PAGERDUTY, INC. (NYSE:PD)
Q2 2022 Earnings Call
Sep 02, 2021, 5:00 p.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Good afternoon, and thank you for joining us to discuss PagerDuty’s second quarter and fiscal 2022. 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. These forward-looking statements include our growth prospects and future revenue, 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. 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 GAAP — 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. With that, I will turn the call over to Jennifer.
Jennifer Tejada — Chief Executive Officer and Chair of the Board
Thank you, Christine, and thanks to everyone for joining us today. Q2 was an outstanding quarter for PagerDuty, exceeding guidance and consensus for both top and bottom-line results. We continue to benefit from strong demand in enterprise and mid-market, COVID tailwinds, a favorable competitive environment, and a positive response to our product innovation in automation, AIOps, and customer service. I’m so proud of the acceleration we’ve delivered and especially grateful to our customers, partners, employees for their resilience and loyalty.
For the second quarter of fiscal 2022, rev growth accelerated to 33% year over year to $68 million, with trailing 12 months billings up 30%. Total dollar-based net retention accelerated to 126% and enterprise dollar-based net retention accelerated again to reach 130%. As the world’s greatest enterprises transform into digital leaders, PagerDuty has become the operations cloud for the modern enterprise, demonstrating customer loyalty, durable growth, and progress in building leadership share in a growing total addressable market. As our customers leverage PagerDuty across many new use cases, platform usage continues to accelerate with total year-on-year paid user growth up over 50%.
Our solid top-line business was driven by accelerating demand for both our new automation offering and our comprehensive digital operations plan, especially in the enterprise and mid-market segments. To date, 15% of our mid-market and enterprise customers have attached digital ops, event intelligence, or automation. Annual recurring revenue for our digital ops plan was up over 100% and now represents more than 20% of our total ARR. Customer spending more than $1 million with PagerDuty are up 63% year over year.
The number of customers investing more than $500,000 of PagerDuty is up 34%, and those investing more than $100,000 are up 36%. Nearly 18,000 companies now run on PagerDuty, including over 65% of the Fortune 100 and over 45% of the Fortune 500. Within our largest customers, we still see significant room to grow both within and beyond engineering and IT. PagerDuty continues to focus on and influence the developer community in both large companies and start-ups.
While many others have and will attempt to enter our market, our competitive differentiation is stronger today than it has ever been, and we continue to innovate and extend our leadership. For over a decade, we’ve innovated on behalf of developers and their interest while delivering unmatched resilience at scale for large enterprises. Our technology ecosystem, now over 600 integrations drawn, is supported by recent investments in automation and 12 years of proprietary data driving our machine learning models. These are deep, durable competitive advantages that have established loyalty with our large and growing customer base.
PagerDuty has strengthened its position as the leading choice for the most disruptive founders. Our start-up and small business segment performed exceptionally well after being impacted by COVID uncertainty last year. In Q2, SMB annual recurring revenue for both new business and expansion came in well above pre-COVID levels. While the pandemic continues to disrupt organizational plans, adaptability, flexibility, and proactive operations have become core business imperatives.
PagerDuty is essential infrastructure for managing increasing complexity in the service of customer experiences. And while nothing is certain, we expect post-pandemic benefits, including the builder economy and headcount growth to continue to fuel our momentum. Across our Annual Summit and Investor Day in June, we highlighted PagerDuty’s original total addressable market, starting with the $25 billion TAM for on-call automation, incident management, and DevOps. Our entrance into the broader automation market has expanded that TAM to $36 billion.
This significant investment in automation capabilities has fueled our growth along with customer service, security operations, and AIOps and enabled our customers to apply our platform to an even more diverse set of use cases. Q2 provided more evidence that the trends driving PagerDuty’s success continue to accelerate. Companies are moving to a digital-first orientation to match the needs and expectations of their customers. This evolution is a multiyear effort for most large companies, even with the acceleration we saw during the pandemic.
We measure this transition for our customers using an operational maturity framework. Simply put, operational maturity determines an organization’s readiness and ability to shift from reactive mode to proactive and increasingly predictive operations. Most large organizations start on the far left with central IT op centers standing at the ready to react and to manually manage issues as they arise. The most innovative and operationally mature companies identify patterns through automation, predicting potential issues and then leveraging teams to prevent these issues from impacting their customers and business.
The vast majority of enterprises are very early in this journey, creating a long runway for growth for PagerDuty. Our TAM now includes both upstream and downstream automation within and beyond incident management, allowing for an infinite number of critical work use cases. PagerDuty’s automation solution performed exceptionally well this quarter, with new unique customer lands like Citigroup and Specsavers, and cross-sales into existing PagerDuty customers, FedEx, Discovery, Netflix, Bose, and one of the largest communication companies in the world. We added over 250 net new paying customers to our platform in the corner — in the quarter.
Our free offering has reduced friction for customers in low-value segments. And while this has impacted the total paid customer growth rate, it has expanded total companies on our platform by nearly 33% year over year and also has enabled us to shift our paid customer acquisition focus to much higher value mid-market and enterprise segments. New customers include a Fortune 100 industrial company, Greyhelm bus lines, and user testing, a late-stage private consumer insight start-up, which was also a win back from a competitor. During the quarter, thousands of our existing clients expanded their business PagerDuty, including Anheuser-Busch, Carvana, FedEx, MasterCard, TripActions, Snowflake, and a Fortune 200 fast food leader.
One of the three largest communications companies in the world has leveraged PagerDuty for IT and engineering and this quarter added automation to improve customer service for over 200 million visitors to their web app. In the first rollout, PagerDuty automation reduced critical incident response from several hours to under an hour, which is projected to save the company millions in costs and revenue improvement. A Fortune 200 asset manager expanded during Q2 from a traditional incident response use case in engineering to implementation across data operations, site reliability engineering, and their central command center. This customer now leverages PagerDuty to support 55,000 internal investment professionals.
Regional expansion remains a terrific growth engine with significant upside for our team. International revenue grew 41% year over year, up from 38% last quarter, and now accounts for about a quarter of our total revenue. Magnitude Software in the Netherlands, New Zealand’s KiwiRail, are now both part of our customer base. We also added Brazil’s largest electronics and furniture retailer.
International expansions included a Fortune 100 European-based multinational healthcare innovation company. Bunnings Group, Australia and New Zealand’s leading retailer of home improvement and outdoor products, and one of Canada’s largest banks, Scotiabank. In August, we appointed Jill Brennan to vice president of PagerDuty’s EMEA region. Jill previously led the $3 billion hybrid cloud software group for IBM across 26 countries and was most recently…