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- **Revenue resilience**: $125M Q3 revenue (+5% YoY) with GAAP net income of $160M, marking second consecutive quarter of GAAP profitability.
- **Margin expansion**: Operating margin 29% (vs. 21% YoY), with long-term target of 30%.
- **Retention headwinds**: DBNR at 100% due to enterprise seat compression, offset by multiyear deals and usage-based pricing wins (+50% YoY in AIOps). 
- **Strategic shift**: Transitioning from seat-based to usage-based licensing, with AIOps now >$1M ARR and 2.4M shares repurchased under buyback plan.

**【CEO Summary Section】**
- Q3 revenue of $125 million, up 5% YoY, with GAAP net income of $160 million (including a one-time tax benefit). Non-GAAP operating margin expanded to 29%, up 800 basis points YoY.
- Annual Recurring Revenue (ARR) reached $497 million, growing 3% YoY, driven by 5% expansion in high-value customers (> $100k ARR). 
- Key challenges: Seat license compression in large enterprises due to budget caution, offset by multiyear agreements and usage-based pricing wins (e.g., +50% YoY growth in AIOps product). 
- Strategic focus: 1) Expand operating margins toward 30% via cost efficiency; 2) Build AI operations leadership with agentic incident management suite; 3) Shift from seat-based to usage-based pricing models.

**【CFO Financial Commentary】**
- Q3 gross margin 87%, above target range of 84-86%, driven by operational efficiency. Operating income $36 million (29% of revenue), up from $25 million (21% of revenue) YoY.
- Free cash flow $21 million (17% of revenue), with $548 million in cash on hand. Shares repurchased: 2.4 million under $200 million buyback plan.
- Q4 guidance: Revenue $122-124 million (0-2% YoY), full year ARR $490-492 million (5% YoY). Operating margin target 24% for FY26, up from prior 21-22% range.
- Long-term outlook: GAAP profitability for full year FY27, with focus on margin expansion and cash flow generation.

**【Q&A Key Highlights】**
- **Retention Challenges**: Dollar-based net retention (DBNR) at 100% (down from 102% Q2), driven by larger-than-expected seat reductions in reorganizing enterprises. Absolute churn improved, but dollar impact worsened. 
- **Usage-Based Pricing**: Early wins in gaming, automotive, and banking sectors, with flexible licensing reducing friction for expansion. AIOps product now >$1 million ARR. 
- **Go-to-Market Shift**: New CRO Todd McNabb driving land/expand motion, with 40+ customer engagements in first 30 days. Focus on multiyear agreements and professional services to accelerate value realization. 
- **Product Innovation**: Industry-first agentic incident management suite launched, with agents leveraging 700+ integrations and MCP protocol for cross-platform orchestration. Integration with Spotify's Backstage developer portal positions as proactive issue prevention leader.

PagerDuty, Inc. (PD) Q3 2026 Earnings Call Transcript

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