Dynatrace (NYSE:DT) Q3 2026 Earnings call February 09, 2026 08:00 AM ET Company ParticipantsAndrew Sherman - Directot and Enterprise SoftwareJim Benson - CFOKoji Ikeda - Director in Enterprise Software Equity ResearchNoelle Faris - VP of Investor RelationsRick McConnell - CEOConference Call ParticipantsBrad Reback - Managing Director and Equity Research AnalystBrent Thill - Tech Sector Leader and Software AnalystDeShaun Fontenot - Software Equity Research AnalystEric Heath - VP and Equity Research AnalystGr ...

Dynatrace (NYSE:DT) Q3 2026 Earnings call February 09, 2026 08:00 AM ET Company ParticipantsAndrew Sherman - Directot and Enterprise SoftwareJim Benson - CFOKoji Ikeda - Director in Enterprise Software Equity ResearchNoelle Faris - VP of Investor RelationsRick McConnell - CEOConference Call ParticipantsBrad Reback - Managing Director and Equity Research AnalystBrent Thill - Tech Sector Leader and Software AnalystEric Heath - VP and Equity Research AnalystGray Powell - Managing Director and Security and Infr ...

Q3 2026 Investor Presentation February 9, 2026 1 Legal Disclaimer This presentation consists of these slides and the associated remarks and comments, which are related and intended to be presented and understood together. Please refer to the appendix of these slides for definitions of certain terms. Cautionary Language Concerning Forward-Looking Statements This presentation includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including sta ...

Core Insights - Dynatrace has announced expanded cloud-native integrations across AWS, Azure, and Google Cloud, enhancing its observability platform to provide a unified view for enterprises managing multi-cloud environments [1] Group 1: Cloud Operations Enhancements - The new integrations enable teams to manage performance, resilience, and costs across multiple cloud platforms while supporting dynamic, data-intensive AI workloads [1] - Key enhancements include automated optimization, remediation, and issue prevention, which collectively improve performance and cost efficiency [1] - Comprehensive visibility is achieved through expanded telemetry and metadata, allowing better insight into cloud-native environments [1] Group 2: Industry Impact - The expanded capabilities are essential for enterprises adopting multi-cloud strategies, as they face challenges in maintaining visibility and control [1] - Dynatrace's approach to multi-cloud observability is critical for optimizing cloud investments while ensuring operational excellence [1] - The collaboration with AWS aims to help customers run critical workloads efficiently, addressing the growing complexity of customer workloads [1] Group 3: User Experience and Developer Insights - Dynatrace's updates in Real User Monitoring (RUM) provide unified insights across modern web and mobile applications, essential for understanding application performance [2] - The enhancements in developer experience and agentic AI capabilities aim to optimize software delivery in real-time, reflecting the shift towards cloud-native architectures [2] - The focus on AI-powered insights is aligned with industry trends, as organizations increasingly integrate AI into their applications [2]

Core Insights - Dynatrace has introduced Dynatrace Intelligence, an advanced operations system that integrates deterministic and agentic AI to enhance observability and optimize AI workloads, ultimately improving application resilience and customer experiences [1][2][4] Group 1: Product Features and Benefits - Dynatrace Intelligence provides deep, real-time visibility into system behavior across cloud and AI-native environments, creating a real-time digital twin that enhances operational efficiency [4][5] - The platform combines deterministic AI, which is based on real-time causal context, with agentic AI that enables safe reasoning and decision-making, resulting in faster problem resolution and reduced operational costs [5][11] - Organizations can orchestrate built-in and partner agents, facilitating integrations with major platforms like ServiceNow, AWS, and Microsoft Azure, thereby expanding the scope of autonomous operations [6][8] Group 2: Market Context and Trends - The global AI investment is projected to reach nearly $2 trillion by 2026, indicating a growing complexity in technology adoption that organizations must navigate [3] - Companies are transitioning from reactive to preventive operations, with a focus on autonomous operations that leverage AI for proactive management of system complexities [10][11] - The evolution of observability platforms is shifting towards preventive operations, moving beyond manual root cause analysis to more autonomous models that integrate various AI systems [11]

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]

Dynatrace Conference Summary Company Overview - **Company**: Dynatrace (NYSE:DT) - **Current Status**: Approaching $2 billion in Annual Recurring Revenue (ARR) from previously being under $1 billion three years ago [8][19] Industry Insights - **Observability Market**: The demand for observability capabilities is increasing due to the complexity of managing data in a cloud-based and AI-driven environment [17][19] - **Customer Base**: Dynatrace serves major global companies, receiving overwhelmingly positive feedback regarding the value delivered [18] Key Milestones and Future Outlook - **Growth Drivers**: - Strong observability market - Exceptional customer base - Robust financial model with 19% subscription revenue growth and 33% pre-tax free cash flow [18][19] - **Future Positioning**: Dynatrace aims to lead in end-to-end observability, AI observability, and business observability, which are seen as key differentiators in the competitive landscape [25][24] Observability Evolution - **End-to-End Observability**: - Integration of various observability tools into a single solution to improve efficiency and reduce costs by 20-30% for large enterprises [22][24] - **AI Observability**: - Focus on using AI to enhance observability and manage AI workloads effectively [24][66] - **Business Observability**: - Organizations are increasingly interested in understanding business operations through observability metrics [25] Log Management Opportunity - **Growth in Log Management**: - Log consumption is growing over 100% year-over-year, with a 36% quarter-over-quarter increase [34] - **Competitive Advantage**: - Dynatrace's Grail platform allows for integrated log management, providing better insights and cost reductions compared to traditional vendors [33][35] Go-to-Market Strategy - **Salesforce Expansion**: - Increased Salesforce personnel to enhance productivity and capitalize on market opportunities [39][40] - **Pipeline Growth**: - Significant growth in pipeline opportunities, particularly in large organizations [46] Dynatrace Platform Subscription (DPS) - **DPS Adoption**: - 45% of customers and 65% of ARR are now on the DPS model, which allows for more flexible access to the platform [52][54] - **Consumption Growth**: - Consumption growth is a leading indicator of future opportunities, with DPS customers showing double the consumption growth compared to non-DPS customers [54][55] AI and Autonomous Observability - **AI Workloads**: - Dynatrace is observing AI workloads and aims to develop an autonomous AI observability platform that can proactively address issues [66][67] - **Trustworthy Insights**: - Emphasis on providing trustworthy insights to enable autonomous actions across various systems [68][69] Conclusion - **Market Position**: Dynatrace is well-positioned to capitalize on the growing demand for observability solutions, driven by its innovative platform and strong customer relationships [19][25] - **Future Growth**: The combination of log management, consumption growth, and the DPS model are expected to drive significant future growth for the company [56][57]