Dynatrace Inc

Previous wording

Dynatrace offers the only end-to-end unified platform that combines broad and deep observability and continuous runtime application security with advanced AI for IT operations to provide answers and intelligent automation from data at an enormous scale. Our comprehensive solutions help IT, development, security, and business operations teams at global organizations modernize and automate cloud operations, deliver software faster and more securely, and provide significantly improved digital experiences.

Current wording

Dynatrace offers the only end-to-end unified platform that combines broad and deep observability and continuous runtime application security with advanced Davis® hypermodal AI to provide answers and intelligent automation from data at an enormous scale. Our comprehensive solutions help IT, development, security, and business operations teams at global organizations modernize and automate cloud operations, deliver software faster and more securely, and provide significantly improved digital experiences.

Previous wording

•Our annual recurring revenue (“ARR”) was $1,541 million as of June 30, 2024, which reflected 19% growth year-over-year;

Current wording

•Our annual recurring revenue (“ARR”) was $1,617 million as of September 30, 2024, which reflected 20% growth year-over-year;

Previous wording

•Total revenue and subscription revenue was $399 million and $382 million, respectively;

Current wording

•Total revenue and subscription revenue was $418 million and $400 million, respectively;

Previous wording

•We delivered GAAP income from operations of $42 million and non-GAAP income from operations(1) of $114 million; and

Current wording

•We delivered GAAP income from operations of $47 million and non-GAAP income from operations(1) of $131 million; and

Previous wording

•Our net cash provided by operating activities and free cash flow(1) was $227 million and $231 million, respectively.

Current wording

•Our net cash provided by operating activities and free cash flow(1) was $24 million and $20 million, respectively.

Previous wording

We believe this approach is even more important at this time as we navigate the current macroeconomic environment, which can include geopolitical considerations, fluctuations in credit, equity, and foreign currency markets, changes in inflation, interest rates, consumer confidence and spending, and other factors that may affect the buying patterns of our customers and prospective customers, including the size of transactions and length of sales cycles. In the ongoing dynamic macroeconomic landscape, we continue to factor a challenging climate. We have seen resiliency in our industry and we remain confident in our ability to execute in this environment. Please see the section titled “Risk Factors” included under Part II, Item 1A of this Quarterly Report for further discussion of the possible impact of macroeconomic conditions on our business and regarding fluctuations in our annual and quarterly operating results.

Current wording

We believe this approach is even more important at this time as we navigate the current macroeconomic environment, which can include geopolitical considerations, fluctuations in credit, equity, and foreign currency markets, changes in inflation, interest rates, consumer confidence and spending, and other factors that may affect the buying patterns of our customers and prospective customers, including the size of transactions and length of sales cycles. In the ongoing dynamic macroeconomic landscape, we have seen resiliency in our industry and we remain confident in our ability to execute in this environment. Please see the section titled “Risk Factors” included under Part II, Item 1A of this Quarterly Report for further discussion of the possible impact of macroeconomic conditions on our business and regarding fluctuations in our annual and quarterly operating results.

Previous wording

Cost of service. Cost of service revenue includes salaries, benefits, bonuses, share-based compensation, and related expenses such as employer taxes for our services organization, and allocated overhead for depreciation, facilities, and IT. We recognize these expenses as they are incurred.

Current wording

Cost of service. Cost of service revenue includes salaries, benefits, bonuses, share-based compensation and related expenses such as employer taxes, and allocated overhead for depreciation, facilities, and IT. We recognize these expenses as they are incurred.

Previous wording

Amortization of other intangibles. Amortization of other intangibles primarily consists of amortization of customer relationships and capitalized software and tradenames.

Current wording

Amortization of other intangibles. Amortization of other intangibles primarily consists of amortization of customer relationships and tradenames.

Previous wording

Interest income, net, consists primarily of interest income, primarily from money market funds, bank deposits, debt securities held as investments and certificates of deposits, fees on our revolving credit facility, and amortization of debt issuance costs.

Current wording

Interest income, net, consists primarily of interest income, primarily from money market funds, bank deposits, debt securities held as investments and certificates of deposits, fees on our Credit Facility (as defined later in this section), and amortization of debt issuance costs.

Previous wording

Other (expense) income, net, consists primarily of foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency, including balances between subsidiaries.

Current wording

Other expense, net, consists primarily of foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency, including balances between subsidiaries.

Previous wording

Many countries have enacted or are in the process of enacting laws based on the Pillar Two proposal relating to a 15% global minimum tax issued by the Organization for Economic Cooperation and Development (“OECD”). For fiscal year 2025, we expect to meet the Transitional Country-by-Country (CbCR) Safe Harbor rules for most, if not all, the jurisdictions that have adopted the rules. Based on the guidance available thus far, we do not expect these provisions to have a material impact on our consolidated financial statements. We will continue to monitor ongoing developments and evaluate any potential impact on future periods.

Current wording

Many countries have enacted or are in the process of enacting laws based on the Pillar Two proposal relating to a 15% global minimum tax issued by the Organization for Economic Cooperation and Development (“OECD”). For fiscal year 2025, we expect to meet the Transitional Country-by-Country (CbCR) Safe Harbor rules for most, if not all, the jurisdictions that have adopted the rules.

Previous wording

Subscription revenue increased by $65.1 million, or 21%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to the growth of the Dynatrace platform by adding new customers combined with existing customers expanding their use of our solutions.

Current wording

Subscription revenue increased by $65.3 million, or 20%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to the growth of the Dynatrace platform by adding new customers combined with existing customers expanding their use of our solutions.

Previous wording

Service revenue increased by $1.2 million, or 7%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase was primarily due to timing of delivery of services.

Current wording

Service revenue increased by $1.1 million, or 6%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was primarily due to timing of delivery of services.

Previous wording

Cost of subscription increased by $10.7 million, or 25%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily due to higher personnel costs of $3.1 million to support the growth of our subscription cloud-based offering and higher share-based compensation of $1.7 million. Also contributing to the increase were higher cloud-based hosting costs of $3.2 million and software subscription costs of $1.5 million to support the growth of the business and related infrastructure and higher depreciation expense of $0.6 million.

Current wording

Cost of subscription increased by $11.0 million, or 25%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily due to increased cloud-based hosting costs of $4.2 million related to our growing cloud-based subscription revenue and increased personnel costs of $5.0 million, inclusive of a $1.8 million increase in share-based compensation, largely due to headcount growth to support our growing customer base.

Previous wording

Cost of service increased by $1.3 million, or 8%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase was primarily the result of higher share-based compensation of $0.5 million and higher software subscription costs of $0.4 million.

Current wording

Cost of service increased by $1.9 million, or 12%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was primarily the result of increased personnel costs of $1.0 million, inclusive of a $0.7 million increase in share-based compensation.

Previous wording

Amortization of acquired technology increased by $0.5 million, or 12%, and includes amortization expense for technology acquired in the Thoma Bravo Funds’ acquisition of our company in 2014, business combinations, and asset acquisitions.

Current wording

Amortization of acquired technology increased by $0.5 million, or 13%, and includes amortization expense for technology acquired in the Thoma Bravo Funds’ acquisition of our company in 2014, business combinations, and asset acquisitions. The increase was driven by the amortization of acquired technology associated with our acquisitions of Rookout, Ltd. in August 2023 and Runecast Solutions Limited in March 2024.

Previous wording

Service gross profit decreased slightly during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and service gross margin remained consistent at 5%. The decrease in gross profit was primarily due to higher share-based compensation expense.

Current wording

Service gross profit decreased by $0.8 million, or 53%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Service gross margin decreased from 9% to 4% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease in gross profit and gross margin was primarily due to increased personnel costs and share-based compensation expense.

Previous wording

Research and development expenses increased by $21.3 million, or 32%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase was due to increased personnel costs of $9.8 million to expand our product offerings and higher share-based compensation of $8.3 million. Also contributing were higher software subscription costs of $1.8 million and cloud-based hosting costs of $1.1 million.

Current wording

Research and development expenses increased by $21.3 million, or 29%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was primarily the result of increased personnel costs of $18.8 million, inclusive of a $8.4 million increase in share-based compensation, largely due to headcount growth to support the continued expansion of functionality and capabilities of the Dynatrace platform.

Previous wording

Sales and marketing expenses increased by $20.0 million, or 16%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily driven by an increase in personnel costs of $10.8 million and higher share-based compensation of $2.0 million. Further contributing to the increase were higher commissions of $3.0 million, increased partner fees of $2.5 million, and increased software subscription costs of $2.0 million.

Current wording

Sales and marketing expenses increased by $16.6 million, or 13%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was primarily due to increased personnel costs of $10.9 million, inclusive of a $1.9 million increase in share-based compensation. Further contributing to the increase was increased marketing program costs and partner cost of $2.0 million.

Previous wording

Amortization of other intangibles decreased by $1.0 million, or 17%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The decrease was primarily the result of lower amortization for certain intangible assets that are amortized on a systematic basis that reflects the pattern in which the economic benefits of the intangible assets are estimated to be realized and the completion of amortization on certain intangibles.

Current wording

Amortization of other intangibles decreased by $0.9 million, or 15%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The decrease was primarily the result of lower amortization for certain intangible assets that are amortized on a systematic basis that reflects the pattern in which the economic benefits of the intangible assets are estimated to be realized and the completion of amortization on certain intangibles.

Previous wording

Interest income, net, was $12.8 million for the three months ended June 30, 2024 compared to $7.1 million for the three months ended June 30, 2023. The increase in interest income was primarily the result of higher interest rates on our cash, cash equivalents, and investments.

Current wording

Interest income, net, was $12.9 million for the three months ended September 30, 2024 compared to $8.5 million for the three months ended September 30, 2023. The increase in interest income was primarily the result of higher interest rates on our cash, cash equivalents, and investments.

Previous wording

Other expense, net, was $2.0 million for the three months ended June 30, 2024 compared to income of $0.3 million for the three months ended June 30, 2023. The change was primarily the result of foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency, including balances between subsidiaries.

Current wording

Other expense, net, was $2.0 million for the three months ended September 30, 2024 compared to $3.1 million for the three months ended September 30, 2023. The change was primarily the result of foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency, including balances between subsidiaries.

Previous wording

Income tax expense increased by $10.6 million resulting in an expense of $14.1 million for the three months ended June 30, 2024 as compared to an expense of $3.5 million for the three months ended June 30, 2023. This increase was primarily due to an expected decrease in share-based compensation benefits.

Current wording

Income tax expense increased by $8.9 million resulting in an expense of $13.8 million for the three months ended September 30, 2024 as compared to an expense of $4.9 million for the three months ended September 30, 2023. This increase was primarily due to an increase in pre-tax income, a non-recurring discrete benefit recognized in the prior year related to a tax law change, and a decrease in share-based compensation tax benefits.

Previous wording

Subscription gross profit increased by $54.5 million, or 20%, during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and subscription gross margin remained consistent at 86%. The increase in gross profit was primarily due to the growth of the Dynatrace platform by new customers combined with existing customers expanding their use of our solutions.

Current wording

Subscription revenue increased by $130.4 million, or 20%, for the six months ended September 30, 2024, as compared to the six months ended September 30, 2023, primarily due to the growth of the Dynatrace platform by adding new customers combined with existing customers expanding their use of our solutions.

Previous wording

We have historically maintained a disciplined and balanced approach to optimizing costs and improving the efficiency and profitability of our business, while continuing to invest in future growth opportunities that we expect will drive long-term value. Our principal sources of liquidity are cash and cash equivalents, marketable securities (investments) and cash provided by operating activities. From time to time, we may borrow under our revolving credit facility. As of June 30, 2024, we had $930.3 million of cash and cash equivalents, $136.9 million of investments, consisting of U.S. Treasury securities, commercial paper, corporate debt securities, and U.S. agency securities that have maturities between one and 30 months, and $399.2 million available under our revolving credit facility.

Current wording

We have historically maintained a disciplined and balanced approach to optimizing costs and improving the efficiency and profitability of our business, while continuing to invest in future growth opportunities that we expect will drive long-term value. Our principal sources of liquidity are cash and cash equivalents, marketable securities (investments) and cash provided by operating activities. From time to time, we may borrow under our Credit Facility. As of September 30, 2024, we had $907.2 million of cash and cash equivalents, $146.1 million of investments, consisting of U.S. Treasury securities, corporate debt securities, commercial paper, and U.S. agency securities, that have maturities between one and 27 months, and $399.2 million available under our Credit Facility.

Previous wording

Our material cash requirements from known contractual and other obligations consist of our rent payments required under operating lease agreements and non-cancelable purchase obligations for cloud hosting support. As of June 30, 2024, total contractual commitments were $387.7 million, with $113.7 million committed within the next 12 months.

Current wording

Our material cash requirements from known contractual and other obligations consist of our rent payments required under operating lease agreements and non-cancelable purchase obligations for cloud hosting support. As of September 30, 2024, total contractual commitments were $363.5 million, with $91.9 million committed within the next 12 months.

Previous wording

We announced a share repurchase program for up to $500.0 million of common stock on May 15, 2024. For the three months ended June 30, 2024, we repurchased and retired approximately 1.1 million shares of our common stock at an average price of $45.84 for a total of $50.1 million, of which $1.6 million has not been settled in cash as of June 30, 2024. As of June 30, 2024, $449.9 million remained available for future repurchases. For additional information, please see Part II, Item 2 of this Quarterly Report.

Current wording

We announced a share repurchase program for up to $500.0 million of common stock on May 15, 2024. For the three and six months ended September 30, 2024, we repurchased and retired 0.8 million and 1.9 million shares of our common stock for a total of $40.0 million and $90.1 million, respectively. As of September 30, 2024, $409.9 million remained available for future repurchases. For additional information, please see Part II, Item 2 of this Quarterly Report.

Previous wording

For the three months ended June 30, 2024, cash provided by operating activities was $230.7 million as a result of net income of $38.6 million, and adjusted by non-cash charges of $50.6 million and a change of $141.5 million in our operating assets and liabilities. The non-cash charges were primarily comprised of share-based compensation of $57.7 million and depreciation and amortization of $14.0 million, partially offset by deferred income taxes of $22.6 million. The change in our net operating assets and liabilities was primarily the result of a decrease in accounts receivable of $355.4 million due to the timing of receipts of payments from customers, partially offset by a decrease in deferred revenue of $131.5 million due to seasonality in our sales cycle, which is higher in the third and fourth quarters of our fiscal year, a decrease in accounts payable and accrued expenses of $78.3 million driven by timing of payments, including the payments of our annual bonus plans and year-end commissions, and an increase in prepaid expenses and other assets of $8.1 million driven by the timing of payments in advance of future services.

Current wording

For the six months ended September 30, 2024, cash provided by operating activities was $254.4 million as a result of net income of $82.6 million, and adjusted by non-cash charges of $121.4 million and a change of $50.3 million in our operating assets and liabilities. The non-cash charges were primarily comprised of share-based compensation of $129.4 million and depreciation and amortization of $28.0 million, partially offset by deferred income taxes of $39.1 million. The change in our net operating assets and liabilities was primarily the result of a decrease in accounts receivable of $300.1 million due to the timing of receipts of payments from customers, partially offset by a decrease in deferred revenue of $199.5 million due to seasonality in our sales cycle, which is higher in the third and fourth quarters of our fiscal year, a decrease in accounts payable and accrued expenses of $30.5 million driven by timing of payments, including the payments of our annual bonus plans and year-end commissions, and an increase in prepaid expenses and other assets of $14.1 million driven by the timing of payments in advance of future services.

Previous wording

For the three months ended June 30, 2023, cash provided by operating activities was $133.9 million as a result of net income of $38.2 million, and adjusted by non-cash charges of $34.6 million and a change of $61.1 million in our operating assets and liabilities. The non-cash charges were primarily comprised of share-based compensation of $40.5 million, depreciation and amortization of $13.6 million, partially offset by deferred income taxes of $19.3 million. The change in our net operating assets and liabilities was primarily the result of a decrease in accounts receivable of $204.2 million due to the timing of receipts of payments from customers and a decrease in deferred commissions of $8.5 million due to commissions paid on new bookings. Partially offsetting this was a decrease in deferred revenue of $95.9 million due to seasonality in our sales cycle, which is higher in the third and fourth quarters of our fiscal year, a decrease in accounts payable and accrued expenses of $39.6 million driven by timing of payments, and an increase in prepaid expenses and other assets of $16.4 million driven by the timing of payments in advance of future services.

Current wording

For the six months ended September 30, 2023, cash provided by operating activities was $170.8 million as a result of net income of $74.0 million, and adjusted by non-cash charges of $93.4 million and a change of $3.4 million in our operating assets and liabilities. The non-cash charges were primarily comprised of share-based compensation of $98.5 million, depreciation and amortization of $27.1 million, partially offset by deferred income taxes of $35.2 million. The change in our net operating assets and liabilities was primarily the result of a decrease in accounts receivable of $177.7 million due to the timing of receipts of payments from customers and a decrease in deferred commissions of $9.0 million due to commissions paid on new bookings. Partially offsetting this was a decrease in deferred revenue of $128.5 million due to seasonality in our sales cycle, which is higher in the third and fourth quarters of our fiscal year, a decrease in accounts payable and accrued expenses of $33.2 million driven by timing of payments, and an increase in prepaid expenses and other assets of $22.9 million driven by the timing of payments in advance of future services.

Previous wording

Cash used in investing activities during the three months ended June 30, 2024 was $35.6 million, primarily as a result of purchases of investments, net of sales and maturities, of $32.1 million and purchases of property and equipment of $3.4 million.

Current wording

Cash used in investing activities during the six months ended September 30, 2024 was $46.6 million, primarily as a result of purchases of investments, net of sales and maturities, of $39.6 million and purchases of property and equipment of $6.9 million.

Previous wording

Cash used in financing activities during the three months ended June 30, 2024 was $42.8 million, primarily as a result of repurchases of common stock of $48.6 million and taxes paid related to net share settlement of equity awards of $8.3 million, partially offset from proceeds from our employee stock purchase plan of $10.4 million and proceeds from the exercise of our stock options of $4.2 million.

Current wording

Cash used in financing activities during the six months ended September 30, 2024 was $84.6 million, primarily as a result of repurchases of common stock of $90.1 million and taxes paid related to net share settlement of equity awards of $12.0 million, partially offset from proceeds from our employee stock purchase plan (“ESPP”) of $10.4 million and proceeds from the exercise of our stock options of $8.8 million.

Previous wording

Cash provided by financing activities during the three months ended June 30, 2023 was $22.8 million, as a result of proceeds from the exercise of our stock options of $13.2 million and proceeds from our employee stock purchase plan of $9.6 million.

Current wording

Cash provided by financing activities during the six months ended September 30, 2023 was $26.2 million, as a result of proceeds from the exercise of our stock options of $16.6 million and proceeds from our ESPP of $9.6 million.

Previous wording

There have been no significant changes in our critical accounting policies and estimates during the three months ended June 30, 2024 as compared to the critical accounting policies and estimates disclosed in our Annual Report. For a full discussion of these estimates and policies, see “Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

Current wording

There have been no significant changes in our critical accounting policies and estimates during the six months ended September 30, 2024 as compared to the critical accounting policies and estimates disclosed in our Annual Report. For a full discussion of these estimates and policies, see “Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.