Dynatrace (DT) Q1 2025 earnings summary

Executive summary

• Annual recurring revenue (ARR) reached $1.54 billion as of June 30, 2024, up 20% year-over-year in constant currency, with net new ARR of $46 million, and subscription revenue accounting for 96% of Q1 revenue.

• Total revenue was $399 million, up 20% year-over-year, with subscription revenue at $382 million, both exceeding guidance.

• Free cash flow was $227 million in Q1, representing over 50% of full-year guidance and 30% of revenue on a trailing twelve-month basis.

• The company continues to focus on end-to-end observability, AI-driven automation, and customer value, with strong customer feedback and product innovation.

• Launched new platform extensions, expanded product capabilities, and strengthened partnerships, including AWS and Microsoft.

Financial highlights

• Non-GAAP gross margin was 85%, with GAAP gross margin at 81%; non-GAAP operating income was $114 million (29% margin), and non-GAAP net income was $99 million, or $0.33 per diluted share.

• Free cash flow for Q1-25 TTM was $450 million, representing 30% of revenue.

• Net income was $38.6 million, or $0.13 per diluted share.

• Gross retention rates remained stable in the mid-90s, with net retention rate at 112%.

• Share-based compensation expense totaled $58 million for the quarter.

Outlook and guidance

• Full-year FY2025 guidance maintained: ARR $1.72–$1.735 billion (14–15% growth as reported, 15–16% constant currency), revenue $1.644–$1.658 billion, non-GAAP operating margin 28%, and free cash flow margin 23.5–24%.

• Q2 FY2025 revenue guidance: $404–$407 million; subscription revenue $388–$390 million.

• Q2 non-GAAP operating income expected between $113 million and $116 million, with EPS of $0.32–$0.33 per diluted share.

• Foreign exchange expected to be a $12 million headwind on ARR and $10 million on revenue for FY2025.

• Free cash flow expected to be lower in Q2 and Q3 due to seasonality and cash tax timing, but full-year guidance is unchanged.