So this is a net positive we believe, for Dynatrace. The only thing that has changed is that we are building an incremental level of prudence knowing that these deal sizes are very large. They’re strategic and the timing for closing them can be a bit variable to pick within a three-month window. So all we’ve done is we tried to build a level of incremental prudence into the guide. There is no change in the demand environment. The demand environment remains healthy.
Rick McConnell: Kash, let me just add to that. First of all, thanks very much for attending Perform, that’s exceptional. What I would say simply is that the market fundamentals here remain, in our view, very strong. And we like our position based on contextual analytics, hypermodal AI and automation to take advantage of a market that really requires this degree of automation to evolve, because the number of IT resources that are available to do manual processing of IT workloads is constrained and observability, in particular, sophisticated observability and application security solutions like Dynatrace’s are going to become more and more critical, in fact, mission critical in this market as we look at.
Operator: Thank you. Our next question is from the line of Keith Bachman with BMO Capital Markets. Please proceed with your question.
Keith Bachman: Hi, many thanks. And it was nice to be at Perform last week. I had a question related to the past couple. If we look at the ARR growth and we layer in various scenarios for logs and analytics and security, it suggested a pretty significant degradation of what we’ll call the residual business. And I just wondered, a, is that a fair way to look at it? And b, why do you think that’s happening with the growth of your new offerings, again, it suggests a pretty significant degradation of the residual for lack of a better word. And Jim, just a clarification, if you could help set our models for next year. Well, cash taxes also have an impact in incremental cash taxes on FY ’25? Or is it sort of a — more of a one-time thing just so we can at least establish a framework for our cash flow for next year? Many thanks.
Jim Benson: Yes, I’ll start with that. So the answer is cash tax that we’ve seen, which has been, call it, roughly 500 basis points is going to continue. This is — fiscal ’25 is not a onetime. We are a full cash taxpayer because we are GAAP profitable, and we don’t have NOL’s or tax loss carryforward. So you should expect that the cash tax that we have in fiscal ‘25 will continue going forward. Obviously, there’s always strategic tax planning efforts that we’re going through. But as a general answer, you should expect that, that will continue. Relative to the…
Keith Bachman: But to say, yes, sorry, just at the same rate though, right? It doesn’t get incrementally worse. So [Multiple Speakers]
Jim Benson: I would say I’m not going to guide for fiscal ’25. But I will tell you that as you become more profitable, you’re going to pay more taxes. So whether that rate grows a little bit or not, I’m not going to say, but it’s going to be at a minimum, what it currently is at.
Keith Bachman: Okay, fair.
Jim Benson: And relative to ARR, we don’t unpack for you at a level of detail all the product categories. So I think I would kind of remind you a bit that we are still on the early phase of the journey for application security and for logs. So we’ve talked about those businesses exiting fiscal ‘25 being at $100 million ARR. We’ve been at AppSec a little bit longer than logs. The — but the point is that what you’re going to see is we talked about logs in particular, that log starts with the POC. It then goes to a kind of smaller workloads in a production environment. The next phase in that journey is you have newer workloads in a production environment. And then the last phase being you’re kind of leveraging existing workloads.
So we’re still in the very early phases of that journey. So when you think about our kind of product cuts that today, logs and AppSec don’t make up a material portion of our ARR. Certainly, the areas that we’ve been strong in all along around full stack infrastructure. Those continue to be the horses that drive most of ARR. And I’d say what you should expect is that we’re going to continue to see an acceleration in application security and in logs, but the hockey stick, so to speak, will happen in fiscal ’25. That’s our expectation.
Keith Bachman: Okay, many thanks.
Rick McConnell: Keith, I might add that quarter-over-quarter, we saw a 50% increase in paying logs customers, log management customers and an additional 30% increase in POCs on log management. So we do continue to see traction in this new offering.
Keith Bachman: Okay. Excellent. Thank you.
Operator: Thank you. Our next question is from the line of Matt Hedberg with RBC Capital Markets. Please proceed with your question.
Matt Hedberg: Great, guys. Thanks for taking my question. I guess for either of you, regarding the ARR commentary, and I think the uncertainty of large deal timing, did any abnormal large deals push out of the quarter? And I guess, are there things that either your sales force or partners are focused on to accelerate the closing of with some like a growing pipeline of these large deals that could ultimately start to have a positive impact on growth?
Jim Benson: Yes. I guess I will take that. Relative to these deals that we’re seeing and whether they had kind of some of them that pushed out of Q3, I’d say you always have deals that push out of a quarter that you pull into a quarter. But I would say nothing, Matt, that’s like notable. These are deals that, as you can imagine, they’ve been in the funnel. They don’t happen overnight. And as they progress, you get a better assessment of kind of the deal size and the deal timing. And the good news is these deals, many of them have been growing as we’ve been working through the sales process. So we’re actually in a good position relative to the health of the funnel. The only thing that has fundamentally changed is, as I mentioned, the timing.
