PagerDuty (PD) posted mixed Q3 results and outlook relative to market expectations as seat-based optimizations accelerated at its clients, RBC Capital Markets said in a note Wednesday.

PagerDuty is now trying to "emphasize multi-year contracts and earlier renewal processes" to fight the seat headwinds, the note said.

RBC said that while it is cautious on the seat-based pressures and is also skeptical about a short-term topline acceleration, it is encouraged by the "continued leverage shown through profitability outperformance."

Meanwhile, PagerDuty's management indicated that the number of clients "downgrading and churning is trending downwards, but the dollar value of the seat-based reductions was larger than forecasted," the note said.

The investment firm said, however, PagerDuty believes the optimizations are due to wider layoff trends at large companies facing budgetary constraints rather than due to issues with its platform.

RBC kept PagerDuty's outperform rating and decreased the company's price target to $17 from $18.

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