PagerDuty, Inc. reported third‑quarter fiscal 2026 revenue of $124.5 million, up 4.7% year‑over‑year, and an annual recurring revenue of $497 million, a 3% increase from the prior year. The revenue growth was driven by a 5% rise in the core Operations Cloud segment, offset by a modest decline in the legacy Incident Response product line as the company shifts focus to AI‑powered services.
Operating income reached $8.1 million, while non‑GAAP operating income was $35.5 million, reflecting a non‑GAAP operating margin of 29%—up from 21% in the same quarter a year earlier. The margin expansion is largely attributable to higher mix of high‑margin AI‑driven contracts and disciplined cost control, which offset the impact of increased spending on research and development and sales and marketing initiatives.
The company posted a non‑GAAP earnings per share of $0.33, beating the consensus estimate of $0.24 by $0.09, a 37.5% beat. The earnings beat was driven by the combination of margin expansion and a lower-than‑expected impact from seat‑based license compression, allowing PagerDuty to maintain profitability despite a slight revenue miss.
PagerDuty guided fourth‑quarter fiscal 2026 sales to $122 million to $124 million, a 0% to 2% growth range that is below analyst expectations. Full‑year 2026 revenue guidance was revised downward to $490 million to $492 million, a reduction of $3 million to $7 million from the prior guidance of $493 million to $499 million. The guidance cut reflects management’s assessment of ongoing seat‑license compression, customer budget caution, and lower dollar‑based net retention, while the company remains confident in its ability to sustain profitability through cost discipline and the transition to a usage‑based pricing model.
PagerDuty’s customer base grew to more than 34,000 paid and free users, with the AI‑driven Operations Cloud gaining traction among large enterprises. CEO Jennifer Tejada emphasized that the company’s “AI‑first” strategy is positioning it to capture new revenue streams, while CFO Howard Wilson highlighted that the shift to usage‑based pricing will help mitigate seat‑compression headwinds and support long‑term margin growth.
Investors reacted negatively to the earnings release, citing the revenue miss and the cautious Q4 guidance as primary concerns. The market’s focus on the revenue outlook and headwinds from seat‑license compression and customer budget constraints outweighed the positive impact of the EPS beat and margin expansion.
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