Summary
Dynatrace closed the third quarter of fiscal 2026 with revenue of $515.47 million, up 18.2% from the prior-year quarter. Gross profit rose 18.7% to $419.64 million, and operating income climbed 53.2% to $72.74 million. Operating margin expanded to 14.1%, a gain of 3.2 percentage points. Gross margin edged up 0.3 percentage points to 81.4%. The bottom line told a different story. Net income fell 88.9% to $40.06 million, and diluted EPS dropped 89.1% to $0.13. The decline stems from a large discrete tax benefit recognized in the prior-year quarter tied to an IP Transfer. That benefit did not repeat this year.
The company's annual recurring revenue reached $1,972 million, up 20% as reported and 16% on a constant currency basis. Dollar-based net retention rate was 111%, unchanged from a year ago. Dynatrace closed 12 deals greater than $1 million in ARR during the quarter. Eleven of those involved partners, and five were new logos. Annualized consumption dollars for log management surpassed $100 million. Management called log management the fastest growing major product category.
Cash generation was mixed. Operating cash flow was $33.78 million for the quarter, down 20.0% from the prior-year quarter. For the nine months ended December 31, 2025, operating cash flow was $335.49 million, up 13.1%. Capital expenditures were $6.55 million in the quarter, up 40.2%. Free cash flow, a non-GAAP measure, was $27 million for the quarter. Deferred revenue, current portion, was $924.67 million, up 13.8%. Remaining performance obligations stood at $3.20 billion, up 28.1%. The company said its existing cash, investments, credit facility, and operating cash flow should meet its requirements for at least the next 12 months.
Dynatrace also returned capital to shareholders. In the quarter, the company repurchased 3.5 million shares for $160 million at an average price of $45.31 under its existing $500 million program. Through February 6, 2026, it had repurchased 10.6 million shares for $495 million at an average price of $46.79. The board authorized a new $1 billion share repurchase program. Over the last four months, Dynatrace repurchased more than $200 million of stock.
Product and go-to-market updates centered on AI and cloud integrations. Dynatrace unveiled Dynatrace Intelligence, an agentic AI-powered operations system. It introduced domain-specific agents for site reliability engineers, development teams, and security teams. The company expanded integrations across Amazon Web Services, Microsoft Azure, and Google Cloud Platform. It also launched next-generation real user monitoring fully integrated into its Grail data lakehouse. Management sees AI adoption driving observability demand as organizations deploy more complex workloads.
Guidance for the full fiscal year 2026 calls for ARR of $2,053 million to $2,061 million, growth of 18.5% to 19% as reported and 15.5% to 16% on a constant currency basis. The top line is guided to grow 18% to 18.5% as reported and 16% in constant currency, with subscription revenue growing at the same rates. Non-GAAP income from operations is guided to $582 million to $587 million, a non-GAAP operating margin of 29%. Non-GAAP net income per diluted share is expected at $1.67 to $1.69. Free cash flow is forecast at $520 million to $525 million, a 26% margin. For the fourth quarter of fiscal 2026, the top line is guided to grow 16% to 17% as reported and 13% to 14% in constant currency. Fourth quarter non-GAAP income from operations is $133 million to $138 million, a 26% margin, and non-GAAP net income per diluted share is $0.38 to $0.39. Foreign exchange is expected to be a tailwind for both ARR and revenue for the full year.
Risks remain familiar. The filing points to a dynamic macroeconomic environment that includes geopolitical considerations, tariffs, trade policies, fluctuations in credit, equity, and foreign currency markets, changes in inflation, interest rates, consumer confidence, and spending. Those factors can affect customer buying patterns, transaction sizes, and sales cycle lengths. The company also cites risks tied to maintaining revenue growth, market adoption of its products, competition, security breaches, the ability to innovate and interoperate with customer IT infrastructures, and the hiring and retention of qualified employees.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2026 | Q2 FY2026 | QoQ | Q3 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $515.5M | $493.8M | +4.4% | $436.2M | +18.2% |
| Gross profit | $419.6M | $404.1M | +3.8% | $353.6M | +18.7% |
| Gross margin | 81.4% | 81.8% | -0.4 pp | 81.1% | +0.3 pp |
| Research & development | $120.6M | $115.0M | +4.8% | $98.3M | +22.6% |
| Sales & marketing | $174.1M | $167.7M | +3.8% | $154.5M | +12.7% |
| General & administrative | $52.3M | $48.4M | +7.9% | $49.4M | +5.9% |
| Total operating expenses | $346.9M | $331.1M | +4.8% | $306.1M | +13.3% |
| Operating income (loss) | $72.7M | $73.0M | -0.3% | $47.5M | +53.2% |
| Operating margin | 14.1% | 14.8% | -0.7 pp | 10.9% | +3.2 pp |
| Net income (loss) | $40.1M | $57.2M | -30.0% | $361.8M | -88.9% |
| Net margin | 7.8% | 11.6% | -3.8 pp | 82.9% | -75.2 pp |
| Diluted EPS | $0.13 | $0.19 | -$0.06 | $1.19 | -$1.06 |
Risks
MD&A highlights geopolitical considerations, tariffs, trade policies, inflation, interest rates, and foreign currency fluctuations as factors that may affect customer buying patterns, transaction size, and sales cycle length. Risk factors also cite the U.S. federal government shutdown from October 1, 2025 through November 12, 2025 and warn that future shutdowns or debt ceiling disruptions could increase uncertainty.
Dynatrace plans to evolve into an agentic AI platform and invest in AI capabilities, but the observability market is defined by rapidly changing technology including new and evolving uses of AI. Competitors include larger technology companies, and recent acquisitions such as Cisco/Splunk in 2024 and Palo Alto Networks/Chronosphere in 2026 could strengthen rival offerings.
Dynatrace experiences long, unpredictable, and seasonal sales cycles, with the third and fourth fiscal quarters typically largest and a significant portion of transactions closing in the last two weeks of a quarter. It is also seeing an increase in large strategic deals with higher variability, longer sales cycles, and specially negotiated terms.
In fiscal 2025, more than 30% of Dynatrace customer accounts transitioned to new sales representatives as part of a go-to-market strategy update. The company says it is difficult to predict whether these changes will achieve their desired effects and a negative impact on retention and other results is possible.
The observability market is highly competitive and fragmented, with larger competitors that have greater resources, broader distribution, and the ability to bundle offerings. Dynatrace also faces in-house solutions and open source alternatives that can be made available at little or no cost.
Dynatrace has had significant senior management turnover in the last three years, including new Chief People Officer, Chief Customer Officer, Chief Revenue Officer, and Chief Marketing Officer. It also faces intense competition for technical and sales talent, particularly in Europe where its research and development operations are concentrated.
MD&A notes subscription gross margin decreased due to higher cloud hosting expenses driven by increased customer utilization of the Dynatrace SaaS platform. Total gross margin was 81.8% year to date, up 0.5 pp, but risk factors warn that billings and revenue mix may vary and harm gross margin.
Operating cash flow decreased 20.0% in the quarter ended December 31, 2025 to $33.8 million, though it increased 13.1% year to date to $335.5 million. Risk factors note that billings may vary due to contract length and timing, which could impact cash collections.
Dynatrace relies on partners including Accenture, Atos, Deloitte, DXC, Kyndryl, AWS, GCP, and Azure to drive sales growth. Partner agreements are generally non-exclusive, some partners compete with Dynatrace, and partners may cease marketing its offerings with limited notice.
Dynatrace is subject to evolving laws and regulations on AI, privacy, cybersecurity, data governance, sanctions, and trade controls. MD&A notes geopolitical considerations, tariffs, and trade policies that could increase costs or restrict data and trade.
Dynatrace has been made aware of public postings of portions of its source code, which could reveal trade secrets and impact competitive advantage. It also notes that employee or contractor use of generative AI tools in violation of internal policies may compromise proprietary or IP rights.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
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 Q3 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 2, 2026.