Dynatrace Holdings LLC (DT)

“Finally, we are raising non-GAAP EPS guidance to a range of $1.62 to $1.64 per diluted share, representing an increase of $0.04 at the midpoint of the range.”

“Turning to our bottom line. We are raising our full-year non-GAAP operating income guidance by $8 million, translating to a non-GAAP operating margin of 29%.”

“We are raising our total revenue and subscription revenue growth guidance by 75 basis points at the midpoint to a range of 15% to 15.5% growth in constant currency.”

“The underlying strength in consumption growth, coupled with the strong first-half performance gives us the confidence to raise our full-year ARR growth guidance by 100 basis points at the midpoint to 14% to 15% growth in constant currency.”

“Dynatrace's consistent execution gives us the confidence to raise our ARR, revenue and operating income outlook for the full year.”

“Lastly, non-GAAP EPS is expected to be $0.40 to $0.42 per diluted share.”

“From a profit standpoint, non-GAAP income from operations is expected to be between $143 million and $148 million or 28.5% to 29% of revenue.”

“As a reminder, we saw a notable increase in ODC revenue in Q3 and Q4 of last year. And with the revision to estimated ratable revenue recognition treatment this year, this will result in a headwind to revenue growth rates in our third and fourth quarters this year.”

“Subscription revenue is expected to be between $481 million and $486 million.”

“Looking to Q3, we expect total revenue to be between $503 million and $508 million.”

“While we do not guide to free cash flow on a quarterly basis, we anticipate free cash flow to be more weighted to Q4 than historical levels.”

“We expect free cash flow margin of 26%.”

“Given the half 1 mix shift towards early expansions and ARR, we now expect ODC revenue to be in the low 30s.”

“Seasonally, we expect net new ARR to be weighted more towards Q4 than last fiscal year due to the mix and timing variability of large deals in the funnel.”

“We believe we can get 80% to 85% of our business onto a DPS contract, and if we can eliminate some of the barriers I mentioned, that number could increase.”

“There will be a convergence. It’s important for investors to keep an eye on our updates regarding consumption tracking.”

“There might be a slower transition from the current 70% to the 80% to 85% range.”

“So NRR, if we continue to see the performance that we are seeing in consumption in these other areas, you will start to see movement in NRR, but it will happen over time.”

“Given this traction, we remain confident in our ability to achieve $100 million in annualized logs consumption by the end of this fiscal year.”

“Lastly, non-GAAP EPS is expected to be $0.40 to $0.41 per diluted share.”

“From a profit standpoint, non-GAAP income from operations is expected to be between $140 million and $145 million or 29% to 29.5% of revenue.”

“Subscription revenue is expected to be between $464 million and $469 million, both growing 15% to 16%.”

“Looking to Q2, we expect total revenue to be between $484 million and $489 million.”

“Finally, we are raising our non-GAAP EPS guidance to a range of $1.58 to $1.61 per diluted share, representing an increase of $0.02 at the midpoint of the range.”

“We are maintaining a non-GAAP operating margin of 29% and a free cash flow margin of 26%.”

“This revenue guidance includes $35 million to $40 million in ODC revenue.”

“Total revenue is now expected to be between $1.97 billion and $1.98 billion, and subscription revenue is expected to be between $1.88 billion and $1.9 billion, both up 14% to 15%.”

“While we do not guide to ARR quarterly, we continue to expect first half and second half constant currency net new ARR seasonality to be roughly consistent with last year.”

“Full year ARR is now expected to be roughly $2 billion.”

“We are maintaining our full year ARR growth guidance of 13% to 14% in constant currency while passing through the incremental dollars from the weakening of the U.S. dollar since our last call.”

“For fiscal 2026, it should be in the range of $8 million to $9 million per quarter, give or take, depending upon weather and how much our incurred ODC in the quarter varies from our accounting estimates.”

“As I mentioned earlier, I do think we're going to have a heavier expansion mix this year.”

“I'd expect expansions this year to probably be a heavier mix of our net new ARR than it has been historically. I think historically, it's been one-third new logos and two-thirds expansions. I would expect that might be a little bit heavier toward expansion this year just because of the health of the pipeline on expansions.”

“As we have shared previously, given the significant cross-sell and upsell opportunities in our enterprise customer base, we believe the average ARR per customer opportunity could be $1 million or more over the long term.”

“We like the metrics of more than $100 million in consumption this year, as Jim said. And at that growth rate of north of 100%, we are quite optimistic about the business to come this year.”

“So the $100 million ambition, we have high confidence we will exceed that in fiscal '26. And it is a business just to give you some rough numbers, that business will grow well over 100% in fiscal '26.”

“I still think deals are going to get done. I think what we've tried to imply in this is that deals might take a little bit longer, especially when you're talking to large strategic accounts, especially for those that are considering some level of tool consolidation, those deals and those accounts take a little bit longer.”

“As a helpful reminder for your modeling, due to seasonality and variability in billings, we expect free cash flow to be significantly higher in the first and fourth quarters and significantly lower in the second and third quarters.”

“Adjusting for cash taxes, pretax free cash flow margin is expected to be 32% in fiscal '26.”

“We expect free cash flow to be between $505 million and $515 million, or 26% of revenue, a 100 basis point improvement from fiscal '25 levels.”

“We estimate our fiscal '26 effective cash tax rate to be 19%, down from 22% in fiscal '25 due primarily to the benefit of the IP transfer I mentioned last quarter.”

“We expect non-GAAP operating income to be between $560 million and $570 million, resulting in a non-GAAP operating margin of 29% for the year.”

“We expect ARR to be between $1.975 billion and $1.99 billion representing ARR growth of 13% to 14%.”

“While consumption growth takes time to translate into subscription revenue or ARR growth, these robust DPS penetration and platform consumption trends are positive indicators for future top line growth.”

“Our next major platform release planned for June will further empower cloud and AI native teams to expand their AI Ops and preventive operations.”

“Ultimately, it will show up with maybe continued high growth in consumption and customers burn through their commitments earlier, and either go to an on-demand consumption or in some cases, customers will renew early.”

“We expect this DPS adoption to materialize over time in early expansions or on-demand consumption beyond customer commit levels.”

“We expect them to drive sales productivity gains in fiscal 2026.”

“We expect to see materially greater penetration in the coming year into hyperscaler workloads, where we expect the majority of observability market growth to occur, and we are innovating to capture this opportunity.”

“productivity will expect to increase as that tenure increases over the course of time.”

“I think that trend will continue, even though we're not providing fiscal '26 guide. Our expectation is this continued trend will continue into fiscal '26.”

“Our expectation is that as DPS grows and scales, so too will on-demand consumption with likely variability and seasonality quarter-to-quarter.”

“And while the impact of this IP transfer to fiscal 2025 cash taxes is insignificant, we do expect it will have a more meaningful impact in fiscal 2026 and beyond.”

“Lastly, non-GAAP EPS is expected to be $0.29 to $0.31 per diluted share.”

“From a profit standpoint, non-GAAP income from operations is expected to be between $104 million to $110 million or 24% to 25% of revenue.”

“Subscription revenue is expected to be between $410 million and $415 million.”

“Looking at Q4, we expect total revenue to be between $432 million and $437 million.”

“Excluding an expected 650 basis point impact from cash taxes, this represents a pretax free cash flow margin of 31.5%, which is up 150 basis points from fiscal 2024.”

“We are raising our free cash flow guidance to $415 million to $420 million, an increase of $19 million at the midpoint, representing a free cash flow margin of 25% of revenue.”

“We are raising non-GAAP EPS guidance to a range of $1.36 to $1.37 per diluted share, representing an increase of $0.05 at the midpoint of the range.”

“We are raising our full year non-GAAP operating income guidance by $13 million. This translates to non-GAAP operating margin guidance of 28.5% to 28.75%, up 50 basis points at the high end of the range and up roughly 75 basis points from where we landed in fiscal 2024.”

“And with the uptick in on-demand consumption revenue, we are raising our subscription revenue growth guidance 250 basis points at the midpoint to $1.609 billion to $1.614 billion representing 20% growth year-over-year.”

“We are raising our total revenue growth guidance 150 basis points at the midpoint to $1.686 billion to $1.691 billion, representing 19% growth year-over-year.”

“We are increasing our full year ARR growth guidance 75 basis points at the midpoint to $1.705 billion to $1.715 billion. This represents 16% to 16.5% growth year-over-year.”

“We now expect FX to be a headwind of $38 million to ARR and $17 million to revenue.”

“For Q4, specifically, we've modeled mid-single-digits in that because, again, because it's uncommitted, you don't know exactly what it's going to be.”

“We are not expecting any material budget flush this year. So this guidance assumes kind of muted budget flush probably consistently with what happened last year.”

“We still expect to probably have sales and marketing expense in the low thirties for the year.”

“We plan to continue to buy back shares opportunistically based on market conditions, underscoring our confidence in the business, our conviction in the long-term opportunity ahead, and our commitment to delivering shareholder value.”

“Non-GAAP EPS is expected to be $0.32 to $0.33 per diluted share.”

“From a profit standpoint, non-GAAP income from operations is expected to be between $117 million to $120 million, representing 28% of revenue.”

“Subscription revenue is expected to be between $407 million and $410 million.”

“Looking at Q3, we expect total revenue to be between $425 million and $428 million.”

“We expect third-quarter free cash flow to be lower than historic levels due to the timing of billings and cash tax payments.”

“Excluding the expected 650 basis point impact from cash taxes, this represents a pre-tax free cash flow margin of 30% to 30.5%.”

“We are raising free cash flow guidance to $393 to $404 million, an increase of $6.5 million at the midpoint, representing a free cash flow margin of 23.5% to 24% of revenue.”

“We are raising non-GAAP EPS guidance to $1.31 to $1.33 per diluted share, representing an increase of four cents at the midpoint of the range.”

“we are raising our full-year non-GAAP operating income guidance by $7 million. This translates to non-GAAP operating margin guidance of 28% to 28.25%, up roughly 25 basis points at the high end of the range.”

“Both now represent 17% to 18% growth year over year.”

“We are raising total revenue by approximately $19 million at the midpoint to $1.67 to $1.68 billion, and we are raising our subscription revenue guidance by $17 million at the midpoint to $1.59 to $1.6 billion.”

“For net new ARR, we expect Q4 to be higher than Q3, consistent with the second half of fiscal 2024.”

“We are maintaining our ARR guidance of $1.72 to $1.735 billion, representing 15% to 16% growth year over year.”

“Obviously, our objective is to do better than 15% to 16%.”

“As such, we are maintaining our full-year fiscal 2025 guidance for ARR, revenue, non-GAAP operating margin, EPS, and free cash flow.”

“We are, however, maintaining our full-year guidance for free cash flow.”

“We still expect, Fatima, about 30% of our net new ARR to come from new logos and about 70% from expansions, give or take a point or two.”

“Actually, if you look at the guide, the guide would actually suggest that it'll moderate from here.”

“My point is, I do think our goal is to stabilize NRR this year.”

“In terms of sort of long-term guidance, I'm not going to provide any update on that. What I would simply say is that our expectation during the course of the year is that we stabilize ARR growth for this year, and then we increase it into the future”

“Non-GAAP EPS is expected to be $0.32 to $0.33 per diluted share.”

“From a profit standpoint, non-GAAP income from operations is expected to be $113 million to $116 million, or 28% to 28.5% of revenue.”

“Subscription revenue is expected to be between $388 million and $390 million.”

“Looking at Q2, we expect total revenue to be between $404 million and $407 million.”

“And for free cash flow, as we shared on our May earnings call, we expect significantly lower free cash flow in the second and third quarters, and lower than prior year levels due to expected seasonality in billings and the timing of cash tax payments.”

“Based on foreign exchange rates as of July 31, we expect the full-year foreign exchange headwind to be roughly $12 million on ARR, and approximately $10 million on revenue, representing an incremental headwind of approximately $2 million to ARR and no change to revenue compared to our prior guidance.”

“On the seasonality of ARR, we continue to expect roughly 40% of net new ARR to land in the first half of fiscal 2025, and roughly 60% to land in the back half.”

“So, I'd say more in the back half of the year, we have a much more substantive set of renewal activity in Q3 and Q4, that our expectation is if we continue to see traction and consumption grow at these trends, that we could be in a good position for expansion.”

“We remain confident in our ability to exceed the $100 million annualized revenue thresholds we set for ourselves some time ago.”

“Our focused investments are primarily in R&D, which we expect will grow as a percentage of revenue in fiscal '25.”

“We are also working on cloud hosting costs, where we anticipate achieving some modest leverage in gross margin.”

“We anticipate seeing some of these benefits materialize in fiscal year 2025, with even more significant impacts by the end of that fiscal year.”

“As a helpful reminder for your modeling, due to seasonality and variability in billings, we expect significantly higher free cash flow in the first and fourth quarters and significantly lower free cash flow in the second and third quarters.”

“Excluding cash taxes, pre-tax free cash flow is expected to be between 30% and 30.5%, up 50 basis points from fiscal 2024 at the high-end of the range.”

“With incremental cash taxes factored in, we expect free cash flow to be between $386 million to $398 million, or 23.5% to 24% of revenue.”

“We expect the cash tax rate to stabilize in the low-20s going forward.”

“Our non-GAAP net income and non-GAAP EPS calculations assume a non-GAAP effective cash tax rate of 22%, up from 17% in fiscal 2024.”

“As such, we expect an increase in our effective cash tax rate and related cash taxes in fiscal 2025.”

“We expect non-GAAP net income to be $383 million to $392 million, resulting in a non-GAAP EPS of $1.26 to $1.29 per diluted share, based on roughly 303 million to 305 million shares outstanding.”

“This represents an anticipated 25 basis point improvement over fiscal 2024.”

“We expect non-GAAP operating income to be between $459 million and $467 million, resulting in a non-GAAP operating margin of approximately 28% for the year.”

“Underlying that, subscription revenue is expected to be $1.571 billion and $1.585 billion, up 16% to 17%.”

“We expect total revenue for the full year to be $1.644 billion to $1.658 billion, up 16% to 17% year-over-year.”

“We expect ARR to be between $1.72 billion and $1.735 billion, representing ARR growth of 15% to 16%.”

“However, based on current consumption trends, it is more likely we will surpass these thresholds during fiscal 2026 rather than the end of fiscal 2025.”

“We believe that these types of larger strategic deals will be a material contributor to our long-term growth.”

“Second, we are benefiting from the evolution toward larger, more strategic observability architecture and vendor consolidation initiatives, and we expect this trend to persist.”

“Therefore, you should anticipate that the cash tax we have in fiscal '25 will persist going forward.”

“The cash tax we've experienced, which is about 500 basis points, will continue. Fiscal '25 is not a one-time occurrence.”

“We mentioned that both areas are expected to reach $100 million in ARR by the end of fiscal '25.”

“We expect to see acceleration in application security and logs, with significant growth occurring in fiscal '25.”

“Expect to start seeing results within about a 12-month period.”

“We also plan to continue our investment in targeted sales capacity in the fourth quarter, weighting our resources toward the higher end of our target global 15,000 market where the propensity to spend is far more significant.”

“We plan to continue to invest in these partnerships to generate pipeline and gain efficiency as we maintain our focus on scaling the business.”

“More specifically, within the sales funnel, we are seeing a growing number of larger and more strategic deals related to observability architecture and vendor consolidation initiatives, and we expect this directional heading to continue.”

“Finally, this guidance assumes the acquisition of Runecast, which we expect will close by March 31.”

“We expect to make our generative AI capabilities available on the platform through Davis co-pilot beginning this quarter, thereby bringing the Dynatrace platform to a much wider array of end users.”

“In closing, I'm very pleased with our Q2 execution and believe we are well-positioned to deliver strong results in the back half of FY 2024.”

“I'm happy to share that we are on track with our development efforts to deliver early previews by the end of the calendar year and general availability in early calendar 2024.”

“We haven't finalized the monetization piece well, but we will do so over the coming quarter or so to sort out how we're going to monetize generative AI and Davis CoPilot in particular, but nothing to report yet on that at this point.”

“And non-GAAP EPS is expected to be $0.27 to $0.28 for our diluted share.”

“From a profit standpoint, non-GAAP operating income is expected to be between $94 million and $97 million, or 26.5% to 27% of revenue.”

“Subscription revenue is expected to be between $337 and $340 million, up 20% to 21% year-over-year.”

“Looking at Q3, we expect total revenue to be between $356 and $359 million, or 19% to 20% growth.”

“As a reminder, while we do not guide free cash flow quarterly, due to the seasonality and variability in billings, as well as the timing of cash tax payments, we expect free cash flow to be higher in our first and fourth quarters and significantly lower in our second and third quarters.”

“And finally, we are raising our free cash flow guidance to $313 million to $320 million, representing an increase of $9 million at the midpoint and a free cash flow margin of 22% to 23% of revenue.”

“We are raising non-GAAP EPS guidance to $1.09 to $1.12 per diluted share, representing an increase of $0.06 at the midpoint of the range.”

“With this in mind, we are still raising our full year non-GAAP operating margin guidance by 125 basis points to 27%, an increase of $20 million at the midpoint.”

“We are raising our subscription revenue guidance by approximately $6 million at the midpoint to $1.334 to $1.344 billion, representing 22% to 23% growth year-over-year, up 100 basis points from our prior guidance.”

“We are raising our revenue guidance by approximately $7 million at the midpoint to $1.409 and $1.419 billion, representing 21% to 22% growth year-over-year, up 100 basis points from our prior guidance.”

“Also similar to last year, we expect Q4 net new ARR to be slightly higher than Q3 on a constant currency basis.”

“Given the strength of ARR in the second quarter, we now expect the seasonality of net new ARR to be similar to prior years with roughly 40% in the first half and 60% in the back half of fiscal 2024.”

“We are raising our ARR guidance by roughly $3 million at the midpoint to $1.48 to $1.49 billion, representing 19% to 20% growth year-over-year, up 100 basis points from our prior guidance.”

“Incrementally, the foreign exchange headwind is roughly $16 million to ARR and approximately $8 million to revenue for the full year.”

“Second, our guidance assumes the net new ARR contribution from new logos will approach 40%, with roughly 60% of net new ARR from expansion activity.”

“This guidance assumes new logo growth in the low single digits and a net retention rate of 112% to 113% for the second half of fiscal 2024.”

“And as I mentioned, our Grail deployment with Azure is slated to begin rollout by the end of this quarter.”

“While we expect the current macro conditions to persist through the end of our fiscal year, we plan to increase spending levels prudently to enable incremental share gains in the future.”

“which we expect to GA by the end of the year or the end of the calendar year which is the generative AI piece.”

“Looking at our guidance, we're still maintaining it in the low to mid single digits.”

“However, I expect more noticeable growth later this year and into fiscal '25.”

“I would expect to see an uptick in logs on Grail in particular over the course of the next year.”

“So this is something that is going to be, I'd say, enable us to continue to scale on gross margins as we move more and more of the business to SaaS. And so the way you should expect it is it will allow us to continue to maintain this very, very healthy gross margin profile kind of in the mid-80s.”

“We do expect that to hover at the mid-teens level, call it 114 to 116 through the year.”

“This guidance continues to assume new logo growth in the low single digits and a dollar-based net retention rate in the mid-teens for fiscal 2024.”

“non-GAAP EPS of $0.26 to $0.27 per share.”

“From a profit standpoint, non-GAAP operating income is expected to be between $90 million and $93 million, or 26% to 27% of revenue and non-GAAP EPS of $0.26 to $0.27 per share.”

“Subscription revenue is expected to be between $325 million and $328 million, up 22% to 23% year-over-year.”

“Looking at Q2, we expect total revenue to be between $343 million and $346 million, or 21% to 22% growth.”

“And while we do not guide free cash flow quarterly, due to the seasonality and variability in billings as well as the timing of cash tax payments, we expect free cash flow to be higher in our first and fourth quarters and significantly lower in our second and third quarters.”

“And finally, we are maintaining our free cash flow guidance of $303 million to $312 million, representing a free cash flow margin of approximately 22% of revenue.”

“We are raising non-GAAP EPS guidance to $1.03 to $1.06 per share, representing an increase of $0.05 at the midpoint of the range.”

“From a profit standpoint, given the revenue increases and ongoing disciplined management of spend, we are raising our non-GAAP operating margin guidance by 50 basis points to a range of 25.5% to 26%.”

“Total subscription revenue is expected to be between $1.326 billion to $1.341 billion, representing 21% to 22% growth, up 100 basis points from our prior guidance.”

“We expect total revenue to be between $1.4 billion and $1.415 billion, or 20% to 21% growth, up 100 basis points from our prior guidance.”

“Consistent with what I shared last quarter, the seasonality of net new ARR is expected to be more backend loaded this year compared to prior years, with roughly 35% expected to land in the first half of fiscal 2024 and approximately 65% in the back half.”

“We are maintaining our ARR guidance of $1.475 billion to $1.49 billion or 18% to 19% constant currency growth.”

“We expect DPS will drive enhanced net expansion and accelerate ARR in future periods.”

“Overall, my view is that cloud optimizations are beginning to reduce in overall impact to the market. Not sure we're at the bottom, but we seem to be making progress toward that end.”

“You can expect that we will continue to add capacity probably in the mid to high teens this year, and it will probably be a little bit more back-end loaded, Matt, because obviously we are living in kind of an uncertain macroenvironment, so we're going to be moderate in the way we increase capacity based on the demand that we see.”

“We continue to work to deliver that, and we expect that we'll deliver that on the next platform over FY ‘24.”

“We now are up from where we were last order, about 100 customers on DPS, which were really the largest customers, to already about 130. That continues to grow, and we expect to grow over the course of FY 2024 by many, many hundreds.”

“Our non-GAAP net income and non-GAAP EPS calculations assume a non-GAAP effective cash tax rate of 19%, due to the notable uptick in cash taxes that I mentioned earlier.”

“We expect a significant increase in our effective cash tax rate and related cash taxes in fiscal 2024.”

“With respect to Q1, we anticipate the tailwind to be roughly $7 million to ARR and an immaterial impact on revenue.”

“As I mentioned last quarter, we expect roughly one-third of net new ARR for the full year to come from new logos and two-thirds to come from expansion.”

“We believe we have the right foundation in place to grow new logos in the low single digits and maintain a dollar-based net retention rate in the mid-teens for fiscal 2024.”

“Lastly, non-GAAP EPS is expected to be approximately $0.22 per share based on a share count of approximately 296 million to 297 million shares.”

“From a profit standpoint, non-GAAP operating income is expected to be between $76.5 million and $78.5 million or 23.5% to 24% of revenue.”

“Subscription revenue is expected to be between $306 million and $309 million, up 23% to 24% year-over-year.”

“Looking now at Q1, we expect total revenue to be between $325 million and $328 million or 22% to 23% growth.”

“As a reminder, due to seasonality and variability in billings, we expect higher free cash flow in the first and fourth quarters and significantly lower free cash flow in the second and third quarters.”

“We expect free cash flow to be between $303 million to $312 million or approximately 22% of revenue.”

“We expect non-GAAP operating income to be between $348 million and $358 million, resulting in a non-GAAP operating margin of 25% to 25.5% for the year.”

“The seasonality of net new ARR will be a bit more back-end loaded this year compared to prior years, with roughly 35% landing in the first half of fiscal 2024 and 65% in the back half.”

“At the high end of guidance, this assumes net new ARR of $243 million on an as-reported basis.”

“We expect ARR to be between $1.475 billion and $1.490 billion, representing an ARR growth of 18% to 19%.”

“We expect this will also drive net expansion and contribute to future ARR growth.”

“We plan to balance our investments to grow the top line while also delivering modest margin expansion in fiscal ‘24.”

“We expect DPS will drive net expansion and become an accelerant to ARR in future periods.”

“And going forward, we kind of expect similar elongation of sales cycles.”

“As Rick said, we don't expect any significant improvement in the environment. And we are actually managing the business with that in mind.”

“I would also just say that as in prior quarters, we are continuing to assume a fairly soft spend environment from a macro perspective overall through at least the first couple of quarters of our fiscal '24.”

“And we continue to believe that as more and more customers adopt new modules and expand coverage over time, the average ARR per enterprise customer can grow to be north of $1 million.”

“And so, I think as we've talked about building blocks in the past, call it, roughly one-third is going to come from new logos and call it two-thirds is going to come from expansion. And you can expect those, call it, approximate ranges going into fiscal '24.”

“Therefore, we expect free cash flow margins on an as-reported basis to be slightly lower than operating margins, given expected increases in cash tax rates as we fully utilize our tax loss and credit carryovers and generate increased levels of profitability.”

“As we think about free cash flow beyond fiscal 2023, we generally expect to see non-GAAP operating margin and free cash flow margins to align on a tax-neutral basis.”

“We now expect the full year FX headwind to as-reported ARR to be approximately $30 million and approximately $45 million on revenue.”

“Underpinning our ARR guidance, we now expect new logo growth to be roughly flat compared to last year, where we added 706 new logos.”

“We expect net expansion rate to be in the high teens, reflective of the tighter budget scrutiny and elongation of sales cycles.”

“non-GAAP EPS of $0.22 to $0.23 per share.”

“From a profit standpoint, non-GAAP operating income is expected to be between $71.5 million and $73.5 million, 24% of revenue and non-GAAP EPS of $0.22 to $0.23 per share.”

“Subscription revenue is expected to be between $285 million and $287 million, up 24% to 25% year-over-year.”

“Looking to Q4, we expect total revenue to be between $304 million and $307 million or 24% to 25% growth.”

“And finally, we expect free cash flow to be between $315 million and $321 million, representing a free cash flow margin of 27.5% to 28% of revenue, down 25 basis points at the midpoint as we firmed up cash tax expectations, which are slightly higher than prior guidance.”

“We are raising non-GAAP EPS guidance to $0.87 to $0.88 per share, representing an increase of $0.06 on the low end and $0.05 on the high end.”

“We are raising our non-GAAP operating margin guidance for fiscal 2023 to 25%, representing a 50 basis point increase compared to our prior guidance.”

“We expect total revenue to be between $1.148 billion and $1.151 billion and subscription revenue to be between $1.075 billion and $1.077 billion, both of which result in 28% to 28.5% year-over-year growth.”

“We now expect ARR to be between $1.216 billion and $1.221 billion, representing an adjusted ARR growth of 26%.”

“Given our pipeline growth, market strength, and portfolio evolution, we are highly confident in our ability to reaccelerate ARR growth as economic conditions normalize.”

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

“So our guidance is assuming that the Euro remains where it is for the balance of the year.”

“Raimo, the only thing I would add to that is that, while that’s true on close rates, it is important to understand that we expect close rates to renormalize.”

“And with regard to the overall sales cycles, we look at it mostly in terms of quarters, but the vast majority of any deals that pushed out due to lengthening close cycle last quarter we expect to close this quarter.”

“With Grail coming on board, that will be another boost in FY 2024 as well.”

“Mathematically, net expansion rate could drop below 120% for a period of time.”

“We still believe what we said a quarter ago, which is that with infrastructure, we think that log management and analytics can add $100 million or so of ARR over an eight-quarter span or thereabouts.”

“From a profit standpoint, non-GAAP operating income is expected to be between $71.5 million and $73.5 million, 25.5% of revenue and non-GAAP EPS of $0.21 per share to $0.22 per share.”

“Subscription revenue is expected to be between $266.5 million and $268.5 million, up 24% to 25% year-over-year.”

“Looking at Q3, we expect total revenue to be between $283 million and $286 million or 24% to 25% growth.”

“In terms of dollars, we expect free cash flow to be between $308 million and $321 million.”

“Finally, we are maintaining our free cash flow margin guidance of 27.5% to 28.5% of revenue.”

“We are raising non-GAAP EPS by $0.07 per share to $0.81 per share to $0.83 per share based on 292 million diluted shares to 293 million diluted shares and a non-GAAP effective cash tax rate of 11%.”

“With that in mind, we are raising our non-GAAP operating margin guidance to 24.5%, representing a 175-basis-point increase from the midpoint of our prior guidance.”

“We expect total revenue to be between $1.190 billion and $1.126 billion and subscription revenue to be between $1.047 billion to $1.052 billion, both of which result in 27% year-over-year growth.”

“In terms of ARR seasonality, we expect that net new ARR is going to be $120 million in the back half of 2023, split roughly evenly between Q3 and Q4 to reflect further conservatism in guidance.”

“We expect ARR to be between $1.164 billion and $1.172 billion, representing an adjusted ARR growth of 24%.”

“The headwind in Q3 will be approximately 1 percentage point.”

“And finally, consistent with prior guidance, the perpetual license wind down for fiscal 2023 is expected to be approximately $8 million or 80 basis points.”

“We now expect full-year constant currency impact to be approximately $60 million on ARR and revenue.”

“Given that, we now expect new logo additions in fiscal 2023 to be down roughly 5% over last year, reflecting tighter budget scrutiny and elongated sales cycles.”

“Therefore, we will be reducing ARR constant currency guidance by $30 million and we believe this will primarily impact ARR towards the end of the fiscal year.”

“We now expect close rates in the back half to be lower than what we experienced in the first half of fiscal 2023.”

“I do anticipate gross margins stepping up in the back half of 2023.”

“We have adjusted our planned headcount increases and OpEx through the balance of the year to yield an expected increase in our FY 2023 operating margin relative to prior guidance and in alignment with our revised top-line model.”

“While we don’t expect Grail to have a meaningful impact on ARR in FY 2023, we are delighted to see strong early demand with nearly 100 customers lined up for POCs in less than a month of its availability.”

“Consequently, we are bringing down our ARR guidance to reflect increased pressure on new logos and net expansion rates.”

“I am very optimistic about our opportunity to grow that business faster than our average ARR growth rate over the course of time.”

“I am confident that our new product introductions are yielding beneficial results, especially as we approach the second half of the fiscal year 2024, at which point they will become a much more substantial contributor.”

“We are reaffirming our non-GAAP operating margin guidance of 22.5% to 23%.”

“We remain on track to release a dramatically enhanced logging capability based on a massively scalable data store and platform evolution we called Rail in the back half of this year.”

“Our goal for sales rep headcount growth this year is also 30%.”

“This means we're looking at new headcount growth of about 25% to 26% year-over-year.”

“We expect ARR to decrease by about $20 million on a constant currency basis, which will lead to lower bookings and billings.”

“The reduction in this low-revenue customer group has been evident over the last four quarters and we expect it to persist for another quarter or two, but we believe we're nearing the end of that phase.”

“The new logging capabilities are expected to contribute mainly towards the end of Q3 and into Q4, but we believe they will become a significantly larger contributor over the next two years, potentially reaching $100 million in revenue for us by then.”

“The headwind in Q2 will be approximately 2.5 percentage points and will then taper off throughout the year.”

“We now expect full-year ARR constant currency impact to be approximately $40 million and $47 million on revenue.”

“We continue to believe our net expansion rate will be above 120% for fiscal '23.”

“We now expect new logo additions in fiscal '23 to be consistent with the 700 new logos we added in fiscal '22.”

“From a profit standpoint, non-GAAP operating income is expected to be between $62 million and $64.5 million, 23% to 23.5% of revenue, and non-GAAP EPS of $0.18 to $0.19 per share.”

“Subscription revenue is expected to be between $255 million and $257 million, up 26% to 27% year-over-year.”

“Looking at Q2, we expect total revenue to be between $272 million and $275 million or 26% to 28% growth.”

“And finally, we expect free cash flow to be between $310 million and $325 million or 27.5% to 28.5% of revenue.”

“We expect non-GAAP EPS of $0.73 to $0.76 per share based on 292 million to 294 million diluted shares outstanding and a non-GAAP effective cash tax rate of 11%.”

“We now expect total revenue to be between $1.125 billion and $1.136 billion and subscription revenue to be between $1.053 billion to $1.062 billion.”

“In terms of Q2 seasonality, we expect roughly 18% of the annual net new ARR to close in Q2.”

“We expect ARR to be between $1.213 billion and $1.226 billion, representing an adjusted ARR growth of 27% to 28%.”

“Through the end of July, we grew our direct sales force by 30% year-over-year, and we plan to continue to grow the team to support our growth objectives.”

“We still plan to add nearly 800 people during FY '23, reflecting our commitment to ongoing investments in our growth.”

“We anticipate that these comparisons in fiscal '23 will return to more typical patterns, where historically, we see around 40% of our net new business in the first half and 60% in the second half.”

“Historically, roughly 18% of our annual net new ARR is closed in Q1, which would imply $52 million of net new ARR in constant currency in Q1.”

“One in particular that we expect to release in the second half of this year is dramatically enhanced logging capabilities.”

“And our goal is to drive the same level of growth in reps in fiscal '23.”

“non-GAAP EPS of $0.17 to $0.18 per share based on the share count of 291 million to 292 million diluted shares.”

“From a profit standpoint, non-GAAP operating income is expected to be between $60 million and $62 million, which is 23% to 23.5% of revenue, and non-GAAP EPS of $0.17 to $0.18 per share based on the share count of 291 million to 292 million diluted shares.”

“Subscription revenue is expected to be between $244 million and $246.5 million, up 29% to 30% year-over-year.”

“Looking at Q1, we expect total revenue to be between $261 million and $263.5 million or 29% to 31% growth.”

“We expect free cash flow margin to be approximately 29% to 30% of revenue, which equates to $330 million to $345 million.”

“We expect non-GAAP EPS of $0.74 to $0.77 per share based on 292 million to 294 million diluted shares outstanding and a non-GAAP cash tax rate of 13%.”

“We expect non-GAAP operating income to be between $257 million and $266 million, resulting in a non-GAAP operating margin of 22.5% to 23% for the year.”

“Underlying that, subscription revenue is expected to be between $1.071 billion and $1.086 billion, both up 27% to 28% year-over-year.”

“Total revenue for the full year is expected to be $1.142 billion to $1.158 billion.”

“we expect ARR to be between $1.25 billion and $1.265 billion, representing an adjusted ARR growth of 29% to 30%.”

“The overall annual impact in fiscal '23 is approximately $8 million, or 80 basis points. The impact will be most notable in Q1 with a three percentage point headwind that will taper off throughout the year.”

“We announced that we suspended business in Russia, which results in a headwind of approximately $6 million on ARR and revenue for fiscal '23.”

“With respect to Q1, we anticipate the FX headwind to be roughly $15 million to ARR.”

“Based on FX rates as of April 30, we expect the FX headwind to ARR and revenue to be roughly $20 million for fiscal '23.”

“We believe we have the right foundation in place to sustain 15% to 20% growth in new logos and a net expansion rate of 120% or higher for fiscal '23.”

“We expect gross margins to remain roughly consistent in fiscal '23.”

“In terms of consumption, I do think that we'll see more consumption-based pricing over time. And I do think that there is accretion opportunity in pricing as we look ahead just amidst the overall market environment.”

“Given the significant cross-sell and expansion opportunities in our customer base, we continue to believe that the average ARR per customer could be $1 million or more.”

“It is certainly my expectation as we add more module capabilities in the existing modules plus new modules such as AppSec that we're going to see even further expansion of multi-module deployment and further increases in spend.”

“Over the next three to four quarters, we expect to see the remaining approximately 100 customers churn as well.”

“Regarding our expectations for fiscal '23, we are targeting a net expansion rate of 120% and a new logo growth of 15% to 20%.”

“In terms of free cash flow, we are not providing guidance at this moment, but we anticipate a reduction of a few hundred basis points.”

“Our expectation and what we're seeing in the market is that there is upside opportunity for growth and that's what we're going to be investing in. So we're looking at a one to two-point increase in R&D to drive innovation and additional product deployment in terms of new modules and module expansion and one to two-point expansion during FY '23 in sales and marketing to drive awareness, new logo generation and overall penetration with partners.”

“It offers a strong proof point of our unique offering and leads to our plan to drive ARR growth in this area in FY '23 and beyond.”

“These are the core building blocks that deliver sustained ARR growth of 30% plus over time.”

“Once again, we believe our investments in commercial expansion and product innovation will enable us to maintain a 120% net expansion rate and 15% to 20% new logo growth over the midterm.”

“Finally, we expect EPS to be between $0.15 to $0.16 per share.”

“From a profit standpoint, operating income is expected to be between $51.5 million and $53.5 million, resulting in an operating margin of 21% to 22% of revenue as we continue to execute on our investment strategy combined with the incremental spend related to our Perform conference next week.”

“In addition, subscription revenue is expected to be between $230.5 million and $232 million, up 26% to 27% year-over-year or 29% to 30% in constant currency.”

“Looking at Q4, we expect total revenue to be between $245 million and $247 million, up 25% to 26% year-over-year or 27% to 28% in constant currency.”

“We are raising unlevered free cash flow slightly to be $268 million to $275 million or approximately 29% to 30% of revenue for the year.”

“For the full year, we expect EPS of $0.66 to $0.67 per share, up $0.02 on the high end of our previous guidance.”

“As we plan beyond fiscal '22 and continue to lean in on our investments, we expect to layer in another 200 to 300 basis points between R&D and sales and marketing throughout fiscal '23.”

“For the year, we expect sales and marketing to be in a range of 35% to 36% of revenue and R&D to be around 15% of revenue, resulting in an operating margin of nearly 25% of revenue.”

“We expect full year operating income to be between $228 million and $230 million.”

“We continue to expect subscription revenue to be 94% of total revenue, driven by the size and strength of ARR and associated subscription revenue growth.”

“We now expect subscription revenue to be between $866 million and $867.5 million, up 32% year-over-year both as reported and in constant currency.”

“We now expect total revenue to be between $922 million to $924 million, representing 31% year-over-year growth or 30% to 31% year-over-year growth on a constant currency basis.”

“Therefore, we expect that our constant currency adjusted ARR growth will be 33% to 34%, again, an increase of 100 basis points from prior guidance.”

“We expect as-reported ARR to be between $990 million and $996 million, up 28% to 29% year-over-year.”

“We are once again raising our FY '22 ARR guidance to 30% to 31% growth year-over-year on a constant currency basis, up 100 basis points from our prior guidance.”

“Altogether, these factors could contribute $280 million to our business growth.”

“If we achieve a 20% growth in new logos with an average deal size of $100,000 to $125,000, that's an additional roughly $80 million in ARR.”

“We see this quarter as really the second half of this year as a scale-up of customers and growth opportunities. But it's still a super small number, so you won't see it really in any ARR impact until fiscal '23.”

“Finally, we expect non-GAAP EPS to be $0.16 per share.”

“From a profit standpoint, non-GAAP operating income is expected to be between $54 million and $56 million, resulting in an operating margin of 23% to 24% of revenue as we continue to execute on our investment strategy.”

“Subscription revenue is expected to be between $219.5 million and $221 million, up 29% to 30% year-over-year or 30% to 31% in constant currency.”

“Quickly looking at Q3, we expect total revenue to be between $233 million and $235 million, up 27% to 28% year-over-year or 28% to 29% in constant currency.”

“To summarize our full-year guidance, there is a continuation of our durable balance of growth and profitability, guiding to a rule of 50 plus business when combining ARR growth and unlevered free cash flow margin.”

“For the year, we're raising our unlevered free cash flow slightly to be between $263 million to $275 million or approximately 29% to 30% of revenue.”

“For the full-year, we expect non-GAAP EPS of $0.63 to $0.65 per share, up $0.02 on the high end of our previous guidance due to our revenue overperformance.”

“The result of which is a non-GAAP operating margin of 24% to 24.5% of revenue for the year, up roughly one point when compared to our prior guidance, not from a dollar standpoint due to the higher revenue guidance.”

“We believe proper levels of investment for sales and marketing to be in a range of 34% to 36% of revenue and R&D to be around 15% of revenue.”

“Moving down to P&L, we expect full-year non-GAAP operating income to be between $219 million and $226 million.”

“We continue to expect subscription revenue to be 94% of total revenue driven by the size and strength of ARR and associated subscription revenue growth.”

“We're raising our subscription revenue guidance, now expected to be between $857.5 million and $862.5 million, up 31% to 32% year-over-year or 30% to 31% in constant currency.”

“We expect total revenue to be between $913 million to $919 million, up 30% to 31% year-over-year, or 29% to 30% in constant currency.”

“Excluding the perpetual license headwind, our full-year adjusted ARR growth rate is expected to be between 32% to 33% year-over-year on a constant currency basis.”

“We expect the third quarter to be roughly 450 basis points of headwind and then it will decline to about 300 basis points in Q4 and continue to decline thereafter.”

“To eliminate the FX impacts, I think investors should focus on our constant currency guide, which we're increasing 29% to 30% year-over-year.”

“With respect to fiscal '22, ARR as reported is expected to be between $986 million and $996 million, up 27% to 29% year-over-year.”

“As I outlined last quarter, we believe the investments we're making in commercial expansion and product innovation will enable us to maintain 120% net expansion, and at least 15% to 20% new logo growth over the mid-term.”

“With AppSec and cloud automation modules kicking in over the next few quarters, we see a great opportunity to both increase the value of our landing zone as well as expand ARR per customer materially.”

“The consistent execution against these two building blocks we believe will sustain a 30 plus percent growth business at scale for some years to come.”

“I think just with the visibility we see ahead of us, we think that the momentum we've saw this quarter, and maybe it's not a 50% quarter-over-quarter, I'm sorry, year-over-year uptick, but we do see as good, steady, strong new logo flow throughout this year. Probably a little bit ahead of our 15% to 20% guidance, long-term guidance we've been giving.”

“I think it's going to be more meaningful in fiscal 23 and 24 honestly, as far as an overall piece of the business, but we're really pleased with the progress that team has made.”

“We grew our quota carriers by nearly 30% this past quarter, and expect to continue growing this team in the 30% range throughout fiscal 22.”

“non-GAAP EPS of $0.15 to $0.16 per share.”

“From the profit standpoint, non-GAAP operating income is expected to be between $53 million and $55 million representing 24% to 25% of revenue and non-GAAP EPS of $0.15 to $0.16 per share.”

“Subscription revenue is expected to be between $206.5 million and $208 million, up 31% to 32% year-over-year or 29% to 30% in constant currency.”

“Looking at Q2, we expect total revenue to be between $219 million and $221 million, up 30% to 31% year-over-year or 28% to 29% in constant currency.”

“As I just mentioned, we expect unlevered free cash flow to be $262 million to $274 million, or 29% to 30% of revenue.”

“Our non-GAAP net income and non-GAAP EPS calculations assume a non-GAAP effective cash tax rate of 12%, consistent with prior guidance.”

“For the full year, we expect non-GAAP EPS of $0.60 to $0.63 per share, which is up a penny from our previous guidance.”

“The result of this is a non-GAAP operating margin of 23% to 24% of revenue for the year consistent with prior guidance and not from a dollar standpoint to the higher revenue guidance.”

“Moving down the P&L, we expect full-year non-GAAP operating income to be between $208 million and $218 million.”

“And we continue to expect subscription revenue to be 94% of total revenue driven by the size and strength of ARR and associated subscription revenue growth.”

“Underlying that, subscription revenue is expected to be between $848 million and $856 million, up 29% to 31% year-over-year, or 27% to 29% in constant currency.”

“Moving on to revenue, total revenue for the full year is expected to be $902 million to $914 million, up 28% to 30% year-over-year, and 26% to 28% in constant currency.”

“As we have outlined in the past, our business continues to add strength in the back half of the year, with Q3 being our strongest quarter, followed by Q4.”

“Excluding the perpetual license headwind, our full-year adjusted ARR growth rate is expected to be between 29% to 31% year-over-year on a constant currency basis.”

“We expect headwind in the second and third quarters to be a little over 4 points, and then it will decline to about 3 points in Q4 and drop thereafter.”

“With respect to fiscal 22, we expect ARR to be between $984 million and $996 million, up 27% to 29% year-over-year, or 26% to 28% in constant currency.”

“As I outlined last quarter, we believe the investments we are making in commercial expansion and product innovation will enable us to maintain 120% net expansion and at least 15% to 20% new logo growth over the midterm.”

“We continue to see a powerful greenfield opportunity for this new module and are excited with its potential to rapidly scale within our base during the second half of this fiscal year.”

“We continue to believe continued execution against these two building blocks will sustain a 30 plus percent growth business at scale for some years to come.”

“I'd be surprised if we weren't picking up another chunk of percent of our customer base over the next six to nine months.”

“But I think it's going to start to make an impact in the second half and it's definitely going to be an ARR driver for us in fiscal '23, just as we had hoped.”

“As discussed, we expect subscription revenue to be 94% of total revenue driven by the size and strength of ARR and associated subscription revenue growth.”

“At the end of the year, we believe perpetual license will be down to 1% to 1.5% of total ARR, which will essentially end the perpetual license transition and the associated ARR headwind.”

“We believe the investments we are making in commercial expansion and product innovation will enable us to sustain 15% to 20% new logo growth and maintain a 120% net expansion rate for fiscal 2022.”

“Expect to see ongoing investments in marketing to fuel sales and partner expansion as we go forward.”

“We remain excited about the growth opportunity with a line of sight to $1 billion in ARR.”

“And you can see why we believe we can achieve an average ARR per customer of greater than $1 million over time.”

“It's this consistent addition of new logos while at the same time increasing ARR per customer that we believe provides Dynatrace the opportunity to maintain 30-plus percent growth over the long term.”

“As John said, we believe that as more and more customers adopt new modules and expand coverage, the average ARR per enterprise customer could be north of $1 million.”

“Based on the strength of our Q3 results, we are raising our guidance across the board for fiscal 2021, which Kevin will provide more details on shortly.”

“We expect that growth rate to accelerate further in Q4, putting us on track to overachieve our previously shared plans of roughly 530 new logos by the end of the fiscal year.”

“And Q4, we said that skin back growth rate will accelerate and we have also talked about a 15% to 20% new logo growth as we move the business forward.”

“I think you are right, if you look at the numbers, the guidance implies 32% constant currency growth, excluding the perpetual license headwind, which is fairly consistent actually with Q3 where we ended 33%.”

“As a result of these strategic investments coupled with a return to a more normal level of employee spend, we expect the operating margins will return to pre-pandemic levels over the next year.”

“We are raising our unlevered free cash flow margin guidance to approximately 32% of fiscal ‘21 revenue.”

“non-GAAP EPS of $0.61 to $0.62 per share.”

“Moving down the P&L, we expect full year non-GAAP operating income to be between $202 million and $204 million and non-GAAP EPS of $0.61 to $0.62 per share.”

“Underlying that, subscription revenue is expected to be between $650 million and $652 million, up 33% to 34% year-over-year or 32% in constant currency.”

“Total revenue for the full year is expected to be $697 million to $699 million, up 28% year-over-year, 27% in constant currency.”

“non-GAAP EPS of $0.13 to $0.14 per share.”

“From a profit standpoint, non-GAAP operating income is expected to be between $44 million and $46 million, 23% to 24% of revenue and non-GAAP EPS of $0.13 to $0.14 per share.”

“Subscription revenue is expected to be between $178 million and $180 million, up 32% to 33% year-over-year, or 28% to 29% in constant currency.”

“For the fourth quarter, we expect total revenue to be between $190 million to $192 million, up 26% to 28% year-over-year or 23% to 24% in constant currency.”

“Turning to our guidance, ARR is expected to be between $756 million and $760 million, up 32% to 33% year-over-year or 29% in constant currency.”

“Looking forward, we expect another step up in investments in the fourth quarter and this is reflected in the guidance that I will cover in a moment.”

“Given the solid execution of our sales team and momentum in the market, we are now planning to accelerate the growth rate of our primary quota-carrying reps into the 25% to 30% range.”

“and we think those trends can continue as we move forward.”

“As more and more customers adopt the platform approach, we continue to believe the average ARR per enterprise customer could be north of $1 million.”

“So, our plans include multiple different kind of capabilities in the – for this module, this first capability, the vulnerability detection we think is a 10% to 20% uplift.”