Dynatrace, Inc.

Hello, and welcome to the Dynatrace Fiscal First Quarter 2022 Earnings Conference Calling Webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow a formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Noelle Farris, Vice President, Investor Relations. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining Dynatrace's first quarter fiscal 22 earnings conference call. 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, such as statements regarding revenue and earnings guidance. These forward-looking statements are subject to risks and uncertainties, depending on a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information concerning these uncertainties and risk factors is contained in Dynatrace's filings with the FCC, 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 July 28, 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.

Thanks, Noel. Good morning, everyone, and thank you for joining us today. I am pleased to report that we had another strong quarter, once again beating guidance across all our key operating metrics, led by ARR, which was $823 million, up 37% year over year. Along with strong top-line growth, we again delivered healthy profitability in terms of non-GAAP operating income and EPS, which Kevin will elaborate on in a few minutes. And we continue to believe that a smart balance between growth and profitability makes for a more durable business over the long term. Underpinning our consistent year-over-year top line growth above 30% are two key building blocks. Net new logos to the Dynatrace platform and the ongoing expansion of existing customers. I'm pleased to report that we added 135 new digitally transforming customers to the Dynatrace platform in Q1. up over 50% from a year ago. And that our net expansion rate, fueled by growth across all modules, was once again at or over 120%. As we've said, we believe continued execution against these two building blocks will sustain a 30 plus percent growth business at scale for some years to come. With the strength of our Q1 results and positive outlook ahead, we are increasing our guidance for fiscal 2022. which Kevin will provide more details on shortly. This morning, I'd like to discuss three topics that I believe will continue to drive our momentum and success. First, the ongoing market dynamics that continue to drive new logo growth and rapid expansion within our growing base. Second, the progress we are making in commercial expansion to accelerate go-to-market success. And third, The progress we are making in expanding our platform and module strength to address the full $50 billion TAM we see ahead of us. Let me start with the market dynamics that provide us a unique long-term growth opportunity. Even with a protracted pandemic, our value proposition remains resilient. We continue to see digital transformation accelerate in all geographies and all verticals. The pandemic has put everyone on notice how quickly change can happen and how important agility and risk mitigation strategies are to assuring a sustainable business. At the core of digital transformation are three megatrends that are interrelated. The first, that applications are eating the world as all businesses look for innovative ways to transform. The second is that these applications and the platforms they run on are cloud first. In fact, multi-cloud first. And the third, is the rise of automation and AI to ease the complexity, increase the speed, and mitigate the risk of these transformations. Dynatrace's unique combination of multi-cloud observability, unified with powerful AIOps capabilities, is a pure play across all three of these megatrends. And we're still in the early innings of digital transformation and these three megatrends. Digital transformation is not an event, it's a journey. Take our automotive customers who are reimagining the driving experience, including driverless cars, our healthcare customers embracing digital devices for new ways to deliver healthcare, or our energy customers looking to replace carbon fuel with renewable energy for a better tomorrow. These are not short-term efforts. They are long-term transform-the-business strategies, and they all depend on new cloud-native applications, running on multi-cloud platforms, leveraging automation and AI wherever possible for consistency, scale, and lower risk. One of the other market characteristics that defines digital transformation is that digital transformers are the companies that our global economy depends on. They're the multi-billion dollar banks, logistics companies, healthcare companies, energy companies, and government agencies. These organizations almost always have generations of technology to manage and migrate off of, and limited resources and expertise to do it with. Their application portfolios are rich, the transformation challenge is complex, and the urgency to innovate is high. We continue to believe that we have the best platform and expertise fit for these large scale digital transformers. Proof of our superior fit with these digitally transforming customers can be seen in our numbers. As I mentioned earlier, we added 135 new logos to our franchise in Q1. Great companies such as Dell, Rock Central, Blue Cross Blue Shield, and L'Oreal, all digitally transforming in one way or another, all with observability requirements that include hyperscaler platforms, Kubernetes container orchestration, cloud native applications, and modern DevOps practices. Some of these companies are transitioning off outdated monitoring tools, while others have been trying to cobble together their own modern cloud observability solutions and all considered multiple alternatives before selecting Dynatrace as their digital transformation partner. On the expansion front, global leaders such as Travelers Insurance, Lloyds Banking Group, Toyota, Lowe's, and DHL expanded their use of Dynatrace this past quarter and all now use three plus modules of Dynatrace to cover their multi-cloud observability needs. As I've said before, once a customer experiences the ease of scaling, the power of our automation, transformative opportunity provided by our AI capabilities, they quickly look for opportunities to extend Dynatrace further across more application workloads and across broader metric and log use cases. So when we say the market is moving toward us, we mean just that. The macro trends of applications eating the world, digital transformations as multi-cloud first, And the need for automation and AI capabilities on the rise put us in a very strong position for continued new logo and net expansion success going forward. This brings me to my second topic this morning, taking advantage of this fantastic market opportunity we have in front of us. And that's through increased investment in commercial expansion. You'll notice our sales and marketing spend has returned to our target range of 34 to 36% of revenue. combination of three key efforts, Salesforce expansion, partner momentum, and doubling down on market awareness. Our sales engine continues to scale. We grew our quota carriers by nearly 30% this past quarter and expect to continue growing this team in the 30% range throughout fiscal 22. Productivity continues to be healthy, and the talent we are bringing on board has never been stronger. Dynatrace is considered a top company to work for around the globe, and our customer-first culture resonates with sales and go-to-market talent. Helping to lift productivity are the cloud system integrators and strategic tech partners. Our partner community is now influencing over 45% of our transactions globally, and the leverage we are seeing through the hyperscaler marketplaces is growing even more rapidly. In fact, the number of deals closed with hyperscaler partners this quarter increased by more than four times compared to the same period last year. Our reputation for reducing risk and accelerating project success, especially for projects of scale, is catching the eye of more and more partners and their community members. As we've said, our partner program is an important area of focus for us as we scale beyond a billion dollars. Third pillar of our commercial expansion is increasing the brand awareness of Dynatrace. A recent study showed that within our target account base, the global 15,000, we are now known for much more than APM. Our efforts to expand awareness to observability, infrastructure, logs, and AIOps is paying off. We have more to do here for sure, but the awareness trends are scaling in the right direction. To help accelerate these trends, We recently completed a series of 12 one-day Dynatrace sessions around the world. We call these Dynatrace Go events, where customers and prospects hear from peers how they're leveraging Dynatrace to digitally transform faster, smarter, easier, and at lower risk and lower cost. We had over 20,000 registrants across these 12 events, and most exciting to me was a balance between customers and new logo prospects. 70% of the 20,000 were new logo prospects. Like I said, there's more work to be done to be better known for the value advantage we provide to digital transformers, but we are gaining on it every day. The third and final topic I'd like to cover today is the maturing of the depth and breadth of our platform and its growing number of monetizable modules. Our three plus module customer count continues to climb. Today, over 40% of our 3,000-plus customers leverage Dynatrace across three-plus module use cases. And over 45% of our customers now use us beyond full-stack applications for infrastructure and log-only use cases. Our infrastructure module, which includes modern cloud metrics, open ingest, and log analytics, is our fastest-growing module, with ARR growing more than 90% year-over-year. It's now fully featured and robust. and capable of winning against any infralog alternative, and a big reason why we continue to win modern cloud observability business at a steady rate. With over 1,000 engineers now, we continue to advance all modules aggressively, embracing new technologies, extending capabilities, and enhancing use cases. Though there's much to talk about here, let me focus on just one of our new modules, our Cloud App Security module. As we've said, We are still in the early phases of market adoption and product maturity, but the feedback so far is exciting. One of our banking customers who recently trialed the AppSec module told us that people and process limitations have prevented them from scanning more than once a week, even though they're deploying updates two to three times a week. This left them with potential vulnerabilities. With Dynatrace, they realized they could have real-time coverage 24 by 7, and that's huge. Another customer, a government agency recently migrating to Azure, said that as they started rolling out cloud-native applications, their existing security tooling quickly became cumbersome, slowing them down and with output no longer actionable. Amazingly, in just the trial, Dynatrace was able to immediately detect nearly 100 vulnerabilities that needed fixing. They've now deployed this mission-critical app securely, thanks to Dynatrace. It's clear from these and many other examples that our value proposition and timing could not be better. The DevSecOps movement is gaining momentum and there is no good answer for continuous vulnerability detection with intelligent scoring to reduce risks while accelerating ongoing innovation. We continue to see a powerful greenfield opportunity for this new module and are excited with its potential to rapidly scale within our base during the second half of this fiscal year. The need is there. and the deployment is frictionless. With that, let me summarize as I've covered several important topics this morning. We have an incredible long-term market opportunity and we are investing aggressively to seize the advantage. Commercial expansion is increasing and continuous innovation is being delivered across all modules. Our platform continues to mature and we continue to scale well beyond our APM roots. We are gaining new digital transformer logos at a steadily increasing rate and the net expansion of our base across multiple modules continues to be robust. And it's the compounding of these two, new logos to the franchise and maintaining a healthy net expansion rate above 120% that we believe provide us the building blocks to sustain a 30% plus growth business well into the future. Let me now turn it over to Kevin to take us into our financial results and guidance. Kevin.