Summary
Dynatrace reported total revenue of $493.85 million for the second quarter of fiscal 2026, up 18.1% from the prior-year quarter. Subscription revenue of $473 million rose 18% and carried nearly all of the top line. Gross profit was $404.08 million, up 18.7%, and gross margin reached 81.8%, up 0.4 percentage points. GAAP operating income climbed 55.2% to $72.97 million. GAAP net income was $57.24 million, up 30.1%, and diluted earnings per share were $0.19, up $0.04.
Profitability grew faster than the top line. Operating margin was 14.8%, up 3.5 percentage points from the prior-year quarter. Non-GAAP income from operations was $153 million, and non-GAAP operating margin held at 31%. On the cash side, operating cash flow for the quarter was $32.02 million, up 35.4%. Free cash flow, a different measure that subtracts capital spending, was $27.8 million. Capital expenditures were $4.19 million, up 19.2%. Through the first six months of fiscal 2026, revenue was $971.20 million, up 18.8%, net income was $105.20 million, up 27.3%, and operating cash flow was $301.71 million, up 18.6%. Diluted earnings per share for the year-to-date period were $0.35, up $0.08.
Backlog and recurring revenue metrics point to steady demand. Total ARR was $1,899 million as of September 30, 2025, up 17% year over year, or 16% on a constant currency basis. Remaining performance obligations were $3.04 billion, up 26.6%. Current deferred revenue was $889.96 million, up 10.4%. The dollar-based net retention rate was 111%, compared with 112% a year earlier.
Management highlighted several go-to-market wins. Dynatrace announced a multi-year collaboration with ServiceNow and an integration with Atlassian, and joined the GitHub Model Context Protocol Registry. Annual contract value from seven-figure deals closed in the quarter grew 53% year over year, all in collaboration with partners. The Dynatrace Platform Subscription model now covers 50% of the customer base and 70% of ARR. The company spent $50 million to repurchase 994,000 shares at an average price of $50.27 during the quarter.
Guidance for the third quarter of fiscal 2026 points to revenue growth of 15% to 16% as reported and 13% to 14% in constant currency. Non-GAAP operating margin is expected between 28.5% and 29%, with non-GAAP net income per diluted share of $0.40 to $0.42. For the full fiscal year 2026, the company raised its outlook, with ARR guided to $2,010 million to $2,025 million and non-GAAP net income per diluted share of $1.62 to $1.64. Free cash flow guidance for the full year is $505 million to $515 million, a 26% margin. Foreign exchange is expected to be a tailwind of roughly $38 million on ARR and $34 million on revenue for fiscal 2026.
Risks remain familiar. The company points to the macroeconomic environment, geopolitical disruption, tariffs and trade policy, and swings in credit, equity, and foreign currency markets as factors that could affect customer buying patterns, deal sizes, and sales cycle length. Competition, security breaches, the ability to hire and retain qualified employees, and the integration of acquisitions are also flagged. Amortization of acquired technology and other intangibles fell sharply as legacy assets became fully amortized, which lifts year-over-year margin comparisons.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $493.8M | $477.3M | +3.5% | $418.1M | +18.1% |
| Gross profit | $404.1M | $392.1M | +3.0% | $340.3M | +18.7% |
| Gross margin | 81.8% | 82.2% | -0.3 pp | 81.4% | +0.4 pp |
| Research & development | $115.0M | $108.2M | +6.3% | $95.4M | +20.6% |
| Sales & marketing | $167.7M | $165.3M | +1.4% | $144.2M | +16.3% |
| General & administrative | $48.4M | $56.3M | -14.0% | $49.0M | -1.1% |
| Total operating expenses | $331.1M | $329.8M | +0.4% | $293.3M | +12.9% |
| Operating income (loss) | $73.0M | $62.3M | +17.1% | $47.0M | +55.2% |
| Operating margin | 14.8% | 13.1% | +1.7 pp | 11.3% | +3.5 pp |
| Net income (loss) | $57.2M | $48.0M | +19.4% | $44.0M | +30.1% |
| Net margin | 11.6% | 10.1% | +1.5 pp | 10.5% | +1.1 pp |
| Diluted EPS | $0.19 | $0.16 | +$0.03 | $0.15 | +$0.04 |
Risks
Global economic uncertainty and lengthening sales cycles may cause customers to defer or reduce discretionary observability spending. The filing specifically cites the U.S. federal government shutdown that began October 1, 2025, tariffs, and trade policy changes as factors that could increase uncertainty and volatility.
Markets are highly competitive and defined by rapidly changing technology, including new and evolving uses of AI. Larger competitors with more resources, such as Cisco following its 2024 acquisition of Splunk, and in-house or open source alternatives could pressure pricing and market share. MD&A highlights the need to evolve into an agentic AI platform and grow next-generation log management.
Sales cycles are long, unpredictable, and seasonal, with the third and fourth fiscal quarters typically largest and a significant portion of transactions closing in the last two weeks of a quarter. Large strategic deals carry higher variability, longer cycles, and greater uncertainty of completion.
The fiscal 2025 go-to-market update transitioned more than 30% of customer accounts to new sales representatives, and the company says a negative impact on retention and other results is possible. Dollar-based net retention rate was 111% as of September 30, 2025 compared to 112% as of September 30, 2024.
The company has recently hired a new Chief People Officer, Chief Customer Officer, Chief Revenue Officer, Chief Marketing Officer, and various sales and marketing leaders. Senior management is employed at will, and the loss of key leaders could disrupt operations and execution of the business plan.
Sales to U.S. federal, state, and foreign government entities are subject to budget cycles, continuing resolutions, audits, and debarment. The filing specifically cites the Department of Government Efficiency (DOGE) reform efforts and an extended federal government shutdown as risks to public sector demand.
The company has been the target of cybersecurity attacks, including email phishing, and uses a multi-tenant SaaS platform, so a breach could affect a significant number of customers. Remote work and third-party hosting increase exposure.
The company has been made aware of public postings of portions of its source code, and its contributions to open source projects may limit its ability to enforce patent rights. Employees' use of generative AI tools in violation of internal policies could compromise proprietary or IP rights.
The $400.0 million Credit Facility had $399.0 million available as of September 30, 2025, with $1.0 million of letters of credit outstanding. Covenants include a maximum leverage ratio, and a default could accelerate indebtedness and permit lenders to exercise remedies against substantially all assets.
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 Q2 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 1, 2026.