Greetings, and welcome to Dynatrace's planned acquisition of Arize conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Noelle Faris, Vice President, Investor Relations. Thank you. Please go ahead. Good morning, and thank you for joining us to discuss Dynatrace's planned acquisition of Arize. 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 the expected benefits of the proposed transaction, expected financial impacts, and deal timing. 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 Dynatrace's views on August 13, 2026. We assume no obligation to update these statements as a result of new information, future events, or circumstances. We also mention a non-GAAP financial measure in today's comments and refer you to our August 5, 2026 earnings release for additional information and related definition. Please note we have included a supplemental presentation related to this morning's announcement on the investor relations website. With that, let me turn the call over to our Chief Executive Officer, Rick McConnell. Thanks, Noelle, and thank you all for joining us on such short notice this morning. We are very excited to discuss with you our proposed acquisition of Arize, the category leader in AI observability. From a strategic standpoint, we believe this acquisition will increase our exposure to the high-growth AI observability market, extend our end-to-end observability leadership position, advance our AI observability roadmap, expand our reach with developers, accelerate our ARR growth, and add a world-class AI native team to Dynatrace. I'd like to cover a few of these areas in more depth to highlight our strategic rationale for this transaction, then turn it over to Jim to speak to some of the financial elements. We'll then open it up for your questions. First, the acquisition of Arize expands our market opportunity and strengthens our leadership position in AI observability and evaluations, a large and rapidly emerging category that we expect to exceed $10 billion by 2030. AI observability spans the full life cycle of an AI-powered application from continuous evaluation before and after release, to real-time visibility into how LLMs, agents, and orchestration layers behave in production, to the impact they have on applications, infrastructure, and business outcomes. During our earnings call last week, I indicated three core questions that AI observability must address, beginning with, is it working? Just as with traditional workloads. The second question is new. Is it accurate? Is the AI model delivering output that can be trusted and relied upon with confidence? And the third, are my agentic systems delivering the outcomes for which they were built? Enterprises are deploying agents to build software at a pace that wasn't possible before, and code must be built well, shipped safely, and run reliably. Gartner describes the difference in AI observability well in their innovation insight on AI observability from May of this year. They say AI systems fail differently from traditional software. A misconfigured application typically produces an error that is visible, traceable, and reproducible. An AI system can fail silently. It can generate confident, plausible-sounding outputs that are biased or factually wrong, with no corresponding alert in an infrastructure dashboard or application log. Back to our perspective, as AI evolves from simple prompts to autonomous multi-step systems and increasingly operates without a human in the loop, visibility becomes increasingly critical. AI observability provides AI engineers, SREs, and platform teams with the insights they need to debug, optimize performance, control costs, and improve accuracy, helping to ensure AI-powered services remain reliable, efficient, and trustworthy. A second area I'd like to cover is that acquiring Arize will accelerate our own AI observability portfolio and roadmap. Through this acquisition, Dynatrace will have an even stronger end-to-end observability solution from pre-production to production. Arize adds leading capabilities in AI and agent evaluation, experimentation, and agentic workflow optimization across development and production. These complement Dynatrace's existing strengths in application and AI infrastructure of observability, model performance, and business impact. Together, these capabilities position Dynatrace to provide observability across the full AI stack, connecting model and agent quality with application performance, infrastructure health, AI usage and cost, and business outcomes. This is not a point solution. It is a portfolio expansion that positions Dynatrace to better capture a greater share of AI spending in this rapidly emerging category. Third, Arize unlocks the developer audience for us. Through its widely adopted open source community, Arize has already earned the trust of AI developers who increasingly influence enterprise technology decisions. This acquisition will give Dynatrace direct access to this important audience while strengthening our position with AI-native companies. Arize's strong engagement with developers, coupled with Dynatrace's deep enterprise relationships and global reach, will create new opportunities to land, expand, and deliver greater value as customers operationalize AI. Through millions of monthly downloads of Arize's open source Phoenix platform, we believe there is a significant opportunity to accelerate ARR growth over time by further extending Dynatrace's reach into developer-led buying motions and AI-native workloads. We have high confidence in our ability to sell our products together because numerous customers already use Dynatrace and Arize in unison, spanning industries from automotive to communications to e-commerce to financial services and more. We expect access to Dynatrace's customer base to further accelerate Arize's trajectory. Finally, to round out my remarks, as I mentioned, we are acquiring an exceptional team with deep AI expertise, strong roots in the Bay Area's AI ecosystem, and what we believe is a terrific cultural match for Dynatrace. We are excited to welcome Arize's co-founders, Jason and Aparna, along with the broader Arize team, to Dynatrace. We are focused on a thoughtful post-closing integration plan, and we intend to give the Arize team the runway to build on what they have created while leveraging Dynatrace's scale, engineering expertise, and global reach to accelerate product innovation and customer impact. In summary, we are convinced that Arize is an excellent fit for Dynatrace. Adding Arize to the Dynatrace platform further reinforces our end-to-end leadership in the overall observability market and will create substantial customer and shareholder value. With that, I will turn it over to Jim to cover the financial aspects of this transaction. Thanks, Rick. We are very excited about this acquisition. Under the terms of the agreement, we will acquire Arize for a total consideration of $915 million, subject to customary adjustments consisting of approximately $815 million in cash, as well as replacement equity awards for Arize employees joining Dynatrace. We have sufficient cash on hand, along with our existing credit facility, to fund the purchase price. In addition, our plan for ongoing share repurchases remains unchanged. We expect Arize to be immediately accretive to ARR growth and unlock significant cross-sell and up-sell across our combined customer bases. While Arize is a small company, it is rapidly growing, and we expect it to add approximately 200 basis points to the Dynatrace ARR growth rate in fiscal 2027. From a profitability perspective, we expect Arize to be approximately 175 basis points dilutive to Dynatrace non-GAAP operating margin in fiscal 2027. With the anticipated synergies, we expect to generate incremental operating margin expansion from fiscal 2027 levels into fiscal 2028 and beyond. The acquisition remains subject to customary closing conditions, including regulatory approvals, and is expected to close by the end of September or in early October. Given this timing, we do not expect any material impact to the Q2 guidance we provided last week. We will provide a more detailed update to our fiscal 2027 guidance on our Q2 earnings call in early November. In summary, acquiring Arize represents a significant opportunity to accelerate Dynatrace's leadership in AI observability, strengthen our long-term growth profile, and create substantial value for both customers and shareholders. With that, I would like to open it up for questions. Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We do ask that you please limit yourself to one question. Again, that's star one to register a question at this time. Today's first question is coming from Matt Hedberg of RBC Capital Markets. Please go ahead. Great. Thanks for taking my question, guys. Congrats on the deal. Really, really exciting, I think, prospect for Dynatrace. Something you said was super interesting to me, getting closer to AI-native customers. Obviously, that's an area that Dynatrace has been working on given your existing global 5,000 base. I'm curious, could you guys expand on how you see success there? I guess, does it mean adding new sales reps to maybe better target some of these AI-native customers? Thanks, guys. Yeah. So let me take that, Matt, and Jim can add in. The first thing we want to do is we want to just continue to leverage the capabilities that Arize has already built. They have really strong growth. We want to continue to leverage that. Their sales force is focused on enterprise customers as well as AI natives, and they're expanding to include the benefit of this developer-led motion. We see the developer as being a quintessential part of this acquisition that we can then access, not just for AI observability, but observability more broadly. We see developers being a core persona, if you will, in the observability decision, and so this brings that together as well. Then finally back to the ICP or the ideal customer profile, we absolutely do believe these capabilities enable us better access into the AI-native cohort, and Arize is focused in this area as well. So I believe for a number of reasons, it really brings together this notion of selling into AI natives as an accelerant of our opportunity ahead. Thank you. The next question is coming from Will Power of Robert W. Baird. Please go ahead. Okay, great. I will echo my congratulations as well here. Look, I guess, Rick, as you were evaluating opportunities to expand and bolster your AI growth opportunity, did you evaluate other acquisitions? If so, what really made Arize stand out among the options to go after this market more aggressively? Then maybe number two for Jim, any other color you can share on ARR growth, what it has looked like over the last year, and is this ARR growth something we should expect to double, triple over the next year? I recognize it is still pretty early, but any other color there would be great. Thanks. I will take the first one, Will, and Jim can take the second. On the first, relative to AI growth, it is fair to say that we have been watching the evolution of the AI observability market for some time. We have been investing in this area for the last 18 months in terms of internal investment, and this is an incredible catalyst to accelerating our roadmap, to bringing in complementary capabilities that we have not had on our roadmap. As we look at what we view as a seven-layer stack for AI-powered applications, the synergy with Arize was simply better than anybody else in the market by far. Their offering is very sophisticated. We do see them as the category leader in AI observability from a pure play standpoint, and that gives us capabilities, for example, in LLM experimentation, LLM observability, so targeting both AI workloads as well as agentic workflows. It brings us the AI Software Development Lifecycle components that we need to supplement the capabilities that we have at Dynatrace and model operations, cloud and infrastructure operations, and elsewhere. So we, as Jim has often put it, we are aggressive shoppers, but very disciplined buyers. So Will, you can absolutely rest assured that we have spent a lot of time analyzing this market and believe fervently that Arize is the most synergistic opportunity that we could have gone after and the biggest catalyst to the business for Dynatrace to come in the AI observability area. And maybe one last point is that we absolutely see observability entering a new era. It is a new era in which it isn't just about business resilience. It is about AI reliability as well. It is about ensuring that models and agents are working as expected. These areas together are going to represent an explosion in observability opportunities as we look ahead. For us, we wanted to play offense, and this is an opportunity to accelerate our ability to do so. Jim, on the second? Very well outlined, Rick. A little color, Will, on their business that we're going to share more details about Arize's ARR and revenue growth profile after the close. They're a small company growing very rapidly. As I said in my prepared remarks, we expect it to contribute 200 basis points to our ARR growth, so call it $40 million for fiscal 2027. But just to give you a little bit more color beyond just the ARR revenue stream, that isn't really the only reason why we were buying them. We're acquiring a category leader. There is huge- I'm sorry, it seems like we lost Jim. Would you like me to move on to the next question? Yes. The next question is coming from Sanjit Singh of Morgan Stanley. Please go ahead. Yeah, thank you for taking the question. Dynatrace has historically had a pretty robust organic innovation engine with its R&D. I'd love to get a little more color, Rick, on the track that you guys were on in terms of autonomous operations, AI SREs, and more specifically, how this acquisition, Arize, which is a category leader, how that's significantly accelerated the roadmap. Just a little bit of color behind the buy versus build decision. Thanks, Sanjit. The way that we see the observability space is on the one hand, we have the evolution of this $82 billion market for what we would think of as core observability or traditional observability, which is now getting supplemented by the end of the decade, this $10 billion AI observability space. Let me break those down into two, and maybe it'll help answer your question. In the traditional observability sense, the directional heading of that market is toward autonomous operations. That involves agents leveraging deterministic AI and answers to be able to then to take action on those answers and insights to deliver a more automated outcome. That is the Holy Grail, if you will. That's where we are headed, and we are spending, as you know, a lot of time on areas such as Dynatrace Intelligence to deliver both the deterministic AI elements of analytics and insights, along with the agentic AI capabilities and actions needed to deliver not only the intelligence engine, but also the AI control plane to provide for this automated operations outcome. We've been spending, within Dynatrace, a huge amount of time there. But we've also been investing in this second area of AI observability in a number of different associated areas that I referenced earlier, cloud and infrastructure operations, for example, model operations, for example, business impact and application experience. But there are a number of areas where the Arize acquisition does fill in areas that we haven't been investing in at the same level of detail. For example, AI Software Development Lifec ycle, especially with regard to LLM experimentation and evals, LLM observability to make sure that we are dealing with things such as model drift and hallucinations. These are areas in which Arize simply leads in the market from our perspective as a category leader. We have been investing, as you suggest. We have been developing a really incredible innovation engine and an opportunity for acceleration in this area on our own. But it is such a critical moment in the era of evolution of observability that we wanted to take this opportunity to essentially become an AI observability category leader ourselves. By putting together the innovation of Dynatrace with the innovation and product portfolio that exists with strong deployment at customers today by Arize, this is just an incredible opportunity to achieve both objectives. Thank you. The next question is coming from Ittai Kidron of Oppenheimer. Please go ahead. Thanks and congrats, guys. Looks super interesting. Rick, I wanted to ask more from just a pure technology standpoint. Can you talk about the integration of the technology with your platform? How does this tie into Grail? Help me understand how that process would work, the timeline to completion, and what are the hurdles or challenges in doing this? Sure. The first element is that Arize is on a very strong growth trajectory all by itself, and we do not want to get in the way of that. So what we are not going to do in this transaction is go spend a year integrating immediately out the chute all of the capabilities and lose that momentum. We have a solution with Arize, or I should say Arize has a solution with Phoenix, with millions of deployments per month of LLM evals that is focused on open source. This is an incredible catalyst for the developer community and an opportunity for leverage growth into a PLG motion, a product-led growth motion to come. We want to leverage that. We have 200 or so, or I should say again, Arize has a couple of hundred customers there in the enterprise category. We have obviously substantially more customers, but in the same category at Dynatrace that we believe offer tremendous cross-sell, up-sell potential of the Arize capabilities. So the first elements of business are to catalyze the Arize business by integrating really on the go-to-market side with Dynatrace and enabling Arize to continue on their own roadmap journey. You do correctly raise the issue of, well, obviously, to get one plus one equals three over the course of time, you want to be able to integrate and leverage these technologies, and we will do so through a very thoughtful deployment and integration roadmap that we have put together as we look to the future, and that is going to evolve over the course of time at the appropriate time. You mentioned Grail, for example. That's a logical evolution of perhaps the Autonomous Database that they use on the AX portfolio at Arize, and so that's something that we will look at. But again, that is not a day one focus. Day one focus is acceleration of the go-to-market opportunity and enabling them to continue to operate with the innovation engine and incredible velocity and speed at which they're developing today. Thank you. The next question is coming from Samik Chatterjee of JP Morgan. Please go. Hi. Thanks for taking my question and congrats on the transaction here as well as my side. Maybe just a quick one. You did mention that there is a bit of customer overlap in the sense that you have customers that are using both Dynatrace and Arize. Can you just sort of talk to how much of a customer overlap do you see with Arize already and flesh out the revenue synergy part of this a bit more when you sort of think about taking Arize to your customers? What would be the sort of initial customer cohort that you think the product fits well with, and where would we initially see which customer cohort would initially drive that revenue synergy? Thank you. JIM, do we have you back yet? Can you hear me? I can, yes. Okay. You want to take that one and- I will. Maybe come back and finish up on Will's question from earlier, before you got dropped. Yes. Arize is relatively small, so they have 200 customers. I think the overlap between their customers and ours, I think, is about 20%-30%. But if you think about it, Rick outlined it earlier, there is significant cross-sell and up-sell opportunities within our install base specifically to sell Arize. This gives them immediate access to an enterprise customer base that they've already started to get penetration in. They're already in many Fortune 500 accounts. And so it's very complementary relative to Dynatrace from a customer base perspective. Rick also noted that they also have traction in the AI native builder community. So this gives us access to a community that we've been striving to get to. We actually get a two-fer, an ability to go after the AI native community, an ability to continue to penetrate Arize into the broader customer base, and the go-to-market motion is very synergistic with Dynatrace. We're quite optimistic that this is definitely a one plus one equals three. To finish up on Will's question around the ARR for the business, as I was saying, we are acquiring a category leader that the value is it brings us a continued AI observability leadership. It accelerates our roadmap. I mentioned the developer reach it gives us, I mentioned the customer expansion opportunity it gives us. Arize positions us in a clear leadership position in a really attractive area of observability. We're quite optimistic about what this can bring. We mentioned 200 basis points of ARR growth. I might as well cover upfront, it is near term dilutive, but I want to be clear, we believe with synergies that this is near term dilutive and that we will be able to drive operating margin accretion in fiscal 2028 and beyond. This is just a win-win across the board and we couldn't be more excited. Thank you. The next question is coming from Eric Heath of KeyBanc Capital Markets. Please go ahead. Hey, thanks for taking the question. I wanted to come back to one other element of Ittai's question, just get a better understanding of how similar or dissimilar is the data you're capturing for evals is to what you're capturing for production systems, whether it's logs, metrics, traces. One other one, just if I could, on the AI native customers, is there any frontier labs in this customer base? Any outsized customers to be aware of? Thanks. I'll take the first one on data. The primary data type that is used in evals is traces, actually. This is highly synergistic to, of course, the traces, metrics, logs and capabilities that we store in Grail. So it all starts from the same foundation of core metrics, Eric, that we would be capturing otherwise. One of the differences is that obviously evals tends to happen in pre-production environment versus observability in what we do with Grail is primarily production oriented. Then, of course, brings back one of the core motivations for the transaction is to really enable Dynatrace to radically extend left into the developer community. Because we do believe that observability starts with the first line of code. That first line of code, by the way, as we've said in our earnings calls and elsewhere, is no longer coming from humans. That first line of code increasingly is going to be coming from agents. So the ability to capture evals on a pre-production basis using traces and other core data types of observability, then extending that all the way into a production environment to handle operations and then to triage issues, and then to create a full loop, a full developer loop all the way back to the eval cycle becomes the domain of observability to come. It isn't just about throw a system into production and observe it and come up with and look at dashboards and try to create automated triage. It is so much more sophisticated than that in delivering not just resilient systems from the first line of code that is written by agents all the way through the ability to ensuring that AI is delivered reliably with answers that can be trusted to be provided to end users. This is really the cycle to come of what we are looking at delivering here on an integrated basis. There is huge synergy in the underlying data types. Yeah. Rick, I will offer on the customer side. They do not have any of the frontier model companies as customers. What I will say is at their most recent customer conference, they had the frontier model companies actually speaking at their conference. They are very well integrated into the AI community in a significant way. Then your second question around customer concentration. They do not have any customer concentration. Again, they sell to the enterprise and they also sell to these AI native companies. As I mentioned earlier, it is very synergistic to what we do, and it goes after an audience and a profile of companies that we have been aspiring to get to. Thank you. The next question is coming from Mike Cikos of Needham & Company. Please go ahead. Hey, guys. Thanks for taking the question here and congrats on the announcement. I was just hoping to get a little bit more color on the negotiations that played out here, particularly because both Datadog and PagerDuty were obviously investors in the Series C round. Can you talk about what the competitive bidding dynamic was like or how competitive this deal was overall? Thank you so much. You want me to take that one? Yeah. Go ahead, Jim. Sure. As you can imagine, Mike, in any situation like this is a very attractive asset in a really exciting space, and they are a category leader. I will tell you that there was huge interest on their part of the combination of Dynatrace plus Arize. One of the benefits we had was they saw the potential of what they were doing and their vision of where they were, and combined with Dynatrace, what they were going to be able to extend to. Rick outlined in his earlier comments around kind of pre-prod to prod. As they've been going within their eval models, they've been requested by customers, well, can you do this and can you do that? It was very synergistic with Dynatrace. In that regard, I think we were in a very good position that there was strong interest on their part to partner with Dynatrace. Yeah, it's a good question, Mike. I would just supplement Jim's comments to say this is a highly sought-after asset and company as being a category leader in AI observability, which is obviously a very hot space. Having said that, I don't want to speak for Jason and Aparna, the co-founders of Arize, but I would say that from the very beginning, we felt that this was just hugely synergistic on both sides. What's interesting is that I remember back to some of the earlier conversations with them, their comments that, geez, we're focused mostly on pre-prod and we're getting pulled into production, but that would entail really riding and evolving a substantial set of capabilities where Dynatrace already existed and vice versa. We're each trying to fill in the missing pieces on the respective sides of pre-prod and prod. Bringing these together was just always viewed by both of us as hugely synergistic with a team that is just an awesome AI native development team that is building at incredible velocity. When we put all that together, we just thought that this was, I would say, mutually just an exceptional combination. I'm super excited to proceed forward to get it closed and get moving in the market. Thank you. The next question is coming from Matthew Martino of Goldman Sachs. Please go ahead. Hey, good morning. Thanks for the question. Rick, with Bindplane and now Arize, you've picked up two of the more credible open-source franchises and telemetry. How does that fit with the broader platform strategy, and what does owning the standard get you commercially going forward? Thanks. Matt, that is a great question and a core thesis behind both transactions, actually. The ability to leverage Bindplane, which as you know from our earnings call last week, is already running ahead of plan. We were projecting in the order of about $10 million of ARR coming at the end of last quarter. It was running ahead of plan, delivered around $13 million. The OpenTelemetry or OTel capabilities that it brought has just catalyzed our logs business in addition to generating ARR in and of itself. That has been an extraordinary win, and I think really has opened up this notion of being agnostic as to the telemetry methods of ingest into the Dynatrace platform, which is a core objective of many of our customers. So that was a good start. We take a look at now Arize, they have got OpenInference as the standard, obviously Phoenix with open sourced capabilities in the eval space that enable you to get started immediately with evals using Phoenix with millions of downloads per month. Aparna, one of the co-founders of Arize, put out a blog. It had a million reads. This gives you some concept of the representation of reach that Arize has in the market and in the AI developer space. So this just reinforces the depth of brand leadership that we believe that Arize has. It reinforces their positioning in the market around AI leadership and an AI-first approach. It reinforces their ability to target the AI developer and all of the open source elements that we bring together with the combination of Bindplane and Arize really are foundational to generating the developer mindshare and the PLG and developer motion opportunity to come. Thank you. The next question is coming from Keith Bachman of BMO Capital Markets. Please go ahead. Hi. Great. Thank you very much. I want to also revisit on integration and break that into a couple different pieces. If, A, you could start off on the people side, how will the different R&D teams interact? I know, Rick, you said you didn't want to put any collars on these guys and enable them to continue to grow. But I'm just curious on both the R&D and go-to-market, how do the people interact? You mentioned this was a Silicon Valley-based company. Most of your R&D is, for instance, overseas. I'm just wondering how that integration might look. The second part of the question is, you answered the data side. I'm also curious, what do you think this acquisition does to perhaps foster greater growth within Dynatrace's portfolio? And where I'm really going with this is you talk about Software Development Lifec ycle or software dev hasn't really been a place where Dynatrace has had success. Does this provide any lift to your existing portfolio, including even on the security side, where I think investors are sort of questioning what the potential there is when you're capturing the software dev side? Then just finally, Jim, to finish off with you, I think a question was asked before you got cut off, and that is, based on that $40 million, is there any characterization you could give as we think about what the growth rate of that over the next couple of years? That's it for me. Thank you. Okay, a lot in there, Keith. We'll try to parse them as quickly as we can. On the org side, the way that this is going to work is that Jason and Aparna and their leadership team are absolutely To be clear, going to be part of Dynatrace. That is a lot of what we're investing in. I think I'd like to pass on their remarks to me to say that they're super excited to become part of Dynatrace. We're incredibly excited to have them. This is really key to bring that team in. This is in the midst of making sure that we can set them free and help them where we can, but make sure that they've got the runway to run with it. Jason will come into my leadership team, maintain Arize as essentially a business unit within the overall Dynatrace umbrella and report directly to me with his existing team as it is today. We will do some dotted line of the sales force into Dan Zugelder, our CRO. The reason we'll do that is to make sure that we can leverage the Dynatrace customer base to sell Arize products too. We do want to take advantage of that on day one. Then as I mentioned, Keith, earlier, over time, we will further and more deeply integrate the product portfolio, but we'll do so thoughtfully and methodically to make sure that we're really getting leverage out of that as we integrate the thinking associated with the Arize portfolio. So that's that. On the growth side, we absolutely see the capabilities of Arize accelerating the Dynatrace selling as well. The way that we see that happening is that the developer is becoming more critical day by day in the overall observability decision because of this shift left phenomenon or extend left phenomenon in the observability decision-making. It isn't just about top-down selling to the CXO and to IT ops anymore. It is about top-down selling combined with bottom-up selling from the developer. Gaining access to the developer does enable us, we believe, to sell more core observability or traditional Dynatrace observability into the market as well by having a better end-to-end or a more fulsome end-to-end portfolio. That's how we see that playing out, is that there is cross-sell that's bi-directional and that there is leverage in selling more of Dynatrace as a result of having Arize, not just selling Arize to Dynatrace customers. We believe that's hugely synergistic as we talked about earlier. Jim, maybe you could take the growth rate question if you wish. I dropped a bit. If the growth rate question could be repeated, I'd appreciate it. The growth rate question was how do we think about the growth rate of Arize as it integrates into Dynatrace? Well, I think that, as you think about it is certainly going to be significantly accretive to our growth rate. Our ARR growth rate that we guided was 15.5%-16.5%. I mentioned that they are going to contribute two points. We will say more about their contribution as we go through the close and we have the Q2 call. But we expect it to be significantly accretive this year and significantly accretive going forward. Thanks, Keith. Thank you. The next question is coming from Andrew Sherman of TD Cowen. Please go ahead. Oh, great. Thanks. Good morning. Congrats on the deal. The Arize Phoenix open-source version is interesting. You mentioned they are the only platform that has that. There are 4,000 enterprise AI teams using it, millions of monthly downloads. Talk about the opportunity to convert that to enterprise paid version over time, and how might you push that over the next couple of years? Thanks, Andrew. That is one of the core elements of evolution we believe that exists as possible within the Arize base. They do have, as you pointed out, millions of downloads, a huge amount of exposure in the AI community. We want to be able to leverage that, yet we want to be driving this developer bottom-up motion. What they have today is they essentially have a PLG usage motion with very strong usage. They have many domains using Phoenix. What we want to do is we want to create, over the course of time, for those users that would derive advantage from it, an ability to very simply move into the AX portfolio of Arize, which is a paid portfolio. We want to not get in the way of the intention of open source access. We do want to make sure that there is very logical reason for developers who want to expand into production to essentially take leverage of the AX portfolio as they move up the stack. Clearly, as you move into enterprise deployments, those are going to be paid deployments that evolve in many ways from Phoenix. Maybe just one last point on it is that the sales cycle of Arize is radically accelerated when they start with a Phoenix user. What we have seen as we've gone through early discussions with them is that Phoenix users tend to convert to the paid portfolio on the enterprise side much more rapidly. This will be an area of focus to drive that PLG motion in an even more disciplined and sophisticated way, all driving toward enterprise deployments on a broader basis. To the extent we can leverage Phoenix to achieve that, then that's a terrific catalyst. Thank you. The next question is coming from Fatima Boolani of Citi. Please go ahead. Hey, this is Joel on for Fatima. Thanks for taking our question. This is solidifying your shift left in R&D and go-to-market ambitions. Just how do you expect to commercialize this at scale? What does Arize look like with 1,000+ customers? Also, will it be DPS eligible out of the gates? Just those two. Thank you. Yeah. Maybe Jim, you could take the DPS piece. On the shift left piece, this is being commercialized by Arize today, and this is how they're selling essentially evals to enterprises today. You begin with Phoenix. Ideally, you begin with Phoenix with a single user that expands to a team of users. That team of users ultimately becomes a group which results in an enterprise desire to deploy evals in order to develop and deliver, ultimately, trustworthy AI systems. That's really what Arize is all about. It is delivering trustworthy AI systems that deliver AI reliability as well as overall model management against model and agentic workloads. So they're in this flow today. What we believe that we can bring them, given the synergy of our customer base with the target customer base of Arize, is an installed base of customers that we've already seen in many of the industries that we talked about in our prepared remarks, as well as many more. What we increasingly were finding was that we would go into our buyer and they would say, well, we just deployed Arize. Then we would go to another industry and we would hear them say, well, we just deployed Arize. Then yet another one where they had just deployed Arize. Increasingly, it was cropping up that they were using Dynatrace for observability and Arize for AI observability and evals. The result of that was we wanted to put those together as we see just extraordinary synergy, and we're in fact getting asked by customers what we could do to bridge those solutions. So that's how we ended up here in terms of this leveraging what already at Arize is a shift left or as we would think, extend left motion, and we believe that at Dynatrace we can leverage that same motion with the Dynatrace portfolio as well. Jim, you want to talk about DPS? Yeah, and the quick thought on, yes, that is our intent. It won't be day 1, but our intent is to add Arize as a capability within DPS. We will do that. That is certainly on the roadmap. As Rick mentioned, and just to make sure I clarify it again, we intend to have them operate relatively standalone. We don't want to slow anything down. They are rapidly moving. They are rapidly growing, and we want to continue with that motion. We want to help them relative to access within our installed base. Obviously, over time we can get them to DPS, but we can immediately get them access to our enterprise base, where there's significant interest. Then obviously on the offset, there's us getting into their customer base that we're not in today. Thank you. The next question is coming from Howard Ma of Guggenheim Securities. Please go ahead. Hey, good morning and congrats on the acquisition. My question is, are there any technical barriers in connecting Arize's back end and dashboards for evals and agent quality with Dynatrace's existing APM and infrastructure health dashboards? As you just mentioned, Rick, it sounds like it's not on the near-term roadmap by choice. Do you think that is what's needed to combining the traditional observability and AI observability to truly unlock value for your customers? I would say, Howard, over the course of time, yes, we obviously want to unlock even more synergistic deployment. I will tell you that there are many overlapping customers, as we referenced already, that are using Arize today and Dynatrace, and they're using Arize for the pre-prod, and they're using Dynatrace for the production area. The result of it is, we will, over the course of time, as I've said a few times, fairly methodically integrate those solutions so that on the one hand, we don't cut off the Arize roadmap because it's incredibly compelling, and we want to make sure that we're leveraging that roadmap and the sheer velocity of innovation that this company is delivering, which is just incredible. Of course, we also want to then provide that one plus one equals three connectivity on the back end where it's appropriate. We'll be looking at that. We'll evaluate the timing of that integration, and then we'll say more about that over the course of time as to how that actually does integrate to be able to leverage the capabilities together to achieve the end that you described. Thank you. The next question is coming from Joshua Tilton of Wolfe Research. Please go ahead. Hey, guys. Thanks for sneaking me in and congrats on the deal. Two follow-up questions from me. First is there anything we have to think about in terms of rev rec before this becomes part of DPS? Today, DPS is a usage consumption model that's sort of recognized ratably. Will this be more of like a pure consumption revenue, consumption rev rec component to your business model until this becomes a part of DPS? Then my follow-up question is, I think you mentioned, I don't think you called them out, but I think Anthropic spoke at their conference, but they're not a customer. Is that because they're using the open-source version today? What I'm trying to understand is historically, the view has been it takes a lot of dollars, a lot of resources to run open source internally. The push there is once it scales to a big enough deployment, it makes sense to go for the enterprise license. But if the pitch here is we're going to go after sophisticated AI natives, is it going to be harder to get them to move from open source to enterprise because maybe they do have the sophistication, the tools, and the team to run these open-source models themselves? Thanks. I will take the first one, and then I think Rick can take the second one. The rev rec model is exactly the same as Dynatrace. It is actually something that as the CFO, I like. They sell annual contracts. Rev rec is ratable. It is ARR when they book it. They bill in advance, and so the revenue model is exactly the same as Dynatrace. No change whatsoever. Migrating them over to DPS will be quite easy. Rick, you can comment maybe on the frontier model companies versus other AI natives. What I would say to start is that you have to remember this is a young company, and they are early days in penetrating a lot of these opportunities, that they are agnostic to the frontier models. All the frontier models are available within their platform. The fact that they are large within the broader AI community just tells you that there is an opportunity. The fact that they have not penetrated there is not really a function of anything other than, I think they have gone early on into the enterprise customer base because enterprise customers are experimenting and doing a lot more eval-oriented activity with AI, and so there was money to be had there. Obviously, as they expand over time, we expect that to broaden into personas that we actually have not gone after. Rick, I do not know whether you have anything else to comment. Yeah. We have talked a little bit about this open-source to enterprise conversion, and I think that that is the motion that we really want to impel and lean into because it is just a huge opportunity to take advantage of millions of deployments of Phoenix, for example, to develop penetration into the market and awareness, and then obviously that needs to convert into a monetization model which exists at the enterprise. This is precisely the motion that we will be leaning into and that there are a couple of sales plays to be able to drive that. One is directly to the enterprise from Phoenix user. Another one is through AX PRO, which is essentially credit card capability within the Arize AX portfolio to get there, which would be a smaller group of users, and then move that from there to the enterprise. A couple of methods that they are running as sales plays today that we think that we can help enhance from the Dynatrace side. Thank you. The next question is coming from Koji Ikeda of Bank of America. Please go ahead. Yeah. Hey, thanks, guys. Thanks for taking my questions. I wanted to ask, go back to the offensive versus defensive aspects of the acquisition. What would Dynatrace have to do if you decided not to acquire Arize or a competitor acquired it? Question number one. Question number two, just wanted to make sure on the buyback. When I read the press release, it sounds more about no near-term impact to the share buyback. Just wanted to be sure there wasn't anything that we could be thinking about from a long-term standpoint on the buyback, especially with the investor day coming up. Thank you. Hi, Koji. I'll take the first one on what we would have done otherwise. Frankly, what we would have done otherwise, the answer is that we were on a very solid plan of record. We had identified, or I should say, have identified a seven-layer stack associated with AI observability. We are strong in three or four of those areas already. We were beginning work or somewhere down the roadmap in working in some of the other ones. For example, in evals on our own, we had made fairly significant progress with regard to evals with things like model drift and bias and hallucinations, had made good progress in those areas. We've been working on this now for, as I say, on the order of 18 months or so as part of our third-generation platform that we've been talking about now for the last period of time. We have not been standing still. We have been innovating at incredible pace inside Dynatrace and bringing these capabilities. We've talked about Blue Box as a mechanism for assisting agents in actually writing code, operationalizing that code, moving it to production, and evaluating it in production. This is all within essentially the AI observability umbrella of ensuring that AI systems are working and that they're working well. That was plan B, if you will, or maybe I should say that was plan A, which was our own internal development, with essentially even reallocated dollars within our own R&D investment envelope to make sure that we were investing appropriately in AI observability. Having said that, Jim and I, along with our respective teams in the product side, go-to-market side and elsewhere, obviously want to win in observability overall and AI observability in particular as an emerging category, and that's why we've been looking quite broadly at various different opportunities and companies in the space and ultimately ended up with the company that we believe is the category leader and will achieve the strongest results on a combined basis with Dynatrace for all the reasons I've articulated so far. Yeah. Then just quickly on the buyback, Koji, the reason we included it in the prepared remarks is we don't expect to have any change in what we're doing in the buyback. Buyback will always be a component of our capital allocation priorities, both near-term and over the long term. So don't expect any change to our buyback philosophy. Thank you. The next question is coming from Miller Jump of Truist Securities. Please go ahead. Hey, great. Congrats, and thanks for squeezing me in. Just want to ask a quick follow-up on the enterprise. Clearly, there is a range of AI adoption right now. Is this something that your enterprise customers are asking you for that you think they're ready to adopt in FY 2027, or is the increase to the guide only a function of what you've added through this acquisition and that cross-sell opportunity is more about the out years? Thanks. Let me take that. The increase in the guide is a function of what their core business is doing, plus what we think it can do with Dynatrace over the next six months. That specifically is what it is. To Rick's earlier points, we have seen and heard of Arize in a lot of our installed base enterprise customers. We already know they've been there. We have actually had customers even talk to us about Arize. There is a significant opportunity for us to continue to penetrate Arize more deeply into our enterprise base. Again, they get immediate access into our enterprise base. Then for us, even though their base is smaller, it is our ability to now sell Dynatrace within their customer base. It is very, very synergistic. That is the way you should think about it. I would just add to that, Miller, that when I do customer EBCs, customer meetings, CXO meetings around the globe, AI is in the discussion probably in the first five minutes of every meeting. They are trying to figure out how to move AI in production. They are trying to do it in a trustworthy way. They are trying to do it with credibility. They are trying to deliver, of course, productivity, efficiency, cost-effectiveness. They are trying to avoid massive token cost overruns. This is where they are looking for advice and counsel on how to do that, and we can assist them by making sure that there is a thoughtful approach to AI production deployment, AI- DLC development and delivery, and enable them to be successful with these AI initiatives. I think this is where, going back to some of my earlier remarks, observability is escalating in terms of its strategic and mission-critical importance in the overall software ecosystem in a way that absolutely did not exist three, four, five years ago, and it is accelerating with each day that passes. Thank you. The next question is coming from Adam Tindle of Raymond James. Please go ahead. Okay. Thanks. Good morning, and congrats. I just have one question, and it's really around the go-to-market. If I'm understanding this correctly, Dynatrace is a traditional enterprise-led, traditional enterprise sales motion to IT, whereas Arize is now bringing a PLG motion to developers. As I say that out loud, it just reminds me a lot of Okta and Auth0, and not to get overly specific on a separate deal, but it was one that I think investors remember a lot of sort of this thesis of trying to bring those two different motions from go-to-market and different customer bases together, and that was not necessarily a success story. It led to dropping sales productivity on both sides, and they ultimately split them apart. I just wonder, I guess maybe the question might be how you thought about that potential risk in bringing those two together, and maybe any kind of commentary from Dan on his plans for integration. Thank you. Thanks, Adam. Very good question, and what I would say is this is one of the reasons that we're going to leave the PLG motion largely on the Arize side, at least for the near-term future. What we want to do is we really want to ensure that the Arize PLG motion, which is largely usage adoption penetration-based today, really does begin converting into an enterprise sale. I did mention earlier some of the stats that they see with respect to increased sales cycles that they've seen very tangibly with regard to Phoenix users. That does exist today. They deployed Phoenix, and that becomes a catalyst for them to be able to more successfully sell into the enterprise, and we want to, of course, leverage that. We'll learn from the past, and it's not just the Okta, Auth0 example, there are many others as well, of how you bring a PLG motion into other sales motions, and this is why we're going to take that one step at a time to make sure that we bring that to a broader Dynatrace, and we do so very thoughtfully. That's how I would depict that. But we do believe that the developer leverage here for the overall Dynatrace model of being developer present with regard to end-to-end observability, inclusive of pre-prod to prod, is a core thesis of the acquisition. Thank you. Our next question is coming from Yun Kim of Loop Capital. Please go ahead. All right. Great. Thank you. I will make this real quick. Rick, does open source business change your monetization strategy a little bit? This question has been asked here and there, but the cross-sell into your install base may possibly lag a bit given the open source nature and also the need to provide implementation support. Just real quickly, Jim, what is the average deal size today for Arize for those joint customers you have today, and how big you expect that to be for a typical Dynatrace customer? Thanks. Yeah, we see the open source model and element very differently, Yun. We do not see it as an inhibitor to achievement of actual monetization. We see it as a catalyst. We see that as a catalyst that will grow over the course of time through the development of a PLG motion that moves from usage all the way through monetization. We see it in the accelerated sales cycle from a Phoenix user, for example, to becoming a paid user relative to somebody who just begins a POC and goes straight to the enterprise model. So we see open source as not only a huge mechanism for building an AI-first brand with Arize for maintaining market presence in the AI developer community, but also then facilitating this movement of the motion from open source into paid. I do not remember the second question. It was the average ARR size. The average ARR size is comparable to what used to be an initial Dynatrace-type deployment in the $100,000+ enterprise type category. I am going to wrap up. We have spent an hour together. Thank you very much for participating today and joining us on this really, really important seminal day for Dynatrace and for Arize. We see this as a game-changing moment for Dynatrace. The acquisition of Arize is an opportunity, as we see it, for us to accelerate market leadership in AI observability. We add what we believe is the leading AI observability portfolio with Arize. It serves as an additional catalyst for growth. It provides Dynatrace with access to what we see as a large and highly strategic AI developer community and what I have seen firsthand to be a world-class team. Finally, it provides this incredible opportunity, in our view, for us to build customer and shareholder value. Please reach out to Noelle if you have any additional questions. We look forward to connecting with you all at upcoming IR events in the coming weeks. Thank you very much again for joining. Have a great day. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time. Enjoy the rest of your day.