Datadog(DDOG) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q3 2024 was $690 million, up 26% YoY and 7% QoQ, exceeding the high end of guidance [7][22] - Free cash flow was$ 204 million with a free cash flow margin of 30% [7] - Gross profit was $560 million, representing a gross margin of 81.1%, slightly down from 82.1% last quarter and 82.3% YoY [27] - Operating income was$ 173 million, with a 25% operating margin, up from 24% last quarter and 24% YoY [27] - Cash flow from operations was $229 million, and the company ended the quarter with$ 3.2 billion in cash, cash equivalents, and marketable securities [28] Business Line Data and Key Metrics - 83% of customers were using two or more products, up from 82% YoY, while 49% were using four or more products, up from 46% YoY [8] - Infrastructure monitoring, APM suite, and log management together represent more than $2.5 billion in ARR [8] - 15 out of 23 products now exceed$ 10 million in ARR, including CI visibility and cloud cost management [8] - AI native customers contributed 6% of Q3 ARR, up from 4% in Q2 and 2.5% YoY [23] Market Data and Key Metrics - The company added 29,200 customers, up from 26,800 YoY, with 3,490 customers having ARR of $100,000 or more, up from 3,130 YoY [7] - Net revenue retention (NRR) was in the mid-110s, with trailing 12-month gross revenue retention stable in the mid-to-high 90s [25] - Billings were$ 689 million, up 14% YoY, with remaining performance obligations (RPO) at $1.82 billion, up 26% YoY [26] Company Strategy and Industry Competition - The company continues to focus on expanding its platform in observability and next-gen AI, with strong customer adoption of AI integrations [6][10] - Datadog was named a leader in the 2024 Gartner Magic Quadrant for observability platforms and digital experience monitoring [13][14] - The company launched Datadog On Call, a new product in the cloud service management space, which has seen strong initial reception [12][13] Management Commentary on Operating Environment and Future Outlook - The business environment remained stable in Q3, with customers continuing to grow cloud usage while being cost-conscious [9][22] - The company expects revenue for Q4 2024 to be in the range of$ 709 million to $713 million, representing 20% to 21% YoY growth [29] - For fiscal year 2024, revenue is expected to be between$ 2.656 billion and $2.660 billion, representing 25% YoY growth [30] Other Important Information - The company highlighted several large customer deals, including a seven-figure deal with a leading Indian e-commerce company and a six-figure deal with a major U.S. federal agency [15][16] - Datadog On Call, though still in limited availability, is seeing strong customer interest and is being included in deals [12][13] Q&A Session Summary Question: AI Contributions and Future Traction - AI native customers contributed 6% of ARR in Q3, with initial signs of traction in LLM observability products [10][23] - The company expects AI adoption to drive long-term growth, though there may be short-term volatility due to rapid customer ramp-ups [23][64] Question: Billings and RPO Trends - Billings growth was affected by timing differences, but the company emphasized that revenue is a better indicator of business trends [26][36] - RPO growth was 26% YoY, with current RPO growth in the high 20% range, though duration slightly decreased [26] Question: Security and Service Management Trends - The company sees strong opportunities in cloud security and is investing in product development to unify its security platform [39][40] - Datadog On Call is receiving strong customer interest, with potential to expand beyond the Datadog ecosystem [79] Question: Customer Spending Intentions - While consolidation remains a theme, the company is also seeing increased interest in innovation, particularly around AI and cloud technologies [42][44] Question: Federal Government Opportunities - The company sees significant opportunities in the federal government sector, with early successes and plans to expand capacity and certifications [70][71] Question: Gross Margin and Usage Growth - Gross margins remain stable, with the company balancing new product development and optimization efforts [74][75] - Usage growth from existing customers continues to trend higher, with potential for acceleration as AI applications move into production [76] Question: Datadog On Call Opportunity - Datadog On Call is initially focused on the Datadog ecosystem but may expand to integrate with other incident resolution tools based on customer demand [79] Question: Product Growth and 2025 Outlook - The company is excited about several products, including database monitoring, which is growing rapidly and expected to exceed$ 50 million in ARR [82] - For 2025, the company is investing in engineering and sales capacity, with a focus on digital transformation and cloud migration trends [84][85]