Dynatrace Reports Fourth Quarter and Full Year Fiscal 2022 Financial Results

·19 min read

Delivers Adjusted ARR growth of 35% year-over-year

WALTHAM, Mass, May 18, 2022--(BUSINESS WIRE)--Software intelligence company Dynatrace (NYSE: DT) today released financial results for the fourth quarter and full year fiscal 2022 ended March 31, 2022. Dynatrace also announced today that Kevin Burns, its Chief Financial Officer, will be leaving at the end of calendar year 2022. Dynatrace has initiated a search for a new CFO, and Mr. Burns will work to ensure a smooth transition of his duties once a new CFO is appointed.

"Dynatrace delivered an extremely strong fourth quarter, closing out fiscal 2022 with 35% Adjusted ARR growth for the second straight year," said Rick McConnell, Chief Executive Officer. "I am proud of the Dynatrace team for having now crossed the $1 billion dollar threshold in annualized revenue during the quarter, all while delivering strong profitability and free cash flow. Digital transformation and cloud migration trends continue to grow at a rapid pace and serve as the foundation for significant future growth. The combination of our material ongoing innovation coupled with expanding routes to market with key partnerships provides Dynatrace with strong momentum to capture the sizable market opportunity ahead of us."

All growth rates are compared to the fourth quarter and full year of fiscal 2021 unless otherwise noted.

Fourth Quarter Fiscal 2022 Financial Highlights:

  • Total ARR of $995 million, Adjusted ARR growth of 35% year-over-year

  • Total Revenue of $253 million, up 31% on a constant currency basis

  • Subscription Revenue of $235 million, up 31% on a constant currency basis

  • GAAP Operating Income of $18 million and Non-GAAP Operating Income of $58 million

  • GAAP EPS of $0.00 and non-GAAP EPS of $0.17, on a dilutive basis

Full Year Fiscal 2022 Financial Highlights:

  • Total Revenue of $929 million, up 32% on a constant currency basis

  • Subscription Revenue of $870 million, 32% on a constant currency basis

  • GAAP Operating Income of $81 million and Non-GAAP Operating Income of $234 million

  • GAAP EPS of $0.18 and non-GAAP EPS of $0.68, on a dilutive basis

  • Unlevered Free Cash Flow of $234 million, or 25% of revenue

Business Highlights:

  • Platform innovation: Delivered general availability of the Dynatrace® platform as native SaaS on Microsoft Azure and Google Cloud Platform in addition to existing availability through Amazon Web Services. Enhanced the Dynatrace® Application Security Module with real-time attack blocking capabilities. Enabled development teams to bring higher quality, more secure code to market faster by making Dynatrace observability, application security, and advanced AIOps capabilities available as code.

  • Go-to-market momentum: Grew new logos by 21% in fiscal 2022, adding 205 new logos to the Dynatrace® platform in the fourth quarter, for a total of 706 new logos added this year. Sustained a net expansion rate at or above 120% for the sixteenth consecutive quarter.

  • Partnership expansion: New ARR transacted through hyperscaler partnerships, including AWS, Google, Microsoft, more than tripled compared to the same period last year. Deloitte selected the Dynatrace platform to power its expanded observability practice (announced today). Enhanced Dynatrace Partner Program with new DevSecOps Automation Partner Program, enabling partners to extend the value of their solutions through seamless integrations with the Dynatrace® platform and providing DevSecOps teams with easy access to the industry’s leading solutions.

Executive Leadership Update

"On behalf of the entire Dynatrace team, I’d like to thank Kevin for his many contributions since joining the company in 2016," said Rick McConnell, Chief Executive Officer. "He has played an integral role in positioning Dynatrace for long term success, including the transformation of our business model and successful IPO. We are fortunate to have a strong and deep finance team, and we are intent on the successful recruitment of a world-class CFO. I very much appreciate Kevin’s commitment to a smooth transition over the coming months."

"The past six years at Dynatrace have been an incredible experience. It has been a privilege to work alongside this very talented group of people to grow this company into a billion-dollar business," said Burns. "Heading into fiscal 2023, Dynatrace’s position in the market has never been stronger. I am very proud of Dynatrace’s accomplishments and believe it is well positioned to continue to deliver significant growth and profitability in the future."

Fourth Quarter 2022 Financial Highlights

(Unaudited – In thousands, except per share data)

Three Months Ended March 31,

2022

2021

Key Operating Metric:

Annualized recurring revenue

$

995,121

$

774,090

Year-over-Year Increase

29

%

Adjusted ARR Growth

35

%

Revenue:

Total revenue

$

252,585

$

196,504

Year-over-Year Increase

29

%

Total revenue - constant currency (*)

$

257,911

$

196,504

Year-over-Year Increase

31

%

Subscription revenue

$

234,974

$

182,842

Year-over-Year Increase

29

%

Subscription revenue - constant currency (*)

$

239,937

$

182,842

Year-over-Year Increase

31

%

Non-GAAP Financial Measures:

Non-GAAP operating income (*)

$

57,656

$

49,478

Non-GAAP operating margin (*)

23

%

25

%

Non-GAAP net income (*)

$

48,287

$

43,371

Non-GAAP net income per share - diluted

$

0.17

$

0.15

Non-GAAP shares outstanding - diluted

290,339

288,067

Unlevered Free Cash Flow (*)

$

82,306

$

85,602

Full Year 2022 Financial Highlights

(Unaudited – In thousands, except per share data)

Year Ended March 31,

2022

2021

Revenue:

Total revenue

$

929,445

$

703,509

Year-over-Year Increase

32

%

Total revenue - constant currency (*)

$

925,281

$

703,509

Year-over-Year Increase

32

%

Subscription revenue

$

870,385

$

655,180

Year-over-Year Increase

33

%

Subscription revenue - constant currency (*)

$

866,533

$

655,180

Year-over-Year Increase

32

%

Non-GAAP Financial Measures:

Non-GAAP operating income (*)

$

233,766

$

207,251

Non-GAAP operating margin (*)

25

%

29

%

Non-GAAP net income (*)

$

197,502

$

180,056

Non-GAAP net income per share - diluted

$

0.68

$

0.63

Non-GAAP shares outstanding - diluted

290,903

286,509

Unlevered Free Cash Flow (*)

$

234,265

$

237,055

* 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 Investors section of our website at https://ir.dynatrace.com.

Financial Outlook

Our guidance is based on foreign exchange rates as of April 30, 2022. Since March 31, 2022, the U.S. dollar has continued to strengthen, which results in a sizeable foreign exchange ("FX") headwind. For fiscal 2023, we expect a total FX headwind to be approximately $20 million dollars on ARR and revenue.

In addition, on March 8, 2022, we announced that we suspended business in Russia and Belarus which results in a headwind of approximately $6 million dollars on ARR and revenue for fiscal 2023.

Growth rates for Adjusted ARR, Total revenue, and Subscription revenue are presented in constant currency in the table below to provide better visibility into the underlying growth of the business.

Based on information available, as of May 18, 2022, Dynatrace is issuing guidance for the first quarter fiscal 2023 and full year fiscal 2023 as follows:

All growth rates are compared to the first quarter and full year of fiscal 2022 unless otherwise noted.

(In millions, except per share data)

First Quarter

Fiscal 2023

Full Year

Fiscal 2023

Total ARR

$1,250 - $1,265

As reported

26% - 27%

Constant currency

28% - 29%

Adjusted ARR growth

29% - 30%

Total revenue

$261 - $263.5

$1,142 - $1,158

As reported

24% - 26%

23% - 25%

Constant currency

29% - 31%

27% - 28%

Subscription revenue

$244.5 - $246.5

$1,071 - $1,086

As reported

24% - 25%

23% - 25%

Constant currency

29% - 30%

27% - 28%

Non-GAAP operating income

$60 - $62

$257 - $266

Non-GAAP net income

$50 - $52

$216 - $225

Non-GAAP net income per diluted share

$0.17 - $0.18

$0.74 - $0.77

Diluted weighted average shares outstanding

291 - 292

292 - 294

Free cash flow

$330 - $345

Free cash flow margin

29% - 30%

Reconciliation of non-GAAP operating income, non-GAAP net income, non-GAAP net income per share and free cash flow guidance to the most directly comparable GAAP measures is 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 at 8:00 a.m. Eastern Time today, May 18, 2022. To access the conference call from the U.S. and Canada, dial (866) 405-1247, or internationally, dial (201) 689-8045 with event confirmation #: 13728998. 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 May 26, 2021, by dialing (877) 660-6853 from the U.S. or Canada, or for international callers by dialing (201) 612-7415 and entering event confirmation #: 13728998. In addition, an archived webcast will be available at ir.dynatrace.com.

The company has used, and intends to continue to use, the investor relations portion of its website as a means of disclosing material non-public information and for complying with 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 business performed excluding the effect of foreign currency 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 prior fiscal year. 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.

Adjusted ARR is defined as ARR excluding the impact of foreign exchange rate fluctuations that occurred over the trailing twelve month period. This calculation also excludes the headwind associated with the Dynatrace® perpetual license ARR that rolled off in the trailing twelve month period.

Adjusted ARR Growth is defined as year-over-year growth in Adjusted ARR divided by ARR as reported.

Dynatrace® Net Expansion Rate 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. This calculation excludes the benefit of Dynatrace® ARR resulting from the conversion of Classic products to the Dynatrace® platform. Given that perpetual license ARR continues to diminish, we will begin to exclude the headwind associated with the Dynatrace perpetual license ARR effective the first quarter of fiscal year 2023. We believe that eliminating the perpetual license headwind will result in a Net Expansion Rate metric that better reflects Dynatrace’s ability to expand existing customer relationships.

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.

Unlevered Free Cash Flow is defined as net cash provided by (used in) operating activities and adjusted to exclude cash paid for interest (net of tax), non-recurring restructuring and acquisition related costs, along with costs associated with one-time offerings and filings, less cash used in investing activities for acquisition of property and equipment. However, given our debt obligations, unlevered free cash flow does not represent residual cash flow available for discretionary expenses.

Free Cash Flow is defined as net cash provided by (used in) operating activities less capital expenditures.

About Dynatrace

Dynatrace exists to make the world’s software work perfectly. Our unified software intelligence 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 is why the world’s largest organizations trust Dynatrace® 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 of future financial and operational performance and operational expenditures, expected growth, and business outlook, including our financial guidance for the first quarter and full year of fiscal 2023, and statements regarding the size of our market and our positioning for capturing a larger share of our market. 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 "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, the effect of the COVID-19 pandemic on our business operations and demand for our products as well as its impact on general economic and financial market conditions; our ability to maintain our subscription revenue growth rates in future periods, our ability to service our level of indebtedness, market adoption of software intelligence solutions for application performance monitoring, digital experience monitoring, infrastructure monitoring, AIOps, business intelligence and analytics and application security, continued spending on and demand for software intelligence solutions, our ability to maintain and acquire new customers, our ability to differentiate our platform from competing products and technologies; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our most recently filed Form 10-Q filed on February 2, 2022 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.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended
March 31,

Twelve Months Ended
March 31,

2022

2021

2022

2021

(unaudited)

Revenue:

Subscription

$

234,974

$

182,842

$

870,385

$

655,180

License

2

109

54

1,446

Service

17,609

13,553

59,006

46,883

Total revenue

252,585

196,504

929,445

703,509

Cost of revenue:

Cost of subscription

31,245

22,073

111,646

77,488

Cost of service

12,796

9,432

45,717

34,903

Amortization of acquired technology

3,875

3,830

15,513

15,317

Total cost of revenue

47,916

35,335

172,876

127,708

Gross profit

204,669

161,169

756,569

575,801

Operating expenses:

Research and development

42,833

31,668

156,342

111,415

Sales and marketing

101,300

74,805

362,116

245,487

General and administrative

35,368

25,140

126,622

92,219

Amortization of other intangibles

7,539

8,687

30,157

34,744

Restructuring and other

17

25

40

Total operating expenses

187,040

140,317

675,262

483,905

Income from operations

17,629

20,852

81,307

91,896

Interest expense, net

(2,234

)

(3,035

)

(10,192

)

(14,205

)

Other income (expense), net

1,889

(2,582

)

544

162

Income before income taxes

17,284

15,235

71,659

77,853

Income tax (expense) benefit

(16,355

)

11,719

(19,208

)

(2,139

)

Net income

$

929

$

26,954

$

52,451

$

75,714

Net income per share:

Basic

$

0.00

$

0.10

$

0.18

$

0.27

Diluted

$

0.00

$

0.09

$

0.18

$

0.26

Weighted average shares outstanding:

Basic

285,349

281,726

284,161

280,469

Diluted

290,339

288,067

290,903

286,509

SHARE-BASED COMPENSATION

Three Months Ended
March 31,

Twelve Months
Ended March 31,

2022

2021

2022

2021

(unaudited)

Cost of revenue

$

3,321

$

1,877

$

12,863

$

7,307

Research and development

5,985

3,018

21,316

11,684

Sales and marketing

9,470

6,146

35,957

24,153

General and administrative

8,810

3,652

29,400

14,640

Total share-based compensation expense

$

27,586

$

14,693

$

99,536

$

57,784

DYNATRACE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

March 31,

2022

2021

Assets

Current assets:

Cash and cash equivalents

$

462,967

$

324,962

Accounts receivable, net

350,666

242,079

Deferred commissions, current

62,601

48,986

Prepaid expenses and other current assets

72,188

64,255

Total current assets

948,422

680,282

Property and equipment, net

45,271

36,916

Operating lease right-of-use asset, net

58,849

42,959

Goodwill

1,281,876

1,271,195

Other intangible assets, net

105,736

149,484

Deferred tax assets, net

28,106

16,811

Deferred commissions, non-current

63,435

48,638

Other assets

9,615

9,933

Total assets

$

2,541,310

$

2,256,218

Liabilities and shareholders' equity

Current liabilities:

Accounts payable

$

22,715

$

9,621

Accrued expenses, current

141,556

119,527

Deferred revenue, current

688,554

509,272

Operating lease liabilities, current

12,774

9,491

Total current liabilities

865,599

647,911

Deferred revenue, non-current

25,783

47,504

Accrued expenses, non-current

19,409

16,072

Operating lease liabilities, non-current

52,070

38,203

Deferred tax liabilities

85

1,014

Long-term debt

273,918

391,913

Total liabilities

1,236,864

1,142,617

Shareholders' equity:

Common shares, $0.001 par value, 600,000,000 shares authorized, 286,053,276 and 283,130,238 shares issued and outstanding at March 31, 2022 and 2021, respectively

286

283

Additional paid-in capital

1,792,197

1,653,328

Accumulated deficit

(461,348

)

(513,799

)

Accumulated other comprehensive loss

(26,689

)

(26,211

)

Total shareholders' equity

1,304,446

1,113,601

Total liabilities and shareholders' equity

$

2,541,310

$

2,256,218

DYNATRACE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended March 31,

2022

2021

Cash flows from operating activities:

Net income

$

52,451

$

75,714

Adjustments to reconcile net income to cash provided by operations:

Depreciation

10,638

9,022

Amortization

46,238

51,942

Share-based compensation

99,536

57,784

Deferred income taxes

(12,401

)

(7,036

)

Other

1,486

1,845

Net change in operating assets and liabilities:

Accounts receivable

(108,848

)

(81,992

)

Deferred commissions

(29,533

)

(16,323

)

Prepaid expenses and other assets

(8,108

)

5,669

Accounts payable and accrued expenses

35,946

26,592

Operating leases, net

1,353

731

Deferred revenue

162,159

96,488

Net cash provided by operating activities

250,917

220,436

Cash flows from investing activities:

Purchase of property and equipment

(17,695

)

(14,076

)

Capitalized software costs

197

Acquisition of businesses, net of cash acquired

(13,195

)

Net cash used in investing activities

(30,890

)

(13,879

)

Cash flows from financing activities:

Repayment of term loans

(120,000

)

(120,000

)

Proceeds from employee stock purchase plan

13,913

9,195

Proceeds from exercise of stock options

25,489

13,052

Equity repurchases

(66

)

(49

)

Net cash used in financing activities

(80,664

)

(97,802

)

Effect of exchange rates on cash and cash equivalents

(1,358

)

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