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Dynatrace Reports First Quarter of Fiscal Year 2020 Financial Results

September 4, 2019 4:05 PM

WALTHAM, Mass.--(BUSINESS WIRE)-- Dynatrace (NYSE: DT), a market-leading software intelligence platform, purpose-built for the enterprise cloud, today released financial results for the first quarter of its fiscal 2020 ended June 30, 2019.

“Dynatrace delivered strong first quarter results, highlighted by 36% year-over-year growth in subscription and services revenue” said John Van Siclen, Chief Executive Officer. “As every company becomes a software company and the adoption of dynamic multi-clouds continues to gain momentum, there is increasing demand from enterprises to use our Dynatrace® platform to build better software faster, optimize clouds more efficiently, and compete more effectively in the digital age. Dynatrace has been an industry leader for over a decade, and the reinvention of our platform and company five years ago to prepare for and benefit from the adoption of the enterprise cloud is delivering tremendous results.”

John Van Siclen added, “Dynatrace has a unique combination of meaningful scale, growth and cash flow. The recent completion of our initial public offering further strengthens our balance sheet and provides additional capital to execute our long-term growth initiatives and capture an increasing share of our $18 billion and growing market.”

First Quarter Fiscal 2020 and Other Recent Business Highlights:

Financial Highlights:

Dynatrace® Platform Highlights:

Initial Public Offering:

Business Highlights:

First Quarter 2020 Financial Highlights

(Unaudited – dollars in thousands, except per share amounts)

Three Months Ended June 30,

2019

2018

Annualized recurring revenue

$

437,622

$

306,103

Year-over-Year Increase

43

%

Revenues:

Total revenue

$

122,550

$

98,221

Year-over-Year Increase

25

%

Subscription and services revenue

$

118,766

$

87,142

Year-over-Year Increase

36

%

Non-GAAP operating income(*)

$

27,097

$

12,439

Non-GAAP operating margin (*)

22

%

13

%

Non-GAAP net income (*)

$

9,307

$

14,343

Non-GAAP net income per share

$

0.04

$

0.06

Shares outstanding used in computing Non-GAAP per share amounts - diluted

238,618,865

234,707,802

Unlevered Free Cash Flow(*)

$

45,798

$

58,744

* Use of Non-GAAP Financial Measures

In our earnings press releases, conference calls, slide presentations, and webcasts, we may use or discuss non-GAAP financial measures, as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investors section of our website at ir.dynatrace.com.

Financial Outlook

Based on information available, as of September 4, 2019, Dynatrace is issuing guidance for the second quarter and full year fiscal 2020 as follows:

Second Quarter of Fiscal Year 2020:

Full Year Fiscal 2020:

Reconciliation of non-GAAP operating income, non-GAAP net income and non-GAAP net income per share guidance to the most directly comparable GAAP measures is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures; in particular, the measures and effects of stock-based compensation expense specific to equity compensation awards that are directly impacted by future hiring, turnover and retention needs, as well as unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future GAAP financial results.

These statements are forward-looking and actual results may differ materially. Refer to the section under the heading Forward-Looking Statements below for information on the factors that could cause our actual results to differ materially.

Conference Call and Webcast Information

Dynatrace will host a conference call today, September 4, 2019, to discuss its results at 5:00 p.m. Eastern Time. The call will be accessible by telephone at 866-211-4694 (domestic) or 647-689-6731 (international). The call will also be available live via webcast on the Company’s website at https://ir.dynatrace.com/. A telephone replay of the conference call will be available at 800-585-8367 or 416-621-4642 (access code 2779159) until September 18, 2019. A webcast replay will be available at https://ir.dynatrace.com/.

The company has used, and intends to continue to use, the investor relations portion of its website as a means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD.

Non-GAAP Financial Measures & Key Metrics

In addition to disclosing financial measures prepared in accordance with GAAP, this press release and the accompanying tables contain certain non-GAAP financial measures.

Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies. Dynatrace considers these non-GAAP financial measures to be important because they provide useful indicators of its performance and liquidity measures. These are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In addition, investors often use similar measures to evaluate the performance of a company. Non-GAAP financial measures are presented for supplemental informational purposes only for understanding the company’s operating performance. The non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from non-GAAP financial measures presented by other companies. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements.

Adjusted EBITDA is defined as Net Income(loss) adjusted by removing the impact of our capital structure (net interest income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, restructuring and other gains and losses, transaction and sponsor related costs, gains and losses on foreign currency and stock-based compensation.

Annual Recurring Revenue “ARR” is defined as the daily revenue of all subscription agreements that are actively generating revenue as of the last day of the reporting period multiplied by 365. We exclude from our calculation of Total ARR any revenues derived from month-to-month agreements and/or product usage overage billings.

Dynatrace Dollar-Based Net Expansion Rate is defined as the Dynatrace® ARR at the end of a reporting period for the cohort of Dynatrace® accounts as of one year prior to the date of calculation, divided by the Dynatrace® ARR one year prior to the date of calculation for that same cohort. This calculation excludes the benefit of Dynatrace® ARR resulting from the conversion of Classic products to the Dynatrace® platform, as well as any upsell generated at the time of conversion.

Dynatrace customers are defined as accounts, as identified by a unique account identifier, that generate at least $10,000 of Dynatrace® ARR as of the reporting date. In infrequent cases, a single large organization may comprise multiple customer accounts when there are distinct divisions, departments or subsidiaries that operate and make purchasing decisions independently from the parent organization. In cases where multiple customer accounts exist under a single organization, each customer account is counted separately based on a mutually exclusive accounting of ARR.

TTM Adjusted EBITDA/Net Debt Leverage Ratio is defined as our Net Debt divided by our trailing twelve month Adjusted EBITDA. Net Debt is defined as total principal less cash and cash equivalents.

Unlevered Free Cash Flow is defined as net cash from (used in) operating activities and adjusted to exclude cash paid for interest (net of tax), non-recurring restructuring and acquisition related costs, along with one-time offerings and filings, less cash used in investing activities for acquisition of property and equipment. However, given our debt obligations, unlevered free cash flow does not represent residual cash flow available for discretionary expenses.

About Dynatrace

Dynatrace provides software intelligence to simplify enterprise cloud complexity and accelerate digital transformation. With AI and complete automation, our all-in-one platform provides answers, not just data, about the performance of applications, the underlying infrastructure and the experience of all users. That’s why many of the world’s largest enterprises trust Dynatrace to modernize and automate enterprise cloud operations, release better software faster, and deliver unrivalled digital experiences.

Curious to see how you can simplify your enterprise cloud? Let us show you. Visit our trial page for a free 15-day Dynatrace trial. To learn more about how Dynatrace can help your business, visit https://www.dynatrace.com, visit our blog and follow us on Twitter @dynatrace.

Cautionary Language Concerning Forward-Looking Statements

This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding management’s expectations of future financial and operational performance and operational expenditures, expected growth, and business outlook, including our financial guidance for the second fiscal quarter and full year 2020; and statements regarding the size of our market and our positioning for capturing a larger share of our market. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our ability to maintain our subscription revenue growth rates in future periods, our ability to service our substantial level of indebtedness, market adoption of software intelligence solutions for application performance monitoring, digital experience monitoring and infrastructure monitoring, continued spending on and demand for software intelligence solutions, our ability to successfully convert and upsell our customers as they convert from our Classic products to the Dynatrace® platform, our ability to maintain and acquire new customers, our ability to differentiate our platform from competing products and technologies; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption “Risk Factors” in our final prospectus filed on July 31, 2019 and our other SEC filings. We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

DYNATRACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited – dollars in thousands, except per share amounts)

Three Months Ended June 30,

2019

2018

Revenues:

Subscriptions

$

108,128

$

77,924

License

3,784

11,079

Services

10,638

9,218

Total revenue

122,550

98,221

Cost of revenues:

Cost of subscriptions

16,177

13,132

Cost of services

8,809

6,895

Amortization of acquired technology

4,557

4,664

Total cost of revenues

29,543

24,691

Gross profit

93,007

73,530

Operating expenses:

Research and development

25,659

17,896

Sales and marketing

58,215

42,509

General and administrative

31,882

19,881

Amortization of other intangibles

10,142

12,049

Restructuring and other

115

410

Total operating expenses

126,013

92,745

Loss from operations

(33,006

)

(19,215

)

Interest expense, net

(19,186

)

(10,687

)

Other, net

94

2,863

Loss before income taxes

(52,098

)

(27,039

)

Income tax benefit

2,943

3,483

Net loss

$

(49,155

)

$

(23,556

)

Net loss per share:

Basic and diluted

$

(0.21

)

$

(0.10

)

Weighted average shares outstanding:

Basic and diluted

237,693,127

233,970,804

UNAUDITED STOCK-BASED COMPENSATION

Three Months Ended June 30,

2019

2018

Cost of revenues

$

3,309

$

1,084

Research and development

7,127

2,418

Sales and marketing

15,104

4,463

General and administrative

15,885

5,233

Total share-based compensation expense

$

41,425

$

13,198

DYNATRACE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

June 30, 2019

March 31, 2019

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

57,453

$

51,314

Accounts receivable, net of allowance for doubtful accounts of $3.3 million and
$3.4 million as of June 30, 2019 and March 31, 2019, respectively

82,380

115,431

Deferred commissions, current

29,367

27,705

Prepaid expenses and other current assets

21,055

18,768

Total current assets

190,255

213,218

Property and equipment, net

20,282

17,925

Goodwill

1,270,485

1,270,120

Other intangible assets, net

244,398

259,123

Deferred tax assets, net

10,781

10,678

Deferred commissions, non-current

30,617

31,545

Other assets

8,765

8,757

Total assets

$

1,775,583

$

1,811,366

Liabilities and member's deficit

Current liabilities:

Accounts payable

$

4,702

$

6,559

Accrued expenses, current

51,748

64,920

Current portion of long-term debt

—

9,500

Deferred revenue, current

281,977

272,772

Payable to related party

600,203

597,150

Total current liabilities

938,630

950,901

Deferred revenue, non-current

93,596

92,973

Accrued expenses, non-current

139,473

98,359

Deferred tax liabilities, net

38,721

47,598

Long-term debt, net of current portion

1,002,792

1,011,793

Total liabilities

2,213,212

2,201,624

Commitments and contingencies

Member's deficit:

Common units, no par value, 100 units authorized, issued and outstanding

—

—

Additional paid-in capital

(184,599

)

(184,546

)

Accumulated deficit

(225,157

)

(176,002

)

Accumulated other comprehensive (loss)

(27,873

)

(29,710

)

Total member's deficit

(437,629

)

(390,258

)

Total liabilities and member's deficit

$

1,775,583

$

1,811,366

DYNATRACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited – in thousands)

Three Months Ended June 30,

2019

2018

Cash flows from operating activities:

Net loss

$

(49,155

)

$

(23,556

)

Adjustments to reconcile net loss to cash provided by operations:

Depreciation

2,034

1,943

Amortization

15,081

18,343

Share-based compensation

41,425

13,198

Deferred income taxes

(8,877

)

(4,353

)

Other

510

—

Net change in operating assets and liabilities:

Accounts receivable

34,116

47,935

Deferred commissions

(720

)

(187

)

Prepaid expenses and other assets

(1,117

)

(3,278

)

Accounts payable and accrued expenses

(8,365

)

(1,496

)

Deferred revenue

9,235

10,011

Net cash provided by operating activities

34,167

58,560

Cash flows from investing activities:

Purchase of property and equipment

(4,151

)

(1,559

)

Capitalized software additions

(333

)

(574

)

Net cash used in investing activities

(4,484

)

(2,133

)

Cash flows from financing activities:

Repayment of term loans

(19,000

)

—

Payments to related parties

—

(80,386

)

Equity repurchases

(53

)

(111

)

Installments related to acquisition

(4,694

)

—

Net cash used in financing activities

(23,747

)

(80,497

)

Effect of exchange rates on cash and cash equivalents

203

(1,899

)

Net increase (decrease) in cash and cash equivalents

6,139

(25,969

)

Cash and cash equivalents, beginning of period

51,314

77,581

Cash and cash equivalents, end of period

$

57,453

$

51,612

Supplemental cash flow data:

Cash paid for interest

$

15,738

$

—

Cash paid for (received from) tax

$

2,052

$

(1,904

)

Non-cash financing activities:

Transactions with related parties

$

—

$

(2,927

)

DYNATRACE, INC.

GAAP to Non-GAAP Reconciliations

(Unaudited - Dollars in thousands)

Three Months Ended June 30, 2019

GAAP

Share-based
compensation

Amortization
of other
intangibles

Restructuring
& other

Non-GAAP

Non-GAAP operating income:

Cost of revenues

$

29,543

$

(3,309

)

$

(4,557

)

$

—

$

21,677

Gross profit

93,007

3,309

4,557

—

100,873

Gross margin

76

%

82

%

Research and development

25,659

(7,127

)

—

—

18,532

Sales and marketing

58,215

(15,104

)

—

—

43,111

General and administrative

31,882

(15,885

)

—

(3,864

)

12,133

Amortization of other intangibles

10,142

—

(10,142

)

—

—

Restructuring and other

115

—

—

(115

)

—

Operating income (loss)

(33,006

)

41,425

14,699

3,979

27,097

Operating margin

(27

)%

22

%

Three Months Ended June 30, 2018

GAAP

Share-based
compensation

Amortization
of other
intangibles

Restructuring
& other

Non-GAAP

Non-GAAP operating income:

Cost of revenues

$

24,691

$

(1,084

)

$

(4,664

)

$

—

$

18,943

Gross profit

73,530

1,084

4,664

—

79,278

Gross margin

75

%

81

%

Research and development

17,896

(2,418

)

—

—

15,478

Sales and marketing

42,509

(4,463

)

—

—

38,046

General and administrative

19,881

(5,233

)

—

(1,333

)

13,315

Amortization of other intangibles

12,049

—

(12,049

)

—

—

Restructuring and other

410

—

—

(410

)

—

Operating income (loss)

(19,215

)

13,198

16,713

1,743

12,439

Operating margin

(20

)%

13

%

DYNATRACE, INC.

GAAP to Non-GAAP Reconciliations

(Unaudited - Dollars in thousands, except per share amounts)

Three Months Ended June 30,

2019

2018

Non-GAAP net income:

Net loss

$

(49,155

)

$

(23,556

)

Tax benefit

(2,943

)

(3,483

)

Cash (paid for) received from tax

(2,052

)

1,904

Interest expense

19,186

10,687

Cash paid for interest

(15,738

)

—

Share-based compensation

41,425

13,198

Amortization of other intangibles

10,142

12,049

Amortization of acquired technology

4,557

4,664

Transaction and sponsor related costs

3,864

1,333

Restructuring and other

115

410

(Gain) on currency translation

$

(94

)

$

(2,863

)

Non-GAAP net income

$

9,307

$

14,343

Share count:

Weighted-average shares outstanding - basic

237,693,127

233,970,804

Weighted-average shares outstanding - diluted

237,693,127

233,970,804

Shares used in non-GAAP per share calculations:

Weighted-average shares outstanding - basic

237,693,127

233,970,804

Weighted-average shares outstanding - diluted

238,618,865

234,707,802

Net income (loss) per share:

Net loss per share - basic

$

(0.21

)

$

(0.10

)

Net loss per share - diluted

$

(0.21

)

$

(0.10

)

Non-GAAP net income per share - basic

$

0.04

$

0.06

Non-GAAP net income per share - diluted

$

0.04

$

0.06

DYNATRACE, INC.

GAAP to Non-GAAP Reconciliations

(Unaudited - Dollars in thousands)

Three Months Ended June 30,

2019

2018

Adjusted EBITDA:

Net loss

$

(49,155

)

$

(23,556

)

Income tax benefit

(2,943

)

(3,483

)

Interest expense, net

19,186

10,687

Amortization

15,081

18,343

Depreciation

2,034

1,943

Restructuring and other

115

410

Transaction and sponsor related costs

3,864

1,333

(Gain) on currency translation

(94

)

(2,863

)

Share-based compensation

41,425

13,198

Adjusted EBITDA

$

29,513

$

16,012

Three Months Ended June 30,

2019

2018

Unlevered Free Cash Flow ("uFCF") (After tax adjustment):

Net cash provided by operating activities

$

34,167

$

58,560

Cash paid for interest expense

15,738

—

Restructuring and other

115

410

Property, plant, and equipment

(4,151

)

(1,559

)

Transaction and sponsor related costs

3,864

1,333

Total uFCF

49,733

58,744

Interest tax adjustment

(3,935

)

—

uFCF (After tax adjustment)

$

45,798

$

58,744

DYNATRACE, INC.

GAAP to Non-GAAP Reconciliations

(Unaudited - Dollars in thousands)

Three Months Ended June 30,

Trailing

Twelve Months
Ended

June 30, 2019

2019

2018

Adjusted EBITDA:

Net loss

(49,155

)

(23,556

)

$

(141,793

)

Income tax benefit

(2,943

)

(3,483

)

(23,177

)

Interest expense, net

19,186

10,687

78,344

Amortization

15,081

18,343

69,530

Depreciation

2,034

1,943

7,410

Restructuring and other

115

410

1,468

Transaction and sponsor related costs

3,864

1,333

15,074

(Gain) loss on currency translation

(94

)

(2,863

)

128

Share-based compensation

41,425

13,198

99,378

Adjusted EBITDA

29,513

16,012

$

106,362

Pro Forma

June 30, 2019

Adjusted EBITDA/Net Debt Leverage Ratio:

Long-term debt

$

1,002,792

Cash

57,453

Net debt

945,339

Net IPO proceeds

590,297

Pro forma net debt

355,042

TTM Adjusted EBITDA

$

106,362

Leverage Ratio

3.3

x

Marc P. Griffin

646-277-1290

[email protected]

Michael Bowen

203-682-8299

[email protected]

Media Relations

Jack Murphy

646-677-1834

[email protected]

Mike Maciag

Dynatrace

[email protected]

650-279-3655

Source: Dynatrace Investor Relations

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