Summary
Growth held up at Dynatrace in the December quarter, but profitability at the GAAP line moved more slowly than the top line. Total revenue for the third quarter of fiscal 2024 was $365.1 million, up 22.7% from a year earlier. Annual recurring revenue reached $1,425 million as of December 31, 2023, up 23% as reported and 21% on a constant currency basis. Management credited new customer additions and expansion inside existing accounts for the increase. Revenue for the first nine months of fiscal 2024 was $1.05 billion, up 24.4%.
Gross profit for the quarter was $297.2 million, up 23.0%, and the gross margin was 81.4%, up 0.2 percentage points from the prior-year quarter. Operating income rose 5.4% to $35.7 million, yet the operating margin slipped 1.6 percentage points to 9.8%. Research and development was the fastest-growing expense line, and share-based compensation and personnel costs drove most of the increase. Net income was $42.7 million, up 184.1%, helped by a swing in interest income, net, from an expense a year earlier and by tax. Diluted EPS was $0.14, up $0.09. The gap between the two profit views is wide: non-GAAP income from operations was $105 million for the quarter, and the non-GAAP operating margin was 29%. Non-GAAP diluted EPS was $0.32.
Cash generation stayed healthy. Operating cash flow for the quarter was $75.7 million, up 22.1%, and free cash flow was $67.4 million, compared with $57.6 million a year earlier. Capital expenditures were $3.6 million, down 16.9% year over year. For the first nine months of the fiscal year, operating cash flow was $246.4 million, up 5.1%. Deferred revenue was $757.1 million, up 17.0%, and remaining performance obligations were $1.96 billion, up 15.2%. One soft spot is expansion within the base. The dollar-based net retention rate was 113%, down from 119% a year earlier.
Guidance covers the fourth quarter and the full fiscal year. For the fourth quarter of fiscal 2024, Dynatrace guided revenue growth of 18% to 19% in constant currency, non-GAAP income from operations of $85 million to $90 million, a non-GAAP operating margin of 23% to 24%, and non-GAAP EPS of $0.26 to $0.28. For the full fiscal year, the company guided revenue growth of 22% in constant currency and subscription revenue growth of 24% in constant currency, with non-GAAP EPS of $1.16 to $1.18 and a non-GAAP operating margin of 27.25% to 27.5%. Full-year free cash flow guidance is $330 million to $335 million, a 23% free cash flow margin. Growth expectations for the full year were raised versus the guidance issued on November 2, 2023.
The company keeps pointing to a difficult macro backdrop. It lists geopolitical disruption, swings in credit, equity and foreign currency markets, changes in inflation and interest rates, and shifting customer buying patterns and sales cycle lengths among the factors that could move results. The outlook assumes foreign exchange rates as of January 31, 2024 and a currency tailwind of about $13 million on full-year revenue. On January 29, 2024, Dynatrace announced a definitive agreement to acquire Runecast, a security and compliance vendor, with the deal expected to close later in the fourth quarter. Section 174 capitalization of research and development costs continues to raise U.S. cash taxes and pressure cash flow. Cash and cash equivalents were $782.6 million as of December 31, 2023, with $387.9 million available under the revolving credit facility.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2024 | Q2 FY2024 | QoQ | Q3 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $365.1M | $351.7M | +3.8% | $297.5M | +22.7% |
| Gross profit | $297.2M | $287.3M | +3.4% | $241.6M | +23.0% |
| Gross margin | 81.4% | 81.7% | -0.3 pp | 81.2% | +0.2 pp |
| Research & development | $80.1M | $74.1M | +8.1% | $53.4M | +50.0% |
| Sales & marketing | $132.7M | $127.6M | +4.0% | $111.5M | +19.0% |
| General & administrative | $43.2M | $44.7M | -3.4% | $36.2M | +19.3% |
| Total operating expenses | $261.5M | $252.1M | +3.7% | $207.7M | +25.9% |
| Operating income (loss) | $35.7M | $35.3M | +1.3% | $33.9M | +5.4% |
| Operating margin | 9.8% | 10.0% | -0.3 pp | 11.4% | -1.6 pp |
| Net income (loss) | $42.7M | $35.8M | +19.2% | $15.0M | +184.1% |
| Net margin | 11.7% | 10.2% | +1.5 pp | 5.0% | +6.6 pp |
| Diluted EPS | $0.14 | $0.12 | +$0.02 | $0.05 | +$0.09 |
Risks
Dynatrace has observed continued economic uncertainty in the United States and abroad and lengthening sales cycles. Customers or prospects may reduce IT budgets, defer or cancel purchases, or seek to renegotiate vendor contracts, which could pressure revenue and renewals.
Sales cycles can range from several months to over a year, and Dynatrace is experiencing an increase in large strategic deals with less predictable, longer sales cycles and greater uncertainty of completing the sale. The third and fourth fiscal quarters are typically largest, with a significant portion of transactions in the last two weeks of a quarter.
Dollar-based net retention rate was 113% as of December 31, 2023, down from 119% as of December 31, 2022. If customers do not renew or expand at recent rates, future revenue growth could be harmed.
The observability and security market is highly competitive and rapidly changing, including in AI. Dynatrace faces larger competitors with greater resources and noted Cisco's September 2023 agreement to acquire Splunk, which could increase competitive pressure.
Operating margin was 9.8% for the quarter ended December 31, 2023, down from 11.4% in the prior-year quarter, as research and development expense rose 47% and total operating expenses rose 26%. Service gross margin was nearly zero in the quarter compared with 18% in the prior-year quarter.
In the last two years, Dynatrace hired a new Chief Financial Officer, General Counsel, Chief People Officer, Chief Revenue Officer, Chief Accounting Officer, and Chief Marketing Officer, among other leadership changes. Senior management is employed at-will, so departures could disrupt operations.
Dynatrace acquired Rookout in August 2023 and announced an agreement to acquire Runecast in January 2024. Acquisitions may distract management, fail to achieve anticipated benefits, result in dilution, or create integration and compliance challenges.
IRC Section 174 requires capitalization and amortization of research and development expenses, which increases U.S. federal and state cash taxes and reduces cash flows in fiscal 2024 and future years. Cash paid for tax, net was $61.8 million for the nine months ended December 31, 2023, compared with $20.3 million received in the prior-year period.
Dynatrace relies on global system integrators including Deloitte and DXC and hyperscalers including AWS, GCP, Azure, and IBM Red Hat. Partner agreements are generally non-exclusive, and some partners compete with Dynatrace, so partner failure or termination could harm growth.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Total ARR
Free Cash Flow
Dollar-Based Net Retention Rate
Net New ARR
Non-GAAP Gross Margin
Summary, forecast, risks and KPIs are extracted from Dynatrace, Inc.'s SEC filings for Q3 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.