... for joining us for the Dynatrace Fireside Chat. Fatima Boolani, your resident software analyst here at Citi. I'm very excited to have Jim Benson, CFO of Dynatrace, and Dan Zugelder, Chief Revenue Officer and Head of the Go-to-Market Organization at Dynatrace, for what I think is going to be a really fun conversation lots to talk about. Sure. So I think a good place to start is, you know, taking us through some of the highlights and milestones out of your recent quarter's results, and some of the things that, you know, are worthwhile re-emphasizing and, and reiterating, and I know we'll have a lot of threads to pull on from there.
I'll start with that. Let me first say welcome back.
Thank you.
I know it's kind of a you're back, but then you're, you're back on maternity leave again. But welcome back.
Thank you.
I'd say relative to the quarter, and then I'll talk more thematically about what's going on in the company. I'd say relative to the quarter, which was for us our first quarter, was a really strong start to the year. We saw 13% growth in net new ARR. We saw continued traction in our DPS subscription model, with now over 65% of our business on this contract vehicle, 45% of our customers. Consumption, which is usage of the platform, continues to accelerate. We had a really strong logs quarter. We talked publicly about a $100 million consumption ambition. We are well on track to be able to execute against that. Call it thematically strong start to the year.
I'd say the building blocks that we've been talking about over the last 18 months, you're starting to see them manifest themselves in the results that I'm sure we'll talk about it here in a few minutes. A lot of the substantive structural changes that Dan made on the go-to-market side, you're starting to see some traction on that. We continue to see traction in the areas that I mentioned, and the areas that Dan has been focusing on are starting to show up in the results. So I feel really good about where we're at around the things that we put in place. I think we put some good points on the board, but I think we've got to build more maturation in these areas. We've got to build more consistency.
I'd say the theme for us is, when we put all of these changes in place, it was this theme of going on the offensive, so these were structural changes that we felt were needed to better scale the company, and admittedly, these things were not expected to pay productivity dividends right away, so we're still in the maturation period, and I'm sure we'll talk about that a little bit more, but I feel really good about the traction. We got to continue to execute against that as the year progresses, but I view this year a bit as a stabilization year, and hopefully, we can pivot because the opportunity is there, to a re-acceleration in the growth of the business, so I'm very confident and very optimistic about what we've done. I just think we've got to continue to drive more consistency.
Jim, I'm going to double down on a comment you made around DPS. That has been a very consequential change in the business. It, you know, I think two and a half years out on paper, but really a year and change of getting reps with customers and selling. So a pretty significant part of your story and the evolution of the financial model and the business model. So can you generally, for those of us uninitiated, walk us through some of the mechanics of DPS? And Dan, I would love for you to chime in on-- Hey, I think we're in year two for most of your customers. Yeah. Who signed between a one and three-year contract. Yep. So let's say on average, it's two and change. So we're kind of in the midst of an impending renewal cycle.
Would love to get some of your perspectives on how that's transpiring now that we're a little bit more mature with the DPS conversations and the selling motions.
Perfect. So I can start, and then, Dan, you can comment. Yeah. So you, you're right. It was April of two years ago, is when we started it. And just to make sure people are level set on what the vehicle is, it's basically customers signing up to a dollar commitment for a term, a year, or in most cases, three, 80% of our DPS contracts are multi-year. So it's a consumption drawdown model, but because of our revenue model is a ratable revenue recognition. So if you commit to a $1 million contract for a year, you ratably recognize it through the year, regardless of what consumption is.
It gives you access to the platform, all capabilities, which was a point of friction for customers, that when they wanted to add a capability to Dynatrace, it required a go-to-market kind of activity. You remove that. So you commit to a dollar amount, full access to the platform, full rate card. And, you know, the thesis that we had with that is that customers, if they have that vehicle, will consume faster, they will consume more capabilities, they will have higher renewal rates, they will ultimately have higher NRR rates. All of those things have been true. So we're now, you know, kind of, to your point, two years and a quarter into the journey. We now have 65% of our business on it.
So to your point about where are we on the journey, last year, fiscal 2025, was the year you had your first cohort of customers that went through their first, call it reset, annual reset. So this year will be customers that are going through their second annual. So you'll have some customers, so your first-year cohort class will be going through it this year. That'll be their second year. And then, obviously, your fiscal 2025 customers that you put onto the DPS contracting vehicle will go through their first year. So I'd say. We're not as far along as you suggested, but I'd say we are kind of. We've advanced where we were last year by two. So we are now in a position where more customers are on it.
There will be more customers up for renewal, probably at 2X the rate of what we had last year, so they're either gonna go through a period of maybe having an on-demand consumption opportunity, or in some cases, having an opportunity to actually have an early expansion. I mean, Dan can probably comment further on where we're at in the journey around how do we go from where we are now, which to the next leg, which is trying to get a greater percentage of our customers on it.
Yeah. You know, when you design something, you have your hypothesis of what it's going to do, but sometimes the field sellers, they had to see it happening. And I think seeing the consumption, at first, it was a fairly slow adoption, the first quarter or two, as they were understanding, and then all of a sudden, they started seeing customer adoption and consumption go up in number of products. So you had this huge buy-in from the sales force. So you saw kind of slow adoption, and this now more rapid adoption of rolling this out to our customer base. But we don't. We're not satisfied with just 65%, because it's been so successful, because it's giving us the foundation for growth in so much of our customer base. You know, we want to accelerate that.
So we are doing a couple things to accelerate even further. One is, we did not incent the sales team. When somebody wasn't doing the expansion, we did not incent them to take them from SKU to DPS. Some customers did because they liked it, and we offered it, but there wasn't—we weren't driving it. It was-
It was more organic from the customer side.
Exactly.
Versus-
A little reactive, if I want to call it that way. Now we've changed, just as of April 1, we've changed it with the customer comes up, that's not going to expand, it happens, that we will incentivize the sales team to move them from SKU to DPS. So that's one lever that we have. We also have a fairly long tail of customers that we just have our renewals team do, and these customers are actually, a lot of them are SKU, and we just did a renew like for like. And now we've brought in a team of people that are DPS experts, that do renewals, that convert and educate a customer on why you would want to do DPS. So that's a long tail motion.
So we have clearly, we have a growth motion that we've been doing already that's got us to the point where I am now. We have the larger like-for-like motion that we incentivize, and we have our long tail motion, all in an effort, we believe, to get us to 80 plus % of our customers, and we believe that's the win-win. Our customers consume better, get more value, and it puts us in a position to expand.
I think, Jim, one of the things that you've realized in managing the business is the reality sometimes doesn't match our Excel spreadsheets, right? And what I mean by that is, you know, there is a contractual commitment on a drawdown model in DPS, but incidentally, a lot of customers tend to blow through those commits, right? And then you have this persnickety concept of on-demand consumption, which is something you all have talked about. So, how much of that has influenced the model from a financial perspective in the last six months, again, as DPS has hit more of a critical mass in the model and the business? And I understand you've sort of reoriented and tweaked some of the incentive structures around ODC, we'll refer to it as ODC.
Yep
... going forward. So just a little bit of a walk down memory lane on, hey, this ODC concept has come up, how that has impacted numbers, and how we should think about the impact of ODC on the business over the course of fiscal 2026.
Yeah. So, well, I'll start with the, to your point about the memory lane. The memory lane in fiscal 2025, and we were very transparent about it, was our initial thesis for DPS was everything we talked about, we thought was gonna be: You get them on this as a contracting vehicle, they'll consume faster, they'll consume more of the capabilities, all of these things. The, our thesis was that they would, that when they did all of that, it would lead to an early expansion. That was the original thesis. What we found in fiscal 2025, which was the first period that we had these cohorts coming up for their annual reset, what we found was you had a number of customers that didn't necessarily do an expansion. They actually were okay going into an overage.
We call it on-demand consumption and not an overage, because we don't charge a premium for it. So that surprised us, to be, we thought there'd be a handful of customers that would do that, but it was more than we thought.
Mm-hmm.
And so we saw this behavior of a certain subset of customers that were maybe they had gone through a three-year expansion the year before, and they're now burning through their commitment for the first year of that. And I think what we realized in going through it is some customers were like: "I just renewed this a year ago. I am not gonna go through an early renewal. I'm happy to go pay on demand." So we saw this behavior of customers that were okay going on demand. Now, in theory-
Because it was imprudent for them, either, to your point.
It was not punitive because we didn't charge them an overage rate. It was a very customer-friendly model. Now, I admit it is not a stick model that forces them to do an early expansion, but our whole premise was, we want them to consume more of the platform. So we're somewhat indifferent. We get revenue from it either way, and so we saw this. It became a source of subscription revenue. And I think we did $19 million-$20 million worth of business that we did not expect.
Mm-hmm.
And the way to view that is, that $19 million-$20 million is basically deferred ARR. And so we learned from that, and we now believe that there's a component of customers that will go through this on-demand consumption. So I think the thesis that we had before is still in place. I think the one distinction is there's gonna be a subset of customers that are willing to go on demand, and then there's gonna be a subset of customers that are willing to do an early expansion. I think fiscal 2026 is the I don't know year of what percentage of them, 'cause you're now gonna have a growing number of customers going through their second year, and whether their growth rate relative to consumption behaves the same.
Are they gonna do on-demand consumption again, or are they gonna go into an early expansion? Again, we're somewhat agnostic. From a incentive perspective, which you talked about, we did change the incentive structure on the sales organization, where they used to get paid the same amount, whether it was an on-demand consumption booking, we would call it, or an ARR-generating booking. Effective April this year, we moved to a model of 25 cents on the dollar for an on-demand consumption booking and a dollar for an ARR-generating booking, and we did that because we really want the sales organization hunting for new ARR. We have a motion of people in the company, whether they be strike teams or whether they be our customer success teams, that are incented to drive consumption. Those are the teams that should be driving more adoption.
We want sales to get credit because obviously, those are customers that are growing and expanding, but we wanted there to be more of an orientation around drive more committed bookings. And Dan, you can maybe comment on we're about five months into it.
I think we feel we've struck a good balance. You know, we feel like the sales teams know that, you know, commitment is their primary. But we also have, you know, the CSMs, the strike teams, everybody in the company, and one of the things we'll probably refer to is this consumption mindset within Dynatrace, which is relatively new. But it's bringing in the consumption mindset about customer success as customers consuming. By the way, we believe they get more value, and they position us for growth. But, you know, for us, we want them to have a skin in the game for consumption, and if customers go over and aren't willing to expand, they get something. You know, it's not without any compensation, but primarily...
We've seen it work well 'cause I hear our salespeople talk, and they're like, "No, no, I want an expansion." So they definitely are incented to go in, position a customer carrot. By the way, there's something in it for the customer as well. We're gonna drop their unit cost as they expand, so the customer wins as well. It's not just a, you know, "Hey, force them to do it." We're providing a carrot along the way. But I think we've struck a balance that customers don't want to stick. They like a carrot. The sales teams get a carrot to drive consumption. They get some compensation for there. So we feel pretty good about six, almost six months in, that we've struck a good balance from a customer side, a Dynatrace side, and a field sales side.
Dan, you said six months, so it triggered my antennas. You know, this time last year, one of the more novel changes to the go-to-market incentive structure was introducing biannual quotas or implementing biannual quotas for the sales organization. You know, at the time, I think you all were appropriately conservative in saying: "Hey, we don't expect this to have any material change-
Yeah.
... right out the gate," but now we're a year in.
Yeah.
We're a year better, we're a year stronger. How is year two of having a biannual quota implemented and cemented in the organization impacted downstream KPIs, like funnel creation, deal size, deal size growth? Anything you can share on that that can give us confidence that now the biannual quota system is really hitting its stride in a very positive way?
Yeah. I mean, I think there were two or three desired outcomes from it. One was to try to change our seasonality mix a bit. We were very back-end loaded, and we felt that that introduced some business risk, as well as just some revenue potentially delayed, so we wanted to change our seasonality. We believe right now we're already seeing some of the early signs that that's working, so that was one. The second thing was agility, the ability to make changes halfway through the year. As you know, it's hard to foresee a year down the road. There are certain things that happen in the business, and we want to introduce the ability to have a little bit more agility, to make some tweaks along the way that would drive the company strategy, so we have done that.
We already have planned. We won't get into that today, but some tweaks that we're making going into the second half of the year in October, which we think will have an impact, but maybe these are tweaks. They are changes, but it allows us not to have to wait till April to do those. So that's number two, and I think the third thing that we wanted to introduce the ability to manage cost, to set proper quotas, so when you're setting a quota to forecast a year out at the account level, it is if you ask any go-to-market, it's a pretty difficult thing to do, but six months is a much more manageable thing.
So you're able to set proper quotas, to give people the right incentives, but also don't have the haves and have-nots, where you underset somebody's quota and overset somebody else's. So it gives you the ability to be more accurate. You actually drive costs down that way by doing that because you want people getting to plan, but you don't want some people, you know, 500% and other people at 20%. So you want, you want as many people at, you know, I always say the 80%-120% as you can get. That allows us to do that. We're already seeing that compression of those results getting closer in that range. So those are the three things. We're definitely not moving away. Everything that we wanted to do, we're at least seeing signs that it's playing out.
Jim, back to you. Just, you know, one of the questions we get a lot is, this divergence that we're seeing on the subscription revenue growth trajectory versus the ARR, to borrow your term, it's, you know, a deferred ARR, that's sort of transpiring right now. So it's sort of this short-term nuisance, if I can use my own word, to the model. You know, To ask it more simply, when should we start to see a little bit more equilibrium in the ARR and subscription revenue growth trajectory?
So I think I said it at the front end. I kind of view fiscal 2026 as a maturation year, as a transition year, where a lot of the building blocks that we put in place we got to see them continue to mature. We mentioned some of the changes Dan made, those need to continue to mature and go from they've generated a lot of good pipeline to actually we're closing the pipeline. We talked about strike teams and those strike teams have only been in place since April, so I view this year as a lot of maturation, building more muscle around driving consumption within the company. To Dan's point, that's a new muscle. That's not something we've ever worried about before.
We've never had people compensated on consumption before, because DPS as a vehicle, by its nature, is consumption-driven. We needed to have an incentive structure in place to have more people have consumption as a North Star. So I think what you're going to see is you're going to start to see the convergence of ARR and subscription growth stabilize kind of to the levels that I've talked about. You know, hopefully, we do a little bit better than that. But then in fiscal 2027, start to kind of connect again. And you'll start to see them mirror one another, and obviously, our objective is to show a re-acceleration in the growth of the business exiting fiscal 2026. 'Cause a lot. Then you're going to have all these changes we've made. So I'd say the structural part is done.
The maturation part is what's in process, and so I feel good about it. So it's like all these nice building blocks of DPS, kind of segmentation changes. You know, we haven't talked about partners, but a lot of work that Dan and team have done around leveraging partners to drive more velocity, driving more consumption, logs being kind of this new area where we have the right product with the right pricing and packaging, now matched with a strike team that can actually make it happen, that. I just feel very good about all the ingredients. It's just a matter. They all need to mature, including our consumption motion, to be very frank. That's a new muscle, so that's something our new Chief Customer Officer is trying to put in place, which is driving more of a consumption mindset with that team.
So different phases of maturation across those things, I think where the goal is for that to stabilize growth for fiscal 2026, to be in a position to re-accelerate in fiscal 2027.
Yeah, and just to further on that, I mean, we didn't downplay it, but we certainly- I mean, we made some very significant structural changes-
Mm
... to the go-to-market. It wasn't trivial. We did share that we were open, but I think sometimes when you see the extent of the people transformation, leadership changes, you know, we brought in what we feel like is a team from a sales leadership team. But that was my entire direct team, nine out of 10 was changed,
Over the course of what time span?
The course of from July 1 of 2023 till-
Yeah, from what-
Roughly six months.
His leadership team when he joined, and his leadership team now, nine out of 10 are new.
Yeah.
Not all of them were external hires, some of them were-
Yeah
... developed from within, but.
Pretty-
Pretty significant change.
And then you do the segmentation work that we shared. You do the partner work that we tell you. So that's the work that we see in fiscal 2025. We were happy about being able to execute through those changes. But you know, as we go now, we're looking, and we're starting to see the green shoots of those things starting to play out, especially in the enterprise. I mean, where we invested a lot of capacity, we brought in new people that understood how to sell to the Citibanks of the world, and so forth, so that you can, you know, you can capitalize on that opportunity.
Jim, you and Rick have not been shy about expressing that there is a quality over quantity bias in terms of how you think about customer and customer acquisition. You did the large account segmentation project as well, among other things, last year in the go-to-market. But, you know, the install base is fantastic. It's the gift that keeps on giving. You know, you have diehard Dynatrace customers who continue to come back to the well, right? And that's important. But just from a logo growth perspective, you know, that's, you know, potentially an area that you've also expressed need and a desire to improve. So, you know, what are some of the steps you are taking or have been taking to really energize the new logo growth velocity?
How does the strengthening of relationships with the GSI and partner community play into that? And I'd love to have you slap some numbers around that as well, and how that's done.
Let me start, and then I'll have Dan comment specifically around kind of some of the targeted areas that we're driving. It shouldn't be lost on people that the segmentation changes that we made, that the initial benefit from that was going to be expansions. Because this segmentation change was oriented around getting the right resources on the right accounts with the highest propensity to spend. Those happened to be... You know, we had in the enterprise or the strategics, we had eight to 10 accounts per rep, existing you know, now they have four to five. So the beneficiary we were going to see of the segmentation work was going to primarily be on the expansion side to start. And so I would say fiscal 2026 is probably going to be a bit more expansion-weighted.
I'm not going to apologize for that, because I think it's where the most productivity will come from. We equally want to ensure that we're bringing in, to your point, the generation of new logos that can be the next set of customers to do large expansions with. And I've purposely been talking about quality of land over quantity, because what we don't want is to land new logos, not at the right profile, not at the right size, because we don't churn a lot of customers, but where we do churn them happen to be at a lower dollar value. And so it's a little bit of a balance around making sure you're bringing in the right quality of new logo. But Dan, you can comment a little bit around what are we doing to-
I mean, it's a very important point, meaning we want to retain them. So we know that the customers that we land are a little larger, that their retention numbers are far better. A small 10K land does not really stay. It, it's not a lot of revenue upfront, but they also don't have a high retention rate, too, 'cause they're not getting the, you know, the TLC. So we wanna do that. I think our. We have a pretty significant change that we started implementing in April 1 around new logos, and that is to ensure that each segment of our business, we have three segments: strategics, our enterprise business, and commercial. That each one of them have their land play.
I think that's one of the maturity things that we have learned to is that our land play with our strategics is not the same land play in our commercial. We've refined that. We feel, you know, especially, you know, when you start looking at pipeline, "Hey, we're starting to build a pipeline of new logo business that will enable it." We are fortunate, I think, that we can depend on our pipeline. We see it. It's proven itself out. Even times when we see things that aren't good, we see that in advance, and we have a good mechanism to see into the future. Ultimately, we are a believer that each segment has kind of a different land motion, and each one of them has its own play that will be effective.
So we're seeing that play out.
Yeah. And maybe to put some numbers, I know you asked for my numbers, and it's like, "You didn't give me a number." That we've historically had kind of a one-third new logo, two-thirds expansions. I do think that's probably the right long-term model. I'd say we're probably gonna be more expansion-heavy this year, so that, you know, you're probably gonna be more like 30/70, plus or minus a little bit. But I think we'll get back to maybe the more. But I think it's because the go-to-market changes that we made were initially gonna benefit expansions, and you're seeing the. I'd say, the next wave is, how do you drive a better balance between expansions and new logos? And that's kind of the mix.
And as Dan knows, as a go-to-market leader, there's always tweaks that you're doing around, "How do I drive the right behavior? Am I incenting enough for customers to..." Because it's hard to bring in a new logo. It's harder to bring in a new logo than expand with a customer that already knows you and values you. And so there's probably gonna be some tweaks to the incentive structure that we're gonna wanna do, maybe some sales plays, as Dan mentioned, but I think that, you know, I think this year is gonna be a very good expansion year, a little bit lighter on the new logo side, and I think we'll be in a more balanced position next year.
and it'll be a good new logo dollar year.
Yeah.
So we feel good from a new logo dollars. I think that the long tail or the number of new logos is, I think, one of the other things we're trying to work on, but we will have a very good year-over-year new logo dollars. That means the size of them that we're bringing on are going to be larger. We feel very good about that number, which is not a bad number, but it's not necessarily both. You know, we wanna see the number of new logos and the new logo dollars. I think we feel confident in the new logo dollars. We're still working on the total number of new logos.
The other thing that's probably worth mentioning, just not to belabor it, but maybe 30 seconds more, is the motion of new logos maybe in the past was, you know, that you landed with an application owner, and then you expanded. The world has kind of evolved where people have a lot of tools. I mean, the reality is people aren't naked relative to observability.
Mm-hmm.
They're either doing DIY or they have some commercial tooling solutions and so sometimes with new logos, they're interested in someone that's gonna be able to make it easier for them-
Mm-hmm
... and consolidate things for them. Those types of lands take longer because the customer need is: I have a lot of tools. I mean, we have some examples of customers where we went through that they wanna consolidate tools, and so we wanna make sure that, again, we're in a position for those customers that are the sweet spot for Dynatrace we can land.
Well, I think that's an important distinction because what I was actually going to ask you, and I'm glad you brought this up, it's not necessarily, and you can correct me if I'm wrong, but the cost of large customer acquisition has gone up. It's just the sales cycle conversation or the sales engagement has, I don't wanna say elongated, 'cause that sort of has a pejorative context. It's just going to take more stakeholders for you-
It does
... to engage, and that's why when the new logos land, they land big. And I believe some of your disclosures have been around 140 or 150,000-
Yeah
... in ARR lands, which is-
130-140, yeah.
I'm great. Inflation a little bit. But you know, with the which is outside of the historical band of the 90-120-
Yeah. Yeah
... that you very habitually did a couple of years ago. So it's not necessarily that it's much more expensive to get after these accounts, it's just taking a little bit longer to cajole a lot more constituents-
Yeah
... internally.
We've been very open. A play that is very effective for us, both at existing customers and new customers, is an end-to-end observability play. It, it's what customers like about Dynatrace because whether you're in the cloud, whether you have on-prem, mainframe, whatever you are, we can handle a very diverse set of workloads. And so our, our play, even for new logos, we're in there saying, "Hey, we can, we can help you tool consolidate, even if we're not the incumbent." And they like it because of the, the versatility that we have, from on-prem, off-prem, different, you know, mainframe to, to mobile. So with that, I, I think it has given us larger lands, but it's has a sales cycle to it as well.
... I wanna talk about net retention rates again, in the context of transitioning to the DPS motion as the primary conduit of customer activity. You know, how should we take net retention rates at face value? What should we consider, you know, what are some of the kind of mitigating forces on net retention rate?
So as we said, that, you know, net retention rates are certainly higher for DPS customers than non-DPS customers. You know, I would be remiss if I didn't remind folks that we actually saw a slight improvement in net retention rates in our Q1 period. We went from 110 to 111. It's a trailing 12-month metric, so it's probably not gonna move materially up or down a lot in the near term. But everything we're doing around driving consumption with DPS ultimately will manifest itself in if customers are consuming and getting value, you will start to see that show up in NRR. Now it's a journey, right? You got to consume for a period of time before it turns into an expansion. So some of the North Star metrics that we are looking at internally is consumption.
What are consumption growth rates doing? And our consumption growth rates are, you know, like 150% of where our, you know, our ARR growth is. So we are showing very, very healthy consumption growth. You continue to grow at those rates, you have to, over time, see-
Catch up
... an expansion, and so I think you will see it, but again, I'd say the new muscle for the company is driving consumption. I'd say in the past, with the old model, SKUs, it didn't really matter. Now, obviously, customers don't want shelfware, but now it does matter, and so I'd say it's a muscle that we're building. I think it's something within the company that we talk about at every all-hands. We now have incentive structures in place, so we now have a customer success team that's measured on consumption. Some of Dan's team is measured on consumption, and so it's a muscle we're building, and ultimately, this muscle of driving more consumption and adoption will show up in NRR.
I know we're out of time, but I think it's incumbent upon me to ask you the question around your operating rigor, and operating performance, and cash flow performance. You talked a lot about maybe indexing more to expansionary business over the course of-
Near term
... fiscal 2026. Near term.
Sure.
So by definition, that necessarily means you're going back to a customer that is already familiar with you, is already an avid user of the platform and the portfolio. So can we take away from that fact that there is incremental leverage to be had in the business because it eliminates some of that, you know, net new customer acquisition cost? So, tell us, or tell me rather, where I'm, maybe-
Uh
... not right in that assessment.
No, you're, you're right as far as leverage in the model in certain areas. So it's areas we're gonna try to drive leverage in the models. You'll get more productivity in sales and marketing for the reasons you just said. We're gonna drive more productivity and leverage in G&A, but we are intentionally not wanting to continue to create margins the way we have historically, because we want to reinvest it in R&D. And so there's a bit of a balance that... We're, we're not gonna go below our current threshold, which is around 29% operating margins. I think we talked about 32% pre-tax, free cash flow margins. So think of those as floors. And there's optionality. We can drive leverage if we want. There's certainly room in the model, but we do think there needs to be reinvestment.
That reinvestment we want in R&D. We did do some reinvestment within sales.
Mm-hmm.
Dan reinvested some of the dollars that he already has in these strike teams.
Mm-hmm.
And so there is some reinvestment that we think that will yield better productivity, per resource for the company.
Time flies when you're having fun. Good place to-
Welcome back.
... end the discussion. Thank you so much.
Thank you.
Fantastic conversation.
Thanks very much. Take care, bye.