PagerDuty PD shares fell 1.15% to close at $18.08 on Wednesday, following its second-quarter fiscal 2025 results reported on Tuesday. Although both non-GAAP earnings and revenues increased on a year-over-year basis, PD lowered its fiscal 2025 revenue guidance, as well as announced a contraction in operating margin for the fiscal third quarter. The weak outlook spooked investors.

PD continues to suffer from weakness in the SMB segment. The challenging macroeconomic environment is also negatively impacting the Enterprise segment, resulting long sales cycle.   

PD reported second-quarter fiscal 2025 non-GAAP earnings of 21 cents per share, beating the Zacks Consensus Estimate by 31.25%. The figure increased 10.5% year over year.

PagerDuty’s revenues of $115.9 million lagged the consensus mark by 0.6%. Revenues increased 7.7% year over year, driven by expanding customer base, strong product portfolio, solid subscription and recurring revenue base. 

Annual recurring revenues (ARR) increased 10% year over year to $474 million.

PagerDuty Price, Consensus and EPS Surprise

PagerDuty price-consensus-eps-surprise-chart | PagerDuty Quote

International revenues contributed 27% to total revenues in the reported quarter.

Strong Customer Growth Aids PD’s Q2 Top Line

PagerDuty benefited from strong Enterprise and Mid-Market performance, with a total dollar-based net retention rate (DBNR) of 106% as of July 31, 2024. 

The total number of customers, combining free and paid subscriptions, exceeded 29,000, up approximately 12% year over year. 

PD closed the fiscal second quarter with 15,044 total paid customers compared with 15,146 at the end of the year-ago period. The decline was due to weakness in the SMB segment.

Customers with an ARR of more than $100,000 increased 6% year over year to 820.

PD’s Operating Details

In the second quarter of fiscal 2025, non-GAAP gross profit rose 8.2% year over year to $99.7 million. Gross margin gained 40 basis points (bps) to 86%.

Non-GAAP research & development (R&D) expenses decreased 2% year over year to $22.8 million. As a percentage of revenues, R&D expenses declined 190 bps on a year-over-year basis to 19.6%.

Non-GAAP sales & marketing (S&M) expenses rose 4% year over year to $42.1 million. However, as a percentage of revenues, S&M expenses declined 130 bps on a year-over-year basis to 36.3%.

Non-GAAP general & administrative (G&A) expenses increased 4.3% from the year-ago quarter’s figure to $14.7 million. As a percentage of revenues, G&A expenses declined 40 bps on a year-over-year basis to 12.7%.

Non-GAAP operating income was $20.1 million up 4.1% year over year. Non-GAAP operating margin was 17%, which expanded 410 bps year over year.