Dynatrace Inc at Canaccord Genuity Growth Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : So I'm going to assume that most folks tuning in are familiar with the business, the problem that you're solving. So instead of the kind of what do you do intro, maybe we can just talk about Q2, some of the key trends that you saw there and any highlights that you'd want to call out for investors.

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : Yes. Yes. It's a perfect intro. It's funny. Like I was prepping questions before we got into this, and one of them that was on the list was around competitive dynamics. And it's funny. Like I feel like the narrative with investors has shifted a little bit. Like it used to be, like, oh my God, the space is so competitive, but I feel like folks are starting to figure out where Dynatrace fits in the market, right? And obviously, it's at the high end with the enterprise customers. I'm curious, as you look at who else is out there, like who's able to compete in enterprise? What's required in that -- at that end of the market? And why is Dynatrace winning?

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : Yes. Yes. I want to talk about new customer lands and just -- it seems like they're getting more strategic upfront. And I've picked up a couple of comments from you guys that I found interesting over the years, which is in the past, customers used to buy Dynatrace for automated instrumentation. But now it's all about the AI, right, and giving answers, not signals, right? And then the second, there's been this shift towards observability versus kind of the landing zone of APM, right? Can you just talk about both of those and what it means for your business?

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : Yes. It makes perfect sense. So the opportunity is clearly there. You're seeing it manifest in the market. Let's talk about what you're doing to kind of capitalize on that opportunity. We'll talk about the product in a second, but I want to talk about kind of go-to-market first. So you've committed to kind of a 30 -- I think 25% to 30% increase in sales capacity this year. So 2 questions there. Like a, just confidence in your ability to get there, right? It's a tight labor market. And then b -- and you and I have talked about this, like if you're so well positioned, why not hire more? I'd love to get your thoughts on both of those.

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : Yes. Yes. Let's maybe transition to some of the partners that amplify your direct sales reach, right? So you guys work with the SIs, a newer and kind of growing effort with the hyperscalers. Just maybe talk about what those partners do for the business and, I guess, if there's anything that Dynatrace can do to help maybe better enable those partners.

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : Yes. Last one on the go-to-market motion. It was just around kind of expand dynamics. And I guess there's 2 questions there, which is like the catalyst to expand, is it customer led or Dynatrace kind of sales driven, which I guess is kind of like a pull versus push question, right? And then the second part would just be, is the bigger driver increasing coverage? Or is it new modules, right? And how has that maybe evolved over time?

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : Yes. Yes. No, that makes sense. I should have said upfront, just for folks who are tuned in -- I can see there's a whole bunch of folks listening. Like if there are questions in the audience, please send them in. I want to try and keep this as interactive as possible. I'll work your questions in. I have a few more, but if there's stuff that folks want to ask, this is geared for you guys. So let's transition to the product side of things, John. So maybe just talk about kind of where your R&D efforts are most focused today. And maybe this dovetails into a conversation around app security, your infrastructure log product modules. Just talk a little bit about the problems you're solving with those. And then maybe with security, like why it makes sense for Dynatrace to own that versus a pure-play security vendor.

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : Yes. Yes. And it just speaks to how early days the opportunity still is. I want to end with a couple on the numbers, and we won't go too deep, we'll leave that to Kevin. But you and I should be able to manage. One that came in from the audience was just around kind of the impact of the upgrade cycle from legacy Dynatrace to new Dynatrace. And with that finishing now or lapsing, just speak to kind of confidence levels and sustainability of ARR growth without that tailwind being there.

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : Yes. Yes. And one of the hallmarks of your model, obviously, is this kind of combination of profits and growth, right? And look, 90% gross margins is an awesome place to start from. But I think one of the maybe underappreciated aspects of the business model is just for such an innovative firm, you run your R&D organization at 15% of revenue, which is -- I think you look across the street, across the spectrum of software companies out REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 11, 2021 / 1:00PM, DT.N - Dynatrace Inc at Canaccord Genuity Growth Conference (Virtual) there, it's probably less than you would expect. Just talk about how you're able to drive such efficiency. I know there's some unique aspects to kind of the Dynatrace development organization.

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : Yes. Yes. Perfect. Last one to finish on. You've laid out kind of a framework to help folks think about intermediate-term growth in the past, right, whether it's new part new logo, part expansion, profit commitments. Maybe just kind of wrap with thoughts about how that all comes together and how you see Dynatrace set up over the next couple of years.

Question: David E. Hynes - Canaccord Genuity Corp., Research Division - Analyst : That's a good playbook to follow. John, thank you for doing this, this morning. It's -- Dynatrace is a fun one to cover, and investors are certainly interested in the space. So we appreciate the time, and we'll talk soon.