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What changed in Dynatrace, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Dynatrace, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+376 added−412 removedSource: 10-K (2024-05-23) vs 10-K (2023-05-25)

Top changes in Dynatrace, Inc.'s 2024 10-K

376 paragraphs added · 412 removed · 286 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeDynatrace ONE Premium offers dedicated expertise for customers with designated Product Specialists and Customer Success Managers familiar with the customer’s environment, goals, and challenges to provide a customized plan. 10 Table of Contents Intellectual Property Dynatrace relies on a combination of patent, copyright, trademark, trade dress, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights.
Biggest changeIntellectual Property We rely on a combination of patent, copyright, trademark, trade dress, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights. As of March 31, 2024, we had 128 issued patents, 86 of which are U.S. patents, and 63 pending applications, of which 40 are U.S. applications.
None of our employees are represented by a labor union and some of our employees outside of the United States are represented by a works council. We have not experienced any work stoppages due to labor disputes. We believe that our relations with our employees and works councils are strong.
None of our employees are represented by a labor union; some of our employees outside of the United States are represented by a works council. We have not experienced any work stoppages due to labor disputes. We believe that our relations with our employees and works councils are strong.
See the “Risk Factors” section of this Annual Report for a discussion of risks related to our intellectual property. Competition The market for observability, analytics, and application security is evolving, complex, and defined by changing technology and customer needs. As we have expanded our platform capabilities, we increasingly compete with a wider range of vendors.
See the “Risk Factors” section of this Annual Report for a discussion of risks related to our intellectual property. Competition The market for observability, analytics, and application security is evolving, complex, and defined by rapidly changing technology and customer needs. As we have expanded our platform capabilities, we increasingly compete with a wider range of vendors.
As enterprises and public sector institutions embrace modern cloud environments as the underlying foundation of their digital transformations, we believe that the scale, growing complexity, and dynamic nature of these environments are rapidly making solutions such as the Dynatrace ® platform mandatory instead of optional for many organizations.
As enterprises and public sector institutions embrace modern cloud environments as the underlying foundation of their business and digital transformations, we believe that the scale, growing complexity, and dynamic nature of these environments are rapidly making solutions such as the Dynatrace platform mandatory instead of optional for many organizations.
Information contained on, or that can be accessed through, our websites are not incorporated by reference into this Annual Report and should not be considered to be part of this Annual Report, and inclusions of our website addresses in this Annual Report are inactive textual references only.
Information contained on, or that can be accessed through, our websites is not incorporated by reference into this Annual Report and should not be considered to be part of this Annual Report, and inclusions of our website addresses in this Annual Report are inactive textual references only.
Professional Services Our Dynatrace Services Organization empowers our customers to innovate, automate, and transform the way they work with the Dynatrace ® platform. Our expertise and cloud modernization practices cover cloud ecosystem integration, automated incident management and problem resolution, DevOps CI/CD integration, user experience, business intelligence insights, digital business analytics, and more.
Professional Services Our Dynatrace Services Organization empowers our customers to innovate, automate, and transform the way they work with the Dynatrace platform. Our expertise and cloud modernization practices cover cloud ecosystem integration, automated incident management and problem resolution, DevOps integration, user experience, business intelligence insights, digital business analytics, and more.
Dynatrace ® provides out-of-the-box configuration for the leading cloud platforms, such as AWS, Azure, GCP, Red Hat OpenShift, and SAP, as well as coverage for traditional on-premises systems, including mainframe and monolithic applications in a single, easy-to-use, intelligent platform.
Dynatrace Deployment and Operations Dynatrace provides out-of-the-box configuration for the leading cloud platforms, such as AWS, Azure, GCP, Red Hat OpenShift, and SAP, as well as Kubernetes and coverage for traditional on-premises systems, including mainframe and monolithic applications in a single, easy-to-use, intelligent platform.
We utilize an agile development process with 100% test automation to deliver approximately 25 major software releases per year and hundreds of minor releases, fixes and updates. We believe the full-stack monitoring required by dynamic multicloud environments requires a highly efficient and agile process to enable high-performing software across the diverse, dynamic cloud ecosystems of our customers.
We utilize an agile development process with 100% test automation to deliver major software releases throughout the year and hundreds of minor releases, fixes and updates. We believe the full stack monitoring required by dynamic multicloud environments requires a highly efficient and agile process to enable high-performing software across the diverse, dynamic cloud ecosystems of our customers.
We also believe that our employees should have a strong work/life balance, be able to save for their future, and give back to the communities in which we work and live. Strengthening our approach to DEIB - People, culture, and community initiatives focused on improving our DEIB efforts help us build a more inclusive and supportive culture.
We also believe that our employees should have strong wellness programs, be able to save for their future, and give back to the communities in which we work and live. Strengthening our approach to DEIB - People, culture, and community initiatives focused on improving our DEIB efforts help us build a more inclusive and supportive culture.
We work closely with 10 strategic GSIs, including Deloitte and DXC, to help customers digitally transform their businesses and reduce cloud complexity. We continue to see a robust technical readiness investment from our key strategic GSIs resulting in hundreds of individuals trained or certified on the Dynatrace platform.
We work closely with a number of strategic GSIs, including Accenture, Deloitte, DXC, and Kyndryl, to help customers digitally transform their businesses and reduce cloud complexity. We continue to see a robust technical readiness investment from our key strategic GSIs resulting in hundreds of individuals trained or certified on the Dynatrace platform.
We do this primarily through our digital online channels, such as the Dynatrace News blog, Dynatrace Community, and Dynatrace University, as well as our customer event series ‘Perform’ and ‘Innovate’. 9 Table of Contents Partners We develop and maintain partnerships that help us market and deliver our offerings to our customers around the world.
We do this primarily through our digital online channels, such as the Dynatrace blog, Dynatrace Community, and Dynatrace University, as well as our customer event series ‘Perform’ and ‘Innovate.’ 9 Table of Contents Partners We develop and maintain partnerships that help us market and deliver our offerings to our customers around the world.
We provide employees with industry-competitive compensation and benefits, including retirement savings programs, the opportunity to invest in Dynatrace at a discount through our Employee Stock Purchase Plan (“ESPP”), and medical, dental, vision, and life and disability plans. Our benefits vary around the world due to local country regulations and cultural preferences.
We provide employees with compensation and benefits, which are designed to be competitive for our industry, including retirement savings programs, the opportunity to invest in Dynatrace at a discount through our Employee Stock Purchase Plan (“ESPP”), and medical, dental, vision, and life and disability plans. Our benefits vary around the world due to local country regulations and cultural preferences.
Our customers reflect diverse industries including, but not limited to, banking and finance, government, insurance, retail and wholesale, and software. No organization or customer accounted for more than 10% of our revenue for the fiscal years ended March 31, 2023, 2022, and 2021. Our Growth Strategy Extend our technology and market leadership position.
Our customers reflect diverse industries including, but not limited to, banking and financial services, government, insurance, retail and wholesale, transportation, and software. No organization or customer accounted for more than 10% of our revenue for the fiscal years ended March 31, 2024, 2023, and 2022. Our Growth Strategy Extend our technology and market leadership position.
We also use these channels to disclose information about the company, our planned financial and other announcements, attendance at upcoming investor and industry conferences, and for complying with our disclosure obligations under Regulation FD. The information we post through these channels may be deemed material.
We also use these channels to disclose information about the company, our planned financial and other announcements, attendance at upcoming investor and industry conferences, and for complying with our disclosure obligations under Regulation FD. The information we post through these channels may be deemed material. Accordingly, we encourage investors to review the information we make available through these channels.
We also license software from third parties for integration into our applications and utilize open-source software. We enter into agreements with our employees, contractors, customers, partners, and other parties with which we do business to limit access to and disclosure of our confidential and proprietary information.
We have registered numerous Internet domain names related to our business. We also license software from third parties for integration into our applications and utilize open-source software. We enter into agreements with our employees, contractors, customers, partners, and other parties with which we do business to limit access to and disclosure of our confidential and proprietary information.
As part of our focus in this area beyond the Dynatrace Work Model (discussed above), we provide employees with quarterly, company-designated Wellness Days to disconnect from work and recharge. Our mental health resources include access to an employee assistance program (“EAP”), and we also provide employees with financial wellness tools.
As part of our focus in this area, we provide employees with quarterly, company-designated wellness days to disconnect from work and recharge. Our mental health resources include access to an employee assistance program and we also provide employees with financial wellness tools.
Enhance our strategic partner ecosystem. We intend to continue to invest in our strategic partner ecosystem, with a particular emphasis on cloud-focused partnerships with GSIs and hyperscaler cloud providers. These strategic partners continually work with their customers to help them digitally transform their businesses and reduce cloud complexity.
We intend to invest in our strategic partner ecosystem, with a particular emphasis on building cloud-focused, loyal and comprehensive partnerships with global system integrators (“GSIs”) and hyperscaler cloud providers. These strategic partners continually work with their customers to help them digitally transform their businesses and reduce cloud complexity.
See the “Risk Factors” section of this Annual Report for a discussion of risks related to competition. 11 Table of Contents Environmental, Social and Governance (“ESG”) Overview We believe advancing and strengthening our ESG strategy are both paramount to our success and are our responsibility as a global company.
See the “Risk Factors” section of this Annual Report for a discussion of risks related to competition. Sustainability Overview We believe advancing and strengthening our sustainability strategy are paramount to our success and are our responsibility as a global company.
We require Dynatracers to complete a set of mandatory training courses each year. We also reimburse employees for certain educational expenses, including tuition, conferences, training, and books. Wellness – We value the health and well-being of our employees.
Employees can also use Dynatrace University to develop skills to monitor, manage, and analyze Dynatrace customer environments. We require Dynatracers to complete a set of mandatory training courses each year. We also reimburse employees for certain educational expenses, including tuition, conferences, training, and books. Wellness – We value the health and well-being of our employees.
Dynatrace ONE Premium is an extra level of success and support services for customers who want to accelerate their adoption of our platform, increase their access to support globally 24/7, and extend their hours of expert coverage.
We also offer an extra level of success and support services for customers that want to accelerate their adoption of our platform, increase their access to support globally 24/7, and extend their hours of expert coverage.
These initiatives include: (1) strengthening our approach to diversity, equity, inclusion and belonging (“DEIB”); (2) optimizing the Dynatrace workplace experience; and (3) building out our learning and development program to help provide each Dynatracer with tools and pathways to progress in their role.
These initiatives include: (1) strengthening our approach to DEIB in our employee base ; (2) working to optimize the Dynatrace workplace experience ; and (3) building out our learning and development program to help provide each Dynatracer with tools and pathways to progress in their role.
Dynatrace University is our global online, self-service education program that provides several learning options for customers and partners to develop their skills around monitoring, managing, integrating, and analyzing multicloud environments and application workloads with Dynatrace.
Dynatrace University is our global online, self-service education program that provides several learning options for customers and partners to develop their skills around monitoring, managing, integrating, and analyzing multicloud environments and application workloads with Dynatrace. Customer Support We have an innovative onboarding and support service that is focused on simplifying and streamlining customer experience.
This offering allows customers the flexibility to maintain control of the environment where their data resides, whether in the cloud or on-premises, combining the simplicity of SaaS with the ability to adhere to their own data security and sovereignty requirements.
We also provide options to deploy our platform in customer-provisioned infrastructure, which we refer to as Dynatrace Managed. This offering allows customers the flexibility to maintain control of the environment where their data resides, whether in the cloud or on-premises, combining the simplicity of SaaS with the ability to adhere to their own data security and sovereignty requirements.
Dynatrace ONE is provided to all Dynatrace customers and includes automatic product updates and upgrades, online access to documentation, a knowledge base, and discussion forums as well as access to Dynatrace University.
Our customer support also includes automatic product updates and upgrades, online access to documentation, a knowledge base, and discussion forums as well as access to Dynatrace University.
In addition to the above companies, we also face potential competition from vendors in adjacent markets that may offer capabilities that overlap with ours. We may also face competition from companies entering our market, including large technology companies that could expand their platforms or acquire one of our competitors.
Our principal competitors include Cisco (which now includes AppDynamics and Splunk), Datadog, and New Relic. We also face potential competition from vendors in adjacent markets that may offer capabilities that overlap with ours. We may also face competition from companies entering our market, including large technology companies that could expand their platforms or acquire one of our competitors.
We intend to maintain our position as the market-leading unified observability and security platform through increased investment in research and development, and continued innovation. We expect to focus on expanding the functionality of our unified Dynatrace® platform and investing in capabilities that address new market opportunities.
We intend to maintain our position as the market-leading unified observability and security platform through increased investment in research and development, and innovation. We plan to expand the functionality of our end-to-end Dynatrace platform and invest in capabilities that address new market opportunities. We also plan to evolve our AI capabilities to drive differentiation.
In addition, we believe the ease of implementation for Dynatrace® provides us the opportunity to expand adoption within our existing enterprise customers, across new customer applications, and into additional business units or divisions. Once customers are on the Dynatrace® platform, we have seen significant dollar-based net expansion due to the ease of use and power of our platform.
In addition, we believe the ease of implementation of Dynatrace provides us with the opportunity to expand adoption within our existing enterprise customers, across new customer applications, and into additional business units or divisions.
We utilize a variety of go-to-market strategies, including search-engine optimization, online advertising, free software trials, events, online webinars, and broad content marketing strategies. We nurture our existing customer base through ongoing education, and training, including upsell and cross-sell opportunities.
Our sales and marketing organizations seek to promote the Dynatrace brand, our platform capabilities, and develop partnerships to drive revenue growth. We utilize a variety of go-to-market strategies, including search-engine optimization, online advertising, free software trials, events, online webinars, and broad content marketing strategies. We nurture our existing customer base through ongoing education, and training, including expansion opportunities.
We compete either directly or indirectly with: • APM vendors, such as Cisco and New Relic; • infrastructure monitoring vendors, such as BMC and Datadog; • log management vendors, such as Splunk and Datadog; • DEM vendors, such as Akamai and Catchpoint; • security vendors, such as Palo Alto Networks and Splunk; • open source and commercial open source vendors, such as Elastic and Grafana; • point solutions from public cloud providers; and • IT operations management, AIOps, and business intelligence providers with offerings that cover some portion of the capabilities that we provide.
We compete either directly or indirectly with infrastructure monitoring vendors, APM vendors, log management vendors, digital experience monitoring (“DEM”) vendors, security vendors, open source and commercial open source vendors, point solutions from public cloud providers, and IT operations management and business intelligence providers with offerings that cover some portion of the capabilities that we provide.
Building out our learning and development program - At Dynatrace, we embrace a culture of continuous learning. We offer employees a comprehensive, global, and scalable learning solution that includes access to thousands of online courses for every role and level. Employees can also use Dynatrace University to develop skills to monitor, manage, and analyze Dynatrace customer environments.
We continually evaluate this model to balance these objectives. Building out our learning and development program - At Dynatrace, we embrace a culture of continuous learning. We offer employees a comprehensive, global, and scalable learning solution that includes access to thousands of online courses for every role and level.
Through our volunteer program, Dynatracers can engage in paid time off to volunteer with charitable organizations that they are passionate about. Corporate Information Our principal executive offices are located at 1601 Trapelo Road, Suite 116, Waltham, Massachusetts 02451 and our telephone number is (781) 530-1000. Our website is www.dynatrace.com and our Investor Relations website is https://ir.dynatrace.com.
Corporate Information Our principal executive offices are located at 1601 Trapelo Road, Suite 116, Waltham, Massachusetts 02451 and our telephone number is (781) 530-1000. Our website is www.dynatrace.com and our Investor Relations website is https://ir.dynatrace.com.
Our resellers market and sell our offerings throughout the world and provide a go-to-market channel in countries and regions where we do not have a direct presence, such as in Africa, Japan, the Middle East, and South Korea. • Technology alliance partners.
Our customers are also able to procure our software through leading marketplaces, such as AWS, Azure, SAP, and Google. • Resellers. Our resellers market and sell our offerings throughout the world and provide a go-to-market channel in countries and regions where we do not have a direct presence. • Technology alliance partners.
To monitor and secure their IT environments, organizations increasingly need to move from manual processes, static dashboards, and remediating after the fact to solutions that deliver vastly improved insights, analytics, answers, and automation.
Organizations are increasingly seeing the need to move from manual processes, siloed dashboards, rudimentary AI, and after-the-fact remediating to solutions such as Dynatrace that deliver vastly improved and deeper insights, advanced analytics, answers, and automation.
Our Dynatrace ® platform combines the only fully unified end-to-end solution for comprehensive observability and continuous runtime application security together with advanced artificial intelligence (“AI”) for IT operations (“AIOps”) to provide answers and intelligent automation from data at enormous scale.
ITEM 1. BUSINESS Overview Our vision is a world where software works perfectly. Dynatrace offers the only end-to-end platform that combines broad and deep observability and continuous runtime application security with advanced artificial intelligence (“AI”) for IT operations to provide answers and intelligent automation from data at an enormous scale.
DEIB is critical to our mission, and we are committed to maintaining a culture where every Dynatracer feels respected, safe, included, and valued.
At Dynatrace, we respect and value all of our diverse backgrounds, identities, and perspectives. Providing opportunities to qualified individuals is critical to our mission, and we are committed to maintaining a culture where every Dynatracer feels respected, safe, included, and valued.
We target the largest 15,000 global enterprise accounts, which generally have annual revenues in excess of $1 billion, which we believe see more value from our integrated full-stack platform. Our sales and marketing organizations seek to promote the Dynatrace ® brand, our platform capabilities, and develop partnerships to drive revenue growth.
Sales and Marketing We take Dynatrace to market through a combination of our global direct sales team and a network of partners, including GSIs, cloud providers, resellers, and technology alliance partners. We target the largest 15,000 global enterprise accounts, which generally have annual revenues in excess of $1 billion, which we believe see more value from our integrated full-stack platform.
Community service and volunteering - We take pride in giving back to the communities in which we work and live. We are eager to share our skills, passion, and resources to help benefit others, whether they are underprivileged members of society or underrepresented communities in the technology space.
Community service and volunteering - Community service and volunteering allow us to share our skills, passion, and resources to help benefit others, whether they are underprivileged members of society or underrepresented communities in the technology space. 12 Table of Contents Through our program, Dynatracers can engage in paid time off to volunteer with charitable organizations about which they are passionate.
We have registered “Dynatrace” and the “Dynatrace” logo as trademarks in the United States and other jurisdictions for our name and our product as well as certain other words and phrases that we use in our business, including “One Agent”, “PurePath”, “SmartScape”, and “Davis”. We have registered numerous Internet domain names related to our business.
Our issued patents expire at various dates through November 2042. 10 Table of Contents We have registered “Dynatrace” and the “Dynatrace” logo as trademarks in the United States and other jurisdictions for our name and our product as well as certain other words and phrases that we use in our business, including “OneAgent,” “PurePath,” “Smartscape,” and “Davis”.
We identified and implemented new and better ways to transform our people, culture, and community initiatives as Dynatrace expands its global footprint and continues to focus on long-term growth. Our Chief Executive Officer, Chief People Officer, and other leaders discuss various human capital-related topics with our Board of Directors throughout the year.
In fiscal 2024, we strengthened and expanded our approach to human capital development. We identified and implemented new and better ways to transform our people, culture, and community initiatives as Dynatrace has expanded its global footprint and continued to focus on long-term growth.
These applications run in environments that may extend across Infrastructure as a Service (“IaaS”), Platform as a Service (“PaaS”), and Functions as a Service (“FaaS”), offered through hyperscaler vendor solutions such as Amazon Web Services (“AWS”), Microsoft Azure (“Azure”), and Google Cloud Platform (“GCP”), and more traditional data center solutions such as mainframe environments.
Applications are no longer monolithic and have become fragmented into thousands, potentially millions, of microservices, written in multiple software languages and extending across environments offered through hyperscaler vendor solutions such as Amazon Web Services (“AWS”), Microsoft Azure (“Azure”), and Google Cloud Platform (“GCP”), and more traditional data center solutions, such as mainframe environments.
Grail TM , our proprietary data lakehouse architecture with massively parallel processing (“MPP”) technology, allows customers to analyze large volumes of data in modern cloud-native environments quickly and cost effectively without the overhead, expense and limitation of storage tiering, re-indexing, and rehydration imposed by alternative solutions. • Automated workflow processes.
Grail allows organizations to interconnect and analyze large volumes of different types of data quickly and cost effectively in context, without the overhead, expense, and limitation of storage tiering, re-indexing, and rehydration imposed by alternative solutions. • Receive answer-centric insights and automation with hypermodal AI .
Increase penetration within existing customers. We plan to continue to increase the penetration within our existing customers by establishing new and deeper relationships within our customers’ organizations (notably, development teams) and expanding the breadth of our platform capabilities to provide for continued cross-selling opportunities.
We believe this strategy will enable new growth opportunities and allow us to deliver differentiated high-value outcomes to our customers. Expand and strengthen our relationships with existing customers. We plan to establish new and deeper relationships within our existing customers’ organizations (notably, development teams) and expand the breadth of our platform capabilities to provide for expansion opportunities.
We intend to drive new customer growth by expanding our direct sales force focused on the largest 15,000 global enterprise accounts, which generally have annual revenues in excess of $1 billion. In addition, we plan to leverage our global partner ecosystem to add new customers in geographies where we have direct coverage and work jointly with our partners.
We intend to drive new customer growth through a focus on the largest 15,000 global enterprise accounts, which generally have annual revenues in excess of $1 billion and more complex IT ecosystems and cloud environments. In particular, we are increasing the focus of our sales force on the largest 500 global companies and strategic enterprise accounts.
Our goal is to bring together industry experts and hands-on practitioners to create a world-class partner network. In addition, our partner network extends the sales reach of the Dynatrace ® platform providing new sales opportunities, renewals of existing subscriptions, as well as upsell and cross-sell opportunities. Our partner network includes: • Global system integrators.
Our goal is to bring together industry experts and hands-on practitioners to create a world-class partner network. Through this intersection of industry and technology, our partner network extends the sales reach of the Dynatrace go-to-market team, while bringing enhanced value to our customers.
We designed a Dynatrace Work Model (which has hybrid and remote options) to support increased connection and collaboration, driving cultural vibrancy and supporting innovation, all while enabling a flexible work approach. We encourage Dynatracers to find the solutions that work best for them and their team.
The findings from this survey and our other initiatives have highlighted a number of strengths and also have provided focus areas for future refinements. The Dynatrace Work Model, which has hybrid and remote options, supports increased connection and collaboration, driving cultural vibrancy and supporting innovation, all while enabling a flexible work approach.
For information about some of our people, culture and community focuses, please see the “Human Capital Management” section below. Human Capital Management Our company’s vitality comes from the talent, enthusiasm, and innovative spirit of our employees (who we call “Dynatracers”) across the more than 30 countries where we operate.
The contents of our Global Impact Reports are not incorporated into this Annual Report and inclusion of the website address above is an inactive textual reference only. 11 Table of Contents Human Capital Management Our company’s vitality comes from the talent, enthusiasm, and innovative spirit of our employees (who we call “Dynatracers”) across the more than 30 countries where we operate.
We maintain a SaaS-like connection to tenants and clusters, both in the cloud and managed on customer provisioned infrastructure, using our “Mission Control” system, which allows us to streamline communication and accelerate resolution of issues.
We use in-product chat as the primary vehicle for customer interaction to drive adoption and growth, as well as to handle issues and user questions. We maintain a SaaS-like connection to tenants and clusters, both in the cloud and managed on customer provisioned infrastructure.
We are applying the same ambition, precision, and accountability that drive us in our daily work to amplify our ESG endeavors. Our ESG strategy focuses on areas where we can make our business and the communities in which we operate more equitable and sustainable.
Our strategy focuses on areas where we can make our business and the communities in which we operate more equitable and sustainable. We group our material sustainability topics into three key pillars: sustaining our environment; people, culture and community; and governance and ethics.
In 2022, we were also listed in Comparably’s Best Places to Work in Bosto n and named a Trend Top Employer in Austria, where we maintain a large R&D presence. As of March 31, 2023, we had approximately 4,180 employees, approximately 65% of whom were located outside of the United States.
In fiscal 2024, we also received a Great Place to Work certification in 13 countries and other awards and recognitions. As of March 31, 2024, we had approximately 4,700 employees, approximately 33% of whom were located in the United States, and approximately 26% of whom were located in Austria.
This approach enables IT, development, security, and business operations teams to modernize and automate operations, deliver software faster and more securely, and provide better digital experiences. The Dynatrace Platform We engineered the Dynatrace® platform to automatically capture a wide variety of high-fidelity application, infrastructure, user experience, and open-source telemetry data at scale.
Our comprehensive solutions help IT, development, security, and business operations teams at global organizations modernize and automate cloud operations, deliver software faster and more securely, and provide significantly improved digital experiences. Many of the world’s largest organizations trust the Dynatrace ® platform to accelerate digital transformation.
Dynatrace continues to be recognized as an employer of choice, earning awards around the globe in the last two years. In 2022 and 2023, Dynatrace won two of Comparably’s workplace awards - Best Company Outlook and Best Global Culture .
For several years, third party organizations have recognized Dynatrace as an employer of choice around the globe. During our fiscal 2024, Dynatrace won several of Comparably’s workplace awards - Best Global Culture, Best Leadership, Best Work-Life Balance, Best Engineering Teams, Best HR Teams, Best Product and Design Teams, Best CEO, and Best CEOs for Diversity .
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ITEM 1. BUSINESS Overview Dynatrace offers a unified observability and security platform with analytics and automation at its core, purpose-built for dynamic, hybrid, multicloud environments. Our comprehensive solutions help global organizations simplify cloud complexity, innovate faster, and do more with less in the modern cloud. Our mission is to deliver answers and intelligent automation from data at an enormous scale.
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We have been seeing increased demand for large, strategic deals in which customers’ business criteria drive broader technology architecture decisions. At the same time, workloads continue migrating to the cloud as customers seek the agility, flexibility, and rapid technology advancements that can prove elusive in on-premises data center environments.
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Our purpose is to enable flawless and secure digital interactions. Our vision is a world where software works perfectly. Digital transformation is ubiquitous, with software defining how we bank, manufacture, deliver healthcare, educate, receive government services, transact business, and communicate with our colleagues, friends, and families.
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AI has been sweeping across industries and exploding in relevancy and criticality as organizations desire significant advancements in innovation, productivity, and performance. The escalating cybersecurity threat landscape is also increasing the need for more sophisticated protection.
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This transformation is happening in particular in dynamic hybrid, multicloud environments, which bring a scale and frequency of change that is exponentially greater than that of the old data center world. Traditional approaches for developing, operating, monitoring, and securing software were not designed to keep pace with these modern cloud environments.
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The confluence of these megatrends in dynamic hybrid, multicloud environments brings a scale and frequency of change that is exponentially greater than that of just a few years ago.
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What was once a well understood layering of applications running on operating systems on physical servers connected to physical networks has rapidly become virtualized into software at all levels. Applications are no longer monolithic and have become fragmented into thousands, potentially millions, of microservices, written in multiple software languages.
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These trends also bring an explosion of data, a massive increase in complexity exacerbated by tool sprawl and siloed data, and a need for better analytics to prevent issues, instead of reacting to them. We believe that traditional approaches for developing, operating, monitoring, and securing software cannot keep pace with modern cloud environments.
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With this broad set of observability data, the Dynatrace® platform dynamically maps all components and their dependencies in a full-stack hybrid, multicloud environment for real-time, continuous context. Our proprietary AI engine, Davis®, processes this observability data in real time to deliver answers to issues, bottlenecks, degradations, and more.
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We believe our company has a significant market opportunity based on the technical differentiation of our platform, our ability to integrate successfully into customers’ cloud ecosystems, and the trust that we have built within our customer base and partner ecosystem.
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In addition, the Dynatrace® platform provides extensive automation, including continuous discovery, proactive anomaly detection, and optimization across the software lifecycle. We believe this all-in-one approach reduces the need for a variety of disparate tools and enables our customers to improve productivity and decision making while reducing operating costs.
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Key Differentiators We believe our approach is different from other offerings in three critical ways: • Dynatrace is an end-to-end platform that enables contextual analysis . We store all data types, including logs, traces, metrics, real user data, and business events, in an integrated, highly performant and massively scalable data store called Grail TM .
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The Dynatrace platform provides the following key benefits: • Single agent, fully automated configuration. Dynatrace ® is installed as a single agent, OneAgent ® , which automatically configures itself, and continuously discovers all components of the customer’s full stack to enable high fidelity data capture at great scale.
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Through our proprietary technology, these data types are stored together in context, and we are able to analyze billions of interdependencies across applications, networks, and infrastructure throughout an enterprise.
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OneAgent ® dynamically profiles the performance of all components of the full stack with code-level precision, even as applications and environments update and change. In addition, Dynatrace ® incorporates and enriches data from open source approaches such as OpenTelemetry. • Distributed tracing and code-level analysis technology.
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This provides near real-time end-to-end awareness that we believe is not possible to replicate without a unified data store with equivalent capabilities. • The Dynatrace platform is powered by hypermodal AI . For over a decade, Dynatrace customers have relied on the predictive and causal AI capabilities of our AI engine, Davis ® .
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PurePath ® , our patented distributed tracing and code-level analysis technology, automatically integrates high-fidelity distributed tracing with user experience data, data from open source technologies, including OpenTelemetry, and code level analytics. • Topology mapping and visualization.
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We are making our generative AI capabilities available on the Dynatrace platform through Davis CoPilot, bringing the platform to a much wider array of end users and extending the capabilities of the Dynatrace platform.
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As OneAgent ® discovers all of the components and dependencies in the application environment, our proprietary Smartscape ® technology simultaneously builds an interactive map of how everything in the environment is interconnected. 6 Table of Contents • AI-powered, answer-centric insights.
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We believe we have architected our combination of predictive, causal, and generative AI (which we refer to collectively as hypermodal AI) to make AI techniques iteratively more intelligent.
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Davis ® , our proprietary AI engine, dynamically baselines the performance of all components in the full stack, continually learning to provide precise answers when performance deviates from expected or desired conditions.
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As organizations collect and maintain more data, AI embedded in end-to-end observability and security solutions is often required for reliable analysis, accurate insights, prevention of issues and problems, and quick identification and resolution when they arise.
Removed
Unlike machine learning (“ML”)-based correlation engines that rely on historical data for learning behavior and which can overwhelm IT professionals with alerts, Dynatrace ® provides a single problem resolution and precise root-cause determination.
Added
We believe our experience in AI gives our customers a competitive advantage in developing their own AI initiatives, and we are investing in AI best practices in services, data, and observability to support our customers on their AI journeys and to enable AI practices of our partners. • The Dynatrace platform is automated .
Removed
We believe the accuracy and precision of the answers delivered by Davis ® enable our customers to shift from reactive to proactive remediation, providing a substantial advantage in time savings, resource efficiency, customer satisfaction, and business outcomes. • Unified observability, security and business data at any scale .
Added
We believe many organizations want a platform with broad-based situational awareness that can automatically identify, repair, and remediate issues and maximize application performance by optimizing the code, underlying infrastructure resources, and software delivery processes. Dynatrace OneAgent ® uses automation to discover hybrid, multicloud environments, dynamically instruments applications, and consistently learns and updates without human scripting and user configuration.
Removed
Our AutomationEngine enables customers to automate workflow processes throughout the BizDevSecOps cycle allowing them to orchestrate integrations and take actions in a production environment. This enables customers to act faster, increase development and team efficiency, reduce risk, and accomplish more with fewer resources. • APIs to easily build customer applications.
Added
Our Smartscape ® technology continuously updates topological dependencies as the 6 Table of Contents application or operating environment evolves, providing the Dynatrace platform with a representation of relationships between all elements within an environment. We believe this is especially critical during business-impacting threats or incidents.
Removed
Our AppEngine provides our customers’ teams with a no-code/low-code toolset and programmability with application programming interfaces (“APIs”) to build custom applications for specific use cases. Teams can collaborate and innovate faster with greater security and smarter BizDevsSecOps answers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome of the important factors that may cause our operating results to fluctuate from quarter to quarter or year to year include: • fluctuations in the demand for our solutions, the timing of purchases by our customers, and the length of the sales cycles, particularly for larger purchases; • fluctuations in the rate of utilization by customers of the cloud to manage their business needs, or a slowdown in the migration of enterprise systems to the cloud; • the impact of recessionary pressures or uncertainties in the global economy, or in the economies of the countries in which we operate, on our customers’ purchasing decisions and the length of our sales cycles: • our ability to attract new customers and retain existing customers; • our ability to expand into new geographies and markets, including the business intelligence, data analytics, and application security markets; • the budgeting cycles and internal purchasing priorities of our customers; • changes in customer renewal rates, churn, and our ability to cross-sell additional solutions to our existing customers and our ability to up-sell additional quantities of previously purchased offerings to existing customers; • the seasonal buying patterns of our customers; • the payment terms and contract term length associated with our product sales and their effect on our billings and free cash flow; • changes in customer requirements or market needs; • the emergence of significant privacy, data protection, systems and application security or other threats, regulations or requirements applicable to the use of enterprise systems or cloud-based systems that we are not prepared to meet or that require additional investment by us; 14 Table of Contents • changes in the demand and growth rate of the market for observability, application security, and analytics solutions; • our ability to anticipate or respond to changes in the competitive landscape, or improvements in the functionality of competing solutions that reduce or eliminate one or more of our competitive advantages; • our ability to timely develop, introduce and gain market acceptance for new solutions and product enhancements; • our ability to adapt and update our offerings and solutions on an ongoing and timely basis in order to maintain compatibility and efficacy with the frequently changing and expanding variety of software and systems that our offerings are designed to monitor; • our ability to maintain and expand our relationships with strategic technology partners who own, operate, and offer the major platforms on which applications operate, with which we must interoperate and remain compatible, and from which we must obtain certifications and endorsements in order to maintain credibility and momentum in the market; • our ability to control costs, including our operating expenses; • our ability to efficiently complete and integrate any acquisitions or business combinations that we may undertake in the future; • general economic, industry, and market conditions, both domestically and in our foreign markets, including regional or geopolitical conflicts or other disruptions to commerce; • the emergence of new technologies or trends in the marketplace, or a change in the trends that are important to our strategy and the value of our platform in the marketplace; • foreign currency exchange rate fluctuations; • the timing of revenue recognition for our customer transactions, and the effect of the mix of subscriptions and services on the timing of revenue recognition; • extraordinary expenses, such as litigation or other dispute-related settlement payments; and • future accounting pronouncements or changes in our accounting policies.
Biggest changeSome of the important factors that may cause our operating results to fluctuate from quarter to quarter or year to year include: • fluctuations in the demand for our solutions, the timing of purchases by our customers, and the length of the sales cycles, particularly for larger purchases; • fluctuations in the rate of utilization by customers of the cloud to manage their business needs, or a slowdown in the migration of enterprise systems to the cloud; • the impact of recessionary pressures or uncertainties in the global economy, or in the economies of the countries in which we operate, on our customers’ purchasing decisions and the length of our sales cycles: • our ability to attract new customers and retain existing customers; • our ability to expand into new geographies and markets, including the business intelligence, data analytics, and application security markets; • the budgeting cycles and internal purchasing priorities of our customers; • changes in go-to-market strategy, customer renewal rates, churn, and our ability to cross-sell additional solutions to our existing customers and our ability to up-sell additional quantities of previously purchased offerings to existing customers; • the seasonal buying patterns of our customers; • the payment terms and contract term length associated with our product sales and their effect on our billings and free cash flow; • changes in customer requirements or market needs; • the emergence of significant privacy, data protection, systems and application security or other threats, regulations, or requirements applicable to the use of enterprise systems or cloud-based systems that we are not prepared to meet or that require additional investment by us; • changes in the demand and growth rate of the markets for observability, application security, analytics, and AI-enabled solutions; • our ability to anticipate or respond to changes in the competitive landscape, or improvements in the functionality of competing solutions that reduce or eliminate one or more of our competitive advantages; • our ability to timely develop, introduce and gain market acceptance for new solutions and product enhancements; • our ability to adapt and update our offerings and solutions on an ongoing and timely basis in order to maintain compatibility and efficacy with the frequently changing and expanding variety of software and systems that our offerings are designed to monitor; • our ability to maintain and expand our relationships with strategic technology partners who own, operate, and offer the major platforms on which applications operate, with which we must interoperate and remain compatible, and from which we must obtain certifications and endorsements in order to maintain credibility and momentum in the market; • our ability to control costs, including our operating expenses; • our ability to efficiently complete and integrate any acquisitions or business combinations that we may undertake in the future; • general economic, industry, and market conditions, both domestically and in our foreign markets, including regional or geopolitical conflicts or other disruptions to commerce; • the emergence of new technologies or trends in the marketplace, or a change in the trends that are important to our strategy and the value of our platform in the marketplace; • foreign currency exchange rate fluctuations; • the timing of revenue recognition for our customer transactions, and the effect of the mix of subscriptions and services on the timing of revenue recognition; • extraordinary expenses, such as litigation or other dispute-related settlement payments; and • future accounting pronouncements or changes in our accounting policies. 14 Table of Contents Any one of the factors referred to above or the cumulative effect of some of the factors referred to above may result in our operating results being below our expectations and the expectations of securities analysts and investors and any guidance that we may provide or may result in significant fluctuations in our quarterly and annual operating results, including fluctuations in our key performance indicators.
Any damages or royalty obligations we may become subject to, any prohibition against our commercializing our solutions as a result of an adverse outcome could harm our business and operating results.
Any damages or royalty obligations we may become subject to, or any prohibition against our commercializing our solutions as a result of an adverse outcome could harm our business and operating results.
Any failure or perceived failure by us, or any third parties with which we do business, to comply with our posted privacy policies and product documentation, changing consumer expectations, evolving laws, rules and regulations, industry standards, or contractual obligations to which we or such third parties are or may become subject, may result in actions or other claims against us by governmental entities or private actors, the expenditure of substantial costs, time and other resources or the imposition of significant fines, penalties or other liabilities, which could, individually or in the aggregate, materially and adversely affect our business, financial condition, and results of operations.
Any failure or perceived failure by us, or any third parties with which we do business, to comply with our posted privacy policies and product documentation or privacy laws or regulations, changing consumer expectations, evolving laws, rules, and regulations, industry standards, or contractual obligations to which we or such third parties are or may become subject, may result in actions or other claims against us by governmental entities or private actors, the expenditure of substantial costs, time and other resources or the imposition of significant fines, penalties or other liabilities, which could, individually or in the aggregate, materially and adversely affect our business, financial condition, and results of operations.
Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities, and in determining the realizability of tax attributes such as foreign tax credits and other domestic deferred tax assets. From time to time, we are subject to regular tax audits, examinations, and reviews in the ordinary course of business.
Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities, and in determining the realizability of tax attributes, such as foreign tax credits and domestic deferred tax assets. From time to time, we are subject to regular tax audits, examinations, and reviews in the ordinary course of business.
These security incidents may be caused by, or result in, but are not limited to, security breaches, computer malware or malicious software, ransomware, phishing attacks, computer hacking, denial of service attacks, security system control failures in our own systems or from vendors that we or our customers use, software vulnerabilities, social engineering, sabotage, malicious downloads, and the errors or malfeasance of our own or our customers’ or vendors’ employees.
These security incidents or compromises may be caused by, or result in, but are not limited to, security breaches, computer malware or malicious software, ransomware, phishing attacks, computer hacking, denial of service attacks, security system control failures in our own systems or from vendors that we or our customers use, software vulnerabilities, social engineering, sabotage, malicious downloads, and the errors or malfeasance of our own or our customers’ or vendors’ employees.
These and similar regulations may interfere with our intended business activities, inhibit our ability to expand into those markets, require modifications to our offerings or services, or prohibit us from continuing to offer services in those markets without significant additional costs. • Current or future laws, regulations, and ethical considerations related to the use of AI technology and ML may impact our ability to provide insights from data and use certain data to develop our offerings.
These and similar regulations may interfere with our intended business activities, inhibit our ability to expand into those markets, require modifications to our offerings or services, or prohibit us from continuing to offer services in those markets without significant additional costs. • Current or future laws, regulations, and ethical considerations related to the use of AI technology may impact our ability to provide insights from data and use certain data to develop our offerings.
Our success depends on the interoperability of our platform and solutions with third-party operating systems, applications, cloud platform, data, and devices that we have not developed and do not control. Any third-party changes that degrade the functionality of our platform or solutions or give preferential treatment to competitive software could adversely affect the adoption and usage of our platform.
Our success depends on the interoperability of our platform and solutions with third-party operating systems, applications, cloud platforms, data, and devices that we have not developed and do not control. Any third-party changes that degrade the functionality of our platform or solutions or give preferential treatment to competitive software could adversely affect the adoption and usage of our platform.
In particular, because we utilize a multi-tenant platform, any security breach could potentially affect a significant amount of our customers. The consequences of a security incident may be more severe if customers have chosen to configure our platform to collect and store confidential, personal, sensitive, or proprietary information.
In particular, because we utilize a multi-tenant platform, any security breach, incident, or compromise could potentially affect a significant amount of our customers. The consequences of a security breach, incident, or compromise may be more severe if customers have chosen to configure our platform to collect and store confidential, personal, sensitive, or proprietary information.
We compete either directly or indirectly with APM vendors, infrastructure monitoring vendors, log management vendors, DEM vendors, security vendors, open source and commercial open source vendors, point solutions from public cloud providers, and IT operations management, AIOps and business intelligence providers with offerings that cover some portion of the capabilities that we provide.
We compete either directly or indirectly with infrastructure monitoring vendors, APM vendors, log management vendors, DEM vendors, security vendors, open source and commercial open source vendors, point solutions from public cloud providers, and IT operations management and business intelligence providers with offerings that cover some portion of the capabilities that we provide.
We operate in over 30 countries around the world and, as a multinational corporation, we are subject to income and non-income-based taxes, including payroll, sales, use, value-added, net worth, property, and goods and services taxes, in both the United States and various non-U.S. jurisdictions.
We operate in over 30 countries around the world and, as a multinational corporation, we are subject to income and non-income taxes, including payroll, sales, use, value-added, net worth, property, and goods and services taxes, in both the United States and various non-U.S. jurisdictions.
Anti-Bribery Act, and a heightened risk of unfair or corrupt business practices in certain geographies, and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements; • compliance with privacy, data protection, and data security laws of many countries and jurisdictions, including the EU’s GDPR and the CCPA; • limited or uncertain protection of intellectual property rights in some countries and the risks and costs associated with monitoring and enforcing intellectual property rights abroad; • greater difficulty in enforcing contracts and managing collections in certain jurisdictions, as well as longer collection periods; • management communication and integration problems resulting from cultural and geographic dispersion; 29 Table of Contents • difficulties hiring local staff, differing employer/employee relationships, and the potential need for country-specific benefits, programs, and systems; • social, economic, and political instability, epidemics and pandemics, terrorist attacks, wars, geopolitical conflicts, disputes and security concerns in general; and • potentially adverse tax consequences.
Anti-Bribery Act, and a heightened risk of unfair or corrupt business practices in certain geographies, and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements; • compliance with privacy, data protection, and data security laws of many countries and jurisdictions, including the EU’s GDPR and the CCPA; • limited or uncertain protection of intellectual property rights in some countries and the risks and costs associated with monitoring and enforcing intellectual property rights abroad; • greater difficulty in enforcing contracts and managing collections in certain jurisdictions, as well as longer collection periods; • management communication and integration problems resulting from cultural and geographic dispersion; • difficulties hiring local staff, differing employer/employee relationships, and the potential need for country-specific benefits, programs, and systems; • social, economic, and political instability, epidemics and pandemics, terrorist attacks, wars, geopolitical conflicts, disputes and security concerns in general; and • potentially adverse tax consequences.
Our credit facility contains restrictions that impact our business and expose us to risks that could adversely affect our liquidity and financial condition. In December 2022, we entered into a senior secured revolving credit facility in the aggregate amount of $400.0 million.
Our credit facility contains restrictions that impact our business and expose us to risks that could adversely affect our liquidity and financial condition. In 2022, we entered into a senior secured revolving credit facility in the aggregate amount of $400.0 million.
We and certain of our service providers have experienced and may in the future experience disruptions, outages, and other performance problems on our internal systems due to service attacks, unauthorized access, or other security related incidents affecting personal information.
We and certain of our service providers have experienced and may in the future experience disruptions, outages, and other performance problems on our internal systems due to service attacks, unauthorized access, or other security related incidents or compromises affecting personal information.
As the market for observability and security solutions is new and continues to develop, trends in spending remain unpredictable and subject to reductions due to the changing technology environment and customer needs as well as uncertainties about the future.
As the market for observability and security solutions is relatively new and continues to develop, trends in spending remain unpredictable and subject to reductions due to the changing technology environment and customer needs as well as uncertainties about the future.
If an actual or perceived security incident occurs, the market perception of the effectiveness of our security controls could be harmed, our brand and reputation could be damaged, we could lose customers, and we could suffer financial exposure due to such events or in connection with remediation efforts, investigation costs, regulatory fines, including fines assessed under the European General Data Protection Regulation (“GDPR”) or other privacy laws, private lawsuits and changed security control, system architecture, and system protection measures.
If an actual or perceived security incident, breach, or compromise occurs, the market perception of the effectiveness of our security controls could be harmed, our brand and reputation could be damaged, we could lose customers, and we could suffer financial exposure due to such events or in connection with remediation efforts, investigation costs, regulatory fines, including fines assessed under the European General Data Protection Regulation (“GDPR”) or other privacy laws, private lawsuits, and changed security control, system architecture, and system protection measures.
Any security breach or loss of system control caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss, modification, or corruption of data, software, hardware or other computer equipment and the inadvertent transmission of computer malware could harm our business, operating results, and financial condition, and expose us to claims arising from loss or unauthorized disclosure of confidential or personal information or data and the related breach of our contracts with customers or others, or of privacy or data security laws.
Any security breach, incident, or compromise or loss of system control caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss, modification, or corruption of data, software, hardware or other computer equipment and the inadvertent transmission of computer malware could harm our business, operating results, and financial condition, and expose us to claims arising from loss or unauthorized disclosure of confidential or personal information or data and the related breach of our contracts with customers or others, or of privacy or data security laws.
The existence of comprehensive privacy laws in different states in the country, if enacted, will add additional complexity, variation in requirements, restrictions, and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data, and has resulted in and will result in increased compliance costs and/or changes in business practices and policies. 26 Table of Contents • Outside of the United States, virtually every jurisdiction in which we operate has established its own privacy, data protection and/or data security legal framework with which we or our customers must comply, including, but not limited to, the European Union (“EU”). ◦ In the EU, data protection laws are stringent and continue to evolve, resulting in possible significant operational costs for internal compliance and risk to our business.
The existence of comprehensive privacy laws in different states in the country, if enacted, will add additional complexity, variation in requirements, restrictions, and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data, and has resulted in and will result in increased compliance costs and/or changes in business practices and policies. • Outside of the United States, virtually every jurisdiction in which we operate has established its own privacy, data protection and/or data security legal framework with which we or our customers must comply, including, but not limited to, the European Union (“EU”). ◦ In the EU, data protection laws are stringent and continue to evolve, resulting in possible significant operational costs for internal compliance and risk to our business.
As a result, our global sales and operations are subject to a number of risks and additional costs, including the following: • increased expenses associated with international sales and operations, including establishing and maintaining office space and equipment for our international operations; • fluctuations in exchange rates between currencies in the markets where we do business, including the recently strengthened dollar, and other controls, regulations, and orders that might restrict our ability to repatriate cash; • volatility, uncertainties, and recessionary pressures in the global economy or in the economies of the countries in which we operate; • difficulties in penetrating new markets due to existing competition or local lack of recognition of the Dynatrace ® brand; • risks associated with trade restrictions and additional legal requirements, including the exportation of our technology or source code that is required in many of the countries in which we operate; • greater risk of unexpected changes in regulatory rules, regulations and practices, tariffs and tax laws and treaties; • compliance with United States and foreign import and export control and economic sanctions laws and regulations, including the Export Administration Regulations administered by the U.S.
As a result, our global sales and operations are subject to a number of risks and additional costs, including the following: • increased expenses associated with international sales and operations, including establishing and maintaining office space and equipment for our international operations; • fluctuations in exchange rates between the U.S. dollar and other currencies in the markets where we do business, and other controls, regulations, and orders that might restrict our ability to repatriate cash; • volatility, uncertainties, and recessionary pressures in the global economy or in the economies of the countries in which we operate; • difficulties in penetrating new markets due to existing competition or local lack of recognition of the Dynatrace brand; • risks associated with trade restrictions and additional legal requirements, including the exportation of our technology or source code that is required in many of the countries in which we operate; • greater risk of unexpected changes in regulatory rules, regulations and practices, tariffs and tax laws and treaties; • compliance with U.S. and foreign import and export control and economic sanctions laws and regulations, including the Export Administration Regulations administered by the U.S.
Any of the foregoing could adversely affect our productivity, employee morale, future sales, operating results, and overall financial performance. Pandemics, 37 Table of Contents health epidemics, or outbreaks of infectious diseases may also have the effect of heightening many of the other risks described in this “Risk Factors” section. Climate change may have a long-term negative impact on our business.
Any of the foregoing could adversely affect our productivity, employee morale, future sales, operating results, and overall financial performance. Pandemics, health epidemics, or outbreaks of infectious diseases may also have the effect of heightening many of the other risks described in this “Risk Factors” section. 35 Table of Contents Climate change may have a long-term negative impact on our business.
In addition, the proposed EU Digital Services Act (“DSA”) and Digital Markets Act (“DMA”) will add further complexity and increased consumer protection and technology regulation. ◦ Many jurisdictions outside of Europe where we do business directly or through resellers today and may seek to expand our business in the future, are also considering and/or have enacted comprehensive data protection and/or cybersecurity legislation.
In addition, the EU Digital Services Act (“DSA”) and Digital Markets Act (“DMA”) add further complexity and increased consumer protection and technology regulation. ◦ Many jurisdictions outside of Europe where we do business directly or through resellers today and may seek to expand our business in the future, are also considering and/or have enacted comprehensive data protection and/or cybersecurity legislation.
Our transactions vary by quarter, with the third fiscal quarter typically being our largest. In addition, within each quarter, a significant portion of our transactions occur in the last two weeks of that quarter. Large individual sales may also occur in quarters subsequent to those we anticipate, which may make it difficult to forecast our expected sales cycle.
Our transactions vary by quarter, with the third and fourth fiscal quarters typically being our largest. In addition, within each quarter, a significant portion of our transactions occur in the last two weeks of that quarter. Large individual sales may also occur in quarters subsequent to those we anticipate, which may make it difficult to forecast our expected sales cycle.
Any such default could have a material adverse effect on our liquidity, financial condition, and results of operations. Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy Security breaches, computer malware, computer hacking attacks, and other security incidents could harm our business, reputation, brand, and operating results.
Any such default could have a material adverse effect on our liquidity, financial condition, and results of operations. Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy Security breaches, computer malware, computer hacking attacks, and other security incidents or compromises could harm our business, reputation, brand, and operating results.
We attempt to protect our intellectual property under patent, trademark, copyright, and trade secret laws, and through a combination of confidentiality procedures, contractual provisions, and other methods, all of which offer only limited protection. However, the steps we take to protect our intellectual property may be inadequate.
We attempt to protect our intellectual property under patent, trademark, copyright, and trade secret laws, and through a combination of confidentiality procedures, contractual provisions, internal policies and other methods, all of which offer only limited protection. However, the steps we take to protect our intellectual property may be inadequate.
We have invested, and expect to continue to invest, substantial resources to promote and maintain our brand and generate sales leads, both in the United States and internationally, but there is no guarantee that our brand development strategies will enhance the recognition of our brand or lead to increased sales.
We have invested, and expect to continue to invest, substantial resources to promote and maintain our brand and generate sales leads, both in the United States and internationally, but there is no guarantee that our awareness strategies will enhance the recognition of our brand or lead to increased sales.
Our customer retention and expansion rates may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our solutions platform, our customer support and professional services, our prices and pricing plans, the competitiveness of other software products and services, reductions in our customers’ spending levels, customer concerns about macroeconomic trends, user adoption of our solutions, deployment success, utilization rates by our customers, new product releases and changes to our product offerings.
Our customer retention and expansion rates may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our solutions platform, our customer support and professional services, changes to our go-to-market strategy, our prices and pricing plans, the competitiveness of other software products and services, reductions in our customers’ spending levels, customer concerns about macroeconomic trends, user adoption of our solutions, deployment success, utilization rates by our customers, new product releases and changes to our product offerings.
For example, we have recently seen lengthening sales cycles, which may affect our future revenues and results of operations.
For example, we have seen lengthening sales cycles, which may affect our future revenues and results of operations.
For a description of some of the risks related to potential acquisitions, please see the risk below entitled “ We may acquire other businesses, products or technologies in the future which could require significant management attention, disrupt our business or result in operating difficulties, dilute stockholder value, and adversely affect our results of operations . ” 16 Table of Contents To the extent we are not able to continue to execute on our business model to timely and effectively develop or acquire and market applications to address these challenges and attain market acceptance, our business, operating results, and financial condition will be adversely affected.
For a description of some of the risks related to potential acquisitions, please see the risk below entitled “ We may acquire other businesses, products, or technologies in the future which could require significant management attention, disrupt our business or result in operating difficulties, dilute stockholder value, and adversely affect our results of operations . ” To the extent that we are not able to continue to execute on our business model to timely and effectively develop or acquire and market applications to address these challenges and attain market acceptance, our business, operating results, and financial condition will be adversely affected.
As a result, unauthorized access to, security breaches of, or denial-of-service attacks against our platform could result in the unauthorized access to, or use of, and/or loss of, such data, as well as loss of intellectual property, customer data, employee data, trade secrets, or other confidential or proprietary information.
As a result, unauthorized access to, security breaches, incidents, or compromises of, or denial-of-service attacks against our platform could result in the unauthorized access to, or use of, and/or loss of, such data, as well as loss of intellectual property, customer data, employee data, trade secrets, or other confidential or proprietary information.
Our new solutions and solution enhancements could fail to attain sufficient market acceptance for many reasons, including: • delays in developing and releasing new solutions or enhancements to the market; • delays or failures to provide updates to customers to maintain compatibility between Dynatrace ® and the various applications and platforms being used in the customers’ applications and multicloud environments; • failures to accurately predict market or customer demands, priorities, and practices, including other technologies utilized by customers in their environments and partners that they prefer to work with; • the introduction or anticipated introduction of competing products by existing and emerging competitors; • the inability of our sales and marketing teams or those of our partners to sell solutions for new markets and product categories; • defects, errors, or failures in the design or performance of our new solutions or solution enhancements; • negative publicity about the performance or effectiveness of our solutions; and • the perceived value of our solutions or enhancements relative to their cost.
Our new solutions and solution enhancements could fail to attain sufficient market acceptance for many reasons, including: • delays in developing and releasing new solutions or enhancements to the market; • delays or failures to provide updates to customers to maintain compatibility between Dynatrace and the various applications and platforms being used in the customers’ applications and multicloud environments; • failures to accurately predict market or customer demands, priorities, and practices, including other technologies utilized by customers in their environments and partners that they prefer to work with; • the introduction or anticipated introduction of competing products by existing and emerging competitors; • flaws in our go-to-market strategy, as well as the inability of our sales and marketing teams or those of our partners to sell solutions for new markets and product categories; • defects, errors, or failures in the design or performance of our new solutions or solution enhancements; • negative publicity about the performance or effectiveness of our solutions; and • the perceived value of our solutions or enhancements relative to their cost.
If our solutions fail to interoperate effectively with the hyperscalers’ products, or if our partnerships with one or more of these hyperscalers is not successful or is terminated, our ability to sell additional products or offerings to these customers and our ability to grow our business will be harmed.
If our solutions fail to interoperate effectively with the hyperscalers’ products, or if our partnerships with one or more of these hyperscalers are not successful or are terminated, our ability to sell additional products or offerings to these customers and our ability to grow our business will be harmed.
Furthermore, we have agreed in certain instances to defend our partners against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, 24 Table of Contents trademarks, or trade secrets, and to pay judgments entered on such assertions. Large indemnity payments could harm our business, operating results, and financial condition.
Furthermore, we have agreed in certain instances to defend our partners against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets, and to pay judgments entered on such assertions. Large indemnity payments could harm our business, operating results, and financial condition.
The effects of the recently amended CCPA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses to comply and increase our potential exposure to regulatory enforcement and/or litigation.
The effects of the CCPA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses to comply and increase our potential exposure to regulatory enforcement and/or litigation.
Factors that could cause fluctuations in the trading price of our common stock include the following: • announcements of new products, offerings or technologies, commercial relationships, acquisitions, or other events by us or our competitors; • changes in how customers perceive the benefits of our platform; • shifts in the mix of billings and revenue attributable to SaaS subscriptions, licenses and services from quarter to quarter; • departures of our Chief Executive Officer, Chief Financial Officer, other executive officers, senior management or other key personnel; • price and volume fluctuations in the overall stock market from time to time; • fluctuations in the trading volume of our shares or the size of our public float; • sales of large blocks of our common stock, including by the Thoma Bravo Funds; • actual or anticipated changes or fluctuations in our operating results; • whether our operating results meet the expectations of securities analysts or investors; • changes in actual or future expectations of investors or securities analysts; • litigation, data breaches, or security incidents involving us, our industry or both; • regulatory developments in the United States, foreign countries or both; • general economic conditions and trends; and • major catastrophic events in our domestic and foreign markets.
Factors that could cause fluctuations in the trading price of our common stock include the following: • announcements of new products, offerings or technologies, commercial relationships, acquisitions, or other events by us or our competitors; • changes in how customers perceive the benefits of our platform; • shifts in the mix of billings and revenue attributable to SaaS subscriptions, licenses and services from quarter to quarter; • departures of our Chief Executive Officer, Chief Financial Officer, other executive officers, senior management or other key personnel; • price and volume fluctuations in the overall stock market from time to time; • fluctuations in the trading volume of our shares or the size of our public float; • sales of large blocks of our common stock; • actual or anticipated changes or fluctuations in our operating results; • whether our operating results meet the expectations of securities analysts or investors; • changes in actual or future expectations of investors or securities analysts; • litigation, data breaches, or security incidents involving us, our industry or both; • regulatory developments in the United States, foreign countries or both; 32 Table of Contents • general economic conditions and trends; and • major catastrophic events in our domestic and foreign markets.
We may therefore experience security breaches that may remain undetected for extended periods of time. Vendors’ or suppliers’ software or systems may be susceptible or vulnerable to breaches and attacks, which could compromise our systems.
We may therefore experience security breaches, incidents, or compromises that may remain undetected for extended periods of time. Vendors’ or suppliers’ software or systems may be susceptible or vulnerable to breaches and attacks, which could compromise our systems.
If we do not respond to the rapidly changing needs of our customers by developing and making available new solutions and solution enhancements that can address evolving customer needs on a timely basis, our competitive position and business prospects will be harmed, and our revenue growth and margins could decline.
If we do not respond to the rapidly changing needs of our customers by 15 Table of Contents developing and making available new solutions and solution enhancements that can address evolving customer needs on a timely basis, our competitive position and business prospects will be harmed, and our revenue growth and margins could decline.
We rely on highly skilled personnel and if we are unable to attract, retain, or motivate substantial numbers of qualified personnel or expand and train our sales force, we may not be able to grow effectively.
We rely on highly skilled personnel and if we are unable to attract, retain, or motivate substantial numbers of qualified personnel or expand and train our personnel, we may not be able to grow effectively.
Our business is subject to regulation by various U.S. federal, state, local, and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, privacy, cybersecurity and data protection laws, anti-bribery laws, import and export controls, federal acquisition regulations and guidelines, federal securities laws, and tax laws and regulations.
Our business is subject to regulation by various U.S. federal, state, local, and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, privacy, cybersecurity and data protection laws, anti-bribery laws, trade controls, federal acquisition regulations and guidelines, federal securities laws, and tax laws and regulations.
Any one of these factors or the cumulative effects of certain of these factors may result in significant fluctuations in our revenues, billings, gross margin, and operating results. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period.
Any one of these factors or the cumulative effects of certain of these 18 Table of Contents factors may result in significant fluctuations in our revenues, billings, gross margin, and operating results. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period.
We cannot be certain that our future operating results will be sufficient to ensure compliance with the covenants in our Credit Facility or to remedy any defaults under our Credit Facility. In the event of any default and related acceleration, we may not have or be able to obtain sufficient funds to make any 21 Table of Contents accelerated payments.
We cannot be certain that our future operating results will be sufficient to ensure compliance with the covenants in our credit facility or to remedy any defaults under our credit facility. In the event of any default and related acceleration, we may not have or be able to obtain sufficient funds to make any accelerated payments.
Given the foregoing factors, our actual results could differ significantly from our estimates, comparing our revenue and operating results on a period-to-period basis may not be meaningful, and our past results may not be indicative of our future performance. Changes in existing financial accounting standards or practices may harm our operating results.
Given the foregoing factors, our actual results could differ significantly from our estimates, comparing our revenue and operating results on a period-to-period basis may not be meaningful, and our past results may not be indicative of our future performance. 29 Table of Contents Changes in existing financial accounting standards or practices may harm our operating results.
We may also incur costs associated with increased regulations or investor requirements for increased environmental and social disclosures and reporting, including reporting requirements and standards or expectations regarding the environmental impacts of our business.
We may also incur costs associated with increased regulations or investor requirements for increased sustainability disclosures and reporting, including reporting requirements and standards or expectations regarding the environmental impacts of our business.
As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements. 30 Table of Contents Our revenue recognition policy and other factors may distort our financial results in any given period and make them difficult to predict.
As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements. Our revenue recognition policy and other factors may distort our financial results in any given period and make them difficult to predict.
Government entities may have statutory, contractual, or 31 Table of Contents other legal rights to terminate contracts with our distributors and resellers for convenience, non-appropriation, or due to a default. Any of these risks relating to our sales to governmental entities could adversely impact our future sales and operating results.
Government entities may have statutory, contractual, or other legal rights to terminate contracts with our distributors and resellers for convenience, non-appropriation, or due to a default. Any of these risks relating to our sales to governmental entities could adversely impact our future sales and operating results.
If it is difficult for our customers to access and use our platform or solutions, or if our platform or solutions cannot connect a broadening range of applications, data, and devices, then our customer growth and retention may be harmed, and our business and operating results could be adversely affected.
If it is difficult for our customers to access and use our platform or solutions, or if our platform or solutions cannot connect a broadening range of systems, applications, cloud platforms, data, and devices, then our customer growth and retention may be harmed, and our business and operating results could be adversely affected.
Our future success, if any, will be based on our ability to consistently provide our customers with a unified, real-time view into the performance of their software applications and IT infrastructure, provide notification and prioritization of degradations and failures, perform root cause analysis of performance issues, and analyze the quality of their end users’ experiences and the resulting impact on their businesses and brands.
Our future success, if any, will be based on our ability to consistently provide our customers with an end-to-end, near real-time view into the performance of their software applications and IT infrastructure, provide notification and prioritization of degradations and failures, perform root cause analysis of performance issues, and analyze the quality of their end users’ experiences and the resulting impact on their businesses and brands.
Obtaining the necessary authorizations, including any required license for a particular sale, may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. Various countries regulate the import of encryption technology.
Obtaining the necessary authorizations, including any required license for a particular sale, may be time consuming, is not guaranteed and may result in the delay or loss of sales opportunities. 31 Table of Contents Various countries regulate the import of encryption technology.
The regulatory framework both in the United States and internationally governing the collection, processing, storage, use and sharing of certain information, particularly financial and other personal information, is rapidly evolving and is likely to continue to be subject to uncertainty and varying interpretations.
The regulatory framework both in the United States and internationally governing the collection, processing, storage, use and sharing of certain information, particularly financial and other personal information, is rapidly evolving and is likely to continue to be subject 26 Table of Contents to uncertainty and varying interpretations.
Our customers determine, through their configuration, the nature of the customer data processed by Dynatrace, and accordingly the content of the notices that they provide to data subjects as well as the consents that they obtain, if they do in fact, obtain consent.
Our customers determine, through their configuration, the nature of the customer data processed by Dynatrace, and accordingly the content of the notices that they provide to 21 Table of Contents data subjects as well as the consents that they obtain, if they do in fact, obtain consent.
The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. It is not yet fully clear how the recently amended CCPA will be interpreted.
The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. It is not yet fully clear how the CCPA will be interpreted.
If tensions between the United States, members of NATO and Russia continue to escalate and create global security concerns, it may result in an increased adverse impact on regional and global economies and increase the likelihood of cyber-attacks.
If tensions between the United States, members of NATO and other countries continue to escalate and create global security concerns, it may result in an increased adverse impact on regional and global economies and increase the likelihood of cyber-attacks.
We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the hyperscaler services we use. 23 Table of Contents Hyperscalers have the right to terminate our agreements with them upon material uncured breach following prior written notice.
We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the hyperscaler services we use. Hyperscalers have the right to terminate our agreements with them upon material uncured breach following prior written notice.
While we do not believe the overall impact to be material to our business results, if the conflict and scope of sanctions expand further or persist for an extended period of time, our business could be harmed.
While we do not believe the overall impact to be material to our business results, if these conflicts and the scope of sanctions expand further or persist for an extended period of time, our business could be harmed.
Competition in our industry is intense, and often leads to significant increased compensation and other personnel costs. In addition, competition for employees with experience in our industry can be intense, particularly in Europe, where our R&D operations are concentrated and where other technology companies compete for management and engineering talent.
Competition in our industry is intense, and often leads to significant increased compensation and other personnel costs. In addition, competition for employees with experience in our industry can be intense, particularly in Europe, where our research and development operations are concentrated and where other technology companies compete for management and engineering talent.
These conditions, including changes in inflationary pressures, rising interest rates, lower consumer confidence or uneven or lower spending, volatile capital markets, financial and credit market fluctuations, political turmoil, natural catastrophes, epidemics, warfare, including the ongoing war in Ukraine, and terrorist attacks on the United States or elsewhere, may also adversely affect the buying patterns of our customers and prospective customers, including the size of transactions and length of sales cycles, which would adversely affect our overall pipeline as well as our revenue growth expectations.
These conditions, including changes in inflationary pressures, rising interest rates, lower consumer confidence or uneven or lower spending, volatile capital markets, financial and credit market fluctuations, political turmoil, natural catastrophes, epidemics, warfare (including the ongoing conflicts in Ukraine, and in Israel and surrounding areas), and terrorist attacks on the United States or elsewhere, may also adversely affect the buying patterns of our customers and prospective customers, including the size of transactions and length of sales cycles, which would 28 Table of Contents adversely affect our overall pipeline as well as our revenue growth expectations.
Further, to the extent that one of our competitors establishes or strengthens a cooperative relationship with, or acquires one or more software application performance monitoring, data analytics, compliance, or network visibility vendors, it could adversely affect our ability to compete.
Further, to the extent that one of our competitors establishes or strengthens a cooperative relationship with, or acquires one or more software APM, data analytics, compliance, or network visibility vendors, it could adversely affect our ability to compete.
In March 2022, we announced that we suspended all business in Russia and Belarus. Although we do not have material operations in Ukraine, Russia, or Belarus, geopolitical instability in the region, new sanctions, and enhanced export controls may impact our ability to sell or export our platform in Ukraine, Russia, Belarus and surrounding countries.
In 2022, we suspended all business in Russia and Belarus. Although we do not have material operations in Ukraine, Russia, or Belarus, geopolitical instability in the region, new sanctions, and enhanced export controls has and may continue to impact our ability to sell or export our platform in Ukraine, Russia, Belarus and surrounding countries.
The Delaware Forum Provision does not apply to any causes of action arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
The Delaware Forum Provision does not apply to any causes of action arising under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
We also have partnerships with GSIs, including Deloitte and DXC, and hyperscalers such as AWS, GCP, Azure, IBM Red Hat and others, on which many of our customers depend, and through which our customers may be able to procure and deploy our solutions. We are dependent on these partner relationships to contribute to enabling our sales growth.
We also have partnerships with GSIs, including Accenture, Deloitte, DXC, and Kyndryl, and hyperscalers such as AWS, GCP, and Azure, on which many of our customers depend, and through which our customers may be able to procure and deploy our solutions. We are dependent on these partner relationships to contribute to enabling our sales growth.
For example, changes in tax laws, rules, regulations, treaties, rates, changing interpretation of existing laws or regulations, the impact of accounting for share-based compensation, the impact of accounting for business combinations, changes in our international organization, and changes in overall levels of income before tax, can impact our tax liability.
For example, changes in tax laws, rules, regulations, treaties, rates, changing interpretation of existing laws or regulations, the impact of accounting 27 Table of Contents for share-based compensation, the impact of accounting for business combinations, changes in our international organization, and changes in overall levels of income before tax, can increase our or our stockholders’ tax liability.
We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock. We have never declared or paid any dividends on our common stock.
We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock. We have never declared or paid any dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
In general, security incidents have increased in sophistication and have become more prevalent across industries and may occur on our systems, or on the systems of third parties we use to host our solutions or SaaS solutions that we use in the operation of our business, or on those third party hosting platforms on which our customers’ host their systems.
In general, security incidents, breaches, and compromises have increased in sophistication and have become more prevalent across industries and may occur on our systems; on the systems of third parties that we use to host our solutions or SaaS solutions that we use in the operation of our business; on the systems or libraries of third parties that we use to develop our products; or on third party hosting platforms on which our customers’ host their systems.
We intend to continue to address the need to develop new offerings and enhance existing offerings both through internal R&D, and also through the acquisition of other companies, product lines, technologies, and personnel.
We intend to continue to address the need to develop new offerings and enhance existing offerings both through internal research and development, and also through the acquisition of other companies, product lines, technologies, and personnel.
The rapid influx of large numbers of people from different business backgrounds in different geographic locations, and the significant number of employees who work either on a hybrid or remote basis may make it difficult for us to maintain our corporate culture. If our culture is negatively affected, our ability to support our growth and innovation may diminish.
The addition of new employees from different business backgrounds in different geographic locations, and the significant number of employees who work either on a hybrid or remote basis may make it difficult for us to maintain our corporate culture. If our culture is negatively affected, our ability to support our growth and innovation may diminish.
We also publicly post documentation regarding our practices concerning the collection, processing, use, and disclosure of data. Although we endeavor to comply with our published policies and documentation, we may at times fail to do so or be alleged to have failed to do so.
We also publicly post documentation regarding our practices concerning the collection, processing, use, and disclosure of data. Although we endeavor to comply with our published policies and documentation and the various laws and regulations that we are subject to, we may at times fail to do so or be alleged to have failed to do so.
In some instances, we could reasonably use different estimates and assumptions, and changes in estimates are likely to occur from period to period. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Revenue Recognition” included in Part II, Item 7 of this Annual Report.
In some instances, we could reasonably use different estimates and assumptions, and changes in estimates are likely to occur from period to period. For a full discussion of these estimates and policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Revenue Recognition” included in Part II, Item 7 of this Annual Report.
Acquisitions may involve additional significant challenges, uncertainties, and risks, including, but not limited to: • challenges, difficulties, or increased costs associated with integrating new employees, systems, technologies, and business cultures; • failure of the acquisition to advance our business strategy and failure to achieve the acquisition’s anticipated benefits or synergies; • disruption of our ongoing operations, diversion of our management’s attention, and increased costs and expenses associated with pursuing acquisition opportunities; • inadequate data security, cybersecurity, and operational and information technology compliance and resilience; • failure to identify, or our underestimation of, commitments, liabilities, deficiencies, and other risks associated with acquired businesses or assets; • inconsistency between the business models of our company and the acquired company, and potential exposure to new or increased regulatory oversight and uncertain or evolving legal, regulatory, and compliance requirements; • the potential loss of key management, other employees, or customers of the acquired business; • potential reputational risks that could arise from transactions with, or investments in, companies involved in new or developing businesses or markets, which may be subject to uncertain or evolving legal, regulatory, and compliance requirements; • potential impairment of goodwill or other acquisition-related intangible assets; and • the potential for acquisitions to result in dilutive issuances of our equity securities or significant additional debt.
If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by our customers, securities analysts, and investors, and could be disruptive to our operations. 30 Table of Contents Acquisitions may involve additional significant challenges, uncertainties, and risks, including, but not limited to: • challenges, difficulties, or increased costs associated with integrating new employees, systems, technologies, and business cultures; • failure of the acquisition to advance our business strategy and failure to achieve the acquisition’s anticipated benefits or synergies; • disruption of our ongoing operations, diversion of our management’s attention, and increased costs and expenses associated with pursuing acquisition opportunities; • inadequate data security, cybersecurity, and operational and information technology compliance and resilience; • failure to identify, or our underestimation of, commitments, liabilities, deficiencies, and other risks associated with acquired businesses or assets; • inconsistency between the business models of our company and the acquired company, and potential exposure to new or increased regulatory oversight and uncertain or evolving legal, regulatory, and compliance requirements; • the potential loss of key management, other employees, or customers of the acquired business; • potential reputational risks that could arise from transactions with, or investments in, companies involved in new or developing businesses or markets, which may be subject to uncertain or evolving legal, regulatory, and compliance requirements; • potential impairment of goodwill or other acquisition-related intangible assets; and • the potential for acquisitions to result in dilutive issuances of our equity securities or significant additional debt.
Generally Accepted Accounting Principles (“GAAP”) are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the Securities and Exchange Commission, and various bodies formed to promulgate and interpret appropriate accounting principles.
Generally Accepted Accounting Principles (“GAAP”) are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles.
Risks Related to Our Business and Industry We have experienced rapid revenue growth in recent periods which may not be indicative of our future growth. We have experienced rapid revenue growth in recent periods. Our annual revenue grew 25%, 32% and 29% in the years ended March 31, 2023, 2022 and 2021, respectively, compared to the prior year.
Risks Related to Our Business and Industry We have experienced rapid revenue growth in recent periods, which may not be indicative of our future growth. We have experienced rapid revenue growth in recent periods. Our annual revenue grew 23%, 25%, and 32% in the years ended March 31, 2024, 2023, and 2022, r espectively, compared to the prior year.
We work with technology and cloud platform providers to understand and align updates to their product roadmaps and engage in early access and other programs to ensure compatibility of our solutions with the technology vendor’s generally available release.
We have formed alliances with many technology and cloud platform providers to provide updates to our solutions to maintain compatibility. We work with technology and cloud platform providers to understand and align updates to their product roadmaps and engage in early access and other programs to ensure compatibility of our solutions with the technology vendor’s generally available release.
We may also face competition from companies entering our market, which has a relatively low barrier to entry in some segments, including large technology companies that could expand their platforms or acquire one of our competitors.
We may also face competition from companies entering our market, which has a relatively low barrier to entry in some segments, including large technology companies that could expand their platforms or acquire one of our competitors. For example, Cisco acquired Splunk earlier this year.
The legal and regulatory frameworks for privacy, data protection and security issues worldwide are rapidly evolving and as a result, implementation standards, potential fines, enforcement practices, and litigation risks are likely to remain uncertain for the foreseeable future. • In the United States, state legislatures continue to propose and pass comprehensive privacy legislation.
The legal and regulatory frameworks for privacy, data protection and security issues worldwide are rapidly evolving and as a result, implementation standards, potential fines, enforcement practices, and litigation risks are likely to remain uncertain for the foreseeable future. 25 Table of Contents • In the United States, state legislatures continue to propose and pass comprehensive privacy legislation, including data breach notification laws, personal data privacy laws, and consumer protection laws.
If material weaknesses in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could materially and adversely affect our business, results of operations, and financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the material weakness, subject us to fines, penalties or judgments, harm our reputation, or otherwise cause a decline in investor confidence. 34 Table of Contents Sales of substantial amounts of our common stock in the public markets, or the perception that such sales could occur, could reduce the market price of our common stock.
If material weaknesses in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could materially and adversely affect our business, results of operations, and financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the material weakness, subject us to fines, penalties or judgments, harm our reputation, or otherwise cause a decline in investor confidence.
We believe that maintaining and enhancing the Dynatrace ® brand and increasing market awareness of our company and our solutions are critical to achieving broad market acceptance of our existing and future solutions and are important elements in attracting and retaining customers, partners, and employees, particularly as we continue to expand internationally and introduce new capabilities and enhancements.
We believe that maintaining and enhancing the Dynatrace brand and increasing market awareness of our company and our solutions are critical to achieving broad market knowledge of our existing and future solutions. Increasing awareness is important to attract and retain customers, partners, and employees, particularly as we continue to introduce new capabilities and enhancements and expand internationally.
Any investigations, actions and/or sanctions could have a material negative impact on our business, financial condition, and results of operations. 33 Table of Contents Risks Related to Our Common Stock The trading price of our common stock has been, and may continue to be, volatile and you could lose all or part of your investment.
Any investigations, actions and/or sanctions could have a material negative impact on our business, financial condition, and results of operations. Risks Related to Our Common Stock The trading price of our common stock has been, and may continue to be, volatile and you could lose all or part of your investment. Technology stocks have historically experienced high levels of volatility.
Any failure to maintain high-quality customer support and professional services, or a market perception that we do not maintain high-quality product support or services, could adversely affect our reputation, and our ability to sell our solutions to existing and new customers. 20 Table of Contents Our ability to succeed depends on the experience and expertise of our senior management team.
Any failure to maintain high-quality customer support and professional services, or a market perception that we do not maintain high-quality product support or services, 20 Table of Contents could adversely affect our reputation, and our ability to sell our solutions to existing and new customers.
We believe our ability to continue to increase our revenue depends on several factors, including, but not limited to: • our ability to attract new customers and retain and increase sales to existing customers; • our ability to continue to expand customer adoption and usage of our Dynatrace ® platform; • our ability to develop our existing platform, introduce new solutions, and enhance and improve existing solutions on our platform; • continued growth of cloud-based services and solutions; • our ability to continue to develop offerings and solutions that our customers prefer over those of our competitors; • our ability to hire and retain sufficient numbers of sales and marketing, R&D, and general and administrative personnel; and • our ability to expand into new geographies and markets, including the business intelligence, data analytics, and application security markets, and expand our global operations.
We believe our ability to continue to increase our revenue depends on several factors, including, but not limited to: • our ability to attract new customers and retain and increase sales to existing customers; • our ability to continue to expand customer adoption and usage of our Dynatrace platform; • our ability to develop our existing platform, introduce new solutions, and enhance and improve existing solutions on our platform; • continued growth of cloud-based services and solutions; • our ability to continue to develop offerings and solutions that our customers prefer over those of our competitors; • our ability to hire and retain sufficient numbers of sales and marketing, research and development, and general and administrative personnel; and • our ability to expand into new geographies and markets, including the business intelligence, data analytics, and application security markets, and expand our global operations. 13 Table of Contents If we are unable to achieve any of these, our revenue growth could be adversely affected.
If expectations for our business turn out to be inaccurate, our revenue growth may be adversely affected over time and we may not be able to adjust our cost structure on a timely basis and our cash flows and results of operations may suffer.
If expectations for our business turn out to be inaccurate, our revenue growth may be adversely affected over time and we may not be able to adjust our cost structure on a timely basis and our cash flows and results of operations may suffer. Our ability to succeed depends on the experience and expertise of our senior management team.
If our solutions do not achieve widespread adoption, we are not able to develop new solutions that meet customer needs, or there is a reduction in demand for observability and security solutions generally, it could result in reduced customer purchases, reduced renewal rates, and decreased revenue, any of which will adversely affect our business, operating results and financial condition. 15 Table of Contents Our business is dependent on overall demand for observability and security solutions and therefore reduced spending on those solutions or overall adverse economic conditions may negatively affect our business, operating results, and financial condition.
If our solutions do not achieve widespread adoption, we are not able to develop new solutions that meet customer needs, or there is a reduction in demand for observability and security solutions generally, it could result in reduced customer purchases, reduced renewal rates, and decreased revenue, any of which will adversely affect our business, operating results, and financial condition.
Any allegation of infringement, misappropriation, or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs and resources defending against the claim, could distract our management from our business, and could cause uncertainty among our customers or prospective customers, all of which could have an adverse effect on our business, operating results, and financial condition.
Our broad solution portfolio and the competition in our markets further exacerbate the risk of additional third-party intellectual property claims against us in the future. 23 Table of Contents Any allegation of infringement, misappropriation, or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs and resources defending against the claim, could distract our management from our business, and could cause uncertainty among our customers or prospective customers, all of which could have an adverse effect on our business, operating results, and financial condition.
The COVID-19 pandemic and policies and regulations implemented by governments in response to the COVID-19 pandemic, most of which have been lifted, have had a significant impact, both directly and indirectly, on global businesses and commerce and indirect effects such as worker shortages and supply chain constraints continue to impact segments of the economy.
The COVID-19 pandemic, and policies and regulations implemented by governments in response to it, had a significant impact, both directly and indirectly, on global businesses and commerce and indirect effects, such as worker shortages and supply chain constraints.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur primary research and development facilities are located in Linz, Austria, Vienna, Austria, Gdansk, Poland, and Barcelona, Spain, and consist of approximately 96,000, 67,000, 57,000, and 36,000 square feet, respectively. We also lease other facilities in the United States and internationally.
Biggest changeIn 2026, we plan to expand our Linz campus by an additional 187,000 square feet of space. We also lease other facilities in the United States and internationally, the largest of which in the United States are in Denver, Colorado and Detroit, Michigan, and the largest of which internationally are in Vienna, Austria and Gdansk, Poland.
ITEM 2. PROPERTIES Our corporate headquarters is located in Waltham, Massachusetts and consists of approximately 60,000 square feet of space under a lease that expires in September 2027.
ITEM 2. PROPERTIES Our corporate headquarters is located in Waltham, Massachusetts and consists of approximately 60,000 square feet of space under a lease that expires in 2027. Our primary research and development facility is located in Linz, Austria and consists of approximately 93,000 square feet of space under a lease that expires in 2036.
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In addition to our headquarters, we lease approximately 47,000 square feet of space in Detroit, Michigan, approximately 28,000 square feet of space in Maidenhead, England, and approximately 26,000 square feet of space in Denver, Colorado for sales and customer support.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans Information required by Item 5 of Form 10-K regarding our Equity Compensation Plans is incorporated herein by reference to Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report.
Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans Information required by Item 5 of Form 10-K regarding our Equity Compensation Plans is incorporated herein by reference to Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report. 38 Table of Contents Performance Graph The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act.
Base Period 8/1/2019 3/31/2020 3/31/2021 3/31/2022 3/31/2023 Dynatrace, Inc. $ 100.00 $ 99.96 $ 202.26 $ 197.48 $ 177.36 S&P 500 $ 100.00 $ 87.51 $ 134.51 $ 153.39 $ 139.13 S&P 500 Information Technology $ 100.00 $ 100.32 $ 165.35 $ 198.19 $ 187.19 39 Table of Contents Unregistered Sales of Equity Securities None. Use of Proceeds None.
Base Period 8/1/2019 3/31/2020 3/31/2021 3/31/2022 3/31/2023 3/31/2024 Dynatrace, Inc. $ 100.00 $ 99.96 $ 202.26 $ 197.48 $ 177.36 $ 194.72 S&P 500 $ 100.00 $ 87.51 $ 134.51 $ 153.39 $ 139.13 $ 177.90 S&P 500 Information Technology $ 100.00 $ 100.32 $ 165.35 $ 198.19 $ 187.19 $ 271.04 Unregistered Sales of Equity Securities None.
Holders of Record As of May 22, 2023, there were 53 stockholders of record of our common stock. We believe a substantially greater number of beneficial owners hold shares through brokers, banks or other nominees. 38 Table of Contents Dividend Policy We have never declared or paid any cash dividend on our common stock.
Holders of Record As of May 20, 2024, there were 41 stockholders of record of our common stock. We believe a substantially greater number of beneficial owners hold shares through brokers, banks or other nominees. Dividend Policy We have never declared or paid any cash dividend on our common stock.
We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not expect to pay any dividends on our common stock in the foreseeable future.
We do not expect to pay any dividends on our common stock in the foreseeable future.
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Performance Graph The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act.
Added
Use of Proceeds None. Issuer Purchases of Equity Securities None. Please see the “Overview - Recent Developments” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report for information regarding the share repurchase program that we announced on May 15, 2024. ITEM 6. RESERVED Not applicable. 39 Table of Contents
Removed
Issuer Purchases of Equity Securities None. ITEM 6. RESERVED Not applicable. 40 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese tax effects are dependent on our share price, which we do not control, and a decline in our share price could significantly increase our effective tax rate and adversely affect our financial results. 44 Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented: Fiscal Year Ended March 31, 2023 2022 2021 Amount Percent Amount Percent Amount Percent (in thousands, except percentages) Revenue: Subscription $ 1,083,330 94 % $ 870,439 94 % $ 656,626 93 % Service 75,200 6 % 59,006 6 % 46,883 7 % Total revenue 1,158,530 100 % 929,445 100 % 703,509 100 % Cost of revenue: Cost of subscription 144,445 12 % 111,646 12 % 77,488 11 % Cost of service 62,882 6 % 45,717 5 % 34,903 5 % Amortization of acquired technology 15,564 1 % 15,513 2 % 15,317 2 % Total cost of revenue (1) 222,891 19 % 172,876 19 % 127,708 18 % Gross profit 935,639 81 % 756,569 81 % 575,801 82 % Operating expenses: Research and development (1) 218,349 19 % 156,342 17 % 111,415 16 % Sales and marketing (1) 448,015 39 % 362,116 39 % 245,487 35 % General and administrative (1) 150,031 13 % 126,622 14 % 92,219 13 % Amortization of other intangibles 26,292 2 % 30,157 3 % 34,744 5 % Restructuring and other 141 25 40 Total operating expenses 842,828 675,262 483,905 Income from operations 92,811 81,307 91,896 Other expense, net (2,844) (9,648) (14,043) Income before income taxes 89,967 71,659 77,853 Income tax benefit (expense) 17,992 (19,208) (2,139) Net income $ 107,959 $ 52,451 $ 75,714 _________________ (1) Includes share-based compensation expense as follows: Fiscal Year Ended March 31, 2023 2022 2021 (in thousands) Cost of revenue $ 18,383 $ 12,863 $ 7,307 Research and development 41,406 21,316 11,684 Sales and marketing 51,147 35,957 24,153 General and administrative 35,938 29,400 14,640 Total share-based compensation expense $ 146,874 $ 99,536 $ 57,784 45 Table of Contents Fiscal Years Ended March 31, 2023 and 2022 Revenue Fiscal Year Ended March 31, Change 2023 2022 Amount Percent (in thousands, except percentages) Subscription $ 1,083,330 $ 870,439 $ 212,891 24 % Service 75,200 59,006 16,194 27 % Total revenue $ 1,158,530 $ 929,445 $ 229,085 25 % Subscription Subscription revenue increased by $212.9 million, or 24%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily due to the growing adoption of the Dynatrace ® platform by new customers combined with existing customers expanding their use of our solutions.
Biggest changeThese tax effects are dependent on our share price, which we do not control, and a decline in our share price could significantly increase our effective tax rate and adversely affect our financial results. 43 Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented: Fiscal Year Ended March 31, 2024 2023 2022 Amount Percent Amount Percent Amount Percent (in thousands, except percentages) Revenue: Subscription $ 1,359,354 95 % $ 1,083,330 94 % $ 870,439 94 % Service 71,176 5 % 75,200 6 % 59,006 6 % Total revenue 1,430,530 100 % 1,158,530 100 % 929,445 100 % Cost of revenue: Cost of subscription 184,765 13 % 144,445 12 % 111,646 12 % Cost of service 65,423 5 % 62,882 6 % 45,717 5 % Amortization of acquired technology 16,265 1 % 15,564 1 % 15,513 2 % Total cost of revenue (1) 266,453 19 % 222,891 19 % 172,876 19 % Gross profit 1,164,077 81 % 935,639 81 % 756,569 81 % Operating expenses: Research and development (1) 304,739 21 % 218,349 19 % 156,342 17 % Sales and marketing (1) 534,233 37 % 448,015 39 % 362,116 39 % General and administrative (1) 174,412 12 % 150,172 13 % 126,647 14 % Amortization of other intangibles 22,293 2 % 26,292 2 % 30,157 3 % Total operating expenses 1,035,677 842,828 675,262 Income from operations 128,400 9 % 92,811 8 % 81,307 9 % Interest income (expense), net 37,284 (3,409) (10,192) Other (expense) income, net (10,769) 565 544 Income before income taxes 154,915 89,967 71,659 Income tax (expense) benefit (283) 17,992 (19,208) Net income $ 154,632 $ 107,959 $ 52,451 _________________ (1) Includes share-based compensation expense as follows: Fiscal Year Ended March 31, 2024 2023 2022 (in thousands) Cost of revenue $ 26,622 $ 18,383 $ 12,863 Research and development 69,543 41,406 21,316 Sales and marketing 65,762 51,147 35,957 General and administrative 46,969 35,938 29,400 Total share-based compensation expense $ 208,896 $ 146,874 $ 99,536 44 Table of Contents Fiscal Years Ended March 31, 2024 and 2023 Revenue Fiscal Year Ended March 31, Change 2024 2023 Amount Percent (in thousands, except percentages) Subscription $ 1,359,354 $ 1,083,330 $ 276,024 25 % Service 71,176 75,200 (4,024) (5 %) Total revenue $ 1,430,530 $ 1,158,530 $ 272,000 23 % Subscription Subscription revenue increased by $276.0 million, or 25%, for the year ended March 31, 2024, as compared to the year ended March 31, 2023, primarily due to the growing adoption of the Dynatrace platform by new customers combined with existing customers expanding their use of our solutions.
Changes in foreign currency exchange rates negatively impacted our revenue by $41.9 million. Our subscription revenue remained consistent at 94% of total revenue for the years ended March 31, 2023 and March 31, 2022. Service Service revenue increased by $16.2 million, or 27%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022.
Changes in foreign currency exchange rates negatively impacted our revenue by $41.9 million. Our subscription revenue remained consistent at 94% of total revenue for the years ended March 31, 2023 and 2022. Service Service revenue increased by $16.2 million, or 27%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022.
Subscription gross margin remained consistent at 87% of total gross margin during the years ended March 31, 2023 and March 31, 2022. The increase in gross profit was primarily due to the growth of the Dynatrace ® platform by new customers combined with existing customers expanding their use of our solutions.
Subscription gross margin remained consistent at 87% of total gross margin during the years ended March 31, 2023 and 2022. The increase in gross profit was primarily due to the growth of the Dynatrace platform by new customers combined with existing customers expanding their use of our solutions.
The decrease was primarily the result of lower amortization for certain intangible assets that are amortized on a systematic basis that reflects the pattern in which the economic benefits of the intangible assets are estimated to be realized and the completion of amortization on certain intangibles.
The decrease was primarily the result of lower amortization for certain intangible assets that are amortized on a systematic basis that reflects the pattern in which the economic benefits of the intangible assets are estimated to be realized and the completion of amortization on certain intangibles.
For the year ended March 31, 2022, cash provided by operating activities was $250.9 million as a result of net income of $52.5 million, and adjusted by non-cash charges of $145.5 million and a change of $53.0 million in our operating assets and liabilities.
For the year ended March 31, 2022, cash provided by operating activities was $250.9 million as a result of a net income of $52.5 million, and adjusted by non-cash charges of $145.5 million and a change of $53.0 million in our operating assets and liabilities.
Investing Activities Cash used in investing activities during the year ended March 31, 2023 was $21.5 million as a result of purchases of property and equipment.
Cash used in investing activities during the year ended March 31, 2023 was $21.5 million as a result of purchases of property and equipment.
We typically invoice SaaS subscription fees and term licenses annually in advance and recognize subscription revenue ratably over the term of the applicable agreement, provided that all other revenue recognition criteria have been satisfied. Fees for our Dynatrace ® perpetual licenses are generally billed up front. See the section titled “Critical Accounting Policies and Estimates—Revenue Recognition” for more information.
We typically invoice SaaS subscription fees and term licenses annually in advance and recognize subscription revenue ratably over the term of the applicable agreement, provided that all other revenue recognition criteria have been satisfied. Fees for our Dynatrace perpetual licenses are generally billed up front. See the section titled “Critical Accounting Policies and Estimates—Revenue Recognition” for more information. Service.
These changes were partially offset by an increase in accounts receivable of $108.8 million due to the timing of receipts of payments from customers, an increase in deferred commissions of $29.5 million due to commissions paid on new bookings, and an increase in prepaid expenses and other assets of $8.1 driven by the timing of payments in advance of future services.
These changes were partially offset by an increase in accounts receivable of $108.8 million due to the timing of receipts of payments from customers, an increase in deferred commissions of $29.5 million due to commissions paid on new bookings, and an increase in prepaid expenses and other assets of $8.1 million driven by the timing of payments made in advance of future services.
Income Tax Expense Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.
Income Tax (Expense) Benefit Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.
As enterprises and public sector institutions embrace modern cloud environments as the underlying foundation of their digital transformations, we believe that the scale, growing complexity, and dynamic nature of these environments are rapidly making solutions such as the Dynatrace® platform mandatory instead of optional for many organizations.
As enterprises and public sector institutions embrace modern cloud environments as the underlying foundation of their business and digital transformations, we believe that the scale, growing complexity, and dynamic nature of these environments are rapidly making solutions such as the Dynatrace platform mandatory instead of optional for many organizations.
Key Factors Affecting Our Performance Our historical financial performance has been, and we expect our financial performance in the future to be, driven by our ability to: • Extend our technology and market leadership position. We intend to maintain our position as the market-leading unified observability and security platform through increased investment in research and development and continued innovation.
Key Factors Affecting Our Performance Our historical financial performance has been, and we expect our financial performance in the future to be, driven by our ability to: • Extend our technology and market leadership position. We intend to maintain our position as the market-leading unified observability and security platform through increased investment in research and development, and innovation.
Gross profit has been and will continue to be affected by various factors, including the mix of our subscription and service and other revenue, the costs associated with third-party cloud-based hosting services for our cloud-based subscriptions, and the extent to which we expand our customer support and services organizations.
Gross profit has been and will continue to be affected by various factors, including the mix of our subscription and service revenue, the costs associated with third-party cloud-based hosting services for our cloud-based subscriptions, and the extent to which we expand our customer support and services organizations.
The increase was primarily due to increased personnel and other costs to expand our product offerings of $29.2 million, and higher share-based compensation of $20.1 million. Also contributing to the increase were higher allocated overhead costs of $9.8 million, higher travel expenses of $1.6 million, and increased cloud-based hosting costs of $1.5 million.
The increase was primarily due to increased personnel and other costs to expand our product offerings of $29.2 million, and higher share-based compensation expense of $20.1 million. Also contributing to the increase were higher allocated overhead costs of $9.8 million, higher travel expenses of $1.6 million, and increased cloud-based hosting costs of $1.5 million.
Cost of service revenue includes salaries, benefits, share-based compensation and related expenses such as employer taxes for our services organization, allocated overhead for depreciation of equipment, facilities and IT. We recognize these expenses as they are incurred. Amortization of acquired technology .
We recognize these expenses as they are incurred. Cost of service . Cost of service revenue includes salaries, bonuses, benefits, share-based compensation, and related expenses such as employer taxes for our services organization, allocated overhead for depreciation of equipment, facilities, and IT. We recognize these expenses as they are incurred. Amortization of acquired technology .
Sales and marketing Sales and marketing expenses increased by $85.9 million, or 24%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily driven by increased personnel costs of $51.7 million and higher share-based compensation of $15.2 million.
Sales and marketing Sales and marketing expenses increased by $85.9 million, or 24%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily driven by increased personnel costs of $51.7 million and higher share-based compensation expense of $15.2 million.
Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.
Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.
Also contributing to the increase were increased advertising costs of $1.3 million, increased allocated overhead costs of $1.2 million, and higher share-based compensation of $0.9 million.
Also contributing to the increase were increased advertising costs of $1.3 million, increased allocated overhead costs of $1.2 million, and higher share-based compensation expense of $0.9 million.
Amortization expense for technology acquired in the Thoma Bravo Funds’ acquisition of the Company in 2014 and business combinations. To the extent significant future acquisitions are consummated, we expect that our amortization of acquired technologies may increase due to additional non-cash charges associated with the amortization of intangible assets acquired.
Amortization of acquired technology includes amortization expense for technology acquired in the Thoma Bravo Funds’ acquisition of our company in 2014, business combinations and asset acquisitions. To the extent significant future acquisitions are consummated, we expect that our amortization of acquired technologies may increase due to additional non-cash charges associated with the amortization of intangible assets acquired.
The change in our net operating assets and liabilities was primarily the result of an increase in deferred revenue of $145.5 million due to seasonality in our sales cycle, which is higher in the third and fourth quarters of our fiscal year, an increase in accounts payable and accrued expenses of $58.7 million driven by the timing of payments, and a decrease in prepaid expenses and other assets of $26.8 million driven by timing of an income tax refund and timing of payments in advance of future service.
The change in our net operating assets and liabilities was primarily the result of an increase in deferred revenue of $145.5 million due to seasonality in our sales cycle, which is higher in the third and fourth quarters of our fiscal year, an increase in accounts payable and accrued expenses of $58.7 million driven by the timing of payments, and a decrease in prepaid expenses and other assets of $26.8 million driven by timing of an income tax refund and timing of payments made in advance of future services.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse.
Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and income tax bases of assets and liabilities and net operating loss and tax credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse.
In addition, we believe the ease of implementation for Dynatrace® provides us the opportunity to expand adoption within our existing enterprise customers, across new customer applications, and into additional business units or divisions.
In addition, we believe the ease of implementation of Dynatrace provides us with the opportunity to expand adoption within our existing enterprise customers, across new customer applications, and into additional business units or divisions.
Our dollar-based net retention rate reflects customer renewals, expansion, contraction and churn, and excludes the benefit of Dynatrace® ARR resulting from the conversion of Classic products to the Dynatrace® platform. Beginning in fiscal 2023, we began to exclude the headwind associated with the Dynatrace perpetual license 42 Table of Contents ARR given the diminishing impact of perpetual license ARR.
Our dollar-based net retention rate reflects customer renewals, expansion, contraction and churn, and excludes the benefit of Dynatrace ARR resulting from the conversion of Classic products to the Dynatrace platform. Beginning in fiscal 2023, we began to exclude the headwind associated with the Dynatrace perpetual license ARR given the diminishing impact of perpetual license ARR.
Amortization of acquired technologies For the years ended March 31, 2022 and 2021, amortization of acquired technologies was primarily related to amortization expense for technology acquired in connection with Thoma Bravo’s acquisition of our company in 2014.
Amortization of acquired technologies For the years ended March 31, 2023 and 2022, amortization of acquired technologies was primarily related to amortization expense for technology acquired in connection with Thoma Bravo’s acquisition of our company in 2014.
We also incur other non-personnel costs, such as an allocation of our general overhead expenses. During the fourth quarter of fiscal 2023, we refined our methodology used to allocate depreciation expense for certain property and equipment to better align the expense with the related use of the property and equipment.
We also incur other non-personnel costs, such as an allocation of our general overhead expenses, including depreciation of equipment, facilities, IT, and other costs. During the fourth quarter of fiscal 2023, we refined our methodology used to allocate depreciation expense for certain property and equipment to better align the expense with the related use of the property and equipment.
Other Expense, Net Other expense, net, consists primarily of interest expense and foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency, including balances between subsidiaries.
Other (Expense) Income, Net Other (expense) income, net, consists primarily of foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency, including balances between subsidiaries.
Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies, of our accompanying audited consolidated financial statements included in this Annual Report for a description of recently issued accounting pronouncements.
Recent Accounting Pronouncements See Note 2, Significant Accounting Policies, of our audited consolidated financial statements included in this Annual Report for a description of recently issued accounting pronouncements.
Internal Revenue Code (“IRC”) Section 174 For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and fifteen years for research activities performed outside the United States pursuant to IRC Section 174.
Internal Revenue Code (“IRC”) Section 174 For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to IRC Section 174.
We believe this approach is even more important at this time as we navigate a rapidly evolving and uncertain macroeconomic environment, which can include geopolitical considerations, fluctuations in credit, equity, and foreign currency markets, changes in inflation, interest rates, consumer confidence and spending, and other factors that may affect the buying patterns of our customers and prospective customers, including the size of transactions and length of sales cycles.
We believe this approach is even more important at this time as we navigate the current macroeconomic environment, which can include geopolitical considerations, fluctuations in credit, equity, and foreign currency markets, changes in inflation, interest rates, consumer confidence and spending, and other factors that may affect the buying patterns of our customers and prospective customers, including the size of transactions and length of sales cycles.
However, we believe that our existing cash, cash equivalents, funds available under our revolving credit facility, and cash generated from operations, will be sufficient to meet our cash requirements for at least the next twelve months.
However, we believe that our existing cash, cash equivalents, investments, funds available under our revolving credit facility, and cash generated from operations, will be sufficient to meet our cash requirements for at least the next 12 months.
As of March 31, 2023, we were in compliance with all applicable covenants pertaining to the Credit Facility. The Credit Facility is discussed further in Note 9, Long-term Debt, of our audited consolidated financial statements included in this Annual Report.
As of March 31, 2024, we were in compliance with all applicable covenants pertaining to the Credit Facility. The Credit Facility is discussed further in Note 11, Long-term Debt, of our audited consolidated financial statements included in this Annual Report.
These strategic partners continually work with their customers to help them digitally transform their businesses and reduce cloud complexity. By working more closely with strategic partners, our objective is to participate in digital transformation projects earlier in the purchasing cycle and enable customers to establish more resilient cloud deployments from the start. Key Metrics In addition to our U.S.
These strategic partners continually work with their customers to help them digitally transform their businesses and reduce cloud complexity. By working more closely with strategic partners, our objective is to participate in digital transformation projects earlier in the purchasing cycle and enable customers to establish more resilient cloud deployments from the start.
The decrease in gross profit and gross margin was primarily due to higher personnel and share-based compensation costs.
The decrease in gross profit and gross margin was primarily due to higher personnel and share-based compensation expense.
This law change will increase our U.S. federal and state cash taxes and reduce cash flows in fiscal year 2024 and future years. Share-based compensation The tax effects of the accounting for share-based compensation may significantly impact our effective tax rate from period to period.
This law change increases our U.S. federal and state cash taxes and reduces cash flows in fiscal year 2024 and future years. Share-based compensation The tax effects of the accounting for share-based compensation may significantly impact our effective tax rate from period to period.
We believe that eliminating the perpetual license headwind will result in a dollar-based net retention rate metric that better reflects Dynatrace’s ability to expand existing customer relationships. Dollar-based net retention rate is presented on a constant currency basis. Key Components of Results of Operations Revenue Revenue includes subscriptions and services (and previously included licenses, as discussed below). Subscription.
We believe that eliminating the perpetual license headwind results in a dollar-based net retention rate metric that better reflects Dynatrace’s ability to expand existing customer relationships. Dollar-based net retention rate is presented on a constant currency basis. Key Components of Results of Operations Revenue Revenue includes subscriptions and services. Subscription.
We generate revenue primarily by selling subscriptions, which we define as SaaS agreements, Dynatrace® term-based licenses, Dynatrace® perpetual licenses, and maintenance and support agreements. The majority of our customers deploy Dynatrace® as a SaaS solution to get the latest Dynatrace® features and updates with greatly reduced administrative effort.
We generate revenue primarily by selling subscriptions, which we define as SaaS agreements, term-based licenses, perpetual licenses, and maintenance and support agreements. The majority of our customers deploy Dynatrace as a SaaS solution to get the latest Dynatrace features and updates with greatly reduced administrative effort. We also provide options to deploy our platform in customer-provisioned infrastructure.
Cost of subscription revenue includes all direct costs to deliver and support our subscription products, including salaries, benefits, share-based compensation and related expenses such as employer taxes, third-party hosting fees related to our cloud services, allocated overhead for facilities, IT, and amortization of internally developed capitalized software technology. We recognize these expenses as they are incurred. Cost of service .
Cost of subscription revenue includes all direct costs to deliver and support our subscription products, including salaries, benefits, bonuses, share-based compensation and related expenses such as employer taxes, third-party hosting fees related to our cloud services, allocated overhead for depreciation of equipment, facilities, and IT, and amortization of internally developed capitalized software technology.
Fiscal 2023 Financial Highlights We delivered strong fiscal 2023 financial results in a dynamic macroeconomic environment, demonstrating the durability of our business model. • Our annual recurring revenue (“ARR”) was $1,247 million as of March 31, 2023, which reflected 25% growth year-over-year; • For the full year ended March 31, 2023, we were once again profitable and delivered solid operating income; • As of March 31, 2023, we had approximately $555 million of cash and cash equivalents and no long-term debt; and • Dynatrace® customers increased to more than 3,600 as of March 31, 2023 from approximately 3,300 as of March 31, 2022. 41 Table of Contents We believe in a disciplined and balanced approach to operating our business.
Fiscal 2024 Financial Highlights We delivered strong fiscal 2024 financial results in a dynamic macroeconomic environment, demonstrating the durability of our business model. • Our annual recurring revenue (“ARR”) was $1,504 million as of March 31, 2024, which reflected 21% growth year-over-year; • For the full year ended March 31, 2024, we were once again profitable and delivered solid operating income; • As of March 31, 2024, we had approximately $883 million of cash, cash equivalents, and investments and no long-term debt; and • Dynatrace customers increased to approximately 4,000 as of March 31, 2024 from approximately 3,600 as of March 31, 2023. 40 Table of Contents We believe in a disciplined and balanced approach to operating our business.
Our material cash requirements from known contractual and other obligations consist of our rent payments required under operating lease agreements and non-cancelable purchase obligations for cloud hosting support. As of March 31, 2023, total contractual commitments were $244.4 million, with $78.8 million committed within the next twelve months.
Our material cash requirements from known contractual and other obligations consist of our rent payments required under operating lease agreements and non-cancelable purchase obligations for cloud hosting support. As of March 31, 2024, total contractual commitments were $421.4 million, with $156.2 million committed within the next 12 months.
Financing Activities Cash used in financing activities during the year ended March 31, 2023 was $232.3 million, primarily as a result of repayments of our term loans of $281.1 million, partially offset by proceeds from the exercise of our stock options of $32.9 million and proceeds from our employee stock purchase plan of $17.8 million.
Cash used in financing activities during the year ended March 31, 2023 was $232.3 million, primarily as a result of repayments of our term loans of $281.1 million, partially offset by proceeds from the exercise of our stock options of $32.9 million and proceeds from our employee stock purchase plan of $17.8 million. 51 Table of Contents Cash used in financing activities during the year ended March 31, 2022 was $80.7 million, primarily as a result of repayments of our term loans of $120.0 million, partially offset by proceeds from the exercise of our stock options of $25.5 million and proceeds from our employee stock purchase plan of $13.9 million.
Revenue Recognition We recognize revenue from contracts with customers using the five-step method described in Note 2 of the notes to our consolidated financial statements, included elsewhere in this Annual Report.
Revenue Recognition We recognize revenue from contracts with customers using the five-step method described in Note 2, Significant Accounting Policies, of our audited consolidated financial statements included in this Annual Report.
Amortization of acquired technologies For the years ended March 31, 2023 and 2022, amortization of acquired technologies was primarily related to amortization expense for technology acquired in connection with Thoma Bravo’s acquisition of our company in 2014. 46 Table of Contents Gross Profit and Gross Margin Fiscal Year Ended March 31, Change 2023 2022 Amount Percent (in thousands, except percentages) Gross profit: Subscription $ 938,885 $ 758,793 $ 180,092 24 % Service 12,318 13,289 (971) (7 %) Amortization of acquired technology (15,564) (15,513) (51) — % Total gross profit $ 935,639 $ 756,569 $ 179,070 24 % Gross margin: Subscription 87 % 87 % Service 16 % 23 % Amortization of acquired technology (100 %) (100 %) Total gross margin 81 % 81 % Subscription Subscription gross profit increased by $180.1 million, or 24%, during the year ended March 31, 2023 compared to the year ended March 31, 2022.
Gross Profit and Gross Margin Fiscal Year Ended March 31, Change 2023 2022 Amount Percent (in thousands, except percentages) Gross profit: Subscription $ 938,885 $ 758,793 $ 180,092 24 % Service 12,318 13,289 (971) (7 %) Amortization of acquired technology (15,564) (15,513) (51) — % Total gross profit $ 935,639 $ 756,569 $ 179,070 24 % Gross margin: Subscription 87 % 87 % Service 16 % 23 % Amortization of acquired technology (100) % (100 %) Total gross margin 81 % 81 % Subscription Subscription gross profit increased by $180.1 million, or 24%, during the year ended March 31, 2023 compared to the year ended March 31, 2022.
However, operating expenses have also increased as we have invested in growing our business. Our operating cash requirements may increase in the future as we continue to invest in the strategic growth of our company.
Over the past three years, cash flows from customer collections have increased. However, operating expenses have also increased as we have invested in growing our business. Our operating cash requirements may increase in the future as we continue to invest in the strategic growth of our company.
Cash used in investing activities during the year ended March 31, 2022 was $30.9 million as a result of the purchases of property and equipment of $17.7 million and two acquisitions made in the first half of fiscal 2022 of $13.2 million.
Cash used in investing activities during the year ended March 31, 2022 was $30.9 million as a result of purchases of property and equipment of $17.7 million and cash paid for business combination acquisitions of $13.2 million.
Please see the section titled “Risk Factors” included under Part I, Item 1A for further discussion of the possible impact of macroeconomic conditions on our business.
Please see the section titled “Risk Factors” included under Part I, Item 1A for further discussion of the possible impact of macroeconomic conditions on our business and regarding fluctuations in our annual and quarterly operating results.
During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.
While we use our best estimates and judgments, our estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.
Cost of Revenue Fiscal Year Ended March 31, Change 2023 2022 Amount Percent (in thousands, except percentages) Cost of subscription $ 144,445 $ 111,646 $ 32,799 29 % Cost of service 62,882 45,717 17,165 38 % Amortization of acquired technology 15,564 15,513 51 — % Total cost of revenue $ 222,891 $ 172,876 $ 50,015 29 % Cost of subscription Cost of subscription increased by $32.8 million, or 29%, for the year ended March 31, 2023 as compared to the year ended March 31, 2022.
The increase was in line with the growing adoption of the Dynatrace platform by new customers combined with existing customers expanding their use of our solutions. 47 Table of Contents Cost of Revenue Fiscal Year Ended March 31, Change 2023 2022 Amount Percent (in thousands, except percentages) Cost of subscription $ 144,445 $ 111,646 $ 32,799 29 % Cost of service 62,882 45,717 17,165 38 % Amortization of acquired technology 15,564 15,513 51 — % Total cost of revenue $ 222,891 $ 172,876 $ 50,015 29 % Cost of subscription Cost of subscription increased by $32.8 million, or 29%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022.
Summary of Cash Flows Fiscal Year Ended March 31, 2023 2022 2021 (in thousands) Net cash provided by operating activities (1) $ 354,885 $ 250,917 $ 220,436 Net cash used in investing activities (21,540) (30,890) (13,879) Net cash used in financing activities (232,344) (80,664) (97,802) Effect of exchange rate changes on cash and cash equivalents (8,620) (1,358) 3,037 Net increase in cash and cash equivalents $ 92,381 $ 138,005 $ 111,792 _________________ (1) Net cash provided by operating activities includes cash payments for interest and tax as follows: Fiscal Year Ended March 31, 2023 2022 2021 (in thousands) Cash paid for interest $ 7,109 $ 8,375 $ 12,475 Cash (received from) paid for tax, net $ (14,311) $ 24,247 $ (7,337) 51 Table of Contents Operating Activities For the year ended March 31, 2023, cash provided by operating activities was $354.9 million as a result of net income of $108.0 million, and adjusted by non-cash charges of $148.9 million and a change of $92.1 million in our operating assets and liabilities.
Summary of Cash Flows Fiscal Year Ended March 31, 2024 2023 2022 (in thousands) Net cash provided by operating activities (1) $ 378,109 $ 354,885 $ 250,917 Net cash used in investing activities (193,048) (21,540) (30,890) Net cash provided by (used in) financing activities 50,663 (232,344) (80,664) Effect of exchange rate changes on cash and cash equivalents (12,089) (8,620) (1,358) Net increase in cash and cash equivalents $ 223,635 $ 92,381 $ 138,005 _________________ (1) Net cash provided by operating activities includes cash payments for interest and tax as follows: 50 Table of Contents Fiscal Year Ended March 31, 2024 2023 2022 (in thousands) Cash paid for interest $ 851 $ 7,109 $ 8,375 Cash paid for tax (received from), net $ 81,360 $ (14,311) $ 24,247 Operating Activities For the year ended March 31, 2024, cash provided by operating activities was $378.1 million as a result of net income of $154.6 million, and adjusted by non-cash charges of $215.1 million and a change of $8.3 million in our operating assets and liabilities.
The change in our net operating assets and liabilities was primarily the result of an increase in deferred revenue of $96.5 million due to to seasonality in our sales cycle, which is higher in the third and fourth quarters of our fiscal year, an increase in accounts payable and accrued expenses of $26.6 million driven by the timing of payments, and a decrease in prepaid expenses and other assets of $5.7 million driven by the timing of payments in advance of future services.
The change in our net operating assets and liabilities was primarily the result of an increase in deferred revenue of $202.2 million due to seasonality in our sales cycle, which is higher in the third and fourth quarters of our fiscal year and an increase in accounts payable and accrued expenses of $37.9 million driven by the timing of payments.
Operating Expenses Fiscal Year Ended March 31, Change 2023 2022 Amount Percent (in thousands, except percentages) Operating expenses: Research and development $ 218,349 $ 156,342 $ 62,007 40 % Sales and marketing 448,015 362,116 85,899 24 % General and administrative 150,031 126,622 23,409 18 % Amortization of other intangibles 26,292 30,157 (3,865) (13 %) Restructuring and other 141 25 116 464 % Total operating expenses $ 842,828 $ 675,262 $ 167,566 25 % Research and development Research and development expenses increased $62.0 million, or 40%, for the year ended March 31, 2023 as compared to the year ended March 31, 2022.
The decrease in gross profit and gross margin was primarily due to the higher personnel and share-based compensation costs. 48 Table of Contents Operating Expenses Fiscal Year Ended March 31, Change 2023 2022 Amount Percent (in thousands, except percentages) Operating expenses: Research and development $ 218,349 $ 156,342 $ 62,007 40 % Sales and marketing 448,015 362,116 85,899 24 % General and administrative 150,172 126,647 23,525 19 % Amortization of other intangibles 26,292 30,157 (3,865) (13 %) Total operating expenses $ 842,828 $ 675,262 $ 167,566 25 % Research and development Research and development expenses increased by $62.0 million, or 40%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022.
This has been retrospectively applied to 43 Table of Contents periods beginning on April 1, 2022. See Note 2, Significant Accounting Policies, of our audited consolidated financial statements included in this Annual Report for a description of the reclassification. Research and development . Research and development expenses primarily consist of the cost of programming personnel.
This has been retrospectively applied to fiscal 2023. See Note 2, Significant Accounting Policies, of our audited consolidated financial statements included in this Annual Report for further information. 42 Table of Contents Research and development . Research and development expenses primarily consist of the cost of programming personnel.
Interest expense, net of interest income, consists primarily of interest on our former term loan facility, fees on our revolving credit facility, loss on debt extinguishment, and amortization of debt issuance costs.
Interest Income (Expense), Net Interest income (expense), net, consists primarily of interest income primarily from money market funds, bank deposits, debt securities held as investments and certificates of deposits, interest expense on our former term loan facility, fees on our revolving credit facility, loss on debt extinguishment and amortization of debt issuance costs.
General and administrative. General and administrative expenses primarily consist of the personnel and facility-related costs for our executive, finance, legal, human resources and administrative personnel, and other corporate expenses, including those associated with our ongoing public reporting obligations.
General and administrative expenses primarily consist of the personnel and facility-related costs for our executive, finance, legal, human resources and administrative personnel, and other corporate expenses, including those associated with our ongoing public reporting obligations. We anticipate continuing to incur additional expenses as we continue to invest in the growth of our operations. Amortization of other intangibles.
Also contributing to the increase were increased travel expenses of $9.0 million, higher commissions of $8.8 million, and higher allocated overhead costs of $7.0 million. 47 Table of Contents General and administrative General and administrative expenses increased by $23.4 million, or 18%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily due to increased personnel costs of $19.9 million and higher share-based compensation of $6.5 million.
General and administrative General and administrative expenses increased by $23.5 million, or 19%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily due to increased personnel costs of $19.9 million and higher share-based compensation expense of $6.5 million.
Our Credit Facilities In December 2022, we entered into a senior secured revolving credit facility in an aggregate amount of $400.0 million (the “Credit Facility”). As of March 31, 2023, w e had $384.5 million available under the Credit Facility with $15.5 million of letters of credit outstanding.
Our Credit Facility In December 2022, we entered into a senior secured revolving credit facility in an aggregate amount of $400.0 million (the “Credit Facility”). As of March 31, 2024, w e h ad $399.2 million ava ilable under the Credit Facili ty with $0.8 million of letters of credit outstanding.
Other Expense, Net Other expense, net, decreased by $6.8 million, or 71%, for the year ended March 31, 2023 as compared to the year ended March 31, 2022. The decline was primarily the result of lower interest expense due to the reduction in debt. The loss on our debt extinguishment was also slightly offset by interest income.
The loss on our debt extinguishment was also slightly offset by interest income. Other Income, Net Other income, net, was $0.6 million for the year ended March 31, 2023, as compared to $0.5 million for the year ended March 31, 2022.
We plan to continue to increase the penetration within our existing customers by establishing new and deeper relationships within our customers’ organizations (notably, development teams) and expanding the breadth of our platform capabilities to provide for continued cross-selling opportunities.
We plan to establish new and deeper relationships within our existing customers’ organizations (notably, development teams) and expand the breadth of our platform capabilities to provide for expansion opportunities.
For the year ended March 31, 2021, cash provided by operating activities was $220.4 million as a result of a net income of $75.7 million, and adjusted by non-cash charges of $113.6 million and a change of $31.2 million in our operating assets and liabilities.
For the year ended March 31, 2023, cash provided by operating activities was $354.9 million as a result of net income of $108.0 million, and adjusted by non-cash charges of $148.9 million and a change of $92.1 million in our operating assets and liabilities.
Also contributing to the increase were higher professional fees of $1.1 million, and increased travel expenses related to global restrictions lifting of $0.8 million. Amortization of other intangibles Amortization of other intangibles decreased by $4.6 million, or 13%, for the year ended March 31, 2022, as compared to the year ended March 31, 2021.
Also contributing to the increase were higher professional fees of $7.9 million and higher IT expenses of $6.3 million. Amortization of other intangibles Amortization of other intangibles decreased by $4.0 million, or 15%, for the year ended March 31, 2024 as compared to the year ended March 31, 2023.
The increase in gross profit was primarily due to the growth of the Dynatrace ® platform by new customers combined with existing customers expanding their use of our solutions.
Subscription gross margin decreased from 87% to 86% of total gross margin during the years ended March 31, 2024 and March 31, 2023. The increase in gross profit was primarily due to the growth of the Dynatrace platform by new customers combined with existing customers expanding their use of our solutions.
We apply significant judgment in determining the fair value of the intangible assets acquired, which involves the use of significant estimates and assumptions with respect to future expected cash flows, expected asset lives, discount rates, revenue growth rates, and royalty rate. While we use our best estimates and judgments, our estimates are inherently uncertain and subject to refinement.
We apply judgment in determining the fair value of the intangible assets acquired, which involves the use of estimates and assumptions with respect to future expected cash flows, expected asset lives, discount rates, revenue growth rates, and royalty rates. Management bases these estimates on historical experience and various other assumptions that we believe are reasonable.
The increase was primarily due to higher personnel costs to support the growth of our subscription cloud-based offering of $19.5 million, higher cloud-based hosting costs and subscriptions of $10.7 million, as well as higher share-based compensation of $3.0 million.
The increase was primarily due to higher personnel costs of $15.5 million to support the growth of our subscription cloud-based and higher share-based compensation expense of $7.0 million. Also contributing to the increase were higher cloud-based hosting costs and subscriptions of $12.2 million to support the growth of the business and related infrastructure and higher depreciation expense of $3.1 million.
For further information regarding our contractual commitments, see Note 11, Commitments and Contingencies, of our audited consolidated financial statements included in this Annual Report. Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the risks detailed in the section titled “Risk Factors” included under Part I, Item 1A.
Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the risks detailed in the section titled “Risk Factors” included under Part I, Item 1A.
Cash used in investing activities during the year ended March 31, 2021 was $13.9 million as a result of purchases of property and equipment of $14.1 million and capitalized software additions of $0.3 million, gross of $0.5 million of derecognized software costs.
Investing Activities Cash used in investing activities during the year ended March 31, 2024 was $193.0 million as a result of purchases of investments of $104.2 million, cash paid for business combination acquisitions of $57.1 million, purchases of property and equipment of $26.5 million, and capitalized software additions of $5.3 million.
We believe that the assumptions and estimates associated with revenue recognition, income taxes, and business combinations have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. Accordingly, we believe these are the most critical to fully understand and evaluate our financial condition and results of operations.
Therefore, we consider these to be our critical accounting policies and estimates. Accordingly, we believe these are the most critical to fully understand and evaluate our financial condition and results of operations.
Fiscal Years Ended March 31, 2022 and 2021 Revenue Fiscal Year Ended March 31, Change 2022 2021 Amount Percent (in thousands, except percentages) Subscription $ 870,439 $ 656,626 $ 213,813 33 % Service 59,006 46,883 12,123 26 % Total revenue $ 929,445 $ 703,509 $ 225,936 32 % Subscription Subscription revenue increased by $213.8 million, or 33%, for the year ended March 31, 2022, as compared to the year ended March 31, 2021, primarily due to the growing adoption of the Dynatrace ® platform by new customers combined with existing customers expanding their use of our solutions.
Fiscal Years Ended March 31, 2023 and 2022 Revenue Fiscal Year Ended March 31, Change 2023 2022 Amount Percent (in thousands, except percentages) Subscription $ 1,083,330 $ 870,439 $ 212,891 24 % Service 75,200 59,006 16,194 27 % Total revenue $ 1,158,530 $ 929,445 $ 229,085 25 % Subscription Subscription revenue increased by $212.9 million, or 24%, for the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily due to the growing adoption of the Dynatrace platform by new customers combined with existing customers expanding their use of our solutions.
We target the largest 15,000 global enterprise accounts, which generally have annual revenues in excess of $1 billion, which we believe see more value from our integrated full-stack platform.
We take Dynatrace to market through a combination of our global direct sales team and a network of partners, including GSIs, cloud providers, resellers and technology alliance partners. We target the largest 15,000 global enterprise accounts, which generally have annual revenues in excess of $1 billion, which we believe see more value from our integrated full-stack platform.
Sales and marketing expenses primarily consist of personnel for our sales, marketing, and business development personnel, commissions earned by our sales personnel, and the cost of marketing and business development programs. We expect that sales and marketing expenses will continue to increase in absolute dollars as we continue to hire additional sales and marketing personnel and invest in marketing programs.
We expect that sales and marketing expenses will continue to increase in absolute dollars as we continue to hire additional sales and marketing personnel and invest in marketing programs. General and administrative.
Cash used in financing activities during the year ended March 31, 2022 was $80.7 million, primarily as a result of repayments of our term loans of $120.0 million, partially offset by proceeds from the exercise of our stock options of $25.5 million and proceeds from our employee stock purchase plan of $13.9 million.
Financing Activities Cash provided by financing activities during the year ended March 31, 2024 was $50.7 million as a result of proceeds from the exercise of our stock options of $31.2 million and proceeds from our employee stock purchase plan of $19.5 million.
The increase was primarily due to increased personnel and other costs to expand our product offerings of $26.4 million, and higher share-based compensation of $9.6 million.
The increase was primarily due to increased personnel and other costs to expand our product offerings of $51.8 million, and higher share-based compensation expense of $28.1 million. Also contributing to the increase were higher cloud-based hosting costs of $7.2 million.
We have historically financed our operations primarily through payments by our customers for use of our product offerings and related services and, to a lesser extent, the net proceeds we have received from sales of equity securities. Over the past three years, cash flows from customer collections have increased.
Treasury securities that have maturities between one and 28 months, and $399.2 million available under our revolving credit facility. We have historically financed our operations primarily through payments by our customers for use of our product offerings and related services and, to a lesser extent, the net proceeds we have received from sales of equity securities.
Dollar-based Net Retention Rate: We define the dollar-based net retention rate 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.
We exclude from our calculation of ARR any revenues derived from month-to-month agreements and/or product usage overage billings, where customers are billed in arrears based on product usage. 41 Table of Contents Dollar-based Net Retention Rate: We define the dollar-based net retention rate 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.
These changes were partially offset by an increase of $82.0 million due to the timing of receipts of payments from customers and an increase in deferred commissions of $16.3 million due to commissions paid on new bookings.
These changes were partially offset by an increase in accounts receivable of $161.9 million due to the timing of receipts of payments from customers, an increase in prepaid expenses and other assets of $47.4 million driven by timing of payments made in advance of future service, and an increase in deferred commissions of $23.5 million due to commissions paid on new bookings.
Sales and marketing Sales and marketing expenses increased by $116.6 million, or 48%, for the year ended March 31, 2022, as compared to the year ended March 31, 2021, driven by increased personnel costs of $54.4 million, related share-based compensation of $11.8 million, and other employee-related expenses of $5.3 million.
Sales and marketing Sales and marketing expenses increased by $86.2 million, or 19%, for the year ended March 31, 2024, as compared to the year ended March 31, 2023, primarily driven by increased personnel costs of $50.4 million and higher share-based compensation expense of $14.6 million.
The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures.
Our fiscal year ends on March 31. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview Dynatrace offers a unified observability and security platform with analytics and automation at its core, purpose-built for dynamic, hybrid, multicloud environments.
Our fiscal year ends on March 31. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Our income tax rate varies from the U.S. federal statutory rate mainly due to (1) a change in the Company’s assessment of realization of certain tax benefits previously subject to a valuation allowance in the U.S., (2) the generation of U.S. foreign tax credits, and (3) the foreign derived intangibles deduction, partially offset by (4) foreign withholding taxes, and (5) an increase in uncertain tax positions.
Our income tax rate varies from the U.S. federal statutory rate mainly due to (1) the foreign derived intangibles deduction, (2) the generation of U.S. foreign tax credits, and (3) share-based compensation windfalls, partially offset by (4) foreign withholding taxes, (5) nondeductible executive compensation, and (6) foreign earnings taxed at rates higher than the U.S. statutory rate.
GAAP financial information, we monitor the following key metrics to help us measure and evaluate the effectiveness of our operations: As of 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 Total ARR (in thousands) $ 1,246,681 $ 1,162,591 $ 1,064,951 $ 1,031,284 $ 995,121 $ 929,906 $ 863,863 $ 823,222 Dollar-based Net Retention Rate 119 % 119 % 120%+ 120%+ 120%+ 120%+ 120%+ 120%+ Annual Recurring Revenue (“ARR”): We define ARR 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.
As of March 31, 2024 2023 2022 Total ARR (in thousands) $ 1,503,819 $ 1,246,681 $ 995,121 Dollar-based Net Retention Rate 111% 119% 120%+ Annual Recurring Revenue: We define ARR 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.
The non-cash charges were primarily comprised depreciation and amortization of $61.0 million and share-based compensation of $57.8 million.
The non-cash charges were primarily comprised of share-based compensation of $208.9 million and depreciation and amortization of $54.9 million, partially offset by deferred income taxes of $59.9 million.
The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Business Combinations We use our best estimates and assumptions to allocate the fair value of purchase price to the assets acquired and liabilities assumed. The excess of the fair value of purchase price over the fair values of the identifiable assets and liabilities is recorded as goodwill.
Service Service gross profit increased by $1.3 million, or 11%, during the year ended March 31, 2022 compared to the year ended March 31, 2021. Service gross margin decreased from 26% to 23%, during the year ended March 31, 2022 compared to the year ended March 31, 49 Table of Contents 2021.
Service Service gross profit decreased by $6.6 million, or 53%, during the year ended March 31, 2024 compared to the year ended March 31, 2023. Service gross margin decreased from 16% to 8% of total gross margin during the year ended March 31, 2024 compared to the year ended March 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+1 added−1 removed8 unchanged
Biggest changeA hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. 54 Table of Contents As of March 31, 2023, we also had the Credit Facility in place, with availability of $384.5 million.
Biggest changeWe have not used any derivative financial instruments to manage our interest rate risk exposure. 53 Table of Contents As of March 31, 2024, we also had the Credit Facility in place, with availability of $399.2 million.
Transaction exposure We transact business in multiple currencies. As a result, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates on transactions denominated in currencies other than the functional currencies of our subsidiaries. These gains or losses are recorded within “Other income, net” in our consolidated statements of operations.
Transaction exposure We transact business in multiple currencies. As a result, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates on transactions denominated in currencies other than the functional currencies of our subsidiaries. These gains or losses are recorded within “Other (expense) income, net” in our consolidated statements of operations.
A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. 55 Table of Contents
A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. 54 Table of Contents
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and fair value of our investments.
Removed
Interest Rate Risk We had cash and cash equivalents of $555.3 million and $463.0 million as of March 31, 2023 and 2022, respectively, consisting of bank deposits, commercial paper, and money market funds. These interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in our interest income have not been significant.
Added
Interest Rate Risk As of March 31, 2024, we had cash and cash equivalents of $779.0 million, consisting of bank deposits, commercial paper, money market funds and highly liquid investments with an original maturity of three months or less, and U.S. Treasury security investments of $104.2 million. Our investments are made for capital preservation purposes.

Other DT 10-K year-over-year comparisons