Dynatrace, Inc. Q2 FY2026 earnings call

Key Points

• Dynatrace exceeded guidance across all metrics in Q2, with ARR up 16%, subscription revenue up 17%, and pretax free cash flow 32% of revenue on a trailing 12-month basis.
• Emphasized AI-powered observability as mission-critical, with the third-generation platform including Grail, Smartscape, Davis, Davis Copilot, and an automation engine for end-to-end observability.
• Highlighted partnerships: Co-announced strategic collaboration with ServiceNow for autonomous IT operations, integration with Atlassian for incident management, and joining GitHub's Model Context Protocol Registry for debugging.
• Update on growth drivers: Logs business growing over 100% YOY, strategic accounts pipeline up 45% YOY, DPS licensing model with 50% of customers and 70% of ARR, and total platform consumption growth over 20%.

Dynatrace delivered strong second quarter fiscal 2026 results. ARR ended the quarter at $1.9 billion, representing 16% growth. Subscription revenue was $473 million, up 17%. Logs is the fastest-growing product category, growing well over 100% year-over-year and rapidly approaching $100 million. DPS licensing model reached a milestone with 50% of customers and 70% of ARR utilizing it. Total Q2 consumption growth was more than 20%.

Guidance

• Raised full year ARR growth guidance by 100 basis points at midpoint to 14%-15% constant currency growth.
• Raised total revenue and subscription revenue growth guidance by 75 basis points at midpoint to 15%-15.5% constant currency growth.
• Raised full year non-GAAP operating income guidance by $8 million to a non-GAAP operating margin of 29%, with free cash flow margin 26%.
• Raised non-GAAP EPS guidance to $1.62-$1.64 per diluted share.
• Q3 expected total revenue between $503M-$508M, subscription revenue between $481M-$486M, non-GAAP income from operations between $143M-$148M, and non-GAAP EPS $0.40-$0.42 per diluted share.

No specific detailed risks discussed in the transcript beyond general mention of risks in Dynatrace's SEC filings.

Q: Fatima Boolani from Citi asked about net retention rate lagging despite favorable momentum.

A: James Benson responded that NRR is a trailing 12-month metric, and while momentum is strong in net new ARR, it will take time to see movement in NRR.

Q: Matthew Hedberg from RBC Capital Markets asked about go-to-market productivity and linearity.

A: James Benson said productivity has lifted from go-to-market investments, and the 6-month quotas are improving linearity.

Q: Brad Reback from Stifel asked about convergence of net new ARR and subscription revenue growth with consumption.

A: James Benson explained that consumption is a leading indicator but revenue recognition is ratable, so convergence takes time.

Q: Eric Heath from KeyBanc Capital Markets asked about focus on consumption and logs.

A: James Benson and Rick McConnell discussed consumption as an important leading indicator and logs' rapid growth approaching $100 million.

Q: Noah Herman from JPMorgan asked about seasonality.

A: James Benson said pipeline is healthy, but prudence is built into back half due to large deal timing variability.

Q: Patrick Colville from Scotiabank asked about macro trends and net new ARR.

A: James Benson and Rick McConnell stated demand is healthy and poised to benefit from macro trends.

Q: Jake Roberge from William Blair asked about learnings from large platform deals.

A: James Benson and Rick McConnell discussed strong win rates and timing variability of large deals.

Q: Matthew Martino from Goldman Sachs asked about AI native wins.

A: Rick McConnell discussed AI native companies attracted to Dynatrace for deterministic answers enabling agentic action.

Q: Ittai Kidron from Oppenheimer asked about DPS adoption.

A: James Benson said DPS adoption could peak at 80%-85%, with progress continuing.

Q: Ryan MacWilliams from Wells Fargo asked about early DPS renewals.

A: James Benson discussed early renewals driving net new ARR and sales comp incentivizing expansions.

Q: Sanjit Singh from Morgan Stanley asked about ServiceNow partnership and DevOps.

A: Rick McConnell discussed ServiceNow partnership for autonomous IT and APIs for agentic operations.

Q: Howard Ma from Guggenheim Securities asked about sales comp and early renewals.

A: James Benson said sales comp drives behavior but proactive customer engagement is key.

Q: Andrew Sherman from TD Cowen asked about visibility.

A: James Benson and Rick McConnell stated visibility and confidence are higher now with better pipeline and execution.