Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil Hydroworld Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Dynatrace Reports Third Quarter Fiscal Year 2024 Financial Results By: Dynatrace via Business Wire February 08, 2024 at 06:30 AM EST Exceeds high end of guidance across all Q3 metrics Delivers ARR growth of 21% year-over-year on a constant currency basis Achieves GAAP Operating Margin of 10% and Non-GAAP Operating Margin of 29% Dynatrace (NYSE: DT), the leader in unified observability and security, today announced financial results for the third quarter of fiscal 2024 ended December 31, 2023. "Our Q3 results of balanced growth, profitability, and free cash flow reflect our continued ability to execute successfully in a dynamic market,” said Rick McConnell, Chief Executive Officer. “As customers look to address the business challenges of modern cloud environments, they are coming to Dynatrace for a more comprehensive observability architecture that enables them to drive innovation, optimize costs, and mitigate risk. Our contextual analytics, hypermodal AI, and automation differentiate the Dynatrace platform in the market and provide us with a powerful advantage to capture the opportunity ahead of us.” Third Quarter Fiscal 2024 and Other Recent Business Highlights: All growth rates are compared to the third quarter of fiscal 2023, unless otherwise noted. Financial Highlights: Total ARR of $1,425 million, an increase of 23%, or 21% on a constant currency basis Total Revenue of $365 million, an increase of 23%, or 21% on a constant currency basis Subscription Revenue of $348 million, an increase of 25%, or 23% on a constant currency basis GAAP Income from Operations of $36 million, and Non-GAAP Income from Operations of $105 million GAAP EPS of $0.14, and Non-GAAP EPS of $0.32, both on a dilutive basis Business Highlights: Platform innovation: Dynatrace recently hosted over 2,000 in-person attendees and over 4,000 virtual attendees for Perform 2024, the company's annual customer conference. As part of showcasing the value and innovation of the Dynatrace® platform, the company announced the following current and planned enhancements: Dynatrace AI Observability provides insights into all layers of AI-powered applications, including large language models (LLMs) and generative AI solutions, to manage cost, experience, reliability, and security. Dynatrace OpenPipeline empowers customers with full visibility of data at the point of ingest into the Dynatrace platform and evaluates data streams five to ten times faster than legacy technologies, based on our testing. Dynatrace Data Observability helps ensure data collected via external sources, such as OpenTelemetry and Dynatrace APIs, is reliable and accurate. Runecast acquisition: On January 29, 2024, we announced the signing of a definitive agreement to acquire Runecast, an AI-powered security and compliance solution provider. This planned addition to the Dynatrace platform will enable customers to proactively prevent cloud misconfigurations and compliance issues with automated, AI-driven, real-time vulnerability assessments. Extended partnerships: Dynatrace achieved the Amazon Web Services (AWS) Security Competency, reflecting our deep technical expertise in helping customers proactively remediate vulnerabilities and defend against threats across their AWS environments. The AWS Security Competency helps customers select validated AWS Partner Network members who provide technology that helps organizations adopt, develop, and deploy security solutions on AWS. Industry and customer recognition: Dynatrace was named a Leader in both the Cloud-Native Observability and Security quadrants in the 2023 ISG Provider Lens, Multi-Public Cloud Solutions Report, highlighting Dynatrace’s innovation and go-to-market success in the converging spaces of observability and security. Also, Dynatrace was recognized as a Gartner® Peer Insights™ Customers’ Choice in the 2023 Voice of the Customer for Application Performance Monitoring and Observability report for the fifth consecutive year.1 In addition, Dynatrace won the 2023 Silverlinings Innovation Award for Best Cloud AI Solution, for the platform’s Davis® AI and its proven ability to boost the performance and security of software environments. Workplace recognition: We were named one of the Best Places to Work in Boston, San Francisco, and Colorado by BuiltIn; a Great Place to Work® in 13 of the countries where we operate; one of the Top 10 Best Workplaces in Tech in Austria by 2024 Great Place to Work®; and a Top Company in Austria by Kununu. ____________________ 1 Gartner, Voice of the Customer for Application Performance Monitoring and Observability, 29 December 2023. Gartner® and Gartner Peer Insights™ are trademarks of Gartner, Inc. and/or its affiliates. All rights reserved. Gartner® Peer Insights™ content consists of the opinions of individual end users based on their own experiences, and should not be construed as statements of fact, nor do they represent the views of Gartner or its affiliates. Gartner does not endorse any vendor, product or service depicted in this content nor makes any warranties, expressed or implied, with respect to this content, about its accuracy or completeness, including any warranties of merchantability or fitness for a particular purpose. Third Quarter 2024 Financial Highlights (Unaudited – In thousands, except per share data) Three Months Ended December 31, 2023 2022 Key Operating Metric: Annual recurring revenue $ 1,425,284 $ 1,162,591 Year-over-Year Increase 23 % Year-over-Year Increase - constant currency (*) 21 % Revenue: Total revenue $ 365,096 $ 297,456 Year-over-Year Increase 23 % Year-over-Year Increase - constant currency (*) 21 % Subscription revenue $ 348,294 $ 279,152 Year-over-Year Increase 25 % Year-over-Year Increase - constant currency (*) 23 % GAAP Financial Measures: GAAP income from operations $ 35,720 $ 33,887 GAAP operating margin 10 % 11 % GAAP net income $ 42,691 $ 15,026 GAAP net income per share - diluted $ 0.14 $ 0.05 GAAP shares outstanding - diluted 299,246 291,228 Net cash provided by operating activities $ 75,657 $ 61,962 Non-GAAP Financial Measures: Non-GAAP income from operations (*) $ 104,636 $ 80,653 Non-GAAP operating margin (*) 29 % 27 % Non-GAAP net income (*) $ 96,184 $ 73,469 Non-GAAP net income per share - diluted (*) $ 0.32 $ 0.25 Non-GAAP shares outstanding - diluted (*) 299,246 291,228 Free Cash Flow (*) $ 67,357 $ 57,574 * Use of Non-GAAP Financial Measures In our earnings press releases, conference calls, slide presentations, and webcasts, we may use or discuss non-GAAP financial measures, as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investor Relations section of our website at ir.dynatrace.com. Financial Outlook Based on information available as of February 8, 2024, Dynatrace is issuing guidance for the fourth quarter and updating guidance for full year fiscal 2024 in the table below. This guidance reflects foreign exchange rates as of January 31, 2024. We now expect foreign exchange to be a tailwind of approximately $10 million on ARR and approximately $13 million on revenue for fiscal 2024. Given recent weakening in the U.S. dollar, this represents an incremental tailwind of approximately $15 million to ARR and $6 million to revenue for the full year when compared to our prior guidance. Growth rates for ARR, Total revenue, and Subscription revenue are presented in constant currency to provide better visibility into the underlying growth of the business. All growth rates below are compared to the fourth quarter and full year of fiscal 2023. (In millions, except per share data) Q4 Fiscal 2024 Guidance Total revenue $372 - $377 As reported 18% - 20% Constant currency 18% - 19% Subscription revenue $353 - $358 As reported 20% - 22% Constant currency 20% - 21% Non-GAAP income from operations $85 - $90 Non-GAAP operating margin 23% - 24% Non-GAAP net income $79 - $84 Non-GAAP net income per diluted share $0.26 - $0.28 Diluted weighted average shares outstanding 300 - 301 (In millions, except per share data) Current Guidance Fiscal 2024 Prior Guidance Fiscal 2024* Guidance Change at Midpoint** Total ARR $1,485 - $1,495 $1,480 - $1,490 $5 As reported 19% - 20% 19% - 20% — bps Constant currency 18% - 19% 19% - 20% (100) bps Total revenue $1,422 - $1,427 $1,409 - $1,419 $11 As reported 23% 22% 100 bps Constant currency 22% 21% - 22% 50 bps Subscription revenue $1,352 - $1,357 $1,334 - $1,344 $16 As reported 25% 23% - 24% 150 bps Constant currency 24% 22% - 23% 150 bps Non-GAAP income from operations $388 - $393 $377 - $386 $9 Non-GAAP operating margin 27.25% - 27.5% 27% 50 bps Non-GAAP net income $348 - $353 $328 - $337 $18 Non-GAAP net income per diluted share $1.16 - $1.18 $1.09 - $1.12 $0.06 Diluted weighted average shares outstanding 299 - 300 300 - 301 (1) Free cash flow $330 - $335 $313 - $320 $16 Free cash flow margin 23% 22% - 23% 50 bps *Prior guidance was issued on November 2, 2023. **Changes in our guidance metrics are rounded to the nearest 50 bps. Reconciliations of non-GAAP income from operations, non-GAAP net income, non-GAAP net income per diluted share and free cash flow guidance to the most directly comparable GAAP measures are not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures; in particular, the measures and effects of share-based compensation expense, employer taxes and tax deductions specific to equity compensation awards that are directly impacted by future hiring, turnover and retention needs, as well as unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future GAAP financial results. Conference Call and Webcast Information Dynatrace will host a conference call and live webcast to discuss its results and business outlook for investors and analysts at 8:00 a.m. Eastern Time today, February 8, 2024. To access the conference call from the U.S. and Canada, dial (866) 405-1247, or internationally, dial (201) 689-8045 with conference ID# 13743643. The call will also be available live via webcast on the company’s website, ir.dynatrace.com. An audio replay of the call will also be available until 11:59 p.m. Eastern Time on February 22, 2024, by dialing (877) 660-6853 from the U.S. or Canada, or for international callers by dialing (201) 612-7415 and entering conference ID# 13743643. In addition, an archived webcast will be available at ir.dynatrace.com. We announce material financial information to our investors using our Investor Relations website, press releases, SEC filings and public conference calls and webcasts. We also use these channels to disclose information about the company, our planned financial and other announcements, attendance at upcoming investor and industry conferences, and for complying with our disclosure obligations under Regulation FD. Non-GAAP Financial Measures & Key Metrics In addition to disclosing financial measures prepared in accordance with GAAP, this press release and the accompanying tables contain certain non-GAAP financial measures. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies. Dynatrace considers these non-GAAP financial measures to be important because they provide useful indicators of its performance and liquidity measures. These are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In addition, investors often use similar measures to evaluate the performance of a company. Non-GAAP financial measures are presented for supplemental informational purposes only for understanding the company’s operating performance. The non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from non-GAAP financial measures presented by other companies. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Dynatrace presents constant currency amounts for Revenue and Annual Recurring Revenue to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. Dynatrace provides this non-GAAP financial information to aid investors in better understanding our performance. Annual Recurring Revenue (ARR) is defined as the daily revenue of all subscription agreements that are actively generating revenue as of the last day of the reporting period multiplied by 365. We exclude from our calculation of Total ARR any revenues derived from month-to-month agreements and/or product usage overage billings. Constant Currency amounts for ARR, Total Revenue and Subscription Revenue are presented to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign exchange rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Dollar-Based Gross Retention Rate is defined as the ARR from all customers as of one year prior, less contraction and customer churn, divided by the total ARR from one year prior. This metric reflects the percentage of ARR from all customers as of the year prior that has been retained. Dollar-Based Net Retention Rate (NRR) is defined as the Dynatrace ARR at the end of a reporting period for the cohort of Dynatrace accounts as of one year prior to the date of calculation, divided by the Dynatrace ARR one year prior to the date of calculation for that same cohort. Our dollar-based net retention rate reflects customer renewals, expansion, contraction and churn, and excludes the benefit of Dynatrace ARR resulting from the conversion of Classic products to the Dynatrace platform. Effective the first quarter of fiscal year 2023, we began to exclude the headwind associated with the Dynatrace perpetual license ARR given diminishing impact of perpetual license ARR. We believe that eliminating the perpetual license headwind results in a dollar-based net retention rate metric that better reflects Dynatrace’s ability to expand existing customer relationships. Dollar-based net retention rate is presented on a constant currency basis. Dynatrace Customers are defined as accounts, as identified by a unique account identifier, that generate at least $10,000 of Dynatrace ARR as of the reporting date. In infrequent cases, a single large organization may comprise multiple customer accounts when there are distinct divisions, departments or subsidiaries that operate and make purchasing decisions independently from the parent organization. In cases where multiple customer accounts exist under a single organization, each customer account is counted separately based on a mutually exclusive accounting of ARR. Free Cash Flow is defined as net cash provided by (used in) operating activities less capital expenditures (reflected as "purchase of property and equipment" and "capitalized software additions" in our financial statements). About Dynatrace Dynatrace exists to make the world's software work perfectly. Our unified platform combines broad and deep observability and continuous runtime application security with the most advanced AIOps to provide answers and intelligent automation from data at an enormous scale. This enables innovators to modernize and automate cloud operations, deliver software faster and more securely, and ensure flawless digital experiences. That's why the world's largest organizations trust the Dynatrace® platform to accelerate digital transformation. Cautionary Language Concerning Forward-Looking Statements This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding management’s expectations related to platform innovation, the Runecast acquisition (which is subject to customary closing conditions and expected to close later in Dynatrace's fourth quarter which ends on March 31, 2024), partnerships, and business outlook, including our financial guidance for the fourth quarter and full year of fiscal 2024. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our ability to maintain our revenue growth rates in future periods; market adoption of our product offerings; continued demand for, and spending on, our solutions; our ability to innovate and develop solutions that meet customer needs, including through Davis AI; the ability of our platform and solutions to effectively interoperate with customers’ IT infrastructures; our ability to acquire new customers and retain and expand our relationships with existing customers; our ability to expand our sales and marketing capabilities; our ability to compete; our ability to maintain successful relationships with partners; security breaches, other security incidents and any real or perceived errors, failures, defects or vulnerabilities in our solutions; our ability to protect our intellectual property; our ability to hire and retain necessary qualified employees to grow our business and expand our operations; our ability to successfully complete acquisitions and to integrate newly acquired businesses and offerings; the effect on our business of the macroeconomic environment, associated global economic conditions and geopolitical disruption; and other risks set forth under the caption “Risk Factors” in our Form 10-Q filed on February 8, 2024 and our other SEC filings. We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise. DYNATRACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited – In thousands, except per share data) Three Months Ended December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Revenue: Subscription $ 348,294 $ 279,152 $ 999,245 $ 790,016 Service 16,802 18,304 50,437 54,039 Total revenue 365,096 297,456 1,049,682 844,055 Cost of revenue: Cost of subscription 46,888 36,891 134,584 105,393 Cost of service 16,744 15,044 47,961 46,264 Amortization of acquired technology 4,237 3,889 12,035 11,669 Total cost of revenue 67,869 55,824 194,580 163,326 Gross profit 297,227 241,632 855,102 680,729 Operating expenses: Research and development (1) 80,102 54,531 220,468 156,847 Sales and marketing (1) 132,723 112,292 385,445 323,313 General and administrative (1) 43,232 34,354 127,075 107,485 Amortization of other intangibles 5,451 6,573 16,838 19,719 Restructuring and other (1 ) (5 ) (1 ) (15 ) Total operating expenses 261,507 207,745 749,825 607,349 Income from operations 35,720 33,887 105,277 73,380 Interest income (expense), net 10,605 (4,787 ) 26,260 (7,475 ) Other (expense) income, net (3,901 ) 1,617 (6,724 ) (1,847 ) Income before income taxes 42,424 30,717 124,813 64,058 Income tax benefit (expense) 267 (15,691 ) (8,125 ) (36,392 ) Net income $ 42,691 $ 15,026 $ 116,688 $ 27,666 Net income per share: Basic $ 0.14 $ 0.05 $ 0.40 $ 0.10 Diluted $ 0.14 $ 0.05 $ 0.39 $ 0.10 Weighted average shares outstanding: Basic 294,869 287,957 293,295 287,120 Diluted 299,246 291,228 298,335 290,803 (1) Prior period results have been updated to allocate depreciation expense to operating expenses based upon location and headcount. UNAUDITED SHARE-BASED COMPENSATION Three Months Ended December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Cost of revenue $ 6,975 $ 4,285 $ 19,660 $ 13,410 Research and development 18,678 11,057 50,119 29,339 Sales and marketing 15,947 13,385 48,823 37,399 General and administrative 13,222 6,777 34,696 24,705 Total share-based compensation $ 54,822 $ 35,504 $ 153,298 $ 104,853 DYNATRACE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2023 March 31, 2023 (unaudited) Assets Current assets: Cash and cash equivalents $ 782,649 $ 555,348 Accounts receivable, net 361,653 442,518 Deferred commissions, current 90,059 83,029 Prepaid expenses and other current assets 52,301 37,289 Total current assets 1,286,662 1,118,184 Property and equipment, net 49,408 53,576 Operating lease right-of-use assets, net 65,895 68,074 Goodwill 1,312,691 1,281,812 Other intangible assets, net 54,118 63,599 Deferred tax assets, net 129,119 79,822 Deferred commissions, non-current 79,724 86,232 Other assets 21,596 14,048 Total assets $ 2,999,213 $ 2,765,347 Liabilities and shareholders' equity Current liabilities: Accounts payable $ 13,230 $ 21,953 Accrued expenses, current 171,929 188,380 Deferred revenue, current 757,141 811,058 Operating lease liabilities, current 16,288 15,652 Total current liabilities 958,588 1,037,043 Deferred revenue, non-current 38,508 34,423 Accrued expenses, non-current 29,918 29,212 Operating lease liabilities, non-current 58,002 59,520 Deferred tax liabilities 321 280 Total liabilities 1,085,337 1,160,478 Shareholders' equity: Common shares, $0.001 par value, 600,000,000 shares authorized, 295,777,477 and 290,411,108 shares issued and outstanding at December 31, 2023 and March 31, 2023, respectively 296 290 Additional paid-in capital 2,186,766 1,989,797 Accumulated deficit (236,701 ) (353,389 ) Accumulated other comprehensive loss (36,485 ) (31,829 ) Total shareholders' equity 1,913,876 1,604,869 Total liabilities and shareholders' equity $ 2,999,213 $ 2,765,347 DYNATRACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited – In thousands) Nine Months Ended December 31, 2023 2022 Cash flows from operating activities: Net income $ 116,688 $ 27,666 Adjustments to reconcile net income to cash provided by operations: Depreciation 11,781 9,012 Amortization 29,067 31,566 Share-based compensation 153,298 104,853 Deferred income taxes (49,579 ) 2,057 Loss on extinguishment of debt — 5,925 Other 7,016 3,114 Net change in operating assets and liabilities: Accounts receivable 83,444 40,314 Deferred commissions 874 (17,198 ) Prepaid expenses and other assets (27,437 ) 29,616 Accounts payable and accrued expenses (24,022 ) 19,365 Operating leases, net 1,253 (36 ) Deferred revenue (55,946 ) (21,796 ) Net cash provided by operating activities 246,437 234,458 Cash flows from investing activities: Purchase of property and equipment (16,662 ) (15,625 ) Capitalized software additions (4,655 ) — Acquisition of a business, net of cash acquired (32,297 ) — Net cash used in investing activities (53,614 ) (15,625 ) Cash flows from financing activities: Repayment of term loans — (281,125 ) Debt issuance costs — (1,949 ) Proceeds from employee stock purchase plan 19,472 17,806 Proceeds from exercise of stock options 24,205 15,102 Equity repurchases — (15 ) Net cash provided by (used in) financing activities 43,677 (250,181 ) Effect of exchange rates on cash and cash equivalents (9,199 ) (9,168 ) Net increase (decrease) in cash and cash equivalents 227,301 (40,516 ) Cash and cash equivalents, beginning of period 555,348 462,967 Cash and cash equivalents, end of period $ 782,649 $ 422,451 DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except percentages) Three Months Ended December 31, 2023 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 67,869 $ (6,975 ) $ (284 ) $ (4,237 ) $ — $ 56,373 Gross profit 297,227 6,975 284 4,237 — 308,723 Gross margin 81 % 85 % Research and development 80,102 (18,678 ) (1,196 ) — — 60,228 Sales and marketing 132,723 (15,947 ) (1,029 ) — 201 115,948 General and administrative 43,232 (13,222 ) (360 ) — (1,739 ) 27,911 Amortization of other intangibles 5,451 — — (5,451 ) — — Restructuring and other (1 ) — — — 1 — Income from operations $ 35,720 $ 54,822 $ 2,869 $ 9,688 $ 1,537 $ 104,636 Operating margin 10 % 29 % Three Months Ended December 31, 2022 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 55,824 $ (4,285 ) $ (114 ) $ (3,889 ) $ — $ 47,536 Gross profit 241,632 4,285 114 3,889 — 249,920 Gross margin 81 % 84 % Research and development (1) 54,531 (11,057 ) (329 ) — — 43,145 Sales and marketing (1) 112,292 (13,385 ) (297 ) — — 98,610 General and administrative (1) 34,354 (6,777 ) (68 ) — 3 27,512 Amortization of other intangibles 6,573 — — (6,573 ) — — Restructuring and other (5 ) — — — 5 — Income from operations $ 33,887 $ 35,504 $ 808 $ 10,462 $ (8 ) $ 80,653 Operating margin 11 % 27 % (1) Prior period results have been updated to allocate depreciation expense to operating expenses based upon location and headcount. DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except per share data) Three Months Ended December 31, 2023 2022 Non-GAAP net income: Net income $ 42,691 $ 15,026 Income tax (benefit) expense (267 ) 15,691 Non-GAAP effective cash tax (18,516 ) (9,080 ) Interest (income) expense, net (10,605 ) 4,787 Cash received from interest, net 10,064 1,896 Share-based compensation 54,822 35,504 Employer payroll taxes on employee stock transactions 2,869 808 Amortization of other intangibles 5,451 6,573 Amortization of acquired technology 4,237 3,889 Transaction, restructuring, and other 1,537 (8 ) Loss (gain) on currency translation 3,901 (1,617 ) Non-GAAP net income $ 96,184 $ 73,469 Share count: Weighted-average shares outstanding - basic 294,869 287,957 Weighted-average shares outstanding - diluted 299,246 291,228 Shares used in non-GAAP per share calculations: Weighted-average shares outstanding - basic 294,869 287,957 Weighted-average shares outstanding - diluted 299,246 291,228 Non-GAAP net income per share: Net income per share - basic $ 0.14 $ 0.05 Net income per share - diluted $ 0.14 $ 0.05 Non-GAAP net income per share - basic $ 0.33 $ 0.26 Non-GAAP net income per share - diluted $ 0.32 $ 0.25 Three Months Ended December 31, 2023 2022 Free Cash Flow: Net cash provided by operating activities $ 75,657 $ 61,962 Purchase of property and equipment (3,645 ) (4,388 ) Capitalized software additions (4,655 ) — Free Cash Flow $ 67,357 $ 57,574 DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except percentages) Nine Months Ended December 31, 2023 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 194,580 $ (19,660 ) $ (1,516 ) $ (12,035 ) $ — $ 161,369 Gross profit 855,102 19,660 1,516 12,035 — 888,313 Gross margin 81 % 85 % Research and development 220,468 (50,119 ) (4,391 ) — 165,958 Sales and marketing 385,445 (48,823 ) (3,341 ) — 399 333,680 General and administrative 127,075 (34,696 ) (1,125 ) — (5,725 ) 85,529 Amortization of other intangibles 16,838 — — (16,838 ) — — Restructuring and other (1 ) — — — 1 — Income from operations $ 105,277 $ 153,298 $ 10,373 $ 28,873 $ 5,325 $ 303,146 Operating margin 10 % 29 % Nine Months Ended December 31, 2022 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 163,326 $ (13,410 ) $ (526 ) $ (11,669 ) $ (380 ) $ 137,341 Gross profit 680,729 13,410 526 11,669 380 706,714 Gross margin 81 % 84 % Research and development (1) 156,847 (29,339 ) (1,259 ) — — 126,249 Sales and marketing (1) 323,313 (37,399 ) (1,195 ) — — 284,719 General and administrative (1) 107,485 (24,705 ) (510 ) — (380 ) 81,890 Amortization of other intangibles 19,719 — — (19,719 ) — — Restructuring and other (15 ) — — — 15 — Income from operations $ 73,380 $ 104,853 $ 3,490 $ 31,388 $ 745 $ 213,856 Operating margin 9 % 25 % (1) Prior period results have been updated to allocate depreciation expense to operating expenses based upon location and headcount. DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except per share data) Nine Months Ended December 31, 2023 2022 Non-GAAP net income: Net income $ 116,688 $ 27,666 Income tax expense 8,125 36,392 Non-GAAP effective cash tax (58,986 ) (23,454 ) Interest (income) expense, net (26,260 ) 7,475 Cash received from (paid for) interest, net 24,556 (637 ) Share-based compensation 153,298 104,853 Employer payroll taxes on employee stock transactions 10,373 3,490 Amortization of other intangibles 16,838 19,719 Amortization of acquired technology 12,035 11,669 Transaction, restructuring, and other 5,325 745 Loss on currency translation 6,724 1,847 Non-GAAP net income $ 268,716 $ 189,765 Share count: Weighted-average shares outstanding - basic 293,295 287,120 Weighted-average shares outstanding - diluted 298,335 290,803 Shares used in non-GAAP per share calculations: Weighted-average shares outstanding - basic 293,295 287,120 Weighted-average shares outstanding - diluted 298,335 290,803 Non-GAAP net income per share: Net income per share - basic $ 0.40 $ 0.10 Net income per share - diluted $ 0.39 $ 0.10 Non-GAAP net income per share - basic $ 0.92 $ 0.66 Non-GAAP net income per share - diluted $ 0.90 $ 0.65 Nine Months Ended December 31, 2023 2022 Free Cash Flow: Net cash provided by operating activities $ 246,437 $ 234,458 Purchase of property and equipment (16,662 ) (15,625 ) Capitalized software additions $ (4,655 ) — Free Cash Flow $ 225,120 $ 218,833 View source version on businesswire.com: https://www.businesswire.com/news/home/20240208911929/en/Contacts Investor Contact: Noelle Faris VP, Investor Relations Noelle.Faris@dynatrace.com Media Relations: Jerome Stewart VP, Marketing Jerome.Stewart@dynatrace.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. 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Dynatrace Reports Third Quarter Fiscal Year 2024 Financial Results By: Dynatrace via Business Wire February 08, 2024 at 06:30 AM EST Exceeds high end of guidance across all Q3 metrics Delivers ARR growth of 21% year-over-year on a constant currency basis Achieves GAAP Operating Margin of 10% and Non-GAAP Operating Margin of 29% Dynatrace (NYSE: DT), the leader in unified observability and security, today announced financial results for the third quarter of fiscal 2024 ended December 31, 2023. "Our Q3 results of balanced growth, profitability, and free cash flow reflect our continued ability to execute successfully in a dynamic market,” said Rick McConnell, Chief Executive Officer. “As customers look to address the business challenges of modern cloud environments, they are coming to Dynatrace for a more comprehensive observability architecture that enables them to drive innovation, optimize costs, and mitigate risk. Our contextual analytics, hypermodal AI, and automation differentiate the Dynatrace platform in the market and provide us with a powerful advantage to capture the opportunity ahead of us.” Third Quarter Fiscal 2024 and Other Recent Business Highlights: All growth rates are compared to the third quarter of fiscal 2023, unless otherwise noted. Financial Highlights: Total ARR of $1,425 million, an increase of 23%, or 21% on a constant currency basis Total Revenue of $365 million, an increase of 23%, or 21% on a constant currency basis Subscription Revenue of $348 million, an increase of 25%, or 23% on a constant currency basis GAAP Income from Operations of $36 million, and Non-GAAP Income from Operations of $105 million GAAP EPS of $0.14, and Non-GAAP EPS of $0.32, both on a dilutive basis Business Highlights: Platform innovation: Dynatrace recently hosted over 2,000 in-person attendees and over 4,000 virtual attendees for Perform 2024, the company's annual customer conference. As part of showcasing the value and innovation of the Dynatrace® platform, the company announced the following current and planned enhancements: Dynatrace AI Observability provides insights into all layers of AI-powered applications, including large language models (LLMs) and generative AI solutions, to manage cost, experience, reliability, and security. Dynatrace OpenPipeline empowers customers with full visibility of data at the point of ingest into the Dynatrace platform and evaluates data streams five to ten times faster than legacy technologies, based on our testing. Dynatrace Data Observability helps ensure data collected via external sources, such as OpenTelemetry and Dynatrace APIs, is reliable and accurate. Runecast acquisition: On January 29, 2024, we announced the signing of a definitive agreement to acquire Runecast, an AI-powered security and compliance solution provider. This planned addition to the Dynatrace platform will enable customers to proactively prevent cloud misconfigurations and compliance issues with automated, AI-driven, real-time vulnerability assessments. Extended partnerships: Dynatrace achieved the Amazon Web Services (AWS) Security Competency, reflecting our deep technical expertise in helping customers proactively remediate vulnerabilities and defend against threats across their AWS environments. The AWS Security Competency helps customers select validated AWS Partner Network members who provide technology that helps organizations adopt, develop, and deploy security solutions on AWS. Industry and customer recognition: Dynatrace was named a Leader in both the Cloud-Native Observability and Security quadrants in the 2023 ISG Provider Lens, Multi-Public Cloud Solutions Report, highlighting Dynatrace’s innovation and go-to-market success in the converging spaces of observability and security. Also, Dynatrace was recognized as a Gartner® Peer Insights™ Customers’ Choice in the 2023 Voice of the Customer for Application Performance Monitoring and Observability report for the fifth consecutive year.1 In addition, Dynatrace won the 2023 Silverlinings Innovation Award for Best Cloud AI Solution, for the platform’s Davis® AI and its proven ability to boost the performance and security of software environments. Workplace recognition: We were named one of the Best Places to Work in Boston, San Francisco, and Colorado by BuiltIn; a Great Place to Work® in 13 of the countries where we operate; one of the Top 10 Best Workplaces in Tech in Austria by 2024 Great Place to Work®; and a Top Company in Austria by Kununu. ____________________ 1 Gartner, Voice of the Customer for Application Performance Monitoring and Observability, 29 December 2023. Gartner® and Gartner Peer Insights™ are trademarks of Gartner, Inc. and/or its affiliates. All rights reserved. Gartner® Peer Insights™ content consists of the opinions of individual end users based on their own experiences, and should not be construed as statements of fact, nor do they represent the views of Gartner or its affiliates. Gartner does not endorse any vendor, product or service depicted in this content nor makes any warranties, expressed or implied, with respect to this content, about its accuracy or completeness, including any warranties of merchantability or fitness for a particular purpose. Third Quarter 2024 Financial Highlights (Unaudited – In thousands, except per share data) Three Months Ended December 31, 2023 2022 Key Operating Metric: Annual recurring revenue $ 1,425,284 $ 1,162,591 Year-over-Year Increase 23 % Year-over-Year Increase - constant currency (*) 21 % Revenue: Total revenue $ 365,096 $ 297,456 Year-over-Year Increase 23 % Year-over-Year Increase - constant currency (*) 21 % Subscription revenue $ 348,294 $ 279,152 Year-over-Year Increase 25 % Year-over-Year Increase - constant currency (*) 23 % GAAP Financial Measures: GAAP income from operations $ 35,720 $ 33,887 GAAP operating margin 10 % 11 % GAAP net income $ 42,691 $ 15,026 GAAP net income per share - diluted $ 0.14 $ 0.05 GAAP shares outstanding - diluted 299,246 291,228 Net cash provided by operating activities $ 75,657 $ 61,962 Non-GAAP Financial Measures: Non-GAAP income from operations (*) $ 104,636 $ 80,653 Non-GAAP operating margin (*) 29 % 27 % Non-GAAP net income (*) $ 96,184 $ 73,469 Non-GAAP net income per share - diluted (*) $ 0.32 $ 0.25 Non-GAAP shares outstanding - diluted (*) 299,246 291,228 Free Cash Flow (*) $ 67,357 $ 57,574 * Use of Non-GAAP Financial Measures In our earnings press releases, conference calls, slide presentations, and webcasts, we may use or discuss non-GAAP financial measures, as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investor Relations section of our website at ir.dynatrace.com. Financial Outlook Based on information available as of February 8, 2024, Dynatrace is issuing guidance for the fourth quarter and updating guidance for full year fiscal 2024 in the table below. This guidance reflects foreign exchange rates as of January 31, 2024. We now expect foreign exchange to be a tailwind of approximately $10 million on ARR and approximately $13 million on revenue for fiscal 2024. Given recent weakening in the U.S. dollar, this represents an incremental tailwind of approximately $15 million to ARR and $6 million to revenue for the full year when compared to our prior guidance. Growth rates for ARR, Total revenue, and Subscription revenue are presented in constant currency to provide better visibility into the underlying growth of the business. All growth rates below are compared to the fourth quarter and full year of fiscal 2023. (In millions, except per share data) Q4 Fiscal 2024 Guidance Total revenue $372 - $377 As reported 18% - 20% Constant currency 18% - 19% Subscription revenue $353 - $358 As reported 20% - 22% Constant currency 20% - 21% Non-GAAP income from operations $85 - $90 Non-GAAP operating margin 23% - 24% Non-GAAP net income $79 - $84 Non-GAAP net income per diluted share $0.26 - $0.28 Diluted weighted average shares outstanding 300 - 301 (In millions, except per share data) Current Guidance Fiscal 2024 Prior Guidance Fiscal 2024* Guidance Change at Midpoint** Total ARR $1,485 - $1,495 $1,480 - $1,490 $5 As reported 19% - 20% 19% - 20% — bps Constant currency 18% - 19% 19% - 20% (100) bps Total revenue $1,422 - $1,427 $1,409 - $1,419 $11 As reported 23% 22% 100 bps Constant currency 22% 21% - 22% 50 bps Subscription revenue $1,352 - $1,357 $1,334 - $1,344 $16 As reported 25% 23% - 24% 150 bps Constant currency 24% 22% - 23% 150 bps Non-GAAP income from operations $388 - $393 $377 - $386 $9 Non-GAAP operating margin 27.25% - 27.5% 27% 50 bps Non-GAAP net income $348 - $353 $328 - $337 $18 Non-GAAP net income per diluted share $1.16 - $1.18 $1.09 - $1.12 $0.06 Diluted weighted average shares outstanding 299 - 300 300 - 301 (1) Free cash flow $330 - $335 $313 - $320 $16 Free cash flow margin 23% 22% - 23% 50 bps *Prior guidance was issued on November 2, 2023. **Changes in our guidance metrics are rounded to the nearest 50 bps. Reconciliations of non-GAAP income from operations, non-GAAP net income, non-GAAP net income per diluted share and free cash flow guidance to the most directly comparable GAAP measures are not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures; in particular, the measures and effects of share-based compensation expense, employer taxes and tax deductions specific to equity compensation awards that are directly impacted by future hiring, turnover and retention needs, as well as unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future GAAP financial results. Conference Call and Webcast Information Dynatrace will host a conference call and live webcast to discuss its results and business outlook for investors and analysts at 8:00 a.m. Eastern Time today, February 8, 2024. To access the conference call from the U.S. and Canada, dial (866) 405-1247, or internationally, dial (201) 689-8045 with conference ID# 13743643. The call will also be available live via webcast on the company’s website, ir.dynatrace.com. An audio replay of the call will also be available until 11:59 p.m. Eastern Time on February 22, 2024, by dialing (877) 660-6853 from the U.S. or Canada, or for international callers by dialing (201) 612-7415 and entering conference ID# 13743643. In addition, an archived webcast will be available at ir.dynatrace.com. We announce material financial information to our investors using our Investor Relations website, press releases, SEC filings and public conference calls and webcasts. We also use these channels to disclose information about the company, our planned financial and other announcements, attendance at upcoming investor and industry conferences, and for complying with our disclosure obligations under Regulation FD. Non-GAAP Financial Measures & Key Metrics In addition to disclosing financial measures prepared in accordance with GAAP, this press release and the accompanying tables contain certain non-GAAP financial measures. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies. Dynatrace considers these non-GAAP financial measures to be important because they provide useful indicators of its performance and liquidity measures. These are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In addition, investors often use similar measures to evaluate the performance of a company. Non-GAAP financial measures are presented for supplemental informational purposes only for understanding the company’s operating performance. The non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from non-GAAP financial measures presented by other companies. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Dynatrace presents constant currency amounts for Revenue and Annual Recurring Revenue to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. Dynatrace provides this non-GAAP financial information to aid investors in better understanding our performance. Annual Recurring Revenue (ARR) is defined as the daily revenue of all subscription agreements that are actively generating revenue as of the last day of the reporting period multiplied by 365. We exclude from our calculation of Total ARR any revenues derived from month-to-month agreements and/or product usage overage billings. Constant Currency amounts for ARR, Total Revenue and Subscription Revenue are presented to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign exchange rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Dollar-Based Gross Retention Rate is defined as the ARR from all customers as of one year prior, less contraction and customer churn, divided by the total ARR from one year prior. This metric reflects the percentage of ARR from all customers as of the year prior that has been retained. Dollar-Based Net Retention Rate (NRR) is defined as the Dynatrace ARR at the end of a reporting period for the cohort of Dynatrace accounts as of one year prior to the date of calculation, divided by the Dynatrace ARR one year prior to the date of calculation for that same cohort. Our dollar-based net retention rate reflects customer renewals, expansion, contraction and churn, and excludes the benefit of Dynatrace ARR resulting from the conversion of Classic products to the Dynatrace platform. Effective the first quarter of fiscal year 2023, we began to exclude the headwind associated with the Dynatrace perpetual license ARR given diminishing impact of perpetual license ARR. We believe that eliminating the perpetual license headwind results in a dollar-based net retention rate metric that better reflects Dynatrace’s ability to expand existing customer relationships. Dollar-based net retention rate is presented on a constant currency basis. Dynatrace Customers are defined as accounts, as identified by a unique account identifier, that generate at least $10,000 of Dynatrace ARR as of the reporting date. In infrequent cases, a single large organization may comprise multiple customer accounts when there are distinct divisions, departments or subsidiaries that operate and make purchasing decisions independently from the parent organization. In cases where multiple customer accounts exist under a single organization, each customer account is counted separately based on a mutually exclusive accounting of ARR. Free Cash Flow is defined as net cash provided by (used in) operating activities less capital expenditures (reflected as "purchase of property and equipment" and "capitalized software additions" in our financial statements). About Dynatrace Dynatrace exists to make the world's software work perfectly. Our unified platform combines broad and deep observability and continuous runtime application security with the most advanced AIOps to provide answers and intelligent automation from data at an enormous scale. This enables innovators to modernize and automate cloud operations, deliver software faster and more securely, and ensure flawless digital experiences. That's why the world's largest organizations trust the Dynatrace® platform to accelerate digital transformation. Cautionary Language Concerning Forward-Looking Statements This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding management’s expectations related to platform innovation, the Runecast acquisition (which is subject to customary closing conditions and expected to close later in Dynatrace's fourth quarter which ends on March 31, 2024), partnerships, and business outlook, including our financial guidance for the fourth quarter and full year of fiscal 2024. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our ability to maintain our revenue growth rates in future periods; market adoption of our product offerings; continued demand for, and spending on, our solutions; our ability to innovate and develop solutions that meet customer needs, including through Davis AI; the ability of our platform and solutions to effectively interoperate with customers’ IT infrastructures; our ability to acquire new customers and retain and expand our relationships with existing customers; our ability to expand our sales and marketing capabilities; our ability to compete; our ability to maintain successful relationships with partners; security breaches, other security incidents and any real or perceived errors, failures, defects or vulnerabilities in our solutions; our ability to protect our intellectual property; our ability to hire and retain necessary qualified employees to grow our business and expand our operations; our ability to successfully complete acquisitions and to integrate newly acquired businesses and offerings; the effect on our business of the macroeconomic environment, associated global economic conditions and geopolitical disruption; and other risks set forth under the caption “Risk Factors” in our Form 10-Q filed on February 8, 2024 and our other SEC filings. We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise. DYNATRACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited – In thousands, except per share data) Three Months Ended December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Revenue: Subscription $ 348,294 $ 279,152 $ 999,245 $ 790,016 Service 16,802 18,304 50,437 54,039 Total revenue 365,096 297,456 1,049,682 844,055 Cost of revenue: Cost of subscription 46,888 36,891 134,584 105,393 Cost of service 16,744 15,044 47,961 46,264 Amortization of acquired technology 4,237 3,889 12,035 11,669 Total cost of revenue 67,869 55,824 194,580 163,326 Gross profit 297,227 241,632 855,102 680,729 Operating expenses: Research and development (1) 80,102 54,531 220,468 156,847 Sales and marketing (1) 132,723 112,292 385,445 323,313 General and administrative (1) 43,232 34,354 127,075 107,485 Amortization of other intangibles 5,451 6,573 16,838 19,719 Restructuring and other (1 ) (5 ) (1 ) (15 ) Total operating expenses 261,507 207,745 749,825 607,349 Income from operations 35,720 33,887 105,277 73,380 Interest income (expense), net 10,605 (4,787 ) 26,260 (7,475 ) Other (expense) income, net (3,901 ) 1,617 (6,724 ) (1,847 ) Income before income taxes 42,424 30,717 124,813 64,058 Income tax benefit (expense) 267 (15,691 ) (8,125 ) (36,392 ) Net income $ 42,691 $ 15,026 $ 116,688 $ 27,666 Net income per share: Basic $ 0.14 $ 0.05 $ 0.40 $ 0.10 Diluted $ 0.14 $ 0.05 $ 0.39 $ 0.10 Weighted average shares outstanding: Basic 294,869 287,957 293,295 287,120 Diluted 299,246 291,228 298,335 290,803 (1) Prior period results have been updated to allocate depreciation expense to operating expenses based upon location and headcount. UNAUDITED SHARE-BASED COMPENSATION Three Months Ended December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Cost of revenue $ 6,975 $ 4,285 $ 19,660 $ 13,410 Research and development 18,678 11,057 50,119 29,339 Sales and marketing 15,947 13,385 48,823 37,399 General and administrative 13,222 6,777 34,696 24,705 Total share-based compensation $ 54,822 $ 35,504 $ 153,298 $ 104,853 DYNATRACE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2023 March 31, 2023 (unaudited) Assets Current assets: Cash and cash equivalents $ 782,649 $ 555,348 Accounts receivable, net 361,653 442,518 Deferred commissions, current 90,059 83,029 Prepaid expenses and other current assets 52,301 37,289 Total current assets 1,286,662 1,118,184 Property and equipment, net 49,408 53,576 Operating lease right-of-use assets, net 65,895 68,074 Goodwill 1,312,691 1,281,812 Other intangible assets, net 54,118 63,599 Deferred tax assets, net 129,119 79,822 Deferred commissions, non-current 79,724 86,232 Other assets 21,596 14,048 Total assets $ 2,999,213 $ 2,765,347 Liabilities and shareholders' equity Current liabilities: Accounts payable $ 13,230 $ 21,953 Accrued expenses, current 171,929 188,380 Deferred revenue, current 757,141 811,058 Operating lease liabilities, current 16,288 15,652 Total current liabilities 958,588 1,037,043 Deferred revenue, non-current 38,508 34,423 Accrued expenses, non-current 29,918 29,212 Operating lease liabilities, non-current 58,002 59,520 Deferred tax liabilities 321 280 Total liabilities 1,085,337 1,160,478 Shareholders' equity: Common shares, $0.001 par value, 600,000,000 shares authorized, 295,777,477 and 290,411,108 shares issued and outstanding at December 31, 2023 and March 31, 2023, respectively 296 290 Additional paid-in capital 2,186,766 1,989,797 Accumulated deficit (236,701 ) (353,389 ) Accumulated other comprehensive loss (36,485 ) (31,829 ) Total shareholders' equity 1,913,876 1,604,869 Total liabilities and shareholders' equity $ 2,999,213 $ 2,765,347 DYNATRACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited – In thousands) Nine Months Ended December 31, 2023 2022 Cash flows from operating activities: Net income $ 116,688 $ 27,666 Adjustments to reconcile net income to cash provided by operations: Depreciation 11,781 9,012 Amortization 29,067 31,566 Share-based compensation 153,298 104,853 Deferred income taxes (49,579 ) 2,057 Loss on extinguishment of debt — 5,925 Other 7,016 3,114 Net change in operating assets and liabilities: Accounts receivable 83,444 40,314 Deferred commissions 874 (17,198 ) Prepaid expenses and other assets (27,437 ) 29,616 Accounts payable and accrued expenses (24,022 ) 19,365 Operating leases, net 1,253 (36 ) Deferred revenue (55,946 ) (21,796 ) Net cash provided by operating activities 246,437 234,458 Cash flows from investing activities: Purchase of property and equipment (16,662 ) (15,625 ) Capitalized software additions (4,655 ) — Acquisition of a business, net of cash acquired (32,297 ) — Net cash used in investing activities (53,614 ) (15,625 ) Cash flows from financing activities: Repayment of term loans — (281,125 ) Debt issuance costs — (1,949 ) Proceeds from employee stock purchase plan 19,472 17,806 Proceeds from exercise of stock options 24,205 15,102 Equity repurchases — (15 ) Net cash provided by (used in) financing activities 43,677 (250,181 ) Effect of exchange rates on cash and cash equivalents (9,199 ) (9,168 ) Net increase (decrease) in cash and cash equivalents 227,301 (40,516 ) Cash and cash equivalents, beginning of period 555,348 462,967 Cash and cash equivalents, end of period $ 782,649 $ 422,451 DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except percentages) Three Months Ended December 31, 2023 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 67,869 $ (6,975 ) $ (284 ) $ (4,237 ) $ — $ 56,373 Gross profit 297,227 6,975 284 4,237 — 308,723 Gross margin 81 % 85 % Research and development 80,102 (18,678 ) (1,196 ) — — 60,228 Sales and marketing 132,723 (15,947 ) (1,029 ) — 201 115,948 General and administrative 43,232 (13,222 ) (360 ) — (1,739 ) 27,911 Amortization of other intangibles 5,451 — — (5,451 ) — — Restructuring and other (1 ) — — — 1 — Income from operations $ 35,720 $ 54,822 $ 2,869 $ 9,688 $ 1,537 $ 104,636 Operating margin 10 % 29 % Three Months Ended December 31, 2022 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 55,824 $ (4,285 ) $ (114 ) $ (3,889 ) $ — $ 47,536 Gross profit 241,632 4,285 114 3,889 — 249,920 Gross margin 81 % 84 % Research and development (1) 54,531 (11,057 ) (329 ) — — 43,145 Sales and marketing (1) 112,292 (13,385 ) (297 ) — — 98,610 General and administrative (1) 34,354 (6,777 ) (68 ) — 3 27,512 Amortization of other intangibles 6,573 — — (6,573 ) — — Restructuring and other (5 ) — — — 5 — Income from operations $ 33,887 $ 35,504 $ 808 $ 10,462 $ (8 ) $ 80,653 Operating margin 11 % 27 % (1) Prior period results have been updated to allocate depreciation expense to operating expenses based upon location and headcount. DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except per share data) Three Months Ended December 31, 2023 2022 Non-GAAP net income: Net income $ 42,691 $ 15,026 Income tax (benefit) expense (267 ) 15,691 Non-GAAP effective cash tax (18,516 ) (9,080 ) Interest (income) expense, net (10,605 ) 4,787 Cash received from interest, net 10,064 1,896 Share-based compensation 54,822 35,504 Employer payroll taxes on employee stock transactions 2,869 808 Amortization of other intangibles 5,451 6,573 Amortization of acquired technology 4,237 3,889 Transaction, restructuring, and other 1,537 (8 ) Loss (gain) on currency translation 3,901 (1,617 ) Non-GAAP net income $ 96,184 $ 73,469 Share count: Weighted-average shares outstanding - basic 294,869 287,957 Weighted-average shares outstanding - diluted 299,246 291,228 Shares used in non-GAAP per share calculations: Weighted-average shares outstanding - basic 294,869 287,957 Weighted-average shares outstanding - diluted 299,246 291,228 Non-GAAP net income per share: Net income per share - basic $ 0.14 $ 0.05 Net income per share - diluted $ 0.14 $ 0.05 Non-GAAP net income per share - basic $ 0.33 $ 0.26 Non-GAAP net income per share - diluted $ 0.32 $ 0.25 Three Months Ended December 31, 2023 2022 Free Cash Flow: Net cash provided by operating activities $ 75,657 $ 61,962 Purchase of property and equipment (3,645 ) (4,388 ) Capitalized software additions (4,655 ) — Free Cash Flow $ 67,357 $ 57,574 DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except percentages) Nine Months Ended December 31, 2023 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 194,580 $ (19,660 ) $ (1,516 ) $ (12,035 ) $ — $ 161,369 Gross profit 855,102 19,660 1,516 12,035 — 888,313 Gross margin 81 % 85 % Research and development 220,468 (50,119 ) (4,391 ) — 165,958 Sales and marketing 385,445 (48,823 ) (3,341 ) — 399 333,680 General and administrative 127,075 (34,696 ) (1,125 ) — (5,725 ) 85,529 Amortization of other intangibles 16,838 — — (16,838 ) — — Restructuring and other (1 ) — — — 1 — Income from operations $ 105,277 $ 153,298 $ 10,373 $ 28,873 $ 5,325 $ 303,146 Operating margin 10 % 29 % Nine Months Ended December 31, 2022 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 163,326 $ (13,410 ) $ (526 ) $ (11,669 ) $ (380 ) $ 137,341 Gross profit 680,729 13,410 526 11,669 380 706,714 Gross margin 81 % 84 % Research and development (1) 156,847 (29,339 ) (1,259 ) — — 126,249 Sales and marketing (1) 323,313 (37,399 ) (1,195 ) — — 284,719 General and administrative (1) 107,485 (24,705 ) (510 ) — (380 ) 81,890 Amortization of other intangibles 19,719 — — (19,719 ) — — Restructuring and other (15 ) — — — 15 — Income from operations $ 73,380 $ 104,853 $ 3,490 $ 31,388 $ 745 $ 213,856 Operating margin 9 % 25 % (1) Prior period results have been updated to allocate depreciation expense to operating expenses based upon location and headcount. DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except per share data) Nine Months Ended December 31, 2023 2022 Non-GAAP net income: Net income $ 116,688 $ 27,666 Income tax expense 8,125 36,392 Non-GAAP effective cash tax (58,986 ) (23,454 ) Interest (income) expense, net (26,260 ) 7,475 Cash received from (paid for) interest, net 24,556 (637 ) Share-based compensation 153,298 104,853 Employer payroll taxes on employee stock transactions 10,373 3,490 Amortization of other intangibles 16,838 19,719 Amortization of acquired technology 12,035 11,669 Transaction, restructuring, and other 5,325 745 Loss on currency translation 6,724 1,847 Non-GAAP net income $ 268,716 $ 189,765 Share count: Weighted-average shares outstanding - basic 293,295 287,120 Weighted-average shares outstanding - diluted 298,335 290,803 Shares used in non-GAAP per share calculations: Weighted-average shares outstanding - basic 293,295 287,120 Weighted-average shares outstanding - diluted 298,335 290,803 Non-GAAP net income per share: Net income per share - basic $ 0.40 $ 0.10 Net income per share - diluted $ 0.39 $ 0.10 Non-GAAP net income per share - basic $ 0.92 $ 0.66 Non-GAAP net income per share - diluted $ 0.90 $ 0.65 Nine Months Ended December 31, 2023 2022 Free Cash Flow: Net cash provided by operating activities $ 246,437 $ 234,458 Purchase of property and equipment (16,662 ) (15,625 ) Capitalized software additions $ (4,655 ) — Free Cash Flow $ 225,120 $ 218,833 View source version on businesswire.com: https://www.businesswire.com/news/home/20240208911929/en/Contacts Investor Contact: Noelle Faris VP, Investor Relations Noelle.Faris@dynatrace.com Media Relations: Jerome Stewart VP, Marketing Jerome.Stewart@dynatrace.com
Exceeds high end of guidance across all Q3 metrics Delivers ARR growth of 21% year-over-year on a constant currency basis Achieves GAAP Operating Margin of 10% and Non-GAAP Operating Margin of 29%
Dynatrace (NYSE: DT), the leader in unified observability and security, today announced financial results for the third quarter of fiscal 2024 ended December 31, 2023. "Our Q3 results of balanced growth, profitability, and free cash flow reflect our continued ability to execute successfully in a dynamic market,” said Rick McConnell, Chief Executive Officer. “As customers look to address the business challenges of modern cloud environments, they are coming to Dynatrace for a more comprehensive observability architecture that enables them to drive innovation, optimize costs, and mitigate risk. Our contextual analytics, hypermodal AI, and automation differentiate the Dynatrace platform in the market and provide us with a powerful advantage to capture the opportunity ahead of us.” Third Quarter Fiscal 2024 and Other Recent Business Highlights: All growth rates are compared to the third quarter of fiscal 2023, unless otherwise noted. Financial Highlights: Total ARR of $1,425 million, an increase of 23%, or 21% on a constant currency basis Total Revenue of $365 million, an increase of 23%, or 21% on a constant currency basis Subscription Revenue of $348 million, an increase of 25%, or 23% on a constant currency basis GAAP Income from Operations of $36 million, and Non-GAAP Income from Operations of $105 million GAAP EPS of $0.14, and Non-GAAP EPS of $0.32, both on a dilutive basis Business Highlights: Platform innovation: Dynatrace recently hosted over 2,000 in-person attendees and over 4,000 virtual attendees for Perform 2024, the company's annual customer conference. As part of showcasing the value and innovation of the Dynatrace® platform, the company announced the following current and planned enhancements: Dynatrace AI Observability provides insights into all layers of AI-powered applications, including large language models (LLMs) and generative AI solutions, to manage cost, experience, reliability, and security. Dynatrace OpenPipeline empowers customers with full visibility of data at the point of ingest into the Dynatrace platform and evaluates data streams five to ten times faster than legacy technologies, based on our testing. Dynatrace Data Observability helps ensure data collected via external sources, such as OpenTelemetry and Dynatrace APIs, is reliable and accurate. Runecast acquisition: On January 29, 2024, we announced the signing of a definitive agreement to acquire Runecast, an AI-powered security and compliance solution provider. This planned addition to the Dynatrace platform will enable customers to proactively prevent cloud misconfigurations and compliance issues with automated, AI-driven, real-time vulnerability assessments. Extended partnerships: Dynatrace achieved the Amazon Web Services (AWS) Security Competency, reflecting our deep technical expertise in helping customers proactively remediate vulnerabilities and defend against threats across their AWS environments. The AWS Security Competency helps customers select validated AWS Partner Network members who provide technology that helps organizations adopt, develop, and deploy security solutions on AWS. Industry and customer recognition: Dynatrace was named a Leader in both the Cloud-Native Observability and Security quadrants in the 2023 ISG Provider Lens, Multi-Public Cloud Solutions Report, highlighting Dynatrace’s innovation and go-to-market success in the converging spaces of observability and security. Also, Dynatrace was recognized as a Gartner® Peer Insights™ Customers’ Choice in the 2023 Voice of the Customer for Application Performance Monitoring and Observability report for the fifth consecutive year.1 In addition, Dynatrace won the 2023 Silverlinings Innovation Award for Best Cloud AI Solution, for the platform’s Davis® AI and its proven ability to boost the performance and security of software environments. Workplace recognition: We were named one of the Best Places to Work in Boston, San Francisco, and Colorado by BuiltIn; a Great Place to Work® in 13 of the countries where we operate; one of the Top 10 Best Workplaces in Tech in Austria by 2024 Great Place to Work®; and a Top Company in Austria by Kununu. ____________________ 1 Gartner, Voice of the Customer for Application Performance Monitoring and Observability, 29 December 2023. Gartner® and Gartner Peer Insights™ are trademarks of Gartner, Inc. and/or its affiliates. All rights reserved. Gartner® Peer Insights™ content consists of the opinions of individual end users based on their own experiences, and should not be construed as statements of fact, nor do they represent the views of Gartner or its affiliates. Gartner does not endorse any vendor, product or service depicted in this content nor makes any warranties, expressed or implied, with respect to this content, about its accuracy or completeness, including any warranties of merchantability or fitness for a particular purpose. Third Quarter 2024 Financial Highlights (Unaudited – In thousands, except per share data) Three Months Ended December 31, 2023 2022 Key Operating Metric: Annual recurring revenue $ 1,425,284 $ 1,162,591 Year-over-Year Increase 23 % Year-over-Year Increase - constant currency (*) 21 % Revenue: Total revenue $ 365,096 $ 297,456 Year-over-Year Increase 23 % Year-over-Year Increase - constant currency (*) 21 % Subscription revenue $ 348,294 $ 279,152 Year-over-Year Increase 25 % Year-over-Year Increase - constant currency (*) 23 % GAAP Financial Measures: GAAP income from operations $ 35,720 $ 33,887 GAAP operating margin 10 % 11 % GAAP net income $ 42,691 $ 15,026 GAAP net income per share - diluted $ 0.14 $ 0.05 GAAP shares outstanding - diluted 299,246 291,228 Net cash provided by operating activities $ 75,657 $ 61,962 Non-GAAP Financial Measures: Non-GAAP income from operations (*) $ 104,636 $ 80,653 Non-GAAP operating margin (*) 29 % 27 % Non-GAAP net income (*) $ 96,184 $ 73,469 Non-GAAP net income per share - diluted (*) $ 0.32 $ 0.25 Non-GAAP shares outstanding - diluted (*) 299,246 291,228 Free Cash Flow (*) $ 67,357 $ 57,574 * Use of Non-GAAP Financial Measures In our earnings press releases, conference calls, slide presentations, and webcasts, we may use or discuss non-GAAP financial measures, as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investor Relations section of our website at ir.dynatrace.com. Financial Outlook Based on information available as of February 8, 2024, Dynatrace is issuing guidance for the fourth quarter and updating guidance for full year fiscal 2024 in the table below. This guidance reflects foreign exchange rates as of January 31, 2024. We now expect foreign exchange to be a tailwind of approximately $10 million on ARR and approximately $13 million on revenue for fiscal 2024. Given recent weakening in the U.S. dollar, this represents an incremental tailwind of approximately $15 million to ARR and $6 million to revenue for the full year when compared to our prior guidance. Growth rates for ARR, Total revenue, and Subscription revenue are presented in constant currency to provide better visibility into the underlying growth of the business. All growth rates below are compared to the fourth quarter and full year of fiscal 2023. (In millions, except per share data) Q4 Fiscal 2024 Guidance Total revenue $372 - $377 As reported 18% - 20% Constant currency 18% - 19% Subscription revenue $353 - $358 As reported 20% - 22% Constant currency 20% - 21% Non-GAAP income from operations $85 - $90 Non-GAAP operating margin 23% - 24% Non-GAAP net income $79 - $84 Non-GAAP net income per diluted share $0.26 - $0.28 Diluted weighted average shares outstanding 300 - 301 (In millions, except per share data) Current Guidance Fiscal 2024 Prior Guidance Fiscal 2024* Guidance Change at Midpoint** Total ARR $1,485 - $1,495 $1,480 - $1,490 $5 As reported 19% - 20% 19% - 20% — bps Constant currency 18% - 19% 19% - 20% (100) bps Total revenue $1,422 - $1,427 $1,409 - $1,419 $11 As reported 23% 22% 100 bps Constant currency 22% 21% - 22% 50 bps Subscription revenue $1,352 - $1,357 $1,334 - $1,344 $16 As reported 25% 23% - 24% 150 bps Constant currency 24% 22% - 23% 150 bps Non-GAAP income from operations $388 - $393 $377 - $386 $9 Non-GAAP operating margin 27.25% - 27.5% 27% 50 bps Non-GAAP net income $348 - $353 $328 - $337 $18 Non-GAAP net income per diluted share $1.16 - $1.18 $1.09 - $1.12 $0.06 Diluted weighted average shares outstanding 299 - 300 300 - 301 (1) Free cash flow $330 - $335 $313 - $320 $16 Free cash flow margin 23% 22% - 23% 50 bps *Prior guidance was issued on November 2, 2023. **Changes in our guidance metrics are rounded to the nearest 50 bps. Reconciliations of non-GAAP income from operations, non-GAAP net income, non-GAAP net income per diluted share and free cash flow guidance to the most directly comparable GAAP measures are not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures; in particular, the measures and effects of share-based compensation expense, employer taxes and tax deductions specific to equity compensation awards that are directly impacted by future hiring, turnover and retention needs, as well as unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future GAAP financial results. Conference Call and Webcast Information Dynatrace will host a conference call and live webcast to discuss its results and business outlook for investors and analysts at 8:00 a.m. Eastern Time today, February 8, 2024. To access the conference call from the U.S. and Canada, dial (866) 405-1247, or internationally, dial (201) 689-8045 with conference ID# 13743643. The call will also be available live via webcast on the company’s website, ir.dynatrace.com. An audio replay of the call will also be available until 11:59 p.m. Eastern Time on February 22, 2024, by dialing (877) 660-6853 from the U.S. or Canada, or for international callers by dialing (201) 612-7415 and entering conference ID# 13743643. In addition, an archived webcast will be available at ir.dynatrace.com. We announce material financial information to our investors using our Investor Relations website, press releases, SEC filings and public conference calls and webcasts. We also use these channels to disclose information about the company, our planned financial and other announcements, attendance at upcoming investor and industry conferences, and for complying with our disclosure obligations under Regulation FD. Non-GAAP Financial Measures & Key Metrics In addition to disclosing financial measures prepared in accordance with GAAP, this press release and the accompanying tables contain certain non-GAAP financial measures. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies. Dynatrace considers these non-GAAP financial measures to be important because they provide useful indicators of its performance and liquidity measures. These are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In addition, investors often use similar measures to evaluate the performance of a company. Non-GAAP financial measures are presented for supplemental informational purposes only for understanding the company’s operating performance. The non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from non-GAAP financial measures presented by other companies. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Dynatrace presents constant currency amounts for Revenue and Annual Recurring Revenue to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. Dynatrace provides this non-GAAP financial information to aid investors in better understanding our performance. Annual Recurring Revenue (ARR) is defined as the daily revenue of all subscription agreements that are actively generating revenue as of the last day of the reporting period multiplied by 365. We exclude from our calculation of Total ARR any revenues derived from month-to-month agreements and/or product usage overage billings. Constant Currency amounts for ARR, Total Revenue and Subscription Revenue are presented to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign exchange rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Dollar-Based Gross Retention Rate is defined as the ARR from all customers as of one year prior, less contraction and customer churn, divided by the total ARR from one year prior. This metric reflects the percentage of ARR from all customers as of the year prior that has been retained. Dollar-Based Net Retention Rate (NRR) is defined as the Dynatrace ARR at the end of a reporting period for the cohort of Dynatrace accounts as of one year prior to the date of calculation, divided by the Dynatrace ARR one year prior to the date of calculation for that same cohort. Our dollar-based net retention rate reflects customer renewals, expansion, contraction and churn, and excludes the benefit of Dynatrace ARR resulting from the conversion of Classic products to the Dynatrace platform. Effective the first quarter of fiscal year 2023, we began to exclude the headwind associated with the Dynatrace perpetual license ARR given diminishing impact of perpetual license ARR. We believe that eliminating the perpetual license headwind results in a dollar-based net retention rate metric that better reflects Dynatrace’s ability to expand existing customer relationships. Dollar-based net retention rate is presented on a constant currency basis. Dynatrace Customers are defined as accounts, as identified by a unique account identifier, that generate at least $10,000 of Dynatrace ARR as of the reporting date. In infrequent cases, a single large organization may comprise multiple customer accounts when there are distinct divisions, departments or subsidiaries that operate and make purchasing decisions independently from the parent organization. In cases where multiple customer accounts exist under a single organization, each customer account is counted separately based on a mutually exclusive accounting of ARR. Free Cash Flow is defined as net cash provided by (used in) operating activities less capital expenditures (reflected as "purchase of property and equipment" and "capitalized software additions" in our financial statements). About Dynatrace Dynatrace exists to make the world's software work perfectly. Our unified platform combines broad and deep observability and continuous runtime application security with the most advanced AIOps to provide answers and intelligent automation from data at an enormous scale. This enables innovators to modernize and automate cloud operations, deliver software faster and more securely, and ensure flawless digital experiences. That's why the world's largest organizations trust the Dynatrace® platform to accelerate digital transformation. Cautionary Language Concerning Forward-Looking Statements This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding management’s expectations related to platform innovation, the Runecast acquisition (which is subject to customary closing conditions and expected to close later in Dynatrace's fourth quarter which ends on March 31, 2024), partnerships, and business outlook, including our financial guidance for the fourth quarter and full year of fiscal 2024. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our ability to maintain our revenue growth rates in future periods; market adoption of our product offerings; continued demand for, and spending on, our solutions; our ability to innovate and develop solutions that meet customer needs, including through Davis AI; the ability of our platform and solutions to effectively interoperate with customers’ IT infrastructures; our ability to acquire new customers and retain and expand our relationships with existing customers; our ability to expand our sales and marketing capabilities; our ability to compete; our ability to maintain successful relationships with partners; security breaches, other security incidents and any real or perceived errors, failures, defects or vulnerabilities in our solutions; our ability to protect our intellectual property; our ability to hire and retain necessary qualified employees to grow our business and expand our operations; our ability to successfully complete acquisitions and to integrate newly acquired businesses and offerings; the effect on our business of the macroeconomic environment, associated global economic conditions and geopolitical disruption; and other risks set forth under the caption “Risk Factors” in our Form 10-Q filed on February 8, 2024 and our other SEC filings. We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise. DYNATRACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited – In thousands, except per share data) Three Months Ended December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Revenue: Subscription $ 348,294 $ 279,152 $ 999,245 $ 790,016 Service 16,802 18,304 50,437 54,039 Total revenue 365,096 297,456 1,049,682 844,055 Cost of revenue: Cost of subscription 46,888 36,891 134,584 105,393 Cost of service 16,744 15,044 47,961 46,264 Amortization of acquired technology 4,237 3,889 12,035 11,669 Total cost of revenue 67,869 55,824 194,580 163,326 Gross profit 297,227 241,632 855,102 680,729 Operating expenses: Research and development (1) 80,102 54,531 220,468 156,847 Sales and marketing (1) 132,723 112,292 385,445 323,313 General and administrative (1) 43,232 34,354 127,075 107,485 Amortization of other intangibles 5,451 6,573 16,838 19,719 Restructuring and other (1 ) (5 ) (1 ) (15 ) Total operating expenses 261,507 207,745 749,825 607,349 Income from operations 35,720 33,887 105,277 73,380 Interest income (expense), net 10,605 (4,787 ) 26,260 (7,475 ) Other (expense) income, net (3,901 ) 1,617 (6,724 ) (1,847 ) Income before income taxes 42,424 30,717 124,813 64,058 Income tax benefit (expense) 267 (15,691 ) (8,125 ) (36,392 ) Net income $ 42,691 $ 15,026 $ 116,688 $ 27,666 Net income per share: Basic $ 0.14 $ 0.05 $ 0.40 $ 0.10 Diluted $ 0.14 $ 0.05 $ 0.39 $ 0.10 Weighted average shares outstanding: Basic 294,869 287,957 293,295 287,120 Diluted 299,246 291,228 298,335 290,803 (1) Prior period results have been updated to allocate depreciation expense to operating expenses based upon location and headcount. UNAUDITED SHARE-BASED COMPENSATION Three Months Ended December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Cost of revenue $ 6,975 $ 4,285 $ 19,660 $ 13,410 Research and development 18,678 11,057 50,119 29,339 Sales and marketing 15,947 13,385 48,823 37,399 General and administrative 13,222 6,777 34,696 24,705 Total share-based compensation $ 54,822 $ 35,504 $ 153,298 $ 104,853 DYNATRACE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2023 March 31, 2023 (unaudited) Assets Current assets: Cash and cash equivalents $ 782,649 $ 555,348 Accounts receivable, net 361,653 442,518 Deferred commissions, current 90,059 83,029 Prepaid expenses and other current assets 52,301 37,289 Total current assets 1,286,662 1,118,184 Property and equipment, net 49,408 53,576 Operating lease right-of-use assets, net 65,895 68,074 Goodwill 1,312,691 1,281,812 Other intangible assets, net 54,118 63,599 Deferred tax assets, net 129,119 79,822 Deferred commissions, non-current 79,724 86,232 Other assets 21,596 14,048 Total assets $ 2,999,213 $ 2,765,347 Liabilities and shareholders' equity Current liabilities: Accounts payable $ 13,230 $ 21,953 Accrued expenses, current 171,929 188,380 Deferred revenue, current 757,141 811,058 Operating lease liabilities, current 16,288 15,652 Total current liabilities 958,588 1,037,043 Deferred revenue, non-current 38,508 34,423 Accrued expenses, non-current 29,918 29,212 Operating lease liabilities, non-current 58,002 59,520 Deferred tax liabilities 321 280 Total liabilities 1,085,337 1,160,478 Shareholders' equity: Common shares, $0.001 par value, 600,000,000 shares authorized, 295,777,477 and 290,411,108 shares issued and outstanding at December 31, 2023 and March 31, 2023, respectively 296 290 Additional paid-in capital 2,186,766 1,989,797 Accumulated deficit (236,701 ) (353,389 ) Accumulated other comprehensive loss (36,485 ) (31,829 ) Total shareholders' equity 1,913,876 1,604,869 Total liabilities and shareholders' equity $ 2,999,213 $ 2,765,347 DYNATRACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited – In thousands) Nine Months Ended December 31, 2023 2022 Cash flows from operating activities: Net income $ 116,688 $ 27,666 Adjustments to reconcile net income to cash provided by operations: Depreciation 11,781 9,012 Amortization 29,067 31,566 Share-based compensation 153,298 104,853 Deferred income taxes (49,579 ) 2,057 Loss on extinguishment of debt — 5,925 Other 7,016 3,114 Net change in operating assets and liabilities: Accounts receivable 83,444 40,314 Deferred commissions 874 (17,198 ) Prepaid expenses and other assets (27,437 ) 29,616 Accounts payable and accrued expenses (24,022 ) 19,365 Operating leases, net 1,253 (36 ) Deferred revenue (55,946 ) (21,796 ) Net cash provided by operating activities 246,437 234,458 Cash flows from investing activities: Purchase of property and equipment (16,662 ) (15,625 ) Capitalized software additions (4,655 ) — Acquisition of a business, net of cash acquired (32,297 ) — Net cash used in investing activities (53,614 ) (15,625 ) Cash flows from financing activities: Repayment of term loans — (281,125 ) Debt issuance costs — (1,949 ) Proceeds from employee stock purchase plan 19,472 17,806 Proceeds from exercise of stock options 24,205 15,102 Equity repurchases — (15 ) Net cash provided by (used in) financing activities 43,677 (250,181 ) Effect of exchange rates on cash and cash equivalents (9,199 ) (9,168 ) Net increase (decrease) in cash and cash equivalents 227,301 (40,516 ) Cash and cash equivalents, beginning of period 555,348 462,967 Cash and cash equivalents, end of period $ 782,649 $ 422,451 DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except percentages) Three Months Ended December 31, 2023 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 67,869 $ (6,975 ) $ (284 ) $ (4,237 ) $ — $ 56,373 Gross profit 297,227 6,975 284 4,237 — 308,723 Gross margin 81 % 85 % Research and development 80,102 (18,678 ) (1,196 ) — — 60,228 Sales and marketing 132,723 (15,947 ) (1,029 ) — 201 115,948 General and administrative 43,232 (13,222 ) (360 ) — (1,739 ) 27,911 Amortization of other intangibles 5,451 — — (5,451 ) — — Restructuring and other (1 ) — — — 1 — Income from operations $ 35,720 $ 54,822 $ 2,869 $ 9,688 $ 1,537 $ 104,636 Operating margin 10 % 29 % Three Months Ended December 31, 2022 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 55,824 $ (4,285 ) $ (114 ) $ (3,889 ) $ — $ 47,536 Gross profit 241,632 4,285 114 3,889 — 249,920 Gross margin 81 % 84 % Research and development (1) 54,531 (11,057 ) (329 ) — — 43,145 Sales and marketing (1) 112,292 (13,385 ) (297 ) — — 98,610 General and administrative (1) 34,354 (6,777 ) (68 ) — 3 27,512 Amortization of other intangibles 6,573 — — (6,573 ) — — Restructuring and other (5 ) — — — 5 — Income from operations $ 33,887 $ 35,504 $ 808 $ 10,462 $ (8 ) $ 80,653 Operating margin 11 % 27 % (1) Prior period results have been updated to allocate depreciation expense to operating expenses based upon location and headcount. DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except per share data) Three Months Ended December 31, 2023 2022 Non-GAAP net income: Net income $ 42,691 $ 15,026 Income tax (benefit) expense (267 ) 15,691 Non-GAAP effective cash tax (18,516 ) (9,080 ) Interest (income) expense, net (10,605 ) 4,787 Cash received from interest, net 10,064 1,896 Share-based compensation 54,822 35,504 Employer payroll taxes on employee stock transactions 2,869 808 Amortization of other intangibles 5,451 6,573 Amortization of acquired technology 4,237 3,889 Transaction, restructuring, and other 1,537 (8 ) Loss (gain) on currency translation 3,901 (1,617 ) Non-GAAP net income $ 96,184 $ 73,469 Share count: Weighted-average shares outstanding - basic 294,869 287,957 Weighted-average shares outstanding - diluted 299,246 291,228 Shares used in non-GAAP per share calculations: Weighted-average shares outstanding - basic 294,869 287,957 Weighted-average shares outstanding - diluted 299,246 291,228 Non-GAAP net income per share: Net income per share - basic $ 0.14 $ 0.05 Net income per share - diluted $ 0.14 $ 0.05 Non-GAAP net income per share - basic $ 0.33 $ 0.26 Non-GAAP net income per share - diluted $ 0.32 $ 0.25 Three Months Ended December 31, 2023 2022 Free Cash Flow: Net cash provided by operating activities $ 75,657 $ 61,962 Purchase of property and equipment (3,645 ) (4,388 ) Capitalized software additions (4,655 ) — Free Cash Flow $ 67,357 $ 57,574 DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except percentages) Nine Months Ended December 31, 2023 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 194,580 $ (19,660 ) $ (1,516 ) $ (12,035 ) $ — $ 161,369 Gross profit 855,102 19,660 1,516 12,035 — 888,313 Gross margin 81 % 85 % Research and development 220,468 (50,119 ) (4,391 ) — 165,958 Sales and marketing 385,445 (48,823 ) (3,341 ) — 399 333,680 General and administrative 127,075 (34,696 ) (1,125 ) — (5,725 ) 85,529 Amortization of other intangibles 16,838 — — (16,838 ) — — Restructuring and other (1 ) — — — 1 — Income from operations $ 105,277 $ 153,298 $ 10,373 $ 28,873 $ 5,325 $ 303,146 Operating margin 10 % 29 % Nine Months Ended December 31, 2022 GAAP Share-based compensation Employer payroll taxes on employee stock transactions Amortization of other intangibles Restructuring & other Non-GAAP Non-GAAP income from operations: Cost of revenue $ 163,326 $ (13,410 ) $ (526 ) $ (11,669 ) $ (380 ) $ 137,341 Gross profit 680,729 13,410 526 11,669 380 706,714 Gross margin 81 % 84 % Research and development (1) 156,847 (29,339 ) (1,259 ) — — 126,249 Sales and marketing (1) 323,313 (37,399 ) (1,195 ) — — 284,719 General and administrative (1) 107,485 (24,705 ) (510 ) — (380 ) 81,890 Amortization of other intangibles 19,719 — — (19,719 ) — — Restructuring and other (15 ) — — — 15 — Income from operations $ 73,380 $ 104,853 $ 3,490 $ 31,388 $ 745 $ 213,856 Operating margin 9 % 25 % (1) Prior period results have been updated to allocate depreciation expense to operating expenses based upon location and headcount. DYNATRACE, INC. GAAP to Non-GAAP Reconciliations (Unaudited - In thousands, except per share data) Nine Months Ended December 31, 2023 2022 Non-GAAP net income: Net income $ 116,688 $ 27,666 Income tax expense 8,125 36,392 Non-GAAP effective cash tax (58,986 ) (23,454 ) Interest (income) expense, net (26,260 ) 7,475 Cash received from (paid for) interest, net 24,556 (637 ) Share-based compensation 153,298 104,853 Employer payroll taxes on employee stock transactions 10,373 3,490 Amortization of other intangibles 16,838 19,719 Amortization of acquired technology 12,035 11,669 Transaction, restructuring, and other 5,325 745 Loss on currency translation 6,724 1,847 Non-GAAP net income $ 268,716 $ 189,765 Share count: Weighted-average shares outstanding - basic 293,295 287,120 Weighted-average shares outstanding - diluted 298,335 290,803 Shares used in non-GAAP per share calculations: Weighted-average shares outstanding - basic 293,295 287,120 Weighted-average shares outstanding - diluted 298,335 290,803 Non-GAAP net income per share: Net income per share - basic $ 0.40 $ 0.10 Net income per share - diluted $ 0.39 $ 0.10 Non-GAAP net income per share - basic $ 0.92 $ 0.66 Non-GAAP net income per share - diluted $ 0.90 $ 0.65 Nine Months Ended December 31, 2023 2022 Free Cash Flow: Net cash provided by operating activities $ 246,437 $ 234,458 Purchase of property and equipment (16,662 ) (15,625 ) Capitalized software additions $ (4,655 ) — Free Cash Flow $ 225,120 $ 218,833 View source version on businesswire.com: https://www.businesswire.com/news/home/20240208911929/en/
Investor Contact: Noelle Faris VP, Investor Relations Noelle.Faris@dynatrace.com Media Relations: Jerome Stewart VP, Marketing Jerome.Stewart@dynatrace.com