Dynatrace Q3 2026 Dynatrace Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q3 2026 Dynatrace Inc Earnings Call
Speaker #1: If anyone should require operator conference, press star, assistance zero from your telephone keypad. During this conference, please note this call is being recorded. At this time, I'll turn the conference over.
Speaker #1: Noelle Faris Vice President , Investor Relations . Thank you . Noel , you may over to begin At
Noelle Faris: Good morning, and thank you for joining Dynatrace's third 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 annual report on Form 10-K. The forward-looking statements contained in this call represent the company's views on 9 February 2026. 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, and per share amounts are on a diluted basis.
Noelle Faris: Good morning, and thank you for joining Dynatrace's third 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 annual report on Form 10-K. The forward-looking statements contained in this call represent the company's views on 9 February 2026. 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, and per share amounts are on a diluted basis.
Speaker #2: Good, and thank you for joining the Dynatrace fiscal 2026 earnings call this morning.
Speaker #2: Joining me today are Rick McConnell, Chief Executive Officer, and Jim Benson, Chief Financial Officer. Please note, today's comments will include statements regarding revenue, earnings, and economic conditions.
Speaker #2: Actual materially from our results may number of differ risks and uncertainties discussed in expectations due Benson , chief SEC now including our most Dynatrace, Inc. Form 10-q third Annual quarterly Report 10-K statements this call represent the contained in views on February 9th , on 2026 .
Speaker #2: and Form update . these The statements result of new as a information , future events to a or circumstances unless noted . The company's growth discussed today .
Speaker #2: assume no
Speaker #2: otherwise
Speaker #2: We will also discuss non-GAAP financial measures on today's call. Year, non-GAAP, reflecting constant currency growth, and per share amounts are on a diluted basis. We will include forward-looking statements regarding other financial measures as well.
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.
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.
Speaker #2: To see reconciliations between GAAP and non-GAAP measures, please refer to today's earnings press release and supplemental presentation, both of which are posted in the financial section of our IR website.
Speaker #2: Results And with that , let me call over to our Chief turn the Executive Officer , We Rick McConnell .
Rick McConnell: Thanks, Noelle, and good morning, everyone. Thank you for joining today's call. Dynatrace delivered very strong third quarter fiscal 2026 results, exceeding our guidance across every metric. Through this fiscal year, we've driven a stabilization of ARR growth at 16%, three quarters of consistent double-digit net new ARR growth, annualized logs consumption that has now surpassed $100 million, a strong balance sheet, and healthy cash flow generation that have allowed us to double the size of our share repurchase program while still investing aggressively in innovation, and finally, an increased ARR guide of 125 basis points at the midpoint that puts us on track to achieve $2 billion in ARR by the end of fiscal 2026. Our sustained strength underscores the increasing criticality of observability to the software ecosystem, accelerated demand for our end-to-end observability platform, and successful execution of our go-to-market strategy.
Rick McConnell: Thanks, Noelle, and good morning, everyone. Thank you for joining today's call. Dynatrace delivered very strong third quarter fiscal 2026 results, exceeding our guidance across every metric. Through this fiscal year, we've driven a stabilization of ARR growth at 16%, three quarters of consistent double-digit net new ARR growth, annualized logs consumption that has now surpassed $100 million, a strong balance sheet, and healthy cash flow generation that have allowed us to double the size of our share repurchase program while still investing aggressively in innovation, and finally, an increased ARR guide of 125 basis points at the midpoint that puts us on track to achieve $2 billion in ARR by the end of fiscal 2026. Our sustained strength underscores the increasing criticality of observability to the software ecosystem, accelerated demand for our end-to-end observability platform, and successful execution of our go-to-market strategy.
Speaker #3: Good morning, everyone. Noelle.
Speaker #3: you for joining
Speaker #3: across aggressively and innovation
Speaker #3: At 16%, double net new IRR digit.
Speaker #3: Annualized logs rates with consumption that has now surpassed $100 million. A strong sheet and healthy generation that have allowed us to report on doubling the cash flow size of our share repurchase program while still investing.
Speaker #3: Increased AR finally, and a guide of 125 basis points at the midpoint. That puts us on track to
Speaker #3: Achieve $2 billion in ARR by the end of our fiscal 2026. Our sustained balance sheet strength underscores this.
Speaker #3: increasing criticality of forward looking observability to the basis . software ecosystem . third quarter Accelerated demand for our end to end observability platform and successful execution of our go to market strategy .
Rick McConnell: Jim will share more details about our Q3 financial performance and guidance in a moment. In the meantime, I'd like to start with some highlights from our annual customer conference, PERFORM, illustrating the substantial evolution and differentiation of the Dynatrace platform in capturing the AI opportunity, along with several customer and partner advancements. PERFORM 2026, which took place just two weeks ago, was an invigorating event where we hosted roughly 2,000 people in person, including customers, prospects, and partners, plus thousands more virtually. If you weren't able to join us, I encourage you to watch the replay of our main stage presentations. Each year, PERFORM offers the opportunity to examine the larger forces shaping our industry, and this year the shift is more profound than ever. I shared two primary takeaways from my opening keynote.
Rick McConnell: Jim will share more details about our Q3 financial performance and guidance in a moment. In the meantime, I'd like to start with some highlights from our annual customer conference, PERFORM, illustrating the substantial evolution and differentiation of the Dynatrace platform in capturing the AI opportunity, along with several customer and partner advancements. PERFORM 2026, which took place just two weeks ago, was an invigorating event where we hosted roughly 2,000 people in person, including customers, prospects, and partners, plus thousands more virtually. If you weren't able to join us, I encourage you to watch the replay of our main stage presentations. Each year, PERFORM offers the opportunity to examine the larger forces shaping our industry, and this year the shift is more profound than ever. I shared two primary takeaways from my opening keynote.
Speaker #3: will share details about our Q3 financial performance and
Speaker #3: We will share details about our Q3 financial performance and guidance in a
Speaker #3: the . In meantime ,
Speaker #3: I'd like to start highlights with some from our annual customer conference perform . Illustrating the substantial evolution and differentiation note that of the Dynatrace platform in capturing the AI opportunity , along with several customer and partner advancements .
Speaker #3: Perform 2026, which just took place, was an event where we hosted an invigorating, consistent experience for roughly 1,000 people in person, including customers, prospects, and partners, plus thousands more virtually.
Speaker #3: Of our larger examine, the forces shaping industry each, and this year, shift is the our than ever. I shared two primary takeaways from my opening keynote.
Rick McConnell: First, observability is entering a new era, one in which it is foundational to resilient software and dependable AI environments. Second, Dynatrace is unique in its ability to combine trustworthy, deterministic AI with agentic AI to deliver reliable, autonomous outcomes. And this is why we see Dynatrace as the AI-powered observability platform for autonomous operations. Let's unpack this a bit. To start, in 2023, the AI market was estimated to be less than $200 billion, and it is now on a path to be nearly $5 trillion in the next seven years. Meanwhile, cloud and AI-native workloads are exploding. Hyperscaler growth continues to climb, now approaching $300 billion in annualized revenue from AWS, Azure, and GCP alone, growing in the high 20s. That level of growth at this kind of scale is simply unprecedented. But this astonishing scale and growth are also accelerating the challenges our customers face every day.
Rick McConnell: First, observability is entering a new era, one in which it is foundational to resilient software and dependable AI environments. Second, Dynatrace is unique in its ability to combine trustworthy, deterministic AI with agentic AI to deliver reliable, autonomous outcomes. And this is why we see Dynatrace as the AI-powered observability platform for autonomous operations. Let's unpack this a bit. To start, in 2023, the AI market was estimated to be less than $200 billion, and it is now on a path to be nearly $5 trillion in the next seven years. Meanwhile, cloud and AI-native workloads are exploding. Hyperscaler growth continues to climb, now approaching $300 billion in annualized revenue from AWS, Azure, and GCP alone, growing in the high 20s. That level of growth at this kind of scale is simply unprecedented. But this astonishing scale and growth are also accelerating the challenges our customers face every day.
Speaker #3: observability is 2000 people in entering a new customers One in which it is foundational to resilience . and Perform dependable AI environments . Second , Dynatrace is unique in its ability to combine trustworthy , deterministic AI with agentic AI to deliver reliable , autonomous outcomes .
Speaker #3: And this is why we see Dynatrace as the AI observability for autonomous operations profound . platform unpack a bit . To First , start Let's in 2023 , the AI market was estimated to be less this than $200 billion , it is now on a path to be nearly $5 trillion .
Speaker #3: In the next seven years . Meanwhile , cloud and AI are and exploding . Hyperscaler growth continues to climb , now approaching $300 billion in annualized revenue from AWS , Azure and GCP Growing alone .
Speaker #3: that high 20s , workloads level of growth at this kind of is simply unprecedented . But this scale astonishing and growth also are accelerating the challenges our face every day customers , as we have stated in often the past , workloads and are data , along exploding with a massive increase in their complexity .
Rick McConnell: As we have often stated in the past, workloads and data are exploding along with a massive increase in their complexity. Tools are fragmented, and it's often difficult to know whether AI results can be trusted. Without trustworthy insights, organizations understandably are hesitant to automate. One ramification of all this has become abundantly clear. AI-powered observability has become essential in an AI-first world. The question then becomes, how do organizations harness the value of observability to help deliver on the promise of AI? Dynatrace exists for this moment. We are already helping organizations realize increased value from AI. We have been driving to this point for many years, from initially enabling organizations to be reactive to issues, to proactive through automated root cause analysis, to predictive by adding machine learning and anomaly detection, allowing customers to anticipate and resolve issues before they become customer impacting.
Rick McConnell: As we have often stated in the past, workloads and data are exploding along with a massive increase in their complexity. Tools are fragmented, and it's often difficult to know whether AI results can be trusted. Without trustworthy insights, organizations understandably are hesitant to automate. One ramification of all this has become abundantly clear. AI-powered observability has become essential in an AI-first world. The question then becomes, how do organizations harness the value of observability to help deliver on the promise of AI? Dynatrace exists for this moment. We are already helping organizations realize increased value from AI. We have been driving to this point for many years, from initially enabling organizations to be reactive to issues, to proactive through automated root cause analysis, to predictive by adding machine learning and anomaly detection, allowing customers to anticipate and resolve issues before they become customer impacting.
Speaker #3: Tools are I fragmented , and it's often difficult to know whether AI results can be . And trustworthy insights , stage organizations , understandably , hesitant to are automate .
Speaker #3: One ramification of all this has become more abundantly clear AI powered observability has become trusted in an AI first world . without The question then becomes , how do organizations harness the value of observability to help deliver on the promise of AI Dynatrace ?
Speaker #3: This exists for the moment. We, as organizations, are already helping realize how increased AI is driving us to this point. For many years, we’ve been enabling organizations to initially be reactive to issues, to proactive through automated root cause analysis, to predictive by machine learning, and allowing customers to use anomaly detection to anticipate and resolve issues before they become customer impacting.
Rick McConnell: This is our quest to help customers deliver software that works perfectly. Our third-generation platform is fully available and built for the complexity and incredible scale of modern cloud and AI-native environments. Its advancements allow us to look ahead, predict issues, and build resilience directly into the fabric of an organization. So what makes Dynatrace unique? Our differentiation is integrated deeply into the platform's architecture, and it comes down to three things: Grail, Smartscape, and AI. First is Grail. Our massively parallel processing data lakehouse and the only analytics engine purpose-built to process exabytes of observability and security data in real time while preserving full context. This isn't a general-purpose data store retrofitted for observability. Grail was architected from the ground up for modern software, where a single transaction can traverse hundreds of services across multiple clouds.
Rick McConnell: This is our quest to help customers deliver software that works perfectly. Our third-generation platform is fully available and built for the complexity and incredible scale of modern cloud and AI-native environments. Its advancements allow us to look ahead, predict issues, and build resilience directly into the fabric of an organization. So what makes Dynatrace unique? Our differentiation is integrated deeply into the platform's architecture, and it comes down to three things: Grail, Smartscape, and AI. First is Grail. Our massively parallel processing data lakehouse and the only analytics engine purpose-built to process exabytes of observability and security data in real time while preserving full context. This isn't a general-purpose data store retrofitted for observability. Grail was architected from the ground up for modern software, where a single transaction can traverse hundreds of services across multiple clouds.
Speaker #3: Our quest before this was to help deliver customers software that works perfectly. Our third-generation platform is fully available and built for the complexity and incredible scale of modern cloud and AI.
Speaker #3: Native environments. Its advancements allow us to look ahead, predict issues, and build resilience value directly into the fabric of an organization.
Speaker #3: So what makes Dynatrace Our unique differentiation is ? deeply into the integrated platform's architecture , and it comes down to three things rail , and AI .
Speaker #3: First is Grail, our massively parallel data lakehouse and the only analytics engine to process exabytes of observable and in-real security while time.
Speaker #3: preserving full context . general This isn't purpose data store a retrofitted for observability . Grail was architected from the ground built to up for modern software , where a single transaction can traverse data purpose across multiple clouds .
Rick McConnell: In the agentic era, where every AI-driven transaction can be unique and unpredictable, real-time contextual processing is essential. Logs are a great example of why this architecture matters. When logs are unified with traces, metrics, events, sessions, and other telemetry in the same platform, they don't just add volume; they add decisive context. Once customers experience the increased value and lower cost of having logs in context with other data types, they are eager to replace their legacy logs tooling. That's why we are delighted to have exceeded the $100 million logs consumption threshold, with current growth of over 100% year-over-year. Our second major differentiator is Smartscape, our real-time dependency graph that continuously maps the entire technology stack. Smartscape builds a living topology model that understands not just what exists, but how everything connects and impacts everything else.
Rick McConnell: In the agentic era, where every AI-driven transaction can be unique and unpredictable, real-time contextual processing is essential. Logs are a great example of why this architecture matters. When logs are unified with traces, metrics, events, sessions, and other telemetry in the same platform, they don't just add volume; they add decisive context. Once customers experience the increased value and lower cost of having logs in context with other data types, they are eager to replace their legacy logs tooling. That's why we are delighted to have exceeded the $100 million logs consumption threshold, with current growth of over 100% year-over-year. Our second major differentiator is Smartscape, our real-time dependency graph that continuously maps the entire technology stack. Smartscape builds a living topology model that understands not just what exists, but how everything connects and impacts everything else.
Speaker #3: In the Agentic era, where processing is every driven, be unique and unpredictable, real-time contextual processing is essential, a great. Logs are example of why this architecture matters.
Speaker #3: logs are unified with events , sessions metrics , traces , , and smarts transaction can other in the telemetry platform , they don't same add volume , they add decisive context .
Speaker #3: Once hundreds of customers experience the increased value and lower cost of having logs in context with other data they use, they are eager to replace their legacy logs.
Speaker #3: Tooling. That's why we are delighted to have exceeded the $100 million logs consumption threshold. With current growth of over 100% year over year.
Speaker #3: Our second major differentiator is smart scale . Our real time dependency year graph that continuously maps the entire technology stack , smart scale builds a living topology model that not understands just what exists , but how everything connects impacts everything else and .
Rick McConnell: So the platform always has the current context of the environment itself. And third is AI. And this is where the first two converge. Grail provides unified data at scale. And Smartscape provides the topology and context. Together, they enable our causal and predictive AI, proven in the most demanding enterprise environments and continuously evolving to deliver optimal outcomes. This leads to our announcement at PERFORM of Dynatrace Intelligence, one of the biggest innovations in our history. Dynatrace Intelligence is the industry's first agentic operations system built for modern software ecosystems. By fusing our deterministic AI foundation with agentic AI across an ecosystem of agents, Dynatrace Intelligence delivers AI-powered observability that organizations can trust. With Dynatrace Intelligence at its core, our platform is purpose-built for the agentic era, enabling a future where AI-powered observability can help customers auto-prevent, auto-remediate, and auto-optimize.
Rick McConnell: So the platform always has the current context of the environment itself. And third is AI. And this is where the first two converge. Grail provides unified data at scale. And Smartscape provides the topology and context. Together, they enable our causal and predictive AI, proven in the most demanding enterprise environments and continuously evolving to deliver optimal outcomes. This leads to our announcement at PERFORM of Dynatrace Intelligence, one of the biggest innovations in our history. Dynatrace Intelligence is the industry's first agentic operations system built for modern software ecosystems. By fusing our deterministic AI foundation with agentic AI across an ecosystem of agents, Dynatrace Intelligence delivers AI-powered observability that organizations can trust. With Dynatrace Intelligence at its core, our platform is purpose-built for the agentic era, enabling a future where AI-powered observability can help customers auto-prevent, auto-remediate, and auto-optimize.
Speaker #3: So, the platform in the current context of the environment always has itself third, is 'And.' And this AI—the first two converge. Grail provides unified data at scale, and Smartscape provides the 'and topology' context.
Speaker #3: Together, they enable causal, our predictive AI, proven in the most demanding enterprise environments, continuously evolving to deliver optimal and outcomes. This leads to our announcement at is where perform of Dynatrace intelligence, one of the biggest innovations history.
Speaker #3: Dynatrace industry's intelligence is the first agentic operation system, built for software ecosystems modern by fusing our deterministic AI foundation with Agentic AI across an ecosystem of agents.
Speaker #3: Dynatrace intelligence delivers AI powered observability that organizations can trust with Dynatrace at Our its is purpose for the Agentic built era , enabling a AI future where observability can help customers auto prevent auto remediate and auto optimize .
Rick McConnell: Similar to Grail, Dynatrace Intelligence is embedded in the platform and is not sold as a separate SKU. It is available to every customer today. We expect to monetize it in two ways. First, through increased platform usage as customers adopt AI assistance across teams, driving greater use of Grail. And second, through usage-based agentic execution, where AI-driven actions are delivered through workflows and ecosystem integrations. The durability of infrastructure software comes from deeply engineered data planes and AI control planes that operate in highly dynamic production environments. Dynatrace has developed broad domain expertise and is uniquely positioned with Grail, Smartscape, and Dynatrace Intelligence that is built directly into the backbone of the platform.
Rick McConnell: Similar to Grail, Dynatrace Intelligence is embedded in the platform and is not sold as a separate SKU. It is available to every customer today. We expect to monetize it in two ways. First, through increased platform usage as customers adopt AI assistance across teams, driving greater use of Grail. And second, through usage-based agentic execution, where AI-driven actions are delivered through workflows and ecosystem integrations. The durability of infrastructure software comes from deeply engineered data planes and AI control planes that operate in highly dynamic production environments. Dynatrace has developed broad domain expertise and is uniquely positioned with Grail, Smartscape, and Dynatrace Intelligence that is built directly into the backbone of the platform.
Speaker #3: Dynatrace intelligence is embedded in the platform and is not sold as a separate platform SKU. It is available to every customer today.
Speaker #3: We expect to monetize it in two ways . First , through increased platform usage as customers adopt AI assistants across teams driving use of Grail and second , through based usage Agentic execution , where AI greater are actions delivered through Grail , and workflows driven ecosystem integrations .
Speaker #3: The durability of infrastructure comes from deeply engineered data planes and AI control planes that operate in environments. Dynatrace has developed broad production domain, highly dynamic expertise, and, uniquely with Grail positioned, is Scape and smart intelligence that is built Dynatrace directly into the backbone of the platform.
Rick McConnell: Each of these capabilities is complex in its own right, but magnified in the Dynatrace platform as they are designed to operate as one system, applying AI to deliver answers and automation in environments that constantly shift in composition and workflow. This foundation has been built over years of operating at scale in real-world production environments, making the Dynatrace platform both highly differentiated and difficult to reproduce quickly or safely. We, therefore, strongly view broad-based AI expansion as a tailwind for Dynatrace. AI-assisted development, whether Vibe coding, Code Copilots, or AI-driven software delivery, compresses release cycles and increases the rate of change across already complex enterprise stacks. That raises operational risk unless teams have an observability control plane with closed-loop feedback to protect reliability and user experience. And as AI-driven systems become more probabilistic, outputs vary and issues can be harder to reproduce. AI doesn't reduce the need for observability.
Rick McConnell: Each of these capabilities is complex in its own right, but magnified in the Dynatrace platform as they are designed to operate as one system, applying AI to deliver answers and automation in environments that constantly shift in composition and workflow. This foundation has been built over years of operating at scale in real-world production environments, making the Dynatrace platform both highly differentiated and difficult to reproduce quickly or safely. We, therefore, strongly view broad-based AI expansion as a tailwind for Dynatrace. AI-assisted development, whether Vibe coding, Code Copilots, or AI-driven software delivery, compresses release cycles and increases the rate of change across already complex enterprise stacks. That raises operational risk unless teams have an observability control plane with closed-loop feedback to protect reliability and user experience. And as AI-driven systems become more probabilistic, outputs vary and issues can be harder to reproduce. AI doesn't reduce the need for observability.
Speaker #3: Each of these is, in its own right, complex software with its own capabilities, but magnified in the platform as they're designed to operate as one system.
Speaker #3: Applying AI to deliver answers and automation in environments that are constantly in shift composition and Dynatrace workflow, this has been a foundation built over operating at scale in real-world production environments, making the Dynatrace platform both highly differentiated and difficult to reproduce quickly or safely.
Speaker #3: We therefore strongly view broad based AI expansion as a tailwind for Dynatrace assisted AI development . Whether vibe , Code coding or software AI Copilots delivery .
Speaker #3: Compresses release cycles and increases the rate of change across already complex enterprise stacks . That raises risk operational Unless . teams have an observability plane with control closed loop feedback to protect reliability and user experience , and AI systems as driven more become probabilistic , outputs issues can be harder to vary and reproduce .
Speaker #3: AI doesn't reduce the need for observability. Rather, it makes observability essential for trusted insights and automation, so organizations can operate with confidence. To turn next to our customers at...
Rick McConnell: Rather, it makes observability essential for trusted insights and automation so organizations can operate with confidence. I'd like to turn next to our customers. At PERFORM, more than 70 customers shared how the Dynatrace platform has become an indispensable component of their software environments. Here are just a few of their incredible stories. One of the largest airlines shared how they're using Dynatrace to help them deliver 31% better reliability, 75% fewer incidents, and a 10% reduction in meantime to resolution, leading the industry in on-time departures and arrivals for two years in a row. Canadian communications giant TELUS shared how they're using AI to move from firefighting to proactive reliability, reducing the average time to resolve issues from 40 minutes to five minutes.
Rick McConnell: Rather, it makes observability essential for trusted insights and automation so organizations can operate with confidence. I'd like to turn next to our customers. At PERFORM, more than 70 customers shared how the Dynatrace platform has become an indispensable component of their software environments. Here are just a few of their incredible stories. One of the largest airlines shared how they're using Dynatrace to help them deliver 31% better reliability, 75% fewer incidents, and a 10% reduction in meantime to resolution, leading the industry in on-time departures and arrivals for two years in a row. Canadian communications giant TELUS shared how they're using AI to move from firefighting to proactive reliability, reducing the average time to resolve issues from 40 minutes to five minutes.
Speaker #3: perform more I'd like than 70 customers shared the how . Dynatrace So has become an indispensable of their component platform environments Here are just a .
Speaker #3: Their incredible stories—few of them. One of the largest airlines shared how they're using Dynatrace to deliver reliability: 75% fewer incidents, and a reduction.
Speaker #3: mean time to In . industry in on departures resolution and arrivals for two years in a row 31% better time . Canadian giant Telus communications shared how they're using AI to from help them firefighting move to proactive , reducing the average time to 10% resolve reliability issues from Leading the 40 minutes to 5 minutes .
Rick McConnell: Vodafone shared how they're using AI to modernize operations at massive scale, migrating more than 2,500 users, 8,500 dashboards, and 8 TB of daily log ingest from their legacy logging provider to Dynatrace in just 2 months. Nationwide shared how Dynatrace has helped them reduce priority one incidents by 74%. In addition, customers expressed very strong interest in our strategic collaboration with ServiceNow to advance autonomous IT operations and scale intelligent automation. At PERFORM, ServiceNow's EVP and GM of technology workflow products reinforced our better together vision, highlighting use cases of how customers can integrate with Dynatrace to get greater efficiencies in their teams, accelerate agentic initiatives, and drive automation with confidence. In an agentic world, engaging in and integrating with an ecosystem of partners, including our longstanding relationships with global system integrators and hyperscalers, will be mandatory. We are investing to deepen and broaden those relationships.
Rick McConnell: Vodafone shared how they're using AI to modernize operations at massive scale, migrating more than 2,500 users, 8,500 dashboards, and 8 TB of daily log ingest from their legacy logging provider to Dynatrace in just 2 months. Nationwide shared how Dynatrace has helped them reduce priority one incidents by 74%. In addition, customers expressed very strong interest in our strategic collaboration with ServiceNow to advance autonomous IT operations and scale intelligent automation. At PERFORM, ServiceNow's EVP and GM of technology workflow products reinforced our better together vision, highlighting use cases of how customers can integrate with Dynatrace to get greater efficiencies in their teams, accelerate agentic initiatives, and drive automation with confidence. In an agentic world, engaging in and integrating with an ecosystem of partners, including our longstanding relationships with global system integrators and hyperscalers, will be mandatory. We are investing to deepen and broaden those relationships.
Speaker #3: Vodafone shared how they're using AI to modernize operations at massive scale, migrating more than 2,500 users, 8,500 dashboards, and eight terabytes of daily log ingest from their legacy logging provider to Dynatrace in just two months.
Speaker #3: And Nationwide shared how Dynatrace helped them reduce incidents' priority by 74%. In addition, customers expressed very strong interest in our strategic collaboration with ServiceNow to advance autonomous IT operations and scale intelligent automation at performance.
Speaker #3: ServiceNow EVP and GM of Workflow Products, our Better Together, highlighting use cases and vision of how customers can technology integrate with Dynatrace to get greater efficiencies in their teams.
Speaker #3: Accelerate Agentic initiatives , and drive automation with confidence in an energetic world . Engaging in and with an partners ecosystem of , including standing our long relationships with global system integrators and hyperscalers will mandatory be , and we are investing to deepen and broaden those relationships in Q3 , we announced deeper with engagements major hyperscalers integrating integrating with we're Amazon , Bedrock Agent Core embedding with Azure's SRE agent and serving as the launch partner for GCP , Gemini command Dynatrace interface extensions , and Gemini Enterprise .
Rick McConnell: In Q3, we announced deeper technical engagements with all of the major hyperscalers. We're integrating with Amazon Bedrock Agent Core, embedding Dynatrace with Azure's SRE agent, and serving as the launch partner for GCP Gemini command line interface extensions and Gemini Enterprise. Finally, as the velocity of software development continues to accelerate, we have advanced our strategy to extend left to developers with the acquisition of DevCycle last month. Built on OpenFeature, an open-source initiative originally created by Dynatrace, DevCycle is a feature management platform that helps developers, SREs, and platform teams bring progressive delivery for AI-native applications directly into the Dynatrace platform. This solution will enable customers to accelerate their ability to release features in a controlled manner and remediate issues faster.
Rick McConnell: In Q3, we announced deeper technical engagements with all of the major hyperscalers. We're integrating with Amazon Bedrock Agent Core, embedding Dynatrace with Azure's SRE agent, and serving as the launch partner for GCP Gemini command line interface extensions and Gemini Enterprise. Finally, as the velocity of software development continues to accelerate, we have advanced our strategy to extend left to developers with the acquisition of DevCycle last month. Built on OpenFeature, an open-source initiative originally created by Dynatrace, DevCycle is a feature management platform that helps developers, SREs, and platform teams bring progressive delivery for AI-native applications directly into the Dynatrace platform. This solution will enable customers to accelerate their ability to release features in a controlled manner and remediate issues faster.
Speaker #3: Finally , as the velocity of software development accelerate , we have advanced strategy to our extend left to developers with the acquisition of Dev Cycle last month , built on open feature , an line open source initiative originally by created Dynatrace Cycle feature , Dev platform that helps is a continues to developers , SREs and platform teams bring progressive delivery AI native for applications directly into the Dynatrace platform .
Speaker #3: This solution will all of the enable customers to accelerate their ability to release features in a manner , and issues remediate faster controlled To wrap up , seen we've impressive customer momentum over the last several quarters , with management dozens of wins , rapid logs , expansion seven figure , and .
Rick McConnell: To wrap up, we've seen impressive customer momentum over the last several quarters with dozens of seven-figure wins, rapid logs expansion, and customers standardizing on our platform for end-to-end observability. We have delivered extraordinary innovation with Dynatrace Intelligence and the evolution of the Dynatrace platform to deliver significant customer value. This momentum is a testament to our unique ability to provide precise and trustworthy answers that serve as the foundation for autonomous operations in delivering resilient software and reliable AI. As I hope you can tell from my remarks, we are highly enthusiastic about our opportunity ahead. Jim, over to you. Thank you, Rick, and good morning, everyone. Q3 marks another quarter of strong execution as we once again surpassed the high end of guidance across all our key metrics, showcasing the growing demand for our leading AI-powered observability platform and the durability of our balanced business model.
Rick McConnell: To wrap up, we've seen impressive customer momentum over the last several quarters with dozens of seven-figure wins, rapid logs expansion, and customers standardizing on our platform for end-to-end observability. We have delivered extraordinary innovation with Dynatrace Intelligence and the evolution of the Dynatrace platform to deliver significant customer value. This momentum is a testament to our unique ability to provide precise and trustworthy answers that serve as the foundation for autonomous operations in delivering resilient software and reliable AI. As I hope you can tell from my remarks, we are highly enthusiastic about our opportunity ahead. Jim, over to you.
Speaker #3: Standardizing on our platform for end-to-customer end observability. And we have delivered extraordinary innovation with the evolution of the Dynatrace platform to significant customer value deliver.
Speaker #3: This is a testament to our unique ability to provide precise, trustworthy answers that serve as the intelligence and foundation. Momentum is autonomous for operations in delivering resilient software and reliable AI.
Speaker #3: I hope you can tell from remarks we are highly my enthusiastic our opportunity about . Jim , ahead over to you and . Thank you , and good Rick , .
Jim Benson: Thank you, Rick, and good morning, everyone. Q3 marks another quarter of strong execution as we once again surpassed the high end of guidance across all our key metrics, showcasing the growing demand for our leading AI-powered observability platform and the durability of our balanced business model.
Speaker #3: Marked Q3 another morning, quarter of strong, everyone—execution again as we surpassed the high end of guidance metrics across, showcasing all our key growing demand for leading our powered observability and the durability of our balanced business model.
Rick McConnell: As Rick mentioned, we achieved three consecutive quarters of double-digit net new ARR growth, record new logo ARR, and we surpassed our goal of $100 million in annualized consumption for our log management solution. The combination of our ongoing go-to-market maturity and execution, the increasing necessity of observability in an agentic AI world, our leadership position in the market, and our unified platform differentiation give us confidence that the momentum in the business will continue as we look ahead. Our conviction in the business is further evident in the board's authorization of a new $1 billion share repurchase program that is double the size of our inaugural program. I will share more information on that later in my remarks. Now let's review the Q3 results in more detail.
Jim Benson: As Rick mentioned, we achieved three consecutive quarters of double-digit net new ARR growth, record new logo ARR, and we surpassed our goal of $100 million in annualized consumption for our log management solution. The combination of our ongoing go-to-market maturity and execution, the increasing necessity of observability in an agentic AI world, our leadership position in the market, and our unified platform differentiation give us confidence that the momentum in the business will continue as we look ahead. Our conviction in the business is further evident in the board's authorization of a new $1 billion share repurchase program that is double the size of our inaugural program. I will share more information on that later in my remarks. Now let's review the Q3 results in more detail.
Speaker #3: mentioned , we As Rick achieved AI three consecutive quarters of double digit net new growth record , new logo once , and we surpassed , RR our $100 million in of annualized for our log management goal solution .
Speaker #3: The combination of our consumption ongoing go-to-market maturity, and the increasing necessity of observability in an execution, agentic AI world, our leadership in the market, and our unified position in differentiation give us confidence that the momentum in the business will continue as we look ahead.
Speaker #3: Our conviction in will the business is further platform evident in the board's authorization of a new $1 billion share repurchase program that is of our size double the I will share more information on that inaugural later in my remarks .
Speaker #3: Now, let's cover third quarter in more detail. As results in the business have evolved with the introduction of DPS, we have continued to look for ways to provide investors with key KPIs of performance.
Rick McConnell: As the business has evolved with the introduction of DPS, we have continued to look for ways to provide investors with the best KPIs of our performance. Given what we have learned as DPS has matured and with the changes in the on-demand consumption accounting treatment, going forward, we will focus on ARR and its underlying growth driver, net new ARR. This is the primary metric that drives our subscription revenue and is how we measure and track the business internally. Turning now to ARR, we ended the quarter at $1.97 billion, representing 16% growth and demonstrating stabilization of ARR growth for three straight quarters. Q3 net new ARR was $75 million adjusted for foreign exchange movements, coming in well above our expectations. Net new ARR was up 11% from a year ago and represents the third consecutive quarter of double-digit growth.
Jim Benson: As the business has evolved with the introduction of DPS, we have continued to look for ways to provide investors with the best KPIs of our performance. Given what we have learned as DPS has matured and with the changes in the on-demand consumption accounting treatment, going forward, we will focus on ARR and its underlying growth driver, net new ARR. This is the primary metric that drives our subscription revenue and is how we measure and track the business internally. Turning now to ARR, we ended the quarter at $1.97 billion, representing 16% growth and demonstrating stabilization of ARR growth for three straight quarters. Q3 net new ARR was $75 million adjusted for foreign exchange movements, coming in well above our expectations. Net new ARR was up 11% from a year ago and represents the third consecutive quarter of double-digit growth.
Speaker #3: Given what we have best learned as DPS has matured, and with the changes in the on-demand consumption accounting treatment going forward, we will focus on RR and program.
Speaker #3: The underlying growth driver is Net New IRR. This is the primary metric that drives our subscription revenue and is how we measure and track the business internally.
Speaker #3: Turning now to RR , we quarter at ended the $1.97 billion , representing 16% growth and stabilization demonstrating our IRR growth for three straight quarters Q3 new net IRR review the was $75 million , adjusted for foreign exchange movements coming in well above our expectations .
Speaker #3: of We added 164 new logos Dynatrace platform . The average IRR per new logo to the was over expansion $160,000 on a 12 month trailing basis continue to target landing with high quality new logos that have a greater propensity to expand average land size in Q3 was particularly the .
Speaker #3: new the Net IRR was up 11% from a year ago , and represents the third consecutive quarter of double digit growth . This strong performance was driven by both record logo RR new and steady IRR , including a number of seven figure end to end observability deals in Q3 .
Rick McConnell: This strong performance was driven by both record new logo ARR and steady expansion ARR, including a number of seven-figure end-to-end observability deals. In Q3, we added 164 new logos to the Dynatrace platform. The average ARR per new logo was over $160,000 on a trailing 12-month basis. We continue to target landing with high-quality new logos that have a greater propensity to expand. The average land size in Q3 was particularly robust at over $200,000 and helped drive new logo ARR over 21% off a robust Q3 of fiscal 2025. Our value proposition continues to resonate with enterprise customers that are outgrowing their existing DIY or commercial tooling solutions. They are seeking business value from tool consolidation and coming to Dynatrace for the depth, breadth, and automation of our unified AI-powered observability platform.
Jim Benson: This strong performance was driven by both record new logo ARR and steady expansion ARR, including a number of seven-figure end-to-end observability deals. In Q3, we added 164 new logos to the Dynatrace platform. The average ARR per new logo was over $160,000 on a trailing 12-month basis. We continue to target landing with high-quality new logos that have a greater propensity to expand. The average land size in Q3 was particularly robust at over $200,000 and helped drive new logo ARR over 21% off a robust Q3 of fiscal 2025. Our value proposition continues to resonate with enterprise customers that are outgrowing their existing DIY or commercial tooling solutions. They are seeking business value from tool consolidation and coming to Dynatrace for the depth, breadth, and automation of our unified AI-powered observability platform.
Speaker #3: Robust at well over $200,000, and helped drive new logo IRR over a robust Q3 of fiscal '21 off 25. Our value proposition continues to resonate with enterprise customers that are outgrowing their existing DIY or commercial tooling.
Speaker #3: They are solutions seeking business value from tool consolidation and Dynatrace, for the depth, breadth, and automation coming to our unified AI-powered observability platform.
Rick McConnell: Once customers experience the benefits of the Dynatrace platform, they are often quick to expand their usage. Average ARR per customer continues to grow and is now nearly $500,000, highlighting the continued adoption of the platform and value we provide to customers. As we have said in the past, 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 medium to long term. Gross retention rate in Q3 remained in the mid-90s, demonstrating the strategic relevance for the Dynatrace platform as mission-critical to our customers' operations. Net retention rate, or NRR, on a trailing 12-month basis was 111% in the third quarter, consistent with the prior two quarters.
Jim Benson: Once customers experience the benefits of the Dynatrace platform, they are often quick to expand their usage. Average ARR per customer continues to grow and is now nearly $500,000, highlighting the continued adoption of the platform and value we provide to customers. As we have said in the past, 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 medium to long term. Gross retention rate in Q3 remained in the mid-90s, demonstrating the strategic relevance for the Dynatrace platform as mission-critical to our customers' operations. Net retention rate, or NRR, on a trailing 12-month basis was 111% in the third quarter, consistent with the prior two quarters.
Speaker #3: Once experienced, customers see the benefits of the Dynatrace platform, they are often quick to expand their usage. Average customer IRR per to grow and continues is now nearly, highlighting the continued adoption of the platform and the value we provide to customers.
Speaker #3: As $500,000 , we have said past , in the given significant cross-sell and upsell opportunities in our customer enterprise , we believe the IRR per customer opportunity could base , be average $1 million or more over the medium to long term gross retention rate in Q3 the remained in the mid 90s , demonstrating the strategic the Dynatrace platform as mission critical to customers our operations .
Speaker #3: Net retention rate or , on a trailing 12 month basis was 111% in the third quarter , consistent NRI with the prior two quarters .
Rick McConnell: As Rick mentioned, we continue to see broader usage and deeper penetration of capabilities across the platform, notably in log management, which remains our fastest-growing product category, surpassing the $100 million annualized consumption milestone we set for ourselves. With our log strike team in place now for nine months and our selling motion continuing to mature, we expect logs to be an ongoing source of significant ARR growth. Moving on to revenue, total revenue for Q3 was $515 million and subscription revenue was $493 million, both up 16%, and exceeding the high end of guidance by 150 basis points, driven by strong net new ARR. Turning to profitability, non-GAAP operating margin was 30%, exceeding the top end of guidance by nearly 100 basis points, driven mostly by revenue upside flowing through to the bottom line.
Jim Benson: As Rick mentioned, we continue to see broader usage and deeper penetration of capabilities across the platform, notably in log management, which remains our fastest-growing product category, surpassing the $100 million annualized consumption milestone we set for ourselves. With our log strike team in place now for nine months and our selling motion continuing to mature, we expect logs to be an ongoing source of significant ARR growth. Moving on to revenue, total revenue for Q3 was $515 million and subscription revenue was $493 million, both up 16%, and exceeding the high end of guidance by 150 basis points, driven by strong net new ARR. Turning to profitability, non-GAAP operating margin was 30%, exceeding the top end of guidance by nearly 100 basis points, driven mostly by revenue upside flowing through to the bottom line.
Speaker #3: As Rick, we see broader usage and deeper penetration of capabilities continue to grow across the platform, notably in log management, which remains our fastest growing product category and has surpassed the $100 million annualized consumption milestone we set for ourselves with our Log team in place now for nine months. And with our selling motion maturing and continuing to evolve, we expect logs to be an ongoing source of significant IRR and revenue growth.
Speaker #3: As Rick we broader usage and deeper penetration mentioned , of capabilities continue to see across the platform , notably in log management , remains which our fastest growing product category and surpassing the $100 million annualized consumption milestone we set for ourselves with our Log team in Strike place now for nine months and our selling motion mature continuing to , we expect logs to be an ongoing source of IRR significant growth revenue .
Speaker #3: Moving on to total Q3 revenue, subscription revenue was $515 million, and total revenue was $493 million. Both were up 16% and exceeded the high end of guidance by 150 basis points, driven by strong net IRR new.
Speaker #3: Turning to profitability, operating margin, non-GAAP was 30%, exceeding the top end of guidance by nearly 100 basis points, mostly driven by revenue upside flowing through to the bottom line.
Rick McConnell: Non-GAAP net income was $135 million or $0.44 per diluted share, two cents above the high end of our guidance. We generated $27 million of free cash flow in Q3. 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 $463 million or 24% of revenue. As a reminder, this includes over 600 basis point impact related to cash taxes. Free tax-free cash flow on a trailing 12-month basis was 30% of revenue. Finally, as of today, we have substantially completed the $500 million share repurchase program announced in May 2024. In Q3, we increased the pace of our repurchases, buying back 3.5 million shares for $160 million at an average price of just over $45 per share.
Jim Benson: Non-GAAP net income was $135 million or $0.44 per diluted share, two cents above the high end of our guidance. We generated $27 million of free cash flow in Q3. 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 $463 million or 24% of revenue. As a reminder, this includes over 600 basis point impact related to cash taxes. Free tax-free cash flow on a trailing 12-month basis was 30% of revenue. Finally, as of today, we have substantially completed the $500 million share repurchase program announced in May 2024. In Q3, we increased the pace of our repurchases, buying back 3.5 million shares for $160 million at an average price of just over $45 per share.
Speaker #3: Non-GAAP net income was $135 million, or $0.44 per diluted share, $0.02 above the high end of our guidance. We generated $27 million of free cash flow in the third quarter due to seasonality and variability in billings quarter to quarter.
Speaker #3: We believe it best to view free cash flow is over a trailing 12 month period on a 12 month trailing basis . Free cash flow was $463 million , or 24% of revenue .
Speaker #3: As a reminder , this includes over 600 basis point impact related to cash taxes . Free tax , free cash flow on a 12 month trailing basis was 30% of revenue .
Speaker #3: Finally , today , we have as of substantially completed $500 million share repurchase the announced in program May In 2024 . Q3 , we increased the pace of our repurchases , buying back 3.5 million shares for $160 million at an average price of just over $45 per share .
Rick McConnell: We believe the strength of our balance sheet and cash flow generation afford us the ability to continue to strategically invest in R&D innovation for our customers while also returning capital to shareholders. We announced today our board has authorized a new $1 billion share repurchase program. This program is the largest in our company's history and doubled the size of our previous program, and underscores our confidence in the business, our conviction in the long-term growth opportunities, and view that our shares are undervalued. We intend to be active buyers in the market at current levels. Moving now to guidance, the demand environment for observability remains robust, and the growth drivers fueling the business continue to trend positively. The landscape is benefiting from secular tailwinds of end-to-end observability, cloud modernization, and AI workload proliferation.
Jim Benson: We believe the strength of our balance sheet and cash flow generation afford us the ability to continue to strategically invest in R&D innovation for our customers while also returning capital to shareholders. We announced today our board has authorized a new $1 billion share repurchase program. This program is the largest in our company's history and doubled the size of our previous program, and underscores our confidence in the business, our conviction in the long-term growth opportunities, and view that our shares are undervalued. We intend to be active buyers in the market at current levels. Moving now to guidance, the demand environment for observability remains robust, and the growth drivers fueling the business continue to trend positively. The landscape is benefiting from secular tailwinds of end-to-end observability, cloud modernization, and AI workload proliferation.
Speaker #3: We believe the strength of our balance sheet and cash flow generation afford us the ability to invest strategically and continue to invest in R&D, innovation for our customers, while also returning capital to shareholders.
Speaker #3: Announced today, our board has authorized a new $1 billion share repurchase program. This program is the largest in our company's history and double the size of our previous program, and underscores our commitment.
Speaker #3: the business, our conviction in the long-term opportunities for growth, and view that our shares are undervalued. We intend to be active buyers in the market at current levels.
Speaker #3: Moving now to guidance , the demand environment for remains robust observability and the fueling the continue drivers positively business . The to trend landscape is benefiting from secular growth tailwinds end to end observability of , cloud modernization and AI workload proliferation to market .
Rick McConnell: Our go-to-market strategy continues to build momentum and consistency, as evidenced by three consecutive quarters of consistent double-digit net new ARR growth. Our DPS licensing model continues to enable broader adoption and increased usage of the platform. Logs continue to be a significant source of growth for both our installed base and new logos. The combination of these strong underlying growth trends gives us conviction in the ongoing momentum of the business. As a result, we are raising full-year guidance across the board. Starting with ARR, we are raising ARR growth guidance 125 basis points to a range of 15.5% to 16% and expect to surpass our next milestone of delivering over $2 billion in ARR. The high end of this ARR range implies another quarter of double-digit net new ARR growth.
Jim Benson: Our go-to-market strategy continues to build momentum and consistency, as evidenced by three consecutive quarters of consistent double-digit net new ARR growth. Our DPS licensing model continues to enable broader adoption and increased usage of the platform. Logs continue to be a significant source of growth for both our installed base and new logos. The combination of these strong underlying growth trends gives us conviction in the ongoing momentum of the business. As a result, we are raising full-year guidance across the board. Starting with ARR, we are raising ARR growth guidance 125 basis points to a range of 15.5% to 16% and expect to surpass our next milestone of delivering over $2 billion in ARR. The high end of this ARR range implies another quarter of double-digit net new ARR growth.
Speaker #3: Our go-to-market build strategy momentum and consistency, as evidenced by three consecutive quarters, continues to deliver consistent net double-digit growth. Our IRR and DPS licensing model continues to enable broader adoption and increased usage of the platform. Logs continue significant growth for both our installed logos and sources of growth.
Speaker #3: Underlying growth combination trends give us conviction in the momentum of the business to be a. As a, we are raising full year result. The guidance across the board base strong, starting with IRR raising.
Speaker #3: Growth guidance, 125 basis points. We are to a range of 15.5% to 16%, expect to surpass our next milestone and delivering over $2 billion in IRR by the end of this IRR range.
Speaker #3: The high implies a quarter of double-digit net new IRR. Moving to revenue, we are seeing total and subscription growth, raising revenue guidance by 75 basis points.
Speaker #3: The high implies a quarter of double-digit net new IRR. Another moving to revenue. We are growth total and subscription growth, raising revenue guidance by 75 basis points. At the midpoint, revenue to 16% growth.
Rick McConnell: Moving to revenue, we are raising total revenue and subscription revenue growth guidance by 75 basis points at the midpoint to 16% growth. Turning to the bottom line, we are raising full-year Non-GAAP operating income guidance by $9 million and free cash flow by $13 million. This translates to a Non-GAAP operating margin of 29% and free cash flow margin of 26%. Finally, we are raising Non-GAAP EPS guidance to a range of $1.67 to 1.69 per diluted share, representing an increase of $0.05 at the midpoint of the range. This Non-GAAP EPS is based on an expected diluted share count of 304 million shares. In summary, we are very pleased with our Q3 and continued momentum through fiscal 2026. We are focused on executing to close the year out strong. And with that, we will open the line for questions. Operator? Thank you.
Jim Benson: Moving to revenue, we are raising total revenue and subscription revenue growth guidance by 75 basis points at the midpoint to 16% growth. Turning to the bottom line, we are raising full-year Non-GAAP operating income guidance by $9 million and free cash flow by $13 million. This translates to a Non-GAAP operating margin of 29% and free cash flow margin of 26%. Finally, we are raising Non-GAAP EPS guidance to a range of $1.67 to 1.69 per diluted share, representing an increase of $0.05 at the midpoint of the range. This Non-GAAP EPS is based on an expected diluted share count of 304 million shares. In summary, we are very pleased with our Q3 and continued momentum through fiscal 2026. We are focused on executing to close the year out strong. And with that, we will open the line for questions. Operator?
Speaker #3: Turning to the bottom line, non-GAAP, we are income full year guidance operating by $9 million in free cash flow, raising by $13 million.
Speaker #3: This translates to a margin of 29%, and free margin cash flow non-GAAP margin of 26%. Finally, we are raising operating non-GAAP EPS guidance to a range of $1.67 to $1.69 per diluted share, representing an increase at the midpoint of $0.05 of the range.
Speaker #3: This non-GAAP is based on an EPS diluted share count of expected 304 million shares. In summary, we are pleased with our Q3 and continued momentum through fiscal. We are focused on closing out the year, and with that, we will open the line for Q&A for 2026.
Operator: Thank you. We'll now be conducting a question-and-answer session. We ask that you please limit yourself to one question to allow as many analysts as possible to ask questions. If you would like to ask a question at this time, please press *1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press *2 if you'd 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. Thank you, and our first question is from the line of Raimo Lenschow with Barclays. Please proceed with your question.
Speaker #3: . Operator .
Rick McConnell: We'll now be conducting a question-and-answer session. We ask that you please limit yourself to one question to allow as many analysts as possible to ask questions. If you would like to ask a question at this time, please press *1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press *2 if you'd 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. Thank you, and our first question is from the line of Raimo Lenschow with Barclays. Please proceed with your question. Hey, good morning, and congrats, great quarter.
Speaker #1: Thank you. We will now be conducting a question and answer session. Please limit yourself to one question to allow as many analysts as possible to ask questions.
Speaker #1: If you to ask a would like question time , please press star one from your telephone keypad confirmation tone will and a indicate your line is in the at this question You may like to press star two .
Speaker #1: Queue. Participants using speaker equipment.
Speaker #1: If you'd remove your question from the queue for
Speaker #1: Necessary to executing your handset strong before pressing the star keys may be. Thank you. And our pick-up first question is from the line Raimo Lenschow, ask that you with Barclays.
Raimo Lenschow: Hey, good morning, and congrats, great quarter.
Speaker #1: Please proceed with your limit yourself questions .
Speaker #4: good Hey , morning and quarter Great question congrats . , if you think about what you see in . My the client base in terms of was understanding your how automation coming story is to important it's kind all the together , how different data sources together in one place .
Rick McConnell: My question was, if you think about what you see in the client base in terms of understanding how your automation story is coming together, how it's important to kind of bring all the different data sources together in one place, what does it mean in terms of engagement levels with clients, etc.? Are we seeing an ongoing kind of bigger kind of debate about or a bigger momentum they are building? What do you see in the pipeline in terms of deal size, etc.? Just kind of seeing how that momentum is ongoing. Thank you. Hey, Raimo. Thanks so much for the question. I guess where I'd start is end-to-end observability is what we're seeing as being very, very strong in terms of the sales play and momentum at the moment. This is where our customers are looking to expand.
Raimo Lenschow: My question was, if you think about what you see in the client base in terms of understanding how your automation story is coming together, how it's important to kind of bring all the different data sources together in one place, what does it mean in terms of engagement levels with clients, etc.? Are we seeing an ongoing kind of bigger kind of debate about or a bigger momentum they are building? What do you see in the pipeline in terms of deal size, etc.? Just kind of seeing how that momentum is ongoing. Thank you.
Speaker #4: What does mean in terms it engagement of levels clients , with etc. ? Is that are we seeing that is an ongoing kind of of bring bigger kind of about a bigger momentum ?
Speaker #4: They building ? What do you are see in the pipeline in terms of deal size , etc. ? Just kind of seeing how that momentum is ongoing .
Rick McConnell: Hey, Raimo. Thanks so much for the question. I guess where I'd start is end-to-end observability is what we're seeing as being very, very strong in terms of the sales play and momentum at the moment. This is where our customers are looking to expand.
Speaker #4: Thank or you . debate
Speaker #5: Thanks . Thanks very much for the question . I guess where I would is end to start end observability is what we're as being very , strong in a sales play .
Speaker #5: And momentum at the seeing moment. This is where our customers are looking to—they're realizing that there are extraordinary expand tools for very that.
Rick McConnell: They are realizing that there is extraordinary tool sprawl, that there is lack of expense management in that, and poor outcomes. And so this is, I'd say, the number one area where we're seeing momentum in the business is precisely that. And as you look to an AI-first world that's coming, it becomes even more pervasive that end-to-end observability is a mandatory foundation to be driving those kinds of outcomes. Our next question comes from the line of Sanjit Singh with Morgan Stanley. Please proceed with your question. Yeah, thank you for taking the question, and congrats on the stabilization in ARR growth for the last several quarters. I wanted to ask follow-up on Raimo's question. In a world where agents are doing a lot of the investigating and the triaging on incidents versus human site reliability engineers, there's sort of two questions there. What's the pace of that change?
Rick McConnell: They are realizing that there is extraordinary tool sprawl, that there is lack of expense management in that, and poor outcomes. And so this is, I'd say, the number one area where we're seeing momentum in the business is precisely that. And as you look to an AI-first world that's coming, it becomes even more pervasive that end-to-end observability is a mandatory foundation to be driving those kinds of outcomes.
Speaker #5: There is lack terms of of lack of expense management and that and poor outcomes . And so is , I'd say , number the one area where we're momentum in the business this is precisely that .
Speaker #5: as you And an AI look to first world that's coming , it becomes even more pervasive . That end to end observability is a mandatory foundation be driving outcomes those kinds of seeing .
Operator: Our next question comes from the line of Sanjit Singh with Morgan Stanley. Please proceed with your question.
Speaker #1: Our next question comes from the line of Sanjeet Singh with Morgan Stanley. Please proceed with your question.
Sanjit Singh: Yeah, thank you for taking the question, and congrats on the stabilization in ARR growth for the last several quarters. I wanted to ask follow-up on Raimo's question. In a world where agents are doing a lot of the investigating and the triaging on incidents versus human site reliability engineers, there's sort of two questions there. What's the pace of that change?
Speaker #6: Yeah. Thank you for taking the question. Congrats, and on
Speaker #6: the stabilization on in AR growth for the last several I quarters . to wanted to ask follow up on Ramo's question . In a where world you know , agents are doing a lot of the investigating and the triaging on on incidents versus human site reliability engineers , what there's sort of two questions there .
Rick McConnell: How realistic are we going to see that sort of environment in the next couple of years? And then, two, from a product perspective, how does that change observability, and how does that change how customers will use Dynatrace? Hey, Sanjit. So in terms of pace of change, I think that there is still a lot of apprehension about just how much conviction organizations have in driving AI and AI outcomes. So I think it's going to evolve over a period of time. Having said that, I do think that there is a significant change in observability as we look to the future and that it really becomes, in our view, the control plane for enterprise AI. And what I mean by that is simply that observability becomes foundational to this agentic action.
Sanjit Singh: How realistic are we going to see that sort of environment in the next couple of years? And then, two, from a product perspective, how does that change observability, and how does that change how customers will use Dynatrace?
Speaker #6: What's the change , like how realistic are we going that to see sort of in the next environment couple of years ? And then two , from a product perspective , how does that change observability ?
Speaker #6: And how does that, you know, change how customers will use Dynatrace?
Rick McConnell: Hey, Sanjit. So in terms of pace of change, I think that there is still a lot of apprehension about just how much conviction organizations have in driving AI and AI outcomes. So I think it's going to evolve over a period of time. Having said that, I do think that there is a significant change in observability as we look to the future and that it really becomes, in our view, the control plane for enterprise AI. And what I mean by that is simply that observability becomes foundational to this agentic action.
Speaker #5: Sanjay. So, in terms of the pace of AI, I think that, while there is change, there is still a lot of apprehension about just how much conviction organizations have in AI and AI driving outcomes.
Speaker #5: So I think it's going to period of time . Having said that , I do think that there is a significant evolve over a change in observability look to the as we future and that it becomes , in our view , the control really plane for enterprise AI .
Speaker #5: And I mean by that simply that observability becomes, in a way, foundational to this agentic action—without deterministic AI, without assuredness of understanding what the problem is.
Rick McConnell: Without deterministic AI, without assuredness of understanding what the baseline problem is and, of course, we use the notion of answers, not guesses here, you simply can't take agentic action. So the steps that we see that organizations have to go through are, number one, you have to get the end-to-end observability because that's where you get the broadest, most concrete outcomes and answers. Number two, you then use that deterministic AI to develop an understanding of what actions need to be taken. And then, number three, and only then can agentic AI take over, take on action, and probably only with a portion of the actions required for autoprotection, autoremediation, and autooptimization. So it is going to be a journey, but that journey is beginning today. And that journey begins with end-to-end observability, followed by the leverage of deterministic AI as a mission-critical foundation for agentic AI to follow.
Rick McConnell: Without deterministic AI, without assuredness of understanding what the baseline problem is and, of course, we use the notion of answers, not guesses here, you simply can't take agentic action. So the steps that we see that organizations have to go through are, number one, you have to get the end-to-end observability because that's where you get the broadest, most concrete outcomes and answers. Number two, you then use that deterministic AI to develop an understanding of what actions need to be taken. And then, number three, and only then can agentic AI take over, take on action, and probably only with a portion of the actions required for autoprotection, autoremediation, and autooptimization. So it is going to be a journey, but that journey is beginning today. And that journey begins with end-to-end observability, followed by the leverage of deterministic AI as a mission-critical foundation for agentic AI to follow.
Speaker #5: And of baseline course , use we the notion of answers , not guesses . you simply can't take agentic action . So the that we see that organizations have to go through are , the end to one , you have to get Here end observability , because that's where you get the broadest , most concrete outcomes .
Speaker #5: And steps. Number use two, that you then deterministic AI to develop an of what actions be understanding taken. And then need to number answers three and only then can agentic AI take action.
Speaker #5: And probably over-portion of the required only with a focus for auto production, auto actions remediation, and auto optimization. So it is going to be a case that journey is beginning.
Speaker #5: journey , but
Speaker #5: And that journey begins with end, end by the leverage of followed deterministic AI—critical foundation for AI to follow.
Rick McConnell: Our next question comes from the line of Gray Powell with BTIG. Please proceed with your question. Okay, great. Thanks for taking the question. So yeah, it was really good to see log monitoring consumption past the 100 million mark this quarter. I guess a couple of questions there. How quickly has that materialized over the last year? I know that there was sort of a new iteration that you came out with in late 2024. And then what are the next milestones for the product? Thanks for the question, Gray. Again, we're very pleased. We told you last quarter that we were on the precipice of hitting this milestone. We exceeded it. Our logs business is continuing to grow north of 100%, so by far the fastest growing product category in the business.
Operator: Our next question comes from the line of Gray Powell with BTIG. Please proceed with your question.
Speaker #1: Our next question comes
Speaker #1: from the line Gray Powell with
Gray Powell: Okay, great. Thanks for taking the question. So yeah, it was really good to see log monitoring consumption past the 100 million mark this quarter. I guess a couple of questions there. How quickly has that materialized over the last year? I know that there was sort of a new iteration that you came out with in late 2024. And then what are the next milestones for the product?
Speaker #1: Please proceed with your question today.
Speaker #7: Okay , great . Thanks
Speaker #7: The question was, was it really good to monitor past the consumption of this $100 million mark in the quarter? I guess a couple of there.
Speaker #7: Questions like, how quickly has that materialized over the last year? I know that there was sort of a new iteration that you came out with in late '24.
Speaker #7: Then, what are your—what are the next milestones for the product?
Jim Benson: Thanks for the question, Gray. Again, we're very pleased. We told you last quarter that we were on the precipice of hitting this milestone. We exceeded it. Our logs business is continuing to grow north of 100%, so by far the fastest growing product category in the business.
Speaker #3: question , Thanks for the gray . Again very , we're pleased . told you quarter that the precipice of this we were on milestone .
Speaker #3: Exceeded, hitting it. Logs business is continuing.
Speaker #3: to grow We north of 100% . observability So by far the fastest growing product category in business that you're right , that we've seen step the increase acceleration of business the from last fall .
Rick McConnell: You're right that we've seen a significant step function increase in the acceleration of the business from last fall to now. Last fall was when we were able to get the logs product use case complete. We had the product packaging and pricing right. That evolved a little bit in the following quarter. So you saw our step function increase, and it continues to exceed our expectations. Relative to the next milestone, we haven't necessarily set our next milestone publicly. I can tell you that it will be a significant source of new ARR. We're seeing this already. Rick mentioned these end-to-end observability deals. Nearly all of them have logs embedded with them. So we expect this to be a huge source of ARR growth for the business going forward. Our next question is from the line of Will Power with Baird. Please proceed with your question. Great. Thank you.
Jim Benson: You're right that we've seen a significant step function increase in the acceleration of the business from last fall to now. Last fall was when we were able to get the logs product use case complete. We had the product packaging and pricing right. That evolved a little bit in the following quarter. So you saw our step function increase, and it continues to exceed our expectations. Relative to the next milestone, we haven't necessarily set our next milestone publicly. I can tell you that it will be a significant source of new ARR. We're seeing this already. Rick mentioned these end-to-end observability deals. Nearly all of them have logs embedded with them. So we expect this to be a huge source of ARR growth for the business going forward.
Speaker #3: to , last fall was when significant able to get the logs Our product use complete case . We had the product now packaging and pricing function That right .
Speaker #3: Last fall was when we were significantly able to get the logs. Our product used complete case. We had the product, and now packaging and pricing function. That’s right. It evolved in the following quarter.
Speaker #3: So you a step saw function increase in it to continues exceed our expectations relative to the next milestone . We haven't necessarily set our next milestone publicly .
Speaker #3: I can tell you will be a that it significant source of new IRR . We're seeing this already . mentioned these end to end observability deals Rick .
Speaker #3: Nearly all of them have logs embedded with them, so we expect this to be a huge source of IRR business—we were.
Operator: Our next question is from the line of Will Power with Baird. Please proceed with your question.
Speaker #3: forward The
Speaker #1: Our next question from the line of power will be from Please Baird.
Operator: Great. Thank you.
Rick McConnell: Yeah, and I guess I'd echo the congratulations on the results. Great to see the ARR growth stabilizing, the strength in net new ARR. As we think about the net new ARR trends, the consumption commentary you just provided and the logs opportunity, the AI opportunity, maybe help us think about kind of the puts and takes that could contribute to ARR, perhaps accelerating as we move into fiscal 2027. How do we think about that outlook there? I'll take that, Will. Good question. Again, we're focused on continuing the momentum. As I said in my prepared remarks, third consecutive quarter of net new ARR, double-digit net new ARR growth, stabilizing ARR at 16%. If you look at the high end of our guide, it suggests that continues into Q4. So it'll be four quarters of stabilizing growth for ARR and four quarters of double-digit ARR growth.
Will Power: Yeah, and I guess I'd echo the congratulations on the results. Great to see the ARR growth stabilizing, the strength in net new ARR. As we think about the net new ARR trends, the consumption commentary you just provided and the logs opportunity, the AI opportunity, maybe help us think about kind of the puts and takes that could contribute to ARR, perhaps accelerating as we move into fiscal 2027. How do we think about that outlook there?
Speaker #1: . Thank
Speaker #8: you . Yeah , I guess echo the Great . congratulations on the results . You know , great to see the IRR growth .
Speaker #8: You know, stabilizing the strength in net IRR new.
Speaker #8: think as we the IRR see with trends , the net new commentary just consumption you know . and the provided You logs opportunity the AI opportunity maybe help us think about kind of the puts and takes , that could contribute to IRR .
Speaker #8: Perhaps accelerating . You know , as into we move fiscal 27 , how do we about that ? Look , there .
Jim Benson: I'll take that, Will. Good question. Again, we're focused on continuing the momentum. As I said in my prepared remarks, third consecutive quarter of net new ARR, double-digit net new ARR growth, stabilizing ARR at 16%. If you look at the high end of our guide, it suggests that continues into Q4. So it'll be four quarters of stabilizing growth for ARR and four quarters of double-digit ARR growth.
Speaker #3: take that . Well good question I'll again . focused We're on continuing the momentum . As I said in my prepared remarks , third consecutive quarter of net new IRR , double digit net new IRR growth , stabilizing IRR at 16% .
Speaker #3: You look at the high end of our guide. It suggests that continues into Q4. So it would be four quarters of stabilizing growth for RR and four quarters of double-digit growth.
Rick McConnell: We've said that our objective is to show an acceleration in ARR. Obviously, we'll have to continue to execute like we have. The go-to-market momentum continues. We continue to benefit from large-scale end-to-end observability deals. So the changes we made are manifesting themselves in the results. We're seeing traction with partners. I'm not going to provide guidance on this call. I can tell you we're very optimistic about the momentum in the business. We'll have to see come May what the guide is, but our objective is to build an acceleration in the top-line growth. The next question is from the line of Koji Ikeda with Bank of America. Please proceed with your question. Yeah, hey, guys. Thanks so much for taking the question here. Jim, in your prepared remarks, you mentioned net new ARR and ARR are the core foundations and the building blocks of growth.
Jim Benson: We've said that our objective is to show an acceleration in ARR. Obviously, we'll have to continue to execute like we have. The go-to-market momentum continues. We continue to benefit from large-scale end-to-end observability deals. So the changes we made are manifesting themselves in the results. We're seeing traction with partners. I'm not going to provide guidance on this call. I can tell you we're very optimistic about the momentum in the business. We'll have to see come May what the guide is, but our objective is to build an acceleration in the top-line growth.
Speaker #3: We've said that our objective is to show an acceleration in IRR. Obviously, to continue to execute like we'll have to, we have the go-to-market momentum to.
Speaker #3: We've said that our objective is to show an acceleration in IRR . Obviously , continue to execute like we'll have to we have the go to market momentum to . benefit continues We from continue large scale end to observability deals .
Speaker #3: end So the changes we are made manifesting themselves in the results we are seeing traction with partners . I'm not going to provide guidance on this call .
Speaker #3: I can tell you we're very optimistic about the momentum in the business, and we'll have to see come May what the—but our objective is to build and accelerate in the top-line growth.
Operator: The next question is from the line of Koji Ikeda with Bank of America. Please proceed with your question.
Speaker #1: Next question is from the line of Koji Ikeda, America. Please proceed with your question.
Koji Ikeda: Yeah, hey, guys. Thanks so much for taking the question here. Jim, in your prepared remarks, you mentioned net new ARR and ARR are the core foundations and the building blocks of growth.
Speaker #9: Hey . Yeah . guys , thanks so much for taking the question here . in your Jim , prepared remarks , you mentioned net new RR and AR are the foundations and
Rick McConnell: But last quarter, you did give a new metric, the annualized platform consumption dollar growth rate of 20%+. I wonder if you could share how that metric compared this quarter compared to fiscal's second quarter. Is it directionally higher? Is it the same, or is it lower than the 20%+ that you gave last quarter? Thank you. It's a good question. We share a lot of KPIs, and we've tried to share KPIs as investors try to understand our journey with DPS, which would certainly get them on the platform, allow them to access the platform, all offerings. And that's playing out nicely. So relative to consumption, consumption continues to grow north of 20%. So consumption is growing very healthy, consistently higher than ARR growth. The next question is from the line of Ryan MacWilliams with Wells Fargo. Please proceed with your question. Hey, Deshawn.
Koji Ikeda: But last quarter, you did give a new metric, the annualized platform consumption dollar growth rate of 20%+. I wonder if you could share how that metric compared this quarter compared to fiscal's second quarter. Is it directionally higher? Is it the same, or is it lower than the 20%+ that you gave last quarter? Thank you.
Speaker #9: building the the blocks of . But last quarter you did give a new The annualized metric . platform consumption , dollar growth rate of of 20% .
Speaker #9: Plus . I wonder if you share how that metric could compared this quarter compared question is to fiscal second Is it directionally higher ?
Speaker #9: Quarter. Is it the same or is it lower than the GAAP last quarter? Is.
Jim Benson: It's a good question. We share a lot of KPIs, and we've tried to share KPIs as investors try to understand our journey with DPS, which would certainly get them on the platform, allow them to access the platform, all offerings. And that's playing out nicely. So relative to consumption, consumption continues to grow north of 20%. So consumption is growing very healthy, consistently higher than ARR growth.
Speaker #3: It's
Speaker #3: a good . We've lot of KPIs and we've share you KPIs growth shared a to understand journey with DPS ,
Speaker #3: question
Speaker #3: tried to our which was certainly get them on
Speaker #3: Platform as is, allow them to access the investors, try platform last offerings, and that's playing out nicely. Consumption continues to grow north of, I'd say, 20%.
Speaker #3: So consumption is growing very healthy all , consistently higher than than IRR growth relative to . So . about
Operator: The next question is from the line of Ryan MacWilliams with Wells Fargo. Please proceed with your question.
Speaker #1: The next in the line is Ryan Mack with Fargo. Please review with your question.
[Analyst] (Wells Fargo): Hey, Deshawn.
Rick McConnell: I'm for Ryan MacWilliams. This year, you've talked about some of the strength in large deals and large deal pipeline. Is there any update you could provide on how those large deals are progressing, and maybe whether your incremental confidence on those deals coming through has changed in the past couple of months? Follow up if there's time. Sure. I'll take that. I think what I talked about in Q2 was we continue to see a robust pipeline. That pipeline is very weighted to large deals, deals over $500,000, deals over $1 million. And that makes sense relative to the go-to-market changes we made last year, that we were focused on these accounts that had a large or high propensity to spend. I think what you're seeing, you saw it in the Q3 results, that we built consistency in close rates of these large deals.
[Analyst] (Wells Fargo): I'm for Ryan MacWilliams. This year, you've talked about some of the strength in large deals and large deal pipeline. Is there any update you could provide on how those large deals are progressing, and maybe whether your incremental confidence on those deals coming through has changed in the past couple of months? Follow up if there's time.
Speaker #10: Hey DeShawn I'm for Ryan Mack this year . You've talked
Speaker #10: the strength in large deals and large deal pipeline . Is there any update you could provide on is from how those about some of are
Speaker #10: Large deals. And maybe whether your incremental confidence on those deals coming has changed in the past couple of months? I'll follow up with a question if time permits.
Jim Benson: Sure. I'll take that. I think what I talked about in Q2 was we continue to see a robust pipeline. That pipeline is very weighted to large deals, deals over $500,000, deals over $1 million. And that makes sense relative to the go-to-market changes we made last year, that we were focused on these accounts that had a large or high propensity to spend. I think what you're seeing, you saw it in the Q3 results, that we built consistency in close rates of these large deals.
Speaker #3: Sure , I'll take there's . You know , I think what I talked about in Q2 was we continue to see a robust pipeline that pipeline very weighted large deals , deals
Speaker #3: is And that makes that sense relative to the go to changes we made last that we were focused on
Speaker #3: half a million deals over
Speaker #3: accounts that to year had a large or high to to progressing propensity . I think what you're seeing , you saw in the Q3 results that consistency in close rates with these large we built deals market .
Rick McConnell: Our expectation in Q4 is you'll see that again. I think what we've done is we've built consistency in our execution. You're seeing that through the first three quarters. The expectation in Q4 at the high end of our guide is you'll see that again. It's heavily driven by this continued trend of very large enterprises looking to vendors to consolidate on. Dynatrace is in a very good position. You saw even new logos. 5 of our new logos were over $1 million. This is both existing customers and new logos looking to Dynatrace to be their provider of choice as this trend continues. I would just add to that also that we see AI as an enormous tailwind to the observability business overall. You have to have observability in order to drive an AI-first world. We believe that fundamentally.
Jim Benson: Our expectation in Q4 is you'll see that again. I think what we've done is we've built consistency in our execution. You're seeing that through the first three quarters. The expectation in Q4 at the high end of our guide is you'll see that again. It's heavily driven by this continued trend of very large enterprises looking to vendors to consolidate on. Dynatrace is in a very good position. You saw even new logos. 5 of our new logos were over $1 million. This is both existing customers and new logos looking to Dynatrace to be their provider of choice as this trend continues.
Speaker #3: Our expectation in Q4 Wells spend is 20% plus, that a million. See that, think what again. So what we've done is we've built consistency in our execution.
Speaker #3: That, through, you'll see the first expectation in the three quarters. The fourth quarter, at the high end of our guidance, you'll see that again.
Speaker #3: And it's heavily driven by this continued trend of very large enterprises looking to vendors to consolidate on, and Dynatrace is in a very good position.
Speaker #3: You saw even logos . Five of our new logos were over . We're is both existing large customers and new logos looking to Dynatrace , you know , to be their provider of choice .
Rick McConnell: I would just add to that also that we see AI as an enormous tailwind to the observability business overall. You have to have observability in order to drive an AI-first world. We believe that fundamentally.
Speaker #3: You know , as this trend continues .
Speaker #5: Overall, you have to have observability. I would just add that we also see AI as an enormous tailwind to the business of observability.
Speaker #5: order to drive an AI first world . We believe fundamentally , and the that is that that result of you have to have end to end observability to get the best outcomes , the best analytics and insights to be take agentic underlying action able to world as shifts toward a move of autonomous becomes foundational and end to end .
Rick McConnell: And the result of that is that you have to have end-to-end observability to get the best outcomes, the best underlying analytics and insights to be able to take agentic action. So as the world shifts toward a move of autonomous operations, observability becomes foundational, and end-to-end observability is fundamental to maximizing the success of that type of deployment. Our next question comes from the line of Eric Heath with KeyBank. Please proceed with your question. Hey, Rick. Jim, thanks for taking the question. I guess what stood out to me that was most impressive was the fiscal Q4 net new ARR guide. It was a strong lift from what you were expecting previously. So just maybe an extension of the prior question and your response there, but. Hey, Eric, could you just speak up a little bit? Yeah. Any better? That's a little bit better. Thank you. Okay. Yeah.
Rick McConnell: And the result of that is that you have to have end-to-end observability to get the best outcomes, the best underlying analytics and insights to be able to take agentic action. So as the world shifts toward a move of autonomous operations, observability becomes foundational, and end-to-end observability is fundamental to maximizing the success of that type of deployment.
Speaker #5: observability is , observability to So success of that type of deployment
Operator: Our next question comes from the line of Eric Heath with KeyBank. Please proceed with your question.
Speaker #5: . maximizing the
Speaker #1: Our next question comes from the line of Eric Heath with KeyBanc. Please proceed with your question.
Eric Heath: Hey, Rick. Jim, thanks for taking the question. I guess what stood out to me that was most impressive was the fiscal Q4 net new ARR guide. It was a strong lift from what you were expecting previously. So just maybe an extension of the prior question and your response there, but.
Speaker #11: Hey , Rick . Jim , thanks for
Speaker #11: taking the question guess what stood out to
Speaker #11: To me, what was most impressive was fundamentally the Q net new. It is a strong ARR guide lift from what you were expecting previously.
Speaker #11: So just extension
Speaker #11: maybe an prior question and your Eric . your
Jim Benson: Hey, Eric, could you just speak up a little bit?
Eric Heath: Yeah. Any better?
Speaker #3: Could you, a little bit over $1 million. So this...?
Speaker #3: just speak
Jim Benson: That's a little bit better. Thank you.
Speaker #11: Yeah. Any fiscal better?
Eric Heath: Okay. Yeah.
Speaker #3: little bit Thank you
Rick McConnell: So just to cut to the question. So the fiscal Q4 net new ARR guide was a strong lift from what you were expecting previously. Just an extension from the prior question, your response there. Just any more detail you could share on what has given you the confidence in the outlook, maybe some assumptions on the close rates in those large end-to-end deals. Thanks. Yeah. I mean, one of the things I talked about in the last call is we had very healthy close rates in the first half of the year. We saw healthy close rates in Q3. I'd say our visibility of the pipeline here, especially near term, is quite strong.
Eric Heath: So just to cut to the question. So the fiscal Q4 net new ARR guide was a strong lift from what you were expecting previously. Just an extension from the prior question, your response there. Just any more detail you could share on what has given you the confidence in the outlook, maybe some assumptions on the close rates in those large end-to-end deals. Thanks.
Speaker #11: So . Yeah . just to cut to the question . fiscal for Q net new operations AR guide was a strong you were expecting
Speaker #11: previously . Just an lift from what extension from prior the response question . Your just any more there
Speaker #11: Can you detail what has given you the confidence in the outlook? Maybe you could share some assumptions on the close rates in those end-to-end deals.
Jim Benson: Yeah. I mean, one of the things I talked about in the last call is we had very healthy close rates in the first half of the year. We saw healthy close rates in Q3. I'd say our visibility of the pipeline here, especially near term, is quite strong.
Speaker #11: deals .
Speaker #11: .
Speaker #3: Yeah . I mean , one of the things I about in talked last call
Speaker #3: is . the
Speaker #3: We were very healthy, had close rates in the first half of large deals.
Speaker #3: We saw healthy close rates, okay, in Q3. I'd say our, thanks, the pipeline here—visibility of the near term is quite strong.
Rick McConnell: That doesn't mean we expect you're going to get every deal, but we do believe that we have a very good line of sight to be able to deliver against this guide, the range that we're providing. So I think some of it is the visibility. And I think it's also what I think is a continued improvement in our go-to-market maturity around having an ability to call the ball on some of these large deals. I think our ability to do that continues to improve. The next question is from the line of Keith Bachmann with BMO Capital Markets. Please proceed with your question. Thank you. Good morning. I wanted to ask about new logo growth. Jim, you had called out that I think you had 164 new logos, solid growth there.
Jim Benson: That doesn't mean we expect you're going to get every deal, but we do believe that we have a very good line of sight to be able to deliver against this guide, the range that we're providing. So I think some of it is the visibility. And I think it's also what I think is a continued improvement in our go-to-market maturity around having an ability to call the ball on some of these large deals. I think our ability to do that continues to improve.
Speaker #3: It doesn't mean that we expect you're going to get every deal; we do believe that we have a very good line to be able to deliver against this guide we're providing.
Speaker #3: think some So I of it the range is the visibility of sight and but it's I think what I think is a that we're go to market around ability to improvement in our maturity ball on some of these large deals .
Operator: The next question is from the line of Keith Bachmann with BMO Capital Markets. Please proceed with your question.
Speaker #3: Our ability to do, I think, that continues to, and also...
Speaker #1: next question line is from the of The Keith Bachman with BMO Capital Markets . Please see you with your question .
Keith Bachmann: Thank you. Good morning. I wanted to ask about new logo growth. Jim, you had called out that I think you had 164 new logos, solid growth there.
Speaker #12: Thank you. Good morning. I wanted to ask
Speaker #12: about new logo growth . Jim , you had called having out that I think you had 164 new logos , solid growth there .
Rick McConnell: Yet, if I look at the numbers, it appears you're still getting about 70% of your ARR from existing clients, 30% from new logos. I'm just wondering, is that the way we should be thinking about as we look out over the next year? I think investors have some worry that the existing customer base may not sustain growth for a period of time. So trying to understand how you might be able to expand your new logo growth and particularly maybe going not to small business, but maybe expanding the TAM a little bit. As you talked about, AI is foundational. So maybe that presents some opportunities for a broader customer audience. At the same time, there are solutions out there that are less expensive that require more work.
Keith Bachmann: Yet, if I look at the numbers, it appears you're still getting about 70% of your ARR from existing clients, 30% from new logos. I'm just wondering, is that the way we should be thinking about as we look out over the next year? I think investors have some worry that the existing customer base may not sustain growth for a period of time. So trying to understand how you might be able to expand your new logo growth and particularly maybe going not to small business, but maybe expanding the TAM a little bit. As you talked about, AI is foundational. So maybe that presents some opportunities for a broader customer audience. At the same time, there are solutions out there that are less expensive that require more work.
Speaker #12: And yet if I look at the numbers , appears you're it still getting 70% of your AR coming existing clients from , 30 , 30% is coming from new .
Speaker #12: And I'm just wondering ,
Speaker #12: Is that the way we should be thinking about it as we look out over the next year? I think investors have some worry that your existing customers may not sustain growth for a period of time, and trying to understand how you might be able to logo over time.
Speaker #12: Growth and going not to small business, know, but maybe new TAM a base, as you talked, expanding the bit little is AI is improve, expand your maybe—that presents some opportunities for us as a customer.
Speaker #12: At the same for time , there broader are solutions out that are less audience expensive , that require more there work . And I'm not DPS about you know , is , the of new or is fit hindrance in that you sure how bit larger commitment , but just maybe logos talk that a about how into , thinking facilitator about new growth over the next couple of years .
Rick McConnell: I'm not sure how DPS would fit into it. Is that a facilitator of new logos, or is it a hindrance in that you got to make a little bit larger commitment? But just maybe talk about how we should be thinking about new logo growth over the next couple of years. Thank you. I'd say near term, Keith, one, I would say we're very pleased with the new logo momentum that we're having, in particular, that there is a lot of momentum with just customers that are looking to Dynatrace to consolidate fragmented tools on. So we continue to make good traction there. You should expect in the near term, kind of over the next year, that it'll be a, call it, roughly 1/3 new logo, 2/3 expansions. I would clarify. We are not even close to exhausting our ability to expand within our installed base.
Keith Bachmann: I'm not sure how DPS would fit into it. Is that a facilitator of new logos, or is it a hindrance in that you got to make a little bit larger commitment? But just maybe talk about how we should be thinking about new logo growth over the next couple of years. Thank you.
Jim Benson: I'd say near term, Keith, one, I would say we're very pleased with the new logo momentum that we're having, in particular, that there is a lot of momentum with just customers that are looking to Dynatrace to consolidate fragmented tools on. So we continue to make good traction there. You should expect in the near term, kind of over the next year, that it'll be a, call it, roughly 1/3 new logo, 2/3 expansions. I would clarify. We are not even close to exhausting our ability to expand within our installed base.
Speaker #12: Thank you .
Speaker #3: So I'd say near-term , Q1 , I would say we're very
Speaker #3: with
Speaker #3: that we're
Speaker #3: In particular, having that logo there is a lot of work with just customers that are looking to maybe consolidate fragmented tools on.
Speaker #3: So we make good
Speaker #3: traction there . You should near term a know , over the next year that it'll be momentum a continue to one third new logo , expect in the two thirds expansions .
Speaker #3: To kind of, you know, I would say our ability to grow within our installed base continues to grow. We almost have half a million dollars now per customer.
Rick McConnell: We continue to grow. We almost have a half a million dollars now per customer, and we have many, many million-dollar customers. So the propensity to expand is still pretty material. But near term, I think we're going to be roughly 1/3, 2/3. We do look at that, Keith, relative to what are the different velocity motions you can do to maybe land a little bit lower. I think in this cloud AI-native world, that's probably an area we can continue to get some traction in. But near term, you should expect kind of the mix that I just mentioned. Keith, I would just add that with, ostensibly, the completion of the third-generation platform that is now out there, it does enable us to do a much better job of tuning and targeting to different personas, SRE, platform engineering, particular developers.
Jim Benson: We continue to grow. We almost have a half a million dollars now per customer, and we have many, many million-dollar customers. So the propensity to expand is still pretty material. But near term, I think we're going to be roughly 1/3, 2/3. We do look at that, Keith, relative to what are the different velocity motions you can do to maybe land a little bit lower. I think in this cloud AI-native world, that's probably an area we can continue to get some traction in. But near term, you should expect kind of the mix that I just mentioned.
Speaker #3: So and we have many million dollar customers . So the propensity to close is , is still expand pretty material exhausting . near But term , I think we're going to be roughly one third to two thirds .
Speaker #3: We do look at that , expand . Relative to base . what are the You know , different we velocity motions you Keith to land a little maybe can do bit lower ?
Speaker #3: I think in this cloud , AI native world , that's continue to get some traction in . But near term you should expect kind of the mix that I just mentioned we can .
Rick McConnell: Keith, I would just add that with, ostensibly, the completion of the third-generation platform that is now out there, it does enable us to do a much better job of tuning and targeting to different personas, SRE, platform engineering, particular developers.
Speaker #5: I would I would
Speaker #5: that a just with , with ostensibly the add completion of many , third generation the platform now out there , that is it does enable us to better do a much of tuning and targeting to to different personas .
Speaker #5: SRE platform job, particular engineering, at our performed—of weeks conference a couple had a full day with a ago, we ton of developer developers working on the product and the solution.
Rick McConnell: At our Perform Conference a couple of weeks ago, we had a full developer day with a ton of developers working on the product and the solution overall. We just did the DevCycle transaction, which enables us to extend left further with regard to feature management. So you can expect us to be leaning into development teams and developers as an added persona with a primary intent of generating, over the course of time, new logo momentum and unit volume, not just in ACV, which is what Jim was referring to, by way of a record quarter in Q3. The next question comes from the line of Matt Hedberg with RBC Capital Markets. Please proceed with your question. Great. Thanks for taking my questions, guys. Congrats on the consistency. Really good to see.
Rick McConnell: At our Perform Conference a couple of weeks ago, we had a full developer day with a ton of developers working on the product and the solution overall. We just did the DevCycle transaction, which enables us to extend left further with regard to feature management. So you can expect us to be leaning into development teams and developers as an added persona with a primary intent of generating, over the course of time, new logo momentum and unit volume, not just in ACV, which is what Jim was referring to, by way of a record quarter in Q3.
Speaker #5: Overall, we just did the dev cycle transaction, which, to extend left, enables us further with regard to feature management. So you can expect us to be leaning in development teams and developers.
Speaker #5: As an added persona with primary intent of generating over the course of time , new momentum and unit Not volume . just in which is Jim was ACV , to by way what of a .
Operator: The next question comes from the line of Matt Hedberg with RBC Capital Markets. Please proceed with your question.
Speaker #1: question comes from the line Matt Hedberg next with of Capital Markets . RBC The see you with your question .
Matt Hedberg: Great. Thanks for taking my questions, guys. Congrats on the consistency. Really good to see.
Speaker #13: Great . Thanks for taking my guys . consistency . . I
Speaker #13: questions , But I know investors are worried that also see large language model Congrats on the providers , you point might do know , at some everything in Really good to I mean , just given that concern , software .
Rick McConnell: I guess for either of you, I wanted to ask about the competitive environment, I guess, both from smaller vendors like Chronosphere getting acquired. But I know investors are also worried that large language model providers, at some point, might do everything in software. I mean, just given that concern, how do you think about the competitive risk from some of these frontier model providers as well? Hi, Matt. A lot in that question. Let me start with the first part, which is some of the acquisitions in the industry. And I would just say, as we look at a Chronosphere and observe others, we really don't see them in the market very often on a direct competitive basis for us, simply because of our target segment typically being in the global 15,000, the largest accounts on the planet, and what they're looking for is end-to-end observability.
Matt Hedberg: I guess for either of you, I wanted to ask about the competitive environment, I guess, both from smaller vendors like Chronosphere getting acquired. But I know investors are also worried that large language model providers, at some point, might do everything in software. I mean, just given that concern, how do you think about the competitive risk from some of these frontier model providers as well?
Speaker #13: This is a guess for either of you—I wanted to ask about the competitive environment, both from smaller vendors like Chronosphere to those getting acquired.
Speaker #13: How do you think about the competitive risk from some of these frontier model providers as well? I guess.
Rick McConnell: Hi, Matt. A lot in that question. Let me start with the first part, which is some of the acquisitions in the industry. And I would just say, as we look at a Chronosphere and observe others, we really don't see them in the market very often on a direct competitive basis for us, simply because of our target segment typically being in the global 15,000, the largest accounts on the planet, and what they're looking for is end-to-end observability.
Speaker #5: Not a lot . A lot in that question , let me start with the first part , which is some of the the acquisitions in industry .
Speaker #5: And I say, as we look at a chronosphere and we observe others, we really don't would just see them in the market very often on a direct competitive basis.
Speaker #5: For us , simply because of our segment typically being in the in the target global 15,000 , the largest on the planet . And what they're looking for is end to end observability .
Rick McConnell: Many of these solutions that you mentioned really have point solutions, either focused on logs or focused on metrics, but really not an end-to-end solution that's at all comprehensive to be able to compete against Dynatrace at that level. We always are paranoid about competition. We're looking at moving chess pieces, especially as larger players get into the market. We're very observant of that. But at the same time, these smaller players haven't really been competitive in the past. With respect to this dialogue around LLMs replicating observability, that's a longer answer and something that we've been spending a lot of time thinking about.
Rick McConnell: Many of these solutions that you mentioned really have point solutions, either focused on logs or focused on metrics, but really not an end-to-end solution that's at all comprehensive to be able to compete against Dynatrace at that level. We always are paranoid about competition. We're looking at moving chess pieces, especially as larger players get into the market. We're very observant of that. But at the same time, these smaller players haven't really been competitive in the past. With respect to this dialogue around LLMs replicating observability, that's a longer answer and something that we've been spending a lot of time thinking about.
Speaker #5: And many solutions that you mentioned really have point solutions, referring either to accounts focused on logs or focused on metrics, but really not an end-to-end solution.
Speaker #5: That's at all . Comprehensive . To be compete able to against Dynatrace at that level . we are competition we're of these moving chess as , especially larger get into the looking at market .
Speaker #5: And so we're very observant of that. But at the same piece, these smaller players haven't really been competitive in the past with respect to this, always this dialogue around time, LMS replicating to observability been.
Speaker #5: That's a longer answer, and something that we've been spending a lot of time thinking about, to try to give you a succinct response to it.
Rick McConnell: To try to give you a succinct response to it, I would say, number one, we view there to be a very sizable difference between enterprise software with standard workflows and infrastructure software like ours with highly dynamic workflows requiring variable evaluation of billions of interconnected data points. Secondly, as I mentioned earlier, we really do see observability as the control plane for enterprise AI. We don't believe that you can easily replace observability through Vibe coding or an LLM instantiation that can do the same thing that we do. Third, we really see our focus and our moat really as being architectural and not code-based. We have a platform with Smartscape, with Grail, with Dynatrace Intelligence, not just individual point products. The interaction of those becomes quite sophisticated. We have AI increasing complexity across LLMs and agentic systems, not reducing it.
Rick McConnell: To try to give you a succinct response to it, I would say, number one, we view there to be a very sizable difference between enterprise software with standard workflows and infrastructure software like ours with highly dynamic workflows requiring variable evaluation of billions of interconnected data points. Secondly, as I mentioned earlier, we really do see observability as the control plane for enterprise AI. We don't believe that you can easily replace observability through Vibe coding or an LLM instantiation that can do the same thing that we do. Third, we really see our focus and our moat really as being architectural and not code-based. We have a platform with Smartscape, with Grail, with Dynatrace Intelligence, not just individual point products. The interaction of those becomes quite sophisticated. We have AI increasing complexity across LLMs and agentic systems, not reducing it.
Speaker #5: I would say , number we one , a very view there sizable difference enterprise between software with standard workflows infrastructure and like ours , with highly dynamic workflows requiring variable evaluation of interconnected data Secondly , as I billions of earlier , we really do see as plane the enterprise AI to be points . .
Speaker #5: I would say , number we one , a very view there sizable difference enterprise between software with standard workflows infrastructure and like ours , with highly dynamic workflows requiring variable evaluation of interconnected data Secondly , as I billions of earlier , we really do see as plane the enterprise AI to be points .
Speaker #5: believe that you easily , can easily observability replace don't vibe observability coding LLM an or instantiation thing that do the that can software same Third , see do .
Speaker #5: focus and our our moat really is being architectural and that based . We have a platform with smarts , with Grail , with Dynatrace, Inc. not just individual point our mentioned we and the interaction of those as becomes quite control sophisticated .
Speaker #5: We have an AI increasing across LMS thru Agentic systems , not reducing it . And then an extraordinary amount of domain expertise over more than intelligence , a of decade evaluation of workflows or based the AI analytics that we complete complexity do believe grounding AI upon actions in finally we AI deterministic and explainable system .
Rick McConnell: And then finally, we've built an extraordinary amount of domain expertise over more than a decade of evaluation of AI workflows or workflows based upon the AI analytics that we complete. And we do believe that grounding AI actions in a deterministic and explainable system is much more powerful than using and relying only on probabilistic models. So there's a lot to be had in there in terms of additional conversation. But the net of that is we see Dynatrace as a very, very durable solution over the course of the long term for the overall environment we see for managing enterprise AI instantiations. The next question comes from the line of Patrick Colville with Scotiabank. Please proceed with your question. Thanks, Rick and Jim. And I thought your answer just then was really fascinating.
Rick McConnell: And then finally, we've built an extraordinary amount of domain expertise over more than a decade of evaluation of AI workflows or workflows based upon the AI analytics that we complete. And we do believe that grounding AI actions in a deterministic and explainable system is much more powerful than using and relying only on probabilistic models. So there's a lot to be had in there in terms of additional conversation. But the net of that is we see Dynatrace as a very, very durable solution over the course of the long term for the overall environment we see for managing enterprise AI instantiations.
Speaker #5: A powerful and relying only on probabilistic, so there’s more than using—and we, to be honest, have had a lot in there in terms of additional conversation.
Speaker #5: the net of that is we see very , very durable But term , over the Dynatrace as course of the long a solution for the the overall of long environment , managing enterprise AI .
Speaker #5: course Thanks , Rick
Operator: The next question comes from the line of Patrick Colville with Scotiabank. Please proceed with your question.
Speaker #1: The next from the line of Patrick Colville with Scotiabank. Please review with your—
Patrick Colville: Thanks, Rick and Jim. And I thought your answer just then was really fascinating.
Speaker #1: .
Speaker #14: and Jim .
Rick McConnell: I guess I just want to pivot back to the question earlier on the Q4 guide. I mean, I'm calculating that the updated guide implies 22% net new ARR growth in constant currency in Q4, which if I'm calculating that correctly, I mean, that would be the biggest net new ARR guide for a long, long time. So can you just circle back? What gives you confidence there? Because I know that's the number one question we're going to be receiving. Why does Dynatrace have confidence in that number? Well, I'll start with why we have confidence in the number, and then I'll clarify what the guide is as far as the growth rate. We have confidence in the number because our pipeline is incredibly robust. We continue to have significant demand for observability. And so the changes we made on the go-to-market side are playing out.
Patrick Colville: I guess I just want to pivot back to the question earlier on the Q4 guide. I mean, I'm calculating that the updated guide implies 22% net new ARR growth in constant currency in Q4, which if I'm calculating that correctly, I mean, that would be the biggest net new ARR guide for a long, long time. So can you just circle back? What gives you confidence there? Because I know that's the number one question we're going to be receiving. Why does Dynatrace have confidence in that number?
Speaker #14: really then was fascinating . I guess pivot term back question to the earlier
Speaker #14: guide , I'm the the calculating updated instantiations guide 22% net question comes new IRR growth full queue , is if I'm which constant calculating correctly , I mean , that would be the biggest implies that new AR guide long time for a long , .
Speaker #14: I mean ,
Speaker #14: just So can you back . You know what confidence just there ? Because your I know that's the number one question we're going to be net Like answer to why gives you Dynatrace have confidence in that number
Jim Benson: Well, I'll start with why we have confidence in the number, and then I'll clarify what the guide is as far as the growth rate. We have confidence in the number because our pipeline is incredibly robust. We continue to have significant demand for observability. And so the changes we made on the go-to-market side are playing out.
Speaker #3: I'll
Speaker #3: Start with why we have confidence in the number, and then I'll clarify what we see for— as far as the growth.
Speaker #3: We have confidence in the number because the pipeline is incredibly robust. We have demand.
Speaker #3: for
Speaker #3: observability . And so the significant changes we go to market side are playing out . So we does this is just
Speaker #3: observability . And so the significant changes we go to market side are playing out . So we does this is just we have good
Rick McConnell: So this is just we have good visibility. So our visibility is what drives our conviction. So that's one. I'd say relative to the guide, and this probably just puts and takes relative to FX, that at the high end of the guide, it would imply another quarter of double-digit growth. It's not 20%. It's in the kind of 10% or 11% in the Q4 relative to the guide. But still, quite robust. Again, 4 quarters of double-digit net new ARR growth would just continue in building momentum in the business. The next question is from the line of Itai Kidron, Oppenheimer. Please proceed with your question. Thanks. A couple of small ones. First of all, if you could give us an update on how your Security Strike teams are doing, if there's any progress there.
Jim Benson: So this is just we have good visibility. So our visibility is what drives our conviction. So that's one. I'd say relative to the guide, and this probably just puts and takes relative to FX, that at the high end of the guide, it would imply another quarter of double-digit growth. It's not 20%. It's in the kind of 10% or 11% in the Q4 relative to the guide. But still, quite robust. Again, 4 quarters of double-digit net new ARR growth would just continue in building momentum in the business.
Speaker #3: conviction just circle . So visibility is what . one I'd say Well to the guide is . that's relative guide receiving . puts and takes relative to FX high end of the would that at the imply another quarter of double growth .
Speaker #3: digit guide it It's . in the And it's 10 or 11% in the have relative to the guide , but quite robust . Again , still our of growth new net , which four quarters in kind momentum continued in the business .
Speaker #3: It's like
Operator: The next question is from the line of Itai Kidron, Oppenheimer. Please proceed with your question.
Speaker #1: Our next question is from the line of
Speaker #1: Ittai Kidron
Itai Kidron: Thanks. A couple of small ones. First of all, if you could give us an update on how your Security Strike teams are doing, if there's any progress there.
Speaker #1: . Oppenheimer , please made in the receive your .
Speaker #15: Thanks. A couple drives, small ones. First of all, give us an update, if you could, on...
Speaker #15: how
Speaker #15: strike are security there's any
Rick McConnell: Then, Rick, I want to go back to your answer about LLMs and what they can do to observability tools. The opportunity is very clear. Again, just on the cost side, you just announced Dynatrace Intelligence, which sounds fascinating. I guess, logically speaking, it would seem that customers would find this as the way to interact with your system longer term. I guess the question is, again, could agents, third-party agents, disintermediate you and actually replace Dynatrace Intelligence? And third-party agents can do that. And somehow, again, you get stepped removed from the customer, a system working in the background, and customer is only engaging with third-party agents to interact with your system. Wouldn't that disintermediate the value that you bring to your customers? Thanks, Guy. On security, it continues to be an important business for us. It's growing nicely.
Itai Kidron: Then, Rick, I want to go back to your answer about LLMs and what they can do to observability tools. The opportunity is very clear. Again, just on the cost side, you just announced Dynatrace Intelligence, which sounds fascinating. I guess, logically speaking, it would seem that customers would find this as the way to interact with your system longer term. I guess the question is, again, could agents, third-party agents, disintermediate you and actually replace Dynatrace Intelligence? And third-party agents can do that. And somehow, again, you get stepped removed from the customer, a system working in the background, and customer is only engaging with third-party agents to interact with your system. Wouldn't that disintermediate the value that you bring to your customers?
Speaker #15: Rick, if there is a question, then there is progress. Doing there.
Speaker #15: Go back to your note 20 about answer rate. LLMs and what they can do with observability tools. The...
Speaker #15: clear . do to very Again , just on just the cost side , you just announced Dynatrace , which sounds
Speaker #15: I logically double digit speaking , it would seem that opportunity is would find the way to with your teams system longer term interact .
Speaker #15: I guess the intelligence this as guess again agents , third party agents question is , , disintermediate you , could ? And actually replace Dynatrace intelligence ?
Speaker #15: And agents third party can do that and somehow , again , you get step from the removed customer the customers . background A and customers only engaging third party with your .
Speaker #15: That wouldn't disintermediate the value that Interact you bring to your working in? System.
Rick McConnell: Thanks, Guy. On security, it continues to be an important business for us. It's growing nicely.
Speaker #5: I am on security. It
Speaker #5: continues to be an important business for system growing nicely
Speaker #5: continues to be an important business for system growing nicely
Rick McConnell: We said that it would take us longer to get to the $100 million level than logs a few quarters back, but we see ongoing progress there. We do see the ongoing convergence of security and observability, so no change there. Our security strategy remains to be focused on observability buyer as opposed to the CISO where we have relationships today. So that continues to be our strategy, our focus, and our evolution of security and the Security Strike team. On the overall LLM environment, I think I covered it relatively completely. I guess I would only add that, no, we don't see it as highly likely that an LLM is going to be able to replicate Dynatrace for all the reasons I described.
Rick McConnell: We said that it would take us longer to get to the $100 million level than logs a few quarters back, but we see ongoing progress there. We do see the ongoing convergence of security and observability, so no change there. Our security strategy remains to be focused on observability buyer as opposed to the CISO where we have relationships today. So that continues to be our strategy, our focus, and our evolution of security and the Security Strike team. On the overall LLM environment, I think I covered it relatively completely. I guess I would only add that, no, we don't see it as highly likely that an LLM is going to be able to replicate Dynatrace for all the reasons I described.
Speaker #5: that
Speaker #5: it customers dollar level than would take us longer to said a few quarters , a few quarters back . But we see ongoing progress agents to do there .
Speaker #5: We are ongoing with the convergence of change there. Security and security strategy remains to focus on observability, buyer to the CISO, where we have that as opposed to our focus today and our million evolution of security.
Speaker #5: strike team continues to be on the security LM environment . relationships I think I . relatively Covered it completely . And our I I guess I would only would add that And the don't see it as , as likely that an LM is going to be the replicate Dynatrace for all the reasons I described particular , we only see that a highly variable environment that , in playing out on a day .
Speaker #5: , no ,
Rick McConnell: In particular, we see that in a highly variable environment that is playing out on a day-to-day basis with all of these interconnections within that environment in large enterprises, that it would be very, very difficult for any AI piece of solution or piece of software to then replicate that environment for all the reasons I described. The next question is from the line of Mike Cikos with Needham & Company. Please proceed with your question. Great. Thanks for taking the questions here, guys. It was great to get some of the data points around average land and new logo growth, etc. But maybe for Jim, I wanted to ask about our NRR with the stabilization we've been able to demonstrate here at the 111%.
Rick McConnell: In particular, we see that in a highly variable environment that is playing out on a day-to-day basis with all of these interconnections within that environment in large enterprises, that it would be very, very difficult for any AI piece of solution or piece of software to then replicate that environment for all the reasons I described.
Speaker #5: With all in of these interconnections is that within environment , in on large enterprises , that it overall very , very for any AI of to day solution or piece of to able to then replicate environment for would be all the reasons described that .
Speaker #5: difficult basis
Operator: The next question is from the line of Mike Cikos with Needham & Company. Please proceed with your question.
Speaker #1: The next question is from the line of Ficos with
Mike Cikos: Great. Thanks for taking the questions here, guys. It was great to get some of the data points around average land and new logo growth, etc. But maybe for Jim, I wanted to ask about our NRR with the stabilization we've been able to demonstrate here at the 111%.
Speaker #1: if their question . Mike
Speaker #16: Great . Thanks
Speaker #16: great to get . It was some of the data points piece around average land new and logo growth , etc. but maybe for wanted to
Speaker #16: about
Speaker #16: With the stabilization we've been able to get to the hundred, to here at the 111. Demonstrate through where we are, improvement in this metric, just and given the go for taking.
Rick McConnell: Can you help us think through where we are in driving an improvement in this metric, just given the go-to-market maturity that you are talking to and these end-to-end observability deals, as well as where are we in that DPS renewal cycle? That would be terrific. Thank you so much. Thanks, Mike. So again, we're pleased to see a continued stabilization in dollar-based net retention rate at 111. I think I mentioned this in the past that our sales organization is focused on maximizing bookings. So you're going to have some quarters where you're more new logo heavy. You're going to have some quarters where you're more expansion heavy. But I would say, Mike, we are still in the building phase. You mentioned DPS that in fiscal 2027 will be kind of your first full three-year cohort classes coming so that you'll have a one-year, two-year, and three-year cohort classes.
Mike Cikos: Can you help us think through where we are in driving an improvement in this metric, just given the go-to-market maturity that you are talking to and these end-to-end observability deals, as well as where are we in that DPS renewal cycle? That would be terrific. Thank you so much.
Speaker #16: are talking to and these . deals , as we're where are we in that us think renewal be terrific . DPS That'd much to market
Speaker #16: are talking to and these . deals , as we're where are we in that us think renewal be terrific . DPS That'd much to market
Speaker #16: and
Jim Benson: Thanks, Mike. So again, we're pleased to see a continued stabilization in dollar-based net retention rate at 111. I think I mentioned this in the past that our sales organization is focused on maximizing bookings. So you're going to have some quarters where you're more new logo heavy. You're going to have some quarters where you're more expansion heavy. But I would say, Mike, we are still in the building phase. You mentioned DPS that in fiscal 2027 will be kind of your first full three-year cohort classes coming so that you'll have a one-year, two-year, and three-year cohort classes.
Speaker #16: .
Speaker #3: we're we again pleased to . in Mike
Speaker #3: dollar based net
Speaker #3: at I Thanks , mentioned this in the ask past that our stabilization organization
Speaker #3: at I Thanks , mentioned this in the ask past that our stabilization organization
Speaker #3: sales is focused on maximizing have some where bookings . see a So Can you help logo heavy . quarters have some quarters where you're new expansion heavy , You're going to I say , you're more software think I are more Mike , we 111 .
Speaker #3: You DPS building in phase . that in mentioned fiscal 27 will be kind of your first full three year cohort classes you're going to You know , that you'll have a one year , so and three year cohort a building two year is momentum classes .
Rick McConnell: So there is a building momentum going into fiscal '27 that, to the extent we can continue to execute, you should see an inflection in that metric. The next question is from the line of Brad Reback with Stifel. Please proceed with your question. Great. Thanks. Rick, in an increasingly agentic world, do you feel you'll need to evolve your pricing kind of paradigm in order to properly monetize? Thanks. It's a good question, Brad. The way that I articulated in my prepared remarks and the way that we see it evolving is that we monetize the agentic world in two ways. Number one, through increased workloads and increased overall usage of the platform through Grail, through Smartscape, and in delivery of the analytics that we provide on an all-day, everyday basis. Secondly is we do expect to monetize directly agentic workloads.
Jim Benson: So there is a building momentum going into fiscal '27 that, to the extent we can continue to execute, you should see an inflection in that metric.
Speaker #3: going into
Speaker #3: You can continue to fiscal—you should see it in that.
Operator: The next question is from the line of Brad Reback with Stifel. Please proceed with your question.
Speaker #1: The next question is from the line of Brad Stiefel. You may proceed with your question.
Brad Reback: Great. Thanks. Rick, in an increasingly agentic world, do you feel you'll need to evolve your pricing kind of paradigm in order to properly monetize?
Speaker #13: Great . Thanks , Rick . In an increasingly agentic
Speaker #13: Great. Thanks, Rick. In an increasingly agentic
Speaker #13: world , feel do you need to evolve you'll your pricing
Rick McConnell: Thanks. It's a good question, Brad. The way that I articulated in my prepared remarks and the way that we see it evolving is that we monetize the agentic world in two ways. Number one, through increased workloads and increased overall usage of the platform through Grail, through Smartscape, and in delivery of the analytics that we provide on an all-day, everyday basis. Secondly is we do expect to monetize directly agentic workloads.
Speaker #13: paradigm in order execute to
Speaker #13: monetize ? Thanks kind of
Speaker #5: question , Brad . You know , So there the way that the way that I articulate it in my prepared . remarks and the way that we see it
Speaker #5: evolving is that we
Speaker #5: monetize the It's a it's a coming . good world Number one , increased and workloads . increased overall usage of the through platform Grail , through smart scape
Speaker #5: Delivery in of the analytics that we provide on an all day, everyday basis. To the extent, we monetize in two ways. Directly expect agentic combination of elements, we.
Rick McConnell: So with a combination of those two elements, we do believe that there is direct monetization of the agentic AI element. And if you look at Dynatrace Intelligence overall, it really does have both components that, number one, it has the component of deterministic AI to evaluate what's happening in your environment with certainty. And through causation and context, we then take those answers and then deliver those into an AI environment that is agentic in nature where either a Dynatrace agent or a third-party agent through an ecosystem that is essentially orchestrated by Dynatrace can take action. And it is through that agentic workflow that we can provide additional monetization. Our next question is from the line of Miller Jump with Truist Securities. Please proceed with your question. Hey, great. Thank you for taking my question.
Rick McConnell: So with a combination of those two elements, we do believe that there is direct monetization of the agentic AI element. And if you look at Dynatrace Intelligence overall, it really does have both components that, number one, it has the component of deterministic AI to evaluate what's happening in your environment with certainty. And through causation and context, we then take those answers and then deliver those into an AI environment that is agentic in nature where either a Dynatrace agent or a third-party agent through an ecosystem that is essentially orchestrated by Dynatrace can take action. And it is through that agentic workflow that we can provide additional monetization.
Speaker #5: do those two believe that there So with monetization the Agentic AI through is direct element . If you look at Dynatrace intelligence overall , it really does have both number one , has the is we component of deterministic AI to it , and happening in your environment with certainty and through through causation and evaluate what's context then take those answers and then those deliver into an AI environment that is
Speaker #5: of
Speaker #5: Nature, genetic, where either a Dynatrace agent or, secondly, a third-party agent do ecosystem that is essentially orchestrated workloads by Reback with Dynatrace, Inc. can take, and by action, it is through that agentic we can workflow that additional monetization.
Operator: Our next question is from the line of Miller Jump with Truist Securities. Please proceed with your question.
Speaker #1: Our question is from the line of Miller Jump with Truist Securities. Please proceed.
Miller Jump: Hey, great. Thank you for taking my question.
Speaker #1: with your
Speaker #1: question
Rick McConnell: I know we aren't guiding to 2027 right now, but I was just hoping to understand how you're thinking about hiring as we zoom out. Specifically, curious if there's AI efficiencies that you're potentially getting on headcount or if some of the initiatives you've talked about are causing you to lean in further on hiring maybe in the year ahead. Thanks. Yeah. We're not going to guide here for fiscal 2027, but I can tell you that your point about leveraging AI for internal productivity is something we continue to leverage within Dynatrace. And so in that regard, that will continue. That will certainly be a source of kind of moderating hiring in certain areas, whether they be customer support, G&A, driving more sales productivity.
Miller Jump: I know we aren't guiding to 2027 right now, but I was just hoping to understand how you're thinking about hiring as we zoom out. Specifically, curious if there's AI efficiencies that you're potentially getting on headcount or if some of the initiatives you've talked about are causing you to lean in further on hiring maybe in the year ahead. Thanks.
Speaker #17: Hey ,
Speaker #17: great . Thank taking my
Speaker #17: question guiding aren't to 27 right now , but I was just hoping . I know we understand how to you're thinking hiring as we zoom out components .
Speaker #17: . Specifically curious if there's AI efficiencies that you're potentially getting
Speaker #17: , or if some of the initiatives you've about are causing you to lean in further on hiring , That maybe in the
Speaker #17: Or if some of the initiatives you've talked about are causing you to lean in further on hiring, that may be in the year ahead.
Jim Benson: Yeah. We're not going to guide here for fiscal 2027, but I can tell you that your point about leveraging AI for internal productivity is something we continue to leverage within Dynatrace. And so in that regard, that will continue. That will certainly be a source of kind of moderating hiring in certain areas, whether they be customer support, G&A, driving more sales productivity.
Speaker #17: Thanks
Speaker #17: .
Speaker #3: Yeah . going to . guide here
Speaker #3: I can tell you
Speaker #3: your point that about leveraging AI We provide internal productivity next is something we continue to leverage within for Dynatrace . And in so that regard , that will continue .
Speaker #3: Will certainly that be a source, kind of moderating hiring in certain areas, whether they be customer support, driving sales more, productivity.
Rick McConnell: I don't think it's necessarily going to be a driver of us not hiring in the R&D space, even though we're leveraging heavily AI within that realm as well to make our developers more productive. So we'll continue to hire in R&D notably. And then I'd say hiring thereafter is going to be kind of more moderated. The next question is from the line of Andrew Sherman with TD Cowen. Please proceed with your question. Oh, great. Hey, guys. Thanks. Jim, great to hear the 20%-plus consumption growth continued. How should we think about the gap of that between ARR and revenue growth? What drives the convergence of those two over and what time frame would that look like? Yeah, it's a good question. That was one of the reasons why in our prepared remarks, I didn't comment on consumption growth. It's very healthy.
Jim Benson: I don't think it's necessarily going to be a driver of us not hiring in the R&D space, even though we're leveraging heavily AI within that realm as well to make our developers more productive. So we'll continue to hire in R&D notably. And then I'd say hiring thereafter is going to be kind of more moderated.
Speaker #3: I don't think it's necessarily going to be a driver of hiring in the R&D space, even though us not leveraging heavily AI within, well, to the realm, as make our that productive.
Speaker #3: So we'll continue to hire more developers in R&D, notably, I'd say, to be kind of more moderated.
Operator: The next question is from the line of Andrew Sherman with TD Cowen. Please proceed with your question.
Speaker #1: The And then next question is from the
Andrew Sherman: Oh, great. Hey, guys. Thanks. Jim, great to hear the 20%-plus consumption growth continued. How should we think about the gap of that between ARR and revenue growth? What drives the convergence of those two over and what time frame would that look like?
Speaker #1: Sherman with
Speaker #1: Cowen, please proceed with your question.
Speaker #7: great .
Speaker #18: Hey , guys . we're , Jim . thereafter is going hear the 20% plus growth continued . we think gap of Thanks to that IRR and Great revenue growth ?
Speaker #18: consumption
Speaker #18: What How should convergence of those two over and what time would that look like
Jim Benson: Yeah, it's a good question. That was one of the reasons why in our prepared remarks, I didn't comment on consumption growth. It's very healthy.
Speaker #18: ?
Speaker #3: good Yeah it's a question . We've that . was one of the reasons why , in our
Speaker #3: comment on consumption didn't It's
Rick McConnell: DPS is playing out the way we expected. I would say there is going to be certainly a lag between consumption growing at those rates and seeing it manifest itself in an expansion. Sometimes you see an early expansion. Sometimes you do not. So I'd say that there's no simple answer to that. I'd say there is an elongated time period between consumption growth and then seeing ARR acceleration that comes thereafter. But again, the whole premise of getting customers onto the platform for DPS is get them to consume more. Consuming more means they're getting more value. The more value means likely an early expansion because they're trialing something that maybe they weren't using before. And so even when consumption growth is healthy, there are other reasons why customers expand. They expand because there's entirely new use cases that they're looking at.
Jim Benson: DPS is playing out the way we expected. I would say there is going to be certainly a lag between consumption growing at those rates and seeing it manifest itself in an expansion. Sometimes you see an early expansion. Sometimes you do not. So I'd say that there's no simple answer to that. I'd say there is an elongated time period between consumption growth and then seeing ARR acceleration that comes thereafter. But again, the whole premise of getting customers onto the platform for DPS is get them to consume more. Consuming more means they're getting more value. The more value means likely an early expansion because they're trialing something that maybe they weren't using before. And so even when consumption growth is healthy, there are other reasons why customers expand. They expand because there's entirely new use cases that they're looking at.
Speaker #3: Healthy line. DPS came in about the way we expected.
Speaker #3: . You know , say there is about the is playing going to be there is growth . lag between consumption growing at those rates and seeing drives the it manifest itself in an Sometimes you see expansion .
Speaker #3: do sometimes you an early not remarks , I . So I'd say that
Speaker #3: know , there's no simple that . there is , you is an elongated time period between consumption , answer to growth frame and then seeing RR I'd say That acceleration comes But that , you know , again , the prepared whole premise of getting thereafter .
Speaker #3: onto the platform for get them is consume to , consuming means they're more value . very value likely in early expansion because they're
Speaker #3: onto the platform for get them is consume to , consuming means they're more value . very value likely in early expansion because they're means something that know , there maybe they more weren't using before .
Speaker #3: getting more about even The more so when consumption is healthy , there are other reasons why customers expand . And They expand there's entirely growth new use they're And so , you
Rick McConnell: So again, look at our performance around driving double-digit net new ARR growth. Our expectation is we want to continue to do that going into fiscal '27. Thank you. Our final question will be from the line of Brent Thill with Jefferies. Please proceed with your question. Great. Thanks. Just on the go-to-market side, if you can maybe talk through the plans on the sales hiring front, rep capacity, how you're seeing, obviously, you're getting great productivity. Good to see the good results. But maybe if you could just walk through what you're seeing there and what you're expecting to do in terms of the overall distribution adds over the next year. I'll take that. We continue to drive improvements in sales rep productivity. So we will continue to hire reps. It's important to remind investors that it's not just reps that drive this productivity.
Jim Benson: So again, look at our performance around driving double-digit net new ARR growth. Our expectation is we want to continue to do that going into fiscal '27.
Speaker #3: again , performance around driving net new IRR growth . Our expectation is to double TD continue to do that cases that looking at .
Operator: Thank you. Our final question will be from the line of Brent Thill with Jefferies. Please proceed with your question.
Speaker #3: fiscal 27 .
Speaker #1: Thank you . Our final question will be from the line of
Speaker #1: Thank you . Our final question will be from the
Brent Thill: Great. Thanks. Just on the go-to-market side, if you can maybe talk through the plans on the sales hiring front, rep capacity, how you're seeing, obviously, you're getting great productivity. Good to see the good results. But maybe if you could just walk through what you're seeing there and what you're expecting to do in terms of the overall distribution adds over the next year.
Speaker #1: Jefferies. Please see Thill, digit, with your question.
Speaker #19: on the go to Thanks . Great . Just market side if you can , talk maybe , you going into know , the sales , hiring front rep capacity , how seeing getting great productivity .
Speaker #19: plans on the good maybe you could walk through what you're seeing Good to good there and what you're expecting to do in results .
Jim Benson: I'll take that. We continue to drive improvements in sales rep productivity. So we will continue to hire reps. It's important to remind investors that it's not just reps that drive this productivity.
Speaker #19: Overall distribution over the next—obviously, you’re adding, but
Speaker #3: take that . I'll That
Speaker #3: continue to drive in sales productivity . So we will continue to
Speaker #3: Reps. It's important to just remind reps that it's the reps that drive improvements in terms of... We've continued to rep significant—this leveraging partner, get GSIs and channels, hyperscalers, investors. We source, hire, and have continued...
Rick McConnell: We've continued to get significant traction with leveraging our partner channels, notably GSIs and the hyperscalers, which continue to be a source of continued improvement in productivity per rep. So hiring will continue. We'll have more to say about what we're going to do in that space in the Q4 call, but that's what you should expect as you think about fiscal 2027. Thanks. Thanks very much to you all. That brings us to the end of our call. We very much appreciate your great questions, your ongoing support. To close, we believe that observability is becoming increasingly critical to the overall software ecosystem in delivering reliable software and AI. We have very strong conviction as we enter Q4 with momentum headed into FY 2027.
Jim Benson: We've continued to get significant traction with leveraging our partner channels, notably GSIs and the hyperscalers, which continue to be a source of continued improvement in productivity per rep. So hiring will continue. We'll have more to say about what we're going to do in that space in the Q4 call, but that's what you should expect as you think about fiscal 2027.
Speaker #3: be a productivity per rep . So hiring through continue with . We'll have more to say what do in
Speaker #3: that space continue to in Q4 call . But that's what you should to see the expect . You know , as about we're going to traction notably fiscal you think Thanks .
Rick McConnell: Thanks. Thanks very much to you all. That brings us to the end of our call. We very much appreciate your great questions, your ongoing support. To close, we believe that observability is becoming increasingly critical to the overall software ecosystem in delivering reliable software and AI. We have very strong conviction as we enter Q4 with momentum headed into FY 2027.
Speaker #3: 27 .
Speaker #5: Thanks much brings us to the end of our call . very much
Speaker #5: All that belief is becoming about increasingly critical to the overall software ecosystem and delivering reliable software and AI. We have very strong conviction as we observably enter Q4 with headed FY '27.
Speaker #5: We appreciate your engaged questions ,
Speaker #5: your ongoing support
Speaker #5: we
Speaker #5: We are enthusiastic as we see ahead from customer momentum and from the number of personas engaged in and requiring observability solutions to deliver the outcomes they seek.
Rick McConnell: We are enthusiastic about what we see ahead from a customer standpoint and from the number of personas engaged in and requiring observability solutions to deliver the outcomes they seek. We very much look forward to connecting with you at IR events over the coming months, and we wish you all a very good day. Thank you. Ladies and gentlemen, this concludes today's conference. May disconnect your lines at this time. We thank you for your participation.
Rick McConnell: We are enthusiastic about what we see ahead from a customer standpoint and from the number of personas engaged in and requiring observability solutions to deliver the outcomes they seek. We very much look forward to connecting with you at IR events over the coming months, and we wish you all a very good day. Thank you.
Speaker #5: We very much look our events over the coming with you at and we you into very good day . you wish forward to all a
Rick McConnell: Ladies and gentlemen, this concludes today's conference. May disconnect your lines at this time. We thank you for your participation.
Speaker #5: . . standpoint connecting
Speaker #1: gentlemen , this concludes Ladies and today's conference . You
Speaker #1: disconnect your lines at this may participation .
Speaker #1: disconnect your lines at this may participation .
