Q1 2025 Earnings Summary
- PagerDuty is experiencing strong growth among large enterprise customers, with customers spending over $500,000 and $1 million growing in the high teens. Despite the difficult macro environment becoming the new normal, the company is confident in accelerating ARR growth in the second half, driven by a strong multi-quarter pipeline, multiproduct and multiyear contracts, and improved visibility.
- PagerDuty's AIOps solution is gaining traction, offering an integrated platform that combines incident management, AIOps, automation, and customer service operations, providing a differentiated offering in a competitive space. Customers show an increased appetite for automation, leading to six-figure expansions and displacing less scalable point solutions.
- PagerDuty's software is considered essential infrastructure by customers, helping them manage their most mission-critical systems and services. Even under budget constraints, customers are willing to maintain or increase their investment in PagerDuty due to its essential nature and compelling ROI.
- Macroeconomic uncertainties continue to challenge growth, with the company acknowledging that the difficult macro environment is "our new normal" and not anticipating improvement through the course of the year. This could particularly impact the SMB segment, which remains challenged and constitutes 16% of Annual Recurring Revenue (ARR).
- Sales cycles are lengthening, with deals taking longer to close due to economic conditions. Executives note that larger deals require more justification and that the sales cycle has adjusted to "deals do take longer" and "we now see pipeline placed many quarters out". This could lead to potential delays in revenue recognition and forecast risk.
- Pressure on pricing models and potential revenue unpredictability, as the company shifts away from a pure seat-based licensing model to more flexible and consumption-based pricing arrangements. Investor concerns about seat-based models and the company's adjustments could introduce pricing pressure and affect revenue predictability.
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Second Half Reacceleration
Q: How confident are you in reaccelerating growth in the second half despite the difficult macro backdrop?
A: Jennifer Tejada expressed strong confidence in second-half reacceleration, noting that the difficult macro has become the new normal. The company has focused on controlling controllables, with efforts to focus on enterprise paying off. They have stronger multiquarter pipeline visibility and are seeing stronger multiproduct and multiyear contract results. Notably, their largest spend cohorts—customers spending $0.5 million and $1 million—grew in the high teens this last quarter. -
Customer Growth Strength
Q: What's driving the strength in customer additions despite weakness with SMBs?
A: The improvement in customer additions is driven by focused efforts to refine their narrative with customers, emphasizing operating efficiency and compelling ROI with a short time to value. The enterprise incident management SKU has become more accessible, and flexibility around pricing has been important. Howard Wilson added that they have a dedicated acquisition team for enterprise and are seeing upper teens growth in counts of customers who have advanced to the $500,000 and $1 million spend levels, with above 20% growth in ARR from those cohorts. -
Seat-Based Model Concerns
Q: How are you addressing concerns about seat-based models and seat growth?
A: Jennifer Tejada acknowledged that not all software is created equally. PagerDuty provides infrastructure software for mission-critical systems, and customers protect essential usage even under pressure. They've created a more flexible pricing environment, focusing on value realization and helping customers anticipate future needs. Howard Wilson mentioned they're seeing a blend of metrics, with an increasing portion of the base using consumption metrics associated with their AIOps offering, and flexible licensing arrangements for large enterprise customers. -
Drivers of Net New ARR Growth
Q: What is driving the return to growth in net new ARR and confidence in the long term?
A: The company views the difficult macro as the new normal and has focused on controlling controllables. Jennifer Tejada is proud of the team's efforts in articulating ROI and helping customers embrace automation in an approachable way. They've stayed away from hype and focused on solving big, expensive problems. There's a trend toward multiyear agreements, reducing administrative burdens and enabling greater customer support. They're making the Operations Cloud a reality, demonstrating efficacy across incident management, AIOps, Customer Service Ops, and Automation. -
Increase in Multiyear Deals
Q: How should we think about the increase in multiyear deals between new lands and existing expansions?
A: The largest opportunity for multiyear deals exists within expansions, often at the time of renewal. Howard Wilson explained that the bulk of multiyear growth comes from expansion activities, but they're also positioning multiyear engagements from the outset with enterprise customers. This strategy is bearing fruit, as seen with a large healthcare provider that started with a multiyear agreement. -
AIOps Competitive Advantage
Q: How is PagerDuty's AIOps solution differentiating in a competitive space?
A: Jennifer Tejada highlighted that AIOps has been foundational to their platform for several years, improving over time as the platform learns from each incident. PagerDuty is positioned differently from new entrants, being the only platform that deeply integrates AIOps into the event management process along with automation and a connection to customer teams. With the addition of Jeli, they've integrated historically disconnected processes. They've expanded their AIOps offering to serve both developers and central ops teams, making it flexible and scalable. -
Federal Market Opportunity
Q: What are your expectations for the Federal market opportunity after the first big win?
A: Jennifer Tejada is excited about the FedRAMP authorization and the opportunity in the federal market. While they're in early stages—with a new Head of Public Sector and Teresa Carlson joining the Board—they expect to see the federal market contribute more significantly next year. Currently, only a small percentage of this year's forecast comes from the public sector. -
Defensibility Against Adjacent Vendors
Q: What makes PagerDuty defensible against adjacent vendors who might enter your category?
A: Jennifer Tejada explained that while it may seem easy for adjacent vendors to replicate their offerings, managing on-call automation requires scalability and resilience that's hard to achieve. PagerDuty has grown into a multiproduct, enterprise-grade, resilient, and secure platform over 15 years, with no maintenance windows. They have over 700 integrations out of the box, and their compelling ROI and short time to value set them apart. Customers who choose alternatives often end up spending more in total cost of ownership.