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PagerDuty, Inc. (PD)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 revenue was $118.9M (+9.4% YoY), non-GAAP diluted EPS was $0.25, and non-GAAP operating margin expanded to 21%, with results “well above third quarter guidance ranges.”
  • FY2025 guidance raised: revenue $464.5–$466.5M (midpoint up) and non-GAAP diluted EPS $0.78–$0.79 (up from $0.67–$0.72); Q4 FY2025 guidance: revenue $118.5–$120.5M and non-GAAP diluted EPS $0.15–$0.16.
  • Management cited stabilization across segments and improving leading indicators but noted several large enterprise deals deferred, potentially delaying ARR reacceleration into FY2026; net new ARR was $9M (+21% YoY).
  • Margin outperformance was aided by delayed headcount starts and timing of marketing/consulting expenses; international revenue mix rose to 28%. Potential stock reaction catalysts: guidance raise, 21% non-GAAP operating margin, and stabilization narrative.

What Went Well and What Went Wrong

  • What Went Well

    • “PagerDuty delivered a solid quarter with revenue and non-GAAP operating income results well above third quarter guidance ranges,” with ARR up 10% YoY to $483M.
    • Multiproduct momentum: “In Q3, AIOps, Automation and Customer Service Ops contributed more than 40% to incremental ARR.”
    • Enterprise strength and EMEA improvement: “The Enterprise segment continued to grow above the average… EMEA is emerging as a source of stability.”

  • What Went Wrong

    • Large deal conversion was a headwind: “We had an unusual number of large Q3 opportunities defer… these will delay ARR acceleration into FY '26.”
    • Dollar-based net retention was 107%, down from 110% a year ago; total paid customers were essentially flat (15,050 vs. 15,049).
    • Trailing 12-month billings growth of 9% was “slightly below our 10% target.”

Financial Results

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Revenue ($USD Millions)$111.172 $115.935 $118.946
Gross Margin (%) GAAP82.6% 82.7% 83.0%
Gross Margin (%) Non-GAAP86.4% 86.0% 86.0%
Operating Margin (%) GAAP(19.5)% (13.8)% (8.7)%
Operating Margin (%) Non-GAAP13.8% 17.3% 21.0%
GAAP Net Loss per Share ($)(0.26) (0.14) (0.07)
Non-GAAP Diluted EPS ($)0.17 0.21 0.25
Cash from Operations ($USD Millions)$28.647 $35.769 $22.073
Free Cash Flow ($USD Millions)$27.098 $33.283 $19.443

Segment/Geographic Mix

MetricQ3 FY2024Q3 FY2025
International Revenue (% of total)27% 28%

KPIs

KPIQ1 FY2025Q2 FY2025Q3 FY2025
Ending ARR ($USD Millions)—$474 $483
Dollar-Based Net Retention (%)106% 106% 107%
Customers >$100k ARR (count)811 820 825
Total Paid Customers (count)15,120 15,044 15,050
Remaining Performance Obligations ($USD Millions)$388.0 $403 $405
Cash, Cash Equivalents & Investments ($USD Millions)$592.8 $599.3 $542.2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q4 FY2025N/A$118.5–$120.5 New
Non-GAAP Diluted EPS ($)Q4 FY2025N/A$0.15–$0.16 New
Revenue ($USD Millions)FY2025$463.0–$467.0 $464.5–$466.5 Raised midpoint
Non-GAAP Diluted EPS ($)FY2025$0.67–$0.72 $0.78–$0.79 Raised
Operating Margin (%) impliedQ4 FY2025N/A~13% New
Operating Margin (%) impliedFY2025~14% ~16% Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 FY2025)Trend
AI/Technology initiativesExpanded generative AI with PagerDuty Advance; highlighted in Gartner/Forrester; integration with Snowflake; AI/automation enhancements announced in Q2 and Q1. First paid PD Advance customers; unified chat in Teams/Slack; intelligent alert grouping; AIOps/Automation/CS Ops drove >40% of incremental ARR. Strengthening adoption and monetization
Enterprise vs. CommercialEnterprise motion maturing; SMB/Commercial headwinds were a drag; DBNR 106% in Q1/Q2. Stabilization “across all segments”; Enterprise DBNR 10 pts above Commercial; paid customers flat YoY. Stabilizing, Enterprise leading
Large deal conversion/seasonalityFocus on enterprise selling and multiyear, multiproduct deals; pipeline building. Several large deals deferred; improved enterprise seasonality handling; pipeline visibility extended into Q3 next year. Near-term headwind, longer-term visibility up
Geographic trends (EMEA)New EMEA VP appointed in Q1; building rigor. “EMEA is emerging as a source of stability.” Improving
Competitive landscapeDataDog named in lands/expands in Q1; neutral/independent ingestion highlighted in positioning. Confident vs. Datadog; enterprise favors neutral/independent platform; resilient at scale. Competitive position intact
Margins/cash flowNon-GAAP operating margin above ranges in Q1/Q2; strong FCF. Q3 non-GAAP op margin 21%; CFO cited spend timing (headcount/marketing) aiding beat. Margin expansion sustained

Management Commentary

  • “Revenue and non-GAAP operating income results [were] well above third quarter guidance ranges… annual recurring revenue increasing to $483 million, growing 10% year-over-year.” — Jennifer Tejada, CEO
  • “We had an unusual number of large Q3 opportunities defer… these will delay ARR acceleration into FY '26.” — Jennifer Tejada, CEO
  • “Operating income was $25 million or 21% of revenue… The outperformance relative to our guidance was driven by delays in headcount starts and timing of marketing and consulting expenses.” — Howard Wilson, CFO
  • “For FY2025… raising the midpoint of revenue… increasing our expectation for net income per diluted share to $0.78 to $0.79… implies an operating margin of 16%.” — Howard Wilson, CFO

Q&A Highlights

  • Large deal deferrals: Management emphasized strong proof-of-value and executive sponsorship programs; largest deals pushed, not lost, with focus on pipeline rigor and multithreading to close.
  • Generative AI monetization: PD Advance credits-based model across platform; first paid customers closed; attach across AIOps, Automation, and Incident Management expected to lift deal sizes.
  • Pipeline/visibility: Visibility significantly improved versus last year; pipeline stretches into Q3 next year; stronger focus on larger multiproduct deals.
  • EMEA execution: New theater leadership driving rigor; macro easing; first time in several quarters EMEA called out positively.
  • Competitive dynamics: Confidence vs. Datadog; neutral ingestion across observability and hyperscaler signals; resilience and AI/data moat cited.

Estimates Context

  • S&P Global consensus estimates for Q3 FY2025 (Revenue Consensus Mean, Primary EPS Consensus Mean) were not retrievable due to an SPGI daily request limit; therefore, estimate comparisons are unavailable today. If accessed, they would be sourced from S&P Global. (Values retrieved from S&P Global)*

Key Takeaways for Investors

  • Non-GAAP operating margin reached 21% and non-GAAP EPS of $0.25, with performance above guidance, signaling disciplined cost control and operational rigor.
  • FY2025 guidance raised (EPS and implied operating margin), supporting a strengthening profitability trajectory despite near-term large deal timing risk.
  • Stabilization in Commercial and continued Enterprise outperformance (Enterprise DBNR 10 pts above Commercial) underpin ARR durability; net new ARR +21% YoY.
  • Monetization of PD Advance and broader AIOps/Automation/CS Ops attachments (>40% of incremental ARR) can drive larger, multiproduct, multiyear deals.
  • Watch Q4 linearity and holiday calendar impacts; CFO guides to ~13% implied operating margin in Q4, with prudent assumptions on services/consumption variability.
  • Geographic diversification improving (EMEA stabilizing), potentially aiding growth reacceleration into FY2026 alongside stronger pipeline visibility.
  • Near-term trading: Positive setup on guidance raise and margin expansion; medium-term thesis hinges on converting deferred large deals and scaling AI-driven platform upsell.