Dynatrace NYSE: DT said its first-quarter fiscal 2027 results exceeded the high end of its guidance, supported by record new-logo growth, expanding platform consumption and continued demand for observability tools as enterprises deploy more artificial intelligence workloads.
Total annual recurring revenue, or ARR, reached $2.14 billion, up 17% year over year in constant currency. Net new ARR was $85 million, an increase of 66% from the prior-year quarter. Excluding the $13 million contribution from the BindPlane acquisition, organic net new ARR was $73 million, representing 41% growth.
Chief Executive Officer Rick McConnell said the quarter reinforced management’s confidence that Dynatrace can accelerate ARR growth during fiscal 2027. The company cited enterprise demand for end-to-end observability, improving go-to-market execution and increasing complexity in customer technology environments as contributors to the performance.
Revenue, profitability and customer additions
Total revenue was $555 million, while subscription revenue was $530 million. Both measures increased 15% year over year in constant currency and were 100 basis points above the high end of Dynatrace’s guidance, according to Chief Financial Officer Jim Benson.
Non-GAAP operating margin was 29%, also exceeding the company’s guidance by 100 basis points. Non-GAAP net income totaled $140 million, or $0.48 per diluted share, which was $0.03 above the high end of the company’s outlook.
Dynatrace generated $309 million in adjusted free cash flow during the first quarter. The company updated its free-cash-flow definition to exclude restructuring, acquisition-related and other non-recurring cash expenses. On a trailing 12-month basis, adjusted free cash flow was $579 million, or 28% of revenue, including a 500-basis-point effect from cash taxes.
The company added 122 new logos during the quarter. Average land size was nearly $285,000, helping drive more than 160% growth in new-logo ARR. Benson said the results reflected a go-to-market strategy that increasingly targets strategic and enterprise accounts, as well as demand from customers seeking to consolidate fragmented monitoring tools onto a single platform.
Average ARR per customer rose to more than $500,000. Gross retention remained in the mid-90% range, while trailing-12-month net retention was 110%.
Logs and AI usage emerge as growth drivers
Log management remained Dynatrace’s fastest-growing product category, growing more than 100% and reaching nearly $200 million in annualized consumption. The company had surpassed $100 million in annualized log consumption two quarters earlier.
Benson said BindPlane, which supports OpenTelemetry data collection, was performing ahead of plan and would help accelerate the logs business. BindPlane contributed $13 million of ARR in the first quarter and is included in Dynatrace’s reported log-consumption figure.
Management also emphasized AI as a driver of platform usage and potential monetization. McConnell said AI workloads generate significantly more telemetry, including logs, traces and metrics, than prior workloads. Dynatrace sees three AI-related revenue opportunities: increased consumption from AI workloads, demand for AI observability capabilities, and usage of Dynatrace’s own AI functions and agents through its Dynatrace Platform Subscription, or DPS, model.
More than 1,000 customers now use Dynatrace to observe AI and large-language-model workloads in production, up from about 850 in the preceding quarter. More than 800 customers are using Dynatrace agentic capabilities for autonomous operations, up from about 500 in the prior quarter. Consumption growth among customers in those AI cohorts is 1.5 times that of customers outside the cohort, McConnell said.
Dynatrace estimated that the AI observability market will exceed $10 billion by 2030 and grow at more than 50% annually. McConnell said the opportunity is expected to develop over time rather than rapidly displace the company’s core end-to-end observability business.
The company also highlighted Bluebox, a new offering intended for AI-first development teams. McConnell said Bluebox provides coding agents with context from live systems before software changes are released and can identify root causes and return evidence-backed fixes after deployment, while keeping developers in control.
Outlook maintained for ARR growth; revenue and EPS guidance raised
Dynatrace maintained its full-year constant-currency ARR growth outlook of 15.5% to 16.5%. Benson said the company expects foreign exchange to reduce reported ARR by $14 million and revenue by $4 million, reflecting an incremental currency headwind of $23 million to ARR and $19 million to revenue compared with prior assumptions.
For fiscal 2027, Dynatrace raised its constant-currency total revenue and subscription revenue growth outlook by 25 basis points at the midpoint. It now expects both measures to grow 14.5% to 15% year over year.
- Full-year non-GAAP operating margin is expected to reach up to 29.75%.
- Non-GAAP earnings per diluted share are projected at $1.97 to $1.99, up $0.04 at the midpoint.
- Adjusted free-cash-flow margin guidance was maintained at 26.5%.
- Second-quarter revenue and subscription revenue growth are expected to be 15% to 16%.
- Second-quarter non-GAAP operating margin is projected at 29.5% to 30%, with non-GAAP EPS of $0.48 to $0.49.
Benson said the company expects its DPS renewals to be weighted toward the second half of the fiscal year, with roughly 70% of annual resets occurring during that period. If consumption trends continue, he said management expects improved expansion activity and a possible net-retention-rate inflection in the back half.
Dynatrace repurchased 7.1 million shares for $275 million during the quarter, compared with $224 million in the prior quarter. Benson said the stepped-up repurchase activity reflected management’s confidence in the company’s operating momentum, long-term growth prospects and cash-flow outlook.
CFO retirement planned
McConnell also said Benson plans to retire by the end of fiscal 2027. Dynatrace plans to conduct a search for a successor, and McConnell said he expects a smooth transition.
“We are pleased with our strong start to fiscal 2027 and remain confident that we are on the right track to accelerate ARR growth,” Benson said.
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.
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