Summary
Dynatrace reported fiscal 2022 first-quarter revenue of $209.74 million, up 34.9% from the prior-year quarter. Total annual recurring revenue reached $823 million, up 37% year over year, or 32% on a constant currency basis. The customer count rose to 3,018 at June 30, 2021 from 2,458 a year earlier, and the company said its Dynatrace net expansion rate has been above 120% for the last 13 quarters. Product updates in the quarter included an enhanced Application Security Module with Davis Security Advisor, an AWS Government Competency award, and expanded support for OpenTelemetry. Those metrics and releases point to healthy demand for the software intelligence platform.
Profitability was mixed. Gross profit was $170.91 million, up 34.6%, and gross margin was 81.5%, down 0.2 percentage points. Operating income fell 12.0% to $21.21 million, and operating margin was 10.1%, down 5.4 percentage points. Net income rose 3.3% to $13.29 million. Diluted EPS was $0.05, flat with the prior-year quarter. On a non-GAAP basis, operating income was $53.54 million, operating margin was 26%, net income was $45.03 million, and diluted EPS was $0.16. The gap between GAAP and non-GAAP results largely reflects share-based compensation, employer payroll taxes, and amortization of intangibles. Sales and marketing, research and development, and general and administrative expenses all rose, which kept GAAP operating margin well below the non-GAAP figure.
Cash generation improved. Operating cash flow was $83.47 million, up 125.6% from the prior-year quarter. Capital expenditures were $2.95 million, down 33.1%. Unlevered free cash flow was $81.09 million. Deferred revenue, current portion only, was $486.07 million, up 37.8%. Remaining performance obligations were $1.25 billion, up 46.1%. The company said the increase in operating cash flow came from net income, non-cash charges, and a decrease in accounts receivable due to timing of receipts, partly offset by a decrease in deferred revenue and accounts payable and accrued expenses.
For the second quarter of fiscal 2022, Dynatrace guided total revenue growth to 30% to 31% as reported, or 28% to 29% on a constant currency basis, with subscription revenue growth of 31% to 32% as reported, or 29% to 30% on a constant currency basis. Non-GAAP operating income is expected to be $53 to $55 million, and non-GAAP net income is expected to be $44.5 to $46.5 million. Non-GAAP EPS is expected to be $0.15 to $0.16, based on 290 to 291 million diluted weighted-average shares. For full year fiscal 2022, total ARR is expected to be $984 to $996 million, 27% to 29% growth as reported, or 26% to 28% constant currency. Total revenue growth is guided to 28% to 30% as reported, or 26% to 28% constant currency, with subscription revenue growth of 29% to 31% as reported, or 27% to 29% constant currency. Non-GAAP operating income is expected to be $208 to $218 million, non-GAAP net income $175 to $184 million, non-GAAP EPS $0.60 to $0.63, and unlevered free cash flow $262 to $274 million, or 29% to 30% of revenue. The guidance assumes foreign exchange rates as of June 30, 2021.
The company flagged risks related to the COVID-19 pandemic, its ability to maintain subscription revenue growth rates, its substantial indebtedness, market adoption of software intelligence solutions, customer acquisition and retention, competition, hiring and retention, and stock price volatility. It also noted that its transition to consolidated multi-year contracts could cause variability in the timing and amounts of billings and cash collections. The MD&A says the pandemic's future impact remains uncertain and could affect business spending on technology and customers' ability to pay. Management also pointed to the risk factors in its Form 10-K filed May 28, 2021.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $209.7M | $196.5M | +6.7% | $155.5M | +34.9% |
| Gross profit | $170.9M | $161.2M | +6.0% | $127.0M | +34.6% |
| Gross margin | 81.5% | 82.0% | -0.5 pp | 81.7% | -0.2 pp |
| Research & development | $34.7M | $31.7M | +9.7% | $23.5M | +47.7% |
| Sales & marketing | $80.5M | $74.8M | +7.6% | $49.2M | +63.7% |
| General & administrative | $26.9M | $25.1M | +7.1% | $21.5M | +25.1% |
| Total operating expenses | $149.7M | $140.3M | +6.7% | $102.9M | +45.5% |
| Operating income (loss) | $21.2M | $20.9M | +1.7% | $24.1M | -12.0% |
| Operating margin | 10.1% | 10.6% | -0.5 pp | 15.5% | -5.4 pp |
| Net income (loss) | $13.3M | $27.0M | -50.7% | $12.9M | +3.3% |
| Net margin | 6.3% | 13.7% | -7.4 pp | 8.3% | -1.9 pp |
| Diluted EPS | $0.05 | — | — | $0.05 | ±$0.00 |
Risks
Sales and marketing expenses increased 64% and research and development expenses increased 48% in the quarter ended June 30, 2021 compared with the prior-year quarter, while operating income decreased 12.0% and operating margin decreased 5.4 percentage points. Continued heavy investment to grow the customer base and platform may pressure profitability if revenue growth does not keep pace.
Growth depends on attracting new customers and expanding sales to existing accounts; customer count rose to 3,018 at June 30, 2021 from 2,458 at June 30, 2020 and the net expansion rate has been above 120% for 13 quarters, but customers have no obligation to renew and may renew on less favorable terms or not at all.
The company competes with Cisco, Broadcom, New Relic, Datadog, Akamai, Catchpoint and cloud providers such as AWS, Microsoft Azure and Google Cloud Platform, some of which have greater resources, larger customer bases and the ability to bundle competitive offerings. This could cause pricing pressure, reduced margins and loss of market share.
Security risk is specific: the company used SolarWinds Orion software and took action after the SUNBURST malicious code was reported, and it has experienced a small number of email phishing attacks that compromised limited email accounts. Because the platform is multi-tenant, any breach could affect a significant number of customers.
At June 30, 2021, aggregate indebtedness was approximately $400.0 million, including $371.1 million under the first lien term loan, and covenants restrict dividends, acquisitions, capital expenditures and other actions. A decline in cash flow could impair the ability to service debt or comply with covenants.
Sales cycles can range from several months to over a year and involve significant upfront investment in field sales, partner development and customer evaluation. The third fiscal quarter is typically the largest, and a significant portion of transactions occur in the last two weeks of each quarter, causing quarterly variability.
The company is transitioning from multiple customer contracts with unique pricing and anniversary dates to one single, often multi-year contract per customer with one anniversary date, which may cause variability in the timing and amounts of billings, deferred revenue and remaining performance obligations. Moving away from perpetual licenses also reduces deferred revenue.
The company previously identified a material weakness in internal control over financial reporting related to accounting for income taxes, particularly realizability of tax attributes such as foreign tax credits and domestic deferred tax assets. Remediation was completed in fiscal 2021, but additional material weaknesses could result in misstatements or failure to meet reporting obligations.
Thoma Bravo beneficially owned 29.7% of common stock as of June 30, 2021 and has board nomination rights, giving it significant influence over matters requiring stockholder approval and potential conflicts through other investments. This concentration could delay or prevent changes of control that other stockholders might favor.
Demand for software intelligence solutions is discretionary, so reduced IT spending or adverse economic conditions could cause customers to defer or cancel purchases, renegotiate contracts, lengthen sales cycles or reduce subscription renewals. Weak global economic conditions could disproportionately affect revenue and operating results.
The pandemic has materially affected how the company and customers operate, with most employees working from home and in-person events shifted to virtual-only. The duration and extent of the impact, including variants such as delta, remain uncertain and could affect customer spending, payment terms and attrition.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Total ARR
Dynatrace Net Expansion Rate
Unlevered Free Cash Flow
Number of Dynatrace Customers
Summary, forecast, risks and KPIs are extracted from Dynatrace, Inc.'s SEC filings for Q1 FY2022 (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 1, 2026.