dt-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-39010

Dynatrace, Inc.

(Exact name of Registrant as specified in its charter)


Delaware		47-2386428
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1601 Trapelo Road, Suite 116
Waltham,	Massachusetts	02451
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (781) 530-1000

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The Registrant had 293,290,050 shares of common stock outstanding as of July 31, 2023.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding:

•our future financial performance, including our expectations regarding key factors driving future performance, our revenue, annual recurring revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, billing/revenue mix, and our pricing and licensing model;

•our ability to navigate the current macroeconomic environment;

•anticipated trends in our business and in the markets in which we operate;

•our ability to anticipate market needs and successfully develop new and enhanced solutions to meet those needs;

•the evolution of technology affecting our offerings, platform and markets, including our plans to continue evolving our technology capabilities;

•our plans to continue investing in research and development and driving innovation to meet customers’ needs and grow our customer base;

•our ability to maintain and expand our customer base and our partner ecosystem;

•our expectations regarding the evolving competitive environment;

•our plans to invest in future growth opportunities that we expect will drive long-term value;

•our ability to sell our offerings and expand internationally;

•our ability to hire and retain necessary qualified employees to grow our business and expand our operations; and

•our ability to adequately protect our intellectual property.

These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this Quarterly Report that are not historical facts and statements identified by words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, the risks set forth in the summary below, in Part II, Item 1A. entitled “Risk Factors” in this Quarterly Report, and in our other SEC filings. We assume no obligation to update any forward-looking statements contained in this Quarterly Report as a result of new information, future events or otherwise.

SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. Please see Part II, Item 1A. entitled “Risk Factors” in this Quarterly Report for a discussion of risks that we believe are material. These risks and uncertainties include, but are not limited to, the following:

•We have experienced rapid revenue growth in recent periods, and our recent growth rates may not be indicative of our future growth.

•Our quarterly and annual operating results may be adversely affected due to a variety of factors, which could make our future results difficult to predict.

•Market adoption of the solutions that we offer is relatively new and may not grow as we expect, which may harm our business and prospects.

•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 we fail to innovate and do not continue to develop and effectively market solutions that anticipate and respond to the needs of our customers, our business, operating results, and financial condition may suffer.

•If our platform and solutions do not effectively interoperate with our customers’ existing or future IT infrastructures, installations of our solutions could be delayed or canceled, which would harm our business.

•If we are unable to acquire new customers or retain and expand our relationships with existing customers, our future revenues and operating results will be harmed.

•Failure to effectively expand our sales and marketing capabilities could harm our ability to execute on our business plan, increase our customer base, and achieve broader market acceptance of our applications.

•We face significant competition, which may adversely affect our ability to add new customers, retain existing customers, and grow our business.

•If we are unable to maintain successful relationships with our partners, or if our partners fail to perform, our ability to market, sell, and distribute our applications and services will be limited, and our business, operating results, and financial condition could be harmed.

•Security breaches, computer malware, computer hacking attacks and other security incidents could harm our business, reputation, brand and operating results.

•Real or perceived errors, failures, defects, or vulnerabilities in our solutions could adversely affect our financial results and growth prospects.

•Failure to protect and enforce our proprietary technology and intellectual property rights could substantially harm our business, operating results, and financial condition.

•Thoma Bravo has significant influence over matters requiring stockholder approval, which may have the effect of delaying or preventing changes of control, or limiting the ability of other stockholders to approve transactions they deem to be in their best interest.


PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2023 and March 31, 2023	2
	Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2023 and 2022	3
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended June 30, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2023 and 2022	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Default Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
Signatures		52

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DYNATRACE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	June 30, 2023		March 31, 2023
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	700,703	$	555,348
Accounts receivable, net	238,275		442,518
Deferred commissions, current	83,007		83,029
Prepaid expenses and other current assets	52,443		37,289
Total current assets	1,074,428		1,118,184
Property and equipment, net	54,382		53,576
Operating lease right-of-use assets, net	71,226		68,074
Goodwill	1,282,134		1,281,812
Other intangible assets, net	53,915		63,599
Deferred tax assets, net	99,068		79,822
Deferred commissions, non-current	78,053		86,232
Other assets	14,106		14,048
Total assets	$	2,727,312	$	2,765,347

Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	6,065	$	21,953
Accrued expenses, current	156,146		188,380

Deferred revenue, current	721,817		811,058
Operating lease liabilities, current	15,925		15,652
Total current liabilities	899,953		1,037,043
Deferred revenue, non-current	28,710		34,423
Accrued expenses, non-current	30,723		29,212
Operating lease liabilities, non-current	62,692		59,520
Deferred tax liabilities	302		280

Total liabilities	1,022,380		1,160,478
Commitments and contingencies (Note 8)
Shareholders' equity:
Common shares, $0.001 par value, 600,000,000 shares authorized, 293,159,681 and 290,411,108 shares issued and outstanding at June 30, 2023 and March 31, 2023, respectively	293		290
Additional paid-in capital	2,053,086		1,989,797
Accumulated deficit	(315,201)		(353,389)
Accumulated other comprehensive loss	(33,246)		(31,829)
Total shareholders' equity	1,704,932		1,604,869
Total liabilities and shareholders' equity	$	2,727,312	$	2,765,347

The accompanying notes are an integral part of these condensed consolidated financial statements.

DYNATRACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited – In thousands, except per share data)


	Three Months Ended June 30,
	2023		2022
Revenue:
Subscription	$	316,454	$	249,558
Service	16,432		17,715
Total revenue	332,886		267,273
Cost of revenue:
Cost of subscription	42,904		32,738
Cost of service	15,542		15,168
Amortization of acquired technology	3,898		3,892
Total cost of revenue	62,344		51,798
Gross profit	270,542		215,475

Operating expenses:
Research and development	66,282		49,411
Sales and marketing	125,117		105,673
General and administrative	39,094		34,734
Amortization of other intangibles	5,760		6,573
Restructuring and other	1		(10)
Total operating expenses	236,254		196,381
Income from operations	34,288		19,094
Interest income (expense), net	7,146		(2,175)
Other income (expense), net	252		(2,250)
Income before income taxes	41,686		14,669
Income tax expense	(3,498)		(12,555)
Net income	$	38,188	$	2,114
Net income per share:
Basic	$	0.13	$	0.01
Diluted	$	0.13	$	0.01
Weighted average shares outstanding:
Basic	291,325		286,203
Diluted	296,387		290,024

The accompanying notes are an integral part of these condensed consolidated financial statements.

DYNATRACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited - In thousands)


	Three Months Ended June 30,
	2023		2022
Net income	$	38,188	$	2,114
Other comprehensive (loss) income
Foreign currency translation adjustment	(1,417)		480
Total other comprehensive (loss) income	(1,417)		480
Comprehensive income	$	36,771	$	2,594

The accompanying notes are an integral part of these condensed consolidated financial statements.

DYNATRACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited - In thousands)


	Three Months Ended June 30, 2023
	Common Shares			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Shareholders' Equity
	Shares	Amount
Balance, March 31, 2023	290,411	$	290	$	1,989,797	$	(353,389)	$	(31,829)	$	1,604,869
Foreign currency translation								(1,417)		(1,417)
Restricted stock units vested	1,821	2		(2)						—

Issuance of common stock related to employee stock purchase plan	313	—		9,584						9,584
Exercise of stock options	615	1		13,189						13,190
Share-based compensation				40,518						40,518

Net income						38,188				38,188
Balance, June 30, 2023	293,160	$	293	$	2,053,086	$	(315,201)	$	(33,246)	$	1,704,932



	Three Months Ended June 30, 2022
	Common Shares			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Shareholders’ Equity
	Shares	Amount
Balance, March 31, 2022	286,053	$	286	$	1,792,197	$	(461,348)	$	(26,689)	$	1,304,446
Foreign currency translation								480		480
Restricted stock units vested	886	1		(1)						—
Restricted stock awards forfeited	(14)	—								—
Issuance of common stock related to the employee stock purchase plan	266	—		8,627						8,627
Exercise of stock options	68	—		1,275						1,275
Share-based compensation				28,695						28,695
Equity repurchases				(11)						(11)
Net income						2,114				2,114
Balance, June 30, 2022	287,259	$	287	$	1,830,782	$	(459,234)	$	(26,209)	$	1,345,626

The accompanying notes are an integral part of these condensed consolidated financial statements.

DYNATRACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited – In thousands)


	Three Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	38,188	$	2,114
Adjustments to reconcile net income to cash provided by operations:
Depreciation	3,916		2,798
Amortization	9,681		10,571
Share-based compensation	40,518		28,695
Deferred income taxes	(19,327)		—

Other	(154)		2,748
Net change in operating assets and liabilities:
Accounts receivable	204,228		151,404
Deferred commissions	8,545		2,079
Prepaid expenses and other assets	(16,426)		33,096
Accounts payable and accrued expenses	(39,641)		(29,815)
Operating leases, net	277		(142)
Deferred revenue	(95,902)		(60,450)
Net cash provided by operating activities	133,903		143,098

Cash flows from investing activities:
Purchase of property and equipment	(10,267)		(6,906)


Net cash used in investing activities	(10,267)		(6,906)

Cash flows from financing activities:
Repayment of term loans	—		(30,000)

Proceeds from employee stock purchase plan	9,584		8,627
Proceeds from exercise of stock options	13,190		1,275
Equity repurchases	—		(11)
Net cash provided by (used in) financing activities	22,774		(20,109)

Effect of exchange rates on cash and cash equivalents	(1,055)		(7,705)

Net increase in cash and cash equivalents	145,355		108,378

Cash and cash equivalents, beginning of period	555,348		462,967
Cash and cash equivalents, end of period	$	700,703	$	571,345

Supplemental cash flow data:
Cash paid for interest	$	212	$	2,066
Cash paid for (received from) tax, net	$	13,151	$	(31,542)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DYNATRACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of the Business

Business

Dynatrace, Inc. (“Dynatrace”, or the “Company”) designed its unified observability and security platform with analytics and automation at its core to address the growing complexity faced by technology and digital business teams as these enterprises further embrace the cloud to effect their digital transformation. Artificial intelligence and continuous automation deliver precise answers about the performance and security of applications, the underlying infrastructure, and the experience of its customers’ users that enable organizations to innovate faster, operate more efficiently, and improve user experiences for consistently better business outcomes.

Fiscal year

The Company’s fiscal year ends on March 31. References to fiscal 2024, for example, refer to the fiscal year ending March 31, 2024.

2. Significant Accounting Policies

Basis of presentation and consolidation

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. All intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

There were no new recently issued accounting pronouncements that were expected to have a material impact on the condensed consolidated financial statements and related notes.

Unaudited interim consolidated financial information

The accompanying interim condensed consolidated balance sheet as of June 30, 2023 and the interim condensed consolidated statements of operations, statements of comprehensive income, statements of shareholders’ equity, and statements of cash flows for the three months ended June 30, 2023 and 2022, and the related disclosures, are unaudited. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and includes all normal and recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2023, its results of operations for the three months ended June 30, 2023 and 2022, and its cash flows for the three months ended June 30, 2023 and 2022 in accordance with U.S. GAAP. The results for the three months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (the “Annual Report”).

Reclassification

During the fourth quarter of fiscal 2023, the Company refined its methodology used to allocate depreciation expense for certain property and equipment to better align the expense with the related use of property and equipment. This change in allocating depreciation expense has been applied retrospectively to April 1, 2022, and had no impact on the Company’s income from operations and net income. Prior period amounts have been reclassified to conform to the current period presentation.

The following table presents the effect of the reclassification and the impact on the Company’s condensed consolidated statements of operations (in thousands):


	Three Months Ended June 30, 2022
	Previous Method		Current Method		Effect of Change
Research and development	$	48,482	$	49,411	$	929
Sales and marketing	105,015		105,673		658
General and administrative	36,321		34,734		(1,587)

Net income	2,114		2,114		—

Use of estimates

The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management periodically evaluates such estimates and assumptions for continued reasonableness. In particular, the Company makes estimates with respect to the stand-alone selling price for each distinct performance obligation in customer contracts with multiple performance obligations, the allowance for credit losses, the fair value of tangible and intangible assets acquired, the valuation of long-lived assets, the period of benefit for deferred commissions and material rights, income taxes, equity-based compensation expense, and the determination of the incremental borrowing rate used for operating lease liabilities, among other things. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates.

Significant accounting policies

The Company’s significant accounting policies are discussed in Note 2, Significant Accounting Policies, in the Company’s Annual Report. There have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report that have had a material impact on its condensed consolidated financial statements and related notes.

3. Revenue Recognition

Disaggregation of revenue

The following table is a summary of the Company’s total revenue by geographic region (in thousands, except percentages):


	Three Months Ended June 30,
	2023				2022
	Amount		%		Amount		%
North America	$	198,537	60	%	$	156,749	59	%
Europe, Middle East and Africa	83,149		25	%	70,148		26	%
Asia Pacific	29,808		9	%	26,095		10	%
Latin America	21,392		6	%	14,281		5	%
Total revenue	$	332,886			$	267,273

For the three months ended June 30, 2023 and 2022, the United States was the only country that represented more than 10% of the Company’s revenue in any period, constituting $188.0 million and 56% and $147.5 million and 55% of total revenue during the three months ended June 30, 2023 and 2022, respectively.

Deferred revenue

Revenue recognized during the three months ended June 30, 2023 and 2022, which was included in the deferred revenue balance at the beginning of each respective period, was $297.3 million and $258.5 million, respectively.

Remaining performance obligations

As of June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,859.7 million, which consists of both billed consideration in the amount of $750.5 million and unbilled consideration in the amount of $1,109.2 million that the Company expects to recognize as subscription and service revenue. The Company expects to recognize 59% of the total remaining performance obligations as revenue over the next twelve months and the remainder thereafter.

4. Goodwill and Other Intangible Assets, Net

Changes in the carrying amount of goodwill for the three months ended June 30, 2023 consists of the following (in thousands):


	June 30, 2023
Balance, beginning of period	$	1,281,812

Foreign currency impact	322
Balance, end of period	$	1,282,134

Other intangible assets, net excluding goodwill consists of the following (in thousands):


	Weighted Average Useful Life (in months)
		June 30, 2023		March 31, 2023
Capitalized software	107	$	191,886	$	191,863
Customer relationships	120	351,555		351,555
Trademarks and tradenames	120	55,003		55,003
Total intangible assets		598,444		598,421
Less: accumulated amortization		(544,529)		(534,822)
Total other intangible assets, net		$	53,915	$	63,599

Amortization of other intangible assets totaled $9.7 million and $10.6 million for the three months ended June 30, 2023 and 2022, respectively.

5. Income Taxes

The Company computes its interim provision for income taxes by applying the estimated annual effective tax rate to income from operations and adjusts the provision for discrete tax items occurring in the period. The Company’s effective tax rate for the three months ended June 30, 2023 was 8% compared to 86% for the three months ended June 30, 2022. The decrease in the effective tax rate for the three months ended June 30, 2023 was primarily due to an increase in share-based compensation windfall benefits as well as additional tax benefits, primarily related to the deferred tax asset resulting from capitalized research and development expenses under Section 174 of the Internal Revenue Code, recognized in the current year due to the reversal of the U.S. valuation allowance as of March 31, 2023.

6. Long-term Debt

On December 2, 2022, the Company entered into a Credit Agreement for a senior secured revolving credit facility (the “Credit Facility”) in an aggregate amount of $400.0 million. The Credit Facility has sublimits for swing line loans up to $30.0 million and for the issuance of standby letters of credit in a face amount up to $45.0 million. The Credit Facility will mature on December 2, 2027. As of June 30, 2023 and March 31, 2023, there were no amounts outstanding under the Credit Facility. There were $12.1 million and $15.5 million letters of credit issued as of June 30, 2023 and March 31, 2023, respectively. The Company had $387.9 million and $384.5 million of availability under the Credit Facility as of June 30, 2023 and March 31, 2023, respectively.

Borrowings under the Credit Facility are available in U.S. dollars, Euros, Pounds Sterling and Canadian Dollars, with a sublimit of $100.0 million for non-U.S. dollar-denominated borrowings. Borrowings under the Credit Agreement currently bear interest at (i) the Term Secured Overnight Financing Rate plus 0.10%, (ii) the Adjusted Euro Interbank Offer Rate, (iii) the Canadian Dollar Offered Rate, (iv) the Base Rate, as defined per the Credit Agreement, or (v) the Sterling Overnight Index Average, in each case plus an applicable margin as defined per the Credit Agreement. Interest payments are due quarterly, or more frequently, based on the terms of the Credit Agreement.

The Company incurs fees with respect to the Credit Facility, including (i) a commitment fee ranging from 0.175% to 0.35% per annum, dependent on the Company’s leverage ratio, as defined per the Credit Agreement, of the unused commitment under the Credit Facility, (ii) a fronting fee of 0.125% per annum of the face amount of each letter of credit, (iii) a participation fee equal to the applicable margin, as defined per the Credit Agreement, applied to the daily average face amount of letters of credit, and (iv) customary administrative fees.

Debt issuance costs of $1.9 million were incurred in connection with the Credit Facility. The debt issuance costs are included within “Other assets” in the condensed consolidated balance sheets and will be amortized into interest expense over the contractual term of the Credit Facility. There were $1.7 million and $1.8 million of unamortized debt issuance costs as of June 30, 2023 and March 31, 2023, respectively.

Pursuant to the Credit Agreement, obligations owed under the Credit Facility are secured by a first priority security interest on substantially all assets of Dynatrace LLC, including a pledge of the capital stock and other equity interests of certain subsidiaries. Under certain circumstances, the guarantees may be released without action by, or consent of, the holder of the Credit Facility. The Credit Agreement contains customary affirmative and negative covenants, including financial covenants that require the Company to maintain specified financial ratios. At June 30, 2023, the Company was in compliance with all applicable covenants.

First lien credit facilities

The Company’s First Lien Credit Agreement, as amended, provided for a term loan facility (the “First Lien Term Loan”) in an aggregate principal amount of $950.0 million and a senior secured revolving credit facility (the “Revolving Facility”), in an aggregate amount of $60.0 million. The Revolving Facility included a $25.0 million letter of credit sub-facility. Borrowings under the First Lien Term Loan and Revolving Facility bore interest, at the Company’s election, at either (i) the Alternative Base Rate, as defined per the credit agreement, plus 1.25% per annum, or (ii) LIBOR plus 2.25% per annum. The maturity date on the First Lien Term Loan and Revolving Facility was August 23, 2025 and August 23, 2023, respectively, with payment due in full on the maturity date. Interest payments were due quarterly, or more frequently, based on the terms of the credit agreement.

In December 2022, the Company terminated the First Lien Credit Agreement and repaid all outstanding borrowings, including accrued interest. During the three months ended December 31, 2022, the Company recognized a loss on debt extinguishment of $5.9 million.

7. Leases

The Company leases office space under non-cancelable operating leases which expire at various dates from fiscal 2024 to 2033. As of June 30, 2023, the weighted average remaining lease term was 6.1 years and the weighted average discount rate was 4.6%. The Company does not have any finance leases as of June 30, 2023.

The Company has a sublease of a former office which expires in fiscal 2025. Sublease income from operating leases, which is recorded as a reduction of rental expense, was $0.6 million for each of the three months ended June 30, 2023 and 2022.

The following table presents information about leases on the condensed consolidated statements of operations (in thousands):


	Three Months Ended June 30,
	2023		2022
Operating lease expense (1)	$	3,769	$	2,924
Short-term lease expense	$	435	$	364
Variable lease expense	$	453	$	269

_________________

(1) Presented gross of sublease income.

The following table presents supplemental cash flow information about the Company’s leases (in thousands):


	Three Months Ended June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities	$	4,488	$	3,844
Operating lease assets obtained in exchange for new operating lease liabilities (1)	$	7,254	$	116

_________________

(1) Includes the impact of new leases as well as remeasurements and modifications of existing leases.

As of June 30, 2023, remaining maturities of lease liabilities were as follows (in thousands):


Fiscal Years Ending March 31,	Amount
2024	$	14,057
2025	17,101
2026	14,031
2027	12,882
2028	8,592
Thereafter	22,294
Total operating lease payments (1)	88,957
Less: imputed interest	(10,340)
Total operating lease liabilities	$	78,617

_________________

(1) Presented gross of sublease income.

As of June 30, 2023, the Company had commitments of $78.5 million for operating leases that have not yet commenced and therefore are not included in the right-of-use assets or operating lease liabilities. These operating leases are expected to commence during the fiscal years ended March 31, 2024 through March 31, 2026 with lease terms ranging from 2 to 10 years.

8. Commitments and Contingencies

Legal matters

The Company is, from time to time, party to legal proceedings and subject to claims in the ordinary course of business. Although the outcome of legal proceedings and claims cannot be predicted with certainty, the Company currently believes that the resolution of any such matters will not have a material adverse effect on its business, operating results, financial condition, or cash flows.

9. Share-based Compensation

Amended and Restated 2019 Equity Incentive Plan

In July 2019, the Company’s board of directors (the “Board”), upon the recommendation of the compensation committee of the board of directors, adopted the 2019 Equity Incentive Plan, as amended and restated (the “2019 Plan”) which was subsequently approved by the Company’s shareholders and was later amended and restated by the Board in January 2021.

The Company initially reserved 52,000,000 shares of common stock, or the Initial Limit, for the issuance of awards under the 2019 Plan. The 2019 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each April 1, beginning on April 1, 2020, by 4% of the outstanding number of shares of the Company’s common stock on the immediately preceding March 31 or such lesser number determined by the compensation committee. This number is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. As of June 30, 2023, 51,252,373 shares of common stock were available for future issuance under the 2019 Plan.

Stock options

The following table summarizes activity for stock options during the period ended June 30, 2023:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)	(per share)		(years)	(in thousands)
Balance, March 31, 2023	4,636	$	22.25	6.5	$	94,565

Exercised	(615)

SEC Form 10-Q filed by Dynatrace Inc.