Summary of Dynatrace FY Conference Call - December 10, 2025 Company Overview - **Company**: Dynatrace (NYSE: DT) - **Industry**: Enterprise Software, specifically focusing on observability and application performance monitoring Key Points and Arguments Market Environment - **Macro Environment**: No significant changes in macroeconomic conditions; capital deployment in data centers remains high [3][4] - **Enterprise Software Spending**: The spending environment for enterprise-oriented software is stable, with no observed changes [3] Industry Trends - **Consolidation in the Market**: The selling environment has evolved from siloed vendors to a more integrated approach, driven by the need for better outcomes in complex environments [5][6] - **End-to-End Observability**: The trend towards end-to-end observability is beneficial for Dynatrace, as it integrates various monitoring aspects into a cohesive framework [10] Product Evolution - **Platform Development**: Dynatrace has evolved its platform to a third-generation system, introducing Grail, a data lakehouse that supports various data types and is powered by AI [13][15] - **Log Management Growth**: The logs business has grown from a small segment to nearly $100 million in consumption within a year, indicating over 100% growth [27][29] - **Cost Efficiency**: Dynatrace's approach allows enterprises to manage logs more efficiently, reducing the need for excessive log storage while improving outcomes [29][31] Competitive Landscape - **Market Validation**: The entry of competitors like Palo Alto into the observability market validates its potential and readiness for prime time [51][52] - **Differentiation**: Dynatrace emphasizes delivering precise answers rather than guesses, which is crucial for trust in autonomous operations [88][90] Go-to-Market Strategy - **Focus on Large Enterprises**: Dynatrace has restructured its go-to-market strategy to target the largest organizations, resulting in a 45% year-over-year increase in pipeline for strategic accounts [110][112] - **Pricing Strategy**: The introduction of the Dynatrace Platform Subscription (DPS) has simplified pricing and licensing, leading to 70% of ARR being DPS-oriented [114][115] Future Outlook - **Consumption Growth**: Consumption metrics are growing in the low 20s, which is seen as a leading indicator for future ARR growth [118][125] - **Focus on AI and Automation**: The company aims to leverage AI to enhance observability and drive growth, with a goal to re-accelerate ARR growth as they head into FY 2027 [127][156] Challenges and Considerations - **Balancing Growth and Margins**: Dynatrace is focused on accelerating growth while maintaining current margin levels, with no immediate plans for margin expansion [156] Additional Important Insights - **AI Observability**: The need for observability in AI workloads is increasing, requiring more sophisticated monitoring solutions [79][81] - **Trust in Data**: Trustworthiness of data is critical for autonomous operations, as incorrect data can lead to solving the wrong problems [92][94] This summary encapsulates the key insights from the Dynatrace FY Conference Call, highlighting the company's strategic direction, market dynamics, and product evolution.

Financial Data and Key Metrics Changes - Dynatrace reported a strong second quarter for fiscal 2026, with Annual Recurring Revenue (ARR) growing 16% to $1.9 billion, consistent with Q1 growth [4][20] - Subscription revenue increased by 17% to $473 million, exceeding guidance by nearly 100 basis points [24] - Non-GAAP operating margin was 31%, surpassing the top end of guidance by 150 basis points [24] - Non-GAAP net income reached $133 million, or $0.44 per diluted share, which was 3 cents above the high end of guidance [24][25] - Free cash flow for Q2 was $28 million, with a trailing 12-month free cash flow of $473 million, or 26% of revenue [25][29] Business Line Data and Key Metrics Changes - Subscription revenue growth was driven by strong net new ARR bookings and significant expansion in the logs business, which is the fastest-growing product category, growing over 100% year over year [20][22][24] - The Dynatrace platform subscription licensing model (DPS) has gained traction, with 50% of customers and 70% of ARR now utilizing this model [16][22] Market Data and Key Metrics Changes - Execution was particularly strong in North America and Asia-Pacific, with many deals influenced by Global System Integrators (GSI) partners [20] - The company added 139 new logos in Q2, with an average ARR per new logo exceeding $140,000 [21] Company Strategy and Development Direction - Dynatrace is focusing on AI-powered observability as a critical component for software reliability and performance, aiming to enable autonomous operations [4][8] - The company is investing in partnerships, such as with ServiceNow and Atlassian, to enhance its autonomous IT operations capabilities [12][13] - The logs market is viewed as a significant opportunity for disruption, with Dynatrace's unified data model allowing for cross-data analytics [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth drivers, raising full-year ARR growth guidance to 14%-15% in constant currency [26][28] - The company acknowledged potential timing variability in closing large deals but emphasized a healthy demand environment [60][66] - Management highlighted the importance of consumption growth as a leading indicator for future expansions and overall business health [49][50] Other Important Information - The company repurchased 994,000 shares for $50 million during Q2 as part of a $500 million share repurchase program [25] - The logs business is rapidly approaching a $100 million annualized consumption milestone [14][55] Q&A Session Summary Question: Clarification on net retention rate - Management noted that while net new ARR grew 16%, the net retention rate (NRR) is a trailing metric and will take time to reflect the positive momentum seen in other areas [36][37] Question: Productivity from go-to-market improvements - Management confirmed that investments in go-to-market strategies have led to improved close rates and pipeline productivity [41][42] Question: Convergence of net new ARR and subscription revenue growth - Management explained that while subscription revenue is recognized ratably, consumption growth is a key leading indicator for future revenue growth [47][50] Question: Focus on consumption as a key metric - Management emphasized that consumption is an important metric to monitor, as it fuels expansions and overall growth [53][54] Question: Dynamics of early renewals impacting revenue guidance - Management indicated that early renewals from DPS customers positively impacted Q2 results and are expected to continue influencing future revenue [89]

Financial Data and Key Metrics Changes - Dynatrace reported a strong second quarter for fiscal 2026, with Annual Recurring Revenue (ARR) growing by 16% to $1.9 billion, consistent with the previous quarter [20] - Subscription revenue increased by 17% to $473 million, exceeding guidance by nearly 100 basis points [24] - Non-GAAP operating margin reached 31%, surpassing the top end of guidance by 150 basis points [24] - Non-GAAP net income was $133 million, or $0.44 per diluted share, which was $0.03 above the high end of guidance [24] - Free cash flow for the quarter was $28 million, with a trailing 12-month free cash flow of $473 million, or 26% of revenue [25] Business Line Data and Key Metrics Changes - Subscription revenue growth was driven by strong net new ARR bookings, particularly in North America and Asia-Pacific [20] - The logs business is the fastest-growing product category, with growth exceeding 100% year-over-year and approaching $100 million in annualized consumption [13][22] - The Dynatrace platform subscription licensing model (DPS) has gained traction, with 50% of customers and 70% of ARR now utilizing this model [22][16] Market Data and Key Metrics Changes - The company added 139 new logos in Q2, with an average ARR per new logo exceeding $140,000 [21] - The net retention rate (NRR) was 111%, consistent with the prior quarter, indicating strong customer retention [21] - The strategic account pipeline increased by 45% year-over-year, reflecting healthy demand in the market [27] Company Strategy and Development Direction - Dynatrace is focusing on AI-powered observability as a critical component for software reliability and performance, aiming to enable autonomous operations [4][8] - The company is leveraging partnerships with ServiceNow and Atlassian to enhance its offerings and drive intelligent automation [12] - The strategy includes a strong emphasis on log management and tool consolidation to capture growing enterprise demand [13][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth drivers, citing secular tailwinds from vendor consolidation, cloud modernization, and AI workload proliferation [26] - The company raised its full-year ARR growth guidance to 14%-15% in constant currency, reflecting strong first-half performance [28] - Management acknowledged potential timing variability in closing large deals but remains optimistic about the overall demand environment [62] Other Important Information - The company repurchased 994,000 shares for $50 million during Q2 as part of a $500 million share repurchase program [25] - The emphasis on driving platform adoption and consumption is seen as a foundational growth engine for the company [23] Q&A Session Summary Question: Insights on net retention rate metric - Management noted that while net new ARR grew 16%, NRR is a trailing metric and will take time to reflect the positive momentum seen in other areas [36][38] Question: Productivity from go-to-market improvements - Management confirmed that investments in sales coverage have led to improved close rates and pipeline productivity [42][43] Question: Convergence of net new ARR and subscription revenue growth - Management explained that while subscription revenue is recognized ratably, consumption growth is a key leading indicator for future expansions [48][50] Question: Focus on consumption as a key metric - Management emphasized that while ARR is important, consumption growth is critical for driving expansions and overall business health [54][55] Question: Dynamics of early renewals impacting Q3 guidance - Management indicated that early renewals from DPS customers positively influenced Q2 results and are expected to continue impacting future revenue [90]

Financial Data and Key Metrics Changes - Dynatrace reported strong Q2 fiscal 2026 results, with ARR growing 16% and subscription revenue increasing 17% [3][18] - Pre-tax free cash flow was 32% of revenue on a trailing 12-month basis, while total revenue for Q2 was $494 million, up 17% [3][23] - Non-GAAP operating margin was 31%, exceeding guidance by 150 basis points, and non-GAAP net income was $133 million, or $0.44 per diluted share [23][24] Business Line Data and Key Metrics Changes - The logs business is the fastest-growing product category, growing over 100% year over year and approaching $100 million in annualized consumption [12][21] - The Dynatrace platform subscription licensing model (DPS) has reached a milestone with 50% of customers and 70% of ARR utilizing it [15][20] - Total Q2 consumption growth was more than 20%, outpacing subscription revenue growth [21][22] Market Data and Key Metrics Changes - Execution was particularly strong in North America and Asia-Pacific, with many deals influenced by GSI partners [18][19] - The strategic account pipeline is up 45% year over year, indicating strong demand for observability solutions [25][49] - The net retention rate (NRR) was 111% in Q2, consistent with the prior quarter, reflecting stable customer expansion [19][20] Company Strategy and Development Direction - Dynatrace aims to evolve its platform towards autonomous operations, leveraging AI for preventive measures and self-healing capabilities [4][7] - The company is focusing on capturing the growing demand for end-to-end observability and large-scale tool consolidations [3][17] - Recent partnerships with ServiceNow and Atlassian aim to enhance autonomous IT operations and improve incident management processes [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth drivers, citing secular tailwinds from vendor consolidation, cloud modernization, and AI workload proliferation [25][26] - The company raised its full-year ARR growth guidance to 14%-15% and total revenue growth guidance to 15%-15.5% [26][27] - Management acknowledged the dynamic macro and geopolitical environment, particularly in AMEA, while maintaining a positive outlook on demand [25][46] Other Important Information - Dynatrace repurchased 994,000 shares for $50 million during Q2 as part of a $500 million share repurchase program [24] - The company is focusing on driving platform adoption and consumption as foundational growth engines [22][23] Q&A Session Summary Question: Insights on net retention rate metric - Management noted that while net new ARR grew 16% for the quarter, NRR is a trailing metric and will take time to reflect the current business momentum [30][31] Question: Productivity from go-to-market improvements - Management confirmed that investments in sales coverage have led to improved close rates and pipeline productivity [32][33] Question: Convergence of net new ARR and subscription revenue growth - Management explained that while subscription revenue is ratable, consumption growth is a leading indicator for future expansions [36][39] Question: Impact of early DPS customer renewals on Q3 guidance - Management indicated that early renewals from DPS customers positively impacted Q2 results and are expected to continue influencing future revenue [59][60] Question: Strategic collaboration with ServiceNow - Management highlighted the collaboration's potential to enhance autonomous IT operations and improve overall service delivery [61]

Financial Performance - Dynatrace's Q4 2025 subscription revenue retention rate was in the mid-90s percentage range[37] - The company's FY25 annual recurring revenue (ARR) reached $1.73 billion[37] - Dynatrace achieved 14% year-over-year ARR growth in Q4 2025[37] - The company's FY25 net pre-tax free cash flow (FCF) margin was 32%[37] - Dynatrace anticipates FY26 ARR between $1.975 billion and $1.990 billion, representing a 14%-15% increase[59] - The company projects FY26 total revenue between $1.950 billion and $1.965 billion, a 15%-16% increase[59] - Dynatrace forecasts FY26 non-GAAP operating margin of 29%[59] - The company expects FY26 free cash flow between $505 million and $515 million, resulting in a 26% margin[59] Market and Strategy - The total addressable market (TAM) for observability is $14 billion, and for security is $85 billion[27] - Dynatrace has a go-to-market strategy targeting 15,000 customers across strategic enterprise and commercial segments[29]