Datadog, Inc.

Welcome to the Datadog first quarter 2022 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please also note this event is being recorded. And I would now like to turn the conference over to Yuka Broderick, Head of Investor Relations. Please go ahead.

Thank you, Tom. Good morning, everyone, and thank you for joining us to review Datadog's first quarter 2022 financial results, which we announced in our press release issued this morning. 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 forward-looking statements, including statements related to our future financial performance, our outlook for the second quarter and the fiscal year 2022, our gross margins and operating margins, including from the impact of R&D, go-to-market, CapEx, and increased office activity and marketing, our strategy, our product capabilities, our ability to capitalize on market opportunities, and the closing of acquisitions. 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 discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31st, 2021. Additional information will be made available in our upcoming Form 10-Q for the quarter ended March 31st, 2022, and other filings and reports that we may file with the SEC. 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.

Thank you, Carl, and thank you all for joining us this morning. I'll start by saying that we are pleased with our execution in Q1 as we continue to drive high revenue growth along with strong profitability and strong cash generation. To quickly summarize our Q1 financial performance, revenue was $363 million, an increase of 83% year-over-year and above the high end of our guidance range. We had about 19,800 customers, up from about 15,200 in the year-ago quarter. We ended the quarter with about 2,250 customers with ARR of $100,000 or more, up from 1,406 in the year-ago quarter. These customers generated about 85% of our ARR. We are seeing strong efficiencies in our business model, with free cash flow of $130 million and free cash flow margin of 36%. And our dollar-based net retention rate continued to be over 130% as customers increased their usage and adopted our newer product. At a high level, we saw positive business trends in Q1. Usage growth from existing customers was strong and consistent with historical trends, as customers continued on their cloud migration and digital transformation journeys, and the Datadog platform continued to expand and deliver more value. New logo ARR was very robust, and churn remained low and in line with historical rates. All these factors together led to another strong quarter of AR added. It was in fact our second best quarter of AR added aside from Q4 2021. Next, our platform strategy continues to resonate in the market. As of the end of Q1, 81% of customers were using two or more products, up from 75% a year ago. 35% of customers were using four or more products, up from 25% a year ago. And 12% of our customers were using six or more products, up from 4% last year. We saw strong growth across the products in our platform in Q1. For example, infrastructure monitoring continues to grow at a rapid clip and exceeds three quarters of a billion dollars in ARR in Q1. Our APM suite and log management products had a strong quarter and are in hyper growth mode. As a reminder, our APM suite includes Core APM, Synthetix, Releaser Monitoring, and Continuous Profiler. We're also very pleased with the growth of our user experience products, which are Synthetix and Releaser Monitoring, more specifically. These products together exceeded $100 million in ARR in Q1. And in security, we are seeing very rapid growth. It's still early days, and we're growing off a smaller base, but we continue to see strong adoption with thousands of customers getting security coverage through the Datadog platform. Now let's move on to production R&D, where our teams deliver another strong quarter of innovation. Just 12 months after we acquired Screen, we were pleased to announce the general availability of application security monitoring last week. Web applications and APIs are some of the most common sources of data breaches, yet companies typically have no ways to effectively detect attacks, so they could be left uncode for days or weeks. Some other approaches to application security and to find vulnerabilities before code reaches production But these solutions often slow down development cycles and overwhelm teams with false positives, with no easy way to prioritize those issues. The Datadog application security monitoring product leverages the full execution context of applications running in production. This allows teams to focus on attacks that actually matter and provides an immediately actionable remediation path. Application security monitoring is the 14th product in the Datadog platform. And this is the fourth product within our cloud security platform, alongside Cloud Theme, Cloud Workload Security, and cloud security posture management. With this, Datadog now provides security insights across metrics, traces, and logs, and we consider these all together as version one of our cloud security platform. Remember that we are still in early stages of security effort and have much to do to further build out this product, but we are pleased with our progress so far and the usage we're getting from our customers. Last month, we also announced that we expanded our Watchdog AI capabilities to include root cause analysis and log and nomadic detection. Root cause analysis automatically identifies causal relationships between different systems across infrastructure and services and pinpoints their root causes. Watchdog also automatically identifies the business impact of any given issue using data from a real user monitoring product. This means not only identifying which web mobile applications are impacted, but also the exact users that are affected. This new capability often solves in minutes the problem that would otherwise take hours for various specialists and customer organizations. Log anomaly detection, on the other hand, automatically understands and baselines normal patterns in logs and proactively discovers anomalies such as new patterns, meaningful changes in existing patterns, and other error outliers. By surfacing these unusual log patterns, log-unability detection helps teams find and fix issues faster. In addition to this watchdog announcement, our engineers released dozens of features and expanded product capabilities in Q1. To give a couple examples, in release and monitoring, we announced the general availability of iOS crash reports and error tracking, as well as a number of improvements to help customers analyze and understand their users' performance. In cloud security posture management, We added support for the Azure platform, enabling customers to understand their compliance posture across AWS and Azure in one place. In continuous profiler, we now support all commonly used languages, including C, C++, Rust, PHP, and .NET. And across Datadog, numerous additional rules, data sources, and integrations are enabling our customers to solve their problems from end to end without leaving the Datadog platform. Finally, This morning, we announced that we signed an agreement to acquire HDIV. HDIV is an application security product which provides a highly accurate vulnerability detection at runtime. It offers interactive application security testing capabilities, which ties vulnerabilities to exact file and line numbers in the code. And unlike other solutions in this area, HDIV's rate of false positives is very low, enabling customers to focus on vulnerabilities that actually matter. We believe HDS capabilities and strong team would be an excellent part of our cloud security platform. And we're looking forward to integrating the capability into Datadog as soon as its acquisition closes when regulatory requirements are met. That's it for our product update this quarter. I want to thank our engineering and product teams for their continued hard work. There are so many new features coming out and I can only highlight a few of them in this call. Now, moving on to sales and marketing. Our sales team continue to execute and have delivered a strong quarter. Let's discuss some of our wins in Q1. First, we signed an eight-figure upsell with a next-gen fintech company, which was our largest-ever deal on an ARR basis. This customer is experiencing explosive growth in demand for its products, and availability and performance of their system is critical to avoid loss of revenue. This customer started with us three years ago with just infrastructure monitoring, and its expansion now includes six of our products. Next, We had a high six-figure upsell with a global shipping company. This customer is expanding with Datadog to help them move forward with their Azure migration. In addition to using five Datadog products, they are now working with our new services team to help implement best practices on a number of business initiatives that involve increased Datadog adoption. This customer expects to consolidate 10 disparate monitoring tools as they expand their use of Datadog. Next, we had a seven-figure upsell with a US federal entity we were able to deepen our relationship with this customer after we achieved federal moderate status. Before Datadog, this customer had siloed infrastructures, applications, networks, database, and customer experience monitoring. This caused blind spots and long times to resolution. With this extension, they are replacing both homegrown and commercial observability tools and are enabling DevSecOps cultures with a visibility across the full stack and a single source of truth. Next, we signed a seven-figure upsell with a leading payment company. Earlier this year, this customer's open-source logging tool went down, leaving them blind. But they were able to regain visibility by getting Datadog log management up and running within a few hours of that crash. Not only did this customer regain log visibility very quickly, they were also able to use the Datadog platform to scrub personally identifiable information to meet security and compliance requirements. And as they had explained with Datadog, they have been able to cut the number of engineers who maintain homegrown and open source solutions in half and reassign engineers to other productive work in the organization. With this renewal, this customer now uses 13 products from Datadog. Next, we had a six-figure land with a major US hotel company. This company lost half of its engineering team during COVID and needed to use its staff more efficiently. At the same time, it was embarking on an AWS migration. and its existing tools were not providing the visibility it needed. By consolidating Datadog, this customer expects to future-proof its cloud strategy and move towards unified end-to-end management across their on-prem and AWS environments. And finally, we had a seven-figure land with a major European car manufacturer. This customer was frustrated with its existing monitoring tools, which left them with limited visibility into incidents, sometimes impacting millions of users globally. As they were trialing Datadog, they were able to solve within minutes issues that used to take them days. With Datadog, this customer expects to consolidate multiple commercial and open source tools across AWS and on-prem stacks. That's it for this quarter's highlights. I want to thank our go-to-market teams for their hard work in delivering a strong start to 2022 after a very busy end of year. I also want to give a special shout out to our tech solutions and support teams for making your customers successful and enabling them to expand within the platform. Moving on, we feel very good about the demand environment. And as we look over the medium and long-term, our outlook hasn't changed. We remain confident that cloud migration and digital transformation are drivers of our long-term opportunities and our multi-year trends that are still early in their life cycles. We believe it is increasingly critical for companies to embark on these journeys in order to move faster, create competitive differentiation, enable strategic change, and serve their customers. And we believe we can help customers manage the complexity that comes with these transformations, and that the Datadog Unified platform is more than ever critical to understand, improve, and secure their modern stacks and businesses. With that, I will turn the call over to our CFO for a review of our financial performance and guidance. David?