DT Q1 2026: 50% YoY pipeline growth, guidance held amid deal timing
- Robust Expansion Pipeline: The Q&A highlighted that Dynatrace’s strategic enterprise pipeline has grown by about 50% YoY, with a significant focus on large, high-value expansion deals, supporting an upward trajectory in ARR growth.
- DPS-Driven Consumption and Upside: The discussion emphasized that over 65% of ARR now comes from DPS contracts, which drive roughly double the consumption relative to SKU‐based models, positioning the company for accelerated revenue and expansion.
- Integrated End-to-End Observability Platform: Executives noted that customers prefer a unified observability solution including log management over standalone offerings, a trend that strengthens market share and reduces competitive threats from open-source alternatives.
- Reliance on large expansion deals with uncertain timing: The Q&A highlighted that a significant portion of the pipeline consists of large, strategic expansion deals whose close timing is variable, increasing revenue recognition uncertainty and posing a risk to near-term results.
- Weaker new logo additions: Discussion in the Q&A pointed out that new logo acquisitions were lighter compared to historical trends, potentially limiting longer-term customer base growth and creating pressure on future revenue expansion.
- Macroeconomic and currency headwinds: Caution was expressed regarding the external environment—including geopolitical uncertainty and FX challenges due to a large euro-denominated expense base—that could adversely impact operating margins and overall spending levels.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Revenue (Quarterly) | Q2 2026 | no prior guidance | $484,000,000 to $489,000,000, growing 15% to 16% | no prior guidance |
Subscription Revenue (Quarterly) | Q2 2026 | no prior guidance | $464,000,000 to $469,000,000, growing 15% to 16% | no prior guidance |
Non‑GAAP Income from Operations (Quarterly) | Q2 2026 | no prior guidance | $140,000,000 to $145,000,000, or 29% to 29.5% of revenue | no prior guidance |
Non‑GAAP EPS (Quarterly) | Q2 2026 | no prior guidance | $0.40 to $0.41 per diluted share | no prior guidance |
Annual Recurring Revenue (ARR) (Annual) | FY 2026 | $1,975,000,000 to $1,990,000,000 (growth of 13% to 14%) | Maintaining guidance of 13% to 14% with full year ARR expected to be roughly $2,000,000,000 | raised |
Total Revenue (Annual) | FY 2026 | $1,950,000,000 to $1,965,000,000 (growth of 14% to 15%) | $1,970,000,000 to $1,980,000,000, up 14% to 15% | raised |
Subscription Revenue (Annual) | FY 2026 | $1,865,000,000 to $1,880,000,000 (growth of 14% to 15%) | $1,880,000,000 to $1,900,000,000, up 14% to 15% | raised |
ODC Revenue (Annual) | FY 2026 | $30,000,000 | $35,000,000 to $40,000,000 | raised |
Non‑GAAP Operating Margin (Annual) | FY 2026 | 29% | 29% | no change |
Free Cash Flow Margin (Annual) | FY 2026 | 26% | 26% | no change |
Non‑GAAP EPS (Annual) | FY 2026 | $1.56 to $1.59 per diluted share | $1.58 to $1.61 per diluted share | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
DPS Model Adoption and Consumption Growth | Detailed metrics and customer behavior were discussed in Q4 2025 ( ), Q3 2025 ( ) and Q2 2025 ( ), emphasizing higher capability consumption and faster growth. | Q1 2026 shows 45% of the customer base and 65% of ARR on DPS, with nearly 2x capability consumption and strong on‐demand revenue signals ( ). | Increased adoption with higher consumption and improved expansion dynamics, indicating maturation of the DPS model and accelerated revenue growth. |
Pipeline Expansion and Deal Conversion Uncertainty | Previous calls in Q4 2025 ( ), Q3 2025 ( ) and Q2 2025 ( ) highlighted robust pipeline growth with variability in closing large, strategic deals. | Q1 2026 reports a 50% growth in strategic pipeline and reiterates timing variability for large deals, leading to cautious guidance ( ). | Steady pipeline expansion but ongoing uncertainty in deal conversion timing, warranting prudence despite strong strategic activity. |
New Logo Acquisition Dynamics | Q4 2025 ( ), Q3 2025 ( ) and Q2 2025 ( ) emphasized high-quality logo additions with larger average ARR, though volume numbers were higher previously. | Q1 2026 noted 103 new logos with a shift to prioritizing quality over volume as part of go-to-market segmentation changes ( ). | A shift from higher volume to higher quality new logos, reflecting a strategy favoring larger accounts and improved landing size despite lower overall numbers. |
Partner Ecosystem Engagement | Consistent partner influence was noted in Q4 2025 ( ), Q3 2025 ( ) and Q2 2025 ( ), with growing contributions from GSIs and partners in new logo and large deals. | Q1 2026 highlights continued strong momentum with GSIs and robust co-selling with hyperscalers driving significant partner growth ( ). | Stable and increasingly important partner engagement, indicating that partner contributions remain a core element of growth. |
Transition to Consumption-Based Revenue | Earlier periods detailed the DPS transition with evolving on-demand consumption, revenue recognition changes and incremental ARR benefits in Q4 2025 ( ), Q3 2025 ( ) and Q2 2025 ( ). | Q1 2026 continues to stress DPS impact with accelerated consumption growth, on-demand revenue (including a one-time true-up) and a strategic focus on consumption-based revenue ( ). | A deepening shift toward a consumption-based model, with solid on-demand revenue growth and strategic adjustments driving future revenue potential. |
Accelerating Logs Growth and Integrated Observability Platform | Logs and integrated platform discussions were robust in Q4 2025 ( ), Q3 2025 ( ) and Q2 2025 ( ), emphasizing customer adoption, unified data insights and strategic deals. | Q1 2026 reports strong logs consumption growth (36% sequential, 100%+ YoY) and reinforces the integrated, AI-powered observability platform built on Grail ( ). | An accelerating adoption of logs and integrated observability, driving strategic customer wins and reinforcing market leadership through a unified AI approach. |
Sales Segmentation and Compensation Adjustments | Adjustments were discussed in Q2 2025 with a focus on IT 500, strategic accounts, and semiannual compensation cycles ( ); Q3 2025 mentioned related go-to-market trends ( ); Q4 2025 had no mention. | Q1 2026 revisits segmentation changes and compensation adjustments that are maturing and driving better expansion metrics ( ). | Evolving sales segmentation and incentive adjustments are starting to yield improved quality in deal execution, though the full benefits are still emerging. |
Macroeconomic and Currency Headwinds | Q2 2025 ( ), Q3 2025 ( ) and Q4 2025 ( ) noted cautious macro sentiment and mixed currency impacts with both headwinds and tailwinds affecting guidance. | Q1 2026 acknowledges a fluid macro/geopolitical environment and highlights that a weaker USD is helping top-line growth while creating modest margin headwinds ( ). | Persistent macroeconomic uncertainty and mixed currency effects continue to influence guidance, necessitating cautious outlooks while demand remains resilient. |
Extended Sales Cycles and Execution Risks | Q2 2025 touched on challenges with less tenured reps and compensation cycles ( ), Q3 2025 ( ) and Q4 2025 ( ) discussed longer sales cycles for large strategic deals. | Q1 2026 reiterates extended sales cycles for large, strategic opportunities and execution risks amid uncertainties, with caution embedded in guidance ( ). | Extended sales cycles and ongoing execution risks remain a recurring theme, especially for large deals, prompting sustained caution in future revenue and ARR outlooks. |
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Guidance Outlook
Q: Why not raise constant currency guide?
A: Management emphasized prudence, noting that although DPS and logs are strong, large deals still carry timing uncertainty early in the year, so they prefer to maintain rather than raise guidance. -
Pipeline Growth
Q: How is the pipeline evolving?
A: They reported a robust pipeline—with strategic deals up 50%—driven by investments in large, high-propensity accounts, though large deals still require more time to close. -
ODC Revenue Impact
Q: Does ODC rev change affect other metrics?
A: Management clarified that the revised ODC revenue treatment affects only revenue recognition, leaving metrics like ARR and NRR untouched. -
DPS Sales Impact
Q: Is the new sales incentive driving expansion behavior?
A: They indicated that shifting incentives from pure commitments to consumption has led to notably larger expansion deals, especially in strategic enterprises. -
DPS Cohort Trends
Q: Are DPS cohorts behaving differently this year?
A: Management observed that while first‐ and second‐year DPS cohorts show different consumption patterns, both are accelerating usage and driving higher overall consumption rates. -
Consolidation Focus
Q: Who is being consolidated out of the logs market?
A: They noted that traditional, siloed log vendors are being outperformed by integrated end‑to‑end observability platforms, with customers favoring solutions like Dynatrace for deeper insights. -
Competitive Dynamics
Q: What is the competitive landscape like?
A: Management sees little leakage to open‑source options and no substantial shifts in competitors, reinforcing Dynatrace’s integrated model as a clear differentiator. -
GTM and Rep Tenure
Q: How are GTM changes and rep tenure evolving?
A: They acknowledged that, while many newer reps remain on the team, the focused investments in high‑value accounts are already translating into improved pipeline and deal closures, with expectations of further maturation over the year. -
New Logo Mix
Q: Why were new logo adds lower this quarter?
A: The decline reflects a strategic focus on quality and earlier expansion within existing accounts rather than an inherent weakness in attracting new customers. -
Log Demand Pipeline
Q: How significant is log-related demand in the pipeline?
A: Logs are a key component of end‑to‑end observability discussions, and a substantial portion of the pipeline now centers on log management, enhancing the overall value of the platform. -
Early Renewals & ODC
Q: Are customers renewing early due to ODC?
A: Management noted a mixed picture; while some customers renew early or expand due to accelerated consumption, the large expansion deals were generally driven by broader platform initiatives rather than ODC alone. -
NRR Outlook
Q: Will NRR keep increasing with more DPS?
A: They expect the strong expansion activity, especially as DPS accounts now make up over 65% of ARR, to support continued improvements in net retention, though final trends will unfold over the year. -
DPS Learnings & Tariffs
Q: What lessons were learned from DPS changes and tariffs?
A: The shift to an all‑access DPS model has accelerated consumption and subsequent growth, while tariffs have had minimal impact to date, with cautious outlook maintained amid macro uncertainty. -
Enterprise AI Demand
Q: How is enterprise AI adoption affecting business?
A: Management is seeing accelerating discussions and deployments of AI across observability functions, with advanced AI capabilities enhancing platform value and customer outcomes. -
Hyperscaler Exposure
Q: How does the business skew across hyperscalers?
A: The bulk of the business remains with AWS, although growing traction is evident with Azure, reflecting a customer-driven approach across major platforms. -
Strike Teams Impact
Q: Are strike teams contributing to results?
A: Early results from strike teams—especially in logs and security—suggest they are boosting consumption and deal velocity by providing specialized product expertise to the sales force.
Research analysts covering Dynatrace.