Greetings, and welcome to Dynatrace first quarter fiscal 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Noelle Faris, Vice President, Investor Relations. Please go ahead, Ms. Faris. Thanks, operator. Good morning, everyone, and thank you for joining Dynatrace's first quarter fiscal 2023 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 filing 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 3 August 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 measure during today's call. A detailed reconciliation of GAAP and non-GAAP measures can be found on the investor relations section of our website. Unless otherwise noted, the growth rate we discussed today are non-GAAP, reflecting constant currency growth. To see the reconciliation between these non-GAAP and GAAP measures, please refer to today's earnings press release and financial presentation under the events section of our website. 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. Let me start by saying that I am proud of the Dynatrace team and our solid first quarter performance. In particular, we saw a continuation of our mid-thirties growth in adjusted ARR again in the first quarter at 34% year-over-year. Subscription revenue came in at $250 million, an increase of 32% year-over-year in constant currency. Non-GAAP operating income was $60 million or 23% of revenue. This is a testament to the strength of our market, the significant value of our platform, and the ongoing durability of our business model, which combined enable us to run a business that delivers high growth with strong profitability and free cash flow. Kevin will share more details about our Q1 performance and guidance in a moment. In the meantime, I'd like to share my view of current market trends, our platform leadership, and our operational approach to the remainder of this fiscal year. Let me start with the underlying market opportunity and trends that have been fueling our growth to date. As we've said in the past, digital transformation has become ubiquitous. Observability as well as application security solutions are still at an early stage of evolution, and yet are rapidly becoming essential elements of successful cloud deployments. In our estimation, the current economic challenges will drive an even higher priority for digital transformation initiatives, given the demand for greater efficiency of IT resources. But cloud deployments typically yield data that is exploding in volume and complexity, which companies are simply not equipped to handle with internally built solutions. This is driving an enormous market opportunity in observability. Dynatrace's ability to drive greater efficiency at lower cost places us near the top of the strategic IT priority list. Now more than ever, and as our customers widely proclaim, organizations need Dynatrace. Based on these fundamentals, we are confident that the digital transformation trend will continue to fuel our growth for many years to come. Our durable enterprise customer base, coupled with our recurring subscription revenue model, provide us with relative resiliency even in an uncertain economic environment. This is a growth market and as our Q1 results illustrate, we are a growth company. At the same time, we are obviously not immune to the rapidly evolving macro environment, which we saw primarily in the form of elongated sales cycles in the latter half of June. We saw this most notably in our new logo close rate during the quarter, with 135 added, consistent with the first quarter of last year. For our installed base, we delivered our seventeenth straight quarter of a net expansion rate greater than 120%. Our existing customers view us as an essential partner to their ecosystem and are eager to expand their usage of Dynatrace given the proven value we provide. As a testament to this, our average ARR per customer has now grown to over $300,000. In updating our guidance, we believe it's prudent to assume that this economic uncertainty continues through the balance of our fiscal year. Our expectations assume greater conservatism in ARR and top-line growth as a reflection of the macro environment. We continue to be a leader in enterprise observability and are addressing a huge market with tremendous growth opportunities. I will talk further about how we intend to operationalize this plan in a moment, but before doing so, I'd like to re-emphasize our platform differentiation and why Dynatrace continues to grow at a rapid rate. Digital transformation is, of course, not just oriented to resource efficiency and offloading workload management. Organizations depend on software for essentially every facet of their operations. They deliver products, facilitate commerce, drive supply chain efficiency, engage with employees, and much more. To achieve these goals, organizations expect their software to work perfectly. To help customers enable this performance, our approach to observability is radically different. Dynatrace provides not a single product, but rather a comprehensive software intelligence platform covering end-to-end observability with sophisticated AIOps capabilities unmatched in our industry. It combines the deepest and broadest multi-cloud observability solution with continuous runtime application security. We focus on global 15,000 enterprise accounts where data volume and complexity are highest, and where our scale and automation enable them to run their businesses most effectively. This is the power of Dynatrace and why customers choose us. Whereas other approaches deliver dashboards, Dynatrace delivers precise answers and intelligent automation from data to help customers navigate the massive complexity that comes with digital transformation initiatives. It enables our customers to deliver flawless and secure digital interactions by providing broad-based situational awareness of their cloud ecosystem at all times, and enabling them to take action immediately to ensure maximum uptime and performance. Over time, customers will use the intelligence we provide to integrate the Dynatrace platform directly into their application as code or auto remediation. Industry analysts corroborate our leadership position. Recently, Gartner released its annual Magic Quadrant for Application Performance Monitoring and Observability, naming Dynatrace a leader for the twelfth consecutive time. In the Gartner Critical Capabilities for APM and Observability Report, our platform differentiation compared to the competition is even more indelible, with Dynatrace leading in four of six use cases for DevOps and application development, site reliability engineering and platform ops, IT operations, and digital experience and monitoring. I'd like to share a couple of examples of customer wins this quarter that highlight our platform strength. First, a major California insurance company was leveraging a siloed approach to their cloud-first strategy. These tools provided disparate information that was not integrated into their IT services management system. They realized they couldn't measure what they couldn't see, and they were unable to improve what they couldn't measure. By consolidating these tools through deployment of an end-to-end observability solution from Dynatrace, this customer dramatically enhanced its visibility in their entire ecosystem. This resulted in vastly improved operational management and AI-driven insights while reducing costs. Let's take another example. A large supermarket chain with an extremely complex ecosystem dependent upon dozens of SaaS and third-party tools was looking for comprehensive visibility across their environment. During the evaluation process, they suffered a production system outage impacting their loyalty program. Dynatrace was able to identify the root cause and resolve the issue within minutes rather than hours or days, avoiding lost revenue, wasted marketing dollars, and damage to the customer loyalty they had invested to build. They selected Dynatrace because of the precision of our answers and our enablement of immediate action to ensure maximum uptime and performance. These are just two examples of the trends that are widespread throughout our customer base. Our customers' jobs have never been harder. Now more than ever, it is critical for them to make observability an integral part of every cloud deployment. At Dynatrace, we refer to this as cloud done right. We've never been in a stronger position to make consistent leverage the Dynatrace platform a reality across a wide array of cloud environments. We also have ample runway to continue to expand our footprint within our installed base. We have only just begun to gain meaningful momentum with our application security module. Application security was a brand-new market for us less than two years ago. In just this quarter, we closed a number of six-figure deals, including Fannie Mae, UPS, and Kroger. Our R&D team continues its fervent commitment to innovation. We believe that the log market is ripe for disruption. We remain on track to release a dramatically enhanced logging capability based on a massively scalable data store and platform evolution we call Grail in the back half of this year. Customers frequently tell us they are generally dissatisfied with the functionality, visibility, and cost of their current logging tools, and they want a highly performant and cost-effective log monitoring solution that scales with the largest businesses. Customers also see enormous value in treating logs as part of an end-to-end observability solution and data set rather than a siloed tool. We recently closed a seven-figure deal with a major national bank to replace their existing log and security offer, and a major retailer invested in error log capabilities. We look forward to sharing more details about this offering in the coming months. This brings me to my final topic, and that is our plan to navigate through the current economic backdrop. I recently attended an event in which the speaker reminded a number of CEOs of the common auto racing expression that drivers win races in the turns. Unlike straightaways, which are more predictable, curves upset the status quo. Turns can bring the unexpected. They are where races are often won or lost. Gartner talks about winning in the turns as a time when leaders must sharpen decision-making capabilities, manage resources strategically, and be ready to take the lead. I believe there are some parallels that we can apply to the current macro backdrop, and we are being thoughtful and strategic about how we execute in this turn. There are several actions we are taking to support our long-term growth objectives, enable us to gain market share, and accelerate platform leadership while maintaining healthy margins. First, we have adjusted increases in headcount and OpEx through the balance of the year to deliver operating margins in line with our prior guidance to reflect the revised top-line model. We still plan to add nearly 800 people during FY23, reflecting our commitment to ongoing investments in our growth. Innovation and go-to-market expansion remain top priorities for us, and we'll continue to invest most aggressively in these strategic areas. Through the end of July, we grew our direct sales force by 30% year-over-year, and we plan to continue to grow the team to support our growth objectives. We are also focused on building more high-quality pipeline, rapidly qualifying leads, and infusing even more rigor into our deal validation process. On the indirect side, we will continue to expand relationships with the three major hyperscalers for increased leverage and sales cycle acceleration. We'll also continue to expand our relationships with global system integrators. Last quarter, we announced that Deloitte had selected Dynatrace to build observability into their digital transformation practice, and we expect to share similar announcements with other system integrators in the future. Overall, we have proven our discipline in delivering growth in challenging environments while managing top- and bottom-line in a balanced way, and we plan to continue to execute in this fashion looking ahead. In closing, Q1 was a solid start even amidst macro uncertainty. We remain highly confident in our market opportunity, the resiliency of our enterprise customer base, and our platform leadership. Expect us to continue to innovate with passion, which is paramount to our future growth and core to our culture. We plan to use this period to increase differentiation from our competitors. We're going to manage prudently from a financial perspective, and we intend to invest thoughtfully in strategic opportunities to emerge even stronger competitively than before. With that, let me turn the call over to Kevin. Thank you, Rick, and good morning, everyone. As Rick mentioned, we delivered a solid first quarter in a dynamic environment. Overall, the resiliency of our subscription model and the strengthening of our enterprise customer base are reflected in our Q1 performance. This provides a strong foundation from which we expect to continue to deliver a balanced business of growth, profitability, and cash flow, consistent with the last three years operating in the public markets. As with previous quarters, I will focus on adjusted ARR growth as it normalizes for currency fluctuations and the wind down of perpetual ARR. Please note that all growth rates will be year-over-year and in constant currency unless otherwise stated. Dynatrace delivered 34% adjusted ARR growth in the first quarter, representing the ninth straight quarter of mid-30% growth, highlighting the resiliency and predictability of our subscription business model. ARR for the first quarter was $1.031 billion. Excluding the currency and perpetual license ARR headwinds, we grew net new ARR by $281 million year over year, which was 28% growth. Before I discuss the building blocks of growth for the business, let me provide a little color on the macro impact we saw in the first quarter. Throughout April and May, we were pleased with strength in linearity as well as new logo wins and net expansion rates. The tone of customer conversations was positive, and our pipeline coverage was consistent with historical trends. However, as we entered the final two weeks of the quarter, we saw increased deal scrutiny and additional budget authorization requirements that led to a lengthening in sales cycles, primarily impacting new logos. Our win rates remain healthy and consistent with the last few quarters, and deals that we did not close in Q1 either remain in the pipeline or have been signed. Building blocks of growth continue to be the combination of new logos added to the Dynatrace platform and net expansion with existing customers. As Rick mentioned, we added 135 new logo's in the first quarter, consistent with Q1 of last year. We were pleased to see that more than half of these new logo's landed with three or more modules. Our net expansion rate for the first quarter was once again above 120%. From an existing customer standpoint, we continue to see strength in multi-module adoption, with more than half of our customers now using 3+ modules at an average ARR of nearly $500,000 per customer. Given the significant cross-sell and expansion opportunity in our customer base, we continue to believe that the average ARR per enterprise customer could be $1 million or more, providing ample runway for expansion with our current platform. Overall, we are very pleased with the resiliency of our enterprise customers that drove a healthy first quarter performance. Our existing customers view us as an essential part of their ecosystem, given the proven value, operating efficiencies, and insights that we deliver. Moving on to revenue, total revenue for the first quarter was $267 million, exceeding the high end of our guidance range by $4 million and up 32% year-over-year. Subscription revenue for the first quarter was $250 million, up 32%, a $3 million beat versus the high end of our guidance. With respect to margins, gross margin for the first quarter was 84%, down a point from Q1 of last year, primarily due to the investment in our customer success initiative, which led to a further strengthening of our impressive gross retention and net expansion rates. We have said before, we have a very healthy margin profile reflecting the value and efficiency of the Dynatrace platform. Rick mentioned, innovation and go-to-market expansion remain top priorities for us. For the first quarter, we invested $41 million in R&D, up 35% from last year. We continue to successfully attract and retain talent in our R&D organization, consistent with our expectations. On the go-to-market side, we invested $94 million in sales and marketing this quarter, up 31% over last year and within our current target investment zone of 34% to 36% of revenue. Our non-GAAP operating income for the first quarter was $60 million, resulting in an operating margin of 23%, in line with our expectations given the planned targeted investments we previously communicated. On the bottom line, non-GAAP net income was $52 million or $0.18 per share. Looking at the balance sheet, as of June 30, we had $571 million of cash, an increase of $184 million compared to the same period last year and inclusive of $120 million of debt repayment. Our free cash flow was $136 million compared to $81 million in the same period last year. As a reminder, cash flow in the first quarter was positively impacted by a tax refund of over $30 million. This was previously expected to be received last year. On a trailing twelve-month basis, our free cash flow was $289 million or 29% of revenue. We remain very pleased with our continued healthy cash generation. The last financial measure that I would like to discuss is our remaining performance obligation. RPO was approximately $1.53 billion at the end of the quarter, an increase of 27% over Q1 of last year. The current portion of RPO, which we expect to recognize as revenue over the next four quarters, was $877 million, an increase of 28% year-over-year. We are very pleased with the growth in RPO. However, we continue to believe ARR is the best metric to understand the business's performance as it removes variability associated with billing and contracting modifications. Now let me turn to guidance. There are a few things to keep in mind with respect to our guidance. First, we remain confident in the long-term durability and predictability of our growth. At the same time, we want to be mindful given the extended sales cycles we saw in the last few weeks of Q1. Our revised guidance assumes these trends will continue for the balance of fiscal 2023. Given that, we believe the majority of the macro headwind will be concentrated in new logo growth. As such, we now expect new logo additions in fiscal 2023 to be consistent with the 700 new logos we added in fiscal 2022. We are confident in the resiliency of our customer base and the ongoing value we deliver to our customers, and we believe the macro impact on this cohort will be less significant. In fact, we saw our best ever Gross Retention rate this past quarter, and it has been consistently trending up for the last two years. We continue to believe our Net Expansion Rate will be above 120% for fiscal 2023. Second, with almost half of our business denominated in foreign currency, the continued strength of the USD creates a sizable headwind. We now expect full-year ARR constant currency impact to be approximately $40 million and $47 million on revenue. Finally, consistent with prior guidance, the perpetual license wind down for fiscal 2023 is expected to be approximately $8 million or 80 basis points, consistent with prior guidance. The headwind in Q2 will be approximately 2.5 percentage points, and it will then taper off throughout the year. With that in mind, let's start with our guidance for the full year, again, with growth rates in constant currency. Let's start with ARR. We expect ARR to be between $1.213 billion and $1.226 billion, representing an adjusted ARR growth of 27% to 28%. This is a 2 percentage point decline from previous guidance, mostly driven by the lower new logo expectations for fiscal 2023. In terms of Q2 seasonality, we expect roughly 18% of the annual net new ARR to close in Q2. We now expect total revenue to be between $1.125 billion and $1.136 billion and subscription revenue to be between $1.053 billion to $1.062 billion, both of which result in 26% to 27% year-over-year growth and a one percentage point decline from previous guidance. From a profit standpoint, we remain committed to the margin expectation we set for fiscal 2023. We are reaffirming our non-GAAP operating margin guidance of 22.5% to 23%. As Rick mentioned, we are a growth business, and we continue to hire. However, we are slowing the rate of hiring and adjusting certain operating expenses to align with our revised top line expectations. We expect non-GAAP EPS of $0.73 to $0.76 per share based on 292 to 294 million diluted shares outstanding and a non-GAAP effective cash tax rate of 11%. Finally, we expect free cash flow to be between $310 and $325 million or 27.5% to 28.5% of revenue. Looking at Q2, we expect total revenue to be between $272 and $275 million or 26% to 28% growth. Subscription revenue is expected to be between $255 and $257 million, up 26% to 27% year-over-year. From a profit standpoint, non-GAAP operating income is expected to be between $62 million and $64.5 million, 23% to 23.5% of revenue, and non-GAAP EPS of $0.18 to $0.19 per share. In summary, we are pleased with our first quarter fiscal 2023 performance, where we saw solid ARR and top line growth combined with healthy cash margins amidst a dynamic environment. We have a proven track record of consistent execution. We are being mindful of our investment levels and will continue to prioritize investments strategically in commercial expansion and innovation to support sustained growth. Our strong financials, subscription model, and enterprise customer base continue to position us for resilient and predictable growth and profitability as we move forward. With that, we will open the line for questions. Operator? At this time, we will be conducting a Q&A session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Adam Tindle with Raymond James. Please proceed with your question. Okay, thank you, and good morning. Rick, I just wanted to start on the upcoming logging solution and the infrastructure product more broadly. I know that you've talked about that solution potentially being as big as APM over time, so an interesting growth driver moving forward. Wondering if you can speak to maybe the pipeline and early-stage trajectory of that product and any additional color around the key competitive differentiation and pricing on logging would be helpful. Thanks. Great. Thanks so much, Adam. First, infrastructure continues as a module to grow much faster than our standard ARR or average ARR growth. We feel very positive about ongoing infrastructure growth. It is a core element to integrating that into our end-to-end observability platform, inclusive of APM plus infrastructure, logs, digital experience, and others. It is a core part of the solution. With respect to logging, feel great about the development of where we are. We're very much on track in delivery of Grail in the second half of this year. We are already in the process of beginning early access, what we call our EAP or early access program, to the solution. We do believe, as I said in my prepared remarks, that this is a market and opportunity very ripe for disruption. We're focused on delivering a highly performant solution at great price points with tremendous scale that doesn't have the issue of cold to warm repopulation or a pullback of data. We're in very good shape, and we look forward to releasing the solution later this year. Great. Maybe just as a quick follow-up for Kevin, and this might be hard to do, but could you maybe bifurcate core business versus new product expectations built into guidance for the rest of the year? Rick mentioned logging solutions on track for the back half. I'm just wondering, I think that's mostly not built into guidance, but I'm wanting to confirm that. Thank you. Yes. Hi, Adam. From a portfolio standpoint, as Rick mentioned, I think we're gonna continue to strengthen the infrastructure product. The new logging capabilities will be contributed primarily towards the end of Q3, going into Q4. Obviously a much more meaningful contributor over the next two years, where we certainly think, within two years that can be a $100 million piece of business for us. The other component, from a core module standpoint, apps and microservices continue to grow, very well. Generally in line with our ARR growth, maybe a little bit smaller because infrastructure is growing faster. App security, we've had some nice progress here, over the last four or five quarters. We're gaining more and more momentum there as well. I definitely think the new product introductions are paying dividends, probably in the back half a little bit more. As we go into FY24, they'll become a meaningful, much more meaningful contributor. Yep. Sounds like a lot of exciting stuff ahead. Thank you so much. Okay. Our next question comes from Matthew Hedberg with RBC Capital Markets. Please proceed with your question. Great. Thanks for taking my questions and, thanks for all the detail, Chase. Rick, I guess for you, on the elongated deal cycles, was there anything geographic there, on some of the new business side? Was it more European? Was it North American? Just curious on that aspect of it. Matt. I would say that we saw modestly incremental impact in Europe, but it really was a global slowdown or I would say a global extension of deal cycle that we saw in late June. Modest in Europe, but global in nature. Global, okay. Okay, that's helpful. Then, Dynatrace has been around for a long time, and it's been through many economic cycles. I like your analogy of win rates are one in ten. Although you're tempering some of your new business expectations based off the macros. Has there been periods of time where historically, customers that are perhaps running multiple observability or monitoring vendors look at this as an opportunity to say, "L ike I'm running four. I don't need to. I'm gonna try to consolidate on maybe one or two." It could that actually, help new business sales at some point here as customers try to do maybe more with fewer vendors and maybe standardize even more so on a Dynatrace? Absolutely. It's a great observation. We do see it certainly in our pipeline in terms of opportunities for consolidation of other tools, and it occurs all the time. That is a source of potential new logo and certainly market share increases that we see in part come from precisely that phenomenon. Great. Thanks, Kevs. Our next question is from Kamil Mielczarek with William Blair. Please proceed with your question. Morning. Thanks for taking my questions. Can you update us on how churn looks in the quarter? It looks like it may have picked up. How much of that is attributable to the planned decline in non-strategic customers? What are your expectations for customer churn through the end of the year? Kamil, I'm assuming you're talking about customer count churn. Is that? That's right. Yes. As we communicated, over the last 4-5 quarters, we do have a small set of customers who's becoming smaller and smaller that probably closer to 150-200 customers with very low sorta combined single-digit ARR, single products, perhaps running a synthetic product or not deployed across an organization. These are non-core customers to us. We are certainly working to expand them, but they're gonna continue to decline. What you've seen over the last 4 quarters is really a burn down of this low customer sort of ARR cohort. We think that will continue for another quarter or two. I think we're coming to the end of that cycle. The new logo's that we've been adding, sort of when you think about the growth in the business, we're landing them at a healthy ARR. More importantly, I think, Kamil, is that they're landing with a view of the platform. They're landing with three modules: apps, microservices, DEM, infrastructure. When our customers have those components, those solutions deployed, it's so much more stickier and their net expansion rates are so much healthier. The way we think about it is it's a little bit of a churn on the customer count side, as anticipated. It does not move the needle from an ARR standpoint, and we think we're gonna come out of this with a super strong, full customer base that has a great ability to expand. That's very helpful. If I could just follow up on free cash flow. Margin was very strong in the quarter, I think over 50% at a multi-year high. Can you provide some more detail on what drove the free cash flow strength in the quarter? Given the strong start to the year, why bring down your full year free cash flow margin guide? Sure. Great free cash flow number in the Q1. There's a lot of seasonality, I think, Camille, as in our business. We had a very strong bookings quarter in Q4 that resulted in a very high ARR balance. In addition, we received a tax refund about $30 million. Despite. If you back out the $30 million tax refund, we still had a really healthy free cash flow number in the quarter based on the health of the business over Q3 and Q4 that led to increased collection. That all bodes well for our RPO, for deferred revenue, for revenue visibility. When we think about the guide for the year, though, we wanna be careful in this environment. We are assuming that ARR will be coming down by about $20 million on a constant currency basis. As a result of that will result in some lower bookings and billings. A little bit more, prudence and conservatism on that free cash flow number. We've been generating, healthy cash margins in the business for many years, and we expect that to continue. The way we do that is it's just a slight tweak based on, current market conditions. That's very helpful. Thanks again. Our next question comes from Mike Cikos with Needham & Co. Please proceed with your question. Guys. Thanks for getting me on here. You have Mike Cikos. I wanted to ask about these elongated cycles that you're talking about. Really, my sense based on some of your commentary is it was just the last two weeks of June where this really picked up. I'm curious about what you saw between deals either staying in the pipeline or closing since then. Can you help us separate the two? Like, how what is that number that has closed versus remains in the pipeline? Then the second part of that question is, has the behavior from your customers been consistent through July, or are we seeing a further elongation of those cycles as we move away from June? Mike, it's Kevin. If we go back and sort of revisit the last two weeks of the quarter, what we saw continued strength in our existing customer expansion numbers, right? There was a little bit of pressure there just due to multiple approvals required on some budget items. A little bit of that pushed into Q2. The bigger change really was in the new logos where we saw this during COVID, right? People, when they're looking at a new solution, may be a little bit more tempered in their buying patterns. We saw some deals push from Q1 into Q2 from a new logo standpoint, and we certainly have closed some of those. Some of those remain in the pipeline. I think when we think about the next couple of quarters, Q2, Q3, Q4, we just think there's gonna be sort of this push of new logos throughout the course of the year just based on, based on buying patterns and how we've seen new logos come, and those things are gonna take a little bit longer. Overall, we're pleased with existing customer expansion this quarter. New logos, the way we think about it is the Q1 push is gonna just keep pushing into Q2, Q3, and Q4. We're obviously very targeted at adding new logos to the franchise. It's super important for the long-term health of the business. Given the current market conditions, we wanted to call sort of flat new logo growth on a year-over-year basis, which means we'll add 700 new logos this year. That's how we think about it. No changes in market conditions from the end of June into where we are today, no further deterioration is said differently. We'll see how the quarter plays out, but we can take all that into account when we guide. Thank you for that. I appreciate the color. If I could just squeeze one more in. When I think about the budget pressures or maybe some of these deals pushing from, let's say, increased scrutiny, are you seeing new logos land smaller than? Is there any way, I know that you guys target the global 15,000, but to the extent, has there been any delineation, if I think about, like, the ultra-mega enterprise customers versus maybe more mid-market type customers as far as that customer behavior we're talking to? Generally, I think as you appreciate our trailing twelve on new logo land is 105,000-$110,000 in that ZIP code. It's been increasing over the last 4 to 5 quarters, primarily due to the fact that customers are landing with the three modules that I mentioned earlier. Q1, the number came down a little bit. I wouldn't call it a meaningful mover, and I don't think it's a leading indicator of deal size at this point. We love the $100,000 landing zone. It's a great way to get into an organization, highlights certain applications in the full stack and expand from there. It's also a $100,000 purchase. It's not a significant purchase from an enterprise level, so, it smooths out those budget approvals and results in, we believe, faster time to market, faster time to close deals. Look, overall, yes, to answer your question, slight decline in average land on the new logo side. We don't think that's necessarily a trend that's gonna continue. We think $100,000 sort of land for an enterprise customer is a good spot to be in. Terrific. Thank you for the color. I'll pass it on. Our next question comes from Erik Suppiger with JMP Securities. Please proceed with your question. Good morning. Thanks for taking the question. One, you had mentioned a target of 800 employees or 800 new employees for the year. Can you give us a sense of where you are in terms of that hiring to date? Hi, Erik. It's Kevin. We got off to a great start in the first quarter. From a sales standpoint, our current quota capacity, as Rick mentioned, has grown 30%. That's great. Our R&D organization made significant progress as well from a hiring standpoint. Off to a good start. Close to about 300 new hires in the first quarter out of the 800 that we're projecting for the year. So pleased with the performance and, as we've talked about, we've brought down our original hiring targets, which were generally gonna be in line with the revenue growth assumptions. We just updated our headcount growth rates down, back down to, where we think revenue growth rates will be for the year. New headcount in that 25% to 26% year-over-year. Okay. We will continue the focus in go-to-market, and we're gonna continue to focus in, obviously, R&D innovation. Obviously, we want the appropriate metrics from a customer success standpoint, we wanna make sure we're hiring there based on the revenue trajectory of the business. We can think of the growth within your sales organization in that type of growth range like you were just saying 20, 25, 27%? Sales has been growing and sales capacity, so think, direct sales reps grew 30% through the end of July on a year-over-year basis. Our stated goal for our sales rep headcount growth this year is 30% as well. That may move around a little bit, Erik, depending on the trajectory of the business here, but coming off of Q2 and going into Q3 and Q4. We are prioritizing the investments in the direct business as we believe, once we get through some of these macro pressures, it will put us in a much stronger position to continue to grow and perhaps even accelerate growth going into FY 2024, depending on where the market is at that point. Okay. Lastly, your security module, I know it's still early, but is that on a trajectory where it could reach an attach rate that's comparable to, to your other popular modules? Is that something you see in another couple years? Or where do you think that attach rate could fall out longer term? We absolutely believe so, Erik. It's a very popular module, especially since Log4j occurred in the December timeframe. Our vulnerability management solution seems to have hit a nerve in the market for sure, and seems to be the best tool out there to do the job, to assess vulnerabilities and enable companies, especially our customers who've deployed it, to successfully utilize it to uncover vulnerabilities and triage them most rapidly. We're very pleased by it. In terms of long-term opportunity, we certainly see this as a $100 million opportunity type business over a few year span, and that's what we felt the last couple of quarters, and we feel the same as we see the current trajectory. Any sense of timing on when it could start to approach some of the other attach rates? Well, the attach rate will grow over time. I gave you sort of the few-year projection as to where we think it's gonna be, and that attach rate will reflect growth through that period and beyond. Very good. Thank you. Our next question comes from Koji Ikeda with Bank of America. Please proceed with your question. Oh, thank you. Rick and Kevin. I just wanted to kinda come back to the, really the elongated sales cycles comments here. Really appreciate the prior commentary on June and how it's been trending since in July, but I really kinda wanted to hit on April and May. Was there any early indications or maybe cracks in the sales cycles or comments that you're hearing from the sales teams that was kind of pointing to potentially elongating sales cycles there? Or was it really just pronounced in the last two weeks of June? Hi, Koji. No, it was an interesting time period. Obviously, we're very well-instrumented across the organizations in terms of pipeline deal coverage, and have a pretty thorough process for covering all that. April and May were trending extremely well in terms of linearity of bookings, so they were ahead of historical trend. Pipeline coverage was excellent. It was, it was a little bit of a surprise when we went through the last two weeks of the quarter to see that certainly those new logo numbers come off when over the prior ten weeks of the quarter things seemed very healthy. Definitely slow down in the last two weeks, which is, something that we're expecting to continue for the balance of the year, and, we'll see how long these macro pressures remain. Koji, if I could just add to the answer from Kevin. It took the form, for example, of additional layers of approval in late June, that we thought that the CIO would be sufficient to sign the deal. That's what had been communicated. Even in some of these cases, the CIOs would tell us, "Geez, I require more levels of approval," which forced the deals into a later quarter. Just to be clear, and also to address some prior questions, we do not view these as deals lost. In fact, we didn't identify any of these as lost to competitors. In the vast majority of these cases, they were deals that continued in pipeline and that we're continuing to work through the course of the quarter. Got it. Thanks, guys. I'll hop into the queue. Thank you so much. Thanks. Thanks, Koji. Our next question comes from Raimo Lenschow with Barclays. Please proceed with your question. Perfect. Thank you. I've got two quick ones. Actually related to this one. If you think about these new deals and the extra levels of approval, Rick, does that become like a sales execution thing? Because like you basically, obviously at the beginning of these kind of turmoils, you get surprised because you're not aware of these extra layers that are needed. Then once you kind of bake that into the sales process, the sales execution process, you kind of think you kind of have it more covered. Is that something that could happen as we go through this? That, obviously everyone got caught out the last week of June, but now that that's required. Did you are you reacting in terms of the sales process, et cetera? That's my first question. The second question is on logging. Obviously really excited to hear that. The one thing is what makes it so special for you? Because if I look into the market, there've been only like two super successful log vendors out there because it's quite a technical problem actually. What makes you so confident that you kind of crack it here and will be like a third guy in that space? Thank you. Great. I'll take both of them. First on sales process, Raimo, a great observation. Absolutely, you can imagine that we are doing much more thorough inspection and evaluation of deals in terms of what it takes to get these closed, asking incremental questions of our champions within customers to evaluate what that close cycle looks like, specifically what it's gonna take to get the paperwork done. We have reacted quickly to an updated environment requiring that additional approval cycle. Very aggressive, yes, to the answer to the first question to say we are all over it from a sales execution sampling of further a deal review as we go through the process. Second, with regard to logging, what I would say is special are several elements. The first is we believe that based on Grail technology that we're putting into place here, that we've seen in the lab so far, that, as I said earlier, we can deliver a highly performant, very scalable solution at lower cost that has no data rehydration requirement, so no distinction between cold and warm storage. We believe that just on its own, our logging capabilities is very compelling in the market. What we really believe is most compelling about the logging solution is its fundamental integration into our end-to-end observability platform. That's what makes it most differentiated. The reason is because we simply don't see logs as a uniquely independent dataset. It really is part of logs, traces, metrics, behavioral analytics, metadata, digital experience, so real user data. It is the application of all of that data to our AIOps engine that really enables us to deliver the answers and intelligent automation from data that we see. That's it. We differentiate on the logging solution alone, but really when you integrate it into the end-to-end observability platform, that's where you get the biggest bang for the buck. Good. Perfect. Thank you. Our next question comes from Kash Rangan with Goldman Sachs. Please proceed with your question. Hello, thank you very much. Extremely clear analysis of the quarter and also your take on how you constructed the guidance, so really, really well done, guys. Question for you, Rick. You've been through a couple of downturns before, and I'm curious to get your take on what are customers saying? The new logos that you still have on the table, what are they saying as to what they are looking for in order to proceed with these contracts? And what is your best prediction on what kind of a recovery we are expecting? Is it like a U-shaped recovery or is it a much elongated recovery because maybe your customers are more concerned about certain other things happening with respect to the economy that they're not quite sure about? What's your best prediction as to how we come out of this and the shape of the recovery? Thank you so much once again. Thanks, Kash. Early morning for you. Thanks for joining. On the customer front, what they're telling us in terms of our champions in our various different companies that we're speaking to, is that they wanna proceed with the solution. They need some additional levels of approval, and they're going about trying to get those levels of approval as we speak. The deals are very much alive and we're still working through the system. It's just gonna take a little bit longer than perhaps it used to in a different environment. Our customers, namely our champions, are still very much of the mindset of continuing to drive these opportunities with us. With respect to a recovery, gosh, I don't know how to predict that. I don't have a strong stance on it. Obviously, you've got a macro environment which has 40-year inflation highs, interest rates growing at 0.75%, 2 times in a row now in June and July. You've got geopolitical challenges both in Ukraine and now seemingly even over the past couple of days to accelerate in China, which are creating additional challenge in the market, as. I don't know is the short answer what that recovery is, and I'm not gonna take a position on it other than to say that our guidance reflects an ongoing environment that we saw at the end of June and into July through the balance of our fiscal year, and that's how we factored it in. If we see a more rapid recovery than that of the economic environment, then we should benefit from that. As a follow-up, Rick, thank you so much. How are you evolving your sales cycles and what is the new playbook to ensure that you do get your fair share of new customers to sign on? 'Cause there's an absurdity here, right? I'm curious how the playbook changes. In terms of the sales playbook and pipeline generation, which is a core area of focus for us, we're focused in three areas in particular. One that I've spoken of in detail in the past is around partners. Talked about Deloitte, for example, last quarter as a global system integrator. We continue to work with the hyperscalers. On the global system integrator front with Deloitte specifically, I'm delighted to report that we have closed already our first contract, deal with them or I should say through them, a $2 million total contract value deal out of Canada. I'm pleased with that. We've got several dozen customers or opportunities in the pipeline with them, and they've trained almost now a dozen individuals on sales and partner enablement. We feel good about that. We do expect, as I indicated in my comments, to have additional system integrator announcements to come. I'm pleased about that. Partners is one category. Another category is through our sales development reps and then through our account executives. With both of those additional channels being also core focal areas for pipeline investment and development. Wonderful. Thank you so much. Our next question comes from Keith Bachman with BMO Capital Markets. Please proceed with that. I'll ask my questions concurrently. The first, if you could update us on your thinking on M&A. There was some controversy a couple quarters on kind of what the message is now. Valuations for public assets have fallen materially. Privates perhaps haven't followed the same trend line, but even privates are feeling some pressure. How do you think about M&A? Particularly, how do you balance the issues surrounding integration of assets, particularly on the technical side, versus the opportunity to accelerate growth? My second question, a little bit off of cash but perhaps in a different direction, is if the macro continues to slow, 'cause you mentioned that your guidance is based on a steady state from the last 2 weeks of June through August. Let's say the macro and therefore the pressure on your top line continues to slow, will you further moderate hiring to try to preserve some margin? We had noticed that you had slowed hiring in the last six weeks. So just wondering if things get worse, so to speak, is your plan to subsequently slow again, or will you just keep hiring and negatively impact the margin? That's it for me. Thank you. Thanks, Keith. To address the M&A one, no change in stance over the last couple of quarters. As we've communicated, we continue to look at M&A in terms of tuck-in opportunities for acceleration of R&D roadmaps. If we can accelerate an R&D roadmap by 12-18 months, then that's definitely worth us looking at. Having said that, we are very disciplined buyers, and we're not gonna overpay for assets, so we're gonna be very careful about that. We are not looking at transformational M&A, so that is not something that is on the table or in scope. So it's very much tuck-in in orientation. We do continue to evaluate those sets of opportunities. With respect to the overall macro environment hiring, it is our commitment, as we say, as we've stated repeatedly, to manage top line to bottom line. We run a balanced business. With focus on profitability and operating margin. As you see, we maintained constant in our guidance at prior guidance rates in the 22.5% to 23%. We did that by reducing the hiring ramp, even though we are recruiting quite significantly, as we indicated, 800 people this year as a target. We will continue to manage variable expenses in order to manage to that operating margin target that we have. If necessary, based on further top-line adjustment, it is our commitment to continue to manage to the operating margins that we've indicated. Perfect. Many thanks. Our last question comes from Joel Fishbein with Truist. Please proceed with your question. Thanks for squeezing me in. You guys have talked about doubling down on the government go-to-market. I'm just curious about your expectations with regard to the public sector throughout the remainder of the year. That'd be helpful. Thank you. Good input and question, Joel, and thanks very much. I was actually down in Virginia and D.C. recently with our federal team. I think that is, it remains to be a significant opportunity in agencies, from classified to civilian. I am very optimistic about our opportunity to grow that business faster than our average ARR growth rate, over the course of time. I feel very good about the federal situation in particular. Thank you. Okay. I think that brings us to a close. I wanna thank you all very much for joining. Just to summarize, we view Q1 as a very solid start to fiscal 2023 in spite of some interesting macro headwinds that appeared late in June and that continue to persist and that we're managing through. We remain absolutely confident and convicted in our market opportunity. We are seeing resiliency in our enterprise customer base, and we certainly aspire to maintain the ongoing durability of our business model. We are committed to running this business in a balanced way with strong profitability and free cash flow. Kevin and I also will be participating in several investor conferences this quarter, so we look forward to seeing many of you there. Thank you very much for your ongoing support, and have a good day. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.