Q1 2026 Dynatrace Inc Earnings Call

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Jim Benson: Greetings and welcome to Dynatrace's first quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Noelle Faris, Vice President of Investor Relations. Thank you. You may begin.

Noelle Faris: Good morning, and thank you for joining Dynatrace's first quarter fiscal 2026 earnings conference call. Joining me today are Rick McConnell, Chief Executive Officer, and Jim Benson, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements such as statements regarding revenue, earnings guidance, and economic conditions. Actual results may differ materially from our expectations due to a number of risks and uncertainties discussed in Dynatrace's SEC filings, including our most recent quarterly report on Form 10-Q and our annual report on Form 10-K. The forward-looking statements contained in this call represent the company's views on August 6th, 2025. We assume no obligation to update these statements as a result of new information, future events, or circumstances. Unless otherwise noted, the growth rates we discuss today are year-over-year and non-GAAP, reflecting constant currency growth. Per share amounts are on a diluted basis.

Greetings and welcome to dino Trace Cisco. First quarter 2026 earnings call at this time. All participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce new Al Faris vice president of investor relations. Thank you. You may begin.

Good morning, and thank you for joining Dino trac's. First quarter fiscal 2026 earnings conference call.

Joining me today are Rick McConnell, Chief Executive Officer, and Jim Benson, Chief Financial Officer.

Before we get started, please note that today’s comments include forward-looking statements, such as statements regarding revenue, earnings guidance, and economic conditions.

Actual results May differ materially from our expectations due to a number of risks and uncertainties discussed in diner. Tracy's SEC, filings.

Including our most recent quarterly report on form, 10 q and our annual report on form 10K.

The forward-looking statements contained in this call represent the company's views on August 6, 2025. We assume no obligation to update these statements as a result of new information, future events, or circumstances.

Unless otherwise noted, the growth rates we discussed today are year-over-year and non-GAAP, reflecting constant currency growth.

Noelle Faris: We will also discuss other non-GAAP financial measures on today's call. To see reconciliations between non-GAAP and GAAP measures, please refer to today's earnings press release and supplemental presentation, which are both posted in the financial results section of our IR website. With that, let me turn the call over to our Chief Executive Officer, Rick McConnell.

And per share amounts are on a diluted basis. We will also discuss other non-gaap Financial measures on today's call to see, reconciliations between non-gaap and gaap measures. Please refer to today's earnings, press release and supplemental presentation which are both posted in the financial results section of our IR website.

And with that, let me turn the call over to our Chief Executive Officer, Rick McConnell.

Rick Mcconnell: Thanks, Noelle, and good morning, everyone. I am thrilled to be joining you from our new corporate headquarters in Boston. It is a vibrant, modern space that is a direct reflection of our collaborative and innovative culture, and I am excited to host customer and investor meetings here in the future. Moving on to our Q1 earnings, Dynatrace had a strong start to fiscal 2026. Subscription revenue grew 19%, ARR grew 16%, and pre-tax free cash flow was 33% of revenue on a trailing 12-month basis. These results continue to demonstrate our ability to deliver a powerful combination of top-line growth, profitability, and free cash flow. The strength of our AI-powered observability platform continues to resonate with customers as they look to standardize observability on a single end-to-end platform to deliver precise answers, deterministic insights, and intelligent automation.

Thanks Noel and good morning, everyone.

I'm thrilled to be joining you from our new corporate headquarters in Boston.

It's a vibrant modern space. That is a direct reflection of our collaborative and Innovative culture and I am excited to host customer and investor meetings here in the future.

Moving on to our q1 earnings.

Done in Trace, had a strong start to fiscal 2026.

Subscription Revenue, grew 19%.

ARR grew 16%.

And pre-tax free cash flow was 33% of Revenue on a trailing 12-month basis.

These results. Continue to demonstrate our ability to deliver a powerful combination of Topline. Growth profitability and free cash flow.

Ility platform continues to resonate with customers as they look to standardize observability on a single end-to-end platform to deliver precise answers to terministic insights and intelligent automation.

Rick Mcconnell: Jim will share more details about our Q1 financial performance and guidance in a moment. In the meantime, I would like to share my thoughts on what we see as the durable drivers of growth in the observability market and why I believe Dynatrace is well-positioned to benefit from them. In the last several weeks, I have met with dozens of customers around the globe, and there is increasing alignment around three key approaches to unlocking value with observability: end-to-end observability, AI Observability, and business observability. Let me start with end-to-end observability. The rapid rise of cloud modernization and AI workloads has caused a massive explosion of data and complexity. Hyperscalers are now generating more than $265 billion in annualized revenue, growing in the mid-20s. This immense shift to the cloud is creating a level of scale too large for humans to manage.

Jim will share more details about our q1 financial performance and guidance in a moment.

In the meantime, I'd like to share my thoughts on what we see as the durable drivers of growth in the observability market.

And why I Believe Dat Trace is well positioned to benefit from that.

In the last several weeks, I've met with dozens of customers around the globe.

And there is increasing alignment around 3 key approaches to unlocking value with observability.

And end. Observability Ai, observability and business, observability.

Let me start with end to end observability.

The rapid rise of cloud modernization and AI workloads has caused a massive explosion of data and complexity.

Hyperscalers are now generating more than 265 billion dollars in annualized Revenue growing in the mid 20s.

Rick Mcconnell: Meanwhile, traditional observability solutions used by organizations to manage digital workflows are often siloed and do not deliver the holistic picture needed to optimize results. Dashboards and other visualization tools require substantial manual oversight and response. Organizations are consequently looking for an end-to-end observability platform that provides deep analytics and insights, ultimately enabling automated response. This is precisely the differentiating power of Dynatrace, allowing customers to take a proactive approach to address these challenges and deliver radically better outcomes. End-to-end observability first requires unification across observability domains, with organizations increasingly seeking a single solution for applications, infrastructure, log analytics, real user monitoring, application security, and other areas. By providing a unified platform, Dynatrace provides a complete picture of digital services rather than customers having to stitch them together manually. End-to-end observability also necessitates a common data layer.

And this immense ship to the cloud is creating a level of scale too large for humans to manage.

Meanwhile, traditional observability solutions used by organizations to manage digital workflows.

Are often siloed and do not deliver. The holistic picture needed to optimize results.

And dashboards and other visualization tools require substantial manual, oversight and response.

Organizations are constantly looking for an end-to-end. Observability platform, that provides deep analytics and insights ultimately enabling automated response.

This is precisely the differentiating power of Dynatrace.

Allowing customers to take a proactive approach to address these challenges and deliver radically better outcomes.

End-to-end observability. First requires unification across. Observability domains

With organizations increasingly seeking a single solution for applications.

Infrastructure, log analytics, real user monitoring application, security, and other areas.

By providing a unified platform data, Trace provides a complete picture of Digital Services rather than customers having to stitch them together manually.

Rick Mcconnell: Dynatrace customers benefit from the power of Grail, our massively parallel processing data lakehouse that houses all data types: logs, traces, metrics, real user data, and more in context to provide accelerated insights at enormous scale. Finally, end-to-end observability mandates accessibility by all personas. With Dynatrace, developers, platform engineers, SRE teams, IT ops, and even executives can now all leverage the same data in a unified platform to enable the groups to work better together to remediate, protect, and optimize cloud-native workloads. Organizations are also able to extend left to take advantage of observability insights much earlier in the development process. This brings me to the second application of observability: AI Observability. At Dynatrace, we have been using AI to deliver insights for over a decade, and we continue to innovate aggressively in expanding our capabilities.

End-to-end observably all soon. Necessitates a common data layer.

Kind of Trace customers benefit from the power of Grail.

Our massively parallel processing, data Lakehouse that houses all data types.

Logs, traces metrics really user data and more.

In context to provide accelerated insights at enormous scale.

And finally, end to end observability mandates accessibility by all personas.

With tiny, Trace developers platform, Engineers, SRE teams, it Ops, and even Executives can now all leverage the same data in a unified. Platform to enable the groups to work better together to remediate protect and optimize Cloud native workloads.

Organizations are also able to extend left.

To take advantage of observability, insights much earlier in the development process.

This brings me to the second application of observability. AI observability.

The data Trace. We have been using AI to deliver insights for over a decade.

Rick Mcconnell: We utilize multiple AI techniques in our platform: causal AI for root cause analysis, predictive AI to apply anomaly detection and machine learning to anticipate issues, and generative AI to make the platform accessible to a wider array of end users. Customers are increasing their use of the platform to observe their AI workflows. For example, one financial software customer deployed agents to automate many different finance tasks. Prior to the launch, they leveraged Dynatrace AI Observability to validate performance of their new agent capabilities. A large insurance company has been building an internal AI platform to increase the efficiency of their engineering teams. They utilize Dynatrace to help ensure their AI platform is functioning correctly and cost-effectively. Furthermore, we have built our third-generation platform with Grail at its core to seamlessly unify observability, security, and business data.

And we continue to innovate aggressively and expand our capabilities.

We utilize multiple AI techniques in our platform.

Causal AI for root cause analysis, predictive AI to apply anomaly detection and machine learning to anticipate issues.

And generative AI to make the platform accessible to a wider array of end users.

Customers are increasing their use of the platform to observe their AI workloads.

For example, 1 Financial software customer deployed agents to automate many different Finance tasks.

Prior to the launch. They leveraged data traces AI observability to validate performance of their new agent capabilities.

A large insurance company has been building an internal AI platform to increase the efficiency of their engineering teams.

To help ensure their AI platform is functioning correctly and cost effectively.

Furthermore, we have built our third generation platform with Grail at its core.

Rick Mcconnell: This foundation empowers intelligent decision-making and action, enabling enterprises to transition from human oversight to intelligent autonomous systems. We recently announced significant advancements in our platform. We evolved its ability to serve as the knowledge, reasoning, planning, and actioning framework of Agentic AI and provide trustworthy precision and adaptability. We believe that Agentic AI advances the fulfillment of our vision by providing a clear directional heading that drives the core of our operations. We are driving toward an Agentic AI ecosystem in which our AI agents will interoperate with third-party AI agents to take appropriate action. Importantly, deterministic answers are critical for Agentic AI to work properly. You have to trust answers to take action on them, which is precisely the confidence that we believe the Dynatrace platform provides. The third way customers are driving outcomes with observability is business observability.

To seamlessly, unify observability, security, and business data.

This foundation empowers intelligent decision-making and action.

Enabling Enterprises to transition from Human oversight.

To intelligent autonomous systems.

We recently announced significant advancements in our platform.

Evolving ability to serve as the knowledge reasoning planning and actioning framework of agentic AI.

And provide trustworthy precision and adaptability.

We believe that agentic AI advances, the Fulfillment of our vision. By providing a clear directional heading that drives, the core of our operations.

and we are driving toward an agentic AI ecosystem in which our AI agents will interoperate

With third-party AI agents to take appropriate action.

Importantly, deterministic answers are critical for agentic AI to work properly.

You have to trust answers to take action on them.

Which is precisely the confidence that we have in the Dynatrace platform. We believe it provides...

The Third Way, customers are driving outcomes with observability is business. Observability.

Rick Mcconnell: We think of business observability as the ability to deliver meaningful business value beyond technical analytics, root cause analysis, and meantime to resolution. Because we include business events as a data type in Grail, we can provide a broad set of insights like business process optimization, revenue impact, and real-time analytics for any observability source. For example, a large airline uses Dynatrace to assess gate operations and baggage handling. A cruise ship operator focuses its Dynatrace insights on the passenger onboard experience. Financial services firms are interested in time to open an account or mortgage or to make a payment. Business observability is about identifying the key performance indicators a customer wants to address and leveraging an end-to-end observability framework to optimize their attainment. This is where Dynatrace can increasingly become a force multiplier for businesses looking ahead.

We think of business observability, as the ability to deliver meaningful business value.

Beyond technical analytics root cause analysis and meantime to resolution

Because we include business events as a data type in grail.

We can provide a broad set of insights, like business process optimization.

Revenue impact.

And real time analytics for any observability source.

For example.

A large airline uses data, Trace, to assess gait operations and baggage handling.

A cruise ship operator focuses, its data, Trace insights on the passenger on board experience.

And financial services firms are interested in time to open an account or mortgage or to make a payment.

Business observability is about identifying the key performance indicators. A customer wants to address.

And leveraging, an end-to-end observability framework to optimize their attainment.

And this is where Dino trays can increase a force multiplier for businesses. Looking ahead.

Rick Mcconnell: These three enterprise use cases for observability represent a strong growth opportunity for Dynatrace, and we are investing in sales and marketing initiatives across those areas. Next, I'd like to share several proof points of our go-to-market momentum from the first quarter. First, the investments we made during fiscal 2025 to align our sales coverage around strategic accounts with a higher propensity to spend is evident in the 12 seven-figure ACB deals closed in the quarter. Additionally, our strategic enterprise pipeline has grown nearly 50% year over year, with the pipeline contribution of deals greater than $1 million more than doubled over that timeframe. Second, we continue to see strong traction with our partner ecosystem, most notably in the growth and contribution of GSIs. Partners were involved in 10 of the seven-figure deals we closed in the quarter, and GSIs played a role in more than half of those.

These 3, Enterprise use cases for observability, represent a strong growth opportunity for Dino Trace.

And we are investing in sales and marketing initiatives across those areas.

So next, I'd like to share several proof points of our go to market momentum from the first quarter.

First, the investments we made during fiscal 2025 to align our sales coverage around strategic accounts.

With a higher propensity to spend his evident in the 127, figure ACB deals closed in the quarter.

Additionally, our strategic Enterprise pipeline has grown nearly 50% year-over-year.

With the pipeline contribution of deals greater than 1 million dollars, more than doubled over that time frame.

Second.

We continue to see strong traction with our partner ecosystem.

Most notably.

In the growth and contribution of GSI.

Partners were involved in 10 of the 7 figure deals. We closed in the quarter.

Rick Mcconnell: Our largest GSI partners' ARR contribution in the first quarter has more than tripled year over year. Finally, the recent traction we are seeing in logs is a direct result of our broad-based sales execution in this area, combined with the investments we have made in building out strength teams to drive adoption. In Q1, our logs consumption increased 36% sequentially and well over 100% year over year. Given this traction, we remain confident in our ability to achieve $100 million in annualized logs consumption by the end of this fiscal year. Given the noteworthy traction of logs in the first quarter, I would like to take a moment to discuss logs in more detail and why we believe we are positioned to win material share in this space.

And GSI played a role in more than half of those.

Our largest GSI Partners a ARR contribution in the first quarter.

Has more than tripled year-over-year.

And finally, the recent traction we're seeing in logs, is a direct result of our broad-based sales execution. In this area, combined, with the Investments we've made in building out strike teams to drive adoption

In q1, our logs consumption, increased 36% sequentially and well over 100% year-over-year.

Year.

Given the noteworthy traction logs in the first quarter.

I'd like to take a moment to discuss logs in more detail and why we believe we are positioned to win material share in this space.

Rick Mcconnell: In particular, logs have rapidly become a core element of end-to-end observability, as I mentioned before, and our third-generation platform provides the core capabilities to deliver meaningful value as customers expand in this direction. Dynatrace's log management solution has multiple advantages. By combining logs with other data types, logs actually add increased value in delivering deeper, more contextualized observability insights. Moreover, unlike traditional solutions, Grail does not require rehydration of logs, so they are always available and don't require manual categorization and separate complex pricing. Finally, we are able to offer our log solution at a lower cost, including unlimited querying over a fixed time window, maximizing insight while controlling spend. Once customers experience the value of our log management solution as part of their Dynatrace platform deployment, they often rapidly expand their usage.

In particular logs, have rapidly become a core element of end-to-end observability. As I mentioned before,

and our third generation platform provides the core capabilities to deliver meaningful value as customers expand in this direction.

Trying to trace is log management, solution has multiple advantages.

By combining Logs with other data types. Logs actually, add increased value in delivering deeper more contextualized. Observability insights

Moreover, unlike traditional solutions, Trail does not require rehydration of logs.

So they are always available and don't require manual categorization and separate complex pricing.

And finally, we are able to offer our log solution at a lower cost.

Including unlimited querying over a fixed time window maximizing Insight while controlling spent.

once customers experience, the value of our log management solution as part of their data, Trace platform, deployment,

Rick Mcconnell: A major airline that became a customer within the last 18 months as a multi-vendor competitive takeout with end-to-end observability has now already exceeded an annualized logs consumption of several million dollars. In fact, many of our seven-figure ACB wins in the quarter were with customers looking to modernize their log management solution, consolidating logs from multiple vendors as part of a broader end-to-end observability strategy. A Fortune 100 retailer expanded their deployment with Dynatrace to provide a precise view of the customer journey from online ordering through pickup. A global leader in logistics and transportation engaged us to unify their data to reduce operating costs and increase efficiencies. One of the largest insurance providers in North America is going all-in with Dynatrace to help them improve their customer experience with our unparalleled visibility into their enterprise-wide environment.

They often rapidly, expand their usage.

A major airline that became a customer within the last 18 months as a multi-vendor. Competitive takeout.

With end-to-end observability has now already exceeded an annualized, logs consumption of several million dollars.

In fact, many of our 7-figure ACB wins in the quarter were with customers looking to modernize their log management solution.

Consolidating logs from multiple vendors as part of a broader end-to-end observability strategy.

A Fortune 100 retailer expanded their deployment with Dino, Trace to provide a precise view of the customer Journey from online ordering through pickup.

a global leader in logistics and transportation, engage us to unify their data, to reduce operating costs and increase efficiencies,

And 1 of the largest insurance providers in North, America is going all in with Dino Trace to help them improve their customer experience. With our unparalleled visibility into their Enterprise wide environment.

Rick Mcconnell: All three of these customers have a planned annualized logs consumption of at least $1 million. Finally, analysts continue to recognize Dynatrace as an industry leader. Last month, Gartner named Dynatrace a leader in the 2025 Gartner Magic Quadrant for Observability Platforms, positioned highest in execution. This is the 15th consecutive year that Gartner has named Dynatrace a leader. Moreover, we ranked number one across four of the six use cases in the 2025 Gartner Critical Capabilities for Observability Platforms report and second in the other two use cases, a very strong achievement. Plus, we were named the leader and outperformer in the 2025 GigaOhm Radar for Kubernetes Observability. We are proud of these achievements and committed to the ongoing innovation and customer engagement needed to earn these accolades year after year. To wrap up, the observability market opportunity is stronger than ever.

All 3 of these customers have a planned annualized logs consumption of at least 1 million dollars.

Finally, analysts continue to recognize Dynatrace as an industry leader.

Last month Gardener named Dino. Trace a leader in the 2025 Gardener magic quadrant for observability platforms. Positioned highest in execution

This is the 15th consecutive year that Gartner has named Dino, trace a leader.

Moreover, we ranked number 1 across 4 of the 6 use cases in the 2025 Gartner, critical capabilities for observability platforms, report and second in the other 2 use cases and very strong achievements.

Plus, we were named a leader and outperformer in the 2025 GigaOm Radar for Kubernetes observability.

We are proud of these achievements and committed to the ongoing Innovation and customer engagement needed to earn these accolades year after year.

Rick Mcconnell: We have a significantly differentiated AI-powered platform that provides the foundation for end-to-end observability, AI Observability, and business observability. We deliver significant customer value, and we have a compelling business model which has enabled us to deliver a sustained balance of growth and profitability. Jim, over to you.

To wrap up the observability market opportunity is stronger than ever.

We have a significantly differentiated AI powered platform. That provides the foundation for end-to-end observability.

Ai observability and business observability.

We deliver significant customer value.

And we have a compelling business model.

Which has enabled us to deliver a sustained balance of growth and profitability.

Jim over to you.

Jim Benson: Thank you, Rick, and good morning, everyone. Q1 was indeed a strong start to the fiscal year. Once again, we surpassed the high end of our top-line growth and profitability guidance metrics. Notably, as Rick mentioned, we had a strong expansion quarter with a dozen seven-figure expansion deals, many of which have planned log management deployments. The building block fundamentals that serve as leading indicators of future growth potential continue to gain traction in the company. Specifically, we are seeing growing momentum in large deal activity, expanding tool and vendor consolidation opportunities, building execution with our partner ecosystem, most notably with GSIs, further penetration of our Dynatrace Platform Subscription licensing model, and accelerating consumption and adoption of the platform logs notably. Let's review the first quarter results in more detail. Please note the growth rates referenced will be year over year and in constant currency unless otherwise stated.

Thank you, Rick. And good morning, everyone.

Attention, deals—many of which have planned log management deployments.

The building block fun.

Serve as leading indicators of future growth potential.

Contraction in the company.

Specifically, we are seeing growing momentum in large deal, activities, expanding tool and vendor consolidation opportunities.

building execution with our partner ecosystem, most notably with gsis further penetration of our data Trace platform, subscription licensing model,

And accelerating consumption and Adoption of the platform logs. Notably.

Let's review the first quarter results in more detail.

please note the growth rates referenced will be year-over-year and in constant currency, unless otherwise stated

Jim Benson: Annual recurring revenue, or ARR, ended the quarter at $1.82 billion, representing 16% growth. Q1 net new ARR on a constant currency basis was $51 million, up 13% from a strong first quarter last year. Expansion activity was robust and particularly strong in our North America geography and our GSI channel. In Q1, we added 103 new logos to the Dynatrace platform. Our average ARR per new logo was over $130,000 on a trailing 12-month basis and in line with our target land size. Once customers experienced the value of the Dynatrace platform, they have been quick to expand their usage. Our average ARR per customer continues to increase, reaching nearly $450,000, highlighting the ongoing adoption of the platform and business value we provide to customers.

annual recurring revenue or ARR ended the quarter at 1.82 billion dollars representing 16% growth.

Q1, net new ARR on a constant currency. Basis was 51 million up 13% from a strong first quarter last year.

Expansion activity was robust and particularly strong in our North America geography, and our GSI Channel.

In q1, we added 103 new logos to the dinosaurs platform.

Our average ARR per new logo with over 130,000 dollars on a trailing 12-month.

And in line with our Target land size.

Jim Benson: As we have shared previously, given the significant cross-sell and upsell opportunities in our enterprise customer base, we believe the average ARR per customer opportunity could be $1 million or more over the long term. The strategic relevance of the Dynatrace platform is further reflected in our gross retention rate, which remained in the mid-90s. Net retention rate, or NRR, was 111% in the first quarter, an improvement from the prior quarter. Our Dynatrace Platform Subscription licensing model, or DPS, continues to gain traction and adoption. We now have over 45% of our customer base and over 65% of our ARR on DPS. DPS customers with full access to all our platform capabilities adopt roughly two times the number of capabilities than those on a SKU-based model.

Once customers experience the value of the Dynatrace platform, they've been quick to expand their usage. Our average ARR per customer continues to increase, reaching nearly $450,000, highlighting the ongoing adoption of the platform and the business value we provide to customers.

As we have shared previously, given the significant cross sell and upsell opportunities in our Enterprise customer base, we believe the average ARR per customer opportunity could be million dollars or more over the long term.

The Strategic relevance of the DAT Trace platform is further reflected in our gross retention rate, which remained in the mid 90s.

Net retention rate, or nrr was 111% in the first quarter and improvement from the prior quarter.

Our Dino trade platform, subscription licensing model, where DPS continues to gain traction and adoption. We now have over 45% of our customer base and over 65% of our ARR on DPS.

Jim Benson: They also consume at a much faster pace, with consumption growth rates nearly two times those on a SKU-based model. We have seen particularly robust consumption growth, with customers leveraging logs management, our fastest growing offering. This strong consumption sometimes accelerates use above a customer's original commitment, resulting in either early expansion or on-demand consumption, which we refer to as ODC revenue. In Q1, ODC revenue was $11 million. Historically, ODC revenue was recognized in the quarter it was incurred, with quarterly revenue variability driven by DPS expiring commitment dollars that are much lower in the first half than the second half. Now that we have a full year of history with ODC, revenue accounting principles require us to estimate the amount of ODC revenue that we expect to receive over the next four quarters and recognize that amount ratably over that same period.

DPS, customers with full access to all our platform capabilities, adopt roughly 2 times the number of capabilities than those on a SKU based model. They also consume at a much faster Pace with consumption, growth rates nearly 2 times those on a skew based model.

We've seen particularly robust consumption. Growth with customers leveraging logs management, our fastest growing offering

This strong consumption sometimes accelerates. Use above a customer's original commitment, resulting in either early expansion or on demand consumption which we refer to as ODC Revenue.

In q1, ODC, Revenue was 11 million.

Historically, ODC Revenue was recognized in the quarter, it was incurred with quarterly Revenue variability driven by DPS expiring commitment dollars that are much lower in the first half than the second half.

Now, that we have a full year of history with ODC.

Revenue accounting principles require us to estimate.

Jim Benson: The result of doing so yields a one-time cumulative true-up benefit of $7 million in Q1. The simple way to think about it is we delivered $4 million of in-quarter as incurred ODC revenue and $7 million of revenue accruals. Going forward, ODC revenue will have much less quarter-to-quarter variability and for fiscal 2026 should be in the range of $8 million to $9 million per quarter, give or take, depending upon whether and how much our incurred ODC in a quarter varies from our accounting estimates. Moving on to revenue, total revenue for Q1 was $477 million, growing 19% and exceeding the high-end of guidance by approximately 200 basis points. Subscription revenue was $458 million, up 19%, also exceeding the high-end of guidance by nearly 200 basis points, driven primarily by the incremental ODC revenue I just mentioned.

The amount of ODC Revenue that we expect to receive over the next 4 quarters and recognize that amount relatively over that same period.

the result of doing so yields a 1-time cumulative, true-up, benefit of 7 million in q1,

The simple way to think about it is we delivered 4 million of Inquirer as incurred, ODC revenue, and $7 million of revenue.

Going forward, ODC Revenue will have much less quarter to quarter variability, and for fiscal 2026 should be in the range of 8 to 9 million per quarter. Give or take, depending upon whether and how much our current ODC in a quarter varies from our accounting estimates.

Moving on to revenue, total revenue for q1.

Jim Benson: Turning to profitability, non-GAAP operating margin was 30%, exceeding the top end of guidance by 150 basis points, driven mostly by revenue upside flowing through to the bottom line. Non-GAAP net income was $126 million, or $0.42 per diluted share, $0.04 above the high end of our guidance. We generated $262 million of free cash flow in the first quarter. Due to seasonality and variability in billings quarter to quarter, we believe it is best to view free cash flow over a trailing 12-month period. On a trailing 12-month basis, free cash flow was $465 million, or 26% of revenue. As a reminder, this includes a 700 basis point impact related to cash taxes. Pre-tax free cash flow on a trailing 12-month basis was 33% of revenue. Finally, a brief update on our $500 million share repurchase program.

Growing 19% and exceeding. The high end of guidance by approximately 200 basis points, subscription Revenue was 458 million up 19% also exceeding. The high end of guidance. By nearly 200 basis, points driven primarily by the incremental, ODC Revenue I just mentioned

Exceeding. The top end of guidance by 150 basis points, driven mostly by Revenue, upside flowing through to the bottom line,

Non-GAAP net income was $126 million, or $0.42 per diluted share, which is $0.04 above the high end of our guidance.

We generated 262 million of free cash flow in the first quarter.

Due to seasonality and variability. In Billings quarter to quarter, we believe it is best to view free cash flow over a trailing 12-month period.

On a trailing 12-month basis, free cash flow was 465 million or 26% of Revenue.

As a reminder, this includes a 700 basis point impact related to cash taxes.

Free tax-free cash flow on a trailing 12-month basis was 33% of revenue.

Jim Benson: In Q1, we repurchased 905,000 shares for $45 million at an average share price of just under $50. Since the inception of the program in May 2024 through June 2025, we have repurchased 4.4 million shares for $218 million at an average share price of just under $50. Moving now to guidance. While demand remains strong, we continue to take a prudent approach to our outlook with three factors in mind. First, we are still early in our fiscal year, and while Q1 was a strong start, we do not want to get ahead of ourselves. Second, we have a growing pipeline with an increasing number of larger, more strategic tool consolidation opportunities. These types of deals come with increased timing variability and longer duration to close. Lastly, the fluidity of the macro and geopolitical environment remains a constant.

Finally, a brief update on our $500 million share repurchase program.

In Q1, we repurchased 905,000 shares for $455 million at an average share price of just under $50.

Since the inception of the program in May 2024, through June 2025, we have repurchased 4.4 million shares for $218 million at an average share price of just under $50.

Moving now to guidance. While demand remains strong, we continue to take a prudent approach to our outlook with three factors in mind.

First, we have still early in our fiscal year and while q1 was a strong start, we do not want to get ahead of ourselves.

Second, we have a growing Pipeline with an increasing number of larger moisture.

Opportunities.

These types of deals come with increased timing, variability, and longer duration to close.

Jim Benson: With that as context, let me summarize our updated full-year outlook that we detailed in this morning's press release. We are maintaining our full-year ARR growth guidance of 13% to 14% in constant currency, while passing through the incremental dollars from the weakening of the U.S. dollar since our last call. Full-year ARR is now expected to be roughly $2 billion. While we do not guide to ARR quarterly, we continue to expect first half and second half constant currency net new ARR seasonality to be roughly consistent with last year. Moving now to revenue, we are raising our total revenue and subscription revenue guidance by $7 million in constant currency to account for the revised ODC revenue estimate accounting treatment. This required revenue recognition approach effectively records some revenue from fiscal 2027 into fiscal 2026 and was not factored into our prior guidance.

lastly, the fluidity of the macro and geopolitical environment remains a constant,

With that as context, let me summarize our updated full year outlook that we detailed in this morning's press release.

We are maintaining our full year. Are our growth guidance of 13 to 14% in constant currency while passing through the incremental dollars from the weakening of the US dollar since our last call.

Pull your ARR is now expected to be roughly 2 billion dollars.

While we do not guide to our quarterly, we continue to expect first half. And second, half, constant currency, net new arc, seasonality to be roughly consistent with last year.

Moving. Now to revenue, we are raising our total revenue and subscription Revenue guidance by 7 million in constant currency to account for the revised, ODC Revenue estimate accounting treatment,

Jim Benson: Total revenue is now expected to be between $1.97 billion and $1.98 billion, and subscription revenue is expected to be between $1.88 billion and $1.9 billion, both up 14% to 15%. This revenue guidance includes $35 million to $40 million in ODC revenue. Turning to our bottom line, we are maintaining non-GAAP operating margin of 29% and free cash flow margin of 26%. While the weakening dollar is a tailwind to the top line, it is a modest headwind to margins given our expense mix is heavily euro-weighted. Finally, we are raising non-GAAP EPS guidance to a range of $1.58 to $1.61 per diluted share, representing an increase of $0.02 at the midpoint of the range. This non-GAAP EPS is based on a diluted share count of 309 to 310 million shares. Looking to Q2, we expect total revenue to be between $484 and $489 million.

This requires revenue recognition, which effectively records some revenue from fiscal 2027 into fiscal 2026, and was not factored into our prior guidance.

Total revenue is now expected to be between 1.97 and 1.98 billion dollars. And subscription revenue is expected to be between 1.88 and 1.9 billion. Both up 14 to 15%, this Revenue guidance includes 35 to 40 million dollars in ODC Revenue.

Returning to our bottom line, we are maintaining a non-GAAP operating margin of 29% and a free cash flow margin of 26%.

While the weakening dollar is a tailwind to the top line, it is a modest headwind to margins given our expense mix is heavily Euro-weighted.

Finally, we are raising non-gaap EPS guidance to a range of 1.58 to 1 61 cents per diluted share representing an increase of 2 cents at the midpoint of the range. This non-gaap EPS is based on a diluted share count of 309 to 310 million shares.

Jim Benson: Subscription revenue is expected to be between $464 and $469 million, both growing 15% to 16%. From a profit standpoint, non-GAAP income from operations is expected to be between $140 and $145 million, or 29% to 29.5% of revenue. Lastly, non-GAAP EPS is expected to be $0.40 to $0.41 per diluted share. In summary, we are pleased with our strong start to the fiscal year. We have a proven track record of consistent execution and delivering a balance of strong top-line growth and profitability. We continue to take a prudent approach to the near-term outlook. We remain optimistic about the fiscal 2026 growth building blocks, and we remain focused on investing in growth initiatives that we expect will drive long-term value. With that, we will open the line for questions. Operator?

Looking to Q2, we expect total revenue to be between $484 million and $489 million. Subscription revenue is expected to be between $464 million and $469 million, growing 15% to 16%.

From a profit standpoint non-gaap income from operations, is expected to be between 140 and 145 million or 29 to 29.5% of Revenue.

Lastly, non-gaap EPS is expected to be 40 to 41 cents per diluted share.

In summary, we are pleased with our strong. Start to the fiscal year. We have a proven track record of consistent execution and delivering a balance of strong Topline growth and profitability.

The fiscal 2026 growth building blocks and we remain focused on investing in growth initiatives that we expect will drive long-term value.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question. One moment while we pull for questions. Our first question is from Koji Ikeda with Bank of America. Please proceed.

And with that, we will open the line for questions, operator.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2. If you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keys. We ask that you please limit to 1 question 1 moment while we pull for questions.

Our first question is from Koji Ikea with Bank of America, please proceed.

Koji Ikeda: Yeah. Hey, guys. Thanks so much for taking the question. Really nice performance here. I did want to ask you a question on the guide. Jim, you gave a lot of color and appreciate that in the prepared remarks. Why not raise the constant currency guide? Dynatrace Platform Subscription is sounding strong, logs are sounding strong, OpenPipeline is ramping nicely. I just wanted to hopefully get additional color there on the guidance. One additional question on the guidance methodology. Do we as investors just always anticipate in fiscal Q1 going forward that we will not be getting updates to the constant currency ARR guidance? Thanks so much.

Yeah. Hey guys, thanks so much for taking the question, really, nice performance here. Um, I I did want to ask you a question on the guide, you know, Jim you gave a lot of color uh and appreciate that in the prepared remarks but why not? Raise the constant currency guide you know DPS is sounding strong loud logs and sounding strong. ODC is Wing nicely and so just wanted to hopefully get additional caller there on the guidance and then 1 additional question on the guidance methodology. We as investors just always anticipate in fiscal. Once you going forward, that we will not be getting updates for the cost of currency are guidance.

Thank you so much.

Jim Benson: Yeah, it's a good question, Koji. As you know, last year, we also went through a process where we said we were going to maintain the guide early in the year. The reality is we have 20% of the year under our belt. While we are very pleased with Q1, Q1 was an exceptional start, it's still early. I tried to highlight some things that really factor into why we think it makes sense to maintain a prudent guide. It doesn't mean that we don't have confidence in the business. We actually do. There's a lot of momentum going on in the business that we have a growing pipeline, but that pipeline is very weighted towards large deals. Large deals have more uncertainty around the close timing. We just felt it made sense early in the year to maintain the guide.

Yeah, it's just a good question because, as you know, last year we also went through a process where we said we were going to maintain the guide early in the year. The reality is we have 20% of the year under our belt.

Jim Benson: We've put some good points on the board here in Q1. We'll see how Q2 progresses, and then we'll provide an update then. We are very optimistic about the building blocks that I tried to outline in our prepared remarks.

and while we are very pleased with q1, q1 was an exceptional, start, it's still early. Um and I tried to highlight some things that really factor into why we think it makes sense to maintain a prudent guide. It doesn't mean that we don't have confidence in the business, we actually do this a lot of momentum going on in the business that we have growing pipeline, but that pipeline is very weighted towards large deals. Large deals, have a more uncertainty around the closed timing. So we just felt it, made sense. Early in the year, maintain the guide, we put some good points on the board here in q1. We'll see how Q2 progresses, um, and then we'll we'll provide an update then. But uh, we have very optimistic about the building blocks that I tried to outline, kind of the not prepared remarks.

Operator: Our next question is from Remo Lenshow with Barclays. Please proceed.

Remo Lenshow: Thank you. Congrats from me as well. I wanted to talk a little bit about, you talked about the bigger deals, Rick, and the consolidation. Can you speak a little bit about who you are consolidating there? I would assume on the logs it is going to be Splunk, but it does feel like it is broader than that. As part of that, what is the appetite in the market for these sort of deals? Thank you.

Our next question is from Remo Lynch show with Berkeley's please proceed.

Thank you. Congrats from me, as well. The um, I wanted to talk a little bit about you. You talked about the bigger deals Rick and and you know the consolidation. And can you speak a little bit of like who you consolidating their? I would assume on the logs. It's going to be Splunk but it it does feel like it's broader than that and and you know as part of that like what's the appetite in the market for these sort of deals? Thank you.

Rick Mcconnell: Thanks, Remo. I will take that one. The short form is all the log vendors, the traditional log vendors that you might imagine. The strong waves of change, I think, in the market are toward integrated solutions, end-to-end observability. What this is rendering is that isolated log solutions just are not delivering to customer needs. By integrating that into an end-to-end observability framework, we find that customers are getting better outcomes at lower overall cost. That is why they are coming to Dynatrace. They want an integrated platform. We provide that with better outcomes than they would otherwise get from standalone log offerings.

Thank you, I'll take that 1. The uh the short form is the all the log vendors, the traditional log vendors that you might imagine.

Uh, the the strong waves of change, I think in the market are toward the Integrated Solutions, and then, observability and what this is rendering. Is that isolated log Solutions who aren't delivering a customer needs?

And by integrating that into an end to end observability framework, we find that customers are getting better outcomes at lower overall cost. And that's why they're coming to dino Trace. They want an integrated platform. We provide that with better outcomes and they would otherwise get from Standalone log offerings,

Remo Lenshow: Okay. Makes sense. Thank you.

Okay, makes sense. Thank you.

Operator: Our next question is from Eric Hiltz with KeyBank Capital Markets. Please proceed.

Eric Hiltz: Hi. Good morning. Thanks for taking the question and congrats on a strong start to the year and the acceleration in net new ARR. Rick, Jim, it seemed like clearly a strong quarter on large expansion deals. I am curious to understand a little bit better, given some of the go-to-market changes earlier this year, if the activity you saw on expansion is above the typical trend line. And if the expansion activity is being driven by customers consuming in excess of their commitments and given the compensation structure more towards commitments versus consumption, if that is driving the behavior you expected to see. Thanks.

Our next question is from Eric Hills with keybanc capital markets, please proceed.

Hi, good morning. Thanks for taking the question, and congrats on a strong start to the year and the acceleration and net new are, um, Rick Jim. Um, so it seemed like clearly a strong quarter on large expansion deals. I'm curious to understand a little bit better. Given some of the go to market changes earlier this year. If, if kind of the activity you saw on expansion is above the typical trend line. And um, if if kind of the expansion activity is being driven, um, by customers consuming, an excess of their commitments, and um, given kind of the compensation structure more towards, um, commitments versus consumption, if, if that's driving the behavior expected to see. Thanks.

Rick Mcconnell: Good question, Eric. As you mentioned, we did change our sales incentive model relative to ARR versus on-demand consumption. That may have had some modest impact. I think it is more driven by the changes that we made in our go-to-market area last year, where we talked about changing our segmentation and weighting more resource in higher propensity to spend customers. We are starting to see that. Those large customers, we are seeing large expansion opportunities. The pipeline, I think, is more driven by, and the performance is more driven by, we now have a year of that activity, and you are starting to see it manifest itself in closed deals. Given where we weighted the resources, it is not surprising that we are seeing it with large expansions. We talked about 12, that is more than, I think, more than triple the number of million-dollar deals.

Rick Mcconnell: I think we nearly doubled the number of deals over $500,000. So a very, very strong expansion quarter. We are optimistic. The pipeline is very heavily weighted, in particular in those areas that we made investments in. I know Rick McConnell commented on that in his prepared remarks. So we are optimistic. The only thing I would say with that is that we do know that the timing of when large deals close can be variable. We just wanted to make sure that we apply a bit of prudence in the guide for that. We will see how things play out, but that hopefully gives you a bit of color. I would just add to that that in our D1 organization, which is our services and customer success organization, they are more focused than ever on driving consumption of the platform.

Are versus on demand consumption so that may have had some modest impact. I think it's more driven by the changes that we made in our go to market area last year where we we talked about changing our segmentation and waiting more resource um, and higher propensity to spend customers. And we're starting to see that, you know, those large customers. Um, we're seeing large expansion opportunities. So the pipeline I think, is more driven by in the performance is more driven by. We now have a year of that activity and you're starting to see it manifest itself in closed deals and giving where we waited the resources. It's not surprising, uh, that we're seeing it with large expansions. We talked about 12, that that's like, more than I think more than triple the number of Million Dollar Deals. And I think we nearly doubled the number of deals over $500,000. So a very, very strong expansion, uh, quarter and we're optimistic the pipeline is very heavily weighted.

In particular, in those areas that we made investments in, I know Rick commented on that. Uh in his prepared remarks. So we are optimistic. They the only thing I would say with that is that we do know that the timing of um when large deals closed can be variable and so we just wanted to make sure uh that we apply a bit of prudence in the guide for that. We'll see how things play out but uh, that hopefully gives you a bit of color.

I just add to that that, you know, our D1 organization, which is our services and customer success organization.

Rick Mcconnell: The consumption of the platform is, of course, then driving some of this pipeline around strategic enterprises to enable us to get to 50% growth year over year in that pipeline, even greater growth in the million-dollar plus category of ACB deals. So it really is a concerted company effort spanning from our sales go-to-market all the way through our marketing efforts and inclusive of our services efforts as well.

They are more more focused than ever on driving consumption. So the platform and the consumption of the platform is, of course, then driving some of this pipeline around strategic Enterprises to enable us, to get to 50% growth year-over-year in that in that pipeline, even greater growth in the million-dollar, plus category of ACV deals. So it really is a concerted company effort spanning from our sales, go to market all the way through our marketing efforts and inclusive of our services efforts as well.

Operator: Our next question is from Patrick Colville with Scotia Bank. Please proceed.

Our next question is from Patrick caval with Scotia Bank, please proceed.

Remo Lenshow: Thank you for taking my question. This one is for Rick or Jim. This change to ODC and the rev rec, can you just go through the other metrics that are impacted by this? I mean, you touched in the prepared remarks that in the quarter and fiscal 2026 bottom line has seen a tailwind. What about other top-line metrics like NRR? Did they see a benefit from this ODC rev rec change? Thank you.

Thank you for taking my question. Um, this 1 is for, for Rick and Rick, or Jim. Um, these this change to ODC and the and the revri. Can you just go through the other metrics that impacted by this? I mean, you touched in the prepared remarks that in the quarter and fiscal 26, bottom line.

Um, I've seen a Tailwind but what about, you know, other what about Topline metrics like NR? Like did they see a benefit from this ODC re change? Thank you.

Rick Mcconnell: No, there's no impact for any other metric relative to this revenue accounting estimate change. That has only to do with revenue recognition. What I will say is relative to DPS, which you know ODC, if I bring you back to our contracting vehicle of Dynatrace Platform Subscription, we talked about the fact that it's over 45% of our customers now, over 65% of our ARR. The metrics, Patrick, those customers that are on DPS, I mentioned they consume more of the platform, nearly 2X a customer that's on a SKU-based contract. They consume nearly 2X the number of capabilities. They have much higher NRR. They have much higher renewal rates. So across the board, get them on DPS, as Rick McConnell said, have our teams drive consumption. Ultimately, it'll either manifest itself in customers consuming earlier, which will either be an ODC, or they will expand earlier.

Yeah, no, there's no impact for any other metric relative to this um, Revenue accounting estimate change that has that, that has only to do with Revenue recognition, but what I will say, is relative to DPS, which, you know, ODC, I bring you back to our Contracting vehicle. I've done Trace platform subscription, we talked about the fact that it's over 45% of our customers. Now, over 65% of our ARR and the metrics, uh, Patrick those customers that are on DPS, I mentioned, they consume more of the platform, nearly 2x a customer, that's on a skew based contract. They, they consume nearly 2X.

Rick Mcconnell: I'd say we are very confident in where we're at, and we're going to continue to make more traction in that area. Just to be very clear, since I know it can be somewhat confusing, ODC is not at all impacting ARR or NRR.

The number of capabilities, they have much higher nrr, they have much higher renewal rates, they have much so across the board, get them on DPS as Rick said, have our teams Drive consumption and ultimately it'll either manifest itself in customers consuming earlier, which will either be an ODC or they will expand earlier. And I'd say we are very confident in where we're at and we're going to continue to make more traction in that area.

So, so just to be very clear since I know, it can be someone confusing.

ODC is not at all impacting ARR or nrr.

Remo Lenshow: It impacts no metric other than revenue.

Rick Mcconnell: Right.

It impacts no metric other than Revenue, right?

Operator: Our next question is from Matt Hedberg with RBC Capital Markets. Please proceed.

Our next question is from Matt Hedberg with RBC Capital Markets. Please proceed.

Remo Lenshow: All right, guys. Thanks for taking my question. Congrats on the results. Realizing Dynatrace Platform Subscription contracts are typically three years, I am wondering if you are seeing anything different with this year's Dynatrace Platform Subscription cohort versus last year and anything different about ODC, as last year's cohorts sort of like move into year two?

Great guys. Thanks for taking my question. Congrats on on the results. Um you know realizing DPF contracts are typically 3 years. I wondering if you're seeing anything different with this year's DPS cohort versus last year and and anything different about ODC you know as as last year's cohort sort of like moving to year 2.

Rick Mcconnell: That's a good question, Matt. I'd say the cohort classes, as I mentioned before, are all going to behave differently. You are 100%. This is the second year. We have our first cohort class of Q1-26 that has gone through their, I'm sorry, Q1-25 was the first cohort class. That cohort class is now in their second year. We now have the new cohort class. They do behave differently. I mentioned before that ODCs can be heavily weighted and are heavily weighted relative to a small number of customers. That's no different this quarter than it was last year. The good news is, I'd say customers continue to consume at a rapid rate on the platform, and we continue to see ODC at a reasonable clip.

Of, uh, we have our first cohort class of q1 26. You know? That has gone through there. I'm sorry. Q125 was the first cohort class that cohort class is now in their second year. We now have the new cohort class. They do behave differently, um, you know, I mentioned before that

Rick Mcconnell: Yes, the behavior is different, but the behavior still is customers that are on a DPS contract, whether in their first cohort class or their second, are consuming at a very rapid rate.

Odc's can be heavily weighted and our heavily weighted Arielle to a small number of customers. Um and so that no different um this quarter than it was last year, the good news is you know I'd say customers continue to consume at a rapid rate on the platform and we continue to see ODC at a reasonable clip. Um, but yes, the behavior is different. But the behavior still is customers that are on a DPS contract, whether they're in their first cohort class or their second are consuming at a very rapid rate.

Operator: Our next question is from Sanjit Singh with Morgan Stanley. Please proceed.

Our next question is from sanjit Singh with Morgan Stanley. Please proceed?

Remo Lenshow: Thank you for taking the questions. In your comments, Rick, as you sort of, we go through the Q&A, I can definitely sense a lot of optimism, and you guys feel pretty good about the go-to-market changes. Trying to dig into how the go-to-market changes are manifesting, and you mentioned the strategic account pipeline up 50%. Is there any way to compare that? Say if we wind back to this time last year, is that an improvement versus this time last year? How are the composition of deals, whether from a deal size perspective or the number of products perspective? Any way to sort of contextualize how the deals are changing? I think the other thing I would add is that we've talked about large deal uncertainty in the past. You guys famously signed a $100 million TCV deal a couple of years ago.

Thank you for taking the questions, you know, in your comments, Rick and, um, as you sort of, we go through the Q&A, I can definitely send a lot of, um, optimism. Um, and you guys have a pretty good about the good of Market changes, I'm trying to like, dig into, um, like how the go to market changes are like manifesting, um, you know, and you mentioned the Strategic account pipeline of 50%.

Remo Lenshow: Are we saying that there's more of these types of deals in the pipeline driven by some of the go-to-market changes that you guys have been implementing over the past several quarters? Thanks.

Is there any way to compare that? Like, say, if we rewind back to this time last year, um, is that an improvement versus this time last year? And how are the composition of deals? Um, whether from a deal size perspective, where the number of products for perspective, any way to sort of contextualize like, um, how the deals are changing. And I think the other thing I would add is that, you know, we've talked about large deal uncertainty in the past, you guys famously signed, uh, a hundred million dollar tcv deal deal deal a couple years ago. Are we saying that there's more of these types of deals in the pipeline, um, driven driven by some of the go to market changes that you guys have been implementing over the past several quarters. Thanks,

Rick Mcconnell: I will take a crack at that, and Rick can comment. It is a great question, Sanjit. I would say that it is not surprising that versus last year, we had just made the changes early last year. So in Q1, you would not have expected necessarily the growth in pipeline and the growth in deal sizes relative to the changes that we made. It was still early. So it is a significant improvement from where we were last year, both in pipeline and in deal sizes, and in particular, the areas that we made the investments in, which we had talked about. We were making investments in higher propensity to spend customers, largely the global 500, and then secondarily within the kind of below that in the large enterprises. So it is a significant change from where we were last Q1.

So I'll, I'll take a, a crack at that and Rick can comment. Um, it's a great question son, I would say that, um, it's not surprising that, uh, versus last year. Uh, we had just made the changes early last year. So in q1, you, you wouldn't have expected necessarily the growth in Pipeline and the growth in Deal size is relative to the changes that we made, because it was still early. So it is a significant improvement from where we were last year, both in Pipeline and a deal sizes. Uh, and in particular, the areas that we made the investments, in which we had talked about, we were making investments in higher propensity to spend customers largely the global 500 and then secondarily within the kind of um below that in the in the large Enterprises.

Rick Mcconnell: I would say it is probably not surprising because of where we put resources. They were large customers, large complex environments where there is a lot of spend on observability with multiple tools. So the fact that we are seeing growing deal sizes and growing pipeline probably is not a surprise. You are right that I think I talked about it maybe a year and a half ago as an emerging trend. We are seeing this continue to build. So the good news is expansion activity with large deals is growing. I would say the caution with that is it takes a while. It takes a while for these deals to close, and timing uncertainty is really something that we tried to factor into the guide.

Rick Mcconnell: I would say, Sanjit, just to add to that, if we really replay the clock a couple of years ago, it was an APM motion. It was one of selling applications in a land-and-expand fashion, really around apps. Fast forward, you are a third-generation platform that we have today. This is a comprehensive end-to-end platform. It is inclusive of Grail. It has all data types factored in. As I mentioned in my prepared remarks, it is addressing applications, infrastructure, log management, real user monitoring, application security, and so on. The result of this is the sales motion that has expanded quite broadly over these last couple of years to be more focused on end-to-end observability, more focused on cloud and AI native, which is a strong and emerging area of growth for us. The result is really manifested in the first quarter numbers.

So it is a significant change from where we were last few ones. And I would say, probably not surprising, because of where we put resources, they were large customers, large complex environments. Um, where there's a lot of spend on observability with multiple tools. So the fact that we're seeing growing deal sizes and growing pipeline, probably isn't a surprise. Uh, you are right that I think I talked about it, maybe a year and a half ago as an emerging Trend we're seeing this continued to build. It was a good news is expansion. Activity with largely ills is growing, I'd say the caution with that as it takes takes a while, takes a while for these deals to close. And timing uncertainty is really something that we try to factor into the guide.

And I would say Sandra just to add to that. If we really replay the clock a couple of years ago, we was an APM motion.

It was 1 of telling applications on a land and expand fashion really around apps fast forward. Do our third generation platform that we have today. This is a comprehensive end and platform. It is inclusive of Grail. It has all data types factored in, as I mentioned, in my prepared remarks, it is addressing applications infrastructure, log management, really user monitoring application, security, and so on, and the result of this is the sales motion that's expanded. Quite broadly, over these last couple of years, to be more focused on end-to-end observability, more focused on cloud and AI native, which is a strong and emerging area.

Rick Mcconnell: You see log growth and acceleration that is material. You see DPS now at 65% plus of overall ARR. You see partner growth with strong performance out of the GSIs and co-sell with hyperscalers of north of 50%. You see the pipeline growth, especially in the strategic pipeline and the higher-end pipeline that is growing faster than that. So the indicators that we wanted to see were.

Jim Benson: to see in the numbers and the resulting in the performance she saw in Q1.

So the the indicators that we wanted to see were beginning to see, uh, in the numbers and the resulting in the performance. She saw in the first quarter.

Operator: Our next question is from Will Power with Robert W. Baird. Please proceed.

Our next question is from willpower with Robert Ward. Please proceed.

Noelle Faris: All right, thanks. I guess I want to come back a little bit, perhaps, to the previous question. It sounds like you are clearly reaping some of the benefits of the go-to-market changes put in place about a year and a half ago or so. Maybe you could just share any more color on where we are in that journey. Is there anything with respect to sales tenure or sales productivity? I am just trying to figure out how much more there might be still to go as we kind of move through this year and over the next 12 months. What is still in front of us on those go-to-market changes?

Okay great thanks. Yeah. I I just I want to come back a little bit perhaps to the previous question. I mean it sounds like you're clearly you know kind of reaping some of the benefits of the go to market um you know changes put in place about a year and a half ago or so.

Maybe you could just share any more color on kind of where we are in that journey. Is there anything with respect to you know, sales tenure or or sales productivity and just trying to figure out, you know, how much more there, there might be, you know, still to go um, as we kind of move through this year and, and over the next um, you know, 12 months, what's still in front of us on this, go to market changes

Jim Benson: Yeah, I mean, those go-to-market changes, you are right. Well, they have been in place for a little over a year. So they are maturing. As we talked about last year, the reps that we added, we added throughout the year. So we still, our rep tenure is still a little weighted more so than historical levels to younger tenured reps. But I think the expectation is, as the year progresses, you will see an improvement in that tenure. And we have certainly seen that reps that are more tenured produce more. So, as Rick McConnell outlined, we feel really good about the changes. The way you see those changes manifest initially is in growing pipeline. We are seeing that. But the second way you see that is in deal closures. You are actually starting to see deal closures that I think are a manifestation of some of these changes.

Yeah, I mean those go to market changes. You're right, well, they've been in place for a little over a year. So the amateur um, as we talked about last year is that the Reps that we added, we added throughout the year. So are we still our rep tenure is still a little weighted more so than, um, historical levels to younger ten year reps. But

Jim Benson: So we are very optimistic about the changes. We think that they are starting to show up in the results. And we will have to see how the year progresses, and we will give you an update along the way.

I think the expectation is as the year progresses, you'll see an improvement in that tenure, um, and we've certainly seen that, um, reps that are more tenured produce more. So uh, you know, as Rick outlined we feel really good about the changes. The, the way you see, those changes manifest initially is in growing pipeline. We are seeing that from the second way. You see? That is in Deal closures. You're actually starting to see deal closures that I think are a manifestation of some of these changes and we're very optimistic about the changes. We think that they're starting to show up in the results, uh, and we'll have to see how the how the year progresses and we'll give you an update along the way.

Operator: Our next question is from Kash Rangan with Goldman Sachs. Please proceed.

Our next question is from cash for Engine with

Goldman Sachs, please proceed.

Noelle Faris: Hi, thank you very much, Rick. Happy to tell you that your moves transforming the GTM, transforming the product approach with AI have really started to pay off. Nice job on that. As you look at the success of the company with the new approach to DPS, what are your learnings that you can take away from things that have worked and that you could put to work in an amplified manner as you broadly institutionalize the transformation to more consumption? That is one, bigger push request. Second is, what are you hearing? What is the mark-to-market on tariff talk with your customer base and prospecting? Thank you so much.

Hi, thank you very much, Rick. Uh, have to say that your moves transforming the GTM canceling. The, uh, the product approach with AI, have have really started to pay off. So nice job on that. As you look at the success of the company with the new approach to DPS uh what are your learnings that that you can take away uh from uh things that have worked and that you could put to work in an amplified manner. As you broadly institutionalized the the the transformation uh to more consumption, that's 1 bigger picture. Question second is uh what are you hearing? What's the mark-to-market on tariff talk?

With your customer base and prospecting, thank you so much.

Jim Benson: On the DPS front, I think the main learning was that we were constraining our customers, and this is now dating back a few years ago, to our legacy pricing model. We were constraining our customers in growing based on a legacy pricing model that forced separate contracting across all the individual modules, and it wasn't providing them access with the comprehensive platform. What DPS does, as we've made note in many prior calls, is to provide full access to the platform and allow a consumption drawdown. This has accelerated consumption of the individual modules and capabilities. It's also accelerated overall consumption growth. Our view, to your point on consumption cash, is just that that consumption, ultimately, we do believe drives either incremental ARR or it drives ODC. The benefit of this overall cycle is that it is overall accretive to ARR and revenue over the course of time.

I mean, on the, the DPS front, I think the main learning was that we were constraining our customers and this is now dating back a few years ago to our Legacy pricing model.

We were constraining our customers in growing based on a legacy pricing model that forced separate Contracting across all the individual modules and it wasn't providing them access with the comprehensive platform.

What PPS does, as we've noted in many prior calls, is provide full access to the platform and allow for a consumption drawdown. This is an accelerated consumption of the individual modules and capabilities. It's also accelerated overall consumption growth, and our view, to your point on consumption, cash is just that. We believe that consumption ultimately drives either incremental ARR or it drives ODC.

Jim Benson: We believe that we're beginning to realize that now that we're sitting at 65% of ARR on DPS. That's the DPS question. On tariffs, I would say we've seen very little impact from tariffs thus far. We continue to plan and forecast with a cautious outlook on macro just because those changes are very hard to predict, as you all are more than aware. We take a cautious outlook, and we'll see how they evolve and how the impact occurs if it occurs over time. We haven't seen substantial impact at this juncture.

So the the benefit of this overall cycle is that uh it is overall accretive to ARR and revenue over the course of time. And we believe that we're beginning to realize that now that we're sitting at 65% and they are are on DPS.

So, that's the DBS question, on on tariffs. I would say we've seen very little impact from terrorists thus far. We continue to to plan and forecast, with a, a cautious outlook on macro, uh, just because those changes are very hard to predict as you all are more than aware.

So, we take cautious Outlook, and we'll see how they evolve and how the impact occurs, if it occurs over time, but we haven't seen substantial out. We haven't seen substantial impact at this juncture.

Operator: Our next question is from Mark Murphy with J.P. Morgan. Please proceed.

Our next question is from Mark Murphy with JP Morgan please proceed.

Noelle Faris: Hey guys, this is Noelle on for Mark Murphy. Thanks for taking our question. You noted that the enterprise pipeline, I think, is up about 50% and that log management remains a major opportunity, reiterating the $100 million milestone. Can you unpack how much of that pipeline strength is being driven by log-related demand specifically or potentially other adjacent solutions? Thank you.

And that log management remains a major opportunity. Um, reiterating the the hundred million dollar uh Milestone C. Can you unpack how much of that pipeline strength is being driven by log related demand specifically or uh potentially other adjacent Solutions? Thank you.

Jim Benson: Relative to the breakdown of the pipeline, I would say we are continuing to see more and more interest in logs. I would say more of the pipeline gets weighted to kind of log areas. As Rick McConnell outlined in his comment earlier, the play that is working really, really well for Dynatrace, you mentioned the three plays that we had outlined around end-to-end observability, your traditional LAM with APM, and then cloud native. The play that is really resonating and we are getting really good traction is in end-to-end observability. In end-to-end observability, it almost always includes the discussion about logs. We are seeing not just activity with logs, but when you have an end-to-end discussion, logs is almost always included in that.

so, um, relative to the breakdown of the pipeline that

I would say we're continuing to see more and more interest in logs. So I'd say more of the pipeline gets weighted to to kind of log areas and as Rick outlined in, kind of his comment earlier that the play that is working really, really well for Dino trays.

He mentioned the 3 plays that we had outlined on end to end, observability your traditional land with APM and then Cloud native to play that is really resonating and we're getting really good. Traction is an end to end of observability and an end to end of durability. It, almost always includes the discussion about logs so uh, we're seeing not just activity with logs, but when you have an end-to-end discussion logs is almost always included in that.

Operator: Our next question is from Mike Cikos with Needham & Company. Please proceed.

Noelle Faris: Great, thanks guys. Just to circle up on the ODC comments again, but I appreciate the disclosures around this accounting treatment here and the updated forecast for call it $8 million to $9 million per quarter over the rest of the year. If I strip out the $7 million one-time true up in Q1, we still shake out somewhere around that $30 million that you guys were expecting for the full year. I just wanted to see Q1, it sounds like ODC adjusted for that true up was in line with expectations. That is the first part. The second part, as far as these ODC customers, are you seeing customers early renew at this point? If they are, what does that look like?

Our next question is from Mike cheecho's with meet him in Company. Please proceed.

Great thanks guys. Uh, just a circle up on the ODC comments again, but uh, appreciate the disclosures around this accounting treatment here and updated forecast for call at 8 to 9 million per quarter over the rest of the year.

Um if I strip out the the 7 million, 1 time true open q1. We still shake out somewhere around that 30 million that you guys were expecting for the full year. So I just wanted to see

q1. It sounds like ODC adjusted for that. True up was in line with expectations. That's the first part and then the second part, as far as these ODC customers, are you seeing customers early Renew at this point? And if they are, what does that look like?

Jim Benson: Yes, the simplicity of your first question is yes, we are actually maintaining the 30. The 30 is still unchanged. The 4 that we did in Q1 under our as-encouraged treatment was roughly in line with our expectations. We increased the full year, as I mentioned, in a range to 35 to 40. That is largely because of this accounting estimate change. Relative to customers, we have a mixed bag. You have some customers that will go into ODC, some customers that will go into an early expansion. I would not say the large expansions that we saw in the quarter were driven by customers that early expanded versus ODC. That was not necessarily the nature of those customers.

Jim Benson: I think more of the expansion activity that was healthy in the quarter was just driven by broader end-to-end observability deals and not necessarily driven by someone that was over-consuming their commitment.

Yeah. So uh the simple answer to your first question is yes, we are actually maintaining the 30. The 30 is still unchanged, the 4 that we did in q1. Um under our as incurred treatment was roughly in line. With our expectations, we increased the full year, as I mentioned, in a Range, to 35, to 40. And that's largely because of this accounting, estimate change. Um, you know, but relative to the customers that we have a mixed bag, you have some customers that will go into ODC, some customers that will go into an early expansion. Uh, I would not say the large expansions that we saw in the quarter were driven by customers that early expanded versus ODC, that that wasn't necessarily the nature of those customers. So I, I think more of the expansion activity that was healthy in the quarter, was just driven by

Broader end-to-end, observability deals. And not necessarily driven by someone that was over consuming their commitment.

Operator: Our next question is from Andrew Nowinski with TD Cowen. Please proceed.

Our next question.

Andrew Sherman with TD Cowen, please proceed?

Noelle Faris: Great, thanks. Congrats, Jim. The NRR of 111% was a nice uptick. Now that DPS is 60% of ARR, is there any reason why we wouldn't see NRR continue to increase a little bit throughout the year?

Oh, great thanks. Congrats. Uh, Jim, the nrr of 111% was a nice uptick now the DPS is 60% of ARR. Is there? Any reason why we wouldn't see nrr continue to increase a little bit throughout the year?

Jim Benson: Yeah, I mean, it's a good question. I do think whether it expands during the year, we will have to see how it plays out. What I would say is, given the pipeline health that I mentioned and the pipeline being pretty weighted to expansion activity, we have a very large and healthy pipeline on expansion. I would expect this year that expansions to probably be a heavier mix of our net new ARR than it has been historically. I think historically it has been a third new logos and two-thirds of expansions. I would expect that might be a little bit heavier to expansions this year just because of the health of the pipeline on expansions.

Yeah, I mean it's a good question. I I do think um whether it's an expands during the year we'll have to see how it plays out. Uh what I would say is given the pipeline Health that I mentioned and the pipeline being um,

Pretty uh weighted to expansion activity. We have a very large and healthy Pipeline and experience and I would expect this year that expansion to probably be a heavier mix of our net new ARR that it has been historically. I think historically it's been

Noelle Faris: Great, thank you.

A third new logos and 2/3 of expansions. I would expect that might be a little bit heavier to expansion this year, just because of the, uh, the health of the pipeline on expansions,

Great. Thank you.

Operator: Our next question is from Brent Hill with Jefferies. Please proceed.

Our next question is from Brent zil with Jeffrey's please proceed.

Noelle Faris: Thanks, good morning. On AI, there was a view last year that many enterprises were confused and trying to figure things out. They seemed to be on a bigger route and making better decisions. Do you think this is starting to aid and help in some of the decisions that you are seeing and follow through in your own core business? How would you characterize the enterprise AI adoption demand and what tailwind that is starting to add to your business?

Uh, thanks. Good morning. Um, just on AI there was a view that last year that many Enterprises were confused and trying to figure things out. They they seem to be in a bigger route and making better decisions. Do you think this is starting to Aid and help and some of the decisions that you're seeing in fall through and your your own Core Business? How would you characterize just the Enterprise AI adoption demand and what Tailwind? That's starting to add to your to your business.

Jim Benson: I would say it is accelerating. There is more and more discussion about internal use. Certainly more and more discussions that I am having with customers on an increasingly frequent basis around utilization of AI in observability use cases. As I mentioned in my earlier remarks, we are spending a lot of time on AI utilization as we have in the platform for a long time, but also extending that to agentic AI. We are already delivering predictive operations that integrate with causal and predictive AI, along with integrating that to our automation engine to enable automated response. We have posted our MCP server to GitHub, which has been downloaded now thousands of times by developers to use in their IDEs and their development environments. Those MCP server capabilities are integrating into our overall Dynatrace platform and therefore enabling that access by developers.

I would say it's accelerating there's more and more uh discussion about internal use.

certainly more and more discussions and I'm having with customers on an increasingly frequent basis around utilization of AI in observability, use cases

On on AI utilization as we have in the platform for a long time. But also extending that to agentic AI, we are already delivering predictive operations, that integrates with causal and predictive AI. Along with integrating that to our automation engine to enable automated response.

Jim Benson: Finally, that is leading into a foundational approach to agentic AI, where we are really driving the integration not into just Dynatrace agents, but also third-party agents to be able to execute to create a truly autonomous system. We are all over it, and we think that this is going to be a very, very critical evolution in the observability industry that we believe that we are well poised to take advantage of.

We have posted, uh, our mCP server to GitHub, which, uh, has been downloaded now thousands of times by developers to use in their Ides and their development environments. Those mCP server capabilities are integrating into our overall data Trace platform and therefore, enabling that access by developers and finally that's leading into, uh, foundational approach to augmented AI, where we're really driving the integration. Not into just data, Trace agents, but also third-party agents to be able to execute to create a truly autonomous system.

So uh we're we're all over it and we think that this is going to be a very very critical evolution in the observability industry. That we believe that we're well poised to take advantage of

Operator: Our next question is from Keith Bachman with BMO Capital Markets. Please proceed.

Our next question is from Keith Beckman with BMO Capital markets, please proceed.

Noelle Faris: Hi, thank you very much. I actually wanted to discuss the competitive landscape, given the expansion in your portfolio, the dynamics surrounding. It seems to be a market consolidating to two primary vendors. What do you think the current dynamics of the market suggest about the competitive landscape? I know Brent asked about the growth of AI, your logs fundamentals. In particular, if we think about open source solutions and how customers may be looking at that, one of your competitors deals with startups including AIs. It is sort of understood they may be going, one of their customers may be going more towards do-it-yourself and/or leveraging some open source technologies. What are you guys seeing? If I break it down into the two parts, it seems like your net retention rate is steady, but what about some of the deals that are called more new greenfield?

Hi, thank you very much. I I actually wanted to

Discuss the competitive landscape and seeing.

Given the expansion of your portfolio. The Dynamics surrounding.

Um, it seems to be a market consolidating to 2 primary vendors.

Um, what do you think the current dynamics of the market suggests about the competitive landscape? I know Brent asked about the, you know, the growth of AI your logs fundamentals.

Um, and in particular.

Um, if we think about open-source Solutions and how customers may be looking at that, what are your competitors deals with startups, including Ai? And it's sort of understood, they may be going, you know, 1 of their customers may be going more towards do-it-yourself.

Noelle Faris: Are you seeing any changes there in the competitive dynamics, particularly from open source projects? Just a quickie for you, your free cash flow was strong this quarter, certainly above our estimates by a reasonable amount. Anything that you want us to keep in mind as we look for the next three quarters? You did not change the free cash flow guidance for the year despite stronger results. So anything you want to call out or ask us to keep in mind for our free cash flow targets for the year? Thank you.

And or leveraging some open source Technologies. What do you guys seeing? If I break it down into the 2 parts, it seems like your net retention rate is steady but but what about some of the the deals? Uh, that are called, you know, more new Green Field. Are you seeing any changes there in the competitive Dynamics?

Uh particularly from open source projects and then just a quickie for you. Your free cash flow was was strong this quarter certainly above our estimates.

Uh, by a reasonable amount, anything that you want us to keep in mind as we look for the next 3 quarters, you didn't change the free cash flow.

Uh, guidance for the year, despite strong results. So anything you want to call out or ask us to keep in mind for a free cash flow targets uh, for the year. Thank you.

Jim Benson: Thanks, Keith. I will take the first part, let Jim take the second part. On the competitive environment, just to be crisp about it, obviously a lot always going on in a competitive environment. What we would say is no substantial change over what we have seen a quarter ago or even a couple of quarters ago in terms of who we tend to see in the market, who we are competing against, and in which customer segments. I would say there has been little to no leakage that we have observed to open source at this juncture. Jim, you want to take that?

Noelle Faris: Yeah, I'd say on free cash flow, Keith, as we've shared before, free cash flow is always going to be strong in our first and fourth quarters, just given the seasonality of when we actually have bookings and then you see collections activity. So it'll be strong in the first quarter and the fourth quarter. It'll be light in the second and the third quarter. I don't expect it to be materially different than what it is historically. We maintain the guide. There is a little bit of a headwind, I would say, on ARR, which obviously manifests itself in billings. There is a headwind, I'm sorry, the tailwind. There is a headwind on spending. We have a very large percentage of our expense base that is in euros. So we just felt it was appropriate to just maintain the guide to account for some foreign exchange headwind on spend.

Thank you, I'll take the first part. Let Jim take the second part on the competitive environment just to be crisp about it. Obviously a lot always going on a competitive environment. What we would say is no substantial change over what we have seen a quarter ago, or even a couple of quarters ago, in terms of who we tend to see in the market who are competing against and in which, in which customer segments. Um, I would say there has been little to no leakage that we've observed to open source at this, at this juncture Jim, you want to take? Yeah. And I'd say on free cash flow keys that as we shared before that free cash flow is always going to be strong in our first. And fourth quarters, just giving the seasonality of when we actually have bookings and then you you see collections activities so it'll be strong in the first quarter and the fourth quarter, it'll be light in the second and the third quarter. So I don't expect it to be materially different what then what it is historically and we we maintain the guy we tried, we maintain the guide. You know, there is a little bit of a

uh, a headwind I would say on ARR, which obviously manifests itself in buildings, but there is a head, I'm sorry, the tail when there is a headwind on spending, you know, we have a very large percentage of our expense space that is in euros and so we just felt it was it was appropriate to just maintain the guide uh, to account for, you know, some foreign exchange headwinds on spend

Operator: Our next question is from Brad Reback with Stifel. Please proceed.

Noelle Faris: Great. Just building on the hyperscaler comment a minute ago, can you remind us how your business skews? Does it skew more towards Azure, or is it fairly evenly weighted across the three? Thanks.

Our next question is from Brad Reebok with steo. Please proceed.

Uh great just building on the hyperscaler comment uh a minute ago. Can you remind us how your business skews, is it skew more towards Azure or is it fairly evenly? Weighted a, a cross, the 3. Thanks,

Jim Benson: It skews more towards AWS, but we are seeing growing traction with Azure in particular.

Uh, excuse more towards AWS. Um, but we are seeing growing traction with Azure in particular.

Noelle Faris: Great. Thank you very much.

Jim Benson: We do have our third-generation platform, Brad, now on all three major hyperscaler platforms. So we are really quite indifferent as to how it proceeds. So it is really customer-driven.

We we do have our third generation platform Brad now on all 3, major hyperscaler platforms. So we're we're really quite indifferent as to how it proceeds so it's it's really customer-driven.

Operator: Our next question is from Joshua Tilton with Wolf Research. Please proceed.

Our next question is from Joshua. Tilton with wolf, research, please proceed.

Noelle Faris: Hey, this is Patrick on for Josh. Thanks for taking our question. Wanted to touch on the new logo ads in the quarter, which were down quite a bit year over year and sequentially. It sounds like maybe the pipeline on the new logo side is a little weaker, or at least relative to the expansion opportunities. Can you just comment on why that is? Should we think about this as sort of the new run rate this year or anything to call out related to what you might be doing to improve those customer ads going forward? Thanks.

Jim Benson: Yeah, it's a good question. New logos were a little bit lighter. As I mentioned earlier, I do think we are going to have a heavier expansion mix this year. I think it is a bit of the nature of the beast with some of the segmentation changes we have, where we made changes with install-based accounts with reps. We are getting earlier traction with expansions. Reps will sell what is easiest to sell within the install-based pipeline. We are seeing the pipeline kind of weighted towards deals like that. The new logo pipeline is healthy. I would say that would I prefer maybe a different mix than what we are seeing? Maybe, but I feel pretty good about the overall health of the pipeline. Whether it comes in as an expansion or whether it comes in as a new logo, I would say that is just a mixed question.

Hey, this is Patrick on for Josh, thanks for taking our question. Um, wanted to touch on the new logo ads in the quarter, which were down quite a bit uh, year-over-year and sequentially. And it sounds like maybe the pipeline on the new logo side is a little weaker, or at least relative to the expansion opportunities. You just comment on why that is and should we think about this as sort of the new run rate this year or anything to call out related to what you might be doing to improve those? Uh customer adds going forward. Thanks

Yeah. Uh it's a good question. Uh yeah, new logos were a little bit lighter as I mentioned, uh, earlier that I do think we're going to have a heavier expansion mix this year and I think it is a bit of a, um, the nature of the Beast with some of the segmentation changes we have, where we may change is with install based accounts with reps, we're getting earlier traction with expansions. So reps will sell, what is easiest to sell within the install based Pipeline. And so, we are seeing the pipeline kind of weighted towards deals like that. Uh, the new logo pipeline is healthy. Um, it's, you know, so I'd say that

Jim Benson: You are going to have some quarters where new logos are strong, and you are going to have some quarters where new logos are not. I think the important thing on new logos that we have talked about is making sure that the customers that you are bringing on, that you land them at the right size. We find if you land them at the right size, and we know roughly 90% of our customers roughly land on a Dynatrace Platform Subscription contract, you land them over $100,000, the propensity to expand is much greater. The focus is more on the quality of the land than necessarily the units.

Would I prefer maybe a different um, mix than what we're seeing? Um, maybe but, uh, I feel pretty good about the overall health of the pipeline and whether it comes in as an expansion or whether it comes in as new logo, um, I'd say that's just a mixed question and you're going to have some quarters, renew logos are strong, and you're going to have some quarters with new logos or not. I think the important thing on new logos is that we've talked about is making sure that the customers that you're bringing on that, you land them at the right size, we find if you land them at the right size and we know roughly 90% of our customers roughly land. Um, um, on a DPS contract, the land them over thousand dollars. The propensity to expand is much greater, and so the focus is more on the quality of the land and necessarily the units.

Operator: Our next question is from Miller Jump with Truist Securities. Please proceed.

Our next question is for Miller. Jump with true Securities. Please proceed.

Noelle Faris: Hey, great. Thank you for squeezing me in. So obviously, it is early on this, but I am just curious if there is any contribution to pipeline and early assessment you could give us on the rollout of the strike teams. Maybe as we think about opportunities for additional strike teams down the road, what are the key criteria that you are using to determine if a strike team is beneficial to a technology? Thanks.

Hey great, thank you for uh squeezing me in. So obviously it's early on this but I'm just curious if there's any, uh, contribution to Pipeline and early assessment. You could give us on the roll out of the strike teams. And maybe as we think about opportunities for additional strike, teams down the road, what are the key criteria that you're using to determine uh, at the strike? Team is beneficial to a technology? Thanks.

Jim Benson: Yes, what I will say is we are already seeing an impact of the strike teams, notably with logs. I would say we are seeing progress with the two strike teams that we do have, which is logs and security, but we have seen notable traction in logs. Rick commented on that in his prepared remarks. I would say the criteria is more what is the product? What is the familiarity with the sales organization? What is our ability for something that is newer to get traction with people that are steep in that particular product area versus someone that is maybe more a generalist across product categories? I would say right now it is logs. Right now it is application security. We will see if there are newer areas. Actually, the criteria is do we think that those teams helping customers will accelerate consumption?

Yeah, so, I mean, what I will say is, we are already seeing an impact of the strike teams. Um, uh, notably with logs, uh, I would say we're seeing, uh, progress with the 2 strike teams that we do have, which is logs and security. But we have, we have seen notable Traction in logs. And, you know, Rick Rick commented on that, uh, in his prepared remarks and I see the criteria is more, the

Jim Benson: Then two, those teams working with our sales organization to accelerate productivity of deals and deal activity.

You know, what is the product? What is a familiarity with the sales organization? Um, what is our ability for something that is newer to get traction with people that are steep in that particular product area, uh, versus someone that's maybe more a generalist across product categories. So I say right now, it's logs right now, it's, um, application security, we'll see if there are newer areas and I see the criteria is, do we think that, um, those teams helping customers will accelerate consumption? And then to those teams working with our sales organization to accelerate productivity of deals and deal um activity.

Operator: We have reached the end of our question and answer session. I would like to turn the floor back over to Rick for closing remarks.

We have reached the end of our question and answer session. I would like to turn the floor back over to Rick for closing remarks.

Jim Benson: Well, thank you all for your engaged questions and ongoing support. It's always a close. We are off to a strong start to fiscal 2026. We have many tailwinds, logs, DPS, partners, pipeline growth, and then observability that we are very enthusiastic about as we look ahead. We look forward to connecting with you at our events over the coming months, and we wish you all a very good day.

Operator: Thank you. This will conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.

Well, thank you all for your engaged questions and ongoing support as always to close. We are off to a strong, start to fiscal 2026. We have many Tailwind logs, DPS, Partners pipeline growth and end observability that we are very enthusiastic about. As we look ahead, we look forward to connecting with you at our events, over the coming months and we wish you all a very good day.

Thank you. This was today's conference.

Thank you for your participation, you may disconnect your lines at this time.