Datadog, Inc.

Welcome to the Q2 2021 Data Dog Earnings Conference Call. My name is John. I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you do have a question, press further than one on your touch-tone phone. And now I'll turn the call over to Yuka Broderick, Head of Investor Relations. Yuka, you may begin.

Thank you, John. Good morning and thank you for joining us today to review Datadog's second quarter 2021 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivia Pomel, Datadog's co-founder and CEO, and David Obstler, Datadog's CFO. 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 third quarter and for the full year of 2021, our strategy, the potential benefits of our products, partnerships, and investments in R&D and go-to-market, and our ability to capitalize on our market opportunity. 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 the quarterly report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 7, 2021. Additional information will be made available in our quarterly report on Form 10-2 for the quarterly period end of June 30, 2021, and other filings and reports that we may file from time to time with the SEC. Our filings through 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. Non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release. which you can find on the investor relations portion of our website for reconciliation of these measures to their most directly comparable GAAP financial measures. With that, I'd like to turn the call over to Olivier.

Thanks, Yuka, and thank you all for joining us for our morning call today. We are very pleased with our performance in Q2, which was stronger than expected on robust growth with existing customers as well as strong new customer sales. We saw real strength both across product lines and across customer segments. For a quick review of the quarter, revenue was $234 million, an increase of 67% year-over-year and 18% quarter-over-quarter, and above the high end of our guidance range. We ended the quarter with 1,610 customers with an ARR of $100,000 or more, up from 1,016 in the year-over-quarter. Those customers generate about 80% of our ARR. We have about 16,400 customers, which is up from about 12,100 last year. We also continue to be capital efficient with free cash flow of $42 million. And our dollar-based net retention rates continue to be over 130% as customers increase their usage and add up to their newer products. We are pleased that positive business trends from recent quarters continued in Q2. First, business growth from existing customers remained very robust. Among other factors, we continue to see the impact of our strong new logo growth in the past several quarters as those new customers grow into their commitment. Second, new logo ARR is again strong as we continue to execute against our go-to-market strategy. Current continues to remain low and in line with historical rates. Taking all these factors into account, we had a very strong quarter of AR added, with over $100 million of AR added for the second consecutive quarter. Next, our platform strategy continues to resonate in the market. As of the end of Q2, 75% of customers are using two or more products, up from 68% a year ago. Additionally, 28% of customers are now using four or more products, which is up from 15% last year. And this quarter, approximately 70% of new logos landed with two or more products. Our platform saw strong growth in the second quarter, which included another record of ARR added for infrastructure monitoring in a single quarter. This product is still early in its half cycle. Meanwhile, we continue to see very strong performance with other products in our platform. Our APN suite, including ROM and synthetics, and log management together, reached over $400 million in ARR. The APN suite and log management also remain in hypergrowth mode, while our newer, other products are growing even faster. As a result, we are very pleased with the customer uptake of our end-to-end observability platform, as well as the beginnings of our cloud security platform. Now, let's move on to products and R&D. Our teams continue to innovate and solve customer pain points. We announced 73 new features in Q2 and have continued to shape in Q3. To discuss just a few of these, we announced the general availability of two new security products, cloud security for share management and cloud workload security, which targets security issues around infrastructure and Cloud Security Posture Management runs continuous configuration audits so customers can track conformance to industry benchmarks and regulatory standards. And Cloud Workload Security performs real-time threat detection directly within the workloads themselves, within hosts and containers. These are our second and third GDF products in security, alongside Security Monitoring, which performs threat detection on event and login data streams. With these offerings, The first building blocks of our cloud security platform are coming together, and we can start delivering on our vision to break down silos between dev, ops, and security teams. And with the addition of these two products, we now have 11 GA products on the Datadog platform. We are also at the beginning of our opportunity to bring observability to the CI CD space, and we announced the beta of our CI visibility products in late July. CI-CD is a combined practice of continuous integration and continuous delivery, allowing software to be consistently written, tested, and released to production. The problem is that developers often don't have visibility into their CI-CD pipelines. They have a hard time figuring out what tests are failing and why, and where in their CI-CD pipeline they are experiencing bottlenecks and issues. Our CI visibility product, based on our acquisition of Undefined Labs last August, helps customers gain visibility into their testing pipelines with the goal of lowering costs and increasing efficiency for their developer teams. So we're excited about those announcements, but we're not standing still on our existing products, and we continue to expand features to make each and every one best of breed. In Synthetix, we have enabled cross-browser testing, and our customers can now test on Microsoft Edge and Firefox in addition to Chrome. In mobile ROM, we now support Android, iOS, and cross-platform frameworks like React Messages. Our run product now covers a whole user space, including web applications on desktop, mobile, and tablet, as well as mobile apps. And finally, we continue to improve the AI ML capabilities of our platform with our most recent additions, including automatic detection of faulty deployments in APM and anomaly detection in security monitoring. These are complemented by the continued extension of Watchdog Insights, the recommendation engine we are embedding directly into our users' workflows, across our platform. As you can see, our end-to-end observability platform continues to broaden and deepen. Meanwhile, we are beginning to see, to move forward in our cloud security, and we are in the early days of CI-CD use cases. As always, I want to thank our engineering and product teams for their creativity, their productivity, and their continued ability to deliver the right solutions to our customers' problems. Moving on to sales and marketing. As hinted by our customer growth this quarter, our go-to-market teams continue to be very productive. So let's discuss some more Q2 wins. First, we had an eight-figure upsell with a next-gen financial services company, which is experiencing a surge of traffic in their core applications. They rely on backlog log management as a platform across the organization to find a good cause of issues. They saw a significant increase in usage of their existing products and recently added our continuous profiler to better understand their code performance and production. Next, we had a seven-figure upsell with a European e-commerce company. They were using multiple commercial observability tools, and one of them, 2021 strategic initiative, was to consolidate and reduce costs. By standardizing on Datadog, they satisfied that goal while improving their team's collaboration and communication. Next, we have a seven-figure upsell with a large global accounting firm. This company is experiencing rapid growth with their online products, and its teams were forced to jump from tool to tool to try and mitigate problems. With Datadog, as their chosen solution for infrastructure monitoring, APM, and synthetic, they are able to decrease mean time to resolution and free up internal resources. Next, we had a six-figure upsell with a 30-year-old analytics software company. This company is moving more workloads to Azure, and with this new upsell, they standardized their data for their log management needs. Without logging without limits functionality, this company will lower costs by an order of magnitude for log management without sacrificing any of their log data. And finally, we had a seven-figure land with a large back-office software company. This company is growing rapidly, and is planning a move to hybrid cloud, but their previous monitoring adoption rate was very low, which made it difficult for their teams to collaborate. With Datadog, their entire team now has a single platform for all their observability needs, and they recognize Datadog's impact on improving adoption and alignment across teams. So as you can tell, we are incredibly proud of the performance of our go-to-market teams this quarter, and I want to thank them for their hard work and for partnering with our customers to deliver another quarter of strong results. Now, moving on to our longer-term outlook, we see businesses now moving forward with their longer-term digital strategies. Businesses must increasingly be digital-first. IT platforming remains in its early stages, and we believe we are in a great position to help our customers with our unified observability platform. Meanwhile, we are making progress on our long-term vision to break down silos between DevOps and security teams. As a result, we are extremely excited about the opportunities we see to democratize data and help customers increase visibility and manage complexity. And we're confident in our long-term plans and continue to work hard to execute on our strategy. Before turning the call over to David, I want to mention that our teams are busy preparing for Dash 2021, our user conference, which will be held in late October this year. Every year at Dash, we showcase our latest product innovations We are excited to show everyone what we've been up to this year. We also expect to hold an investor session at Dash, so please look out for that announcement in the poll. With that, I would like to turn the call over to our Chief Financial Officer. David?