Brad Reback

Brad Reback asked for clarification on how Dynatrace's business is distributed across the major hyperscalers, specifically if it skews more towards AWS or Azure.

Answer

CFO Jim Benson stated that the business currently skews more towards AWS but noted they are seeing growing traction with Azure. CEO Rick McConnell added that since the platform is available on all three major hyperscalers, the company is indifferent and deployment is customer-driven.

Brad Reback asked whether the second-half guidance includes significant contribution from consumption or if that represents potential upside. He also questioned if the use of Grail for operational analytics is an organic trend or the result of a targeted sales pivot.

Answer

CFO Jim Benson clarified that the benefits of higher consumption are already reflected in metrics like the 112% Net Retention Rate, and the guidance is simply cautious as the company allows sales changes to mature. CEO Rick McConnell explained that Grail usage is organic for all SaaS-based customers. This inherent access, especially for DPS customers, naturally encourages expansion into broader use cases like business analytics without a specific sales pivot.

Brad Reback of Stifel inquired about the current macroeconomic trends, including how they evolved throughout the quarter into October, and the headcount assumptions incorporated into Paylocity's updated fiscal guidance. He also asked about the primary drivers behind the updated long-term guidance, specifically whether natural business scale or AI benefits contribute more to the anticipated upside.

Answer

Ryan Glenn, Chief Financial Officer, reported continued stability in the macro environment, with client workforce levels slightly up year-over-year, consistent with Q4, and guidance assuming flat workforce levels for the rest of the fiscal year. Regarding long-term guidance, Mr. Glenn noted that while it's early for AI and automation, these factors provide incremental confidence for future leverage, alongside the natural scaling of the business, citing reduced case volumes and AI coding assistance as early benefits.

Brad Reback asked for an update on the macro environment, including trends over the quarter into October, and the headcount assumptions embedded in the updated fiscal year guidance. He also inquired whether the updated long-term guidance upside was driven more by natural business scale or AI benefits.

Answer

CFO Ryan Glenn reported continued stability in the macro environment, with client workforce levels slightly up year-over-year, consistent with Q4, and flat workforce levels assumed for the balance of the fiscal year in guidance. Regarding long-term guidance, Mr. Glenn noted that while AI and automation are in early stages, they provide incremental confidence for multi-year leverage, complementing the business's inherent scaling ability.

Brad Reback inquired about the real-time macroeconomic perspective and how the current environment might influence hiring plans for quota-carrying sales representatives heading into fiscal '26.

Answer

President and CEO Toby Williams described the macro environment as stable but noted early signs of some buyers pausing, similar to the previous year. He indicated that while fiscal '26 hiring plans are not yet final, the successful focus in fiscal '25 on driving productivity with lower headcount growth provides a likely model for the upcoming year.

Brad Reback of Stifel asked if the Paycor acquisition by a competitor creates an opportunity to accelerate Paylocity's broker channel go-to-market strategy and inquired about the typical ramp-up time for new broker relationships.

Answer

President and CEO Toby Williams explained that Paylocity's success with the broker channel stems from long-term investments, providing valuable technology, and not competing with them on insurance products, which positions them well to capitalize on any market disruption. He noted that new relationships can become productive in the near term. Executive Chairman Steven Beauchamp added that since broker relationships are often non-exclusive, less competition could be a direct benefit.

Brad Reback asked about the sequential deceleration in Roper Technologies' software bookings from mid-teens to high singles, seeking the predominant drivers, and inquired about the timing for AI SKUs to become a meaningful organic growth driver, specifically if it's more of a 2027 and beyond impact.

Answer

Neil Hunn, President and CEO, identified Deltek and Frontline as the main contributors to the bookings deceleration, noting the lumpiness of bookings but highlighting strong TTM low double-digit growth and robust performance in healthcare businesses like Strata and Clinisys. Mr. Hunn agreed that 2027 is a fair assumption for AI SKUs to have a meaningful impact due to the necessary commercialization efforts, though building momentum is expected throughout next year.

Brad Reback asked about the sequential deceleration in software bookings from mid-teens to high singles, seeking to understand the predominant drivers, and later inquired if the rollout and commercialization of AI SKUs suggest that AI will be a meaningful organic growth driver more in 2027 and beyond, rather than 2026.

Answer

President and CEO Neil Hunn attributed the software bookings deceleration mainly to Deltek and Frontline, noting the lumpiness of bookings but highlighting strong TTM low double-digit growth and robust performance in healthcare businesses like Strata and Clinisys. Mr. Hunn agreed that 2027 is a fair assumption for AI to have a meaningful impact due to the time required for commercialization, though building momentum is expected in 2026.

Brad Reback asked how Roper decides between allowing productivity gains, such as the 30% in R&D, to improve margins versus reinvesting for faster growth. He also inquired about early successes and strategies for monetizing and pricing AI-enabled products.

Answer

President and CEO Neil Hunn stated that the current priority is to reinvest productivity gains to 'do more'—driving product roadmaps, expanding go-to-market efforts, and building competitive advantage and top-line growth. Regarding AI monetization, he noted it's still a work in progress with no one-size-fits-all approach, but a model combining a base subscription with consumption-based overages is a common direction.

Brad Reback inquired about the expected timing for a return to free cash flow growth and asked about the gross retention rate for the newly acquired Centralreach.

Answer

EVP and CFO Jason Conley stated that free cash flow growth will be more back-end weighted due to Q2 bond coupon payments and strong seasonal cash flow from businesses like TransAct in Q3. For Centralreach, he noted that while logo retention is in the mid-to-high 90s, overall gross retention including therapist churn is in the low 90s, which is offset by strong net retention of 115-120%.

Brad Reback of Stifel Financial Corp. followed up on the topic of workload migrations, asking if the company's line of sight into migration activity for the second half of the year looks similar to or larger than what was recently seen.

Answer

CFO Mike Scarpelli confirmed that they have identified a number of new workload use cases scheduled to go into production in the second half. These include on-premise migrations as well as moves from first-generation cloud infrastructure. He credited Snowflake's solutions engineers (SEs) for becoming more effective at identifying these go-live and migration opportunities.

Brad Reback of Stifel asked for an update on the impact of recent changes to the sales force compensation plan and inquired about the significant increase in capital expenditures during the quarter.

Answer

CFO Michael Scarpelli stated that while the sales comp changes, which added a bookings quota, likely helped, the strong bookings were primarily driven by two large deals. He noted it will take time to see the full effect of the change. He explained the high CapEx was a one-time event associated with build-outs for the new headquarters in San Mateo and a new office in Bellevue, with no similar major projects expected in the next couple of years.

Brad Reback questioned the long-term outlook for the Enterprise Advanced (EA) business, noting its 7% ARR growth and asking what the company's longer-term expectations are for this segment.

Answer

President & CEO Dev Ittycheria explained that large enterprises are becoming more nuanced, recognizing that some workloads are best run on-premise while others are suited for the cloud. He highlighted that MongoDB's platform offers customers the flexibility to run the same codebase anywhere—on-premise, in the cloud, or moving between them—which is a powerful value proposition for EA customers and provides valuable optionality.

Brad Reback of Stifel asked if management's expectation for AI's contribution to FY26 revenue has changed and inquired about any significant updates to the upmarket sales compensation plan.

Answer

CEO Dev Ittycheria reiterated that enterprises are still in the early stages of AI adoption, so the financial impact remains modest for now, though he stressed MongoDB is well-positioned for when custom AI app development accelerates. He also confirmed there have been no meaningful changes to the sales compensation plan, as current go-to-market motions are working effectively.

Brad Reback questioned whether the announced incremental investments in enterprise sales and AI would limit operating margin expansion next year and asked if the MongoDB AI Applications Program (MAAP) workloads would favor Atlas or EA.

Answer

CEO Dev Ittycheria stated that while not ready to discuss next year's guidance, the investments in upmarket, legacy modernization, and AI are critical for long-term growth. He anticipates that MAAP workloads will initially favor Atlas, with more potential for EA once Vector Search capabilities are integrated on-prem.

Brad Reback inquired about the expected timing for the legacy application modernization pilots to become a material growth tailwind and asked if the second-half Enterprise Advanced (EA) pipeline consists of new or existing customers.

Answer

CEO Dev Ittycheria explained that while AI-driven modernization pilots show compelling time and cost savings and have a growing pipeline, it is still very early days and will take time to generate meaningful revenue. He clarified that the EA pipeline strength is predominantly driven by existing customers expanding their footprint.

Brad Reback from Stifel Financial Corp. asked for a deeper analysis of the macroeconomic environment, questioning if Dayforce's real-time data on employee punches and hours worked corroborates or contradicts government data suggesting an economic slowdown.

Answer

Chairman & CEO David Ossip stated that Dayforce is seeing employment levels up about 1% year-over-year, which is below the historical 2% trend but still represents growth. He noted that Dayforce's focus on frontline worker industries like hospitality, retail, and manufacturing provides a potential tailwind, as these segments are less impacted by AI displacement and may benefit from the reshoring of manufacturing jobs.

Brad Reback inquired about the drivers behind the meaningful acceleration in sales force productivity, asking if it stemmed from higher win rates, pipeline growth, or other factors.

Answer

CEO David Ossip attributed the success to several factors, most notably that win rates have nearly doubled year-over-year. He cited the resonance of Dayforce's technology leadership, particularly the '12-to-1' system simplification value proposition. This is evidenced by the high rate of full-suite deals (90-100% in mid-market/enterprise). Strong differentiators in global payroll, managed services, and AI, coupled with excellent sales execution, are also key drivers.

Brad Reback asked for the percentage of new sales from the existing customer base and whether the Q4 operational issues led to a more conservative guidance philosophy for 2025.

Answer

CFO Jeremy Johnson and CEO David Ossip stated that sales to the existing base were 42% for the year, with 42% of deals also being full suite. Regarding guidance, Jeremy Johnson confirmed that learnings from Q4 informed the 2025 outlook, emphasizing their confidence in the provided ranges for growth and margin expansion.

Brad Reback asked if the initial 2025 guidance assumes continued elongated sales cycles and flat employment levels, and also requested commentary on the first month of the fourth quarter.

Answer

CFO Jeremy Johnson confirmed the guidance assumes employment levels remain stable and that commentary on sales cycles was to provide context on a demand environment that is largely unchanged. CEO David Ossip noted that while the first month of Q4 was on target, the quarter is heavily weighted toward December, and success depends on execution in the final weeks.

Brad Reback of Stifel Financial asked about the expected gross margin trajectory for the second half of 2025 and into 2026, considering the shifting revenue mix towards AI and the lapping of changes in the useful life of assets.

Answer

CFO Matt Steinfort stated that gross margins are expected to be relatively consistent at current levels for the rest of the year, as the fast-growing AI business is still a small part of the overall mix. He anticipates a modest headwind to gross margins next year but expressed confidence in maintaining healthy margins overall due to ongoing efficiency efforts in the core business.

Brad Reback followed up on cloud consumption, asking about the pricing for customers who exceed their commitments. He also inquired if the strong Remaining Performance Obligation (RPO) growth was concentrated in a few large deals or was broad-based.

Answer

CFO Ed Grabscheid clarified that customers who go over their commit face a 'penalty rate,' but JFrog typically works with them to increase their data package if usage is consistent. He stated that the strong RPO growth was broad-based, driven by an increasing number of customers signing multiyear agreements.

Brad Reback asked for a breakdown of the sequential increase in RPO between current and long-term portions, and inquired about the future stabilization of gross margins.

Answer

CFO Ed Grabscheid stated that current RPO was $245 million, growing 24% year-over-year. He explained that as the revenue mix continues to shift towards cloud, which has a lower margin profile, the overall gross margin is expected to decline over time from its current level.

Brad Reback asked about Datadog's philosophical approach to the growing customer focus on 'bring your own cloud' (BYOC) and monitoring on-premise workloads.

Answer

CEO Olivier Pomel distinguished between the two, noting Datadog has new offerings to monitor on-prem workloads from the cloud. On BYOC, he stated that Datadog's philosophy is to go where customers want. The company is already testing ways for customers to manage data on their own cloud and will lean into it harder if market pull increases, viewing it as a potential future opportunity.

Brad Reback asked if Confluent has made any changes to its internal operating expense plans in response to the dynamic macro environment and what might trigger such adjustments.

Answer

CEO Jay Kreps responded that no aggressive changes have been made to OpEx. He stated that the company always manages expenses in line with top-line performance and would make adjustments as needed throughout the year, drawing on past experience operating in dynamic economic conditions.

Brad Reback of Stifel asked for a long-term view on the mix of proprietary versus open-source models for inference on Azure and whether this distinction ultimately matters to Microsoft's business.

Answer

CEO Satya Nadella stated that applications will use a combination of many different models, including proprietary, open-source, fine-tuned, and distilled models. He explained the strategy is to enable developers to start with the best frontier model and then optimize for cost and latency. He highlighted Microsoft's investment in Azure AI Foundry as a platform to help developers manage this model complexity.

Brad Reback noted that 'money' offerings drove over half of the growth in online services and asked if that trend would continue. He also followed up on Mailchimp, suggesting its recovery seems more like a driver for next year rather than the current one.

Answer

CFO Sandeep Aujla expressed strong confidence in the 'money' strategy (payments, bill pay, capital) and expects its momentum to continue as a key contributor to the 20% online ecosystem growth target. He agreed with the assessment of Mailchimp, describing its improvement as a 'several quarter journey' and confirming that the company is not banking on its recovery for this year's growth targets.

Brad Reback asked if the core repeatable subscription growth of around 18% should be considered the new go-forward rate. He also questioned the flat trend in core customer count and whether ARPC would be the predominant growth driver going forward.

Answer

CFO John Schwab stated that while performance has been strong, he was not ready to set 18% as the new bar, pointing to consistent ARR growth around 16%. CEO David DeStefano emphasized that growing the number of scaled customers is the #1 priority, and he is excited about new logo opportunities from an expanding partner ecosystem, though some noise remains at the low end of the market.

Brad Reback asked about the level of conservatism or cushion baked into the Q4 guidance following the Q3 miss. He also questioned the negative free cash flow from operations reported for the first nine months of the year.

Answer

CEO Patrick Goepel responded that the revised Q4 guidance is built on a solid foundation of existing backlog and deals already being implemented, rather than 'betting on the come.' He stated the goal was to reset expectations to a level they can confidently exceed. CFO John Pence addressed the cash flow question by focusing on the bridge from adjusted EBITDA, highlighting that the primary uses of cash impacting the metric are items like capitalized software.