WALTHAM, Mass.–(BUSINESS WIRE)–Software intelligence company Dynatrace (NYSE: DT) today released financial results for the first quarter of its fiscal 2023 ended June 30, 2022.
“Q1 was yet another quarter of solid execution with balanced growth and profitability highlighting the durability of our business in the current environment,” said Rick McConnell, Chief Executive Officer. “We continue to see digital transformation initiatives with clear and measurable ROI as a top priority for the global 15,000 organizations that we target. Automation and AIOps are requirements for companies looking to do more with less time, resource, and cost. Our platform is rooted in these capabilities, which differentiate us from our competitors and position us well for continued growth and success in the future.
First Quarter Fiscal 2023 and Other Recent Business Highlights:
All growth rates are compared to the first quarter of fiscal 2022 unless otherwise noted.
Financial Highlights:
- Total ARR of $1,031 million, Adjusted ARR growth of 34% year-over-year
- Total Revenue of $267 million, up 32% on a constant currency basis
- Subscription Revenue of $250 million, up 32% on a constant currency basis
- Operating Income of $19 million and Non-GAAP Operating Income of $60 million
- EPS of $0.01 and Non-GAAP EPS of $0.18, both on a dilutive basis
Business Highlights:
- Market Leadership: Named Leader in the 2022 Gartner Magic Quadrant for APM and Observability. Ranked highest in 4 of 6 Gartner Critical Capabilities for APM and Observability.
- Platform Innovation: Extended the Dynatrace® platform with automatic release validation capabilities and unified its log analytics and digital experience monitoring (DEM) capabilities, enabling development teams to ensure the highest quality user experience and accelerate innovation.
- Go-to-market Success: Added 135 new logos to the Dynatrace® platform in the first quarter, consistent with the first quarter of last fiscal year. Delivered a net expansion rate above 120% for the seventeenth consecutive quarter. On a trailing-twelve-month basis, business transacted through hyperscaler partnerships, including AWS, Google, Microsoft, is nearly 3x compared to the same period last year.
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First Quarter 2023 Financial Highlights (Unaudited – In thousands, except per share data) |
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Three Months Ended June 30, |
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2022 |
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2021 |
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Key Operating Metric: |
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Annualized recurring revenue |
$ |
1,031,284 |
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$ |
823,222 |
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Year-over-Year Increase |
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25 |
% |
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| Year-over-Year Increase – constant currency |
31 |
% | |||||
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Adjusted ARR Growth |
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34 |
% |
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Revenue: |
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Total revenue |
$ |
267,273 |
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$ |
209,740 |
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Year-over-Year Increase |
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27 |
% |
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Year-over-Year Increase – constant currency (*) |
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32 |
% |
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Subscription revenue |
$ |
249,558 |
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$ |
196,520 |
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Year-over-Year Increase |
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27 |
% |
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Year-over-Year Increase – constant currency (*) |
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32 |
% |
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Non-GAAP Financial Measures: |
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Non-GAAP operating income (*) |
$ |
60,315 |
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$ |
53,540 |
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Non-GAAP operating margin (*) |
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23 |
% |
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26 |
% |
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Non-GAAP net income (*) |
$ |
51,842 |
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$ |
45,030 |
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Non-GAAP net income per share – diluted |
$ |
0.18 |
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$ |
0.16 |
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Non-GAAP shares outstanding – diluted |
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290,024 |
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288,988 |
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Free Cash Flow (*) |
$ |
136,192 |
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$ |
80,518 |
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* Use of Non-GAAP Financial Measures
In our earnings press releases, conference calls, slide presentations, and webcasts, we may use or discuss non-GAAP financial measures, as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investors section of our website at https://ir.dynatrace.com.
Financial Outlook
Since March 31, 2022, Dynatrace has seen an incremental strengthening of the U.S. dollar resulting in a foreign exchange (“FX”) headwind in fiscal 2023. Total FY23 FX impact on a constant currency basis is expected to be approximately $40 million on ARR, up from prior quarter expectations of $20 million. Total FY23 FX impact is expected to be approximately $47 million on Revenue, up from prior quarter expectations of $33 million.
Growth rates for Adjusted ARR, Total revenue, and Subscription revenue are presented in constant currency in the table below to provide better visibility into the underlying growth of the business.
Based on information available, as of August 3, 2022, Dynatrace is issuing guidance for the second quarter and updating guidance for full year fiscal 2023 as follows:
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(In millions, except per share data) |
Q2 Fiscal 2023 |
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Total revenue |
$272 – $275 |
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As reported |
20% – 21% |
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Constant currency |
26% – 28% |
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Subscription revenue |
$255 – $257 |
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As reported |
20% – 21% |
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Constant currency |
26% – 27% |
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Non-GAAP operating income |
$62 – $64.5 |
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Non-GAAP operating margin |
23% – 23.5% |
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Non-GAAP net income |
$52.5 – $55 |
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Non-GAAP net income per diluted share |
$0.18 – $0.19 |
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Diluted weighted average shares outstanding |
292 – 293 |
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(In millions, except per share data) |
Current Guidance |
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Prior Guidance |
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Guidance Change |
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Total ARR |
$1,213 – $1,226 |
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$1,250 – $1,265 |
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$(38) |
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As reported |
22% – 23% |
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26% – 27% |
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-400 bps |
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Constant currency |
26% – 27% |
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28% – 29% |
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-200 bps |
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Adjusted ARR growth |
27% – 28% |
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29% – 30% |
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-200 bps |
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Total revenue |
$1,125 – $1,136 |
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$1,142 – $1,158 |
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$(20) |
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As reported |
21% – 22% |
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23% – 25% |
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-250 bps |
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Constant currency |
26% – 27% |
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27% – 28% |
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-100 bps |
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Subscription revenue |
$1,053 – $1,062 |
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$1,071 – $1,086 |
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$(21) |
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As reported |
21% – 22% |
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23% – 25% |
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-250 bps |
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Constant currency |
26% – 27% |
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27% – 28% |
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-100 bps |
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Non-GAAP operating income |
$252 – $261 |
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$257 – $266 |
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$(5) |
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Non-GAAP operating margin |
22.5% – 23% |
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22.5% – 23% |
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0 bps |
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Non-GAAP net income |
$214.5 – $223 |
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$216 – $225 |
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$(2) |
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Non-GAAP net income per diluted share |
$0.73 – $0.76 |
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$0.74 – $0.77 |
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$(0.01) |
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Diluted weighted average shares outstanding |
292 – 294 |
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292 – 294 |
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0 |
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Free cash flow |
$310 – $325 |
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$330 – $345 |
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$(20) |
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Free cash flow margin |
27.5% – 28.5% |
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29% – 30% |
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-150 bps |
Our guidance is based on foreign exchange rates as of the end of July.
Reconciliation of non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and free cash flow guidance to the most directly comparable GAAP measures is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures; in particular, the measures and effects of share-based compensation expense, employer taxes and tax deductions specific to equity compensation awards that are directly impacted by future hiring, turnover and retention needs, as well as unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future GAAP financial results.
Annual Recurring Revenue “ARR” is defined as the daily revenue of all subscription agreements that are actively generating revenue as of the last day of the reporting period multiplied by 365. We exclude from our calculation of Total ARR any revenues derived from month-to-month agreements and/or product usage overage billings.
Adjusted ARR is defined as ARR excluding the impact of foreign exchange rate fluctuations that occurred over the trailing twelve month period. This calculation also excludes the headwind associated with the Dynatrace® perpetual license ARR that rolled off in the trailing twelve month period.
Adjusted ARR Growth is defined as year-over-year growth in Adjusted ARR divided by ARR as reported.
Dynatrace® Net Expansion Rate is defined as the Dynatrace® ARR at the end of a reporting period for the cohort of Dynatrace® accounts as of one year prior to the date of calculation, divided by the Dynatrace® ARR one year prior to the date of calculation for that same cohort. This calculation excludes the benefit of Dynatrace® ARR resulting from the conversion of Classic products to the Dynatrace® platform. Effective the first quarter of fiscal year 2023, we began to exclude the headwind associated with the Dynatrace perpetual license ARR given diminishing impact of perpetual license ARR. We believe that eliminating the perpetual license headwind will result in a Net Expansion Rate metric that better reflects Dynatrace’s ability to expand existing customer relationships.
Dynatrace customers are defined as accounts, as identified by a unique account identifier, that generate at least $10,000 of Dynatrace® ARR as of the reporting date. In infrequent cases, a single large organization may comprise multiple customer accounts when there are distinct divisions, departments or subsidiaries that operate and make purchasing decisions independently from the parent organization. In cases where multiple customer accounts exist under a single organization, each customer account is counted separately based on a mutually exclusive accounting of ARR.
Free Cash Flow is defined as net cash provided by (used in) operating activities less capital expenditures.
About Dynatrace
Dynatrace exists to make the world’s software work perfectly. Our unified software intelligence platform combines broad and deep observability and continuous runtime application security with the most advanced AIOps to provide answers and intelligent automation from data at an enormous scale. This enables innovators to modernize and automate cloud operations, deliver software faster and more securely, and ensure flawless digital experiences. That is why the world’s largest organizations trust Dynatrace® to accelerate digital transformation.
