Dynatrace, Inc.

Hello, and welcome to the Dynatrace second quarter fiscal 2022 earnings call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow a formal presentation. 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, Investor Relations. Please go ahead.

Thanks, Operator. Good morning, everyone, and thank you for joining Dynatrace's second quarter fiscal 22 earnings conference call. With me on the call today are John Van Sickland, 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 filing 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 October 27, 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 Sickland. John?

Thanks, Noelle. Good morning, everyone, and thank you for joining us today. First, let me start by sharing how extremely proud I am with the team's performance this quarter, once again beating guidance across all our key operating metrics. ARR was $864 million, up 35% year-over-year, and subscription revenue was $213 million, also up 35% year-over-year. Once again, we balanced these strong top-line metrics with solid bottom-line performance as well, which Kevin will elaborate on in a few minutes. we continue to believe that a smart balance between growth and profitability makes for a more durable business. Underpinning our consistent year-over-year top-line ARR 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 160 new logo customers to the Dynatrace platform in Q2, up 20% from a year ago. and that our net expansion rate, fueled by growth across all modules, was once again at or above 120%. The consistent execution against these two building blocks, we believe, will sustain a 30 plus percent growth business at scale for some years to come. With the strength of our Q2 results and positive outlook ahead, we are increasing our guidance for fiscal 2022, which Kevin will provide more detail on shortly. This morning, I'd like to provide an update on the three topics that I believe will continue to drive Dynatrace's momentum and success. First, the ongoing market dynamics that continue to drive new logo growth and rapid expansion within our growing customer 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. We sit in a rapidly growing market that's being driven by digital transformation across every geography and vertical. IDC predicts digital transformation investments will exceed $7 trillion by 2023. And the pandemic, whether protracted or short-lived, has little effect on this movement. At the core of digital transformation are three mega trends that are interrelated. The first is that applications are eating the world as 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 simplify the complexity, increase the speed, and mitigate the risk of these transformations. Dynatrace's unique combination of multi-cloud observability and application security, unified with powerful AIOps capabilities, position us to benefit nicely from all three of these megatrends. Digital transformation is not an event. It's a journey. And we are in the early innings of digital transformation and these three megatrends. Take one of our brick and mortar retail customers who are shifting more business online, increasing customer loyalty, and optimizing supply chains, all while reducing their real estate footprint dramatically. Leveraging digital channels at scale will be a long-term imperative for increasing profitability while reducing business risk for years to come. Another example, one of our media entertainment customers who is digitizing their entire library of video assets, extending their online licensing capabilities, and leveraging public clouds for scale and flexibility. New digital partnerships new revenue streams, and powerful new branding opportunities will fuel their business well into the future. For one of our US federal customers who is on a multi-year journey to migrate hundreds of applications from legacy data centers to a modern multi-cloud platform for greater agility, efficiency, and security, application effectiveness and responsiveness needs to be maintained while scale increases, functionality advances, and mobile access becomes the primary channel of engagement. These are just a few of the thousands of customers Dynatrace is helping to modernize and transform. Modern cloud native application stacks, multi-cloud platforms, AIOps enabled for ease and efficiency. Our numbers are proof of our superior fit for these digital transformers. As I mentioned earlier, we added 160 new logos to our franchise in Q2, up from 135 last quarter and up 20% year over year. Great companies and agencies such as HCA, Victoria Secrets, PG&E, and the FAA, 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 accounts are transforming 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, once customers experience the value of the Dynatrace platform, they are eager to expand module usage and increase coverage. This quarter, global leaders such as Hertz, MasterCard, Bell Canada, American Airlines, and the U.S. Department of Veteran Affairs expanded their use of Dynatrace and all now use three plus modules of Dynatrace to cover their multi-cloud observability needs. As digital transformations expand, as applications drive more and more value for the business, as scale and complexity accelerate faster than human expertise, the Dynatrace value advantage gets stronger and stronger. As you've heard us say in the past, we believe the market is moving toward us. The macro trends of applications eating the world digital transformations as cloud first and the need for automation and AI ops 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, increasing investment in commercial expansion to capture the powerful market opportunity in front of us. We continue to invest aggressively to grow our sales force, expand our partner relationships, and increase awareness of the Dynatrace brand in the market. Our ability to attract talent to Dynatrace has never been stronger. We grew our quota carriers by over 30% this past quarter and expect to continue growing this team at or above 30% for the foreseeable future. Our market is strong. Our products are well differentiated. Our customers are happy and there's plenty of room for expansion. A great combination if you're an experienced seller. One of the most exciting market expansion opportunities we have underway is our doubling down in the U.S. federal market. This is a huge market with the U.S. government projected to spend over $7 billion this year alone on cloud platforms. Over the past 12 months, our U.S. federal ARR has more than doubled as we win new agencies and expand across our growing number of U.S. federal customers. Though still early in our penetration of this massive market, our investments are paying off. Hoping to accelerate our success with both government agencies and commercial accounts is our growing portfolio of partners. We continue to invest in cloud system integrators and strategic tech partner alliances, and the results are strong. Our partner community is now influencing nearly 50% of our transactions globally, and the leverage we are seeing through the hyperscale of marketplaces continues to grow even more rapidly. In fact, the growth in ARR through hyperscale of marketplaces has more than doubled year over year. Our reputation for reducing risk and accelerating project success, especially for projects of scale, continues to catch the eye of more and more partners and their community members, an exciting opportunity for us as we scale beyond a billion-dollar business. Market and brand awareness continues to be an important component of our sales and partner go-to-market efforts. We often leverage the voice of the customer or third-party experts to tell our story. Keeping with this approach, in Q2, ISG named Dynatrace the leader in cloud native observability. GigaOM named Dynatrace leader and outperformer for AIOps solutions. And Gartner rated Dynatrace highest for application performance monitoring in their 2021 Peer Insights Review. The recognition by these experts for leadership across various dimensions of modern cloud observability is gratifying. and helps clarify our value advantage for the market. The third and final topic I'd like to cover today is a continuous investment in innovation in both the Dynatrace platform and its growing number of monetizable modules. As observability becomes a primary market requirement, our three plus module customer account continues to climb, now over 40% of our growing base. We are landing and expanding with full stack for apps and microservices, plus infrastructure for hyperscaler platform metrics and logs, plus digital experience for mobile more and more often. Our landing ARR is gradually increasing, and our average ARR for three-plus module customers is nearly $500,000. With AppSec and cloud automation modules kicking in over the next few quarters, we see a great opportunity to both increase the value of our landing zone as well as expand ARR per customer materially. Behind these advances is an extremely strong organic innovation engine. This team anticipated the massive disruption modern dynamic clouds would have on the IT ops, software development, and digital business landscapes. And they continue to lead in the cloud automation, causal AI, and data analytics the global 15,000 need for continued digital transformation success. To augment this team and accelerate our innovation roadmap, we may do technology tuck-in acquisitions from time to time. Our recent acquisition of SPECTx, which closed in September, is a great example of strong technology fit and team fit to accelerate our value and differentiation across both platform and modules. A high-performance parsing and analytics engine, SPECTx will continue to accelerate the convergence of observability and security use cases as the cloud continues to disrupt classic approaches. Going forward, where the fit is strong and roadmaps could be meaningfully accelerated, we continue to augment our organic innovation engine in a smart way. With that, let me summarize as I've covered several important topics this morning. It's an exciting time for Dynatrace as we fire on all cylinders. We have an incredible long-term market opportunity and we are investing aggressively to seize the advantage. Commercial expansion is strong and our product differentiation is increasing. We're gaining new digital transformer logos at a steadily increasing rate, and the net expansion of our base across multiple modules continues to be robust. We are building a long-term category leader with the building blocks to sustain a 30% plus growth business well into the future. Now, let me turn it over to Kevin to take us into our financial results and guidance. Kevin.