Dynatrace Inc at Morgan Stanley Technology, Media & Telecom Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sanjit Singh - Morgan Stanley - Analyst : So maybe, Rick, we just sort of start high level, let's reflect on fiscal year '25. It's still in process, right? We got one quarter to go. As you compare fiscal year '25, which is still in progress, to fiscal year '24, where within the business do you guys have more confidence where you see things getting better? And what are some of still the areas where you feel like you could execute better?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yes. That was a fantastic everybody we'll probably dive into all of those topics through the course of discussion. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 9:05PM, DT.N - Dynatrace Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Sanjit Singh - Morgan Stanley - Analyst : Exactly. We're done. Any questions -- we were talking off stage kind of about the environment that we've been in for the past two plus, call it, three years, just a higher rate environment, a more sober spend environment. As we progress through that, what's the storyline in terms of how has the competitive environment changed over the last three years? And then from your guidance perspective, I'm not calling that we're out of it yet, but as we progress out of this era spending, if you will, what gives you the confidence that you're coming out of it in a stronger competitive position? If the same, you always take advantage of a recession or an opportunity how is Dynatrace coming out of this cycle on a better competitive footing?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yes, it makes perfect sense. Let's return to the topic of subscriptions and it sort of impact on the growth equation at Dynatrace. First off, I mean, 1,500 customers on DPS, 35% of the base, north of 55% of your ARR and those DPS customers consuming it 2x the rate of non-DPS customers. The emerging dynamic that seems to be at play is that as customers sort of exhaust their DPS customers exhaust their commitments, they're choosing to go on demand, which is benefiting subscription revenue, but not ARR. And so with these kind of emerging dynamics in the model from an investor perspective, what do you believe is the right sort of metric to assess growth in the quarter going forward? Is it subscription revenue, it's ARR? And how do you see that -- how do you guys sort of think about pointing investors to which metric is the more durable one to rely on going forward?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yes. Was actually in my follow-up question is like from a -- if you kind of the psychology, the customers perspective, what are they thinking through in terms of the trade-off between making an early expansion versus continuing to go on demand. It sounds like you guys are not trying to nudge them to make a new commitment, you're fine with them sort of consuming on demand? Or is it from a salesperson's perspective, from a quota attainment perspective, do they really want to find that early commitment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 9:05PM, DT.N - Dynatrace Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Sanjit Singh - Morgan Stanley - Analyst : Awesome. Let's talk about some of the go-to-market changes and sort of mark-to-market where we are. Can you walk us through what the original goals of the go-to-market changes you implemented three quarters ago? And what are some of the early results? Are you seeing the types of behavior that you were looking to incentivize?

Question: Sanjit Singh - Morgan Stanley - Analyst : Awesome. You mentioned in your early answer, the focus we're just now as a focus on IT 500. The commercial did see a little bit of weakness this year. Can you talk through like what sort of the symptoms are. Is this a function of macro, more spending environment over it? Or is it more execution-oriented? And what's sort of the game plan to get the commercial business on a better footing?

Question: Sanjit Singh - Morgan Stanley - Analyst : Understood. Another element of some of the go-to-market changes has kind of moved to kind of six months' sales compensation cycles. To what extent did that change pull forward ARR into fiscal Q2. And to the extent that it did, with the sort of same logic chain kind of applied to Q4 in terms of sales reps looking to bring in deals maybe from the first half pipeline into Q4.

Question: Sanjit Singh - Morgan Stanley - Analyst : Yes, it makes total sense. Maybe last question on the go-to-market side of the house. You guys have noticed that you have greater than 30% of your sales reps having less than one year tenure. And you sort of framed this year as not necessarily about sales productivity, but sort of putting the building blocks building blocks in place. And so what is ultimately the unlock sales productivity when that happens over time? Is it just a function of tenure and more tenured reps? Or is there something on the sales operations side, sales strategy side that you guys are looking to do to unlock that greater productivity?

Question: Sanjit Singh - Morgan Stanley - Analyst : That's great. Looking forward to see how that plays out in the business. You mentioned some of the product focus areas. These were originally Rick questions. I promise we'll keep them kind of high-level business focused. But one of the things that we've been coming up in our research is that a renewed importance on getting really good at logs in the category. And you guys have had logs on Grail for a bit now. How much of an upgrade is logs on rail versus incumbent solutions? And any details you can share about the size of the log business and what are you doing to sort of unlock that opportunity around logs. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 9:05PM, DT.N - Dynatrace Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Sanjit Singh - Morgan Stanley - Analyst : Yes, it's quite exciting. Maybe as a follow-up to that and kind of circles back to the question I had on competition. When you see players in the market go private, do you see that -- do they sort of drop out in terms of the number of opportunities that you guys are competing against in? Like when you see this do they focus on certain segments and not as visible in the market, any sort of storyline around.

Question: Sanjit Singh - Morgan Stanley - Analyst : Awesome. We talked about the logs opportunity which other parts of the capabilities that product portfolio within Dynatrace, do you feel it's underpenetrated and could emerge over the next couple of years as drivers of growth?

Question: Sanjit Singh - Morgan Stanley - Analyst : That makes a ton of sense. And this is a question that we've also been in. So if I think of Dynatrace as a leader in the category, Datadog in a category, sort of being the incumbent in this part of the cycle. One of the questions that we're getting is like, hey, we have this Gen AI thing happening and the way applications are getting built is like that sort of reference architecture that recipe is going to change. And therefore, is there a need for a sort of new mousetrap, and AI made of observability solution? From your guys' perspective, like how do you sort of like respond to that? And do you feel like you guys have the platform in place to monitor the next wave of applications in --?

Question: Sanjit Singh - Morgan Stanley - Analyst : Awesome. Well done, handling the rig question. Let's wrap up by some couple of topical questions like in the moment, we got a new administration that's come in. Has there been any -- I guess this signal about less regulatory environment, shown any evidence of unlocking investment in your commercial business? Any signs there thus far.

Question: Sanjit Singh - Morgan Stanley - Analyst : Awesome. Well, with that, we'll leave it right there. Thank you so much, Jim, thank you for the TMT Conference and stepping up for your CEO in a big way, and I thought a great discussion. Thank you.