Dynatrace, Inc.DT
Dynatrace, Inc. Stock Compensation Disclosure
Share-based Compensation
The following table summarizes the components of total share-based compensation expense included in the consolidated statements of operations for each period presented (in thousands):
| Fiscal Year Ended March 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cost of revenue | $ | 36,924 | $ | 26,622 | $ | 18,383 | |||||||||||
| Research and development | 100,866 | 69,543 | 41,406 | ||||||||||||||
| Sales and marketing | 77,336 | 65,762 | 51,147 | ||||||||||||||
| General and administrative | 56,577 | 46,969 | 35,938 | ||||||||||||||
| Total share-based compensation expense | $ | 271,703 | $ | 208,896 | $ | 146,874 | |||||||||||
The total income tax benefit recognized in the consolidated statements of operations for share-based compensation arrangements was $68.5 million, $64.1 million, and $38.1 million for the years ended March 31, 2025, 2024, and 2023, respectively.
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, adopted the 2019 Equity Incentive Plan (the “2019 Plan”) which was subsequently approved by the Company’s stockholders and was later amended and restated by the Board in January 2021.
The Company initially reserved 52,000,000 shares of common stock 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 automatically increases each April 1 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 March 31, 2025, 56,719,444 shares of common stock were available for future issuance under the 2019 Plan.
The awards granted under the 2019 Plan have varying terms but generally vest over a - or four-year period, upon satisfaction of a service-based vesting condition, with 33% and 25% vesting one year after the grant date and the remaining vesting ratably on a quarterly basis over and three years for three-year and four-year grants, respectively. From time to time, the Company also grants performance-based and market-based awards to certain key employees that generally vest over a - or four-year period upon satisfaction of certain financial performance and relative total stockholder return performance targets established and approved by the Company’s Board for each fiscal year.
Stock options
The following table summarizes activity for stock options during the period ended March 31, 2025:
| 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, 2024 | 3,063 | $ | 22.56 | 5.6 | $ | 73,903 | |||||||||||||||||
| Exercised | (932) | 22.52 | |||||||||||||||||||||
| Forfeited or expired | (59) | 40.12 | |||||||||||||||||||||
| Balance, March 31, 2025 | 2,072 | $ | 22.07 | 4.6 | $ | 52,286 | |||||||||||||||||
| Options vested and expected to vest at March 31, 2025 | 2,072 | $ | 22.07 | 4.6 | $ | 52,286 | |||||||||||||||||
| Options vested and exercisable at March 31, 2025 | 2,068 | $ | 22.03 | 4.6 | $ | 52,286 | |||||||||||||||||
There were no options granted during fiscal 2025, 2024, or 2023. The aggregate intrinsic value of options exercised during fiscal 2025, 2024, and 2023 was $28.1 million, $46.1 million, and $37.9 million, respectively. The grant date fair value of options vested during fiscal 2025, 2024, and 2023 was $1.6 million, $9.1 million, and $16.7 million, respectively.
As of March 31, 2025, the total unrecognized compensation expense related to non-vested stock options was $0.1 million and is expected to be recognized over a weighted average period of 0.2 years.
Restricted shares and units
The following table provides a summary of the changes in the number of RSAs and RSUs for the year ended March 31, 2025:
Number of RSAs | Weighted Average Grant Date Fair Value | Number of RSUs | Weighted Average Grant Date Fair Value | ||||||||||||||||||||
| (in thousands) | (per share) | (in thousands) | (per share) | ||||||||||||||||||||
| Balance, March 31, 2024 | 142 | $ | 49.05 | 9,852 | $ | 48.17 | |||||||||||||||||
| Granted | — | — | 6,541 | 48.27 | |||||||||||||||||||
| Vested | (47) | 49.05 | (5,228) | 48.12 | |||||||||||||||||||
| Forfeited | — | — | (1,141) | 47.62 | |||||||||||||||||||
| Balance, March 31, 2025 | 95 | $ | 49.05 | 10,024 | $ | 48.33 | |||||||||||||||||
RSUs outstanding as of March 31, 2025 were comprised of 9.0 million RSUs with only service conditions and 1.0 million RSUs with both service and performance or market-based conditions (“PSUs”).
During the year ended March 31, 2025, the Company granted PSUs that contain financial performance conditions (the “Financial PSUs”) and PSUs based on relative total stockholder return performance (the “rTSR PSUs”). Both the Financial PSUs and rTSR PSUs are not earned if the applicable threshold percentage of the specific metric is not achieved. The maximum number of shares that may be earned is 200% of the target award. The PSUs are also subject to time-based vesting and are contingent upon the employee remaining employed by the Company or one of its subsidiaries through the applicable vesting date.
The Financial PSUs generally vest 33% one year after the grant date and the remaining 67% vest ratably on a quarterly basis over the following two years. The number of shares that may be earned pursuant to the Financial PSUs is based on specific Company metrics related to the Company’s fiscal year ending March 31, 2025.
The rTSR PSUs generally vest 33% annually after the grant date. The number of shares that may be earned pursuant to the rTSR PSUs is based on the Company’s stock price performance relative to companies that are the constituents of the Russell 3000 index over performance periods of one, two, and three fiscal years that began on April 1, 2024.
The Company estimated the fair value of rTSR PSUs on grant date using the Monte Carlo simulation model with the following assumptions:
| Fiscal Year Ended March 31, | |||||
| 2025 | |||||
| Expected dividend yield | — | ||||
| Expected volatility of the Company | 44.5% - 44.8% | ||||
| Average expected volatility of peer group | 48.5% - 49.2% | ||||
| Expected term (years) | 0.6 - 2.8 | ||||
| Risk-free interest rate | 3.9% - 4.5% | ||||
The Company has not paid and does not expect to pay dividends. Consequently, the Company uses an expected dividend yield of zero. The expected volatility of the Company is based on the historical volatility of the Company’s common stock and the average expected volatility of the peer group is based on the average historical volatility of the constituents of the Russell 3000 index. The computation of expected term is based upon the remaining term of each performance period upon grant date. The risk-free interest rate is based on the continuously compounded U.S. Treasury yield curve in effect at the time of grant that corresponds with the longest remaining performance period.
The weighted average grant-date fair value of RSUs granted during fiscal 2025, 2024, and 2023 was $48.27, $51.60, and $40.42, respectively. The weighted average grant-date fair value of RSAs granted during fiscal 2024 was $49.05. There were no RSAs granted during the years ended March 31, 2025 and 2023.
The aggregate fair value of RSAs vested during fiscal 2025, 2024, and 2023 was $2.7 million, $0.2 million, and $6.8 million, respectively. The aggregate fair value of RSUs vested during fiscal 2025, 2024, and 2023 was $266.7 million, $220.3 million, and $82.1 million, respectively.
As of March 31, 2025, the total unrecognized compensation expense related to unvested RSAs is $5.0 million and is to be recognized over a weighted average period of 1.9 years. As of March 31, 2025, the total unrecognized compensation expense related to unvested RSUs was $378.0 million and is expected to be recognized over a weighted average period of 2.0 years.
Employee Stock Purchase Plan
In July 2019, the Board adopted, and the Company’s stockholders approved, the 2019 Employee Stock Purchase Plan (“ESPP”). The Company offers, sells and issues shares of common stock under this ESPP from time to time based on various factors and conditions, although the Company is under no obligation to sell any shares under this ESPP. The ESPP provides that the number of shares reserved and available for issuance under the plan will automatically increase each April 1 by lesser of (i) 1% of the outstanding number of shares of the Company’s common stock on the immediately preceding March 31, (ii) 3,500,000 shares of common stock, or (iii) such lesser number determined by the compensation committee. The ESPP provides for six-month offering periods and each offering period consists of six-month purchase periods. On each purchase date, eligible employees purchase shares of the Company’s common stock at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s common stock on the offering date or (2) the fair market value of the Company’s common stock on the purchase date. For the year ended March 31, 2025, 531,301 shares of common stock were purchased under the ESPP. As of March 31, 2025, 18,303,111 shares of common stock were available for future issuance under the ESPP.
As of March 31, 2025, there was approximately $1.3 million of unrecognized share-based compensation related to the ESPP that is expected to be recognized over the remaining term of the current offering period.
The Company estimated the fair value of the ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:
| Fiscal Year Ended March 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Expected dividend yield | — | — | — | ||||||||||||||
| Expected volatility | 27.1% - 32.2% | 32.2% - 51.6% | 35.4% - 64.3% | ||||||||||||||
| Expected term (years) | 0.5 | 0.5 | 0.5 | ||||||||||||||
| Risk-free interest rate | 4.3% - 5.4% | 4.7% - 5.4% | 0.1% - 4.7% | ||||||||||||||
The Company has not paid and does not expect to pay dividends. Consequently, the Company uses an expected dividend yield of zero. Beginning in May 2022, the expected volatility is based on the historical volatility of the Company’s common stock. Prior to May 2022, the computation of expected volatility was based on a calculation using the historical volatility of a group of publicly traded peer companies. The computation of expected term was based on the offering period, which is six months. The risk-free interest rate is based on the U.S. Treasury yield curve that corresponds with the expected term at the time of grant.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.