PagerDuty's New CEO, Usage-Based Pivot, and the 'AI Control Plane' Story

A flat quarter masks a strategic inflection: pricing model transformation, margin expansion, and a leadership handoff as the stock re-rates.

PD · Earnings Call · 2026-05-28

Leadership Transition and the Case for Re-rating

PagerDuty's latest report lands with a new captain at the helm. After a decade as CEO, “Jennifer Tejada announced her transition to executive chair” — Jennifer G. Tejada, Executive Chair (former CEO) · 2026-05-28 and introduced John DiLullo, a veteran of DeepWatch, LiveVox, and Lastline. DiLullo quickly signaled he sees room for investor appreciation:

I think the company is a little bit perhaps underappreciated by investors... we have a great opportunity here to unlock value.
John D. DiLullo, CEO · 2026-05-28

The market seems to agree. The stock has rallied +115% over the last 90 days, with a trend of up-17w:+115% on the tape, a sharp reversal from the long-term drawdown. This report arrives as the company pivots its commercial model, and the early reads are positive.

Usage-Based Pricing: The Inflection Point

The centerpiece of the quarter is the operation cloud pricing story. Howard Wilson, CFO, quantified the momentum: “The ARR of customers on this model nearly doubled from Q4 to Q1. Of our customers spending over $100 thousand a year, over 15 have transitioned to the model.” — Owen Howard Wilson, CFO · 2026-05-28 Jennifer Tejada echoed that in Q&A, noting “early customer adoption... unlocked more value for customers and grown ARR because it incentivizes the use of multiple products.” — Jennifer G. Tejada, Executive Chair (former CEO) · 2026-05-28 The company now gets nearly 10% of ARR from usage-based products, and the CFO sees it as a mitigation for seat-based compression. This is a long-awaited shift — in the prior call, management had already telegraphed usage based products as the fix for downgrades. Operating Margin hit 25%, driving GAAP profitability for the fourth straight quarter. The company's ability to fund this transformation is evident in the free cash flow margin, which surged to 21%.

AI Is the New Risk Layer — and the New Growth Vector

PagerDuty positions itself as the native AI operations partner. Jennifer framed it starkly: “AI is the new operational risk layer for enterprise... creates more demand for the PagerDuty platform.” — Jennifer G. Tejada, Executive Chair (former CEO) · 2026-05-28 The SRE Agent, launched in October, is already driving attach; new wins include CoreWeave and Anduril, and a Fortune 500 automotive manufacturer migrated to the Operations Cloud. The company's prior call had noted “we used to have this very patient growth model... now with the Ops Cloud platform, you can access all of those products at one time.” — Jennifer Tejada, Chairperson and Chief Executive Officer · 2025-09-03 That shift is showing up in customer behavior. This AI-first platform narrative is also why DiLullo, a security and automation specialist, was chosen. He sees the same flywheel: more AI agents, more incidents, more usage — a virtuous cycle for a usage-based price.

Retention: The Persistent Watch-Item

Dollar-based net retention (DBNR) came in at 97%, down sequentially, but management stressed gross retention improved sequentially and expects DBNR to "stabilize and gradually increase." The tension is real: seat-based downgrades persist, but the usage-based model is pulling ARR forward. As Jennifer quipped in Q&A, “we have really started to see good progress with our early cohort in the pricing transition.” — Jennifer G. Tejada, Executive Chair (former CEO) · 2026-05-28 The CFO reinforced that usage-based customers "renew with us at higher values doing an expansion at the same time."

What Matters Now

This is a story of a company using a pricing-model overhaul and an AI positioning to rekindle growth while margins expand. The leadership handoff is clean, the balance sheet is strong (cash $444M), and the buyback signals confidence. The key risk is execution on the usage-based transition across the $100k+ cohort; early proof points are encouraging. If the inflection holds, PD's re-rating is justified — and the new CEO's call to action could be the catalyst.