What are John DiLullo's key learnings since joining, and what are his initial priorities or changes he plans to make?

John DiLullo stated it's early days, with his priority being to listen, learn, and engage with the team, customers, and partners. He expressed excitement about PagerDuty's product capabilities and market position, noting that AI accelerates the need for resilience and real-time operational response. He believes the company is 'underappreciated by investors' and sees a significant opportunity to unlock value. “But I will say that I was very excited to get the call. And I've been a customer multiple times to have a good understanding of the product. And I think firsthand, I realize what's the capabilities of the product and what the platform are and how deeply integrated it is into the operations of so many leading companies.”

How is PagerDuty balancing the heavy R&D needed for agented products with its commitment to margin expansion and GAAP profitability?

Management explained that AI products have been built over several years, leveraging proprietary context from a decade of data. Internal use of AI by the engineering team expedites development and amplifies creativity, allowing for more features at a lower cost. They also deploy AI across the company for efficiency, maintaining a balanced view on capital allocation and optimizing infrastructure use to sustain high gross margins while investing in innovation. “I mean, one, we didn't just start building our AI products. We have been building AI into the platform for several years. We've built a distinct advantage through the proprietary context in our own model that comes from more than a decade of capturing insights and information from workflows, developers themselves, events that we ingest and how incidents are resolved.”

With 10% of ARR now from consumption-based products, what is the target for this by year-end, and how are customers responding to the new model?

While no specific year-end target was provided, management stated it's a clear focus area. They noted strong customer appeal for full platform access, which removes friction and helps customers achieve operational resilience. Early results from a small cohort of customers are promising, with a focus on customers spending over $100,000 annually. They expect this growth to mitigate retention pressure and accelerate overall company growth. “Yes, look, it's great for us to see that we're nearly 10% of our ARR coming from those usage-based products. We haven't put a specific number out there in terms of where we want to get to by the end of the year. but it's clearly an area of focus for us because, one, it delivers a lot of value to our customers.”

PagerDuty (PD) Q1 FY27 earnings call: guidance and Q&A

Earnings call· Apr 2026 (Q1 FY27)· Information Technology· May 28, 2026

Source: earnings call transcript

Executive summary

PagerDuty, Inc. Q1 FY27 — Profitability and Usage-Based Model Traction

PagerDuty reported Q1 FY27 results that exceeded revenue and operating margin guidance, driven by strong operational efficiency and AI adoption. The company is undergoing a leadership transition with John DiLullo taking the helm as CEO, while its new usage-based Operations Cloud pricing model is gaining traction. Despite flat annual recurring revenue and a dip in net retention, management expressed confidence in future growth acceleration through product innovation and strategic customer expansions, particularly within AI-native and large enterprise segments.

Highlights

Quarterly revenue of $121M exceeded the top end of guidance.
Non-GAAP operating margin reached 25%, surpassing guidance and increasing from 20% in the prior year.
GAAP net income was $10.2M, marking the fourth consecutive quarter of GAAP profitability.
Free cash flow was $41M, representing 34% of revenue.
Acquired over 600 new customers for the fifth consecutive quarter, and total free and paid customers grew 14% year-over-year to over 36,000.
ARR from customers on the new Operations Cloud model nearly doubled from Q4 to Q1, with over 15 large customers ($100K+ ARR) transitioning.

Concerns

Revenue grew only 1% year-over-year.
Annual recurring revenue (ARR) was $496M, flat year-over-year.
Dollar-based net retention (DBNR) was 97%, a step down from the previous quarter.
Q2 FY27 and full-year FY27 revenue guidance midpoints imply essentially flat year-over-year growth.
Q1 free cash flow was elevated due to overperformance on collections and is expected to normalize in Q2.

Guidance & targets

Category	Target	Timeline	Confidence
Revenue	$122M to $124M high materiality	Q2 · FY27	High
Net income per diluted share	$0.29 to $0.31 medium materiality	Q2 · FY27	High
Operating margin	22% to 23% medium materiality	Q2 · FY27	High
Revenue	$488.5M to $496.5M high materiality	FY27	High
Net income per diluted share	$1.27 to $1.32 medium materiality	FY27	High
Operating margin	24% to 25% medium materiality	FY27	High
Non-GAAP operating margin	30% high materiality	Long-term	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
International Contributed 29% of total revenue.	—	3%	—	—

PD operating KPIs by quarter

PD operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Apr 2026 Q1 FY27	Jul 2026 Q2 FY27	Change vs prior quarter
Annual recurring revenue (ARR)	$496M Quarterly revenue was $121 million, up 1% year-over-year and annual recurring revenue was $496 million, flat year-over-year. Source: earnings call transcript	$501M Our confidence stems from the positive signs in the business with annual recurring revenue crossing the $500 million milestone, ending at $501 million, an increase of $6 million in the quarter. Source: earnings call transcript	+1%
Net revenue retention rate	97% Dollar-based net retention was 97%, we expect our continued customer success and renewal initiatives, along with our operations cloud pricing to result in stabilization of DBNR and for it to gradually increase throughout the year. Source: earnings call transcript	98% Dollar-based net retention was 98%, up sequentially and annualized gross retention also improved sequentially. Source: earnings call transcript	+1 pt
Customers Paid	15.38K Total paid customers grew to 15,380 in Q1, adding 133 net new customers since the year ago period. Source: earnings call transcript	15K+ With more than 15,000 paying customers relying on the PagerDuty platform, including nearly 2/3 of the Fortune 100, we see firsthand the massive volume of AI-generated enterprise software now being deployed and exactly how it's evolving. Source: earnings call transcript	—
Remaining performance obligation (RPO)	~$441M At the end of Q1, total RPO was approximately $441 million increasing 3% year-over-year. Source: earnings call transcript	$426M Total RPO was $426 million, $1 million higher than year-over-year. Source: earnings call transcript	—
Remaining performance obligation (RPO) Current	~$316M Of this amount, approximately $316 million or 72% is expected to be recognized over the next 12 months. Source: earnings call transcript	~$309M Of this amount, approximately $309 million is expected to be recognized over the next 12 months, which represents a 5% year-over-year increase versus Q2 FY '26. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Total RPO $441M Q1 FY27 end

up 3% YoY

total Remaining Performance Obligations

Current RPO $316M Q1 FY27 end

72% of total RPO, expected to be recognized over next 12 months

RPO (months 13-24) $100M Q1 FY27 end

23% of total RPO, expected to be recognized over months 13 to 24

Product announcements

Product	Type	Timeline	Details
SRE agent	launch	October
Chat-first incident management	update	—

Deals & partnerships

Fortune 500 automotive manufacturer customer contract

Previously a customer on a fee-based plan, migrated to the Operations Cloud offering and expanded into a subsidiary.

Fortune 100 financial institution customer contract

Expanded with PagerDuty to support a new SRE model deployment, leveraging PagerDuty's ability to support high-efficiency operational goals.

North American strategic retailer customer contract 7-figure multi-year

Executed a renewal and expansion with PagerDuty on the Operations Cloud and automation, resulting in a competitive displacement.

Global automotive manufacturer in EMEA customer contract

Expanded with PagerDuty to standardize incident management across global IT operations as the company transitions to a fully electric vehicle range.

Lifespan, Dropdown AI, Signal AI customer contract

Innovative AI start-ups that joined the PagerDuty platform during the quarter.

Australia's leading digital bank customer contract 7-figure multi-year

Became a PagerDuty customer, adopting incident management, AI Ops, and runbook automation to address major outages experienced with a homegrown system.

North American not-for-profit financial services organization customer contract multimillion dollar multi-year

Expanded its relationship with PagerDuty for the Operations Cloud, aligning operational maturity goals with the platform's capabilities.

Global consulting company customer contract 6-figure

A customer since 2018, renewed a 6-figure expansion, with PagerDuty's bidirectional interoperability being a competitive advantage over an observability vendor.

Anthropic, Can, Cursor, Line-chain partnership

Marquee partnerships supporting PagerDuty's AI ecosystem, enabling PagerDuty agents to interact across various AI-enabled surfaces.

Risks & headwinds

Revenue growth deceleration Q2 FY27 and FY27

Q1 revenue up 1% YoY; Q2 and FY27 guidance midpoint essentially flat YoY

Mitigation:New usage-based pricing model, product innovation, strategic customer expansions, focus on AI-native and large enterprise segments.

Flat Annual Recurring Revenue (ARR) Q1 FY27

$496M, flat YoY

Mitigation:Usage-based pricing model expected to accelerate ARR growth, strong new customer acquisition, multi-year multi-product agreements.

Decline in Dollar-Based Net Retention (DBNR) Q1 FY27

97%

Mitigation:Continued customer success and renewal initiatives, Operations Cloud pricing expected to stabilize and gradually increase DBNR throughout the year.

Normalization of Free Cash Flow Q2 FY27

Q1 FCF was elevated due to overperformance on collections

Mitigation:Expected to normalize in Q2, but strong cash generation provides financial stability and flexibility.

Shift in marketing program spend Q2 FY27

Part of Q1 operating margin overperformance due to marketing program spend expected to deploy in Q2

Mitigation:Rigorous focus on efficiency and operational execution underpins the business.

Customer base under financial pressure Ongoing

Some segments of the customer base (e.g., mid-sized SaaS) are under more financial pressure

Mitigation:Flexible usage-based pricing, focus on large enterprises and AI-native companies, multi-year agreements.

Q&A highlights

DBNR declined this quarter; what gives management confidence in its recovery, and what are the drivers?

Management is confident due to good progress with early adopters of the new usage-based pricing model, who are expanding instead of downgrading. Strong demand signals from over 600 new customer logos for the fifth consecutive quarter, particularly from innovative developers and AI start-ups. Improved renewal processes with multi-year, multi-product agreements and observed increased platform usage also contribute to this confidence.

“One, we have really started to see good progress with our early cohort in the pricing transition. So I spoke about a number of customers in prepared remarks, who frankly, had come to us with a view of potentially needing to downgrade as a result of seat-based pressure. And following their ability to understand the flexibility and access to new products on the platform as well as the flexibility based on usage-based pricing, they actually expanded with us in the time frame.”

asked by Sanjit Singh (Christian Darrow) · answered by Unknown Executive

2 min read 6 chapters

Detailed narrative

Leadership Transition and Strategic Vision

PagerDuty announced a leadership transition with John DiLullo appointed as the new CEO, succeeding Jennifer Tejada who moved to Executive Chair. This change followed a deliberate succession process. DiLullo emphasized his initial focus on listening and learning, aiming to scale the organization, strengthen execution, and align with customer needs.

He highlighted the favorable market dynamics driven by AI, which he believes will increase the need for resilience and real-time operational response, areas where PagerDuty excels.

Business Model Transformation to Usage-Based Pricing

The company's new Operations Cloud pricing and packaging model completed its first full quarter in limited general availability, showing promising early traction. The ARR from customers on this new model nearly doubled from Q4 to Q1, with over 15 large customers (spending over $100,000 annually) successfully transitioning.

This model aims to remove friction for customers to access the full platform, encouraging new operational use cases and driving increased usage, which is expected to accelerate revenue growth.

AI-First Operations and Product Innovation

PagerDuty is positioning itself as the 'control plane for AI,' leveraging years of investment in embedding AI into its platform. The company's proprietary context, derived from a decade of workflow data, provides a distinct competitive advantage. Management noted that AI-driven failures are becoming more complex and less predictable, increasing demand for PagerDuty's platform.

Recent product innovations include the SRE agent and chat-first incident management, which are developed with internal AI leverage to maintain high velocity at a lower cost.

Customer Acquisition and Expansion Momentum

PagerDuty continued its strong customer acquisition trend, adding over 600 new logos for the fifth consecutive quarter. Total free and paid customers grew 14% year-over-year to over 36,000. The company is seeing robust demand from large enterprises in traditionally slower-moving sectors like automotive, financial services, and healthcare, as well as from rapidly scaling AI-native companies.

Multi-year, multi-product agreements are helping to stabilize retention and drive expansion, with the Operations Cloud facilitating faster adoption of new use cases across customer organizations.

Operational Efficiency and Sustained Profitability

The company demonstrated rigorous focus on efficiency and operational execution, leading to a non-GAAP operating margin of 25% in Q1, up from 20% in the prior year. PagerDuty achieved its fourth consecutive quarter of GAAP profitability, with GAAP net income of $10.2 million.

Management emphasized the use of AI internally to enhance productivity within its engineering teams and across the company, creating capacity for continued investment in R&D while maintaining best-in-class gross margins.

Capital Allocation and Shareholder Returns

PagerDuty completed its previously authorized $200 million share repurchase program during the quarter, repurchasing 8.5 million shares for $63 million. The company also announced a new $100 million share repurchase program, reflecting its strong balance sheet, healthy cash balance, and robust free cash flow generation.

This capital allocation strategy aims to provide financial flexibility for AI product development and go-to-market transformation while returning capital to shareholders.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.