Dynatrace(US:DT)2023-11-02 17:09Financial Data and Key Metrics Changes - Total Annual Recurring Revenue (ARR) for Q2 was $1.34 billion, an increase of $279 million year-over-year, representing 24% growth [21] - Total revenue for Q2 was $352 million, up 24% year-over-year, with subscription revenue at $334 million, up 26% year-over-year [30] - Non-GAAP operating income for Q2 was $106 million, or 30% of revenue, exceeding guidance by $13 million [31][32] - Non-GAAP net income was $93 million, or $0.31 per diluted share, also above guidance [33] - Free cash flow for Q2 was $34 million, with a trailing 12-month free cash flow of $330 million, or 25% of revenue [34] Business Line Data and Key Metrics Changes - Customer platform adoption remains strong, with 64% of customers using three or more modules, up from 55% year-over-year [26] - The average ARR per new logo land size was approximately $140,000, up 18% year-over-year [23] - The gross retention rate remained in the mid-90s, contributing to a net retention rate of 114% for Q2 [25] Market Data and Key Metrics Changes - The observability and application security market is large and growing, with Dynatrace positioned strongly due to its unified platform and AI leadership [17] - The company added 160 new logos in Q2, consistent with the previous year [22] - There is a growing interest in newer product offerings, including logs on Grail and application security [27] Company Strategy and Development Direction - The company plans to increase investments in R&D innovation and go-to-market strategies, particularly with global system integrators and hyperscalers [43][75] - Dynatrace aims to enhance its partnerships with major players like Kyndryl and Accenture to accelerate digital transformation for customers [78] - The introduction of the new Dynatrace Platform Subscription (DPS) is expected to drive future expansion opportunities [28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the strong pipeline and visibility into the second half of FY 2024, despite ongoing macroeconomic volatility [46] - The company is raising its full-year guidance across all top-line and profitability metrics, reflecting the strength of Q2 performance [36] - Management noted that customers are increasingly prioritizing observability and application security as critical components of their business strategies [67][74] Other Important Information - The company released its inaugural global impact report, detailing progress on ESG initiatives [14][15] - The report includes baseline greenhouse gas emissions data and expanded information on diversity and inclusion efforts [15] Q&A Session All Questions and Answers Question: What gave the company confidence to reinvest in the business now? - Management noted good visibility and pipeline into the second half, along with the belief that macro conditions will improve in the future [86] Question: What is driving the net retention rates? - Management clarified that renewals remain strong, and the cautious approach of customers is leading to moderated expansions [102] Question: What is the customer demand around hypermodal AI capabilities? - Customers appreciate the integration of causal, predictive, and generative AI techniques, indicating strong interest in the upcoming Davis CoPilot [99] Question: How does the company measure return on investment for go-to-market and R&D? - The company is focused on the quality of new logo lands and the resulting expansion opportunities, which are seen as key indicators of ROI [121]