Dynatrace (NYSE:DT) reported a stronger finish to fiscal 2026, with executives emphasizing steady annual recurring revenue growth, expanding consumption of its log management products and growing demand tied to artificial intelligence and cloud complexity.
On the company’s fourth-quarter and full-year earnings call, Chief Executive Officer Rick McConnell said Dynatrace surpassed $2 billion in annual recurring revenue, or ARR, and delivered its fourth consecutive quarter of 16% ARR growth. He said the company also saw log management annualized consumption rise to “well over $100 million,” growing more than 100% annually.
ARR Tops $2 Billion as New Logo Activity Improves
Chief Financial Officer Jim Benson said ARR ended the year at $2.05 billion, up 16% year over year in constant currency. He said fourth-quarter net new ARR, adjusted for foreign exchange movements, was $81 million, near the high end of the company’s guidance. For the full fiscal year, net new ARR was $277 million, representing 12% growth.
Benson said Dynatrace added 126 new logos in the fourth quarter, including a record nine seven-figure new customer lands. The average land size in the quarter remained above $200,000, and new logo ARR rose 43% in the quarter and 30% in the second half of the year.
The company also highlighted larger strategic deals. McConnell said Dynatrace recorded 22 deals with incremental annual contract value of more than $1 million in the fourth quarter. He attributed the large-deal momentum to enterprise customers seeking to consolidate fragmented monitoring and observability tools.
“There is significant interest in integrating fragmented tools to save money,” McConnell said during the question-and-answer portion of the call. He added that Dynatrace’s go-to-market changes have helped the company build deeper relationships with C-level decision-makers.
Revenue, Margins and Cash Flow
Fourth-quarter total revenue was $532 million, while subscription revenue was $506 million. Both increased 16% and exceeded the high end of Dynatrace’s guidance range by 200 basis points, Benson said.
For the full fiscal year, total revenue was $2.02 billion and subscription revenue was $1.93 billion, both up 17%. Non-GAAP operating margin was 29% for the year, and non-GAAP net income was $518 million, or $1.70 per diluted share.
Free cash flow totaled $529 million, or 26% of revenue. Benson said pre-tax free cash flow was 32% of revenue, noting that Dynatrace pays more cash taxes than many software peers because of its GAAP profitability.
The company also increased share repurchases. Benson said Dynatrace bought back 5.9 million shares for $224 million in the fourth quarter and 11.4 million shares for $479 million during the fiscal year. As of March 31, Dynatrace had about $849 million remaining under its $1 billion share repurchase authorization.
AI and Platform Consumption Remain Central Themes
McConnell said observability is becoming more important as enterprises adopt AI systems and agentic architectures that require continuous validation, governance, auditability, cost control and security oversight. He said Dynatrace’s platform is designed to provide “answers, not guesses” through deterministic and causal insights.
McConnell described Dynatrace’s advantage as architectural rather than feature-based, pointing to three core platform components: Grail, an AI data lakehouse; Smartscape, a real-time topology graph; and Dynatrace Intelligence, which provides both insights and automated action.
He said more than 500 customers are deploying Dynatrace’s agentic capabilities to support autonomous operations and integrations with AI development tools such as Anthropic’s Claude Code and GitHub Copilot. He also said more than 850 customers are using Dynatrace to observe AI and large language model workloads in production.
The company also discussed recent acquisitions. McConnell said Dynatrace acquired DevCycle, a feature management company, and Bindplane, an open standards-based telemetry pipeline company, as it entered the new fiscal year. He said Bindplane should support expanded ingest from OpenTelemetry and simplify telemetry collection and routing at scale.
DPS Licensing Model Drives Broader Usage
Benson said the Dynatrace Platform Subscription, or DPS, licensing model now represents more than 75% of ARR and more than 60% of the customer base. He said DPS customers are adopting the platform more broadly and consuming more than non-DPS customers.
Gross retention in the fourth quarter remained in the mid-90% range, while trailing 12-month net retention was 110%. Benson said average ARR per customer is now above $500,000 and said the company believes the long-term opportunity could be $1 million or more per customer.
In response to analyst questions, Benson said fiscal 2027 will include the largest cohort of DPS customers coming up for annual resets or renewals, creating an opportunity for expansion depending on consumption growth.
Fiscal 2027 Guidance Calls for ARR Acceleration
Dynatrace guided for fiscal 2027 ARR of $2.38 billion to $2.4 billion, representing growth of 15.5% to 16.5%. The guidance implies net new ARR, adjusted for foreign exchange movements, of $320 million to $340 million, up 16% to 23% from fiscal 2026 levels.
Benson said net new ARR is expected to be modestly more weighted toward the first half of the year than historical seasonality, citing healthy forecasted pipeline coverage.
For fiscal 2027, Dynatrace expects total revenue of $2.32 billion to $2.34 billion and subscription revenue of $2.22 billion to $2.24 billion, both representing growth of 14% to 15%. The company guided for non-GAAP operating margin of about 29.5%, non-GAAP net income of $584 million to $594 million and non-GAAP earnings of $1.93 to $1.95 per diluted share.
Benson said operating expense leverage is expected to be partially offset by a 100-basis-point gross margin headwind from higher cloud hosting costs tied to platform consumption growth. He said the pressure is expected to be temporary, with gross margins beginning to recover in fiscal 2028.
For the first quarter, Dynatrace expects total revenue of $547 million to $551 million, subscription revenue of $523 million to $527 million and non-GAAP earnings of $0.44 to $0.45 per diluted share.
About Dynatrace (NYSE:DT)
Dynatrace is a global software intelligence company specializing in application performance management (APM), cloud infrastructure monitoring, and digital experience management. Its flagship offering, the Dynatrace Software Intelligence Platform, leverages artificial intelligence to provide real-time observability across distributed environments, including on-premises data centers, private clouds, public clouds and hybrid deployments. Organizations rely on Dynatrace to detect anomalies, troubleshoot performance issues and optimize end-user experiences through automated root-cause analysis powered by the company’s engine, Davis.
The Dynatrace platform comprises modules for full-stack application monitoring, digital experience monitoring, infrastructure monitoring and business analytics.
