Dynatrace (DT) 2 Nov 222023 Q2 Earnings call transcript

Greetings. Welcome to Dynatrace Fiscal Second Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. will President the of I Noelle over time, Vice Faris, Investor this now conference turn to At Relations. Ms. Faris, you may now begin.

morning, fiscal call. Good Dynatrace’s Operator. everyone. you thank Thanks, for second quarter XXXX conference earnings And joining

Officer; Joining me are Burns, call on Financial and Chief Officer. Rick Chief Kevin McConnell, today’s Executive

of include on to and or that we These earnings from factors Before comments forward-looking started, a risks as results such statements materially statements. note please statements, get subject and implied guidance. depending uncertainties statements number today’s are actual differ cause that forward-looking regarding such could by revenue to expressed those

on Additional these statements included XX-Q. this concerning our to contained SEC, Dynatrace The call factors is in including statements view obligation company’s or any represent XXXX. in update reports circumstances. Dynatrace’s reflect annual X, report information these XX-K on to Form and with events disclaims Form November the uncertainties forward-looking filing on the risk quarterly future and

between over the of McConnell. Rick our To website. turn see presentation Chief measures, growth. to section Events me be are be As press can during non-GAAP refer our today’s Unless the of we measures a non-GAAP our reminder, let call we section Investor please GAAP And currency earnings the and of constant Executive today these detailed reconciliation growth referring to call. Relations Rick? noted, A the GAAP and that, today’s discuss website. financial non-GAAP release on reconciliation non-GAAP, under the measures to found reflecting otherwise financial some and rate Officer, will with

revenue trailing a XX% morning, million significant top XX-month the in in QX solidly on once with at year-over-year $XX a of margin million, In adjusted and the good ongoing increase beat was was the Subscription platform everyone. expectations an a $XXX on came in our of of run business our XX%. you compelling And Thank Thanks, operating us These cash Dynatrace’s income highlight or value and the bottomline business XX% strong for results quarter year-over-year. flow are ARR currency. today’s of and topline bottomline. coupled constant particular, XX% balanced on they Non-GAAP second call. Noelle, was joining delivers basis, market, of revenue. to strength free testament to again our that ability the model. performance, results our growth and durability

the and innovation month share I’d and to In my addition, operational to scale leadership, believe current will observability on a the investment with performance release I platform the digital guidance including Beginning trends, launch sophisticated sustained and view market-changing in more a about one intended our for to of our enterprises. driven to Grail areas environment like transformation what navigate solutions a last demand long-term for further market our opportunity, moment. Grail. data. the In with and need application of highlight the Kevin successfully the approach of remainder of most market of product and of the meantime, QX launch am we release excited details will prove and share be more comments and has durable complexity year. security the This enormous for resulting remains fiscal of

the very rate to efficiency, on opportunity of tell and was evolution This mandatory improve increasingly in pipeline our are in our been new customers commerce. a net years, come. recent drive for continue catalyst across result to and of the market quarter. satisfaction our them logos solutions XXth our demand to and Our we see in that as facilitate QX This us value growth view our market and is and substantial XXX XXX% We has place and straight generation mission-critical business. the healthy such to key expansion great indicator customer operational greater still a added greater customers than solutions

rapidly begun rates. leading working lengthening increased net and macro environment however, the are on have, that bringing new average economic to our we We see to ARR increased additional spending changing to cycle. Europe. guidance Clearly, caution reflect impact, in in is Consequently, logos are a navigate down to our pressure particularly result and close enterprises expansion

demand rates remains plus strong. remain positioning As and healthy I generation win consistent our competitive and mentioned, very

in coupled evolution, normalize. we with in Given conditions ability growth, as strength P&L economic enterprise provide uncertain market ARR revenue customer our recurring subscription us our pipeline base excellent our confident reaccelerate environment. with model to our are portfolio even economic an and highly Moreover, growth strong resiliency

As I period to focused differentiation exit during the on are said this last economy competitive greater improves. executing well with quarter, once we

Let me platform differentiation. turn to now

approach in hybrid native impossible the and answers times Dynatrace. army ecosystems immediately ecosystem. awareness in deliver we announced and Our data. uptime By security. and top Dynatrace to an ensure This with broadest take automation It the recognition of for position industry’s ISG type, dashboards, single maximum observability Performance to leader our and and entire secure a becoming uncontainable this solution security. data solution leading people position. and application power organization’s to product position deepest even leadership combines platform approaches flawless quarter, consecutive and rapidly XXth This and with Observability action network reflects different. as native operation our leveraging application navigate of customers radically Last October, deliver is precise named a from Provider multi as an cloud in the application observability not comprehensive Whereas software observability, AIOps cloud a deliver Gartner provide successfully strength with continuous is position complexity. leader to enables Quadrant released at of for intelligence software both our broad-based cloud-native performance. our intelligent their corroborate cloud for runtime security address or the that Monitoring our the does other single its for end-to-end in centers increase we them oversee our overall a and Industry observability It triage to cloud customers In rather analysts time. Dynatrace, enables automation deliver we and expertise, XXXX digital in as well leader to which providing interactions enables by Magic solutions, convergence our security. in Application a in all Lens and it a situational their is

logo in QX, modules. of landed agree, customers the them leveraging XXX are that Our three-plus customers new of over half we well

in XX-month few average The with trailing land customers I’d addition, size increase because saw In to to typically $XXX,XXX. an QX growing logos the platform we our of Dynatrace wins. our share reason is a examples of and choose just like strength new our of

that deployed selected with technology power platform. of example the providers, across one X,XXX the recognized First, a this is largest a customer organization marketplace also This complexity having multinational strategic DXC. modules. multiple partner the from and clouds Dynatrace observability of our scale new in for of energy made companies AWS five unified They applications a leveraged world’s channel, need support the of our created their across cloud great significant partner, and With our over Dynatrace. the investment a of

organization Dynatrace. efficiency AI, and customer efficiency a reduce to operational the One multiple large once customer financial to consolidating eager cost customers experience, are seeking is and of relationship experience such expand improve by disparate automation Second, enhance scale with tools. and they their

cloud application any to customer result, throughout to in accelerate resources crucial processes. the day. with a with the noise that saving customer their made one example time the commitment the ability global base. They a this gave help Dynatrace initiative struggled speeding lines. player by Dynatrace. offering matter, few see customer hundreds eight-figure their the security identified strategic given and focus These through trends just As to widespread our on are up an of AppSec examples them really and highlights continued third the our they migration. vulnerabilities largest are cruise of a on also them the on the standardize Dynatrace development that traction of prioritizing They vulnerabilities of sift as A

continue year. We releases of We maintain aggressive differentiator our major Dynatrace. core XX per on to innovation a as focus delivered

constantly adding Our innovation humming, engine product functionality leadership. accelerate to is

data us It is purpose-built key Davis. market. R&D majority take respect that a quantum in the PurePath, solution the platform, module to With product the of along to to of and $XX R&D examples strategic excited extremely lake observability becomes We our AppSec is OneAgent, thank will TAM but to and great Grail, the and with and billion these Dynatrace’s team I’d as on as it of to a ingest, Grail forward parallel innovation. vast over Dynatrace and growth changes think you end-to-end our for capture years and new as opportunities work working game not it management a we real-time few bring technology Founder leap teams are the an like data are of Greifeneder, in it moment Grail faster. initiatives. Smartscape joining and for differentiation see enable our enables. fact, processing should element technologies core about competitive analytics. additional and of house Bernd In groundbreaking our our this for comprehensive a to massively investment CTO, plethora their immense a past

the market. attributes, here that areas are While in there are Grail many it three differentiate salient

enables really types, myriad Grail of data effectively et their context cost while of data, traces, a organizations all metrics, ingest user including data, to against retain First, cetera. and across preserving logs,

language or scale time. that of of cases use on the single complex be Grail a query. Second, new advantage even Grail near to to most can takes queries in Dynatrace third, the resources easily that compute And thousands for build operating hyperscaler parallel processors leverages massive query can in DQL, real run

for is for management a Our continue Grail as is market see analytics, we that first log disruption. to use which and case ripe

in impact Services. month for While see to Financial of its have we up XXX to Grail expect of customers ARR don’t a XXXX, is strong Toyota availability. FY in meaningful demand less lined to a One Grail than delighted nearly with POCs adopter early are early we

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to we DXC solution company. observability services expansion X preferred now has addition of ours alliance week, they relationship digital agreement formal announced our announced the our customers automate a leading with their been cloud and Dynatrace plan Deloitte, helping last of a time platform technology the a its optimize and DXC significant with their embed that In within Platform we partner DXC, to as and services. solution long

to In and a addition, global DXC bring program agreed customers Dynatrace to to launch strategic worldwide. have solution the joint go-to-market

are to we investment protecting In addition in innovation and equally commitment partnership, to committed and to our strategic thoughtful margins.

continue increases a model. ahead. in relative discipline in in to plan as challenging prior of adjusted our have the bottomline in We way look revised this managing growth expected to we an in year XXXX our yield increase headcount guidance and execute the and balance Overall, with way we in top OpEx margin and balanced proven our our have environments, to alignment delivering we FY topline through planned to while operating to

leading financial to turn Jim on Jim as I to the the team. confident like our share leadership partner I proven CFO. previously scaling moment is CFO organizations. of over and leader track thrilled to I me and thoughts that I’d global join am Having to he be with my call Akamai, to a transition. with have a a Benson am take worked tremendous will Dynatrace record to Before Jim finance a at the strong Kevin, global

and by we Dynatrace. appreciate the years like back for I’d much company to this I to process of his thank amidst leadership search calendar delivered organization of the to strength Having quarter look profitability May of leadership. uncertainty to closing, engagement for macro be for Kevin finance in this growth intention through rest dedication a customer’s to his the this our in further we forward six commitment past We end remain impressed next will business want opportunity, the second I of team meet platform extremely very seamless strong drive the that thank to innovation and needs market. transition evolving and free to and their of leave is In and year, I his phase Dynatrace as confident this as Moreover, strength our highly addition, to In in with supporting announced over and Jim. to Dynatrace and continue Dynatrace growth. continue delivers his to market ensuring well flow. rigorous team ourselves a in the with excellent even its cash transition. high the I strong the a differentiate to our the

strength. manage from expect financial to Kevin. and our a near-term prudently a turn We let perspective that, over intend thoughtfully to period With call me position we emerge priorities in this to strategic of expanded from invest the in to

good kind Rick, Thank morning, words, the and you for everyone.

been last to team the the a that and that six see so a opportunity career. such into all be I’d highlight so and Dynatrace It it Together, into part Rick helped jump much one to this community. has Board, talented of a of of truly passion pleasure been John software vibrant like be Dynatrace the successful my thank part rewarding to to years. immense. that is The build the commitment. providing to I and important, built Dynatracers to want opportunity I over rewarding businesses. have for all It me we of is has market I’d our Equally has team. true have Before the most the a thank experience share like business,

successful. our continue on remain You our in resiliency And a achieved to a of be delivered continued Jim, operating as many our last the all base Rick hands I macro quarter as will second the weaken our our are subscription model, we Dynatrace across execution strength of QX. in performance, and now We quarter even strong and performance. Overall, that in highly to our with customer mentioned, saw are we to environment. key enterprise great second Rick the of trends guidance metrics, and in internal and quarter forecast confident over solid fluid of reflected from

strong a to business balanced cash have performance deliver profitability expect growth, We and of flow. a and continue to

and ARR. I As and fluctuations ARR stated. Dynatrace that normalizes unless for with as delivered currency previous focus the adjusted it rates otherwise perpetual billion. be in in $X.XXX second million down note year-over-year our in growth growth will all quarters, quarter. Please wind the $XX ARR currency will on would or XX% growth of billion quarter. have for incremental that ARR consider adjusted ARR when the $X.XXX the higher been was second reported quarter the Please note you constant headwinds FX

Moving economic on the certainly added logos expectations, an our with in XXX the of line continues we business second blocks in that the be but our quarter, to of to new building by headwinds. for business, impacted growth area

the logos our the ability In with XX-month landed with as continues to tight efficiency deliver efficiencies The look resonate prospects rapidly platform list. of and strategic drive value budget a investment average half ARR was while the platform. quarter. the to lands As to new Dynatrace a basis, to greater on the second observability ROI mentioned, environment. and more modules IT us new in over movement and $XXX,XXX strong of representing that last to operational deliver again, places the or they top once Rick for logo trailing the $XXX,XXX rapid quarter, compared near Dynatrace’s automation three of

again strength adoptions, rate $XXX,XXX we have above trending to been our of Our XXX%. quarter with an customer for customers with Gross the enterprise we the last challenging the continue even net a per From three-plus expansion strong existing years. modules XX% in up was consistently rates for multi-module a second environment. two in that an performance are Overall, see once retention second quarter customer. of using average our of resiliency ARR delivered nearly pleased at customers now standpoint,

Our proven essential and an given view insights the their as existing operating part ecosystem, customers deliver. us value, of we that efficiencies

was margins, from This success $XXX was that second QX coverage. was for revenue revenue second to our X points XX%. second primarily showed down strategy the quarter the in cost for and margin up revenue. non-GAAP of goods last services up year-over-year and to XX%, gross initiatives With we as partner by $XXX the driven up investments million XX% customer percentage quarter for Total on quarter Moving broader subscription million, expand year. as was of respect reduction

As gross in up half we margins have profile, Dynatrace do I priorities we go-to-market healthy before, anticipate Investments and value back said the for remain have and XXXX. of reflecting efficiency the margin us. and a very platform initiatives in top the select stepping innovation of

revenue. million R&D quarter, For of XX% $XX or the in second invested we

as We launch leadership. is our and of continue steadfast drive to of great market recent Grail ongoing example successful our a to innovation, noted, product Rick commitment

side, partner about go-to-market we the prioritizing XX% and given growth today’s our or $XX sufficient our On investments revenue, strategy. which in from as original year-over-year, we marketing by sales of grew in XX% goal XX% direct slightly environment. we have sales will this quarter and sales invested be headcount rep million capacity down back of expanding pull our We as

Our of income combined by of for revenue XXX non-GAAP the points the non-GAAP guidance margin second end a $XX the disciplined upside, with XX%, investment operating to resulting due quarter operating basis strategy. was range a in the exceeding top million,

million of our or the non-GAAP high $X.XX guidance On was the bottomline, net $X.XX per range. above income $XX share, end

and million trailing increase sheet, same repayments million balance XXth, an period of Looking a year debt million at compared we of the on to $XXX had basis. $XXX inclusive last of $XXX XX-month the September as of cash, of

is seasonality to a in XX-month cash a cash our period was $XXX to cash $XX billings, year. in was flow On to we million million million, basis, XX-month of $XX period. revenue. free or compared free free over XX% flow it trailing believe view Due last best Our flow same the

We of at macro terms to RPO an extremely obligation. The recognize four financial increase was the expect billion million, with is not to healthy last our measure year. needed we the like this have payment over of $X.XX an $XXX pleased next yet generation issues. RPO, to of performance which XX% approximately revenue cash end we was customer over as of remaining increase portion XX% the discuss are continued our to would quarter, and due of modify year-over-year. I that morning QX quarters current last The

are We growth, RPO will contract remember in these it’s rates. demonstrate associated our important that and very with modifications seasonality supports with variability the to and a pleased bookings the of profitability. growth strong balance QX durability model that RPO cause combined, and results When growth of the strong business

Now to me guidance. let turn

demand Our strong. pipeline positioning and very remain rates win and generation healthy remains and our competitive

macro the However, and prevalent in weaken to we more this conditions think is even generally Europe. continue

a in fiscal we be primarily fiscal in As investments in are now balanced half will lower impact ARR, increased continue first the result, than Therefore, the moderating of experienced be In towards ARR reducing to some by what the of ARR we believe order expect year. rates to $XX we we business. end and back half a and to to light this drive this currency constant million on we close the pressure operating of XXXX. will margin guidance increase

me of our some walk you updated is guidance. through the in assumptions key on sightsee So what included let

business of continues logos the by that impacted economy. I weakening the as the area most be to an new mentioned, is First, of

of a fiscal team scrutiny additions down headcount From the new This standpoint, expect headcount logo that, be hiring healthy pace execute in cycles. while have goals. strong the for first budget XXXX basis. half reflecting a and to we Given strategic roughly tighter of elongated maintaining to year, sales over a now growth half last had and in year, X% in flexibility to our provides the in us year-over-year back on still hiring a talented place against moderate we

let’s $XX of creates our $XX approximately incremental full now the sizable approximately currency, and to rates year the of to finally, prior million with XX% perpetual again, With be revenue. the $X to million expect to approximately headwind X revenue impact XXXX guidance, our $XX million in be guidance. ARR with for in and for full headwind. XX QX We This a expected The or the foreign continued And represents of for than that compared with be start year, approximately our strength fiscal constant ARR more with to Third, an percentage wind million basis will constant point. consistent prior in guidance the points. year currency USD currency. growth headwind denominated full in on is business license down mind,

an ARR From to factors above. by and decline $X.XXX ARR $XX XXX-basis-point this prior I between million driven growth a of or constant representing XX%. expect adjusted guidance, a from billion, billion be currency $X.XXX standpoint, outlined We represents the

that ARR net reflect In conservatism new terms further seasonality, between million split of $XXX back and ARR going is the roughly of to XXXX, in we to in expect QX half be evenly QX guidance.

by Given ARR some strength reduction revenue think fact and guidance prior midpoint basis loaded, XX in back-end is raising revenue that of the we points. the we QX our the are

sales efficiencies We total between between $X.XXX billion revenue standpoint, to with and which and remain we appropriate $X.XXX billion marketing. year-over-year midpoint revenue subscription still from profit our and investment growth. billion incremental to enable be billion, XX.X%, will guidance representing and mind, operational offsetting XX% to of additional we From $X.XXX R&D a and in in $X.XXX believe headwinds result the this non-GAAP in We be our a both raising committed XXX-basis-point investments to are to to us With expect guidance. management. that prior operating of increase margin support

a non-GAAP XX.X% are flow per XX.X% revenue. of shares margin finally, We per to diluted to of free shares And maintaining are by rate our cash share non-GAAP per $X.XX effective share tax XX%. EPS XXX million share of XXX $X.XX we raising based to to million guidance on and diluted $X.XX cash

to terms cash expect flow $XXX be we In million. of free between $XXX dollars, million and

million, revenue and growth. between $XXX.X standpoint, or XX% is be profit million total a between XX% to expect revenue Looking between at million XX% be $XXX to is up expected year-over-year. Subscription $XXX.X $XX.X non-GAAP From income to million $X.XX and to million of of expected XX.X% be operating we increasing XX% amidst our EPS $XXX to QX, revenue headwinds. environment business and to is purpose a navigate macro and results second quarter our transitory demonstrated fiscal million, summary, performance share market built $XX.X share. conditions. per challenging It’s per model $X.XX durability XXXX to of strong these In the non-GAAP and

are We to mindful and will strategically and in of go-to-market. being investments our continue innovation we prioritize

Our and And to strong healthy customer enterprise will open base, and us we line subscription position model with combined financials, that, profitability business as forward. a for we world-class predictable continue people for growth Operator? organization, with and the resilient questions. move

of you. Hedberg you. line one from And proceed our is Please question Thank first with RBC Capital your the Markets. Thank [Operator with question. Instructions] Matt

think, Thanks questions. a lot versus guess it’s about of Kevin, the that’s it first really I for this looks up a I we ARR like that half looking either really Rick folks be the nice taking getting XX%, of about I the the tough are, Good or QX morning, was second last cut. assumptions, a my at, my new will math, down for confidence from question XX% quarter guess And guys. level sort are your half, of and your that in and kind for Kevin, tape. of

helpful what significant with you assumptions, of know like I And a kind or looks get the underlying us of ARR can assumptions anything but so else conservatism. maybe some maybe of level that gave

in mentioned, were -- We you and to in certainly we Thanks, with as No. expectations connect. the well. externally quarter were and Good certain the as obviously Matt. internally pleased it came of performance ahead Sure.

performing the and regions. looked So imagine, the performance. am about see just we back you the area. coverage can European coming at pressure I were you as how half, thought we -- and conditions And went are in we out economic When that with and expecting continue though, pleased geographies and we and back pressure the the we of pipeline to also additional are additional the sure

ARR do logos -- standpoint that of we reduce will will -- down European -- by a actually guidance. some of primarily world. million, some what on there most and the be out back-end is loaded the net talked, bit be reduction year-over-year be call, we coming by logos, Europe will against the the and net X% generally slightly the it’s We believe, on in a little That be in thought expansion $XX as as part Matt, as that rate. we and generally expansion the new our of So we did a new obviously, We pressure, of put guide have increased bookings focused said revenue pressure that where we revenue obviously, I indicative that’s though, this will adjustment rate. of we think from will

going cautious. we So to very did very be -- Unfortunately, be QX. and into it again. just back-end want reset to be to -- trying loaded, conservative trying we QX We we once. Unfortunately, had to do

on bullish the very business. are We

it to We and deliver on expectations are need QX will with that optimistic, QX. but we we balance setting into

Yeah.

add Let Matt… me just quickly,

Sure.

… and question. thanks for the

is sales overall Kevin business. said, The deferred, we in this Pipeline that’s in all, very and That of purchasing are as are Europe cycles. some elongating is some challenge a confident First great growing. getting sign. particularly decisions is

to to sought as wanted talked product second about we the So that’s the to we half. of which about evolution, in going the de-risk are to how very model that’s second business the great what the half and manage leadership strong, and we I we business, the do. health and look overall Overall

even starts a maybe when ARR. think XXX expect for exciting of that the the to your is but the Grail, early I just just you obviously, that for to customers it fiscal Is hit question, on think you then, when That’s comes mean, I benefit? about things Rick, maybe And in, POC, XXXX future, should of as super here, a we know sort to monetization that do of, helpful, one there guess, -- just it’s still I eventually about driver? eventually, lot how it more guys. how on eventually a maybe

we We to disruption. that and and Matt, our we the we globally given getting We have customer and very, customers I very customers. month are six from said, constructed opportunity log believe is first-hand prior unique here. over thrilled sections, believe executed market with interest technological the that early that we management to which as of in advantage for innovate we right saw demand the the this Sao analytics framework from weeks, Paulo take Well, feedback in and have a London very Singapore,

we it. million an we analytics said add think So believe can feel about so over We quarter with of log and or ARR $XXX is that eight-quarter or good which we as very still a infrastructure, what ago, span thereabouts. that management

we still expecting following that’s launch. So what are

Thanks, guys.

you. Thank

line next of the MoffettNathanson. comes Our question Auty your with Sterling proceed question. with Please from

Yeah. Thanks.

that, notable factor you in saw a your first, ARR you Kevin, future slowdown of endeavors. We and that to right guide? question, How did of out in I good all for and year Thank congratulations. the the you full luck And drill the customers. confidence So, in then wanted that’s into existing terms what the hyperscalers. gives the hard on all of level with the terms work the

working So, thank you. been you, great with Sterling. It’s

well. you questions So the great have appreciate I and as always business covering great in insights the and

say how So to that. will nicely. of absolutely I our Thank hyperscaler of it the appreciate guidance business part about hyperscalers, grow the our With our continues I was respect ARR equation. to we you. thought that component

did printed publicly. slowdown So that see them they of some dramatic a we of didn’t a

the term, the in over in the thing the talk one that announced one other are but about about hopefully the DXC, we as So excited that that to we as I’d are about quarters will that. of we with have couple near is just developing, GSI the we next future And partnerships the near we we opposed ones more super again that well. Deloitte, other are process right, say pleased that

So some slowdown. definitely we from took hyperscaler adjustments

We are pleased We there’s with tailwind the on the GSI. performance also do think internally. another

tailwinds am to we definitely and today. but guidance that adjusted not up excited we trying seeing about are we there too I some tailwinds our some So think but it, down, that walk get there’s

is over well hyperscalers obviously becomes and $XXX The as for that base, the I opportunity especially more obviously, revenue the already. we more down standard the be rate even deployments, billion Sterling, we have of opportunity base hyperscalers. growth that, to a prior quarter obviously continues It a is with cloud strong, huge becomes would and thing over that commonplace, only penetrate well, in to enterprise installed lot for is observability customers, add, in though there the installed of believe that market

Understood. Thank you, guys.

Thanks.

Sterling. Thanks,

Our next Blair. William Please line with Kamil question is your from proceed the question. with Mielczarek of

just Hey. to Thanks of the question. want taking for understand I linearity better demand. my

few progressed, quarter the deterioration did the in December As you the weeks change sales of that and in the did first see quarter? largest when how

Kamil, we better. So performed if as mentioned, in expected, QX, as not it business our slightly performed slightly

in So quarter. -- we reached the bit definitely our came performance in for in linearity little terms came a and line with linearity of expectations line expectations

elongate. to believe look the about QX, are When It be into into pleased to -- continue be -- is seems cycles tougher, look will we that. approach when So, deal we QX, to just economy more right? we our getting cautious,

that’s close As Rick are the and rates we driving. said, them our QX what’s QX, pipeline win have great, in we really slow expect to coverage, just down but and rates, great

all are a cautious back the we metrics, Top the we how we it’s a the doing about great, sort bit fill are half of year. wanted adjusting but be funnel, really is So close win as guidance. those -- rates assumption those into just little rate fiscal our to are thinking more of

sales the update and XXXX could rep of slowdown hiring, hiring That’s I helpful. has us And targets whole like to-date? follow look if can pace a up, in for and a your Kevin just business what out called you hiring as for slight fiscal -- Kevin on the

total great. mentioned, the is side, which I’d marketing little midpoint a XX% a So, definitely growth, sort as we for slightly did and about headcount through say there. -- little our bit of company ballpark year, we are and sales R&D XX% the and are at growth sales on we higher I innovation

So half we the talent Board. of great a getting did the job in first on great

is which great. well, as high very is retention Our

that help our can mature we as better and will sales also revenue. have I capacity, we think go more

midpoint at of where we that’s the So are year.

to in that XX% sales grow continue and R&D will We plus range.

good and will generally. see down here some will months slow next We other how play then the out quarters things over six we the

a I line it year ending and the punch around little XX% probably headcount with think, fiscal higher growth I will in go-to-market. So think is, be bit the innovation

and color again. the thanks Appreciate it. Got

Raimo from line of question. is the Please your next with Our Lenschow Barclays. with proceed question

Hey. Thank you.

if like driving of So review, as the that how the how close or is other companies of put usually is the -- CFO final working, think be of you terms of of stop to let the in is Kevin kind everything I kind -- about the rate at close the where but like, look seems -- we kind kind one. the, scenario, like, one rate

the fine. If you your pipeline you look and said is coverage about pipeline totally

a If before, where kind then conservative? the also through there in like all I to pipeline have about want step you is one you like the still close and Rick. of how you final what think but rate track the the of be change seen that they or more follow-up for And seen pipeline, is deal have you like sizes have

aren’t it’s -- Raimo, and are historically. cycles, course, is our and But just is some -- here what business it the at, rate really of That’s they really we the It elongating there’s parts in close close Yeah. rate. looked means fundamental were which change have moving there. what

mentioned, the European that’s more we and in pronounced again, So what as we see, region. it’s over

seen close rates expect true to we is… it Raimo, we although nothing are rates good close would to to news that the we that suggest renormalize. predicting understand There’s rates, exactly I not the is, as only macro environment the expect environment those we important thing macro that that, the that close while to renormalize. And that have on add as but is is that’s improves, improves, to when

Yeah.

no productive in growth long-range we in pipeline that win think ongoing that’s with very rates, a … and change scenario.

Okay. fundamental. the the of positioning we -- and about think Yeah. Grail your Grail have Makes becoming market, is slightly just you like about like, a do your question how earlier like tool. it’s It’s And on that not number sense. Like mentioned then to more Grail, in like, you one if think other platform products fit it builds product like analytics how just how a are that do underlying positioning in why to like, could about, the like, Thank or you. all little you and everything bit? how about guys platform, together, two, they your like, how year speak you positioning -- Dynatrace think a that think is you does out, it

a scale processing just Sure. performance gives us lake a way. do PurePath, also house at for as parallel cetera, I technology, said, us. cost-effective very mentioned, I incredible Grail, as ability that to like is massively an core that et data and exceptional Smartscape, It OneAgent, is, Raimo, in

So that’s how we sort Grail. of look at

first management deploy will instantiation initially how it and that’s log of Grail. The is we analytics, and

a our forward. So very overall and is perspective opportunity that the take advantage position that’s provide of how technology this unique of going analytics rehydration doesn’t graphing that do a leverage reindexing, on do doesn’t and complex we logs very real-time very, on It market to Grail is sort and near solution in in uses market.

Yeah.

you. Okay. Thank

The next question. & Needham line Mike proceed with Cikos your question from of the with is Company. Please

questions here. for taking the Hey, Thanks guys.

and are guide. second ask logos have I to -- calling out about as cited first adjusted of new wanted The the the from on know both pressures you expansions. was I the Europe expecting we are question in we this year half you around that the and have ARR

XXXX. color decline happy the X% the expect have we new logos that first, So, to year-to-year regarding for fiscal

remainder there playing should plus on below you that thinking potential that the consistent for out of have about Regarding be we the been the a guys posting actually XXX% that net basis? to a year? expansions, Is dip over

Mike, it’s Kevin.

expansion yes, quarter below So, mathematically, -- the on what guidance, based fourth Again, currently net that’s unfortunately, based fall the on in have guided. would our there’s XXX%. rate we

expansion Certainly second the in very healthy. very was rate remains the We prepared remarks in also in it healthy. -- our quarter, highlighted net that our

is quarter us from our always expansion in a big very quarter and customer our back customer to third base. going base Our

So again, we drop rate still and a wanted QX it’s number we net could time. in QX. so, on for early optimistic Mathematically, are about But that to expansion the QX. of period de-risk below

guidance very about ARR something ability boost said, are bullish around be rate significant where the to is. the net I we the opportunity. north board, $XXX,XXX, that of transitory these certainly will coming still on on As walk Rick long-term just expansion in again, think assuming want sell customer well. to With our but in FY items don’t is Grail another around and will business base. are though, as Average continue we numbers XXX%, But XXXX to come in we rebound

shortly. number definitely that it drop XXX%, we that if again, we tailwinds below of a be to there’s will So, and believe lot does think

of the then follow-up elongation like, could are for That’s guys more to Europe outs in clear, neighborhood push just you. wanted one how nature. the Europe, the a given are follow-up, And are in pervasive delta I it’s you that I just more we are more there. calling I Thank fair describing tack probably to if with today. color question, cycle characterize of we months? around these on think, seeing, the helpful you weeks, pressure are that the the And give very being really is rough sales out And can just we was make order I magnitude it’s sure

volume over is then that spilling you And pressure regions of second, of to is that any first other characterization? fair geographic participate a weakness in? So in guys Europe,

is weakness out. macro Mike, but Well, clearly environment in the calling global, we -- pronounced is in are more what which the Europe,

So quarter of one. in that’s with of due point to sales And look quarter close we into at ratio, the feel we as with associated said, deals loss as we we those number last mostly And the overall good that regard any so majority I win no look it cycles, to quarter. vast, rates. close pushed but this vast lengthening cycle close quarters, out the terms in the about change expect to prospects

you guys. Thank much, very

Nowinski Fargo. line Wells next Andrew your comes with question. of with from the proceed question Our Please

want to close margin question with a on I start the expansion. the you. operating Thank Okay. rates and

think rates you that do profitability have? hiring, capacity focus But are maybe the expanding independent possibly that or appreciate do in of on sales of really slowdown margin. your I that So lower you the could and close period you extend rates this those think close

No.

I right. think that’s

think I and we One two they independent I XX%. as the independent, for is, mentioned, are Andrew, sales they think organization reasons. are I grew

the productivity their as mature increase, The much as in about think you that’s is happening clearly right? talked more tenures you well. have other is thing higher And reps, organization I this before, that have

and right? So us rates low maturity, channel, when with rebound. attrition we organization are job have And with done sets time, do can that the conditions think then a to partner believe growth the great well hyperscalers. I the additive which reaccelerate in the is sales macroeconomic Rick piece up XX% over increasing we organization I headcount be the other doing think

talked are larger think the perhaps even the recent we what Deloitte and of we in terms in I is GSIs and doing as the have prepared there done, the including remarks that come with about opportunity well. and we the announcements, partnership more to DXC

I think as the overall, of capacity forward to reaccelerate business a that when conditions So, we us gives rebound. lot move

Thank question Okay. great. on That’s wanted ask a And follow-up you. then I to Grail.

new module. You it’s noted more a that just than

wondering new you legacy add-on see do think this traction initial will at solutions targeted customers? existing at with wondering, you their where warehouse customers lakes of an initially replace am their Grail this sale Grail. -- I is that in So data more is targeted will be to or Just data

are the used where They expansion. is clearly They fruit installed adding trust and to base our in strong our customers lowest hanging net modules. Dynatrace Well, already. have healthy

and than more as more are customers in XX% fact, have greater new XX% now modules with of well. than modules, at three-plus on closing logos than three-plus our We

that. log So also nicely that management and chute cross-platform it play having candidly and solution. experienced and are seen out said into existing is the a interesting analytics we interested even new fits from that, significant their away cross-platform demand sell, customers from a and But and Grail moving have

you. Got it. Thank

proceed America. line the Our Please from question. next of Koji of comes Bank your with with question Ikeda

question. taking had Hey, a on capacity. the guys. sales I Thanks for question

lots current the it how and pipeline rate. growth commentary reacceleration, on You investing but of potential had on the affects balanced to really build, comments the for environment continues close against future, the ARR

curve signal potentially question what ramping so end market, capacity for a demand looking the versus hiring, is around ahead sales a really to you pickup up in trying catch the maybe So of demand? are the here again is to

Koji. I think, hi,

the think leading will continue to I is that monitor. indicator we

looking right, conversion funnel, we as rates going at of top and then to well. be and will rates and rates are win be close We

organization. and So step lot mind the to the keep where lot in bit in of XX organization we more we think Obviously, capacity months, have environment, the we those probably capacity sales a to of what said, into see reaccelerate based to in start move six have we will little give business. think this when that’s I please there But I a we so think that months, a -- would are if we investments. capacity flow once on again, in, productivity in they be going the just

the and organization see So we a will the we the with we think point add as demand... -- a generally this sales Koji, think, organization and headcount good at in are spot partner that we we

prepared Thanks. flexible it. aren’t the then Got the remarks, just more any assumptions But any changes guide, for incorporated you you Thanks, term Kevin. are your for seeing mention thinking And guidance? about there that In quick did within guys. payment follow-up terms right payment maybe now. a

see obviously, added added that forward that with. We decide enterprise comfort on we move just in I we to to that Like, generally, -- give folks negotiating discount. tend that not that not. they terms, the to working When are focus are on There in. projects, are the base they to payment customer would

we are there. So good

the the as good months pretty over six have visibility flow well. cash next into We

impact So was take minimis. de it the see COVID, meaningful. Even in. didn’t we during anything don’t We

move fiscal year needle on guidance. don’t would the expect that the I So

you. much, guys. Got it. Thanks so Thank

The with with question. is next Adam the line Raymond Tindle your from Please of question proceed James.

wanted start of morning. Thanks. Good kind story stock. for just the Rick, Okay. I to with the

potentially we they year more alongside would changed. low where to would lot so this XXXX. the mid-XX% fiscal has be in previously fiscal about to think the thought year, Today, investment and considered and You re-accrete range XXXX to XXXX, be fiscal range product of fiscal the accelerate for an environment then XX% growth in releases, new a would margins obviously,

some about here here. XXXX range wondering of out pushed some are story investment, here, profitability increasing and of in kind your these I today. mid-XX% from investmeXnts how understandably multiple that from of this are margin are means wondering would can think and reset we becomes those You telling how if now initiatives more of an fiscal sense? you growth outlook over the story years am now this if spread and the as am makes I

Adam. Hi, Yes.

we ago, areas. make few quarters incremental investments certain things, few a want did some to So in

expand in for for Those made set and this time those long in the Grail, have ourselves of SDRs, example. investments the up through in us to term. period have enabled business partners, We

margin operated additionally we the have do We what in going expect to forward. mid-XXs that’s operating and

are we boundary resetting at to operating stage. where the margin that’s So an this

by that’s up expect at we midpoint be points ahead. and where it So we look basis we able as to XXX have to the operate taken

the this have match of think factors EMEA of you power about, Okay. coming I on currency why here potential region have particularly about bunch pressure but as am need as in I that the I the you a am are Got I region to think is it. just I how any the the I question, purchasing seeing wondering, up impacts pricing. challenges. this And you customer, some renewals that potential then U.S. that wondering pricing here, am lot maybe quarter. a last reduce from from region? a And as sure of is about to do the follow-up relevant demand and dollar coming that please in add you thinking cut risk as think are

it are deflation and you potential any Thank thinking pricing and how you. about to the in that model. wondering relates Just as happen currency to

Europe, for To clarify, sorry, -- was I I the a question missed region. am your on that

be Right. potentially pricing, to would a will right? which need FX impact reduce headwind whether growth, to and you potentially

in our closer to local if done would I currency operate euro, of we XX% say So XX%. in or Europe. business not is

balance it guidance assuming the the that our is of for So is euro the where remains year.

as economy to are what’s stay are I looking some we price expect we from do now, trying the increases, but our drive tough of user that renewals an respect end well. With So guide, we is adjusted with higher our to customers, actually appreciate to to cost standpoint, we pricing the when we constant additional any to and users end right? see don’t and of -- right up flat. currency there ARR happening assuming pass are on is everything going currency

historically, increases. of price we sort have done low So, single-digit

increase to trying higher forward. move percent realize business are We we as price the a

are We that’s certainly to and think with that we do seeing we the that our work vendors the from right business. thing through

that no increase we So pressures trying make prices certainly there. price specific we additional maintain in margin to and to are over over Europe appropriately sure

Thank you.

is Fatima of Citi. Boolani question. question with the Please line with next Our proceed from your

Good Rick, will question. with start and morning. for taking my for one you I Kevin. you for one you. Thank Rick,

what environment cost as open can they or source doing lower sales DIY, to the budgetary conversation with on can commentary sticking customers discussion in are the contributing in of the some incumbents? conversation? of in terms more of you out I some if cycle to customers Just appreciate protracted. being reasons pushing sticking are are of I it wondering caution, Is the am platform? Dynatrace onto the that’s But share are What granularities nuances lieu launching to these the

DIY two can absolutely DIY. get of as is such just competitor is sophisticated another It what advantage taking capabilities have through they DIY and Dynatrace for Fatima. biggest and another delivers. is currently been typically, trying quarters, that think companies with say our Hi, and by that always sticking you doing have, I deployments AIOps or without doing manage quarter to what performing it We those just that that with

So currently. that’s what’s happening

moderation in conversion, when hiring, Kevin, clearly we And it. some for in free measures moderating your cost your of flow and cash are around didn’t change because the you can see comments that Got on it cash just see free you, that the curious ranges with just the into should flow margin. place now you dovetail

versus Thank factors maybe the how we upside? operating seasonal So margin us the aren’t on side or delayed you. to cash free margin about obvious think should a flow that impact

Sure, Fatima.

flow ARR you we by that. as which free million, about flow took down to mentioned, would on you think $XX generally would cash build depending when generally, So, we through

of our offset up the was that operating why margin cash conversion free to XX%. so operating rate which of ARR, were However, by investments, in offset, generally right, decline maintain margins able went slower we the is to flow income,

change XXXX -- don’t going is in is going trajectory. that FY to nothing the we So happen to

in cash flow a normalized XX.X% based XXXX. not at a rate are We margin. operating things in here on That’s pulling to drive operating just higher run

Operator?

you. Thank

question is of final proceed coming your question. with Our Please from Will with Baird. line Power the

start is cases with the month to expansion Great. are you Thanks on know to or as pertains October expect? wonder some to pressures. for of are kind you top customer logo well is of use of taking you and of are Are expansion as now pressure I there it expectations? prior the look guess, customer that already it and you you question. full of clear, particular the I the expecting Maybe relative through that -- something as perhaps seeing, where seeing year new just follow-up. be just are I the outlook, to workload if weaker something some expecting

that, this have here seen, seeing going is now, to the a whether logo that getting expansion means as new it’s mentioned obviously, we call at It’s new come is implies an not your logo something what number right? come are have deals, during things but expansion which or down. item close and point, deal pushed going rate all rate closed we obviously, to And we are that, rate is down out, it’s those net

change, percentage by over rate a expansion a change two up numbers. net to are just Again, QX. a slight in last adjusted point, quarters have optimistic. the don’t We slight walk very down in given came I that we want ARR seen

continues to the be business that remain wanted resilient, back-end conservative, cautious that perform to number. optimistic bring to we trying down and are We and but

do and a The close accelerate as rates trend -- forward. new tried need of see now be that. we temporary and both only can are is there’s But as in down hopefully is to trends are have extended Europe this communicate implied right come we will just logos in I short-term particular expansion move net So believe no every to result as customer we and we seeing.

to be a of? call big maybe anything see hiring, that out sneak I Kevin, And the to Okay. of know margin assumptions know the moderating piece higher the referenced for nice year, aware that’s then margins I should to we in for higher one probably that, else operating you on

No.

the of and will strategic targeted QX. right? half, some did we the in first mentioned, Rick make be So investments those As reduced in QX

higher P&L, at operating So that income I then, a margin. drives op And generally, can our you have from been we margins. think, see as XX%

and So targeted point, it is are investments QX this as at in really those and we headcount generally here coming made to QX conclusion have well.

things needed we to of two sort the generally. are that those adjust So

you. Thank Great.

Okay.

question-and-answer our to Thank this the closing we I and time, Rick McConnell you. have At will session call the reached remarks. end for of turn over

do appreciate solutions in in am Dynatrace’s differentiation delivering thank very cash high and solid, as growing strong absolutely as Well, free was a you all for it. I we the morning’s very future. QX Grail, our view Dynatrace profitability, and discussed bullish very opportunity strong joining really extremely this business, product to growth, such believe with flow. We has market call.

in participating look this forward in we your quarter continued with several and conferences and are support. coming weeks for thank We speaking to you you the again

This today’s concludes conference.

You may Thank you lines your your disconnect participation. at for time. this