Dynatrace(US:DT)2022-11-02 16:52Financial Data and Key Metrics Changes - Adjusted ARR for Q2 2023 was $1.065 billion, reflecting a 33% year-over-year growth [44] - Subscription revenue reached $261 million, a 29% increase year-over-year in constant currency [7][49] - Non-GAAP operating income was $73 million, representing 26% of revenue, exceeding guidance by 250 basis points [53] - Free cash flow for the quarter was $25 million, with a trailing 12-month free cash flow margin of 29% [55] - Non-GAAP gross margin for Q2 was 83%, down 2 percentage points from the previous year [50] Business Line Data and Key Metrics Changes - The company added 164 new logos in Q2, maintaining a net expansion rate above 120% for the 18th consecutive quarter [11][45] - Over half of new logos adopted three or more modules, with an average ARR for new logo lands increasing to $120,000 [20][46] - Existing customers showed strong multi-module adoption, with 55% using three or more modules at an average ARR of nearly $500,000 [48] Market Data and Key Metrics Changes - The company noted increased caution in spending among enterprises, particularly in Europe, leading to elongated sales cycles [12][58] - The macroeconomic environment is impacting new logo additions, expected to decline by approximately 5% year-over-year [60] Company Strategy and Development Direction - The company is focused on innovation, with the recent launch of Grail seen as a significant market opportunity [9][27] - Strategic partnerships, particularly with global system integrators like DXC and Deloitte, are emphasized as key growth areas [31][88] - The company aims to maintain operational efficiency while investing in strategic priorities to emerge stronger post-economic challenges [39][67] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's resilience despite macroeconomic pressures, with a strong pipeline and competitive positioning [13][38] - The company anticipates a reduction in ARR guidance by $30 million due to economic conditions, particularly affecting new logos and net expansion rates [12][59] - Management remains optimistic about long-term growth, expecting to reaccelerate ARR growth as economic conditions normalize [13][77] Other Important Information - The company reported a remaining performance obligation (RPO) of approximately $1.53 billion, a 29% increase year-over-year [56] - The transition of CFO from Kevin Burns to Jim Benson was highlighted, with confidence in the leadership team's ability to drive future growth [35][41] Q&A Session Summary Question: Confidence in ARR guidance adjustments - Management acknowledged the need for caution due to economic pressures, particularly in Europe, affecting new logos and net expansion rates [72][75] Question: Impact of Grail on future ARR - Management believes Grail could add approximately $100 million in ARR over the next eight quarters, with strong early demand from customers [81][83] Question: Hyperscaler performance and ARR guidance - Management noted that while there was some slowdown in hyperscaler business, it continues to grow nicely, and partnerships with GSIs are expected to provide tailwinds [87][90] Question: Sales cycle elongation and its impact - Management indicated that sales cycles are elongating, particularly in Europe, but expressed confidence in closing deals from the previous quarter [113][114] Question: Grail's positioning in the market - Grail is viewed as a core technology that enhances the existing platform, with initial traction expected from the installed customer base [120][121]