Summary
Dynatrace reported second quarter fiscal 2024 revenue of $351.7 million, up 25.9% from the prior-year quarter. Gross profit was $287.3 million, up 28.5%, and gross margin expanded to 81.7%, up 1.6 percentage points. Operating income was $35.3 million, up 72.9%, and operating margin was 10.0%, up 2.7 percentage points. Net income was $35.8 million, up 240.2%, and diluted EPS was $0.12, up 200.0%. For the six months, revenue was $684.6 million, up 25.2%, and net income was $74.0 million, up 485.4%. Annual recurring revenue was $1,344 million as of September 30, 2023, up 26% year over year and 24% on a constant currency basis. Subscription revenue growth drove the top line, while service revenue declined.
Cash generation was mixed. Operating cash flow for the quarter was $36.9 million, up 25.4% from the prior-year quarter. For the six months, operating cash flow was $170.8 million, down 1.0%. Capital expenditures were $2.75 million in the quarter, down 36.5%. Free cash flow, a non-GAAP measure, was $34.1 million for the quarter. Deferred revenue was $677.8 million, up 20.7% from the prior-year quarter. Remaining performance obligations were $1.79 billion, up 16.9%. The dollar-based net retention rate was 114%, compared with 120% a year earlier.
Non-GAAP profitability remained well above GAAP results. Non-GAAP income from operations was $106 million, and non-GAAP operating margin was 30%. Non-GAAP net income was $93.5 million, and non-GAAP diluted EPS was $0.31. The gap between GAAP and non-GAAP results was mainly due to share-based compensation, employer payroll taxes, amortization, and transaction and restructuring costs. Dynatrace issued third quarter fiscal 2024 guidance and updated full-year fiscal 2024 guidance. For the third quarter, it expects non-GAAP income from operations of $94 million to $97 million, non-GAAP operating margin of 26.5% to 27%, non-GAAP net income of $82 million to $85 million, and non-GAAP EPS of $0.27 to $0.28. For the full year, it expects ARR of $1,480 million to $1,490 million, non-GAAP income from operations of $377 million to $386 million, non-GAAP operating margin of 27%, non-GAAP net income of $328 million to $337 million, non-GAAP EPS of $1.09 to $1.12, and free cash flow of $313 million to $320 million with free cash flow margin of 22% to 23%.
Operationally, Dynatrace added Security Analytics to its application security capabilities and closed the Rookout acquisition, which it is integrating to support live debugging. It signed a global strategic alliance with Kyndryl and a strategic partnership with Accenture. The company added hyperscaler regions in São Paulo, Sydney, and Zurich, bringing the total to 13 regions globally. It also made Grail, AppEngine, and AutomationEngine available on Microsoft Azure. The Innovate event series drew more than 1,200 in-person attendees and more than 1,300 virtual attendees. Management still points to a difficult macro backdrop. Customers remain cautious with tighter budget scrutiny, and the company expects the elongation of sales cycles to persist throughout fiscal 2024. Other risks include competition, security breaches, the ability to maintain revenue growth, and integration of acquired businesses. The company also noted that Section 174 of the Internal Revenue Code increases U.S. federal and state cash taxes and reduces cash flows in fiscal 2024 and future years. Foreign exchange guidance includes an approximate $5 million headwind to ARR and an approximate $7 million tailwind to revenue for fiscal 2024. Given recent strengthening in the U.S. dollar, this represents an incremental headwind of approximately $16 million to ARR and $8 million to revenue for the full year when compared to prior guidance.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $351.7M | $332.9M | +5.7% | $279.3M | +25.9% |
| Gross profit | $287.3M | $270.5M | +6.2% | $223.6M | +28.5% |
| Gross margin | 81.7% | 81.3% | +0.4 pp | 80.1% | +1.6 pp |
| Research & development | $74.1M | $66.3M | +11.8% | $51.9M | +42.7% |
| Sales & marketing | $127.6M | $125.1M | +2.0% | $104.7M | +21.9% |
| General & administrative | $44.7M | $39.1M | +14.5% | $40.1M | +11.7% |
| Total operating expenses | $252.1M | $236.3M | +6.7% | $203.2M | +24.0% |
| Operating income (loss) | $35.3M | $34.3M | +2.9% | $20.4M | +72.9% |
| Operating margin | 10.0% | 10.3% | -0.3 pp | 7.3% | +2.7 pp |
| Net income (loss) | $35.8M | $38.2M | -6.2% | $10.5M | +240.2% |
| Net margin | 10.2% | 11.5% | -1.3 pp | 3.8% | +6.4 pp |
| Diluted EPS | $0.12 | $0.13 | -$0.01 | $0.04 | +$0.08 |
Risks
MD&A states customers continue to be cautious in their spending with tighter budget scrutiny and expects the elongation of sales cycles experienced over the last several quarters to persist throughout fiscal 2024. This could delay or reduce purchases of observability and security solutions.
MD&A key metrics show the dollar-based net retention rate decreased to 114% as of September 30, 2023 from 120% as of September 30, 2022. A continued decline could reduce expansion revenue and growth.
Risk Factors state the market is highly competitive and rapidly changing, including through AI, and cite Cisco's September 2023 agreement to acquire Splunk. Larger competitors with more resources could pressure pricing, margins, and market share.
MD&A states IRC Section 174 requires capitalizing and amortizing research and development expenses, which increases U.S. federal and state cash taxes and reduces cash flows in fiscal 2024 and future years.
Risk Factors note significant senior management changes in the last two years, including new CEO, CFO, General Counsel, Chief People Officer, Chief Revenue Officer, and Chief Accounting Officer. Senior management is employed at-will and could leave at any time.
Risk Factors highlight evolving privacy and AI laws, including GDPR fines of up to 4% of worldwide annual revenue, the EU AI Act, CCPA, and data localization requirements. Compliance could require additional investment and expose the company to penalties.
MD&A and Risk Factors cite the August 2023 acquisition of Rookout and related integration risks. Acquisitions could disrupt operations, divert management attention, dilute stockholders, or require additional debt.
Risk Factors state Thoma Bravo beneficially owned approximately 17.6% of common stock as of October 31, 2023, after selling approximately 14.8 million shares in February 2023 and 17.9 million shares in June 2023. Further sales or its influence could affect the stock price and governance.
Risk Factors and MD&A note the $400.0 million senior secured revolving credit facility, with $12.1 million of letters of credit outstanding as of September 30, 2023, and covenants including a maximum leverage ratio. A default could accelerate indebtedness and harm liquidity.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Total ARR
Dollar-Based Net Retention Rate
Non-GAAP Gross Margin
Summary, forecast, risks and KPIs are extracted from Dynatrace, Inc.'s SEC filings for Q2 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.