PagerDuty, Inc.

Revenue was $124.4 million, up 1% year over year and above the top end of guidance. Gross margin was 85%. Non-GAAP operating margin was 24% ($29.5 million), above guidance, and GAAP net income was $4.7 million. ARR ended at $501 million, up $6 million sequentially; dollar-based net retention was 98%, and customers spending over $100,000 annually rose to 884, up 24 from Q1. Cash from operations was $37 million and free cash flow was $33 million, a 26% margin. For Q3 FY27, guidance is revenue of $123 million to $125 million, EPS of $0.34 to $0.36, and non-GAAP operating margin of 26.5% to 27.5%. For FY27, management guided revenue of $491.5 million to $496.5 million, EPS of $1.33 to $1.37, and non-GAAP operating margin of 25% to 26%; free cash flow margin is now expected to be in line with FY26.

John DiLullo framed the quarter as early proof that PagerDuty’s “build, sell, optimize” strategy is working, citing better retention, accelerating usage-based product adoption, and stronger enterprise wins. His tone was upbeat and strategic, emphasizing that AI is expanding PagerDuty’s opportunity as software becomes more complex and autonomous. He repeatedly positioned the company as a reliability platform for AI-era workloads, especially through the upcoming PD Reliability Platform and SRE agent.

Eric Prengel focused on the financial outperformance and the operating leverage from the restructuring. He cited $124.4 million of revenue, 85% gross margin, 24% non-GAAP operating margin, $37 million in operating cash flow, and $33 million in free cash flow, while noting $470 million in cash, cash equivalents and investments. He said the workforce reduction impacted about 15% of the workforce, will cost $5.5 million to $7.5 million, and should help lift FY27 operating margin guidance to 25% to 26% while keeping free cash flow margin in line with FY26.

Analysts focused on the new usage-based model, whether humans will remain in the loop for AI workflows, conversion behavior in Operations Cloud, retention trends, and whether seat-related headwinds are easing. Management said customers generally prefer a human-plus-agent model today, though autonomy should rise over time, and noted that the usage model lowers barriers to adoption and aligns value with usage. They also said Operations Cloud grew double digits, retention improved sequentially, and the business is stabilizing, while acknowledging there is still work to do on the seat compression trend.