Summary of Datadog Conference Call Company Overview - **Company**: Datadog (NasdaqGS: DDOG) - **Date**: November 18, 2025 - **Context**: Discussion of recent performance, product developments, and market trends Key Points Industry and Market Dynamics - **AI and Non-AI Workloads**: Datadog is observing a shift where 70%-75% of workloads remain legacy and on-premise, prompting a focus on modernization and the adoption of AI tools to enhance application utility [7][12][10] - **Customer Adoption**: The company is seeing increased adoption of its platform, particularly in Digital Experience Monitoring, which surpassed $300 million in revenue [4][15] - **Security Business Growth**: There has been a notable acceleration in the security segment, attributed to improved enterprise selling capabilities and competitive advantages over traditional players like Splunk [26][27] Financial Performance - **New Customer Acquisition**: Datadog reported a significant increase in new logos, driven by expanded quota capacity and a strong pipeline for Q4 and early next year [33][14] - **Revenue Growth**: The company is experiencing growth across various customer segments, including AI natives, with significant contributions from six-figure and seven-figure customers [15][17] Product Development and Innovation - **BitsAI Launch**: The introduction of BitsAI is generating excitement, with potential for increased customer value through enhanced problem diagnosis and resolution capabilities [31][32] - **Service Management Expansion**: Datadog aims to integrate service management into its platform, enhancing functionality and user engagement [56] Strategic Outlook - **M&A Strategy**: Datadog is open to larger acquisitions but maintains a high bar for integration, focusing on product management and technological alignment [36][38] - **Government Opportunities**: The company is pursuing FedRAMP certification to tap into government contracts, particularly in defense, although current contributions are minimal [42][45] Customer Insights - **Customer Preferences**: Customers prefer integrated solutions over open-source alternatives, valuing the efficiency and cost-effectiveness of Datadog's platform [23][24] - **AI Budgeting**: There is a growing comfort among customers regarding AI spending, which is expected to open up more opportunities for Datadog [47] Future Growth Drivers - **Long-term Vision**: Datadog's vision includes expanding its platform to address a broader user base and increasing functionality, particularly in security and AI workloads [56] Conclusion - Datadog is positioned for continued growth through strategic product enhancements, a strong customer acquisition strategy, and a focus on modernization in the tech stack. The company is optimistic about its future prospects, particularly in the AI and security domains.

Financial Data and Key Metrics Changes - Revenue for Q3 2025 was $886 million, representing a 28% year-over-year increase and exceeding the high end of guidance [5][19] - Free cash flow was $214 million, with a free cash flow margin of 24% [6][24] - Gross profit was $719 million, resulting in a gross margin of 81.2%, slightly up from 80.9% in the previous quarter [24][25] Business Line Data and Key Metrics Changes - The number of customers increased to approximately 32,000, up from about 29,200 a year ago [5] - 4,060 customers had an ARR of $100,000 or more, up from 3,490 a year ago, contributing about 89% of total ARR [5][6] - Security ARR growth was in the mid-50% year-over-year, up from mid-40% in the previous quarter [9] Market Data and Key Metrics Changes - The company saw strong revenue growth from both AI-native and non-AI customers, with non-AI existing customer usage growth being the highest in 12 quarters [4][21] - AI-native customers represented 12% of total revenue in Q3, up from 11% in the previous quarter [22] Company Strategy and Development Direction - The company is focused on digital transformation and cloud migration as long-term growth drivers, with significant investments in AI observability products [18][19] - The strategy includes expanding product offerings and enhancing customer engagement through new go-to-market motions [15][31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand environment, noting broad-based positive trends in cloud migration and digital transformation [4][18] - The company anticipates continued growth in AI adoption and plans to leverage this for future revenue opportunities [19][45] Other Important Information - The company supports over 1,000 integrations, allowing customers to correlate disparate data sources for deeper analysis [12] - The company has been recognized as a leader in the 2025 Gartner Magic Quadrant for digital experience monitoring [8] Q&A Session Summary Question: GPU monetization versus CPU monetization - Management indicated that while products for GPU monitoring are being developed, they do not yet generate significant revenue [29] Question: Enterprise trends in non-AI cohort - Management attributed improved performance to a positive demand environment, increased sales capacity, and successful product development [30][31] Question: Nature of AI-native customers - The AI-native customer base is diverse, including model builders and various applications, indicating broad adoption across the sector [34] Question: Expansion of contract with largest AI-native customer - Management clarified that higher commitments typically lead to better pricing, resulting in improved economics for customers [36] Question: Acceleration in security growth - The growth in security is attributed to product maturity, channel investments, and effective go-to-market strategies [38] Question: Impact of AI advancements on OnCall product - Management emphasized that AI advancements enhance the value proposition of the OnCall product by enabling end-to-end incident resolution [40] Question: Duration of non-AI cohort acceleration - Management expressed confidence in the mid to long-term sustainability of growth driven by digital transformation and cloud migration [55]