UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 001-39010 Dynatrace, Inc. | --- | --- | |----------------------------------------------------------------------------------|----- ...

Financial Data and Key Metrics Changes - Annual Recurring Revenue (ARR) for Q2 was $638 million, up 33% year-on-year, an increase of $158 million [45] - Total revenue for Q2 was $168.6 million, representing a 30% year-over-year increase [48] - Non-GAAP earnings per share for Q2 was $0.18, exceeding guidance [54] Business Line Data and Key Metrics Changes - Subscription revenue grew by 35%, making up 94% of total revenue [48][49] - Net expansion rate remained above 120% for the 10th consecutive quarter [26] - ARR per customer increased to $234,000, up 14% year-over-year [47] Market Data and Key Metrics Changes - The Total Addressable Market (TAM) for the targeted global 15,000 market segment grew from $20 billion to $32 billion in 18 months [14] - 86% of CIOs reported using modern architectures, indicating a shift towards complex multicloud environments [11] Company Strategy and Development Direction - The company focuses on a unified platform approach to modern cloud observability, which is seen as a sustainable advantage [23][42] - Ongoing investments in commercial expansion and cloud partnerships are expected to drive growth [27][30] - The company aims to maintain ARR growth above 25% while balancing investments [87] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the business model and the importance of digital transformation across industries [60][61] - The company raised its fiscal 2021 guidance for ARR to $721 million to $727 million, reflecting strong performance [62] - Management noted that the complexity of cloud environments is driving demand for their solutions [12][13] Other Important Information - The company added 133 new logos in Q2, bringing the total customer count to nearly 2,600 [24] - The infrastructure module has seen increased adoption, with significant automation and AI capabilities [80][82] - The company plans to continue investing in innovation and expanding its product offerings [44][64] Q&A Session Summary Question: Expansion into midsize businesses - Management confirmed that the focus remains on the Global 15,000, as this segment presents more complex environments and higher profitability [70][71] Question: Attach rate of new products - Management noted an increasing attach rate of multiple modules with new customers, with 30% landing with three or more modules [73][74] Question: Importance of the infrastructure module - The infrastructure module is crucial for customer understanding and is seeing rapid adoption due to its automation and AI capabilities [78][82] Question: Partner influence in deals - Management indicated that partner influence is significant, with a goal to increase partner-sourced opportunities [90][91] Question: Demand environment for digital transformation - Management stated that customers are looking for practical, quick returns on investment in digital transformation projects [97][98] Question: Advanced automation and AIOps capabilities - AIOps capabilities are built into the platform, with 10% to 20% of customers extending beyond the basic offerings [104][105] Question: Competitive landscape and disruption - Management emphasized that the company is a disrupter in the enterprise observability space, differentiating itself with a full-stack platform [109][110] Question: Sustaining ARR growth - Management discussed factors contributing to sustained ARR growth, including increased sales capacity and maturing sales organization [112][115]

[Cover Page and Filing Information](index=1&type=section&id=Cover%20Page%20and%20Filing%20Information) Dynatrace, Inc. filed its Quarterly Report on Form 10-Q for the period ended September 30, 2020, with its common stock trading on the NYSE under DT - Dynatrace, Inc. filed its Quarterly Report on Form 10-Q for the period ended September 30, 2020[2](index=2&type=chunk) - The company's common stock trades on the New York Stock Exchange under the symbol DT[3](index=3&type=chunk) - Dynatrace is classified as a non-accelerated filer and an emerging growth company[3](index=3&type=chunk) - As of October 26, 2020, there were **282,096,515** shares of common stock outstanding[4](index=4&type=chunk) [PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents Dynatrace's unaudited condensed consolidated financial statements and related disclosures [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Presents Dynatrace's unaudited condensed consolidated financial statements for the period ended September 30, 2020, including key financial statements and notes - The accompanying interim condensed consolidated financial statements are unaudited and prepared on the same basis as the audited consolidated financial statements, including all normal and recurring adjustments necessary for fair presentation[50](index=50&type=chunk) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position at September 30, 2020, and March 31, 2020 | Metric | Sep 30, 2020 (in thousands) | Mar 31, 2020 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $248,437 | $213,170 | | Accounts receivable, net | $110,251 | $157,058 | | Total current assets | $461,139 | $469,925 | | Goodwill | $1,271,602 | $1,270,733 | | Total assets | $2,056,160 | $2,042,080 | | Deferred revenue, current | $349,541 | $384,060 | | Total current liabilities | $451,535 | $488,900 | | Long-term debt | $480,941 | $509,985 | | Total liabilities | $1,033,248 | $1,080,583 | | Total shareholders' equity | $1,022,912 | $961,497 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net income (loss) for the three and six months ended September 30, 2020 and 2019 | Metric | Three Months Ended Sep 30, 2020 (in thousands) | Three Months Ended Sep 30, 2019 (in thousands) | Six Months Ended Sep 30, 2020 (in thousands) | Six Months Ended Sep 30, 2019 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Subscription Revenue | $157,673 | $115,805 | $302,030 | $223,933 | | Total Revenue | $168,586 | $129,378 | $324,094 | $251,928 | | Gross Profit | $137,875 | $89,832 | $264,841 | $182,839 | | Income (Loss) from Operations | $22,831 | $(154,523) | $46,937 | $(187,529) | | Net Income (Loss) | $17,479 | $(417,334) | $30,344 | $(466,489) | | Basic Net Income (Loss) per Share | $0.06 | $(1.58) | $0.11 | $(1.86) | | Diluted Net Income (Loss) per Share | $0.06 | $(1.58) | $0.11 | $(1.86) | - Net income significantly improved from a loss of **$(417.3) million** in the three months ended September 30, 2019, to a profit of **$17.5 million** in the same period of 2020[14](index=14&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Outlines the components of comprehensive income (loss) for the three and six months ended September 30, 2020 and 2019 | Metric | Three Months Ended Sep 30, 2020 (in thousands) | Three Months Ended Sep 30, 2019 (in thousands) | Six Months Ended Sep 30, 2020 (in thousands) | Six Months Ended Sep 30, 2019 (in thousands) | | :-------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net income (loss) | $17,479 | $(417,334) | $30,344 | $(466,489) | | Foreign currency translation adjustment, net of tax | $(2,792) | $2,691 | $(5,134) | $4,528 | | Total other comprehensive (loss) income | $(2,792) | $9,314 | $(5,134) | $11,151 | | Comprehensive income (loss) | $14,687 | $(408,020) | $25,210 | $(455,338) | - Comprehensive income (loss) improved from a loss of **$(408.0) million** in the three months ended September 30, 2019, to an income of **$14.7 million** in the same period of 2020[16](index=16&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity / Member's Deficit](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20/%20Member's%20Deficit) Summarizes changes in shareholders' equity for the six months ended September 30, 2020 and 2019 | Metric | Balance, June 30, 2020 (in thousands) | Balance, September 30, 2020 (in thousands) | | :-------------------------------- | :------------------------------------ | :--------------------------------------- | | Common Shares (Amount) | $281 | $281 | | Additional Paid-In Capital | $1,589,598 | $1,609,246 | | Accumulated Deficit | $(580,855) | $(563,376) | | Accumulated Other Comprehensive Loss | $(20,447) | $(23,239) | | Shareholders' Equity | $988,577 | $1,022,912 | - Total shareholders' equity increased by **$34.3 million** from June 30, 2020, to September 30, 2020[24](index=24&type=chunk) - Net income of **$17.5 million** contributed to the reduction of the accumulated deficit during the three months ended September 30, 2020[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents the cash inflows and outflows from operating, investing, and financing activities for the six months ended September 30, 2020 and 2019 | Cash Flow Activity | Six Months Ended Sep 30, 2020 (in thousands) | Six Months Ended Sep 30, 2019 (in thousands) | | :-------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net income (loss) | $30,344 | $(466,489) | | Net cash provided by (used in) operating activities | $60,849 | $(218,228) | | Net cash used in investing activities | $(6,584) | $(10,322) | | Net cash (used in) provided by financing activities | $(21,604) | $390,269 | | Net increase in cash and cash equivalents | $35,267 | $160,382 | | Cash and cash equivalents, end of period | $248,437 | $211,696 | - Cash provided by operating activities significantly improved to **$60.8 million** for the six months ended September 30, 2020, compared to cash used of **$218.2 million** in the prior year period[34](index=34&type=chunk)[209](index=209&type=chunk) - Cash paid for interest decreased from **$27.4 million** in the six months ended September 30, 2019, to **$6.9 million** in the same period of 2020[34](index=34&type=chunk)[208](index=208&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section

PART I - FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The company's unaudited statements show significant revenue growth and a shift from net loss to net income year-over-year [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets remained stable at approximately $2.05 billion, while a decrease in liabilities boosted shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (unaudited) | March 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $250,377 | $213,170 | | Goodwill | $1,270,986 | $1,270,733 | | Total assets | $2,046,830 | $2,042,080 | | **Liabilities & Equity** | | | | Deferred revenue, current | $352,803 | $384,060 | | Long-term debt | $510,452 | $509,985 | | Total liabilities | $1,058,253 | $1,080,583 | | Total shareholders' equity | $988,577 | $961,497 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenue increased 27% to $155.5 million, driving a significant turnaround from an operating loss to operating income Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | **Total revenue** | **$155,508** | **$122,550** | | Subscription Revenue | $144,357 | $108,128 | | Gross profit | $126,966 | $93,007 | | Income (loss) from operations | $24,106 | $(33,006) | | **Net income (loss)** | **$12,865** | **$(49,155)** | | Diluted EPS | $0.05 | $(0.21) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $37.0 million, contributing to a $37.2 million net increase in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $37,008 | $34,167 | | Net cash used in investing activities | $(4,549) | $(4,484) | | Net cash provided by (used in) financing activities | $3,579 | $(23,747) | | **Net increase in cash and cash equivalents** | **$37,207** | **$6,139** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong performance driven by platform adoption, revenue growth, and improved profitability despite COVID-19 uncertainties [Overview and COVID-19 Impact](index=24&type=section&id=Overview%20and%20COVID-19%20Impact) The company's software intelligence platform drives subscription revenue, though the COVID-19 pandemic presents future uncertainty - The company's Dynatrace® platform is its primary offering, with the customer count growing from 1,578 to **2,458 year-over-year** as of June 30, 2020[109](index=109&type=chunk) - Management notes that the full impact of the **COVID-19 pandemic** on financial results is uncertain and may not be fully reflected until future periods, potentially affecting customer spending, purchasing decisions, and attrition rates[111](index=111&type=chunk)[113](index=113&type=chunk) [Key Metrics](index=26&type=section&id=Key%20Metrics) The company highlights strong growth in customer numbers, Total Annual Recurring Revenue (ARR), and a stable Net Expansion Rate Key Performance Metrics | Metric | June 30, 2020 | June 30, 2019 | YoY Change | | :--- | :--- | :--- | :--- | | Number of Dynatrace® Customers | 2,458 | 1,578 | +56% | | Dynatrace® ARR | $563,479 thousand | $326,298 thousand | +73% | | Total ARR | $601,376 thousand | $437,622 thousand | +37% | | Dynatrace® Net Expansion Rate | 120%+ | 120%+ | Stable | [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Revenue grew 27% and gross margin expanded, while a significant reduction in share-based compensation drove operating profitability Revenue by Type (in thousands) | Revenue Type | Q1 FY2021 | Q1 FY2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscription | $144,357 | $108,128 | $36,229 | 34% | | License | $638 | $3,784 | $(3,146) | (83)% | | Service | $10,513 | $10,638 | $(125) | (1)% | | **Total revenue** | **$155,508** | **$122,550** | **$32,958** | **27%** | - Total operating expenses **decreased by $23.2 million (18%) YoY**, primarily driven by a **$28.7 million reduction in share-based compensation expense** across all departments[143](index=143&type=chunk)[158](index=158&type=chunk) - The company's **gross margin improved from 76% to 82%** year-over-year, reflecting the higher mix of subscription revenue and improved subscription gross margin[154](index=154&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through cash reserves, credit facilities, and operating cash flow to meet its obligations - The company's primary sources of liquidity are **cash on hand ($250.4 million)**, availability under its **revolving credit facility ($44.6 million)**, and cash flows from operations[167](index=167&type=chunk) Summary of Cash Flows (in thousands) | Activity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Cash provided by operating activities | $37,008 | $34,167 | | Cash used in investing activities | $(4,549) | $(4,484) | | Cash provided by (used in) financing activities | $3,579 | $(23,747) | Contractual Obligations Summary (in thousands) | Obligation | Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $60,284 | $12,768 | $21,112 | $14,838 | $11,566 | | First Lien Term Loan - principal | $521,125 | — | — | — | $521,125 | | First Lien Term Loan - interest | $66,048 | $12,830 | $25,660 | $25,695 | $1,863 | | **Total** | **$647,457** | **$25,598** | **$46,772** | **$40,533** | **$534,554** | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risks stem from foreign currency exchange rates and interest rate fluctuations on its variable-rate debt - Primary market risks are **foreign currency exchange** (mainly Euro-denominated expenses) and **interest rate fluctuations** on its variable-rate debt[187](index=187&type=chunk)[188](index=188&type=chunk) - The company's **term loan of $521.1 million** bears interest based on the adjusted LIBOR rate plus a margin, equivalent to **2.4% at June 30, 2020**[191](index=191&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective due to a material weakness in internal control over financial reporting related to income taxes - Disclosure controls and procedures were deemed **ineffective as of June 30, 2020**, due to a material weakness in internal control over financial reporting[194](index=194&type=chunk) - The material weakness relates to **ineffective controls over accounting for income taxes**, particularly the realizability of deferred tax assets like foreign tax credits[195](index=195&type=chunk) - **Remediation efforts are underway**, including hiring senior tax personnel (VP of Tax and International Tax Manager) and improving review processes[197](index=197&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings - As of the reporting date, **Dynatrace is not involved in any material legal proceedings**[202](index=202&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) Key business risks include the impact of COVID-19, competition, substantial debt, and significant shareholder influence - The **COVID-19 pandemic poses a significant risk**, with potential impacts on customer spending, purchasing decisions, and attrition rates, the full extent of which remains uncertain[204](index=204&type=chunk)[206](index=206&type=chunk) - The company has **substantial debt ($521.1 million term loan as of June 30, 2020)** with covenants that restrict its ability to incur more debt, make acquisitions, and pay dividends[217](index=217&type=chunk)[218](index=218&type=chunk) - **Competition is a major risk**, with competitors including Cisco AppDynamics, Broadcom, New Relic, and Datadog, as well as point solutions from major cloud providers like AWS and Azure[263](index=263&type=chunk)[264](index=264&type=chunk) - **Thoma Bravo holds significant influence**, owning **41.4% of common stock** as of June 30, 2020, which allows it to influence board composition and major corporate decisions[381](index=381&type=chunk)[382](index=382&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred, and the use of IPO proceeds remains unchanged - There were **no unregistered sales of equity securities** in the quarter ended June 30, 2020[402](index=402&type=chunk) - The planned **use of proceeds from the IPO has not materially changed**[403](index=403&type=chunk) [Item 3. Default Upon Senior Securities](index=72&type=section&id=Item%203.%20Default%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - **No defaults upon senior securities** occurred[405](index=405&type=chunk) [Item 5. Other Information](index=73&type=section&id=Item%205.%20Other%20Information) No other material information was disclosed for the reporting period - **No other information was disclosed** under this item[408](index=408&type=chunk) [Item 6. Exhibits](index=74&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including certifications and corporate documents - Exhibits filed include corporate governance documents, officer certifications (Rule 13a-14(a) and Section 906), and interactive data files (XBRL)[410](index=410&type=chunk)

Financial Data and Key Metrics Changes - Annual Recurring Revenue (ARR) grew to $601 million, up 39% year-over-year, an increase of $164 million compared to the previous year [44] - Total revenue for Q1 was $155.5 million, representing a 30% year-over-year increase, driven by a 37% growth in subscription revenue [48][49] - Non-GAAP operating income was $50.8 million, leading to a non-GAAP operating margin of 33%, up 11 percentage points from the previous year [50] - Non-GAAP net income was $36.9 million or $0.13 per share, exceeding guidance by $0.03 [51] - Remaining performance obligation (RPO) was $857 million, a 40% increase year-over-year, with the current portion expected to be recognized as revenue over the next 12 months at $503 million, up 42% year-over-year [55] Business Line Data and Key Metrics Changes - Subscription revenue growth was a significant driver of overall revenue, with classic license revenue now representing less than 1% of total revenue [48] - ARR per customer increased to $229,000, up over 10% year-over-year [45] - The number of customers using three or more modules increased by 44% over the past six months, indicating strong platform expansion [41] Market Data and Key Metrics Changes - The company added 85 net new customers in Q1, bringing the total customer count to 2,458 [46] - The net expansion rate remained above 120% for the ninth consecutive quarter, reflecting strong customer retention and expansion [16][61] Company Strategy and Development Direction - The company plans to continue investing in growth, expanding its global team by over 90 employees in Q1 and expecting over 100 more in Q2 [34] - Focus on digital transformation projects is expected to accelerate, with 75% of CEOs anticipating an increase in such projects according to a recent survey [14] - The company aims to leverage its position in the multicloud environment, emphasizing the need for intelligent observability and automation [26][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's sustainable growth potential despite economic uncertainties, highlighting the critical role of digital transformation for business success [43] - The company anticipates a strong pipeline for new logos and expects to add approximately 450 new logos for the remainder of the year [47] - Management noted that the ongoing pandemic has shifted customer conversations towards essential projects, enhancing the company's value proposition [80] Other Important Information - The company completed its FedRAMP certification, allowing broader access to U.S. government digital transformation efforts [35] - The company is committed to ongoing innovation, with a focus on expanding capabilities across its monetizable modules [36][39] Q&A Session Summary Question: Can you talk about the level of monitoring at some of these customers? - Management noted that as companies accelerate digital transformation, the complexity of their environments increases, necessitating advanced observability solutions like Dynatrace [67] Question: Can you remind us roughly what the benefit was last year on that class of conversion? - Management indicated that the reduction in ARR growth was primarily due to the transition of customers to the Dynatrace platform, with a consistent growth rate of 39% on a constant currency basis [68] Question: Is the increase in ARR guidance purely a function of the change in the assumption around net retention? - Management clarified that the increase in guidance is a combination of stronger new logo growth and an improved net expansion rate [74] Question: What have you done differently in this new environment of no travel to generate new logo demand? - Management highlighted that conversations have shifted to emphasize the essential nature of projects, facilitating smoother sales cycles [80] Question: Can you provide metrics that represent the monitoring side of the business versus the APM side? - Management shared that the cross-selling of modules is increasing, with a shift from 80% APM and 20% emerging products to approximately 70% APM and 30% emerging products [87]

[PART I](index=5&type=section&id=PART%20I) [Business](index=5&type=section&id=Item%201.%20Business) Dynatrace offers an AI-powered software intelligence platform for multi-cloud environments, serving over 2,700 customers with rapid adoption - Dynatrace offers a software intelligence platform using AI and automation for multi-cloud environments, designed to simplify IT operations and improve user experiences[12](index=12&type=chunk) Key Business Metrics as of March 31, 2020 | Metric | Value | Growth (YoY) | | :--- | :--- | :--- | | Total Customers | > 2,700 | - | | Dynatrace® Customers | 2,373 | 74% | | Dynatrace® Net Expansion Rate | 123% | - | - The company's primary offering, the Dynatrace® platform, has been commercially available since 2016 and is the main driver of customer and revenue growth[26](index=26&type=chunk) - The company targets the largest **15,000 global enterprises**, generally those with annual revenues exceeding **$750 million**, through a direct sales team and a network of partners[25](index=25&type=chunk) - The company estimates its total addressable market opportunity to be approximately **$20 billion**, calculated based on potential spending from the top **15,000 global enterprises**[63](index=63&type=chunk) [The Dynatrace Software Intelligence Platform](index=14&type=section&id=The%20Dynatrace%20Software%20Intelligence%20Platform) The Dynatrace® platform is an all-in-one, automated solution integrating APM, AIOps, and analytics, leveraging proprietary AI for multi-cloud environments - The platform integrates APM, infrastructure monitoring, AIOps, DEM, and business analytics into a single, automated solution[72](index=72&type=chunk) - Core proprietary technologies include **OneAgent®** for automated data capture, **SmartScape®** for dependency mapping, and the **Davis™ AI engine** for AI-powered answers[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - The platform offers flexible deployment as a SaaS solution or a 'Managed' offering where customers control their data environment, combining SaaS simplicity with data sovereignty[59](index=59&type=chunk)[81](index=81&type=chunk) - In October 2019, the company introduced **Digital Business Analytics**, leveraging existing platform data to provide real-time business insights on conversions, orders, and customer segmentation, aiming to expand into the broader Analytics and Business Intelligence market[98](index=98&type=chunk) [Competition](index=23&type=section&id=Competition) Dynatrace faces diverse competition across APM, infrastructure monitoring, and cloud solutions, competing on automation and AI capabilities - The company competes directly or indirectly with a variety of vendors across different technology sectors[136](index=136&type=chunk) - Key competitor categories include[136](index=136&type=chunk)[137](index=137&type=chunk) * **APM vendors:** Cisco AppDynamics, Broadcom, and New Relic * **Infrastructure monitoring vendors:** BMC, Datadog, and Nagios * **DEM vendors:** Akamai and Catchpoint * **Public cloud providers:** Offering point solutions * **IT operations management, AIOps, and business intelligence providers** - Principal competitive factors include automation, AI capabilities, product features, ease of deployment, and brand recognition[138](index=138&type=chunk) [Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) The company outlines significant risks to its business, operations, and stock value, including the COVID-19 pandemic, substantial debt, and intense competition - The effects of the COVID-19 pandemic on business operations, customer spending, and future financial performance are a primary and uncertain risk[149](index=149&type=chunk)[151](index=151&type=chunk) - The company has substantial debt obligations of approximately **$550.0 million** as of March 31, 2020, with credit agreements that contain restrictive covenants impacting business operations[162](index=162&type=chunk) - A material weakness in internal control over financial reporting was identified related to the accounting for income taxes for the fiscal year ended March 31, 2020[318](index=318&type=chunk) - The company faces significant competition from APM vendors, infrastructure monitoring vendors, and large cloud providers, which could lead to pricing pressure and loss of market share[208](index=208&type=chunk)[209](index=209&type=chunk) - **Thoma Bravo** beneficially owns a majority of the company's voting stock, making Dynatrace a "controlled company" and giving Thoma Bravo significant influence over corporate matters[324](index=324&type=chunk)[329](index=329&type=chunk) [Properties](index=65&type=section&id=Item%202.%20Properties) The company's corporate headquarters are in Waltham, MA, with primary R&D facilities in Austria, Poland, and Spain, and additional global offices - Corporate headquarters are in Waltham, MA, with primary R&D labs located in Austria, Poland, and Spain[351](index=351&type=chunk) [Legal Proceedings](index=65&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently party to any material litigation or claims that would adversely affect its business or financial condition - As of the report date, there are no material legal proceedings against the company[352](index=352&type=chunk) [PART II](index=65&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=65&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Dynatrace's common stock began trading on the NYSE as "DT" on August 1, 2019, with no cash dividends paid or planned - The company's common stock has been listed on the NYSE under the symbol "**DT**" since its IPO on August 1, 2019[355](index=355&type=chunk) - The company has never declared or paid cash dividends and does not expect to in the foreseeable future[357](index=357&type=chunk) [Selected Financial Data](index=66&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides selected consolidated financial data, showing a shift to subscription revenue, increasing total revenue, and a substantial net loss in fiscal 2020 Selected Consolidated Statements of Operations Data (in thousands) | Fiscal Year Ended March 31, | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Total revenue** | **$545,803** | **$430,966** | **$398,047** | | Subscription | $487,817 | $349,830 | $257,576 | | License | $12,686 | $40,354 | $98,756 | | Gross profit | $416,872 | $324,165 | $301,513 | | (Loss) income from operations | $(171,939) | $(72,707) | $(21,759) | | **Net (loss) income** | **$(418,024)** | **$(116,194)** | **$9,222** | Selected Consolidated Balance Sheet Data (in thousands) | As of March 31, | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $213,170 | $51,314 | | Total assets | $2,042,080 | $1,811,366 | | Long-term debt, net | $509,985 | $1,011,793 | | Total shareholders' equity / member's deficit | $961,497 | $(390,258) | - Share-based compensation expense has increased dramatically, rising from **$22.3 million** in fiscal 2018 to **$222.5 million** in fiscal 2020[370](index=370&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=69&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong subscription revenue growth, increased operating expenses leading to a larger net loss, and improved liquidity post-IPO Annual Recurring Revenue (ARR) Trend (in thousands) | As of | 3/31/2020 | 3/31/2019 | | :--- | :--- | :--- | | Dynatrace® ARR | $527,830 | $282,815 | | Classic ARR | $44,928 | $120,459 | | **Total ARR** | **$572,758** | **$403,274** | - The Dynatrace® Net Expansion Rate has remained at or above **120%** for eight consecutive quarters, reaching **123%** as of March 31, 2020[26](index=26&type=chunk)[401](index=401&type=chunk) Fiscal Year 2020 vs. 2019 Performance (in thousands) | Metric | FY 2020 | FY 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $545,803 | $430,966 | 27% | | Subscription Revenue | $487,817 | $349,830 | 39% | | Gross Profit | $416,872 | $324,165 | 29% | | Loss from Operations | $(171,939) | $(72,707) | 136% | | Net Loss | $(418,024) | $(116,194) | 260% | - The increase in net loss for FY2020 was driven by higher operating expenses (up **48%**), including a **$151.3 million** increase in share-based compensation, and a **$199.5 million** income tax expense related to reorganization transactions[421](index=421&type=chunk)[436](index=436&type=chunk)[446](index=446&type=chunk) - The company used proceeds from its August 2019 IPO and a **$265.0 million** contribution from a related party to repay **$515.2 million** of its Term Loans[499](index=499&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=98&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks primarily from foreign currency exchange rates, interest rates on variable-rate debt, and inflation - The primary market risks are foreign currency exchange fluctuations (especially the euro), interest rate changes on variable-rate debt, and inflation[544](index=544&type=chunk) - A significant portion of revenue is in U.S. dollars, but operating expenses are incurred in various currencies, creating exposure to exchange rate fluctuations[546](index=546&type=chunk) - As of March 31, 2020, the company had **$521.1 million** in variable-rate term loans, exposing it to interest rate risk. A hypothetical **10%** change in interest rates is not expected to have a material impact[549](index=549&type=chunk) [Financial Statements and Supplementary Data](index=99&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for fiscal years 2018-2020, including Balance Sheets and Statements of Operations, with an unqualified auditor's opinion - The independent auditor, **BDO USA, LLP**, issued an unqualified opinion, stating the financial statements are presented fairly in all material respects[551](index=551&type=chunk) Consolidated Balance Sheet Summary (in thousands) | As of March 31, | 2020 | 2019 | | :--- | :--- | :--- | | **Total Assets** | **$2,042,080** | **$1,811,366** | | Goodwill | $1,270,733 | $1,270,120 | | **Total Liabilities** | **$1,080,583** | **$2,201,624** | | Long-term debt, net | $509,985 | $1,011,793 | | **Total Shareholders' Equity** | **$961,497** | **$(390,258)** | Consolidated Statement of Operations Summary (in thousands) | For the Year Ended March 31, | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total Revenue | $545,803 | $430,966 | $398,047 | | Gross Profit | $416,872 | $324,165 | $301,513 | | Loss from Operations | $(171,939) | $(72,707) | $(21,759) | | **Net (Loss) Income** | **$(418,024)** | **$(116,194)** | **$9,222** | [Controls and Procedures](index=138&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of March 31, 2020, due to a material weakness in income tax accounting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2020, due to a material weakness in internal control over financial reporting[759](index=759&type=chunk) - The material weakness relates to a lack of effective controls over the accounting for income taxes, including the preparation and review of the global tax provision and the assessment of deferred tax asset realizability[763](index=763&type=chunk) - A remediation plan is being developed, which includes hiring an International Tax Manager (completed in April 2020) and enhancing documentation and management review processes[764](index=764&type=chunk) [PART III](index=140&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=140&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2020 Proxy Statement - The required information for this item is incorporated by reference from the forthcoming 2020 Proxy Statement[772](index=772&type=chunk) [Executive Compensation](index=140&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the forthcoming 2020 Proxy Statement - The required information for this item is incorporated by reference from the forthcoming 2020 Proxy Statement[773](index=773&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=140&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners and management is incorporated by reference from the forthcoming 2020 Proxy Statement - The required information for this item is incorporated by reference from the forthcoming 2020 Proxy Statement[774](index=774&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=141&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the forthcoming 2020 Proxy Statement - The required information for this item is incorporated by reference from the forthcoming 2020 Proxy Statement[776](index=776&type=chunk) [Principal Accounting Fees and Services](index=141&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the forthcoming 2020 Proxy Statement - The required information for this item is incorporated by reference from the forthcoming 2020 Proxy Statement[777](index=777&type=chunk) [PART IV](index=141&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=141&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This item lists the financial statements and exhibits filed with the Form 10-K[779](index=779&type=chunk)[781](index=781&type=chunk)

[PART I - FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's analysis of the company's financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=2&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The unaudited financial statements reflect significant post-IPO balance sheet improvements and a widened net loss due to reorganization expenses [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Post-IPO, the balance sheet shows a stronger financial position with increased cash, halved liabilities, and positive shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 (unaudited) | Mar 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $188,555 | $51,314 | | Total current assets | $411,444 | $213,218 | | Goodwill | $1,270,650 | $1,270,120 | | **Total assets** | **$1,988,307** | **$1,811,366** | | **Liabilities & Equity** | | | | Total current liabilities | $449,233 | $950,901 | | Long-term debt, net | $540,236 | $1,011,793 | | Payable to related party | $— | $597,150 | | **Total liabilities** | **$1,089,117** | **$2,201,624** | | **Total shareholders' equity / member's deficit** | **$899,190** | **($390,258)** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 2019 saw net income improvement driven by subscription revenue, while the nine-month net loss widened due to increased operating and tax expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | **Total revenue** | **$143,298** | **$114,690** | **$395,226** | **$314,798** | | Subscription Revenue | $128,518 | $91,661 | $352,451 | $251,974 | | Gross profit | $114,593 | $88,867 | $297,432 | $237,948 | | Income (loss) from operations | $7,555 | ($3,578) | ($179,974) | ($49,063) | | **Net income (loss)** | **$1,763** | **($22,102)** | **($464,726)** | **($85,596)** | | Diluted EPS | $0.01 | ($0.09) | ($1.78) | ($0.36) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Nine-month cash flow saw significant operating cash outflow due to a tax payment, offset by IPO-driven financing activities, resulting in a net cash increase Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($207,096) | $84,933 | | Net cash used in investing activities | ($15,872) | ($5,656) | | Net cash provided by (used in) financing activities | $360,264 | ($103,467) | | **Net increase (decrease) in cash** | **$137,241** | **($26,725)** | | Cash and cash equivalents, end of period | $188,555 | $50,856 | - A significant cash outflow for the nine months ended Dec 31, 2019 was a **$268.3 million tax payment**, compared to only $3.5 million in the prior year period. This payment was related to the corporate reorganization[26](index=26&type=chunk) - Financing activities were driven by **$590.3 million in net proceeds from the IPO** and a **$265.0 million contribution for taxes**, offset by **$485.2 million in term loan repayments**[26](index=26&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the corporate reorganization, IPO, significant equity award modification expense, debt repayment, and a substantial tax liability - The company completed its IPO on August 1, 2019, issuing 38.9 million shares and receiving net proceeds of approximately **$585.3 million**[38](index=38&type=chunk) - As of December 31, 2019, the company had **$800.3 million in remaining performance obligations**, with **57% expected to be recognized as revenue** over the next twelve months[67](index=67&type=chunk) - In connection with the reorganization, outstanding MIU and AU awards were converted into common stock, restricted stock, and RSUs, resulting in a modification charge and recognition of **$145.3 million in incremental stock compensation expense** for the nine months ended Dec 31, 2019[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management highlights strong Dynatrace® platform adoption, customer growth, and ARR increase, with Q3 operating income turnaround, though nine-month net loss widened due to IPO-related expenses [Overview and Key Metrics](index=29&type=section&id=Overview%20and%20Key%20Metrics) The company's strategy drives significant growth in Dynatrace® customers and Annual Recurring Revenue, maintaining a strong dollar-based net expansion rate Key Performance Metrics | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Number of Dynatrace® Customers | 2,208 | 1,149 | | Dynatrace® ARR (in thousands) | $465,885 | $226,976 | | Classic ARR (in thousands) | $68,605 | $145,341 | | **Total ARR (in thousands)** | **$534,490** | **$372,317** | | Dynatrace® Dollar-Based Net Expansion Rate | > 120% | > 120% | - The company's strategy is to drive new customer growth by expanding its direct sales force focused on the largest **15,000 global enterprise accounts**[140](index=140&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Q3 revenue grew 25% with strong subscription growth and operating income, but nine-month net loss widened significantly due to IPO-related share-based compensation and tax expenses Revenue Comparison - Three Months Ended Dec 31 (in thousands) | Revenue Type | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscriptions | $128,518 | $91,661 | $36,857 | 40% | | License | $3,895 | $12,064 | ($8,169) | (68)% | | Services | $10,885 | $10,965 | ($80) | (1)% | | **Total revenue** | **$143,298** | **$114,690** | **$28,608** | **25%** | Revenue Comparison - Nine Months Ended Dec 31 (in thousands) | Revenue Type | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscriptions | $352,451 | $251,974 | $100,477 | 40% | | License | $10,424 | $32,805 | ($22,381) | (68)% | | Services | $32,351 | $30,019 | $2,332 | 8% | | **Total revenue** | **$395,226** | **$314,798** | **$80,428** | **26%** | - For the nine months ended Dec 31, 2019, total share-based compensation expense was **$209.7 million**, a significant increase from $42.3 million in the prior year period, primarily impacting Sales & Marketing and General & Administrative expenses[196](index=196&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) Post-IPO, liquidity significantly improved with increased cash and debt repayment, despite substantial operating cash outflow due to a reorganization-related tax payment - The company's cash position increased to **$188.6 million** as of Dec 31, 2019, primarily due to IPO proceeds[222](index=222&type=chunk) - During the second quarter of fiscal 2020, the company repaid all outstanding borrowings under the **second lien term loan**[226](index=226&type=chunk) Contractual Obligations as of Dec 31, 2019 (in thousands) | Obligation | Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $67,228 | $14,207 | $20,064 | $16,253 | $16,704 | | First Lien Term Loan - principal | $551,125 | $— | $— | $— | $551,125 | | First Lien Term Loan - interest | $143,612 | $25,491 | $50,842 | $50,912 | $16,367 | | **Total** | **$761,965** | **$39,698** | **$70,906** | **$67,165** | **$584,196** | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks from foreign currency and variable interest rates, but management does not anticipate a material impact from a 10% change in either - The company has foreign currency risk related to operating expenses, particularly in the euro. As of December 31, 2019, **$41.6 million of cash was held in foreign currencies**[246](index=246&type=chunk) - The company is exposed to interest rate risk on its **$551.1 million term loan**, which bears interest at a variable rate based on LIBOR. A hypothetical 10% change in interest rates is not expected to have a material impact[251](index=251&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 31, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of December 31, 2019, the company's **disclosure controls and procedures were effective**[254](index=254&type=chunk) - No material changes were made to the **internal control over financial reporting** during the quarter ended December 31, 2019[255](index=255&type=chunk) [PART II - OTHER INFORMATION](index=48&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides disclosures on legal proceedings, risk factors, equity sales, defaults, and other required information [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings expected to adversely affect its financial condition or operations - The company reports that it is not currently a party to any **material legal proceedings**[258](index=258&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks including sustaining growth, debt obligations, tax liabilities from spin-off, intense competition, and compliance with global regulations - The company's rapid subscription revenue growth may not be indicative of future growth, which depends on attracting new customers and expanding sales to existing ones[261](index=261&type=chunk) - The company's substantial debt of approximately **$551.1 million** contains restrictive covenants that could limit operational flexibility and pose risks to liquidity[264](index=264&type=chunk) - The spin-off of Compuware was a taxable transaction, resulting in an estimated tax liability of **$255.8 million**. The company is solely responsible for any taxes owed in excess of this amount[269](index=269&type=chunk)[271](index=271&type=chunk) - The company faces significant competition from established vendors like Cisco AppDynamics, Broadcom, and New Relic, as well as infrastructure monitoring vendors like Datadog and cloud providers like AWS and Azure[278](index=278&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=75&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity sales occurred, and IPO proceeds use remains consistent with the final prospectus - There were no **unregistered sales of equity securities** in the period[306](index=306&type=chunk) - The planned use of proceeds from the **IPO** has not materially changed[307](index=307&type=chunk) [Item 3. Defaults Upon Senior Securities](index=75&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults on senior securities - None[308](index=308&type=chunk) [Item 4. Mine Safety Disclosures](index=76&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable as the company has no mine safety disclosures - None[310](index=310&type=chunk) [Item 5. Other Information](index=76&type=section&id=Item%205.%20Other%20Information) The company reports no other information - None[311](index=311&type=chunk) [Item 6. Exhibits](index=77&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate documents and Sarbanes-Oxley Act certifications

[PART I - FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=2&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Unaudited condensed consolidated financial statements for Dynatrace, Inc. as of September 30, 2019, reflecting the impact of its IPO and corporate reorganization [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of September 30, 2019, reflects significant changes from the IPO and reorganization, including increased assets and a shift to positive shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2019 (unaudited) | March 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $211,696 | $51,314 | | Total current assets | $355,558 | $213,218 | | Goodwill | $1,270,163 | $1,270,120 | | Total assets | $1,932,822 | $1,811,366 | | **Liabilities & Equity** | | | | Total current liabilities | $381,093 | $950,901 | | Long-term debt, net | $569,789 | $1,011,793 | | Total liabilities | $1,046,540 | $2,201,624 | | Total shareholders' equity / member's deficit | $886,282 | ($390,258) | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenue grew 27% year-over-year to **$129.4 million**, but a significant net loss of **$417.3 million** was driven by increased operating expenses and a one-time tax expense Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Subscription Revenue | $115,805 | $82,389 | | Total Revenue | $129,378 | $101,887 | | Gross Profit | $89,832 | $75,551 | | Loss from Operations | ($154,523) | ($26,270) | | Net Loss | ($417,334) | ($39,938) | | Net Loss Per Share | ($1.58) | ($0.17) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities was **$218.2 million**, primarily due to net loss and a large tax payment, offset by **$390.3 million** from IPO financing activities Cash Flow Summary for Six Months Ended September 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($218,228) | $76,160 | | Net cash used in investing activities | ($10,322) | ($4,043) | | Net cash provided by (used in) financing activities | $390,269 | ($77,609) | | Net increase (decrease) in cash | $160,382 | ($7,848) | - Cash paid for taxes was exceptionally high at **$264.1 million** for the six months ended September 30, 2019, compared to just **$2.1 million** in the prior year period, significantly impacting operating cash flow[27](index=27&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies and significant events, including the IPO, corporate reorganization, adoption of ASC 606, and the impact of share-based compensation and tax liabilities - On August 1, 2019, the company completed its IPO, receiving approximately **$585.3 million** in net proceeds after deducting underwriting discounts and offering-related expenses[40](index=40&type=chunk) - As of September 30, 2019, the company had remaining performance obligations of **$653.3 million**, of which **58%** is expected to be recognized as revenue over the next twelve months[66](index=66&type=chunk) - The corporate reorganization and spin-off of two businesses generated a taxable gain, resulting in an estimated tax expense of **$255.8 million** The company received a **$265 million** distribution from Compuware to fund this liability[89](index=89&type=chunk) - In connection with the reorganization, outstanding Management Incentive Units (MIUs) and Appreciation Units (AUs) were modified, resulting in the recognition of **$145.3 million** in incremental stock compensation expense[96](index=96&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, highlighting strong Dynatrace® platform growth, increased subscription revenue, and the impact of higher operating expenses and IPO proceeds on net loss and liquidity [Overview and Key Metrics](index=32&type=section&id=Overview%20and%20Key%20Metrics) Dynatrace provides a software intelligence platform, focusing on its Dynatrace® platform, which shows significant ARR growth and customer expansion, alongside a decline in Classic product ARR - The company's strategy is to target the largest 15,000 global enterprise accounts and drive adoption of its all-in-one Dynatrace® platform[131](index=131&type=chunk)[134](index=134&type=chunk) Key Performance Metrics | Metric | September 30, 2019 | September 30, 2018 | | :--- | :--- | :--- | | Number of Dynatrace® Customers | 1,828 | 899 | | Dynatrace® ARR (in thousands) | $376,816 | $159,949 | | Classic ARR (in thousands) | $94,090 | $166,490 | | Total ARR (in thousands) | $470,906 | $326,439 | | Dynatrace® Dollar-Based Net Expansion Rate | > 120% | 120% | [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Total revenue increased 27% YoY to **$129.4 million**, but a significant net loss of **$417.3 million** resulted from a 140% surge in operating expenses, primarily due to share-based compensation and a one-time tax expense Revenue Comparison - Three Months Ended September 30 (in thousands) | Revenue Type | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscriptions | $115,805 | $82,389 | $33,416 | 41% | | License | $2,745 | $9,662 | ($6,917) | (72)% | | Services | $10,828 | $9,836 | $992 | 10% | | **Total Revenue** | **$129,378** | **$101,887** | **$27,491** | **27%** | - Operating expenses for the three months ended September 30, 2019, were significantly impacted by share-based compensation of **$154.7 million**, compared to **$23.0 million** in the same period of 2018[166](index=166&type=chunk) - Income tax expense for the three months ended September 30, 2019, was **$248.4 million**, primarily due to a **$255.8 million** tax expense resulting from the company's reorganization transactions[189](index=189&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2019, the company had **$211.7 million** in cash, with IPO proceeds used to fund operations, make a large tax payment, and repay debt, ensuring sufficient liquidity for the next twelve months - The company ended the period with **$211.7 million** in cash and cash equivalents and **$48.2 million** available under its revolving credit facility[218](index=218&type=chunk) - During the second quarter of fiscal 2020, the company repaid all outstanding borrowings under its Second Lien Term Loan[222](index=222&type=chunk) Contractual Obligations as of September 30, 2019 (in thousands) | Obligation | Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $69,807 | $14,910 | $20,414 | $16,857 | $17,626 | | First Lien Term Loan - principal | $581,125 | — | — | — | $581,125 | | First Lien Term Loan - interest | $170,019 | $28,889 | $57,620 | $57,699 | $25,811 | | **Total** | **$820,951** | **$43,799** | **$78,034** | **$74,556** | **$624,562** | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risks are foreign currency exchange rates, especially the Euro, and interest rate fluctuations on its **$581.1 million** variable-rate debt, though management does not anticipate a material effect from a 10% change - The company has foreign currency risk related to operating expenses denominated in currencies other than the U.S. dollar, mainly the Euro[243](index=243&type=chunk) - The company is exposed to interest rate risk on its **$581.1 million** in term loans, which bear interest at variable rates based on LIBOR or an Alternative Base Rate[247](index=247&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[251](index=251&type=chunk) [PART II - OTHER INFORMATION](index=54&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings that would adversely affect its financial condition or results of operations - As of the filing date, Dynatrace is not involved in any material legal proceedings[255](index=255&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant business risks, including the sustainability of subscription revenue growth, substantial debt obligations, potential tax liabilities from spin-offs, intense competition, and the challenge of converting Classic product customers - The company's substantial debt of approximately **$581.1 million** contains restrictive covenants that could impact business operations and liquidity[261](index=261&type=chunk) - The spin-offs of Compuware and SIGOS are taxable transactions While Compuware distributed **$265.0 million** to cover an estimated tax liability of **$255.8 million**, the final tax amount could be materially different and Dynatrace is solely responsible for any excess[266](index=266&type=chunk)[268](index=268&type=chunk) - The company faces significant competition from application performance monitoring vendors (Cisco AppDynamics, Broadcom, New Relic), infrastructure monitoring vendors (Datadog), and point solutions from major cloud providers (AWS, Azure, Google Cloud)[275](index=275&type=chunk) - A key business risk is the potential loss of customers and ARR if they do not convert from the company's Classic products, which still comprised **20%** of Total ARR as of September 30, 2019[274](index=274&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=81&type=section&id=Other%20Items) This section covers remaining disclosures, including no unregistered sales of equity securities, no material change in IPO proceeds use, no defaults on senior securities, and no mine safety disclosures - There has been no material change in the planned use of proceeds from the company's initial public offering as described in the final prospectus dated July 31, 2019[304](index=304&type=chunk) - The company reports no unregistered sales of equity securities, defaults upon senior securities, or mine safety disclosures for the period[303](index=303&type=chunk)[305](index=305&type=chunk)[307](index=307&type=chunk)

| --- | --- | |-------------------------------------------------------------------------------------|-------| | UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | | | FORM 10-Q | | (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 001-39010 | ...