PagerDuty (PD +8.18%), a digital operations management platform, reported results for Q2 FY2026 on Sept. 3, 2025. The most important news from the release was its first-ever profit under GAAP accounting standards and a notable surge in adjusted operating margin. However, revenue and annual recurring revenue (ARR) showed slower growth than in prior periods, and retention rates slipped. Revenue for the quarter reached $123.4 million, up 6.4% year over year and within company guidance. Non-GAAP earnings per share came in at $0.30, while ARR grew 5% year over year.
Overall, the company made clear progress on profitability and cost management, but faced challenges with growth and customer expansion.
| Metric | Q2 FY2026 | Q2 FY2025 | Y/Y Change |
|---|---|---|---|
| Adjusted EPS | $0.30 | $0.21 | 43% |
| Revenue | $123.4 million | $115.9 million | 6.5% |
| Adj. operating margin | 25.4% | 17.3% | 8.1 pp |
| Free cash flow | $30.2 million | $33.3 million | (9.3%) |
| Annual recurring revenue (ARR) | $499 million | $474 million | 5% |
| Dollar-based net retention rate | 102% | 106% | (4.0 pp) |
Source: PagerDuty. Note: Fiscal 2026's second quarter ended July 31, 2025. Fiscal 2025's Q2 ended July 31, 2024.
PagerDuty’s Business Model and Recent Focus
PagerDuty operates a cloud-based platform that helps organizations manage digital incidents and keep services running smoothly. Its core offerings center on incident management, a process that identifies, alerts, and automates the response to operational problems. The platform integrates with more than 700 different software tools, making it flexible across a variety of technology environments.
Recently, PagerDuty has focused on adding artificial intelligence (AI) and automation. These advanced tools allow the platform to handle incidents faster by predicting issues, suggesting solutions, and automating routine tasks. The company’s business model is also designed around the “land-and-expand” approach: it starts with smaller sales and aims to grow its presence within large organizations over time.
Quarter Highlights: Financial and Operating Results
This period was a landmark for PagerDuty, as it posted a GAAP profit for the first time, and adjusted operating margin reached 25.4%. Expenses for research and development, sales and marketing, and general and administrative functions all dropped compared to Q2 FY2025.
Revenue rose 6.4% year over year, but slower than the previous quarter’s pace. ARR, which tracks the value of all subscription revenue PagerDuty expects in a year, increased 5.0% year over year. Management had previously expected a higher growth rate for FY2026. Dollar-based net retention, which shows how well existing customer contracts expand or shrink, dropped to 102%. This level was below the company’s stated target of 103–105% for FY2026, reflecting some customer downgrades and lost business, especially among larger enterprise clients.
Customer account growth skewed toward smaller businesses, with the total number of paid companies rising to 15,322. Larger customers—those with more than $100,000 in ARR—grew to 868, up 6% year over year. Free and paid customer numbers combined topped 33,000 as of July 31, 2025, showing strong performance in adding new clients, but less dramatic expansion within existing enterprise relationships. PagerDuty also generated more than $30 million in free cash flow, though this was down versus last year. The company’s cash balance remained healthy, with $567.9 million on hand, following repayment of part of its debt.
The results show that product innovations, especially in AI and automation, are resonating in the market. PagerDuty continues to receive third-party recognition, such as industry awards for its advanced operations platform and incident management tools. In the last few months, the company rolled out a new AI-enabled integration with Amazon Q Business. PagerDuty Advance—its flagship automation product—now offers a chat-first AI experience. Leadership changes also featured in the quarter, as a new Chief Revenue Officer was appointed to further develop the company’s enterprise sales approach.
Product Portfolio: Incident Response, Automation, and Integrations
The core of PagerDuty’s offer is its digital operations platform. This includes incident response tools, which detect problems and automate alerts, as well as advanced modules for automating workflows—known as automation products. A third major focus is AIOps, which stands for “artificial intelligence for IT operations.” This uses AI to surface insights across systems so enterprises can fix issues before they become outages. PagerDuty’s ecosystem is built on over 700 integrations with popular cloud services, collaboration tools, and IT management platforms. These connections make it possible for clients to coordinate operations across different teams and technologies.
Recent product development has focused on embedding generative AI technology directly into workflows. For example, the new integration with Amazon Q Business allows support teams to interact with AI-driven tools right from their chat apps. Meanwhile, the automation suite has picked up industry awards, further validating its capabilities. However, the full financial impact of these new AI tools—such as how much extra business they are generating—has yet to appear in PagerDuty’s revenue or customer expansion numbers. The company reports that AI adoption remains in the early stages among its customer base.
Looking Forward: Guidance and Investor Focus Areas
Looking ahead, PagerDuty expects GAAP revenue for FY2026 to be between $493 million and $497 million, representing 5%–6% growth. This is a slightly narrower and lower range than its previous forecast. For Q3 FY2026, revenue guidance is $124 million–$126 million, with projected non-GAAP earnings per share of $0.24–$0.25. On profitability, management raised its full-year FY2026 non-GAAP net income per share target to $1.00–$1.04, citing continued control of costs.
Management did not announce any plans for a dividend. PD does not currently pay a dividend. For investors, the key themes remain how well the company can drive expansion within its larger enterprise customers and convert new AI and automation capabilities into recurring revenue growth. Another area to watch is the impact of the new Chief Revenue Officer and any shifts in sales execution. The company’s strong balance sheet provides it room for investment in growth and further innovation.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
