PagerDuty, Inc. Q3 FY2026 earnings

PagerDuty posted its second consecutive quarter of GAAP profitability in the fiscal 2026 third quarter ended October 31, 2025. Revenue was $124.5 million, up 4.7% year over year. Gross profit was $106.2 million, up 7.6%, and gross margin rose 2.3 percentage points to 85.3%. Operating income was $8.1 million, a 6.5% operating margin, against a negative 8.7% margin a year earlier, when the company reported an operating loss of $10.3 million. Net income attributable to PagerDuty was $161.6 million, or $1.69 per diluted share, versus a net loss of $5.9 million, or $0.07 per diluted share, in the prior-year quarter. Through the first nine months of fiscal 2026, revenue was $367.8 million, up 6.3%, and net income attributable to PagerDuty was $164.0 million, or $1.73 per diluted share.

The earnings quality deserves a closer look. Most of the profit came from a discrete tax benefit tied to the release of a valuation allowance against U.S. federal and certain state deferred tax assets, which the company attributes to cumulative U.S. income over the prior twelve quarters. Excluding that and other adjustments, non-GAAP operating income was $35.5 million and non-GAAP operating margin was 28.5%, up from 21.0% a year earlier. Non-GAAP net income per diluted share was $0.33, up from $0.25. The margin gain came from cost control. Research and development expense declined, as did sales and marketing and general and administrative expense. Total operating expenses were lower than a year earlier, and stock-based compensation expense fell as well. Stock-based compensation is one of the items excluded from the non-GAAP numbers.

Cash generation was steady. Net cash provided by operating activities was $24.8 million in the quarter, up 12.4% year over year, and $89.4 million for the first nine months, up 3.4%. Capital expenditures were $0.74 million, up 34.6%. Free cash flow, a non-GAAP measure, was $20.9 million, a 16.8% free cash flow margin. Cash, cash equivalents and investments totaled $547.8 million as of October 31, 2025. Deferred revenue was $223.0 million, up 2.9% from a year earlier, and remaining performance obligations were $415 million, up 2.5%. The company expects to recognize roughly $287 million of that RPO, or 69%, over the next twelve months. PagerDuty also repaid the $57.5 million principal of its 2025 convertible notes at maturity during the first nine months of the fiscal year.

Growth in the installed base is the softer part of the story. Annual recurring revenue was $497 million as of October 31, 2025, up 3% year over year. Customers with more than $100 thousand in ARR grew 5% to 867, and total paid customers rose to 15,398 from 15,050. Paid and free customers together exceeded 34,000, up roughly 13% since October 31, 2024. Dollar-based net retention rate was 100%, down from 107% a year earlier, so existing customers are no longer adding to net spending. Management points to a pricing and go-to-market transition that it says supports durable growth. The quarter brought an end-to-end incident management AI Agent Suite, a Glean partnership as its first incident management partner, and a new chief revenue officer in Todd McNabb. Lands and expansions included General Motors, Confluent, Bandwidth, Optus and Perplexity AI.

Guidance for the fourth quarter of fiscal 2026 calls for revenue growth of 0% to 2% year over year and non-GAAP net income per diluted share of $0.24 to $0.25, assuming approximately 91 million diluted shares. For the full fiscal year 2026, the company guided to revenue growth of 5% year over year, a reduction from the range it gave previously, while raising full-year non-GAAP net income per diluted share to $1.11 to $1.12 from $1.00 to $1.04, assuming a non-GAAP tax rate of 22%. The softer top line is the clearest near-term issue. The 10-Q lists other risks: the ability to achieve and maintain future profitability, dependence on revenue from a single product, competition, seasonality, and macroeconomic pressure from inflation, interest rates, tariffs and trade wars. Net retention of 100% leaves growth reliant on new customers. The tax valuation allowance release is a discrete item that does not reflect operating performance, and buybacks continue, with $162.1 million remaining under the repurchase authorization as of October 31, 2025.