PagerDuty Inc (PD) Q2 2026 Earnings Report

Revenue and profitability: QQ2 revenue of $123.411 million, +6% YoY; gross profit $104.41 million; gross margin 86.0% (within 84–86% target); operating income $3.566 million, operating margin 2.89%; EBITDA $12.957 million, EBITDA margin ~10.5%; net income $9.778 million, net margin 7.92%; basic/diluted EPS $0.11 / $0.10. ARR: $499 million, +5% YoY; DBNR: 102% (lower gross retention driven by downgrades); new and expansion bookings up >15% sequentially; high-value (> $100k ARR) customers at 868 (up 20 QoQ); paid customers: 15,302 (net adds +75). Mix and monetization: >75% ARR from enterprise (> $500 million) customers; usage-based pricing growth >60% for relevant products; platform usage up >25% YoY; international revenue +12% YoY (29% of total). Efficiency and cash flow: Q2 cash from operations $33.97 million (28% of revenue), free cash flow $33.1 million (24% of revenue); cash balance and investments end-Q2: $568 million; debt retirement: $58 million convertible debt fully retired; share repurchase authorization expanded to $200 million. Liquidity and balance sheet: total assets $891.5 million; total liabilities $693.9 million; total stockholders’ equity $180.7 million; net debt ~$68.7 million. Guidance and cash flow visibility: trailing twelve months billings $496 million, up 6% YoY; Q3 revenue guidance $124–$126 million (4–6% growth); full-year 2026 revenue $493–$497 million (5–6% growth); trailing ARR acceleration and margin expansion remain core focus.

Strategic momentum and product innovation:
- AI-native product cadence and monetization: Four new AI agents (Shift, Scribe, Insights, and SRE) will GA this quarter, all priced on usage-based terms, reinforcing the shift to consumption-based monetization. The Amazon Q integration is a key ecosystem lever, enabling customers to leverage enterprise data through PagerDuty Advance and agents.
- Central nervous system narrative: PagerDuty asserts its role as the core platform for AI-native operations, underscoring the breadth of incident automation and the need to orchestrate increasingly complex environments.
- Enterprise GTM transformation: International theaters show improvements; North America leadership changes (Todd McNabb named CRO) and a flatter org designed to improve agility, coverage, and renewal outcomes.
- Pricing and packaging evolution: Management highlighted a move toward flexible licensing to align pricing with customer value and usage, with early traction in usage-based pricing across core products; multiyear contracts have begun to trend higher, aiding visibility.
- Customer expansion and AI-native traction: Native AI leaders now represent about 2% of ARR and are expanding rapidly; prominent AI natives and traditional customers are expanding across multiple products (incident management, AI ops, automation, and PD Advance). Industry partnerships (Amazon Q, MCP server with Microsoft Azure, and other observability vendors) are accelerating ecosystem use cases and remediation workflows.

Operational execution and market conditions:
- Revenue resilience amid churn/downgrades: DBNR at 102% reflects downgrades and churn pressures, but usage growth and platform adoption are expanding despite seat optimization across the customer base.
- International momentum and enterprise focus: International revenue up 12% YoY contributed 29% of total revenue, signaling diversification of growth drivers beyond the U.S.
- User base expansion: Total paid customers rose to 15,302 with 75 net adds in Q2; high-value customers (> $100k ARR) increased to 868, up 20 QoQ; new logos in H1 were robust, with more than three times the new customer adds versus fiscal year 2025.

Financial performance and guidance:
- Margin and cash flow strength: Q2 gross margin at the high end of target and GAAP profitability achieved for the first time; operating cash flow and free cash flow generation remained solid, supporting an expanded share repurchase program.
- Near-term guidance and confidence: Q3 revenue guidance of $124–$126 million and FY2026 revenue guidance of $493–$497 million imply continued mid-single-digit growth; management expects incremental ARR in H2 to be meaningfully higher than H1, aided by enterprise transitions and a larger renewal base in Q4. The company reiterated a path to GAAP profitability in FY2027 and indicated ongoing capital return capability.

PagerDuty enters the second half of FY2026 with an encouraging inflection in profitability, cash flow, and ARR growth, underpinned by a deliberate shift to usage-based monetization and a broad AI-led product cadence. The QQ2 2026 results demonstrate a credible path to sustained margin expansion (non-GAAP operating margin of 25% in Q2) and GAAP profitability, supported by a strong FCF profile and an expanded capital return program. The AI-native ecosystem momentum — including 2% of ARR from native AI leaders and four GAAP AI agents with usage-based pricing — provides a credible long-term growth lever, particularly as enterprise customers seek automation at scale and platform resilience across complex environments. The Q3 and full-year guidance imply mid-single-digit revenue growth with improving efficiency, but execution risk remains in North America and in the pace of the transition to consumption-based pricing. If the enterprise transformation, international expansion, and cross-product adoption continue to gain traction, PD could reaccelerate ARR growth into FY2027 and beyond, supported by steady free cash flow generation and an improving ability to return capital to shareholders. The primary catalysts to watch include: 1) successful acceleration of the enterprise sales motion in North America, 2) continued uptake of AI-led products and multi-product cross-sell, 3) further international market penetration, and 4) achieving GAAP profitability in FY2027 as guided by management.