Release Date: May 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dynatrace Inc (DT, Financial) surpassed $1.5 billion in ARR, marking a 50% growth from two years ago.
- Achieved a record 18 7-figure ACV wins in the quarter, including a 9-figure TCV deal and an 8-figure ACV new logo deal.
- Named a leader in multiple analyst reports, underscoring its strong market position in observability and AI ops.
- Introduced significant platform innovations with the release of Grail, enhancing data integration and scalability.
- Strong partner momentum, with 15 of the 18 7-figure deals closed in collaboration with partners, boosting the company's market reach and effectiveness.
Negative Points
- Acknowledged an increased level of variability and longer duration to close large strategic deals, necessitating a cautious approach to guidance.
- The transition to a new go-to-market strategy and changes in sales force could potentially disrupt short-term sales performance.
- Net expansion rate slightly decreased to 111%, indicating a need to monitor customer expansion and retention closely.
- Guidance for fiscal 2025 reflects a conservative outlook, assuming a challenging macroeconomic environment and potential budget scrutiny by enterprises.
- The $100 million annualized revenue targets for emerging solutions like logs and application security are now expected to be achieved in fiscal 2026, indicating a slower ramp-up than initially anticipated.
Q & A Highlights
Q: Congrats on the Q4. I wanted to talk a little bit about some of these large deals that you landed in Q4, a 9-figure TCV deal and 8-figure land deal sort of reaffirms what you guys have been telling us the last couple of quarters that there's a lot of these larger [deals] in the pipeline, and it looks like you guys closed a healthy amount of them in Q4. Rick, I was wondering what go-to-market changes that you have planned for the early part of the year in the context of the success you're seeing with these large enterprise deals. Should I take the go-to-market changes, meaning that you're trying to focus more down market and other customer segments? Or you just need more sort of sales capacity to close more volume of deals, given the success that you've seen landing in Q4? I'd love to just better understand the rationale for some of these go-to-market changes that you have planned for the first half.
A: The short-form answer is that we're seeing increased momentum, increased traction, increased centralization of the end-to-end observability and broad-based observability architecture decisions. And the result of that is that's where you focus your sales energy. So in the go-to-market evolution, our focus on things like customer segmentation and partners really to address that end-to-end observability architecture approach is very consistent with what we're seeing in the market, and that's the -- what we're making headed into FY '25.
Q: One question for Rick and one for Jim. So Rick, clearly, the move upmarket is working, you're landing big deals, very strategic engagements, and that's great. But it does look like the net expansion rate on a trailing 12-month basis came down. So wondering if you could talk about the other side of the set, the mid-market business and what's happening there and what could happen there.
A: Let me take the first one, Kash. So relative to the net new ARR and particular question around mid-market, the strategy around mid-market is really partners. We talk about that a lot. We are definitely leaned in relative to GSIs and hyperscalers. And that is really how we would expect to attack the mid-market space, which is through that avenue.
Q: A couple from me. I wanted to ask or go back to the record 18 7-figure deals. And I wanted to ask, how often was Grail a part of those big deals? And I was thinking about consolidation. Was a part of that logs on Grail replacing incumbent vendors?
A: Yes, and yes, Grail is part of essentially every SaaS deal that we do at this point. So Grail, remember, is not equal to logs. Grail is underlying massively parallel processing data store for enormous amounts of data that can be accessed to store all sorts of different data types, logs, traces, metrics, et cetera. Logs access Grail, and logs are a key element of this end-to-end observability architecture approach.
Q: As we -- as you guys kind of pursue these larger deals, obviously, there's only like a few -- can you talk a little bit about like the changes in the vendor landscape that you're kind of dealing with them? Is that like a consolidation of tools? Are you replacing things?
A: Raimo, the landscape is evolving, as I mentioned earlier, really towards an increased view towards centralization of the overall landscape and decisions associated with observability. What we saw, for example, in the large airline example that we provided in our prepared remarks was they felt they were spending too much money to get too little user experience and too many incidents.
Q: Just, Jim, for you, I wanted to unpack the dollar-based net retention rate performance in the quarter. I know macros haven't necessarily gotten worse, but I was hoping you could speak to some of the puts and takes on that hitting 111% or a 2-point sequential deceleration in the quarter. And if you can paint a pathway for us as to the time and slope of a re-expansion in this metric, especially when I superimpose some of your commentary around how successful the consumption trends under the DPS selling vehicle are going.
A: Right. So I'd say, you're right that the NRR was -- was just -- it was, I'd say, it rounded down from 112% to 111%. So a little bit lighter, but I think that's largely driven by the fact that we had a very, very strong new logo quarter. And so sometimes you have quarters where new logos are stronger than expansions. We had a very good new logo quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
