PagerDuty beats guidance in Q2 as it eyes $1 billion in revenue

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Digital operations and incident response vendor PagerDuty has beat its guidance and delivered a solid set of Q2 2023 earnings, where CEO Jennifer Tajeda told analysts that the company is targeting $1 billion in revenue in the future. 

PagerDuty essentially operates as an integration platform across a company's operations, which allows for the automation of incident response. This is a challenge that is now getting board level attention, as leaders prioritize system uptime, improved cyber security and proactively tackling customer service issues.

Tajeda said: 

We continue to execute well in Q2, exceeding the high end of both our top and bottom line guidance ranges. In another quarter of strong growth and improving efficiency, revenue grew 34% year-over-year and non GAAP operating margin improved by more than 1,000 basis points. 

This is the fourth consecutive quarter at or above 32% growth and an improvement in year-over-year operating margin for PagerDuty. These consistent results illustrate the durability of our growth, our multibillion dollar market opportunity and our ability to capture efficiencies as we scale.

At a moment when our customers must ensure seamless digital experiences while improving operating efficiency, PagerDuty's Operations Cloud is essential infrastructure that enables developers to balance both priorities. Our platform accelerates their journeys towards greater digital maturity in service of their business goals. 

PagerDuty’s key figures from Q2 2023 are: 

Second Quarter Fiscal 2023 Financial Highlights

• Revenue was $90.3 million, an increase of 33.6% year over year.

• GAAP operating loss was $37.9 million; GAAP operating margin of negative 42.0%.

• Operating cash flow was $2.8 million, with free cash flow of $1.0 million.

• Total paid customers of 15,174 as of July 31, 2022, compared to 14,169 in the year ago period.

• Customers with annual recurring revenue over $100,000 was 689 as of July 31, 2022, compared to 501 in the year ago period.

Tajeda said that PagerDuty is on track to achieve profitability in Q4 of this year and for full-year profitability next year (2024). She added: 

The combination of rapid implementation, high return on investment, and an average payback period of two months puts PagerDuty in a position of strength, especially in an uncertain macro environment. 

Even with the current macro uncertainty, we see strong demand and in a favorable competitive environment as our teams generated a healthy pipeline across our customer segments and regions. We saw longer sales cycles for some larger deals, often in process automation, and we did experience more diligence on contracts in EMEA.

Building out the platform

Tajeda explained that PagerDuty’s digital operations business, which includes incident response and AIOps, performed exceptionally well during the quarter and is growing faster year-over-year. As noted previously on diginomica, PagerDuty is running a land and expand strategy with customers, which is allowing it to grow consistently each quarter. 

The company has made a number of product announcements in recent months, which is building on its Operations Cloud platform for customers. Tajeda said: 

First, we made service standards generally available to PagerDuty customers. Service standards enable organizations to rapidly advance their digital maturity by easily adopting best practices for incident response. Developers, SREs, service owners, and those responsible for availability and reliability can set up and monitor operational quality standards for service.

Second, we announced incident workflows, making our platform more flexible and extensible by enabling rapid design and deployment of no code flexible automated steps for major incident response. Many of our customers have asked to customize their incident processes. For instance, creating an incident specific Slack channel or starting a Zoom call and then sending a status update every 15 minutes. With incident workflows, customers can use an out of the box process or define their own with the building blocks we now provide.

Finally, automation actions are now integrated across the entire PagerDuty platform. Automation capabilities are available at the time when events are first processed and available to all PagerDuty users, including customer service teams, to validate, diagnose, and remediate issues without additional human intervention and without needing to wake up the experts to run their specialized scripts. As businesses seek efficiency in their digital operations, while confronted with increasing incidents and leader teams, intelligent automation is essential. Both automation actions and incident workflows will be generally available later this year.

Tajeda added that PagerDuty estimates its total global penetration to be below 5% with a large and growing total addressable market. And that customers are seeing the platform becoming critical to their operations, with time savings front of mind. She added: 

For a typical top tier PagerDuty customer with an average of 2,500 responders, these time savings translate to better customer experience, annual savings of up to $9 million and a return on investment of 680%. Our customers tell us that investments in digital transformation remain mission critical rather than discretionary. We see companies across segments and verticals continue to invest in accelerating the resiliency and maturity of their operations, while improving employee productivity and efficiency in this economic climate. 

PagerDuty is the platform they trust to power their transformation. Tamping the customer leading through innovation, transforming inclusion diversity and equity and building trust are all cornerstones of PagerDuty's legacy.

We remain confident in our ability to execute, capture, share and increase our operational resilience. We remain focused on sustaining high growth, while accelerating our path to profitability as we progress to our goal of $1 billion of revenue.

My take

It has been a quarter of mixed results for many B2B software companies - with many suffering as a result of the economic headwinds that are being seen in the market. However, there are some companies that are proving their resilience in the current climate, particularly those that are focused on delivering operational stability, customer experience and data insights that can deliver a quick return on investment. PagerDuty seems to be ticking a lot of those boxes.