Dynatrace, Inc.

Greetings and welcome to the Dynatrace Fiscal Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Noelle Farris, Vice President of Investor Relations. Please go ahead.

Great. Thank you, Operator, and good morning, everyone. With me on the call today are John Van Sicklen, Chief Executive Officer, and Kevin Burns, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding revenue and earnings guidance. These forward-looking statements are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information concerning these factors is contained in Dynatrace's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements included in this call represent the company's views on February 3rd, 2021. Dynatrace disclaims any obligation to update these statements to reflect future events or circumstances. As a reminder, we will be referring to some non-GAAP financial measures during today's call. A detailed reconciliation of GAAP and non-GAAP measures can be found on the Investor Relations section of our website. And with that, let me turn the call over to our Chief Executive Officer, John Van Sicklen. John?

Thanks, Noelle. Good morning, everyone, and thank you for joining us on our Q3 Fiscal 2021 Earnings Call. I am pleased to report that we had another strong quarter across all of our key operating metrics. ARR was $722 million of existing customers and an inherently efficient business model. Based on the strength of our Q3 results, we are raising our guidance across the board for fiscal 2021, which Kevin will provide more details on shortly. There are three main factors driving our success in the market and ultimately resulting in our strong financial performance. The first is strong long-term market trends. Second, the investments we're making in go-to-market and commercial expansion are paying off. Third, our commitment to continuous innovation is solving a wider range of problems for our customers and keeping us well ahead of competition. I'll walk you through each of these factors and share why we believe they position us for sustained growth well into the future. First, long-term market trends continue to be in our favor. Companies around the globe and in every industry are undergoing digital transformations at an accelerated pace. And these transformations are happening in dynamic multi-clouds which leverage continuously changing container and microservice architectures. We saw many examples of this during last quarter, such as a large energy provider in the U.S. digitally transforming to a Tanzu hybrid cloud platform to stop coal use and reduce CO2 emissions by 70% over the next 10 years, all while delivering smart home energy services to their millions of consumers. a large brick-and-mortar retailer rapidly transforming to an open-shift Kubernetes platform to drive omni-channel engagement, new curbside services, and new revenue streams like accepting and processing Amazon returns, and state governments and pharmacy chains using DevOps and cloud-native application platforms to rapidly roll out online vaccine information scheduling and tracking services. All these and more are powered by Dynatrace to enable greater speed, agility, and efficiency sought by CIOs and CTOs today as modern cloud complexity and scale stretches beyond their team's ability to keep pace. Automation and intelligence to tame this complexity, free up resources, and speed transformation are becoming requirements. One of our banking customers recently told me that Dynatrace has been the, quote, killer app, unquote, behind their digital transformation, adding value and automation across a wide variety of bank services, applications, and IT use cases. We heard from a new healthcare customer who had been struggling to get a Gen 2 observability solution deployed that Dynatrace has been, quote, a knockout, unquote, deployed over a weekend, providing value across their cloud environment immediately. And a large government customer recently integrated us with ServiceNow and has reported dramatically reduced incident response times for several recurring issues, cutting them from hours to seconds. We invested early in automation and intelligence capabilities to allow digital transformers to do more with less, to gain time for innovation and business advantage, And those investments continue to give us a well-differentiated advantage as market trends move in our favor. Having a well-differentiated solution in a rapidly growing market brings me to the second factor driving our success and strong financial performance. And that is our step-up in strategic go-to-market and commercial expansion investments. We're doubling down in several key areas to take advantage of the market momentum and opportunities. We've talked about growing our sales organization at 20 percent to 25 percent this year, and Q3 results showed that these investments are paying off. We added 189 new logos this past quarter, back above pre-pandemic levels. New logo wins were across a diverse set of industries, geographies, and government agencies, including Hyundai, Edward Jones & Company, the Texas Department of Health, Echo Star, and Denmark Radio. The value advantages enabled by the advanced automation and intelligence of our platform are resonating with customers. Whether they are replacing APM solutions, transitioning to observability platforms, or challenged with the tool fatigue of do-it-yourself approaches, we are winning new logos in all scenarios. In addition, we maintained a net expansion rate above 120% for the 11th consecutive quarter. Expansion deals were equally diverse, including enterprises such as Santander Bank, public supermarkets, 3M, and the Department of Works and Pension in the UK. Upselling our market-leading APM module to support more applications and workloads continues to fuel the majority of our expansions. At the same time, cross-selling continues to gain strength, with 33% of our customers now using 3-plus modules, up from 24% a year ago. And nearly 40% are now using our infrastructure module for non-full-stack workloads that support their cloud operations, such as directories, firewalls, load balancers, and more. We are seeing a steady rise in customers leveraging the value of our platform, for new and expanded use cases and automations as they digitally transform. Given the solid execution of our sales team and momentum in the market, we are now planning to accelerate the growth rate of primary quota carrying reps into the 25 percent to 30 percent range. We've kept our foot on the gas throughout the pandemic and are now scaling up commercial expansion to capture greater share and drive continued strong growth. And while our direct sales force is responsible for a majority of our business today, we know there is an opportunity to grow faster by expanding our leverage and reach through cloud partners. Over the past couple of quarters, we have been focused on expanding our tech alliances with the three major hyperscalers, AWS, Microsoft, and Google. As you know, we've had a longstanding and close relationship with AWS, as a premier partner and continue to scale this out. And I'm pleased with the progress we made to advance our Google Cloud Platform and Microsoft Azure relationships. First, with Google Cloud Platform, we have expanded our strategic partnership to include go-to-market collaboration with joint marketing efforts and a unified go-to-market motion with sales incentives for both teams. In addition, we have streamlined contract and procurement processes by allowing Dynatrace purchases to flow through the GCP marketplace and be applied against GCP pre-committed spend. Second, we have enhanced our partnership with Microsoft Azure as well. Similar to our longstanding relationship with AWS and in line with our expanded relationship with Google, we have expanded our collective go-to-market motion and co-selling arrangements, and we are actively enhancing our frictionless buying experience through Microsoft Azure's console integration. We are very pleased with these strengthened strategic cloud partnerships, and today we believe we are the only observability platform whose customers can use their committed spend through private offers in all three marketplaces. Private offerings in the marketplaces are the preferred cloud buying mechanism for many enterprises, and this allows our customers the flexibility to choose where to deploy Dynatrace and do it easily and efficiently. Before I leave go-to-market investments, let me add a comment on our annual user conference, Perform, which is coming up next week. This year we are expecting over 20,000 registered attendees. That's 10 times more than we had for the physical event last year. Certainly the shift to a virtual event is driving attendance up, but so is the awareness of Dynatrace in the market and the unique benefits of our platform. We're excited to be reaching such a broad global audience, many of whom are prospective customers within our target global 15,000 enterprise accounts. Now to the third factor driving our success and strong financial performance, and that is our continuous innovation. Our highly talented product team listens intently to our customers and turns these insights into a continuous stream of innovation to advance our differentiation and increase our value advantage. Last quarter, we released the fourth generation of our patented PurePath distributed tracing technology. PurePath 4 now provides the deepest, most complete, and fully automatic distributed tracing for modern cloud environments, including those extended with OpenTelemetry and OpenTrace. As modern cloud applications become more dynamic, increase in scale, and explode in complexity, advanced levels of distributed tracing are required for precise understanding and immediate actionability for troubleshooting, optimization, and proactive remediation use cases. In December, we announced our entry into the cloud application security market. As we did with cloud observability, we are leveraging the disruptive forces of modern dynamic clouds to enter this market targeting where the puck is going. As modern cloud DevOps processes accelerate innovation and change, and cloud-native applications sprawl across multi-clouds, there is a growing friction between the speed of innovation and traditional security approaches. Leveraging the power and intelligence of our platform, our new offering solves this challenge to advance DevSecOps for Kubernetes-orchestrated cloud-native applications. As we said when announced, it'll take time for customers to test and validate this new offering, so the ARR impact will be slow at first. But we believe this new offering has the potential to expand our TAM by $18 billion over time, bringing our total addressable market opportunity to over $50 billion. Both PurePath 4 and cloud application security are exciting advances for us. And with our annual PERFORM conference around the corner, you can expect more innovation announcements to come. Before I summarize, I'd like to take a minute to touch on the maturing of Dynatrace as an independent public company. As we look forward to our next phase of growth, we continue to enhance our board and board leadership. I am very pleased to announce that Jill Ward has been appointed chair of the Dynatrace board. Jill has been a strong voice of leadership on our board since 2019 and brings extensive knowledge and experience from her work at a number of remarkable companies. For more details, please refer to the press release we issued earlier today. Now, let me summarize as I've covered a lot this morning. As I said at the outset, we're very pleased with our performance this quarter and it sets us up to finish fiscal 2021 quite strong. I want to thank our global team of almost 2,700 employees for all their hard work and contributions in helping us achieve this success. We continue to prove that we are well-positioned in a growth market and that our innovation engine can consistently differentiate our solutions and expand our market opportunity. Likewise, we continue to see returns on our investments in go-to-market and commercial expansion, which are driving pipeline momentum and growth. Sales execution is strong, our partner engine is revving up, and we are investing. Add to this the growing awareness of and interest in Dynatrace with a reputation for world-class product and expertise for modern cloud-based digital transformations, and we believe we have the ingredients for strong and sustained growth. With that, Let me turn the call over to Kevin for a deeper review of our financials. Kevin.