PagerDuty earnings show stabilization in the face of software-sector pressures

By Emily Bary

Company has refocused on the enterprise as smaller customers see spending pressures

PagerDuty Inc. says a renewed focus on enterprise customers has helped stabilize growth despite general pressures in the software industry.

Annual recurring revenue for the fiscal first quarter stabilized as it sported a 10% growth rate for the second quarter in a row. That comes after prior deceleration that reflected slowing demand as well as headcount cuts across developer teams.

What's driving performance is that PagerDuty (PD) has "become very intentional around our strategy with large enterprises and ensuring that we are really solving big problems for big customers," Chief Financial Officer Howard Wilson told MarketWatch. He said that the company's focus has shifted in response to economic conditions.

Specifically, the software company is still seeing pressure among smaller customers. "We are seeing higher levels of churn and downgrades still in that small business segment, which in some ways is consistent when you look at the market data even last year," Wilson said.

Some small companies are taking advantage of the company's free offering, which allows for up to five users.

"It's actually a good place for them to land because as the environment improves, there's a natural path for them to be able to become paying customers," Wilson added.

He expects overall trends to improve, as the company, which makes offerings for incident management and automation, now has a "platform for improvement" on annual recurring revenue looking to the back half of the year. "We are seeing things trending in the right direction," according to Wilson.

Revenue for the latest quarter came in at $111.2 million, up about 8% from a year before, while analysts were modeling $111.7 million.

For the fiscal second quarter, PagerDuty's forecast calls for $115.5 million to $117.5 million in revenue. The FactSet consensus of $116.5 million is right at the midpoint of that range.

PagerDuty recorded a fiscal first-quarter net loss of $24 million, or 26 cents a share, roughly double what it posted a year before. On an adjusted basis, it logged 17 cents in earnings per share, exceeding the 13-cent consensus view.

The company's forecast calls for 16 cents to 17 cents in adjusted EPS, compared with consensus projections for 16 cents.

"While we're certainly not growing at the levels we were two years ago, we certainly feel that we've reached a point where we're adapting to a new market environment, and that gives us a lot of confidence for the future," Wilson said.

PagerDuty also announced a buyback program that allows for the repurchase of up to $100 million in stock.

"When we have a look at where our share price is today, we feel that it represents a good opportunity for us to manage the dilution and deliver better returns to investors," Wilson said.

PagerDuty shares have fallen about 18% so far this year, when factoring in the roughly 7% decline seen in Thursday's session that aligned with the broader software selloff.

-Emily Bary

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05-30-24 1607ET

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