Datadog, Inc.

Welcome to the Q4 2021 Datadog earnings conference call. My name is John and I'll be your operator for today's call. At this time, all lines are muted. Later, we will conduct a question and answer session. During the question and answer session, if you do have a question, press star then one on your touchtone phone. And now I'll turn the call over to Yuka Broderick, Head of Investor Relations.

Thank you, John. Good morning and thank you for joining us to review Datadog's fourth quarter and fiscal year 2021 financial results. which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's co-founder and CEO, and David Obstler, Datadog's CFO. During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the first quarter and the fiscal year 2022, our gross margins and operating margins, including investments in R&D and go-to-market, our strategy, our product capabilities, and our ability to capitalize on market opportunities. 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 are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-Q for the quarter ended September 30, 2021. Additional information will be made available in our upcoming Form 10-K for the year ended December 31, 2021, and other filings and reports that we may file with the FCC. These filings are available on the investor relations section of our website, along with a replay of this call. We will also discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors.datadoghq.com. With that, I'd like to turn the call over to Olivier.

Thanks, Yuka, and thank you all for joining us this morning. We are very pleased with our performance in Q4, where we showed high growth at scale as well as strong business efficiencies. Looking back at 2021, not only do we continue to see a very strong demand environment, we also kept innovating at a rapid pace, and our team executed extremely well to help our customers manage complexity in the cloud era. Let's start with a quick summary of Q4. Revenue was $326 million, an increase of 84% year-over-year and above the high end of our guidance range. We had about 18,800 customers, up from about 14,200 at the end of last year. We ended the quarter with about 2,010 customers with ARR of $100,000 or more, up from 1,228 at the end of last year. These customers generated about 83% of our ARR. We had 216 customers with ARR of $1 million or more, which is more than double the 101 we had at the end of last year. The leverage and efficiency of our business model is coming through with free cash flow of $107 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 continue in Q4. Business growth from existing customers exceeded our expectations this quarter, and we saw strong growth across all the products in our platform and all business segments. We had a record new logo ARR in Q4, including some large new enterprise wins. And churn remains low and in line with historical rates. All these factors together led to another record quarter of ARR added. Next, our platform strategy continues to resonate in the market. As of the end of Q4, 78% of customers were using two or more products, up from 72% a year ago. 33% of customers were using four or more products, up from 22% a year ago. And as a sign of further adoption of our platform, we saw that 10% of our customers were using six or more products, which is up from 3% last year. We saw strong growth across our platform in Q4, Year-over-year growth of infrastructure monitoring ARR has accelerated in Q4 compared to Q3. In addition to that, APM Suite and Log Management products continue to be in hypergrowth mode, and we are very pleased to report that our newer products added about 100 million in ARR in 2021. These are the newer products we launched in 2019, which exclude Core Infrastructure, Core APM, and Log Management. Now, let's move on to products and R&D, where our teams have not been slowing down and delivered another strong order of innovation. We announced the general availability of Sensitive Data Scanner in December. Sensitive Data Scanner gives customers an easy and cost-effective method to discover, classify, and protect sensitive information. With modern applications, data moves across many important teams, making it difficult to know when services are storing sensitive data. This is particularly important for enterprises in regulated industries. like healthcare or financial services. Sensitive Data Scanner is available today for log management and we'll be working to extend it into other areas of the platform in 2022. We also announced this morning the acquisition of CoScreen, a screen sharing platform that allows participants to interact with a joint workspace in real time. Engineering is a team sport. CoScreen lets us bring individual work into a shared team environment. And unlike general-purpose video conferencing tools, which are one-to-many and focus on presentation and conversation, CoScreen is many-to-many, allowing multiple participants to share and collaborate in each other's windows as if they were local applications. We believe this will help our customers in a number of use cases, such as incident response, and aligns with our founding goal of breaking down silos between teams. Now let's take a moment to review our accomplishments in 2021. We ended the year with 13 generally available products, up from nine at the end of 2020. We significantly extended our observability capabilities in 2021. In infrastructure monitoring, we made it even easier to instrument and monitor. We launched over 80 new integrations covering clouds, CDNs, web platforms, automation platforms, and more. We now have over 500 integrations and continue to go deeper into cloud platforms, including AWS, Azure, and GCP. We launched network device monitoring for physical network devices and appliances. We created new container-centric views as our customers continue adopting Kubernetes at massive scale. On the serverless front, we have expanded our coverage to include visibility into not only the functions customers develop, but also the ecosystem of data security and routing services that surround them. And we launched a beta of universal service monitoring, which captures service-level health and performance without needing to modify any application code. Our APM Suite was named a leader in the Gartner Magic Quadrant in 2021, and we doubled down on innovation in APM. We expanded real user monitoring meaningfully, particularly for Android and iOS mobile devices. We launched session replay, database monitoring, and automated tracking of faulty deployments. We expanded synthetic monitoring with support of numerous new browsers and locations. In continuous profiler, we added support to profile many new languages, such as .NET, Ruby, PHP, C++, and Node.js. And we invested to get close to the developers' day-to-day experience with synthetic testing in CI pipelines, no detecting problems before they happen in production, error tracking not covering front-end devices and back-end services, and source code integration enabling developers to tie production to the right line of code. In log management, we continue to aggressively invest, providing more sophisticated analytical and governance capabilities, and giving our customers more flexibility with data storage and retention. Our improvements unlock many sophisticated use cases, for example, in cybersecurity and business analysis. We also announced Online Archives, a new long-term data store for extremely large data volumes. Now, further extending observability to development workflows, we launched CI Visibility to help developers ship faster and more safely. And going beyond observability, we launched our Cloud Security Platform, including Cloud SIEM, Cloud Security Posture Management, and Cloud Workload Security. In addition to those, our application security product is currently in beta. And we're now very pleased with our early momentum in security, as we have thousands of customers using our cloud security products today. We also kept opening up Datadog as a platform with the release of Datadog apps. And finally, we'll continue to invest and innovate with Watchdog, Datadog's AI engine. Watchdog can automatically detect and correlate anomalies. And we've been busy extending Watchdog to provide information in context throughout our platform. 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. Earlier this month, we announced the promotion of Sean Walters to Chief Revenue Officer. This is a well-deserved promotion for Sean, who has been an enterprise sales leader at Datadog for four years now and has shown excellence in building strong teams and delivering high productivity. We've all been impressed with his performance over the past few quarters as well. Sean has a deep experience in the field, with over 20 years of increasing responsibilities in software sales, and we are excited to see him build on his successes at CRO. In addition to this, we are pleased to have received a FedRAMP moderate authorization. As a result, we can now sell to U.S. federal government agencies, as well as the other public sector customers who use FedRAMP as an indicator of compliance and security. We have been working to build our go-to-market teams for the public sector, and we intend to expand on those efforts aggressively. We also announced a global strategic partnership with AWS. This is a recognition of our success and growth with AWS and our commitment to further invest to accelerate our joint opportunities. Among the areas of further partnership, we have already integrated Datadog more tightly into the AWS marketplace. We are also working with AWS to build deeper integrations, not only for observability, but also for security use cases. And we are also planning to extend our go-to-market activities. Meanwhile, our sales teams continue to execute at a very high level. So let's discuss some wins for Q4. First, we had a six-figure land deal with a major US airline. This customer has chosen Datadog as the de facto monitoring solution for all new IT projects and applications. They plan to start with six products in the Datadog platform with an expectation to expand significantly with more teams and applications over time. Next, We had a seven-figure upsell with a major European car company. Prior to using Datadog, this customer had five disparate monitoring tools, which created false positive alerts while leaving gaps in coverage. With Datadog, they were able to break down silos between teams and reduce the frequency and duration of outages. Next, we had an upsell to Edge Figures of ARR with a major financial infrastructure company. This customer has consolidated multiple monitoring tools in Datadog, helping them ensure stability and support growth. This customer estimates savings of 45% by migrating to Datadog. And the upsell also includes new products such as Cloud Theme, Cloud Workload Security, and Cloud Security Poster Management. And this customer now uses 10 Datadog products. Next, we have a seven-figure upsell with a multinational beverage conglomerate. This expansion makes Datadog their global observability standard with enterprise adoption across six international zones. Thanks to Datadog log correlation, What used to take three people an hour of log data gathering now takes one person less than 10 minutes. And finally, we wanted to spend some time discussing our largest ever multi-million dollar land deal with a major media company. This media conglomerate sees massive amounts of traffic with its customer-facing content. And the most critical content, such as live sports and entertainment, requires highly optimized observability. His customer also decided to embark upon a significant digital transformation project, eliminating his data centers over time in favor of cloud. His operational overhaul hinged on proper end-to-end observability, but the customer's existing monitoring solutions failed to innovate quickly enough to support his growth and increasing complexity. In addition, reliance on open-source tooling was a strain on engineering resources. Betadog provided a single integrated cloud solution, And the customer plans to replace eight different commercial and open-source tools with the Datadog platform, starting with five of our products. So as you can see, our go-to-market teams are successfully helping both new and existing customers get value out of Datadog. And I want to congratulate them for their incredible work this quarter. Now looking ahead to 2022 and beyond, we'll continue to see digital transformation and cloud migration as critical for our existing and prospective customers. The cloud and other next-gen technologies are creating complexity that customers need to understand and manage. Meanwhile, security threats can occur anywhere in this broad and dynamic set of infrastructure and applications, making identifying vulnerability and attacks absolutely crucial. So there's a lot of demand out there for observability and security for the modern stack. As a result, we continue to feel that we are still very early with respect to our products and our market opportunity. And looking forward to 2022, we will make further progress in expanding the Datadog platform. We have a lot to do and we're excited about what's in front of us. On a final note, we feel that 2021 was a very successful year for Datadog, but we recognize that it's been a tough time for many others. This is why we're happy to report that together with our employees, Datadog donated over $3 million to nonprofit global organizations at the end of the year. And we look forward to giving back more to our communities in 2022. With that, I will turn the call over to our CFO for a review of financial performance and guidance.