PagerDuty, Inc. 10-Q Summary: Q1 2026
Business Context and Reporting Period
This filing covers the quarterly period ended April 30, 2026 (Fiscal Q1 2027). PagerDuty, Inc. operates a digital operations management platform that leverages AI and machine learning to manage urgent, mission-critical work. The company reported its first GAAP net income in the quarter, marking a significant turnaround from the prior year's loss.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Revenue | $120.97 million | $119.81 million |
| Gross Profit | $101.95 million | $100.62 million |
| Gross Margin | 84.3% | 84.0% |
| Operating Income | $9.18 million | ($10.33 million) |
| Net Income (GAAP) | $5.13 million | ($7.38 million) |
| EPS (Diluted) | $0.13 | ($0.07) |
| Operating Cash Flow | $44.28 million | $30.67 million |
| Free Cash Flow | $41.19 million | $28.99 million |
| Cash & Investments | $444.0 million | $470.2 million |
| Debt (Convertible Notes) | $396.3 million | $395.7 million |
Material Changes vs. Prior Period
- Profitability Turnaround: The company shifted from an operating loss of $10.3 million in Q1 2025 to an operating income of $9.2 million in Q1 2026. This was driven by a 16.4% reduction in operating expenses despite flat revenue growth (1.0%).
- Expense Reduction: Total operating expenses decreased by $18.2 million year-over-year. Significant reductions occurred in Sales and Marketing ($10.4M decrease) and Research and Development ($4.1M decrease), largely due to lower headcount and reduced stock-based compensation.
- Share Repurchases: The company completed its $200 million 2025 Share Repurchase Program, buying back 8.5 million shares in the quarter at an average price of $7.40. This resulted in a $65.5 million cash outflow in financing activities.
- Key Metrics: Annual Recurring Revenue (ARR) remained flat at $495.6 million. Dollar-based Net Retention Rate declined to 97% from 104% in the prior year.
Guidance, Outlook, and Risks
- Leadership Transition: On May 11, 2026, CEO Jennifer Tejada resigned and was succeeded by John DiLullo. Tejada remains Executive Chair. The company is also searching for a successor to CFO Howard Wilson, who announced his planned retirement in November 2025.
- New Capital Allocation: In May 2026, the Board authorized a new $100 million share repurchase program (2026 Program), expiring in May 2028.
- Strategic Focus: Management continues to pivot toward usage-based pricing models and AI-driven workflows to align customer investments with business outcomes rather than headcount.
- Risks: Key risks include the potential disruption from executive transitions, macroeconomic volatility, and the ability to retain key talent. The company maintains a valuation allowance against certain non-U.S. deferred tax assets.
Investor Verification Checklist
- Retention Trends: Verify the cause of the decline in Dollar-based Net Retention Rate (97% vs 104%) and its impact on future growth.
- Leadership Continuity: Monitor the progress of the CFO search and the integration of the new CEO to ensure strategic stability.
- Expense Sustainability: Assess whether the significant reduction in operating expenses (particularly R&D and S&M) is sustainable or if it impacts long-term innovation and market share.
- Debt Obligations: Review the terms of the $402.5 million 2028 Convertible Senior Notes and the company's ability to service interest and potential conversion obligations.
- Non-GAAP Adjustments: Scrutinize the $4.96 million adjustment attributable to redeemable non-controlling interest, which significantly inflated GAAP net income attributable to common stockholders.