PagerDuty(PD) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q3 2025 was $119 million, up 9% year-over-year [27] - Non-GAAP operating margin expanded to 21% [7] - Net new ARR was$ 9 million, a 21% increase over Q3 of last year [7] - Total annual recurring revenue (ARR) increased to $483 million, growing 10% year-over-year for the fourth consecutive quarter [7] - Gross margin was 86%, at the high end of the 84% to 86% target range [31] - Operating income was$ 25 million or 21% of revenue, compared to $15 million or 14% of revenue in the same quarter last year [32] - Cash from operations was$ 22 million, or 19% of revenue, and free cash flow was $19 million, or 16% of revenue [33] - The company ended the quarter with$ 542 million in cash, cash equivalents, and investments [34] Business Line Data and Key Metrics - AIOps, Automation, and Customer Service Ops contributed more than 40% to incremental ARR in Q3 [10] - The number of accounts with ARR greater than $500,000 rose by approximately 20% [10] - Dollar-based net retention (DBNR) was 107%, above the Q3 expectation and in line with the full fiscal year expectation [29] - Customers spending over$ 100,000 in annual recurring revenue grew to 825, up 6% from a year ago [30] - Total paid customers remained relatively flat year-over-year at 15,050 [30] Market Data and Key Metrics - International revenue contributed 28% of total revenues, up from 27% in the year-ago period [27] - EMEA is emerging as a source of stability, building a foundation for higher growth in FY '26 [17] - The Enterprise segment continued to grow above the average, particularly in Software and Technology, Financial Services, and Telecommunications [17] Company Strategy and Industry Competition - The company is focused on converting multi-year, multi-product agreements, which compound benefits in future quarters [9] - PagerDuty Advance, the generative AI offering, is now integrated across the platform to automate triage, expedite incident response, and reduce costs [13] - The company expanded its automation library in Q3, addressing manual, repetitive tasks such as log diagnostics, container management, and database management [15] - Industry analysts recognized PagerDuty as a leader in AIOps, with Forrester including it in the top 25 solutions in its AIOps Landscape report [16] Management Commentary on Operating Environment and Future Outlook - The company is well-positioned to exit FY '25 with ARR growth poised for reacceleration, supported by rising retention, high-caliber sales hiring, and a robust pipeline [23] - Management expects Q4 revenue in the range of $118.5 million to$ 120.5 million, representing a growth rate of 7% to 8% [37] - For the full fiscal year 2025, the company raised the midpoint of revenue guidance to $464.5 million to$ 466.5 million, representing a growth rate of 8% [38] - The company anticipates trailing 12-months billings growth to be approximately 9% in Q4 [35] Other Important Information - The company repurchased 3.8 million shares from its 500,000, which cover more products and demonstrate more value [135][137] Question: How does linearity within Q4 look, and is there a risk of larger deals being pushed into next year? - Answer: Linearity in Q4 is expected to be normal, with the third month being the biggest. The company has processes in place to balance linearity, but holiday periods can affect North America [146][147] Question: What does the customer journey typically look like for large deals, and how long is the engagement? - Answer: Large deals usually start small and grow through expansion. The company focuses on solution selling and attaching services to deals, which provides better visibility and growth opportunities [148][150]