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01/10 18:46
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary indicates strong financial performance, with revenue growth and operating margin exceeding targets. The Q&A highlights confidence in ARR quality, successful transition to usage-based pricing, and strategic enterprise customer focus. Despite some unclear responses, the overall sentiment is positive, with strategic partnerships and AI integration contributing to optimism. The market cap of $2.18 billion suggests moderate volatility, leading to a predicted stock price increase of 2% to 8% over the next two weeks.
Revenue $123 million, representing 6% growth year-over-year. The growth was tempered by seat optimization initiatives across the customer base.
Non-GAAP Operating Margin 25%, exceeding both guidance and year-over-year expansion by 800 points. This reflects increased efficiency and operational execution with lower payroll and other personnel costs.
Annual Recurring Revenue (ARR) $499 million, representing 5% year-over-year growth. The performance reflects elevated churn and downgrades, driven largely by customer seat optimization and cost containment initiatives.
Dollar-Based Net Retention (DBNR) 102%, down from 104% in Q1. The decline was driven by lower gross retention, largely as a result of downgrades.
Customers Spending Over $100,000 Annually 868 customers, increasing by 20 customers sequentially and 48 year-over-year, representing a 6% year-over-year growth.
Total Paid Customers 15,322, adding 75 net new customers in Q2. Free and paid companies on the platform grew to over 33,000, an increase of approximately 13% compared to Q2 of last year.
Gross Margin 86%, at the high end of the 84% to 86% target range, reflecting the uniquely efficient technical architecture developed to service customers.
Operating Income $31 million or 25% of revenue, compared to $20 million or 17% of revenue in the same quarter last year. This reflects a focus on increased efficiency and operational execution.
Cash from Operations $34 million or 28% of revenue.
Free Cash Flow $30 million or 24% of revenue.
Cash, Cash Equivalents, and Investments $568 million at the end of the quarter.
Trailing 12-Month Billings $496 million, an increase of 6% compared to a year ago, just below the target of 7% for the quarter.
Remaining Performance Obligations (RPO) $425 million, increasing 5% year-over-year. Approximately $295 million or 69% is expected to be recognized over the next 12 months.
New AI Agents: Four new AI agents (Shift, Scribe, Insights, and SRE) will be generally available this quarter, with usage-based pricing models.
Amazon Q Integration: Amazon Q reached general availability as PagerDuty's first Agentic AI partnership, offering over 40 data connectors.
AIOps Growth: Usage-based AIOps is growing above 60%, with AI automation capabilities integrated across all Operation Cloud plans.
International Revenue Growth: International revenue increased 12% annually, contributing 29% of total revenue.
Customer Base Expansion: Net new customer additions totaled 208 in the first half, nearly 3x the customer adds of fiscal year '25. High-value customers spending over $100,000 annually increased to 868, up 20 sequentially and 48 year-over-year.
AI Ecosystem Contribution: Native AI companies now contribute 2% of total ARR, growing rapidly.
GAAP Profitability: Achieved GAAP profitability for the first time in company history, with a non-GAAP operating margin of 25%.
Operational Efficiency: Gross margin was 86%, reflecting efficient technical architecture. Operating income was $31 million, or 25% of revenue.
Cash Flow: Generated $34 million in cash from operations, representing 28% of revenue.
Usage-Based Pricing: Shifted towards usage-based pricing models to better align revenue with customer value realization.
Leadership Changes: Appointed a new North America sales leader and Chief Revenue Officer to accelerate go-to-market transformation.
Strategic Partnerships: Enhanced partnerships with Microsoft Azure, Amazon Cloud Smith, and observability vendors to integrate telemetry data into diagnostics and remediation.
Elevated Churn and Downgrades: The company experienced elevated churn and downgrades, driven largely by customer seat optimization and cost containment initiatives, which negatively impacted dollar-based net retention (DBNR).
Inconsistent Sales Performance in Americas: The performance of the Americas sales leader has been inconsistent, prompting the appointment of a new leader and organizational changes to address agility and decision-making issues in this critical market.
Regulatory and Compliance Risks: In the telecommunications sector, regulatory compliance with evolving standards poses challenges, as highlighted by a Singaporean telco's investment in PagerDuty to address inefficiencies and ensure compliance.
Economic and Market Conditions: Revenue growth has been tempered by customer seat optimization initiatives, reflecting broader economic pressures and cost containment trends among customers.
Dependence on Emerging AI Ecosystem: While PagerDuty is positioning itself as a central player in the AI ecosystem, this reliance on a rapidly evolving and competitive market introduces risks related to technological advancements and customer adoption.
Customer Value Realization Alignment: The company is transitioning to usage-based pricing models to better align revenue with customer value realization, but this shift may create short-term financial uncertainties.
Operational Complexity: The increasing complexity of enterprise operations and the unpredictability of AI-native environments require significant innovation and scalability, which could strain resources and execution capabilities.
Revenue Guidance for Q3 FY2026: Expected revenue in the range of $124 million to $126 million, representing a growth rate of 4% to 6%.
Revenue Guidance for Full FY2026: Expected revenue in the range of $493 million to $497 million, representing a growth rate of 5% to 6%.
Net Income per Diluted Share for Q3 FY2026: Expected in the range of $0.24 to $0.25, implying an operating margin of 21%.
Net Income per Diluted Share for Full FY2026: Expected in the range of $1 to $1.04, implying an operating margin of 21% to 22%.
ARR Growth Expectation for Second Half FY2026: Incremental ARR expected to be significantly higher than the first half of the fiscal year.
Dollar-Based Net Retention (DBNR): Expected to remain at 102% in the second half of FY2026 as pricing and packaging align better with customer value realization.
GAAP Profitability: Expected to achieve GAAP profitability for the full fiscal year FY2027.
Trailing 12-Month Billings Growth: Anticipated to be approximately 7% for Q3 FY2026.
Share Repurchase Program: The Board has expanded the current share repurchase program to $200 million, providing increased flexibility to opportunistically repurchase shares in the open market, subject to market conditions and legal constraints.
The earnings call summary indicates steady financial performance, proactive customer engagement, and successful product developments like the AIOps SKU. Despite some macroeconomic caution, management's focus on long-term growth, multiyear agreements, and usage-based pricing is promising. The company's commitment to achieving GAAP profitability and improving operating margins further supports a positive sentiment. While some uncertainties exist, the overall outlook is optimistic, suggesting a likely positive stock price movement.
The earnings call summary indicates strong financial performance, with revenue growth and operating margin exceeding targets. The Q&A highlights confidence in ARR quality, successful transition to usage-based pricing, and strategic enterprise customer focus. Despite some unclear responses, the overall sentiment is positive, with strategic partnerships and AI integration contributing to optimism. The market cap of $2.18 billion suggests moderate volatility, leading to a predicted stock price increase of 2% to 8% over the next two weeks.
The earnings call presents a mixed picture. Financial performance shows moderate growth and a strong cash position, but there's notable customer churn and sales execution challenges. While the share repurchase program and high gross margins are positive, the cautious revenue guidance and enterprise churn create uncertainties. The Q&A highlights execution issues and hesitant customer engagement, with management's responses lacking clarity on churn specifics. Given the market cap, these mixed signals suggest a neutral stock price movement, with potential for slight fluctuations due to execution improvements or further customer retention challenges.
The earnings call shows mixed signals. Financial performance is strong with an 8% revenue growth, high operating margins, and robust cash flow. However, challenges like enterprise customer downgrades, elevated churn, and macroeconomic uncertainties weigh negatively. The Q&A section highlights execution issues and cautious guidance, although there's optimism for future improvements. The share repurchase program adds a positive note. Considering the market cap, the stock may have a muted reaction, resulting in a neutral outlook for the next two weeks.
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