Summary
Dynatrace closed fiscal 2023 with fourth-quarter revenue of $314.48 million, up 24.5% from the prior-year quarter. Full-year revenue reached $1.16 billion, up 24.6%. Total ARR was $1,247 million, and adjusted ARR growth was 29% year over year. The company ended the year with more than 3,600 Dynatrace customers, up from approximately 3,300 at March 31, 2022.
Profitability held up on a GAAP basis. Fourth-quarter gross profit was $254.91 million, up 24.5%, while gross margin was 81.1%, flat versus the prior-year quarter. Operating income rose 10.2% to $19.43 million, but operating margin slipped to 6.2%, down 0.8 percentage points. Net income was $80.29 million, up 8542.9% from the prior-year quarter. Full-year gross profit was $935.64 million, up 23.7%. Full-year net income was $107.96 million, up 105.8%. Full-year diluted EPS was $0.37, up 105.6%. Full-year gross margin was 80.8%, down 0.6 percentage points, and full-year operating margin was 8.0%, down 0.7 percentage points.
Cash generation improved. Fourth-quarter operating cash flow was $120.43 million, up 36.4% from the prior-year quarter. Full-year operating cash flow was $354.88 million, up 41.4%. Capital expenditures were $5.92 million in the quarter, flat versus the prior-year quarter, and $21.54 million for the full year, up 21.7%. Deferred revenue, current portion, was $811.06 million, up 17.8% from the prior-year quarter. Remaining performance obligations were $1.97 billion, up 25.6%.
Non-GAAP results and business wins add context. Fourth-quarter non-GAAP operating income was $78 million, and non-GAAP EPS was $0.31. Full-year non-GAAP operating income was $292 million, non-GAAP EPS was $0.97, and free cash flow was $333 million. Product work included an expanded Grail data lakehouse, a new user experience for Dynatrace products, and the new AutomationEngine and AppEngine. Hyperscaler partnerships produced several seven-figure deals in the fourth quarter, and new business through the largest hyperscaler partner grew by more than 80% compared to last year. The company also began rolling out Dynatrace to DXC PlatformX customers. Management argues that observability is moving from optional to mandatory as customers confront data explosion and cloud complexity.
Guidance for the first quarter of fiscal 2024 calls for non-GAAP operating income of $76.5 million to $78.5 million and non-GAAP EPS of $0.22. For the full fiscal year 2024, Dynatrace guides ARR to $1,475 million to $1,490 million, non-GAAP operating income to $348 million to $358 million, non-GAAP EPS to $0.98 to $1.02, and free cash flow to $303 million to $312 million. The outlook assumes a foreign exchange tailwind of approximately $10 million on ARR and $13 million on revenue. Management expects sales cycles to remain elongated through fiscal 2024, with customers cautious and budgets under tighter scrutiny. The MD&A also flags macroeconomic uncertainty, inflation, interest rates, foreign currency volatility, and geopolitical disruption as factors that could change buying patterns. A tax law change under IRC Section 174 will raise U.S. federal and state cash taxes and cut cash flows in fiscal 2024 and future years.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $314.5M | $297.5M | +5.7% | $252.6M | +24.5% |
| Gross profit | $254.9M | $241.6M | +5.5% | $204.7M | +24.5% |
| Gross margin | 81.1% | 81.2% | -0.2 pp | 81.0% | +0.0 pp |
| Research & development | $64.5M | $53.4M | +20.9% | $42.8M | +50.7% |
| Sales & marketing | $126.8M | $111.5M | +13.7% | $101.3M | +25.2% |
| General & administrative | $37.4M | $36.2M | +3.2% | $35.4M | +5.7% |
| Total operating expenses | $235.5M | $207.7M | +13.4% | $187.0M | +25.9% |
| Operating income (loss) | $19.4M | $33.9M | -42.7% | $17.6M | +10.2% |
| Operating margin | 6.2% | 11.4% | -5.2 pp | 7.0% | -0.8 pp |
| Net income (loss) | $80.3M | $15.0M | +434.4% | $929.0K | +8542.9% |
| Net margin | 25.5% | 5.0% | +20.5 pp | 0.4% | +25.2 pp |
| Diluted EPS | $0.28 | $0.05 | +$0.23 | $0.00 | +$0.28 |
| Customers | 3,600 | — | — | 3,300 | +9.1% |
| Net retention rate | 25.0% | — | — | — | — |
Risks
MD&A states customers continue to be cautious in their spending with tighter budget scrutiny, and the elongation of sales cycles experienced in the second half of fiscal 2023 is expected to persist throughout fiscal 2024. This could delay or reduce purchases of observability and security solutions.
Risk Factors note sales cycles can range from several months to over a year, with significant end-of-quarter concentration and the third fiscal quarter typically being the largest. This variability makes revenue growth and cash flow planning difficult.
The market is highly competitive and fragmented, with larger competitors that have greater resources, broader distribution, and the ability to bundle offerings. Competition could lead to pricing pressure, reduced margins, and loss of market share.
Risk Factors disclose past phishing and other attacks, and reference the SolarWinds Orion SUNBURST incident where the company used affected software. A multi-tenant platform means a breach could affect many customers.
The company experienced rapid revenue growth in recent periods, but Risk Factors state this growth may not be indicative of future growth and may not be sustained. Dependence on new customer acquisition, expansion, and new geographies is highlighted.
The company hired a new CEO, CFO, General Counsel, and Chief People Officer in the last two years, and senior management is employed at will. Loss of key leaders could disrupt operations and execution of the business plan.
In December 2022, the company entered a $400.0 million senior secured revolving credit facility with $384.5 million available and $15.5 million of letters of credit outstanding as of March 31, 2023. It contains a maximum leverage ratio covenant and default could accelerate indebtedness.
Growth increasingly depends on partners including Deloitte, DXC, AWS, GCP, Azure, and IBM Red Hat. Agreements are generally non-exclusive, some partners compete, and failure of partners to perform could limit sales.
Customers have no obligation to renew, and retention and expansion rates may decline due to satisfaction, pricing, competition, or macroeconomic trends. A failure to increase sales to existing customers could harm results.
The company is subject to stringent and evolving privacy laws, including GDPR, and customer contracts include security and data protection commitments. Noncompliance could lead to regulatory fines, litigation, and reputational harm.
Thoma Bravo Funds beneficially owned approximately 23.9% of common stock as of May 22, 2023 and sold approximately 14.8 million shares in February 2023. This concentration can influence stockholder votes and future share sales could reduce the market price.
The company uses and contributes to open source projects, which may limit its ability to enforce patent rights. It has also been made aware of public postings of portions of its source code, potentially revealing trade secrets.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Total ARR
Free Cash Flow
Total customers
Net New ARR
Adjusted ARR Growth
ARR - Constant Currency
ARR Excluding TTM Perpetual License Rolloff - Constant Currency
Summary, forecast, risks and KPIs are extracted from Dynatrace, Inc.'s SEC filings for Q4 FY2023 (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.