Good afternoon, and thank you for joining us to discuss PagerDuty's fourth quarter and full fiscal year 2025 results. With me on today's call are Jennifer Tejada, PagerDuty's Chairperson and Chief Executive Officer; and Howard Wilson, our Chief Financial Officer. Before we begin, let me remind everyone that the statements made on this call include forward-looking statements based on the environment as we currently see it, which involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These forward-looking statements include our growth prospects, future revenue, operating margins, net income, cash balance and total addressable market, among others, and represent our management's belief and assumptions only as of the date such statements are made, and we undertake no obligation to update these. During today's call, we will discuss non-GAAP financial measures, which are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings release, which can be found on our Investor Relations website. Further information on these and other factors that could cause the company's financial results to differ materially are included in the filings we make with the Securities and Exchange Commission, including our most recently filed Form 10-K/A as well as our other subsequent filings made with the SEC. With that, I will turn the call over to Jennifer.

Thank you, Tony, and good afternoon. I'm proud to announce that PagerDuty achieved our third consecutive year of non-GAAP profitability, showcasing the robustness of our business model. We experienced a 9% annual growth in both revenue and ARR while increasing our non-GAAP operating margin nearly by 500 basis points to 18%. Additionally, our free cash flow margin grew from 15% to 23%, highlighting our operational discipline and efficient growth strategy. In Q4, we surpassed our guidance ranges with $121 million in revenue and maintained a strong non-GAAP operating margin of 18%. We added $11 million in incremental ARR, resulting in a total annual recurring revenue of $494 million. Although we are seeing some short-term growth moderation as we adjust our enterprise sales strategy, the core drivers of our business remain strong. Our central role in digital operations gives me confidence in our ability to gain momentum in the second half of the fiscal year. Enterprise traction is improving as we focus on multiyear multiproduct platform partnerships. The effectiveness of our Operations Cloud is clear, with multiproduct customers now accounting for 65% of total ARR, up from 62% last year, which represents a significant increase since fiscal 2023. These customer relationships validate our strategy, with 72 customers exceeding $1 million in ARR and 849 customers investing more than $100,000 annually. Notably, ARR from customers spending over $100,000 grew by 12% year-on-year, now making up 71% of total ARR. The combination of our expanding platform capabilities, strong customer relationships, and considerable growth potential within our existing base highlights the opportunities ahead. I want to outline three catalysts that will drive further ARR growth and diversification, particularly within our strategic accounts that spend more than $100,000. First, we're concentrating on optimizing the efficiency of our field organization, including implementing an enterprise sales transformation and ensuring our new strategic representatives reach full productivity. Second, we've introduced new platform monetization strategies that enhance our competitive advantages and align with the transformative value we provide to customers, including new AI capabilities and streamlined packaging. Third, we are gaining traction in our Commercial segment through focused digital acquisition and effective retention programs that consistently yield results. The overall opportunity remains strong as we see a $50 billion total addressable market as organizations accelerate their digital operations modernization to mitigate escalating disruption costs. While we executed several key initiatives in fiscal 2025, I want to emphasize that our revenue performance did not meet our initial expectations mainly due to go-to-market execution falling short of our historical standards. We are in a significant transition to an enterprise-focused top-down value selling approach while also adapting to a volatile macro environment. Although we've noticed encouraging results from strategic wins, we have not scaled this approach across our entire enterprise organization at the intended pace. This shift in our go-to-market strategy during challenging macro conditions has created short-term growth pressure. Although the transition has been difficult and we still have work to do, the initial success from our ramped enterprise representatives signals that we are on the right track. I've spent considerable time with customers, and it's becoming clear that operational maturity and resilience are increasingly central to business strategy and revenue generation. We’re witnessing this through new use cases where customers utilize our platform for customer service operations, predictive incident management, and large-scale automated remediation. The addressable market is substantial, and we are still at the early stages of this opportunity. AIOps, automation, and customer service operations contributed over 40% to incremental ARR for two consecutive quarters, validating our platform strategy and widening our competitive edge by demonstrating how our product delivers tangible value. As market demand remains robust, we implemented several changes in the second half of FY '25 to enhance our execution. Along with improvements in sales leadership, I became more directly involved with teams to drive three key enhancements: transforming our go-to-market practices, redefining our approach to sustainable value capture, and refining our product team's focus on monetizing our innovations. I want to clarify that, while we are acting urgently and the majority of these changes are being implemented, we expect the financial impact to be gradual. Understanding this, we've taken a practical approach to our full-year outlook. The pace of our platform innovation reflects our urgency and commitment to strengthening our leadership position. Just weeks into FY '26, we announced a significant expansion of our AI capabilities, positioning PagerDuty at the forefront of intelligent operations with new AI agents. These AI agents are not just basic automation tools; they are advanced partners that work with human responders to intelligently identify, triage, and resolve high-value operational issues. We are launching three specialized agents focused on Site Reliability Engineering, operations analysis, and scheduling optimization, all powered by our proprietary technology and integrated into our automation workflows. These innovations align well with what our enterprise customers require: intelligent automation that enhances human capabilities on a secure and resilient platform. Our customers are now partnering with us to move from reaction to prevention and revenue optimization. To boost adoption, we've made our AI and automation capabilities more accessible by improving our incident management plans across all paid tiers, ensuring that every organization, regardless of size, can access enterprise-grade AI-centric digital operations capabilities within a single, secure, and scalable platform. We also launched an AI use case library featuring practical prompts and deepened integration with key partners like Slack, Zoom, and Amazon Q. These partnerships are significant differentiators as they explore new use cases among our customers. Our platform innovation strategy, combined with our growing solution-selling approach, led to improved momentum in large deals in Q4, showcasing our status as the digital operations leader for the world's largest and most innovative companies. Here are a few customer highlights from the quarter demonstrating how enterprises are deepening their use of PagerDuty and the measurable value we provide. One of North America's prominent financial institutions, a long-standing customer, has made a significant three-year commitment to PagerDuty following their successful deployment of AIOps across various sectors. Their results show a 28% reduction in incident duration and a 43% decrease in human effort thanks to our AI-driven automation capabilities, yielding a projected ROI of 400%. I'm excited to mention a global semiconductor supplier that's a leader in AI who expanded their partnership with us to standardize incident management across their AI, cloud, and data center operations. Their use of our platform to automate real-time response, enhance system resilience, and lower operational costs is critical for their AI initiatives, with more than tripling their 7-figure investment in under two years, epitomizing the strategic value we deliver. In Europe, a leading telecommunications provider became a $1 million ARR customer within their first year with us, choosing to expand due to our platform's capacity for quick value delivery, managing unstructured data, and achieving superior operational outcomes. Within six months, we integrated seamlessly with their ITSM infrastructure and automated incident workflows across IT and network operations, supporting hundreds of responders without needing to hire more staff. Another example is a global media enterprise that grew into a multimillion-dollar partner by leveraging PD Advance to transform their digital operations. This relationship highlights how our focus on enterprise incident management, enhanced security, AI, and advanced workflow capabilities answer the complex needs of large operations. Turning to our market momentum, we launched PagerDuty On Tour 2025 in London last month, with more events planned for Sydney, Tokyo, and San Francisco. These events provide forums for enterprise leaders to experience our Operations Cloud platform's full capabilities, featuring testimonials from customers leveraging our latest innovations for operational transformation. We strategically shifted the series to Q1 this year to build early pipeline momentum and capitalize on growing enterprise demand in key regions while enhancing our enterprise go-to-market strategy. Our culture of community responsibility was recognized again this quarter, including accolades from Fortune's Best Workplaces for Parents and the 2025 Big Innovation Award. Our Impact segment serving education and nonprofit customers grew by 25% to nearly 600 organizations globally. Additionally, we've made some exciting additions to our leadership team. We welcome David Williams as SVP of Product to lead our AI and automation initiatives, bringing expertise in scaling enterprise SaaS platforms. This week, we announced Allison Corley as our Chief Customer Officer, with extensive experience in customer success leadership from notable companies. Furthermore, Sarah Franklin joined our Board in December, known for her remarkable history as CEO of Lattice and former President and Chief Marketing Officer of Salesforce, where she helped scale the business. As part of our ongoing effort to refine our revenue strategy and ensure we are well-positioned to sustain and grow our market share, we have initiated a search for a Chief Revenue Officer. Jeremy Kmet, our SVP of Global Field Operations, will leave PagerDuty at the end of fiscal Q1 after eight valuable years with us. We appreciate his dedication and vision in building a strong foundation. Despite facing execution challenges, we are taking decisive steps to enhance sales efficiency and fully realize the value of our expanding operations cloud platform. The conditions for growth are established, and we have strengthened our leadership, improved our go-to-market process, and are witnessing strong early interest in our AI agents from enterprise customers. Looking ahead, I am confident in our strategy and execution capabilities. Our focus remains on three priorities: building and converting a strong pipeline, accelerating enterprise adoption, and demonstrating how our platform innovations create measurable customer value. The fundamentals of our business are solid, and with the strategic initiatives we've implemented alongside our history of operational discipline, we're well-positioned to seize the significant market opportunity ahead. I want to close by thanking our customers for achieving remarkable results with our platform, our dedicated employees for making these outcomes possible, and our strategic partners and shareholders for their ongoing support as we accelerate our enterprise transformation. I will now turn the call over to Howard and look forward to your questions.

Thank you, Jen, and good day to everyone joining us on this afternoon's call. Unless otherwise stated, all references to our expenses and operating results on this call are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release posted on our Investor Relations website before the call. As Jen mentioned, we anticipate that consistent improvements in sales productivity will be the catalyst for higher performance. Over the past 12 months, we have successfully restructured our sales organization into an enterprise-focused team, hiring the right profile of quota carriers while staying within our existing expense limits, a strategy we will continue throughout FY '26. With a significant number of quota carriers joining in the second half, our focus has now shifted from hiring, onboarding, and enablement to rigorous account management and sales execution. As a greater number of our field team becomes fully ramped in proactively promoting the Operations Cloud, we are setting the stage for increased momentum in the second half. The announcement of a new $150 million share repurchase program signals strong confidence from our Board and management team in the FY '26 plan and the strength of our free cash flow. Please note that the $100 million repurchase program announced in Q2 of FY '25 has been completed during the fourth quarter. Regarding our results, revenue for the quarter was $121 million, which is a 9% increase year-over-year. International revenue rose 10% year-over-year, contributing 28% of total revenue. Annual recurring revenue at the end of Q4 grew 9% year-over-year to $494 million. We achieved a dollar-based net retention rate of 106%, slightly under our expectations for the entire fiscal year. I am pleased to see the improving trend in annualized gross retention over the past 4 quarters, as well as enterprise dollar-based net retention continuing to exceed commercial segment performance by about 10 percentage points. The number of customers spending over $100,000 in annual recurring revenue grew to 849, which is a 6% increase from a year ago. This was our strongest quarterly performance of the fiscal year with 24 additions to the cohort. The total number of paid customers increased by 64 to 15,114 in Q4. The total number of free and paid companies on our platform grew to over 31,000, marking a roughly 10% rise compared to Q4 of last year. Regarding annual metrics, headcount increased to 1,242, a 5% year-over-year rise. Customers with annual recurring revenue over $1 million rose to 72, which is a 24% increase compared to Q4 of last year. The proportion of annual recurring revenue from customers using 2 or more paid products reached 65%, up from 62% in FY '24. The contribution from Incident Management stood at 70% of the total, down from 73% in FY '24. The contribution from our $100,000 cohort was 71%, up from 70% in FY '24. Q4 gross margin was 86%, which is at the high end of our 84% to 86% target range. Operating income was $22 million or 18% of revenue, compared to $11 million or 10% of revenue in the same quarter last year. This outperformance relative to our guidance was driven by delays in headcount starts and the timing of marketing and consulting expenses. In terms of cash flow for the quarter, cash from operations was $31 million or 26% of revenue, and free cash flow was $29 million or 24% of revenue. Looking at the balance sheet, we ended the quarter with $571 million in cash, cash equivalents, and investments. On a trailing 12-month basis, billings were $485 million, an 8% increase compared to a year ago. For Q1, we anticipate billings growth of about 8%. At the end of Q4, total remaining performance obligations were approximately $440 million, with roughly $302 million or 69% expected to be recognized over the next 12 months. As a reminder, starting from FY '25, our RPO disclosure includes contracts with an original term of less than 12 months. Applying this definition to the previous year, total RPO increased by 21% year-over-year compared to Q4 FY '24, which would have been $364 million. To provide further context before moving to guidance, we have daily revenue recognition, and Q1 of FY '26 is 3 days shorter than Q4 of FY '25. This means there will be approximately $3 million less revenue in Q1 and $3 million more in the rest of the year. For the first quarter of fiscal 2026, we expect revenue to be between $118 million and $120 million, representing a growth rate of 6% to 8%, and net income per diluted share attributable to PagerDuty, Inc. to be between $0.18 and $0.19. This implies an operating margin of 15%. For the full fiscal year 2026, we are initiating guidance of revenue between $500 million and $507 million, reflecting a growth rate of 7% to 8% and net income per diluted share attributable to PagerDuty, Inc. between $0.90 and $0.95, which implies an operating margin of 19% to 20%. Before I open the call for questions, I would like to provide some assistance with modeling for FY '26. We plan to fully update and share our long-term projections later this year. However, we have updated our long-term operating margin target, increasing it from 20% to 30%. Specifically for FY '26, our EPS guidance incorporates a non-GAAP tax rate of 22% for each quarter, representing roughly $0.04 of EPS in Q1 and $0.21 in FY '26. Interest payments on our 2028 convertible notes are made semiannually in Q1 and Q3, and the remaining $58 million balance from our 2025 convertible notes is due in the second quarter. Reflecting on the fiscal year, we faced certain challenges, but our targeted initiatives have allowed us to eliminate inefficiencies and enhance our capabilities across the Operations Cloud. We expect revenue momentum to build steadily, and our commitment to driving incremental ARR across both enterprise and commercial segments provides a strong foundation for sustained long-term growth this fiscal year. With that, I will open the call for Q&A.

Thank you, team, Howard and Jen. We will now turn to Andrew Sherman at TD Cowen. Andrew, please proceed.

Great. Thanks. Good to see you. Jen, maybe just given all the macro changes in the last 6 weeks or so, I would love to hear an update on what you're seeing in the market and any change to your business? I don't think you have much government business, but would love to hear any observations on that too.

Yes, I think it's too early to determine how the current tariff situation will impact customer spending. We’ve consistently observed that customers are seeking platforms that offer a higher return on investment, a quick payback period, and the ability to demonstrate real efficiency. Efficiency has been a key theme in nearly all the significant deals we've secured. Additionally, I'd say that our customers have advanced in their digital strategies; when I speak with senior leaders and engage in the market, I’m hearing much more about revenue optimization. It's not only about ensuring that web applications are operational but also about guaranteeing that transactions are successfully completed and that there is a tangible value exchange in that process. Therefore, our focus will remain on execution, ensuring we provide excellent account engagement with our largest clients, understand their challenges, and maintain multiple points of contact with them. Currently, we are accustomed to a volatile macro environment, so it feels like business as usual.

Okay. Great. One more for you. We have a bunch of new sales leaders in the different regions. You're now looking for a CRO. You've kind of migrated everyone to the same enterprise playbook, but maybe just touch on how those reps are ramping to productivity, do you need to hire more reps? Any other go-to-market tweaks to start the year at all?

Sure. It's a great question. Thank you for that. So we made a number of leadership changes over the course of the year across many of our major theaters and those folks have now been in seat and really understand the product and platform and have also been leading what I'd call a talent rotation. If you think about it, historically, our enterprise play still leveraged our high-velocity land and expand motion, and we started with a single product and would add on other products. But buying behavior changed, and that required us to build more of a top-down platform value-led sale. And so part of the talent rotation that we've been through over the course of the last couple of quarters has been to identify top-down platform reps who have experience and a significant track record also with networks and relationships in our largest customers. And those hires where the profile has been updated, we're seeing them ramp faster than the existing cohort and become productive sooner, particularly around large deals. So we have a number of hires already made that will be ramped through the back half of this year. And I think that puts us in a good position from a capacity perspective. It's also fair to say, and I know our sales leadership team would say this is true. I am laser-focused on identifying opportunities for increased effectiveness and productivity as well as efficiency. So that's ramp, that's pipe conversion, pipe quality, making sure that we standardize the way we go to market, but also inspecting our largest accounts to ensure that our account engagement meets the high standards that our customers expect because when we have strong account engagement, we grow and we see the platform effect take hold.

Thanks, team. We are moving next to Koji Ikeda from Bank of America.

So maybe the first one there on the competitive front. We saw on the news out there that one of the legacy vendors tucked away in a large organization might be going end of life here pretty shortly. And so from a high level, how should we be thinking about this as a potential opportunity for PagerDuty?

I believe the key point to consider is that despite rising competition, particularly in product marketing and sales, we've managed to enhance our retention levels. We have the most robust and distinct platform designed for large enterprises. This move doesn't surprise me, as we've observed similar situations in the past where other acquisitions have been made and subsequently retired. This reflects the product differentiation and advantages we've consistently demonstrated, especially our ability to scale reliably and securely for large enterprises while providing the resilience that our customers need in critical situations. Achieving this is challenging and costly, yet we've succeeded while maintaining solid gross margins above 85%. When we effectively engage with accounts and interact with both practitioners and strategic economic buyers, we achieve success. Therefore, it's crucial to scale our go-to-market standards and account engagement within our existing customer base while pursuing the value capture and monetization of the platform innovations we've already invested in to seize the opportunities within our installed base.

Got it. And maybe a follow-up for Howard. When I look at the guide and I quickly kind of punch in numbers in our model. I think it does imply accelerating growth in the second half just based on the commentary too with the sales capacity. Is that the right way to think about the guide? And then outside of sales capacity ramping, what else are you seeing maybe in the pipeline that's giving you the confidence to guide like that?

Yes, sure. So thanks, Koji. And maybe just to give you how I've thought about guidance for this year, some of the building blocks for us. With us exiting the year with an ARR growth rate of 9%, I factored that into how we would see the evolution of ARR through the year, including incremental ARR being added through the year that would lead to an acceleration in the back half of the year. So you're quite right in terms of expecting that trajectory. When I look at Q1 in isolation, I would think that the incremental ARR that we will deliver will still result in a high single-digit level growth rate in ARR for Q1. So we're thinking about the phasing as the hiring that we did in the back half of the year comes fully online to be able to then support the higher growth through the back half of the year. What gives me confidence in that is, one, we've seen improved management of both our pipeline from a velocity and from a quality perspective. And we expect the initiatives that we have around that to continue with the sales leadership that we have brought on board recently. And then I think the other aspect of it is when I just look at the numbers in terms of the success we've had with customers above $100,000, where we've had a growth rate in ARR of those customers of 12% year-over-year, and we've seen that become a larger portion of 71% of our ARR. It proves that the strategic focus that we have on the enterprise is what really is going to underpin our growth. So those factors together have been factored into how we've thought about guidance for the year.

And we're moving next to Sanjit Singh from Morgan Stanley.

And just talking about some of the metrics on how the business is evolving. You're now getting 30% of your ARR outside of Incident Management. I'm wondering if you can provide any color and detail on what offerings are sort of leading the charge in that 30% bucket? Number one. And then, Jen, PagerDuty Advance, what is that doing to your deal sizes from an uplift perspective when they are included in your renewal or expansion opportunities?

From a product perspective, AIOps has become a crucial addition for us because, unlike some of the point solutions or observability options available, our AIOps solution is seamlessly integrated into the entire operational process. This includes everything from detection and automated triage to coordinating the right people and agents for response and automation leading to resolution. When relying on point solutions or merely looking at insights, you miss out on addressing the necessary tasks to prevent financial challenges and optimize revenue generated through your digital assets. This has been a key strategic focus for us to foster growth in customer investments and change their perception of the platform. Automation is also significant, not just regarding our product process automation but also through automated incident workflows. The role of PD Advance is crucial in helping responders reduce the time spent on diagnosing, triaging, and responding to incidents, enhancing their communication efficiency with the organization and customers. Currently, it's mainly an efficiency booster, but as customers become more accustomed to it and we introduce more features in PD Advance and its agents, we expect it to positively influence growth. Additionally, we are actively exploring consumption-based pricing, which complements our existing flexible pricing model effectively.

And that makes a ton of sense. My one quick follow-up was, when we looked at some of your customer highlights this quarter, I saw the term multi-year agreement, right, kind of across the board. Is that a shift? Is this part of the upmarket shift that you guys are making? Is this something intentional? Or is this something that the customer is naturally pulling you towards? Is that a way to drive increased gross retention and stickiness in terms of the retention rates?

This has been a deliberate strategy. Most of our business was previously focused on single-year terms, which aligned with our approach of expanding quickly and easily. However, as we engage with larger enterprises, the process of renewing contracts in a top-down sourcing environment becomes more complex administratively. Therefore, we are motivated to encourage customers to partner with us for longer durations. We’ve also discovered that customers value certainty, and transitioning away from our platform is often more challenging than they anticipate, as we are deeply integrated into their operations. Customers prefer no surprises regarding our product developments or pricing. When we began prompting our sales and renewals teams to pursue multi-year contracts, we found that customers were very receptive and aligned with this direction. It has been a focused effort that we actively track. A significant portion of our term contracts are now multi-year, and we aim to maintain this emphasis. The key principle here is that long-term relationships are more profitable and beneficial for both parties.

I would like to add that this not only represents a strategic relationship from our customers' perspective, but it also indicates the strategic relationship as well. Since we initiated this effort two years ago, we have experienced a quarterly increase in the number of contracts covered from a multiyear perspective.

Moving next to Kingsley Crane, Kingsley from CF.

I hope my video isn't spotty, but I want to touch on PagerDuty Advance. When I think about the naming of Agentic SRE and Agentic operations analyst, and it begs the question, do you feel like these capabilities are compelling enough to demonstrate replacement of an analyst at the customer level? Just kind of curious if that's how they're being positioned and then how to think about customer ROI and how that flows into pricing?

Yes. They are positioned as complementary to human responders. A lot of incident response involves navigating complexity and understanding dependencies to pinpoint contributing factors to a failure. It is rarely straightforward, and major incidents are seldom confined to a single team. Unique data challenges or problem-solving issues arise where a single responder lacks visibility across teams. However, an Agentic responder using a foundational data model can quickly get pointed in the right direction, make suggestions, handle simpler tasks, and assist in complex problem-solving. We view these roles as complementary rather than replaceable. At the same time, customers aim to minimize the impact of major incidents, which includes reducing the duration of incidents and their effects on customers or risk profiles, such as compliance or customer trust. Helping teams resolve problems faster while learning from those experiences to prevent recurrence is crucial, and we have integrated Jeli's features into our incident management solution to facilitate this. Thus, we see it as complementary. However, there will still be repeatable, low-value tasks that these agents can handle, which won't eliminate the need for skilled engineers during major incidents, as many solutions require high-level judgment.

Yes. That's really interesting. And then second one, you talked last quarter about incentivizing some customers initially with some free credits to use Gen AI. You had some good response there. Just kind of curious if that initiative continued in Q4 and what kind of response you saw?

Howard I'll let you take that one.

Yes, of course. Kingsley, recently we made announcements regarding our packaging, particularly last month in February. We adjusted our offerings to provide all paid customers access to the Operations Cloud, which includes features of PD Advance. Each customer receives a certain amount of usage before needing to pay for additional usage. We believe this model allows customers to recognize the value they will gain in their specific environments, leading to meaningful conversations and, ultimately, the expansion of deals due to that access.

Moving next to JPMorgan, we have Pinjalim Bora joining us.

Jennifer, I want to ask you a little bit on the sales execution you had highlighted or talked about in the prepared remarks a couple of times. Could you maybe elaborate exactly what execution issues have you kind of faced? And what are you doing as you step into the new year, specifically to fix those issues? And then, Howard, maybe talk about just the bookings cadence that you have seen. And I'm trying to think about the assumptions around the guidance. And are you baking in a little bit of a caution, given what we have seen over the last 2 weeks on macro?

Sure. I'll begin by discussing our sales execution. We've recognized the need to adapt to changes in our customers' purchasing behaviors. In the past, we successfully grew in the enterprise sector by employing a land-and-expand strategy that focused on technical users within organizations. However, as the market evolved, customers began centralizing purchasing decisions and pushing towards procurement-led sales, which led us to modify our engagement strategies. We are transitioning from selling primarily to developers to offering a multiproduct platform aimed at economic buyers. We've learned that when our previous approach didn't align with customer purchasing habits, we had to alter the profile of our sales representatives to achieve success. We discovered that hiring reps with experience in selling multiproduct platforms to top executives leads to greater success in selling the Operations Cloud and securing multiyear agreements worth six or seven figures. This shift in talent has shown that more experienced sales reps familiar with top-down selling tend to ramp up their productivity more quickly compared to earlier cohorts. Another challenge we've faced is that when not engaging high-level executives, we miss crucial insights into the dynamics of large organizations. By enhancing our account management to include multiple points of contact, we gain a fuller understanding of the CIO or CTO’s broader goals and can better align with their budgeted initiatives, which has resulted in higher success rates. Our focus now is on transforming into a more comprehensive platform sales model. This includes ensuring services are attached to sales and supporting effective deployment for our customers, who often operate in complex environments. While our platform is easier to deploy than traditional legacy solutions, these organizations may still require additional support during implementation. In the past, the land-and-expand approach limited service sales, but the market's evolution necessitates that we adapt our support model to successfully monetize our multiproduct platform and capture long-term value.

Yes. And I think just to add on to Jen's comments because as a CFO, I want to make sure that we're not doing this at a rate that's going to be too expensive. So we're committed to improving our sales and marketing efficiency even to the extent that as we entered this year, we made some changes to reduce our run rate so that we could, in fact, continue our evolution into this full enterprise sales motion, but really by optimizing the existing spend that we had. So this hasn't been like it's not an additive expense that we're going through, but rather it's the case that we've been reconfiguring the resources that we have to be able to deliver this alignment with how our customers are buying. And then I think, Pinjalim to your question, how to think about bookings through the year. We've taken a view on bookings that anticipates a number of things taking place. One is based on the success that we've already seen with our larger customers, we want to build on that success with our larger customers. So we've seen, if you like, the enterprise health indicators such as the one I mentioned around customers above $100,000 growing at a faster rate than the customers that we have below that. So we will continue our efforts in that space. And our sales team is really focused on enterprise customers and being able to grow that base. We have a significant percentage of reps who we hired within the back half of last year, who will be ramping through the first 2 quarters, and we expect to see them contributing to our overall growth in ARR, particularly in the back half of the year. Along with that, in terms of our commercial motion, we've taken another look at how can we take advantage of some of the recovery we've seen in the commercial, the SMB space in particular. And so we have a renewed digital-first experience that we're delivering there. We've had packaging that now makes a lot of the products accessible even to customers who are in that SMB space so that they can get broader use of the platform at a reasonable price. So we anticipate being able to use that motion to, in fact, also contribute to our growth, and that will ramp through the year as well.

Just to be clear, for the guidance that you provided, are you assuming a similar macro than what you have seen? Or are you using...

We have taken a cautious approach. It's impossible to predict everything, and in the current environment, we've worked to model the possible impacts and understand how various factors could unfold. The situation is often ambiguous for software and technology, as you're aware, regarding how things will evolve. However, we have made an effort to factor in the aspects we can control, and our main focus is on those elements to enhance our performance.

And next, we'll hear from Nick Altmann with Scotiabank. Nick.

Awesome. I wanted to go back to Sanjit's question around 30% of ARR exiting the year being outside of Incident Management. When we think about the ARR sort of framework or the color you provided, and we look at the 2025 ARR mix, I think it implies like a little bit over 60% of the net new ARR in the year was from outside of incident management. And so when you think about this year's guide and kind of what you're baking in for net new ARR, how should the mix look in 2026 versus this year? Maybe kind of unpack the assumptions around incident management versus non-incident management as it pertains to net new ARR.

And before Howard jumps in on guidance, I just want to make a clarifying point. One of the areas that we see driving growth from a customer perspective is the customer applying PagerDuty's kind of traditional incident management solution to new, call it, horizontal use cases. And probably the best example is the AI-centric operations that they now are trying to manage. They're managing RAG models, LLMs, their own agents, their own AI-driven apps. And what you're seeing through that is a ton of increased complexity. And so that, for instance, is an example of you might still use our core Incident Management solution, but it's going to drive net new usage because it's a different use case than a traditional use case. The same thing is true for security operations, right? We have a lot of security teams that leverage our products and services for something that will be considered outside of the core of technology-generated incident management. And as we adopt more of a blended consumption and seed-based or platform usage model, we'll start to get some of the benefit of the value that we create through those new horizontal use cases. And so I just want to be clear that just because incident management is core and we're selling new products and services on top of it, we also still have the opportunity to grow incident management through applying that same technology to different problems across the organization. So sorry, Howard, go ahead.

Yes, you began with exactly what I planned to mention regarding the use cases. I believe this is a vital aspect, Nick, because as we consider the sales team's focus, it is crucial to drive new use cases that leverage our comprehensive operations management approach, including incident management. Over the past few quarters, we have consistently witnessed more than 40% of our incremental ARR coming from our AIOps automation and customer service ops offerings. Looking ahead to next year, we expect this trend to persist, continuing to be a strong contributor to our incremental revenue. Additionally, as we incorporate newer offerings like PD Advanced, currently small, they will start to add value outside of incident management. As we begin to monetize Agentic AI, we anticipate that it will also contribute to today's incident management landscape.

Okay. No, that's super helpful. And then just a clarification question. I appreciate the color on ARR this year. If we look at the net new ARR seasonality for 2025 versus 2024 is a little bit different. Obviously, there's some of the go-to-market stuff you mentioned. Macro is still a little bit cautious. But anything else we should be keeping in mind as we look at sort of the net new ARR seasonality for 2026 and maybe call out if there's any anomalies, deal slippage, et cetera, that maybe skewed the seasonality in 2025?

Yes, sure. So we would expect the seasonality to follow the pattern. This last year, it was kind of roughly equal each quarter. My expectation is that it will probably ramp gradually through the year as we move through the end of the year, given some of the changes that we've made in terms of the sales team. So that will mean that we'll start to see that increase gradually through the year.

We do have another from Jeffrey Van Rhee at Craig-Hallum. Jeff?

Sorry about the light. You're catching sunset just perfectly behind me here. So be it. Just a few for you. Maybe, Howard, just on the pipeline. I think you commented last quarter that the pipeline was up 50% year-over-year. Just any update on the state of the pipeline here?

Yes. So we've entered this year with a strong pipeline because I factored in the pipeline for the full year against the full year guidance that we have provided. The Q1 pipeline that we started the quarter with was higher than what we had the year before. We've got the team to focus a lot more on quality of pipeline and how do we improve pipeline velocity so that you don't see this pattern of deals moving just from one quarter to the next. So certainly, we're in a good place. But my perspective, of course, is that sales teams need to keep on building pipeline, and marketing teams need to keep on contributing to that pipeline. Hence, our focus even in bringing some of our events like PD On Tour or PagerDuty On Tour to earlier in the year so that we can actually leverage some of that earlier creation of pipeline in the year to benefit this fiscal.

Yes. Jen, is the intensified focus on sales a result of your dissatisfaction with lead generation, or with close rates and the management of sales cycles? Additionally, it seems that last year, around midyear, you were somewhat more satisfied with your approach to selling to procurement and CFOs, but it appears that there is now less satisfaction. Could you address those two points?

I'm always looking for ways to improve our execution. For instance, in our cohort of customers spending over $100,000 and those over $1 million, we're seeing strong performance with higher retention and growth rates, along with the development of more strategic, multiproduct, multiyear relationships. My goal is to expand that success across our entire customer base more quickly and efficiently. We discovered that having the right sales representatives and maintaining rigorous standards in account engagement and pipeline management are essential. It's important for us to standardize these practices across our sales organization instead of executing well only in isolated areas. I'm very proud of our go-to-market team as they manage this challenging transition from a long-standing successful approach. While our previous strategy of landing and expanding worked well in the lower market, we're now seen as a more strategic partner, which requires us to engage consistently and effectively across various customer roles. Additionally, we are focused on ensuring our customers recognize the value we provide. We recognize there are opportunities to adjust our pricing to better reflect the value we deliver, and we are actively addressing that. With the improvements we've made in our sales representatives' profiles and by bringing in leaders with enterprise experience, we're seeing encouraging results. Our focus now is on scaling these winning strategies efficiently while keeping productivity in mind.

Yes, understood. Congratulations on the efficiency and the improvements in free cash flow this year; it's a nice enhancement from the prior year. Just one last question, Howard, regarding the SMB commercial side. I want to ensure I heard you correctly. Is it expected to be a growth area in this fiscal year? Is that the assumption? That is the assumption. If you recall, Jeff, we went through a period where we've seen negative growth year-over-year in that segment like for 4 consecutive quarters. And we've started to see like modest recovery in that space, and we expect that to continue. It's not going to be the major contributor to our growth this next year. Clearly, enterprise is where we're focused. But we did think there was an opportunity to revisit how we were managing that segment to try and get more out of that segment, particularly since a lot of that segment for us is tech start-ups. And with the AI enthusiasm, there were a lot of AI start-ups who are starting to become customers of us in that segment. And we will grow to be larger customers and hopefully enterprise customers one day, too.

Thank you, all of our panelists for joining and Howard and Jennifer will wrap up here. And Jen turning over to you for any final remarks.

Thanks, Josh. Well, thank you all once again for joining us today. Our strategic focus on innovation with our strengthening leadership team and enhanced go-to-market motion positions us well for future growth. Our momentum of our tenured enterprise field reps demonstrates the compelling value of our platform, particularly in our large and strategic enterprise customers. We remain committed to executing our strategy while building on the strong foundation of customer success, employee dedication and partner collaboration and doing it effectively and efficiently. I sincerely appreciate your continued engagement as we advance our mission to revolutionize digital operations. Thank you, and have a great day.