Dynatrace Inc at RBC Capital Markets TIMT Conference Transcript

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

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So you guys are coming off a fantastic quarter. Your ARR grew 44% that -- we were thinking 40%, accelerated versus the prior quarter growth. Obviously, having a lot of success. But as a relatively new public company, could you just start out by just walking us through the Dynatrace story? It's evolved a lot, and you guys have done a lot of heavy lifting, rewriting the platform, making that difficult decision to not really maintain a stitch of code from sort of the classic product. But just level set us on your core market, APM and net observability, and then we'll go from there.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : That's great. Yes. I mean so what I keep telling people is like a 14-year-old company, but in all practical purposes, it's like a VC-backed company at this point in terms of -- it's a brand-new company as of 3, 4, 5 years ago.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So one of the questions that we -- it's -- the most asked question that I get when we're talking about monitoring is that it seems like there's a lot of people in the space, right? Different people have maybe some strengths in other areas, infrastructure monitoring, maybe SIM, APM in your case. How do we determine who -- why does Dynatrace win, I guess, put simply, when there's a lot of other noise out there?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : I mean one of the things that's helpful that -- the 80% kind of APM, one of the things that I just -- I can't get out of my head, it was during your road show and sort of getting to know you guys better more recently. And I think it may be a Gartner number, but what is it, 5% of applications are being monitored today, which is just a staggering number. Low, right? I would have -- I think the average person would've thought it would have been higher. I've asked you this before, but I mean like when you think about where do that level -- because that's just APM, right?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Where could that get to over time? And then a lot of it is -- were cloud-native apps, and maybe we didn't have the resources or really the interest to monitor on-prem apps historically.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : That's helpful. And then maybe one last competitive question. You sort of mentioned the billions of dollars that are tied up in legacy monitoring vendors. You guys obviously got your start in, you said, like the G 15 -- Global 15,000. But a lot of -- I mean you've got some of the biggest companies in the world as your customers. When you're seeing some of the newer vendors also offer APM solutions, when you're going into a deal, I guess what I'm trying to get at is, is it still mostly replacing the old guard? Is it greenfield? Is it -- are you battling out with some of the newer APM vendors? Walk us through that a little bit.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Now I mean are we going to get to a point -- I think everybody likes the silos today. But in the future, is it just monitoring, right? I mean are we not going to talk about EPM per se or logging or SIM? Is it just monitoring? And organizations want to partner with you guys because you can help in all aspects of monitoring. Is that where we're going in the future?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So you mentioned that, like, roughly 80% of your business is kind of APM. You've had a lot of success with cloud infrastructure monitoring, AI ops, digital experience, analytics. So in that 20% bucket, like what -- and even though we might call it all observability, what are some of the things that you're really excited about in that bucket that could become even more material going forward?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : That's great. And then I guess you guys have had a lot of success in the large end of the enterprise, and that's maybe a little different sales cycle than the sort of an SMB crowd. But when you think about somebody who's developing a cloud-native app, like I'm going to Amazon, and I'm going to spin up an app. Datadog tends to work really well in that environment, where it's like, oh, I'll build it and I'll monitor it here. I mean is there another level of go-to-market motion that can attract maybe that -- just that I'm building my first app on -- or is that not a focus for you guys relative to sort of the big -- the huge end of the enterprise?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So your ARR has been obviously extremely strong, and you're nearing the completion of the conversion to Dynatrace. I think 80% of your ARR was Dynatrace, 20% being the classic side. Is there a way that we should think about sort of -- because -- and to be clear, you don't necessarily count the benefit towards net dollar expansion when you're converting a classic customer to Dynatrace. But that same -- on that same token, is there a way to think about like growth -- normalized growth of your opportunity when we're sort of completely through the -- and sort of sunset all the classic? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. NOVEMBER 19, 2019 / 4:30PM, DT.N - Dynatrace Inc at RBC Capital Markets TIMT Conference

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : That's super helpful. And then maybe just -- I'll have 2 more quick ones, and then we can see if there's questions here. You guys, not only has your ARR been accelerating, but you also are extremely profitable. When you think about the opportunity in front of yourself, how do you think about that trade-off of growth and margins? And what's the right level, given that you're already quite profitable to begin with?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Maybe just a last quick one. You guys have been a -- it's been a great private equity-backed IPO, and you've got a great sponsor in Thoma. How should we think about private equity ownership moving forward? It's a different model, obviously, than a VC-backed model. How should we think about that? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. NOVEMBER 19, 2019 / 4:30PM, DT.N - Dynatrace Inc at RBC Capital Markets TIMT Conference

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Are there any questions from out here? Yes. Unidentified Analyst Do you think that the monitoring on the cloud is a bigger opportunity because the IT staff feels they have less control inside of their data center now (inaudible)?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Well, I think we are -- we've got about 20 seconds left. So we're out of time. Thanks, again. Best of luck, and thanks for joining us.