Q4 2025 Earnings Summary
- PagerDuty is well-positioned to capture increased market share in the enterprise segment due to a strong, differentiated platform capable of scaling reliably and securely for large enterprises, especially as a legacy competitor exits the market, while maintaining solid gross margins above 85%.
- The company's focus on expanding beyond Incident Management is driving growth, with 30% of Annual Recurring Revenue (ARR) now coming from other products like AIOps and Automation, leading to higher deal sizes and diversification of revenue streams.
- PagerDuty anticipates accelerating growth in the second half of the fiscal year due to improved pipeline management, increased sales capacity, and a strategic focus on enterprise customers, with customers spending over $100,000 in ARR growing 12% year-over-year and now representing 71% of total ARR.
- PagerDuty is experiencing challenges in executing their enterprise sales transformation, leading to revenue performance not meeting initial expectations and potential impact on future growth. ,
- Recent leadership changes, including the departure of key sales executives and the search for a new Chief Revenue Officer, may disrupt sales execution and prolong go-to-market challenges. ,
- The SMB/Commercial segment, which experienced negative growth for four consecutive quarters, is only expected to grow modestly and will not be a major contributor to overall growth, potentially limiting revenue expansion.
Metric | YoY Change | Reason |
---|---|---|
Total Revenue | +9% (from $111.11M to $121.44M) | Total Revenue increased by 9% YoY primarily driven by strong performance both in U.S. ($86.94M) and International ($34.5M) segments, which underpinned overall revenue growth by expanding market reach and customer adoption ( ). |
Gross Profit | ~12% increase (from $90.76M to $101.47M) | Gross Profit improved by roughly 12% YoY as enhanced operational efficiency and better cost management drove the margin expansion, reflecting improvements in underlying business operations ( ). |
Loss from Operations | Reduced from -$33.43M to -$11.72M | Loss from Operations narrowed by over 65% YoY due to a blend of revenue growth, cost control improvements, and stabilization of operating expenses, which significantly improved operating margins compared to the previous period ( ). |
Net Loss attributable to Common Stockholders | Reduced from -$30.63M to -$10.60M | Net Loss improved substantially YoY, driven by better operating performance, as higher revenue and a reduction in operating expenses contributed to lowering the loss, further reflected in an improvement of net loss per share from -$0.34 to -$0.12 ( ). |
Metric | Period | Previous Guidance | Current Guidance | Change |
---|---|---|---|---|
Revenue (Quarterly) | Q1 FY 2026 | $118.5M to $120.5M, growth rate 7%–8% | $118M to $120M, growth rate 6%–8% | lowered |
Net Income per Diluted Share (Quarterly) | Q1 FY 2026 | $0.15 to $0.16 | $0.18 to $0.19 | raised |
Operating Margin (Quarterly) | Q1 FY 2026 | 13% | 15% | raised |
Non-GAAP Tax Rate (Quarterly) | Q1 FY 2026 | no prior guidance | 22% | no prior guidance |
Revenue (Annual) | FY 2026 | $464.5M to $466.5M, growth rate 8% | $500M to $507M, growth rate 7%–8% | raised |
Net Income per Diluted Share (Annual) | FY 2026 | $0.78 to $0.79 | $0.90 to $0.95 | raised |
Operating Margin (Annual) | FY 2026 | 16% | 19%–20% | raised |
Metric | Period | Guidance | Actual | Performance |
---|---|---|---|---|
Revenue | Q4 2025 | $118.5 million to $120.5 million | $121.446 million | Beat |
Revenue | FY 2025 | $464.5 million to $466.5 million | $467.499 million (sum of $111.172+ $115.935+ $118.946+ $121.446) | Beat |
Topic | Previous Mentions | Current Period | Trend |
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Enterprise Segment Growth | Consistently highlighted across Q1–Q3 as key to driving ARR with strong emphasis on multiyear, multiproduct deals and robust growth in key verticals (e.g., in Q1; in Q2; in Q3). | In Q4, the focus remains on enterprise growth with enhanced traction through multiyear, multiproduct platform partnerships, higher ARR cohort counts, and large deal wins (e.g., customers exceeding $100K, $500K, and $1M ARR) ( ). | Consistent emphasis with evolving deal structures and improved win rates. |
Large Deal Expansion | Q1–Q3 featured discussions about multiproduct, multiyear contracts, with challenges like deferred deals (e.g., Q3 deferrals and solid six-figure expansions in Q1 ). | Q4 emphasized large deal expansion with notable examples of impressive ROI, scalability, and platform benefits (e.g., financial institution, semiconductor supplier, telecom provider, media enterprise) ( ). | Persistent focus with higher profile and more strategic wins in Q4. |
ARR Acceleration and Pipeline Management | Throughout Q1–Q3, management consistently expressed confidence in building a strong multi-quarter pipeline and anticipated ARR acceleration despite deal deferrals and longer sales cycles ( in Q1; and improved visibility in Q2; in Q3). | In Q4, the narrative centers on expecting ARR acceleration in the back half of the year, driven by improved pipeline quality and velocity along with new sales leadership initiatives ( ). | Steady focus with an optimistic outlook for acceleration despite near-term challenges. |
Product Diversification Beyond Incident Management | Q1–Q3 consistently discussed the strong contribution of AIOps, Automation, and Customer Service Operations to net new ARR, with multiproduct adoption rapidly increasing (see Q1 , Q2 , and Q3 ). | In Q4, diversification remains central as over 40% contribution to incremental ARR is noted for these offerings; new use cases and products (e.g., PD Advance and generative AI) further cement the strategic shift away from a pure incident management focus ( ). | Growing importance with expanded product use cases and increasing revenue share. |
Sales Execution Challenges and Lengthening Sales Cycles | Across Q1–Q3, challenges were noted regarding shifting from a high-velocity, transactional model to a more complex, procurement-led, enterprise sales motion—with issues such as deferred large deals and longer cycles ( in Q1; and pipeline discipline in Q2; in Q3). | In Q4, executives reiterate the need for transitioning to a top-down enterprise selling approach with enhanced account management and new sales talent; improved multi-threading is aimed at reducing cycle lengths though some execution gaps persist ( , ). | Ongoing challenge with gradual execution improvements and structural transformation. |
SMB Segment Underperformance and High Churn | Q1–Q3 consistently noted the SMB segment as a headwind marked by high churn, downgrades, and negative growth (e.g., Q1 , Q2 , and Q3 indications of a flattening trend ). | In Q4, while the SMB segment still shows underperformance, management noted a modest recovery and opportunities to revisit segment management, acknowledging potential growth from tech startups evolving to larger accounts ( ). | Persistent challenge with slight early recovery signals but still a weak contributor. |
Leadership Changes and Sales Transformation Risks | Leadership evolution was less emphasized in Q1–Q2 (with Q1 having no mention and Q2 hinting at organizational evolution) while Q3 introduced new leadership in key roles and standardized motions ( ). | In Q4, extensive leadership changes are front and center with new sales leaders, CRO search, and executive appointments aimed at addressing sales transformation risks; while new hires are expected to ramp up over time, near-term execution risks remain ( ). | Increased focus with a proactive reshuffle to address transformation challenges. |
Competitive Pressures from New Entrants | Earlier quarters (Q1–Q2) touched on competitive pressures indirectly, noting differentiation through longstanding AIOps and integrated platforms; Q3 explicitly addressed competitors like Datadog with emphasis on unique platform strengths ( in Q1; in Q2; in Q3). | In Q4, competitive intensity is acknowledged particularly regarding product marketing and sales; however, management reinforces PagerDuty's differentiated, resilient platform and strong retention figures as key countermeasures ( ). | Steady recognition of competition with increasing emphasis on differentiation and customer value. |
Pricing Strategy Transitions and Revenue Unpredictability | Across Q1–Q3, transitions from seat-based to flexible, consumption-based models were discussed along with inherent revenue variability, caused by seasonal deal closings and contract co-terming (e.g., Q1 ; Q2 ; Q3 ). | In Q4, pricing transitions continue with plans to better align pricing to value and account for shifting customer buying behavior, while near-term revenue unpredictability remains a challenge as the enterprise model matures ( ). | Consistent evolution with continued short-term unpredictability amid strategic long-term alignment. |
Operational Efficiency Improvements and Margin Expansion | Q1–Q3 consistently emphasized operational discipline, with improvements in non-GAAP operating margins, free cash flow, and cost management measures (e.g., Q1 margins above guidance ; Q2 efficiencies ; Q3 margin expansion from 14% to 21% ). | Q4 reports robust efficiency gains with nearly 500 basis point operating margin expansion, stronger free cash flow margins, cost management initiatives, and an increased long-term margin target ( ). | Clearly positive and progressive, reflecting ongoing cost discipline and margin improvement initiatives. |
Seasonality Effects and Decelerating Billings Growth | Throughout Q1–Q3, seasonality was noted as influencing revenue patterns due to enterprise focus leading to end-of-quarter spikes; decelerating billings were noted with trailing 12-month growth figures slightly below targets ( in Q1; in Q2; in Q3). | In Q4, seasonality is seen through a gradual ramp in ARR through the year and decelerated billings growth around 8% YoY, with management adjusting expectations and relying more on ARR metrics to smooth out timing discrepancies ( ). | Remaining a concern with adjustments underway; recognition of inherent seasonal and booking complexities. |
Macroeconomic Uncertainties Impacting Growth | Q1–Q3 consistently recognized a challenging macroeconomic backdrop impacting customer spending and prolonging sales cycles, with management noting the “new normal” and focusing on enterprise deals to weather these headwinds ( in Q1; in Q2; in Q3). | In Q4, macro uncertainties are again underscored as influencing customer ROI focus and sales execution changes; however, a prudent guidance approach and renewed emphasis on digital optimization are highlighted as means to mitigate these risks ( ). | Persistent headwinds with a cautious yet adaptive strategic response. |
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Guidance and Growth Expectations
Q: Does your guidance imply accelerating growth in the second half?
A: Yes, we expect ARR growth to accelerate in the back half of the year, driven by ramping sales capacity and improved pipeline management. We exited last year with an ARR growth rate of 9% , and we anticipate adding incremental ARR throughout the year, leading to higher growth later on. Confidence comes from improved pipeline management and a 12% year-over-year ARR growth among customers above $100,000, now representing 71% of our ARR. -
Sales Execution and Strategy
Q: What sales execution issues are you addressing, and how?
A: We've adapted to changes in customer buying behavior, shifting from a land-and-expand model targeting technical buyers to a multiproduct platform sale to economic buyers. We updated our sales team profile to focus on reps experienced in top-down platform sales, improving ramp times and success rates. We're also enhancing account engagement and sales efficiency without increasing expenses. -
Product Diversification and ARR Mix
Q: What's driving the 30% of ARR outside Incident Management?
A: Our AIOps and Automation products significantly contribute to ARR outside Incident Management. AIOps integrates into operational workflows from detection to resolution, offering more value than point solutions. Automation includes process automation and incident workflows. PagerDuty Advance helps reduce incident response times and is expected to impact growth as adoption increases. -
Shift to Multiyear Agreements
Q: Is moving to multiyear agreements a strategic shift?
A: Yes, we've intentionally focused on securing multiyear agreements. Historically, most contracts were single-year, but larger enterprises prefer long-term certainty. This shift strengthens long-term relationships, which are more profitable and valuable. We've seen an increase in multiyear contracts each quarter over the past two years. -
Competitive Opportunity
Q: How does a competitor's end-of-life product benefit you?
A: The competitor's move highlights our strengths in delivering a reliable, scalable platform for large enterprises. Despite increased competition, we've improved retention levels and maintained gross margins above 85%. We're well-positioned to capture opportunities due to our resilience and scalability advantages. -
ARR Mix and Growth Assumptions
Q: How will Incident Management and other products contribute to ARR?
A: We expect over 40% of incremental ARR to continue coming from AIOps, Automation, and Customer Service Ops offerings. New products like PagerDuty Advance and Agentic AI will add to ARR outside Incident Management. Additionally, applying our solutions to new use cases like AI operations and security will drive growth. -
Pipeline Strength
Q: What's the status of your sales pipeline?
A: We started the year with a strong pipeline, higher than the previous year. We're focusing on pipeline quality and velocity to reduce deal slippage between quarters. Initiatives like earlier PagerDuty On Tour events aim to generate pipeline sooner for fiscal benefit. -
SMB Segment Growth
Q: Will the SMB segment grow this fiscal year?
A: Yes, after four quarters of negative year-over-year growth, we've seen modest recovery in the SMB segment. While not a major growth driver, we're optimizing this segment, especially with interest from AI start-ups that may become larger customers. -
Agentic Solutions and Staffing
Q: Can Agentic capabilities replace analysts at customers?
A: Agentic solutions complement human responders rather than replace them. They assist in complex problem-solving by suggesting actions and handling repeatable tasks, reducing incident resolution times. They enhance efficiency but don't eliminate the need for skilled engineers. -
Guidance and Macroeconomic Factors
Q: Are macro factors considered in your guidance?
A: We've taken a prudent view, considering potential macroeconomic impacts. While exact outcomes are hard to predict, we're focusing on controllable factors to drive performance.