다이나트레이스(DT) 2027 회계연도 2분기 실적 발표 컨퍼런스 콜: ARR 16% 증가

다이나트레이스의 2027 회계연도 2분기 실적은 17%의 매출 성장률과 32%의 비GAAP 영업이익률을 기록했습니다. 일부 대기업 고객의 확장 계약이 하반기로 이월되었으나, ARR 성장률은 16%를 유지했습니다.

핵심 요약

• ARR은 22억 1,000만 달러에 달해 전년 동기 대비 16% 증가한 반면, 2분기 순신규 ARR은 기업 계약 시점의 영향으로 전년 동기 대비 변동 없는 7,000만 달러를 기록했습니다.
• 총 매출은 17% 증가한 5억 8,000만 달러, 구독 매출은 17% 증가한 5억 5,300만 달러를 기록했습니다. 두 수치 모두 회사 가이던스 상단을 100베이시스포인트(bp) 상회했습니다.
• 비GAAP 영업이익률은 32%에 달해 가이던스 상단을 거의 200베이시스포인트(bp) 상회했습니다. 비GAAP 희석주당순이익(EPS)은 $0.54를 기록했습니다.
• 플랫폼 소비는 20% 이상 증가했습니다. AI 고객군의 소비 속도는 일반 고객 대비 2배 이상 높았으며, 로그 관리 소비는 100%를 훨씬 상회하는 성장세를 보였습니다.
• 경영진은 아라이즈를 제외한 단독 기준 2027 회계연도 고정환율 기준 ARR 성장률 가이던스를 15.5%~16.5%로 유지했습니다. 아라이즈를 포함한 총 ARR 성장률은 17.5%~18.5%가 될 것으로 예상됩니다.
• 하반기 순신규 ARR은 4분기에 더욱 집중될 것으로 예상됩니다. 이는 연간 갱신 물량의 70%가 하반기에 남아 있고, 이 하반기 갱신 물량 중 65%가 4분기에 집중되어 있기 때문입니다.

주요 재무 데이터

별도로 명시되지 않은 한, 회사가 언급한 성장률은 전년 동기 대비, 비GAAP 및 고정환율 기준입니다.

사업 및 운영 성과

상반기 자체 사업 기준(Organic) 순신규 ARR은 17% 성장했으며, 이는 1분기 41% 성장과 2분기의 정체 상태가 결합된 결과입니다. 경영진은 2분기 성장 둔화의 원인으로 몇몇 대형 기업 계약의 지연을 꼽았으며, 이로 인해 예상치 대비 한 자릿수 수백만 달러 수준의 미달이 발생했다고 설명했습니다. 지연된 계약 중 일부는 이미 3분기 초에 체결 완료되었으며, 나머지 기회도 여전히 진행 중입니다.

다이나트레이스는 해당 분기 동안 120개 신규 고객을 확보했습니다. 최근 12개월 평균 초기 계약 규모는 $200,000를 초과하여 전년 동기 14만 달러 대비 증가했으며, 이는 대형 기업용 도입이 확대되고 있음을 보여줍니다.

플랫폼 소비는 20% 이상 증가했습니다. 인프라 모니터링은 연간 환산 소비액 5억 달러를 돌파하고 약 30% 성장했습니다. 경영진은 인프라 모니터링이 AI 네이티브 기업을 포함한 고객들에게 진입 장벽이 낮은 출발점 역할을 한다고 설명했습니다.

로그 관리 사업은 소비량이 100%를 훨씬 웃도는 증가세를 보이며 가장 빠른 성장세를 유지했습니다. 연간 환산 로그 소비액은 약 2억 달러에서 2억 5,000만 달러 이정표를 향해 지속적인 진전을 이뤘습니다. 또한 다이나트레이스는 로그 도입을 지원하고 고객이 두 플랫폼 간에 보안 및 관찰 가능성 데이터를 자유롭게 라우팅할 수 있도록 크라우드스트라이크와의 전략적 파트너십을 발표했습니다.

1,100곳 이상의 고객이 AI 및 대규모 언어 모델(LLM) 워크로드를 모니터링하기 위해 다이나트레이스를 사용하고 있었습니다. AI 고객군의 플랫폼 소비 속도는 다른 고객보다 2배 이상 높았습니다. 다이나트레이스는 공개 프리뷰 기간에 1,100곳 이상의 고객이 자사 에이전트를 사용하도록 했으며, 3분기 시작과 함께 AI 관련 DPS 사용을 통해 해당 기능의 수익화를 시작했습니다.

다이나트레이스는 10월 1일 아라이즈 인수를 완료했습니다. 아라이즈는 인수 완료 시점에 약 2,500만 달러의 ARR을 기여했으며, 경영진은 이 금액이 회계연도 말까지 4,000만 달러에 달할 것으로 예상합니다. 회사는 이미 수십 건의 교차 판매 기회가 진행 중이라고 밝혔습니다.

이사회는 자사주 매입을 위해 10억 달러의 추가 한도를 승인했습니다. 다이나트레이스는 2분기 중 2억 4,600만 달러 규모인 520만 주를 매입했으며, 약 13억 달러의 잔여 승인 한도를 보유하고 있습니다.

경영진 가이던스

2027 회계연도 3분기에 대해 경영진은 다음과 같이 전망합니다.

• 아라이즈의 약 130베이시스포인트(bp) 기여분을 포함한 총 매출 및 구독 매출 성장률 15.5%~16.5%.
• 아라이즈에 따른 약 350베이시스포인트(bp)의 희석 효과를 반영한 비GAAP 영업이익률 26%.
• 비GAAP 희석주당순이익(EPS) $0.44~$0.45.

미국 달러화 강세는 이번 회계연도 동안 ARR에 2,000만 달러, 매출에 600만 달러의 불리한 영향을 미칠 것으로 예상되며, 이는 이전 가이던스 대비 각각 600만 달러와 200만 달러의 추가적인 부정적 영향입니다.

리스크 및 주목할 점

대기업 대상 관찰 가능성(Observability) 툴 통합 계약은 복잡하며 분기 간 수주 시점이 이월될 수 있습니다. 경영진은 지연된 2분기 거래가 정기 갱신 건이 아니라 주로 초기 확장 기회였으며, 회계연도 전체 전망을 달성하기 위해 지연된 모든 계약이 완료될 필요는 없다고 밝혔습니다.

하반기 실적은 부분적으로 대규모 갱신 고객군에 의존합니다. 연간 갱신 활동의 약 70%가 하반기에 남아 있으며, 이 중 65%가 4분기에 집중되어 있어 분기별 시점 위험이 증가하고 있습니다.

일부 확장 계약이 하반기로 이월되면서 NRR(순유지율)은 전분기 대비 1%포인트 하락한 109%를 기록했습니다. 경영진은 갱신 활동이 늘어남에 따라 확장 기회가 많아질 것으로 기대하고 있으나, 구체적인 NRR 목표치는 제시하지 않았습니다.

경영진은 AI 토큰 지출 증가로 인해 기술 예산 검토가 더욱 엄격해졌음을 인정했습니다. 그러나 토큰 비용이 다이나트레이스의 계약 지연에 직접적인 원인이 되었다는 증거는 보지 못했다고 말했습니다.

아라이즈 인수로 인해 연간 비GAAP 영업이익률이 약 175베이시스포인트(bp) 희석될 것으로 예상됩니다. 또한 전환사채 발행으로 희석주식수가 증가하면서 비GAAP EPS 가이던스 중간값이 $0.09 하락했습니다.

애널리스트 Q&A 주요 내용

• 대기업 계약 지연: 경영진은 실적 미달이 수주 실패나 관찰 가능성 수요 둔화 때문이 아니라 복잡한 대형 툴 통합 거래 몇 건 때문이라고 설명했습니다. 이 중 몇 건은 3분기 초에 계약이 체결되었습니다.
• 하반기 실적 자신감: 회사는 견조한 사용량, 우수한 경쟁 승률, AI 수요, 로그 도입 확대 및 대규모 갱신 물량을 자신감의 근거로 제시했습니다. 그럼에도 불구하고 계약 체결 시점의 가변성을 고려해 단독 ARR 가이던스는 기존대로 유지했습니다.
• 아라이즈 영향: 경영진은 아라이즈가 2분기 계약 지연을 유발하지 않았다고 밝혔습니다. 초기 교차 판매 활동이 진행 중이지만, 인수 완료 후 1개월이 지난 시점에서 통합 작업은 아직 초기 단계입니다.
• AI 수익화: 다이나트레이스는 텔레메트리 데이터 볼륨 증가, DPS 사용을 통한 에이전트의 직접적인 수익화, 그리고 아라이즈의 AI 관찰 가능성 및 평가 기능 판매를 통해 AI가 성장을 견인할 것으로 기대합니다.
• 사용량 기반 가격 책정: 사용량을 늘리는 고객은 더 나은 단가 혜택을 받을 수 있지만, 경영진은 할인율이 사용량 증가에 비례해 그대로 높아지지는 않는다고 말했습니다. 가격 책정은 계약 및 고객별로 개별 적용됩니다.
• 영업 집행력: 하반기 근본적인 시장 진출 전략(Go-To-Market) 변경은 없었습니다. 영업 생산성은 2분기에 감소했으나 상반기 전체로는 증가했습니다.

실적발표 콘퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Greetings. Welcome to Dynatrace's Second Quarter Fiscal 2027 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Noelle Faris, Vice President of Investor Relations. Thank you. You may begin.

Noelle Faris

Good morning, and thank you for joining Dynatrace's Second Quarter Fiscal 2027 Earnings Conference Call. Joining me today are Rick McConnell, Chief Executive Officer; and Jim Benson, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements such as statements regarding revenue, earnings guidance and economic conditions.

Actual results may differ materially from our expectations due to a number of risks and uncertainties discussed in Dynatrace's SEC filings including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. The forward-looking statements contained in this call represent the company's views on November 3, 2026. We assume no obligation to update these statements as a result of new information, future events or circumstances.

Unless otherwise noted, the growth rates we discussed today are year-over-year and non-GAAP reflecting constant currency growth and per share amounts are on a diluted basis. References in our remarks to the Dynatrace stand-alone business refer to Dynatrace's core business, excluding Arize, which we acquired on October 1. We will also discuss other non-GAAP financial measures on today's call. To see reconciliations between non-GAAP and GAAP measures, please refer to today's earnings press release and supplemental presentation which are both posted in the Financial Results section of our IR website.

And with that, let me turn the call over to our Chief Executive Officer, Rick McConnell.

Rick McConnell

Thanks, Noelle, and good morning, everyone. Thank you for joining us for today's call. Our Q2 results reflect the ongoing durability and strength of our financial model, including top line growth as well as continued operating leverage. Total ARR grew 16% and Total and subscription revenue grew 17% and non-GAAP operating margin was 32%, resulting in a rule of 48 when combined with ARR growth. At the outset, I want to reiterate our confidence in our FY '27 guidance.

Q2 net new ARR came in flat year-over-year, following 41% organic net new ARR growth in Q1 reflecting the timing of a number of large enterprise deals that shifted to the second half. These opportunities remain active and several have already closed. Importantly, the underlying growth drivers remain unchanged. Overall platform consumption continued to grow in excess of 20%, with AI customer cohorts consuming more than twice the rate of other customers. BOB's consumption continues to grow at well over 100% and Infrastructure monitoring hit a milestone. It is now over $500 million in annualized consumption growing approximately 30%.

More than 1,100 customers leverage the public preview of Dynatrace agents to facilitate autonomous operations, up from 800 last quarter. And the Arize acquisition has broadened our access to developers and brought more than 30 AI native customers. These trends reinforce our confidence in the growth opportunity ahead. Jim will cover the Q2 numbers and our full year guidance in more detail.

Let me turn to the AI opportunity and why I believe Dynatrace is positioned to win. We are no longer on the cusp of the agentic era. We are in the middle of it. AI is writing code, agents are operating software and the growth of telemetry volumes and complexity is accelerating. Our own research shows that AI workloads drove a 93% increase in log volume in the past 12 months alone. As AI systems become increasingly autonomous, enterprises need greater visibility and control over how their applications operate and how AI agents behave.

Cusi is reinforcing the importance of unified observability platforms and creating a significant opportunity for Dynatrace. Customers continue to choose Dynatrace because of an architectural advantage that other observability platforms and point solutions cannot easily replicate. Our key points on product differentiation include rail, our Unified Data Lake House, Smartscape, our real-time context crap and Dynatrace intelligence, which fuses deterministic and agenetic AI. Together, these 3 integrated components deliver a single end-to-end observability platform across all data types and domains, accessible by all personas.

Our integrated architecture rounds AI-driven actions in precise context with guardrails set by customers. We are an open platform throughout with the full root cause on open telemetry data and no proprietary agents require. Our differentiated architecture positions us well as customers increasingly consolidate tools and standardize on fewer, more strategic platforms. Customers want 1 platform that can support teams and agents across their environments instead of many disconnected point tools, and we saw this in several strategic customer wins and expansions during the quarter.

We continue to see external validation of our strong competitive position. Last week, worser named Dynatraces a leader with the highest score in the current offering category in AI ops platforms. We're seeing that differentiation translate into customer buying decisions. Here are a few examples from the quarter. We signed a 7-figure expansion with a leading U.K. semiconductor and software design firm. This customer's annualized consumption was growing more than 60%, and after trending above its commit for 3 consecutive quarters, they increased their DPS commit by 65%, 15 months ahead of their renewal. One of the world's largest banks expanded its commitment by 7 figures, bringing total contract value to 9 figures.

They have made Dynatrace their global observability standard with the intention of replacing their existing cloud observability vendor and moving logs to rail. One of our largest New logo wins was a large U.S. public sector organization but selected Dynatrace to consolidate legacy monitoring across highly secure mission-critical operations. We secured a 7-figure expansion with a large nonprofit which standardize on Dynatrace for all applications and replaced its 20-year log better. We signed a 7-figure expansion with a Canadian public sector organization where annualized consumption grew more than 100%, leading the customer to double its commitment as a consolidated more tools on to Dynatrace.

And a major Mexican public sector institution selected Dynatrace for a 7-figure new logo win displacing an incumbent vendor in an end-to-end observably takeout, including lots. These examples highlight the opportunity to expand existing customer relationships as they consume more, displace incumbent solutions and continue to attract new logos. We are already seeing AI translate into meaningful platform consumption. More than 1,100 customers now use Dynatrace to observe AI and LLM workloads. And as I mentioned earlier, consumption growth in AI cohorts is growing at more than twice the rate of other customers. The architectural advantage of a fully unified platform is even more relevant in an AI first world.

Looking ahead, we see 3 ways AI can drive incremental growth for Dynatrace. First, AI workloads generate far more telemetry, which increases consumption. Second, as of the beginning of Q3, we are now monetizing our own AI capabilities and agents and have the opportunity to convert the more than 1,100 Freeview customers into paying customers. Every time, Dynatrace intelligence answers a question or an agent act autonomously, it drives DPS usage. And third, our Rise provides deep observability and continuous evaluation across AI applications and agentic systems, while Dynatrace connects the behavior to the broader technology stack and business context.

This enables customers to improve accuracy, efficiency, safety and reliability across the entire AI system. Let me expand on the Arize acquisition, which we closed on October 1. Arize is the category leader in AI observability and evaluations, a market we expect to exceed $10 billion by 2030. By combining Arize capabilities in model evaluation and observability with Dynatrace's contextual intelligence and full stack observability, we can help customers monitor and control the full AI life cycle.

Accordingly, Arize creates a strong position for us with AI developers. -- open source Phoenix platform has millions of monthly downloads, providing an incremental pipeline source to introduce Dynatrace to customers building AI applications. We will continue to support this developer-first approach with Phoenix remaining open source and both the Arize AX and Dynatrace available as stand-alone offerings. At the same time, we are integrating the Arize and Dynatrace solutions, so customers who use both gain even greater value, connecting AI observability and evaluation with the full stack context of Dynatrace.

We are already seeing the potential of this combination. A large health care company is using a rise in Dynatrace to scale and AI assistant that helps customers navigate their care. Arize evaluates the quality of the model's responses, while Dynatrace provides full stack observability, enabling teams to trace issues from the model through the application and infrastructure to root cost. Together, they give the customer confidence to expand AI to more users and workflows with the governance and oversight that health care demands. While it's still early in just a month since we closed the acquisition, we already have several dozen cross-sell opportunities underway to bring Arize capabilities to Dynatrace customers. We're excited to have brought our teams together, and we're working to deliver on the opportunity ahead.

I am also thrilled about the strategic partnership that we jointly announced yesterday with CrowdStrike, enabling us to further accelerate log management adoption and help customers avoid vendor lock-in. With fine plan as the intelligent telemetry layer, we can bring together Dynatrace's logs and observability data with CrowdStrike's leading AI-powered cybersecurity.

Turning to the CFO transition. As we shared in August, Jim plans to retire by the end of this fiscal year. We have several candidates who are in process and I look forward to updating you once we have made a decision on his successor. Jim has been an exceptional partner and I remain deeply grateful for his ongoing leadership. Finally, we announced today that we will be hosting our Investor Day on February 16, 2027, in Las Vegas as part of our Perform customer conference. We look forward to sharing our long-term strategy our AI vision and our financial framework with you. The IR team will provide details on registration in the coming days, and we hope to see you there.

To wrap up, we see a significant growth opportunity ahead. Consumption trends remain strong. Our market is expanding with AI and a rise further strengthens our opportunity to capture that demand. Jim, over to you.

James Benson

Thank you, Rick, and good morning, everyone. Our second quarter delivered strong revenue growth and profitability, with total revenue growing 17% and a non-GAAP operating margin of 32%. Net new ARR was below our expectations, reflecting timing of enterprise deals shifting into the second half. We remain confident and our full year ARR targets, supported by the fundamental demand driver that Rick outlined as well as favorable competitive win rates and healthy customer retention.

Let me now review our second quarter results in more detail. Unless otherwise noted, all growth rates are year-over-year and in constant currency. Starting with ARR. We ended the quarter at $2.21 billion, up 16% year-over-year. Q2 net new ARR was $70 million, adjusted for foreign exchange movements. While growth was flat year-over-year, this result was impacted by deal timing for an elevated number of large enterprise opportunities. We have already closed several of these deals in early Q3, and we are actively progressing the remainder through our pipeline for potential second half conversion.

While the timing of large enterprise transactions can create quarterly variability, first half organic net new ARR grew 17% year-over-year reflecting continued momentum in our core business. Turning to new customer acquisition. We added 120 new logos to the Dynatrace platform in the second quarter. Importantly, the strategic quality and scale of these wins continue to trend higher. Trailing 12-month average land size exceeded $200,000, up from just $140,000 in Q2 of last year. This sharp increase underscores our success in landing large enterprise accounts with substantial long-term expansion potential.

Once on the platform, customers expand their deployments over time. Average ARR per customer continues to climb and is now well over $500,000, reflecting broader platform adoption and highlighting the mission-critical value we deliver daily. Even with our strong cross-sell and upsell execution, significant runway remains across our base. Looking long term, we believe the average ARR per customer potential could exceed $1 million.

Turning to retention. Q2 gross retention rate remained steady in the mid-90s, further proof of how deeply embedded Dynatrace is for our enterprise customers. Net retention rate or NRR was 109% on a trailing 12-month basis, down 1 point sequentially. This modest movement was driven by late stage expansions pushing into the second half. With roughly 70% of our full year renewal activity ahead of us in half 2, we anticipate more expansion opportunities in the back half.

Platform adoption continues to deepen across multiple capabilities led by log management, our fastest-growing offering, which continues to grow well over 100% year-over-year. We expect log management to remain a durable growth driver alongside expanding adoption across our broader platform, increased capability usage continues to drive overall consumption paving the way to future ARR expansion potential as customers commit to larger multiyear contracts.

Turning to revenue. Total revenue was $580 million, and subscription revenue was $553 million, both growing 17% and topping the high end of our guidance by 100 basis points.

Moving to profitability. Non-GAAP operating margin reached 32%, exceeding the high end of guidance by nearly 200 basis points. This outperformance was driven by top line upside flowing to the bottom line, alongside favorable quarter-to-quarter expense timing. Non-GAAP net income was $162 million or $0.54 per diluted share beating the high end of our guidance by $0.05. As a reminder, our August issuance of $1.4 billion in convertible notes added 10 million shares to our diluted weighted average share count for the quarter.

Turning to cash flow. Q2 adjusted free cash flow was $42 million. As a reminder, quarterly cash flow varies significantly with billing, seasonality and payment timing. We believe looking at our trailing 12-month performance provides a clearer, more normalized measure of our cash generation. Over the trailing 12 months, we generated $593 million in adjusted free cash flow, delivering a strong 27% margin. On a pretax basis, our adjusted free cash flow margin was 33%, reflecting a 600 basis point cash tax impact.

Moving to capital allocation. Supported by our strong free cash flow, our priorities remain clear: funding innovation and growth, both organically and through strategic M&A while returning capital to shareholders. Following the Arize acquisition announcement, our 0 coupon convertible offering strengthened the balance sheet ahead of closing preserving financial flexibility to opportunistically pursue strategic investments and continued share repurchases.

Demonstrating our commitment to disciplined capital allocation and confidence in our long-term growth trajectory, our Board authorized an incremental $1 billion for our share repurchase program. During Q2, we repurchased 5.2 million shares for $246 million. Including the new authorization, we currently have approximately $1.3 billion in total remaining buyback capacity. Looking ahead, we will maintain a thoughtful approach, balancing high-return growth opportunities with a meaningful capital return. We will share more details on our capital allocation framework at our Investor Day in February.

Moving to guidance. Our second half outlook is underpinned by strong business fundamentals, including robust observability demand and healthy baseline consumption. And further supported by expansion potential across a large upcoming renewal cohort alongside tailwinds from tool consolidation, AI and our recent Arize acquisition.

With that backdrop, let me summarize our full year guidance as detailed in this morning's press release. We've also posted supplemental financial information on our Investor Relations website regarding the expected impact of the Arize transaction on our outlook. For ARR, we are maintaining our full year Dynatrace stand-alone constant currency ARR growth guidance of 15.5% to 16.5%. The acquisition of Arize added approximately $25 million in ARR at close and is expected to reach $40 million by fiscal year-end. This contributes 200 basis points of growth bringing our total fiscal '27 ARR growth to 17.5% to 18.5%.

Excluding the $25 million impact of acquired ARR from Arize, we expect second half net new ARR will skew more towards Q4 than historical seasonality aligned with our Q4 renewal concentration and expected momentum with Arize.

Moving to revenue. We are raising our Dynatrace stand-alone constant currency outlook for both total revenue and subscription revenue by approximately 50 basis points at the midpoint reflecting the operational outperformance in Q2. In addition, Arize is expected to contribute $16 million or 80 basis points of revenue growth in fiscal '27. Factoring both in, we now expect total revenue and subscription revenue growth of 16% year-over-year.

With the U.S. dollar strengthening since our last call, we now expect full year FX headwinds of $20 million on ARR and $6 million on revenue compared to prior guidance, this represents an incremental headwind of $6 million to ARR and $2 million to revenue.

Turning to margins and profitability. Full year non-GAAP operating margin is now expected to be 28% to 28.25%. This includes roughly 175 basis points of dilution from Arize acquisition, consistent with what we shared when we announced the deal. Excluding Arize, our Dynatrace stand-alone business continues to show expanding profitability with our updated guidance, reflecting 25 basis points of incremental leverage. Non-GAAP EPS is now projected at $1.88 for $1.90 per diluted share, down $0.09 at the midpoint. This adjustment is primarily driven by the convertible bond transaction, which increases our full year diluted weighted average share count by roughly $14 million.

On cash flow, we now expect adjusted free cash flow margin of 26% and pretax free cash flow margin of 31%, down 50 and 100 basis points, respectively. This adjustment reflects the impact of the Arize acquisition, partially offset by favorable cash taxes. Looking at Q3, we project total revenue and subscription revenue growth of 15.5% to 16.5%, including approximately 130 basis points from Arize. We expect non-GAAP operating margin of 26%, reflecting roughly 350 basis points of Arize dilution and non-GAAP EPS of $0.44 to $0.45 per diluted share.

To wrap up, our core growth drivers remain intact, and we believe our differentiation and value proposition have never been stronger. We have confidence in our execution and conviction in our guide for the back half of the year. And are excited about the long-term opportunities ahead. And with that, we will open the line for questions. Operator?

Operator

[Operator Instructions] Our first question is from Samik Chatterjee with JPMorgan Chase.

질의응답

Samik Chatterjee

Maybe if I can just start with the timing differences that you saw in relation to the net new ARR. And if you could flesh out a bit further, what probably led to some of these is in closing out the contracts? Was it anything to do with sort of more footprint expansion with those customers or consolidation across tools, like maybe a bit more color on what drove those delays would be helpful. And are you seeing any more further delays with the existing pool of customers that you're working with for the second half?

Rick McConnell

Thanks, Samik. It's Rick. I'll start and then Jim can comment further. First, let me just repeat some of the comments that we made in the prepared remarks that the fundamental growth drivers we see is really remaining quite intact a robust demand environment. We have a large renewal cohort tool consolidation continues. We have a differentiated platform. AI tailwinds are there. Arize is a very strong addition to a company, which now occurred as of October 1. So we see a number of tailwinds in the business. It really just comes down to a number of these larger enterprise deals slipping from 1 quarter to the next and into the second half, and hopefully, that will come to pass with this renewal cohort as we end up in the second half. Jim? .

James Benson

Yes. I'll just comment a couple of further items that certainly timing variability is something we've actually talked about, I think on every call. And it is a bit of the nature of enterprise selling. We have been fortunate that we have been on the positive side of real timing variability. Q1 is a good example. We just crushed it with Q1 -- with deals that were on the cost about Q1 and Q2 that closed in Q1. So it is a bit of the nature of enterprise selling.

To Rick's point, these deals not lost. So these deals are still in the pipeline. Several big deals have already closed, as I mentioned in the prepared remarks, and we expect many of the remaining pipeline to close in the second half. So if you look at it on a kind of half basis, if you look at net new ARR, we did 41% growth in Q1, net new flat here in Q2, 17% growth for the half. So a very solid growth rate in net new ARR. And as Rick said, we have confidence in the back half of the year. and then we can deliver against the guide that we just outlined.

Operator

Our next question is from Sanjit Singh with Morgan Stanley.

Sanjit Singh

Yes. I just had a follow-up on the flip deal dynamics. Is there anything from like a profile of these deals or -- is there -- are these deals in concentrated in a particular region? Just a lot more color on if there's any sort of commonality with flip deal dynamics a little surprised just given that you know you guys have moved to a steady annual compensation structure for sales. So there seems to be like a high degree of extends to get these deals closed in the second half. So I just want to understand, like, if there's any sort of extenuating factors, whether the fields were in lower growth economic regions or anything around the profile of the deal.

James Benson

Thanks for the question, Sanjit. I would say that every deal is unique, but I'd say to kind of characterize the deals that slipped One of the things you know that we've commented on is all there is a big tailwind, and there is a very prevalent sales play with large enterprise customers around end-to-end observability. And those deals tend to be large. Those deals tend to be complex, and those deals tend to force the customer to look at different relationships they have with other vendors. And so the timing of them can be challenging. But I would say there is a weighting of that phenomenon that occurred.

And again, sometimes it's difficult to peg when that happens. You are 100% right. There certainly was sales motivation to close the deals because reps get paid more. If they closed them in September versus closing them in either Q3 or Q4. But there's only so much you can do to influence the customer from a timing perspective. So I'd just characterize it more as it's very consistent with the theme we've seen customers that are interested in consolidating fragmented tools and those decisions are complicated and require kind of figuring out how do you sequence different vendors before you make final purchasing decisions.

Rick McConnell

I would just add, Sanjit, that at the current run rate of expansions and some of the larger deals. What we're really talking about here is met new ARR that's in the range of high single-digit millions of dollars lighter than we had expected. So that really comes down to just a handful of deals at this size. So I wanted to make sure that we quantify that for you.

Operator

Our next question is from Matthew Martino with Goldman Sachs.

Matthew Martino

Jim or Rick here. I appreciate there can be some variability around the timing of large enterprise deals. But platform consumption still above 20%, AI customers consuming at twice the rate of the broader base. And then several of those deals that slipped in the quarter have closed already in Q3. So given those positives, I guess the question here is what kept you from raising the organic second half ARR outlook? .

James Benson

Yes, I'll take that. I would say we're trying to be balanced. We have a very strong confidence and conviction in the back half guide. But we want to make sure that we make a balanced approach to the guidance. So you're right, you can look at kind of the opportunities that are in front of us. There's a lot of reasons to believe that it's going to be a good back half. And we do believe in the back half -- we believe that we have a large cohort of customers coming up for renewal. 70% of our annual renewals are going to happen in the back half of the year. Significant opportunity to do expansion.

So yes, there's a lot opportunity. We just want to make sure we're balanced that we don't want to get ahead of ourselves, but I don't want you to think that not raising the guide does not mean we don't have conviction in delivering to the guidance that we just set line. We'll have to see how Q3 does, one, probably data point, at least to let you know because I think it does factor in our thinking at of the renewals in the back half of the year, 65% of those renewals are weighted to the fourth quarter. So you have 35% in the third quarter.

Obviously, with the weighting of renewals kind of through the fourth quarter, One of the things we mentioned in the prepared remarks is we think we will be a little bit more weighted than historical levels for net new ARR seasonality, if you exclude the $25 million of acquired revenue from Arize, a little bit more in Q4, and we've got to see how the Q3 renewal cohort does. It's a large renewal cohort, but the bigger renewal cohort is in Q4.

Operator

Our next question is from Ray Shilton with UBS.

Radi Sultan

Now that you have a month of a rise in the platform. I mean, can you just speak to how Arize impacting the DPS renewals that occurred in the month of October? And were customers waiting for the Arize to close and be added to the Dynatrace platform factor at all in these pushouts?

James Benson

Yes. I think to put it simply, Arize had nothing to do with customers delaying on a decision. So it had nothing to do with that. I would say we're 1 month in. to the Arize acquisition. And I say I mentioned a few comments in his prepared remarks that there's already pipeline being exchanged amongst the various teams, but it's very early, very early for a rise but they did not have an impact on deal timing. But we do expect that over time, between cross-sell and upsell in our installed base and in their installed base that we can get good traction with the Arize in the back half of the year.

Rick McConnell

The only additional point I would add is just what I mentioned earlier, which is that we already have several cross-sell opportunities in the Arize pipeline that our Dynatrace customers that now we're already being actively worked, and we see very good synergy there. The example I would give you is I was on a call with the CIO of a large semiconductor company they were presenting their AI strategy to their Board Arize was late stage in the pipeline. They're already a Dynatrace customer today, and that Arize transaction already closed in early October. Probably would have closed any way, but certainly, the combination of Dynatrace as their strategic observability platform and Arize as their expected AI observability and evaluation platform made that decision much easier and probably accelerated the outcome. So we're -- it's very early days, but we're very excited about the opportunity to come with the Arize from a number of different perspectives.

Operator

Our next question is from Keith Bachman with BMO Capital Markets.

Keith Bachman

Thank you very much. I wanted to ask about the net retention rate. And you highlighted it was down 1 point, which was a little bit surprising. Rick, I think you said high single-digit millions of deals were involved in the push. And so could you just talk about how you expect net retention rate to unfold for the year. And including the dynamics of, a, the heavy renewal opportunity in the back half? And then b, on Arize, I think you said it was going to generate -- go from $25 million to $40 million in ARR, just talk a little bit about the dynamics of the net retention rate as you look out over the next 2 quarters.

Rick McConnell

Well, I'll take that, Keith. Yes, it came in a little bit lighter than we expected. And it's what I said in the prepared remarks that there were certainly some expansions that pushed out. It's probably important to highlight, and I think I mentioned it last quarter that the half 1 renewal cohort is pretty light actually the renewals in half 1. That's usually when you do expansions, are actually lighter than they were in half 1 of '26. And so you have a lighter renewal base for which to kind of drive expansions.

And so if you look at our mix of new logos versus expansion, we usually have kind of a 1/3, 2/3 mix, and for the first half, we've been more like 40-60. So we do expect significantly more expansions in the back half for the reasons that you just have a larger renewal cohort. That I'd say beyond that, nothing else has changed relative to the thesis. We do believe that these opportunities will exist in the back half of the year. And to the extent the mix profile continues to wait more towards a 1/3, 2/3, you will see a lift in NRR in the back half of the year.

Operator

Our next question is from Ryan MacWilliams with Wells Fargo.

Ryan MacWilliams

You mentioned agents are driving a lot more telemetry data and usage of observability broadly. How do you think agents best drive monetization on the Dynatrace platform logs or otherwise? And where do you think we would see that first at renewal or an NRR to hear your view there.

Rick McConnell

So I'll start with that, Ryan. So on agents, the expectation that we have is, first, we're going to monetize those agents directly. So Dynatrace agents as of October 1 are monetizable. Prior to that time, we had 1,100 customers in a public preview those customers are now being given the opportunity to essentially rotate over. And as they continue to use agents, we're monetizing that by charging them essentially AI units for that usage. So that is a direct monetization model.

Second is agents, whether it's agents or AI, observability workloads drive more data and, in particular, more logs, more traces, more observability telemetry, and that drives additional usage, which effectively results in a DPS drawdown. And then thirdly, as I mentioned, with the Arize coming on to the platform with regard to AI observability and evaluations, we would expect that more of those AI observability workloads will include a rise as we look ahead and then we'll monetize Arize directly also. So there are multiple different avenues towards monetizing beginning with the first one, which is the monetization of the agents effective as of October 1.

Operator

Our next question is from Fatima Boolani with Citi.

Fatima Boolani

As you prepare for the meaningful and material renewal expansionary opportunity in the back half and appreciate the sales cycles and the discussions are long here because these are largely very complex deals with multiple solutions and capabilities. that your customers are expected to deploy. I'm wondering, Jim, Rick, if you can comment on the type of pricing yield or in other words, volume discounts that you're starting to talk to your customers about, especially in relation to very outsized and pretty consistently outsized levels of consumption that are being driven on the platform. So naturally, I don't think you're going to see 60% price uplift, which is a one-for-one linear relationship with some of the consumption growth. But just curious how we should think about some of the pricing yield in your ability to monetize some of this very consistently outsized level of consumption.

James Benson

Yes, I'll take that. If you're thinking about it, I'd say, generally the right way Fatima is that when someone does an expansion because they're consuming at a rapid rate, by definition, they're going to warrant a better unit price. That's the broader premise. So we certainly will get an incremental discount if they increase their volumes. That discount will vary depending upon how much they increase their volume. And so it's very bespoke to the customer situation, and it's very bespoke to the pricing that the customer has going into it. And what their baseline pricing is. So I can't give you kind of a broad assumption because I think it's very customer specific. But I will tell you -- I wouldn't necessarily think of it as hey, we're going to give them a 60% increase in the discount because of their 60% volume increase with consumption is nothing like that. So that growth in consumption you'll have incremental discounting for that, but it will -- it's not going to be kind of 1 for 1 or even close to that.

Rick McConnell

The only thing I would add, Fatima is that icing is certainly 1 of the levers that we can look at for NRR and enter our expansion. And we are doing exactly that. In particular, we with DPS with no penalties on overages a very customer-friendly model for pricing. And these are some of the elements that we're looking at as we anticipate the future as to potential changes we might make to assist ourselves in accelerating ARR in the future.

Operator

Our next question is from Koji Ikeda with Bank of America.

Koji Ikeda

A 2-parter here. Does the stand-alone ARR guide assume full recovery of the Q2 deals that shifted -- or can you hit the guide without all of them closing? And then what specifically changed over the last 90 days that led to your comments in the prepared remarks for a stronger seasonal Q4? .

James Benson

So I'll take them in order that when I look at the stand-alone guide that as Rick said, if you do the math, 1 of the things we said, it came in a little bit lighter in Q2 than we were expecting kind of high single digits. So I'd say the majority of deals that we see there, we do believe there's an opportunity to close them in the back half. They're not all going to close in Q3 necessarily, even though some of them already have. So this is not like, hey, everything that pushed, we think it needs to close. We don't need that to be able to deliver to the back half guide.

And then relative to your Q3 versus Q4, I'll try to clarify it again, which is the reason we think we're going to be a little bit more weighted to Q4 than Q3 than historical seasonality. And you got to pull out the $25 million acquired Arize ARR because that's going to show up in Q3. But if you pull that out, the reasoning is that expansions tend to happen close to a renewal. We are very weighted for our renewal activity to Q4 versus Q3. So yes, you might be able to pull in a renewal into Q3. But generally speaking, we would expect to be a little bit more weighted to Q4 just because of the renewal base.

And then I'd say on top of that, when you think about the Arize acquisition, we expect the Arize business to continue to build. So we would expect to be a little bit more weighted in Q4. As you get the teams working together, and driving pipeline, and that pipeline is then going to actually close more in Q4 than in Q3. So those are the 2 drivers of why we would expect maybe a more seasonal Q4 uplift.

Operator

Our next question is from Eric Heath with KeyBanc Capital Markets.

Eric Heath

Just to continue on the pushouts from 2Q. Jim, did all these deals have a term date that ended in 2Q? Or were some of them expected to renew early in I ask partially because I'm curious how they impact ARR they do move to a month-to-month agreement. And then maybe just a second question, if I could. The deals that did close in 3Q, did they expand as you anticipated?

James Benson

So I think what you're getting at is do we have some customers that had a contract end date in, say, the second quarter that didn't renew their contract because there were still discussions and negotiations. The answer is no. Most of these expansions were not related. They were customers that were considering doing an early expansion. So their contract was not upper renewal. So that's kind of the general kind of profile of kind of how things happen.

Operator

Our next question is from Mike Cikos with Needham & Company.

Michael Cikos

I just wanted to confirm just because it's so important to the bull thesis here, but the DPS renewals, just to confirm, at this point, there has not been a meaningful benefit to the year-to-date results here is the first question, if you could confirm that. And then the second, what gives you confidence here that deals don't push out in the second half of the year? I'd just love to get what you guys are doing, whether it's specific sales initiatives to help underscore these targets that we have for full year are fully intact because of X or Y or Z, right? Like what is it you guys are doing to ensure we don't have additional slip-outs? .

James Benson

But I'll start with your DPS renewal question. I mean we certainly had some benefit from EPS contracts, customers doing early expansion. So I don't want to say it's had no benefit. I would say it's been smaller in the first half of the year, largely because the renewal cohort is significantly smaller. But I don't want to suggest that DPS not resulted in kind of NMR expansion. As a matter of fact, 1 of the things we talked about is that customers that are on a DPS contract expanded at a much more rapid rate than people that are not. So I would agree that it is more modest in the first half, and we would expect to see an uptick in the back half commensurate with the kind of renewal activity.

And I'd say your point about what gives us confidence in the back half. I think we outlined a fair amount of that. One, the demand environment is pretty robust. Two, we have a very large renewal cohort. We did mention that the consumption is growing at a good rate. We are seeing customers that are certainly interested in consolidating tools. We think we are in a good position to win. If you look at our win rates relative to how we're doing on new logos, continue to make good traction in that area is continued AI tailwinds. We think Arize is going to be a benefit. We think an opportunity to sell logs to customers that are coming up for renewal. There's a lot of reasons why we believe that.

Having said that, you're right. When you are weighted to large deals, you have to figure out when is the timing of those deals. And we do admit that the timing of them can be more varied than a smaller expansion. So we'll have to see. I think we were balanced in the guide, Mike, to make sure we didn't get ahead of ourselves. We want to make sure we see how Q3 lands given that I mentioned, it's 35% the renewals will be in Q3 and 65% in Q4. So I think we tried to be balanced, but we certainly have confidence and conviction that we can deliver against the back half guide.

Rick McConnell

The only thing I would add, Mike, is that, as Jim mentioned, we do have 70% of the renewals in the back half of the year. Those renewals are expected in the combination of Q3 and Q4. And so we would expect the expansions to occur inside the second half as a result of that.

Operator

Our next question is from Matt Hedberg with RBC Capital Markets.

Matthew Hedberg

Kind of building on Mike's question just previously, I guess, is the timing of these deals, is it just -- is it an issue with enterprise spending priorities? Or is it just the raw complexity of just how complex these consolidations are? And maybe just thinking this through further, last week, ServiceNow noted they're going to start to deploy some additional forward service resources to help close some of their strategic AI deals. Are there other things that can be utilized to accelerate or just kind of smooth out how these deals kind of work through the pipeline.

James Benson

I'll take that and then, Rick can maybe offer some additional comments. So all enterprise customers, all customers in general are conscious of spend. So I'm not going to -- that's what you start with that. But I would say that has not really been the driver of why a deal has been delayed necessarily. So I'd start with that. This is not a question of like, hey, they're not spending money on observability. So it really is not that it is largely when you look at the complexity of what they have in their environment, and they're trying to determine, especially if they're doing something that is oriented around consolidating fragmented tools there is complexity. There is complexity in those decisions and the timing of those decisions because there isn't necessarily a compelling event. They don't need to do something by a certain date in many cases.

And so the timing of them can be vary depending upon how quickly they want to move on an initiative. And then your point around services, we do sell services. Many of our large customers have services as an enabler to the software, that obviously, our mix is 5% of our revenue is related to services. So I don't know if we're going to do anything more there, but I'd say we're going to continue to do what we've been doing, which is ensuring that customers get services to help them drive faster enablement of the technology and to share best practices around how they broaden their observability footprint and deliver a better outcome.

Rick McConnell

I would only add that, as you can imagine, there is a huge amount of budget scrutiny right now to compensate for the large token spend that is happening really throughout the enterprise space. The positive side of that equation is that we believe very strongly that AI is a tailwind for observability not a headwind. So ultimately, we expect that spend to have to come through because you actually need more observability to oversee probabilistic workloads. So it is -- it's an old short in some ways that you have more budget scrutiny, but ultimately, that budget scrutiny should benefit observability.

Operator

Our next question is from Will Power with Robert W. Baird.

William Power

Okay. Great. Maybe shifting gears for a moment. One of the interesting updates was the kind of the milestone on infrastructure passing $500 million in, I think, annualized consumption growing 30% be great to get color as to what you view as kind of the key current drivers that's enabling that 30% growth, which is obviously nicely above the company average. And I'd love to just kind of understand where AI fits in that today and what the opportunities look like there?

Rick McConnell

So thanks for that question, Will. So on the infrastructure piece, this is obviously a core element of an easy on-ramp to observability that doesn't require full stack end-to-end observability deployment. It is a way to get into the market quickly and we're seeing this being an on-ramp for many customers. In fact, a lot of the very large AI natives and LOMs or frontier models are actually principally using infrastructure monitoring. So it is good to see that we have multiple different sales plays on being full stack and end observability, 1 being infrastructure monitoring, 1 being log management, as an example. And so these areas provide multiple on-ramps for customers for us. You mentioned AI, and I would just say that for AI natives, the infrastructure monitoring approach is in all likelihood, the simplest onboarding. And so we see that coming together with that infrastructure monitoring growth rate.

Operator

Our next question is from Miller jump with Truth Securities.

Unknown Analyst

This is Sara on for Miller. I wanted to ask -- you mentioned walls are growing well over 100%. And you pointed to logs converting into ARR in the second half. So is that still the time line? And could you update the annualized consumption figure versus the $200 million last quarter?

James Benson

So my comment on logs is that, again, it continues to be the fastest-growing product category. I think we said last quarter that we were at the roughly $200 million mark I would say we continue to progress rapidly towards the $250 million milestone. So logs continues to be rapidly adopted. And we expect that to continue to be a source that at the end of the day, we don't have nearly the penetration of logs and customers spending a lot of money on logs, and so it's a huge opportunity in the back half of the year as customers go through a renewal, those customers that are not leveraging logs to be considering logs as part of an expansion. And even for those customers that are leveraging logs, expanding their footprint on logs.

And 1 thing I'll do kind of an add that Rick can kind of comment as well that we also believe there's going to be an incremental tailwind belongs, which is the partnership that we just announced with CrowdStrike. We provide observability locks for customers, and we provide a kind of a holistic view of their large relative to other metrics and traces, et cetera. We have not provided a SIM lock. That obviously is something that CrowdStrike does. So this partnership actually allows us to use our acquisition of buying plan to route logs to either a crowd strike for SIM to Dynatrace for observability and customers that are looking for kind of an integrated solution, we can provide something with CrowdStrike.

And so there were been cases at times where customers will want to make sure that there is not vendor lock-in because you potentially have some legacy vendors that basically require you to have both security and observability logs with 1 vendor or they're going to charge you more if you decide to have your logs bifurcated? This is an opportunity to avoid that. So we're excited that this will also, we think, be an opportunity for both companies to have a broader penetration of logs, both on the security side and the observability side.

Rick McConnell

That was well stated. But let me just highlight the importance of the CrowdStrike partnership we see as really quite seminal to log management acceleration as we look out for all the reasons and to strive thing about it with fine plan, we collect the telemetry, we intelligently route it. We can leave the data where it makes most sense to analyze whether in CrowdStrike or in Dynatrace, we can federate queries across those platforms, and this enables us to combine security with operational context. Very excited about that.

Operator

Our next question is from Howard Ma with Guggenheim Securities.

Howard Ma

I have 2 questions, they're brief. I'll just ask them together. The first is the high single-digit million of net new ARR that pushed relative to your expectations. Were those mostly Q2 renewals? In other words, is the expansion opportunity weighted over 70% rather than just 70%? And then my other question is, did you see a material pickup in overages in the quarter that serve as a leading indicator for the back half guide? Or is the confidence rooted really more so in DPS expansions happening very close to renewal? .

James Benson

I'll take that a That was a good question. So as I think I mentioned earlier, just to clarify that the push is out of the quarter were not related to Q2 renewals. So these were customers that had been rapidly consuming and may not have even had a renewal in the third or fourth quarter. This is just customers that are just rapidly consuming. They could be earlier in their contract. So it's not related to Q2 renewals. Relative to overages, there was nothing unique in overages in Q2. I'd say our overages were consistent Q1 to Q2.

Operator

Our next question I's from Joshua Tian with Wolfe Research.

Joshua Tilton

Here. I just have 2 clarifications. The first is -- the comments on the call around -- or in the Q&A to answer to another question about greater budget scrutiny because of token spending. Is this a hypothesis of yours? Or is this why you are -- you saw deals slip from into the second half. And then the other thing I'm trying to understand is, in that high single-digit millions, -- how can you both be not up for renewal, but also be a renewal that slipped into the second half. So I'm just trying to understand, was there an anticipation that because they were overconsuming that they would early renew and they didn't. Any more clarity around that would be helpful.

James Benson

I'll start with the last one, and then Rick can comment on the token spend. It's not a renewal that pushed into the back half. It's an expansion that pushed into the back half.

Rick McConnell

Right. And on the token spend, I would just clarify the statement to say we did not see any evidence of delay of a Dynatrace deal as a result of tokens. There is no CIO, CTO, CFO that gave us any feedback of which I'm aware directly or indirectly that token spend led to a delay of the deal. I'm just looking at the universe overall, you look at, of course, Antropic revenue numbers that they reported this week. You look at the expansion in ARR across the Frontier model universe. You look at Microsoft's actions relative to early retirement. And you would see, obviously, that there's just a substantial amount of budget scrutiny across the tech universe. And the result of that is that organizations broadly are managing budget, and they are scrutinizing overall spend, and that's what we are just looking at and watching carefully to make sure that, that doesn't impact us, but we have not seen that have any direct impact on our deal slippage thus far.

Operator

Our final question is from Andrew Sherman with TD Cowen.

Andrew Sherman

Jim, wondering if there are any go-to-market changes made midyear and how sales rep retention and productivity are trending versus your expectations, especially out of the newer rep cohort that I think is last was 30%, but any update on that?

James Benson

So no fundamental changes in the back half of the year. And again, we kind of have the 2 6-month plans for the reasons we've stated before where you can make small adjustments that I'd say, really no changes from half 1 to half 2. Relative to rep productivity, obviously, we came in lighter in Q2 than we expected. So rep productivity for Q2 was down. But rep productivity for the half is up. So we feel pretty good about productivity in aggregate. But again, the weighting of these enterprise deals kind of will impact a rep's productivity from 1 quarter to the next.

Rick McConnell

All right. Thank you all for your engagement and support and for attending today's call. We are in a market strongly benefiting from an AI tailwind. We are continuing to see very strong consumption of the platform, especially including our log management capabilities. We remain confident in the value and differentiation of our architecture and we continue to have conviction in our market opportunity ahead. We look forward to connecting with you at several upcoming IR events this quarter. So thank you for attending, and have a great day.

Operator

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.