Dynatrace Inc at Goldman Sachs Communacopia + Technology Conference Transcript

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

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Perfect. Yes. So you've been at the company for a couple of quarters now, right? I know the question of what attracted you... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2022 / 9:00PM, DT.N - Dynatrace Inc at Goldman Sachs Communacopia + Technology Conference

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I do. I mean it was a very different environment 3 quarters back, you went through rough and tumble of the macro, et cetera. I'm sure you've already been exhausted with this question of what attracted you to Dynatrace. I think we all get that. But what have you uncovered in the last couple of quarters that has been surprising to you. Granted that you did all the work going in and then you uncovered something in the next 3 quarters. What surprised you in your discovery process?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Visa or Mastercard, the taglines don't leave home without it or was it payments brand, right?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I think Visa, MasterCard management are at this conference, we could work out something. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2022 / 9:00PM, DT.N - Dynatrace Inc at Goldman Sachs Communacopia + Technology Conference

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Rick, now that you've had a chance, you've been in the tech industry for a very long time. And how would you gauge your aspirations for the company longer term? Where do you want to be in the next 4 to 5 years? And what would you consider success and you'd say, look back and say, you know what, we did it. What would that be that 4 to 5 years out picture of Dynatrace?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : In that view of the world, right, everything works as advertised. Do you see changes or enhancements, additions to the product portfolio? And since you came on board, you've identified application security as an incremental opportunity. And that's within just 3 quarters, but we talking 4 to 5 years out. Nobody knows what the future is going to look like. But what -- in order to achieve what you laid out as your vision, what are the things that you foresee adding to your set of capabilities to be able to achieve the potential of the company? Is it product or new markets or geographies or partnerships?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Really well said. I know that you've been out visiting with a lot of customers, and everybody wants to ask about the macroeconomic condition, et cetera. Presumably, IT budgets are being reprioritized, at least that's what we're hearing from other companies too. What are customers telling you with respect to where they stack rank Dynatrace with respect to other priorities in IT?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Really well said. And you've been investing in direct sales. I think there was a fall since the pandemic or thinking that structural margins in the software industry are super high, which they are, but relatively you don't have to really spend money on sales and marketing, that sort of thing. But you are investing in this fiscal year. There's a bit of operating margin compression due to the investment. How confident do you feel you're going to get the payback with everything that's going on in the world, macro pressures, inflation pressures, rate pressures, what not? And you're investing in today, your view?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. And how do you feel about the ramp time to productivity? What are the enablement tools you're providing to your reps, although it's not what a CEO do, but I would assume that you've taken very good interest in getting the ramp time to be as quick as possible so investments you're making can really start to pay off? And how is that ramp time coming along for your reps?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I was taught a long time ago when I started covering software that just watch -- one of the main things you got to watch is sales hiring. Sales hiring is a sign of company confidence and generally, if the productivity trends hold, that should lead to desired revenue outcomes, right? And then if you do that well, the profit models will ultimately fall out and it will be in a good place. So in that regard, as you are hiring, your sales capacity is going to be up 30%. Is there a way to think about where are you dedicating them specifically? Is it to go farm existing clients or add new customers? If you want to take a product cut? Is it more in the core APM where by the way, you ranked really insanely highly on the Gartner Quadrant -- Magic Quadrant, congratulations. Or is it more in the emerging growth areas like logging, infrastructure. How do you invest your precious 30% headcount growth rate in these different places of the Rubik's Cube?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Just crossed the mind that we use a hunter farmer analogy for salespeople so much. I just wonder if we can look at a sales person and say, "Hey, you are a hunter, and he or -- farmer."

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I see. It's the standard of the industry. So you had a formula at the end of previous fiscal year, you said, "I feel really good about expansion with the existing customer base, 20 points." And there's a formula that gets you to your previous target of 30-ish, you'd have to grow new logos. We took a more decidedly conservative stance with respect to new logo adds. But again, you're hiring salespeople, I mean some of them are going to land new logos. Are your previous assumptions just turning out to be, I mean, the right thing? Or could we be at a point where at some point, people say, "You know what, I'm done doing my ROI analysis. I got my RR buying Dynatrace is a good way to make good returns because I solve all these problems," that you could be set up where the new logo ads are actually better and not like how you assume to be?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Same number of logos?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. At this point, we're halfway through -- a little bit more than the halfway through. Let me see there's an interest on your part to ask any questions. Kevin? Go ahead. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2022 / 9:00PM, DT.N - Dynatrace Inc at Goldman Sachs Communacopia + Technology Conference

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. What aspect of the macro environment are you particularly watching with respect to purchase decisions right? He's paying attention.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Maybe we should export some of the heat wave we had in California to Europe as a gift so that they can rely less on natural gas.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : That's what I said. As you're talking about what macro thing you're looking at, I just was thinking, why not just use Anaplan to reforecast and replant very quickly? And why don't you use DocuSign add a few more signatures in the document and then you did the planning, you did this extra level of signature and should, boom, digital transformation. That's what it's all about, right?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. More Anaplan more DocuSign. Partly, we don't cover those companies, I can say. Any other question? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2022 / 9:00PM, DT.N - Dynatrace Inc at Goldman Sachs Communacopia + Technology Conference That's a solution for deal slippage. More signatures inserted on (inaudible) field.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : (inaudible) . Unidentified Analyst I assume a lot of your customers already have extensive logging sort of software in their sort of base, et cetera. What is the differentiation of yours and what will happen to what they already have? How do you expect that to pay off?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Any other question? I had a question for you, Rick, on the hyperscalers. I know you mentioned it in the past as to how that is a source of go-to-market leverage. Now with 3 quarters in, when you talk to the people that head up the go-to-market or partnership initiatives on the cloud hyperscaler side with respect to Dynatrace, what are they telling you with respect to demand signals? And how are you effectively integrating your solution with theirs to make the process of the sale less friction filled?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Any notable trends with respect to consumption? I know yours is not a consumption model, but there's certain maybe aspects of consumption. I think Datadog talked about how some aspects of the business is consumption-oriented. So they too noticed a little bit of perturbance with some of the larger customers. Is any of that relevant to Dynatrace?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : So what is -- can you tell us more about the DPS?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : It's drawing down credit.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : And so is this something -- how long is this initiative been going on? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2022 / 9:00PM, DT.N - Dynatrace Inc at Goldman Sachs Communacopia + Technology Conference

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I want to get to that log in a second, but I'm very intrigued by your DPS comments. As you study that cohort, what are you observing that is a good model to replicate in the future? Is it net retention rates? Or what are the metrics you are observing from the DPS? What excites you?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Is there any software solution that you have created to -- for the customer to just log into the DPS dashboard and then start to navigate and magically allocate with...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. Software is logic. But it's also magic.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Anybody else wants to jump in. I just have a couple of things. There's one there. Yes, please.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : There's another question. Unidentified Analyst Given the larger upfront deals, you've mentioned modules and a higher rate of 3 module attached. Over time that changes the growth algorithm, upsell opportunity you have given that you're landing larger footprint out front now.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I'm curious. You're in the logging market. Datadog has got in the logging market. Splunk putting up 32% growth rate, OneCloud is 59%. With everybody getting in, is it that the market is actually bigger than we thought and that it's not compressing or crushing anybody's growth rate? I mean the thing went from 64% to 59%. So not a bad growth rate. What are your observations -- if you take a step back, there's an assumption that it's a replacement market only and they're too expensive, that sort of thing. But the facts suggest otherwise, that everybody is doing really well. What is your take? Is it competitive? Or is it a big turn?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. With respect to the TAM for your overarching platform, right, observed, let's call it $50 billion, $60 billion or so. Right now, there is a level of anxiety/confusion among the investor base or in people like me, everybody is doing the same thing. So you got Datadog, you've got Splunk, you've got Elastic, and you've got Sumo Logic and so there is a general fascination with observability. If we were to look back, let's say, 5 years from now and you guys have been very successful, what -- I wish I -- sure, you plan on being very successful. How would the differentiation -- because right now, it does not look like it's very clear because everybody is doing well. I mean, based on your math, if you want 30% growth rate, you're getting it and you're turning good profit. The other guys want whatever it is. So how do you really differentiate 5 years from now when you look back, what will have proven to be Dynatrace's lasting differentiation that allowed it to become the whatever. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2022 / 9:00PM, DT.N - Dynatrace Inc at Goldman Sachs Communacopia + Technology Conference

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. On that note, I think we're exactly at 15 seconds to count down, and this is brilliant. Thank you so much, Rick. Very, very insightful. Thank you for your participation. It was very collaborative to co-op your questions into the framework. Thank you so much.