Summary
Dynatrace reported fiscal 2023 first-quarter revenue of $267.27 million, up 27.4% from the prior-year quarter. Gross profit rose 26.1% to $215.48 million. Gross margin was 80.6%, down 0.9 percentage points. The top line grew, but profitability compressed. Operating income fell 10.0% to $19.09 million. Operating margin was 7.1%, down 3.0 percentage points. Net income dropped 84.1% to $2.11 million. Diluted earnings per share was $0.01, down $0.04, or 80.0%, against the prior-year quarter.
Cash generation was a bright spot. Operating cash flow rose 71.4% to $143.10 million. Capital expenditures rose 133.8% to $6.91 million. Free cash flow, a non-GAAP measure, was $136.2 million. The balance sheet showed growing backlog. Current deferred revenue rose 27.1% to $617.97 million. Remaining performance obligations rose 22.2% to $1.53 billion. Those metrics suggest customers keep committing to the platform despite a tougher macro backdrop.
Operational momentum remained solid. Total ARR reached $1,031 million, and adjusted ARR growth was 34% year over year. Dynatrace added 135 new logos in the quarter, consistent with the first quarter of last fiscal year. The net expansion rate was above 120% for the seventeenth consecutive quarter. The company served more than 3,300 customers as of June 30, 2022, up from approximately 3,000 a year earlier. Dynatrace was named a Leader in the 2022 Gartner Magic Quadrant for APM and Observability and ranked highest in 4 of 6 Gartner Critical Capabilities. Business transacted through hyperscaler partnerships with AWS, Google, and Microsoft was nearly 3x on a trailing-twelve-month basis compared with the same period last year. Non-GAAP operating income was $60.3 million, and non-GAAP operating margin was 23%. Non-GAAP net income was $51.8 million, and non-GAAP earnings per diluted share was $0.18.
Guidance points to slower reported growth because of currency. For the second quarter of fiscal 2023, management guided non-GAAP operating income to $62 million to $64.5 million, non-GAAP net income to $52.5 million to $55 million, and non-GAAP earnings per diluted share to $0.18 to $0.19. For full fiscal 2023, management guided total ARR to $1,213 million to $1,226 million, non-GAAP operating income to $252 million to $261 million, non-GAAP net income to $214.5 million to $223 million, non-GAAP earnings per diluted share to $0.73 to $0.76, and free cash flow to $310 million to $325 million. The midpoint of the total ARR guidance range came down from prior guidance. The company also raised its estimate of the full-year foreign exchange headwind to about $40 million on ARR, up from prior expectations of about $20 million, and to about $47 million on revenue, up from about $33 million.
Risks include foreign exchange volatility, a potential downturn in general economic conditions, and the COVID-19 pandemic. Dynatrace also flagged its ability to maintain subscription revenue growth rates, service its indebtedness, retain and recruit highly qualified personnel, and sustain adoption of its software intelligence solutions. The shift to a single, often multi-year contract per customer with one anniversary date could create variability in billings and cash collections. New tax rules under IRC Section 174 require capitalization and amortization of research and development expenses, which management expects to increase U.S. federal and state cash taxes and reduce cash flows in fiscal 2023 and future years. Those items sit against otherwise strong ARR, remaining performance obligations, and deferred revenue trends.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $267.3M | $252.6M | +5.8% | $209.7M | +27.4% |
| Gross profit | $215.5M | $204.7M | +5.3% | $170.9M | +26.1% |
| Gross margin | 80.6% | 81.0% | -0.4 pp | 81.5% | -0.9 pp |
| Research & development | $48.5M | $42.8M | +13.2% | $34.7M | +39.6% |
| Sales & marketing | $105.0M | $101.3M | +3.7% | $80.5M | +30.5% |
| General & administrative | $36.3M | $35.4M | +2.7% | $26.9M | +34.9% |
| Total operating expenses | $196.4M | $187.0M | +5.0% | $149.7M | +31.2% |
| Operating income (loss) | $19.1M | $17.6M | +8.3% | $21.2M | -10.0% |
| Operating margin | 7.1% | 7.0% | +0.2 pp | 10.1% | -3.0 pp |
| Net income (loss) | $2.1M | $929.0K | +127.6% | $13.3M | -84.1% |
| Net margin | 0.8% | 0.4% | +0.4 pp | 6.3% | -5.5 pp |
| Diluted EPS | $0.01 | $0.00 | +$0.01 | $0.05 | -$0.04 |
Risks
The company observed increased economic uncertainty in the United States and abroad and lengthening sales cycles, which could cause customers to defer or cancel discretionary software intelligence purchases. In FY2023 Q1, total revenue rose 27.4% but operating income fell 10.0% and net income fell 84.1% year over year.
Dynatrace faces direct and indirect competition from observability vendors such as Datadog and Splunk, APM vendors such as Cisco, Broadcom and New Relic, and cloud provider point solutions from AWS, Microsoft Azure and Google Cloud. Competitors may have larger sales budgets, broader distribution and bundling ability, creating pricing pressure; gross margin declined 0.9 pp year over year in FY2023 Q1.
Subscription revenue grew 27% year over year in FY2023 Q1, but the company cautions that recent growth rates may not be indicative of future growth and it may not sustain revenue growth consistent with recent history. Continued growth depends on new customer acquisition, retention, expansion within existing customers and new solution adoption.
IRC Section 174 now requires U.S. research and development expenses to be capitalized and amortized, which the company says will increase U.S. federal and state cash taxes and reduce cash flows in fiscal year 2023 and future years if not repealed. Income tax expense was $12.6 million in FY2023 Q1, up $6.2 million from the prior-year quarter.
Sales cycles can range from several months to over a year, and a significant portion of transactions close in the last two weeks of each quarter, with the third fiscal quarter typically largest. This end-of-quarter concentration can cause revenue and cash flow variability and make cost structure adjustments difficult if expectations change.
The company announced on May 18, 2022 that CFO Kevin Burns will leave at the end of calendar year 2022 and has initiated a search for a new CFO. Loss of senior management or failure to integrate strategic hires could disrupt operations and execution.
At June 30, 2022, Dynatrace had approximately $300.0 million of aggregate indebtedness, including $251.1 million under its first lien term loan. Variable-rate borrowings expose it to recent interest rate increases, and credit agreement covenants limit indebtedness, liens, dividends, investments and capital expenditures.
The company is transitioning customer contracts into one single, often multi-year contract per customer with one anniversary date, which may cause variability in the timing and amounts of billings and affect deferred revenue and RPO. Deferred revenue rose 27.1% and RPO rose 22.2% year over year in FY2023 Q1, but billings timing could still fluctuate.
Thoma Bravo beneficially owned 29.3% of common stock as of June 30, 2022 and can exert significant influence over board composition, mergers, capital raising and charter amendments. This concentration may delay or prevent changes of control and presents potential conflicts of interest.
Dynatrace disclosed that it has experienced email phishing attacks that compromised a limited number of email accounts and that it used SolarWinds Orion software during the SUNBURST incident. A broader breach or vendor compromise could harm its multi-tenant platform, reputation and customer trust.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Total ARR
Free Cash Flow
Dynatrace Net Expansion Rate
Total customers
Net New ARR
Non-GAAP Operating Income
Adjusted ARR Growth
ARR - Constant Currency
New Logos Added
ARR Excluding TTM Perpetual License Rolloff - Constant Currency
Summary, forecast, risks and KPIs are extracted from Dynatrace, Inc.'s SEC filings for Q1 FY2023 (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.