Dynatrace, Inc. Q1 FY2026 earnings call

• Dynatrace had a strong start to fiscal 2026 with subscription revenue growing 19%, ARR growing 16%, and pretax free cash flow at 33% of revenue on a trailing 12 - month basis. - The AI - powered observability platform is resonating with customers, addressing end - to - end observability, AI observability, and business observability. End - to - end observability helps manage the explosion of data and complexity from cloud modernization and AI workloads. AI observability utilizes multiple AI techniques for insights and agentic AI development. Business observability delivers meaningful business value beyond technical analytics. - Proof points of go - to - market momentum include 12 7 - figure ACV deals closed, strategic enterprise pipeline growing nearly 50% year - over - year, strong traction with partner ecosystem (GSIs involved in 10 of 7 - figure deals, and largest GSI partners' ARR contribution tripling year - over - year), and logs consumption increasing 36% sequentially and over 100% year - over - year with confidence in achieving $100 million in annualized logs consumption by end of fiscal year. Analysts recognize Dynatrace as an industry leader, with Gartner naming it a leader in observability platforms for 15 consecutive years.

Dynatrace's Q1 2026 showed strong financial performance. Subscription revenue grew 19%. Annual recurring revenue (ARR) ended the quarter at $1.82 billion, representing 16% growth. Total revenue for Q1 was $477 million, with subscription revenue at $458 million. Pretax free cash flow was 33% of revenue on a trailing 12 - month basis.

• Maintaining full year ARR growth guidance of 13% to 14% in constant currency, with full year ARR expected to be roughly $2 billion. - Raising total revenue and subscription revenue guidance by $7 million in constant currency to account for revised ODC revenue estimate accounting treatment, with total revenue expected to be between $1.97 billion and $1.98 billion, and subscription revenue between $1.88 billion and $1.9 billion, both up 14% to 15%, including $35 million to $40 million in ODC revenue. - Maintaining non - GAAP operating margin of 29% and free cash flow margin of 26%. - Raising non - GAAP EPS guidance to a range of $1.58 to $1.61 per diluted share. - Expecting Q2 total revenue to be between $484 million and $489 million, subscription revenue between $464 million and $469 million, non - GAAP income from operations between $140 million and $145 million (29% to 29.5% of revenue), and non - GAAP EPS $0.40 to $0.41 per diluted share.

Uncertainty related to the fluidity of the macro and geopolitical environment, which can impact the business outlook.

Q: Why not raise the constant currency guide despite strong performance?

A: It's still early in the fiscal year, pipeline is weighted towards large deals with more uncertainty around close timing, and macro and geopolitical environment is fluid.

Q: Who are the customers consolidating with on logs?

A: Traditional log vendors, as isolated log solutions don't meet customer needs and integrated end - to - end observability framework provides better outcomes.

Q: Is expansion activity above typical trend line and driven by expected behavior?

A: Driven by go - to - market changes last year focusing on higher propensity to spend customers, with large expansion opportunities manifesting in closed deals.

Q: Impact of ODC rev rec change on other metrics?

A: No impact on metrics other than revenue.

Q: Difference in DPS cohort versus last year and ODC?

A: Cohorts behave differently, ODCs are weighted relative to small number of customers, and customers on DPS consume more.

Q: How go - to - market changes are manifesting?

A: Growing pipeline and deal closures, with more focus on higher propensity to spend customers.

Q: Learnings from DPS and tariff impact?

A: DPS provides full access and accelerated consumption, little impact from tariffs thus far with cautious outlook on macro.

Q: Pipeline strength driven by log - related demand?

A: More pipeline weighted to log areas as end - to - end observability discussions often include logs.

Q: ODC and customer renewal?

A: Mixed bag of customers, large expansions not necessarily driven by early expansion versus ODC.

Q: NRR and DPS?

A: Expect expansions to be a heavier mix of net new ARR this year due to pipeline health.

Q: AI adoption demand and impact?

A: Accelerating, with more discussion on AI in observability use cases and integration into agentic AI.

Q: Competitive landscape and free cash flow?

A: Little leakage to open source at juncture, free cash flow seasonal with strong first and fourth quarters, light in second and third.

Q: Business skew towards hyperscalers?

A: Skews more towards AWS, with third - generation platform on all major hyperscaler platforms.

Q: New logo adds?

A: New logo pipeline healthy, focus on quality of land with customers landing at right size for higher expansion propensity.

Q: Strike teams and contribution?

A: Strike teams having impact, notably with logs, criteria include product familiarity and ability to accelerate consumption and deal productivity.