May 9, 2019
Craig Newfield
General Counsel
Dynatrace Holdings LLC
1601 Trapelo Road, Suite 116
Waltham, MA 02451
Re: Dynatrace Holdings LLC
Draft Registration Statement on Form S-1
Submitted April 12, 2019
CIK No. 0001773383
Dear Mr. Newfield:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form S-1
Prospectus Summary, page 1
1. Please disclose the percentage of the issued and outstanding shares of
common stock that
your executive officers, directors, and sponsor will, in the aggregate,
beneficially
own following this offering. Further, revise the corresponding risk
factor on page 45 to
note the effect of this increased concentration of ownership on the
ability of stockholders
to influence significant corporate decisions.
Spin-Off Transactions, page 9
2. Please revise this section to include charts showing your organizational
structure before
and after the spin-off transactions.
Craig Newfield
FirstName Holdings LLC Newfield
Dynatrace LastNameCraig
Comapany NameDynatrace Holdings LLC
May 9, 2019
May 9, 2019 Page 2
Page 2
FirstName LastName
Risk Factors
Risks Related to Our Common Stock and This Offering
Our charter and bylaws contain anti-takeover provisions . . .,, page 46
3. Please enhance the reference to the removal of directors only for
cause by disclosing that
such removal also will be subject to a supermajority voting provision.
Our amended and restated bylaws designate the Court of Chancery . . .,, page 47
4. Your forum selection provision identifies the Court of Chancery of the
State of Delaware
as the exclusive forum for certain litigation, including any
"derivative action." Further,
you state here that stockholders will not be deemed to have waived
your compliance with
the federal securities laws and the rules and regulations thereunder.
Please clarify whether
the forum selection provision applies to actions arising under the
Securities Act or
Exchange Act. In that regard, Section 27 of the Exchange Act creates
exclusive federal
jurisdiction over all suits brought to enforce any duty or liability
created by the Exchange
Act or the rules and regulations thereunder, and Section 22 of the
Securities Act creates
concurrent jurisdiction for federal and state courts over all suits
brought to enforce any
duty or liability created by the Securities Act or the rules and
regulations thereunder. If
the provision applies to Securities Act claims, please revise your
prospectus to state that
there particularly is uncertainty as to whether a court would enforce
such type of
provision. If this provision does not apply to actions arising under
the Securities Act or
Exchange Act, please ensure that the exclusive forum provision in the
governing
documents states this clearly.
Market and Industry Data, page 52
5. You state that you have not independently verified the third-party
market and industry
data that you cite in the prospectus. Please be advised that you are
responsible for the
entire content of the registration statement and should not include
language that can be
interpreted as a disclaimer of information that you have chosen to
include. Please revise.
6. Please disclose the name and date of each third-party publication and
report from which
you have derived the market and industry data that is used throughout
the prospectus.
Management's Discussion and Analysis of Financial Condition and Operating
Results
Key Metrics, page 67
7. You indicate in a risk factor on page 23 that your future revenues and
operating results
will be harmed if you are unable to acquire new customers, if your
customers do not
renew their contracts with you, or if you are unable to expand sales
to your existing
customers or develop new solutions that achieve market acceptance.
Please tell us what
consideration was given to including a discussion of renewal rates or
retention
rates during the periods presented (e.g., the number of annual
contract customers that have
renewed and declined to renew or the percentage of such customers on
the last day of the
Craig Newfield
Dynatrace Holdings LLC
May 9, 2019
Page 3
prior year or quarter that remain customers on the last day of the
current year or quarter).
In addition, tell us whether you considered disclosing the number of
Dynatrace
customers that were new customers versus existing customers as of the
end of each period
presented. Finally, to the extent material, please discuss any known
trends relating to
renewals, retention, or new customers. We refer you to Section III.B
of SEC Release No.
33-8350.
8. You state that based on historical trends, you believe that the
majority of your Classic
ARR as of December 31, 2018 will convert to Dynatrace ARR over the
next two years.
Also, you disclose that as of December 31, 2018, 53% of your Dynatrace
customers are
new customers added since you launched Dynatrace in 2016 and that the
remaining 47%
were existing customers that either added or converted to Dynatrace
since you launched
Dynatrace in 2016. For context regarding your performance, please
disclose the
percentage of the decrease in Classic ARR that you retained through
conversion to
Dynatrace , as well as the percentage of Classic customers associated
with such decrease
that you retained through conversion, for each period presented. Also,
disclose the
percentage of the increase in the number of Dynatrace customers that
was represented
by Classic customers that added or converted to Dynatrace for each
period presented.
Finally, for further insight into the remaining conversion
opportunity, please disclose the
number of customers with a license to use the classic products as of
the end of the most
recent period presented.
Key Components of Results of Operations
Revenues, page 68
9. For insight into the quality of your recurring subscription revenue
base, please disclose the
average length of the SaaS agreements, term-based licenses, and the
expected optional
maintenance renewals associated with perpetual licenses as of the end
of the most recent
period presented. In this regard, you state on page F-41 that you
expect to recognize
revenue on 73% of the remaining performance obligations for
subscription arrangements
over the next 12 months.
Results of Operations, page 71
10. You disclose that subscription revenue growth was primarily attributable
to the growing
adoption of the Dynatrace platform by new customers combined with
existing customers
expanding their use of your solutions. Please revise to quantify the
extent to which
FirstName LastNameCraig Newfieldmaterial change in subscription revenue. Refer
to Item
each factor contributed to the
Comapany NameDynatrace Holdings LLC
303(a)(3) of Regulation S-K, Instruction 4 to Item 303(a) of Regulation
S-K, and Section
May 9,III.D of SEC Release No. 33-6835.
2019 Page 3
FirstName LastName
Craig Newfield
FirstName Holdings LLC Newfield
Dynatrace LastNameCraig
Comapany NameDynatrace Holdings LLC
May 9, 2019
May 9, 2019 Page 4
Page 4
FirstName LastName
11. You disclose that your increases in research and development and sales
and marketing are
attributable to increased personnel and other costs. Please tell us
your consideration of
quantifying the headcount at the end of each period as a factor to
explain the changes for
the line items that are impacted.
Critical Accounting Policies and Estimates
Revenue Recognition, page 88
12. You disclose that you determine standalone selling price for all your
performance
obligations using observable inputs such as standalone sales and
historical contract
pricing. You also disclose you determine that your pricing for
software licenses and
subscription services is highly variable and therefore allocate the
transaction price to those
performance obligations using the residual approach. Please clarify
whether your
standalone price for all your arrangements are determined using
observable inputs or
whether all or certain arrangements are determined using the residual
approach.
Business
Customers, page 104
13. Please clarify whether any organization accounted for 10% or more of
your revenue for
the fiscal years ended March 31, 2017 and 2018. In this regard, you
state that in
infrequent cases, a single organization may comprise multiple customer
accounts when
there are distinct divisions, departments or subsidiaries that operate
and make purchasing
decisions independently from the parent organization. We note that a
group of customers
under common control or customers that are affiliates of each other
shall be regarded as a
single customer for the purpose of disclosure regarding customer
concentration. Refer to
Item 101(c)(1)(vii) of Regulation S-K.
Sales and Marketing, page 104
14. For context, please quantify the extent to which you have been
dependent on your network
of partners to market and sell your solutions. In this regard, you
state that such network
drives a "material portion" of your revenues.
Executive Compensation
Narrative Disclosure to Summary Compensation Table
Bonuses and Commissions, page 116
15. Please identify the performance measures that were used to determine
the annual bonuses
paid to your named executive officers for fiscal year 2019. Refer to
Item 402(o) of
Regulation S-K.
Craig Newfield
FirstName Holdings LLC Newfield
Dynatrace LastNameCraig
Comapany NameDynatrace Holdings LLC
May 9, 2019
May 9, 2019 Page 5
Page 5
FirstName LastName
Executive Employment Arrangements, page 116
16. Please disclose the material terms of the new employment agreements
that provide for
payments to the named executive officers upon termination or a change
in control. In this
regard, your disclosure on page 122 indicates that you have
termination of employment
and change in control arrangements with these executive officers.
Refer to Item 402(q) of
Regulation S-K.
Notes to Consolidated Financial Statements
Revenue recognition, page F-11
17. You disclose that you sell software licenses, subscriptions,
maintenance and support, and
professional services together in contracts with your end-customers or
channel partners.
Please clarify whether the channel partner is your customer under
these arrangements.
We refer you to ASC 606-10-20.
General
18. Please disclose the source of the assertion that you offer the
market-leading software
intelligence platform, purpose-built for the enterprise cloud.
19. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
20. Please supplementally provide us with copies of any graphical
materials or artwork you
intend to use in your prospectus. Upon review of such materials, we
may have further
comments. For guidance, refer to Question 101.02 of our Securities Act
Forms
Compliance and Disclosure Interpretations.
You may contact Amanda Kim, Staff Accountant, at (202) 551-3241 or
Stephen
Krikorian, Accounting Branch Chief, at (202) 551-3488 if you have questions
regarding
comments on the financial statements and related matters. Please contact
Bernard Nolan,
Attorney-Adviser, at (202) 551-6515 or, in his absence, Matthey Crispino,
Attorney-Adviser,
at (202) 551-3456 with any other questions.
Sincerely,
Division of
Corporation Finance
Office of
Information Technologies
and Services
cc: Kenneth J. Gordon