8-K: PagerDuty Reports Q3 Profit Amid Growth Slowdown, CFO to Retire

PagerDuty, Inc. announced its second consecutive quarter of GAAP profitability with $125 million in revenue for Q3 fiscal 2026, alongside the planned retirement of its CFO, Owen Howard Wilson, and a downward revision to full-year revenue guidance.

Summary

• Third quarter fiscal 2026 revenue was $124.5 million, an increase of 4.7% year over year.
• Annual Recurring Revenue (ARR) grew 3% year over year to $497 million as of October 31, 2025.
• GAAP operating income for the quarter was $8.1 million, with an operating margin of 6.5%.
• Non-GAAP operating income was $35.5 million, with a non-GAAP operating margin of 28.5%.
• GAAP net income per diluted share attributable to common stockholders was $1.69, while non-GAAP net income per diluted share was $0.33.
• Net cash provided by operating activities was $24.8 million, and free cash flow was $20.9 million.
• Cash, cash equivalents, and investments totaled $547.8 million as of October 31, 2025.
• The dollar-based net retention rate was 100% as of October 31, 2025, down from 107% in the prior year.
• Customers with ARR over $100 thousand grew 5% to 867.
• Total paid customers were 15,398, and paid and free customers totaled over 34,000, representing approximately 13% growth year over year.
• Owen Howard Wilson notified the Company of his intention to retire as Chief Financial Officer and principal financial officer.
• Todd McNabb was appointed as Chief Revenue Officer and Callum Eade was named Vice President, APAC Sales.
• For the fourth quarter of fiscal 2026, PagerDuty expects total revenue of $122.0 million $124.0 million, representing 0% 2% year-over-year growth.
• Full fiscal year 2026 total revenue guidance was revised down to $490.0 million $492.0 million from the previous guidance of $493.0 million $497.0 million.
• Full fiscal year 2026 non-GAAP net income per diluted share guidance was raised to $1.11 $1.12 from $1.00 $1.04.

Sentiment

Score: 4

Explanation: While PagerDuty achieved GAAP profitability and raised non-GAAP EPS guidance, the significant slowdown in revenue and ARR growth, coupled with a declining net retention rate and a lowered full-year revenue outlook, indicates underlying business challenges. The CFO's retirement adds a layer of uncertainty. The positive profitability and cash flow are overshadowed by the growth concerns.

Positives

• Achieved second consecutive quarter of GAAP profitability with $8.1 million in operating income and $1.69 GAAP net income per diluted share.
• Non-GAAP operating income increased to $35.5 million (28.5% margin) from $24.991 million (21.0% margin) in the prior year quarter, demonstrating continued margin expansion.
• Generated robust free cash flow of $20.9 million, indicating strong operational efficiency.
• Maintained a strong balance sheet with $547.8 million in cash, cash equivalents, and investments.
• Customers with ARR over $100 thousand grew 5% year over year to 867, showing continued acquisition of larger clients.
• Total paid and free customers increased by approximately 13% to over 34,000, reflecting broader platform adoption.
• Raised full fiscal year 2026 non-GAAP net income per diluted share guidance to $1.11 $1.12, indicating improved profitability expectations.
• Launched the industry's first end-to-end incident management AI Agent Suite, enhancing product capabilities and innovation.
• Appointed Todd McNabb as Chief Revenue Officer and Callum Eade as Vice President, APAC Sales, signaling strategic focus on sales leadership and international expansion.
• Received multiple prestigious workplace awards, including Fortune Best Workplaces for Women and in Technology, and Global Top 100 Inspiring Workplaces.

Negatives

• Revenue growth slowed significantly to 4.7% year over year for Q3 FY26.
• Annual Recurring Revenue (ARR) growth decelerated to 3% year over year.
• The dollar-based net retention rate decreased to 100% from 107% in the prior year, indicating no net expansion from existing customers.
• Fourth quarter fiscal 2026 revenue guidance projects a substantial slowdown to 0% 2% year-over-year growth.
• Full fiscal year 2026 revenue guidance was lowered to $490.0 million $492.0 million from previous guidance of $493.0 million $497.0 million.
• Chief Financial Officer Owen Howard Wilson announced his intention to retire, creating a period of leadership transition and potential uncertainty.

Risks

• Ability to achieve and maintain future profitability.
• Ability to sustain and manage growth.
• Ability to attract new customers and retain and sell additional functionality and services to existing customers.
• Dependence on revenue from a single product.
• Ability to compete effectively in an increasingly competitive market.
• Impact of seasonality on the business.
• Ability to adapt and respond effectively to rapidly developing technology.
• Ability to effectively develop and expand marketing and sales capacities.
• Ability to enhance and improve the platform or develop new functionality or use cases.
• Effect of unfavorable conditions in the industry or the global economy, or reductions in information spending, on the business and results of operations.
• Adverse consequences that could arise as a result of international trade policies, including tariffs, sanctions and trade barriers.
• Accuracy of estimates of market opportunity and forecasts of market growth.
• Assumptions and limitations to which ARR and certain other operational data are subject that may cause such metrics to not provide an accurate indication of actual performance or future results.
• Adverse consequences that could result from any compromise of information technology systems or those of third parties with whom the company works or its data.
• Adverse consequences that could result from any interruptions or delays in performance of the service.
• Ability to maintain the compatibility of the platform with third-party applications that customers use in their businesses.

Future Outlook

For the fourth quarter of fiscal 2026, PagerDuty expects total revenue between $122.0 million and $124.0 million, representing 0% to 2% year-over-year growth, and non-GAAP net income per diluted share of $0.24 to $0.25. For the full fiscal year 2026, total revenue is projected to be $490.0 million to $492.0 million, a downward revision from previous guidance, while non-GAAP net income per diluted share guidance was raised to $1.11 to $1.12.

Management Comments

• "PagerDuty delivered $125 million in revenue and our second consecutive quarter of GAAP profitability, reflecting disciplined execution and continued margin expansion." Jennifer Tejada, Chairperson and CEO.
• "As enterprises scale AI, operational resilience is mission-critical for the 34,000 paid and free customers that rely on PagerDuty." Jennifer Tejada, Chairperson and CEO.
• "We are operating from a position of strength—product leadership, a strong balance sheet, and robust free cash flow—while advancing a pricing and go-to-market transition that supports durable growth." Jennifer Tejada, Chairperson and CEO.

Industry Context

PagerDuty's focus on AI-powered digital operations management aligns with the broader industry trend of enterprises scaling AI and the increasing demand for operational resilience. The launch of its AI Agent Suite and partnerships with Gleans AI Ecosystem and AWS Quicksuite position it within the competitive landscape of AI-driven IT operations and incident management solutions. The slowdown in ARR growth and net retention rate, however, suggests potential challenges in a competitive market or with customer expansion, despite the overall industry tailwinds for AI adoption.

Comparison to Industry Standards

• The dollar-based net retention rate of 100% is at the low end for a SaaS company, where a healthy rate is typically considered to be 110% or higher, indicating that existing customers are not expanding their spend with PagerDuty on average. This represents a decline from 107% in the prior year.
• Revenue growth of 4.7% year-over-year, and a projected 0-2% for the upcoming quarter, is significantly below the average growth rates for many established SaaS companies, which often maintain double-digit growth.
• Achieving GAAP profitability for a second consecutive quarter, with an operating margin of 6.5%, is a positive development, as many growth-focused software companies prioritize market share over immediate GAAP profits.
• The 5% growth in customers with ARR over $100 thousand is modest, suggesting that while the company is still attracting larger clients, the pace of expansion within this segment is not accelerating significantly.

Management Changes

Stakeholder Impact

• Shareholders: Potential negative impact due to slowing revenue growth, lowered revenue guidance, and declining net retention rate, which could affect stock valuation. Positive impact from GAAP profitability and raised non-GAAP EPS guidance. Uncertainty regarding CFO transition.
• Employees: Positive impact from being recognized as a "Best Workplace" and "Inspiring Workplace." Potential for new leadership in sales roles (CRO, VP APAC Sales) to drive strategic changes.
• Customers: Continued innovation with the launch of the AI Agent Suite and integration with Gleans AI Ecosystem and AWS Quicksuite, enhancing product offerings for operational resilience.

Next Steps

• Identify and appoint a successor for the Chief Financial Officer role.
• Host a conference call and live webcast for analysts and investors on November 25, 2025, at 2:00 p.m. Pacific Time.
• File the Quarterly Report on Form 10-Q for the quarter ended October 31, 2025.

Key Dates

Recommendation

While PagerDuty achieved GAAP profitability and raised its non-GAAP EPS outlook, the significant deceleration in revenue growth (4.7% YoY, with Q4 guidance at 0-2% YoY) and the decline in dollar-based net retention to 100% are major concerns. The lowered full-year revenue guidance further reinforces a challenging growth trajectory. The company has a strong balance sheet and is innovating with AI, but the core growth metrics are weakening. Investors should hold to observe if the new sales leadership and AI product initiatives can re-accelerate revenue growth and improve customer expansion in the coming quarters, as the current growth profile does not justify a strong buy, but the profitability and cash flow prevent a sell recommendation.

Keywords

PagerDuty, PD, Financial Results, Q3 FY26, Earnings, Revenue, ARR, Profitability, Digital Operations Management, AI Agent Suite, CFO Retirement, Software, SaaS, Cloud, Incident Management, Corporate Governance