- ARR of $930 million, up 29% year-over-year, or 32% on a constant currency basis
- Subscription revenue of $226 million, up 33% year-over-year, or 34% on a constant currency basis
- GAAP EPS of $0.05 and non-GAAP EPS of $0.18, on a dilutive basis
Software intelligence company Dynatrace (NYSE: DT) today released financial results for the third quarter of its fiscal 2022 ended December 31, 2021.
“Having completed my first quarter as CEO, I am very pleased with our third quarter performance, beating the high end of guidance across our key operating metrics driven by new logo additions and continued net expansion rate above 120%,” said Rick McConnell, Chief Executive Officer. “Our strong performance fuels our belief that customers increasingly view our software intelligence platform as an indispensable part of their digital transformation ecosystem. Looking ahead, we plan to further increase investments to capture the tremendous market opportunity ahead of us with the objective of accelerating growth as we scale to build a multibillion-dollar business.”
Third Quarter Fiscal 2022 and Other Recent Business Highlights:
All growth rates are compared to the third quarter of fiscal 2021 unless otherwise noted.
Financial Highlights:
- ARR of $930 million, an increase of 29%, or 32% on a constant currency basis
- Total Revenue of $241 million, an increase of 32%, or 33% on a constant currency basis
- Subscription revenue of $226 million, an increase of 33% as reported, or 34% on a constant currency basis, and representing 94% of total revenue
- GAAP Operating Income of $21 million and non-GAAP Operating Income of $61 million
- GAAP EPS of $0.05 and non-GAAP EPS of $0.18, on a dilutive basis
Business Highlights:
- Go-to-market momentum: Added 206 new logos in the quarter for a total of 501 new logos added to the Dynatrace platform on a year-to-date basis, an increase of 22% compared to the same period last year, with more than 44% of new customers landing with three or more modules, compared to 33% for the same period last year.
- Managed security vulnerabilities at scale: Log4j vulnerability accelerated interest in Dynatrace® for application security and highlighted our unique ability to instantly identify and prioritize security vulnerabilities in production, driving a 10x increase in POCs in the quarter ending December 31, 2021, up from dozens in the previous quarter ending September 30, 2021.
- Partnership expansion: Accelerated traction with partners influencing more than 50% of new transactions closed in the third quarter. New ARR transacted through hyperscaler partnerships more than tripled compared to the same period last year.
* 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 https://ir.dynatrace.com.
Financial Outlook
Based on information available, as of February 2, 2022, Dynatrace is issuing guidance for the fourth quarter and raising guidance for full year fiscal 2022 as follows:
Our guidance is based on foreign exchange rates as of December 31, 2021.
Reconciliation of non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and unlevered free cash flow 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 share-based compensation expense, employer taxes and tax deductions 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.
Conference Call and Webcast Information
Dynatrace will host a conference call and live webcast to discuss its results and business outlook for investors and analysts at 8:00 a.m. Eastern Time today, February 2, 2022. To access the conference call from the U.S. and Canada, dial (866) 405-1247, or internationally, dial (201) 689-8045 with conference ID # 13726069. The call will also be available live via webcast on the company’s website, ir.dynatrace.com.
An audio replay of the call will also be available until 11:59 p.m. Eastern Time on February 16, 2022, by dialing (877) 660-6853 from the U.S. or Canada, or for international callers by dialing (201) 612-7415 and entering conference ID # 13726069. In addition, an archived webcast will be available at 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.
Dynatrace presents constant currency amounts for Revenue and Annual Recurring Revenue to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Dynatrace provides this non-GAAP financial information to aid investors in better understanding our performance.
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 Net Expansion Rate is defined as the DynatraceARR 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.
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.
Unlevered Free Cash Flow is defined as net cash provided by (used in) operating activities and adjusted to exclude cash paid for interest (net of tax), non-recurring restructuring and acquisition related costs, along with costs associated 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.
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