Earnings Call
PagerDuty, Inc. (PD)
Earnings Call Transcript - PD Q2 2021
Operator, Operator
Hello everyone, and welcome to PagerDuty Second Quarter Fiscal Year 2021 Earnings Call. I would like to remind everyone this call is being recorded. And at this time, I want to hand it over to Willa McManmon, Investor Relations at PagerDuty.
Willa McManmon, Investor Relations
Good afternoon and thank you for joining us to discuss PagerDuty’s second quarter fiscal 2021. 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. In addition, 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 filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in the company’s most recently Form 10-Q. With that, I will turn the call over to Jennifer.
Jennifer Tejada, CEO
Thank you, Willa, and thank you all for joining us on Zoom today. We are thrilled to see you and appreciate our partner Zoom for enabling us to engage with you face-to-face. I’m grateful that our team and our employees are healthy and I hope you all are well too. We recognize how fortunate we are and our thoughts go out to all those who are affected by COVID and the current environment. While acknowledging the unprecedented near-term market uncertainty, today I will focus on the elements of our business that we can control and how we are strengthening our company as we, again, execute against our strategy to become the de facto platform for digital operations. Despite extraordinary market dynamics, our customers remain loyal as reflected in our retention rates and revenue growth. Digital transformation is accelerating, becoming an imperative for our customers as they shift to an e-commerce led business model. McKinsey recently reported that e-commerce penetration has grown by 10 years in the last three months. Literally, overnight, many of our customers have been faced with two competing imperatives: rapidly accelerating their digital initiatives and cutting costs. We see customers' responses to this on a continuum from the most impacted customers reducing users to some simply applying conservatism by delaying user expansion or pausing new initiatives. At the other end of the spectrum are many teams leveraging the situation as an accelerator for change and doubling down on PagerDuty as a foundational operations platform. PagerDuty is essential to online business where the stakes are now higher than ever. We are building from a foundation of trust where our platform has reliably supported unprecedented scaling in video conferencing, e-commerce, telemedicine, communication, software, and home delivery services. As the central nervous system for our customers' digital ecosystem, PagerDuty is the first line of defense in protecting revenue. We have emerged as the central aggregator for nearly all signals across the digital landscape from monitoring and observability to security, logs, tickets, and even sentiment. PagerDuty is the only platform that aggregates signals, analyzes events, and intelligently orchestrates real-time work across different teams to close the loop and ensure a perfect digital experience every time. In today's world, trust is the most valuable currency between brands and consumers and companies and their employees. PagerDuty operationalizes customer trust for the companies we serve. This is why we are fast becoming a business priority for CTOs and CIOs where DevOps and IT underpin digital business revenue and customer experience. This quarter, we demonstrated strong revenue growth of 26%, despite a tough market, as well as demonstrable product leadership with our average revenue per customer growing for the 14th consecutive quarter. We achieved an 87% non-GAAP gross margin demonstrating the value of the PagerDuty platform and we've made solid progress upselling our digital operations package. With seed expansion up 179% year-on-year now comprising 15% of total ARR. While investing in growth, we again increased our operating leverage achieving year-over-year operating margin improvement of 11 percentage points and positive operating cash flow of $2 million. We also strengthened our balance sheet through our convertible debt offering augmented by improved operating efficiencies. This financial wherewithal affords us the opportunity to extend our market position in an uncertain economy where return on investment is paramount to customers. We are progressing well against our increasingly relevant strategic priorities. The first of which is winning in the Enterprise segment. Never have large companies been under more pressure to modernize IT, supporting the shift in revenue mix to digital. We are seeing evidence of this with customers like Comprehensive Health Management and the New York Times upgrading to our digital operations management plan in this quarter and SAP who expanded their digital ops users. Second is validating our position as the de facto platform for real-time work. With everyone living, working, and learning online, incident volume has skyrocketed and work has become increasingly unstructured and unpredictable. In fact, customers are using our platform more and resolving incidents more quickly. We've seen a steady increase in incidents since the beginning of shelter-in-place with the cost of every minute of disruption on the rise. Despite this increase, our customers have leveraged our platform to reduce their average time to resolve incidents by approximately 15% over the same period. Our ROI has never been more clear. Validated in Q2 expansions by customers benefiting from the macro trends, like DoorDash, Nordstrom, One Medical, Peloton, and Coursera. Finally, we continue to expand our reach beyond DevOps, our primary focus in the first use case with engineers, championing PagerDuty up and across their organizations. Digital acceleration means all hands on deck for SRE, IT, customer support, and ultimately leadership, which long-term bodes well for us. Within the enterprise, PagerDuty adopters, such as Cisco, Electronic Arts, Nvidia, and Vanguard continue to advance their operational maturity, adding users on our platform as we help them improve labor productivity and incident response time, as well as incident prevention. In fact, we've seen expansion across approximately one-third of our enterprise customer logos in each of the last six quarters. Lowes, a new logo for the quarter, uses PagerDuty to support their engineering and ops teams in managing the challenges that come with increased online demand from homeowners retrofitting our new reality. In addition, an existing customer, one of the largest home improvement retailers in the U.S., expanded to a multi-year enterprise agreement using PagerDuty's predictive analytics to ensure high reliability for their e-commerce systems and other use cases like real-time inventory orchestration. PagerDuty's insights are game-changing for traditional brick and mortar businesses as customers have become more conditioned to the what you want, when you want it world. We also benefit from the secular transition across many verticals like online education. In Q2, a U.K. based education and publishing company, which has evolved from a brick and mortar textbook producer to an online education platform, adopted PagerDuty to unify their global monitoring, engineering, infrastructure, and operations teams, driving DevOps best practices, including service ownership across all IT services. PagerDuty brings engineering teams closer to business outcomes, shifting operations from reactive to preventative and ensuring real-time operational visibility across all services like class registration and research downloads. There, PagerDuty integrates with many partners like Microsoft Teams, New Relic, Slack, and ServiceNow. In the quarter, a major U.S. broadcast network expanded its relationship with us to minimize disruptions in live broadcasting services, speed collaboration with their affiliates, and improve the quality of their digital services. PagerDuty acts as their operations cloud to ensure customer-facing issues are resolved immediately, measured in seconds, not minutes. A Fortune 200 biotech company, another new logo, is using us for use cases that span multiple teams, including manufacturing at scale, working with process engineers and mechanics that operate their medical production equipment. We help them mitigate disruption by providing greater awareness and faster, better-coordinated responses. We reduced costly manufacturing downtime, a return on investment that can be realized in as little as a day. In Q2, our total customers grew by 11% despite the macro environment. New customer wins and expansions resulted from positive strides in our go-to-market as evidenced by improvement in sales execution, including pipeline quality and close ratios. Our ramping rep productivity has improved dramatically beginning in Q1 and improved sequentially as well, a positive validation that our efforts in enablement and shift to value selling are paying off. That said, we had a challenging start to the quarter with macro conditions driving conservatism on the part of enterprise buyers. We saw lower than typical pipeline conversion, some length in sales cycles, and higher than normal churn and contraction, especially in small business and hard-hit verticals. In these circumstances, we prioritized long-term customer relationships over short-term gains, and we're closely working with our customers to help them navigate the crisis. The quarter got progressively stronger with momentum building in our pipeline as well. Growth in the quarter was driven in part by consistently strong execution in EMEA and a solid result in our North American mid-market segment where competitive win rates have increased as customers adopt products that deepen our moat like events intelligence, modern incident response, and the digital operations plan. This quarter, progressive mid-market customers like the RealReal upgraded to digital operations management in transformational strategic engagements. Coinbase, Fastly, Okta, Pinterest, Rubrik, Datadog, Monzo Bank, and Twilio continue to place their trust in PagerDuty with expansion in the quarter. While there are too many external uncertainties to call a market recovery, we entered August with better pipeline coverage and also saw one of our largest enterprise lands ever, the adoption of our digital operations management plan by one of the largest mortgage providers in the U.S. In addition, results from our first major virtual events, EMEA summit in June, were promising with over 1,100 registrants from more than 70 countries, more than 3x the previous year. Going virtual extended our reach and we expect another great response September 21 through to 24 for our North American summit with nearly 5,000 registrants confirmed, almost 5x more than last year's attendance. We've planned over 35 sessions, a diverse lineup of speakers, and several exciting product announcements, including advances in AI ops, automation, enterprise collaboration, and customer service. For the first time, we will offer free PagerDuty university courses, including incident commander certification. The more integrations we provide to our customers, the more PagerDuty becomes essential infrastructure. We now offer over 370 integrations and a deep bench of product partners. In the quarter, we saw notable customer adoption of integrations in Dev and IT ops, Zendesk, and Salesforce Service Cloud in the customer service space, and AWS in SecOps. In August, we expanded our integrations with Zoom, Microsoft Teams, and Slack. Security partners, such as StackRox and HackerOne, published new integrations for cloud security and Dev SecOps as we continue to see security teams adopt PagerDuty to reduce cyber risk. During the quarter, we introduced new capabilities, including dependency-aware related incidents, which make it easier for responders to understand the scope of an issue, triage faster, and coordinate better. We also released an expanded analytics API, which provides more granular access to incident data, allowing customers to support it into business intelligence systems, where they can manage and learn from incident history and trends. We continue to focus on our community in the quarter with additional inclusion, diversity, and equity programs, underscoring our commitment to expand diversity and representation in our employee base, our leadership team, and our board, as well as encouraging diversity within our suppliers and investors. We and PagerDuty.org provided financial support to philanthropies, including a 3 to 1 employee donation match to the NAACP and contributions to the Atlanta Food Bank, San Francisco's Glide, London-based St. Mungo's, and Toronto's Daily Food Bank. While 2020 continues to be a year of uncertainty, PagerDuty is firmly focused on growth with our customer success as our North Star. While we can't forecast the return to more predictable conditions, we continue to be well positioned to benefit from and see validation of the long-term tailwinds of digital acceleration, cloud migration, and DevOps. We are seeing green shoots as customers turn their focus to embracing the incredible velocity required by e-commerce, remote working, and digital acceleration, where we are truly their strategic long-term partner. We remain confident in our strategy and optimistic about our growth. We hope you will join us to learn more at summit 2020, where you can hear from an incredible lineup of speakers and innovators, including Brett Taylor, the president of Salesforce, Nora Jones, co-founder, and CEO of Jelly, Eric Yuan, the founder and CEO of Zoom, Derek Johnson, the president of the NAACP, and Stewart Butterfield, the co-founder and CEO of Slack. We look forward to updating you on our progress and appreciate your ongoing interest in the partnership with PagerDuty. With that, I'd like to turn it over to Howard.
Howard Wilson, CFO
Thank you, Jennifer, and thank you all for joining us today. Revenue for the second quarter increased 26% year-over-year to $30.7 million. As Jen discussed, we're optimistic about the tailwinds we are seeing, but the macro environment remains challenging and uncertain. As the quarter progressed, we noted strong bookings momentum and strong pipeline generation. We saw a particular bright spot in international with revenue growing 34% year-over-year, driven specifically by strength in EMEA. We added over 1,300 customers year-over-year, closing the quarter with 13,346 customers, an increase of 11% in a challenging macro environment. We continue to see strong growth in large customers with those above $100,000 in ARR, growing 35% year-over-year to 369. We were delighted with the efficiency we're seeing in the business across a number of fronts. In the quarter, our non-GAAP gross margin was 87%. We also saw a significant improvement in our non-GAAP operating margin to just under negative 7% versus negative 18% in the prior year. And non-GAAP EPS came in at negative $0.04 per share, well ahead of our guidance. This, as we continue to manage expenses prudently, invest in innovation in R&D, and growth in go-to-market. In four of the last five quarters, including in Q2, we've delivered positive operating cash flow with positive cash flow of $2 million in the second quarter. Our dollar based net retention rate for the quarter was 116%. COVID-related churn and downgrades impacted the rate by at least 2 percentage points. So we estimate that our underlying rate was at least 118%. We saw a number of customers in the quarter with clear financial hardship who we supported in recognition of our long-term relationship, although this has a short-term top line impact. Our customers rely on PagerDuty and we believe demonstrating partnership now will serve us well in the future and create additional value over the long-term. Our overall retention rate above 95% remains incredibly strong. Our churn and contraction rates excluding COVID impacts were flat to trending down compared to historic trends, which is a function of our diverse customer base that spans many industries and segments. We see good momentum across software and technology, media and entertainment, financial services, and healthcare. However, we continue to see an impact on affected industries, such as travel and hospitality, professional services, and energy and utilities. Combined, these make up approximately 7% of our ARR. In addition, the SMB segment continues to be under pressure. In the second quarter, non-GAAP gross margin was 87%. Our goal is to deliver gross margin between 84% and 86%. So this level of performance demonstrates our market power and positions us to experiment with and flex our pricing. You can expect us to make announcements around this in the coming weeks. In the second quarter, non-GAAP operating expenses were $48 million compared to $42 million in the second quarter of fiscal 2020, a 15% increase demonstrating leverage in our business model with our revenue growth of 26%. Non-GAAP research and development expense for Q2 was $13 million compared to $10 million in the same year-ago period, a 28% increase year-over-year. We place a high value on innovation and we will continue to invest to ensure product differentiation and competitive advantage. We continue to advance our innovation in preventing unnecessary work through automation and delivering actionable AI ops capabilities. Non-GAAP sales and marketing expense for Q2 was $25 million or 49% of revenue compared to 53% of revenue in the prior year quarter. Non-GAAP general and administrative expense was $10 million for the quarter or 20% of revenue as compared to 25% in the prior year. Our non-GAAP operating loss in the quarter was $3.5 million compared to a loss of $7.1 million in the same quarter last year. Our non-GAAP operating margin was negative 7% in Q2 versus negative 18% in the same period last year. This was due in part to reduced spend in travel and marketing related to COVID, but primarily driven by ongoing initiatives to operate more efficiently across the business. Non-GAAP net loss for the second quarter was $3 million or a net loss of $0.04 per share compared to a non-GAAP net loss of $5 million or a net loss of $0.07 per share in the second quarter of last year. We reported $2 million in positive operating cash flow in the second quarter in line with the second quarter of fiscal 2020. Free cash flow was $1.4 million in Q2 compared to $1.3 million in Q2 of fiscal 2020 with free cash flow margin of 3% in line with the second quarter of last year. Turning to the balance sheet, we ended the quarter with $602 million in cash, cash equivalents, and investments. In June, we completed a convertible debt offering, raising $242 million in net cash proceeds. This was an opportunistic fundraise based on the low-interest rate environment that allows us to expand our focus on strategic investments, including M&A. Let me now turn to guidance. Firstly, a couple of comments. The guidance we're providing on EPS takes into account the convertible debt offering. So there will be some incremental cash interest expense impacting our non-GAAP net loss and non-GAAP EPS. However, we still target a non-GAAP operating loss margin of 10% to 12% for the full year, an improvement from 17% last year. For the third quarter of fiscal 2021, we expect revenue in the range of $52 million to $53 million, which at the midpoint would represent a 23% growth rate versus the third fiscal quarter of 2020. Non-GAAP net loss per share is expected to be in the range of $0.10 to $0.11 with basic shares outstanding of 79 million. This implies an operating loss margin in the range of 13% to 15%. Excluding the impact of cash interest expense related to the convertible debt, this range would be a loss of $0.09 to $0.10. For fiscal 2021, we expect revenue of $206 million to $211 million, which at the midpoint represents a 25% growth rate. Non-GAAP net loss per share is expected to be in the range of $0.27 to $0.30 with basic shares outstanding of 79 million. This implies an operating loss margin of 10% to 12%. Excluding the impact of cash interest on the convertible debt, the range would be a loss of $0.25 to $0.28. Our number one focus is our customers, ensuring that they can be successful and reaffirming the trust that they have in us to underpin the business that has become increasingly digitally dependent. We remain focused on growth and I’m encouraged by the early signs we're seeing in increased market demand, sales momentum, and customer use case expansion. With that, I will open up the call for Q&A.
Operator, Operator
Our first question is from Sterling Auty with JP Morgan.
Sterling Auty, Analyst
Yes. thanks. Hi guys. So in terms of what you're seeing in macro and what you're seeing in close rates, et cetera, I guess that the question is as we move past COVID, would you expect re-acceleration in the business.
Jennifer Tejada, CEO
Sterling, thanks for that question. I think that, given the environment that we're in, we've seen tremendous utilization of our platform. It's up from the level of utilization in our platform is up dramatically and it's working very well under huge pressure. And we think that creates a major tailwind for long-term demand, even if it's not resulting in immediate revenues. Our platform over the last several months has scaled to support macro benefit beneficiaries like Zoom and Twilio, DoorDash, Okta, Zscaler, and CrowdStrike, to name a few. We also saw a third of our midmarket and enterprise customers still expanding in the quarter. And they have been doing that over the last six quarters like clockwork. So we feel like we're in a stronger position to benefit from those tailwinds long-term. We've also improved our business execution and our maturity across the board, especially where our sales execution is versus a year ago. And we've seen a lot of large enterprise customers continue to invest. So while it was a challenging quarter at the beginning, we've seen the momentum building month-on-month. We entered August with a very strong pipeline. And as I mentioned in my prepared remarks, landed a very large strategic enterprise deal in the month. So we feel like we're in a very good position long-term, and that it's a durable business long-term that we'll be able to weather the storm. And like I said, benefit from those tailwinds over time.
Operator, Operator
Our next question is from Bhavan Suri with William Blair.
Bhavan Suri, Analyst
Hey guys, thanks for taking my question. And really nice show on the bottom line too, given this environment. Apologize for the background noise, it's going on somewhere in the house.
Jennifer Tejada, CEO
That’s okay.
Bhavan Suri, Analyst
But I did want to talk about your comments about the pipeline and coverage. You obviously seen it grow linearly, some sense of what is the coverage ratio look like prior to COVID. So in comparison to are we there. And as the pipeline where you'd like it to be, or how close are we to getting to sort of a more normalized pipeline cadence, especially given the ramp that David Justice and team have done?
Jennifer Tejada, CEO
Yes, our new representatives are ramping up more effectively than they have in the past. We continue to see our more successful teams performing very well. Pipeline coverage is solid as we enter the quarter, which gives us confidence in achieving a positive outcome. However, it is still too early to declare a recovery due to the uncertainties in the macro environment, rather than our execution capabilities. I am encouraged by our increasing competitive win rates, particularly in midmarket, and we are also experiencing strong product attach rates for digital operations management, with an 18% attach rate this quarter. Additionally, we will continue to see momentum with new use cases, with around 18% of customers exploring use cases outside of DevOps.
Bhavan Suri, Analyst
Got it. Got it. Maybe …
Howard Wilson, CFO
Yes. Maybe Jen, I can just add, one of the things that we did notice with COVID, obviously we've had to make a shift from pipeline generating field-based events. And we did one of our first major online or virtual events with our EMEA summit, where we had over a thousand registrants from 70 countries. And we saw that having a very positive impact on pipeline out of the gate. And so as we've made this transition to doing far more virtually, we've seen some very positive momentum in terms of pipeline build even in the absence of traditional field events.
Bhavan Suri, Analyst
Got it.
Jennifer Tejada, CEO
Yes, while we've been on the call today, the team informed me that we have surpassed 5,000 attendees. We are anticipating a strong audience for the summit later this month.
Bhavan Suri, Analyst
That's great to hear, and I appreciate the insights on the pipeline. I have another question, Jen. You've emphasized the mid-market segment a lot, and previously we've discussed the online side and our enterprise focus. Could you provide some insights on the attach rates in mid-market? If there has been a change in sales presence, as David mentioned, there’s an intriguing aspect of this market that hasn't received much attention. Is that the reason for the focus on mid-market, or is enterprise just performing better? I'm curious about your reasoning behind this shift and what's happening in that area.
Jennifer Tejada, CEO
I don’t want you to misunderstand, our focus continues to be on enterprise and midmarket, and we had some significant expansions in enterprise with EA, Cisco, and others. In midmarket, we are competing more effectively, shifting to value selling, and starting to see midmarket customers adopting a more strategic approach to leveraging PagerDuty. They are beginning to move up our product set and across different use cases, which has been an encouraging sign, particularly in North America this quarter.
Bhavan Suri, Analyst
Awesome. Awesome. Thank you, guys. Thanks for taking my questions. I appreciate it.
Jennifer Tejada, CEO
Thanks, Bhavan.
Operator, Operator
Our next question is from Rob Oliver with Baird.
Rob Oliver, Analyst
Right. Thank you guys very much for taking my question. Jen, one for you. At the EMEA summit, you guys spent, it seemed to us anyway, a lot of time focused on the ROI and the message around ROI with the customers. And I know you had said on the last quarter's call that, you guys weren't seeing any competitive issues at enterprise. So I guess I'd ask for just an update on, how the competitive landscape looks in enterprise? And how is that ROI message resonating with those most important enterprise customers? And then I just had a very quick follow-up.
Jennifer Tejada, CEO
Yes. I think ROI has become increasingly important because you have these customers that are trying to adjust to supporting remote workers, at the same time, they're shifting their business to digital. They're having to accelerate a bunch of transformation that they had planned over years into months. And at the same time, the complexity of the digital ecosystem they're building all of this on is getting more complicated, it's proliferating. And so I think our ROI has become more pronounced in that environment, not less, but I think in the past, we were a little shy about sharing like what are the labor and productivity savings that you get as a result of reducing the amount of noise coming into a team, reducing the number of people that have to be made available for incidents and really shifting from being reactive and trying to respond more quickly to being proactive. So I think ROI has become more and more important as customers are looking to also find cost savings in this environment. We found that approvals are moving up the stack. And so making sure that you have a business case for PagerDuty over the long-term is really important. And the last thing that I would say is that our ROI is actually very measurable. It's very tangible. You can look at what the cost of a minute is in a digital business and demonstrate real returns, if you reduce the time it takes to respond and resolve an incident, if you reduce the number of people that need to be leveraged to do that, if you automate more and more of that process. So what we're really trying to do is quantify that automation and our customers really appreciate that.
Rob Oliver, Analyst
Thank you, Jen. Howard, I have a quick follow-up for you. It sounds like the quarter improved significantly, and likely the beginning of this quarter with the conclusion of the mortgage provider deal. Jen mentioned some positive signs, and I think analysts are trying to determine what the normalized gross rate is. Looking towards the second half of the year, given the pandemic effects, can you share how you view the guidance in light of these positive indicators and the improvements observed throughout the quarter? Thank you.
Howard Wilson, CFO
Yes, sure. Thanks, Rob. I'm really confident in the guidance that we provided for the quarter and for the full year. We have been prudent and balanced as we've demonstrated throughout our short history as a public company in terms of not knowing what we don't know in terms of the macro environment. So we have had to look at the environment within that context. But we are very happy with the momentum that we're seeing in the business. The things that Jen alluded to both in terms of improvement around sales pipeline generation and sales execution, all of those bode well for us as a company.
Rob Oliver, Analyst
Great. Thank you guys very much.
Jennifer Tejada, CEO
Thanks, Rob. Nice to see you.
Operator, Operator
The next question is from Sanjit Singh with Morgan Stanley.
Sanjit Singh, Analyst
Hi, Jennifer. Hi, Howard. It's good to talk to you both again. My question is about comparing Q1 and Q2 in terms of what you observed in the enterprise, digital engine, and midmarket segments. What were the differences between Q2 and Q1? As the quarter improved, where did you see the strength in these segments? Were there particular cohorts that were initially weaker but started to show improvement? Which segment of the business experienced better conversion?
Jennifer Tejada, CEO
Sure, I'll address that. It's great to see you, Sanjit. Early in the quarter, we noticed a more significant level of churn and contraction than in previous periods. While our churn rates remain exemplary with a high retention rate among our customers, we did notice greater contraction, particularly in small businesses and affected industries. Additionally, our sales cycles lengthened during this period, leading to some pipeline delays. However, as the quarter went on, we observed our pipeline beginning to build more in line with our usual patterns, and churn and contraction rates started to return to typical levels within the business. Given the current market conditions and overall economic climate, it's difficult to ascertain whether this is a long-term trend or a temporary situation. We're monitoring this closely. September usually proves to be an excellent month for pipeline development due to the summit, which we are looking forward to, along with some exciting product announcements and customer success stories focused on the ROI we're achieving. We're particularly enthusiastic about our progress with the digital operations management product. In comparison to Q1, Q2 showed a stronger attach rate for digital operations. The market is increasingly viewing event intelligence and digital operations as essential and transformative. EMEA continues to perform strongly, and we’re pleased to see consistent expansion in certain enterprise segments. Having a third of our midmarket and enterprise customers experiencing growth every quarter for the past six quarters indicates a healthy long-term relationship with them. Overall, we saw improved momentum throughout the quarter and a strong start to this one, and we are eager to maintain that momentum moving forward.
Howard Wilson, CFO
Okay. To clarify our segments, SMB includes companies with annual revenues of $50 million or less, which accounts for 20% of our business today. We began to notice pressure in this area starting in Q1, which continued into Q2. However, we are beginning to see some improvement in that segment, which had previously experienced significant challenges due to the macro environment.
Sanjit Singh, Analyst
That's super helpful. And then as my follow-up question, Jen is, one of the things we've been talking about software is that digital, because more important customers sort of accelerate to the cloud, at least that's the intention and that's the hope. So without being playing economic forecaster, when the economy does recover, what data points are you guys looking at internally to give you confidence that that's going to play out in a positive way for PagerDuty in terms of those being accelerators for the business? Is it what, Dave Justice is doing? Is it some of the product announcements that are coming out with that sort of hit on those points? What are you guys looking at internally that says when the economy does recover, we're going to be in a stronger market position?
Jennifer Tejada, CEO
Sure. Well, you mentioned Dave Justice, I mean, he's now been in the business for a couple of quarters and he has really deepened the leadership bench for us. Manjula Talreja, for instance, who now leads customer success. I mean, that's a really important part of driving expansion is making sure the customers are successful with the license that they acquire and that they know how to adopt and leverage best practices to maximize their ROI. He's really built a strong leadership team. That's not just improved the rigor in the business, but the focus on pipeline on long-term customer value. And I'm encouraged by the new customer lands. That could be a lot worse than it is and seeing some of the more strategic customers land, Genentech in the quarter as well as the large mortgage company that we mentioned this last month. Like it's good to see that those investments are still happening. And I think it just comes down to how well we can progress opportunities in the pipeline and likewise how well we can create demand. So we look at top of the funnel pretty carefully. And the last couple of months are really encouraging, right? In terms of what we're seeing. There's no doubt that our customers have been preoccupied with the shift of working from home and a very quick shift to being 100% e-commerce. And as that starts to become the new normal, I think they get back to more strategic infrastructure investments and strategic DevOps investments. I'm also really encouraged with what we're seeing in security use cases and customer service, and that's still very nascent for us. But when you sort of put that together with digital ops and new use cases, that increases our stickiness. And then finally you're going to hear us talk more about this, and we did in the last quarter as well, but yes, ops and event management continues to be, I think, an important control plane for our business in an area where we have a different philosophy from a product perspective, instead of a small team and a central IT organization analyzing past events. We're democratizing event management and analytics and predictive analytics to everybody on the platform, so that they can prevent major events from becoming incidents. And that in and of itself, I think has a terrific ROI as everybody moves to digital.
Sanjit Singh, Analyst
Appreciate it. Thank you, Jen.
Jennifer Tejada, CEO
Thank you.
Operator, Operator
Our next question is from Joel Fishbein with SunTrust. Joel?
Jennifer Tejada, CEO
Are you there, Joel?
Operator, Operator
All right. We'll come back to you, Joel. Next question is from Hannah Rudoff with D.A. Davidson.
Hannah Rudoff, Analyst
Hi, all. Thanks for taking my questions today. So Howard and Jen, you both talked about really strong attendance at your EMEA summit and the good pipeline that came out of it. I was wondering if you could talk about how maybe that pipeline coming out of the event compared to previous summits that you have had in person? And then maybe what learnings you took from that event that you're going to apply to the North American summit coming up? And then if you're worried about replicating things like networking online.
Jennifer Tejada, CEO
I really miss interacting with people in person. While Zoom is a big step up from phone calls, I prefer visiting our customers and showing them that we care. I'm still quite frustrated about that aspect. However, it's encouraging that we had three times the number of registrants and strong engagement from customers at the EMEA event. We were able to extend our reach beyond just those who could physically attend in London, and our pipeline has reflected that growth. For instance, we had just over a thousand attendees at last year's San Francisco summit, and now we have over 5,000 registrants, which is nearly five times last year's figure. We aim to convert that interest into results. I believe we are well-positioned at this moment with a more productive and focused sales team, especially with some exciting new products on the horizon. In terms of networking, we've tried various activities like wine tasting nights, and while everyone would prefer in-person meetings, we've also seen productivity gains. I can now speak to six customers in a day instead of traveling for hours to meet just two, which has significantly altered my schedule. The enterprise team, in particular, benefits from Zoom for discussing strategic partnerships. We're still adapting to this new normal. Fortunately, our business model focuses on rapid customer acquisition and expansion, mainly through e-commerce, which remains unchanged. Building PagerDuty's visibility and hosting summits are essential for driving demand and expanding our customer base for future growth.
Hannah Rudoff, Analyst
Great. That's helpful. And then just a question for you, Howard, are you thinking about cost savings exiting the pandemic? I know a lot of companies have talked about the fact that even when we're in a new normal, they're going to be doing less travel and more digital engagement. And Jennifer was just talking about how productive she's been without all the in-person travel. So wondering if you could share your thoughts on that.
Howard Wilson, CFO
We have given considerable thought to this topic and it encompasses various areas, including our facility approach. Our presence in major hubs has been crucial for our growth and employee base expansion. We are evaluating our travel plans as well. We're performing long-range forecasting to compare our return to a more traditional model with the current landscape. Like many companies, we are re-examining our work-from-home strategy to leverage the insights gained during the pandemic while also seeking to enhance in-office experiences where appropriate. From a cost perspective, we are assessing what this could entail across different model scenarios.
Hannah Rudoff, Analyst
Great. Thank you.
Operator, Operator
So we have one more question, and it is from Brian White with Monness, Crespi. And I'll ask Brian to unmute. We might not have audio from Brian, and if not, that would be our last question. Brian, can you hear me? Okay. Well, I'm going to turn it over back to Jennifer for closing remarks.
Jennifer Tejada, CEO
Well, thank you, Matt, and thanks again to the Zoom team for helping us make this possible. I know this is always a busy earnings day. There are many people going out, and so I really appreciate all of you spending time with us today. I would just reconfirm or reaffirm that we are very encouraged by the momentum we've seen in the last couple of months. We see this as a long game, and we're going to continue to focus on our customer success and helping them make the most out of both the opportunities and the challenges that they see in this environment. And we appreciate all of you being here and hope you stay safe and well. Thank you very much.