Earnings Call Transcript
PagerDuty, Inc. (PD)
Earnings Call Transcript - PD Q1 2025
Operator, Operator
Good afternoon and thank you for joining us to discuss PagerDuty's First Quarter 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 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. Further information on these and other factors that could cause the company's financial results to differ materially are included in filings we make with the Securities and Exchange Commission, including our most recently filed Form 10-K/A as well as our subsequent filings made with the SEC. With that, I will turn the call over to Jennifer.
Jennifer Tejada, CEO
Good afternoon, and thanks for joining us today. PagerDuty delivered a solid first quarter, with revenue growth near the midpoint of our guidance range at 8%, and non-GAAP operating margin four points above the range at 14%. This was our seventh consecutive quarter of non-GAAP profitability. We increased annual recurring revenue by approximately $11 million to $463 million. ARR growth stabilized at 10% for a second consecutive quarter, strengthened by improving new and expansion ARR. We continue to see momentum in large multiyear, multiproduct contracts, with customers spending more than $100,000 growing 6%, while both customers spending more than $500,000 and $1 million grew in the high teens. The impact of the macro environment can be seen in pressure on gross retention due to capital constraints, particularly in SMB. However, continued improvement in large deal execution as enterprise customers embrace the Operations Cloud again this quarter demonstrated both product-to-market fit and the potential for upside as the macro improves. Dollar-based net retention came in as expected at 106%. Based on our net new ARR momentum and current retention, we remain confident that both DBNR and ARR growth will strengthen in the second half of this year, enabling the business to exit the year above Q1 levels. The success of our go-to-market teams in providing multiproduct solutions to large customers is evidenced by more than 60% of our net new ARR for the quarter composed of customers investing in products in addition to incident management, such as AIOps, Automation and Customer Service Ops. Our platform enables enterprises to modernize their business and technology processes and culture, standardize automation practices, transform incident management and automate operations. This solution-to-market fit enabled strong multiproduct pipeline creation in Q1, supporting our confidence in improving both growth and productivity throughout the remainder of the year. In March, we introduced a new enterprise plan for incident management. This solution incorporates our market-leading Incident Response offering, select AIOps features, and Jeli's opportunity analysis and deep Slack integration into a single end-to-end offering. Jeli enables teams to automatically assess previous incident response efforts and apply insights immediately to improve future outcomes. The resulting integrated solution builds on automation and artificial intelligence to guide detection, diagnosis, remediation, and learning, reducing the cost and impact of current incidents while improving resilience and preparedness for future issues. Completing the acquisition only a few months ago, our teams have quickly demonstrated Jeli's applicability by displacing point solutions and exceeding our ARR contribution target for this new SKU. A multibillion-dollar SaaS customer chose PagerDuty's enterprise incident management plan as a more cost-efficient and effective alternative to a combination of less scalable point solutions. The integrated feature set led to a six-figure expansion justified by measurable productivity improvements. We continue to align with enterprise executives more effectively to support their objectives to protect revenue, increase innovation velocity and improve operating efficiency. Today, over half of the ARR from enterprise customers is multiyear, and the mix continues to trend favorably. We have achieved this through shifting from pure seat-based licensing to flexible pricing and contracting models that reduce friction for customers and expand their use of the Operations Cloud. For example, a leading global athletic apparel company that has been a PagerDuty customer for more than a decade had a corporate mandate to reduce operating expenses. Teams were overwhelmed by unfiltered events, which required manual handling by an outsourcing partner. We identified an opportunity for the customer to save more than $1 million annually and proposed a flexible pricing arrangement for our AIOps solution, which included the use of our professional services. This consolidated IT spend displaced the point solution, automated manual third-party effort and supported the customer in improving their operations resilience. A multinational home improvement retailer selected the PagerDuty Operations Cloud this quarter as a strategic platform to underpin an initiative to automate work across thousands of store locations. Our event-driven automation and seamless collaboration were a compelling consideration during the proof-of-concept. The scalability and reliability of our platform, broad integration ecosystem, and ability to measurably improve productivity led to a three-year commitment valued over $6 million. One of the largest health insurance providers in the US partnered with us to transform their incident management processes to drive standardization and increase operational resilience. This is one of our largest lands in the health care sector, with a three-year Operations Cloud agreement valued over $3 million. Outside of North America, we are also showing signs of stabilization in our enterprise business, with several six-figure contracts across EMEA and APJ. In Europe, a leading telecommunications company in the process of scaling its architecture to improve the efficiency of their operations increased their usage of incident management, AIOps, and automation during the quarter. We estimate the Operations Cloud will deliver an ROI of 200% annually through a reduction in incident volume and more efficient incident routing. During the quarter, one of Japan's top logistics companies expanded their deployment of AIOps and incident management. This decision was the result of compelling ROI of 175% delivered in a single year using the platform. PagerDuty is now central to this million-dollar logistics firm's operational resilience as they look to automate more manual processes and reduce outsourcing as their business scales. To capitalize on our momentum and drive greater international growth, we appointed Eduardo Crespo as our new leader in EMEA earlier this month. Eduardo has a strong track record of building successful regional teams and executing integrated go-to-market strategies. From a product perspective, we announced the spring release of the Operations Cloud last week, which highlighted several new capabilities across the platform. Our AI assistant now addresses many new use cases. We are able to leverage insights from our experience over more than 15 years as an industry leader in incident management to design offerings that utilize a customer's own data to generate rich, contextual, actionable insights to automate and expedite issue diagnosis and resolution. Our newest use case, helping responders or executives come up to speed during a major incident, leverages AI-assisted auto summarization, utilizing a simple 'Catch Me Up' prompt. This saves companies significant labor costs by summarizing incident details, messages, attempted automations and customer impact in a moment. Our AI assistant will be available for general release later this summer with consumption-based pricing. Another highlight from the spring release of the Operations Cloud includes unified visibility and control to support the modern operations center. Our AIOps product can now serve as a single source of truth for newly created incidents and provides a live shared view of operational health. In combination with this new operations console, we delivered additional enhancements to AIOps to better distill signals automatically from the ever-increasing volume of event noise. Collectively, our customers report they are better able to deflect issues, reduce noise, and improve decision-making using automation. Our automation offering in the spring release designed to help customers scale and standardize automation across their digital operations. Many of our large customers find themselves navigating islands of automation across disparate teams and tools, perpetuating inefficiency and risk. PagerDuty Automation gives customers a common flexible framework for automating across systems and teams. Our offering spans the full breadth of pro-code to no-code workflow automation to drive wider adoption and improve the return on investment on existing automation investments. In addition, we continued to advance our US public sector business, obtaining Authority to Operate or ATO from the Department of Veteran Affairs, our US agency sponsor. On the back of obtaining ATO, we closed our first-ever seven-figure deal in the public sector, which is an exciting early signal of our opportunity in that vertical. PagerDuty has a long history of serving the public sector, including federal, state, local and nonprofit agencies. To ensure we're positioned to maximize the opportunity unlocked by FedRAMP, we've added Teresa Carlson to our Board of Directors in March, and we've hired an experienced leader to head up our public sector business who will join the team later this quarter. In addition to servicing public sector and nonprofit customers, we continue to progress our social impact efforts. In April, we released our fourth annual impact report, which is available on our Investor Relations website. I encourage everyone to learn more about our vision to empower mission-driven teams and a sustainable future. Given the progress we've achieved expanding into the Global 2000, the strong multi-quarter pipeline we are building in our new and expansion business bookings momentum, I am confident in accelerating our FY'25 ARR growth and remain focused on long-term margin improvement. I want to thank our customers for their trust, our shareholders for their support, and our employees for their commitment to our mission and our vision. With that, I'll turn the call over to Howard and look forward to your questions.
Howard Wilson, CFO
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 are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release that was posted before the call. At a high level, the progress we're making in closing large multiproduct enterprise deals, both new lands and expansions, and the improved visibility as we build a strong multi-quarter pipeline were highlights for the quarter. However, SMB continues to be a headwind to growth with high levels of churn and downgrades. International is showing signs of stabilizing, represented by several six-figure deals in Europe and APJ with large enterprise customers. And our recent appointment of a new leader for EMEA will allow us to capitalize on the momentum. Revenue for the quarter was within our guidance range at $111 million, up 8% year-over-year. The contribution from International was 27% of total revenues, a modest change from the 28% seen in Q1 of last year. Annual recurring revenue exiting Q1 grew 10% year-over-year to $463 million. We delivered 106% dollar-based net retention in line with our Q1 expectations. Successful expansions with a number of key customers were somewhat offset by continued challenges in SMB and select downgrades in some larger customers, symptomatic of cautious constraint spending consistent with the macro volatility. Our DBNR expectation for Q2 is to remain flat at 106%, with this metric moving higher in the second half of FY'25. Customers spending over $100,000 in annual recurring revenue grew to 811, up 6% from a year ago. In addition, cohorts at the $500,000 and $1 million mark each grew in the high teens. Total paid customers increased to 15,120 compared to 15,089 in the year-ago period. Free and paid companies on our platform grew to over 29,000, an increase of approximately 18% compared to Q1 of last year. Q1 gross margin was 86% at the high end of our 84% to 86% target range. As a reminder, we anticipate increasing our services capacity during FY'25 to support our growing enterprise base. We expect this to result in gross margin trending closer to 84% by the fourth quarter. Operating income was $15 million or 14% of revenue compared to $16 million or 16% of revenue in the same quarter last year. The outperformance compared to our guidance was partly the result of commissions paid to our Customer Solutions group becoming capitalizable and amortized over 48 months. The compensation plan now aligns more closely with net new ARR targets. In terms of cash flow for the quarter, cash from operations was $29 million or 26% of revenue and free cash flow was $27 million or 24% of revenue. Q2 is expected to be our lowest free cash flow quarter of the year, given the strong working capital performance in Q1 and the seasonality of our billings. On a full-year basis, free cash flow margin is expected to remain at least a couple of percentage points better than our operating margin. Turning to the balance sheet. We ended the quarter with $593 million in cash, cash equivalents and investments. On a trailing 12-month basis, billings were $460 million, an increase of 9% compared to a year ago. Please note, we decided to change the methodology for our remaining performance obligations disclosure to now include contracts within an original term of less than 12 months. At the end of Q1, total RPO was approximately $388 million. Of this amount, approximately $273 million or 70% is expected to be recognized over the next 12 months. With respect to Q2, we anticipate trailing 12 months billings growth to be approximately 8%. Turning to our guidance. For the second quarter of fiscal 2025, we expect revenue in the range of $115.5 million to $117.5 million, representing a growth rate of 7% to 9%, and net income per diluted share attributable to PagerDuty Inc. in the range of $0.16 to $0.17. This implies an operating margin of 13%. For the full fiscal year 2025, we are maintaining the revenue midpoint with an updated range of $471 million to $477 million, representing a growth rate of 9% to 11%, and increasing our expectations for net income per diluted share attributable to PagerDuty, Inc. and now expect $0.66 to $0.71. This implies an operating margin of 13% to 14%. Today, we announced that our Board of Directors has authorized a share repurchase program for up to $100 million of common stock. We believe that our business is well positioned for growth and we will continue to generate meaningful free cash flow. And this program reflects our intent to manage dilution so as to increase shareholder value. The continued momentum we have seen in Q1 gives us confidence in accelerating ARR growth in the second half, and we remain committed to expanding operating margins over time. With that, I will open up the call for Q&A.
Operator, Operator
Thank you, Howard, and Jennifer. Team, go ahead and raise your hand to submit questions. We're going to turn first to Matthew Hedberg with RBC. Matthew, please go ahead.
Simran Biswal, Analyst
Hey, guys. This is Simran from Matt. Thanks for taking our question and congrats on the quarter. Just one for me. You talked a little bit about the confidence that you have in second half reacceleration. Can you double click on your thoughts on this? And what are these drivers of acceleration that you see in a difficult macro backdrop? Thanks.
Jennifer Tejada, CEO
Yes. So thanks for the question, and nice to hear from you. The difficult macro has kind of become the new normal for us. And we have really focused over the last several quarters on controlling the controllables. That includes continuing our efforts to focus on enterprise, which are paying off. We see a stronger multiquarter pipeline. We see stronger multiproduct and multiyear contract results. In fact, our largest spend cohorts are our highest growing. Our customers spending $500,000 and $1 million grew in the high teens this last quarter. From a macro perspective, the problems we solve are getting bigger and harder to solve. Tech debt is increasing. AI is even driving some of the scale and complexity that our customers have to contend with, not to mention the fact that they're all concerned about uncertainty or the responsibility associated with anticipating problems in leveraging AI. We believe that is going to actually drive more incidents on the platform. All of this is happening while businesses increase their reliance on technology to drive revenue. When we look at our ability to execute, the fact that we have been building stronger multiproduct, multiyear pipeline, and we see the market meeting us from a demand perspective.
Howard Wilson, CFO
Yes. And I think, Jen, just one thing I would add, which is probably a little bit more operational. Jen has referenced the multiproduct pipeline. It's also multiquarter. So one of the changes that we've adjusted to in this economic environment is that deals do take longer. So what's very encouraging to us is that we now see pipeline placed many quarters out. In fact, we have pipeline growing for Q1 of next year. This has been a change for the business from being a business that was highly transactional, high velocity, often with pipeline visibility only out one quarter. Now we have pipeline visibility stretching out much further. Our team is adjusting to the fact that larger deals take longer, and business justification is more important. This gives us confidence that we will see ARR growth accelerate in the back half of the year.
Simran Biswal, Analyst
Thanks. Congrats again.
Howard Wilson, CFO
Thank you.
Jennifer Tejada, CEO
Thank you.
Operator, Operator
Thanks Team. Next, we're going to hear from Rob Oliver at Baird. Rob, please go ahead.
Jennifer Tejada, CEO
Rob, you're on mute.
Rob Oliver, Analyst
Great. Thanks. I think I'm off now. Hey, guys. How are you?
Jennifer Tejada, CEO
Good. Thank you.
Howard Wilson, CFO
Hi, Rob.
Rob Oliver, Analyst
Good. Good to see you. So my question, Jen, is for you on the AIOps solution because, obviously, a competitive space. But it seems like you guys have a few things going on here, which are relatively new, helping you attack the market in a different way. One is the bundling solution through the new incident response for enterprise and another is via pricing. I was hoping you could maybe give us a little bit more color on both those because it does appear, and obviously, with the Salesforce deal in the past, that's different. I think that was kind of a renewal as well, or correct me if I'm wrong, but you guys appear to have a bit more momentum here, and I'd love to get color on those two things and the extent to which they're both drivers.
Jennifer Tejada, CEO
Sure. Thanks for the question. I think it's worth mentioning and reminding people that the AIOps has been in the market now for several years. AI and machine learning have been foundational to our platform and something that we have been fine-tuning over time. This means that the product and the efficacy of the product just get better and better. Every time an incident or event transits on the platform, the platform learns. This positions us differently from other players that are just trying to enter the market at a small scale. The second thing I would say is that we are the only platform that deeply integrates AIOps into the event management process, along with automation and a connection or bridge to customer teams. Now with the addition of Jeli, the ability to learn from events after they run and apply that insight immediately to avoid future issues. These have historically been very disconnected, requiring tons of manual effort, often needing investment in third-party outsourcing. In an environment where people are looking for ways to improve their return on capital, increase their efficiency and their use of OpEx, which is constrained, this has become more important. I've mentioned in previous calls that we're seeing our customers show an increased appetite for automation, where a year ago, when we discussed AIOps and automation, some of them were protecting headcount and budgets. Now they're being asked to do more or the same with less. The last thing I would say is that over the last couple of years, we've expanded our AIOps offering to serve feature sets for both developers and Central Ops teams, which means it's flexible enough for any developer to use in a production environment, but scalable to support Centralized Ops teams and SREs. This has also enabled us to move further into large enterprises.
Rob Oliver, Analyst
Got it. Okay. That's really helpful, Jen. And if I can squeeze one more in. I know you guys have tried to temper my excitement around the Fed opportunity just because it's going to take a little bit of time. I know we're not expecting anything major in the numbers for this year. That having been said, congrats on that first big win and that's exciting. Now you guys are free to run. Can you just maybe lay out how we should think about success at Fed for PagerDuty? From spending time down in DC, it certainly seems like there would just be a tremendous fit for what you guys do down there right now, given all of the mayhem of digital transformation and the dollars that are flowing. So it sounds like you've got somewhat hired or close to hired. Should we expect you'd be working through a Federal partner? Anything else you can add? Thank you.
Jennifer Tejada, CEO
Sure. Thanks for the question. I am also very excited about FedRAMP and our opportunity in the federal market. It’s particularly meaningful to me as the daughter of a veteran and the granddaughter of two veterans to have the Veteran Affairs Department as our sponsor. Getting to this point has required hard work over multiple years from the team. So ATO is just a piece of it. The greater opportunity is that if you look at the government, particularly the federal government, there are significant issues with technical debt and aging infrastructure, along with a huge requirement to modernize the way these departments operate in service of their constituents. The problem that we see in enterprise is metaphorically similar to the problem in Federal, and there is a real urgency there. However, we're very early. We've hired a new Head of Public Sector, but we can't announce the person yet. And we’ve brought Teresa Carlson on to our Board to underline the investment that we’re making in this space, and we also have a number of customers from state and local government and the public sector already. So we've learned about what they're looking for. Only a small percentage of this year's forecast is made up from the public sector market, so I would expect to see that really come into play next year.
Rob Oliver, Analyst
Got it. Very helpful. Thanks, guys. Appreciate it.
Jennifer Tejada, CEO
Thank you.
Operator, Operator
Great. Thank you. Next, we're going to Jacob Zerbib, William Blair. Jacob, please.
Jacob Zerbib, Analyst
Yeah. Hi, guys. This is Jacob Zerbib on for Jake Roberge. Thank you for taking the questions and congrats on the quarter. So on customer additions in the quarter, there was a nice sequential improvement. Can you talk about what's driving the strength there, especially given the weakness with SMBs? Thank you. And then I got one follow-up.
Jennifer Tejada, CEO
Yes. Frankly, it's focus. We've worked over the last several quarters to refine our narrative with customers and rather than focusing solely on technical proficiency and technology – while technology is a great competitive advantage for us – our customers are prioritizing operating efficiency. They're finding ways to automate and deliver greater returns on their capital. We’ve focused efforts to take the compelling ROI that we have proven year after year and articulate that in a way, both in our product and through engagement with customers, which enables them to not just rationalize and justify an investment, but communicate the returns they’re getting relative to some bigger investments they might have to make on larger platforms that take much longer to deliver and return on investment. Speaking in the language of efficiency has been vital. I also think the enterprise incident management SKU is more accessible for some customers. It includes incident response, some automation, a few features from AIOps, and the benefit of Jeli's feature set, which we’re finding very popular amongst our users. Altogether, I think demonstrating some flexibility around pricing has been essential.
Howard Wilson, CFO
Yes. I would just add that we have multiple motions around customer acquisition today, falling into a product-led growth motion, which tends to appeal to the SMB space. However, we have a focused effort around the enterprise side of things with a dedicated acquisition team working in harmony with our product-led growth motion. We strive for incremental customer growth and by assessing whether we are making progress from the enterprise side, it is apparent we're witnessing value from our enterprise accounts. The cohorts that have reached the $500,000 and $1 million segments have shown substantial growth, and we're seeing strong growth in ARR from these cohorts.
Jacob Zerbib, Analyst
Got it. Thanks. Just a quick follow-up on that. It is nice to see the increase in multiyear deals as a percentage of ARR. How should we think about the drivers between new customer lands versus existing expansions? Thank you.
Howard Wilson, CFO
Yes. The largest opportunity for multiyear deals exists within existing expansions. At the time of renewal, we often engage customers around longer-term commitments. When our sales team goes in with either a new product solution to a customer’s problem or where the customer wants to increase their footprint with us, that’s an opportunity to discuss multiyear engagements. So I’d say the bulk of the multiyear growth comes from these activities. However, even for new deals with enterprise customers, we are positioning the multiyear engagement and that’s been fruitful. One example that Jen referenced was a large health care provider, which began as a multiyear contract.
Operator, Operator
Okay, team. Next, we're going to hear from Andrew Sherman at TD Cowen. Andrew, please go ahead.
Andrew Sherman, Analyst
Great. Thanks. Hey, congrats on the quarter. I wanted to ask, there's been a lot of investor angst about seat-based models given comments and results from some other companies. Anything you can say about how seat growth has trended and kind of what you're seeing at customers and ways you can expand, even if seats are not growing as fast as they used to be? What are you seeing on that side of the business?
Jennifer Tejada, CEO
Sure. Great question, Andrew, and nice to see you. I've been in the software industry a long time, and I would say that not all software is created equal. The perception of value from seat-based licenses for one type of software varies. In our case, we're providing infrastructure software that helps customers manage mission-critical systems. Those services have become more essential, even in a budget-tight environment. There’s a specific level of usage our customers feel is vital and will protect even under pressure. When we experience downward pressure due to budget constraints, we find customers trying to work with us to maintain coverage and pay the expected fees for the software. We have learned to create a flexible pricing environment that aligns the unit price with value, allowing them to worry less about the number of seats and more about their return on investment and desired coverage. This included business value assessments to discuss their changing needs based on their infrastructure setup, which is different from merely asking, 'How many people do you have?' We also work on demonstrating value realization through product insights and analytics. We’ve learned to have conversations with procurement and finance leaders who aren’t necessarily invested in the technology, making flexible arrangements essential.
Howard Wilson, CFO
I would add that we are increasingly seeing a blend of metrics with our customers. The user metric is where we started, but a larger portion of our base is now utilizing consumption metrics, specifically tied to our AIOps offerings. As we consider introducing our Generative AI offerings, those will also be on a consumption model. For large enterprise customers and deals, we're developing more flexible licensing measures that enable them to access multiple products without the previous constraints of a strict user-based model.
Andrew Sherman, Analyst
Yes, that's great. Great answer. That's all I had actually. Thank you.
Jennifer Tejada, CEO
Thanks, Andrew.
Operator, Operator
Okay, team. Thank you. Next from BofA, Koji Ikeda.
Koji Ikeda, Analyst
Yes. Hey, guys. Thanks for taking the questions. Great to see you.
Howard Wilson, CFO
Hi, Koji.
Koji Ikeda, Analyst
Hi. A couple for me here. I wanted to ask just real quick, what was the SMB mix of ARR this quarter? I think last quarter was 16%, but it sounded like demand in this segment remains challenged.
Howard Wilson, CFO
Yes. So Koji, that's still around the 16% mark.
Koji Ikeda, Analyst
Okay. Got it. Thank you for that. And then kind of a bigger picture question here, either for you, Howard or Jennifer, either one's fine. When reading the press release, I was noticing some of the customer land and expand wins. Some of those customers in there, when we've done our checks, we've heard from end users out there that maybe some of these vendors could do something like PagerDuty if they wanted to. But here they are. They just showed up on your press release being your customers. This was super interesting.
Jennifer Tejada, CEO
If I had $1 for every time someone said that to me over the last eight years, I would be incredibly wealthy. It looks easier than it is, and that's perfectly fine.
Koji Ikeda, Analyst
What is it about PagerDuty specifically that makes it hard for what looks like an adjacent vendor to maybe try and enter your category?
Jennifer Tejada, CEO
I'll tell you what. Our name, PagerDuty, reflects the first product we launched 15 years ago. We have grown to a multiproduct, enterprise-grade, incredibly resilient and secure platform that automates and manages operations for the largest brands in the world. It’s very different from where we started. Brand recognition often begins with our first product, which was on-call. Managing on-call automation requires a scalability and resilience that is hard to achieve. Some adjacent players have attempted to build this and found it difficult because you need a resilient architecture to handle billions of events with no maintenance windows. We are a 15-year-old company that has never had maintenance downtime. It’s akin to a 911 service deciding to take a Sunday off. Achieving this while maintaining 84-plus percent gross margins is very challenging. There are significant technical and architectural barriers. We have leveraged the data and experiences accumulated over time to add robust AIOps offerings and automation solutions serving multiple use cases. Additionally, we have integrated applications that work with popular CRM solutions. There is no other competitor who does it like us, and the compelling ROI and our short time to value set us apart. While some customers might think to go to a less costly solution, they end up spending much more in total cost of ownership building custom integrations and requiring third-party support, maintaining such a solution over time. We integrate to over 700 applications, ticketing systems, and cybersecurity environments out-of-the-box, putting us in a unique position. We are actively working to reshape the narrative that we are simply a notification company to one that offers a complete cloud-native operations platform capable of aiding in both technological and operational modernization.
Koji Ikeda, Analyst
Got it. Thank you very much. Thanks for taking the questions.
Jennifer Tejada, CEO
My pleasure.
Operator, Operator
Okay, group, one last call for questions. Please raise your hand if you'd like to be queued. Oscar Saavedra with Morgan Stanley, we're coming to you. Come on in.
Keith Weiss, Analyst
Excellent. Great to see you, Jen and Howard. This is not Oscar.
Jennifer Tejada, CEO
Thanks. I was like, Oscar, you changed.
Keith Weiss, Analyst
I'm still sitting in for Sanjit Singh. This is actually Keith Weiss.
Jennifer Tejada, CEO
Nice to see you, Keith.
Keith Weiss, Analyst
So good to see a solid print in this Q1 earnings season, which has been a literal minefield. It's great to see net new ARR growing again. What I hoped to ask is: what's driving the return to growth in net new ARR, but also your confidence in the long-term? The macro seems shaky, but it sounds like products are resonating. You've discussed interest in AIOps and automation, so it seems product positioning is a factor, but better execution is also evident, with improved rhythms and pricing models that align with customers' needs. How should we weigh these elements as possible drivers of this quarter and your expectations moving ahead?
Jennifer Tejada, CEO
I appreciate you saying all that, Keith. One thing I’d note is that this difficult macro environment is our new normal. For the last five quarters, we have been focused on controlling the controllables and tuning out the noise to concentrate on the aspects we can command, change, improve, and refine. I am proud of our team and our strong leadership, full of experience and expertise in this space, who articulately communicate what we provide from a financial return on investment perspective. We have helped customers embrace automation and approached it practically, as opposed to searching for a magical solution. We removed the hype around generative AI and focused on solving big problems that need resolution for our customers. We meet clients where they are—supporting them if they need to reduce spending temporarily but aiming to be a long-term partner. We favor long-term relationships over short-term gains. While it's impossible to get every instance right, we see that once a client briefly reduces their spend with us, they will appreciate our support and return later. I’m seeing an exciting shift in conversations with customers which have moved from needing lower pricing to inquiries about long-term solutions. The rising trend in multiyear contracts reduces administrative burdens from annual renewals and allows us to invest our time in supporting customers. I am particularly optimistic about the realization of our Operations Cloud and its efficacy, helping us extend our capabilities beyond incident response to include AIOps, Customer Service Ops, and automation horizontally across industries. My most exciting observation is that customer discussions have shifted toward broader objectives, enabling them to envision partnerships for future returns.
Howard Wilson, CFO
Regarding our revenue models with new licensing types and consumption elements, it's early. However, large enterprise buying results may differ based on urgency levels, unlike shorter purchase processes. We see these long purchase cycles affecting our sales cycle. We have previously had evenly distributed revenue months within a quarter. Still, we notice heavier sales in the third month of each quarter. Revenue flow is slightly lagging, but it's not profoundly pronounced. This trend is merely an indication of the changing dynamics.
Keith Weiss, Analyst
Got it. Congratulations on a solid start to the year.
Jennifer Tejada, CEO
Thank you.
Howard Wilson, CFO
Thanks, Keith.
Operator, Operator
Well, I just want to say thank you to everybody who attended today for your time and interest. Thank you to our shareholders and our customers, our partners, and especially the PagerDuty employees who have worked really hard to deliver a solid quarter. We look forward to seeing you during the quarter and next quarter as well. Have a great day.