Dynatrace, Inc. Q3 FY2026 earnings call

• Dynatrace delivered very strong Q3 fiscal 2026 results, exceeding guidance across metrics. - Stabilized ARR growth at 16% with three quarters of double-digit net new ARR growth. - Annualized logs consumption surpassed $100 million. - Highlights from Perform 2026 included the announcement of Dynatrace Intelligence, a new agentic operation system. - Customer stories showcased significant benefits like improved reliability and reduced incident times. - Strategic collaborations with ServiceNow and deeper engagements with hyperscalers. - Acquisition of DevCycle to extend left to developers for feature management.

Dynatrace, Inc. delivered strong third quarter fiscal 2026 results. ARR ended the quarter at $1.97 billion, representing 16% growth with three consecutive quarters of double-digit net new ARR growth. Total revenue for Q3 was $515 million, and subscription revenue was $493 million, both up 16%. Logs consumption surpassed $100 million with over 100% year-over-year growth. Net new ARR in Q3 was $75 million adjusted for foreign exchange movements, up 11% from a year ago. Average ARR per customer is nearly $500,000, and gross retention rate remained in the mid-90s.

• Raised full-year ARR growth guidance to 15.5% to 16%. - Increased total revenue and subscription revenue growth guidance to 16% at the midpoint. - Raised full-year non-GAAP operating income guidance by $9 million and free cash flow by $13 million, resulting in a non-GAAP operating margin of 29% and free cash flow margin of 26%. - Raised non-GAAP EPS guidance to a range of $1.67 to $1.69 per diluted share.

• Actual results may differ materially from expectations due to risks and uncertainties discussed in SEC filings, including those related to economic conditions and competitive landscape.

Q: Hey, good morning, and congrats on a great quarter. My question was if you think about what you see in the client base in terms of understanding how your automation story is coming together, how it's important to kind of bring all the different data sources together in one place. What does it mean in terms of engagement level with clients, etcetera? Are we seeing an ongoing kind of bigger kind of debate about, like, or a bigger momentum they are building? What do you see in the pipeline in terms of deal size, etcetera? Just kind of seeing how that momentum is ongoing.

A: Hey, Raimo. Thanks so much for the question. I guess where I would start is end-to-end observability is what we are seeing as being very, very strong in terms of a sales play and momentum at the moment. This is where our customers are looking to expand. They are realizing that there are extraordinary tools for all. That there is a lack of expense management in that and poor outcomes. And so this is, I would say, the number one area where we are seeing momentum in the business is precisely that. And as you look to an AI-first world that's coming, it becomes even more pervasive. The end-to-end observability is a mandatory foundation to be driving those kinds of outcomes.

Q: Yes. Thank you for taking the question. Congrats on the stabilization in ARR growth for the last several quarters. I wanted to ask a follow-up on Raimo's question. In a world where agents are doing a lot of the investigating and the triaging on incidents versus human site reliability engineers, there's sort of two questions there. What's the pace of that change? Like, how realistic are we going to see that sort of environment in the next couple of years? And then two, from a product perspective, how does that change observability and how does that change, you know, how customers will use Dynatrace, Inc.?

A: Hey, Sanjit. So in terms of pace of change, I think that there is still a lot of apprehension about just how much conviction organizations have in driving AI and AI outcomes. So I think it's going to evolve over a period of time. Having said that, I do think that there is a significant change in observability as we look to the future and that it really becomes, in our view, the control plane for enterprise AI. And what I mean by that is simply that observability becomes foundational to this agentic action. Without deterministic AI, without assuredness of understanding what the baseline problem is, and, of course, we use the notion of answers, not guesses here, you simply cannot take agentic action. So the steps that we see that organizations have to go through are, number one, you have to get the end-to-end observability because that's where you get the broadest, most concrete outcomes and answers. Number two, you then use that deterministic AI to develop an understanding of what actions need to be taken. And then number three, and only then, can agentic AI take over, cut some action, and probably only with a portion of the actions required for auto-protection, auto-remediation, and auto-optimization. So it is going to be a journey, but that journey is beginning today, and that journey begins with end-to-end observability followed by leverage of deterministic AI as a mission foundation for agentic AI to follow.