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.

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%…

Thank you, Jen. Financial results for Q2 demonstrate our success in building the operations cloud for modern enterprise. Once again, PagerDuty exceeded the high end of our guidance as top line growth accelerated. Our reliable execution in the face of the pandemic was bolstered by tailwinds, including cloud adoption, DevOps transformation and digital acceleration. And this gives us confidence in our plans to become a $1 billion SaaS company. Revenue of $68 million, grew 33% year-over-year, driven by consistent execution in the enterprise and mid-market segments. New logos and familiar Fortune 500 names added users to the platform, including Abbott Laboratories, S&P Global and Booking Holdings. We added a 6-figure expansion deal with one of the world's largest airline carriers who are projecting higher developer productivity, accelerated migration to the cloud and a 6-month payback with a 449% ROI as a result of using our platform. PagerDuty drives value across all verticals but we continue to see strength within software and technology, financial services and retail and wholesale. We also see continued new use case adoption across different teams with 12% of our paid customers using us for customer service and 20% using us for security use cases in addition to development or IT. International revenue, one of our 4 levers of growth grew 41% year-over-year. International has grown from 23% of total revenue a year ago to nearly 25% this quarter. As the macro trends of digital transformation, DevOps adoption and cloud migration accelerate globally, companies in the international markets are using PagerDuty to overhaul legacy and manual processes. Some highlights in the quarter include a new 6-figure land in the EMEA region with a large media and broadcast company and a large 6-figure multiyear deal in APJ transacted through our partner, AWS, with the Royal Automobile Club of…

[Operator Instructions] And we had a request from Bhavan Suri from William Blair to contribute first.

Can you hear me okay?

Yes.

Perfect. Congrats and especially congrats on the net dollar retention rate and the enterprise always fantastic. I guess I had a question around really the initiatives post COVID, right? So we've gone through the pandemic, and now we look back, I'd love to understand how is PagerDuty changed, forget the addition of the head of sales, et cetera. But where do you go from here? How do you think the challenges of the past year have impacted the opportunity and your go-to-market vis-a-vis what we've seen through that process? I'd love to think through strategically what's happened and how you rebalanced, re-architected and how you think about going forward vis-a-vis the pandemic?

Sure. Well, as I've mentioned in past calls, I think the pandemic accelerated a number of tailwinds that were already in PagerDuty's favor. And we've talked about these digital transformation, DevOps cloud migration, all important. As the pandemic evolves because, unfortunately, it's not over yet. I have a lot of empathy for people in many areas that are still unable to be vaccinated and dealing with the Delta virus. I think the world and our customers have settled into what I would call a new normal. And that new normal is distributed work, it's hybrid work, and it's a heavy focus turning your business into a digital business, meeting consumers and customers wherever they are, right, whether that's in a physical location or on the curve where they're picking up goods and services or 100% online. And that kind of flexibility and need to adapt is another strong tailwind for PagerDuty. Because it means all these companies are now putting digital transformation and that customer experience, managing incidents very quickly, so they don't impact businesses at the top of their priority list. So we've seen a really strong buying signal to that extent. For our company, we were already 20% distributed when the pandemic hit. We're now nearly 50% distributed. And I think also has settled into, I think, what is a really good motion seeing our business accelerate by being able to execute as a distributed team. And so I think our culture has really lent itself towards helping our business become more efficient, helping our people become more effective and yet still managing the human needs of our employees. It's been a tough couple of years on everybody. Mental health is important. Physical health is important. In fact, my whole team and I are currently participating in a…

That's really helpful. And I appreciate the color. The other question that comes up a lot is competitive in pricing, and you have one competitor that is a low price still you have others. But I think on one, not naming names. Is there -- has there been any change in the competitive environment? This comes up all the time, and you might have all just addressed it. And has pricing impacted? Are you thinking about pricing? What do you think about it? I'd love to just get honestly, with all the candid you can. What do you see, what are customers saying and while they are saying some competitors are offering something that's substantially cheaper? And how do you view that opportunity or environment or win rates?

Thanks for the question, Bhavan. Candidly speaking, the market has been talking about competitors like some Kaiser is pop up out of nowhere and kill PagerDuty and our growth has accelerated or...

From Hungary, specifically from Hungary. Yes, yes, yes.

And I will tell you that I have never been more confident in our competitive position, particularly as it relates to our product position, the success that we've had in enterprise, the loyalty of our enterprise customers. And the differentiation with which we go about helping customers not only modernize their IT but increasingly automate their IT and speed the ability for their companies to deliver on the brand experience and meet the needs of their customers. And we've done that by spending over a decade, building deep trust and credibility with developers and SREs. And for Devs, we are that superset platform that's essential deeply integrated into their infrastructure across observability, monitoring, logging, orchestration, et cetera. And we're also very fast to deploy. Compared to platforms that take months and years to deploy and cost hundreds of thousands, if not millions of dollars to deploy, we're fast and easy to deploy across the business, which is why you see us virally growing into new use cases. And in enterprise, because we are deeply integrated into those organizations, you're seeing our net dollar retention expand. So I'm very comfortable with our competitive position. You see we've been able to maintain best-in-class gross margins. And frankly, I see pricing for us as a future lever. But like that, that is just one of many growth engines that we have in the business, and I'm confident in the durability of our growth regardless of what's happening in competitive landscape, which, to your point, has not changed dramatically.

No, I appreciate the candid. So I won't hold you to your saying you're going to increase prices. I'll let Howard deal with that.

You said that. I said it could...

Now, I know. Thank you. I really appreciate the candid. And congratulations, those are really good numbers.

Okay. Next, we have a request to go to Mr. Keith Weiss at Morgan Stanley.

Excellent. Really nice quarter, really breaking out for PagerDuty from my perspective. I wanted to ask about the dollar-based net retention rate. And first half to Jennifer, second half to Howard. The solution portfolio has definitely expanded over the past year and further. What was it that caused that step function change in dollar-based net retention rate this quarter? Was it just the products got to a level of maturity, the sales process has got in place to really effectively bring that to market? Or are the customers just ready for this now? Can you help us understand kind of what that catalyst was? Because it was a really nice increase. And the question to Howard is why being such a Debbie Downer on the guidance? Like why can't we sustain this 125% further into FY '22?

Okay. Well, I'll start and I'll let Debbie Downer take the second question. But I have to give Howard a lot of credit. He is very disciplined and keeps me on a short lease. So when we talk about net dollar retention, I think the things that are driving PagerDuty's expansion are a combination of really seeing momentum in the cross-sell of our new products and services. We've talked about the growth of our digital operations platform being over 100% this quarter. We've seen really strong demand for automation and AIOps, which I'm excited about. And we just launched our customer service offering a few quarters ago and seeing a lot of interest there as well. So it's a combination of cross-sell, but also user expansion across new use cases. And not just use cases, we've built products more, but also use cases that our customers identify. And you can see that in our user growth, which was up over 50%. So we're starting to see that horizontal surface area growth across our customer base, which we've been talking about for many quarters and it's really just starting to manifest itself in the market. And the last thing I'll mention is our teams are executing really well. Like I am very proud of the way PagerDuty's employees have come together despite a difficult environment, one that's filled with surprises seemingly all the time in the macro, just keeping their heads down and focusing on the things that are important to our customers, on championing our customers. So I think execution is a big part of it, and I'm just really proud of the team.

Excellent.

And Keith, my comment is, obviously, 130% for enterprise dollar-based net retention and 126% of total was a great result, and we're very proud of that. But as you know, we do live in a world where it's hard to predict exactly which cohort will expand on which time line. So we feel very comfortable with the guidance that we've given, saying that range of 118% to 124%, obviously, high for enterprise.

Got it. And just to be clear, are there any onetime items that occurred in Q2 that you think aren't repeatable on a go-forward basis? Or is it just more so conservatism on predicting the future?

It's really just a case of which cohorts will expand at which point in time. So there was no specific unique events in Q2.

Next, we have Mr. Rob Oliver with Baird.

Great. Jennifer, one for you and then I had a follow-up for you, Howard. So Jen, I remember talking about maybe a year ago. And some of your peers in the public market were seeing already that inflection. And you guys weren't seeing it quite yet. And I remember you saying something along the lines of, well, companies sort of need to assess what's going on and then they're going to turn to start to invest here. And it really feels like that has come to fruition here with the inflection that you've called out. So just maybe to follow up on Keith and Bhavan's questions a little bit. I wanted to drill down a little bit further on that enterprise inflection. When you look at some of -- you guys broke out some of the data there, 20% of your customers taking security, I think, 12% doing customer service. Can you talk a little bit about where you're seeing the most cross-sell within organizations? And -- or is it really just the general PagerDuty value proposition of, "Hey, enterprises have expanded their SaaS best-of-breed offerings a lot." Suddenly, they're sitting on sprawl, it's chaotic. They really need help. So can you talk about that where we are with kind of what the key drivers are in enterprise?

Well, let me first talk about my perspective from the market and spending time with customers. What I see in the market is our customers in a race to deliver great experiences for their end consumers. And those end consumers' patience is wearing very thin. They have lots of choices. There are a lot of industries being disrupted. And customer service brand experience are paramount in the environment we're in where people are living and working in this hybrid way. And so we've seen things like how long it takes to acknowledge an issue, how long it takes to resolve an issue. We call that mean time to acknowledge, mean time to resolve, is now showing up in the CEO's office and an Audit Committee, how many instances do you have? How long did it take those incidents to be solved? So these have become really strategic initiatives and really strategic issues for business. So that's part of it. I would also say that our customers are in a position now, now that they have settled into kind of, as I mentioned, this new normal to reengage in really strategic transformational initiatives. And what PagerDuty does is change the way organizations operate, right? That's not a small undertaking. Even though our product is easy to adopt and easy to deploy, there is a cultural shift that needs to be -- needs to take place. And so that is also part of what's happening. The other thing I would say is, we're a very horizontal offering, but we've demonstrated strength by acquiring and expanding customers in just about every major industry. So we've talked a lot about strength in financial services. This quarter, we saw strength in retail, and we started to see travel come back, for instance. And we've also talked about how important it is for us to continue to influence the developer because developers inside large organizations are leading the way. And so our focus on the developer, on the developer's user experience is part of what's driving that new user growth. And then the last thing I probably should just mention around user growth is the fact that not only is incident response and incident management and, more broadly, operations becoming a business issue, not a technology issue. We're seeing more different types of leadership and people across businesses, business people joining the platform, being part of or wanting to observe what's happening when an incident is going on. So we're also seeing an increase in users that are coming to us as we call them stakeholders, and that's helping to drive user growth.

I think I would also just jump in there, Jen, just to comment. The one thing we've seen, Rob, not only the user expansion, but also the attach of our new products. So our digital operations plan above 20% of our total ARR. We saw outstanding growth in our Event Intelligence offering. We're seeing excellent momentum with our automation offering. We're seeing now that of our enterprise mid-market customers like a 15% attach rate to that new product. So that's all I think testament to using PagerDuty as a platform with the full breadth of our offering delivers the highest value. And for enterprise and mid-market customers, they're solving big problems. They want the best most resilient solution and no one can compete with us.

Great. Yes, that's helpful, Howard. And Jen, thank you. Yes. And I think at the Analyst Day, you guys broke out, I think it was $200 million of the $1 billion target at the time, I think we were trying to figure that out. Looks like you're on the road there, Howard. And is that -- my last question was going to be on the variability in dollar-based net revenue retention. And is that why, Howard, is it because of we're going to see, I mean, the cadence of renewals, certain customers taking new products at certain times, co-terms, things like that, because it's a pretty wide range?

Yes. And I think what I would say is from a context perspective, we have a lot of opportunity in our existing base, right? So our customers continue to expand with us. We see with roughly 1/3 of our customers in enterprise expand with us each quarter. The difficulty is to know exactly by how much, they're going to expand with us each quarter and to be able to predict exactly which customers from that cohort will expand. And that's why we've given that range and we've been consistent in providing that range. And we've -- and you have noticed we've progressively increased in our dollar-based net retention each quarter since kind of our low point to now at a level that we think is industry leading. We're in the top decile in terms of what we're doing. So we certainly are looking at it, but knowing that enterprise is going to be the big driver there and the performance there would be above that 118% to 124% in NOI.

Next, we're heading over to Chad Bennett. Mr. Bennett with Craig-Hallum.

Can you hear me okay?

Yes. Hi, Chad.

So not to steal anybody's thunder on the net expansion, net retention stuff, Howard or Jennifer. But Howard, is it a big part of the acceleration just lopping off last July quarter of 116% and just getting that off the trailing. Again, because -- and I view that as a positive, by the way, that now we can -- but isn't that a big part of it?

I mean if you had the mechanics of looking at how a number changes or evolves, yes, certainly, if your -- the baseline, your comparison is low, it certainly makes the compare easier. But if you look at the overall momentum in our business, which is showing up in the revenue and in the billings, you have to look at those things together, and that is why we are posting the strong dollar-based net retention. But also why when we look at this, we know that there is some variability that exists from quarter to quarter.

So just a follow-up on that, which, again, I view as a positive thing, and I've needle you a little bit more on raising the range for the year by a couple of hundred bps but that's just me. But -- so I just think are we really -- I know you're seeing great cross-sell and upsell, both in terms of use cases, right, customer service and security but also in terms of products, in automation and intelligence and whatnot. But from a use case expansion standpoint, you're seeing increase in penetration. But I think it's still pretty early, right, in terms of the actual impact on the net expansion, whether it's 100 bps or what, am I correct in that? And do we have -- I mean, could we see significant acceleration just as these products become more of a needle mover in the revenue?

Yes. Jen, I don't know if you want to comment on that, and I can follow up. But yes, we are early.

100%. We are very early. I mean these are pretty nascent products. And like when I think about new products almost as small businesses and how happy would I be on the return of the investments that we're making for building a stand-alone business. So for digital operations to be 20% of our total ARR is just an outcome I'm thrilled with. And that also has kind of helped us build the muscle to become a multiproduct platform, which, by the way, that's a transition that's not easy when you're a SaaS company that has a single product moving to that multiproduct platform. And we've talked a lot about themes like bringing our 12 years of proprietary data to bear across different use cases, about continuing to keep our user experience simple and easy to drive easy onboarding and quick payback and quick ROI. And we're doing all those things while solving very complex problems in maintaining 4 9s of resiliency and reliability at a scale, serving the largest enterprises in the world, the biggest brands you've ever engaged with. And so that -- when you think about how the sausage gets made there, that is not easy. And I am actually thrilled about how we're managing through that transformation, and that's what's driving a lot of the momentum in our business. So I absolutely expect these new use cases and the products and services that support them and support our platform across use cases like apps and automation will become a more important part of our business over time, for sure. Having said that, I just want to remind people that even on-call automation and incident response is still a very early market. Most of our lands are still greenfield. Most of our customers we're serving just a handful of the employees in their business. And so when I look at just the expansion opportunity within our own customer base, I get very excited about that and see a lot of runway.

So just one last thing. So it sounds like -- I know in the first half of the year, Jennifer, you were unbelievably excited about and you were seeing the pipeline and what was transpiring and you knew the road map and introduction. But you made it a point on both calls or multiple calls of saying we're going to consistently target 30% plus growth on the top line. I assume you're sticking by that going forward.

We are a company that tries to do what we say we are going to do. So yes, I am. And that's all, Howard will probably let me say -- but -- I will say that in the quarter, we made big investments in marketing, particularly pulling our summit conference earlier into the year to build pipeline early in the year. And I'm really excited about the back half.

We have Mr. Matt Hedberg with RBC.

Jen, you discussed I'm talking about the huge expansion opportunity in your base, but I can't help but wonder, you've had a lot of success with security and customer service. But if you look at other sort of opportunities in the organization. How do you think about like the finance department or HR -- repeat a little bit?

Yes. Absolutely, it is. And part of that is a brand challenge, right So if you're watching CNBC, you'll be seeing PagerDuty's first televised commercial, and we're doubling down on digital branding to help employees across the organization learn about how PagerDuty can help them. It's not just about uptime, but you should expect to see us telling more stories about the different ways that PagerDuty can be leveraged. I'd also say that we have a lot of customers that use us in places like finance or legal or physical security, marketing, et cetera. And in fact, we have programs within PagerDuty to get every team to use PagerDuty for their business operations as opposed to just technical operations, SecOps or customer service ops. So the goal of the long-term mission is to become the operations cloud for the modern enterprise, and that's across the organization. And by the way, I love your T-shirt. For those of you who can't see Matt, his T-shirt says uneventful days are beautiful days and has a lovely PagerDuty logo on the back. That's one of my favorite.

And I apologize if my video is a little bushy right now. And then, I guess, for Howard, gross margins at 84% are within the range, but they are a little bit lower than what we've seen historically. Anything to read into that just kind of being maybe the lower end of the historic range?

I would say, Matt, as we've spoken about previously, we were intentional about making investments, particularly around customer support and success to better serve our enterprise customers. So this has been a year where we have focused on how do we ensure that we can deliver the kind of experience that they need, which then supports our very high retention rate, very low churn, supports the high dollar-based net retention and also helps get rid of some of the noise that we get around renewals and timing, which is like trombones going off and you get all that noise. But certainly, it's been really about trying to ensure, 1, we can deliver the reliable service to our customers, but 2 that we're able to ensure that they're getting the best experience in using our product.

We'll go to Mr. Rachit Agrawal with JPMorgan.

This is Rachit for -- on for Sterling. So I was wondering like can you give more colors on what's the uptake on the advanced modules?

Sorry, Rachit, I think you asked what's the uptake on the -- on our newer products. Is that correct?

Yes. Yes. On the advanced modules, yes.

Howard, do you want to take that one?

Yes, sure. So Rachit, the -- our digital operations plan represents our most comprehensive offering in terms of it includes our Event Intelligence, machine learning-based product and our analytics and a number of other features. So we track that very closely to understand to what extent we are gaining traction with that. That digital operations plan now represents more than 20% of our annual recurring revenue. When we look at one of our other stand-alone products, EI, which is an add-on used by our customers, we saw that growing at over 100% this last quarter in terms of being able to -- in fact, it was close to 200% in terms of being able to the adoption of that. And our automation product is a product as well that is growing very rapidly. So those products are all part of customers being able to manage this operations cloud environment, making sure that they can manage their digital operations, most effectively. And if you put all those things together, you can manage all the way from the detection of an issue to remediation with ensuring that you're using machines to get as much of the work done and only having humans involved when you absolutely need to.

Yes. Makes sense. And then can you give the colors on like how your hiring plans are going for the year where you...

Yes, as I said, it's been a very hot talent market, and our recruiting team has been working on overdrive. But we are on hiring plan right now. And we're really trying to be thoughtful about making sure that in our speed to add head count to the business, we also are making sure we hire the best people in the market and continue to build on the diverse and inclusive culture that we already have. And so we're leveraging remote work very effectively. So almost all of our job specs are open in terms of location and also looking at other locations around the world that we can leverage to just reduce the impact of a very, very competitive talent market. But as I said, this -- the mobility that we're seeing in employees across the globe also is potentially a tailwind for PagerDuty as PagerDuty users leave one company and go to the next and take PagerDuty with them.

Okay. And Mr. Kingsley Crane from Berenberg.

Can you hear me?

Hi, Kingsley.

So in the past, we've seen some competitors move off PD and when they've released their own incident management solutions. So it's especially encouraging to see Datadog expanding their usage this quarter. When you look across your customer base, are you seeing those 2 products compete or actually be deployed in tandem?

No, they're generally deployed in tandem where observability is part of a superset of incoming signal that we then manage and consolidate and use machine learning to deploy the right signal and orchestrate the right team on the problem in the moment, and Datadog has been a great partner.

Okay. [Operator Instructions] Without any further questions, Jen and Howard, I'd love to turn it over to you for any final comments.

Sure. Well, I just want to say one thank you to everybody for joining us today on the call. And a big thank you and appreciation for all of our customers and our partners, including our technology ecosystem who really are the reason that we're here and we're only successful when our customers are successful. And lots of warm wishes to all of those who are not having such an easy time with everything that's going on with the fires and the floods and the pandemic. To all of you, I wish you good health, and we look forward to seeing you next quarter. Thank you.