Greetings. Welcome to Dynatrace's Fiscal Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. At this time, I will now turn the conference over to Noelle Faris, Vice President, Investor Relations. Noelle, you may now begin.

Thanks, operator. Good morning, everyone and thank you for joining Dynatrace's third quarter FY '22 earnings conference call. With me on the call today are Rick McConnell, Chief Executive Officer; and Kevin Burns, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements such as statements regarding revenue and earnings guidance. These forward-looking statements are subject to risks and uncertainties, depending on a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information concerning these uncertainties and risk factors is contained in Dynatrace's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements included in this call represent the company's views on February 2, 2022. Dynatrace disclaims any obligation to update these statements to reflect future events or circumstances. As a reminder, we will be referring to some non-GAAP financial measures during today's call. A detailed reconciliation of GAAP and non-GAAP measures can be found on the Investor Relations section of our website. And with that, let me turn the call over to our Chief Executive Officer, Rick McConnell. Rick?

Thanks, Noelle and good morning, everyone. Thank you for joining us on today's call. I am very excited to be kicking off what I anticipate will be the first of many positive earnings calls as Dynatrace's CEO. First, I'd like to thank John Van Siclen for his contributions in growing Dynatrace as CEO to nearly $1 billion in ARR. He set the stage for a smooth and seamless transition in leadership for which I'm very grateful. I'm going to cover a lot of ground today. So at the highest level, there are three key messages I'm hoping you take away from today's discussion. First, Dynatrace has established a solid foundation and we are continuing to fire on all cylinders. Second, Q3 was a very strong quarter, beating expectations across all key operating metrics and we are raising guidance for FY '22. And third, we're leaning further into our sales and marketing as well as R&D investments with the intention to drive accelerated growth. Before talking about our financial performance and how I think about the future of the business, I thought it would be helpful to share with you my primary reasons for joining Dynatrace. First, the addressable market is enormous, over $50 billion and accelerating across all industries and we've only scratched the surface. Second, Dynatrace's technology is world-class and highly differentiated. Customers and analysts provided me with powerful third-party validation of the strength of Dynatrace and it's products and my recent customer conversations since taking the role have further reinforced this perspective. Third, Dynatrace's financial performance is exceptional and positions us in a very elite group of companies with similar results, with growth in excess of 30% and strong profitability, we are in excellent position to continue investing to deliver ever-increasing value to our customers. I enjoyed building…

Thank you, Rick and good morning, everyone. As Rick mentioned, we delivered another outstanding quarter on both the top and bottom line, setting us up for a solid finish to fiscal '22 with the building blocks in place for sustained ARR growth of 30% plus. Our investments in sales and commercial expansion continued to result in strong top line performance with ARR, revenue and subscription revenue exceeding our guidance and resulting in another increase in our annual guidance. ARR for the third quarter was $930 million. That's an increase of $66 million sequentially or $208 million year-over-year, representing 29% year-over-year growth. Sequentially, this includes a $15 million FX headwind. On a year-over-year basis, this is a $21 million FX headwind of roughly 300 basis points. Given the fact that we focus on the needs of global enterprises, approximately half of our business is conducted in currencies other than the U.S. dollar. This means that our ARR and financial results are subject to foreign currency fluctuation. Given the strengthening of the U.S. dollar, this is creating an ongoing headwind to our reported growth. As a result, we believe investors should focus on our constant currency growth rates as these reflect the true strength of the business. On a constant currency basis, total ARR was $951 million, an increase of $229 million, representing 32% growth over the last year. Backing up the $34 million of perpetual license headwind to ARR which negatively impacted year-over-year growth rate by about 450 basis points, our constant currency adjusted ARR growth rate was 36% year-over-year. This represents the fourth quarter in a row with sustained growth rates above 35% and is reflective of the increased investments we have been making in our commercial organization. As we wind down the perpetual license revenue included in ARR, we…

[Operator Instructions] Thank you. And our first question is from the line of Matt Hedberg with RBC Capital Markets. Please proceed with your question.

Hey guys, good morning. Rick, welcome to Dynatrace. And we certainly look forward to working with you on an ongoing basis. So congrats on that, first and foremost. Guys, it seems like people are focused on the slight constant currency-adjusted ARR deceleration this quarter. But I think your new disclosures on the net new ARR growth was super helpful this quarter. And the way I look at it, if you exclude currency and the perpetual runoff, it looks like on a two year stack basis, you continue to accelerate ARR growth. Is that the right way to think about this? And I guess, overall, can you characterize the spending patterns for those that worry about maybe a slowdown in digital transformation spending post COVID?

Sure, Matt, it's Kevin. So I think you're absolutely right. I think what we did provide in the top track and also in our supplement that we filed in our 8-K that's on our website is a disclosure about our new ARR expansion bookings. And what this is, is the growth in the business. And this year, on a trailing 12-month basis, we grew our ARR by $263 million which as we highlighted, was up 49% on a year-over-year basis. So that really is the underlying growth of our expansion bookings and we think that's a great indicator of the health of the business. I will also say it's important to look at our growth rate on a constant currency basis over the last four quarters, our ARR, excluding the perp license headwind, has been north of 35%. This quarter, it's dropped slightly 36% but super healthy. Underlying the business, the demand environment remains very robust. The company continues to perform and we're hiring sales reps above plan. And we think the business is continuing to do extremely well. So between the combination of the 36% ARR-adjusted growth and the 49% ARR expansion bookings, we're super excited and pleased with the results in Q3.

And thanks very much for the welcome, Matt. Appreciate it. Look forward to meeting you. Very excited both on the new logo front as well as net expansion rate, both look very strong and feel very good about the future.

Thanks a lot, guys.

Our next question is from the line of Sterling Auty with JPMorgan. Please proceed with your question.

Yes, thanks. Hi guys and let me echo Matt's comments, Rick, welcome to Dynatrace. Just to further Matt's line of questions because, yes, that's what we're getting the most inbound interest from investors. On the ARR side, that slight -- or the 2% deceleration quarter-over-quarter, can you give us a sense of any thoughts that you might have around what your market share might have done in the quarter or pricing trends or anything else that may have also contributed to that two point slowdown?

No significant changes, Sterling, in market share. We continue to have very healthy win rates across the board. So I think that continues. I'd say there is a slight change in seasonality. If you look at our ARR expansion in the first half of last year and certainly, on a year-to-date basis, it was impacted by COVID in the first half which made a little bit of an easier comp in Q2 of '22 compared to Q3 of '22. So fundamentally, win rates remain very healthy across the board. And as I mentioned earlier, the demand environment remains robust and people are continuing to accelerate their digital transformation initiatives and we think that bodes well for the future.

Got it. Thank you.

And what I would say, Sterling, is just that we continue to see the biggest opportunity as being a replacement of DIY. It is -- that is the biggest greenfield. And as Global 15,000 customers and companies move over to digital transformation initiatives, they just have a hodgepodge of tools that they need to replace with an integrated software intelligence platform and that's what we're focused on delivering to that category of companies.

Our next question comes from the line of Mike Cikos with Needham & Company. Please proceed with your question.

Hey guys, thanks for taking the questions here. I did want to circle back on some of the prepared remarks to make sure that I heard you properly but I thought that the comment was that you guys are looking to layer in additional investments when we think about fiscal '23, specifically in the sales and marketing and R&D. Could you remind us, I guess, where -- how those investments are expected to layer into those two functions as well as how long it takes a typical sales rep to ramp on Dynatrace?

Sure. Let me take the first part of that. Our expectation and what we're seeing in the market is that there is upside opportunity for growth and that's what we're going to be investing in. So we're looking at a one to two point increase in R&D to drive innovation and additional product deployment in terms of new modules and module expansion and one to two point expansion during FY '23 in sales and marketing to drive awareness, new logo generation and overall penetration with partners. So those are the areas that we're going to be focused on driving in order to generate that growth incremental opportunity.

And from a time to productivity, Mike, it's fairly consistent over the last couple of quarters. It's anywhere from four to five quarters for our sales reps to become productive. And we continue, as I mentioned earlier, a very solid, healthy clip of growing our sales reps. As you probably know, last year, we grew our sales organization direct quota capacity 25%. This year, our goal is 30%; we did better than that in Q3 here. And as Rick mentioned, we're going to put some more money into sales and marketing and one of the goals as well is to increase the number of direct sales reps as well across the board.

Great, thank you.

The next question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.

Yes, thanks. Hey Rick, all the best from me as well. Just if you think about the investments that you're doing there and if I just do the math of four to five quarters here, like we cannot get an idea how we think about growth as well. But the question here is a little bit is like how do you think fundamentally about the growth for you guys. You kind of -- Kevin said that you see upside in the growth opportunity or upside in the growth in the market. Like can you just frame it in a more -- slightly more bigger picture of you've been a company that has been solidly growing in the mid-30s now for several quarters. Like how do you think this will evolve in the future against like a growing market opportunity?

Let me take that. Thanks for the question. The starting point here, as we articulated in our prepared remarks, is really around digital transformation. That really is the fundamental and primary market driver that is growing this and especially growing the opportunity in the market in the Global 15,000, because that is creating enormous complexity of everything from on-prem to hybrid cloud, the multi-cloud environments that are untenable. And so that's where we start. And our linkage opportunity into these digital transformation projects is just enormous which is why one of the areas we're leaning into is through partnerships, hyperscalers and others because they're now generating a substantial percentage of new logo opportunity for us; so that's the beginning. And then what we need to do is we need to provide an integrated software intelligence platform that provides situational awareness to allow for the monitoring and the observability of an entire infrastructure, not reactively but proactively to provide essentially answers to the questions that customers are asking about managing those infrastructures going forward and automatic resolution. So these are the kinds of areas in which we're investing to drive our opportunity into the future.

Thank you.

The next question comes from the line of Jonathan Ruykhaver with Baird. Please proceed with your question.

Yes. Good morning, everyone. So Rick, I think this is more for you. When you look at the sales motion, I'm curious to hear your view on developer engagement versus being focused on targeting C-level suite, particularly given the success some of your competitors are showing with a more bottoms-up approach.

Great question. We are absolutely shifting less as the terminology goes into earlier in the development cycle. So this is going to be a key aspect of our development opportunities and our marketing and sales opportunities as we look to the future. Not only are we doing elements and providing capabilities like code validation but integrating through APIs which -- or announcements that you'll see to come directly into code bases to provide for an allowance of observability metrics to be integrated directly at the code level. So this is -- it is a great question and it is directly consistent with where we're headed in the future in terms of the shift left motion back into the development process.

Okay, that's helpful. Thank you.

The next question is from the line of Adam Tindle with Raymond James. Please proceed with your question.

Okay, thanks and good morning. Rick, I just wanted to double click and take a step back on the increased investment notion. First, could you just maybe just take us through the process that you went through in determining the need for the further investment? I understand you run a very efficient R&D organization but already fairly healthy levels for sales and marketing spend. So the process that you went through in determining that? And secondly, the framework that you thought about for earning a return on those investments. I imagine a lot of it's related to growth, if you could maybe double click on the specific areas of growth that you're thinking about for payoff, that would be helpful.

Great question. So on the R&D front, to take that one, we run a very efficient R&D organization primarily out of Europe. It is incredible how much they deliver. But we believe that the market is ripe for further expansion in terms of both our existing modules and deployment as well as new opportunities. For example, look at what we've been talking about with the AppSec module. We believe that we've hit a huge nerve in vulnerability analytics that provides us with immense capability to target a latent need that has only just begun. We're at the very, very early stages of AppSec ARR and yet we think that, that has dramatic opportunity for growth into next year. So that's one example of where we're investing in development, logging associated with infrastructure and the infrastructure growth that we see of that module is also another area, substantial investment in the R&D side. Those have corollary investments, obviously, that need to happen in the sales and marketing side to grow our opportunity in infrastructure, grow our opportunity in AppSec and grow awareness in the market about the brand overall. And we're seeing this opportunity. It manifests itself through our customers and customer spend in terms of things like multi-module deployment and in terms of growth in the ARR per customer for those multi-module deployments. So this is -- that's the analysis that we went through to evaluate that now is the time and the new modules provide the fuel for us to be able to go after that additional wallet share.

Very helpful. Thank you.

Next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed with your question.

Thank you very much and congratulations on your position. Curious to get at a high level, any changes in the strategic direction for the company? Secondly, on a more tactical level, were you able to discern any changes in product contribution from the different silos? And any update on the competitive environment would also be very useful.

Sure. So in terms of overall strategic direction, as we've said several times, this is a company that is, we believe, firing on all cylinders. So nothing is -- in coming in, john did an amazing job of building the company to the point that we're at today. And so I am of great fortune in joining a company that is operating and performing exceptionally well. That is a great foundation. So no major changes in strategy, certainly in the first six or seven weeks here for me. What I would say and as we've indicated in the call, we believe that there's an opportunity to lean in further especially with some of the new modules and new capabilities that we have in infrastructure as well as AppSec, for example. So those are our areas, both on the development side and on the sales and marketing side that we'll lean into. The other aspect that I would indicate is just on the partner front. As I've alluded to, partner opportunities are substantial. And in my view, to create acceleration over the course of FY '23, it has to be, to some extent, the power of the and, as I've heard in the past many times. It is not just the expansion at the 30% level of the number of reps we have and going after the market in the same way that we've done so in the past but also then expanding that opportunity to include partners to be able to canvass the market more completely. So those are some of the areas that we'll look at. One other area that, obviously, we can't comment on in any detail. But I owned M&A for the last 10 years at Akamai and that was a tool that I used pretty extensively. So we're going to be active shoppers and very disciplined buyers, only leaning in where we see it appropriate but that's another tool that we have in our arsenal that we'll begin to look at as well, things like the SpectX acquisition that we did to focus on continuous analytics at enormous scale. These are elements that we can integrate directly into our platform to drive further scale and growth.

That's great. And just a quick follow up. If all these initiatives were to bear fruit, are we making too much of the sequential deceleration that everybody is pointing out? And if these initiatives bear fruit, could we see reacceleration in the business because you are definitely investing for growth, as you said, the research development and the partnership and the sales and marketing side?

Kash, it's Kevin. Yes. As Rick said, we are firing on all cylinders. And these incremental investments are all focused on accelerating ARR growth over the midterm and longer term. It will take a few quarters for that to obviously kick into that ARR top line. But the market opportunity is tremendous ahead of us. Our platform is amazing. We have some great modules that we're bringing to market here in the next 12 months as well. And I think all those combined gets us pretty excited about that top line ARR growth number accelerating over the longer term.

Wonderful. Thank you so much and congratulations.

Thank you.

Our next question is from the line of Kamil Mielczarek with William Blair. Please proceed with your question.

Good morning, everyone. Thanks for taking my question. So, I just want to follow-up on the comment that I think Rick made on M&A. Can you just maybe talk a little bit more about the framework behind your decision to acquire versus build new products? And given Dynatrace is now in a net cash position and we're seeing digitization drive the secular tailwind for likely multi-years, would you consider something more transformative?

Well, look, we're not going to comment on specific acquisitions and opportunities. But I would say -- and it's a great question, I figured I was going to prompt a follow-up question out of that set of remarks and I do appreciate the question. We're going to be opportunistic, looking and scanning the market for M&A really across the gamut. And certainly, I'm not going to commit to a transformational M&A or anything of that nature. What I will say is we'll be looking at M&A as an accelerant to grow. And that's -- that was really my earlier comment and we'll look at it at all shapes and sizes in evaluating it but we're going to be very, very disciplined in our acquisition strategy as we look at it.

Great. And just a quick follow up for Kevin. Can you maybe update us on how customer count growth came in relative to your expectations? And how should we think about the single product customer churn over the next few quarters?

Yes. So it's playing out as we had anticipated and as we communicated on our Q4 call. I think, as a reminder, we had -- for folks, we had about 200 customers that were single module sort of non-platform legacy customers that we do believe were going to churn over the next four to six quarters. We've churned about half of them so far. And I think over the next three to four quarters, we'll see the churn of the balance of those probably another 100 or so over the next three to four quarters-ish [ph].

That's great. Thanks, again.

Our next question is from the line of Fatima Boolani with Citi. Please proceed with your question.

Good morning. Thank you for taking my questions. And Rick, welcome to the team. I look forward to working with you. Maybe I'll start with you, you've set a tremendous pedigree in the security arena and you spent a lot of time talking about how big the application security franchise could be for Dynatrace. I'm curious in the reinvestment envelope that you set out for fiscal '23, can you talk to us a little bit about maybe the opportunities and challenges with selling to a much more different buyer in the security realm in sort of how we should think about that manifesting in your sales and marketing expenses and posture? And then I have a quick follow-up for Kevin.

Okay, sure. In terms of the buyers, the good news is I think there's a ton of leverage in the buyer that we have today. In fact, we're -- with the Log4j situation that occurred back in December evolved, obviously, those discussions happen very rapidly in order to get our AppSec module deployed into POCs. And that, of course, wasn't a new buying process. That was through our existing buyers who had a very strong need to resolve the Log4j situation very rapidly. So the good news is there's a lot of overlap. Now as we move into AppSec even more deeply, clearly, the buyer will morph a little bit but we think that there is, as I say, enormous leverage there. In terms of the broader question on AppSec, yes, I think that this is an enormous growth opportunity for the company. I think it is very natural and logical for customers to be looking at managing their overall ecosystems and environments and wanting simultaneously to make sure that it's protected. And so the value proposition is extraordinary. And I think it is a very consistent story for our customers to expand in this sector.

Kevin, historically or certainly in the last couple of quarters, we've certainly had some conversations about the buying and procurement behavior of "economically sensitive industries." I'm curious, as you look at your pipeline just from a vertical perspective, where are we in terms of business momentum in buying posture in some of these economically sensitive industries that you've called out historically? And frankly, are we sort of back to pre-pandemic levels of engagement and purchasing activity? Any updates there would be very helpful.

Sure. Fatima, what I think the punchline is we are seeing strength across all of the different verticals. So certainly, obviously, during the COVID era, we're getting some headwinds in COVID-related industries. But every company now is embarking or have embarked on new transformation initiatives. It's critical to their success going forward, so we're seeing strength across the board in all different verticals. Rick, anything to add on that?

I certainly think that some of those protected verticals are going to be important areas and avenues of evolution. Digital transformation isn't resigned to be just in one or two verticals. It's obviously enormous in areas like banking and commerce, manufacturing, health care, where we see it driven foremost. But the federal government, for example, in light of others are all areas in which digital transformation is occurring and in which we have an opportunity for growth.

Thank you. The next question comes from the line of DJ Hynes from Canaccord. Please proceed with your question.

Hey, good morning guys. Rick, I want to ask a high-level question of you. So as you did your diligence on Dynatrace and have gotten to know the business better over the last 1.5 months or so, what was the KPI that stood out to you where you said, man, this is really best-in-class, we can get a lot of leverage out of this. And then conversely and probably more interestingly to this crowd, what was the KPI where you thought, this is okay but we can probably do better?

That's a great question. I started with the financial performance, actually, because financial performance at nearly a Rule of 60 is phenomenal. And so when I got a call to consider being a CEO of a company that was operating at a Rule of 60, had for a bit of time and looked like it was going to continue that into the future and had further opportunity for acceleration, I was all in and very, very excited to be in the seat now. So thrilled with the selection of our Board to give me the opportunity to go drive it, so that was that. In terms of KPIs that have surprised me on the downside, I would say none really. I would probably pivot the answer to the question to instead say, where can we lean in? And I think the areas where we can lean in are the areas that we've been discussing like, for example, new modules and multi-module sales, I think, can be even bigger where Dynatrace really shines for our customers is when you do full deployment of the entire software intelligence platform. And so we've got an opportunity for further penetration into both our installed base as well as new customers with these multi-module sales deployment. We're going to continue to add new modules, new capabilities and everywhere from infrastructure to AppSec as we've been discussing. So those are areas we're leaning in. I also think that we have an opportunity to lean in on the sales and marketing side as we've been discussing. So I won't belabor it other than to say that I think that there's substantial opportunity with hyperscaler expansion, global system integrators and other partners around the world in order to further accelerate. So I view it as it's all good; no surprises on the downside and lots of opportunity for us to execute against on the upside.

Yes. Okay, great. That's good to hear. Thanks.

Our next question is from the line of Gray Powell with BTIG. Please proceed with your question.

Great, thanks. I really appreciate that. So yes, I know you've received a lot of questions on the operating margin side but I just had a couple of follow-ups, if that's okay. So yes, Dynatrace has always delivered just a really compelling balance of high growth and strong margins. You just talked about how the Rule of 60 was why -- one of the reasons you thought was really compelling to join Dynatrace. So I'd just be curious, Rick, what do you think the right margin level is going forward such that you don't miss out on any potential growth opportunities?

Well, great, great question. I think we'll tune it over time. But at least in our initial assessment, you sort of heard the focus around profitable growth. And we're very much committed to maintaining this profitable growth approach. We believe that leaning in to the tune of, as I said, one to two points on the R&D side, one to two points in sales and marketing is the correct initial land to go after this opportunity, given the growth in the business at top line north of 30%. That obviously fuels a lot of incremental OpEx in and of itself as you're growing headcount and growing opportunity for spend in other areas. So it's really the combination of those factors that we're leaning into. We'll continue to reassess this as we go through time. But that certainly gives us the power that we believe make the investments needed to be successful in driving this incremental growth.

Got it. Thanks.

Our next question is from the line of Keith Bachman with Bank of Montreal. Please proceed with your question.

Hi, thank you. For you, Kevin, I wanted to ask a clarification and a question. The clarification first. When you talk about the incremental investments, is that an FY over FY or is that a Q4 run rate when we think about our FY? And if you could also clarify, is there a similar impact that we should be thinking about to the free cash flow margins? Or is there some offsets on working capital? The question I had, Kevin, also is for you. I just wanted to review the growth algorithm as we think about '23 -- FY '23 for you. And coming off your Analyst Day, we think about kind of 120 plus on the net retention rate and 15 to 20 new customer logo adds. Is that still the right kind of algorithm? And what I'd particularly like to hear you comment in, because I think there is broad investor concern, is there anything changed as you approach the new fiscal year on win rates and/or net retention rate? And if you could also just comment on anything specific on how you think the security offering that you have may be contributing in the new fiscal year in terms of that growth algorithm.

Okay. Yes, a couple of different questions there, Keith. So from an OpEx standpoint, Rick sort of outlined one or two basis points in both R&D and sales and marketing. And we're going to step into these investments over the next couple of quarters. It's not something that we just turn the spigot on and we can increase hiring overnight. So you will see the margin impact over the next couple of quarters throughout fiscal '23. And bringing that down to free to cash flow, again, not trying to provide guidance on this call at this point. But certainly, that will reduce cash flow by a couple of hundred basis points. However, our cash has also been negatively impacted by the perpetual license runoff over the last couple of years. So that can be an offset as well. So we're not thinking as big of an impact on the unlevered free cash flow side as compared to the operating income side. Hopefully, that was helpful. And then when I think about the building blocks for FY '23, you're absolutely right, 120% net expansion and 15% to 20% new logo growth. And if you do the math on that, just on sort of those base numbers, 120% net expansion adds about $200 million of ARR next year. If you do new logo growth and you grow 20% and your average land is $100,000, $125,000, that's another $80 million-ish of ARR. So between those two sort of core building blocks, we're growing the business by $280 million. Again, not trying to provide guidance on the call. And I sort of think of those as the base numbers. Obviously, if you look at our net expansion rate, right now, it's impacted by the perpetual license headwind and that will start -- has started to wind down as well. So we have a pretty healthy net expansion rate, nicely above that 120% rate. So hopefully that was helpful, Keith, in terms of how we think about just the core basic building blocks of the business next year. They haven't changed. And I think as Rick outlined we're putting some other programs in place that we think can boost and accelerate the business as well. I'll wrap it up.

Any specific comments on security? I know I'm at the end of the lineup, so I apologize if I ask one more question but any comments on security?

Security, I would say, is very early, as I said but an area in which we're leaning into. We'll be driving it aggressively and you'll hear more. The good news is Log4j is a great example of vulnerability analytics and how critical it is to the market. And as we said in our prepared remarks, we've increased by 10x in one month, really from December to January, the number of POCs that we're driving there, that we are now evaluating our customers, are evaluating and going through that process. So early days but excited about the opportunity for growth and very committed to AppSec leadership over time.

Thank you.

Thank you. Our last question is coming from the line of Koji Ikeda with Bank of America. Please proceed with your question.

Great guys. Thanks for squeezing me in here. So a question for Rick. You've been there for a couple of months now; you saw some big deal expansion. I mean, the business is operating in a big TAM. Business is investing in sales and technology, APM observability is super important for organizations of all sizes out there and then thinking about the legacy runoff, too. The question is, how do you think about the potential with the commentary on NRR? It goes up to 125% plus or maybe even better, up from the 120% plus the company has been delivering so consistently for such a long time now.

Well, NER is a huge metric for us. And the fact that we've delivered it now for 15 straight quarters at north of 120%, I think, is demonstrable of just the power of the platform that our customers see and the fact that they are leaning in aggressively to things like multi-module deployments, increased host units, full stack spend, infrastructure and new modules. All of these elements are driving that NER northward in terms of the installed base of existing customers. And then once we deploy new customers, the other good piece of news is that those new customers are increasingly likely to deploy multiple modules as well. So we're seeing the power of the platform really across the board. It is certainly my expectation as we add more module capabilities in the existing modules plus new modules such as AppSec that we're going to see even further expansion of multi-module deployment and further increases in spend. So I believe that there's an opportunity to have some accretion in NER as we look forward. But still early in that regard. In the meantime, we look to continue to operate the business in north of 120% in NER as we look at it.

Thank you.

So all, thanks very much for joining for my first call as CEO. I really appreciate it. The summary message, I guess, I would leave with you coming out of the call is as follows: number one, we are a company firing on all cylinders. To some of the questions and remarks that came through the Q&A session, that's why I'm here and that's why I'm excited about it. I do think that there is an opportunity for accelerating growth which is why we're leaning in here even more aggressively in some of the areas like R&D and sales and marketing. And so those are opportunities for further expansion as we look to the future and that's why we increased the guide for the fiscal year. So we're leaned in. Also super excited about our Perform conference to come next week where we've got over 30,000 expected registrants. And so that's another area where we look forward to seeing some of you on that session as well. So, thank you all very much for participating in our call. And as I said at the outset, I look forward to meeting many of you in the future. Thanks very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.