats or products as needed. We've never tried to sell ahead of their demand, and we often see customers adding once they have new budgets available. However, PagerDuty remains essential infrastructure for our customers. Howard noted that in enterprise, our gross retention is above 90%. Customers often decrease spending in certain areas while maintaining their most critical services on PagerDuty, and then after a few months or quarters, they return to us to add back some of those services. There will always be price-sensitive customers who may opt for a lower-cost offering with fewer features, but this is generally due to less access to capital, the cost of money, resource constraints, or in some cases, reductions in headcount.

And I think I'll just add one thing, Chad, to Jen's comment to think about because I've been involved in a few of these renewal discussions. And I'm not saying that this is the trend across every customer, but we actually find some customers who need more use of PagerDuty, but they aren't in a position to actually increase their spend. So what we have attempted to do, much like we did in the early days of COVID, is we tend to be supportive of our customers. So sometimes we actually have to help them out while they're going through a tougher economic environment and be supportive so that they can, in fact, rather have more users on the platform rather than less. And that still works positively for us as a company. If I look at our average revenue per customer, it has grown every quarter since we went public. So, we're continuing to see customers continue to expand with us even if it's at modest levels. Our view is really about trying to ensure that, particularly for the enterprise and the mid-market, that we are providing them with what they need to retain them as customers because we know that economic cycles will change and their circumstances and needs will change, and we want to be available.

Thank you very much, Chad. Next, we're going to the representative from Morgan Stanley. We believe that's Oscar Saavedra.

Yes. It's Oscar Saavedra on for Sanjay. Thank you for taking my question and congrats on a good quarter. I want to touch back on the full-year revenue guidance. So if I do the math, it looks like you've more than flowed through the beat in the quarter, but also your net revenue retention declined by about 4% sequentially to 110 and now you're guiding to 106 for Q4. So I'm just sort of wondering if that's a function of the initial guidance just was super conservative when you cut it down back in Q1? Or are you seeing a better environment than you maybe did back then now and expecting to sign more new logos?

Howard, if I can jump in, I would say, one, I think we've adapted effectively to an environment that's largely the same, and we're seeing better results, and that's what's driving our confidence. Also, like I said, some of the green shoots that we talked about earlier, the operations cloud value proposition really resonates stabilization in enterprise and mid-market. And a number of some longer-term initiatives that we've had in place taking hold, whether that's our operating margin improvement efforts or really enabling our sales organization to really sell, to complement our land-and-expand high-velocity motion with a top-down C-level more strategic selling motion. And in fact, we've been investing recently in branding and building more awareness around the Operations Cloud and PagerDuty as a platform for action. And we're starting to see a benefit as customers really understand that we have far more to offer than simply incident response. Howard, I'll let you jump in.

Yes, absolutely. I want to emphasize that our focus is on enhancing our execution. We have always aimed to manage what we can control. The changes we've implemented over the past two quarters have positioned us well. As I look toward Q4, there are a few key aspects to consider. We have intensified our customer acquisition efforts in the mid-market and enterprise sectors, which we believe will allow us to achieve sustainable higher value and growth in the long run. Therefore, we anticipate a positive impact in Q4 from acquiring these customers at higher values in those segments. However, this will not positively affect our dollar-based net retention this year. Additionally, from a revenue mix standpoint, there are several factors that tend to boost our revenue within the quarter. For example, delivering services within the quarter can lead to increased revenue, as can closing deals related to our process automation and self-managed environments. We have incorporated all these factors into the guidance we've provided, as it's not a straightforward transition from Annual Recurring Revenue.

Okay. And I do want to remind our analysts, feel free to raise your hand if you have comments or questions for the team. Next, we're going to hear from RBC. We have Anushtha Mittal.

Thank you for taking my question. This is Anushtha Mittal. To begin with, could you elaborate on the acquisition of Jeli and how it enhances the PagerDuty platform? Additionally, how should we evaluate its impact on revenue or margins?

Yes. I'll discuss the strategy behind the acquisition, and then Howard will address the financials. We are really excited to bring Jeli into PagerDuty, primarily because our customers are thrilled about it. We have consistently made strategic acquisitions that enhance our roadmap and provide us with exceptional technical talent, and Jeli meets both of these criteria. I have been pleasantly surprised by the level of enthusiasm our customers have shown toward this. One of the reasons I joined PagerDuty years ago was its popularity among developers, and we are seeing a similar sentiment from customers regarding Jeli. Jeli enables developers, IT personnel, and SREs to learn from incidents immediately, allowing them to apply those insights to prevent significant incidents in the future, thus improving the overall resilience of their operations. So far, in just a couple of weeks, we've found that our companies align culturally, and there are several features, such as Jeli's Slack integrations, that our customers have been requesting. This acquisition has accelerated many initiatives we were planning to pursue anyway. Jeli's strong brand presence in the market, its connection to developers, and the immediate return on investment customers experience give me a lot of optimism about what the future holds. While Jeli is a small company and Howard may mention that it will be immaterial to revenue, we do expect it to enhance our overall incident management capability and contribute to our growth moving forward.

Thank you, Jen. I want to provide a bit more commentary. This was a Q4 event, so it will be included as a subsequent event in our 10-Q, which we will release in the next day or so, typically the day after earnings. You will be able to see some of the details then. From a materiality standpoint regarding revenue contribution, it's quite small and does not significantly impact our figures. We have included both the revenue and expense components in the guidance we provided. However, I am feeling optimistic about the value this brings us next year. We believe that by utilizing our go-to-market capabilities alongside the excellent technology that the Jeli team has developed, we can accelerate the adoption of Jeli, which will positively influence our sales.

Got it. That's helpful. And then one more. On fiscal '25, I know you're not providing official guidance on it yet. But can you provide any guide posts or building blocks we should think about as we consider next year's model?

Yes, we are not providing guidance at this moment, but here’s how I view the situation. We anticipate exiting the fourth quarter with trailing 12-month billings at approximately 10%, which serves as a solid starting point for your modeling. Given the rise in demand we're observing and the improvements we expect in our execution, we foresee an acceleration in ARR growth throughout the year. We expect to finish next year with a higher ARR growth rate compared to where we are at the end of this year. This represents a modest improvement in revenue modeling over that timeframe. Additionally, we aim to continue expanding our operating margins, albeit not at a rate of 1,000 basis points annually, but we remain committed to improving our margins.

Okay, team. I think that does it for us. Close with questions. Jennifer, will turn it back over to you for any final comments, please.

Sure. Well, I just want to thank you all for joining us today and remind you that we continue to be focused on the long term, building a durable, profitable growth company. We're incredibly excited about the operations cloud opportunity and confident in our ability to execute. So thank you all for joining us, and have a great day.