Dynatrace Inc.

11/05/2025 | Press release | Distributed by Public on 11/05/2025 05:52

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United State of America ("GAAP") and applicable SEC rules and regulations regarding interim financial reporting. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in the section titled "Risk Factors" included elsewhere in this Form 10-Q and in our Form 10-K for the fiscal year ended March 31, 2025 (the "Annual Report"). These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Our fiscal year ends on March 31. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period.
Overview
Dynatrace is advancing observability for today's digital businesses, helping to transform the complexity of modern digital ecosystems into powerful business assets. By leveraging AI-powered insights, Dynatrace enables organizations to analyze, automate, and innovate faster to drive their business forward. Our vision is a world where software works perfectly.
The Dynatrace platform combines broad and deep observability, continuous runtime application security, and advanced AI to support IT operations, development, security, business, and executive teams. This comprehensive approach enables organizations to optimize cloud and IT operations, accelerate secure software delivery, and improve digital performance.
Our customer base includes some of the largest global enterprises. These organizations rely on the Dynatrace platform as part of their plans to accelerate the adoption of cloud-native and AI-native initiatives and to address the related challenges of increasing workloads, dynamic environments, and evolving cybersecurity threats. Our ability to provide sophisticated analytics and our advanced automation capabilities support their operational goals in environments characterized by rapid technological changes. Cloud modernization and the dramatic growth in the use of AI have resulted in an explosion of data and a massive increase in its scale and complexity that are untenable for many organizations to manage as they previously did. As a result, we believe the need for comprehensive end-to-end observability, such as the Dynatrace platform, has become mandatory, especially for larger organizations building resiliency into ever more complex environments. We also believe our company has a significant market opportunity based on the technical differentiation of our platform, our ability to integrate successfully into customers' cloud ecosystems, and the trust that we have built within our customer base and partner ecosystem.
We take Dynatrace to market through a combination of our global direct sales team and a network of partners, including global system integrators ("GSIs"), cloud providers, resellers and technology alliance partners. We target the largest 15,000 global enterprise accounts, which generally have annual revenues in excess of $1 billion, which we believe see more value from our integrated full-stack platform.
We generate revenue primarily by selling subscriptions, which we define as Software-as-a-Service ("SaaS") agreements, term-based licenses, and maintenance and support agreements. The majority of our customers deploy Dynatrace as a SaaS solution to get the latest Dynatrace features and updates with greatly reduced administrative effort. We also provide options to deploy our platform in customer-provisioned infrastructure.
The Dynatrace Platform Subscription ("DPS") licensing model provides customers with a flexible, scalable, and transparent subscription for the modern cloud. Under the DPS licensing model, a customer makes a minimum annual spend commitment at the platform level and then consumes that commitment based on actual usage and a straightforward rate card. Any platform capability can be used in any quantity at any time based on the customer's evolving needs.
The Dynatrace platform has been commercially available since 2016 and is the primary offering we sell.
Second-Quarter 2026 Financial Highlights
Our financial highlights for the three months ended September 30, 2025 were:
•Our annual recurring revenue ("ARR") was $1,899 million as of September 30, 2025, which reflected 17% growth year-over-year;
•Our total revenue was $494 million, which reflected 18% growth year-over-year;
•Our subscription revenue was $473 million, which reflected 18% growth year-over-year;
•We delivered GAAP income from operations of $73 million and non-GAAP income from operations(1)of $153 million; and
•Our net cash provided by operating activities and free cash flow(1)was $32 million and $28 million, respectively.
(1) Non-GAAP financial measure. For additional information, please see the "Key Metrics" section below for applicable definitions and the "Non-GAAP Financial Results" section below for a reconciliation to the most directly comparable GAAP financial measure.
We believe in a disciplined and balanced approach to operating our business. We plan to continue driving innovation to meet customers' needs and grow our customer relationships. We also plan to invest in future growth opportunities that we expect will drive long-term value, while leveraging our global partner ecosystem, optimizing costs, and improving efficiency and profitability.
We believe this approach is even more important at this time as we navigate the current macroeconomic environment, which can include geopolitical considerations, tariffs and trade policies, fluctuations in credit, equity, and foreign currency markets, changes in inflation, interest rates, consumer confidence and spending, and other factors that may affect the buying patterns of our customers and prospective customers, including the size of transactions and length of sales cycles. In the ongoing dynamic macroeconomic landscape, we have seen resiliency in our industry and we remain confident in our ability to execute in this environment. Please see the section titled "Risk Factors" included under Part II, Item 1A of this Quarterly Report for further discussion of the possible impact of macroeconomic conditions on our business and regarding fluctuations in our annual and quarterly operating results.
Key Factors Affecting Our Performance
Our historical financial performance has been, and we expect our financial performance in the future to be, driven by our ability to:
•Extend our technology and market leadership position. We intend to maintain our position as a leading AI-powered observability platform through increased investment in innovation, research and development, and innovation. We plan to expand the functionality of our end-to-end Dynatrace platform and invest in capabilities that address new market opportunities. For example, in fiscal 2026, we believe we are well positioned to grow our next generation log management offering, which integrates logs, traces, metrics, and other core observability and security data types into a single platform, providing customers with greater value than legacy log management solutions that are viewed as too expensive, providing too little value, or largely operating independently from existing monitoring tools. We also plan to evolve our AI capabilities to drive differentiation, with a focus on evolving into an agentic AI platform that can act autonomously to make decisions and take actions without human intervention. We believe this strategy will enable new growth opportunities and allow us to deliver differentiated high-value outcomes to our customers.
•Expand and strengthen our relationships with existing customers. We plan to establish new and deeper relationships within our existing customers' organizations and expand the breadth of our platform capabilities to provide for expansion opportunities. In addition, we believe the ease of implementation of Dynatrace provides us with the opportunity to expand adoption within our existing enterprise customers, across new customer applications, with cloud-native and development teams, and into additional business units or divisions. We also believe that our DPS licensing model will drive broader consumption of the Dynatrace platform and further expansion opportunities for customers that prefer the flexibility and predictability of pricing under that model. As of September 30, 2025, 50% of our customer base and 70% of our ARR leveraged this flexible, scalable, and transparent subscription approach. With access to the full Dynatrace platform, DPS customers are able to adopt Dynatrace more broadly across their IT environments, which can lead to increased consumption.
•Grow our customer base. We intend to drive new customer growth through ongoing investments in our go-to-market strategy focused on customer segmentation, partner enablement, and continued expansion of our sales motion beyond application performance to include end-to-end observability, tool consolidation, and cloud modernization. We are focused on the largest 15,000 global enterprise accounts, which generally have annual revenues in excess of $1 billion and more complex IT ecosystems and cloud environments. We have also increased the focus of our sales force on the largest 500 global companies and strategic enterprise accounts. In addition, we plan to expand our reach internationally to what we believe are large, mostly untapped, markets for our company, while leveraging our sector specialization globally.
•Leverage our strategic partner ecosystem.We intend to invest in our strategic partner ecosystem, with a particular emphasis on building cloud-focused, loyal and comprehensive partnerships with GSIs and hyperscaler cloud providers. These strategic partners continually work with their customers to help them digitally transform their businesses and reduce cloud complexity. By working more closely with strategic partners, our objective is to participate in digital transformation projects earlier in the purchasing cycle and enable customers to establish more resilient cloud deployments from the start.
Key Metrics
We monitor the following key metrics to help us measure and evaluate the effectiveness of our operations:
As of September 30,
2025 2024
(in thousands, except percentages)
Total ARR $ 1,899,402 $ 1,616,531
Year-over-year increase 17 % 20 %
Dollar-based net retention rate 111 % 112 %
Three Months Ended September 30, Six Months Ended September 30,
2025 2024 2025 2024
(in thousands)
Non-GAAP income from operations(1)
$ 152,819 $ 130,669 $ 295,925 $ 244,919
Free cash flow(1)
27,830 20,138 289,846 247,520
(1) Non-GAAP financial measure. For additional information, please see the applicable definitions below and the "Non-GAAP Financial Results" section below for a reconciliation to the most directly comparable GAAP financial measure.
ARR: We define ARR 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 ARR any revenues derived from month-to-month agreements and/or product usage overage billings.
Dollar-based net retention rate:We define the dollar-based net retention rate as the 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 ARR one year prior to the date of calculation for that same cohort. Our dollar-based net retention rate reflects customer renewals, expansion, contraction and churn. Dollar-based net retention rate is presented on a constant currency basis.
Non-GAAP income from operations:We define non-GAAP income from operations as GAAP income from operations adjusted for the following items: share-based compensation; employer payroll taxes on employee stock transactions; amortization of intangibles; transaction, restructuring and other non-recurring or unusual items that may arise from time to time.
Free cash flow: We define free cash flow as the net cash provided by or used in operating activities less capital expenditures, reflected as purchase of property and equipment and capitalized software additions in our financial statements.
Non-GAAP Financial Results
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP income from operations and free cash flow. We use these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons and liquidity. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance, and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making.
The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Our non-GAAP financial measures may not provide information that is directly comparable to similarly titled metrics provided by other companies.
The tables below provide a reconciliation of our non-GAAP income from operations and free cash flow to their most directly comparable GAAP measure:
Three Months Ended September 30, Six Months Ended September 30,
2025 2024 2025 2024
(in thousands)
GAAP income from operations $ 72,969 $ 47,026 $ 135,307 $ 89,055
Share-based compensation 76,814 71,703 148,709 129,360
Employer payroll taxes on employee stock transactions 2,165 2,771 10,190 8,180
Amortization of intangibles 871 9,169 1,719 18,324
Transaction, restructuring, and other - - - -
Non-GAAP income from operations $ 152,819 $ 130,669 $ 295,925 $ 244,919
Three Months Ended September 30, Six Months Ended September 30,
2025 2024 2025 2024
(in thousands)
Net cash provided by operating activities $ 32,017 $ 23,650 $ 301,709 $ 254,391
Purchase of property and equipment (4,187) (3,512) (11,669) (6,871)
Capitalized software additions - - (194) -
Free cash flow $ 27,830 $ 20,138 289,846 247,520
Key Components of Results of Operations
Revenue
Revenue includes subscriptions and services.
Subscription.Our subscription revenue consists of (i) SaaS agreements, (ii) term-based licenses which are recognized ratably over the contract term, and (iii) maintenance and support agreements. We typically invoice SaaS subscription fees and term licenses annually in advance and recognize subscription revenue ratably over the term of the applicable agreement, provided that all other revenue recognition criteria have been satisfied. See the section titled "Revenue Recognition" within the footnote titled "Significant Accounting Policies" included in Part II, Item 8 of our Annual Report for more information.
Service. Service revenue consists of revenue from helping our customers deploy our software in operational environments and training their personnel. We recognize the revenues associated with these professional services on a time and materials basis as we deliver the services or provide the training. We generally recognize the revenues associated with our services in the period the services are performed, provided that collection of the related receivable is reasonably assured.
Cost of Revenue
Cost of subscription. Cost of subscription revenue includes all direct costs to deliver and support our subscription products, including salaries, benefits, bonuses, share-based compensation and related expenses such as employer taxes, third-party hosting fees related to our cloud services, allocated overhead for depreciation, facilities, and IT, and amortization of internally developed capitalized software technology. We recognize these expenses as they are incurred.
Cost of service. Cost of service revenue includes salaries, benefits, bonuses, share-based compensation and related expenses such as employer taxes, and allocated overhead for depreciation, facilities, and IT. We recognize these expenses as they are incurred.
Amortization of acquired technology. Amortization of acquired technology includes amortization expense for technology acquired when our former controlling stockholder (the Thoma Bravo Funds) acquired our company in 2014 and from business combinations and asset acquisitions. During the year ended March 31, 2025, the acquired technology from the Thoma Bravo Funds' acquisition of our company became fully amortized, therefore we expect amortization expense to decrease as compared to historical periods.
Gross Profit and Gross Margin
Gross profit is revenue less cost of revenue, and gross margin is gross profit as a percentage of revenue. Gross profit has been and will continue to be affected by various factors, including the mix of our subscription and service revenue, the costs associated with third-party cloud-based hosting services for our cloud-based subscriptions, and the extent to which we expand our customer support and services organizations. We expect that our gross margin will fluctuate from period to period depending on the interplay of these various factors.
Operating Expenses
Personnel costs, which consist of salaries, benefits, bonuses, share-based compensation and, with regard to sales and marketing expenses, sales commissions, are the most significant component of our operating expenses. We also incur other non-personnel costs, such as an allocation of our general overhead expenses, including depreciation, facilities, IT, and other costs.
Research and development. Research and development expenses primarily consist of the cost of programming personnel. We focus our research and development efforts on developing new solutions, core technologies, and to further enhance the functionality, reliability, performance and flexibility of existing solutions. We believe that our software development teams and our core technologies represent a significant competitive advantage for us and we expect that our research and development expenses will continue to increase in absolute dollars as we invest in research and development headcount to further strengthen and enhance our solutions.
Sales and marketing.Sales and marketing expenses primarily consist of personnel and facility-related costs for our sales, marketing, and business development personnel, commissions earned by our sales personnel, and the cost of marketing and business development programs. We expect that sales and marketing expenses will continue to increase in absolute dollars as we continue to hire additional sales and marketing personnel and invest in marketing programs.
General and administrative.General and administrative expenses primarily consist of the personnel and facility-related costs for our executive, finance, legal, people and culture and administrative personnel, and other corporate expenses, including those associated with our ongoing public reporting obligations. We anticipate continuing to incur additional expenses as we continue to invest in the growth of our operations.
Amortization of other intangibles. Amortization of other intangibles primarily consists of amortization of customer relationships and tradenames acquired when our former controlling stockholder (the Thoma Bravo Funds) acquired our company in 2014 and from business combinations. During the year ended March 31, 2025, the customer relationships and tradenames acquired from the Thoma Bravo Funds' acquisition of our company became fully amortized, therefore we expect amortization expense to decrease as compared to historical periods.
Interest Income, Net
Interest income, net, consists primarily of interest income from money market funds, bank deposits, and debt securities held as investments, partially offset by interest expense associated with fees on our Credit Facility (as defined later in this section) and amortization of debt issuance costs.
Other Income (Expense), Net
Other income (expense), net, consists primarily of foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency, including balances between subsidiaries.
Income Tax Expense
We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.
Our income tax rate varies from the U.S. federal statutory rate mainly due to (1) the net global intangible low-taxed income ("GILTI") inclusion, (2) foreign withholding taxes, (3) nondeductible executive compensation, and (4) the recognition of royalty income in the U.S. as a result of the intra-entity IP transfer in fiscal 2025, partially offset by the generation of U.S. foreign tax credits. We expect these items to continue to affect our income tax rate and income tax expense.
Pillar Two proposal
Many countries have enacted or are in the process of enacting laws based on the Pillar Two proposal relating to a 15% global minimum tax issued by the Organization for Economic Cooperation and Development ("OECD"). For fiscal 2026, we do not expect these provisions to have a material impact on our condensed consolidated financial statements based on the guidance available thus far. We will continue to monitor ongoing developments and evaluate any potential impact on future periods.
U.S. Tax Legislation
On July 4, 2025, the "One Big Beautiful Bill Act" (the "OBBBA") was enacted into law. The OBBBA contains a broad range of tax reform provisions including immediate expensing of domestic R&D expenditures, the reinstatement of 100% bonus depreciation, and modifications to the international tax framework. The OBBBA has multiple effective dates, with certain provisions effective in fiscal 2026 and other provisions effective in subsequent years. The OBBBA does not have a material impact on fiscal 2026. We are evaluating the potential impact of the provisions effective in future years, however we do not anticipate the OBBBA will have a material impact.
Results of Operations
The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
Comparison of the Three Months Ended September 30, 2025 and 2024
Three Months Ended September 30,
2025 2024
Amount Percent Amount Percent
(in thousands, except percentages)
Revenue:
Subscription $ 473,089 96 % $ 399,810 96 %
Service 20,760 4 % 18,319 4 %
Total revenue 493,849 100 % 418,129 100 %
Cost of revenue:
Cost of subscription 68,404 14 % 55,796 14 %
Cost of service 20,501 4 % 17,595 4 %
Amortization of acquired technology 859 - % 4,393 1 %
Total cost of revenue(1)
89,764 18 % 77,784 19 %
Gross profit 404,085 82 % 340,345 81 %
Operating expenses:
Research and development(1)
114,992 23 % 95,366 23 %
Sales and marketing(1)
167,675 34 % 144,224 34 %
General and administrative(1)
48,437 10 % 48,953 12 %
Amortization of other intangibles 12 - % 4,776 1 %
Total operating expenses 331,116 293,319
Income from operations 72,969 15 % 47,026 11 %
Interest income, net 13,242 12,850
Other income (expense), net 894 (2,038)
Income before income taxes 87,105 57,838
Income tax expense (29,862) (13,830)
Net income $ 57,243 $ 44,008
(1)  Includes share-based compensation expense as follows:
Three Months Ended September 30,
2025 2024
(in thousands)
Cost of revenue $ 10,015 $ 9,714
Research and development 29,718 26,607
Sales and marketing 22,576 20,750
General and administrative 14,505 14,632
Total share-based compensation $ 76,814 $ 71,703
Revenue
Three Months Ended September 30, Change
2025 2024 Amount Percent
(in thousands, except percentages)
Subscription $ 473,089 $ 399,810 $ 73,279 18 %
Service 20,760 18,319 2,441 13 %
Total revenue $ 493,849 $ 418,129 $ 75,720 18 %
Subscription
Subscription revenue increased by $73.3 million, or 18%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to existing customers expanding their use of the Dynatrace platform combined with the adoption of our solutions by new customers.
Service
Service revenue increased by $2.4 million, or 13%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The increase was primarily due to growth in customer demand for product enablement and adoption services.
Cost of Revenue
Three Months Ended September 30, Change
2025 2024 Amount Percent
(in thousands, except percentages)
Cost of subscription $ 68,404 $ 55,796 $ 12,608 23 %
Cost of service 20,501 17,595 2,906 17 %
Amortization of acquired technology 859 4,393 (3,534) (80 %)
Total cost of revenue $ 89,764 $ 77,784 $ 11,980 15 %
Cost of subscription
Cost of subscription increased by $12.6 million, or 23%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The increase was primarily due to increased cloud-based hosting costs of $8.3 million to support the growing usage of the Dynatrace SaaS platform and increased personnel costs of $3.3 million, inclusive of share-based compensation, largely due to headcount growth to support our growing customer base.
Cost of service
Cost of service increased by $2.9 million, or 17%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The increase was primarily the result of increased personnel costs, inclusive of share-based compensation, as our service delivery organization has scaled to support our product enablement and adoption within our customer base.
Amortization of acquired technology
Amortization of acquired technology decreased by $3.5 million, or 80%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The decrease was primarily the result of certain acquired technology becoming fully amortized during fiscal 2025.
Gross Profit and Gross Margin
Three Months Ended September 30, Change
2025 2024 Amount Percent
(in thousands, except percentages)
Gross profit:
Subscription $ 404,685 $ 344,014 $ 60,671 18 %
Service 259 724 (465) (64 %)
Amortization of acquired technology (859) (4,393) 3,534 (80 %)
Total gross profit $ 404,085 $ 340,345 $ 63,740 19 %
Gross margin:
Subscription 86 % 86 %
Service 1 % 4 %
Amortization of acquired technology (100 %) (100 %)
Total gross margin 82 % 81 %
Subscription
Subscription gross profit increased by $60.7 million, or 18%, during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. Subscription gross margin remained consistent at 86%.
Service
Service gross profit decreased by $0.5 million, or 64%, during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. Service gross margin decreased to 1% for the three months ended September 30, 2025 compared to 4% for the three months ended September 30, 2024. The decrease in gross profit and gross margin was primarily due to increased personnel costs.
Operating Expenses
Three Months Ended September 30, Change
2025 2024 Amount Percent
(in thousands, except percentages)
Operating expenses:
Research and development $ 114,992 $ 95,366 $ 19,626 21 %
Sales and marketing 167,675 144,224 23,451 16 %
General and administrative 48,437 48,953 (516) (1 %)
Amortization of other intangibles 12 4,776 (4,764) (100 %)
Total operating expenses $ 331,116 $ 293,319 $ 37,797 13 %
Research and development
Research and development expenses increased by $19.6 million, or 21%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The increase was primarily the result of increased personnel costs of $15.7 million, inclusive of a $3.1 million increase in share-based compensation, largely due to headcount growth to support the continued expansion of functionality and capabilities of the Dynatrace platform. Cloud-based hosting costs incurred in developing our platform also increased by $1.8 million.
Sales and marketing
Sales and marketing expenses increased by $23.5 million, or 16%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The increase was primarily due to increased personnel costs of $20.6 million, inclusive of a $1.8 million increase in share-based compensation, due to headcount growth as we continue to invest in our go-to-market strategy.
General and administrative
General and administrative expenses decreased $0.5 million, or 1%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The decrease was primarily the result of decreased professional fees of $2.2 million and other administrative costs of $1.1 million, partially offset by increased personnel costs of $2.2 million, inclusive of share-based compensation.
Amortization of other intangibles
Amortization of other intangibles decreased by $4.8 million, or 100%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The decrease was primarily the result of certain intangible assets becoming fully amortized during fiscal 2025.
Interest Income, Net
Interest income, net, was $13.2 million for the three months ended September 30, 2025 compared to $12.9 million for the three months ended September 30, 2024. The increase was primarily the result of increased cash, cash equivalents, and investment balances.
Other Income (Expense), Net
Other income, net, was $0.9 million for the three months ended September 30, 2025 compared to other expense, net, of $2.0 million for the three months ended September 30, 2024. The change was primarily the result of foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency, including balances between subsidiaries.
Income Tax Expense
Income tax expense was $29.9 million for the three months ended September 30, 2025, which increased by $16.1 million from $13.8 million for the three months ended September 30, 2024. This increase was due to an increase to pre-tax income, the intra-entity asset transfer of the global economic rights of our IP to Switzerland in fiscal 2025 resulting in an increase to the GILTI inclusion, primarily due to an increase in capitalized foreign research and development expenses within GILTI, a decrease to the foreign-derived intangible income deduction, and changes to our uncertain tax positions. We elect to treat GILTI as a period cost for GAAP purposes.
Comparison of the Six Months Ended September 30, 2025 and 2024
Six Months Ended September 30,
2025 2024
Amount Percent Amount Percent
(in thousands, except percentages)
Revenue:
Subscription $ 930,596 96 % $ 781,386 96 %
Service 40,602 4 % 35,963 4 %
Total revenue 971,198 100 % 817,349 100 %
Cost of revenue:
Cost of subscription 133,422 14 % 109,368 14 %
Cost of service 39,856 4 % 34,397 4 %
Amortization of acquired technology 1,695 0 % 8,772 1 %
Total cost of revenue (1)
174,973 18 % 152,537 19 %
Gross profit 796,225 82 % 664,812 81 %
Operating expenses:
Research and development (1)
223,164 23 % 182,944 22 %
Sales and marketing (1)
332,989 34 % 289,330 35 %
General and administrative (1)
104,741 11 % 93,931 11 %
Amortization of other intangibles 24 0 % 9,552 1 %
Total operating expenses 660,918 575,757
Income from operations 135,307 14 % 89,055 11 %
Interest income, net 25,537 25,625
Other income (expense), net 7,651 (4,073)
Income before income taxes 168,495 110,607
Income tax expense (63,297) (27,979)
Net income $ 105,198 $ 82,628
(1)  Includes share-based compensation expense as follows:
Six Months Ended September 30,
2025 2024
(in thousands)
Cost of revenue $ 19,865 $ 17,444
Research and development 56,579 48,187
Sales and marketing 42,610 36,772
General and administrative 29,655 26,957
Total share-based compensation $ 148,709 $ 129,360
Revenue
Six Months Ended September 30, Change
2025 2024 Amount Percent
(in thousands, except percentages)
Subscriptions $ 930,596 $ 781,386 $ 149,210 19 %
Services 40,602 35,963 4,639 13 %
Total revenue $ 971,198 $ 817,349 $ 153,849 19 %
Subscription
Subscription revenue increased by $149.2 million, or 19%, for the six months ended September 30, 2025, as compared to the six months ended September 30, 2024, primarily due to existing customers expanding their use of the Dynatrace platform combined with the adoption of our solutions by new customers.
Service
Service revenue increased by $4.6 million, or 13%, for the six months ended September 30, 2025 as compared to the six months ended September 30, 2024. The increase was primarily due to growth in customer demand for product enablement and adoption services.
Cost of Revenue
Six Months Ended September 30, Change
2025 2024 Amount Percent
(in thousands, except percentages)
Cost of subscription $ 133,422 $ 109,368 $ 24,054 22 %
Cost of service 39,856 34,397 5,459 16 %
Amortization of acquired technology 1,695 8,772 (7,077) (81 %)
Total cost of revenue $ 174,973 $ 152,537 $ 22,436 15 %
Cost of subscription
Cost of subscription increased $24.1 million, or 22%, for the six months ended September 30, 2025 as compared to the six months ended September 30, 2024. The increase was primarily due to increased cloud-based hosting costs of $15.4 million to support the growing usage of the Dynatrace SaaS platform and increased personnel costs of $7.4 million, inclusive of a $1.2 million increase in share-based compensation, largely due to headcount growth to support our growing customer base.
Cost of service
Cost of service increased $5.5 million, or 16%, for the six months ended September 30, 2025 as compared to the six months ended September 30, 2024. The increase was primarily the result of increased personnel costs, inclusive of share-based compensation, as our service delivery organization has scaled to support our product enablement and adoption within our customer base.
Amortization of acquired technologies
Amortization of acquired technology decreased by $7.1 million, or 81%, for the six months ended September 30, 2025 as compared to the six months ended September 30, 2024. The decrease was primarily the result of certain acquired technology becoming fully amortized during fiscal 2025.
Gross Profit and Gross Margin
Six Months Ended September 30, Change
2025 2024 Amount Percent
(in thousands, except percentages)
Gross profit:
Subscription $ 797,174 $ 672,018 $ 125,156 19 %
Services 746 1,566 (820) (52 %)
Amortization of acquired technology (1,695) (8,772) 7,077 (81 %)
Total gross profit $ 796,225 $ 664,812 $ 131,413 20 %
Gross margin:
Subscription 86 % 86 %
Services 2 % 4 %
Amortization of acquired technology (100 %) (100 %)
Total gross margin 82 % 81 %
Subscription
Subscription gross profit increased by $125.2 million, or 19%, during the six months ended September 30, 2025 compared to the six months ended September 30, 2024. Subscription gross margin remained consistent at 86%.
Services
Services gross profit decreased by $0.8 million, or 52%, during the six months ended September 30, 2025 compared to the six months ended September 30, 2024. Services gross margin decreased to 2% for the six months ended September 30, 2025 compared to 4% for the six months ended September 30, 2024. The decrease in gross profit and gross margin was primarily due to increased personnel costs.
Operating Expenses
Six Months Ended September 30, Change
2025 2024 Amount Percent
(in thousands, except percentages)
Operating expenses:
Research and development $ 223,164 $ 182,944 $ 40,220 22 %
Sales and marketing 332,989 289,330 43,659 15 %
General and administrative 104,741 93,931 10,810 12 %
Amortization of other intangibles 24 9,552 (9,528) (100 %)
Total operating expenses $ 660,918 $ 575,757 $ 85,161 15 %
Research and development
Research and development expenses increased by $40.2 million, or 22%, for the six months ended September 30, 2025 as compared to the six months ended September 30, 2024. The increase was primarily the result of increased personnel costs of $34.0 million, inclusive of a $8.4 million increase in share-based compensation, largely due to headcount growth to support the continued expansion of functionality and capabilities of the Dynatrace platform. Cloud-based hosting costs incurred in developing our platform also increased by $3.2 million.
Sales and marketing
Sales and marketing expenses increased by $43.7 million, or 15%, for the six months ended September 30, 2025, as compared to the six months ended September 30, 2024. The increase was primarily the result of increased personnel costs of $40.1 million, inclusive of a $5.8 million increase in share-based compensation, due to headcount growth as we continue to invest in our go-to-market strategy.
General and administrative
General and administrative expenses increased $10.8 million, or 12%, for the six months ended September 30, 2025, as compared to the six months ended September 30, 2024. The increase was primarily the result of increased personnel costs of $7.7 million, inclusive of a $2.7 million increase in share-based compensation, as we continue to scale our functions to support our continued growth.
Amortization of other intangibles
Amortization of other intangibles decreased by $9.5 million, or 100%, for the six months ended September 30, 2025 as compared to the six months ended September 30, 2024. The decrease was primarily the result of certain intangible assets becoming fully amortized during fiscal 2025.
Interest Income, Net
Interest income, net, for the six months ended September 30, 2025 remained consistent relative to the six months ended September 30, 2024.
Other Income (Expense), Net
Other income, net, was $7.7 million for the six months ended September 30, 2025 as compared to other expense, net, of $4.1 million for the six months ended September 30, 2024. The change was primarily the result of foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency, including balances between subsidiaries.
Income Tax Expense
Income tax expense was $63.3 million for the six months ended September 30, 2025, which increased by $35.3 million from $28.0 million for the six months ended September 30, 2024. This increase was due to an increase to pre-tax income, the intra-entity asset transfer of the global economic rights of our IP to Switzerland in fiscal 2025 resulting in an increase to the GILTI inclusion, primarily due to an increase in capitalized foreign research and development expenses within GILTI, a decrease to the foreign-derived intangible income deduction, and changes to our uncertain tax positions. We elect to treat GILTI as a period cost for GAAP purposes.
Liquidity and Capital Resources
We have historically maintained a disciplined and balanced approach to optimizing costs and improving the efficiency and profitability of our business, while continuing to invest in future growth opportunities that we expect will drive long-term value. Our principal sources of liquidity are cash and cash equivalents, marketable securities (investments) and cash provided by operating activities. From time to time, we may borrow under our Credit Facility (as defined below). As of September 30, 2025, we had $1,225.0 million of cash and cash equivalents, $144.2 million of investments, primarily consisting of U.S. Treasury securities, corporate debt securities, U.S. agency securities, and commercial paper that have maturities between one and 30 months, and $399.0 million available under our Credit Facility.
We have historically financed our operations primarily through payments by our customers for use of our product offerings and related services and, to a lesser extent, the net proceeds we have received from sales of equity securities.
Over the past three years, cash flows from customer collections have increased. However, operating expenses have also increased as we have invested in growing our business. Our operating cash requirements may increase in the future as we continue to invest in the strategic growth of our company.
Our billings may vary over time due to a number of factors, including the mix of subscription and service revenue, the contract length of our customer agreements, and the timing of customer contracts, including renewals. Such variability in the timing and amounts of our billings could impact the timing of our cash collections from period to period.
Our material cash requirements from known contractual and other obligations consist of our rent payments required under operating lease agreements and non-cancelable purchase obligations entered into in the ordinary course of business, primarily for cloud hosting support. As of September 30, 2025, total contractual commitments were $729.8 million, with $92.5 million committed within the next 12 months.
Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the risks detailed in the section titled "Risk Factors" included under Part II, Item 1A of this Quarterly Report. However, we believe that our existing cash, cash equivalents, investments, funds available under our Credit Facility, and cash generated from operations, will be sufficient to meet our cash requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the introduction of new and enhanced products, seasonality of our billing activities, timing and extent of spending to support our growth strategy, and the continued market acceptance of our products. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected.
Share Repurchase Program
In May 2024, we announced a share repurchase program for up to $500 million of common stock. For the three months ended September 30, 2025 and 2024, we repurchased and retired 1.0 million and 0.8 million shares of our common stock for a total of $50.0 million and $40.0 million, respectively. For the six months ended September 30, 2025 and 2024, we repurchased and retired 1.9 million shares of our common stock for a total of $95.0 million and $90.1 million, respectively. As of September 30, 2025, $232.3 million remained available for future repurchases. For additional information, please see Part II, Item 2 of this Quarterly Report.
Our Credit Facilities
In December 2022, we entered into a senior secured revolving credit facility in an aggregate amount of $400.0 million (as amended to date, the "Credit Facility"). As of September 30, 2025, we had $399.0 million available under the Credit Facility with $1.0 million of letters of credit outstanding. As of September 30, 2025, we were in compliance with all applicable covenants pertaining to the Credit Facility. The Credit Facility is discussed further in Note 7, Long-term Debt, of the condensed consolidated financial statements in this Quarterly Report.
Summary of Cash Flows
Six Months Ended September 30,
2025 2024
(in thousands)
Net cash provided by operating activities(1)
$ 301,709 $ 254,391
Net cash used in investing activities (6,505) (46,620)
Net cash used in financing activities (99,077) (84,567)
Effect of exchange rate changes on cash and cash equivalents 11,857 4,990
Net increase in cash and cash equivalents $ 207,984 $ 128,194
(1) Net cash provided by operating activities includes cash payments for interest and tax as follows:
Six Months Ended September 30,
2025 2024
(in thousands)
Cash paid for interest $ 363 $ 365
Cash paid for tax, net $ 59,971 $ 55,452
Operating Activities
Net cash provided by operating activities was $301.7 million during the six months ended September 30, 2025 as compared to $254.4 million during the six months ended September 30, 2024. The $47.3 million increase in net cash provided by operating activities was driven by increased net income, adjusted for non-cash charges, of $62.9 million, partially offset by a decrease in the net changes of operating assets and liabilities of $15.6 million. The net increase in operating cash flow was primarily due to higher collections driven by revenue growth.
Investing Activities
Net cash used in investing activities was $6.5 million during the six months ended September 30, 2025 as compared to $46.6 million during the six months ended September 30, 2024. The $40.1 million decrease in net cash used in investing activities was driven by a $45.0 million increase in proceeds from sales and maturities of investments, net of purchases, partially offset by a $4.8 million increase in the purchases of property and equipment.
Financing Activities
Net cash used in financing activities was $99.1 million during the six months ended September 30, 2025 as compared to $84.6 million during the six months ended September 30, 2024. The $14.5 million increase in net cash used in financing activities was driven by a $5.0 million decrease in proceeds from exercise of stock options, a $4.9 million increase in repurchases of common stock, a $4.4 million increase in taxes paid for net share settlement of equity awards, and a $1.7 million increase in other financing activities, consisting of deferred consideration paid for an acquisition of a business and capitalized software additions, partially offset by a $1.5 million increase in proceeds from the employee share purchase plan.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
There have been no significant changes in our critical accounting policies and estimates during the six months ended September 30, 2025, as compared to the critical accounting policies and estimates disclosed within "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, and the impact of these pronouncements on our condensed consolidated financial statements, see Note 2, Significant Accounting Policies, of our condensed consolidated financial statements included elsewhere in this Quarterly Report.
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