Dynatrace, Inc.

call out that all references to growth rates will be in constant currency unless otherwise noted. Also, please note that with our global presence and European R&D footprint, we look at our business as generally hedged from a P&L perspective. Over the last 12 months, we have seen two points of negative impact from currency and on top line. We expect the mix of the business to drive an FX tailwind in the second half which will essentially neutralize currency impact on revenue for the year. Our guidance continues to reflect these changes and should pose minimal risk to our outlook. I'd also like to give a brief update on how COVID-19 is impacting our business. The highly affected industries we outlined in previous quarters, which represent about 20% of our business and include areas such as transportation, hospitality, retail and energy, continue to hold up well in Q2 as renewals of existing customers remain strong. Now, more than ever, customers in all industries recognize the importance of digital transformation and the automation and intelligence that Dynatrace can deliver. One of the great things about our business model is that it is resilient and predictable. With these attributes and our visibility into the pipeline, we feel confident about executing our plans. As a result, we are raising guidance for fiscal 21. We are raising our ARR guidance to $721 to $727 million, representing 25 to 26 percent growth. We are raising our total revenue to $668 million to $675 million, representing year-over-year growth of 22 to 24 percent. and we are raising our subscription revenue to $624 to $630 million, representing year-over-year growth of 28 to 29%. For the full year, we expect non-GAAP operating income to be in a range of $186 to $191 million, and our non-GAAP EPS of 55 to 57 cents per share. As discussed on prior calls and at our investor day, We are a growth company with a lot of runway ahead of us. We believe we are well positioned to deliver against our goal of building a multi-billion dollar category leader. As such, we plan to continue to accelerate investments to support ongoing platform innovation and commercial expansion efforts. Operating margins are expected to be very healthy in the second half of the fiscal year, but lower than Q2, which ran well ahead of our expectations primarily due to the strength of our revenue. I would also note that we anticipate tax expense to be in the range of $6 to $8 million in the back half. Our full-year guidance includes an annual effective cash tax rate of approximately 8% compared to our previous guidance of 11%. And to reiterate, we continue to expect unlevered free cash flow margins to be approximately 29% to 30%. resulting in $192 to $200 million of unlevered free cash flow. Turning to the third quarter, we expect total revenue to be in a range of $171 to $173 million, representing year-over-year growth of 18 to 20 percent. We expect Q3 subscription revenue to be in a range of $160.5 to $162 million representing year-over-year growth of 24% to 25%. From a profit standpoint in Q3, we expect non-GAAP operating income to be in a range of $43 to $45 million, 25% to 26% of revenue, and non-GAAP EPS of $0.12 to $0.13 per share. In summary, we are very pleased with our second quarter performance and are committed to operating the business as a Rule 50 company. We believe Dynatrace's financial profile is highly unique, including meaningful scale, strong growth, healthy profitability, and cash flow. With a large TAM in front of us and a market-leading position, we believe the company continues to be very well positioned to achieve our goal of becoming a multibillion-dollar category leader. With that, we'll take your questions. Operator?

Thank you. At this time, I would like to remind everyone, if you would like to ask a question, simply press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from with William Blair.

Thanks for taking my question, and congrats. That was a really solid set of numbers there. I guess I wanted to touch really quickly on two pieces, one a little more strategic about the TAM. So you obviously talked about the TAM, John, at the analyst day. But I guess, you know, as you look at the complexity of what every company is going through and the digital transformation that even mid-sized companies are going through, why not go below that sort of Fortune 15,000? Why not sort of maybe move not to small businesses, but to mid-sized businesses that may have a service desk that may have, a website and more than a website, multiple applications, multiple products. How should we think about the idea of expanding down market to sort of even further increase the TAM that you serve?