Summary
Dynatrace closed fiscal 2025 third quarter with total revenue of $436.17 million, up 19.5% from the prior-year quarter. Gross profit reached $353.61 million, up 19.0%. Operating income was $47.46 million, up 32.9%, and net income jumped to $361.75 million, up 747.4%. Diluted EPS was $1.19, up 750.0%. The net income increase reflects a discrete tax benefit from an intra-entity IP transfer. Gross margin was 81.1%, down 0.3 percentage points, while operating margin was 10.9%, up 1.1 percentage points. On a non-GAAP basis, income from operations was $131 million and non-GAAP diluted EPS was $0.37. ARR was $1,647 million, up 16% as reported and 18% on a constant currency basis. The dollar-based net retention rate was 111%.
Cash flow was mixed. Net cash provided by operating activities was $42.24 million for the quarter, down 44.2% from the prior-year quarter. Capital expenditures were $4.67 million, up 28.1%. Free cash flow, a non-GAAP measure, was $37.6 million. Deferred revenue, current portion, was $812.89 million, up 7.4% from the prior-year quarter. Remaining performance obligations were $2.50 billion, up 27.8%. Through nine months, operating cash flow was $296.63 million, up 20.4%, and capital expenditures were $11.54 million, down 30.7%. Year-to-date revenue was $1.25 billion, up 19.4%, and year-to-date net income was $444.38 million, up 280.8%. Year-to-date diluted EPS was $1.47, up 276.9%. Year-to-date gross margin was 81.2%, down 0.2 percentage points, and year-to-date operating margin was 10.9%, up 0.9 percentage points.
The company issued guidance for the fourth quarter of fiscal 2025 and updated full-year fiscal 2025 guidance. For the fourth quarter, total revenue is guided to $432 million to $437 million, with as-reported growth of 13% to 15% and constant-currency growth of 16% to 17%. Subscription revenue is guided to $410 million to $415 million. Non-GAAP income from operations is guided to $104 million to $110 million, and non-GAAP net income per diluted share is guided to $0.29 to $0.31. For full fiscal 2025, total revenue is guided to $1,686 million to $1,691 million, with as-reported growth of 18% and constant-currency growth of 19%. Subscription revenue is guided to $1,609 million to $1,614 million. Non-GAAP income from operations is guided to $480 million to $486 million, non-GAAP net income per diluted share is guided to $1.36 to $1.37, and free cash flow is guided to $415 million to $420 million. The guidance assumes foreign exchange is a headwind of approximately $38 million on ARR and $17 million on revenue for fiscal 2025, including an incremental $28 million to ARR and $10 million to revenue from recent U.S. dollar strength.
Dynatrace faces several risks. Management points to the macroeconomic environment, geopolitical disruption, fluctuations in credit, equity, and foreign currency markets, changes in inflation and interest rates, and shifts in customer confidence and spending that can affect transaction size and sales cycle length. The company also cites competition, market adoption of its products, ability to innovate, security breaches, dependence on partner relationships, hiring and retention, and acquisition integration. The IP transfer that lifted net income required significant assumptions about discount rates and future revenue and expenses, so different assumptions could materially change the IP valuation. IRC Section 174 has increased U.S. federal and state cash taxes and reduced cash flows since fiscal 2024. Share-based compensation tax effects can also swing the effective tax rate, and the company is monitoring Pillar Two global minimum tax rules. During the quarter, Dynatrace repurchased $40 million of stock, or 732,000 shares at an average price of $54.64, under its $500 million repurchase program. As of December 31, 2024, $369.9 million remained available for future repurchases.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2025 | Q2 FY2025 | QoQ | Q3 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $436.2M | $418.1M | +4.3% | $365.1M | +19.5% |
| Gross profit | $353.6M | $340.3M | +3.9% | $297.2M | +19.0% |
| Gross margin | 81.1% | 81.4% | -0.3 pp | 81.4% | -0.3 pp |
| Research & development | $98.3M | $95.4M | +3.1% | $80.1M | +22.8% |
| Sales & marketing | $154.5M | $144.2M | +7.1% | $132.7M | +16.4% |
| General & administrative | $49.4M | $49.0M | +0.8% | $43.2M | +14.2% |
| Total operating expenses | $306.1M | $293.3M | +4.4% | $261.5M | +17.1% |
| Operating income (loss) | $47.5M | $47.0M | +0.9% | $35.7M | +32.9% |
| Operating margin | 10.9% | 11.3% | -0.4 pp | 9.8% | +1.1 pp |
| Net income (loss) | $361.8M | $44.0M | +722.0% | $42.7M | +747.4% |
| Net margin | 82.9% | 10.5% | +72.4 pp | 11.7% | +71.3 pp |
| Diluted EPS | $1.19 | $0.15 | +$1.04 | $0.14 | +$1.05 |
Risks
The company cites global economic uncertainty and lengthening sales cycles, and warns that recessionary pressures, geopolitical conflicts, potential U.S. federal government shutdown, and post-2024 election policy changes could cause customers to defer or cancel observability and security purchases.
Sales cycles can range from several months to over a year, and the company is experiencing an increase in large strategic deals with longer cycles, greater uncertainty, and specially negotiated terms; the third and fourth fiscal quarters are typically largest and a significant portion of transactions close in the last two weeks of a quarter.
When the company updated its go-to-market strategy earlier in fiscal 2025, more than 30% of customer accounts transitioned to new sales representatives, and it is difficult to predict whether these changes will achieve their desired effects or negatively impact retention.
ARR was $1,647 million as of December 31, 2024, reflecting 16% year-over-year growth, compared with 23% year-over-year growth as of December 31, 2023, and the company cautions that rapid revenue growth in recent periods may not be indicative of future growth.
Dollar-based net retention rate was 111% as of December 31, 2024 compared with 113% as of December 31, 2023, and the company warns that retention and expansion rates may decline or fluctuate due to go-to-market changes, pricing, competition, and macroeconomic trends.
The markets are defined by rapidly changing technology including new and evolving uses of AI, and the company must continue developing its Davis hypermodal AI and other AI-enabled solutions; AI may not work as anticipated or may produce unexpected results.
The company faces significant competition from larger companies with greater resources, and it specifically notes that Cisco acquired Splunk in 2024; competitors may bundle offerings, price aggressively, or customers may build in-house or open source alternatives.
The quarter's net income included a $320.9 million discrete tax benefit from an intra-entity IP Transfer whose valuation relies on significant management assumptions about discount rates and future revenue and expenses; separately, IRC Section 174 has increased U.S. federal and state cash taxes and reduced cash flows since fiscal 2024.
The company states it has in the past been and may in the future be the target of cybersecurity attacks, including email phishing, and because it uses a multi-tenant SaaS platform, any security breach or compromise could potentially affect a significant number of customers.
Subscription gross margin decreased from 87% to 85% for the three months ended December 31, 2024 compared with the prior-year period, and total gross margin was down 0.3 percentage points, primarily due to increased cloud-based hosting costs to support subscription cloud-based offerings.
Operating cash flow was $42.2 million for the three months ended December 31, 2024, down 44.2% from the prior-year quarter, and free cash flow was $37.6 million compared with $67.4 million in the prior-year period; billings and revenue mix, contract length, and payment terms can cause cash flow variability.
The company is subject to evolving privacy, cybersecurity, AI, trade, and data governance laws, and specifically notes that the EU's Digital Operational Resilience Act (DORA) became effective on January 17, 2025; non-compliance could lead to fines, investigations, and increased compliance costs.
Dynatrace solutions are hosted on AWS, Azure, and GCP, and hyperscalers have the right to terminate agreements upon material uncured breach; a prolonged hyperscaler service disruption or termination would interrupt access to the platform and require significant delays and expense to re-architect.
The company has a $400.0 million Credit Facility with $399.2 million available and $0.8 million of letters of credit outstanding as of December 31, 2024, and it contains covenants including a maximum leverage ratio; a default could accelerate indebtedness and permit lenders to exercise remedies against substantially all assets.
The company has recently hired a new Chief Revenue Officer, Chief Marketing Officer, and various new sales and marketing leaders, and competition for skilled personnel is intense, particularly in Europe where its research and development operations are concentrated.
The company acquired Rookout in August 2023 and Runecast in March 2024 and expects to continue evaluating acquisitions; integration may divert management attention, disrupt operations, dilute stockholders, or result in impairment of goodwill or other intangible assets.
The trading price of common stock has ranged from an intraday low of $17.05 to an intraday high of $80.13 between the 2019 IPO and January 28, 2025, and the Thoma Bravo Funds sold approximately 53.4 million shares in fiscal 2024 and 6.5 million shares in the first quarter of fiscal 2025, bringing beneficial ownership below 5%.
The company has a $500.0 million share repurchase program with $369.9 million remaining as of December 31, 2024; repurchases could increase stock price volatility, reduce cash reserves, and may be suspended or terminated at any time.
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 Q3 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.