EPS of $-0.14 increased by 41.7% from previous year
Gross margin of 82.7%
Net income of -10.91M
"“PagerDuty delivered a solid second quarter with revenue growth within our guidance range at 8% and non-GAAP operating margin 4 points above the range at 17%.”" - Jennifer Tejada
PagerDuty Inc (PD) QQ2 2025 Results Analysis: Enterprise-Driven ARR Acceleration, GenAI Enhancements, and a Resilient Operations Cloud
Executive Summary
PagerDuty reported a solid QQ2 FY2025 with revenue of approximately $116 million, up about 8% year over year, and delivered an above-range non-GAAP operating margin of 17% per management commentary. The company continues to execute its enterprise-first strategy, expanding multi-product, multi-year ARR and achieving a dollar-based net retention (DBNR) of about 106% in Q2, with ARR exiting at $474 million (+10% YoY). The quarter showcased meaningful enterprise-market momentum: new products (AIOps, automation, CSOps) contributed roughly 65% of net new ARR, and the mix shift toward large, strategic contracts has driven higher average deal sizes and improved retention economics, even as SMB there remains a headwind. Management signaled ARR growth above 10% for FY2025 and guided Q3 revenue of $115.5–$117.5 million and full-year revenue of $463–$467 million, with expected operating margins of roughly 13% in Q3 and ~14% for the full year. The firm also highlighted operational resilience during the July outage, accelerated GenAI initiatives (PagerDuty Advance), regulatory demand drivers (e.g., DORA), and a strengthening services-attached dynamic that supports longer-term profitability and free cash flow generation. The balance sheet remains robust, with substantial liquidity and a disciplined capital allocation strategy, including a quarterly buyback and ongoing investment in product and GTM capabilities. Investors should weigh the favorable ARR trajectory and enterprise-proofed product stack against SMB headwinds and longer sales cycles as near-term risks. overall, PD is transitioning toward a higher-visibility, enterprise-centric growth trajectory supported by AI-enabled workflows and a scalable operations cloud.
Key Performance Indicators
Revenue
115.94M
QoQ: 4.28% | YoY:7.73%
Gross Profit
95.86M
82.68% margin
QoQ: 4.38% | YoY:9.20%
Operating Income
-16.03M
QoQ: 25.32% | YoY:38.77%
Net Income
-10.91M
QoQ: 54.64% | YoY:50.52%
EPS
-0.14
QoQ: 46.15% | YoY:41.67%
Revenue Trend
Margin Analysis
Key Insights
QQ2 2025 revenue: $115.935m (GAAP 116.0m reference in call), up ~7.7%–8% YoY per reported metrics.
Gross profit: $95.856m, with gross margin ~82.7% (GM guidance range 84–86% historically; QQ2 outcome at high end of target; management noted high-end GM in call).
Operating income: GAAP ≈ -$16.1m in the formal release figures, but the call highlighted an operating profit of $20m (17% of revenue) reflecting either non-GAAP adjustments or presentation differences; management emphasized expense timing (PS rephasing) and headcount shifts to H2 as drivers.
Net income: GAAP net loss of about -$10.91m; net income margin ≈ -9.41%. EPS (diluted) ≈ -$0.14.
EBITDA/EBITDA margin: Adjusted metric reported as approximately -$3.90m; EBITDA margin ≈ -3.3% as per the press commentary.
Financial Highlights
Revenue and profitability
- QQ2 2025 revenue: $115.935m (GAAP 116.0m reference in call), up ~7.7%–8% YoY per reported metrics.
- Gross profit: $95.856m, with gross margin ~82.7% (GM guidance range 84–86% historically; QQ2 outcome at high end of target; management noted high-end GM in call).
- Operating income: GAAP ≈ -$16.1m in the formal release figures, but the call highlighted an operating profit of $20m (17% of revenue) reflecting either non-GAAP adjustments or presentation differences; management emphasized expense timing (PS rephasing) and headcount shifts to H2 as drivers.
- Net income: GAAP net loss of about -$10.91m; net income margin ≈ -9.41%. EPS (diluted) ≈ -$0.14.
- EBITDA/EBITDA margin: Adjusted metric reported as approximately -$3.90m; EBITDA margin ≈ -3.3% as per the press commentary.
- ARR and DBNR: ARR exiting Q2 at $474m, +10% YoY; DBNR = 106% (guidance to 106%–107% by year-end).
- Net new ARR mix: New products (AIOps, automation, CSOps, premium support) contributed ~65% of net new ARR.
- RPO and revenue recognition: Total RPO ≈ $403m; roughly 70% expected to be recognized in the next 12 months; trailing 12-month billings ≈ $468m, +8% YoY.
- Cash flow and liquidity: Cash, cash equivalents and investments ≈ $599m; net debt ≈ $74.9m; operating cash flow ≈ $36m (≈31% of revenue); free cash flow ≈ $33m (≈29% of revenue).
- Customer metrics: Total paid customers ≈ 15,044; SMB churn remains a challenge; customers spending >$100k ARR ≈ 820 (↑6% YoY); >$500k ARR cohort growth in the low-20s% YoY.
- Shares and capital allocation: Weighted-average diluted shares ≈ 93.29m; repurchased ~1.3m shares under the $100m program; remaining authorized repurchase ≈ $72m through May 2026.
- Guidance inflection: Full-year ARR growth expected to exceed 10%; Q3 revenue growth projected 6–8%; full-year revenue growth 7–8% with mid-teens free cash flow contribution implied by the margin guidance.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
115.94M
7.73%
4.28%
Gross Profit
95.86M
9.20%
4.38%
Operating Income
-16.03M
38.77%
25.32%
Net Income
-10.91M
50.52%
54.64%
EPS
-0.14
41.67%
46.15%
Key Financial Ratios
currentRatio
2.13
grossProfitMargin
82.7%
operatingProfitMargin
-13.8%
netProfitMargin
-9.41%
returnOnAssets
-1.19%
returnOnEquity
-6.63%
debtEquityRatio
2.8
operatingCashFlowPerShare
$0.38
freeCashFlowPerShare
$0.36
priceToBookRatio
11.86
priceEarningsRatio
-44.73
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Themes and quotes from the QQ2 earnings call:
- Enterprise-led growth and profitability bar: Jennifer Tejada stated, “PagerDuty delivered a solid second quarter with revenue growth within our guidance range at 8% and non-GAAP operating margin 4 points above the range at 17%.” This underscores an improving operating efficiency backdrop and solid enterprise demand.
- ARR growth and DBNR resilience: Tejada noted ARR exiting at $474m, up 10% YoY, and DBNR of 106% (with a target of 106%–107% by year end), signaling durable expansion in the core ARR base and strong cross-sell dynamics.
- Multi-product, multi-year platform progress: Management highlighted that new products contributed 65% of net new ARR, including AIOps, automation, CSOps, and premium support, reinforcing the platform strategy and higher attachment economics.
- Outage as a demand catalyst and platform validation: Tejada described the July 19 outage as a stress test for PagerDuty’s operations cloud, noting a 1,400% surge in incident workflows and no material cost surges, illustrating platform resilience and the business case for automated incident response.
- Regulatory tailwinds and AI-enabled productivity: The call emphasized regulatory requirements (e.g., DORA) driving automation and controls, with GenAI capabilities (PagerDuty Advance) delivering time savings and ROI described in the context of reducing incident duration and improving resolution workflows.
- Earnings mix and guidance rationale: Howard Wilson and Tejada explained the guidance shift was primarily timing-related, with longer, more strategic deals leading to heavier back-half load and a lag in professional services attached; ARR guidance remains intact, with expectations for acceleration in the back half and DBNR improvement.
- Competitive positioning and value proposition: The executives argued that enterprise-grade resilience, AI-based correlation/orchestration, and multi-product capabilities differentiate PagerDuty, especially against SMB-focused rivals with limited enterprise reach, and that pricing flexibility supports expansion into larger deals.
- Outlook and execution readiness: The executives projected continued pipeline strength in the back half, with improving renewal economics and a continue-to-increase in ARR growth beyond 10% for FY2025, supported by a robust enterprise pipeline and ongoing GTM maturation across regions.
“PagerDuty delivered a solid second quarter with revenue growth within our guidance range at 8% and non-GAAP operating margin 4 points above the range at 17%.”
— Jennifer Tejada
“The July 19th outage tested our platform on a massive scale. The operations cloud rose to the occasion. We saw an over 1,400% increase in incident workflows initiated on that day alone, and we maintained high availability, speed, and fidelity without incurring significant cost surges.”
— Jennifer Tejada
Forward Guidance
Near-term guidance and qualitative view:
- Q3 FY2025 revenue guidance: $115.5m to $117.5m, representing +6% to +8% YoY growth; Q3 net income per diluted share guidance of $0.16 to $0.17; implied operating margin ≈ 13% for Q3.
- Full-year FY2025 guidance: Revenue guidance narrowed to $463m–$467m (down from prior range), representing +7% to +8% growth; net income per diluted share guidance of $0.67 to $0.72; implied operating margin ≈ 14% for FY2025.
- ARR trajectory and execution: Management reiterated expectations for ARR growth to exceed 10% for FY2025 and for DBNR to improve to about 106%–107% by year-end, supported by continued multi-product, multi-year enterprise deals and a robust back-half pipeline.
- Gross margins and cost posture: Q2 gross margin near the top of the 84%–86% target band; management indicated services would grow modestly, with gross margin staying at the high end near FY2026 before moving toward the mid-point.
- Net debt and liquidity: The company maintains ample liquidity (≈$599m cash and equivalents) and a conservative debt position, with ongoing buyback capacity and a plan to fund growth through cash flow generation while balancing investments in R&D and GTM expansion.
Assessment: The guidance reflects a shift to a higher-quality, enterprise-centric growth engine with longer deal cycles and more complex implementation timelines. The company appears to be comfortable with mid-teens FCF yield as it exits FY2025 while expanding ARR and DBNR, albeit with near-term revenue timing risk due to professional services phasing. Investors should monitor quarterly progression of ARR, DBNR, and the duration/attach rate of professional services and the impact of macro headwinds on SMB churn and startup demand, which could influence Q4 and FY2026 ARR composition and total bookings mix.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
PD Focus
82.68%
-13.80%
-6.63%
-44.73%
ESTC
74.50%
-1.21%
-3.14%
-81.36%
GTLB
88.30%
-22.50%
2.01%
157.93%
AMPL
73.40%
-37.10%
-8.15%
-11.23%
CXM
72.50%
-0.04%
0.39%
348.18%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
PagerDuty is transitioning from a primarily SMB/incident-management play towards a durable, enterprise-centric platform company. The QQ2 2025 results show meaningful progress: ARR at $474m (+10% YoY), DBNR at 106%, and a majority of new ARR coming from higher-value products. The GenAI and automation enhancements (e.g., PagerDuty Advance) address real-world incident costs (roughly $800k per incident), supporting a compelling ROI narrative for large, risk-averse enterprises. Management’s guidance reinforces this shift, with ARR growth reiterated above 10% for FY2025 and a back-half acceleration, albeit with a near-term revenue cadence that reflects longer sales cycles and higher professional services timing.
Key positives include a high gross margin profile (~86%), robust free cash flow generation (~33m in Q2), and substantial liquidity (≈$599m). The balance sheet affords flexibility for continued investment in product development and GTM capacity, while also enabling share repurchases to create value for shareholders. The enterprise-driven growth trajectory, regulatory tailwinds, and AI-enabled platform differentiation position PagerDuty favorably relative to many software peers, particularly in the mid-market and large enterprise segments.
Risks center on SMB churn, longer-than-expected enterprise sales cycles, and macro headwinds that could temper the speed of ARR expansion. A potential risk to the upside is if enterprise conversion from pilots to multi-product, multi-year deployments accelerates faster than modeled; conversely, any deterioration in macro funding could slow net-new ARR, despite strong DBNR. Overall, PD presents a cautiously optimistic investment thesis grounded in a resilient monetization model, scalable margins, and a compelling AI-enabled operations platform that aligns with the rising demand for automated, resilient digital operations.
Key Investment Factors
Growth Potential
- Enterprise-led growth anchored by the Operations Cloud and multi-product offerings (AIOps, automation, CSOps) with net-new ARR contributed by these products accounting for ~65% of net new ARR in Q2. Management targets ARR growth >10% for FY2025, with DBNR ~106–107% by year-end, signaling durable expansion and stickiness.
- GenAI enhancements (PagerDuty Advance) and AI-assisted runbooks/postmortems delivering incremental productivity and compelling ROI (~hundreds of hours saved and multi-year cost-of-operations reductions). This supports higher value deals and cross-sell opportunities into Global 2000 accounts.
- Regulatory tailwinds (DORA and data/privacy oversight) elevating demand for automated controls and compliant digital operations, expanding addressable market and enabling cross-border enterprise deployments.
- Large multi-year, multi-product strategic contracts improving revenue visibility and reducing churn sensitivity, enabling more predictable ARR trajectories and pricing flex across enterprise accounts.
- Upside from international expansion, where enterprise deployments and compliance requirements are rising in multiple regions, potentially increasing ARR mix toward enterprise and EMEA/foreign markets.
Profitability Risk
- SMB market remains a headwind with elevated churn and downgrades, constraining overall growth and pressuring the lower end of the customer base.
- Longer sales cycles and heavier post-sale services attachment can create near-term revenue phasing, potentially depressing quarterly revenue realization despite improving ARR metrics.
- Economic uncertainty and potential funding slowdowns in tech startups could temper SMB/SMB+ segments and early-stage customer acquisition.
- Competitive dynamics from large incumbents (e.g., broader IT operations platforms) may pressure share gains if incumbents accelerate feature parity or pricing flexibility.
- Dependence on successful expansion into enterprise with multi-product, multi-year deals; a slower-than-expected ramp or customer concentration risk could impact long-term profitability and cash flow dynamics.
Financial Position
- Strong liquidity with approximately $599m in cash, cash equivalents, and investments; net debt around $74.9m, indicating substantial balance-sheet flexibility for capex, product development, and potential M&A or partnerships.
- Solid operating cash flow generation in Q2 (~$36m) and free cash flow (~$33m), suggesting the business generates meaningful cash despite GAAP net losses and ongoing R&D investments.
- RPO of ~$403m with ~70% expected to be recognized in the next 12 months, supporting near-term visibility and revenue recognition cadence.
- Growth-oriented capital allocation: ongoing stock repurchase program (1.3m shares executed in Q2; ~$72m remaining under the plan) alongside investments in product capability (GenAI, AIOps) and GTM expansion.
- Leverage and profitability trajectory: improving operating margins (13% in Q3 guidance, 14% for FY2025) as higher-value enterprise deals mature and professional-services velocity stabilizes; however, GAAP profitability remains pressured by mix and timing of deal closure and PS attach rates.
SWOT Analysis
Strengths
Enterprise-focused platform with multi-product, multi-year value propositions
Strong ARR growth and high DBNR (≈106%), indicating durable value realization
High gross margins (~86%) and solid cash flow generation implying scalable profitability
GenAI initiatives (PagerDuty Advance) and automation capabilities enhancing deal velocity and ROI
Resilience demonstrated during outages, reinforcing brand and reliability in mission-critical environments
Weaknesses
SMB segment remains a drag on overall growth and contributes to churn in the near term
Near-term GAAP profitability remains negative due to mix and timing; reliance on professional services timing could create revenue lags
Longer sales cycles for enterprise deals heighten forecasting risk and revenue phasing
Relies on continued ability to upsell across multiple products; macro weakness in tech funding could affect expansion pace
Opportunities
Regulatory-driven demand for automation and control (DORA, data/privacy controls) expanding enterprise TAM
AI-driven incident management and runbooks improving efficiency and cost savings for customers
Global 2000 and financial services clients expanding multi-product deployments (AIOps, automation, CSOps)
International expansion, including EMEA, where enterprise momentum is building
Continued free cash flow generation enabling shareholder returns and disciplined capital allocation
Threats
Macro economic volatility impacting tech startups and SMB spend
Competitive intensity from broader IT operations platforms with AI capabilities
Potential escalation of data/regulatory compliance requirements that increase customer implementation complexity
Execution risk in sustaining high attach rates for professional services as multi-product deals scale