Dynatrace (NYSE:DT) reported third-quarter fiscal 2026 results that management said exceeded guidance “across every metric,” driven by continued demand for end-to-end observability and expanding usage of its platform—particularly in log management. On the earnings call, executives highlighted stabilized annual recurring revenue (ARR) growth, a step-up in large deal execution, and an expanded share repurchase authorization, while framing observability as an increasingly critical foundation for autonomous, AI-driven operations.
Q3 results: ARR growth stabilizes and net new ARR beats expectations
Chief Executive Officer Rick McConnell said Dynatrace has delivered “a stabilization of ARR growth at 16%,” alongside three consecutive quarters of double-digit net new ARR growth. Chief Financial Officer Jim Benson added that Dynatrace ended the quarter with ARR of $1.97 billion, up 16% year over year, and reported Q3 net new ARR of $75 million (adjusted for foreign exchange movements), which was “well above our expectations.” Benson said net new ARR was up 11% from a year ago.
On retention, Benson said gross retention remained in the “mid-90s,” while dollar-based net retention rate was 111% for the third straight quarter. In Q&A, he said Dynatrace expects to have its first full three-year cohort classes under its Dynatrace Platform Subscription (DPS) licensing model in fiscal 2027, which he suggested could help drive an “inflection” in net retention if execution continues.
Revenue, margins, and cash flow
Total revenue in Q3 was $515 million and subscription revenue was $493 million, both up 16% year over year. Benson said each exceeded the high end of guidance by 150 basis points, driven by strong net new ARR.
Non-GAAP operating margin was 30%, nearly 100 basis points above the top end of guidance, which Benson attributed “mostly [to] revenue upside flowing through to the bottom line.” Non-GAAP net income was $135 million, or $0.44 per diluted share, which was $0.02 above the high end of guidance.
Dynatrace generated $27 million of free cash flow in the quarter. Benson emphasized seasonality and variability in billings, pointing instead to trailing 12-month free cash flow of $463 million, or 24% of revenue, including “over 600 basis points impact related to cash taxes.” On a pre-tax basis, trailing 12-month free cash flow was 30% of revenue.
Logs surpass $100 million in annualized consumption
Executives repeatedly highlighted traction in log management. McConnell said annualized logs consumption has now surpassed $100 million and that logs consumption growth was over 100% year over year. Benson called logs the company’s “fastest-growing product category,” and said the combination of a logs “strike team” and maturing selling motion should make logs an “ongoing source of significant ARR growth.”
In response to an analyst question, management said logs saw a “step function increase” beginning last fall, which they attributed to completing the logs use case and getting packaging and pricing “right,” with additional evolution the following quarter. The company did not set a new public milestone for logs consumption but reiterated expectations that logs will be a “huge source” of ARR growth, with management noting that nearly all seven-figure end-to-end observability deals include logs.
Product and strategy: “Dynatrace Intelligence” and the push toward autonomous operations
McConnell spent much of his prepared remarks discussing Dynatrace’s annual customer conference, Perform 2026, which hosted roughly 2,000 in person and additional virtual attendees. He positioned the company’s platform around three architectural differentiators—Grail, Smartscape, and AI—arguing that this combination enables “trustworthy, deterministic AI” alongside agentic AI for “reliable, autonomous outcomes.”
At Perform, Dynatrace introduced “Dynatrace Intelligence,” which McConnell described as “the industry’s first agentic operations system built for modern software ecosystems.” He said it is embedded in the platform, not sold as a separate SKU, and is “available to every customer today.” Management outlined two planned monetization paths:
- Increased platform usage as customers adopt AI assistance across teams, driving greater use of Grail
- Usage-based “agentic execution,” where AI-driven actions are delivered through workflows and ecosystem integrations
McConnell also highlighted customer examples shared at the event, including reported reductions in incidents, improvements in reliability, and accelerated resolution times, as well as interest in a strategic collaboration with ServiceNow aimed at advancing autonomous IT operations and scaling intelligent automation.
Beyond customers, Dynatrace discussed partner activity with hyperscalers, including integrations with Amazon Bedrock Agent Core, Azure’s SRE agent, and serving as a launch partner for Google Cloud Gemini command line interface extensions and Gemini Enterprise. McConnell also noted the acquisition of DevCycle, a feature management platform built on OpenFeature, intended to bring progressive delivery for AI-native applications into Dynatrace and extend further “left” to developers.
Capital return and outlook: guidance raised and repurchase program expanded
Benson said Dynatrace has “substantially completed” its prior $500 million repurchase program announced in May 2024. In Q3, the company repurchased 3.5 million shares for $160 million at an average price of “just over $45 per share.” Dynatrace’s board authorized a new $1 billion share repurchase program, which Benson said doubles the prior authorization and reflects management’s confidence in long-term opportunities and belief that shares are undervalued.
On guidance, Dynatrace raised its full-year outlook “across the board.” Key items included:
- ARR growth: raised 125 basis points to 15.5%–16%, with management expecting to surpass $2 billion in ARR
- Total and subscription revenue growth: raised by 75 basis points at the midpoint to 16%
- Profitability and cash flow: non-GAAP operating income raised by $9 million; free cash flow raised by $13 million, implying a 29% non-GAAP operating margin and 26% free cash flow margin
- Non-GAAP EPS: raised to $1.67–$1.69 on an expected diluted share count of 304 million
In the Q&A, executives attributed their outlook confidence to a “robust” pipeline and improving go-to-market maturity, including consistency in closing large deals. Management also addressed the mix of growth between expansions and new logos, saying investors should expect roughly one-third new logo and two-thirds expansion in the near term, while emphasizing that expansion opportunity within the installed base is “not even close” to being exhausted.
Closing the call, management reiterated its view that observability is becoming increasingly critical in delivering reliable software and AI, and said Dynatrace entered the fourth quarter with momentum heading into fiscal 2027.
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.
