Good afternoon, and welcome to PagerDuty's call to discuss its intention to acquire RunDeck. I'd like to remind everyone that this call will be recorded. And now I'd like to hand the call over to Willa McManmon, Investor Relations at PagerDuty.
Thank you, Matt. Before market today, PagerDuty announced that it has entered into an agreement to acquire Rundeck. The details of this transaction can be found in a press release issued this morning and an 8 ks filed with the SEC. Jennifer Tejada, our Chair and CEO and Howard Wilson, our CFO, will discuss the strategic rationale behind the acquisition on today's call. After our prepared remarks, we'll open the call to questions from our analysts.
Today's prepared remarks and responses to questions may contain forward looking statements related to PagerDuty, RunDeck and the acquisition of RunDeck that involve substantial risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied by such statements. All statements other than historical facts in our discussion, including, but not limited to, statements regarding the timing and closing of the transaction, the potential benefits and financial impact of the transaction and any plans, objectives, expectations and intentions surrounding the transaction and subsequent integration are forward looking statements that contain risk and uncertainty. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual company results and effects of the transaction could differ materially from those forward looking statements. A discussion of risks, uncertainties and assumptions related to the acquisition as well as other information on potential risk factors that could affect our financial results are included in reports filed by future duty with the SEC, including our company's reports on Form 8 ks, 10Q and 10 ks, particularly under the heading Risk Factors. With that, let me turn the call over to Jennifer.
Thank you, Willa. We're delighted to discuss our agreement to acquire Runbeck as we kick off the 1st day of our 5th Annual Summit Industry Conference. This morning, I shared news in my keynote at Summit with over 10,000 registrants and over 4,000 live participants attending online, Featuring Andy Chiavsky, the CEO of AWS Paul Cheesbrough, the President of Digital and CTO of Fox Diagelli, the Chief Product Officer at Okta and Salesforce's President and COO, Brett Taylor as well as the CEO of philanthropy, Ebony Beckwith. My comments which focused on the imperative and challenges of digital acceleration and PagerDuty's new platform releases in AIOps, automation for DevOps, customer service, analytics and collaboration were a great tee up for the RunDeck announcement. Rundeck, a California based startup, extends HagerDuty's AI ops capabilities by enabling intelligent machine centric automation for ops teams to increase the efficiency of their resolution and recovery efforts.
With Rendesk automated runbooks, frontline employees can diagnose and resolve issues at the push of a button without the need to escalate to a subject matter expert. Together, we can now automate unpredictable emergent work for people and machines from detection to diagnosis to recovery, remediation and learning, providing a truly end to end real time platform. By intelligently automating real time unplanned work, we can help our customers reduce manual repetitive efforts, create standard operating procedures, resolve incidents faster and ultimately improve top and bottom line business outcomes. Rundeck and PagerDuty are both category creators with customer obsessed DevOps leaders and nimble passionate cultures. Rundeck's high growth rate and early penetration with their paid enterprise version validates strong product to market fit.
Along with their active open source community of 60,000 plus free users, RunDeck complements PagerDuty's strong developer community and enterprise base. We are thrilled to welcome Alex, Damon, Greg and the RunDeck team to PagerDuty and we look forward to leading with innovation as we jointly enable our customers to save time and money for intelligent automation. Pay Journey and Rundeck already have an integration available in the market. So we are familiar with their team and technology. As we move forward with the deal, we spoke with customer CIOs and CTOs who validated PagerDuty and Rundeck's combined value proposition.
What enterprise customers told us and what drives our strong combined market fit is that the burden of manual processes is one of the most significant barriers to recovery and the biggest bottleneck draining productivity and putting business outcomes at risk. These customers consistently share that an end to end platform with the ability to provide enriched context around events and incidents that auto remediate and self heal is a game changer for them. They see the transformative potential of PagerDuty with RemX. We are both on a fan we are both built on a foundation of real time problem solving by democratizing insights and action and we look forward to bringing our combined capabilities to the market to service our customers. With that, I'll turn it over to Howard.
Thank you, Jennifer. We are certainly thrilled to welcome Randec to the PagerDuty family as we continue to transform the digital operations management landscape. As you saw in this morning's press release, the purchase price for Randex, which is expected to close in October, is approximately $100,000,000 Subject to adjustments, this is to be paid approximately 60% in cash and 40% in common stock. Runbeck is a high growth start up with around 40 employees and revenue in the high single digit 1,000,000 of dollars. We don't expect Rondebeck to be material to our guidance in fiscal 2021, and we expect it to have a positive top line impact on fiscal 2022 results.
When we give fiscal 2022 guidance on our Q4 call, we'll provide more color on expectations for Randec's long term contribution. We're super excited to welcome the entire Randec team and look forward to working together to bring best in class real time automation to our enterprise and mid market customers. With that, I'll turn the call over to Matt to begin our question and answer session.
First question is from Rob Oliver with Baird.
Great. Thank you guys very much for taking my question. I had one for Jennifer and then a quick follow-up for Howard. Jen, you mentioned how customers had validated this acquisition. I was hoping you could touch a little bit more about the strategic rationale As a public company, you guys have resources, so a lot of directions you guys could have gone.
Why was it that kind of task managers and schedules were kind of the area that you felt could help build out the PagerDuty platform and instant response. And so I'd love to hear a little bit more about why that move and then a
quick follow-up.
Sure. One of the things that we saw was the desire on the part of our customers to try and automate more of the machine based part of resolution and healing as opposed to the people based part of the incident response process, which is where our strength historically has been detecting that alert, orchestrating that real time work to the right teams and people, helping them to diagnose and start to resolve issues. But then we're trying to reduce the manual toil at the end of that product as well. Rendec was unique in its very strong DevOps focus from the very beginning. They do help us to automate that entire workflow.
They have a very similar lens and expand motion and a similar connection with their customers. One of the things we heard frequently was it just works. It's easy to use. It's easy to deploy. And incident management is just one of their many use cases.
So we think there is opportunity beyond that as well. Increasingly automation is foundational to AI ops. And what I heard from executives and users alike is anywhere where they can automate manual work to reduce repetitive work, but also institutionalize the learning from these processes also helps them shift from being reactive to proactive. And there was a really good fit in that regard as well.
That's great color. Thanks, Jennifer.
And then Howard, just as
a follow-up, I just was wondering, I appreciate the metrics that you gave around them. I was wondering if you could perhaps give us a customer count on RunDeck. I think it's probably fairly high. Thanks.
Yes. So today, RunDeck in terms of their Community Edition has about 3,000 companies that are using their Community Edition. And today on the enterprise or their paid edition, they have over 150 customers. Got
it. Thank you, guys.
Our next question is from Sterling Auty with JPMorgan.
Yes. Thanks. Hi, guys.
Hey, Sterling.
Jennifer, when I look at RemDeck and kind of the way that it was marketed for use cases, it really looked like a job scheduler and something that's tightly integrated, especially in the continuous deployment part of the CICD pipeline. But what I'm wondering is, as you mentioned, the additional use cases, is this the first step of PagerDuty looking to expand back into that CICD pipeline? Or where directionally is this suggesting the strategy for PagerDuty is headed?
Well, it's not the first step for us to engage in the CICD pipeline because we announced today some features that support change, driving incident, resolution and information from incident records into the change management process. We know from customers and from research that over 80% of incidents are caused by change. So it's a really important part of the incident response lifecycle and an important challenge that our customers face, whether they're small innovators or large enterprise companies. But what really drew us to run that initially was their use case in within incident response and their use case focused on DevOps and really the service ownership part of DevOps, which is where we see all of our customers trying to get to.
That makes sense. And then just a follow-up, Howard, for you. Just can you give us an employee headcount for RunDeck and we'll all then be joining once closed?
Yes, sure. So right now, Rundeck has around 40 employees and our expectation is that they will all be joining PagerDuty.
All right, great. Thank you.
Next question is from Joel Fishbein with SunTrust Robinson Humphrey.
Hello there. Congrats on the deal. Howard, just one quick one for you. Thank you for the color about the revenue run rate. I just wanted to know how you think about this impacting your cash flow going forward.
Just a little bit more color on that, particularly, I know you're not giving guidance, but into 'twenty two, that would be really helpful.
Yes. So I mean, I think just a few comments on the financial aspect of this deal that I think when we looked at the profile of this business, we felt that we could fit it in quite neatly into the PagerDuty model. We can still support gross margins in our target range. We can actually leverage our own expense structure today to be able to help Randec, which is still an early company. And so if you think about a lot of the G and A investments, those have all been relatively light.
And from a go to market perspective, we expect that we will be able to manage to assist them. So we sort of think that it puts us in a good position. From a cash flow perspective, we're not expecting any material change from this acquisition. Obviously, we will be we're not providing guidance at this time, but in the near term, we're not expecting any significant impacts.
Okay. One quick follow-up. Just in terms of the last question, I think in term is there a lot of customer overlap in terms of
their customer and your customer base, particularly around the enterprise? So today, there is some overlap in those paying customers, but there's definitely opportunity both in terms of some of those customers are not pager duty customers today. And for some of those customers who are pager duty customers, there is still the opportunity for significant expansion with them as early users of Rundeck.
I'd add to that, Joel,
that Rundeck also creates a new land motion for us. So today, all of our customers have to land in PagerDuty and then expand to new products from the core. This gives us an opportunity to land customers in RunDeck and then move them into PagerDuty. So I think it creates a nice potential to gain market share that way.
Yes, particularly also around the community too, right? That's another area for you to land as well.
100%. And there is really strong alignment between their open source community and our developer community.
That's great. Congrats again.
Thank you.
Our next question is from Matt Stottler with William Blair.
Hey, guys. Thanks for taking my questions. I guess, first off, as you mentioned, you already had an integration with RunDeck. So I guess first, was there any, I guess, deeper components of that partnership? Or is it just a simple integration?
And then I guess what drove the decision to acquire the company rather than continue to partner as you've been doing?
Sure. Well, initially, this started with our strategy to expand our automation offering in general. We see AaaS as a really important area of problem solving for our customers, particularly our large enterprise customers. So you may be aware last quarter we announced a number of new integrations in the automation space. Rundrax is clearly the leader in that space and in our view and we found that our technology is not only well aligned, but our cultures and roadmaps are well aligned.
And we think this accelerates our ability to bring enterprise grade automation to our enterprise customers and enterprise prospects going forward.
Got it. That's helpful. And maybe one for Howard, helpful metrics that you gave. Anything you could speak to in terms of how you're thinking about potential revenue or cost synergies at this point?
Yes. So from a cost perspective, with Rundeck being a relatively small company or startup, right, expectations around typical synergies are fairly low, right? So but certainly we think that the opportunity for leverage is high, right? So, both with our own more mature go to market motion that we have as a company that's been around for some time, we think that putting the 2 together will give us immense opportunity both from a marketing and sales perspective.
Got it. Helpful. Thanks again, guys.
Thanks, Matt.
Our next question is from Matt Hedberg with RBC.
Hey, guys. Thanks for taking my question. Jen, could I start with you? In terms of the pricing for RunDeck, can you kind of talk through how it was historically priced and perhaps how you're thinking about it once the acquisition is complete?
I'm not going to comment on pricing because we are still looking at what we intend to do. Runbeck is going to run like a business unit within PagerDuty and we're going to allow them to continue to go to market with their current motion and not try and disrupt the momentum that they have. Howard can speak more specifically to some of the pricing changes within PagerDuty that we've alluded to and talked about in the past. That's what you're getting at?
Yes. And I think just, Matt, if your question is around how they price their product today, they typically price on a per user basis. But then they also have this concept of a cluster charge, which they then charge for an enterprise customer, which gives them a certain amount of capacity. So we would review that over time. But right now, it's effectively like a base charge with a per user charge on
top. Got it. Yes, Howard, thanks. That's what I was trying to get at. I don't know about that.
No, that's fine. And then I guess piggybacking on Sterling's question earlier, it feels like it's got a very DevOps centric focus today in terms of automation through remediation, but even expanding it a little bit further, could this ultimately be used for customer service, security areas outside of DevOps, which I know is an emerging focus for you guys?
100%. I mean, that is one of the characteristics of Rundeck I really liked is the way it's very easy to use. It's a self installed. It makes it simple for customers and users to apply it to any repeatable workflows or problems that they want to automate. And so we think it has similar characteristics to the horizontal nature of applications within our platform, which will allow us to leverage it in other new use cases.
Great.
Thanks a lot. Congrats, guys.
Thank you.
Thank you.
Our next question is from Brian White with Monness, Crespi, Hardt. Brian, are you there? All right. Then we'll move on to Rishi. So the next question is from Rishi Jaluria with D.
A. Davidson.
All right. Hey, Jennifer, Howard. Thanks so much for taking my questions. I wanted to start by maybe enterprise version from what's available in the community version? And maybe talk a little bit about how they've been operating their open source offering and any kind of changes that you might have for them?
And then I've got a follow-up.
Well, I
think one of the things that RunDeck has done well is be really thoughtful and intentional about feature gating between the open source version and the enterprise version, which is one of the things that you look for in terms of monetization or commercialization of an open source environment. They've also got, I think done a good job of controlling really the important, commits to the open source products. So while it's a very active open source community, they have significantly, I think, managed and innovated on that open source project into the enterprise offering. I think that they also have similar point of view around making it easy to integrate and easy to leverage across different products and solutions and applications within your environment, which has been very good. And at the same time, that open source community creates a great opportunity for us to land and create adoption and engagement with users and create new customer opportunities.
So again, our goal initially is to allow them they're doing very well. They're growing very fast.
And
and not sort of get in the way of it and at the same time identify opportunities to cross sell RemDeck to all of our customers and likewise sell PagerDuty into their customer base.
Great. That's helpful. And then just thinking through integration, I know in the press release, it's expected to close next month. And obviously, there's already nice integration between Rundeck and PagerDuty. What work needs to be done both to integrate the product, I think more natively on the PagerDuty platform?
And then alongside that to integrate the companies, I know only 40 employees, so not a massive undertaking. But I imagine integrating a company into PagerDuty is hard enough and to do so in this environment probably even more difficult. So maybe
if you could talk a little bit to that, that'd be helpful.
Sure. Well, I mean, it's funny. It's the first acquisition I've done where I've never been to the office of the company that I acquired. There was a meeting with a cold beer 6 feet away on a picnic table once, which definitely helped move the deal forward. But it has been very interesting.
Fortunately, the majority of Rundex employees are California based, although many of them are remote. And remember, even prior to the pandemic, 20% of PagerDuty's employees were remote. So we know how to operate in that environment. Alex, Damon and Greg, the 3 co founders are all coming over to PagerDuty. And Alex will lead the business unit within PagerDuty reporting into our Head of Products, which I think creates nice synergies.
Tim Armanpour, who leads engineering and Dave Justice, who leads our revenue team, will be working closely with them to, like I said, support them and continue to build their business, but also make sure that we've got very good connection points to support our customer base. And from a product perspective, like I said, there's already a successful integration where customers where we have customers that I spoke to, in the diligence process that are using RunDeck and PagerDuty successfully together. Over time, we will look to integrate that offering further, 1 into a cloud based model. So today, Rundeck can be installed on prem, but it also can be offered as managed service in the cloud. At some point in time, we would look to build more of a traditional SaaS offering there as well.
But what I would tell you about most open source solutions and certainly automation within infrastructure, a lot of customers want to keep that on prem. So I think there will always be a requirement for that and that is a complementary strength for us in that regard.
Great. Thank you.
And that concludes the Q and A for today. So I'll hand it back over to you, Jennifer, for closing comments.
Well, I just wanted
to say, we're extraordinarily excited to have RunDeck become part of the PagerDuty family, it's a team that we've had a lot of respect for watching them innovate and grow over the last couple of years. And so excited to welcome Alex, Damon, Greg and all the Runbeckers on board. It's also a really exciting day with Summit today. We announced a number of, I think, really significant platform releases, not the least of which our first offering for customer service, page view for customer service, which is a new SKU, a number of platform releases really focused around freeing our customers from complexity and improving the orchestration of work across their incidents and across their cross functional and distributed teams. So it's a big day for PagerDuty and a big week.
And I hope all of you will have an opportunity to tune in and either watch Keynotes on Demand that you may have missed, but enjoy the rest of Summit. So thanks so much for being with us today.