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The following discussion and analysis of the financial condition and results of operations of PagerDuty, Inc. and its wholly-owned subsidiaries, and subsidiaries in which PagerDuty, Inc. holds a controlling interest (“PagerDuty,” “we,” “us” or “our”) should be read in conjunction with our unaudited consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and related notes in our Annual Report on Form 10-K for the year ended January 31, 2026. You should review the sections titled “Special Note Regarding Forward-Looking Statements” above in this Quarterly Report on Form 10-Q for a discussion of forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, adverse effects on our business and general economic conditions as identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K and elsewhere in this Quarterly Report on Form 10-Q. The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31 and January 31. Except as otherwise noted, all references to fiscal 2027 refer to the fiscal year ending January 31, 2027. Overview and Business Model PagerDuty, Inc. transforms critical work for modern business by building operational resilience, reducing risk, improving customer experience, and driving operational efficiency across digital operations. As a global leader in digital operations management since 2009, PagerDuty helps enterprises manage the complex web of infrastructure, applications, and systems that power today's digital experiences. The PagerDuty Operations Cloud sits at the center of the enterprise technology stack as a system of intelligence and action, ingesting signals from over 750 integrations—including monitoring, observability, security, customer service, and development tools—to orchestrate the right response across people, machines, and software. Built for the modern era of artificial intelligence (“AI”), PagerDuty empowers customers to maximize the value of their AI investments through agentic workflows, AI-powered automation, and intelligent orchestration that accelerates incident detection and resolution while enabling teams to focus on innovation rather than firefighting. In today's environment, every business is fundamentally a digital business. Whether in retail, financial services, healthcare, telecommunications, or supply chain logistics, modern commerce depends on increasingly complex networks of digital infrastructure, cloud services, applications, and distributed teams that operate in an always-on world. This complexity continues to accelerate as organizations adopt AI-driven systems and integrate AI across their operations. Customer expectations have never been higher. Incidents are measured not just in lost revenue but in damaged brand reputation and customer trust. Organizations face mounting pressure to deliver always-on digital experiences, resolve issues proactively before customers are impacted, and innovate rapidly without proportionally increasing operational costs or headcount. The ability to anticipate, orchestrate, and resolve time-sensitive, critical, and unplanned work before it escalates has become a strategic imperative and competitive differentiator. Since our founding in 2009, PagerDuty has evolved from a single product focused on on-call management for developers into a comprehensive, multi-product operations cloud that spans the entire enterprise. Today, our platform breaks down organizational silos across development, IT operations, security, customer service, and business operations, reaching technical practitioners and executive stakeholders alike. Over more than a decade, we have built one of the industry's most comprehensive integration ecosystems, with over 750 direct integrations spanning monitoring tools, cloud platforms, collaboration systems, ITSM solutions, and business applications. We also support the Model Context Protocol (“MCP”), enabling seamless integration with AI agents and large language model-powered tools to extend our platform's capabilities into emerging AI workflows. This deep integration fabric allows our customers to gather and correlate digital signals from across their entire technology stack – both modern cloud-native and legacy systems – without the friction of context switching or manual data aggregation. These same integrations enable powerful workflow automation, connecting technical operations with popular collaboration tools and business applications to drive coordinated responses and accelerate resolution. Our open platform approach and extensive partner ecosystem have become a strategic moat, making PagerDuty increasingly embedded and essential within our customers' operations. 25 Table of Contents We generate revenue primarily from cloud-hosted software subscriptions, with additional revenue from term-license arrangements. Our land-and-expand business model drives viral adoption and natural expansion as teams experience value and extend PagerDuty to new users, use cases, and products. During the current fiscal year, we took initial steps to provide customers with more flexible pricing options, including usage-based pricing models that enable customers to seamlessly scale between human responders, agents, and automated solutions, better aligning customer investments to business outcomes rather than headcount and licenses, and supporting our transition from traditional single-year seat-based licensing to multiyear platform usage agreements. While the PagerDuty platform serves organizations of all sizes, we have strategically focused our go-to-market investments, including our enterprise field sales organization, on serving enterprise customers where we see the greatest opportunity for platform adoption and expansion. Today, nearly half of the Fortune 500 and approximately two-thirds of the Fortune 100 rely on PagerDuty as mission-critical infrastructure. Our enterprise customers represent the majority of our revenue and demonstrate strong retention and expansion characteristics. Macroeconomic Environment Our business and financial performance has and may continue to be subject to the effects of worldwide macroeconomic conditions, including, but not limited to, global inflation and heightened interest rates, tariffs and trade wars, existing and new laws and regulations, and economic uncertainty and volatility globally and in the jurisdictions in which we do business. We will continue to monitor the direct and indirect impacts of these or similar circumstances on our business and financial results. For additional information on the potential impact of macroeconomic conditions on our business, see Part II, Item 1A, Risk Factors. Key Business Metrics We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. While these metrics are based on what we believe to be a reasonable representation of our customer base for the applicable period of measurement, we rely on a third party to validate legal entities using the best available data at period end, and therefore, these metrics are subject to change as new information becomes available. In addition, we are continually seeking to improve our methodology, which may result in future changes to our key metrics. Annual Recurring Revenue (“ARR”) We believe ARR is a key metric to measure our business performance because it is an indication of our ability to maintain and expand our relationships with existing customers and generate new business. We define ARR as the annualized recurring revenue of all active contracts at the end of a reporting period. ARR was as follows as of the dates indicated (in millions): As of July 31, 2026 2025 ARR $ 501.4 $ 498.9 26 Table of Contents Number of Customers We believe that the number of customers using our platform, particularly those that have subscription agreements for more than $100.0 thousand in ARR, are indicators of our market penetration, particularly within enterprise accounts, the growth of our business, and our potential future business opportunities. We define a customer as a separate legal entity, such as a company or an educational or government institution, that has an active subscription with us or one of our partners to access our platform. In situations where an organization has multiple subsidiaries or divisions, we treat the parent entity as the customer instead of treating each subsidiary or division as a separate customer. Increasing awareness of our platform and its broad range of capabilities, coupled with the fact that the world is always on and powered by increasingly complex technology, has expanded the diversity of our customer base to include organizations of all sizes across virtually all industries. Over time, enterprise customers have constituted a greater share of our revenue. The total number of paid customers and the number of customers with greater than $100.0 thousand in ARR were as follows as of the dates indicated: As of July 31, 2026 2025 Customers 15,506 15,322 Customers with greater than $100.0 thousand in ARR 884 868 Dollar-based Net Retention Rate We use dollar-based net retention rate to evaluate the long-term value of our customer relationships, since this metric reflects our ability to retain and expand the ARR from our existing paid customers. Our dollar-based net retention rate compares our ARR from the same set of customers across comparable periods. We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all paid customers as of 12 months prior to such period end (“Prior Period ARR”). We then calculate the ARR from these same customers as of the current period end (“Current Period ARR”). Current Period ARR includes any expansion and is net of downgrades or churn over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the dollar-based net retention rate. The dollar-based net retention rate was as follows as of the dates indicated: Last 12 months ended July 31, 2026 2025 Dollar-based net retention rate 98 % 102 % 27 Table of Contents Results of Operations Three months ended July 31, 2026 compared to three months ended July 31, 2025 The following table sets forth our results of operations for the periods indicated and as a percentage of revenue (in thousands, except percentages): Three months ended July 31, 2026 2025 Revenue $ 124,436 100.0 % $ 123,411 100.0 % Cost of revenue(1) 20,037 16.1 % 19,001 15.4 % Gross profit 104,399 83.9 % 104,410 84.6 % Operating expenses: Research and development(1) 30,897 24.8 % 30,897 25.0 % Sales and marketing(1) 38,325 30.8 % 44,456 36.0 % General and administrative(1) 24,938 20.0 % 25,491 20.7 % Total operating expenses 94,160 75.7 % 100,844 81.7 % Income from operations 10,239 8.2 % 3,566 2.9 % Interest income 4,101 3.3 % 6,149 5.0 % Interest expense (2,113) (1.7) % (2,286) (1.9) % Other (expense) income, net (157) (0.1) % 120 0.1 % Income before provision for (benefit from) income taxes 12,070 9.7 % 7,549 6.1 % Provision for (benefit from) income taxes 4,357 3.5 % (1,865) (1.5) % Net income $ 7,713 6.2 % $ 9,414 7.6 % Net loss attributable to redeemable non-controlling interest (72) (0.1) % (161) (0.1) % Net income attributable to PagerDuty, Inc. $ 7,785 6.3 % $ 9,575 7.8 % Less: Adjustment attributable to redeemable non-controlling interest 3,059 2.5 % (202) (0.2) % Net income attributable to PagerDuty, Inc. common stockholders $ 4,726 3.8 % $ 9,777 7.9 % ______________ (1) Includes stock-based compensation expense as follows (in thousands): Three months ended July 31, 2026 2025 Cost of revenue $ 665 $ 1,213 Research and development 5,592 9,560 Sales and marketing 3,064 5,285 General and administrative 7,151 9,902 Total $ 16,472 $ 25,960 28 Table of Contents Revenue We generate revenue primarily from cloud-hosted software subscription fees, which include platform subscriptions and credit packs for flexible platform capacity. We also generate revenue from term-license software subscription fees. Our subscriptions are typically one year in duration but can range from monthly to multi-year. Subscription fees are driven primarily by the number of customers, the number of users per customer, and the level of subscription purchased, and committed platform capacity. We generally invoice customers in advance in annual installments for subscriptions to our software. Revenue related to our cloud-hosted software subscriptions is recognized ratably over the related contractual term beginning on the date that our platform is made available to a customer. For our term-license software subscriptions, we recognize license revenue upon delivery, and software maintenance revenue ratably, typically beginning on the start of the contractual term of the arrangement. Due to the low complexity of implementation and integration of our platform with our customers’ existing infrastructure, revenue from professional services has not been material to date. The following sets forth our revenue for the periods indicated (in thousands, except percentages): Three months ended July 31, Change 2026 2025 $ % Revenue $ 124,436 $ 123,411 $ 1,025 0.8 % Revenue increased primarily due to growth from new and existing customers. The growth from existing customers was primarily driven by upsell of additional products and services. Cost of Revenue and Gross Margin Cost of revenue primarily consists of expenses related to providing our platform to customers, including personnel expenses for operations and global support, payments to our third-party cloud infrastructure providers for hosting our software, payment processing fees, amortization of capitalized software costs, amortization of acquired developed technology and intangible assets, and allocated overhead costs for facilities, information technology, and other allocated overhead costs. We will continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capability of our platform and ensure that our customers are realizing the full benefit of our offerings. The level and timing of investment in these areas could affect our cost of revenue in the future. Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand the capacity of our third-party cloud infrastructure providers and our continued efforts to enhance our platform support and customer success teams. The following sets forth our cost of revenue and gross margin for the periods indicated (in thousands, except percentages): Three months ended July 31, Change 2026 2025 $ % Cost of revenue $ 20,037 $ 19,001 $ 1,036 5.5 % Gross margin 83.9 % 84.6 % Cost of revenue increased primarily due to: (i) an increase of $0.7 million in costs to support the business and related infrastructure, which include allocated overhead costs; (ii) an increase of $0.5 million in personnel costs, primarily related to increases in commissions and bonuses; and (iii) an increase of $0.3 million in hosting, software, and telecom costs; offset by (iv) a decrease of $0.3 million in amortization of acquired intangible assets; and (v) a decrease of $0.1 million in merchant fees. 29 Table of Contents Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel expenses are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense, and sales commissions. Operating expenses also include amortization of acquired intangible assets, acquisition-related expenses, allocated overhead costs for facilities, shared IT related expenses, including depreciation expense, and certain company-wide events and functions. The following table sets forth our operating expenses for the periods indicated (in thousands, except percentages): Three months ended July 31, Change 2026 2025 $ % Operating expenses: Research and development $ 30,897 $ 30,897 $ — — % Sales and marketing 38,325 44,456 (6,131) (13.8) % General and administrative 24,938 25,491 (553) (2.2) % Total operating expenses $ 94,160 $ 100,844 $ (6,684) (6.6) % Research and development: Research and development expenses consist primarily of personnel costs for our engineering, product, and design teams. Additionally, research and development expenses include outside services, depreciation of equipment used in research and development activities, acquisition-related expenses, impairment of capitalized software costs, and allocated overhead costs. We expect that our recurring research and development expenses will increase in dollar value as our business grows. Research and development expenses remained flat primarily due to: (i) an increase of $1.7 million in costs to support the business and related infrastructure, which include allocated overhead costs; and (ii) an increase of $0.5 million in outside services spend; offset by (iii) a decrease of $2.0 million in personnel costs primarily as a result of a decrease in stock-based compensation; and (v) a decrease of $0.1 million in training and travel-related costs. Sales and marketing: Sales and marketing expenses consist primarily of personnel costs, costs of outside services, costs of general marketing and promotional activities, training and travel-related expenses, amortization of acquired intangible assets, allocated overhead costs, and credit loss expense. Sales commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a subscription with a customer are deferred and amortized on a straight-line basis over the expected period of benefit, which we have determined to be four years. We expect that our recurring sales and marketing expenses will generally increase in dollar value and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts. Sales and marketing expenses decreased primarily due to: (i) a decrease of $5.9 million in personnel costs, driven largely by a decrease in headcount and a decrease in stock-based compensation; (ii) a decrease of $0.7 million in costs to support the business and related infrastructure, which include allocated overhead costs; offset by (iii) an increase of $0.4 million in training and travel-related costs; and (iv) an increase of $0.2 million in outside services spend for consulting services. General and administrative: General and administrative expenses consist primarily of personnel costs, training and travel-related costs, and outside services fees for finance, legal, human resources, information technology, and other administrative functions. In addition, general and administrative expenses include non-personnel costs, such as legal, accounting, and other professional fees, hardware and software costs, certain tax, license and insurance-related expenses, acquisition-related expenses, and allocated overhead costs. We expect that our recurring general and administrative expenses will increase in dollar value as our business grows. However, we expect that our general and administrative expenses will decrease as a percentage of our revenue over the longer term, as we expect our investments to allow for improved efficiency for future growth in the business. General and administrative expenses decreased primarily due to: (i) a decrease of $2.6 million in personnel costs, driven largely by a decrease in headcount and a decrease in stock-based compensation; offset by (ii) an increase of $1.8 million in outside services spend for consulting services and (iii) an increase of $0.3 million in costs to support the business and related infrastructure, which include allocated overhead costs. 30 Table of Contents Non-Operating Income (Expense) The following table sets forth our non-operating income (expense) for the periods indicated (in thousands, except percentages): Three months ended July 31, Change 2026 2025 $ % Interest income $ 4,101 $ 6,149 $ (2,048) (33.3) % Interest expense $ (2,113) $ (2,286) $ 173 (7.6) % Other (expense) income, net $ (157) $ 120 $ (277) (230.8) % Provision for (benefit from) income taxes $ 4,357 $ (1,865) $ 6,222 (333.6) % Interest income: Interest income consists of accretion income and amortization expense on our available-for-sale investments, income earned on our cash and cash equivalents, and interest earned on our short-term investments which consist of U.S. Treasury securities, commercial paper, corporate debt securities, and U.S. Government agency securities. Interest income decreased primarily due to a lower cash and cash equivalents balance and lower interest rates year-over-year. Interest expense: Interest expense consists primarily of contractual interest expense and amortization of debt issuance costs on our 1.25% Convertible senior notes due 2025 (the “2025 Notes”) that were repaid during the three months ended July 31, 2025 and the contractual interest expense and amortization of debt issuance costs on our 1.50% Convertible Senior Notes due 2028 (the “2028 Notes”) that were issued in October 2023. Interest expense decreased primarily due to a decrease in interest expense related to our convertible notes, driven by the repayment of the 2025 Notes during three months ended July 31, 2025. Other (expense) income, net: Other (expense) income, net primarily consists of foreign currency transaction gains and losses. The change in other (expense) income, net was due to fluctuations in foreign currency during the period. Provision for (benefit from) income taxes: Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign and U.S. jurisdictions in which we conduct business. The change in provision for (benefit from) income taxes is primarily attributable to an increase in pre-tax income, as well as tax deficiencies from stock-based compensation. We regularly assess the need for a valuation allowance against our deferred tax assets. In making that assessment, we consider both positive and negative evidence in the various jurisdictions in which we operate related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. During the year ended January 31, 2026, we achieved cumulative U.S. income, measured as pre-tax income adjusted for permanent book-tax differences. Based on all available positive and negative evidence, including the amount of our taxable income in recent years which is objective and verifiable, and taking into account anticipated future taxable earnings, we concluded that it was more likely than not that our U.S. federal and certain state deferred tax assets will be realizable, which resulted in a release of our U.S. valuation allowance, with the exception of certain state deferred tax assets that will not be realized in the future. Furthermore, based on available evidence, we believe it is more likely than not that certain non-U.S. deferred tax assets will not be fully realizable in the future. We continue to maintain a valuation allowance against such deferred tax assets. We will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis. 31 Table of Contents Six months ended July 31, 2026 compared to six months ended July 31, 2025 The following table sets forth our results of operations for the periods indicated and as a percentage of revenue (in thousands, except percentages): Six months ended July 31, 2026 2025 Revenue $ 245,403 100.0 % $ 243,216 100.0 % Cost of revenue(1) 39,057 15.9 % 38,185 15.7 % Gross profit 206,346 84.1 % 205,031 84.3 % Operating expenses: Research and development(1) 60,885 24.8 % 64,945 26.7 % Sales and marketing(1) 77,935 31.8 % 94,501 38.9 % General and administrative(1) 48,104 19.6 % 52,346 21.5 % Total operating expenses 186,924 76.2 % 211,792 87.1 % Income (loss) from operations 19,422 7.9 % (6,761) (2.8) % Interest income 8,027 3.3 % 12,160 5.0 % Interest expense (4,220) (1.7) % (4,650) (1.9) % Other (expense) income, net (228) (0.1) % 234 0.1 % Income before provision for (benefit from) income taxes 23,001 9.4 % 983 0.4 % Provision for (benefit from) income taxes 10,158 4.1 % (1,052) (0.4) % Net income $ 12,843 5.2 % $ 2,035 0.8 % Net loss attributable to redeemable non-controlling interest (225) (0.1) % (378) (0.2) % Net income attributable to PagerDuty, Inc. $ 13,068 5.3 % $ 2,413 1.0 % Less: Adjustment attributable to redeemable non-controlling interest (1,904) (0.8) % (867) (0.4) % Net income attributable to PagerDuty, Inc. common stockholders $ 14,972 6.1 % $ 3,280 1.3 % ______________ (1) Includes stock-based compensation expense as follows (in thousands): Six months ended July 31, 2026 2025 Cost of revenue $ 1,514 $ 2,310 Research and development 11,729 19,400 Sales and marketing 7,248 11,504 General and administrative 13,944 18,499 Total $ 34,435 $ 51,713 Revenue The following sets forth our revenue for the periods indicated (in thousands, except percentages): Six months ended July 31, Change 2026 2025 $ % Revenue $ 245,403 $ 243,216 $ 2,187 0.9 % 32 Table of Contents Revenue increased primarily due to growth from new and existing customers. The growth from existing customers was primarily driven by upsell of additional products and services. Cost of Revenue and Gross Margin The following sets forth our cost of revenue and gross margin for the periods indicated (in thousands, except percentages): Six months ended July 31, Change 2026 2025 $ % Cost of revenue $ 39,057 $ 38,185 $ 872 2.3 % Gross margin 84.1 % 84.3 % Cost of revenue increased primarily due to: (i) an increase of $1.4 million in hosting, software, and telecom costs; (ii) an increase of $1.0 million in costs to support the business and related infrastructure, which include allocated overhead costs; (iii) an increase of $0.8 million in personnel costs, primarily related to increases in commissions and bonuses; offset by (iv) a decrease of $1.2 million in amortization of acquired intangible assets; (v) a decrease of $0.5 million in merchant fees and (vi) a decrease of $0.5 million in outside services spend. Operating Expenses The following table sets forth our operating expenses for the periods indicated (in thousands, except percentages): Six months ended July 31, Change 2026 2025 $ % Operating expenses: Research and development $ 60,885 $ 64,945 $ (4,060) (6.3) % Sales and marketing 77,935 94,501 (16,566) (17.5) % General and administrative 48,104 52,346 (4,242) (8.1) % Total operating expenses $ 186,924 $ 211,792 $ (24,868) (11.7) % Research and development expenses decreased primarily due to: (i) a decrease of $7.4 million in personnel costs primarily as a result of a decrease in stock-based compensation; offset by (ii) an increase of $2.8 million in costs to support the business and related infrastructure, which include allocated overhead costs; and (iii) an increase of $0.9 million in outside services spend. Sales and marketing expenses decreased primarily due to: (i) a decrease of $12.7 million in personnel costs, driven largely by a decrease in headcount and a decrease in stock-based compensation; (ii) a decrease of $1.2 million in costs to support the business and related infrastructure, which include allocated overhead costs; (iii) a decrease of $1.1 million in marketing costs for media campaigns; (iv) a decrease of $0.8 million in training and travel-related costs; and (v) a decrease of $0.5 million in credit loss expense. General and administrative expenses decreased primarily due to: (i) a decrease of $4.5 million in personnel costs, driven largely by a decrease in headcount and a decrease in stock-based compensation; and (ii) a decrease of $0.3 million in insurance, business taxes, and licenses costs; offset by (iii) an increase of $0.6 million in costs to support the business and related infrastructure, which include allocated overhead costs. 33 Table of Contents Non-Operating Income (Expense) The following table sets forth our non-operating income (expense) for the periods indicated (in thousands, except percentages): Six months ended July 31, Change 2026 2025 $ % Interest income $ 8,027 $ 12,160 $ (4,133) (34.0) % Interest expense $ (4,220) $ (4,650) $ 430 (9.2) % Other (expense) income, net $ (228) $ 234 $ (462) (197.4) % Provision for (benefit from) income taxes $ 10,158 $ (1,052) $ 11,210 (1,065.6) % Interest income decreased primarily due to a lower cash and cash equivalents balance and lower interest rates year-over-year. Interest expense decreased primarily due to a decrease in interest expense related to our convertible notes, driven by the repayment of the 2025 Notes during six months ended July 31, 2025. The change in other (expense) income, net was due to fluctuations in foreign currency during the period. The change in provision for (benefit from) income taxes is primarily attributable to an increase in pre-tax income, as well as tax deficiencies from stock-based compensation. Non-GAAP Financial Measures In addition to our results determined in accordance with United States generally accepted accounting principles (“U.S. GAAP” or “GAAP”), we believe the following non-GAAP financial measures are useful in evaluating our operating performance. We use the below referenced non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their U.S. GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with U.S. GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by U.S. GAAP to be recorded in our financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by our management about which expenses are excluded or included in determining these non-GAAP financial measures. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP. Specifically, we exclude the following from historical and prospective non-GAAP financial measures, as applicable: Stock-based compensation: PagerDuty utilizes stock-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of its stockholders and at long-term retention, rather than to address operational performance for any particular period. As a result, stock-based compensation expenses vary for reasons that are generally unrelated to financial and operational performance in any particular period. Employer taxes related to employee stock transactions: PagerDuty views the amount of employer taxes related to its employee stock transactions as an expense that is dependent on its stock price, employee exercise and other award disposition activity, and other factors that are beyond PagerDuty’s control. As a result, employer taxes related to employee stock transactions vary for reasons that are generally unrelated to financial and operational performance in any particular period. Amortization of acquired intangible assets: PagerDuty views amortization of acquired intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of purchased intangibles is an expense that is not typically affected by operations during any particular period. 34 Table of Contents Acquisition-related expenses: PagerDuty views acquisition-related expenses, such as transaction costs, acquisition-related retention payments, and acquisition-related asset impairment, as events that are not necessarily reflective of operational performance during a period. In particular, PagerDuty believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods which may or may not include such expenses. Amortization of debt issuance costs: The imputed interest rates of the Company's convertible senior notes (the "2025 Notes" and the "2028 Notes" or, collectively, the "Notes") was approximately 1.91% for the 2025 Notes and 2.13% for the 2028 Notes. This is a result of the debt issuance costs, which reduce the carrying value of the convertible debt instruments. The debt issuance costs are amortized as interest expense. The expense for the amortization of the debt issuance costs is a non-cash item, and we believe the exclusion of this interest expense will provide for a more useful comparison of our operational performance in different periods. Restructuring costs: PagerDuty views restructuring costs, such as employee severance-related costs, as events that are not necessarily reflective of operational performance during a period. In particular, PagerDuty believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods which may or may not include such expenses. Shareholder matters: PagerDuty views certain charges, including third-party legal, consulting, and advisory fees, related to shareholder activity that are outside of the ordinary course of our business and expenses related to a cooperation agreement as events that are not necessarily reflective of operational performance during a period. PagerDuty believes that such charges do not have a direct correlation to the operations of the Company’s business and may vary in size depending on the timing, results, and resolution of such shareholder matters. The consideration of measures that exclude such expenses can assist in the comparison of operational performance in periods which may or may not include such expenses. Executive transition costs: We exclude amounts paid to the Company's former executives upon departure under the terms of their transition agreements, including continued base salary payments made during their transition periods, acceleration of stock-based compensation, continued vesting of restricted stock units and performance stock units, and legal and consulting fees associated with the transition. Also excluded from our non-GAAP measures are recruiting costs related to the search for new executives. These costs represent expenses that are not indicative of our ongoing operating expenses. We further believe that excluding the executive transition costs from our non-GAAP results is useful to investors in that it allows for period-over-period comparability. Adjustment attributable to redeemable non-controlling interest: PagerDuty adjusts the value of redeemable non-controlling interest of its joint venture PagerDuty K.K. according to the operating agreement. PagerDuty believes this adjustment is not reflective of operational performance during a period and exclusion of such adjustments can assist in comparison of operational performance in different periods. Income tax effects and adjustments: Based on PagerDuty’s financial outlook for fiscal 2027, PagerDuty is utilizing a projected non-GAAP tax rate of 20%. For fiscal 2026, PagerDuty used a projected non-GAAP tax rate of 22%. PagerDuty uses a projected non-GAAP tax rate in order to provide better consistency across the interim reporting periods by eliminating the impact of non-recurring and period specific items, which can vary in size and frequency. PagerDuty's estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that PagerDuty believes materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses and other significant events. Non-GAAP gross profit and non-GAAP gross margin We define non-GAAP gross profit as gross profit excluding the following expenses typically included in cost of revenue: stock-based compensation expense, employer taxes related to employee stock transactions, amortization of acquired intangible assets, and restructuring costs. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue. 35 Table of Contents The following table presents the calculation of non-GAAP gross profit and non-GAAP gross margin for the periods indicated (in thousands): Three months ended July 31, Six months ended July 31, 2026 2025 2026 2025 Gross profit $ 104,399 $ 104,410 $ 206,346 $ 205,031 Add: Stock-based compensation 665 1,213 1,514 2,310 Employer taxes related to employee stock transactions 13 30 24 68 Amortization of acquired intangible assets 320 601 640 1,874 Restructuring costs — — 332 — Non-GAAP gross profit $ 105,397 $ 106,254 $ 208,856 $ 209,283 Revenue $ 124,436 $ 123,411 $ 245,403 $ 243,216 Gross margin 83.9 % 84.6 % 84.1 % 84.3 % Non-GAAP gross margin 84.7 % 86.1 % 85.1 % 86.0 % Non-GAAP operating income and non-GAAP operating margin We define non-GAAP operating income as income from operations excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of acquired intangible assets, acquisition-related expenses, restructuring costs, shareholder matters, and executive transition costs, which are not necessarily reflective of operational performance during a given period. We define non-GAAP operating margin as non-GAAP operating income as a percentage of revenue. The following table presents the calculation of non-GAAP operating income and non-GAAP operating margin for the periods indicated (in thousands): Three months ended July 31, Six months ended July 31, 2026 2025 2026 2025 Income (loss) from operations $ 10,239 $ 3,566 $ 19,422 $ (6,761) Add: Stock-based compensation 14,803 25,960 32,766 51,713 Employer taxes related to employee stock transactions 245 461 471 1,179 Amortization of acquired intangible assets 940 1,233 1,880 3,139 Acquisition-related expenses — 35 — 263 Restructuring costs — 73 1,431 3,884 Shareholder matters — 79 — 2,349 Executive transition costs 3,303 — 3,303 — Non-GAAP operating income $ 29,530 $ 31,407 $ 59,273 $ 55,766 Revenue $ 124,436 $ 123,411 $ 245,403 $ 243,216 Operating margin 8.2 % 2.9 % 7.9 % (2.8) % Non-GAAP operating margin 23.7 % 25.4 % 24.2 % 22.9 % 36 Table of Contents Non-GAAP net income attributable to PagerDuty, Inc. common stockholders We define non-GAAP net income attributable to PagerDuty, Inc. common stockholders as net income attributable to PagerDuty, Inc. common stockholders excluding stock-based compensation expense, employer taxes related to employee stock transactions, amortization of debt issuance costs, amortization of acquired intangible assets, acquisition-related expenses, restructuring costs, shareholder matters, executive transition costs, adjustment attributable to redeemable non-controlling interest, and income tax effects and adjustments, which are not necessarily reflective of operational performance during a given period. The following table presents the calculation of non-GAAP net income attributable to PagerDuty, Inc. common stockholders for the periods indicated (in thousands): Three months ended July 31, Six months ended July 31, 2026 2025 2026 2025 Net income attributable to PagerDuty, Inc. common stockholders $ 4,726 $ 9,777 $ 14,972 $ 3,280 Add: Stock-based compensation 14,803 25,960 32,766 51,713 Employer taxes related to employee stock transactions 245 461 471 1,179 Amortization of debt issuance costs 606 655 1,201 1,332 Amortization of acquired intangible assets 940 1,233 1,880 3,139 Acquisition-related expenses — 35 — 263 Restructuring costs — 73 1,431 3,884 Shareholder matters — 79 — 2,349 Executive transition costs 3,303 — 3,303 — Adjustment attributable to redeemable non-controlling interest 3,059 (202) (1,904) (867) Income tax effects and adjustments (2,037) (9,795) (2,653) (15,317) Non-GAAP net income attributable to PagerDuty, Inc. common stockholders $ 25,645 $ 28,276 $ 51,467 $ 50,955 Free cash flow We define free cash flow as net cash provided by operating activities, less cash used for purchases of property and equipment and capitalization of software costs. In addition to the reasons stated above, we believe that free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash in excess of our capital investments in property and equipment in order to enhance the strength of our balance sheet and further invest in our business and potential strategic initiatives. A limitation of the utility of free cash flow as a measure of our liquidity is that it does not represent the total increase or decrease in our cash balance for the period. We use free cash flow in conjunction with traditional U.S. GAAP measures as part of our overall assessment of our liquidity, including the preparation of our annual operating budget and quarterly forecasts and to evaluate the effectiveness of our business strategies. There are a number of limitations related to the use of free cash flow as compared to net cash provided by operating activities, including that free cash flow includes capital expenditures, the benefits of which are realized in periods subsequent to those when expenditures are made. 37 Table of Contents The following table presents the calculation of free cash flow for the periods indicated (in thousands): Three months ended July 31, Six months ended July 31, 2026 2025 2026 2025 Net cash provided by operating activities $ 36,946 $ 33,974 $ 81,229 $ 64,644 Purchases of property and equipment (2,226) (874) (3,191) (1,315) Capitalization of software costs (1,937) (2,893) (4,063) (4,136) Free cash flow $ 32,783 $ 30,207 $ 73,975 $ 59,193 Net cash used in investing activities $ (5,637) $ (7,178) $ (10,710) $ (8,860) Net cash used in financing activities $ (6,522) $ (59,085) $ (74,130) $ (63,040) Liquidity and Capital Resources Sources and Uses of Liquidity As of July 31, 2026, our principal sources of liquidity were cash and cash equivalents and investments totaling $470.0 million. We believe that our existing cash and cash equivalents, investments, and net cash generated from our operating activities will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Since inception, we have financed operations primarily through sales of our cloud-hosted software subscriptions, net proceeds received from sales of equity securities, and the issuance of our 2028 Notes. We believe we will meet long-term expected future cash requirements and obligations through a combination of cash flows from operating activities and available cash and short-term investment balances. Debt and Financing Arrangements Refer to Note 9. Debt and Financing Arrangements, in the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for discussion of our debt arrangements, including the timing of expected maturity of such arrangements. The $57.5 million principal of our 2025 Notes was repaid by us in cash at maturity during the year ended January 31, 2026. Deferred Revenue A significant majority of our customers pay in advance for our cloud-hosted and term-license software subscriptions. Therefore, a substantial source of our cash is from our deferred revenue, which is included in the liabilities section of our condensed consolidated balance sheet. Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As of July 31, 2026, we had deferred revenue of $236.0 million, of which $233.5 million was recorded as a current liability and expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria are met. Share Repurchase Programs In March 2025, we announced that our Board of Directors approved a share repurchase program (the “2025 Share Repurchase Program”) for the repurchase of shares of our common stock in an aggregate amount of up to $150.0 million. In August 2025, our Board of Directors approved an additional $50.0 million under the 2025 Share Repurchase Program, thus allowing for the repurchase of shares of the Company’s common stock in an aggregate amount of up to $200.0 million. No other changes were made to the program. The 2025 Share Repurchase Program did not obligate us to acquire a specified number of shares, and could be suspended, modified, or terminated at any time, without prior notice. During the six months ended July 31, 2026, we repurchased 8,532,838 shares of common stock through open market purchases at an average per share price of $7.40, completing the 2025 Share Repurchase Program, and retired 8,896,106 shares, which includes 363,268 which remained on the consolidated balance sheet as of January 31, 2026. Under the 2025 Share Repurchase Program, we repurchased a total of 18,606,569 shares of common stock through open market purchases at an average per share price of $10.75 for a total repurchase price of $200.0 million. As of July 31, 2026, all repurchased shares have been retired. 38 Table of Contents In May 2026, we announced that our Board of Directors approved a share repurchase program (the “2026 Share Repurchase Program”) for the repurchase of shares of our common stock in an aggregate amount of up to $100.0 million. The 2026 Share Repurchase Program does not obligate us to acquire a specified number of shares, and can be suspended, modified, or terminated at any time, without prior notice. During the three and six months ended July 31, 2026, we repurchased 799,112 shares of common stock through open market purchases at an average per share price of $9.51. The cost of these shares is recorded as treasury stock in the condensed consolidated balance sheets. As of July 31, 2026, $92.4 million of the total amount authorized to be repurchased remained available. Future Contractual Obligations Our estimated future obligations as of July 31, 2026 include both current and long-term obligations. Our debt obligations total $396.9 million, all of which is long-term. Additionally, we had $1.0 million of irrevocable standby letters of credit outstanding which were fully collateralized by our restricted cash, all of which represents a long-term cash obligation. Under our operating leases, we had a current obligation of $6.0 million and a long-term obligation of $9.9 million. Operating lease obligations primarily represent the initial contracted term for leases that have commenced as of July 31, 2026, not including any future optional renewal periods. Effect of Exchange Rates Our changes in cash can be impacted by the effect of fluctuating exchange rates. Foreign exchange had a negative effect on cash in the six months ended July 31, 2026, decreasing our total cash balance by $0.1 million as of July 31, 2026 and a positive effect on cash in the six months ended July 31, 2025, increasing our total cash balance by $0.1 million as of July 31, 2025. Cash Flow Information The following table sets forth our cash flows for the periods indicated (in thousands): Six months ended July 31, 2026 2025 $ Change Net cash provided by operating activities $ 81,229 $ 64,644 $ 16,585 Net cash used in investing activities (10,710) (8,860) (1,850) Net cash used in financing activities (74,130) (63,040) (11,090) Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash (140) 113 (253) Net change in cash, cash equivalents, and restricted cash $ (3,751) $ (7,143) $ 3,392 Operating Activities Net cash provided by operating activities improved, primarily due to improvements in our operating income performance due to the 0.9% increase in revenue, along with a 11.7% decrease in operating expenses. Cash provided by operating activities is subject to variability period-over-period as a result of timing differences, including with respect to the collection of receivables and payments of accounts payable, and other items. Investing Activities Net cash used in investing activities increased, primarily due to an increase in purchases of property and equipment. Financing Activities Net cash used in financing activities increased, primarily due to an increase in repurchases of common stock, a decrease in cash used to repay our convertible senior notes, and a decrease in employee payroll taxes related to the net share settlement of restricted stock units. 39 Table of Contents Off-Balance Sheet Arrangements Indemnification Agreements See Note 10. Commitments and Contingencies, in the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of our indemnification agreements. Letters of Credit We had $1.0 million of irrevocable standby letters of credit outstanding as of July 31, 2026. Letters of credit are primarily used as a form of security deposits for the spaces we lease. Critical Accounting Estimates For a description of our critical accounting estimates, refer to Part II, Item 7, Critical Accounting Estimates in our Annual Report on Form 10-K for the year ended January 31, 2026. There have been no material changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended January 31, 2026 . Recent Accounting Pronouncements See Note 2. Summary of Significant Accounting Policies, in the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.