PagerDuty Swings to Profit on Massive Tax Benefit, Boosts Cash Flow

TL;DR

**PagerDuty's massive tax benefit masks flat revenue growth, but the cash flow improvement is a bullish sign for long-term holders.**

AI Summary

PagerDuty, Inc. reported a significant turnaround in its financial performance for the three and nine months ended October 31, 2025. Revenue increased to $124.5 million for the three months ended October 31, 2025, up from $118.9 million in the prior year, and reached $367.8 million for the nine months, compared to $346.1 million in 2024. The company achieved a net income of $161.4 million for the three-month period, a substantial improvement from a net loss of $6.1 million in the same period last year. For the nine months, net income was $163.4 million, reversing a net loss of $34.7 million in the prior year. This dramatic shift was primarily driven by a significant income tax benefit of $149.7 million for the three months and $150.7 million for the nine months. Operating expenses decreased across the board, with research and development down to $29.4 million from $34.3 million, sales and marketing to $44.3 million from $49.3 million, and general and administrative to $24.4 million from $25.4 million for the three-month period. Cash provided by operating activities increased to $89.4 million for the nine months ended October 31, 2025, up from $86.5 million in the prior year, indicating improved operational efficiency. The company also repurchased $36.1 million of common stock and repaid $57.5 million in convertible senior notes during the nine-month period.

Why It Matters

This filing reveals PagerDuty's impressive swing to profitability, largely due to a substantial deferred tax asset recognition, which could signal a more stable financial future for investors. The reduction in operating expenses, particularly in sales and marketing, suggests a focus on efficiency and potentially higher margins, which is crucial in the competitive digital operations management market. For employees, this improved financial health could mean greater job security and potential for growth. Customers benefit from a financially robust PagerDuty, ensuring continued investment in its platform and competitive innovation against rivals like Datadog and Splunk. The broader market will watch if this tax benefit translates into sustained operational profitability and market share gains.

Risk Assessment

Risk Level: medium — The significant net income of $161.4 million for the three months ended October 31, 2025, is primarily due to a non-recurring income tax benefit of $149.7 million, not core operational improvements. While operating income improved to $8.1 million from a loss of $10.3 million, revenue growth was modest at 4.7% ($124.5 million vs. $118.9 million), indicating that underlying business expansion is not as robust as the headline profit suggests.

Analyst Insight

Investors should look beyond the headline net income figure and scrutinize the source of profitability. While the deferred tax asset is a positive, sustained growth in revenue and continued reduction in operating expenses are critical. Consider holding if you believe in PagerDuty's long-term market position and operational efficiency gains, but be cautious about the modest revenue growth.

Financial Highlights

debt To Equity

2.15

revenue

$124.5M

operating Margin

6.5%

total Assets

$1,027.8M

total Debt

$673.2M

net Income

$161.4M

eps

$1.76

gross Margin

85.3%

cash Position

$324.3M

revenue Growth

+4.7%

Key Numbers

• $124.5M — Revenue (Up from $118.9M in Q3 2024, a 4.7% increase.)
• $161.4M — Net Income (Swung from a net loss of $6.1M in Q3 2024, primarily due to a tax benefit.)
• $149.7M — Income Tax Benefit (Key driver of net income for the three months ended October 31, 2025.)
• $8.1M — Income from Operations (Improved from a loss of $10.3M in Q3 2024, indicating better operational efficiency.)
• $89.4M — Net Cash Provided by Operating Activities (Increased from $86.5M in the prior nine-month period, showing stronger cash generation.)
• $36.1M — Common Stock Repurchases (Executed during the nine months ended October 31, 2025, returning value to shareholders.)
• $57.5M — Convertible Senior Notes Repaid (Reduced debt obligations during the nine months ended October 31, 2025.)
• 91,776,804 — Shares Outstanding (As of November 21, 2025, reflecting share repurchases.)

Key Players & Entities

• PagerDuty, Inc. (company) — registrant
• SEC (regulator) — Securities and Exchange Commission
• $124.5 million (dollar_amount) — revenue for three months ended October 31, 2025
• $161.4 million (dollar_amount) — net income for three months ended October 31, 2025
• $149.7 million (dollar_amount) — income tax benefit for three months ended October 31, 2025
• $89.4 million (dollar_amount) — net cash provided by operating activities for nine months ended October 31, 2025
• $36.1 million (dollar_amount) — repurchases of common stock for nine months ended October 31, 2025
• $57.5 million (dollar_amount) — repayments of convertible senior notes for nine months ended October 31, 2025
• New York Stock Exchange (regulator) — exchange where PD is registered
• Delaware (regulator) — state of incorporation

FAQ

Risk Factors

• Intense Competition [high — market]: The market for incident management and DevOps solutions is highly competitive. PagerDuty faces competition from established technology companies and emerging players. Failure to compete effectively on factors such as price, features, and performance could adversely affect the business.
• Service Disruptions [high — operational]: PagerDuty's services are critical to its customers' operations. Any disruption to its services, whether due to system failures, security breaches, or other causes, could result in significant financial and reputational damage. The company experienced a significant outage in Q3 2024 that impacted customer experience.
• Reliance on Subscription Revenue [medium — financial]: The company's revenue is substantially dependent on recurring subscription fees. A significant portion of revenue comes from a limited number of large customers. The loss of any of these key customers or a failure to renew contracts could materially impact revenue.
• Data Privacy and Security Compliance [medium — regulatory]: PagerDuty handles sensitive customer data, making it subject to various data privacy and security regulations globally, such as GDPR and CCPA. Non-compliance could lead to significant fines and reputational harm. The company must continuously invest in robust security measures.
• Dependence on Key Personnel [medium — operational]: The success of PagerDuty depends on its ability to attract and retain highly qualified personnel, particularly in engineering and sales. Competition for such talent is intense, and any inability to retain key employees could hinder growth and innovation.

Industry Context

PagerDuty operates in the rapidly evolving IT operations management and digital operations management software market. Key trends include the increasing adoption of cloud computing, the growing complexity of IT environments, and the demand for automation and AI-driven solutions to manage incidents and optimize performance. The competitive landscape is intense, with established players and emerging startups vying for market share.

Regulatory Implications

PagerDuty must navigate a complex web of data privacy and security regulations globally, including GDPR and CCPA. Ensuring compliance is critical to avoid substantial fines and maintain customer trust. The company's ability to protect sensitive customer data is paramount.

What Investors Should Do

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Key Dates

• 2025-10-31: End of Third Quarter 2025 — Reported significant revenue growth and a substantial swing to net income, largely driven by a tax benefit.
• 2025-11-21: Shares Outstanding as of — Indicates a reduction in shares outstanding to 91,776,804, reflecting recent share repurchase activity.
• 2025-01-31: End of Fiscal Year 2025 — Represents the prior fiscal year-end balance sheet figures used for comparison.
• 2024-10-31: End of Third Quarter 2024 — Provided the prior year's comparable period results, showing a net loss and lower revenue.

Glossary

Deferred contract costs, current

Costs incurred to obtain contracts with customers that are expected to be recovered from future revenue, classified as current if expected to be recognized within one year. (Reflects the company's investment in acquiring new customer contracts.)

Deferred revenue, current

Payments received from customers for services that have not yet been delivered or recognized as revenue, classified as current if expected to be recognized within one year. (Indicates future revenue that has already been billed and collected.)

Convertible senior notes, net

Debt securities that can be converted into a predetermined amount of the issuer's equity (common stock). 'Net' typically refers to the carrying value after accounting adjustments. (Represents a significant portion of the company's debt, with a portion repaid during the period.)

Accumulated deficit

The cumulative net losses of a company since its inception, offset by any net profits. (Shows the company's historical profitability, which has significantly improved due to recent net income.)

Income tax benefit

A reduction in the amount of income tax expense a company owes, often due to tax credits, deductions, or changes in tax laws. (The primary driver of the substantial net income reported for the period.)

Year-Over-Year Comparison

PagerDuty has demonstrated a significant financial turnaround compared to the prior year. Revenue for the three months ended October 31, 2025, increased by 4.7% to $124.5 million, and for the nine months, it grew to $367.8 million. Most notably, the company swung from a net loss of $6.1 million in Q3 2024 to a net income of $161.4 million in Q3 2025, primarily due to a substantial $149.7 million income tax benefit. Operating expenses saw a reduction across all categories, contributing to improved operational efficiency, as evidenced by income from operations turning positive at $8.1 million from a loss of $10.3 million. Net cash provided by operating activities also saw a modest increase.

Key Financial Figures

• $0.000005 — ich registered Common Stock, par value $0.000005 per share PD New York Stock Exchange

Filing Documents

• pd-20251031.htm (10-Q) — 1498KB
• pagerdutyq3fy26-ex311xsec3.htm (EX-31.1) — 12KB
• pagerdutyq3fy26-ex312xsec3.htm (EX-31.2) — 11KB
• pagerdutyq3fy26-ex321xsec9.htm (EX-32.1) — 7KB
• 0001568100-25-000107.txt ( ) — 7223KB
• pd-20251031.xsd (EX-101.SCH) — 43KB
• pd-20251031_cal.xml (EX-101.CAL) — 76KB
• pd-20251031_def.xml (EX-101.DEF) — 203KB
• pd-20251031_lab.xml (EX-101.LAB) — 618KB
• pd-20251031_pre.xml (EX-101.PRE) — 433KB
• pd-20251031_htm.xml (XML) — 936KB

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements 4 Condensed Consolidated Balance Sheets (unaudited) 4 Condensed Consolidated Statements of Operations (unaudited) 5 Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) 6 Condensed Consolidated Statements of Stockholders' Equity (unaudited) 7 Condensed Consolidated Statements of Cash Flows (unaudited) 9 Notes to Condensed Consolidated Financial Statements (unaudited) 10

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26

Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk 42

Controls and Procedures

Item 4. Controls and Procedures 42

- OTHER INFORMATION

PART II - OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings 44

Risk Factors

Item 1A. Risk Factors 44

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 47

Defaults Upon Senior Securities

Item 3. Defaults Upon Senior Securities 47

Mine Safety Disclosures

Item 4. Mine Safety Disclosures 47

Other Information

Item 5. Other Information 48

Exhibits

Item 6. Exhibits 49

SIGNATURES

SIGNATURES 50 2 Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which statements involve substantial risk and uncertainties. All statements contained in this Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "could," "would," "project," "plan," "potentially," "likely," "target," and similar expressions are intended to identify forward-looking statements. Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about our expectations regarding: the impact of an economic downturn or recession, rising inflation, tariffs and trade wars, or significant market volatility in the global economy on our customers, partners, employees and business; trends in key business metrics, including annual recurring revenue ("ARR"), number of customers and dollar-based net retention rate, and non-GAAP financial measures and their usefulness in evaluating our business; trends in revenue, cost of revenue, and gross margin; trends in operating expenses, including research and development, sales and marketing, and general and administrative expense, and expectations regarding these expenses as a percentage of revenue; our existing cash and cash equivalents and cash provided by sales of our subscriptions being sufficient to support working capital and capital expenditures for at least the next 12 months and our ability to meet longer-term

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements PAGERDUTY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) October 31, 2025 January 31, 2025 Assets Current assets: Cash and cash equivalents $ 324,260 $ 346,460 Investments 223,521 224,366 Accounts receivable, net of allowance for credit losses of $ 1,015 and $ 1,103 as of October 31, 2025 and January 31, 2025, respectively 78,880 107,350 Deferred contract costs, current 18,385 19,787 Prepaid expenses and other current assets 13,855 13,757 Total current assets 658,901 711,720 Property and equipment, net 27,394 21,335 Deferred contract costs, non-current 24,248 25,279 Lease right-of-use assets 8,105 6,806 Goodwill 137,401 137,401 Intangible assets, net 16,588 20,865 Deferred tax assets 151,470 — Other assets 3,657 3,860 Total assets $ 1,027,764 $ 927,266 Liabilities, redeemable non-controlling interest, and stockholders' equity Current liabilities: Accounts payable $ 6,698 $ 7,329 Accrued expenses and other current liabilities 17,283 20,322 Accrued compensation 28,178 37,505 Deferred revenue, current 221,809 243,269 Lease liabilities, current 4,103 3,307 Convertible senior notes, net, current — 57,426 Total current liabilities 278,071 369,158 Convertible senior notes, net, non-current 395,132 393,282 Deferred revenue, non-current 1,227 2,483 Lease liabilities, non-current 9,291 9,637 Other liabilities 4,725 4,661 Total liabilities 688,446 779,221 Commitments and contingencies (Note 10) Redeemable non-controlling interest (Note 3) 18,819 18,217 Stockholders' equity Common stock — — Additional paid-in capital 756,061 725,483 Accumulated other comprehensive loss ( 206 ) ( 485 ) Accumulated deficit ( 431,171 ) ( 595,170 ) Treasury stock ( 4,185 ) — Total stockholders' equity 320,499 129,828 Total liabilities, redeemable non-controlling interest, and stockholders' equity $ 1,027,764 $ 927,266 See accompanying notes to unaudited condensed consolidated financial statem