Summary of Datadog Conference Call Company Overview - **Company**: Datadog - **Industry**: Cloud Monitoring and Observability Core Business and Long-term Drivers - Datadog is a modern platform designed for monitoring and observing cloud workloads, particularly in production environments, enabling organizations to see software performance and troubleshoot issues [7][8] - The long-term growth driver for Datadog is the migration of applications from legacy systems to modern cloud architectures, with a focus on digital delivery [7] - The platform has expanded from infrastructure monitoring to include various products such as APM, logging, digital experience monitoring, and security solutions, increasing its value and customer base [8] Recent Performance Highlights - Datadog reported a strong second quarter with notable top-line acceleration, attributed to increased investments in product development and market expansion [11][12] - The company has successfully onboarded significant customers, with 12 customers exceeding $1 million in revenue and 80 customers over $100,000 [14] - Datadog's security segment has crossed the $100 million mark, indicating strong growth in this area [14] AI Integration and Opportunities - Datadog is actively integrating AI into its offerings, with a focus on monitoring AI applications and enhancing its platform using AI technologies [19][20] - The company is exploring how to leverage AI for internal productivity improvements and to enhance customer solutions [22] - There is a growing trend of enterprises moving from AI experimentation to production, which Datadog aims to capitalize on through its monitoring solutions [23] Go-to-Market Strategy - Datadog is prioritizing investments in its go-to-market strategy, particularly in the enterprise segment, where it sees significant growth potential [41][45] - The company is working on consolidating its observability stack and expanding its presence in underpenetrated markets [43][44] - Datadog's penetration in the enterprise market remains low, indicating substantial room for growth as many enterprises are still transitioning from legacy systems [42] Competitive Landscape - The competitive environment remains stable, with Datadog continuing to outperform open-source alternatives in revenue growth [48] - The company is considering how to address on-premise deployments to better serve large enterprises [46][47] Financial Outlook - Datadog aims for long-term margins of over 25%, with a focus on balancing growth investments and profitability [50][51] - The company is committed to identifying and prioritizing investments that can drive top-line growth while maintaining profitability [51] Additional Insights - Datadog is exploring monetization strategies for its AI capabilities and is currently testing pricing models for new features [25][26] - The company is learning from past optimization cycles to better support its customers as they scale [28][30] - Datadog's approach to mergers and acquisitions focuses on enhancing product capabilities rather than merely consolidating customer bases [38][39]

Investment Rating - The industry investment rating is "Outperform the Market," indicating an expected industry index increase of over 5% in the next six months [58]. Core Insights - The report highlights the significant advancements in AI applications, particularly with the release of OpenAI's GPT-5, which is expected to accelerate commercialization in various high-frequency, high-value verticals [7][5]. - Companies like Duolingo, Palantir, and AppLovin have reported earnings that exceeded market expectations, showcasing the growing revenue contributions from AI capabilities [7][5]. - The report suggests a focus on companies with high retention rates and growth potential in sectors such as education, e-commerce, advertising, and enterprise data analysis [7][5]. Summary by Sections Key Company Financials - **Palantir**: Q2 revenue reached $1.004 billion, a 48% year-over-year increase, with a GAAP operating income of $269 million and an adjusted gross margin of 82% [14]. - **AMD**: Q2 revenue was $7.685 billion, a 32% year-over-year increase, with a gross margin of 54% and operating income of $897 million [19]. - **AppLovin**: Q2 advertising revenue grew 77% year-over-year to approximately $1.26 billion, with an adjusted EBITDA of $1.02 billion [24]. - **Duolingo**: Q2 revenue reached $252.3 million, a 41% year-over-year increase, with a gross margin of 72.4% [29]. - **Datadog**: Q2 revenue was $827 million, a 28% year-over-year increase, with a gross margin of 80.9% [33]. Global AI Developments - OpenAI launched two new large language models, gpt-oss-120b and gpt-oss-20b, which are open-weight models aimed at enhancing AI application performance [36]. - Google DeepMind introduced Genie 3, a model capable of generating interactive virtual worlds in real-time, marking a significant milestone in world modeling [40]. - Anthropic released Claude Opus 4.1, which shows improvements in coding and reasoning capabilities compared to its predecessor [45]. - OpenAI's GPT-5 was officially released, featuring a significant reduction in hallucination rates and enhanced reasoning capabilities [49].

Core Insights - Datadog reported strong second-quarter 2025 results with non-GAAP EPS of 46 cents, exceeding estimates by 12.20%, and revenues of $826.8 million, up 28.1% year-over-year, surpassing consensus by 4.55% [1][2] Customer Growth - The company ended the quarter with 31,400 customers, a 9.4% increase year-over-year, exceeding the Zacks Consensus Estimate by 0.75% [2] - High-ARR clients generating $100K or more in annual recurring revenues reached approximately 3,850, reflecting a 13.6% year-over-year increase, contributing about 89% of total ARR [3][11] Product Adoption and Innovation - Multi-product adoption is significant, with 83% of customers using at least two products and 14% adopting eight or more solutions, indicating strong platform stickiness [4] - Datadog unveiled over 125 new products and features at the DASH 2025 conference, focusing on AI-powered automation and log management to enhance customer engagement [8][10] AI and Security Growth - The AI-native customer segment has become a major growth driver, accounting for 11% of total revenues, up from 4% a year earlier, contributing 10 percentage points to year-over-year revenue growth [5][11] - The security product suite generated over $100 million in ARR, with mid-40% year-over-year growth, positioning the company for sustained growth [6][11] Future Guidance - For Q3 2025, Datadog anticipates revenues between $847 million and $851 million, representing 23% year-over-year growth, with non-GAAP EPS expected to be between 44-46 cents [12] Stock Performance - Datadog's shares have appreciated 16.7% in the trailing 12 months, underperforming the Zacks Computer and Technology sector's return of 29.4% [13]

Core Insights - AGIX aims to capture the essence of the AGI era, positioning itself as a key indicator similar to Nasdaq100 during the internet age [2] - The concept of "Default Alive" versus "Default Dead" highlights the importance of companies being able to sustain themselves without further funding, emphasizing the risks of over-reliance on financing [3] - The demand for high-quality AI products is immense, particularly in programming, but supply constraints related to computing power and infrastructure can limit growth [4][5] - Companies that can balance innovation speed with profitability are more likely to survive, especially in niche areas that larger firms may overlook [5] - The success of Salesforce's ecosystem illustrates the importance of building a robust platform to address market needs, which is relevant for current cloud vendors [6] - Palantir's recent revenue growth demonstrates that service-driven growth and solving last-mile problems can be effective strategies in the AI era [7] Market Performance - AGIX has shown a weekly performance of 2.61%, a year-to-date increase of 15.58%, and a return of 55.02% since 2024 [9] - The semiconductor and hardware sectors have seen a weekly performance of 1.78% and a year-to-date increase of 5.59% [10] Hedge Fund Activity - Hedge funds have significantly increased their positions in global equities, particularly in the U.S. market, countering previous reductions in market value [13] - The TMT sector has seen substantial buying activity, with funds focusing on semiconductor and software stocks despite recent volatility [14] AI Developments - OpenAI's release of GPT-5 marks a significant advancement in AI capabilities, with improvements in various fields and reduced hallucination issues [16] - Anthropic's Claude Opus 4.1 has enhanced programming and reasoning abilities, showcasing the competitive landscape in AI model development [18] Company Updates - Nvidia has received export licenses for its H20 chips to China, easing market access challenges [19] - Duolingo has raised its revenue guidance for the year, reflecting strong growth and the integration of AI tools into its offerings [21] - Datadog's target price has been raised due to strong performance driven by AI-related usage growth [22]

Core Viewpoint - Datadog reported strong Q2 earnings, exceeding Wall Street expectations, leading Morgan Stanley to maintain a "neutral" rating while raising earnings forecasts and a target price of $165, indicating over 20% potential upside in the next 12 months [1][2]. Financial Performance - Q2 total revenue reached approximately $827 million, a 28% year-over-year increase, surpassing the expected $790 million; adjusted diluted EPS was $0.46, also above expectations [1]. - For Q3, Datadog's management anticipates total revenue between $847 million and $851 million, with adjusted EPS projected at $0.44 to $0.46, both higher than Wall Street's expectations [1]. - The company raised its full-year 2025 revenue outlook by approximately $92 million, now expecting total revenue between $3.31 billion and $3.32 billion, with adjusted EPS between $1.80 and $1.83, exceeding the previous consensus of $3.24 billion and $1.70 [2]. Market Position and Client Base - Datadog specializes in cloud-native monitoring and observability, providing integrated cloud monitoring platforms for large software engineering, operations, and security teams [2]. - Major clients include industries with high demands for online stability and security monitoring, such as internet/software and IT services, media and communications, retail e-commerce, financial services, and manufacturing [2]. AI Integration and Growth Potential - Datadog is viewed as a "winner" in the global AI boom, integrating AI application software and core operations workflows into a large-scale cloud platform for monitoring and automation [3]. - The company has seen significant growth in its "AI-native" customer base, which now contributes about 15% of total revenue, with hundreds of long-term clients, including those spending over $1 million annually [4]. Competitive Landscape - The competitive environment is intensifying, with major cloud providers like AWS and Microsoft Azure enhancing their own performance monitoring and observability products, which may impact Datadog's growth and market share [5]. - Despite the competitive pressures, Datadog is expected to maintain a leading position in the observability cloud monitoring market, with a potential market size exceeding $35 billion [6]. Long-term Outlook - Morgan Stanley projects a compound annual growth rate of approximately 26% for Datadog's revenue from 2024 to 2027, with potential revenue reaching around $5.3 billion by 2027 [8]. - In a bullish scenario, the company could achieve a target price of up to $216, driven by sustained high growth and improved profit margins [8].

Core Insights - Datadog reported revenue of $826.76 million for the quarter ended June 2025, reflecting a year-over-year increase of 28.1% [1] - The earnings per share (EPS) for the quarter was $0.46, up from $0.43 in the same quarter last year [1] - The reported revenue exceeded the Zacks Consensus Estimate of $790.78 million, resulting in a positive surprise of +4.55% [1] - Datadog's EPS also surpassed expectations, with a surprise of +12.2% compared to the consensus estimate of $0.41 [1] Key Metrics - The number of customers generating over $100k in annual recurring revenue (ARR) reached 3,850, slightly above the estimated 3,848 [4] - Total customer count stood at 31,400, exceeding the estimated 31,165 [4] - Remaining performance obligations were reported at $2.43 billion, compared to the estimated $2.39 billion [4] Stock Performance - Datadog's shares have returned -0.8% over the past month, while the Zacks S&P 500 composite has increased by +1.9% [3] - The stock currently holds a Zacks Rank 2 (Buy), suggesting potential for outperformance in the near term [3]

Core Viewpoint - Datadog reported strong fiscal second-quarter results, with revenue and adjusted EPS exceeding analyst expectations, but the stock traded lower following the announcement [1][10]. Financial Performance - Fiscal second-quarter revenue increased by 28% year-over-year to $826.76 million, surpassing the analyst consensus estimate of $790.97 million [1][3]. - Adjusted EPS was 46 cents, beating the consensus estimate of 42 cents [1][4]. - Adjusted operating income reached $164.1 million, with an operating margin of 19.8% [3][10]. - Gross margin improved to 80.9% [4]. Growth Drivers - Strong usage trends from existing customers and momentum in the AI-native cohort contributed 11% of total revenue and 10 percentage points to year-over-year growth [2][6]. - AI-native customers accounted for 11% of revenue, up from 8% in the previous quarter, indicating a significant increase in adoption [6][11]. - Security revenue surpassed $100 million in annual recurring revenue (ARR), growing in the mid-40% range year-over-year [3][6]. Guidance and Outlook - For the third quarter of 2025, management guided revenue to be between $847 million and $851 million, with operating income projected at $176 million to $180 million, and EPS between $0.44 and $0.46 [4][9]. - Full-year 2025 revenue guidance was raised to $3.312 billion to $3.322 billion, with operating profit expected to be between $684 million and $694 million, and EPS projected at $1.80 to $1.83 [4][7]. Analyst Ratings - Needham maintained a Buy rating with a price forecast of $175, while RBC Capital and Bank of America Securities also maintained positive ratings with price forecasts of $165 and $175, respectively [5][8][12]. - Analysts noted Datadog's industry-leading growth and expanding AI customer base as key factors supporting their ratings [5][12].

Core Insights - Datadog reported a non-GAAP EPS of 46 cents for Q2 2025, a 7% increase year-over-year, exceeding the Zacks Consensus Estimate by 12.20% [1] - The company's net revenues reached $826.8 million, reflecting a year-over-year growth of 28.1% and surpassing the consensus estimate by 4.55% [1] Customer Metrics - Datadog ended Q2 2025 with 31,400 customers, an increase from approximately 28,700 in the same period last year [2] - The company had 3,850 customers with an annualized run rate (ARR) of $100,000 or more, up from about 3,390 year-over-year, contributing to 89% of total ARR [2] - 83% of customers utilized two or more products, while 52% used four or more products, an increase from 49% in the previous year [3] - The trailing 12-month net revenue retention rate was approximately 120%, up from the mid-110% range in the prior year [3] Financial Performance - Datadog's adjusted gross margin contracted by 110 basis points year-over-year to 80.9% [4] - Research and development expenses grew by 45.5% year-over-year to $263.2 million, representing 31.8% of revenues, an increase of 380 basis points [4] - Sales and marketing expenses rose 27.4% year-over-year to $200 million, accounting for 24.2% of revenues, a slight contraction of 10 basis points [4] - General and administrative expenses increased by 22.9% year-over-year to $41.9 million, making up 5.1% of revenues, a decrease of 20 basis points [5] - Non-GAAP operating income was reported at $164.1 million, a 4.2% increase year-over-year, but the non-GAAP operating margin shrank by 460 basis points to 19.8% [5] Cash Flow and Balance Sheet - As of June 30, 2025, Datadog had cash, cash equivalents, and marketable securities totaling $3.9 billion, down from $4.4 billion as of March 31, 2025 [6] - Operating cash flow for the quarter was $200 million, a decrease from $272 million in the previous quarter [6] - Free cash flow was reported at $165 million, compared to $244 million in the prior quarter [6] Guidance - For Q3 2025, Datadog anticipates revenues between $847 million and $851 million, with non-GAAP EPS expected in the range of 44-46 cents [9] - For the full year 2025, the company projects revenues between $3.312 billion and $3.322 billion, with non-GAAP EPS expected to be between $1.80 and $1.83 [9]

Core Insights - Tradr ETFs is set to launch two first-to-market leveraged single-stock ETFs on Astera Labs Inc. and Datadog Inc. on August 12, 2025, expanding its leveraged ETF lineup to 21 funds [1] - The new ETFs are positioned within the AI growth narrative, with Datadog recently joining the S&P 500 Index and Astera experiencing significant revenue growth since its IPO in March 2024 [1] - As of August 7, 2025, the assets under management for Tradr's suite of 12 recently launched 2X long leveraged ETFs stand at approximately $400 million [1] Company Overview - Tradr ETFs focuses on sophisticated investors and professional traders, offering leveraged and inverse ETFs that provide short or long exposure to actively traded stocks and ETFs [3] - The company aims to cater to high conviction investment views, making its products distinct from traditional ETFs [3] Market Context - The introduction of these ETFs reflects a growing interest in AI-related investments, highlighting the potential for significant growth in this sector [1] - The performance of the new ETFs will be closely tied to the underlying stocks, which have shown strong growth trajectories [1]

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides Datadog's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Datadog's unaudited condensed consolidated financial statements for Q2 2025 show a 26% revenue increase, decreased net income, and significant cash usage in financing activities [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheet Highlights (in thousands of USD) | Balance Sheet Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$5,822,415** | **$5,785,339** | | Cash and cash equivalents | $489,030 | $1,246,983 | | Marketable securities | $3,421,940 | $2,942,076 | | Goodwill | $530,982 | $360,381 | | **Total Liabilities** | **$2,626,658** | **$3,070,976** | | Deferred revenue, current | $966,442 | $961,853 | | Convertible senior notes, net | $981,357 | $1,613,305 | | **Total Stockholders' Equity** | **$3,195,757** | **$2,714,363** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, including revenue, gross profit, operating income, and net income for the reported periods Statement of Operations Summary (in thousands of USD, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$826,760** | **$645,279** | **$1,588,313** | **$1,256,532** | | Gross Profit | $660,782 | $521,780 | $1,264,707 | $1,022,935 | | Operating (Loss) Income | $(35,500) | $12,618 | $(47,920) | $24,614 | | **Net Income** | **$2,647** | **$43,824** | **$27,289** | **$86,455** | | Diluted Net Income Per Share | $0.01 | $0.12 | $0.08 | $0.24 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the cash inflows and outflows from operating, investing, and financing activities for the reported periods Cash Flow Summary for the Six Months Ended June 30 (in thousands of USD) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $471,596 | $376,694 | | Net cash used in investing activities | $(634,475) | $(320,919) | | Net cash (used in) provided by financing activities | $(603,801) | $26,426 | | **Net (Decrease) Increase in Cash** | **$(757,953)** | **$80,624** | - Significant cash usage in financing activities in 2025 was primarily due to the **$635.5 million** repayment of the 2025 Convertible Senior Notes[32](index=32&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, significant acquisitions, convertible note conversions, revenue recognition by geography, and stock-based compensation - In January 2025, the company increased the estimated useful life of capitalized software development costs from two to three years, representing a change in accounting estimate[40](index=40&type=chunk) - During Q2 2025, the company completed three business acquisitions for an aggregate purchase price of **$178.4 million**, resulting in **$16.3 million** of intangible assets and **$164.5 million** of goodwill[50](index=50&type=chunk) - The remaining **$634.1 million** of the 0.125% Convertible Senior Notes due 2025 were converted prior to maturity, settled with cash and **1,354,569** shares of Class A common stock[59](index=59&type=chunk) - As of June 30, 2025, remaining performance obligations (RPO) were **$2.43 billion**, up from **$2.27 billion** at year-end 2024, with substantial recognition expected over the next 24 months[82](index=82&type=chunk) Revenue by Geographic Area (in thousands of USD) | Region | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | North America | $586,689 | $448,002 | $1,120,504 | $873,602 | | International | $240,071 | $197,277 | $467,809 | $382,930 | | **Total** | **$826,760** | **$645,279** | **$1,588,313** | **$1,256,532** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses 26% revenue growth driven by existing customers, strong KPI trends, operating loss due to R&D and S&M investments, and robust liquidity despite note repayment [Overview and Key Performance Metrics](index=31&type=section&id=Overview%20and%20Key%20Performance%20Metrics) This section provides an overview of the company's business model and key operational metrics, including customer growth and retention rates Key Business Metrics as of June 30 | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Total Customers | ~31,400 | ~28,700 | | Customers with ARR ≥ $100,000 | ~3,850 | 3,390 | | Trailing 12-Month Dollar-Based Net Retention Rate | ~120% | Mid-110%'s | - Product adoption continues to expand, with **52%** of customers using four or more products and **29%** using six or more products as of June 30, 2025[128](index=128&type=chunk) - For the six months ended June 30, 2025, revenue grew **26%** year-over-year to **$1.59 billion**, generating **$409.7 million** in free cash flow[120](index=120&type=chunk) [Results of Operations Comparison](index=37&type=section&id=Results%20of%20Operations%20Comparison) This section compares the company's financial results for the three and six-month periods ended June 30, 2025, and 2024 Comparison of Three Months Ended June 30, 2025 and 2024 (in thousands of USD) | Item | Q2 2025 | Q2 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $826,760 | $645,279 | $181,481 | 28% | | Gross Profit | $660,782 | $521,780 | $138,902 | 27% | | R&D Expense | $387,482 | $274,599 | $112,883 | 41% | | S&M Expense | $239,026 | $187,005 | $52,021 | 28% | | G&A Expense | $69,774 | $47,558 | $22,216 | 47% | | Operating (Loss) Income | $(35,500) | $12,618 | $(48,118) | N/A | Comparison of Six Months Ended June 30, 2025 and 2024 (in thousands of USD) | Item | H1 2025 | H1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,588,313 | $1,256,532 | $331,781 | 26% | | Gross Profit | $1,264,707 | $1,022,935 | $241,772 | 24% | | R&D Expense | $728,543 | $544,587 | $183,956 | 34% | | S&M Expense | $453,317 | $360,886 | $92,431 | 26% | | G&A Expense | $130,767 | $92,848 | $37,919 | 41% | | Operating (Loss) Income | $(47,920) | $24,614 | $(72,534) | N/A | - Revenue growth for both periods was driven approximately **80%** by existing customers and **20%** by new customers[152](index=152&type=chunk)[162](index=162&type=chunk) - The increase in R&D expense was primarily due to higher personnel costs from increased headcount and increased cloud infrastructure-related investments[157](index=157&type=chunk)[165](index=165&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's financial liquidity, capital resources, and ability to meet its short-term and long-term obligations - As of June 30, 2025, the company held **$489.0 million** in cash and cash equivalents and **$3.4 billion** in marketable securities, deemed sufficient for future requirements[170](index=170&type=chunk) - During the first half of 2025, the company repaid its 2025 Convertible Senior Notes, settling conversions with approximately **$634.1 million** in cash and issuing **1,354,569** shares of Class A common stock[173](index=173&type=chunk) Reconciliation of Net Cash from Operations to Free Cash Flow (in thousands of USD) | Description | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $471,596 | $376,694 | | Less: Purchases of property and equipment | $(23,900) | $(18,573) | | Less: Capitalized software development costs | $(37,952) | $(27,594) | | **Free cash flow (Non-GAAP)** | **$409,744** | **$330,527** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rate fluctuations on investments and foreign currency exchange rates on international operating expenses, with no material impact from a hypothetical 10% change - Primary market risk exposures stem from interest rate fluctuations on **$439.5 million** in cash equivalents and **$3.4 billion** in marketable securities, and foreign currency exchange rates on international operating expenses[186](index=186&type=chunk)[187](index=187&type=chunk) - All sales are U.S. dollar-denominated, mitigating revenue currency risk, but operating expenses in France, Ireland, and the UK are subject to foreign exchange risk[188](index=188&type=chunk) - The company has not utilized hedging instruments for foreign currency or interest rate risk to date, but may consider them in the future[189](index=189&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[191](index=191&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter[192](index=192&type=chunk) [PART II. OTHER INFORMATION](index=49&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, unregistered sales of equity securities, and other relevant information [Item 1. Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - Datadog is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial position[195](index=195&type=chunk) [Item 1A. Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) This section details various risks, including economic dependency, growth challenges, security breaches, competition, regulatory compliance, and the dual-class stock structure - Key risks include economic downturns affecting IT spending, failure to sustain growth, historical operating losses, and dependence on customer renewals and expansion[197](index=197&type=chunk) - Cyber-attacks and security breaches pose a significant threat, potentially harming reputation, reducing demand, and incurring liabilities[197](index=197&type=chunk) - The company faces intense competition from diversified technology companies, native cloud provider solutions, and other specialized vendors[200](index=200&type=chunk) - The dual-class stock structure concentrates voting power with Class B shareholders, limiting Class A shareholders' influence[200](index=200&type=chunk) [Strategic and Operational Risks](index=52&type=section&id=Strategic%20and%20Operational%20Risks) This section outlines risks related to business strategy, customer retention, security, service reliability, and reliance on third-party providers - Business depends on existing customer renewals and expansions; AI-native cohort revenue contributed approximately **ten percentage points** to Q2 2025 growth but may introduce future usage volatility[210](index=210&type=chunk) - The company is vulnerable to security breaches, as evidenced by an April 2025 unauthorized access to source code repositories via compromised employee credentials[222](index=222&type=chunk) - Widespread platform outages in March 2023 highlight the risk of interruptions and performance problems, potentially leading to customer loss and legal claims[228](index=228&type=chunk) - Reliance on third-party cloud providers means any disruption, capacity limitation, or termination of these services could significantly harm operations[232](index=232&type=chunk)[233](index=233&type=chunk) [Legal and Regulatory Risks](index=67&type=section&id=Legal%20and%20Regulatory%20Risks) This section addresses risks arising from evolving data privacy laws, AI-specific regulations, intellectual property disputes, and international trade compliance - The company is subject to stringent and evolving global data privacy laws like GDPR and CCPA, with non-compliance potentially leading to significant fines and reputational harm[262](index=262&type=chunk)[264](index=264&type=chunk)[272](index=272&type=chunk) - AI product integration introduces new risks concerning intellectual property rights, cybersecurity, and compliance with emerging AI-specific regulations, such as the EU's Artificial Intelligence Act[257](index=257&type=chunk)[259](index=259&type=chunk) - Indemnity provisions in customer agreements expose the company to substantial liability for intellectual property infringement and data protection violations, potentially exceeding insurance coverage[261](index=261&type=chunk) - Operations are subject to U.S. and international export controls, sanctions, and anti-corruption laws like the FCPA, with violations leading to severe penalties[276](index=276&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=81&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) This section discusses risks associated with the company's dual-class stock structure, potential impacts of convertible notes, dividend policy, and anti-takeover provisions - The dual-class stock structure concentrates approximately **44%** of voting power with Class B stockholders as of June 30, 2025, enabling considerable influence over corporate matters[312](index=312&type=chunk) - The conditional conversion feature of the 2029 Notes could adversely affect financial condition if holders convert, potentially requiring cash payments impacting liquidity[330](index=330&type=chunk)[332](index=332&type=chunk) - The company does not intend to pay dividends in the foreseeable future, requiring investors to rely on stock price appreciation for returns[320](index=320&type=chunk)[321](index=321&type=chunk) - Anti-takeover provisions in the company's charter and Delaware law could delay or prevent a change of control and limit the stock's market price[324](index=324&type=chunk) [Item 2. Unregistered Sales of Equity Securities](index=86&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities) This section details the issuance of unregistered Class A common stock for acquisitions and the retirement of shares from capped call settlements related to 2025 Notes - In the first half of 2025, Datadog issued **771,355** unregistered shares of Class A common stock for acquisition activities[336](index=336&type=chunk) - In June 2025, the company acquired and retired **1,360,738** shares of Class A common stock following capped call settlements related to the matured 2025 Notes[337](index=337&type=chunk) [Item 5. Other Information](index=88&type=section&id=Item%205.%20Other%20Information) This section discloses that several directors and officers adopted or modified Rule 10b5-1 trading plans during Q2 2025 for future securities sales - During Q2 2025, several directors and officers, including the General Counsel, CTO, and directors Amit Agarwal and Shardul Shah, adopted or modified Rule 10b5-1 trading plans for selling company stock[340](index=340&type=chunk)[341](index=341&type=chunk)