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    Dynatrace (DT)

    DT Q1 2025: 23% Net New ARR Growth Underpins FY25 Guidance

    Reported on Jun 20, 2025 (Before Market Open)
    Pre-Earnings Price$40.49Last close (Aug 6, 2024)
    Post-Earnings Price$45.01Open (Aug 7, 2024)
    Price Change
    $4.52(+11.16%)

    What went well

    • DPS Licensing and Platform Adoption: The DPS contracting model is resonating well with customers, with over 40% of ARR now derived from DPS deals and nearly 70% of new logos landing on DPS contracts. This model enables customers to trial more capabilities, driving a powerful expansion and deeper integration across the platform.
    • Strong Customer Retention and Expansion: A net retention rate of 112% highlights robust customer expansion and low churn, demonstrating that existing customers are increasing their usage (for example with logs and AppSec), which supports recurring revenue growth.
    • Enhanced Go-to-Market Strategy and Partner Ecosystem: Sales and account segmentation improvements, together with a more precise partner economic model, have helped enhance deal origination, quality new logo acquisition (up 5% YoY), and stronger pipeline traction, creating a promising foundation for accelerated growth.

    What went wrong

    • Moderate Net Retention & Seasonality Concerns: While net retention was reported at 112%, analysts noted it only improved marginally compared to prior quarters and is subject to seasonality—renewals mainly occur later in the year. This raises questions about whether underlying customer expansion will accelerate in a more consistent manner.
    • Execution Risks from Go-to-Market Reorganization: The recent reassignments and focus shift toward Global 500 accounts, though intended to drive high-quality pipeline, introduce potential risks in deal closure and customer relationship continuity, which could temporarily disrupt momentum.
    • Uncertainty in Partner Economic Model Impact: Although early feedback on the new partner economic model is positive, it has only been implemented for a short period (about 90 days) and its ability to consistently drive significant incremental ARR remains unproven.

    Q&A Summary

    1. Net New ARR Guidance
      Q: FY '25 net new ARR outlook?
      A: Management reported 23% YoY growth in net new ARR in Q1 and maintains full-year guidance, emphasizing a healthy pipeline with considerable renewal activity anticipated in later quarters.

    2. Growth Reacceleration Path
      Q: Path to accelerate ARR growth?
      A: They expect this year’s ARR growth to stabilize before accelerating later, driven by refined go-to-market strategies and expanded DPS adoption, though specifics were not detailed.

    3. NRR & Pricing
      Q: NRR trends and pricing pressure?
      A: With NRR at 112%, management anticipates a modest moderation and noted no significant pricing pressure from open-source alternatives, underscoring steady customer expansion.

    4. NRR Drivers
      Q: What drove improved NRR?
      A: A modest improvement from roughly 111% to 112% was attributed to solid expansion via DPS contracts and cross-platform adoption, yet future increases remain uncertain.

    5. New Logo Quality
      Q: What spurred quality new logo growth?
      A: New logo acquisitions were up 5% YoY, driven by a strategic focus on high-quality, larger accounts that enhance overall ARR through consolidated tool efforts.

    6. CrowdStrike Impact
      Q: Did CrowdStrike outage boost ARR?
      A: Management stated it is premature to link future ARR growth directly to the CrowdStrike incident, though customer feedback on rapid recovery assistance was very positive.

    7. Go-to-Market Changes
      Q: Impact of sales rep reassignments?
      A: Reassignments have been fully implemented with minimal disruption, and the new approach is expected to deepen relationships with strategic accounts, setting the stage for long-term gains.

    8. Macro Outlook
      Q: Any macro changes affecting guidance?
      A: There have been no notable shifts in macro conditions since the prior quarter; pipeline and deal cycle patterns remain stable.

    9. Partner Economic Model
      Q: How effective is the new partner model?
      A: Early indications are promising, with qualitative feedback positive and a slight uptick in partner-originated deals, though it remains early in the cycle.

    10. DPS Capabilities
      Q: Which capabilities drive DPS traction?
      A: Customers are increasingly activating logs and application security modules via DPS, benefiting from flexible trial options that foster rapid expansion.

    11. Partner Ecosystem Role
      Q: How do partners support sales?
      A: Partners differ by type; GSIs focus on large, end-to-end deals while hyperscalers take a more opportunistic approach, collectively enhancing observability adoption.

    12. AppSec & Logs Consumption
      Q: What are consumption trends for AppSec/logs?
      A: Both segments exhibited robust usage, with logs consumption growing faster than application security, reflecting strong extended adoption.

    13. Log Migration Process
      Q: Timeline for log migration deployment?
      A: The migration timeline varies by customer, but DPS contracting enables quick trials and rapid ramp-up once a solution is validated, driving swift platform expansion.

    Analyst Coverage

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