Guidance Reduction and ARR Growth
Q: Why was revenue guidance cut but ARR growth confident?
A: Revenue guidance was reduced by just under $10 million due to timing issues from larger multiyear, multiproduct deals causing less linearity and increased seasonality. However, ARR guidance remains unchanged, expecting growth above 10% for the full year and DBNR at 107%, with acceleration in the back half.

FY26 Outlook and Seasonality Trends
Q: How should we view fiscal '26 and ongoing seasonality?
A: While specific guidance for FY '26 isn't provided, we expect ARR growth above 10%. The seasonality from focusing on enterprise customers is likely to continue, with back-end loaded quarters and the fourth quarter being the largest. Multiyear deals reduce churn risk, strengthening our foundation for future growth.

Changes in Guidance and Confidence in Pipeline
Q: What's different in guidance regarding large deals and SMB churn?
A: The guidance adjustment accounts for delays in professional services revenue, removing a couple of million dollars this year. We're seeing less linearity and more revenue recognized later due to longer sales cycles. However, we have strong visibility into the pipeline, with AIOps revenue up 20% and Customer Service Ops up 50% year-over-year. SMB represents less of total ARR over time.

Expense Efficiency and Margin Outlook
Q: Thoughts on further expense efficiencies and margins?
A: We've improved productivity through our location strategy, technology use, and internal AI. Future efficiencies will focus on G&A and sales and marketing, while maintaining high investment in R&D to support innovation.

Factoring Longer Deal Cycles and Renewals into Guidance
Q: How are longer deal cycles affecting guidance and renewals?
A: We've adjusted guidance to reflect longer deal cycles and potential delays. Sales teams are incentivized to close deals within the year, improving pipeline confidence. Multiyear renewals have reduced available ARR to renew in Q4, allowing better management of retention risk.

Trends and Churn in SMB Segment
Q: What's the outlook for SMB ARR and churn?
A: SMB continues to be a headwind, with elevated churn and downgrades for four consecutive quarters. While we see signs of stabilization, volatility remains, and we expect growth to come mainly from enterprise and mid-market segments.

Impact of Increased Incidents on Growth Opportunity
Q: How do more costly incidents drive growth for PagerDuty?
A: Rising incidents are driving higher-level conversations with CEOs and boards. Leaders recognize the financial impact, leading to potential budget prioritization for our solutions. While too early to see in the pipeline, it's evident in customer discussions.

Competition in Incident Management
Q: How are win rates in incident management versus a year ago?
A: Competitive dynamics haven't changed significantly. Price sensitivity has increased in SMB and mid-market, affecting growth and renewals. Our AI-based platform demonstrated resilience during the 1,400% surge in incidents on July 19 without disruption or cost surge, highlighting our strength.

Evolving Competitive Environment and Enterprise Focus
Q: How is competition affecting enterprise strength and SMB softness?
A: Most competition is in SMB and mid-market, with competitors lacking scalability and AI capabilities for enterprise. Our performance during recent outages reinforces our competitive advantage in enterprise.

Flexible Enterprise Pricing and Expansions
Q: How is flexible enterprise pricing impacting expansions?
A: Customer feedback is positive, enabling significant expansions like a 7-figure North American bank adding AIOps and Customer Service Ops. Our consumption-based pricing in AIOps supports customer growth across products.

Impact of Increased Incidents on Future Pipeline
Q: When will increased incidents reflect in the pipeline?
A: We're not yet modeling new pipeline from recent incidents. Awareness is growing among CEOs and CFOs about the cost of incidents, potentially leading to future deals. Timing is uncertain, as customer adoption varies.

Longer Sales Cycles and Impact on Growth
Q: How do longer sales cycles affect growth?
A: Longer cycles lead to larger, multiproduct deals that are beneficial for long-term growth. The guidance change reflects timing shifts, but we're confident in accelerating ARR and achieving 107% net retention.

SMB ARR Expectations and Closing Remarks
Q: Should we expect SMB ARR to continue declining?
A: We anticipate growth coming mainly from enterprise and mid-market, with SMB remaining a headwind. We're focused on surpassing 10% ARR growth, improving efficiency, and building long-term customer relationships.

Confirmation of Revenue Guidance Reduction
Q: Will revenue happen later due to longer cycles?
A: Yes, aside from professional services revenue reduction, we expect net new ARR to achieve over 10% growth by year-end, with revenue recognized later due to longer cycles.