Summary
Dynatrace's fiscal 2025 second quarter, ended September 30, 2024, showed healthy demand for its observability platform. Total revenue was $418.1 million, up 18.9% from the prior-year quarter. For the first six months of fiscal 2025, revenue was $817.3 million, up 19.4%. Gross profit was $340.3 million in the quarter, up 18.4%, while gross margin was 81.4%, down 0.3 percentage points. The company also reported current deferred revenue of $806.2 million, up 18.9%, and remaining performance obligations of $2.40 billion, up 33.7%. ARR was $1,617 million, up 20%, or 19% on a constant currency basis. Dollar-based net retention rate was 112%, compared with 114% a year earlier.
Profitability improved on a GAAP basis. Operating income was $47.0 million, up 33.3%, and operating margin was 11.2%, up 1.2 percentage points. Net income was $44.0 million, up 22.9%, and diluted EPS was $0.15, up 25.0%. For the six months ended September 30, 2024, net income was $82.6 million, up 11.7%, and diluted EPS was $0.27, up 8.0%. On a non-GAAP basis, income from operations was $131 million, non-GAAP operating margin was 31%, and non-GAAP EPS was $0.37. The gap between GAAP and non-GAAP results remained wide.
Cash generation was mixed. Operating cash flow was $23.65 million in the quarter, down 35.9%. For the first six months, operating cash flow was $254.4 million, up 49.0%. Capital expenditures were $3.51 million in the quarter, up 27.7%, but year-to-date capital expenditures were $6.87 million, down 47.2%. Free cash flow, a non-GAAP measure, was $20.1 million in the quarter, compared with $34.1 million in the prior-year quarter. During the quarter, Dynatrace spent $40 million to repurchase 835,000 shares at an average price of $47.90 under its $500 million share repurchase program. From the program's inception in May 2024 through September 30, 2024, the company repurchased 1.9 million shares for $90 million at an average price of $46.71.
Management issued guidance for the third quarter and raised full-year fiscal 2025 guidance. For the third quarter, total revenue is expected to be $425 million to $428 million, with as-reported growth of 16% to 17% and constant currency growth of 17% to 18%. Non-GAAP income from operations is guided to $117 million to $120 million, non-GAAP operating margin to 27.5% to 28%, and non-GAAP EPS to $0.32 to $0.33. For the full fiscal year 2025, total revenue is guided to $1,665 million to $1,675 million, with as-reported growth of 16% to 17% and constant currency growth of 17% to 18%. ARR is guided to $1,720 million to $1,735 million, with constant currency growth of 15% to 16%. Non-GAAP income from operations is guided to $466 million to $474 million, non-GAAP operating margin to 28% to 28.25%, and non-GAAP EPS to $1.31 to $1.33. Free cash flow is guided to $393 million to $404 million, with free cash flow margin of 23.5% to 24%.
The outlook assumes foreign exchange rates as of October 31, 2024. Dynatrace expects foreign exchange to be a headwind of approximately $11 million on ARR and approximately $7 million on revenue for fiscal 2025 compared with constant currency. The company also faces a broad set of risks. These include macroeconomic and geopolitical disruption, fluctuations in credit, equity, and foreign currency markets, inflation, interest rates, and changes in customer confidence and spending. Dynatrace cites the risk that customers may change the size of transactions or extend sales cycles. Other named risks include competition, the ability to innovate and maintain revenue growth rates, market adoption of new offerings, security breaches, protection of intellectual property, and the hiring and retention of qualified employees. Integration of acquisitions is another risk. The quarter included industry recognition, including Gartner Magic Quadrant placements and customer events with more than 2,000 customers and partners and more than 400 partners.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2025 | Q1 FY2025 | QoQ | Q2 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $418.1M | $399.2M | +4.7% | $351.7M | +18.9% |
| Gross profit | $340.3M | $324.5M | +4.9% | $287.3M | +18.4% |
| Gross margin | 81.4% | 81.3% | +0.1 pp | 81.7% | -0.3 pp |
| Research & development | $95.4M | $87.6M | +8.9% | $74.1M | +28.7% |
| Sales & marketing | $144.2M | $145.1M | -0.6% | $127.6M | +13.0% |
| General & administrative | $49.0M | $45.0M | +8.8% | $44.7M | +9.4% |
| Total operating expenses | $293.3M | $282.4M | +3.9% | $252.1M | +16.4% |
| Operating income (loss) | $47.0M | $42.0M | +11.9% | $35.3M | +33.3% |
| Operating margin | 11.3% | 10.5% | +0.7 pp | 10.0% | +1.2 pp |
| Net income (loss) | $44.0M | $38.6M | +14.0% | $35.8M | +22.9% |
| Net margin | 10.5% | 9.7% | +0.8 pp | 10.2% | +0.3 pp |
| Diluted EPS | $0.15 | $0.13 | +$0.02 | $0.12 | +$0.03 |
Risks
The company has observed global economic uncertainty and lengthening sales cycles. MD&A says geopolitical considerations, credit and equity market fluctuations, inflation, interest rates, and consumer confidence may affect customer buying patterns, transaction size, and sales cycle length. Observability and security purchases are often discretionary and can be delayed or canceled in downturns.
The company is experiencing an increase in large, strategic deals where customers make broader observability architecture decisions. These deals carry higher variability, longer sales cycles, greater uncertainty of completion, and specially negotiated terms; sales cycles can run from several months to over a year, and a significant portion of transactions close in the last two weeks of a quarter.
Dollar-based net retention rate decreased to 112% as of September 30, 2024 from 114% as of September 30, 2023. The company also transitioned more than 30% of customer accounts to new sales representatives following a go-to-market change earlier this year, and it cannot predict whether these changes will achieve their desired effects or avoid a negative retention impact.
Total ARR grew 20% year over year as of September 30, 2024, down from 26% year over year as of September 30, 2023. The company states its rapid revenue growth may not be indicative of future growth and it may not sustain revenue growth consistent with recent history.
Total gross margin was 81.4% in FY2025 Q2, down from 81.7% in FY2024 Q2. Subscription gross margin decreased from 87% to 86% and service gross margin decreased from 9% to 4% for the quarter, driven by increased cloud-based hosting costs and personnel costs; billings and revenue mix may continue to harm gross margin and cash flows.
The observability and security markets are highly competitive and rapidly evolving, including new and evolving uses of AI. The company must keep developing AI-enabled offerings such as Davis hypermodal AI and application security, while larger competitors and consolidation, such as Cisco's acquisition of Splunk, may pressure pricing and market share.
Future growth depends increasingly on partners including GSIs Accenture, Deloitte, DXC, and Kyndryl and hyperscalers AWS, GCP, and Azure. Partner agreements are generally non-exclusive, some partners compete with Dynatrace, and failure or termination of hyperscaler relationships could impair sales and growth.
IRC Section 174 requires capitalization and amortization of R&D expenses, which has increased U.S. federal and state cash taxes and reduced cash flows since fiscal year 2024. The company also cites Pillar Two global minimum tax developments, though it does not expect a material fiscal 2025 impact.
The company hired a new Chief Revenue Officer, Chief Marketing Officer, and other sales and marketing leaders over the last two years, and senior management is at-will. Competition for skilled personnel is intense, particularly in Europe where R&D operations are concentrated.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
Dollar-Based Net Retention Rate
ARR
Summary, forecast, risks and KPIs are extracted from Dynatrace, Inc.'s SEC filings for Q2 FY2025 (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.