Datadog, Inc.

Good day, and thank you for standing by. Welcome to the Q3 2024 Data Dog Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Yuka Broderick, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Liz. Good morning, and thank you for joining us to review Datadog's third quarter 2024 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 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 quarter and fiscal year 2024, and related notes, our gross margins and operating margins, 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 discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-2 for the quarter ended June 30, 2024. Additional information will be made available in our upcoming form 10-Q for the fiscal quarter ended September 30th, 2024 and other filings with the SEC. This information is also 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 pleased to report on the SOTI Q3 as we continue to execute against our goals to help our customers grow faster, safer, and more efficient as they modernize their applications. We kept broadening our platform in observability and beyond, including in NextGen AI, where interest continues to rise. And we added new customers while expanding with existing ones as they grow into the cloud. Let me start with a review of our Q3 financial performance. Revenue was $690 million, an increase of 26% year-over-year and above the high end of our guidance range. We ended the quarter with about 29,200 customers, up from about 26,800 a year ago. We had about 3,490 customers with ARR of $100,000 or more, up from about 3,130 a year ago, and these customers generated about 88% of our ARR. And we generated free cash flow of $204 million, with a free cash flow margin of 30%. Turning to platform adoption, our platform strategy continues to resonate in the market. As of the end of Q3, 83% of customers were using two or more products, up from 82% a year ago. 49% of customers were using four or more products, up from 46% a year ago. 26% of our customers were using six or more products, up from 21% a year ago, and 12% of our customers were using eight or more products, up from 8% a year ago. We continue to execute on growth across the three pillars of observability, and we are pleased to report that infrastructure monitoring, our APM suite, and log management together represent more than $2.5 billion in ARR. As a reminder, within the APM suite, We include Core APM, Synthetix, Releaser Monitoring, and Continuous Profiler. We also want to call out our newer products, which are increasingly contributing to our business. Of our 23 products, 15 now exceed $10 million in AR. These include even more cloud security products, as well as CI visibility and cloud cost management. So we have many products beginning to contribute to our revenue growth, and we're continuing to build greater capabilities within those products for our customers. Now, let's discuss this quarter's business drivers. Overall, the business environment for Datadog has remained stable and similar to what we have seen throughout 2024. Our customers overall are growing their cloud usage, while some are continuing to be cost-conscious. In Q3, we continue to see existing customer usage growth broadly in line with our expectations. Our usage growth with existing customers continue to be higher than in the year-ago quarter. and we saw healthy growth across our product lines, with newer products growing faster than more mature products of a smaller base. Finally, churn continues to be low, and growth revenue retention was stable in the mid to high 90s, highlighting the mission-critical nature of our platform for our customers. Moving on to R&D. In the NextGen AI space, customers continue to experiment with new AI technologies, and as they do, they want to get visibility into their AI use. At the end of Q3, about 3,000 customers used one or more Datalog AI integrations to send us data about their AI, machine learning, and LLM usage. As some of these experiments start turning into production AI applications, we are seeing initial signs of traction for our LLM observability product. Today, hundreds of customers are using LLM observability with more exploring it every day. And some of our first paying customers have told us that they have cut the time spent investigating LLM latency errors and quality from days or hours to just minutes. Our customers don't only want to understand the performance and cost of the LLM applications. They also want to understand the LLM model performance within the context of their entire application. So they are using APM alongside LLM observability. to get fully integrated end-to-end visibility across all their applications and tech stacks. Meanwhile, we continue to work to make the Datadog platform the best place for customers to monitor, secure, and take action on their systems, no matter where they deploy. In September, we launched Datadog monitoring for Oracle Cloud Infrastructure for general availability. With this launch, our customers gain visibility into their OCI stack And they can manage in real time the performance of OCI cloud services, servers, VMs, databases, containers, and apps in Datadog. And customers can now unify their monitoring across OCI, other clouds, and on-prem environments. We also continue to extend our platform in new ways to bring value to our customers. At our Dash user conference this summer, we announced Datadog OnCall, our newest product in the cloud service management space. As you know, our customers use Datadog extensively during their work days for alerting and troubleshooting, whether that's for observability or security use cases. Now, with Datadog OnCall, we are bringing a modern paging experience directly into our unified platform. And we now offer a completely integrated solution that covers incidents from end to end, from detection, alerting and paging, to incident management, troubleshooting and resolution. Even though OnCall is still in limited availability, we are already seeing very strong reception for the product. And we are beginning to see customers report on call as part of their deals. In particular, new customers are interested in including paging as part of their land with Datadog. So we're working hard to deepen and broaden our platform. And our innovations are rightfully being recognized by independent research firms. We are pleased to see that for the fourth year in a row, Datadog has been named a leader in the 2024 Gartner Magic Quadrant for observability platforms. We believe that this validates our approach to deliver a unified platform which breaks down silos across teams. And Datadog has also been named a leader in Gartner's very first Magic Quadrant for digital experience monitoring, which includes Datadog's products across synthetic testing, realism monitoring, product analytics, session replay, and error tracking. Now let's move on to sales and marketing. Our sales team continued to execute this quarter, and we added some exciting new customers while expanding with many more. So let's go through a few examples. First, we landed a seven-figure annualized deal with a leading e-commerce company in India. With its previous observability vendor, the customers saw quickly increasing costs while lacking the enterprise-grade observability they needed. By switching to Datadog, They expect to support their scaling goals and will rely for that on our tracing, granular profiling, and cloud integration support. I will note that we are pleased to have landed a large new logo customer in India, and we are continuing to invest to grow our presence and our opportunities there. Next, we signed a 60-year annualized land with a major US federal agency. This agency is beginning to move some of its workloads to the cloud. and is expanding the services offers to every single US citizen through cloud applications. They have chosen Datadog to observe and secure their cloud environment and deliver a faster, better experience to end users. This deal includes eight products on Datadog GovCloud, including Cloud Theme and Cloud Security Management. Next, we landed a seven-figure annualized deal with a large American financial services company. This customer has a very seasonal business and experiences dozens of major incidents during the annual peak season, with an average downtime per incident of about five hours. And they estimate millions of dollars of lost revenue for each hour of downtime. By replacing its cloud provider's monitoring tool with Datadog, and in particular using a realism monitoring product, this customer targets substantial reductions in downtime. They are starting with live Datadog products, and are trialing on network monitoring, database monitoring, cloud security, and cloud cost management products as they look to consolidate dozens of homegrown commercial tools. Next, we'll need a seven-figure annualized expansion with a major airline in Europe. This customer has adopted Datadog for its customer-facing website. They are now moving hundreds of applications from on-prem to AWS, and they want to de-risk their cloud migration. They estimate that each incident can cost tens of millions of dollars in lost revenue and customer impact. By using Datadog across five products, this customer expects to significantly improve mean time to resolution. And they have already seen progress in that respect during their evaluation period with Datadog. Next, we signed a seven-figure annualized expansion with a division of a hyperscaler delivering next-gen AI models. This customer is very technically capable and already has a homegrown observability solution which requires time-consuming customization and manual configuration. They will be launching new features for their large language model soon and need a platform that can scale flexibly while supporting proactive incident detection. By expanding their use of Datadog, they expect to efficiently onboard new teams and environments and support the rapidly increasing adoption of their LLMs. Next and last, We signed a seven-figure annualized expansion with a leading online food delivery company in Latin America. Before Datadog, this customer suffered from excessive alerting noise, siloed teams, and lack of visibility, with each minute of downtime resulting in thousands of lost orders. By using Datadog, this customer has experienced meaningful reductions in mean time to resolution and false alerts, while saving on hard costs in their community's environment. This customer is expanding to 10 products in the Datadog platform. And that is it for another productive quarter for Mongo2Market2. Now, let me say a few words on our longer-term outlook. Overall, we continue to see no change to the multi-year trends towards digital transformation and cloud migration, which we continue to believe are still in early days. We are seeing continued experimentation with new advances such as next-gen AI. We believe this is one of the many factors that will drive greater use of the cloud and other modern technologies. So we are helping our customers every day to observe, secure, and act on their business-critical applications and workloads. With that, I will turn it over to our CFO. David?