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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 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.
Revenue $125 million, up 5% year-over-year. The increase is attributed to disciplined execution and a durable profitable growth model.
Non-GAAP Operating Margin 29%, expanded by 750 basis points year-over-year. This exceeded guidance due to increased operational efficiency and disciplined execution.
Annual Recurring Revenue (ARR) $497 million, up 3% year-over-year. Growth was offset by customers rightsizing seat licenses amidst budget caution.
GAAP Net Income $160 million, includes a one-time income tax benefit of $154 million from the release of the valuation allowance.
International Revenue Increased 7% year-over-year, contributing 29% of total revenue. Growth reflects strong demand in international markets.
Dollar-Based Net Retention (DBNR) 100%, compared to 102% in Q2. The decline was due to lower gross retention and pressure on seat licenses.
Customers Spending Over $100,000 in ARR 867 customers, up 5% year-over-year. Growth reflects increased adoption of PagerDuty's offerings by high-value customers.
Total Paid Customers 15,398, up 2% year-over-year. Growth reflects ongoing demand for PagerDuty's platform.
Gross Margin 87%, above the target range of 84%-86%. This was achieved through operational efficiency improvements.
Operating Income $36 million, or 29% of revenue, compared to $25 million, or 21% of revenue, in the same quarter last year. The increase was driven by lower payroll and personnel costs.
Cash from Operations $25 million, or 20% of revenue. Reflects strong cash generation capabilities.
Free Cash Flow $21 million, or 17% of revenue. Indicates efficient cash management.
Cash, Cash Equivalents, and Investments $548 million at the end of the quarter. Reflects a strong balance sheet.
Trailing 12-Month Billings $496 million, up 4% year-over-year. Indicates steady growth in billings.
AI Operations and Incident Management: PagerDuty is extending its product advantage in AI operations and incident management, focusing on real-time orchestration and action across AI agents, applications, and infrastructure. The company released over 150 platform enhancements, including the industry's first agentic end-to-end incident management offering.
PagerDuty Agents: Introduced PagerDuty agents to address unstructured, high-value, time-critical work, leveraging an open and neutral ecosystem of over 700 integrations.
Integration with Spotify's Developer Portal: PagerDuty became the first incident management and operations platform integrated into Spotify's developer portal for Backstage, enabling proactive issue prevention and seamless developer workflows.
Customer Acquisition: Added 284 net new customers year-to-date, nearly 4x the total in FY '25. High-value customer base spending over $100,000 annually grew by 5% year-over-year to 867 customers.
Global Expansion: International revenue increased by 7% year-over-year, contributing 29% of total revenue. Multiyear agreements with global enterprises, including a Fortune 25 automotive leader and one of Australia's largest banks, highlight PagerDuty's expanding market presence.
Operational Efficiency: Achieved a non-GAAP operating margin of 29%, expanding 750 basis points year-over-year. Structural efficiency initiatives and modern software/AI are driving cost reductions and improved execution.
Customer Retention and Growth: Focused on increasing average transaction size through new usage-based products and professional services. Stabilized customer loyalty and retention through proactive coverage models and flexible pricing.
Go-to-Market Transformation: Transitioning from a single-year seat-based license model to a multiyear platform usage model. Initial progress in usage-based pricing is encouraging, aligning customer investments with business outcomes.
Leadership in AI Ecosystem: Deepened AI ecosystem leadership by partnering with Glean MCP directory and integrating with Spotify's developer portal. Positioned as a central platform for digital and AI operations.
Seat license compression: Large enterprises are rightsizing seat licenses due to budget caution, which has significantly impacted the incident management business.
Customer retention pressure: Lower gross retention and pressure on dollar-based net retention (DBNR) due to budget caution and seat-based reductions.
Budget caution in enterprises: Ongoing customer budget caution and organizational rightsizing are affecting go-to-market execution and retention.
Smaller expansion deal sizes: Expansion deal sizes have been smaller than expected, contributing to lower incremental annual recurring revenue (ARR).
Churn and downgrades: Although the number of customers churning and downgrading is trending downwards, the dollar value of these contractions has been larger than forecasted.
Economic uncertainties: Budget caution and rightsizing reflect broader economic uncertainties impacting customer spending and growth.
Transition to usage-based pricing: The shift from seat-based to usage-based pricing is still in progress and may take time to fully realize benefits, creating short-term challenges.
Renewal forecasting challenges: Renewal forecasting has been sharpened to address risks earlier, but it remains a multi-quarter cycle, indicating ongoing challenges in predicting customer behavior.
Revenue Expectations: For Q4 FY 2026, revenue is expected to be in the range of $122 million to $124 million, representing growth of 0% to 2%. For the full fiscal year 2026, revenue is expected to be in the range of $490 million to $492 million, representing a growth rate of 5%.
Operating Margin Projections: For Q4 FY 2026, operating margin is expected to be 21%. For the full fiscal year 2026, operating margin is expected to be 24%, an increase from the prior guidance of 21% to 22%.
Net Income Projections: For Q4 FY 2026, net income per diluted share is expected to be in the range of $0.24 to $0.25. For the full fiscal year 2026, net income per diluted share is expected to be in the range of $1.11 to $1.12, up from the prior guidance of $1 to $1.04.
Customer Retention and Growth: Efforts are being made to stabilize customer retention and loyalty through proactive engagement, flexible pricing, and targeted retention strategies. However, challenges persist with seat license reductions and budget caution among large enterprises.
Transition to Usage-Based Pricing: The company is transitioning from a seat-based licensing model to a usage-based pricing model, which is expected to align customer investments with business outcomes and reduce expansion friction.
AI Operations and Product Development: PagerDuty is investing in AI operations and agentic orchestration to support enterprise resilience and operational efficiency. The company plans to maintain its leadership in AI operations by enhancing its Operations Cloud and integrating with AI ecosystems.
Go-to-Market Transformation: The company is focusing on transforming its go-to-market strategy, particularly in the enterprise segment, to drive adoption of its platform and improve customer acquisition and retention.
Share Repurchase Plan: In Q3, PagerDuty repurchased 2.4 million shares under its $200 million repurchase plan. At the end of the quarter, $162 million of the total amount authorized to be repurchased remained available. The company emphasized its consistent cash generation and strong cash position as a foundation for advancing enterprise transformation while returning capital to shareholders.
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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