Dynatrace, Inc.

Greetings and welcome to the Dynatrace fourth quarter and full year fiscal 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Noelle Farris, Vice President of Investor Relations for Dynatrace. Thank you. You may begin.

Good morning, and thank you for joining Dynatrace's fourth quarter and full year fiscal 2024 earnings conference call. Joining me today are Rick McConnell, Chief Executive Officer, and Jim Benson, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, such as statements regarding revenue, earnings guidance, and economic conditions. Actual results may differ materially from our expectations due to a number of risks and uncertainties discussed in Dynatrace's SEC filings, including our most recent quarterly report on Form 10-Q and our upcoming annual report on Form 10-K that we plan to file later this month. The forward-looking statements contained in this call represent the company's views on May 15, 2024. We assume no obligation to update these statements as a result of new information future events, or circumstances. Unless otherwise noted, the growth rates we discussed today are non-GAAP, reflecting constant currency growth rate, and per share amounts are on a diluted basis. We will also discuss other non-GAAP financial measures on today's call. To see reconciliations between non-GAAP and GAAP measures, please refer to today's earnings press release and supplemental presentation, which are both posted in the financial results section of our IR website. And with that, let me turn the call over to our Chief Executive Officer, Rick McConnell.

Thanks, Noelle, and good morning, everyone. Thank you for joining us for today's call. Dynatrace delivered a very strong finish to fiscal 2024, having achieved several noteworthy milestones and accomplishments. We surpassed $1.5 billion in ARR, representing 50% growth compared to the $1 billion level two years ago. We landed our first nine-figure TCV deal. We closed our largest new logo ever, a nearly eight-figure ACV deal. Top analyst firms named Dynatrace a leader nine times in reports on observability and AIOps over the past year. And during fiscal 2024, we added approximately 300 basis points of non-GAAP operating margin from fiscal 2023 plus through pre-tax free cash flow margins by 200 basis points. There are three key themes I'd like to highlight as we begin today's call. First, we are confident that our end-to-end platform is a meaningful differentiator in the expanding observability market. Second, We are benefiting from the evolution toward larger, more strategic observability architecture and vendor consolidation initiatives, and we expect this trend to persist. And third, we continue to execute with a business model that is well-balanced in growth and profitability. Jim will share more details about our Q4 and FY24 performance, fiscal 2025 guidance, and the share repurchase program we announced earlier today in a moment. In the meantime, I would like to discuss some of the key wins in the quarter, the market opportunity investments in ongoing platform innovation, and our go-to-market evolution. Starting with some notable wins, last quarter, we shared that we were seeing increased demand for large strategic deals in which customers were looking to make broader observability architecture decisions. Our thesis was that Dynatrace is uniquely positioned to benefit from this trend given our proven track record of helping customers eliminate siloed tools, significantly improve software performance and user experience, reduce cost, and drive organizational innovation and productivity. Our Q4 results showed that this thesis played out as we had expected. We successfully closed numerous platform consolidation deals, contributing to a record 18 seven-figure ACB wins in the quarter. Among these were the following. We won a nine-figure multi-year TCV expansion with a top 20 global financial institution. In a POC, the customer found Dynatrace to have the most advanced offering for cloud and container environments, resulting in dramatically reduced time and cost to prevent and resolve incidents. I'm also very pleased that this deal was closed in conjunction with Accenture. We won a mid-eight-figure TCB expansion deal with a Fortune 50 corporation. This company is in the process of moving to the cloud and selected Dynatrace to displace their existing monitoring solutions. As part of their digital transformation efforts, they are aiming to have 70% of their applications and 75% of their data in public or private clouds by the end of the year. Dynatrace's end-to-end observability platform was selected to provide a view across their entire hybrid and multi-cloud environment. We landed a nearly eight-figure ACV new logo with one of the world's largest airlines. It is yet another tool consolidation win, but what ultimately led to this selection was our focus on their business transformation initiatives and how Dynatrace could help them seamlessly transport more than half a million passengers every day. And we won a seven-figure expansion deal with a large healthcare company that is seeking to enable its developers to focus on innovation rather than performance issues or vulnerabilities. Dynatrace's real-time vulnerability analytics and contextual awareness proved the perfect fit and made up nearly half of this expansion deal. We believe that these types of larger strategic deals will be a material contributor to our long-term growth. And while we are extremely pleased with the number of these large strategic deals that closed in the quarter, they do come with an increased level of variability that will continue to necessitate a prudent approach to guidance. Interest for our newer offerings, including log monitoring and application security, also continues to grow, especially for those customers leveraging our Dynatrace platform subscription or DPS contract vehicle. The airline deal I just mentioned is our largest DPS transaction to date, and they are already leveraging log monitoring. In Q4, approximately 70% of our new logo deals were closed with DPS licensing. and we've increased the number of DPS customers from 100 to over 700 since DPS became generally available just over a year ago. DPS is now our default offering for new logos, and we are driving increased penetration in our installed base. While it is still early, consumption for DPS customers is growing at a significantly faster rate than our ARR growth. Also of note, partner momentum is building. Fifteen of these 18 seven-figure deals were closed in collaboration with partners, especially GSIs and hyperscalers. Turning next to the market, we believe that our success in closing anchor deals provides evidence of the tailwind in what is already a large and growing space. Cloud modernization and Gen AI are additional catalysts. Two weeks ago, AWS, Azure, and GCP reported a combined annualized revenue of nearly $220 billion, growing 24% year over year. Each of the hyperscalers mentioned the underlying growth drivers of workloads moving to the cloud as well as Gen AI. Andy Jassy from Amazon stated that 85% or more of the global IT spend remains on-premises, and this is before we contemplate Gen AI impact. We believe that Gen AI will, over time, materially increase developer productivity. This, in turn, is expected to result in radically more data as well as complexity, both of which play to the strengths and differentiation of Dynatrace, given our more than a decade of leadership in AI. On the innovation front, we see our R&D engine as driving an ongoing stream of technology advancements. Last year, we released a game-changing platform evolution with Grail, an integrated Highly performant and massively scalable data store that keeps all data types, metrics, logs, traces, real user data, business events together in context, providing near real-time end-to-end awareness. Braille serves as the foundation for all of our solutions, including full stack, infrastructure, log monitoring, and application security. Throughout fiscal 2024, the team's relentless focus on market-leading innovation was evident with the plethora of platform enhancements that provide further monetization opportunities in core as well as adjacent areas. We believe the Dynatrace platform is highly differentiated and delivers unmatched business value in driving the business transformation initiatives that executives care most about. Our platform is integrated from the front end to the back end. We have a single underlying data store where each of the solutions access that data store through the same set of core technologies. We have the industry's leading causal and predictive AI technologies along with automation that provides precise answers in context. In contrast, our peers generally have a series of separate data stores that are aggregated only at the user interface level through manual error-prone tagging. This may be effective for SMB companies, but large complex enterprises recognize the value of Dynatrace's end-to-end platform with automation and AI enabling them to deliver much more performance software in a highly enriched end-user experience. We continue to receive exceptional third-party recognition of our platform and resultant market leadership. Most recently, we were named a leader in the 2024 Gigaohm Radar Report for Cloud Observability Solutions. positioned as the vendor closest to the center of the radar. Dynatrace was also recognized as a customer's choice in the 2024 Gartner Peer Insights Voice of the Customer for Digital Experience Monitoring Report, the only provider to receive this distinction. We are humbled by this ongoing third-party validation of our strategic differentiation and we remain committed to our ongoing investment to maintain this leadership position. Turning last to our go-to-market strategy, we recently hosted our annual kickoff in Orlando with our global sales team. The energy and excitement were at an all-time high. Over the past 10 months, we have added several seasoned leaders with extensive experience scaling large go-to-market functions with the addition of our chief revenue officer, chief marketing officer, and SVP and partner in alliances. Sales kickoff provided this new leadership team the opportunity to share their vision and specific plans to execute on our fiscal 2025 go-to-market strategy. We are enhancing and evolving our go-to-market approach in three focal areas to drive deeper penetration within our installed base and better capture and extend our leadership to maximize the opportunity in front of us. First is customer segmentation. We will be increasing the focus of our sales force on the global 500 and strategic enterprise accounts to drive the highest productivity with the accounts that have the largest potential ARR. Territory and account coverage changes have already been communicated, and we are executing accordingly. We are also expanding our international reach and sector specialization consistent with this segmentation approach. And we will be investing in customer success to align these resources to our segmentation mapping to ensure successful deployment, adoption, and expansion. The second go-to-market area, which I mentioned earlier, is our focus on partners. Partners today influence more than two-thirds of our ARR, but they account for only 30% of deal origination, highlighting the enormous white space of opportunity in this area We are focusing our energy on our highest priority and most impactful partners. We are building a dedicated partner enablement engine to scale our priority partners. And we are simplifying our economic model with partner neutral compensation and a co-sale approach with hyperscalers to remove friction and drive closer collaborations. The third and final go-to-market focal area relates to harnessing our competitive differentiation to drive broader market adoption in deeper installed base penetration. We will increasingly focus on end-to-end observability opportunities, as we have discussed. We will continue to drive application performance engagements. our traditional sales motion that enables us to land and expand across our customers' workloads. And finally, we will target cloud modernization efforts in which platform engineers and DevOps teams are responsible for how their organizations develop and release software and require complete visibility of data at scale. In closing, We delivered a fantastic finish to fiscal 2024, and I'd like to thank the approximately 4,700 Dynatracers globally for their incredible commitment to innovation and excellence this past year. As we look to fiscal 2025, I'm highly enthusiastic about our prospects. Finishing where I began, the market for observability and application security is growing rapidly. Our end-to-end platform differentiates us and puts us in a strong competitive position. And finally, we have a solid business model that continues to deliver a strong balance of growth and profitability. Kim, over to you.