Participants
Jennifer G. Tejada; CEO & Chair of the Board; PagerDuty, Inc.
Owen Howard Wilson; CFO; PagerDuty, Inc.
Tony Righetti; VP of IR; PagerDuty, Inc.
Andrew Michael Sherman; Research Associate; TD Cowen, Research Division
Chad Michael Bennett; Senior Research Analyst; Craig-Hallum Capital Group LLC, Research Division
Joel P. Fishbein; Research Analyst; Truist Securities, Inc., Research Division
Matthew Alan Stotler; Analyst; William Blair & Company L.L.C., Research Division
Matthew George Hedberg; Analyst; RBC Capital Markets, Research Division
Robert Cooney Oliver; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Sanjit Kumar Singh; VP; Morgan Stanley, Research Division
Tim Pusnik-Jausovec; Research Analyst; Crédit Suisse AG, Research Division
William Kingsley Crane; Analyst; Canaccord Genuity Corp., Research Division
Presentation
Tony Righetti
Before we start, let me remind everybody that statements made on this name embrace forward-looking statements based mostly on the setting as we at present see it, which contain identified and unknown dangers and uncertainties that will trigger our precise outcomes, efficiency or achievements to be materially completely different from these expressed or implied by the forward-looking statements. These forward-looking statements embrace our progress prospects and future income, amongst others, and symbolize our administration’s perception and assumptions solely as of the date such statements are made, and we undertake no obligation to replace these.
During right this moment’s name, we’ll talk about non-GAAP monetary measures, that are along with and never an alternative to or superior to, measures of economic efficiency ready in accordance with GAAP. A reconciliation between GAAP and non-GAAP monetary measures is obtainable in our earnings launch. For additional data on these and different components that might trigger the corporate’s monetary outcomes to vary materially are included in filings we make with the Securities and Exchange Commission, together with our most just lately filed Form 10-Ok and 10-Q in addition to our subsequent filings made with the SEC.
With that, I’ll flip the decision over to Jennifer.
Story continues
Jennifer G. Tejada
Thanks, Tony, and thanks, everybody, for becoming a member of us right this moment. We delivered a strong fourth quarter and one other sturdy 12 months in FY ’23. We are demonstrating sturdy and now worthwhile progress via important product innovation and disciplined go-to-market execution. Revenue grew 32% year-over-year, and we added 379 internet new prospects to our platform throughout FY ’23. We achieved non-GAAP profitability 1 12 months forward of plan, with an working margin of 1%, up 900 foundation factors over FY ’22. For This fall, we exceeded the excessive finish of each our prime and backside line steerage ranges. Our This fall income was $101 million, up 29% over the earlier 12 months, and our first quarter surpassing the $100 million income milestone.
We additionally surpassed $400 million in annual recurring income via a mix of ongoing product management in digital operations and our multiyear deal with profitable in enterprise and mid-market. We ended the 12 months with 68 of the Fortune 100 and practically half of the Fortune 500 counting on PagerDuty to modernize their operations the place we proceed to see important growth alternatives.
Dollar-based internet retention was 120%, our ninth consecutive quarter at or above that stage. We exited This fall with 752 prospects contributing greater than $100,000 in ARR up 27% year-over-year. We proceed to see excessive engagement from our prospects with a document variety of mid-market and enterprise transactions within the quarter. Non-GAAP working margin was 6% because of accelerating strategic initiatives to sustainably enhance our price construction.
While we executed nicely in an more and more tough macroeconomic local weather, we noticed prospects exercising extra diligence and including approval ranges for medium to giant offers. This has resulted in gross sales cycles elongating every of the previous 3 quarters and transaction measurement is lowering. While annualized churn remained nicely under 5% of beginning ARR, we skilled elevated ranges of churn from small- and medium-sized prospects in This fall.
In some circumstances, prospects acquired seats in keeping with, however not forward of present wants. From a brand new buyer acquisition perspective, tighter price range administration and extra restricted shopping for authority added elevated friction to touchdown new accounts, significantly in SMB.
We’ve tailored to those dynamics in 2 principal methods. First, now we have sustainably improved our price construction to scale extra effectively and profitably whereas investing in platform differentiation that widens the aggressive hole. Second, we’re efficiently participating prospects with a complete operations cloud worth proposition to assist them optimize their working effectivity and to streamline their expertise ecosystems. As a outcome, platform alternatives now make up a better mixture of our complete pipeline than a 12 months in the past.
Our product growth groups elevated our new product velocity meaningfully in FY ’23 with a number of newly obtainable merchandise launched that place PagerDuty for additional growth throughout enterprise prospects. Some of our main new releases that leverage AI or automation embrace incident workflows, occasion orchestration for AI Ops, automation actions and standing pages in addition to a complete customer support providing. We proceed to increase our ecosystem with over 700 integrations.
Earlier this 12 months, we made Incident Workflows typically obtainable to PagerDuty prospects. This unlocks flexibility for our prospects, leveraging expertise from our acquisition of Catalytic utilizing no-code workflows so groups can quickly customise for particular enterprise staff and operational wants. Incident Workflows automate work, reduce human error and empower our prospects to instantly seize tangible ROI throughout a wider vary of operational wants.
We additionally launched PagerDuty Status Pages throughout the quarter, enabling customers to securely talk real-time operational updates instantly from the platform to finish prospects in addition to to key stakeholders throughout the enterprise. Status Pages leverage each Event Orchestration and Incident Workflows to create a single supply of the reality and routinely put up detailed updates saving time throughout an incident response. Unlike different Status Page options, PagerDuty eliminates the necessity for a number of instruments, decreasing prices. Many PagerDuty prospects have added Status Pages to their accounts and changed much less built-in and fewer automated level options.
In February, we launched the Customer Service Operations utility for ServiceNow Customer Service Management. Building on a well-liked integration, the applying permits seamless collaboration between customer support brokers and engineering groups. PagerDuty prospects can drive trials of this new utility contained in the platform, resulting in environment friendly product discovery and decreased friction for expansions.
In addition, we delivered many platform-wide initiatives, which proceed to enhance the reliability and safety of our platform and made progress on the trail to FedRAMP certification. All new launches are tightly built-in, creating compounding worth for PagerDuty prospects with complete deployments.
Looking forward to our FY ’24 platform highway map, we anticipate to proceed investing in a excessive charge of innovation throughout the Operations Cloud. We will construct on our workflow automation, increase our AIOps providing, additional allow distributed course of automation and add extra flexibility to design workflows for customer support groups and different enterprise operations use circumstances.
I wish to thank our product and engineering groups for certainly one of our best progressive years so far. Our go-to-market groups additionally executed nicely regardless of a more durable demand setting evolving because the 12 months progressed. During the 12 months, we launched PagerDuty Japan, standardized our international go-to-market mannequin and superior our product partnership with AWS.
Our TAM stays expansive, and our go-to-market groups are realizing economies of scale. Customers stay very engaged all year long, and we closed a document variety of buyer transactions in each Q3 and This fall. ARR per buyer continues to develop, which has been a constant development, up 23% for the 12 months.
We proceed to see enterprise prospects in extremely regulated industries drive important effectivity from the operations cloud, sustaining safety and compliance whilst they scale back incident period, quantity and noise whereas growing their productiveness. This quarter, a Global 500 North American client financial institution signed a 6-figure growth, together with our largest customer support operations deal of FY ’23. The buyer additionally added course of automation and expanded their incident response deployment.
They now make investments over $1 million in annual recurring income with PagerDuty and are actively evaluating our AIOps resolution. By partnering carefully with the CTO, we aligned on precedence operational outcomes for the 12 months. PagerDuty has turn into the financial institution’s strategic companion for modernizing their operations. We conservatively anticipate an preliminary ROI of over 300% with a payback interval of as little as 3 months.
A number one supplier of cloud-based enterprise software program for payroll, human assets and monetary administration has been a PagerDuty buyer since 2015. In the fourth quarter, they signed a 7-figure 3-year growth settlement. They now pair PagerDuty’s incident response with automation actions, course of automation and customer support operations. They make the most of the PagerDuty Operations Cloud to handle main incidents throughout their international enterprise, reduce affect to prospects and maximize operational effectivity with automation.
In This fall, we closed a 6-figure growth with a European-based meals supply market. The firm has been a PagerDuty buyer since 2013, however had beforehand been using a number of options along with PagerDuty. Last 12 months, in an effort to standardize IT options globally and scale back their infrastructure prices, they determined to standardize on PagerDuty. In addition to retiring level options, they’re adopting our operations cloud platform.
Our first worth is champion the client, placing our customers on the middle of our innovation, constructing nice merchandise and making issues straightforward. Part of championing our prospects means constructing an equitable firm that displays the worldwide and numerous customers, prospects and communities we serve.
In FY ’23, we superior the efforts of PagerDuty.org by launching each our local weather fairness portfolio and the PagerDuty Impact Accelerator to ship product, volunteer and monetary assist to mission-driven organizations. We additionally continued to construct on our inclusion, variety and fairness programming. In This fall, we launched PagerDuty’s third annual ID&E report, monitoring our progress and sharing our path ahead. In FY ’23, we elevated the variety of under-represented individuals and girls in our senior management, together with technical management. We achieved gender pay fairness worldwide and are inside a single cent between majority staff and under-represented teams in comparable roles. These enhancements are each the results of systematic focus and an expression of deeply held values throughout the PagerDuty staff.
While we’re pleased with our progress, we acknowledge now we have extra work to do. I encourage you to learn the complete report on the web site.
Organizations of all kinds must modernize their operations within the face of fast digitization. The price of interrupt work and disruption has by no means been increased. Ticketing and queued options failed to handle the complicated nature of recent digital operations. Our prospects proceed to display their want for higher effectivity and quicker paths to worth, selecting PagerDuty as their long-term strategic companion and the Operations Cloud as their platform for engagement.
While macroeconomic situations proceed to evolve within the close to time period, our long-term tailwinds, digital acceleration, DevOps transformation and cloud adoption proceed to be multiyear imperatives for our prospects. We are assured in our long-term alternative and, as such, we’ll proceed to take a position behind our strategic priorities whereas enhancing our working margins.
We are nonetheless early in a big market, and we stay centered on constructing a sturdy and worthwhile progress firm. Our innovation has strengthened our aggressive benefits and introduced a number of new merchandise to market that now we have begun to monetize. Our excessive ranges of buyer loyalty are validated by our internet retention and continued progress of shoppers spending greater than $100,000 yearly.
PagerDuty is the platform companies depend on to provide seamless digital experiences, preserve their digital infrastructure and free capability to deal with innovation. I’m impressed by our prospects, energized by our groups and assured in each our capability to navigate near-term challenges and to execute on the long-term alternative forward of us.
Thank you to our staff, to our prospects and to our companions in your dedication, your work and your loyalty.
With that, I’ll flip the decision to Howard, and I stay up for your questions.
Owen Howard Wilson
Thank you, Jen, and good day to everybody becoming a member of us on this afternoon’s name. Our fourth quarter and monetary 12 months outcomes display sturdy worthwhile progress pushed by prospects persevering with to depend on the PagerDuty Operations Cloud and to cut back prices, defend income and retain expertise.
In what continues to be a troublesome macroeconomic setting, we famous sturdy retention and a excessive quantity of buyer transactions. And as an organization, we proceed to make progress on our profitability targets being worthwhile on a non-GAAP foundation for the complete 12 months.
Unless in any other case said, all references to our bills and working outcomes are on a non-GAAP foundation and are reconciled to our GAAP leads to the earnings launch that was posted earlier than the decision.
Revenue was $101 million within the fourth quarter, up 29% year-over-year. The contribution from worldwide was 24% of complete revenues and unchanged from This fall of final 12 months. We delivered dollar-based internet retention in This fall of 120% in comparison with 124% in the identical interval 1 12 months in the past.
DBNR has been at or above 120% for 9 consecutive quarters. However, based mostly on buyer information from the second half of FY ’23, we’re modeling a spread of 117% to 120% in FY ’24 with Q1 being on the low finish of the vary.
Customers spending over $100,000 annual recurring income grew to 752, up 27% from a 12 months in the past. Total paid prospects elevated by 3% yearly to fifteen,244, in comparison with 14,865 within the 12 months in the past interval. Consistent with the macro within the small medium enterprise phase, we had slower acquisition and elevated ranges of churn, which slowed complete paid buyer progress.
Free and paid firms on our platform grew to over 24,000, a rise of roughly 20% in comparison with This fall of final 12 months. With over 80% of our ARR coming from the enterprise and mid-market phase, we’ll proceed our deal with paid buyer acquisition in these segments and leverage our free providing in SMB. As a outcome, we anticipate complete paid buyer progress to be in a spread of 5% to 10% in FY ’24.
In phrases of metrics that we offer on an annual foundation, prospects with ARR over $1 million elevated to 50, up 16% in comparison with This fall of final 12 months. ARR from prospects utilizing 2 or extra paid merchandise was 58%, 1 level decrease than FY ’22 and up from 49% in FY ’21 and 29% in FY ’20.
Please observe that the numbers shared on this name had been derived on the buyer stage, which is in line with our paid buyer calculation. On final 12 months’s fourth quarter name, we introduced numbers on the account stage. And we exited This fall with $410 million in annual recurring income, which was a rise of 26% year-over-year.
This fall gross margin of 86% remained inside our goal vary of 84% to 86%. Operating earnings improved to $6 million or 6% of income in comparison with a lack of $2 million or 3% of income in the identical quarter final 12 months. The annual enchancment was pushed by sustainable gross sales and advertising and marketing effectivity positive factors and economies of scale throughout G&A, and the quarterly enchancment was because of our long-term operations effectivity initiatives. In phrases of money circulate for the quarter, money from operations was $18 million, and free money circulate was $16 million.
For the complete fiscal 12 months, income was $371 million, up 32% year-over-year and the same progress charge as FY ’22. Gross margin was 85%, comparatively flat year-over-year. Operating earnings was $3 million or 1% of income in comparison with a lack of $23 million or 8% of income a 12 months in the past. Operating money circulate was $17 million in comparison with unfavorable $6 million a 12 months in the past. Free money circulate was $9 million in comparison with unfavorable $13 million in fiscal 2022. And headcount elevated to 1,166, up 23% year-over-year.
Turning to the stability sheet. We ended the quarter with $477 million in money, money equivalents and investments. Total deferred income ended the quarter at $209 million, up 23% year-over-year. Quarterly calculated billings had been $130 million, which was a rise of 23% year-over-year, ending above the steerage of roughly 20% offered throughout final quarter’s name. This outcome contains roughly $3 million in pay as you go multiyear billings. Adjusting for this, the rise was 21% and in addition above the steerage. We anticipate billings progress for Q1 to be roughly 20%.
Given quarter-to-quarter fluctuations in billings, we deal with buying and selling 12 months billings. On a trailing 12-month foundation, billings had been $410 million, a rise of 27% in comparison with a 12 months in the past and above the speed offered throughout our final name. As a reminder, the comparable interval This fall of FY ’22 included a onetime profit of roughly $2 million from early renewals. We anticipate trailing 12-month billings progress exiting the primary quarter to be roughly 24%.
In offering steerage, now we have factored within the present macroeconomic setting, which, from a prime line perspective, manifests itself in longer gross sales cycles on bigger offers and growing quantity of smaller purchases, basic conservatism in spending, significantly for brand spanking new initiatives and elevated problem for small and medium companies.
For the primary quarter of fiscal 2024, we anticipate income within the vary of $102 million to $104 million, representing a progress charge of 19% to 22%; and internet earnings per diluted share attributable to PagerDuty, Inc. within the vary of $0.09 to $0.10 with absolutely diluted shares excellent of roughly $104 million. This implies an working margin within the vary of 6% to 7%.
For the complete fiscal 12 months 2024, we anticipate income within the vary of $446 million to $452 million, representing a progress charge of 20% to 22%, and internet earnings per diluted share attributable to PagerDuty, Inc. of $0.45 to $0.50 with absolutely diluted shares excellent of roughly 105 million. This implies an working margin of 8% to 9%.
Before shifting to questions, I wish to present help with modeling FY ’24. We anticipate non-GAAP gross margin to be in our goal vary between 84% and 86%. Q1 money outflows embrace a onetime severance fee of $5 million and seasonal funds associated to our short-term incentive plan, and, for Q2, curiosity on our convertible debt. Q2 bills will embrace the primary full quarter of annual benefit will increase.
With respect to free money circulate, the second half is anticipated to be increased when it comes to free money circulate margins. And for the complete 12 months, we anticipate free money circulate margin to be a minimum of a few factors higher than our working margin.
In what has been an unsure financial setting, I wish to thank our prospects for his or her continued partnership. Our increasing operations cloud choices that assist our prospects remodel crucial work, our excessive retention charges and demonstrated operational effectivity put us in a robust place this 12 months to proceed with income progress above 20% and increase our working margin considerably.
With that, I’ll open up the decision for Q&A.
Question and Answer Session
Tony Righetti
Okay. Thank you, staff. And we do have palms raised for questions already. Let me convey Jennifer on with us. And we’ll flip first to Sanjit Singh with Morgan Stanley.
Sanjit Kumar Singh
Congrats on strong finish to the 12 months and on the outlook. Very spectacular on the margin information. I’m completely happy to see that as nicely. When you have a look at the complete 12 months outlook, Howard, given that you simply noticed elevated churn on the SMB and remind me, I feel it was about — it was round 20% of the — of ARR. How a lot is that — how a lot of that churn is a headwind going into subsequent 12 months after we have a look at the complete 12 months information?
Owen Howard Wilson
Thanks, Sanjit. So you are proper. So SMB represents about 20% of our revenues. We have contemplated that and issue that into the steerage that we have given for this 12 months. So we have modeled in related ranges of motion inside SMB, each when it comes to new buyer acquisition and downgrade and churn.
Sanjit Kumar Singh
Makes sense. And then only one extra query on form of the outlook as a result of I used to be actually completely happy to see the 20% plus income progress. And that is on the query of layoffs, and we proceed to see huge tech announce fairly sizable layoffs. What’s the form of replace on the evaluation there? Are engineers nonetheless discovering jobs comparatively shortly when it comes to — after which probably coming again to PagerDuty in the event that they go away the corporate after which go on to the following one?
Jennifer G. Tejada
Yes, I’ll take that query. Nice to see you, Sanjit. Look, we’re very assured in our prime and backside line information. We’ve given loads of thought to the macro. And whereas now we have seen layoffs, what I might say is we proceed to see most of these layoffs outdoors of engineering. And if something, what we’re discovering is Incident Response has turn into extra necessary as a result of our prospects need to assist their engineers do extra with much less, enhance their productiveness and, actually, lower the price of their infrastructure. So we’re proper platform on the proper second on this present market setting. And no query, has it been a troublesome setting that is had some affect, however our staff is executing very nicely. And executed via the pandemic very nicely.
So now we have a excessive diploma of confidence that we are able to ship on our steerage even when this macro setting persists. And if it had been to enhance, we’d see that as upside.
Sanjit Kumar Singh
Great. Congrats on the outlook.
Tony Righetti
Next, we’ll flip to Matt Hedberg with RBC.
Matthew George Hedberg
Great. Congrats from me on the outcomes and particularly the free money circulate information, Howard, I feel that is actually, actually glorious. Jen, I wish to begin reviewing from a high-level perspective. There’s been loads of speak clearly about generative AI. And you guys have had a long-standing deal with AI generally. Can you give us your perspective on what generative AI may imply for the PagerDuty platform going ahead?
Jennifer G. Tejada
Well, for certain, AI has been a mainstay alongside of automation in each a part of our platform, and it is an space that we proceed to spend money on. I feel one of many locations the place we had been early was in constructing a foundational information mannequin to assist our prospects and shifting from merely responding quicker to points as they come up to truly proactively stopping these points from the approaching main buyer impacts. And that has been via leveraging AI in incident response, in AIOps, in components of our automation product and more and more in customer support.
Generative AI, proper now, we see a use for lots of content material creation. It’s depending on a big mannequin, the Internet being a kind of. But one of many challenges for generative AI in our house is our prospects anticipate a really excessive stage of constancy within the alerts that they get. False positives or false negatives will not be good issues whenever you’re coping with business-critical or mission-critical infrastructure. And so I feel it is going to take a while to find out the place the suitable function for generative AI is within the product per se, however you may think about shortening efforts in diagnostics, decreasing the time that it takes to know which service is a root trigger or remediate, et cetera, and we’re experimenting with a few of these issues.
But from an analytical AI perspective, I nonetheless assume the information set that now we have places us in an excellent place to proceed to make use of AI and machine studying throughout the platform to automate a few of these huge challenges when our prospects are searching for productiveness and effectivity above all else.
Matthew George Hedberg
Got it. That’s tremendous useful. And then Howard, for you. I recognize all the colour on the steerage. One query for me. Could you remind us once more what your publicity from a vertical perspective is to tech spending possibly monetary companies lately?
Owen Howard Wilson
Yes. So Matt, we have more and more turn into extra numerous when it comes to the industries that we cowl. We do have a presence in software program and expertise and monetary companies, but additionally throughout media and leisure, journey and hospitality, telecommunications. So that is a broad base, which helps us a minimum of to have the ability to handle sure actions inside these explicit industries. So it provides us, to some extent, a stage of resilience, however we’re in a position to put together for that when it comes to with the ability to deal with these completely different industries with their particular wants at a cut-off date.
Jennifer G. Tejada
Yes. And I’d make the purpose that in a few of these verticals you talked about, what we’re seeing is elevated urge for food for automation and a platform that improves productiveness, an actual effort to have a look at infrastructure prices and attempt to take away duplicate prices the place you might need level options that you might exchange with the platform. And so our efforts in AIOps, in actually leveraging AI in our incident response product when that is now turn into extra necessary as our prospects try to guard revenues, defend prospects and subscribers is nicely timed.
Tony Righetti
Turning subsequent to Joel Fishbein at Truist.
Joel P. Fishbein
Congrats additionally on an amazing execution. Jennifer, you’ve got talked about on the decision and gave us some good particulars on a few of your huge wins within the quarter. Obviously, from a go-to-market perspective, you are stressing the platform. And I feel the setting that we’re in proper now may be very proper for higher consolidation. And so I might love to grasp what the cadence is on platform gross sales for you guys. Maybe a number of the go-to-market issues that you simply’re doing there. And then a number of the — from a buyer perspective, how PagerDuty is being considered from a buyer perspective, possibly versus the way it was possibly 18 months in the past.
Jennifer G. Tejada
Yes. I feel in some methods, our innovation outpaced our branding. And so actually constructing out consciousness round our new services and products related to the broader operations cloud worth proposition is one thing that Katherine Calvert, our new CMO, she’s not likely that new anymore, our CMO may be very centered on. And I feel what’s necessary there may be that whenever you leverage an built-in platform that mixes Incident Response, AIOps, automation, together with customer support operations, you get profit throughout these groups from each a part of the platform, and also you additionally get profit from the mixing of these options.
So the Incident Response, versatile workflows inform a number of the sign that comes into Event Intelligence, which lets you get out in entrance of a few of these points as an alternative of simply responding to them, stopping occasions from turning into main incidents, having customer support ops, permits buyer groups to extra successfully talk and handle conditions with their prospects and, likewise, turn into a part of the incident response course of themselves by elevating points or offering enter into the incident response. All of that is in-built an easy-to-use form of seamless platform setting the place you do not have to be a dev to grasp leverage PagerDuty. And I feel that may be a huge step ahead.
Some of the opposite services and products that we constructed it is probably not as apparent. One is the pliability and the flexibility to have the ability to construct low-code or no-code workflows, opens us as much as new use circumstances, not solely inside Incident Response, however enabling prospects to work nonetheless they wish to work, even when they don’t seem to be a mature DevOps full service possession store. They can work the way in which they should work. And likewise, groups in different components of the enterprise, whether or not it is customer support or gross sales and advertising and marketing, finance, et cetera, with the ability to leverage the product for what we name interrupt work.
At the top of the day, all of it comes right down to serving to our prospects perceive from a high-level perspective that our platform is all about modernizing your operations and enhancing your productiveness whereas on the similar time making certain a seamless digital expertise for patrons. And that, on this present macro setting appears to be rather well suited to the place our prospects try to go. More with much less, much less infrastructure spend, much less duplication when it comes to level options throughout the ecosystem and but higher, quicker innovation and repair to their finish prospects. So once more, sort of proper platform on the proper second for the present setting that we’re in.
Joel P. Fishbein
Great. And if I might follow-up, Howard.
Owen Howard Wilson
Yes, I used to be simply going so as to add to that. And the way in which that, that is additionally displaying up is that if we take a look at alternatives proper now, platform alternatives are making up a a lot increased mixture of our complete pipeline than a 12 months in the past. So our gross sales staff is de facto getting that message of promoting the built-in story of whenever you’re placing Incident Response, AIOps, automation, Customer Service ops collectively, you unlock a unique stage of energy for the client.
Joel P. Fishbein
And what does that do to deal sizes simply typically for those who…
Owen Howard Wilson
So there’s 2 results. The one is that it’ll, in some circumstances, make for bigger offers, however due to the way in which our platform is constructed, prospects are in a position to — they might be an Incident Response buyer and so they can add automation. Or they might be an automation buyer, and so they might add Incident Response. So it opens up the chance to create a highway map with the client that they do not essentially need to execute on all of sudden. But it provides them a pathway to how they will truly construct and create an operations cloud inside their setting.
Tony Righetti
Excellent. Moving subsequent to Chad Bennett from Craig-Hallum. Chad?
Chad Michael Bennett
So Howard, possibly simply to drill down a little bit bit on internet retention for the 12 months within the 117% to 120% vary that you simply gave. So how are you excited about that when it comes to seat growth versus use case growth relative to what you noticed final 12 months traditionally?
Owen Howard Wilson
Yes. So seat growth or consumer growth nonetheless stays one of many main drivers for us when it comes to progress. But more and more, we’re seeing the adoption of different merchandise throughout the platform as being the important thing factor. And most notable in that’s our AIOps resolution, significantly with the strengthening of our providing round occasion orchestration is making that much more related to prospects. And when it comes to automation, the truth that we now have a number of LANs and alternative ways by which prospects can use course of automation implies that it is a lot simpler for us to, actually, develop these prospects with these extra choices.
And that is mirrored within the common income per buyer, persevering with to extend once more this quarter because it has each quarter very constantly over the previous few years. Has continued to go up — develop. And actually, it was up 23% on the finish of This fall. So our prospects are utilizing extra of PagerDuty and that is displaying up each when it comes to customers however more and more when it comes to extra of the usage of the platform.
Chad Michael Bennett
Got it. And then possibly simply when it comes to what you indicated on free money circulate margins being, I feel, a few hundred factors — a few hundred foundation factors forward of the op margin. So would that suggest that billings progress for the 12 months ought to exceed income progress? Or is there one thing else that is offering that delta there?
Owen Howard Wilson
Yes. So simply to be clear, that is for the complete 12 months that I say. Because it should transfer, it should flex all year long because it does. I assume the way in which that — we’ve not offered particular steerage on billings for the complete 12 months, we have offered steerage for Q1. And what I might at all times level individuals to is for those who have a look at the development, the way in which by which our billings tends to observe our income information over time, you’d anticipate to see that related mechanic play out via this subsequent 12 months.
Tony Righetti
Next, shifting over to Matt Stotler with William Blair.
Matthew Alan Stotler
I assume possibly first on the companion ecosystem. Let’s simply get an replace on companion contribution at this level, how these relationships are taking part in out sort of on the broader time line of ramping these up, but additionally contemplating the near-term macro. Obviously, ServiceNow’s comparatively new. You talked about AWS just lately. You’ve bought numerous different fairly strong companions. So we glance to get a broad replace there.
Jennifer G. Tejada
Sure. I imply companions proceed to be an necessary and rising progress vector for us from a channels perspective. AWS from a product standpoint — excuse me. AWS has actually stepped up from a product standpoint with us. And the place we have seen loads of profit is thru {the marketplace} the place prospects in a constrained price range setting, are in a position to deploy AWS pay as you go spend to retire PagerDuty licenses. So that has helped loads of our prospects proceed to spend money on productiveness and automation to cut back their total infrastructure footprint.
Julia Fare, who’s comparatively new to the enterprise is taking a look at some fascinating new partnerships from a regional perspective too, to enhance the chance that now we have in areas, the place we do not have ft on the road. We’ve seen some encouraging issues just lately in Japan, the place we closed the deal via a companion in Japan within the monetary companies sector. And that is a really new marketplace for us, a market the place having companions on the bottom is de facto necessary. And so we’re inspired by that, however the overwhelming majority of our ARR income nonetheless comes from our direct go-to-market group and our product-led progress mannequin.
I feel a number of the issues that I’m actually inspired about are, even via our direct gross sales pressure, who’s actually embracing the operations cloud and getting higher and higher at promoting not simply the imaginative and prescient however the near-term alternative there, we have seen our largest buyer cohort proceed to increase with us. So prospects spending over $100,000 grew 27% within the quarter. And not a single certainly one of our prospects is bought out. We nonetheless have loads of TAM to go after inside these buyer bases, whether or not it is — inside these prospects, whether or not it is seat-based or it’s use case-based or useful or product-specific.
I feel sooner or later, companions might be useful in serving to our prospects with the transformation. Like how are they driving the modifications essential to turn into extra productive? How are they enhancing their workflows and their processes? How are they leveraging PagerDuty to the complete extent? So that is thrilling, however one thing that also is out in entrance of us.
Matthew Alan Stotler
Right. Got it. That’s useful. And then the touch upon Japan is an efficient segue into the second query right here on simply the worldwide markets, proper, fairly constant as a share of income. I might like to possibly simply double-click on what you are seeing there, each in This fall, clearly, early in fiscal ’24. And then as you concentrate on what’s embedded in steerage outdoors of North America, I might like to get some coloration there as nicely.
Jennifer G. Tejada
Sure. I can begin and Howard, if there’s something you wish to add or if I choke to demise, you may soar in. We proceed to see loads of the identical macro developments specifically in Europe, the place we had seen gross sales cycles elongate. We had seen extra approvals and extra diligence on offers. But what’s been pleasing is the continued engagement from prospects and a document variety of transactions within the quarter. Even although these transactions could also be smaller than they’ve been previously, it simply exhibits that prospects are nonetheless seeking to companion with us long run.
And I feel it units us up in a very sturdy place when the market does recuperate sooner or later in time, we’re in an excellent place with a aggressive platform that’s nicely seeded into these prospects. So proceed to see excessive engagement, had some actually fascinating wins, together with the one we talked about within the meals supply house, a staff that’s executing very nicely, given the situations. And it is early days for Japan. I’m enthusiastic about that market. I feel that might be an necessary marketplace for PagerDuty and an necessary market extra broadly for the cloud and for software program.
But I assume to summarize, the financial setting has been fairly constant in some circumstances, it is gotten a little bit more durable. And but all of our go-to-market groups are executing very nicely given the setting. And I feel they actually turned the nook on with the ability to pivot in the direction of productiveness, decreasing infrastructure prices, serving to prospects turn into extra environment friendly and our prospects have been singling to us that Incident Response is extra necessary, that PagerDuty is important infrastructure and so they’d prefer to consolidate increasingly of their spend away from level options onto our platform.
Tony Righetti
Okay. Next, we’ll hear from Kingsley Crane. Kingsley, go forward, with Canaccord.
William Kingsley Crane
Look, I feel you are solidly worthwhile, you are guiding virtually double-digit working margins. Has your method to the long-term mannequin advanced in any respect? Is 20% nonetheless the most effective long-term margin? You have such sturdy gross margin, 85%, it looks as if possibly that might turn into increased.
Jennifer G. Tejada
Kingsley, I like the way in which you stated we’re solidly worthwhile, like we have been doing that for years. I actually — as a result of that was not straightforward. But Howard, go forward and allow you to reply.
Owen Howard Wilson
Yes. Yes. So Kingsley, we’ve not offered an replace to our long-term mannequin. So you will see even in our most up-to-date investor deck, we stored that, which has working margin at scale at 20%. Right now, that mannequin, I feel, remains to be legitimate. Right now, given the present macro, we’re focusing significantly on what we see occurring forward of us inside this subsequent 12 months, and have a excessive stage of confidence in our capability to execute on the information that we have given for this 12 months. So conserving income progress above 20% and working margin in that 8% to 9% for the complete 12 months.
William Kingsley Crane
Okay. Fair sufficient. And then so for Status Page, newly launched merchandise, is that worth historically on customers of the client? Or is that by some means based mostly on the top consumer of the shoppers, the two layers of elimination? And any sense of adoption expectations or affect on prime line?
Owen Howard Wilson
Yes, certain. So the pricing mannequin internet is completely different from our different fashions in that it is successfully based mostly on the variety of subscribers {that a} explicit buyer would contract for. And so the expectation is that the subscribers might be inside or exterior to the corporate. So it creates — successfully targets the top consumer of the Status Page notifications. This, after all, is a comparatively new providing for us, however the — so far, the expertise we have had, it is one thing that prospects had been asking us to do earlier than. And therefore, I intend to maneuver from what was primarily initially simply an inside providing to a totally exterior providing.
But what’s much more necessary is the way in which by which we’re utilizing automation with our Status Pages in that it is not counting on some individual, like loads of conventional Status Page goes right into a separate setting to seize a message and publish that message. We, actually, have it absolutely built-in into the Incident Response life cycle and we’re utilizing automation and templates to have the ability to make it tremendous straightforward to drive this stage of communication that you simply sometimes need throughout a broad set of stakeholders. So good early indicators, however that is one thing that is solely just lately been launched.
Tony Righetti
And subsequent, we’ll hear from Andrew Sherman. Go forward, from TD Cowen.
Andrew Michael Sherman
It’s Andrew on for Derrick. Jen, the document variety of transactions in each enterprise and industrial is spectacular, particularly lately. Is there something reps are doing particularly to drive that velocity how a lot of that is expansions versus internet new logos? And as soon as the macro does enhance, does this offer you higher visibility into future expansions?
Jennifer G. Tejada
I feel it is only a good reinforcement of how necessary our high-velocity land-and-expand movement is. Our staff refers to this because the wholesome hustle, ensuring that they do not let the client drive the tempo of the gross sales cycle that we put ourselves able to allow prospects to purchase what they want after they want it and never drag out gross sales cycles by pushing too far forward of the demand.
And Jeremy Kmet, who’s main our go-to-market group who’s — somebody, frankly, whose transition has gone rather well from a go-to-market management perspective, is the person who actually architected and mechanized this movement. And we have been in a position to push that high-velocity transactional movement additional and additional up into bigger market segments.
And to your level, what that allows us to do is seed alternatives in prospects quicker, transfer away, allow them to develop organically, allow them to work via the deployment, allow them to see the worth. And then come again to them so as to add on or to seize extra demand, whether or not it grows organically or as a result of we be taught one thing, see a brand new use case throughout the buyer. So I feel that has served us very nicely. And like I stated, I feel the go-to-market organizations additionally pivoted successfully to going from promoting the premier technical resolution to promoting an answer the place automation can really enhance productiveness and effectivity in a second when our prospects really want it.
So simply actually pleased with the execution there. I feel standardizing our go-to-market mannequin has additionally helped. So each area is attacking this the identical approach. It frees up time and create some streamlining in how our groups construct pipeline. And the very last thing that I might say is we have utilized much more rigor round multiproduct pipeline and multiproduct promoting. So actually serving to the gross sales pressure perceive the significance of taking a number of merchandise to market, but additionally with the ability to work via the narrative and perceive the client issues that we’re fixing with an built-in platform.
I’d additionally say retention of reps is increased this 12 months than it was final 12 months, and we’re coming into this 12 months with extra ramp capability than now we have previously. So actually in a robust place from a go-to-market perspective.
Andrew Michael Sherman
That’s nice. One for you, Howard. I might love to listen to a little bit bit on linearity within the quarter. How does that monitor? And how are your pipeline indicators wanting at present? Have you added any further ranges of scrutiny to these metrics? Any coloration there can be useful.
Owen Howard Wilson
Yes. So if I look again at This fall, which seems like a lifetime in the past proper now, This fall was not an uncommon quarter when it comes to linearity. But what was completely different is that we’d sometimes see an end-of-year flush of shoppers seeking to launch price range in some form or kind, and that didn’t occur this quarter. So it was a bit completely different. And I feel that was only a reflection on the macro.
Going into this 12 months, what we’re seeing is the truth that we do have power when it comes to our pipeline now could be more and more extra oriented round platform gross sales. So prospects buying greater than 1 product or buying a number of merchandise with a purpose to ship on this operations card. And as Jane talked about, we have entered this quarter with extra ramp reps than we have had ever earlier than, at the beginning of the 12 months, which is an efficient place to be.
So we’re seeing good alerts when it comes to that inside this setting, proper? So I feel on this setting, we’re nonetheless seeing prospects being cautious. We’re seeing prospects being cautious about their spending, however definitely, excessive ranges of engagement and exercise throughout the buyer base.
Tony Righetti
A pair extra questions coming in. Next, we’ll go to Rob Oliver with Baird. Rob?
Robert Cooney Oliver
Great. Plenty of nice questions requested thus far, however I’ll have a pair simply — so Jen, Howard, you had stated there was no price range flush within the quarter. Nevertheless, you guys landed some actually spectacular offers at year-end, some giant lands and growth. So I needed to get a way from you guys a little bit bit extra about what went into a few of these giant offers, significantly on the growth aspect. Obviously, you guys are speaking quite a bit about platform right here. I feel as much as 50% of ARR now a number of merchandise.
But at these largest prospects like the large lands you’ve got, the 50 prospects now paying you over $1 million the place are you relative to automation, customer support? And I do know you simply talked about Jeremy, that was certainly one of my questions. Maybe discuss methods by which Jeremy is concentrated on getting these merchandise now into the pockets and understood of the gross sales reps which can be promoting the most important enterprises. And then I’ve a fast follow-up.
Jennifer G. Tejada
Sure. In This fall, we made a giant push round enablement to get our gross sales pressure extra snug with the ability to discuss each the issues after which how we apply options to points like infrastructure automation or automate, run books to assist quicker Incident Response or compress the time and the affect of an incident, how to consider participating with customer support leaders when it comes to the customer support operations, dialog and more and more getting snug about speaking about AI when it comes to occasion orchestration and actually beginning to perceive the affect of dependent companies and be capable to orchestrate work extra successfully, orchestrate occasion correlation extra successfully.
And so I feel we made loads of headway simply purely from an enablement perspective and serving to our reps speak to our prospects about this.
Also, we put loads of effort and time into enterprise assessments, enterprise worth assessments that leverage buyer information and buyer data to offer them a way of the place the productiveness unlock lives. And then we return round and assess whether or not or not we delivered upon that. And often, we underestimate and over-deliver in that regard. I’ve had prospects, a lot of which have stated 1 main incident paid for final 12 months’s PagerDuty subscription after which some, simply via shut and compressing the time-frame and the blast radius of that incident.
And so I feel there’s additionally the profit that from a market perspective, as groups turn into extra constrained, as budgets turn into extra constrained, now we have prospects coming to us saying, assist me to cut back my infrastructure price, assist me to unlock productiveness. So we’re form of assembly that demand, I feel, moderately nicely ready for it, and that is been tremendous useful.
The final thing I might say is in many of the circumstances the place we have described a few of these bigger offers, these are prospects which were with us since 2013, 2015, 2017. And I’ve at all times stated that we’re form of a affected person grower that our prospects usually begin the place they’re with a really primary use case, and then you definitely see these companies turn into extra digital otherwise you see the digitization of their enterprise mannequin happen, and so they require extra partnership, extra assist.
We’ve additionally seen the rise of extra technical management at loads of these firms. And technical leaders have a tendency to essentially perceive the worth of automating incident response, the worth of automation extra broadly. And culturally, we’re seeing a higher acceptance round leveraging AI to make choices that traditionally individuals made in a swivel chair speaking to one another in an operation middle. So all of these developments are sort of coming collectively for us.
Robert Cooney Oliver
Great. And then, Howard, you guys are certainly one of a really quick checklist of our protection firms that was in a position to put via a worth improve final 12 months. I feel you guys are anniversarying that, if I’m not mistaken, with the primary half or possibly this coming quarter. Just something to name out for us there? It sounds prefer it’s gone nicely in mixture. And how is the suitable approach to consider it? Is it simply straight up, here is your worth improve? Or is that this additionally a chance providing you with guys a chance to speak in regards to the platform and higher worth that PagerDuty can ship?
Owen Howard Wilson
Yes. Thanks, Rob. So I feel there have been a number of components to that. So final 12 months, I feel within the March timeframe now, simply going again, we launched a worth improve that was basically for brand spanking new prospects. And so there was new pricing that was offered to new prospects and current prospects had been then topic to an annual renewal uplift. And after all, in the event that they made a brand new buy, then the place to begin, for those who like, for them, can be the brand new pricing. So that pricing has been nicely obtained via the 12 months. As with any pricing change, it creates like a dialogue level for patrons.
But I feel it is now nicely embedded and nicely established. And I feel what’s extra fascinating for us is that as we glance to the long run and as we add to the portfolio of our merchandise that create this operations cloud, there’s extra alternative for patrons to have the ability to increase their footprint with us and for us to have the ability to be sure that they’re utilizing extra of PagerDuty and we’re consolidating a number of the spend that is sitting on the market, and that is actually an amazing alternative for us.
Tony Righetti
Okay. Rounding issues out, we’ll hear from Credit Suisse. I imagine that is Tim Jausovec.
Tim Pusnik-Jausovec
This is Tim on for Fred. First, the midpoint of your Q1 income steerage implies $2 million sequential income progress which is, I imagine, the bottom sequential progress in Q1 you’ve got seen since 2019. At the identical time, your full 12 months steerage implies sequential income progress barely above what you reported final 12 months — so I hoped you might stroll us via the places and takes of a comparatively weaker Q1 steerage in comparison with a really wholesome full 12 months information, particularly given the setting you are working in.
Owen Howard Wilson
Sure. So I feel the important thing factor to recollect is that Q1 final 12 months was a very sturdy quarter for us. And because of that, the evaluate is a more durable evaluate. We have additionally simply, in excited about the steerage that we have given for the complete 12 months, we’re taking a look at the newest set of circumstances when it comes to excited about how that will play out throughout the early a part of the 12 months. And we have tried to include our views on the macro throughout the complete 12 months.
So as we transfer via the 12 months, it should — as we see these circumstances play out via the 12 months, it does create a barely completely different shift within the income via the interval.
Tim Pusnik-Jausovec
And to be clear, are you assuming a restoration within the macro setting into the again half of the 12 months in your steerage?
Owen Howard Wilson
It’s a unique set of compares, proper? So when it comes to the evaluate from like Q1, which was a really sturdy quarter final 12 months versus, say, Q3 or This fall later within the 12 months, the evaluate is off a unique base.
Jennifer G. Tejada
It’s in all probability protected to say that we’re assuming the tough macro setting goes to persist all year long, however we’re assured in our capability to execute given how we’re coming into the 12 months from a capability standpoint, the place we’re when it comes to new merchandise to monetize and our aggressive place.
Tim Pusnik-Jausovec
And then as a follow-up for Jennifer. You introduced a tech tight — tech integration with ServiceNow CSM in January. Could you speak in regards to the buyer pool you are seeing within the CS Ops area? And how do you see the partnership with ServiceNow evolve over the following few years?
Jennifer G. Tejada
Yes. I imply I feel that in numerous circumstances, what we have seen is prospects asking us how they will leverage their customer support brokers to each assist seize data because it’s coming in from prospects. I imply sadly, a lot of our prospects study main incidents from their finish prospects both reaching out to their buyer assist groups or via social media or different channels. And so we had seen this demand from our prospects to assist leverage the client assist brokers to interact on each figuring out issues and with the ability to kick off incidents but additionally with the ability to collaborate extra carefully with expertise groups, engineering groups, software program engineering groups and repair house owners related to the services and products which may be on the root of these incidents.
And so bringing these 2 platforms collectively to assist scale back the time that is misplaced and the client affect which may be uncovered or created as a result of groups are working in disparate, separate platforms that do not speak to one another, it was a giant a part of the issue that was described to us.
And then what we additionally see is with prospects like Salesforce, ServiceNow, Zendesk, et cetera, like there are alternatives the place the platforms complement one another very nicely, the place you could be utilizing 1 platform in 1 a part of the enterprise for a sure kind of labor however you continue to want a platform like PagerDuty that may assist you to handle mission-critical, time-sensitive unstructured work, which may be very completely different than what a ticketing queuing system or a CRM or a CSM product does.
And so there’s truly loads of complement there. And actually, this once more has been pushed by a pull from the client versus strategic partnerships the place our buyer is saying, “I would like these techniques to not simply sit alongside one another properly. I would like them to work successfully collectively. I must combine the workflow throughout these to avoid wasting my individuals time.”
Owen Howard Wilson
Yes. And simply on that time, this was one thing that already been validated by prospects who’re utilizing the particular integration now we have achieved for Salesforce Service Cloud and Zendesk and ServiceNow CSM was the following piece to Jen’s level.
Tony Righetti
Okay. Team, glorious. We’ve reached the top of one other name and questions. Jen, can I flip it over to you for some last remarks?
Jennifer G. Tejada
Yes, you may. Well, initially, I’d identical to to say thanks for becoming a member of us right this moment and in your questions. To recap our fourth quarter outcomes spherical out a robust 12 months for PagerDuty, a 12 months by which we prolonged our management in digital operations, surpassed $400 million in annual recurring income and achieved non-GAAP profitability a 12 months forward of plan. I’m assured in our operations cloud technique, bolstered by our current innovation in AI and automation and in our staff’s capability to execute.
Thank you to all of our staff all over the world for championing our prospects and delivering a profitable 12 months of worthwhile progress. Have an amazing day.
