Summary
Dynatrace opened fiscal 2021 with a much cleaner GAAP income statement. Total revenue for the quarter ended June 30, 2020 was $155.5 million, up 26.9% from the prior-year quarter. Gross profit rose 36.5% to $127.0 million. The company swung to an operating profit of $24.1 million from an operating loss in the prior-year quarter. Net income was $12.9 million, also a swing to profit. Diluted EPS was $0.05, up from a loss per share a year earlier. Gross margin expanded to 81.6%, up 5.8 percentage points, and operating margin was 15.5%, up 42.4 percentage points. The improvement came with a lower share-based compensation burden and lower travel and professional fees, as the 10-Q discusses.
Cash generation was steady but less dramatic. Operating cash flow for the quarter was $37.0 million, up 8.3% from the prior-year quarter. Capital expenditures were $4.4 million, up 6.4%. Deferred revenue, current portion, stood at $352.8 million at June 30, 2020, up 25.1%. Remaining performance obligations were $856.8 million, up 39.6%.
The non-GAAP view was stronger. Total ARR reached $601.4 million, up 37% as reported and 39% on a constant currency basis. Dynatrace ARR was $563.5 million at June 30, 2020. Dynatrace net expansion rate was 120%+. Dynatrace customers rose to 2,458 as of June 30, 2020 from 1,578 as of June 30, 2019. Non-GAAP operating income was $50.8 million, with a 33% non-GAAP operating margin. Non-GAAP net income was $36.9 million, and non-GAAP diluted EPS was $0.13. Unlevered free cash flow was $36.9 million.
Operationally, Dynatrace enhanced Kubernetes support with full-stack infrastructure and cloud native application observability unified by Davis, the company AI engine. It achieved FedRAMP authorization at Moderate Impact Level, which opens wider access to US government digital transformation projects. IDC expects the US government to spend $94 billion on digital transformation by 2023, according to the release. G2 reviewers rated Dynatrace the observability platform leader, with first-place rankings across Cloud Infrastructure Monitoring, AIOps Platforms, Application Performance Monitoring, Container Monitoring, Digital Experience Monitoring, and Session Replay. The 10-Q says products are trusted by more than 2,700 customers in over 80 countries.
Guidance points to slower growth and broader uncertainty. For the second quarter of fiscal 2021, Dynatrace guided total revenue growth of 23% to 24% as reported and 25% to 26% on a constant currency basis. Subscription revenue growth is expected at 29% to 30% as reported and 30% to 32% on a constant currency basis. Non-GAAP operating income is guided to $43.0 million to $45.0 million, and non-GAAP diluted EPS to $0.09 to $0.10 on 288 million to 289 million diluted weighted-average shares. For the full fiscal year 2021, total revenue growth is guided to 18% to 20% as reported and 20% to 22% on a constant currency basis. Subscription revenue growth is expected at 24% to 25% as reported. Total ARR is guided to $698.0 million to $708.0 million. Non-GAAP operating income is guided to $166.0 million to $175.0 million, non-GAAP net income to $133.0 million to $141.0 million, and non-GAAP diluted EPS to $0.46 to $0.49 on 288 million to 290 million shares. Total unlevered free cash flow is guided to $187.0 million to $195.0 million, or 29% to 30% of revenue.
Risks are familiar but material. Guidance assumes a continued challenging economic environment and includes the expected impacts of COVID-19, with a wider range of outcomes for the rest of the fiscal year. Dynatrace warns that customers and prospects may reduce or re-evaluate their spend, seek pricing discounts or extended payment terms, cut the amount or duration of subscriptions, or increase attrition. Other risks include the ability to service substantial indebtedness, maintain subscription revenue growth rates, develop and sell new products, retain key personnel, and manage stock price volatility. At June 30, 2020, Dynatrace was in compliance with all applicable covenants under its First Lien Credit Agreement, according to the 10-Q.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $155.5M | $150.6M | +3.3% | $122.5M | +26.9% |
| Gross profit | $127.0M | $119.4M | +6.3% | $93.0M | +36.5% |
| Gross margin | 81.7% | 79.3% | +2.3 pp | 75.9% | +5.8 pp |
| Research & development | $23.5M | $24.5M | -4.1% | $25.7M | -8.4% |
| Sales & marketing | $49.2M | $55.6M | -11.6% | $58.2M | -15.5% |
| General & administrative | $21.5M | $21.3M | +1.2% | $31.9M | -32.5% |
| Total operating expenses | $102.9M | $111.4M | -7.7% | $126.0M | -18.4% |
| Operating income (loss) | $24.1M | $8.0M | +200.0% | -$33.0M | +173.0% |
| Operating margin | 15.5% | 5.3% | +10.2 pp | -26.9% | +42.4 pp |
| Net income (loss) | $12.9M | $46.7M | -72.5% | -$49.2M | +126.2% |
| Net margin | 8.3% | 31.0% | -22.8 pp | -40.1% | +48.4 pp |
| Diluted EPS | $0.05 | — | — | — | — |
| Customers | 2,700 | 2,700 | ±0.0% | — | — |
Risks
The filing states COVID-19 has materially affected how Dynatrace and its customers operate, with global offices temporarily closed or limited, travel suspended, and Perform 2021 moved to a virtual-only experience. MD&A warns of possible curtailed customer demand, pricing discounts or extended payment terms, reductions in the amount or duration of subscription contracts, and increased customer attrition; the duration and extent of impact remain uncertain.
Risk Factors disclose a material weakness in internal control over financial reporting related to accounting for income taxes, specifically realizability of tax attributes such as foreign tax credits and other domestic deferred tax assets. Dynatrace hired an International Tax Manager in April 2020 and a Vice President of Tax in June 2020, but remediation success is uncertain and could lead to restatement or reporting failures.
The filing states the estimated Compuware Spin Tax Liability was calculated at $251.8 million and paid, but the final tax liability will not be determined until tax returns are completed and Dynatrace would be solely responsible for any excess, which could be material and unreimbursed by Compuware. The $265.0 million distribution from Compuware could also be challenged under federal and state fraudulent transfer laws.
Dynatrace has substantial indebtedness under its first lien term loan facility and its Credit Facility contains covenants limiting additional indebtedness, liens, dividends, investments, acquisitions, and capital expenditures. A default could accelerate outstanding debt and permit lenders to exercise remedies against substantially all assets.
The filing discloses that Dynatrace has experienced a small number of email phishing attacks that resulted in the compromise of a limited number of email accounts. Because the platform is multi-tenant, any security breach could potentially affect a significant number of customers.
Risk Factors state that Dynatrace has experienced rapid subscription revenue growth in recent periods but that these recent growth rates may not be indicative of future growth. Continued growth depends on attracting new customers, retaining and expanding sales to existing customers, developing new solutions, and hiring sufficient sales and marketing personnel.
Dynatrace faces competition from application performance monitoring vendors such as Cisco AppDynamics, Broadcom, and New Relic, infrastructure monitoring vendors such as Datadog and Nagios, and cloud providers such as AWS, Azure, and Google Cloud Platform. The filing states competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses, and loss of market share.
Risk Factors note sales cycles can range from several months to over a year and the third fiscal quarter is typically Dynatrace's largest, with a significant portion of transactions occurring in the last two weeks of each quarter. This seasonality and end-of-quarter concentration can affect revenue growth, cash flow planning, and cost structure adjustments.
Thoma Bravo beneficially owned 41.4% of issued and outstanding common stock as of June 30, 2020 and can exert significant influence over board composition, mergers, capital raising, and charter amendments. This concentration may delay or prevent changes of control and may present conflicts with other stockholders' interests.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Total ARR
Total customers
Unlevered Free Cash Flow
Non-GAAP Operating Income
Number of Dynatrace Customers
Summary, forecast, risks and KPIs are extracted from Dynatrace, Inc.'s SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.