Summary
PagerDuty's fiscal 2027 second quarter revenue was $124.4 million, up 0.8% from $123.4 million in the prior-year quarter. Year to date revenue is $245.4 million, up 0.9%. Growth is close to flat, and the customer metrics show why. Annual recurring revenue reached $501.4 million at July 31, 2026, against $498.9 million a year earlier. Paid customers rose to 15,506 from 15,322, and the number of customers with more than $100.0 thousand in ARR grew to 884 from 868. The dollar-based net retention rate was 98% for the twelve months ended July 31, 2026, down from 102% a year earlier. A retention rate below 100% means the installed base is spending slightly less than it did a year ago before new customers are counted. New logos and upsell are carrying the entire top line.
The operating line improved far more than revenue did. Gross profit was $104.4 million, flat against the prior-year quarter, and gross margin slipped to 83.9% from 84.6%. Operating income was $10.2 million, up 187.1% from $3.6 million, and operating margin rose to 8.2% from 2.9%. For the six months, operating income was $19.4 million, a swing to profit from a loss of $6.8 million, and operating margin was 7.9% against negative 2.8%. Cost discipline did the work here. Total operating expenses fell to $94.2 million from $100.8 million, with sales and marketing down to $38.3 million from $44.5 million, research and development flat at $30.9 million, and general and administrative down to $24.9 million from $25.5 million. Stock-based compensation dropped to $16.5 million from $26.0 million, which explains much of the gap to non-GAAP operating income of $29.5 million and a non-GAAP operating margin of 23.7%. Non-GAAP net income per diluted share was $0.32, against $0.30 a year earlier.
Net income attributable to PagerDuty was $7.8 million, down 18.7% from $9.6 million, and diluted earnings per share were $0.06, down from $0.10. The six-month figures run the other way: net income of $13.1 million, up 441.6% from $2.4 million, and diluted earnings per share of $0.19 against $0.03. Management points to an increase in pre-tax income, along with tax deficiencies from stock-based compensation, to explain the change in the tax line, where the quarter carried a $4.4 million provision versus a $1.9 million benefit a year earlier. Interest income of $4.1 million fell on a lower cash balance and lower interest rates. The release notes this was the fifth consecutive quarter of GAAP profitability.
Cash generation held up well. Operating cash flow was $36.9 million in the quarter, up 8.7%, and $81.2 million for the six months, up 25.7%. Free cash flow, a non-GAAP measure, was $32.8 million in the quarter. Capital expenditures of $2.2 million rose 154.7% from $0.9 million, and the company also capitalized $1.9 million of software costs. Deferred revenue of $236.0 million was up 2.6% from $229.9 million. Remaining performance obligations were $426.0 million, flat with a 0.2% increase. Cash, cash equivalents, and investments totaled $470.0 million at July 31, 2026, and long-term convertible notes stood at $396.9 million. PagerDuty completed its $200.0 million 2025 repurchase program and, in May 2026, authorized a new $100.0 million program, with $92.4 million available to spend at quarter end.
Guidance for the third quarter of fiscal 2027 targets a non-GAAP operating margin of 26.5% to 27.5% and non-GAAP diluted earnings per share of $0.34 to $0.36, assuming roughly 80 million diluted shares and a 20% non-GAAP tax rate. For the full fiscal year 2027, the outlook is a non-GAAP operating margin of 25.0% to 26.0% and non-GAAP diluted earnings per share of $1.33 to $1.37. Revenue guidance was also provided for both periods. PagerDuty has not reconciled those non-GAAP expectations to GAAP, citing items such as stock-based compensation, restructuring costs and income tax effects that it cannot predict.
The risk list is long and mostly structural. PagerDuty still draws a majority of revenue from a single product and competes in a crowded market. Leadership is in transition: John DiLullo was appointed chief executive officer, Eric Prengel was named chief financial officer as Howard Wilson retires, and Alex Shootman joined the board. The company also flags the execution risk that comes with its recent restructuring, macroeconomic and tariff-related pressure, cuts to information technology spending, and seasonality. ARR and the other operational metrics rest on assumptions that may not reflect actual performance. With net retention at 98% and gross margin down 0.7 percentage points, expansion has to come from new customers and from the usage-based pricing the company has started to offer, which shifts billings away from seats toward platform usage.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2027 | Q1 FY2027 | QoQ | Q2 FY2026 | YoY |
|---|---|---|---|---|---|
| Revenue | $124.4M | $121.0M | +2.9% | $123.4M | +0.8% |
| Gross profit | $104.4M | $101.9M | +2.4% | $104.4M | -0.0% |
| Gross margin | 83.9% | 84.3% | -0.4 pp | 84.6% | -0.7 pp |
| Research & development | $30.9M | $30.0M | +3.0% | $30.9M | ±0.0% |
| Sales & marketing | $38.3M | $39.6M | -3.2% | $44.5M | -13.8% |
| General & administrative | $24.9M | $23.2M | +7.6% | $25.5M | -2.2% |
| Total operating expenses | $94.2M | $92.8M | +1.5% | $100.8M | -6.6% |
| Operating income (loss) | $10.2M | $9.2M | +11.5% | $3.6M | +187.1% |
| Operating margin | 8.2% | 7.6% | +0.6 pp | 2.9% | +5.3 pp |
| Net income (loss) | $7.7M | $5.1M | +50.4% | $9.4M | -18.1% |
| Net margin | 6.2% | 4.2% | +2.0 pp | 7.6% | -1.4 pp |
| Diluted EPS | $0.06 | $0.13 | -$0.07 | $0.10 | -$0.04 |
| Customers | 15,322 | 15,247 | +0.5% | 15,044 | +1.8% |
| Net retention rate | 98.0% | 97.0% | +1.0 pp | 102.0% | -4.0 pp |
Risks
Growth has stalled and retention has deteriorated. Revenue rose only 0.8% in the quarter ended July 31, 2026 and 0.9% year to date, remaining performance obligations were flat (+0.2%) at $426.0 million versus the prior-year quarter, and the dollar-based net retention rate fell to 98% for the last 12 months ended July 31, 2026 from 102% a year earlier. A net retention rate below 100% means expansion no longer fully offsets downgrades and churn.
In August 2026 the company announced a reallocation of roles and realignment of teams that reduced headcount by approximately 15%. Management warns it may not realize the anticipated savings in full or on time, may incur additional unplanned expenses, and that headcount cuts could cause attrition beyond planned reductions, operational disruption, and reduced morale.
The company is absorbing simultaneous senior leadership turnover: a new CEO (John DiLullo) was appointed in May 2026 succeeding Jennifer Tejada, and a new CFO (Eric Prengel) was appointed in June 2026 following Howard Wilson's announced retirement in November 2025. The filing notes no key person insurance and that certain long-tenured key employees hold fully vested equity, which may reduce retention motivation and create execution and continuity risk while the restructuring is underway.
PagerDuty is migrating from traditional single-year seat-based licensing to multiyear platform usage agreements and usage-based pricing that decouple customer spend from headcount and licenses. This shift, combined with a sales and marketing expense decline of 13.8% in the quarter and lower headcount, creates execution risk around bookings and revenue timing.
Gross margin declined to 83.9% in the quarter ended July 31, 2026 from 84.6% in the prior-year quarter, and non-GAAP gross margin fell to 84.7% from 86.1%. Non-GAAP operating margin also narrowed to 23.7% from 25.4%, indicating that cost efficiencies are being offset by revenue mix and rising cost of revenue, which increased 5.5% in the quarter.
Management states that business and financial performance has been and may continue to be subject to worldwide macroeconomic conditions including global inflation and heightened interest rates, tariffs and trade wars, and economic uncertainty. Interest income declined 33.3% in the quarter, tied to a lower cash and cash equivalents balance and lower interest rates, reducing a non-operating earnings contributor.
SaaS KPIs
All quarters →Free Cash Flow Margin
Non-GAAP Operating Margin
Free Cash Flow
Dollar-Based Net Retention Rate
Total Paid Customers
Non-GAAP Operating Income
Annual Recurring Revenue (ARR)
Customers with ARR over $100K
Summary, forecast, risks and KPIs are extracted from PagerDuty, Inc.'s SEC filings for Q2 FY2027 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.