Summary
Dynatrace opened fiscal 2026 with growth across its reported results. Total revenue for the first quarter ended June 30, 2025 was $477.35 million, up 19.6% from the prior-year quarter. Gross profit was $392.14 million, up 20.9%, and gross margin was 82.1%, up 0.9 percentage points. Operating income reached $62.34 million, up 48.3%, which lifted operating margin to 13.1%, up 2.5 percentage points. Net income was $47.96 million, up 24.2%, and diluted EPS was $0.16, up 23.1%. The quarter included a large number of seven-figure expansion deals and partner-led activity, and management said cloud modernization and AI are pushing customers toward an end-to-end observability platform.
Cash generation stayed a strength. Operating cash flow was $269.69 million, up 16.9% from the prior-year quarter. Capital expenditures were $7.48 million, up 122.7%. Free cash flow, a non-GAAP measure, was $262.0 million. Current deferred revenue was $1.00 billion, up 16.3%, and remaining performance obligations were $2.92 billion, up 25.7%. Those forward-looking balances support the case that demand is durable, though the deferred revenue figure is only the current portion. ARR was $1,822 million, up 18% as reported and 16% in constant currency. Dollar-based net retention was 111%, compared with 112% a year earlier. Non-GAAP income from operations was $143 million, and non-GAAP operating margin was 30%.
Operational highlights point to expansion inside large accounts and steady product momentum. Dynatrace closed 12 expansion deals greater than $1 million in annual contract value, 10 of which involved partners, and half included significant Log Management deployments. The Dynatrace Platform Subscription model covered more than 45% of the customer base and more than 65% of ARR. The company announced platform advances in cloud-native, AI observability, and Log Management, plus general availability of Live Debugger. It also expanded agentic AI capabilities and formed a collaboration with NVIDIA's Enterprise AI Factory. During the quarter, Dynatrace spent $45 million to repurchase 905,000 shares at an average price of $49.76 under its $500 million program. From the program's inception through June 30, 2025, it repurchased 4.4 million shares for $218 million at an average price of $49.99.
Guidance points to continued growth. For the second quarter of fiscal 2026, total revenue and subscription revenue are expected to grow 16% to 17% as reported and 15% to 16% in constant currency, non-GAAP income from operations is guided to $140 million to $145 million, non-GAAP operating margin to 29% to 29.5%, non-GAAP net income to $122 million to $127 million, and non-GAAP net income per diluted share to $0.40 to $0.41, on 306 million to 307 million diluted weighted average shares. For the full fiscal year 2026, ARR guidance is $1,988 million to $2,003 million, an increase of $13 million at the midpoint from prior guidance. Non-GAAP income from operations is guided to $563 million to $573 million, non-GAAP operating margin to 29%, non-GAAP net income to $488 million to $500 million, non-GAAP net income per diluted share to $1.58 to $1.61, and free cash flow to $505 million to $515 million at a 26% free cash flow margin. The company expects foreign exchange to be a tailwind of approximately $34 million on ARR and approximately $29 million on revenue for fiscal 2026, an incremental tailwind of roughly $13 million to ARR and $12 million to revenue.
Risks remain tied to the macro backdrop and execution. Management flagged geopolitical considerations, tariffs and trade policies, fluctuations in credit, equity, and foreign currency markets, changes in inflation, interest rates, consumer confidence and spending, and other factors that can affect customer buying patterns, transaction sizes, and sales cycles. The company also cites competition, innovation, security breaches, partner relationships, and hiring as risks. Tax costs rose in the quarter after an intra-entity asset transfer of the global economic rights of its IP to Switzerland, which increased the GILTI inclusion and reduced the foreign-derived intangible income deduction. Dynatrace is still evaluating the impact of the One Big Beautiful Bill Act, enacted on July 4, 2025.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2026 | Q4 FY2025 | QoQ | Q1 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $477.3M | $445.2M | +7.2% | $399.2M | +19.6% |
| Gross profit | $392.1M | $360.1M | +8.9% | $324.5M | +20.9% |
| Gross margin | 82.2% | 80.9% | +1.3 pp | 81.3% | +0.9 pp |
| Research & development | $108.2M | $103.3M | +4.7% | $87.6M | +23.5% |
| Sales & marketing | $165.3M | $161.8M | +2.2% | $145.1M | +13.9% |
| General & administrative | $56.3M | $52.1M | +8.1% | $45.0M | +25.2% |
| Total operating expenses | $329.8M | $317.2M | +4.0% | $282.4M | +16.8% |
| Operating income (loss) | $62.3M | $42.9M | +45.3% | $42.0M | +48.3% |
| Operating margin | 13.1% | 9.6% | +3.4 pp | 10.5% | +2.5 pp |
| Net income (loss) | $48.0M | $39.3M | +22.0% | $38.6M | +24.2% |
| Net margin | 10.1% | 8.8% | +1.2 pp | 9.7% | +0.4 pp |
| Diluted EPS | $0.16 | $0.13 | +$0.03 | $0.13 | +$0.03 |
Risks
Global economic uncertainty, geopolitical tensions, tariffs and trade policies, and fluctuations in inflation and interest rates may affect customer purchasing decisions and elongate sales cycles. The risk factors state the company has observed global economic uncertainty and lengthening sales cycles over the last year, and MD&A says these factors may affect buying patterns and transaction size.
The company is seeing an increase in large, strategic deals with longer sales cycles, greater uncertainty of completion, and specially negotiated terms; sales cycles can range from several months to over a year. A significant portion of transactions occur in the last two weeks of each quarter, with the third and fourth fiscal quarters typically largest, which increases revenue timing risk.
Markets are highly competitive and evolving rapidly, including new and evolving uses of AI; larger competitors may have greater resources, and Cisco acquired Splunk in 2024. Competitive pressure could result in pricing pressure, reduced margins, increased sales and marketing expense, or loss of market share.
When Dynatrace updated its go-to-market strategy in fiscal 2025, more than 30% of customer accounts transitioned to new sales representatives; it is difficult to predict whether changes will achieve desired effects and a negative impact on retention is possible. Dollar-based net retention rate was 111% as of June 30, 2025 and 112% as of June 30, 2024.
The company is investing in AI capabilities, including evolving Davis AI and an agentic AI platform that can act autonomously; if new solutions or enhancements fail to achieve market acceptance, revenue growth and margins could decline. It has made significant investments in application security, Grail, AutomationEngine, and AppEngine before knowing market acceptance.
AI and privacy regulation is evolving, including the EU AI Act, new U.S. AI-related laws, GDPR, CCPA, and DORA effective January 17, 2025. Non-compliance or new compliance obligations could increase R&D and compliance costs and subject the company to fines, litigation, or reputational harm.
Sales to U.S. federal, state, and foreign government entities are exposed to budgetary cycles, shutdowns, continuing resolutions, and DOGE-led efforts to reduce government expenditures; contract terminations and procurement audits could harm future sales.
Future growth depends on strategic partners, including GSIs Accenture, Atos, Deloitte, DXC, Kyndryl and hyperscalers AWS, GCP, Azure; these agreements are generally non-exclusive, some partners compete with Dynatrace, and termination or interoperability failures could limit sales.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Total ARR
Free Cash Flow
Dollar-Based Net Retention Rate
Free Cash Flow Margin
Non-GAAP Income from Operations
Summary, forecast, risks and KPIs are extracted from Dynatrace, Inc.'s SEC filings for Q1 FY2026 (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.