Release Date: September 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PagerDuty Inc (PD, Financial) delivered a solid second quarter with revenue growth within the guidance range of 8% and non-GAAP operating margin 4 points above the range at 17%.
- Annual recurring revenue (ARR) increased by approximately $11 million to $474 million, marking the eighth consecutive record quarter of non-GAAP profitability.
- The enterprise segment showed strong performance with dollar-based net retention at 106% quarter-over-quarter and a 20% growth in accounts with ARR greater than $500,000.
- PagerDuty Inc (PD) signed a record number of multiyear agreements, representing nearly a third of renewal ARR, despite the volatile macro environment.
- New products, including AIOps, automation, CSOps, and premium support, contributed 65% of net new ARR, showcasing the successful transition from product to platform.
Negative Points
- The company experienced increased scrutiny and multiple approval levels when selling into the enterprise segment, which can lengthen sales cycles.
- Revenue guidance for the full fiscal year 2025 was revised down to a range of $463 million to $467 million, representing a growth rate of 7% to 8%, compared to the previously provided range of $471 million to $477 million.
- Total paid customers decreased to 15,044 compared to 15,146 in the year-ago period, with the bulk of the decrease coming from customer departures in the SMB segment.
- The SMB segment remains a headwind to growth with high levels of churn and downgrade, impacting overall customer count and ARR growth.
- Professional services attached to larger deals are experiencing delays, impacting revenue recognition and contributing to the revised guidance.
Q & A Highlights
Q: The guidance has been reduced by nearly $10 million. Can you explain the reasons behind this adjustment?
A: Jennifer Tejada, CEO: The reduction is largely due to timing issues. Larger multiyear, multiproduct strategic deals are driving less linearity and increased seasonality. This results in a lag in professional services attached, impacting revenue. However, our ARR guidance remains unchanged, and we expect ARR growth to accelerate in the back half of the year.
Q: How do recent major incidents and outages impact PagerDuty's growth prospects?
A: Jennifer Tejada, CEO: These incidents are driving higher-level conversations at the CEO and Board levels, which we believe will improve our ability to secure budget allocations for our services. Customers are realizing the financial impact of major incidents and are seeking our platform for better preparedness and response.
Q: Can you provide insights into the fiscal '26 outlook and the expected seasonality trends?
A: Howard Wilson, CFO: While we haven't provided specific guidance for FY26, we expect ARR growth to be above 10%. The seasonality trends we've observed, with more weighting towards the third month of each quarter and a stronger fourth quarter, are likely to continue.
Q: How is the flexible enterprise pricing tracking, and has it driven any expansions?
A: Jennifer Tejada, CEO: The feedback has been very positive, enabling large multiproduct, multiyear deals. For example, a North American global bank expanded its usage of AIOps and Customer Service Ops, demonstrating the value of our flexible pricing and multiproduct approach.
Q: What are the underlying assumptions for ARR from SMB in the second half of the year?
A: Howard Wilson, CFO: We expect the bulk of our growth to come from the enterprise and mid-market segments. While we anticipate some stabilization in SMB, it remains a headwind and is expected to continue to be a challenge in the back half of the year.
Q: How has the competitive environment evolved, and how does it affect PagerDuty's enterprise strength versus SMB softness?
A: Jennifer Tejada, CEO: Most competition is in the mid-market and SMB segments, where offerings are less scalable and more price-led. Our focus on enterprise, with a robust AI-supported platform, positions us well against competitors. Recent global outages have highlighted the importance of our resilient and scalable platform.
Q: What are the expectations for the impact of recent high-profile IT outages on PagerDuty's pipeline and sales cycles?
A: Jennifer Tejada, CEO: While we are not modeling new pipeline from recent incidents, we expect increased awareness and strategic conversations to eventually translate into pipeline growth. The financial impact of major incidents is driving more strategic deals and investment in our platform.
Q: How have you factored in the longer sales cycles and larger deals into your guidance for Q4?
A: Howard Wilson, CFO: We have adjusted our guidance to account for the longer sales cycles and the timing of deal closures. Our sales team is focused on closing these deals within the year, and we have good visibility into the pipeline for Q3 and Q4.
Q: Can you provide more granularity on the customer count trends between SMB and enterprise?
A: Howard Wilson, CFO: The bulk of the customer count decrease is from SMB, which has experienced elevated churn and downgrades. Our focus is increasingly on enterprise and mid-market, where we see more stability and growth opportunities.
Q: What are the expectations for expense efficiency and potential for further improvements?
A: Howard Wilson, CFO: We continue to focus on improving productivity and efficiency through our location strategy, use of technology, and internal AI. The areas with the most potential for further efficiency gains are G&A and sales and marketing, while maintaining high levels of investment in R&D to support innovation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
