Good day, everyone, and welcome. Thank you for joining in. While our attendees are piling in pretty quickly, just a quick technical announcement. For your viewing enjoyment, we highly recommend that you change to side by side mode in Zoom if you have not done so in the past. Find the view options menu at the very top center of the Zoom display, click view options and check side by side.
That way you can adjust your view to see more slides or more presenter. Just click the little delimitator there in the middle and you can slide left and right. Hopefully, that will improve your participation in today's event. We're just about to go forward. And in just a moment, you'll hear from Head of Patriot Duties, IR, Willa McMahon.
Good afternoon, and thank you for joining us to discuss PagerDuty's Q3 fiscal 2021. 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. Forward looking statements 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 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'll turn the call over to Jennifer.
Thank you, Willa. Can you hear me okay? Thank you, Willa, and thanks to all of you who have joined us today. We are proud of our Q3 results and we were well above our guidance and consensus as many large enterprises seems to find a new normal returning to strategic investments in major duties digital operations platform. We are confident this momentum will continue throughout Q4.
I'm personally grateful for the help of our customers, our team and families as well as we all face this pandemic together, and I extend our hope that you and your families are safe and well. Building on a strong start, momentum continued throughout Q3, led by strength in the enterprise and mid market segments. Year on year revenue was 26% and dollar based net retention improved from 116% in the previous quarter to 119%. Our leading indicators, including pipeline, web traffic and combined free and paid customer acquisition growth have trended positively. Our teams performed well across the globe with an outperformance in North America and EMEA and strong growth in Asia Pacific.
In our Q3 since appointing new go to market leadership, improved sales execution resulted in increased productivity, close rates and average revenue per customer. The reception to new products we launched in September exceeded our expectations, especially in response to our expanded automation and auto remediation capabilities with the acquisition of Rundeck, which we closed in October. Rundeck creates a new and distinct land opportunity for us within enterprise and mid market DevOps and IT teams and expands our total addressable market to include automation use cases within and beyond incident management. This deepens our competitive mode. HagerDuty's guiding value, championing the customer was rewarded this quarter.
Many of our largest customers made strategic investments to expand on our digital operations plan, which leverages advanced product capabilities utilizing AI to deliver automation and quantifiable return on investment. In Q3, we captured reinvigorated demand across most regions, segments and verticals, including deals above $1,000,000 in both tech and financial services with large deal momentum in retail as well. 4 of the 5 largest software companies in the world expanded on PagerDuty in the quarter to accelerate their DevOps transformation to full service ownership. This included a very significant expansion deal with Sales Force, who is rolling out PagerDuty's digital operations plan to over 10,000 employees, including multiple teams outside of engineering in support of their ongoing mandate to ensure great customer experiences. We also made excellent progress in our shift from on call automation to our digital operations platform as customers continued to embed major duty as essential infrastructure.
Our digital operations plan accounted for nearly 3 quarters of our net new ARR, up a striking 65% from last year. We added industry leaders and innovators, including Bell Corp, Chanel, Cred, Lego, LegalZoom and MSCI. We saw significant ongoing expansion with customers including Discovery Communications, DocuSign, Pearson, Datadog, Yahoo! Japan and Vanguard to increase their use of PagerDuty to accelerate operations maturity and performance across their businesses. We also saw digital acceleration increase.
Every organization is grappling with the new reality that work once structured, planned and predictable is now increasingly unstructured, unplanned and cross functional. The shift to digital first is a one way door. Consumers appreciate the safety and convenience of life online and they have little patience for a less than perfect experience. Yet the team responsible for seamless digital operations takes historical increases in events, which when unmanaged can cost more than $500,000 per minute. Our customers' events and API traffic was up 135% year on year, yet our event intelligence solution is helping to prevent events from progressing into incidents.
Even under this increase in traffic, PagerDuty has continued to deliver resilience at scale, maintaining Four9's reliability to the business for our customers. This is critical as the PagerDuty platform essentially operationalizes trust for our clients with their customers while reducing the cost of their operations meaningfully. According to IDC, PagerDuty customers are realizing a 2 month payback period with an average benefit of over $3,000,000 annually and a 3 year ROI of nearly 800%. IDC also estimates the profound shift to digitization will account for 65% of global GDP by 2022. This drives 3 strategic imperatives for our customers, which are long term tailwinds for PagerDuty, digital acceleration, cloud migration and DevOps transformation.
Our digital operations platform empowers new customers across verticals and geographies as they tackle these imperatives. 1 of Australia's largest banks with over $600,000,000,000 in assets is rolling out PagerDuty across multiple teams with the potential for thousands of users in a multiyear partnership on our digital operations plan. PagerDuty provides them with rich, real time insights to proactively automate and respond to incidents where every minute of downtime is critical. Our platform leverages AI to proactively reduce alerts and resolution times for incidents, increasing the productivity of their DevOps, IT apps and deployment teams, while saving a projected $1,500,000 annually. As a reminder, most of our new customer lands are greenfield, the mark of an nascent market, where many companies are still early in their DevOps transformation.
MSCI is a leading provider of decision support for the global investment community undergoing an executive led DevOps transformation. They replaced their in house tools with PagerDuty to scale up over 1,000 users with our workflow automation. PagerDuty will help MSCI reduce their projected thousands of incidents monthly, improving availability, reducing user generated tickets by 50% and decreasing the number of ServiceNow tickets by 65%. Like many of our customers, MSCI embraced PagerDuty to reduce their reliance on manual processes and antiquated ticketing systems that cannot address the business critical customer facing issues, which require real time insights, action and automation. We also grow through serving new teams and use cases, particularly within customer service and SecOps and Rundeck's runbook automation.
Global, a language service provider that connects doctors and patients with interpreters, adopted our new CagerD for customer service solution as they pivoted in response to COVID. Before, Global was used at the doctor's office, but saw increasing demand for telemedicine. This resulted in a spike in incidents and customer dissatisfaction with their video platform. So they turned to PagerDuty to drastically improve workloads between customer support and engineering teams. Additionally, PagerDuty's event intelligence has enabled automated escalation, allowing teams to focus on building out and scaling new products and services, while reducing disruptions by more than 60%.
Now global proactively resolves issues, providing a great experience for doctors and patients uninterrupted. At Summit in September, we unveiled new capabilities resulting in a strong pipeline growth, including service dependency insights, machine learning based recommendations and change management insights. While most of our customers have accelerated their digital transformation, the reality is they have infrastructure and digital assets that span data centers and multiple private and public clouds. We are the only solution provider enabling incident prevention by capturing and consolidating insights from across these environments, simplifying complex data and intelligently actioning and automating work. This quarter, we cemented our leadership position at the center of our customers' hybrid, cloud and on prem ecosystem with new partnerships.
Along with Rendesk, we achieved over 500 ecosystem integrations, many of which were built by partners like Cloudflare, Freshworks, Puppet and Symphony, who are helping us force multiply PagerDuty's platform. Q3 was also a record quarter for partner sell through as we expanded our presence with channel partners through joint campaigns. We welcome Tata Consultancy Services, 1 of the top global systems integrators in the world to our growing partner ecosystem. They are developing apps to support industries beyond our core verticals, selling and implementing PagerDuty. We also continued to expand our relationships with cloud providers, including this week's announcement as a launch partner for Amazon DevOps Guru.
PagerDuty leverages the outputs from DevOps Guru, automating the workflow and enabling customers to comprehensively manage their cloud, hybrid and on prem environment. Not only has FagerDuty been available in the AWS marketplace for over the last few years, this quarter we released new integrations to AWS Control Tower and AWS Outposts to help customers on their cloud migration journey. These integrations and partnerships validate our platform and help extend our reach to new markets and channels. During the quarter, we advanced programs to improve representation and equality at PagerDuty. In September, we open sourced our 1st annual diversity report, not to imply that we have all the answers, rather in an effort to hold ourselves accountable and share what we have learned with other companies seeking to put sustainable programs in place.
We also enlisted as a founding partner of the Board Challenge, a movement to improve the representation of Black directors on corporate U. S. Boards. This week, we announced the appointment of Doctor. Alex Gallimore to PagerDuty's Board of Directors As the Robert J.
Blasek Dean of Engineering at the University of Michigan, Alec has a unique view on where engineering and software are headed, and we are thrilled to welcome him. Through pagerduty.org, we announced over $500,000 in new grants to support voter engagement, time critical health care and to match employee giving. Overall, Q3 was a great quarter for PagerDuty and an important inflection point. I am both optimistic and confident in our growing market leadership position where our innovation has expanded our TAM well beyond alerting and on call to AIOps, automation and more broadly digital operations. I am confident in our new opportunity with our enhanced automation offering, opening up new use cases while being additive to our leadership in incident response.
And most importantly, I have huge trust and confidence in our incredibly committed and resilient team, who continue to focus on solving important customer problems, while raising the bar, deepening our leadership bench and building on the innovative, diverse and inclusive culture that differentiates us. I am grateful to our team, our customers, our users and energized by the bright future ahead of us. Howard, over to you.
Thank you, Jennifer. We saw strong momentum in the market and in our business in Q3 with revenue growth up 26% year over year to $54,000,000 coming in above the high end of our guide. Our international business was strong with robust revenue growth of 36% year over year driven by expansion. We also saw increasing economies of scale as we streamline our business. Non GAAP gross margin came in at 87% in the quarter, above our target range of 84% to 86%.
Non GAAP operating margin improved markedly at negative 12% versus negative 22% in the prior year, and non GAAP EPS was ahead of our guidance at negative $0.09 per share. We delivered positive operating cash flow of $5,000,000 in the 3rd quarter, and we were free cash flow positive by $5,000,000 Beginning early in Q3, we saw customers shift back to strategic projects where improved expansion along with our Randeck acquisition helped lift our dollar base net retention rate quarter on quarter to 119%. This despite the COVID related churning contraction we noted in Q2. We saw particular strength amongst our enterprise customers where dollar based net retention increased sequentially above 120 percent as several large customers doubled down with PagerDuty in support of their digital initiatives and DevOps transformation. In addition, of the 7th consecutive quarter, approximately onethree of our enterprise customers expanded with us.
Average deal size during the quarter and churn and contraction improved significantly, returning to pre COVID levels. Our new free offering has been well received, and the number of companies benefiting from our platform, both paid and free, grew by more than 18% over the prior year. Our platform is sticky because it distributes real time mission critical work, which is why we continue to have a renewal rate above 95%. The mix of our business continued to shift towards predictable contracts with the proportion of customers on term contracts versus month to month consistently increasing, ending the quarter with 87% of our revenue coming from customers on term contracts versus 82% a year ago. Robust expansion growth year over year quarter to billings growth of 32%, trailing 12 months billing growth of 24% and remaining performance obligations of 45%.
All strong leading indicators of the tailwinds we've discussed in the past. The large expansion, some of the multi year with enterprise customers underscore the growing importance of cloud adoption, digital acceleration and DevOps transformation. Customers investing more than $100,000 a year with us grew 32% and customers over $500,000 grew 40% compared to Q3 last year. Non GAAP operating expenses were $53,000,000 compared to CAD46 1,000,000 in the prior year, a 16% increase versus 26% year over year growth in revenue, demonstrating leverage in our land and expand business model and sustainable operating efficiencies. Non GAAP research and development expenses were $13,000,000 compared to $11,000,000 in the same period a year ago, an 18% increase over the prior year.
We placed a high value on innovation and will continue to invest to ensure product differentiation and competitive advantage. Non GAAP sales and margin expenses were $28,000,000 or 51% of revenue compared to 59% of revenue in the prior year. We continue to balance investment here with top line growth and the demand sector within the market. Non GAAP general and administrative expenses were $12,000,000 for the quarter or 23 percent of revenue as compared to 22% in the prior year. Our non GAAP operating loss was $6,000,000 compared to a loss of $9,000,000 in the same quarter last year.
Our non GAAP operating margin was negative 12% in Q3 versus negative 22% in Q3 of 2020. This was in part due to reduced spend on travel and shift in program spend before COVID as well as our ongoing initiatives to scale efficiently. Non GAAP net loss improved to $7,000,000 a net loss of $0.09 per share compared to a non GAAP net loss of $8,000,000 a net loss of $0.10 per share in the Q3 of last year. Turning to the balance sheet. We reported $5,000,000 in positive operating cash flow in the 3rd quarter above the same quarter of fiscal 2020 of $3,000,000 Free cash flow increased by 100 percent to $5,000,000 in Q3 compared to $2,000,000 in Q3 of fiscal 2020 with a free cash flow margin of 8%, well above the 5% in the Q3 of last year, which demonstrates the efficiency of our business model and improved leverage as we scale.
We ended the quarter with 556 $1,000,000 in cash, cash equivalents and investments. For the full year, we expect to be operating cash flow positive for the first time and we're excited about our ability to generate positive operating cash flow while still investing in innovation. As Jennifer mentioned, we completed our acquisition of Brandeck this quarter. The integration is on track, progressing to plan and we are fired up by the overwhelming enthusiasm from our customers around this powerful combination and even more so by the value we can bring to our customers through enhanced automation self remediation. With RunDeck, we expect to see increased demand for our platform and ample opportunities for new cross sell within the expanded TAM it brings.
Given the momentum in the Q3, stronger demand signals in the market and our confidence in our pipeline and team, we are raising Q4 fiscal 2021 guidance. We expect revenue in the range of 57 dollars to $58,000,000 representing a growth rate between 24% 26% versus the 4th fiscal quarter of 2020. Non GAAP net loss per share is expected to be in the range of $0.11 to $0.12 with basic shares outstanding of approximately 82,000,000. This implies an operating loss margin in the range of 14% to 16%. This incorporates expense adjustments associated with the acquisition of Rhinebeck this past quarter.
For the full fiscal year 2021, we expect revenue of €211,000,000 to €212,000,000 which at the midpoint represents a 27% growth rate. Non GAAP net loss per share is expected to be in the range of $0.29 to $0.30 with basic shares outstanding of approximately 80,000,000. This implies an operating loss margin of 11%. Before I turn to Q and A, let me reiterate Jennifer's comments on the tailwinds that drive our business. DevOps transformation, digital acceleration and cloud vibration are not nice to have for our customers.
They're imperatives that are critical to their success and these tailwinds are returning to pre COVID momentum. PagerDuty's platform plays a unique role at the center of these shows, reducing complexity, managing unplanned critical work, improving productivity and ensuring top line business outcomes. We are confident that we will continue to see these tailwinds drive our business as we reaccelerate our growth in the coming year. With that, I will open up the call for Q and A.
Thank you so much, Howard. We're going to open up for Q and A from our analysts, and we do have an order to go through here. I'm just going to switch over so that our participants can see the gallery view and who's with us. Folks, if you do have your webcam on, our participants can see you now. And for those of you who have not yet turned on your cameras, feel free to turn on your camera while you present your question.
It looks like we're going first to Joel Fishbein with Truist. Joel, I'll just need you to unmute.
Sorry, I'm unmute. There
you go.
Thank you.
Hey, congrats on the great results. Jennifer, I'm going to I'll start with you. Your very, very upbeat report this quarter, I can hear it in your voice. I can hear it in Howard's voice as well.
What would your be coming out
of COVID, what do you think that are your top priorities to scale PagerDuty from here?
That's a great question. It's nice to see you, Joel. I think, one, we have to continue to deliver innovation for our customers. We have, I think, widened the moat between other competitors that are really focused on on call, and you can see that in the adoption of our digital operations platform plan. So continuing to bring the innovation, particularly around AIOps, automation to certain use cases is going to be really important to us.
I mentioned this as sort of background around our freemium plan. Because we have such strong gross margins, it's given us room to experiment with freemium. And I was really excited to see that the combination of new free and paid accounts grew 18% year over year. That really is our effort towards expanding our reach. We need to build our brand, but it's such it's still such an early market with over 45,000,000 developers and IT personnel out there.
We've got to go find them and get them on the platform. So acquisition and marketing to build our brand and help the market understand what we do, I think, is very important. And then lastly, I will always say this every call, our customers count on us to be resilient at scale. And if COVID has shown us nothing else, it's shown us that even when we saw significantly increased incidents, more than 40% growth in incidents, 135% growth in events and API traffic this quarter. The platform continued to work and operate very, very well.
But as we continue to scale with customers who are very important, spending more and more time and having more people in our platform, we have to continue to produce those high operational outcomes.
Great. Just one quick follow-up. This Cyber Monday, apparently, a lot of e commerce companies had some very difficult time serving their customers. And I was just curious if you've seen an uptick in inbounds as early as late as this week as a result of some of these e commerce companies struggling to keep up with some of their challenges that they had from an IT perspective?
This is precisely why branding is so important for us. And we did have a really strong quarter in retail. I think I mentioned that in my comments. Retail and e commerce will continue to be a really important segment for us. I would say this, I think that we're just seeing sort of scratching the surface.
Now that everybody has ported their businesses into a digital environment, they now have to figure out how to operate them successfully. And it's early in that journey for many of our customers, which is why we believe that we're going to continue to see momentum and long term tailwinds, particularly as it relates to hardening up the operations behind digital acceleration, supporting our customers in cloud adoption and cloud migration, which you've seen continues to grow, and then DevOps transformation, which is still very early.
Great. Thank you so much.
Thank you.
Thank you, Joel. And next we'll go to Kingsley Crane. Kingsley with Berenberg.
Hi, congrats on the quarter.
Thanks for taking my questions. First one would be the excellent traction with partner ecosystem integrations, a number of companies, Cloudflare, Freshworks Symphony, are you seeing any particular areas that you have the most traction or is that surprising you the most?
Some of the areas, we always look at partner ecosystem to sort of see where the market is going and we've seen a lot of interest in security and customer service, which is why you see us investing in those areas. Automation continues to be, I think, a big opportunity. But I think what you'll also see is that when you think about PagerDuty more generally as a platform that helps automate the detection of real time unplanned unstructured work and automate those workflows of getting that work to the right distributed team and making sure it gets resolved, so closing the loop, you start to see lots of new use cases where partners are discovering a PagerDuty integration can help them close the loop on either the analytics that they provide or the services that they're trying to enable. And so I think we'll continue to see that as a trend. I'm really excited to see more and more partners building on PagerDuty.
That's really encouraging. And then one quick follow-up would be really encouraging to hear the strength in the largest enterprises. In this segment, are you hearing anything new? Is it that win rates are improving against competitors like Opsgenie? Or is it really just that these customers are recognizing the best in class ROI?
Well, I'll remind you of a couple of things. 1, most of our new lands are greenfield, so we're often replacing manual behaviors or spreadsheets, etcetera. So again, still early and a lot of customers are starting to accelerate their DevOps transformation because their teams are now working remotely, their businesses are now digital. We also don't see much competition from Atlassian and others in enterprise. And more than 80% now, I think, of our users are enterprise users.
So that's been an area that we have talked about as a strategic focus for over the last 2, 3 years. And it's nice to see that starting to manifest itself. But I really do think that the leverage of our data, which is I think a big differentiator over a decade of data on responders, workflows, events and incidents themselves with AI and some of the solutions that we put out into the market over the last year or 2 has started to mature and gain traction and that's been a big part of it. I would also tell you that a lot of these large enterprises in that shift to digital are starting to add not just new products and services, but new teams. They bring their devs on first, then maybe their IT operations teams, often security.
We're increasingly seeing interest from customer service teams, and that's we're starting to see PagerDuty leverage more and more across the organization.
Okay, perfect. And I think, Jen, the one thing I would just add to that, Ken, is that we've been remarkably consistent in terms of having our enterprise and mid market customers expand with us. And again, this is another quarter where we saw about a third of them expand with us, which is always good to see. But we have seen companies sort of getting back to pre COVID type activity, right? So the sort of projects that are associated with things that Jane mentioned like DevOps Transformation or cloud migration, those projects are back on the tail of what's happening.
And that's certainly proving to be a tailwind for us. And that's helping kind of sustain that 80% of our revenue coming from the enterprise and mid market segments.
Awesome. Great. Thanks, guys. Congrats again.
Thank you.
Thanks, Ingrid.
Thank you. And to our analysts joining us, feel free to locate the participant list at the bottom. You'll see you can raise your hand down there. Ray, you have the hand raised next. Ray McDonough from Credit Suisse.
Great. Thanks for taking the questions and congratulations on a strong quarter. Jen, I noticed after your summit in September, the landing page of your website changed to include some solutions by industry. Should we think of those changes as more of a targeted form of marketing? Or are there broader changes on the horizon either from a go to market perspective or from a packaging perspective?
How should we think about that?
Well, I appreciate you noticing that. I know the marketing team will be thrilled to hear that someone's actually looking and paying attention to what happens on the website. We definitely see some strength in certain verticals that tend to be digitizing faster, so to speak, seeing more of their business moving to digital apps. And we've talked in the past a lot about the tech and consumer Internet, e commerce, retail, financial services has been a really strong performing category for us. And I think 2 things have really happened.
1, customers are becoming more willing to talk about their stories and share what's working for them. And we really want to open source some of their learning so that our other customers can move faster and that's a big part of what we do from a customer marketing perspective. But also, I think there are so many different ways that you can apply PagerDuty, helping some of these vertical industries understand the sort of natural places to start. Where do I kick off my use case makes a lot of sense. But we haven't had to verticalize the product.
And I think this is a really important differentiator for PagerDuty. It's very easy to use. It's very easy to deploy. You can be up and running in 5 or 10 minutes on PagerDuty, start to add teams, etcetera. So it doesn't require us to have to verticalize or package the product.
But I think getting the word out on how customers are leveraging PagerDuty and really importantly and you heard me talk about the IDC research today, like the kinds of ROI our customers are seeing. I would tell you that increasingly our large customers are growing tired of having to pay huge multiyear licensing fees and wait 3 to 4 years to get ROI. And we talk about in enterprise a 2 month payback with an ROI of over 800%. And I think if you're someone championing a new SaaS solution in your organization, being able to quantify that kind of return is really helpful.
It makes a ton of sense and I appreciate the color. And maybe if I could, Howard, one for you, just a little bit of housecleaning if I could around the acquisition. Could you comment on how many of your customer adds in the quarter came from RunDeck? And to the extent that there was significant overlap, could you comment on whether or not there is ARR contribution in your expansion rate this quarter?
Yes. So thanks, Ray. So obviously, we closed the OneDeg acquisition in October, right? So its contribution to the quarter was relatively small and not really material. In terms of the customers that they brought along, we did share details around that.
It has a relatively small customer base. It's an early company. So again, not a material number of ads. They certainly delivered a positive contribution to our overall ARR, but we don't disclose ARR specifically. But there has been certainly there's a positive impact with that.
And I think the piece that I'm most excited about is that it's such a logical combination that when I have discussions with customers accounts around the executive sponsor, they feel really positive about how this is actually going to help them sort of close that loop from the tech to remediate by having Page Fadutti and Randek as part of a one family.
Makes sense. Thanks again for taking the questions.
I appreciate it.
Thank you, Ray.
Great. Thank you, Ray. Next, we'd like to go to Sterling Auty from JPMorgan. Sterling?
Yes. Thanks. Hi, guys. Howard, maybe just to follow-up and put a fine point on it. I didn't quite catch in terms of the Remdeq acquisition.
What would be the revenue contribution that you would expect in the Q4? People want to understand how it impacted guidance.
Yes. So we haven't provided a breakdown of run rate in terms of what the specific revenue contribution would be. What we did say at the time of doing the acquisitions that we saw this as being a company on an annual basis that would have revenue within the high single digits. So that's kind of the expense to which we've disclosed on that. And you'll see when our 10Q comes out, we have spoken about the opening deferred revenue balance of $2,700,000 that came across from Randek.
Right. I
just want to make sure. So if you think about organically where the guidance is for next quarter, would you say that you guided up organically and then added RunDeck? Or was there some It
was a combination. It was a combination of improved performance of PACE duty and the addition of Lending.
All right, perfect. If I could sneak one last one in, Jennifer, for you. The comment about 80% of the customers being enterprise, I think that's very helpful. Would you say then given the increase in net dollar retention that the headwinds from SMB are now behind you and that's going to lead to the acceleration?
Well, I think that 1, 80% of our users come from enterprise.
80% of our revenue. 80% of our revenue. Sorry.
I'm just saying I bring Howard with me everywhere. But I want to point to the strength in enterprise expansion. Our enterprise net dollar based retention is up over 120%. So we definitely are seeing that strength and expansion.
Great. Thank you.
Okay. Next, we have a hand up from Matt Stottler. Matt, I'm sorry, I don't have your organization. If you could let those of us that don't know, know where you're calling from.
Yes. Hey, Jen. Hey, Howard.
Nice to
take the question. Matt Stottler, William Blair. I guess first to start off, you guys have highlighted some, I guess, use case specific solutions recently, including customer service, cloud operations, business response. Obviously, some of these are still relatively early innings, but we'd love to maybe get some thoughts on early interest from customers and how meaningful you think these could be over time?
Well, as I mentioned earlier, Matt, and thank you for the question. We have been really excited about how customers are receiving some of our new products and services, but they all come from us hearing from customers these are problems that they don't have solutions for yet. So we don't build something unless customers are already signaling reasonable demand. And the uptake of these new solutions that we've talked about in the last year that you mentioned has exceeded our expectations. I would tell you that when you think about everything that's out there in the industry, it's often been hard for us to explain to the market how we're different, because there's this kaleidoscope of monitoring and observability providers, their ticketing systems, etcetera.
And I think as we start to build out these use cases, it becomes much more clear how customers can leverage us in a different way. I think with COVID, because everybody is working and living and learning from home, the concept that time really matters has also really helped to create more awareness and understanding around what we do in terms of not just detecting an issue, but orchestrating and automating the workflow to get that issue to the right team at the right point in time, automating more and more of the diagnosis around that and with RunDeck effectively starting to drive some safe self healing and auto remediation within those incidents or issues. And things are popping up that you don't plan for all across the business, not just driven by technology problems within the dev team, and that's where we're seeing some of that use case expansion.
Right, right. That's helpful. And then just a quick follow-up. You gave some commentary around the new pricing model. Obviously, it sounds like the early response to the premium structure has been positive.
Can you talk about looking for any mechanisms that you have in place to start converting those premium customers or how you think about making those free users with the paying customers?
Yes. So we're lucky that we have a hybrid go to market motion. So for us, this starts with product led growth and my teams are so sick of hearing me talk about this. But the product has to be so easy to use and work so well that it helps customers and users discover more functionality and more features. And so freemium is intended to help customers sample what our platform can do, but then the product should allow them with to expand with things like the 500 integrations or adding more teams or starting to identify new use cases.
And equally, we have, I think, a really well performing sales organization, including our commercial teams that are focused on our mid market customers and our enterprise team, obviously, focused on enterprise that really do everything they can to not annoy a user who is finding their own way through the product just fine, but really support large strategic initiatives that customers are really trying to transform. And one of the things we noticed in the last quarter, particularly in even mid market was that customers are having more strategic conversations with us around transformative efforts where they're really trying to change how they work, where they're trying to accelerate their way to the understand kind of the need to improve their operational performance to support these customer experiences that are now primarily happening in a digital environment.
And maybe I can just add, it's that Jane, when we look at the it's still early days for us with this free plan, but we've seen really good conversion rate so far. We haven't been we don't disclose them, but they've been better than expected and better than what we had reported in the industry. So it's looking strong.
Great. Thanks again.
Thank you. Next, we'd like to hear from Sanjit Singh from Morgan Stanley. Sanjit, please go ahead. Excellent.
Thank you for taking the question. This is actually Keith Weiss sitting in for Sanjit,
if you didn't notice.
Not only that,
but Facebook is different.
You know what, I actually I dressed up as Howard Wilson for Halloween and so I wanted to ask about digital operations plan. You guys saw a really good uptake of that year on year, nice uptake in terms of the amount of net new ACV coming from that plan. Can you talk to us a little bit about what that does to the initial deal sizes kind of how is that impacting your landings, if you will, with these new customers?
Harry, you want to take that?
Yes, sure. So I think there are a couple of things, Keith, on that one. One is that often for our customers, they could still land in one of our other plans like our professional or in our business plan. So sometimes we do see customers land in those plans and then upgrade to digital operations as part of a natural migration as they mature. What is exciting though is that our digital operations plan includes our most advanced functionality and capability.
And that's what really sets us apart from the competition. It widened the notes between us and any of the other players. So it gives companies to take advantage of features that allow them to be more predictive, more proactive in terms of how they manage the environment. It allows them to leverage machine learning to be able to solve problems much faster. Our recommendations engine within that is really powerful.
Our ability to help them get a view on what's happening in terms of change and service dependencies in the environment. All of those features are unique and special. And so I think that's driving the interest and the growth in the digital operations plan because there isn't anything else like this.
And in terms of the land, most of our customers still land on a relatively simple product and proposition. It's usually still a developer that wants to manage new service or is moving a payload to the cloud or as part of a transformation initiative. One of the nice things about the RunDeck acquisition is it gives us a new and a secondary land motion. You don't have to come in through the PagerDuty product only. You can come in through Rundeck.
So we're excited about that land opportunity as well. And you'll continue to see a focus on keeping the product easy to use and easy to understand even as we add new features and lots of new technology to the product. I think customers are starting to really appreciate the leverage on the data in the platform and how it can really shift them quickly from being reactive to proactive. And we've seen that in both some of the larger strategic deals we've done this quarter, but you'll also see it in how some of our customers you'll hear us
curious Got it.
Got it. Got it. And then, given specifically, the nVent Intelligence product, how is that uptake going? Are you seeing good traction with that?
Yes. I think so. I'll let Howard speak to that specifically.
Yes. So some of our customers opt to take our business plan or professional plan with Event Intelligence as an add on. And that again, we're continuing to see good momentum. And that Event Intelligence is also get to a problem faster and being able to get to a problem faster and being able to reduce the noise because our customers all have a huge array of monitoring tools in their environment as Jen told us a kaleidoscope of monitoring applications around them. And so to be able to filter in and get that that noise down is really critical and getting the right person onto the right problem.
And that's what Event Intelligence enabled. So we're seeing good momentum with that product.
Got it. And then if I could sneak one last one in. Any update in terms of the traction outside of the core kind of IT operations use case? We talked way back when about sort of the potential of sort of broader use cases for VazureDuty. Any update on sort of the incremental traction you guys have been seeing with that?
Yes. So we have I mean, qualitatively, we continue to see good momentum and good growth in the security, SecOps type environments and in the customer service environments, which leads to us creating the customer service SKU, if you like. We haven't actually got any figures that we're reporting on within this particular season, but we'll play that on Analyst Day, so we can give people a bit more of a diagnostic on that.
That's a good little teaser. Thank you very much guys. Yes. Thank you.
Yes. Thanks for the fun there. And, Matt, we want to go to you next, Matt Pugh Hedberg here with RBC Capital Markets.
Hi, guys. Thanks for taking my questions. Jen, obviously, hearing you talk about an inflection point and confidence in momentum continuing is really great to hear. It seems to me like it's a combination of just perhaps better buying, but also better execution. And I know Dave has been there now for a while.
Could you talk about the specifics on like what you can control versus the environment? Because it almost feels to me like you feel better about both aspects. But even if COVID cases spike, your ability to execute seems higher as well. I'm just sort of curious on Dave's contribution thus far.
Sure. Well, that's absolutely right. But even as COVID cases spike and we obviously can't predict the macro environment, I think both our customers and we are better prepared for sort of whatever comes. And I have to hand it to Dave and the entire go to market team, including customer success, who really led with empathy and trying to understand what customers are going through because all of our customers are experiencing this a little differently. We still have cruise lines and airlines in our business base.
We also have companies that are up 300%, 400% as a result of being COVID benefactors. And when you look at the diversity of all of that, it really means that our teams have to be really dialed in to what customers are prioritizing and what they care about. And I think Dave has not only hired well and up leveled some of our leadership across our sales teams. He supported some of our talent that was here before. He's brought in folks like Manjula Telreja, who are really up leveling our customer service.
And he often talks about this. It sounds very boring, but just being rigorous in the hygiene of managing the operations of day to day sales is really important. And so forecast accuracy has improved. And then finally, I would say, Dave and the team are really prioritizing a focus on value, on helping our customers really understand that quantifiable ROI. We often for customers build them a business value assessment.
And then we go back and we look at how are we delivering on that business value assessment. And so when you think about the sort of contradiction that our customers are in where they're trying to expand their digital offering and grow their revenue in this environment and at the same time reduce their cost base and become more efficient, those two things can really be in conflict of one another. PagerDuty helps you with both. And it's been important for our teams to work hard to help our customers understand that. But I'm really pleased with how the team is going.
And equally, I would say the product organization delivered a lot of innovation at Summit that was really received by our customers. And the balance of our organization, I think, you'd be lying if you didn't say people are fatigued by shutdowns and by not being able to go into the office and collaborate, etcetera. And our team has really continued to grind and show a lot of grit in putting us in a better position going forward. So I am a lot more confident in our execution. But I also like what I'm seeing in pipeline, in just the kinds of conversations we're having with customers and how they're sort of settling into their own normal and focusing on some of those strategic transformative opportunities as well.
That is really, really great to hear. And then I guess, on the Q2 on your last call, Q2 call, you noted you closed one of your largest enterprise deals ever in August. You maybe addressed it in the prepared remarks. I wasn't quite certain if you hit on that particular customer. If you did or maybe if you didn't, could you maybe shine a little bit more light on that use case?
And I don't know if there's any way to scope out what sort of magnitude of a deal that might be because it's certainly
a great data point.
What I would say is, I was really excited to see customers spending over $1,000,000 with us grew by 33% in the quarter. I think that's a strong number. Customers that are spending over $500,000 with us grew by 40%. That particular deal that you're referring to was a large land with a large mortgage provider and a really good example of an organization that already had a reasonably significant digital business, but is now kind of all in on digital and seeing an opportunity in the market because a lot of people are moving around and changing their lifestyles and buying houses with yards or second houses or getting out of suburban getting into suburban areas and out of urban areas. And so for that particular customer, it was all about transforming quickly, right, like making sure that their operations could support their digital acceleration.
We talked a little bit about the sales force relationship that we have, which is a multiyear agreement, and I was really excited to see Salesforce about the digital operations plan and look to continue rolling that out across their business. And again, similar length, right, really focused on customer experience and want to ensure that PagerDuty can help teams across the business, get to issues faster, manage them before they become incidents that impact customers in the business and really just shift to being more proactive operationally.
Super helpful. Congrats, guys.
Thank you. Thank you.
We do have one more hand up so far. Feel free to raise your hand if you have any other inquiries. Hannah Rudolf with D. A. Davidson.
Hannah, please go ahead.
Yes. Hi, all. Thanks for taking my question today. It's great to see the solid business momentum this quarter. First question, it's been a few months since your virtual EMEA summit.
I was wondering if you could talk about how pipeline conversion following the summit has been and then how pipeline build following your North American summit was?
Sure. I think we're pleased with pipeline off the back of both of those summits. And in fact, because our Global Summit in September was virtual, that meant we also had a lot of European customers that had joined the EMEA Summit but also came on to learn more about our new products and services. So we're excited about the interest that we're seeing across really across the product and platform set. Particular interest around Rundeck and automation and just this continued move to reducing toil for the human in support of getting them to the purpose full mission driven work they care about.
I'm spending quite a bit of time with sufferers next week in Europe via my camera and really looking forward to talking about some of the customers in Europe that are driving transformations. 1 in particular is a large telecommunications organization that has gone through a massive agile transformation. And their CEO is actually joining me to talk about how PagerDuty supported them in their agile transformation. And that's quite a use case that we're seeing frequently where top down, nontechnical, but general like business leadership is saying we have to become more agile, we have to become a tech company and suddenly a product like Danger Duty is on their radar.
Great. That's really good to hear. And then on Rundeck, how much integration is there left to do? And what's kind of the time line for that?
Yes. Well, the first thing I would say is that was our first real acquisition since we've been a public company. And not only did we get it done quickly during an environment where we couldn't get out and even see their office, we closed that deal and still executed well in the quarter. And the integration is actually going very well. We're trying to make sure that we give RunDeck enough room to continue to operate like a start up and innovate quickly and continue to build up their product like it's a benefit of our distribution environment.
And a lot of the folks on the finance team that have helped to prepare for earnings this week have also really helped to integrate, RunDeck. And so it's tracking very well.
Great. Thank you.
Well, folks, it looks like that's all the questions that we have from our group today. Howard, Jennifer, I'd like to give you both an opportunity to provide any final comments to our audience today before we wrap
up. Well, I just wanted to say thank you, especially to our analysts. Many of you have given us a lot of feedback, which we've asked for and continue to really appreciate to try and tighten up how we help people understand our journey and where we're going as a company. So thank you so much for that. And to all of our customers, we really appreciate the trust that you put in us and are going to continue to focus on earning that every day.
And I hope all of you continue to remain safe and well and keep your masks on until the next time we see you. Thank you.
Well, that concludes our presentation and call for today. Thank you for attending the Pager Dutti earnings presentation. We will be closing the session shortly. Enjoy the rest of your day.
Thanks, Josh.
Happy to help.