Core Viewpoint - PagerDuty's stock experienced a significant decline of 25.7% following the release of its mixed Q3 earnings report, despite exceeding earnings expectations [1][2]. Financial Performance - PagerDuty reported an adjusted earnings per share of $0.33, surpassing analysts' expectations of $0.24, while sales were slightly below expectations at $124.5 million compared to the anticipated $124.9 million [2][3]. - Year-over-year sales growth was recorded at 5%, and the company achieved its second consecutive quarter of GAAP profitability, with an operating profit margin of 6.5% and GAAP earnings of $1.69 per share [3]. - The actual free cash flow for the quarter was $20.9 million, significantly lower than the reported net income of $161.6 million [4]. Market Metrics - PagerDuty's current market capitalization stands at approximately $1 billion, with a price-to-free cash flow ratio of 8.8x based on a free cash flow of $117.6 million for the year [6]. - The stock is currently trading within a 52-week range of $11.13 to $21.98, with a current price of $11.47 after a decline of $3.71 [5][6]. Investment Outlook - Despite the recent sell-off, the stock is viewed as a potential small-cap buy, especially considering a modest projected growth rate of 9% [7].

Core Insights - PagerDuty reported mixed third-quarter financial results, with earnings per share (EPS) of 33 cents beating the analyst consensus estimate of 25 cents, but quarterly sales of $124.545 million missing the estimate of $125.034 million [1] - The company issued fourth-quarter guidance for adjusted EPS of 24 to 25 cents, aligning with market estimates, but projected sales of $122 million to $124 million, below the estimate of $127.295 million [2] - PagerDuty's CEO highlighted the company's strong position with product leadership, a solid balance sheet, and robust free cash flow, despite a 25.5% drop in share price to $11.31 following the earnings announcement [3] Financial Performance - Quarterly earnings were reported at 33 cents per share, exceeding the consensus estimate of 25 cents [1] - Quarterly sales reached $124.545 million, falling short of the analyst consensus estimate of $125.034 million [1] - Fourth-quarter adjusted EPS guidance is set at 24 to 25 cents, with sales projections between $122 million and $124 million, both below market expectations [2] Analyst Ratings and Price Targets - RBC Capital maintained an Outperform rating but lowered the price target from $18 to $17 [6] - Morgan Stanley kept an Equal-Weight rating while reducing the price target from $17 to $16 [6] - TD Cowen maintained a Buy rating but slashed the price target from $22 to $20 [6]

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Core Insights - PagerDuty reported quarterly earnings of $0.33 per share, exceeding the Zacks Consensus Estimate of $0.24 per share, and showing an increase from $0.25 per share a year ago, resulting in an earnings surprise of +37.50% [1] - The company posted revenues of $124.55 million for the quarter ended October 2025, slightly missing the Zacks Consensus Estimate by 0.32%, but up from $118.95 million year-over-year [2] - PagerDuty has surpassed consensus EPS estimates in all four of the last quarters, while it has topped consensus revenue estimates twice during the same period [2] Future Outlook - The immediate price movement of PagerDuty's stock will largely depend on management's commentary during the earnings call and the company's earnings outlook [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.23 on revenues of $127.23 million, and for the current fiscal year, it is $1.02 on revenues of $495.59 million [7] - The Zacks Rank for PagerDuty is currently 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [6] Industry Context - The Internet - Software industry, to which PagerDuty belongs, is currently ranked in the top 31% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Revenue and Customer Growth - Annual Recurring Revenue (ARR) increased to $497.1 million as of October 31, 2025, up from $483.0 million in 2024, representing a growth of 2.3%[134] - The total number of customers reached 15,398 as of October 31, 2025, compared to 15,050 in 2024, indicating an increase of 2.3%[135] - Customers with greater than $100,000 in ARR grew to 867 in 2025 from 825 in 2024, reflecting a growth of 5.1%[135] - Revenue for the three months ended October 31, 2025, was $124.5 million, a 4.7% increase from $118.9 million in the same period of 2024[141] - Revenue for the nine months ended October 31, 2025, was $367,761, an increase of $21,708, or 6.3%, compared to $346,053 in 2024[161] Profitability and Income - Gross profit for the three months ended October 31, 2025, was $106.2 million, with a gross margin of 85.3%, up from 83.0% in 2024[138] - Net income attributable to PagerDuty, Inc. common stockholders was $159.6 million for the three months ended October 31, 2025, compared to a net loss of $6.6 million in 2024[138] - Gross profit margin improved from 82.8% in 2024 to 84.6% in 2025, with gross profit increasing to $311,219[160] - Net income attributable to PagerDuty, Inc. increased to $163,999 in 2025, compared to a net loss of $33,975 in 2024[160] - For the three months ended October 31, 2025, non-GAAP net income attributable to PagerDuty, Inc. common stockholders was $31,217,000, compared to $23,721,000 for the same period in 2024, representing a 31.5% increase[186] Operating Expenses - Operating expenses decreased to $98.1 million for the three months ended October 31, 2025, from $109.0 million in 2024, a reduction of 10.5%[138] - Total operating expenses decreased by $10,862, or 10.0%, from $108,971 in 2024 to $98,109 in 2025[146] - Research and development expenses decreased by $4,849, or 14.2%, from $34,267 in 2024 to $29,418 in 2025[146] - Sales and marketing expenses decreased by $4,950, or 10.0%, from $49,272 in 2024 to $44,322 in 2025[146] - General and administrative expenses decreased by $1,063, or 4.2%, from $25,432 in 2024 to $24,369 in 2025[146] Cash Flow and Financial Position - Free cash flow for the three months ended October 31, 2025, was $20,929,000, up from $19,443,000 in the same period of 2024, indicating a 7.6% increase[188] - As of October 31, 2025, the company had cash and cash equivalents totaling $547.8 million, which is expected to support working capital and capital expenditure requirements for at least the next 12 months[189] - Net cash provided by operating activities for the nine months ended October 31, 2025, was $89,447,000, an increase of $2,958,000 from $86,489,000 in 2024[196] - Net cash used in financing activities decreased to $105,386,000 for the nine months ended October 31, 2025, compared to $113,323,000 in 2024, reflecting a reduction in stock repurchases[199] Debt and Obligations - Total debt obligations as of October 31, 2025, amounted to $395.1 million, all of which is long-term[194] - The company had $1.0 million of irrevocable standby letters of credit outstanding as of October 31, 2025, primarily used as security deposits for leased spaces[201] Tax and Valuation - The company released $154.2 million of its valuation allowance as a discrete tax benefit during the three months ended October 31, 2025[159] - The company maintains a valuation allowance of $0.8 million against certain deferred tax assets due to realizability uncertainty[170] - The projected non-GAAP tax rate for fiscal 2026 is set at 22% to provide consistency across interim reporting periods[180] Retention and Customer Focus - The dollar-based net retention rate was 100% for the last 12 months ended October 31, 2025, down from 107% in 2024[137] - The company continues to focus on expanding its enterprise customer base, which constitutes the majority of its revenue[127]

Financial Data and Key Metrics Changes - PagerDuty reported revenue of $125 million for Q3, representing a 5% year-over-year increase [3][20] - Non-GAAP operating margin was 29%, exceeding guidance and expanding 750 basis points year-over-year [3][22] - GAAP net income for Q3 was $160 million, including a one-time tax benefit of $154 million [20] - Annual recurring revenue (ARR) reached $497 million, reflecting a 3% year-over-year growth [3][20] - Gross margin was 87%, above the target range of 84%-86% [21][22] Business Line Data and Key Metrics Changes - New and expansion bookings were consistent with the first half of the year, but impacted by customers rightsizing seat licenses [3][5] - Customer retention efforts have stabilized, but seat license compression remains a significant challenge in large enterprises [5][6] - The number of customers spending over $100,000 annually increased by 5% year-over-year to 867 [21][12] - Total paid customers grew to 15,398, a 2% year-over-year increase [21] Market Data and Key Metrics Changes - International revenue increased by 7% year-over-year, contributing 29% of total revenue [20] - The company added 284 net new customers year-to-date, nearly four times the total in FY 2025 [10][11] - Total paid and free customers on the platform grew to over 34,000, an increase of approximately 13% compared to Q3 of last year [21] Company Strategy and Development Direction - The company is focused on three objectives: expanding operating and free cash flow margins, extending product advantage in AI operations, and scaling go-to-market transformation [3][4] - PagerDuty aims to transition from a single-year seat-based license model to a multi-year platform usage model [10] - The company is investing in operational efficiency and product innovation to maintain leadership in digital and AI operations [4][7] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in customer retention due to budget caution and organizational changes [30][34] - The company is confident in long-term growth prospects, citing strong demand for its platform and improvements in customer usage metrics [34][56] - Management expects continued pressure on dollar-based net retention but is implementing changes to improve customer engagement and retention [24][45] Other Important Information - Howard Wilson, CFO, announced plans to retire in the next financial year after nine years with the company [16][17] - The company repurchased 2.4 million shares under its $200 million repurchase plan, with $162 million remaining available [22] Q&A Session Summary Question: Trends in dollar-based net retention and customer spending - Management noted that while logo retention improved, larger downgrades were tied to significant reorganizations, making it difficult to anticipate changes [32][33] Question: Sales maturity indicators and productivity - Management emphasized the importance of customer feedback and engagement, focusing on proactive support and understanding customer needs [37][39] Question: Opportunities to offer usage-based pricing to existing accounts - Management confirmed that longer-term agreements allow for proactive engagement with customers regarding new pricing and services [42][43] Question: Guidance assumptions regarding dollar-based churn - Management indicated that guidance reflects current visibility around renewals, expecting some seat-based pressure to continue [45] Question: Impact of reorganizations on customer spending - Management acknowledged that while some customers are downsizing, they are also seeking to improve operational resilience, leading to potential growth opportunities [65][66] Question: Momentum with new logo acquisitions - Management reported good new logo acquisition across all segments, with promising growth in both digital-first and go-to-market environments [96][97]

Financial Data and Key Metrics Changes - PagerDuty reported revenue of $125 million for Q3, representing a 5% year-over-year increase [3][20] - Non-GAAP operating margin was 29%, exceeding guidance and expanding by 750 basis points compared to the previous year [3][22] - GAAP net income for Q3 was $160 million, which included a one-time income tax benefit of $154 million [20] - Annual recurring revenue (ARR) reached $497 million, reflecting a 3% year-over-year growth [3][20] - Gross margin was 87%, above the target range of 84%-86% [21][22] Business Line Data and Key Metrics Changes - New and expansion bookings were consistent with the first half of the year, but were offset by customers rightsizing seat licenses due to budget caution [3][5] - The number of customers spending over $100,000 annually increased by 5% year-over-year, totaling 867 customers [21][12] - Total paid customers grew to 15,398, a 2% increase year-over-year [21] Market Data and Key Metrics Changes - International revenue increased by 7% year-over-year, contributing 29% of total revenue [20] - Total paid and free customers on the platform grew to over 34,000, an increase of approximately 13% compared to Q3 of the previous year [21] Company Strategy and Development Direction - The company is focused on three objectives: expanding operating and free cash flow margins, extending product advantage in AI operations, and scaling go-to-market transformation [3][4] - PagerDuty is transitioning from a traditional single-year seat-based license model to a multi-year platform usage model [10] - The company aims to build long-term shareholder value by enhancing operational efficiency and product innovation [3][4] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges with seat license compression in large enterprises due to budget caution and rightsizing [5][21] - The company is optimistic about long-term growth, citing strong demand for its platform and improvements in customer usage metrics [34][56] - Management expects continued pressure on dollar-based net retention but is implementing changes to improve customer engagement and retention [24][45] Other Important Information - Howard Wilson, the CFO, announced plans to retire in the next financial year after nine years with the company [16][17] - The company repurchased 2.4 million shares under its $200 million repurchase plan, with $162 million remaining available for repurchase [22] Q&A Session Summary Question: Trends in dollar-based net retention and customer spending - Management noted that while logo retention improved, larger downgrades were tied to significant reorganizations within customer companies [32][33] Question: Sales organization maturity and productivity indicators - Management emphasized the importance of customer feedback and engagement in assessing sales productivity and effectiveness [37][39] Question: Opportunities to re-engage accounts before renewals - Management confirmed that longer-term agreements allow for proactive engagement with customers regarding new pricing and services [42][43] Question: Guidance assumptions for Q4 and dollar-based churn - Management indicated that guidance for Q4 reflects current visibility around renewals and expects some seat-based pressure to continue [45][76] Question: Impact of reorganizations on customer spending - Management acknowledged that while some customers are downsizing, they are also seeking to improve operational resilience, leading to potential growth opportunities [65][66] Question: Performance of the agentic suite and competitive differentiation - Management reported positive responses to the agentic suite, highlighting its unique integration capabilities and the potential for increased usage [88][90]

Financial Data and Key Metrics Changes - PagerDuty reported Q3 revenue of $125 million, a 5% year-over-year increase [3][19] - Non-GAAP operating margin reached 29%, expanding 750 basis points from the previous year [3] - GAAP net income for Q3 was $160 million, including a one-time tax benefit of $154 million [19] - Annual recurring revenue (ARR) grew 3% year-over-year to $497 million [3][19] - Gross margin was 87%, exceeding the target range of 84%-86% [20][21] - Cash from operations was $25 million, representing 20% of revenue [21] Business Line Data and Key Metrics Changes - New and expansion bookings were consistent with the first half of the year, but impacted by customers rightsizing seat licenses [3][5] - Customer retention and growth remain a top priority, with efforts to increase average transaction size through new usage-based products [5][6] - The number of customers spending over $100,000 annually increased by 5% year-over-year to 867 [20] Market Data and Key Metrics Changes - International revenue increased by 7% year-over-year, contributing 29% of total revenue [19] - Total paid customers grew to 15,398, a 2% year-over-year increase [20] - Paid and free customers on the platform grew to over 34,000, an increase of approximately 13% compared to the previous year [20] Company Strategy and Development Direction - The company is focused on three objectives: expanding operating and free cash flow margins, extending product advantage in AI operations, and scaling go-to-market transformation [3][4] - PagerDuty aims to transition from a single-year seat-based license model to a multi-year platform usage model [11] - The company is investing in operational efficiency and product innovation to maintain leadership in digital and AI operations [4][8] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges with seat license compression due to budget caution among large enterprises [5][20] - There is confidence in long-term growth despite current pressures, with a focus on proactive customer engagement and flexible pricing [29][40] - The company expects to be GAAP profitable for the full fiscal year [19][24] Other Important Information - Howard Wilson, CFO, announced plans to retire in the next financial year after nine years with the company [17][18] - The company has made significant investments in AI and operational resilience, positioning itself as a leader in the market [10][14] Q&A Session Summary Question: Trends in dollar-based net retention (DBNR) and gross churn - Management noted that while DBNR was 100%, it was negatively impacted by lower gross retention and expects pressure to continue in Q4 [20][28] Question: Evaluation of current customer spending and organizational changes - Management indicated that improvements in logo retention were observed, but larger downgrades were tied to significant reorganizations [28][30] Question: Proactive measures for customer renewals - The company is taking a multi-quarter view on renewal planning and offering flexible pricing to mitigate risks [29][39] Question: Impact of AI on customer investments and headcount - Management observed a focus on improving operating margins and reducing costs, with automation becoming more integrated into the platform [44] Question: Guidance for Q4 and renewal expectations - The guidance for Q4 reflects visibility around renewals, with expectations for stabilization in customer downgrades [48][49] Question: Performance of the agentic suite and competitive differentiation - Positive responses to the agentic suite were noted, with expectations for increased usage and adoption as customers engage with the new offerings [52][55]

Investor Presentation Q3 FY 2026 Period ended October 31, 2025 Safe Harbor This presentation contains forward-looking statements. All statements other than statements of historical fact contained in this presentation, are forward-looking statements, including but not limited to: statements regarding the future financial and operational performance and outlook, and strategies, objectives, opportunity, expectations and market positioning of PagerDuty, Inc. ("PagerDuty" or the "Company"). In some cases, you ca ...

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