Summary
Dynatrace reported total revenue of $332.89 million for the fiscal 2024 first quarter ended June 30, 2023, up 24.5% from $267.27 million in the prior-year quarter. Subscription revenue of $316 million rose 27%, while service revenue of $16.4 million fell 7%. Annual recurring revenue finished the quarter at $1,294 million, up 25% year over year on both a reported and a constant currency basis. Gross profit of $270.54 million rose 25.6%, and gross margin of 81.3% compared with 80.6% in the prior-year quarter, a gain of 0.7 percentage points.
The company also kept building out its partner and product story. Sales pipeline contribution from one of its largest strategic global system integrator partners more than doubled compared with the prior year. Dynatrace announced a multi-year consumption commitment and go-to-market partnership with Microsoft covering Azure, and expanded its collaboration with Red Hat on DevSecOps automation. On the product side, the company extended its Davis AI engine with hypermodal AI capabilities.
The bottom line grew faster than the top line. GAAP operating income of $34.29 million rose 79.6% from $19.09 million in the prior-year quarter, lifting operating margin to 10.3% from 7.1%, an improvement of 3.2 percentage points. Net income of $38.19 million compared with $2.11 million in the prior-year quarter, and diluted EPS of $0.13 compared with $0.01. Non-GAAP operating income was $92.08 million, a 28% non-GAAP operating margin, against 23% in the prior-year quarter. Share-based compensation of $40.5 million, up from $28.7 million, remains the largest reconciling item. Operating expense growth stayed heavy: research and development rose 34% to $66.3 million, sales and marketing rose 18% to $125.1 million, and general and administrative rose 13% to $39.1 million.
Cash generation softened. Operating cash flow for the quarter was $133.9 million, down 6.4% from $143.1 million in the prior-year quarter, while capital expenditures of $10.27 million rose 48.7%. Free cash flow, which the company defines as operating cash flow less capital expenditures, was $123.6 million, compared with $136.2 million in the prior-year quarter. The balance sheet holds $700.7 million of cash and cash equivalents, with $387.9 million available under the revolving credit facility. Current deferred revenue of $721.82 million rose 16.8%, and remaining performance obligations of $1.86 billion rose 21.6%. The dollar-based net retention rate eased to 116% from 120%. Net new ARR was $47 million for the quarter, but net new ARR on a constant currency basis fell 33% year over year, a reminder that much of the headline ARR gain comes from the existing base rather than new logos.
Management guided second quarter fiscal 2024 total revenue growth of 23% to 24% as reported, or 21% to 22% in constant currency, with a non-GAAP operating margin of 26% to 27% and non-GAAP EPS of $0.26 to $0.27. For the full fiscal year 2024, the company raised its total revenue growth outlook to 21% to 22% as reported, and now expects total ARR of $1,475 million to $1,490 million, non-GAAP operating income of $357 million to $367 million, a non-GAAP operating margin of 25.5% to 26%, non-GAAP EPS of $1.03 to $1.06, and free cash flow of $303 million to $312 million at a 22% margin. The outlook assumes a foreign exchange tailwind of roughly $11 million on ARR and $15 million on revenue for fiscal 2024.
Customers remain cautious and are scrutinizing budgets more tightly, and management expects the elongated sales cycles seen in the second half of fiscal 2023 to persist through fiscal 2024. The Section 174 requirement to capitalize and amortize research and development spending raises U.S. federal and state cash taxes and reduces cash flows in fiscal 2024. Competition, security incidents, hiring and retention, and the integration of acquired businesses are listed risks, and the Rookout acquisition is expected to close in the quarter ending September 30, 2023. Total contractual commitments were $332.3 million, with $58.0 million committed within the next twelve months.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2024 | Q4 FY2023 | QoQ | Q1 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $332.9M | $314.5M | +5.9% | $267.3M | +24.5% |
| Gross profit | $270.5M | $254.9M | +6.1% | $215.5M | +25.6% |
| Gross margin | 81.3% | 81.1% | +0.2 pp | 80.6% | +0.6 pp |
| Research & development | $66.3M | $64.5M | +2.7% | $48.5M | +36.7% |
| Sales & marketing | $125.1M | $126.8M | -1.3% | $105.0M | +19.1% |
| General & administrative | $39.1M | $37.4M | +4.5% | $36.3M | +7.6% |
| Total operating expenses | $236.3M | $235.5M | +0.3% | $196.4M | +20.3% |
| Operating income (loss) | $34.3M | $19.4M | +76.5% | $19.1M | +79.6% |
| Operating margin | 10.3% | 6.2% | +4.1 pp | 7.1% | +3.2 pp |
| Net income (loss) | $38.2M | $80.3M | -52.4% | $2.1M | +1706.4% |
| Net margin | 11.5% | 25.5% | -14.1 pp | 0.8% | +10.7 pp |
| Diluted EPS | $0.13 | $0.28 | -$0.15 | $0.01 | +$0.12 |
Risks
MD&A states that the elongation of sales cycles experienced in the second half of fiscal 2023 is expected to persist throughout fiscal 2024, with customers cautious and applying tighter budget scrutiny. Risk Factors also cite lengthening sales cycles amid continued economic uncertainty.
Dollar-based net retention rate declined to 116% as of June 30, 2023 from 120% as of June 30, 2022. The company notes that customer retention and expansion rates may decline due to macroeconomic trends, competition, and pricing pressure.
Competition is intensifying, including from companies leveraging AI, and the market is defined by rapidly changing technology including AI. The company announced in July 2023 it is expanding its Davis AI engine to hypermodal AI, requiring significant investment to maintain differentiation.
On July 31, 2023, the company announced a definitive agreement to acquire Rookout, expected to close in the second quarter of fiscal 2024. Integration of acquisitions may divert management attention, disrupt operations, or fail to achieve anticipated benefits.
IRC Section 174 requires capitalization and amortization of R&D expenses, which increases U.S. federal and state cash taxes and reduces cash flows in fiscal 2024 and future years.
Thoma Bravo beneficially owned approximately 17.6% of common stock as of July 31, 2023 and sold 14.8 million and 17.9 million shares in February 2023 and June 2023, respectively. This concentration and potential further sales could reduce the market price of common stock.
The company has hired a new CEO, CFO, General Counsel, Chief People Officer, and Chief Revenue Officer in the last two years. Reliance on senior management and the at-will nature of their employment could disrupt operations.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Total ARR
Free Cash Flow
Dollar-Based Net Retention Rate
ARR - Constant Currency
Summary, forecast, risks and KPIs are extracted from Dynatrace, Inc.'s SEC filings for Q1 FY2024 (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.