Dynatrace (DT) Q4 2025 Earnings Call May 14, 2025 08:00 AM ET Company Participants Noelle Faris - Vice President, Investor RelationsRick McConnell - Chief Executive OfficerJim Benson - Chief Financial OfficerBrent Thill - Tech Sector Leader, Software/Internet ResearchRaimo Lenschow - Managing DirectorKash Rangan - Managing DirectorSanjit Singh - Executive DirectorPinjalim Bora - Executive Director - Equity Research Conference Call Participants Patrick Colville - Lead Equity Research AnalystMatt Hedberg - Ma ...

Financial Data and Key Metrics Changes - Subscription revenue grew 20% in Q4, reaching $424 million, contributing to a total revenue of $445 million, which is a 19% increase [31][32] - Annual recurring revenue (ARR) ended the year at $1.73 billion, representing a 17% growth [27] - Non-GAAP operating margin for Q4 was 26%, exceeding guidance by over 100 basis points [32] - Full year non-GAAP operating margin was 29%, 25 basis points above guidance [33] Business Line Data and Key Metrics Changes - The Dynatrace platform subscription (DPS) model saw over 40% of the customer base adopting it, contributing to over 60% of ARR [29][30] - The number of customers leveraging log management solutions increased by 18% compared to the previous quarter, with one-third of customers now using this solution [13][14] Market Data and Key Metrics Changes - The observability market is projected to grow significantly, with Dynatrace estimating a $65 billion addressable market opportunity [10] - Hyperscalers are generating nearly $250 billion in annualized revenue, growing in the mid-20s [8] Company Strategy and Development Direction - The company is focusing on expanding its go-to-market efforts, particularly in strategic accounts and partnerships with hyperscalers [10][11] - Dynatrace is investing in AI capabilities to enhance its observability platform, aiming to lead in the agentic AI space [16][18] Management's Comments on Operating Environment and Future Outlook - Management noted a resilient demand environment despite economic uncertainties, with expectations for continued growth in observability spending [7][25] - The company anticipates a cautious spending approach from enterprises in fiscal 2026, reflecting the macroeconomic landscape [36] Other Important Information - The company repurchased 787,000 shares for $43 million in Q4, with a total of 3.4 million shares repurchased since the program's inception [34] - A new Chief Customer Officer, Steve McMahon, was appointed, replacing Matthias Dolanciar [23] Q&A Session Summary Question: Update on logs performance and fiscal 2026 expectations - Management expressed confidence in exceeding the $100 million consumption goal for logs in fiscal 2026, with growth expected to be over 100% [45][46] Question: Sales productivity and go-to-market changes - The company reported strong pipeline growth, particularly in strategic accounts, and highlighted the importance of partnerships with GSIs and hyperscalers [50][51] Question: Net retention rate and ODC impact - The net retention rate was 110% in Q4, with management indicating that including ODCs would show a modest uptick in NRR [81] Question: AI and autonomous observability trends - Management noted a significant trend towards agentic observability, emphasizing the need for integrated data and automation capabilities [86][87] Question: Customer behavior around on-demand consumption - Management indicated that the consumption model is favorable in a tighter macro environment, allowing customers to adopt more without penalties [92]