PagerDuty, Inc. Earnings Call: Profitability and Challenges

Pagerduty, Inc. ((PD)) has held its Q2 earnings call. Read on for the main highlights of the call.

PagerDuty, Inc.’s recent earnings call painted a picture of both triumph and challenge. The company celebrated significant milestones, such as achieving GAAP profitability for the first time and experiencing robust international growth. However, these accomplishments were somewhat overshadowed by issues like elevated churn and inconsistent sales performance in North America. Despite these hurdles, PagerDuty, Inc. remains optimistic about its growth potential, driven by strategic initiatives and a strong foothold in the AI-native segment.

GAAP Profitability Achieved

PagerDuty, Inc. marked a historic achievement by reaching GAAP profitability in Q2 FY2026. The company reported a non-GAAP operating margin of 25%, surpassing its guidance and reflecting an impressive 800-point year-over-year expansion. This milestone underscores the company’s ability to manage its operations efficiently and drive profitability.

Strong International Performance

The company’s international revenue saw a 12% annual increase, contributing 29% to the total revenue and surpassing targets. This growth indicates strong global demand for PagerDuty, Inc.’s offerings and improved sales execution across international markets.

Growth in High-Value Customer Base

PagerDuty, Inc. successfully expanded its high-value customer base, with the number of customers spending over $100,000 annually rising to 868. This represents a sequential increase of 20 customers and a year-over-year growth of 48, highlighting the company’s success in attracting and retaining high-spending clients.

AI-Native Ecosystem Traction

The company is making significant strides in the AI-native segment, with native AI leaders now contributing 2% of total ARR. Over half of the Fortune 50 AI companies are utilizing PagerDuty, Inc.’s platform, validating its critical role in the AI ecosystem.

Innovation and Strategic Partnerships

PagerDuty, Inc. continues to innovate, launching four new AI agents and announcing a strategic partnership with Amazon Q. These initiatives enhance its ecosystem and integrate with major platforms, offering comprehensive incident management solutions.

Elevated Churn and Downgrades

The company faced challenges with elevated churn and downgrades, leading to a drop in dollar-based net retention to 102% from 104% in Q1. This was primarily due to customer seat optimization and cost containment initiatives.

Inconsistent North America Sales Performance

Sales performance in North America was inconsistent, prompting PagerDuty, Inc. to appoint a new leader and implement organizational changes aimed at improving agility and customer responsiveness.

Decline in Gross Retention

A decline in gross retention contributed to the drop in dollar-based net retention, highlighting challenges in maintaining existing customer contracts.

Forward-Looking Guidance

Looking ahead, PagerDuty, Inc. provided optimistic guidance for the coming quarters. The company expects revenue for the third quarter to range between $124 million and $126 million, with a full fiscal year 2026 revenue expectation of $493 million to $497 million, representing a growth rate of 5% to 6%. The net income per diluted share is projected to be between $1.00 and $1.04, with an operating margin of 21% to 22%. The company aims to achieve GAAP profitability for the full year in fiscal year 2027, with a continued focus on accelerating ARR growth and expanding margins.

In conclusion, PagerDuty, Inc.’s earnings call revealed a company at a pivotal moment. While it celebrates significant achievements like GAAP profitability and international growth, it also faces challenges in customer retention and sales execution. The company’s strategic initiatives and strong position in the AI-native segment offer promising growth potential, making it a company to watch in the coming quarters.