Datadog, Inc.

Welcome to the Q3 2021 Data Dog Earnings Conference call. My name is Adrienne. I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we'll conduct a question and answer session. During the question and answer session, if you have a question, please press star and 1 on your touch-tone phone. I'll now turn the call over to Yuka Broderick, Head of Investor Relations. Yuka Broderick, you may begin.

Thank you, Adrienne. Good evening and thank you for joining us to review Datadog's third quarter 2021 financial results, which we announced in our press release issued after market close. Joining me on the call today are Olivier Pommel, Datadog's co-founder and CEO, and David Opsler, 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, our outlook for the fourth quarter and the full year 2021, our strategy, the potential benefits of our products, partnerships, investments in R&D and go-to-market, 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 our quarterly report on Form 10-Q for the quarter ended June 30, 2021, filed with the SEC on August 6, 2021. Additional information will be made available in our quarterly report on Form 10-Q for the quarterly period ended September 30, 2021, 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. 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.

Thank you, Gab, and thank you all for joining us this evening. We are extremely pleased with our performance in Q3, which was stronger than expected, on robust growth with existing customers, as well as strong new customer sales. We saw broad-based strengths across product lines and across customer segments. Let me give you a quick summary of the quarter. Revenue was $270 million, an increase of 75% year-over-year and above the high end of our guidance range. We ended the quarter with 1,800 customers with ARR of $100,000 or more, up from 1,082 in the year-ago quarter, These customers generated about 80% of our ARR. We have about 17,500 customers, which is up from about 13,100 last year. The leverage and efficiency of our business model is coming through, with free cash flow of $57 million. And our dollar-based net retention rate continued to be over 130% as customers increased their usage and adopted our newer products. At a high level, positive business trends from recent quarters continued in Q3. Usage growth from existing customers was very strong this quarter across products. Utilizable ARR was robust, with some large new deals closing. And churn remains low and in line with historical rates. Taking all these factors into account, we had a record quarter of ARR added. And we crossed the milestone by exceeding $1 billion in ARR in Q3. Next. Our platform strategy continues to resonate in the market. As of the end of Q3, 77% of customers are using two or more products, up from 71% a year ago. Additionally, 31% of customers are now using four or more products, which is up from 20% last year. And this quarter, about 70% of new logos landed with two or more products. Most strikingly, our whole platform saw strong growth in the third quarter. I point out in particular that all of our major products added a record amount of ARR during the quarter, but also that the year-over-year growth of infrastructure monitoring ARR on its own accelerated this quarter. And finally, that our log management and APM suite, which includes synthetics, reason monitoring, and continuous profiler, remain in hypergrowth mode. Together, in Q3, they exceeded 500 million in ARR. Now let's move on to product and R&D. Our teams continue to innovate at a rapid pace. We had 48 new product-related announcements in Q3, and we made many announcements last week at Dash, our annual user conference. You can review our Dash press releases as well as tonight's earnings for further description. But to summarize this briefly, we announced the availability of CI visibility, session replay, funnel analysis, network device monitoring, Datadog apps, and online archives for log management. We launched private betas for cloud cost management, observability pipelines, universal service monitoring, and application security. And we also announced official Datadog support of the Vector open source product. Now looking back at a couple of these announcements, some of them would increase Datadog's usefulness for business personas, users who are not engineers and can benefit from all the data flowing through Datadog. With session replay and send analysis, we believe support organizations, product designers, and product managers can get value from understanding user behavior and interactions with applications. And we expect cloud cost management will be useful to anyone involved in understanding and controlling the expense of cloud implementations, from engineering teams to product managers to finance teams. We are also advancing our efforts to support our customers with large-scale complex data needs. So I want to talk a bit about Vector, Observability Pipelines, and online archives. Nine months ago, we acquired Timber, the developer of Vector. Vector is an open source product that allows users to collect, enrich, and transform observability data and automatically route it to the destination of their choice. Our Observability Pipelines product extends Vector and increased enterprise-level capabilities for its data pipelines and the ability for users to seamlessly manage it from Datadog across both on-premise and cloud accounts. Vector and observability pipelines let customers make value-based decisions on data as early as possible before they send data to Datadog or any other partner. We are always looking for ways to give customers more control over how they use their data and how they manage the cost of their cloud deployments. This is another step in that direction. And with Online Archives, we are aiming to solve the growing problem of storing all logs and being able to run complex historical investigations on them. Online Archives is an always-on log warehousing solution that provides 15 months or more of extremely cost-effective storage and life-quaring ability. I also wanted to mention database monitoring, which we announced for general availability in August, and which gives our customers deep visibility to the performance and execution of queries across all of their databases. Finally, as announced in the press release issued this evening, we acquired HostCode, a live debugging solution for .NET applications, which lets developers solve problems in real time, whether in development or in production environments. It is another example of our growing push into developer workflows. So as you can tell, we are very busy in Q3, and I want to thank our engineering and product teams for their hard work and their relentless focus on our customers. Now, moving on to sales and marketing. Our go-to-market teams continue to be very productive, and we added 1,100 new customers this quarter. So let's review some of our Q3 wins. First, We had our largest deal ever by total contract value, an over $60 million five-year upsell with a multinational financial services company. Our history of success with this customer has led to the use of nine products, including early adoption of newer products such as ROM, Synthetix, and NPM. This customer began the second phase of their migration to the cloud and is standardizing on Datadog, adopting our newer products as we add them to our platform. Next, we had a seven-figure upsell with a global fashion retailer based in Asia. These customers saw e-commerce sales increase dramatically during the pandemic and then began to use Datadog after several outages resulted in missed sales. After a disappointing implementation of a competing solution, they chose Datadog APM across their global e-commerce sites and saw immediate improvement in stability. Next, we had a six-figure land with a US-based professional sports league which came in partnership with Google Cloud Platform. This customer experienced a large spike in application usage, as fans are returning to games following the pandemic. But they had no client-side monitoring, and therefore no way to analyze and optimize the user experience. With Datadog real user monitoring and synthetics, along with infrastructure monitoring and APM, the customer now has a single solution to manage experience from front-end to back-end. Next. We had a seven-figure land with the advertising division of a Fortune 10 company. This company has very strict SLAs for their platform, as their customers rely always on availability to adjust ad budgets in real time. After conducting a full evaluation of internal solutions and EPM providers, this customer began using Datadog infrastructure monitoring and EPM and are motivated to expand their usage of our platform within the enterprise. Finally, we had a large six-figure land with a US distributor of plumbing and building equipment. This company needed to migrate from on-premise to Azure and to deploy on Azure's Kubernetes services. But its existing APM solution had limited visibility into containers. With Datadog, this customer is able to effectively monitor the health of their Azure ecosystem, allowing them to confidently and efficiently complete migrations and retire legacy infrastructure. As you can see, Our go-to-market teams had another quarter of strong execution. I want to thank them for once more successfully helping both new and existing customers to generate value from Datadog. Now moving on to our longer-term outlook. If you could not join us for our investor meeting last week, I encourage you to watch the video on the investor relations section of our website. At the meeting, we described our long-term opportunities, our differentiators, and the expansion of our platforms over the years. To summarize my bit of the presentation, we see digital transformation and cloud migration as large forces driving exponential growth. We believe Datadog helps solve the growing problem of managing complexity for our customers, and that our open-ended unified platform designed to be simple but not simplistic is deployed everywhere and used by everyone at our customers, and that it helps break down silos between teams. We believe it is still early days for our opportunity in observability. And while we have made a lot of progress in building out a broad observability platform, we still have much to do to solve all of our problems customer pain points. One next step for us is in security with our cloud security platform. And we believe we have a part to play in breaking down silos between development, operations, and security teams. but we're also making our first inroads in pure developer workflows with the general availability of CI visibility. And we think over time, we have opportunities to help our customers in several other large adjacent markets as well. In other words, we are just getting started. With that, I would like to turn the call over to our CFO. David?