Earnings Call Transcript
PagerDuty, Inc. (PD)
Earnings Call Transcript - PD Q3 2020
Operator, Operator
Good afternoon. My name is Ian, and I'll be your conference operator today. At this time, I would like to welcome everyone to the PagerDuty Third Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the conference over to Stacey Finerman. Please go ahead.
Stacey Finerman, Moderator
Good afternoon, and thank you for joining us on today's conference call to discuss PagerDuty's fiscal third quarter financial results. With me on today's call are Jennifer Tejada, PagerDuty's Chairperson and Chief Executive Officer; and Howard Wilson, the Company's Chief Financial Officer. Statements made on this call include forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date such statements are made, and we undertake no obligation to update these forward-looking statements. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to 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 tools for comparison. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings release. Further information on these and other factors that could affect the company's financial results are included in filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors and the company's most recent quarterly Form 10-Q previously filed with the SEC. Now I'd like to turn the call over to our CEO, Jennifer Tejada. Jennifer?
Jennifer Tejada, CEO
Thank you, Stacey, and thank you, everyone, for joining us this afternoon for our third quarter earnings call. Q3 was a strong quarter as revenue grew 37% year-over-year to $43 million. I'd like to share three highlights in the quarter. First, customer growth remains consistently strong as we scale. We ended the quarter with over 12,400 customers, up 15% year-over-year and growth has remained remarkably steady over the past seven quarters. We also saw sustained robust growth with our enterprise and mid-market customers that have annual recurring revenue or ARR above $100,000 growing 49% year-over-year, similar to the growth we delivered in the second quarter. These two customer metrics that show a sustained growth rate on an increasing base demonstrates the durability in our revenue growth. Next, we closed some terrific large strategic deals in the quarter continuing to solidify our leadership position in enterprise. We're now partnering with two of the three largest defense contractors in the world and two of the five largest investment banks after new wins in each of these sectors. These wins, both Fortune 100 companies, have a combined value of almost $2 billion in ARR. The requirements to do business in huge multinational, highly regulated verticals are significant, and our multiyear enterprise tech investments born in the cloud architecture and go-to-market models set us apart. Both companies demonstrate progress in our platform, especially our machine learning and automation-based features, our ease of use, our proven resilience in security and scale, and our referenceable enterprise track record for value realization. Our go-to-market teams continue to win expansion business in our base through a laser focus on customer success, resulting in an 81% increase in customers that spend over $500,000 in ARR a year with us. This quarter we won a significant expansion partnership with a large global software company headquartered in Europe. The relationship started with the U.S. subsidiary, and they have now expanded users and upgraded to the digital operations package in the European business to support their global growth and enhance the trust our customers place in their software and services. We continue to see growing demand for our digital operations offering as customers realize measurable value through reducing incidence and by advancing their digital transformation efforts. This underscored the expansive and early addressable market we see in digital operations management this quarter where 45% of the net new ARR was attributed to the digital operations package. This bundle includes our platform, our workflows and Modern Incident Response, our AIOps solution event intelligence which leverages machine learning to automate work, visibility which quantifies business impact in real-time and our analytics product, which provides recommendations on improving digital operations management and metrics to benchmark against other teams. We're proud of our revenue growth rate and net dollar retention as they rank highly within our peer group. That said, we see an opportunity to stabilize our dollar-based net revenue retention. As we mentioned in Q2, we front-loaded sales hires in the first half of the year to increase our sales capacity. However, we didn't ramp those salespeople as fast and as effectively as we could have in territories with significant expansion upside and this impacted sales productivity which put pressure on our expansion revenue. This is an execution issue that we're working on, not a competitive issue, evidenced by our customer retention rate that has remained constant at well above 95%, meaning, we churn far less than 5% of customer ARR in any given year, and also validated by our gross margins that remain best-in-class at 85% for the last six quarters. Over the last few months, we implemented the following initiatives that are delivering early but encouraging improvements in more effectively ramping salespeople. First, we doubled down on sales enablement leadership, programs and tools to ramp new reps faster. Second, we continued our efforts to simplify and differentiate our platform and messaging in an increasingly noisy market, including more clearly articulating the return on investment for PagerDuty and making self-service and discovery of new products easier for all of our customers. Finally, I'm very excited to share that we have strengthened our senior leadership team in sales with the appointment of our first Chief Revenue Officer, David Justice, a high-caliber global sales leader from Salesforce and Cisco with significant depths in commercial and enterprise sales and experience in infrastructure, security, and customer service. Dave will join us in early January and I expect him to be an excellent complement and partner to our CMO Julie Herendeen who has expertise in growth, digital, and high-velocity B2B marketing. We remain incredibly excited about our opportunity to extend our lead in digital operations management, a market where we see a total addressable market of at least $25 billion for incident response alone and a $100 million when you consider all the teams across the company that are part of managing digital operations. Let me explain what we mean by digital ops and why PagerDuty is in a unique position. An Always-on World and customer expectations results in every company needing to be a technology company. As a result, our customers continue to move more of their services to the cloud constantly iterating on their apps to provide the best customer experience. In parallel with this market transition modern work has changed with mix shifting from planned and structured work to emergent, mission-critical, spontaneous, and unstructured work. PagerDuty is the only partner that leverages machine learning to orchestrate teams on complex issues across multiple business units and geographies converting a dilutive data into insightful action in seconds and minutes. Digital operations are increasingly costly and complex to manage and the stakes are high where a minute of disruptions can cost $200,000 to $500,000 in revenue. This requires a long-term partner that sits above the rest of the technology ecosystem acting as a central nervous system, orchestrating all these critical workflows simultaneously and cutting through the noise. PagerDuty is in the unique position to work for large, complex enterprises, as well as innovative startups, because we've been architected for the cloud with enterprise-grade resilience and security at scale. While our customers frequently start with on-call management to accelerate their agile transformation, we increasingly see customers adopting our additional digital operations management products to support their digital transformation programs and business outcomes. The Gap initially started with 1,500 PagerDuty business platform seats to support a DevOps 'you build it, you own it' culture. Early success with PagerDuty led the company to add another 1,000 users. As we expanded our product capabilities with greater intelligence and automation, Gap saw that they could realize further value by leveraging our digital operations package to reduce major incidents that could cause millions of dollars. Gap now uses PagerDuty to directly connect product and IT teams, as well as distribution centers creating a smarter, more streamlined approach to handling incidents. We estimate that this digital operations upgrade will save Gap millions of dollars per year. There are several great solutions in the market that address different and sometimes interrelated challenges associated with digital transformation including many of the companies that went public this year. We recognize it can be hard to discern how we complement each other. Some companies like Datadog, Cisco AppDynamics, and New Relic show you the health of all your IT services in a single pane of glass. Others like ServiceNow and Jira will give you standard workflows to route your customer service and help desk ticketing. These are all valuable services. But when there is an unpredictable customer-facing, time-sensitive, mission-critical work, analytics and sequential ticketing are limited by manual detection, a lack of speed, inflexibility and the absence of data-driven intelligent work orchestration. PagerDuty is different because we go beyond finding signals in the noise to automate and orchestrate the cross-functional work of people all the way through to a resolution in service of the end customer experience. Only PagerDuty can do this because as the central nervous system of the software ecosystem, we consume a supersets of data from all the different technology services our customers use through over 350 integrations to build a holistic understanding of our customers' digital health. When we recognize symptoms of a service becoming unhealthy, we pattern-match the situation against 10 years of data on how IT services performed and how humans respond to them that we can bring together a small team of only the right owners and subject matter experts with the right detailed technical and business context and help from AI-based automation to action solutions and resolve issues proactively. Our longstanding customer and partner, Sumo Logic illustrates this quite well. They expanded their use of PagerDuty in the third quarter by purchasing our digital operations package. As a SaaS business relied heavily on by developers to understand the performance of their applications, it's critical their platform is highly reliable at scale. They use PagerDuty to orchestrate teams for immediate response to incidents when seconds matter and they increasingly leverage PagerDuty to prevent events from escalating into major customer-disrupting issues. Now that we have set the stage for you in terms of the sizable opportunity and explain why PagerDuty's in such a unique position, I'll talk about how we capture the opportunity by winning in enterprise, increasing our revenue from new products, and validating our position as a horizontal platform. First, we need to win in enterprise where today we serve 58% of the Fortune 100 after adding another two companies this quarter and 38% of the Fortune 500. In these accounts, significant expansion opportunity exists for both user up-selling and new product cross-selling. Enterprise, like our other segments, is greenfields and a growing opportunity for us. Our deals are largely uncontested as our competitors lack the product depth, track record, and resilience of scale to serve this segment. We're cloud-native, architected for highly resilient 24/7 operations and have never had a maintenance window. We implement change in production because our customers can't afford even moments where they lack visibility and awareness of their digital operations. This is one of the many critical requirements to support the Always-on World and is one of the reasons that our customers continue to trust us as a mission-critical platform partner year after year. In addition to our strength in self-service and small and medium-sized businesses, we see significant upside in mid-market and enterprise. This is precisely where sales execution comes into play. Our enterprise sales motion builds on, but differs from our frictionless direct-to-developer sales motion. With our field-based teams engaging with developer teams and senior leadership alike addressing the strategic needs of economic buyers and the technical needs of product users, our enterprise and mid-market customers realize value quickly while meeting security administration and compliance requirements, and large businesses is critical. Our solution meets these needs as illustrated by our recent ITC study that shows PagerDuty enterprise customers averaged $3.6 million in annual savings from reduced visits and revenue risk mitigation, a four-month payback period and a 731% ROI over three years. As we strengthen our senior sales leadership with the appointment of Dave Justice as Chief Revenue Officer, we will have more of a global 2000 manage their digital operations optimizing revenue and customer experience and significantly reducing operational expenses in the process. Next, we are increasing our revenue from new products. Modern Incident Response, our AIOps solution, Event Intelligence, visibility for situational awareness, and analytics for measuring operational and team health and productivity, all of which build upon data and learnings from our platform. We also announced two new capabilities this quarter; Intelligent Dashboards and Intelligent Triage. Intelligent Dashboards is new to our analytics product and leverages 10 years of data through its spotlight recommendation engine that teams can use for future improvements such as stopping on actionable alerts, fixing repeat issues and improving escalation practices. It also provides managers with built-in benchmarks to see how their teams compare to peers in the organization and across their industry. Intelligent Triage is new within Event Intelligence and provides additional context into issues so teams know how to prioritize their work and can significantly reduce the time between detection and resolution of an issue, cutting outage time and mitigating the risk of business impact. All of our products help businesses mature their digital operations and deliver greater returns. When customers use these products they mature from reacting to incidents more efficiently to proactively managing their digital operations and preventing problems before they arise. As I mentioned before, we've also seen some great signals here recently with regards to our ability to upsell these products as 45% of the net new ARR we booked in the quarter was attributed to the digital operations bundles. Last but not least, we continue to validate our position as a horizontal platform. What we mean by horizontal is that customers increasingly apply our solutions to teams and challenges well beyond the purview of DevOps and IT. In the third quarter, we launched PagerDuty for customer service in partnership with Salesforce and Zendesk. This follows the launch of PagerDuty for security operations in February. Customer service management is a significant opportunity for us as those teams that are on the front lines of ensuring customer experience and rapidly resolving customer-impacting issues is a cross-functional effort. Being a horizontal platform also means being applicable to all companies with time-sensitive critical work. This brings to mind another new customer partnership we initiated in the quarter with a Top 20 U.S. city municipality. Think about essential services like power, gas, and water, where always on is both a physical and virtual must-have. Historically, the city would be notified of issues by a customer with little visibility into the underlying causes. Service outages were costly and would take upwards of 45 minutes to coordinate teams after a power outage before they even start to triage the issue. Using PagerDuty, this city redesigned its digital operations with the help of our expert services team, so they can address issues quickly and proactively. And with PagerDuty Modern Incident Response, the city can automatically run response plays to resolve issues before customers are impacted, significantly reducing the time from detection to resolution and mitigating revenue impact. One additional highlight from the quarter was our Annual Summit Industry Conference in San Francisco where we built significant sales pipeline value in the millions. This is our biggest and best summit yet with over 1,200 attendees, a 40% increase from the previous year. Customers were supportive and excited about the new innovations we announced and our investments in customer service through deeper integration with Salesforce and Zendesk. As we close out the calendar year, we at PagerDuty want to wish our entire community of users, customers, employees, partners, and shareholders a safe, happy, and uneventful holiday period. Over the holidays, we will continue to help our customers reduce the financial customer and employee impact of emergent work. We're also keenly aware that the holidays can be difficult for those in need. So in honor of our customers, we're supporting the delivery of time-sensitive healthcare for those in needs by donating $25,000 each to VillageReach and Medic Mobile, two of our PagerDuty.org partners. With that, I'd like to turn the call over to our CFO, Howard Wilson.
Howard Wilson, CFO
Thank you, Jennifer. We're pleased with our third quarter of fiscal 2020 results. Revenue for the third quarter increased 37% year-over-year to $42.8 million beating the high end of our guidance. Strong new customer acquisition, new product adoption, and healthy growth in international geographies particularly EMEA, all contributed to our strong results. Our non-GAAP gross margins, which are industry-leading, remain strong at 85%. Our Non-GAAP EPS came in at negative $0.10 per share in line with our guidance. We continue to add to our track record of managing capital efficiently generating positive cash flow again this quarter. We saw a 15% increase in total customers on a year-over-year basis to 12,436 customers. We were pleased to see further evidence of our success in the enterprise with customers above $100,000 in ARR, up 49% year-over-year to 303 customers. As Jen mentioned, growth in both total customers and larger customers were in line with the growth rates we've exhibited for several quarters now, demonstrating our ability to grow off a bigger base. Our dollar-based net revenue retention for the quarter was 129%. This metric will fluctuate relative to the amount of new business versus expansion we do in a quarter and the variabilities of customer buying patterns. As Jen mentioned in her remarks, some of the challenges we faced with ramping new sales reps has led to suboptimal execution on the expansion opportunity in our installed base, which has created some downward pressure on this metric. However, we're pleased to see our tenured sales reps continue to drive significant new and expansion deals. For example, we added two new customers in the Fortune 100 bringing us to 58 and increased the number of customers who spent over $500,000 in annual recurring revenue with us by 81% year-over-year. In fact, this quarter was our largest quarter for annual recurring revenue from new customers. Our international revenue grew 52% year-over-year. This was an exceptional quarter for our EMEA region including one of our largest deals for the quarter with a global enterprise software company based in Europe. I will now turn to the detailed financial results. These results are on a non-GAAP basis. Our GAAP financial results along with a reconciliation between GAAP and non-GAAP results can be found in our earnings release. In the third quarter, non-GAAP gross margin was 85%, in line with the third quarter of last year. Our cloud-native architecture, DevOps approach, and programmatic approach to customer success drives our efficient operating model. We look to run our business at between 84% and 86% gross margins. When it comes to managing the operating expense side of the business, we take a balanced approach to growth and profitability. In the near term, we are more focused on investing in areas that will help us scale our growth as we look to take advantage of the opportunity ahead of us. However, over the long term, as we scale, we expect to reap the benefits of operating leverage. In the third quarter, non-GAAP operating expenses were $46 million compared to $32 million in the third quarter of fiscal 2019. Non-GAAP research and development expenses for Q3 were $11 million compared to $8 million in the same year-ago period, representing an increase of 39% year-over-year. Innovation has been and will continue to be a top priority for us, as we continue to extend our lead in real-time operations. We expect R&D to increase in Q4 both in total dollars and as a percentage of revenue. Non-GAAP sales and marketing expenses for Q3 were $25 million and grew by 43% compared to Q3 of fiscal 2019 of $18 million. As we discussed on our Q2 earnings call, we plan for incremental discretionary spend for our Annual Industry Conference where we set a new record for attendance and sales pipeline generation. For above-the-line advertising for our brand campaign, we expect sales and marketing to decline in Q4 back to a run rate close to Q2 and to decrease as a percentage of revenue as we continue to scale our sales team and improve productivity. Non-GAAP general and administrative expenses for Q3 were $9 million for the quarter and increased 37% year-over-year, a more modest increase than in the previous two quarters given our investment in headcount and systems in the latter part of FY 2019 team in anticipation of becoming a public company. We expect general and administrative expenses to increase slightly in Q4. Our non-GAAP operating loss in the quarter was $9 million compared to a loss of $6 million in the same quarter last year. Our non-GAAP operating margin was negative 22% in Q3 and negative 18% in the same period of last year, primarily driven by investments in go-to-market and increases in research and development. Over the longer-term we expect improvement in operating margin. Non-GAAP net loss for the third quarter was $8 million or a net loss of $0.10 per basic share compared to a non-GAAP net loss of $5 million or a loss of $0.24 per share in the third quarter of last year. The drop in interest rates negatively impacted EPS by about a penny this quarter. We generated $3.4 million in operating cash flow in the third quarter as compared to $2.8 million in the prior year. Free cash flow was $2.3 million in Q3 compared to $200,000 last year. Free cash flow margin was a positive 5% compared to positive 1% in Q3 last year. Working capital improvements were a major driver here as we continue to manage capital efficiently. As we mentioned on our last earnings call, we're still expecting an increase in capital expenditures related to our office build-outs. This will negatively impact free cash in the short-term. On a long-term basis we will work towards sustainable free cash flow. Turning to the balance sheet; we ended the quarter with $346 million in cash, cash equivalents and investments, up $218 million from the end of the fiscal year 2019. This was primarily driven by proceeds raised in our initial public offering as well as positive working capital. Moving onto guidance for the fourth quarter of fiscal 2020 and the full fiscal year 2020, revenue is expected to be in the range of $44.5 million to $45.5 million for the fourth fiscal quarter, and we'll see our full fiscal year 2020 in the range of $165 million to $166 million. Non-GAAP net loss per share is expected to be in the range of $0.06 to $0.07 for the fourth fiscal quarter and in the range of $0.38 to $0.39 for the full fiscal year 2020. Basic shares outstanding for Q4 and the full-year fiscal 2020 are expected to be $77 million and $65 million, respectively. With that, Jennifer will make some closing comments.
Jennifer Tejada, CEO
Thanks, Howard. In closing, I've just spent the last three days in Las Vegas with our partner Amazon Web Services, and a number of our largest and most innovative customers at AWS Reinvent. Every conversation reinforced the importance of cloud adoption and digital transformation. Andy Jassy also reminded us in his keynote Tuesday of how early we are in the cloud migration journey with only 3% of the world's $3.7 trillion IT spend in the cloud today. 97% of that market is still on-prem and with cloud migration being one of PagerDuty's most popular customer use cases, I've never been more optimistic about the opportunity we have in front of us. We are focused on the long game of building a company that generates measurable value for our customers through innovation that solves big problems and on delivering durable growth on a cash-efficient business model. Given the innovation we continue to build into our platform, this quarter's uptake on digital operations management and our growth in enterprise is truly an exciting time for PagerDuty. Operator, you can now please open the call up for Q&A. We're happy to take your questions.
Bhavan Suri, Analyst
Hey guys. Thanks for taking my questions and congrats on the David Justice hire. Obviously, he did great things at Cisco and Salesforce, so that should bode well, so nice job there. I guess, I want to touch on sales and sort of the things you've brought up here in terms of execution. And as you guys think about building a business for the long term, I don't care about the next couple of quarters because these things do take some time. But as you look at the pieces playing out over the next say 12 to 24 months maybe a couple of years, I would love to get some color or understanding of your confidence levels of returning to sort of the net dollar retention growth rates you had and the growth rates you had driven by sort of that improvement in sales price. Just some understanding of how you think that will play out over the next 12-24 and sort of what gives you confidence in those returning rates? Thank you.
Jennifer Tejada, CEO
Sure. I'll start with market demand and the market opportunity because we're in a very strong leadership position that we're extending, particularly as it relates to mid-market and enterprise where our direct go-to-market motion is unique. In that we can land customers through self-service, expand them rapidly at lower values, but then deploy a direct sales organization that really provides a strong focus on customer success. And when you start with a strong market position in a market where there is credit-like growing demand, in my view, and then add to that the fact that we are going from strength to strength from a product perspective, where we've built the trust and the foundation of our business on our first product on-call management, but are starting to see real validation of our ability to expand the platform to help companies solve problems beyond DevOps and IT in areas like customer service, security, and others. We're very excited about that opportunity to grow within the base that we've already landed and not a single one of those customers is sold out. It's early days in the journey with all of them. So bringing on a strong leader like Dave who comes to us with significant at-scale global leadership experience, but also the technical domain expertise, I think it presents a really unique opportunity. It gives me a lot of confidence. I'd also mention that our sales team is doing a very good job. We still had a terrific quarter growing at 37%. We're still very efficient in the way we go about it. And we're landing larger deals. You look at our customer cohort, up over 100,000 growing at 49% and customers over 500,000 growing at 81%. That's a very strong base to drive our execution improvement on top of it. So I feel very optimistic about our ability to stabilize that net dollar retention rate and continue to build our position in what I think is a very early but exciting market.
Bhavan Suri, Analyst
Got it. Got it. And then one quick follow-up. Obviously, you started to roll out a number of very compelling use case-based solutions basically for cloud operations, made duty for customer business intelligence, business response, sorry. I just want to understand early interest in our solutions and the pricing monetization strategy for those solutions? Thank you.
Jennifer Tejada, CEO
There's been considerable interest in our solutions because they were developed based on customer needs. Customers have expressed that during technology-driven incidents, it's crucial to communicate with the rest of the business to launch an effective commercial response. This includes engaging with customers and managing any legal or public risks that could significantly affect operations. For example, the business response feature was created to process the insights from these incidents and automate the communication of that information. This allows responders to focus on resolving critical issues while keeping stakeholders informed so they can act promptly. It's essential that we facilitate automated action through the appropriate people at the right time, which has generated significant interest. Additionally, there has been a strong demand for PagerDuty in security, even though it was not initially designed for that purpose. We have enhanced our integration capabilities to support teams working together with IT and DevOps to improve their coordination, response times, and minimize potential business losses. Furthermore, as we improve our engagement with senior leadership, such as CIOs, CTOs, and sometimes CFOs, they are seeking a more comprehensive platform of services. They aim to replicate the successes they've experienced within their developer and IT teams to enhance efficiency and operational improvements across other departments. This conversation often begins with the established trust that current users have in PagerDuty, who appreciate our services and want to drive similar business impacts in other parts of their organizations.
Howard Wilson, CFO
And then Bhavan, this is Howard. I might just comment on the pricing aspect of this. In terms of the platform, this doesn't represent new products for us. This is the great thing about these new use cases as they emerge. The platform being a horizontal platform that can be applicable to any number of use cases means that the same pricing applies regardless of the use case. And so we essentially do the work to ensure that we have the right kinds of integrations available to support this use case or we work with customers as they build custom integrations using our open API to be able to access the platform appropriately.
Jennifer Tejada, CEO
And suffice to say, you can expect us to monetize through the expansion of new users in new teams and new functions or divisions in a business that we don't serve today. And in some cases in services where we're going, those organizations get up and running.
Bhavan Suri, Analyst
Got you. Very helpful. Thanks guys. Appreciate it.
Jennifer Tejada, CEO
Thank you.
Howard Wilson, CFO
Thanks, Bhavan.
Matt Hedberg, Analyst
Okay guys. Thanks for taking my question. Jen, it looks like Dave is a great addition to the team. And it was certainly good to see the growth in large deals. I think that was really impressive, obviously growing a lot faster than even revenue. I'm curious on the sales rep productivity; obviously, you noted that they aren't ramping quick enough but tenured reps are doing better. I'm curious if you can comment on with the capacity that you've added, do you have the right mix of newer reps? I guess, secondarily how quickly do you expect this cohort to ramp under Dave's leadership? And are there any other broader changes that Dave needs to make to really position yourself for this next leg of growth?
Jennifer Tejada, CEO
I think we need to continue to do what we do well and but do very efficiently and quickly. So we front-loaded the hiring in the first two quarters of the year and it did not digest the elephant fast enough. And so, it took some of our reps a longer period of time to ramp. But having said that, I'm really pleased with their progress and how they are coming up to speed. Some of the deals we mentioned today came from relatively new reps who are working under more tenured managers. And so I think that creates a platform for us to continue to improve. I think Dave will come into the business and look to lean into things that we do well and identify new processes, new opportunities to improve and build processes where we don't have processes and ensure that the way we go to market and engage with our customers continues to be focused on their success and on value, but really continuing that shift from selling on the basis of technology and feature and function to selling on the basis of driving business outcomes and realizable quantifiable value. But I think it's like any other fast-growing business. There are always new things you have to learn how to do as you get bigger and things that we can be better at and be smarter. And despite the execution issues we have and we delivered a terrific quarter, and I'm very proud of that. I think it gives Dave a really good foundation to start from and hit the ground running.
Matt Hedberg, Analyst
That's helpful. And then the digital operation disclosure was super helpful. I'm wondering can you talk about what happens to spend when a customer moves to more of this platform approach? And maybe what the sales cycles looked like? I assume this is more of like an up-sell or maybe there's a new sale into a new account, but curious on kind of the sales cycles for these broader platform sales versus point-based sales?
Jennifer Tejada, CEO
Sure. It varies from one customer to another. For example, a large retailer began using our initial solution with several hundred users and expanded to over a thousand. They noticed the benefits of Event Intelligence during a trial, specifically the advantages of automation and machine learning, which help consolidate alerts that would typically be treated as separate issues. Instead of involving many people in an inefficient process, we direct the issue to a small cross-functional team that can resolve it quickly. Their trial demonstrated the benefits of this approach, which led them to explore other solutions within our platform. We also see significant interest, especially from CIOs and CTOs, in our analytics product, which clarifies the true costs of operations. Many customers use the cloud to modernize legacy systems and redirect their investments toward new customer-facing applications. However, legacy platforms can hinder new services, potentially costing more in unplanned work and lost revenue than initially saved. Our analytics highlight these issues and help identify team health, recognizing early signs of burnout and comparing team performance. This is tied to actual operational costs and business outcomes. There's a growing interest in having a centralized source of truth, as this information was previously provided to executives manually. Additionally, we observe that more senior buyers are becoming involved in the platform purchasing process. With many CIOs and CTOs being technical, they see the value of PagerDuty and our advanced technology, which fosters confidence. The sales cycle does not necessarily slow down; often, in expansion scenarios, it aligns with our typical sales cycles. We have recently observed larger deals with multinational firms starting with digital operations rather than traditional entry points, and we encourage this trend as it allows customers to realize value more quickly.
Matt Hedberg, Analyst
Super helpful. Thanks a lot.
Jennifer Tejada, CEO
Thank you.
Operator, Operator
Our next question is from Rishi Jaluria from DA Davidson.
Unidentified Analyst, Analyst
Hi guys. This is Hannah on for Rishi. Thank you for taking my questions. Just first, I was wondering if you could talk about traction with your PagerDuty for customer service and what expectations you have for the next 12 months?
Jennifer Tejada, CEO
Thank you for the question, Hannah. It's nice to hear a female voice in the Q&A queue. I would say that we've had very good traction. We only just released PagerDuty for customer service in September at our event. And I think both we, and Zendesk, have been very encouraged by the results. I think within the first few weeks we saw over 30 new customers sign up to those services and these are customers that hadn't been using us within their customer service teams in the past. So I think that's a really good early indicator. But we won't be providing detail on that as a separate line item in the future. Having said that, if you just think about how these set of problems play themselves out in customer service. Identifying a customer issue before the customer does it for you is a really important value proposition for our customers and then resolving customer cases. That process that you need to go into one looks a lot like an incident resolution process, so our customer service teams kind of see that as being analogous and leverage what they're learning from their developer counterparts. And two, more and more of the problems that customer service teams are trying to solve for their end customers have a technology-centric origin, something in the app didn't work. My order didn't deliver as it arrived. My car didn't show up, whatever the case may be. The customer service are now inextricably linked with the app development and IT teams in the business and that's providing a lot of momentum there for us.
Unidentified Analyst, Analyst
Okay, great. That's helpful. And then it sounds like you have a lot of opportunities both inside the base and with new customers. Wondering if you could talk about how you prioritize these two in balance?
Jennifer Tejada, CEO
Yes. Well, the good thing is because we have self-service land motion through our digital marketing engine, you don't always have to trade-off one for the other. The vast majority of our customers land by coming to us through a qualified search. They already have a set of problems. They know our reputation. They start with a trial and experience the product and then they swipe a credit card and go. And so that doesn't take time away from a sales rep. And then our sales teams are more focused on pure expansion and really driving upside. And occasionally our sales teams will engage with the new lands, like the large defense contractor I mentioned, where they wanted more help. They didn't want to start with an online trial; they really wanted to be handheld through the process and in that particular case, we came out with a much larger land. So, it sort of varies. But we see both landing new customers, especially in mid-market and enterprise where the expansion opportunity is much larger as an area where we want to continue to focus by simplifying what our product does, and how it works, and driving account-based marketing into prospects that we think could be interesting. And at the same time continuing to make it really easy for both customers and prospects alike to discover our product, discover new products, and try them online if they don't want to engage with a salesperson. If you've met developers, they often don't really want to talk to salespeople; they just want to use the product and go. And so I think the last thing I would underscore there is our growth is product-led and we win on the basis of the breadth of our platform, the depth of our technology, and our track record for delivery. And that's something that will not continue to change. We're very focused on innovation, on listening hard to what customers are asking us for, but also thinking about what's around the corner from them and pre-empting some of the things that we think they're going to need in the future.
Rob Oliver, Analyst
Great. Thank you, guys for taking my question. One for Jennifer and then a quick follow-up for Howard. Jennifer, you mentioned on the call and I think you mentioned last quarter as well that most of your deals are still uncontested. I'm assuming when you get to the sort of scale of the large banks and large aerospace and defense contractors that's probably not the case. And what I'm curious to know is where were there are other vendors clearly in there, does you guys being an independent sort of neutral third-party resonate to the sale? And could we drill down a little bit more into the sales process? I also thought it was really unique that the aerospace and defense contractor had not better customer before with the larger initial land. So I would love to get a little bit more color on those deals and the sales motion?
Jennifer Tejada, CEO
Sure. So a couple of things. One, thanks for the question because I actually like talking about this part of the process. So you're absolutely right that our customers appreciate the fact that we are neutral third-party that we take signals from any software-enabled environment across not only the 350 plus out-of-the-box integrations we've built, but custom integrations that customers will build using our API keys. And they like the fact that they are coming in through kind of one catchment then being consolidated and correlated using our machine learning, our Event Intelligence to turn those events into insightful actionable work that then gets orchestrated the right people. So that neutrality we believe is very important and our customers reinforce that. The first part of your question though around the presumption that as you move into larger enterprises it's actually more competitive. The opposite is actually the case. As we move up into larger enterprises there's nobody else there because there isn't another platform that has proven at scale with tens of thousands of users in highly regulated environments that does what we do and is liked by the user community. And so we really don't see much competition there. In the case of the defense contractor that you mentioned, it's a great example of one of our more tenured reps who has been tremendously successful selling our first product, but learned through some other customer relationships about the opportunity to go more broad in the account to new use cases and has taken that knowledge and applied it and has been working with this particular contractor for a period of time and helping them to see, one, what's the size of the problem? Like how much does it cost you when something doesn't work the way it's supposed to work? And these could be machine automation systems. These can be life-and-death situations, not just IT and technology situations. So there is a high-stakes game. Reliability and trust become very, very important in that. And I think this particular salesperson who we're very proud of leans hard into that value proposition, but also really through the process. I think one of the things I'm most proud of about our sales culture and the team that Steven and our sales leaders have built to-date is that these are people that genuinely want to partner with their customers and help them be successful. They're in their effective partners and thought partners; they're often hands-on helping customers get up and running and that lends to a long-term mindset and our long-term relationship that I don't think you can get to in a 100% frictionless environment. I think you need that kind of account management and relationship, but we try to do it in a very efficient way. Did I answer the whole question?
Rob Oliver, Analyst
You did. Thank you. That's great. Jennifer, really appreciate the color. And then just a quick follow-up, Howard for you. You did call out EMEA as particularly healthy in the quarter. And I know it sounds like you guys signed up a pretty exciting deal with a large software company. Was it more broad-based than that? And can you talk a little bit to that as a trend or was it more of kind of that deal?
Howard Wilson, CFO
Yes. That was actually interesting. This is a global software company where we were already broadly deployed within one of their subsidiaries. And they started a process with us which ended up being a little bit longer than our regular process because they were fairly rigorous in terms of the evaluation. Their subsidiary had been using more of our standard offering and hadn't taken the full set of offerings including Event Intelligence and those components. And so in this deal, the team is very thorough intensive evaluating what they were going to get out of it in terms of both management capability and the ability to be more proactive with their business. And so that was an example of a customer than who strategically find that for our digital operations plan with a view to being able to deploy across a fairly broad set of users at the outset, but with a very large population that we could still get to.
Rob Oliver, Analyst
Great. Very helpful. Thank you both very much.
Operator, Operator
And there are no final questions at this time. I will now turn the conference back over to Ms. Finerman for closing remarks.
Stacey Finerman, Moderator
Great. And thank you for everyone and thank you for taking the time for our call. I know a lot of you are busy with many other calls today. And have a great night, and happy holidays.
Operator, Operator
Ladies and gentlemen, this does conclude our call. You may now disconnect.