PagerDuty Inc
NYSE:PD
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PagerDuty Inc
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[Call Starts Abruptly] Jennifer Tejada, PagerDuty's Chairperson and Chief Executive Officer and Howard Wilson, PagerDuty's Chief Financial Officer.
Before we begin, let me remind everyone that statements made on this call include forward-looking statements based on the environment as we currently see it 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. These forward-looking statements include our growth prospects and future revenue among others and 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 as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings release. For further information on these and other factors that could cause the Company's financial results to differ materially are included in filings we make with the Securities and Exchange Commission, including our most recently filed Form 10-K and 10-Q, as well as our subsequent filings made with the SEC.
With that, I will turn the call over to Jennifer.
Thanks, Tony, and thanks, everyone for joining us today. We delivered a solid fourth quarter and another strong year in FY2023. We are demonstrating durable and now profitable growth through significant product innovation and disciplined go-to-market execution. Revenue grew 32% year-over-year, and we added 379 net new customers to our platform during FY2023. We achieved non-GAAP profitability one-year ahead of plan with an operating margin of 1%, up 900 basis points over FY2022.
For Q4, we exceeded the high-end of both our top and bottom line guidance ranges. Our Q4 revenue was $101 million, up 29% over the previous year, and our first quarter surpassing the $100 million revenue milestone. We also surpassed $400 million in annual recurring revenue through a combination of ongoing product leadership in digital operations and our multi-year focus on winning in enterprise and mid-market.
We ended the year with 68 of the Fortune 100 and nearly half of the Fortune 500 relying on PagerDuty to modernize their operations where we continue to see significant expansion opportunities. Dollar-based net retention was 120%, our ninth consecutive quarter at or above that level. We exited Q4 with 752 customers contributing more than $100,000 in ARR, up 27% year-over-year. We continue to see high engagement from our customers with a record number of mid-market and enterprise transactions in the quarter.
Non-GAAP operating margin was 6% as a result of accelerating strategic initiatives to sustainably improve our cost structure. While we executed well in an increasingly difficult macroeconomic climate, we saw customers exercising more diligence and adding approval levels for medium to large deals. This has resulted in sales cycles elongating each of the past three quarters and transaction sizes decreasing. While annualized churn remained well below 5% of starting ARR, we experienced elevated levels of churn from small and medium sized customers in Q4. In some cases, customers acquired seats in line with, but not ahead of current needs.
From a new customer acquisition perspective, tighter budget management and more restrictive buying authority added increased friction to landing new accounts, particularly in SMB. We've adapted to these dynamics in two principle ways. First, we have sustainably improved our cost structure to scale more efficiently and profitably while investing in platform differentiation that widens the competitive gap. Second, we are successfully engaging customers with a comprehensive operations cloud value proposition to help them optimize their operating efficiency and to streamline their technology ecosystems. As a result, platform opportunities now make up a higher mix of our total pipeline than a year-ago.
Our product development teams increased our new product velocity meaningfully in FY2023 with several newly available products released that positioned PagerDuty for further expansion across enterprise customers. Some of our major new releases that leverage AI or automation include Incident Workflows, Event Orchestration for AIOps, Automation Actions, and Status Pages, as well as a comprehensive customer service offering. We continue to expand our ecosystem with over 700 integrations.
Earlier this year, we made Incident Workflows generally available to PagerDuty customers. This unlocks flexibility for our customers, leveraging technology from our acquisition of Catalytic, using no-code workflows, so teams can rapidly customize for specific business team and operational needs. Incident Workflows automate work, minimize human error, and empower our customers to immediately capture tangible ROI across a wider range of operational needs.
We also launched PagerDuty Status Pages during the quarter, enabling users to securely communicate real-time operational updates directly from the platform to end customers, as well as to key stakeholders across the business. Status Pages leverage both Event Orchestration and Incident Workflows to create a single source of the truth and automatically post detailed updates saving time during an incident response. Unlike other Status Pages solutions, PagerDuty eliminates the need for multiple tools, reducing costs. Many PagerDuty customers have added Status Pages to their accounts and replaced less integrated and less automated point solutions.
In February, we released the Customer Service Operations application for ServiceNow Customer Service Management. Building on a popular integration, the application enables seamless collaboration between customer service agents and engineering teams. PagerDuty customers can drive trials of this new application inside the platform leading to efficient product discovery and reduced friction for expansions. In addition, we delivered many platform wide initiatives, which continued to improve the reliability and security of our platform and made progress on the path to FedRAMP certification. All new launches are tightly integrated, creating compounding value for PagerDuty customers with comprehensive deployments.
Looking ahead to our FY2024 platform roadmap, we expect to continue investing in a high rate of innovation across the Operations Cloud. We will build on our workflow automation, expand our AIOps offering, further enable distributed process automation, and add additional flexibility to design workflows for customer service teams and other business operations use cases. I want to thank our product and engineering teams for one of our most productive, innovative years to date. Our go-to-market teams also executed well, despite a tougher demand environment evolving as the year progressed.
During the year, we launched PagerDuty Japan, standardized our global go-to-market model, and advanced our product partnership with AWS. Our TAM remains expansive and our go-to-market teams are realizing economies of scale. Customers remained very engaged throughout the year, and we closed a record number of customer transactions in both Q3 and Q4. ARR per customer continues to grow, which has been a consistent trend, up 23% for the year.
We continue to see enterprise customers in highly regulated industries derive significant efficiency from the operations cloud, maintaining security and compliance, even as they reduced incident duration, volume and noise while increasing their productivity. This quarter, a Global 500 North American Consumer Bank signed a six-figure expansion, including our largest customer service operations deal of FY2023. The customer also added process automation and expanded their incident response deployment. They now invest over $1 million in annual recurring revenue with PagerDuty and are actively evaluating our AIOps solution.
By partnering closely with the CTO, we aligned on priority operational outcomes for the year. PagerDuty has become the bank's strategic partner for modernizing their operations. We conservatively anticipate an initial ROI of over 300% with a payback period of as little as three months. A leading provider of cloud-based enterprise software for payroll, human resources and financial management has been a PagerDuty customer since 2015.
In the fourth quarter, they signed a seven-figure, three-year expansion agreement. They now pair PagerDuty's incident response with Automation Actions, Process Automation, and Customer Service Operations. They utilize the PagerDuty Operations Cloud to manage major incidents across their global business, minimize impact to customers, and maximize operational efficiency with automation.
In Q4, we closed a six-figure expansion with a European-based food delivery marketplace. The company has been a PagerDuty customer since 2013, but had previously been utilizing multiple solutions in addition to PagerDuty. Last year, in an effort to standardize IT solutions globally and reduce their infrastructure costs, they decided to standardize on PagerDuty. In addition to retiring point solutions, they are adopting our Operations Cloud platform.
Our first value is champion the customer, putting our users at the center of our innovation, building great products and making things easy. Part of championing our customers means building an equitable company that reflects the global and diverse users, customers, and communities we serve. In FY2023, we advance the efforts of PagerDuty.org by launching both our climate equity portfolio and the PagerDuty impact accelerator to deliver product, volunteer, and financial support to mission-driven organizations. We also continued to build on our inclusion, diversity, and equity programming.
In Q4, we released PagerDuty's third annual ID&E report, tracking our progress and sharing our path forward. In FY2023, we increased the number of underrepresented people and women in our senior leadership, including technical leadership. We achieved gender pay equity worldwide and are within a single cent between majority employees and underrepresented groups in comparable roles. These improvements are both the result of systematic focus and an expression of deeply held values across the PagerDuty team. While we are proud of our progress, we acknowledge we have more work to do. I encourage you to read the full report on the website.
Organizations of all types need to modernize their operations in the face of rapid digitization. The cost of interrupt work and disruption has never been higher. Ticketing and queued solutions fail to address the complex nature of modern digital operations. Our customers continue to demonstrate their need for greater efficiency and faster paths to value, choosing PagerDuty as their long-term strategic partner and the Operations Cloud as their platform for engagement.
While macroeconomic conditions continue to evolve in the near-term, our long-term tailwinds, digital acceleration, DevOps transformation, and cloud adoption continue to be multi-year imperatives for our customers. We are confident in our long-term opportunity, and as such, we will continue to invest behind our strategic priorities while improving our operating margins. We are still early in a large market and we remain focused on building a durable and profitable growth company. Our innovation has strengthened our competitive advantages and brought several new products to market that we have begun to monetize. Our high levels of customer loyalty are validated by our net retention and continued growth of customers spending more than $100,000 annually.
PagerDuty is the platform businesses rely on, to produce seamless digital experiences, maintain their digital infrastructure and free capacity to focus on innovation. I'm inspired by our customers, energized by our teams, and confident in both our ability to navigate near-term challenges and to execute on the long-term opportunity ahead of us. Thank you to our team, to our customers, and to our partners for your dedication, your work, and your loyalty.
With that, I'll turn the call to Howard and I look forward to your questions.
Thank you, Jen, and good day to everyone joining us on this afternoon's call. Our fourth quarter and fiscal year results demonstrate durable, profitable growth driven by customers continuing to rely on the PagerDuty Operations Cloud to reduce costs, protect revenue, and retain talent. And what continues to be a tough macroeconomic environment, we noted strong retention and a high volume of customer transactions. And as a company, we continue to make progress on our profitability goals being profitable on a non-GAAP basis for the full-year. Unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release that was posted before the call.
Revenue was $101 million in the fourth quarter, up 29% year-over-year. The contribution from international was 24% of total revenues and unchanged from Q4 of last year. We delivered dollar-based net retention in Q4 of 120% compared to 124% in the same period one year-ago. DBNR has been at or above 120% for nine consecutive quarters. However, based on customer data from the second half of FY2023, we are modeling a range of a 117% to 120% in FY2024 with Q1 being at the low-end of the range.
Customers spending over a $100,000 annual recurring revenue grew to 752, up 27% from a year-ago. Total paid customers increased by 3% annually to 15,244 compared to 14,865 in the year-ago period. Consistent with the macro in the small, medium business segment, we had slower acquisition and elevated levels of churn, which slowed total paid customer growth. Free and paid companies on our platform grew to over 24,000, an increase of approximately 20% compared to Q4 of last year.
With over 80% of our ARR coming from the enterprise and mid-market segment, we will continue our focus on paid customer acquisition in these segments and leverage our free offering in SMB. As a result, we expect total paid customer growth to be in a range of 5% to 10% in FY2024. In terms of metrics that we provide on an annual basis, customers with ARR over a $1 million increased to 50, up 16% compared to Q4 of last year. ARR from customers using two or more paid products was 58%, 1 point lower than FY2022, and up from 49% in FY2021 and 29% in FY2020.
Please note that the numbers shared on this call were derived at the customer level, which is consistent with our paid customer calculation. On last year's fourth quarter call, we presented numbers at the account level. And we exited Q4 with $410 million in annual recurring revenue, which was an increase of 26% year-over-year.
Q4 gross margin of 86% remained within our target range of 84% to 86%. Operating income improved to $6 million or 6% of revenue compared to a loss of $2 million or 3% of revenue in the same quarter last year. The annual improvement was driven by sustainable sales and marketing efficiency gains and economies of scale across G&A and the quarterly improvement was as a result of our long-term operations efficiency initiatives.
In terms of cash flow for the quarter, cash from operations was $18 million, and free cash flow was $16 million. For the full fiscal year, revenue was $371 million, up 32% year-over-year, and a similar growth rate as FY2022. Gross margin was 85%, relatively flat year-over-year. Operating income was $3 million or 1% of revenue compared to a loss of $23 million or 8% of revenue a year-ago. Operating cash flow was $17 million compared to negative $6 million a year-ago. Free cash flow was $9 million compared to negative $13 million in fiscal 2022 and headcount increased to 1,166, up 23% year-over-year.
Turning to the balance sheet. We ended the quarter with $477 million in cash, cash equivalents and investments. Total deferred revenue ended the quarter at $209 million, up 23% year-over-year. Quarterly calculated billings were a $130 million, which was an increase of 23% year-over-year ending above the guidance of approximately 20% provided during last quarter's call. This result includes approximately $3 million in prepaid multi-year billings. Adjusting for this, the increase was 21%, and also above the guidance. We expect billings growth for Q1 to be approximately 20%.
Given quarter-to-quarter fluctuations in billings, we focus on trailing 12 months billings. On a trailing 12 months basis billings were $410 million, an increase of 27% compared to a year-ago and above the rate provided during our last call. As a reminder, the comparable period Q4 of FY2022 included a one-time benefit of approximately $2 million from early renewals. We expect trailing 12 months billings growth exiting the first quarter to be approximately 24%.
In providing guidance, we are factored in the current macroeconomic environment, which from a topline perspective manifests itself in longer sales cycles on larger deals and increasing volume of smaller purchases, general conservatism in spending, particularly for new projects and increased challenge for small and medium businesses.
For the first quarter fiscal 2024, we expect revenue in the range of $102 million to $104 million, representing a growth rate of 19% to 22% and net income per diluted share attributable to PagerDuty, Inc. in the range of $0.09 to $0.10 with fully diluted shares outstanding of approximately $104 million. This implies an operating margin in the range of 6% to 7%.
For the full fiscal year 2024, we expect revenue in the range of $446 million to $452 million, representing a growth rate of 20% to 22% and net income per diluted share attributable to PagerDuty Inc. of $0.45 to $0.50 with fully diluted shares outstanding of approximately $105 million. This implies an operating margin of 8% to 9%.
Before moving to questions, I would like to provide assistance with modeling FY2024. We expect non-GAAP gross margin to be in our target range between 84% and 86%. Q1 cash outflows include a one-time severance payment of $5 million and seasonal payments related to our short-term incentive plan and for Q2, interest on our convertible debt. Q2 expenses will include the first full quarter of annual merit increases.
With respect to free cash flow, the second half is expected to be higher in terms of free cash flow margins. And for the full-year, we expect free cash flow margin to be at least a couple of points better than our operating margin. And what is been an uncertain economic environment, I would like to thank our customers for their continued partnership. Our expanding Operations Cloud offerings that help our customers transform critical work, our high retention rates and demonstrated operational efficiency put us in a strong position this year to continue with revenue growth above 20% and expand our operating margins significantly.
With that, I will open up the call for Q&A.
Okay. Thank you, team. And we do have hands raised for questions already. Let me bring Jennifer on with us. And we'll turn first to Sanjit Singh with Morgan Stanley. Sanjit?
Thank you for taking the questions and congrats on a solid end to the year and on the outlook, very impressive on the margin guide. I'm happy to see that as well. When you look at the full-year outlook, Howard, and given that you saw elevated churn on the SMB and remind me, I think it was about – it was around 20% of ARR. How much of that churn is a headwind going into next year when we look at the full-year guide?
Thanks, Sanjit. So you're right, so SMB represents about 20% of our revenues. We have contemplated that in fact that into the guidance that we've given for this year. So we've modeled in similar levels of movement within SMB, both in terms of new customer acquisition and downgrade and churn.
Makes sense. And then just one more question on sort of the outlook, because I was really happy to see the 20% plus revenue growth, and that's on the question of layoffs and we continue to see big tech announce pretty sizable layoffs. And what's the sort of update on the assessment there? Are engineers still finding jobs relatively quickly in terms of – and then potentially coming back to PagerDuty if they leave the company and go on to the next one?
Yes. I'll take that question. Nice to see you, Sanjit. Look, we're very confident in our top and bottom line guide. We've given a lot of thought to the macro, and while we have seen layoffs, what I would say is we continue to see most of those layoffs outside of engineering, and if anything, what we're finding is the incident response has become more important because our customers are looking to help their engineers do more with less, improve their productivity, and in fact, decrease the cost of their infrastructure. So we're at right platform at the right moment in this current market environment. And no question has it been a tough environment that's had some impact, but our team is executing very well and executed through the pandemic very well. So we have a high degree of confidence that we can deliver on our guidance even if this macro environment persists and if it were to improve, we would see that as upside.
Great. Thank you so much for the thoughts and congrats on the outlook.
Thank you.
Thanks, Sanjit.
Thanks. Next, we'll turn to Matt Hedberg with RBC.
Great. Thanks for taking my questions guys. Congrats from me on the results. And especially the free cash flow guide, Howard, I think that's really, really excellent. Jen, yes, I want to start reviewing from a high level perspective. There's been a lot of talk obviously about Generative AI and you guys have had a longstanding focus on AI in general. Can you give us your perspective on what Generative AI might mean for the PagerDuty platform going forward?
Well, for sure, AI has been a mainstay alongside of automation in every part of our platform, and it's an area that we continue to invest in. I think one of the places where we were early was in building a foundational data model to support our customers in moving from simply responding faster to issues as they arise, to actually proactively preventing those issues from becoming major customer impacts. And that has been through leveraging AI in incident response, in AIOps, in parts of our automation product, and increasingly in customer service.
Generative AI, right now we see it used for a lot of content creation. It's dependent on a large model, the Internet being one of those. But one of the challenges for Generative AI in our space is our customers expect a very high level of fidelity in the signals that they get false positives or false negatives are not good things when you're dealing with business critical or mission critical infrastructure. And so I think it's going to take some time to determine where the right role for Generative AI is in the product per se. But you can imagine, shortening efforts in diagnostics, reducing the time that it takes to know which service is a root cause or how to remediate, et cetera, and we're experimenting with some of those things. But from an analytical AI perspective, I still think the data set that we have puts us in a very good position to continue to use AI, machine learning across the platform to automate some of these big challenges when our customers are looking for productivity and efficiency above all else.
Got it. That's super helpful. Thank you for that. And then Howard could you – I appreciate all the color on the guidance. One question for me. Could you remind us again what your exposure from a vertical perspective is to tech spending, maybe financial services these days?
Yes. So Matt, we've increasingly become more diverse in terms of the industries that we cover. We do have a presence in software and technology and financial services, but also across media and entertainment, travel and hospitality, telecommunications. So that's a broad base which helps us at least to be able to manage certain movements within those particular industries. So it gives us to some extent a level of resilience, but we are able to prepare for that in terms of being able to focus on those different industries with their specific needs at a point in time.
Got it.
Yes. I'd make the point that in some of those verticals you mentioned, what we're seeing is an increased appetite for automation and a platform that improves productivity. A real effort to look at infrastructure costs and try and remove duplicate costs where you might have point solutions that you could replace with the platform and so our efforts in AIOps in really leveraging AI in our incident response product, when that's now become more important as our customers are trying to protect revenues, protect customers and subscribers is well timed.
Got it. Thanks, guys.
Thanks, Matt.
Turning next to Joel Fishbein at Truist.
Thank you for taking my question and congrats also on a great execution. Jennifer, you've talked about on the call and gave us some good details on some of your big wins in the quarter. Obviously from a go-to-market perspective, you're stressing the platform. And I think the environment that we're in right now is very ripe for vendor consolidation. And so I would love to understand what the cadence is on platform sales for you guys, maybe some of the go-to-market things that you're doing there, and then some of the – from a customer perspective, how PagerDuty's being viewed from a customer perspective maybe – versus how it was maybe 18 months ago?
Yes. I think in some ways our innovation outpaced our branding. And so really building out awareness around our new products and services associated with the broader operations cloud value proposition is something that Katherine Calvert, our new CMO, she's not really that new anymore. Our CMO is very focused on. And I think what's important there is that, when you leverage an integrated platform that combines incident response, AIOps, automation along with customer service operations, you get benefit across those teams from every part of the platform. And you also get benefit from the integration of those solutions. So the incident response, flexible workflows inform some of the signal that comes into event intelligence, which allows you to get out in front of some of these issues instead of just responding to them preventing events from becoming major incidents.
Having customer service ops enables customer teams to more effectively communicate and manage situations with their customers, and likewise become part of the incident response process themselves by raising issues or providing input into the incident response. All of this is built in an easy to use sort of seamless platform environment where you don't have to be a dev to understand how to leverage PagerDuty. And I think that is a big step forward.
Some of the other products and services that we built that may not be as obvious, one is the flexibility and the ability to be able to build low-code or no-code workflows opens us up to new use cases, not only within incident response, but enabling customers to work however they want to work even if they're not a mature DevOps full service ownership shop, they can work the way they need to work. And likewise, teams in other parts of the business, whether it's customer service or sales and marketing, finance, et cetera, being able to leverage the product for what we call interrupt work.
At the end of the day, it all comes down to helping our customers understand from a high level perspective that our platform is all about modernizing your operations and improving your productivity while at the same time ensuring a seamless digital experience for customers. And this current macro environment seems to be really well suited for where our customers are trying to go, more with less, less infrastructure spend, less duplication in terms of point solutions within the ecosystem, and yet better, faster innovation and service to their end customers. So again, kind of right platform at the right moment for the current environment that we're in.
Yes. I could…
Great. Follow-up, Howard. I'm sorry.
Yes. I was just going to add to that. And the way that that's also showing up is that if we have a look at opportunities right now, platform opportunities are making up a much higher mix of our total pipeline than a year-ago. So our sales team is really getting that message of selling the integrated story of when you're putting incident response, AIOps, automation and customer service ops together, you unlock a different level of power for the customer.
And what does that do to deal size? It's just generally if you…
So there is two effects. The one is that it will in some cases make for larger deals, but because of the way our platform is constructed, customers are able to, they could be an incident response customer and they can add automation, or they could be an automation customer and they could add incident response. So it opens up the opportunity to create a roadmap with the customer that they don't necessarily have to execute on all at once, but it gives them a pathway to how they can actually build and create an Operations Cloud within their environment.
Thank you.
Thanks, Joel.
Excellent. Moving next to Chad Bennett from Craig-Hallum. Chad?
Hey, everyone. Thanks for taking my questions. So Howard, maybe just to drill down a little bit on net retention for the year in 117% to 120% range that you gave. So how are you thinking about that in terms of seat expansion versus use case expansion relative to what you saw last year historically?
Yes. So seat expansion or user expansion still remains one of the primary drivers for us in terms of growth. But increasingly, we are seeing the adoption of other products within the platform as being a key element. And most notable in that is our AIOps solution, particularly with the strengthening of our offering around event orchestration is making that even more relevant to customers.
And in terms of automation, the fact that we now have multiple lands and different ways in which customers can use our process automation means that it's much easier for us to in fact grow those customers with these additional offerings. And that's reflected in the average revenue per customer continuing to increase again this quarter as it has every quarter very consistently over the past few years has continued to grow up – grow and in fact, it was up 23% at the end of Q4. So our customers are using more of PagerDuty and that's showing up both in terms of users, but increasingly in terms of more of the use of the platform.
Got it. And then maybe just in terms of what you indicated on free cash flow margins being I think a couple hundred points, couple hundred basis points ahead of op margin. So would that imply that billings growth for the year should exceed revenue growth or is there something else that's providing that delta there?
Yes. So just to be clear, that's for the full-year that I'm seeing it because it'll move, it'll flex throughout the year as it does. I guess the way that we haven't provided specific guidance on billings for the full-year, we've provided guidance for Q1. And what I would always point people to is if you look at the trend, the way in which our billings tends to follow our revenue guide over time, you'd expect to see that similar mechanic play out through this next year.
Okay. Thanks much for taking my questions.
Thanks, Chad.
Thank you. Next, moving over to Matt Stotler with William Blair. Matt, please go ahead.
Hey, Jen. Hey, Howard. Good to see you both.
Hey, Matt.
Good to see you too.
Thanks for the questions. I guess maybe first on the partner ecosystem. Let's just get an update on partner contribution at this point. How those relationships are playing out, kind of on the broader timeline, ramping those up, but also considering the near-term macro? Obviously, ServiceNow is relatively new. You mentioned AWS recently. We've got a number of other pretty solid partners. So I'd love to get a broad update there.
Sure. I mean, partners continue to be an important and emerging growth factor for us from a channels perspective. AWS from a product standpoint – AWS has really stepped up from a product standpoint with us and where we've seen a lot of benefit is through the marketplace where customers in a constrained budget environment are able to deploy AWS prepaid spend to retire PagerDuty licenses. So that has helped a lot of our customers continue to invest in productivity and automation to reduce their overall infrastructure footprint.
Julia Fare, who's relatively new to the business is looking at some interesting new partnerships from a regional perspective too to augment the opportunity that we have in regions where we don't have feet on the street. We've seen some encouraging things recently in Japan where we closed a deal through a partner in Japan in the financial services sector. And that's a very new market for us, a market where having partners on the ground is really important. And so we're encouraged by that.
But the vast majority of our ARR revenue still comes from our direct go-to-market organization and our product-led growth model. I think some of the things that I'm really encouraged about are, even through our direct salesforce, who's really embracing the Operations Cloud and getting better and better at selling not just the vision, but the near-term opportunity there, we've seen our largest customer cohort continue to expand with us. So customers spending over a 100K grew 27% in the quarter, and not a single one of our customers is sold out.
We still have a lot of TAM to go after within those customer bases, whether it's – within those customers, whether it's seat-based or it is use case-based or functional or product specific. I think in the future, partners could be helpful in helping our customers with the transformation, like how are they driving the changes necessary to become more productive. How are they improving their workflows and their processes? How are they leveraging PagerDuty to the full extent? So that's exciting, but something that still is out in front of us.
Got it. That's helpful. And then the comment on Japan is a good segue into the second question here on just the international markets, right? Pretty consistent as a percentage of revenue. We would love to maybe just double click on what you're seeing there both in Q4, obviously, early in fiscal 2024. And then as you think about what's embedded in guidance outside of North America, we'd love to get some color there as well.
Sure. I can start, and Howard, if there's anything you want to add or if I choke to death that you can jump in. We continue to see a lot of the same macro trends in – particular in Europe where we had seen sales cycles elongate, we had seen more approvals and more diligence on deals. But what's been pleasing is the ongoing engagement from customers and record number of transactions in the quarter. Even though those transactions maybe smaller than they have been in the past, it just shows that customers are still looking to partner with us long-term. And I think it sets us up in a really strong position when the market does recover at some point in time, we're in a very good position with a competitive platform that is well seated into those customers. So continued to see high engagement, had some really interesting wins, including the one we talked about in the food delivery space, a team that is executing very well given the conditions.
And it's early days for Japan. I'm excited about that market. I think that will be an important market for PagerDuty and an important market more broadly for the cloud and for software. But all I guess to summarize the economic environment has been pretty consistent in some cases, it's gotten a little tougher and yet all of our go-to-market teams are executing very well given the environment, and I think they've really turned the corner on being able to pivot towards productivity, reducing infrastructure costs, helping customers become more efficient. And our customers have been signaling to us that incident response is more important that PagerDuty is essential infrastructure and they'd like to consolidate more and more of their spend away from point solutions onto our platform.
Very helpful. Thank you.
Okay. Next, we'll hear from Kingsley Crane. Kingsley, go ahead, with Canaccord.
Hey, good afternoon. Thanks for taking the questions. So look, I think you're solidly profitable, you're guiding almost double-digit operating margins. Has your approach to the long-term model evolved at all? Is 20 still the best long-term margin? You have such strong gross margin, 85 it seems like maybe that could become higher.
Kingsley, I like the way you said we're solidly profitable, like we've been doing that for years. I really agree because that was not easy, but Howard, I'll go ahead and let you answer.
Yes. So Kingsley, we haven't provided an update to our long-term model. So you'll see even in our most recent investor deck, we've kept that which has operating margin at scale at 20%. Right now, that model I think is still valid. Right now, given the current macro, we are focusing particularly on what we see happening ahead of us within this next year. And have high level of confidence in our ability to execute on the guide that we've given for this year. So keeping revenue growth above 20% and operating margin in that 89% for the full-year.
Okay. Fair enough. And then, so for Status Pages, newly released product, is that priced traditionally on users of the customer? Or is that somehow based on the end user of the customers the two layers of removal, and any sense of adoption expectations or impact on topline?
Yes. Sure. So the pricing model in that is different from other models and that it's effectively based on the number of subscribers that a particular customer would contract for. And so the expectation is that those subscribers could be internal or external to the company. So it creates – effectively targets the end user of the Status Page notifications. This, of course, is a relatively new offering for us, but to date, the experience we've had, it's something that customers were asking us to do before and hence I intend to move from what was primarily initially just an internal offering to a fully external offering.
But what's even more important is the way in which we are using automation with our Status Pages in that it's not relying on some person, like a lot of traditional Status Pages going into a separate environment to capture a message and publish that message. We in fact, have it fully integrated into the incident response life cycle and we are using automation and templates to be able to make it super easy to drive this level of communication that you typically want across a broad set of stakeholders. So good, good early signs, but this is something that's only recently been released.
Okay. Thanks, Howard. Thanks, Jen. Really helpful.
Thank you.
Thank you. And next we will hear from Andrew Sherman, go ahead, from TD Cowen.
All right. Thanks. It’s Andrew on for Derrick. Good to see you guys.
Good to see you.
Jen, the record number of transactions in both enterprises and commercial is impressive, especially these days. Is there anything reps are doing specifically to drive that velocity? How much of this is expansions versus net new logos? And once the macro does improve, does this give you greater visibility into future expansions?
I think it's just a good reinforcement of how important our high velocity land and expand motion is. Our team refers to this as the healthy hustle, making sure that they don't let the customer drive the pace of the sales cycle that we put ourselves in a position to enable customers to buy what they need, when they need it, and not drag out sales cycles by pushing too far ahead of the demand. And Jeremy Kmet, who's leading our go-to-market organization, who's someone frankly, whose transition has gone really well from a go-to-market leadership perspective is, is the person that really architected and mechanized this motion. And we've been able to push that high velocity transactional motion further and further up into larger market segments.
And to your point, what that enables us to do is seat opportunities and customers faster move away, let them grow organically, let them work through the deployment, let them see the value, and then come back to them to add on or to capture additional demand, whether it grows organically or because we've learned something, see a new use case within the customer.
So I think that has served us very well. And like I said, I think the go-to-market organizations also pivoted effectively to going from selling the premier technical solution to selling a solution where automation can truly improve productivity and efficiency in a moment when our customers really need it. So just really proud of the execution there. I think standardizing our go-to-market model has also helped. So every region is attacking this the same way. It frees up time and creates some streamlining in how our teams build pipeline.
And the last thing that I would say is we've applied a lot more rigor around multi-product pipeline and multi-product selling. So really helping the salesforce understand the importance of taking multiple products to market, but also being able to work through the narrative and understand the customer problems that we're solving with an integrated platform. I'd also say retention, retention of reps is higher this year than it was last year, and we're entering this year with more ramp capacity than we have in the past. So really in a strong position from a go-to-market perspective.
That's great. Thanks, Jen. One for you, Howard. I’d love to hear a little bit on linearity in the quarter. How did that track and how are your pipeline indicators looking currently? Have you added any extra levels of scrutiny to those metrics? Any color there would be helpful.
Yes. So if I look back at Q4, which feels like a lifetime ago right now. Q4 was not an unusual quarter in terms of linearity, but what was different is that we would typically see an end of year flush of customers looking to release budget in some shape or form. And that did not happen this quarter. So it was a bit different. And I think that was just a reflection on the macro. Going into this year, what we are seeing is the fact that we do have strength in terms of our pipeline now is increasingly more oriented around the platform sales, so customers acquiring more than one product or acquiring multiple products in order to deliver on this Operations Cloud.
And as Jen mentioned, we've entered this quarter with more ramp reps than we've had ever before the start of a year, which is a good place to be. So we are seeing good signals in terms of that within this environment, right. So I think in this environment, we're still seeing customers being cautious, we're seeing customers being careful about their spending, but certainly high levels of engagement and activity within the customer base.
Excellent. Thank you.
Thanks, Andrew.
Thank you. A couple more questions coming in. Next, we'll go to Rob Oliver with Baird. Rob?
Great. Hey, guys. Thanks for taking…
Hey, Rob.
Hey, Howard. Hi, Jen.
Hi, Rob.
Yes. Appreciate your time. Lot of great questions asked so far. But I have a couple. Just – so Jen, on the – Howard, you had said there was no budget flushing the quarter. Nevertheless, you guys landed some really impressive deals at year-end, some large lands and expansion. So I wanted to get a sense from you guys a little bit more about what went into some of those large deals, particularly on the expansion side. Obviously you guys are talking a lot about platform here. I think up to 50% of ARR now multiple products. But at those largest customers, like the big lands, you have, the 50 customers now paying you over a $1 million. Where are you relative to automation, customer service? And I know you just mentioned Jeremy, that was one of my questions. Maybe talk about ways in which Jeremy is focused on getting those products now into the pockets and understood of the sales reps that are selling to largest enterprises? And then I have a quick follow-up.
Sure. In Q4, we made a big push around enablement to get our salesforce more comfortable, being able to talk about both the problems and then how we apply solutions to issues like infrastructure automation or how to automate runbooks to support faster incident response or compress the time and the impact of an incident, how to think about engaging with customer service leaders in terms of the customer service operations, conversation and increasingly getting comfortable about talking about AI in terms of event orchestration and really starting to understand the impact of dependent services and being able to orchestrate, work more effectively, orchestrate event correlation more effectively. And so I think we made a lot of headway just purely from enablement perspective and helping our reps talk to our customers about this. Also, we put a lot of time and effort into business assessments, business value assessments that leverage customer data and customer information to give them a sense of where the productivity unlock lives.
And then we go back around and assess whether or not we delivered upon that. Usually we underestimate and over-deliver in that regard. I've had customers, many of which have said, one major incident paid for last year's PagerDuty subscription and then some just through closing – compressing the timeframe and the blast radius of that incident. And so I think there's also the benefit that from a market perspective, as teams become more constrained, as budgets become more constrained, we have customers coming to us saying, help me to reduce my infrastructure costs, help me to unlock productivity. So we're sort of meeting that demand. I think, reasonably well prepared for it, and that's been super helpful. The last thing I would say is in most of the cases where we've described some of these larger deals, these are customers that have been with us since 2013, 2015, 2017.
And I've always said that we're sort of a patient grower that our customers often start where they are with a very basic use case. And then you see those businesses become more digital or you see the digitization of their business model take place and they require more partnership, more support. We've also seen the rise of more technical leadership at a lot of these companies and technical leaders tend to really understand the value of automating incident response, the value of automation more broadly. And culturally, we're seeing a greater acceptance around leveraging AI to make decisions that historically people made in a swivel chair talking to each other in an operation center. So all of those trends are kind of coming together for us.
That's great. Thanks, Jen. Appreciate it. And then Howard, you guys are one of a very short list of our coverage companies that was able to put through a price increase last year. I think you guys are anniversarying, if I'm not mistaken, what the first half or maybe this coming quarter. Just anything to call out for us there. It sounds like it's gone well in aggregate and how is the right way to think about it? Is it just straight up? Here's your price increase or is this also an opportunity giving you guys an opportunity to talk about the platform in greater value that PagerDuty can deliver? Thanks guys.
Yes. Thanks, Rob. So I think there are a few elements to that. So last year, I think in the March timeframe now, just going back, we introduced a price increase that was essentially for new customers. And so there was new pricing that was provided to new customers. And existing customers were then subject to an annual renewal uplift. And of course, if they made a new purchase, then the starting point, if you like, for them would be the new pricing. So that pricing has been well received through the year. As with any pricing change, it creates like a discussion point for customers. But I think it's now well embedded and well established.
And I think what's more interesting for us is that as we look to the future and as we add to the portfolio of products that create this Operations Cloud. There's more opportunity for customers to be able to expand their footprint with us and for us to be able to ensure that they're using more of PagerDuty and reconsolidating some of the spend that's sitting out there, and that's really a great opportunity for us.
Thanks, again, guys. Appreciate it.
Okay. Rounding things out, we're going to hear from Credit Suisse, I believe that's Tim Jausovec, not Fred Lee.
Hi, thank you. Yes, this is Tim on for Fred. Appreciate you taking my questions. First off, the midpoint of your Q1 revenue guidance implies $2 million sequential revenue growth, which is I believe the lowest sequential growth in Q1 you've seen since 2019. At the same time, your full-year guidance implies sequential revenue growth slightly above what you reported last year. So I was hoping you could walk us through the puts and takes of a relatively weaker Q1 guidance compared to a very healthy full-year guide, especially given the environment you're operating in?
Sure. So I think the key thing to remember is that Q1 last year was particularly strong quarter for us. And as a result of that, the compare is a tougher compare. We have also just in thinking about the guidance that we've given for the full-year, we are looking at the most recent set of circumstances in terms of thinking about how that may play out within the early part of the year. And we've tried to incorporate our views on the macro across the full-year. So as we move through the year, it will – as we see those circumstances play out through the year, it does create a slightly different shift in the revenue through the period.
And to be clear, are you assuming a recovery in the macro environment into the back half of the year in your guidance?
It's a different set of compares, right? So in terms of the compare from like Q1, which was a very strong quarter last year versus say, Q3 or Q4 later in the year, the compare is of a different base in terms….
No. It's probably safe to say that we're assuming that the difficult macro environment is going to persist throughout the year, but we're confident in our ability to execute given how we're entering the year from capacity standpoint where we are in terms of new products to monetize in our competitive position.
Thank you. And then a follow-up for Jennifer. You announced a tech – tight tech integration with ServiceNow CSM in January. Could you talk about the customer pool you're seeing in the CS ops arena and how do you see the partnership with ServiceNow evolve over the next few years?
Yes. I mean, I think that in a number of cases, what we've seen is customers asking us how they can leverage their customer service agents to both help capture information as it's coming in from customers. I mean, unfortunately, many of our customers learn about major incidents from their end customers, either reaching out to their customer support teams or through social media or other channels. And so we had seen this demand from our customers to help leverage the customer support agents to engage on both identifying problems and being able to kick off incidents, but also being able to collaborate more closely with technology teams, engineering teams, software engineering teams and service owners associated with the products and services that maybe at the root of those incidents.
And so bringing those two platforms together to help reduce the time that's lost and the customer impact that maybe exposed or created because teams are working in disparate separate platforms that don't talk to each other, it was a big part of the problem that was described to us. And then what we also see is, with customers like Salesforce, ServiceNow, Zendesk, et cetera, like there are opportunities where the platforms compliment each other very well or you might be using one platform in one part of the business for a certain type of work, but you still need a platform like PagerDuty that can help you manage mission critical, time sensitive unstructured work, which is very different than what a ticketing queuing system or a CRM or CSM product does. And so there's actually a lot of compliment there. And really, this, again, has been driven by pull from the customer as opposed to strategic partnerships, where our customers saying, I need these systems to not just sit alongside each other nicely, I need them to work effectively together. I need to integrate the workflow across these to save my people time.
Yes. And just on that point that this was something that already been validated by customers who are using the special integration we had done for Salesforce Service Cloud and Zendesk and ServiceNow CSM was the next piece to Jen's point.
Okay, team. Excellent. We've reached the end of another call and questions. Jen, can I turn it over to you for some final remarks?
Yes, you can. Well, first of all, I'd just like to say thank you for joining us today and for your questions. To recap our fourth quarter results round out a strong year for PagerDuty, a year in which we extended our leadership in digital operations, surpassed $400 million in annual recurring revenue and achieved non-GAAP profitability a year ahead of plan. I am confident in our operations cloud strategy reinforced by our recent innovation in AI and automation and in our team's ability to execute. Thank you to all of our employees around the world for championing our customers and delivering a successful year of profitable growth. Have a great day.