Dynatrace Inc at UBS Global Technology and AI Conference Transcript

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

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay, Rick. So let's start maybe high level and maybe you could describe the environment that you're seeing out there. I think one observation that I have is, relative to the first half of this year when it felt tough for a lot of software companies. It seemed to me that this past quarter, both those on September and October results or quarters put up results that were going to be a little bit better than expected. We didn't have a lot of blow-ups, thankfully. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 6:35PM, DT.N - Dynatrace Inc at UBS Global Technology and AI Conference The beats were a little bit higher than normal. Tone was a little bit better. So it feels that things are at a minimum stable, if not slightly better, but I'm not sure whether that's how you would describe it. So I'd love to hear your perspective.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay. Let's double-click a little bit on your comment that 3Q saw a pretty robust hyperscaler growth. I've certainly noticed too, so did everybody in the room. I don't know if you look at it this way, but if you look at the sequential dollar adds for all of the hyperscalers, it was actually the largest ever. So something good is going on at the cloud intralayer. Maybe, Rick, what the question I want to ask you is, how can we think about the correlation between Dynatrace and hyperscaler growth? Not all of your revenues are cloud, but a significant portion is. How would you qualitatively describe that correlation?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay. So let's maybe talk a little bit about some numbers from this quarter, Rick. So with that as a context, you put up some good ARR beats in the last couple of quarters. But one of the key debates around the stock right now is that you're -- by reaffirming the full-year guidance, given your last couple quarter performance, it implies, obviously, a deceleration in ARR growth for the next few. So obviously, a debate can take hold as to whether that's an indication of some emerging stress or whether it's something a little bit more company specific in terms of seasonality. Do you want to address for a moment why we're seeing that ARR decel?

Question: Karl Keirstead - UBS Securities LLC - Analyst : And for those that might be less familiar with the Dynatrace story, Rick, if we could just back up, what was the primary impetus to make this go-to-market change? Like what's the opportunity that once we come out of this structural change that could provide potentially a growth acceleration for Dynatrace? Like what's the end state that you made these changes in advance of?

Question: Karl Keirstead - UBS Securities LLC - Analyst : So that's good color on the sales and partner side, but Rick, what about on the product side? Because if you are going to move upstream and presumably displace some incumbent vendors, is there also a story where Dynatrace has made some significant feature improvements to the product that puts you in a better position to display some of those incumbents? And if the answer is yes, what are a couple of the feature improvements that are enabling you to win upstream?

Question: Karl Keirstead - UBS Securities LLC - Analyst : We've heard this about Splunk for five-plus years.

Question: Karl Keirstead - UBS Securities LLC - Analyst : That's exciting. Rick, are you able to -- I know it's early, but are you able to offer any proof points of success on the log management side? Any Splunk displacements and anything you can share with us to get comfortable that it's working so far?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay. That's super exciting. I wish you the best of luck on that effort.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Can we talk a little bit about AI? Rick, how do you -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 6:35PM, DT.N - Dynatrace Inc at UBS Global Technology and AI Conference

Question: Karl Keirstead - UBS Securities LLC - Analyst : So let's talk about what Dynatrace's AI strategy is and how you can win.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Is it fair, Rick, that investors monitoring this potential pull-through as AI workload growth accelerates and pulls along Dynatrace that we can follow the pace at which enterprises are taking their AI-native workloads into production? And if that's a good proxy, maybe it will be a delayed lift to Dynatrace. But what's your perspective, Rick, on where the Fortune 500 is on taking those AI-native workloads out of POCs and beginning to roll them out? Early, I'm sure, is your answer, but how early, is it happening?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay.

Question: Karl Keirstead - UBS Securities LLC - Analyst : And Rick, this might be a little bit too nuanced but are there certain types of AI native workloads that have more of a natural pull-through to Dynatrace? And I say that because a lot of the AI investments we're hearing about are things like intelligent bots, where there are agents doing very, very discrete functions. I don't know whether there's a natural need to observe a single agent. So are there types of AI workloads that you're watching more carefully because the pull-through effect is more profound?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Yeah, code testing. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 6:35PM, DT.N - Dynatrace Inc at UBS Global Technology and AI Conference

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay. Let's move off AI in our last five minutes to talk about a few other topics, one of which is on the competitive front. Many in the audience joined me just a minute ago prior to this one with Datadog. So let's hit right on Datadog. So when you are up against them head-to-head, I guess the simple question is, why do you win? I can imagine based on at least the initial customer checks that we did, that it's some combination of APM being a power alley for Dynatrace and that's pretty critical and then also the fact that you can be deployed on-prem and cloud -- you're hybrid. Are those the two key ones? Or are there other ones that you would add to that list?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Got it.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Helpful answer. Thank you. We've got time for a question or two from the audience, if you'd like. No? I'll ask a final one then. So Rick, on the growth margin trade-off, maybe you could articulate how you use the CEOs thinking about that, delivering steady margin gains, but at the same time, investing to take on Datadog and go after this opportunity that we talked a little bit earlier about?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay. Awesome. Why don't we end it there? I'm thrilled to be covering your name. Thank you for coming to the event.

Question: Karl Keirstead - UBS Securities LLC - Analyst : And I'll be at your big conference in February to try to learn a little bit more.

Question: Karl Keirstead - UBS Securities LLC - Analyst : My pleasure.