Datadog, Inc.

Thank you. Please go ahead.

Thank you, Jimmy. Good afternoon, and thank you for joining us today to review Datadog's first quarter 2020 financial results, which we announced in our press release issued after the close of market today. Joining me on the call today are Olivier Pomel, Datadog's co-founder and CEO, and David Obstler, Datadog's CFO. This is our first time conducting our earnings call from separate locations, so we appreciate your understanding if we encounter any technical glitches. During this call, we will make statements related to our business that are forward-looking under federal securities laws and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our future financial performance, including our outlook for the second quarter and for the full year of 2020, our strategy, the potential benefits of our products, the potential contribution of customers with annual run rate or ARR of $100,000 or greater, R&D and go-to-market investments, Expected capital expenditures, anticipated hiring, the size of our market opportunity, as well as the impact of COVID-19 pandemic on our customers, their usage of our products, our market, and our business and operating results. The words anticipate, believe, continue, estimate, expect, intend, will, and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and not as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For discussion of the material risks and other important factors that could affect our actual results, please refer to our annual report on Form 10-K for the year ended December 31st, 2019, filed with the SEC on February 25th, 2020, and a current report on Form 8-K filed with the SEC on May 11th, 2020. Additional information will be made available in our quarterly report on Form 10-Q for the quarterly period ended March 31st, 2020, and other filings and reports that we may file from time to time with the SEC. Our filings with the SEC are available on the investor relations section of our website. A replay of this call will also be available there for a limited time. Additional information may also be made available in our other filings and reports that we may file from time to time with the SEC. Additionally, non-GAAP financial matters will be discussed on this conference call. Please refer to the table in our earnings release, which you can find on the investor relations portion of our website, for reconciliation of these measures to the most directly comparable gap financial measures. With that, I'd like to turn the call over to Olivier.

Thank you, AJ, and thank you all for joining us today. Before reviewing the quarter, I'd like to take some time to address the situation we're all facing with the COVID pandemic, and in particular, our internal response to the crisis, the ways in which the pandemic intersects with our business, but also some of the data we've seen in March and April, as well as our stance for the year and our perspective on the future. So, starting with our response, we communicated three objectives internally. First, to keep our employees healthy and sane. Second, to be good citizens and members of our communities and contribute to our collective health and economic success. And last but not least, to serve our customers, double down on innovation, and be the best at what we do for challenging times as well as good. In keeping with those objectives, we have mandated work from home since March 12th. In addition to that, we have allocated a grant to each of our employees to support their productivity and safety. And at their discretion, employees could elect to donate all or a portion of their grant to charities that help with COVID relief. I'm very proud to say that this program has already resulted in a million dollars of donations from our employees and reflects their generosity and our commitment to go through this crisis together with the communities in which we operate. I also have to say that I've been extremely impressed by Datadog employees' resilience, continued productivity, and innovation through this time. Our success in pivoting to operate remotely does demonstrate the advantage of being a digital-first, cloud-based business. Regarding the way the pandemic may affect Datadog, there are a few important structural points to understand about our business. First, we have a very diverse customer base. We estimate that less than 10% of our ARR comes from categories most negatively impacted by COVID, such as hospitality and travel, airlines, and in-person entertainment. On the other hand, we also have exposure to categories that have experienced an increase in traffic, such as streaming media, gaming, food delivery, e-commerce, and collaboration. Second, we also have a great diversity of customer sizes. We have low concentration, and approximately 75% of our ARR come from customers that pay us $100,000 or more. Also, less than 50% of our ARR comes from a long tail of small businesses. Third, we price according to our customers' infrastructure footprint and not per seat, so our product usage is not directly affected by reductions in the workforce. Fourth, our business model is low-friction, land and expand, and our platform is adopted bottom-up. We often land fast and small as enterprises begin their cloud migration, and then we frictionlessly extend from there as more workloads move to the cloud. This makes our sales effort less dependent on physical meetings and makes our model extremely efficient and less reliant on larger phone deals. Lastly, we are pure SaaS and require no professional services or hands-on keyboard implementation. Now, turning to what we've seen in March and April, first of all, the COVID escalation happened late enough in the first quarter to not materially affect our financial results. Throughout the quarter, We saw consumption continue to increase across the platform, and growth of the number of hosts, containers, metrics, traces, or logs, for example, have remained consistent with historical trends. We started to see some negative effects in impacted industries, such as travel, hospitality, and airlines. But we've also seen substantially increased usage from other categories, such as streaming media, gaming, food delivery, and collaboration, as these customers scaled up their operations in these environments. We also saw assertive usage in certain accounting margins in response to COVID that we expect could be more transitory in nature and may normalize over time. In terms of New Deal, we did have a strong end of the quarter with limited impact on COVID. As far as Q2 goes, our pipeline is robust and relatively consistent with prior quarters, but it is still too early to know the impact COVID could have down the road. Because of that, and given the macro uncertainty, it is prudent to expect Delay of some new cloud migration projects, as well as some impact on churn. As David will discuss, the effect of COVID has been incorporated in our guidance. To close on the COVID pandemic, let's step back and look at our stance for the rest of the year and perspective on the future. While there is a lot more uncertainty across the industry and the broader economy in the very near term, we believe it is more important than ever for businesses to operate online. and that the trends of digital transformation and cloud migration remain very much intact over the long term and may even be accelerated or amplified. We believe we are well positioned to be a primary beneficiary of these trends and continue to win in the market. And we also believe that the efficiency of our business, whether it is our unit economics, our balance sheet, our ability to innovate, will be another advantage in a difficult market. As such, our plans remain clear. We are investing across the board. We're investing in the development of existing and new products, including aggressive R&D recruiting targets and taking advantage of the opportunity to attract talent that would otherwise not be on the market. We're investing in the growth of our go-to-market team across segments and geographies. We're investing in our relationship with customers as some of them go through difficult times and it is more important never for them to operate digitally. And we're investing in our existing employees to keep them safe and sane through this crisis. To conclude on this point, I would say that while I can't promise for macro reasons that we'll see the same incredibly fast return on these investments as we have historically, we are very confident in the middle long-term opportunity in front of us and in our strategic plans to live up to it. Now, on to Q1. We are very pleased with our performance in the quarter. Results were once again driven by broad-based trends across new logos and extensions, as well as across customer segments and sales channels. To summarize Q1, revenue was $131 million, an increase of 87% year-over-year. We ended the quarter with 960 customers with ARR of $100,000 or more, which is an increase of 89% from last year. These customers generate approximately 75% of our ARR. We also continue to be capital efficient with free cash flow of $19 million. and a tax payback that is still around a year or less. We ended the quarter with about 11,500 customers, which is about 40% growth from 8,200 last year, which means we added about 1,000 new customers in the quarter, which was twice the number we added last year. And as in past quarters, our dollar-based net retention rate was over 130% as customers increased their usage and adopted our newer products. From an R&D perspective, we continue the rapid pace of innovation. We recently announced the general availability of our security monitoring products to unify visibility across security, dev, and ops teams. As with all our products, this is available in the same integrated, simple-to-use SaaS platform. We are pleased with the initial response to this product, and it has been the most demanded data in company history. I remind you that we are just beginning on the journey to break the silos between security dev and ops, and we plan for continued innovation in this category. Additionally, we recently crossed 400 out-of-the-box integrations. And among a number of new and improved, I'd like to call out Tenable Nessus and VMware Carbon Black, which support our new security use cases. Looking at product usage, our platform strategy continues to resonate with customers. As at the end of Q1, 63% of our customers were using two or more products, up from 58% in Q4 and 32% last year. In Q1, approximately 75% of our new logos landed with two or more products. And our success in both landing and cross-selling our platform has resulted in a number of customers using two or more products, nearly tripling year over year. who are very pleased with this continued adoption of our platform, which includes strong initial uptake of our newest products, network performance monitoring and re-user monitoring. And as I mentioned earlier, we do continue to believe we have a significant opportunity to further expand our product portfolio and grow our addressable market. Now, let's move on to the go-to market. I have been personally very impressed with our continued productivity across teams during these times. Enterprise Sales teams in particular who are serving companies of more than 5,000 employees have successfully adapted to selling by phone and video. And as you know, trade shows and marketing events have been canceled or gone virtual. We have been redeploying those investments into online advertising, webinars, and other activities. Our own user conference, Dash, is going virtual, likely in Q3. Now, let's review some of our key wins in the quarter. First, We had an exciting seven-figure new logo win from a Fortune 100 pharmaceutical company embarking on a migration to a container-based hybrid cloud. Incumbrantly, SE Tools didn't keep up with their new dynamic stack, and that allowed for mass adoption across dev, ops, and executive teams for a single observability platform that all teams can use every day. Next, we signed a six-figure new logo deal to provide monitoring for a large health insurance company embarking on a multi-cloud migration. What's really interesting about this deal is that it was won through a new partnership with one of the world's largest system integrators. This is a great example of success after we announced Datadog Partner Network in January, though, of course, it is still early days for our channel and that IMC's go-to-market. By the way, both of the new logo deals I just mentioned were closed at the very end of March. Next, we had a sizable upsell to a mid-market, on-demand logistics company which now spends more than a million dollars a year with us. This company has been a customer since 2018, starting with infrastructure monitoring and then adopted both APM and log management in 2019. Today, this customer is also using synthetics, NPM, and security monitoring. What's really interesting in this case is that this customer partnered with us to better our security product and has quickly found value in scanning logs to detect security threats. It is also worth noting that this logistics company has experienced dramatically increased demand with COVID. It has successfully scaled up its operations, avoided performance issues, and enabled all its engineers to collaborate remotely, all with support from Datadog. Lastly, I'd note a large six-figure upsell to one of the world's largest global financial institutions. This customer plans to migrate thousands of applications over the coming years, with Datadog being the standard across multiple public and private clouds. This is an interesting customer single out for both its extremely stringent security requirements and its adoption of our serverless monitoring capabilities. With that, I would like to turn the call over to our Chief Financial Officer, David Obstler. David?