Dynatrace Reports Third Quarter Fiscal Year 2024 Financial Results

WALTHAM, Mass.–(BUSINESS WIRE)–Dynatrace (NYSE: DT), the leader in unified observability and security, today announced financial results for the third quarter of fiscal 2024 ended December 31, 2023. 

“Our Q3 results of balanced growth, profitability, and free cash flow reflect our continued ability to execute successfully in a dynamic market,” said Rick McConnell, Chief Executive Officer. “As customers look to address the business challenges of modern cloud environments, they are coming to Dynatrace for a more comprehensive observability architecture that enables them to drive innovation, optimize costs, and mitigate risk. Our contextual analytics, hypermodal AI, and automation differentiate the Dynatrace platform in the market and provide us with a powerful advantage to capture the opportunity ahead of us.”

Third Quarter Fiscal 2024 and Other Recent Business Highlights:

All growth rates are compared to the third quarter of fiscal 2023, unless otherwise noted.

Financial Highlights:

  • Total ARR of $1,425 million, an increase of 23%, or 21% on a constant currency basis
  • Total Revenue of $365 million, an increase of 23%, or 21% on a constant currency basis
  • Subscription Revenue of $348 million, an increase of 25%, or 23% on a constant currency basis
  • GAAP Income from Operations of $36 million, and Non-GAAP Income from Operations of $105 million
  • GAAP EPS of $0.14, and Non-GAAP EPS of $0.32, both on a dilutive basis

Business Highlights:

  • Platform innovation: Dynatrace recently hosted over 2,000 in-person attendees and over 4,000 virtual attendees for Perform 2024, the company’s annual customer conference. As part of showcasing the value and innovation of the Dynatrace® platform, the company announced the following current and planned enhancements:
    • Dynatrace AI Observability provides insights into all layers of AI-powered applications, including large language models (LLMs) and generative AI solutions, to manage cost, experience, reliability, and security.
    • Dynatrace OpenPipeline empowers customers with full visibility of data at the point of ingest into the Dynatrace platform and evaluates data streams five to ten times faster than legacy technologies, based on our testing.
    • Dynatrace Data Observability helps ensure data collected via external sources, such as OpenTelemetry and Dynatrace APIs, is reliable and accurate.
  • Runecast acquisition: On January 29, 2024, we announced the signing of a definitive agreement to acquire Runecast, an AI-powered security and compliance solution provider. This planned addition to the Dynatrace platform will enable customers to proactively prevent cloud misconfigurations and compliance issues with automated, AI-driven, real-time vulnerability assessments.
  • Extended partnerships: Dynatrace achieved the Amazon Web Services (AWS) Security Competency, reflecting our deep technical expertise in helping customers proactively remediate vulnerabilities and defend against threats across their AWS environments. The AWS Security Competency helps customers select validated AWS Partner Network members who provide technology that helps organizations adopt, develop, and deploy security solutions on AWS.
  • Industry and customer recognition: Dynatrace was named a Leader in both the Cloud-Native Observability and Security quadrants in the 2023 ISG Provider Lens, Multi-Public Cloud Solutions Report, highlighting Dynatrace’s innovation and go-to-market success in the converging spaces of observability and security. Also, Dynatrace was recognized as a Gartner® Peer Insights™ Customers’ Choice in the 2023 Voice of the Customer for Application Performance Monitoring and Observability report for the fifth consecutive year.1 In addition, Dynatrace won the 2023 Silverlinings Innovation Award for Best Cloud AI Solution, for the platform’s Davis® AI and its proven ability to boost the performance and security of software environments.
  • Workplace recognition: We were named one of the Best Places to Work in Boston, San Francisco, and Colorado by BuiltIn; a Great Place to Work® in 13 of the countries where we operate; one of the Top 10 Best Workplaces in Tech in Austria by 2024 Great Place to Work®; and a Top Company in Austria by Kununu.

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1
 Gartner, Voice of the Customer for Application Performance Monitoring and Observability, 29 December 2023.

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Third Quarter 2024 Financial Highlights

(Unaudited – In thousands, except per share data)

Three Months Ended

December 31,

2023

2022

Key Operating Metric:

Annual recurring revenue

$

1,425,284

$

1,162,591

Year-over-Year Increase

23

%

Year-over-Year Increase – constant currency (*)

21

%

Revenue:

Total revenue

$

365,096

$

297,456

Year-over-Year Increase

23

%

Year-over-Year Increase – constant currency (*)

21

%

Subscription revenue

$

348,294

$

279,152

Year-over-Year Increase

25

%

Year-over-Year Increase – constant currency (*)

23

%

GAAP Financial Measures:

GAAP income from operations

$

35,720

$

33,887

GAAP operating margin

10

%

11

%

GAAP net income

$

42,691

$

15,026

GAAP net income per share – diluted

$

0.14

$

0.05

GAAP shares outstanding – diluted

299,246

291,228

Net cash provided by operating activities

$

75,657

$

61,962

Non-GAAP Financial Measures:

Non-GAAP income from operations (*)

$

104,636

$

80,653

Non-GAAP operating margin (*)

29

%

27

%

Non-GAAP net income (*)

$

96,184

$

73,469

Non-GAAP net income per share – diluted (*)

$

0.32

$

0.25

Non-GAAP shares outstanding – diluted (*)

299,246

291,228

Free Cash Flow (*)

$

67,357

$

57,574

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 Investor Relations section of our website at ir.dynatrace.com.

Financial Outlook

Based on information available as of February 8, 2024, Dynatrace is issuing guidance for the fourth quarter and updating guidance for full year fiscal 2024 in the table below.

This guidance reflects foreign exchange rates as of January 31, 2024. We now expect foreign exchange to be a tailwind of approximately $10 million on ARR and approximately $13 million on revenue for fiscal 2024. Given recent weakening in the U.S. dollar, this represents an incremental tailwind of approximately $15 million to ARR and $6 million to revenue for the full year when compared to our prior guidance.

Growth rates for ARR, Total revenue, and Subscription revenue are presented in constant currency to provide better visibility into the underlying growth of the business.

All growth rates below are compared to the fourth quarter and full year of fiscal 2023.

(In millions, except per share data)

Q4 Fiscal 2024

Guidance

Total revenue

$372 – $377

As reported

18% – 20%

Constant currency

18% – 19%

Subscription revenue

$353 – $358

As reported

20% – 22%

Constant currency

20% – 21%

Non-GAAP income from operations

$85 – $90

Non-GAAP operating margin

23% – 24%

Non-GAAP net income

$79 – $84

Non-GAAP net income per diluted share

$0.26 – $0.28

Diluted weighted average shares outstanding

300 – 301

(In millions, except per share data)

Current Guidance

Fiscal 2024

Prior Guidance

Fiscal 2024*

Guidance Change

at Midpoint**

Total ARR

$1,485 – $1,495

$1,480 – $1,490

$5

As reported

19% – 20%

19% – 20%

— bps

Constant currency

18% – 19%

19% – 20%

(100) bps

Total revenue

$1,422 – $1,427

$1,409 – $1,419

$11

As reported

23%

22%

100 bps

Constant currency

22%

21% – 22%

50 bps

Subscription revenue

$1,352 – $1,357

$1,334 – $1,344

$16

As reported

25%

23% – 24%

150 bps

Constant currency

24%

22% – 23%

150 bps

Non-GAAP income from operations

$388 – $393

$377 – $386

$9

Non-GAAP operating margin

27.25% – 27.5%

27%

50 bps

Non-GAAP net income

$348 – $353

$328 – $337

$18

Non-GAAP net income per diluted share

$1.16 – $1.18

$1.09 – $1.12

$0.06

Diluted weighted average shares outstanding

299 – 300

300 – 301

(1)

Free cash flow

$330 – $335

$313 – $320

$16

Free cash flow margin

23%

22% – 23%

50 bps

*Prior guidance was issued on November 2, 2023.

**Changes in our guidance metrics are rounded to the nearest 50 bps.

Reconciliations of non-GAAP income from operations, non-GAAP net income, non-GAAP net income per diluted share and free cash flow guidance to the most directly comparable GAAP measures are 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.

About Dynatrace

Dynatrace exists to make the world’s software work perfectly. Our unified 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’s why the world’s largest organizations trust the Dynatrace® platform to accelerate digital transformation.