PagerDuty, Inc. Q3 FY2025 earnings call

• PagerDuty delivered a solid quarter with revenue and non-GAAP operating income well above guidance ranges. Revenue growth was 9% and non-GAAP operating margin expanded to 21%. • Net new ARR of $9 million in the quarter was a 21% increase over Q3 of last year. Total ARR increased to $483 million, growing 10% year-over-year. • Stabilization across all segments was seen, with retention improving. Focus remains on growth reacceleration, particularly on large deal conversions. • Multi-product adoption improved, including AIOps, Automation, and Customer Service Ops contributing over 40% to incremental ARR. • Generative AI integration: PagerDuty Advance is integrated across the platform, with first paid customers closed. The Operations Console and Global Intelligent Alert Grouping were enhanced. • New leaders joined: Rukmini Reddy as SVP of Engineering and Pritesh Parekh as Chief Information Security Officer. • Recognitions: Fortune's Best Workplaces for Women, over 500 impact customers in non-profit sector, and validation from Science Based Targets initiative for carbon emissions reduction.

PagerDuty had revenue of $119 million for the quarter, up 9% year-over-year. Annual recurring revenue (ARR) exited Q3 at $483 million, growing 10% year-over-year for the fourth consecutive quarter. The Enterprise segment continued to grow above average, particularly strong in Software and Technology, Financial Services, and Telecommunications, with EMEA emerging as a stable area. The Commercial segment stabilized, with better retention and some growth. AIOps, Automation, and Customer Service Ops contributed more than 40% to incremental ARR. Revenue contribution from international was 28% of total revenues, up from 27% in the year-ago period.

• Fourth quarter fiscal 2025 revenue expected in the range of $118.5 million to $120.5 million, representing a growth rate of 7% to 8%, with net income per diluted share attributable to PagerDuty, Inc. in the range of $0.15 to $0.16. • Full fiscal year 2025 revenue updated to $464.5 million to $466.5 million (8% growth), with net income per diluted share attributable to PagerDuty, Inc. increased to $0.78 to $0.79. • Anticipate ARR growth to reaccelerate in FY '26 supported by rising retention, sales hiring, and robust pipeline.

• Unusual number of large Q3 opportunities deferred, which will delay ARR acceleration to FY '26. • Macroeconomic uncertainties that could impact deal closures and revenue growth. • Operational risks associated with customers' use of generative AI and agentic AI, which need to be monitored and managed.

Q: Sanjit Singh asked about the growth disconnect compared to adjacent markets and PagerDuty Advance's customer adoption strategy and monetization potential.

A: Jennifer Tejada responded on growth stabilization, Enterprise growth above average, and PagerDuty Advance's role in reducing incident response time and creating growth opportunities. Howard Wilson added on PagerDuty Advance's free credits, customer response, and pricing.

Q: Rob Oliver inquired about large enterprise customer conversions, deal pushes, and full-year guidance.

A: Jennifer Tejada discussed proof of value, pipeline management, and executive sponsorship. Howard Wilson talked about prudent revenue guidance considering delivery sequence and process automation.

Q: Koji Ikeda asked about deal deferrals and target operating model.

A: Jennifer Tejada and Howard Wilson spoke about deal pipeline, new sales leadership, and balancing growth with profitability.

Q: Jeff Van Rhee asked about EMEA's bright spot, '26 guidance, and Commercial segment drivers.

A: Jennifer Tejada mentioned EMEA's new leader and macro easing. Howard Wilson discussed '26 growth parameters. Jennifer Tejada talked about Commercial segment stabilization and vertical diversity.

Q: Andrew Sherman asked about new product contribution to net new ARR and Enterprise vs. Commercial NRR.

A: Jennifer Tejada spoke about new products' contribution and Howard Wilson clarified Enterprise NRR definition and Commercial segment stabilization.

Q: Jacob Zerbib asked about competitive dynamics with Datadog.

A: Jennifer Tejada discussed PagerDuty's resilience, security, and multiproduct relationship building.

Q: Nick Altmann asked about growth vs. margin trade-off and large deal ACV expansion.

A: Jennifer Tejada and Howard Wilson talked about leading indicators for growth reacceleration and ACV expansion in large deals.

Q: Miller Jump asked about pipeline visibility and deal composition.

A: Howard Wilson spoke about improved pipeline visibility and deal mix.

Q: Simran Biswal asked about Q4 linearity and large deal customer journey.

A: Howard Wilson discussed Q4 linearity and Jennifer Tejada talked about varying large deal customer journeys based on industry and solution selling strategy