Dynatrace, Inc. (DT) Earnings Call Transcript & Summary

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.

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.

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.

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

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?

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? .

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.

Our next question is from Sanjit Singh with Morgan Stanley.

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.

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.

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.

Our next question is from Matthew Martino with Goldman Sachs.

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? .

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.

Our next question is from Ray Shilton with UBS.

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?

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.

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.

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

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.

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.

Our next question is from Ryan MacWilliams with Wells Fargo.

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.

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.

Our next question is from Fatima Boolani with Citi.

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.

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.

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.

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

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? .