DT

Dynatrace’s second quarter was marked by strong revenue growth and a positive market response, as the company surpassed Wall Street’s revenue expectations and posted robust demand for its cloud observability platform. Management attributed this momentum to increased enterprise adoption, particularly among customers seeking to consolidate toolsets and manage more complex environments. CEO Rick McConnell emphasized that AI is now contributing to three distinct growth areas: higher platform consumption, rising demand for AI observability capabilities, and direct monetization of agent usage. Is now the time to buy DT? Find out in our full research report (it’s free). Revenue: $554.5 million vs analyst estimates of $549.7 million (16.2% year-on-year growth, 0.9% beat) Adjusted EPS: $0.48 vs analyst estimates of $0.44 (8.2% beat) Adjusted Operating Income: $161.6 million vs analyst estimates of $153 million (29.1% margin, 5.7% beat) The company dropped its revenue guidance for the full year to $2.31 billion at the midpoint from $2.33 billion, a 0.6% decrease Management raised its full-year Adjusted EPS guidance to $1.98 at the midpoint, a 2.1% increase Operating Margin: 12.9%, in line with the same quarter last year Annual Recurring Revenue: $2.14 billion vs analyst estimates of $2.13 billion (17.2% year-on-year growth, in line) Billings: $418.3 million at quarter end, up 7.8% year on year Market Capitalization: $14.35 billion While we enjoy listening to the management’s commentary, our favorite part of earnings calls is the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention. Brent Thill (Jefferies) asked about the sources of new logo strength. CFO James Benson attributed it to investments in enterprise accounts and a trend toward platform consolidation, resulting in larger average deal sizes. Gray Powell (BTIG) questioned the sustainability of tailwinds like log monitoring and ARR growth. Benson said tailwinds remain strong and highlighted momentum across both new logos and expansion opportunities, especially with upcoming renewals. William Power (Baird) inquired about the drivers of autonomous operations adoption. CEO Rick McConnell explained that both traditional and AI workloads are increasingly using agentic automation, with direct monetization opportunities emerging as usage grows. Keith Bachman (BMO Capital Markets) asked about the upcoming renewal cohort and Bindplane’s impact. Benson stated that renewals are heavily weighted to the back half of the year and that Bindplane is exceeding expectations as an accelerant to log management growth. Fatima Boolani (Citi) probed on potential changes to on-demand consumption pricing. Benson clarified that no pricing changes are planned this year and any adjustments would be gradual and not materially impact current guidance. In the coming quarters, our analysts will closely watch (1) the pace of AI observability adoption and its impact on platform consumption, (2) the outcome of large renewal cohorts and the ability to drive upsell activity, and (3) continued momentum in log management and autonomous operations. Execution on expanding strategic account coverage and integration of recent acquisitions will also be important markers of Dynatrace’s progress. Dynatrace currently trades at $49.96, up from $45.71 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members). ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time. Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE. Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.

Image source: The Motley Fool. Wednesday, Aug. 5, 2026 at 8:00 a.m. ET Chief Executive Officer - Rick McConnell Chief Financial Officer - Jim Benson VP of Investor Relations - Noelle Faris Operator: Greetings, and welcome to the Dynatrace First Quarter Fiscal 2027 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Noelle Faris, VP of Investor Relations. Thank you. You may begin. Noelle Faris: Good morning, and thank you for joining Dynatrace's First Quarter Fiscal 2027 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 annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. The forward-looking statements contained in this call represent the company's views on August 5, 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. We will also discuss other non-GAAP financial measures on today's call. To see reconciliations between non-GAAP and GAAP measures, please refer to today's earnings press release and supplemental presentation, which are both posted in the Financial Results section of our IR website. And with that, let me turn the call over to our Chief Executive Officer, Rick McConnell. Rick McConnell: Thanks, Noelle, and good morning, everyone. Thank you for joining us today. On our last earnings call in May, we expressed confidence that the growth drivers we put in place would drive a year of ARR acceleration in fiscal 2027. The strength we saw across the business in Q1 reinforces our conviction and ability to deliver this outcome. Here are a few of the noteworthy highlights from the quarter. Total ARR grew 17%. Net new ARR was $85 million, growing 66% and 41% organically. We achieved record new logo growth of more than 160%. Both total and subscription revenue exceeded the high end of our guidance. We delivered a non-GAAP operating margin of 29%, reflecting the disciplined investment approach you've come to expect from us. Q1 strength reflected healthy enterprise demand for end-to-end observability, stronger execution and growing complexity across customer environments. We are seeing AI contribute in 3 ways, which I will expand upon shortly. Increasing consumption across our platform, creating demand for new AI observability capabilities and directly monetizing agent usage. This Q1 performance reflects both the significant market opportunity and our strong execution to begin the fiscal year. This morning, I'd like to discuss the observability market, why we believe Dynatrace is built for an AI-first world and how we expect to drive incremental AI monetization. The observability market has entered a new era. Software that once took months to build now ships in days. AI agents are taking autonomous action across infrastructure and enterprise customers are now deploying AI rapidly, not because every risk has been resolved, but because standing still means falling behind. In this environment, unified observability matters more than ever. Systems are more interconnected, more autonomous and more difficult to manage manually than ever before. The enterprises winning in this environment are the ones that can keep complex, fast-moving systems working reliably and quickly understand when they are not. Additionally, AI workloads do not simply add volume. They behave differently. They can operate perfectly and still produce incorrect results. That's a problem observability has never had to solve before and addressing it represents a significant emerging opportunity. We estimate the AI observability total addressable market will exceed $10 billion by 2030, growing at more than 50% annually. We see AI observability as the next logical evolution of the broader observability market, and that evolution is already underway. What this means in practice is that observability in the age of AI has to answer far more questions than ever before. While the majority of enterprises are still in early phases of their AI journey, the requirements are evolving quickly. Let me walk through 3 of the questions that matter most today in an AI-first world. The first, is it working? Are applications, infrastructure and systems working as intended? This question is about business resilience and is the same question we ask of traditional workloads. Second is new. Is it accurate? More specifically, is the AI model delivering output that can be trusted and relied upon with confidence. Answering this means evaluating AI systems for accuracy and intended behavior, determining whether an AI system behaves as intended before it shifts is emerging as one of the most important aspects of observability. The third, are my agentic systems delivering the outcomes they were built for. Enterprises are deploying agents to build software at a pace that wasn't possible before. The advantage goes to those who can accelerate the full life cycle and trust the results. Code that's built well, ships safely and runs reliably. The last question is where our newest offering, Bluebox comes in. Built for AI-first teams, Bluebox helps development teams and their coding agents bring software into production in a way that customers can trust. It closes the loop between building and running. It gives coding agents live context from running systems before a change is released. Once that change is live, its agentic SRE capability finds root cause and returns an evidence-backed fix with the developer in control across the entire AI delivery life cycle. This is the moment for which Dynatrace was built. With AI agents increasingly acting alongside humans across development and operations, both need a common source of trusted context. Dynatrace provides that through Grail and Smartscape, giving agents and teams a unified understanding of system relationships and behavior. Dynatrace Intelligence turns that understanding into action, combining deterministic and agentic AI to deliver the precise causal insight that lets both people and agents act with confidence. These core differentiators give customers one operating foundation across both human and autonomous workflows. Our platform has a distinct advantage with this depth of insight. As agents become a larger part of enterprise operations, that distinction becomes even more important. Additionally, we are purposely building for an open interoperable ecosystem. Our newly acquired Bindplane supports the open standard for open telemetry data collection. DevCycle, acquired earlier this year supports the open standard for feature flags. These acquisitions aren't coincidental. They reflect a deliberate commitment to open standards and interoperability. Customers are not locked into proprietary pipelines. Our platform is built to work alongside the tools enterprises already use, including partners such as ServiceNow and to operate natively in MCP environments as the AI ecosystem evolves. We believe openness is a competitive advantage. It is one of the reasons enterprises trust Dynatrace as the intelligence foundation for AI-powered businesses, both powered by AI and built for AI. Our unified architecture becomes more valuable as AI increases complexity, and that growing value is reflected in higher consumption, broader platform adoption and the following 3 new monetization opportunities. First, AI workloads are similar to core observability workloads in that they leverage the same types of data such as logs, traces and metrics. But AI workloads generate dramatically more telemetry than the systems that came before them. This is one of the reasons why log management remains our fastest-growing product category, with consumption nearly doubling since surpassing the $100 million milestone just 2 quarters ago. BindPlane facilitates easier data ingestion, and it is already performing ahead of plan. Second, as I mentioned earlier, AI observability is an incremental monetization driver. It increases consumption of the platform as it validates whether the AI workloads are producing accurate results, behaving as intended and operating safely and efficiently. This is the newest capability of the platform and adoption is expanding quickly. Third, beyond AI workloads and the data they generate, we monetize our own AI and agents. Every time a customer uses Dynatrace Intelligence to get answers through AI function calls or MCP integrations or when one of our agents like the SRE or Assist agent takes autonomous action to resolve an issue, it drives DPS usage. As agents increasingly become consumers of observability, this represents a growing opportunity that didn't exist 2 years ago. Today, more than 1,000 customers use Dynatrace to observe AI and LLM workloads in production, up from roughly 850 last quarter. More than 800 are running operations autonomously with Dynatrace's Agentic capabilities, up from roughly 500 last quarter. Additionally, consumption growth for customers in these AI cohorts is 1.5x higher than that of non-AI cohort customers. Our platform integrates natively with Claude Code, ServiceNow, GitHub Copilot, Atlassian and the major hyperscalers, AWS, Azure and GCP, enabling autonomous action across development and operations at scale. Here are several examples of how customers are leveraging Dynatrace to advance their AI strategies and observability initiatives. In Q1, we signed a 7-figure ACV expansion deal, more than doubling ACV with a top global financial institution. This customer is using Dynatrace to validate model consumption, control costs and maintain full data lineage from prompt to response, helping it deploy AI with greater confidence while reducing compliance and audit risk. We secured a 6-figure ACV expansion, also nearly doubling ACV with a leading recreational vehicle retailer. This customer used Dynatrace as their operational system of record while building a custom CRM application through AI-assisted development, generating approximately 7 figures of savings and expanding usage of our platform. A leading digital insurance provider used Dynatrace AI observability to reduce onboarding time from days to minutes and identified an outdated model version that was driving unnecessary token consumption and costs. Finally, we secured an 8-figure ACV new logo win with one of Latin America's largest financial institutions. In a highly competitive sales process, the customer selected Dynatrace to consolidate a fragmented multi-vendor observability stack across a complex environment, supporting mission-critical citizen-facing services. Our differentiation continues to be recognized by independent analysts. Gartner named Dynatrace a leader in the Gartner Magic Quadrant for Observability Platforms for the 16th consecutive year. Gartner described Smartscape and Dynatrace Intelligence as the gold standard for real-time high-fidelity dependency mapping to automate root cause with Dynatrace and third-party agents. We believe this recognition validates both the strength of our architecture and our ability to help customers confidently scale AI and agentic workloads. Finally, as many of you have seen, Jim plans to retire from Dynatrace by the end of the fiscal year. We will conduct a thorough search for a successor over the coming months, and I'm confident we will have a smooth transition. Jim has been an exceptional partner, playing a critical role in scaling the business, strengthening our financial profile and positioning Dynatrace for its next phase of growth. I am deeply grateful for his leadership and many contributions, and we will miss his valuable insights and guidance when he retires. To wrap up, Q1 was a tremendous start to FY '27 and a powerful reflection of the momentum we are seeing across the business. Organizations are increasingly looking to consolidate on platforms that can help them manage growing complexity, unlock greater productivity and realize the full potential of AI. As enterprises accelerate their AI initiatives, we believe Dynatrace is uniquely positioned to help them innovate faster, operate more efficiently and maximize the return on their technology investments. In an AI-first world in which observability and autonomous operations become more critical day by day, we are more enthusiastic than ever about the opportunity. Jim, over to you. James Benson: Thank you for the kind words, Rick, and good morning, everyone. Q1 was an exceptional start to the fiscal year. Once again, we exceeded the high end of all our top line growth and profitability guidance metrics, fueled by record new logo ARR growth, expanding traction in logs and continued robust consumption of the platform. These results reflect broad-based momentum across the business and reinforce our conviction that we are on the path to ARR acceleration this fiscal year. Let me review our first quarter results in more detail. Unless otherwise noted, all growth rates are year-over-year and in constant currency. Starting with ARR. We ended the quarter at $2.14 billion, up 17% year-over-year. Q1 net new ARR was $85 million adjusted for foreign exchange movements, growing 66% from a strong first quarter last year. Excluding the $13 million ARR contribution from our Bindplane acquisition, Q1 net new ARR was $73 million or 41% organic growth. This strong performance was driven primarily by record new logo ARR growth and our continued success in winning large end-to-end platform consolidation opportunities, including an 8-figure ACV land. The maturation of our go-to-market transformation, which began in fiscal '25, is clearly reflected in improving net new ARR productivity. To help illustrate the momentum in the business, we believe trailing 12-month net new ARR is a useful metric because it smooths the quarter-to-quarter impact of large enterprise transactions. Viewed through that lens, we have now delivered 4 consecutive quarters of acceleration in trailing 12-month organic net new ARR growth. Growth reached 17% on an organic basis in Q1, up from 12% in Q4, demonstrating continued momentum. In Q1, we added 122 new logos to the Dynatrace platform. The average land size continues to build and was nearly $285,000, contributing to record new logo ARR growth of more than 160%. We remain focused on landing with high-quality customers with strong expansion potential. Our value proposition continues to resonate with enterprise customers that are outgrowing DIY or commercial point solutions and AI-driven complexity is only increasing the need for a unified platform. Customers are seeking business value through tool consolidation and are turning to Dynatrace for the depth, breadth and automation of our unified AI-powered observability platform. Simply put, we believe the Dynatrace platform was built for the AI era. Once customers experience the benefits of the Dynatrace platform, they often expand quickly. Average ARR per customer continues to increase and is now well over $500,000, reflecting broader adoption and the value we deliver. As we have shared in the past, given the significant cross-sell and upsell opportunities within our enterprise customer base, we believe the average ARR per customer can exceed $1 million or more over the medium to long-term. Gross retention rate in Q1 remained in the mid-90s, underscoring the strategic importance of Dynatrace as a mission-critical component of our customers' operations. Net retention rate, or NRR, was 110% on a trailing 12-month basis. We continue to see broader usage and deeper adoption across the platform, particularly in log management. Logs remains our fastest-growing product category growing -- continuing to grow well above 100% and reaching nearly $200 million in annualized consumption. As a reminder, we crossed the $100 million milestone just 2 quarters ago. We expect logs to remain a powerful growth driver, accelerating consumption while providing a path to future ARR expansion as customers consume their commitments and move into larger contracts. Turning to revenue. Total revenue was $555 million, and subscription revenue was $530 million, both up 15% and 100 basis points above the high end of guidance, driven by strong net new ARR performance. Moving to profitability. Non-GAAP operating margin was 29%, exceeding the high end of guidance by 100 basis points, driven by revenue upside flowing through to the bottom line and some expense timing between quarters. Non-GAAP net income was $140 million or $0.48 per diluted share, $0.03 above the high end of our guidance. Now turning to free cash flow. We have updated our free cash flow definition to adjusted free cash flow, which excludes the impact of restructuring, acquisition-related and other nonrecurring cash expenses. This better aligns the metric with our non-GAAP operating income definition and provides investors with a clearer view of cash generation from ongoing operations of the business. We generated $309 million of adjusted free cash flow in the first quarter. Given seasonality and quarterly variability in billings, we believe this metric is best evaluated on a trailing 12-month basis. Adjusted free cash flow over the trailing 12 months was $579 million or 28% of revenue. This includes 500 basis points of impact from cash taxes. On a pretax basis, adjusted free cash flow was 32% of revenue. Turning to capital allocation. We increased the pace of our share repurchases in Q1, buying back 7.1 million shares for $275 million compared to $224 million in Q4. This increased level of repurchases reflect our confidence in the company's operational momentum, long-term growth and cash flow trajectory and our view that the shares remain undervalued. We will continue to take a disciplined approach to capital allocation, balancing investment in innovation and growth while also returning capital to shareholders. Moving now to guidance. Our confidence in accelerating ARR growth in fiscal '27 has strengthened following our first quarter performance. Demand for observability remains robust. The growth drivers we outlined in May continue to trend positively, and our teams are executing well. That said, we are still early in the fiscal year and consistent with our historical approach, we will remain prudent in our guidance. Lastly, with nearly 40% of our business denominated in foreign currency, the strength of the U.S. dollar since our last call creates a sizable headwind. We now expect FX to be a headwind of $14 million to ARR and $4 million to revenue. This represents an incremental headwind of $23 million to ARR and $19 million to revenue. With that as context, let me summarize our updated full year outlook that we detailed in this morning's press release. ARR, we are maintaining our constant currency ARR growth guidance of 15.5% to 16.5%. As usual, we plan to revisit our full year ARR growth guidance at the midpoint of the fiscal year. For revenue, we are raising our constant currency total revenue and subscription revenue outlook by 25 basis points at the midpoint, reflecting the operational outperformance in Q1. We now expect total revenue and subscription revenue growth of 14.5% to 15% year-over-year. Turning to profitability. We are increasing the high end of our full year non-GAAP operating margin guidance by 25 basis points to 29.75%, while continuing to balance top line growth acceleration with margin expansion. We are also raising non-GAAP EPS guidance to a range of $1.97 to $1.99 per diluted share, an increase of $0.04 at the midpoint. This outlook assumes a diluted share count of 295 million to 297 million shares and an effective cash tax rate of 18.5%. Finally, we are maintaining our adjusted free cash flow margin guidance of 26.5%. Our prior guidance was based on our current free cash flow definition, which didn't reflect the new adjustments. As a reminder, for your cash flow models, seasonality and billing patterns historically result in higher cash flow in the first and fourth quarters and significantly lower cash flow in the second and third quarters. As such, we believe trailing 12-month performance remains the most meaningful way to evaluate this metric throughout the year. Looking at Q2, we expect total revenue and subscription revenue growth of 15% to 16% non-GAAP operating margin of 29.5% to 30% and non-GAAP EPS of $0.48 to $0.49 per diluted share. In summary, we are pleased with our strong start to fiscal '27 and remain confident that we are on the right track to accelerate ARR growth. We are focused on executing against the significant opportunity ahead in a rapidly growing observability market. We have a proven track record of consistent execution and remain committed to delivering a balanced combination of strong growth and profitability while continuing to invest in opportunities that will drive long-term value. With that, we will open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Brent Thill with Jefferies. Brent Thill: Just on the net new adds, you mentioned the overwhelming strength. Maybe if you can just drive into what you're seeing in terms of the success with those new logos, where you're finding them? Any more color would be helpful. James Benson: Sure, Brent, this is Jim. Again, I think what you've seen, this is not the first quarter that we've seen strength in new logos. I think this is the fifth consecutive quarter that the average land size has continued to build. This quarter alone was almost $285,000 on average land size. It is a function of some of the go-to-market changes that we made 2 years ago, where we weighted investments in strategic and enterprise accounts. What you're seeing is growing traction. Specifically, when I talked about roughly 2 years ago about this emerging trend of customers looking for platform consolidation, tool consolidation and going from fragmented tools to one vendor, we are benefiting significantly from that. That's been our #1 sales play, and we expect it to continue even in this environment where people are evaluating where budgets go, consolidation actually is an economic benefit to customers because when they consolidate fragmented tools and they go to one vendor, they can get better economics and a better outcome from Dynatrace. Those are really the reasons why we're benefiting and continue to benefit from new logo lands at a very large size. Operator: Our next question comes from the line of Gray Powell with BTIG. Gray Powell: Congratulations on the really strong results. So yes, if I -- I'm just looking at the numbers, and I just want to make sure that I understand everything correctly. But if I back out Bindplane, it looks like you need to grow net new ARR by about 17% to hit your fiscal '27 guidance. I know it's only 1 quarter that you're going to wait until Q2 to update, but you just posted 40% growth in net new ARR. It sounds like there are a lot of tailwinds out there, particularly log monitoring. Can you maybe just help us rank the upside drivers that you saw in Q1? And then just how should we think about the sustainability of those drivers? James Benson: Gray, that's a great question. Actually, your math is right. The math would suggest for Q2 through Q4 at the high end of our guide that you're at the high teens growth rates. We're coming off a quarter, obviously, organically where we grew 41%. You're not going to see that every quarter. We've talked about that in the past that the nature of an enterprise sales motion, in particular, where we are going after large strategic accounts is your land sizes are going to be very big, both for new logos and for expansions. So it is a bit of the nature of the business. You're going to see timing. We had an exceptional start to the year, actually stronger than we expected. We knew the first half would be strong. But to your point about tailwinds, we expect the tailwinds to continue. I expect we will continue to be able to land large with new logos. I expect that in the back half of the year, where we have a significant increase in our DPS contracts that are coming up for renewal that you're going to have an opportunity for expansions. Consumption is continuing to grow at a robust rate. Logs, as we mentioned, is nearly $200 million. There's just a lot of momentum building in the business. We have a lot of confidence that we can continue that. I'd say one of the questions that I got from last quarter's earnings call was, hey, this guide looks a bit ambitious, Jim. Hopefully, what this demonstrates is that there is building momentum in the business. This is the fourth quarter in a row that we've had trailing 12-month improvement in net new ARR growth. That smooths out variability quarter-to-quarter, 17% in the first quarter on a trailing 12-month basis organically. This business is showing significant momentum, and we expect that, that will continue. Rick McConnell: I think Jim definitely covered the highlights, Gray. It's about consumption, it's about logs. It's about those elements. But one element that I'd love to add in is just the notion that AI is driving even greater consumption of the platform. So we talked about some of the metrics in the prepared remarks, those workloads are driving increased consumption. It's also shifting the market mindset to one of AI observability, which we also referenced. That's an incremental driver to some of the other ones that Jim already mentioned. Operator: Our next question comes from the line of Will Power with Baird. William Power: Okay. Great. I guess, first, to you, Jim, congratulations on your retirement, and thanks for all the help here over the years. I guess, Rick, you made the comment that you're seeing organizations increasingly run autonomous operations. I think you said just sequentially, the number of organizations moving to autonomous operations has gone from 500 to 800. Maybe just talk about kind of the key drivers of that. I mean, AI obviously feeds into that. But yes, any color you can share on kind of what's driving that? And then just anything you can drill down in terms of how you monetize that? I know DPS is the contracting vehicle, I guess. But any other color on that front would be great. Rick McConnell: Great question as well. To start, we absolutely see agentic evolution, both in our traditional workloads as well as AI workloads. For example, perhaps a couple of quarters ago, I mentioned the evolution of traditional observability and moving from reactive to proactive to predictive on to autonomous. It is in this autonomous environment where you get the benefit of using Dynatrace's deterministic AI to provide causal interpretation and insights as to what's going on in that environment. That deterministic AI enables agents to then take action in an autonomous way, and those agents can actually provide them results to allow for elements such as auto remediation. That's in traditional workloads, and that's where agents can actually take action. On the AI observability front, you're adding incremental questions like, for example, is the information coming out of LLMs accurate? Again, agents are then helping you build and run code. In both areas, you have agents that are increasingly operationalizing your observability systems. In both cases, we expect to monetize those agents directly to enable us to benefit from that agentic usage. So it is, as you mentioned, these 800 work -- or 800 customers using our agentic capabilities up from roughly 500 last quarter that we like to see because it's increased agent usage. James Benson: One thing that I'd add to that, Will, and I think to your point, is while enterprises are still early in their adoption of AI, I think to Rick's point, it's building. I think what we outlined there is consumption is growing at a very robust rate for the company in total and customers that are leveraging AI grow at 1.5x that rate. The significant volume increase in consumption that, again, with the nature of the DPS contract, you don't have to purchase something. You have access to full capabilities of the platform, you will burn down your commitments earlier. Our expectation is if this continues that, that should lead to a source of future expansion. Rick McConnell: Perhaps just to put a pin in it, I did cover this in the prepared remarks, but just to highlight it because I really do think it is important. We're thinking very acutely as to how we monetize in the evolving AI space. Number one is just around increased consumption of AI workloads that consume way more telemetry. Number two is that you've got incremental workloads that require AI observability, namely, are they delivering accurate responses coming out of LLMs. Then finally, we're monetizing, as I mentioned earlier, the agents themselves. So 3 different very discrete methods of monetization of AI workloads and agentic work models as we look at. Operator: Our next question comes from the line of Keith Bachman with BMO Capital Markets. Keith Bachman: I wanted to ask about the renewal installed base. If you could just provide a little bit of context on how that installed base looks over the next 3 quarters versus what it was in the June quarter? Frankly, is it a greater target-rich audience when you think about that installed base, any nuances that you want us to consider as we look out over the next 3 quarters? Additionally, any update on how that installed base when the renewals unfold, the behavior? In other words, what's the ratio that you're picking up as those customers, in fact, renew their DPS contracts, any change in behavior, upsell rates associated with those DPS renewals, in particular, as we think about what that installed base may do. I'm going to try to sneak in. Just, Jim, any comments on what Bindplane will grow over the -- you mentioned $13 million, which was ahead of our number. But any comments on how that will grow and contribute to the ARR? That's it for me. James Benson: Okay. A couple of questions in there. As we've shared before, Keith, that the weighting of our renewals, DPS and just other non-DPS renewals are very weighted to the back half of the year. So Q1 and Q2 are light renewal quarters. I think the statistic is for DPS. I think 70% of our renewal activity or annual resets actually occur in the back half of the year. I shared before that if consumption continues to grow at the rates we're expecting, we believe that you should see NRR inflection in the back half of the year. I don't think you're going to see it in the first half of the year just because it's a light renewal period. As I shared before, your DPS contracts this year, you're having all 3 cohort classes come up for the first time. If consumption continues to grow at that rate, we do expect to see an improvement in expansion activity. I'd say what we saw in Q1, very consistent customers that -- some customers go on demand and some customers do expansions. Again, because it's a light renewal period, you're not notably seeing an uplift in NRR yet, but our expectation is you will in the back half. Relative to Bindplane, you're right. Bindplane, I think we used big grand numbers when we said $10 million. What we inherited was $13 million. We are very pleased with Bindplane. It's exceeded our expectations. You should expect that, that will be a contributing source to aid our logs business to continue to accelerate at the rates that it's done because Bindplane will be an accelerant to logs. We expect that to be an additive source. We haven't necessarily outlined a specific growth target for it, but you can expect that it's going to grow at a robust rate. Operator: Our next question comes from the line of Andrew Sherman with TD Cowen. Andrew Sherman: Jim, congrats on your retirement. It's been great working with you. Is it fair to think that the deals that slipped in EMEA last quarter closed? How did that region perform in the quarter? And then globally, how is the pipeline of big deals in Q2 and for the second half? James Benson: First, thank you. I'll just remind you, I'm not going anywhere yet, so you guys are stuck with me for a while, but thank you for the kind words. Relative to EMEA, you're right. We saw a little bit of softness in EMEA in the fourth quarter. EMEA actually had a very strong start to the year. EMEA had a good Q1. I mean, they weren't the primary source of the growth for the quarter, but they had a rebound from Q4 to Q1. Then your second question was on pipeline. Again, pipeline continues to be weighted to large deals. That is not new. It's the nature of our sales motion, which is why we mentioned that having a trailing 12-month metric to look at net new ARR is a good lens because it smooths out the timing that you'll see with large deals like that. But the pipeline continues to be robust. Operator: Our next question comes from the line of Fatima Boolani with Citi. Fatima Boolani: Jim, I wanted to follow up with you on something that you were potentially ideating on last quarter. And now because you started the new fiscal year, behooves me to ask you, there was some consideration around potentially having more, let's just say, elastic or more premium skewing pricing on demand consumption behavior. Knowing what you know, seeing what you're seeing in the pipeline as it relates to the renewals cohort, their behaviors, their consumption patterns, I'm wondering if you maybe have an update or a finer point you could put on the decision around more premium pricing elasticity on ODC and how that factors or doesn't factor into your guidance for the remainder of the year? James Benson: The short answer to that question, Fatima, is that we've not made any decisions to change our pricing mechanism for on-demand consumption. As you mentioned, we do not charge a premium. It is something that we've evaluated and continue to evaluate internally. Within my guidance does not assume any change in that. That's not to suggest that we wouldn't make a change. It's just not something that we've contemplated yet. Obviously, when you make a change like that, you'd have to roll that out over a period. You could do that for new customers, you'd have to figure out the timing of doing it for existing customers. Even doing it would not have a material impact on the fiscal year. Operator: Our next question comes from the line of Sanjit Singh with Morgan Stanley. Sanjit Singh: Congrats on the strong net new ARR performance in Q1. It seems like this quarter, there was strength across the business, but really the story is the new logo performance, I think, kind of more than doubling the size of the average lands. When I think about that NRR and I think about just the momentum that you guys are seeing, explosive momentum you're seeing on the log side of the equation, I guess the question is, why isn't logs driving that improvement in NRR? I know we have like the renewal cohort in the back half, but why isn't logs a bigger driver for an NRR improvement? James Benson: I think it will be. I think it's all timing, Sanjit, as we said, that everything is dependent upon who are the customers that are driving significant logs consumption. It's a bit of the nature of when do those customers fall into their renewal cycle. Again, as I mentioned, Q1 and Q2 are light renewal quarters. We're already seeing some of it. They just happen to be quarters where you're not going to see the same level of expansion activity. But trust me, they are going to be -- and we expect to be a future source of expansion activity. As we mentioned that just 2 quarters ago, we talked about the business being $100 million, and now it's nearly $200 million. You should expect that in the back half of the year, if this consumption growth continues, and we should see an inflection in NRR. Operator: Our next question comes from the line of Matt Hedberg with RBC Capital Markets. Matthew Hedberg: Really a strong set of results here. I'm still kind of curious, when I look at the 41% constant currency organic net new ARR growth, I'm curious, did you see any pull forward from Q2? And I guess where my question is going, you haven't changed the full year ARR guide, but following such strong Q1 results, does it change how you think about kind of that first half, second half split? I think our initial assumption was something like maybe 44% to 47% of net new ARR in the first half. But any commentary on sort of like the linearity of the results because it seems strong really across the board. James Benson: Thanks for the question, Matt. You're right. We did say in our last call that we thought that the first half seasonally relative to what it historically is, would be a little bit more weighted. We certainly had a better start than we expected. Relative to pull forward, you're always going to have deals that push, you're going to have deals that you're able to close. That is going to continue to be the nature of the business, especially with our pipeline weighted to very large deals. The timing of those are always going to be a bit variable. I would say an exceptional start. I'd say we might be -- I expect a very strong half 1. I do expect that net new ARR, even though we don't guide quarterly, is going to be in the double digits every quarter. Timing of like how much more it will contribute, I'd say, is going to depend on the nature of when these deals land. But we are very confident that the momentum in the business is building. I think we're just trying to be prudent. As you know, we don't historically change the guide after the Q1 results. But don't misunderstand that to mean that we don't believe that the business momentum is growing. One of the things I said in the prepared remarks and Rick, we are quite confident that we are on track to accelerate ARR growth for the year. Rick McConnell: This is a really critical point that I want to highlight as well. Our focus is ARR acceleration for the year. That's what the drivers are suggesting, and that's what we're promoting with regard to strong consumption, log management and log growth, the evolution of AI workloads, the increase in consumption overall of the platform relative to ARR, back half renewals coming up. There is a large set of drivers that we believe deliver confidence in the overall outlook for the year. Operator: Our next question comes from the line of Koji Ikeda with Bank of America. Koji Ikeda: I wanted to ask about logs. And it's very clear that your log strategy is working with log consumption over $200 million. Just real quick here. And so as I think further out, if log growth starts to slow, you did lay out 3 monetization levers for AI, that's higher telemetry, AI observability and then monetization of Dynatrace agents as a whole. Is there enough there to -- with the AI to realistically become large enough to replace any sort of slowdown in logs? Or does the medium-term growth algorithm still primarily depend on logs growing nice and durably over the next several years? James Benson: Let me start with that. I do not believe -- while we do think logs will continue to be a huge source of consumption growth, Growth outside of logs is growing at a very rapid rate as well. Infrastructure monitoring is growing at a very healthy rate. Full stack is growing at a very healthy rate. Consumption of the platform beyond logs is growing at a very robust rate. I don't expect that, that's going to change. Your point about if log slows, first, we don't think logs is going to slow. We think that at $200 million, we look at the size of this opportunity and the differentiation that you have with Dynatrace, we think we're going to be a huge gainer of share in that space. I don't think logs are going to slow. I think outside of logs, the rest of the business is growing at a very rapid rate. I think between logs, customers continuing to move more workloads and the AI monetization attributes that Rick said, I think all 3 of them are going to be sources of growth for acceleration in ARR. Rick McConnell: Koji, I would just say that whether you're looking at the evolution of traditional workloads to include autonomous operations where you're looking at the evolution of workloads altogether to include AI and AI observability, it is critical to have an underlying foundation that begins with end-to-end observability. Essentially, every customer event that I do, every customer meeting that I manage, every customer with whom I engage, it's got to start with end-to-end observability because that's what gives you the underlying insights, the underlying analytics to be able to operate in an environment in a more autonomous way. You have to have logs, traces, metrics. You have to have application monitoring, infrastructure monitoring, log management, all in a consistent integrated platform in order to avoid manual oversight. If you're looking for AI oversight of that platform, which you can get to Dynatrace vis-a-vis these causal insights coming out of Deterministic AI, that begins with end-to-end observability as a foundation for everything else. The reason I wanted to insert that into the answer to the question is because that is, in many ways, the core driver of the Dynatrace business before you get to any of these other elements. Then you look at log management growth as a component of that, you look at AI observability as an evolution of that. All of these elements are based on the foundation of end-to-end observability growth that is really the core business. Operator: Our next question comes from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee: And if I could just follow up on Koji's question. On the last monetization driver that you mentioned Dynatrace agents. And just curious to hear your thoughts about how you think about the sizing of that opportunity longer term relative to AI observability. I think you mentioned like a $10 billion incremental TAM, but just wanted to hear how you're thinking about or sizing of the agent sort of opportunity overall, maybe a bit more longer term? And any thoughts on sort of timing of seeing that sort of evolution? Rick McConnell: It's going to evolve in a measured way over the course of time. We're certainly not expecting any radical shift in mix from our core end-to-end observability capabilities relative to AI observability in the near term. We do view that as a catalyst because the more AI observability you're doing, the more you're going to use us for end-to-end observability as well for traditional workloads. I really see them growing in concert, but we do believe that, that $10 billion TAM as we look out over the balance of the decade represents a significant increase in the addressable market that we can go after with Dynatrace systems. We wouldn't provide a specific percentage, but we would say that, that is going to evolve over the course of time in a meaningful way. Operator: Our next question comes from the line of Ryan MacWilliams with Wells Fargo. Ryan MacWilliams: Two-part question here. Just -- love to hear how consumption is trending overall in the business compared to the quarter before. And then on the AI workloads requiring more telemetry, we love to dig into that. I know it's early, but how does the observability required for AI agent activity compared for the observability required for traditional software applications? Rick McConnell: Well, let me take the second one on the AI agents and AI agent usage. I think this is where it really comes back to the 3 questions that we asked. We look at traditional observability, traditional workloads as really largely addressing the first question that I indicated, which is, is it working? Is it working is really all about business resilience, business resilience is indicating whether a mobile app is working, whether infrastructure is operating as expected, et cetera. The AI workloads and the agentic flows are adding these couple of additional questions. For example, is it right or is it accurate? That really is assessing whether the LLMs are producing the right data. Can that data be relied upon to provide to our customers and users as a mechanism for action. That is really the AI observability piece. Then lastly, increasingly, what we are seeing is we are seeing that individuals or individual developers are really, over the course of time, no longer going to be writing code themselves. It is agents that are going to be writing the code and individuals or humans are going to be overseeing that environment. This is why we have a lot of confidence in the evolution of this business in the AI observability space because we have all 3 of these questions at action. Number one, is it working? Number two, is it accurate? Number three, are my models delivering as expected? If you put all 3 of those together, this is what is creating the increased telemetry coming from AI systems. Operator: Our next question comes from the line of Ittai Kidron with Oppenheimer. Ittai Kidron: Rick, I wanted to go back to the comments around the 1,000 customers that are using -- to monitor AI. Can you talk about the visibility that you have into your customer base and kind of how do you know what you're being used for, what kind of applications use cases, number one? Number two, perhaps more importantly, how are you reorienting the sales force to make sure that they try and capture those types of use cases and workload with customers? Rick McConnell: Yes. Thanks for the question. Absolutely, we can understand how they're using the AI workloads based on the telemetry that we can capture through the Dynatrace platform. That's how we can accrue the numbers that you see here that we have 1,000 customers now observing the AI and LLM workloads. We have that capability in the system. With regard to the sales force, the expectation is that we are driving a sales play regarding AI utilization and AI workloads to go after those workloads because of all the reasons we've been describing. It drives increased telemetry, it drives the increased usage of agents. It enables greater monetization. We are absolutely very visible in pushing our sales force to be not just looking for traditional observability workloads, but rather AI workloads that are evolving. So it's a key sales play. Operator: Our next question comes from the line of Matthew Martino with Goldman Sachs. Matthew Martino: Rick or Jim, on go-to-market, I know you're extending the strategic account coverage model beyond the top 500 customers. What are you seeing in those newly covered accounts in the early going? And what's the realistic time frame for that cohort to become a more visible contributor to the net new ARR? James Benson: Great question. You're right, we were wildly successful with focusing on the Global 500, huge source of ARR growth over the last year, continues to build. As we extend down, we're already beginning to see traction in that. The good news is we're already seeing building go-to-market productivity. Go-to-market productivity continues to improve every quarter. Kind of go back to my point, about this building momentum looking at trailing 12-month net new ARR. It's a function of the go-to-market changes that we've made. Admittedly, that productivity improvement is coming from both what we call strategic accounts and the enterprise accounts. Our expectation -- this is not -- we're going to have to wait 12 months for that. We're already starting to see that. We're inserting that into the go-to-market equation. The changes that we made 2 years ago, our expectation is that productivity will continue to build. Rick McConnell: One key element also, Matt, I just described is that you have to think about it not just in terms of the ICP or the intended customer being in the strategic segment, for example, it's all around who is the buyer. It's also about who is the buyer within those accounts. This is where we have traditionally sold to CXOs, we've sold to IT ops. We absolutely do expect an expansion in an AI world toward SRE, toward platform engineering, to developers themselves. We are shifting left in the platform and our third-gen capabilities in our new platform have the capabilities needed for developers to access the platform and to be able to use it in free trial mode and other elements to incorporate it much, much earlier in the development process. This is going to be a key aspect of us winning in the AI space. Operator: Our next question comes from the line of Radi Sultan with UBS. Radi Sultan: I just wanted to double click on the DPS renewal cohorts. I know the renewals are more back half weighted, but I guess, is there any trend you're noticing in those renewal conversations for the 3-year DPS renewal customers compared to the 1- and 2-year annual reset cohorts? And I'm just curious how different the upsell opportunity is shaping up to be for the 3-year DPS renewals versus the 1- and 2-year annual reset cohorts. James Benson: Yes. I'd say there's no real difference in the trend. Again, what we -- I'd say the general nature of what you see is that when a customer is in, call it, the first year of their 3-year DPS contract, they're more inclined to maybe go on demand if they are exceeding their commitments. As they're in year 2 and year 3, they're more inclined to do an expansion. That behavior has not fundamentally changed. Again, Q1, because it's a light renewal quarter is, I'd say the body of kind of renewals is not substantive enough that there is any change in that trend other than it continues. Our expectation is if that continues and consumption continues to build that we have a source of upsell opportunity in the back half of the year. As I mentioned, we have a significant amount of ARR coming up for renewal or going through an annual reset in the back half of the year. Our expectation is it's a source of expansion opportunity. Operator: Our final question will come from the line of Eric Heath with KeyBanc Capital Markets. Eric Heath: Awesome. Rick, Jim, just coming back to logs, I guess, one more time. I'm curious to drill in further on where that strength is coming from, whether that's new customers or ramping of existing customers. And also curious to hear maybe how monitoring AI apps might be contributing to the logs consumption figure. And Jim, if I could, just a housekeeping question here. But Bindplane, is that part of the $200 million consumption figure you guys are citing? James Benson: What I would say simply on logs is it's effectively all of the above. We're seeing traction in lands with logs because I'd say we have a very unique differentiated set of capabilities. Obviously, the consumption growth that you're seeing is both from new customers and existing customers, we're seeing that cohort class continuing to build from starting maybe smaller with us and continuing to expand their logs journey. We continue to have a building number of customers that started smaller, getting bigger, quite a few million dollar-plus logs customers. Your housekeeping question on Bindplane, yes, Bindplane is included in our logs consumption. Rick McConnell: All right. Well, thank you all for your engagement and ongoing support as usual. Thanks for your questions during the call. We had a very, very strong first quarter. We believe it reinforces our conviction in the path to ARR acceleration for this fiscal year. We are, as you can tell, very enthusiastic about the opportunities ahead, and we look forward to connecting with you at upcoming IR events. Thank you, and have a great day. Operator: Ladies and gentlemen, thank you so much. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day. 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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Dynatrace (DT) Q1 2027 Earnings Call Transcript was originally published by The Motley Fool

Interested in Dynatrace, Inc.? Here are five stocks we like better. Dynatrace exceeded Q1 guidance: ARR rose 17% year over year to $2.14 billion, while revenue reached $555 million and non-GAAP EPS was $0.48. Net new ARR increased 66%, supported by record new-logo growth and larger enterprise deals. Logs and AI are accelerating platform consumption. Log management grew more than 100% to nearly $200 million in annualized consumption, while more than 1,000 customers now monitor AI workloads and over 800 use Dynatrace agentic capabilities. The company raised its revenue and EPS outlook but maintained ARR growth guidance. Fiscal 2027 revenue growth is now expected at 14.5%–15%, EPS at $1.97–$1.99, and operating margin up to 29.75%; CFO Jim Benson plans to retire by the end of fiscal 2027. Datadog Soars, Dynatrace Slumps: Gap Widens in AI Agent Stocks Dynatrace (NYSE:DT) said its first-quarter fiscal 2027 results exceeded the high end of its guidance, supported by record new-logo growth, expanding platform consumption and continued demand for observability tools as enterprises deploy more artificial intelligence workloads. Total annual recurring revenue, or ARR, reached $2.14 billion, up 17% year over year in constant currency. Net new ARR was $85 million, an increase of 66% from the prior-year quarter. Excluding the $13 million contribution from the BindPlane acquisition, organic net new ARR was $73 million, representing 41% growth. → Meta’s Earnings Drop Shows Wall Street Wants More Than Ad Growth 3 Stocks Flashing Rare Buy Signals After the Market's Wildest Month Chief Executive Officer Rick McConnell said the quarter reinforced management’s confidence that Dynatrace can accelerate ARR growth during fiscal 2027. The company cited enterprise demand for end-to-end observability, improving go-to-market execution and increasing complexity in customer technology environments as contributors to the performance. Total revenue was $555 million, while subscription revenue was $530 million. Both measures increased 15% year over year in constant currency and were 100 basis points above the high end of Dynatrace’s guidance, according to Chief Financial Officer Jim Benson. → Sandisk Just Delivered a Blowout Quarter—Here's Why the Stock Is Falling DTE’s Stargate Deal Turns Power Into Profits Non-GAAP operating margin was 29%, also exceeding the company’s guidance by 100 basis points. Non-GAAP net income totaled $140 million, or $0.48 per diluted share, which was $0.03 above the high end of the company’s outlook. Dynatrace generated $309 million in adjusted free cash flow during the first quarter. The company updated its free-cash-flow definition to exclude restructuring, acquisition-related and other non-recurring cash expenses. On a trailing 12-month basis, adjusted free cash flow was $579 million, or 28% of revenue, including a 500-basis-point effect from cash taxes. → 4 Oil and Gas ETF Plays as Prices Stay Sky-High The company added 122 new logos during the quarter. Average land size was nearly $285,000, helping drive more than 160% growth in new-logo ARR. Benson said the results reflected a go-to-market strategy that increasingly targets strategic and enterprise accounts, as well as demand from customers seeking to consolidate fragmented monitoring tools onto a single platform. Average ARR per customer rose to more than $500,000. Gross retention remained in the mid-90% range, while trailing-12-month net retention was 110%. Log management remained Dynatrace’s fastest-growing product category, growing more than 100% and reaching nearly $200 million in annualized consumption. The company had surpassed $100 million in annualized log consumption two quarters earlier. Benson said BindPlane, which supports OpenTelemetry data collection, was performing ahead of plan and would help accelerate the logs business. BindPlane contributed $13 million of ARR in the first quarter and is included in Dynatrace’s reported log-consumption figure. Management also emphasized AI as a driver of platform usage and potential monetization. McConnell said AI workloads generate significantly more telemetry, including logs, traces and metrics, than prior workloads. Dynatrace sees three AI-related revenue opportunities: increased consumption from AI workloads, demand for AI observability capabilities, and usage of Dynatrace’s own AI functions and agents through its Dynatrace Platform Subscription, or DPS, model. More than 1,000 customers now use Dynatrace to observe AI and large-language-model workloads in production, up from about 850 in the preceding quarter. More than 800 customers are using Dynatrace agentic capabilities for autonomous operations, up from about 500 in the prior quarter. Consumption growth among customers in those AI cohorts is 1.5 times that of customers outside the cohort, McConnell said. Dynatrace estimated that the AI observability market will exceed $10 billion by 2030 and grow at more than 50% annually. McConnell said the opportunity is expected to develop over time rather than rapidly displace the company’s core end-to-end observability business. The company also highlighted Bluebox, a new offering intended for AI-first development teams. McConnell said Bluebox provides coding agents with context from live systems before software changes are released and can identify root causes and return evidence-backed fixes after deployment, while keeping developers in control. Dynatrace maintained its full-year constant-currency ARR growth outlook of 15.5% to 16.5%. Benson said the company expects foreign exchange to reduce reported ARR by $14 million and revenue by $4 million, reflecting an incremental currency headwind of $23 million to ARR and $19 million to revenue compared with prior assumptions. For fiscal 2027, Dynatrace raised its constant-currency total revenue and subscription revenue growth outlook by 25 basis points at the midpoint. It now expects both measures to grow 14.5% to 15% year over year. Full-year non-GAAP operating margin is expected to reach up to 29.75%. Non-GAAP earnings per diluted share are projected at $1.97 to $1.99, up $0.04 at the midpoint. Adjusted free-cash-flow margin guidance was maintained at 26.5%. Second-quarter revenue and subscription revenue growth are expected to be 15% to 16%. Second-quarter non-GAAP operating margin is projected at 29.5% to 30%, with non-GAAP EPS of $0.48 to $0.49. Benson said the company expects its DPS renewals to be weighted toward the second half of the fiscal year, with roughly 70% of annual resets occurring during that period. If consumption trends continue, he said management expects improved expansion activity and a possible net-retention-rate inflection in the back half. Dynatrace repurchased 7.1 million shares for $275 million during the quarter, compared with $224 million in the prior quarter. Benson said the stepped-up repurchase activity reflected management’s confidence in the company’s operating momentum, long-term growth prospects and cash-flow outlook. McConnell also said Benson plans to retire by the end of fiscal 2027. Dynatrace plans to conduct a search for a successor, and McConnell said he expects a smooth transition. “We are pleased with our strong start to fiscal 2027 and remain confident that we are on the right track to accelerate ARR growth,” Benson said. Dynatrace is a global software intelligence company specializing in application performance management (APM), cloud infrastructure monitoring, and digital experience management. Its flagship offering, the Dynatrace Software Intelligence Platform, leverages artificial intelligence to provide real-time observability across distributed environments, including on-premises data centers, private clouds, public clouds and hybrid deployments. Organizations rely on Dynatrace to detect anomalies, troubleshoot performance issues and optimize end-user experiences through automated root-cause analysis powered by the company's engine, Davis. The Dynatrace platform comprises modules for full-stack application monitoring, digital experience monitoring, infrastructure monitoring and business analytics. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Dynatrace Q1 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.

Dynatrace DT reported first-quarter fiscal 2027 adjusted earnings of 48 cents per share, beating the Zacks Consensus Estimate by 6.67%. The bottom line increased 14.3% year over year, supported by revenue upside and disciplined spending.Revenues of $554.55 million rose 16.2% and topped the consensus mark by 0.96%. Annual recurring revenues, or ARR, reached $2.136 billion, up 17%, as organic net new ARR growth accelerated 41%. Subscription revenues increased 15.9% year over year to $530.26 million and accounted for most of quarterly sales. Management linked the performance to strong net new ARR, growing platform consumption, and enterprise demand for end-to-end observability.Services revenues rose 22.4% year over year to $24.29 million. Total revenues and subscription revenues also exceeded the high end of management’s guidance, each growing 15% on a constant-currency basis. Dynatrace, Inc. price-consensus-eps-surprise-chart | Dynatrace, Inc. Quote Net new ARR was $85 million, up 66% year over year. Excluding the $13 million contribution from Bindplane, organic net new ARR totaled $73 million, reflecting the company’s fourth consecutive quarter of acceleration in trailing 12-month organic net new ARR growth.Dynatrace added 122 new logos, while average landing size increased to nearly $285,000. Record new-logo ARR growth exceeded 160%, aided by large platform-consolidation transactions, including an eight-figure annual contract value win with a major Latin American financial institution.Gross retention remained in the mid-90% range, while the trailing 12-month net retention rate was 110%. Average ARR per customer increased to well above $500,000, reflecting broader adoption among enterprise clients. Annualized log-management consumption approached $200 million after nearly doubling over two quarters and continued to grow well above 100% year over year. Management expects Bindplane’s open-telemetry capabilities to support data ingestion and further strengthen the logs business.More than 1,000 customers used DT to observe artificial intelligence and large-language-model workloads in production, up from roughly 850 in the prior quarter. More than 800 customers used the company’s agentic capabilities for autonomous operations, up from about 500.Consumption growth among customers using AI capabilities ran 1.5 times above that of non-AI customers. Management identified higher telemetry volumes, AI-observability workloads and direct agent usage as three separate monetization opportunities. For the first quarter of fiscal 2027, non-GAAP gross margin was 84%, down from 85% in the year-ago quarter.On a GAAP basis, research and development expenses increased 25.7% to $135.99 million, reflecting continued platform investment. Sales and marketing expenses rose 9.9% to $181.63 million, while general and administrative expenses increased 9.6% to $61.74 million.Non-GAAP operating income rose 12.9% year over year to $161.60 million, while the related margin was 29% compared with 30% a year earlier. GAAP operating income climbed 14.7% year over year to $71.48 million. The company ended June 30, 2026, with $1.06 billion in cash and cash equivalents. During the quarter, DT repurchased 7.1 million shares for $275 million at an average price of $38.88.Net cash provided by operating activities increased 13.6% year over year to $306.24 million. Adjusted free cash flow rose 17.9% year over year to $309.18 million, with the adjusted free cash flow margin expanding to 56% from 55%. For the second quarter of fiscal 2027, Dynatrace expects revenues of $565-$570 million and subscription revenues of $540-$545 million. Non-GAAP operating margin is projected to be in the range of 29.5%-30%, with adjusted earnings of 48-49 cents per share.For fiscal 2027, management now expects revenues of $2.306-$2.320 billion and ARR of $2.359-$2.379 billion. The company raised the high end of its non-GAAP operating margin outlook to 29.75% and lifted adjusted earnings guidance to $1.97-$1.99 per share.The outlook includes foreign-exchange headwinds of roughly $14 million to ARR and $4 million to revenues. Dynatrace maintained its constant-currency ARR growth forecast of 15.5%-16.5% and adjusted free cash flow margin target of 26.5%. Dynatrace currently carries a Zacks Rank #3 (Hold).Some better-ranked stocks in the broader Zacks Computer and Technology sector include Applied Materials AMAT, Inuvo INUV and Analog Devices ADI. Each stock carries a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Applied Materials shares have gained 107.9% in the year-to-date period. Applied Materials is set to report second-quarter 2026 results on Aug. 13.Shares of Inuvo have plunged 56% in the year-to-date period. Inuvo is set to report the second-quarter 2026 results on Aug. 11.Shares of Analog Devices have rallied 39.3% year to date. Analog Devices is slated to report fiscal third-quarter 2026 results on Aug. 19. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Dynatrace, Inc. (DT) : Free Stock Analysis Report Analog Devices, Inc. (ADI) : Free Stock Analysis Report Applied Materials, Inc. (AMAT) : Free Stock Analysis Report Inuvo, Inc (INUV) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

This article first appeared on GuruFocus. Release Date: August 05, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Total ARR grew 17% year-over-year, with net new ARR of $85 million, up 66% and 41% organically, exceeding expectations. Record new logo growth of more than 160%, with an average land size of nearly $285,000, indicating strong market traction. Log management consumption nearly doubled to $200 million annualized, becoming the fastest-growing product category. AI-driven monetization is expanding, with over 1,000 customers using Dynatrace for AI observability and 800 for agentic capabilities, driving 1.5x higher consumption growth. Non-GAAP operating margin of 29% exceeded guidance by 100 basis points, and the company raised full-year revenue and EPS guidance. Adjusted free cash flow of $309 million in Q1, with a trailing 12-month margin of 28%, reflecting strong cash generation. Gartner named Dynatrace a leader in the observability platform Magic Quadrant for the 16th consecutive year, validating its architecture. Foreign exchange headwinds are expected to reduce ARR by $14 million and revenue by $4 million, an incremental impact of $23 million and $19 million, respectively. The company maintained its full-year ARR growth guidance despite strong Q1, signaling caution about sustaining momentum. Net retention rate (NRR) remained at 110%, with no improvement expected until the back half of the year due to light renewal periods in Q1 and Q2. The CFO's planned retirement introduces leadership transition uncertainty, which could impact strategic execution. The company has not decided on premium pricing for on-demand consumption, leaving potential revenue upside untapped. Dependence on large deals creates quarterly variability in net new ARR, as evidenced by the exceptional Q1 performance that may not be repeatable. The AI observability market is still nascent, with most enterprises in early adoption phases, limiting near-term revenue contribution. Warning! GuruFocus has detected 5 Warning Sign with ELAN. Is DT fairly valued? Test your thesis with our free DCF calculator. Q: Can you provide more color on the record net new ARR growth and where you're finding success with new logos?A: Jim Benson, CFO: This marks the fifth consecutive quarter of building average land size, reaching nearly $285,000 this quarter. The strength is driven by go-to-market changes made two years ago, with investments weighted toward strategic and enterprise accounts. We're benefiting significantly from the emerging trend of customers seeking platform and tool consolidation, moving from fragmented tools to a single vendor. This is our number one sales play, and consolidation offers economic benefits to customers, making it a sustainable driver even in budget-constrained environments. Q: You posted 40% organic growth in net new ARR, but the full-year guidance implies a slowdown. Can you rank the upside drivers and discuss sustainability?A: Jim Benson, CFO: The math is correct; we won't see 41% growth every quarter due to the lumpy nature of large enterprise deals. However, we expect tailwinds to continue, including large new logo lands, significant DPS contract renewals in the back half of the year, robust consumption growth, and logs nearing $200 million. This is the fourth consecutive quarter of trailing 12-month improvement in net new ARR growth (17% organically in Q1), demonstrating building momentum. Rick McConnell, CEO: AI is driving even greater consumption and shifting the market mindset toward AI observability, serving as an incremental driver. Q: What's driving the increase in customers moving to autonomous operations (from 500 to 800), and how do you monetize that?A: Rick McConnell, CEO: We see agentic evolution in both traditional and AI workloads. In traditional observability, we're moving from reactive to proactive to predictive to autonomous, where our deterministic AI provides causal insights enabling agents to take autonomous action and auto-remediation. In AI observability, agents help validate LLM accuracy and build/run code. We monetize these agents directly through DPS usage. Jim Benson, CFO: Customers leveraging AI grow consumption at 1.5x the rate of non-AI customers, and while they burn down commitments faster, this should lead to future expansion opportunities. Q: How does the renewal installed base look over the next three quarters, and what's the behavior of customers renewing DPS contracts?A: Jim Benson, CFO: Renewals are heavily weighted to the back half of the year, with about 70% of DPS renewal activity or annual resets occurring then. Q1 and Q2 are light renewal quarters. We expect NRR inflection in the back half as consumption continues to grow. All three DPS cohort classes come up for renewal this year, presenting expansion opportunities. Regarding BindPlane, it exceeded our expectations at $13 million ARR (vs. $10 million expected) and will be an accelerant to our logs business, growing at a robust rate. Q: Did the deals that slipped in EMEA last quarter close, and how is the global pipeline of big deals looking?A: Jim Benson, CFO: EMEA had a very strong start to the year with a good Q1, rebounding from Q4 softness, though it wasn't the primary source of growth. The pipeline continues to be weighted to large deals, which is the nature of our sales motion. We recommend looking at trailing 12-month net new ARR to smooth out the timing impact of large deals. The pipeline remains robust. Q: Have you made any decisions on premium pricing for on-demand consumption, and how does that factor into guidance?A: Jim Benson, CFO: We have not made any decisions to change our pricing mechanism for on-demand consumption. We continue to evaluate it internally, but our guidance does not assume any change. Even if we made a change, it would need to be rolled out over time for new and existing customers and would not have a material impact on the fiscal year. Q: Why is logs a bigger driver for NRR improvement, and when will that show up?A: Jim Benson, CFO: It's all about timing. The customers driving significant logs consumption need to fall into their renewal cycle. Q1 and Q2 are light renewal quarters, so we won't see the same level of expansion activity. However, logs consumption has grown from $100 million to nearly $200 million in just two quarters. As this consumption growth continues into the back half of the year, we expect to see an inflection in NRR. Q: Did you see any pull-forward from Q2, and does the strong Q1 change your thinking on the first-half/second-half split?A: Jim Benson, CFO: We had a better start than expected, and there's always variability in deal timing, especially with large deals. We expect a very strong first half and double-digit net new ARR growth every quarter. We're maintaining our guidance to be prudent, as we historically don't change it after Q1. However, this doesn't mean we lack confidence; we're quite confident we're on track to accelerate ARR growth for the year. Rick McConnell, CEO: Our focus is ARR acceleration, driven by strong consumption, log growth, AI workload evolution, and back-half renewals. Q: If log growth slows, can AI monetization levers (higher telemetry, AI observability, agent monetization) replace it?A: Jim Benson, CFO: We don't expect logs to slow. At $200 million, given the size of the opportunity and our differentiation, we expect to be a huge share gainer. Growth outside of logs is also very healthy, including infrastructure monitoring and full-stack. Rick McConnell, CEO: End-to-end observability is the foundation for everything, including AI observability and autonomous operations. Logs, traces, metrics, application monitoring, and infrastructure monitoring in a unified platform are critical. AI observability is an evolution of this foundation, not a replacement. Q: How do you size the long-term opportunity for Dynatrace Agents relative to AI observability?A: Rick McConnell, CEO: The evolution will be measured over time, not a radical shift in mix. AI observability is a catalyst because the more you do, the more you use us for end-to-end observability. We believe the $10 billion TAM by 2030 represents a significant increase in our addressable market. We won't provide a specific percentage, but it will evolve meaningfully over the balance of the decade. Q: How is For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Dynatrace (DT) came out with quarterly earnings of $0.48 per share, beating the Zacks Consensus Estimate of $0.45 per share. This compares to earnings of $0.42 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of +6.67%. A quarter ago, it was expected that this software intellegence company would post earnings of $0.39 per share when it actually produced earnings of $0.41, delivering a surprise of +5.13%. Over the last four quarters, the company has surpassed consensus EPS estimates four times. Dynatrace, which belongs to the Zacks Computers - IT Services industry, posted revenues of $554.55 million for the quarter ended June 2026, surpassing the Zacks Consensus Estimate by 0.96%. This compares to year-ago revenues of $477.35 million. The company has topped consensus revenue estimates four times over the last four quarters. The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Dynatrace shares have added about 5.5% since the beginning of the year versus the S&P 500's gain of 13%. While Dynatrace has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately. Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions. Ahead of this earnings release, the estimate revisions trend for Dynatrace was mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. It will be interesting to see how estimates for the coming quarters and the current fiscal year change in the days ahead. The current consensus EPS estimate is $0.48 on $569.58 million in revenues for the coming quarter and $1.95 on $2.33 billion in revenues for the current fiscal year. Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Computers - IT Services is currently in the bottom 38% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Cerence (CRNC), another stock in the same industry, has yet to report results for the quarter ended June 2026. The results are expected to be released on August 6. This automotive artificial intelligence developer is expected to post quarterly earnings of $0.13 per share in its upcoming report, which represents a year-over-year change of +44.4%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days. Cerence's revenues are expected to be $68.26 million, up 9.7% from the year-ago quarter. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Dynatrace, Inc. (DT) : Free Stock Analysis Report Cerence Inc. (CRNC) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Management attributes the 66% net new ARR growth to a maturation of the go-to-market transformation and a record new logo growth of more than 160%. The observability market is shifting toward an AI-first era where unified platforms are required to manage the increased complexity and speed of autonomous agentic systems. Log management remains the fastest-growing product category, with consumption nearly doubling to a $200 million annualized run rate in just two quarters. AI is driving platform value through three distinct channels: increased telemetry volume from AI workloads, demand for accuracy-based AI observability, and direct monetization of autonomous agents. The company is positioning itself as an open, interoperable foundation for AI-powered businesses, leveraging acquisitions like BindPlane and DevCycle to support open standards like OpenTelemetry. Strategic consolidation is a primary sales play, as enterprise customers move away from fragmented point solutions toward unified platforms to achieve better economics and operational outcomes. Management maintains high conviction in accelerating ARR growth for the full fiscal year, supported by robust consumption trends and a heavy renewal base in the second half. The AI observability total addressable market is estimated to exceed $10 billion by 2030, growing at more than 50% annually as enterprises move from early phases to full deployment. Net Retention Rate (NRR) is expected to see an inflection point in the second half of fiscal 2027 as significant DPS contract cohorts reach their renewal and annual reset periods. Guidance assumes a prudent approach early in the year, factoring in a $14 million foreign exchange headwind to ARR and a $4 million headwind to revenue due to U.S. dollar strength. Future monetization will increasingly focus on 'agentic' usage, where Dynatrace Intelligence charges for autonomous actions taken by SRE or Assist agents to resolve system issues. CFO Jim Benson announced plans to retire by the end of the fiscal year, with a formal search for a successor currently underway to ensure a smooth transition. The BindPlane acquisition contributed $13 million in ARR during Q1, performing ahead of initial management expectations. The company updated its financial reporting to use 'adjusted free cash flow,' which excludes restructuring and acquisition-related expenses to better align with non-GAAP operating income. Share repurchases were accelerated in Q1, with $275 million deployed as management views current share prices as undervalued relative to operational momentum. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management noted that while 41% growth may not occur every quarter due to the nature of large enterprise deals, the trailing 12-month growth has accelerated for four consecutive quarters. The pipeline remains weighted toward large strategic accounts, which can cause quarter-to-quarter variability in timing. AI workloads generate dramatically more telemetry than traditional systems, and customers using AI cohorts are consuming the platform at 1.5x the rate of non-AI customers. The company is monetizing the 'accuracy' of AI models, a new requirement where observability must verify if LLM outputs are trustworthy. Q1 and Q2 are historically light renewal periods; approximately 70% of DPS renewal activity occurs in the second half of the fiscal year. Management expects the high consumption rates seen in Q1 to lead to significant expansion opportunities when these contracts reset later in the year. Management has not yet decided to implement premium pricing for on-demand consumption (ODC), though they continue to evaluate the mechanism internally. Current guidance does not assume any material impact from potential pricing changes in the near term.