PagerDuty, a SaaS vendor that specializes in digital operations and incident response, has delivered a solid third quarter 2024 earnings report, sending its shares rising in after hours trading on Thursday. The company said that the performance of its enterprise division was particularly strong, but CEO Jennifer Tejada did discuss new pricing and sales strategies to maintain growth.
Speaking to PagerDuty’s proposition and where it sees demand from its buyers, Tejada said:
Long-term demand remains strong as all enterprises seek to address similar high priority challenges.
First, their customers are digital and expect real-time modern experiences and services. But their operations are antiquated, command and control and manual. Crossing this operations CASM is critical to protect and grow revenue in an increasingly digital on-demand marketplace.
Second, all businesses seek to do more with less in the face of an ongoing skill shortage. This has led to an increased appetite for automation and demand for generative AI in order to reduce costs and achieve operational efficiency at scale.
And third, tech debt and complexity continue to rise, creating material risk of operational and business failures, driving demand for automated and intelligent incident management solutions. Solving these priorities is critical for technology and business leaders, especially in enterprise and has increased the demand for the PagerDuty operations cloud.
diginomica recently spoke with Tejada regarding the firm’s generative AI approach, where she said that PagerDuty will “go slow to go fast”, and highlighted that whilst organizations have invested significantly in their “pointy front end of their business” - the rest of a company’s operation is still ripe for transformation. This is PagerDuty’s core focus.
Some key highlights from the quarter include:
Revenue was $108.7 million, an increase of 15.4% year over year.
Operating cash flow was $16.9 million, with free cash flow of $15.2 million
Annual recurring revenue grew 13% year over year to $438.9 million.
Customers with annual recurring revenue over $100,000 grew 10% to 778 as of October 31, 2023, compared to 710 in the year ago period.
Total paid customers of 15,049 as of October 31, 2023, compared to 15,265 in the year ago period.
Lands and expands include: Banco Santander, Carhartt, Carparts.com, Cloudflare, Docaposte, Equinix, Salesforce, Snowflake, and The Vanguard Group.
Tejada pointed to the strength of PagerDuty’s enterprise division and said:
This operations cloud expansion included all four products: incident management, AIOPs, automation, and customer service ops. Two, at over $1 million of ARR each and showcases [our] platform value proposition to increase productivity, protect revenue and reduce risk by advancing operational maturity and resilience for enterprises.
Enterprise, our strongest performing segment during the quarter remains our strategic focus. Notwithstanding a few unusual but sizable renewal issues in Q3, enterprise dollar-based net retention was more than 500 basis points above that of SMB.
Despite the successes, Tejada did note that economic macro volatility is persisting and uncertainty continues to place pressure on budgets and has slowed customer decision making. She said:
While our customers remain highly engaged with nearly one third of enterprise and mid-market customers expanding with us in the quarter, they continue to apply conservatism to expansions and seek ways to reduce overall IT spend while protecting investments for critical functionality in operations.
However, Tejada said PagerDuty has experienced similar environments in the past and the key is to focus on long-term relationships, rather than short-term gains. This will continue to be the approach. However, the vendor is also being cautious and paying extra attention to its customers. Tejada added:
[We are] systematically identifying risk and engaging with customers earlier in the renewal life cycle; [and are] providing flexible multi year pricing solutions for customers who demonstrate need and [are also] working with customers to optimize their use of the Operations Cloud to maximize business value.
As centralized decision-making has become the norm for our customers, we continue to evolve our enterprise motion. This has included increased focus on C-suite buyers with centralized purchasing authority, positioning centered around the financial value proposition of the Operations Cloud, and enterprise pricing to support scaled expansion across all products.
This account management approach complements our high-velocity land-and-expand motion that focuses on technical champions and practitioners and has enabled us to methodically improve the quality and quantity of enterprise wins. The focus on enterprise leadership with our persistent pace of innovation underpins an increasingly efficient enterprise go-to-market practice.
PagerDity has also begun piloting new bundling and pricing strategies to support a more seamless user adoption and expand the surface area of the Operations Cloud with its customers. Tejada said:
In some cases, this has reduced sales cycle time, generated pipeline and reduced retention risk. We plan to scale several initiatives over the next two quarters.
A solid quarter, but it’s clear that the macroeconomic headwinds remain a concern. PagerDuty - led by Tejada - is addressing this head on by focusing on customer success, ease of adoption and the customer experience of adoptin the platform (a priority given its success with land and expand buyers).