Q3 2019 Earnings Call
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Right well considered either dog three core your 2019 earnings conference call.
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I'll now like to have the conference over to your speaker today.
Jim Lubitsch Directory, that's yeah me. Thank you. Please go ahead.
Thank you John Good afternoon. Thank you for joining us today to review data <unk> third quarter 2019 financial result, which we announced in our press release issued after the close of Mark today, joining me on the call today or Libbey April mill drugs co founder and CEO , David Oakes LER figured out CFO .
During this call we will make statements related to our business that are forward looking under federal Securities laws are made pursuant to the Safe Harbor provisions Private Securities Litigation Reform Act 1995, including statements related to our future financial performance, including our outlook for the fourth quarter and for the full year 2019, our strategy benefits of our products to potential contribution of customers with air or Uh Huh.
That was an integrator R&D and go to market investments expected capital expenditures and the size of our market opportunity. The words anticipate believe it continue estimate expect content will and similar expressions are intended to identify forward looking statements were similar indication of future expectations. These statements reflect our views only as of today not.
Any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations for discussion of material risks and other important factors that could affect our actual results. Please refer to our prospectus filed with the FCC pursuant to rule for 24 be dated September 19th 2019, which is available in the Investor Relations section of our way.
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A replay of this call will be available for therefore limited time.
Additional information will be made available in our quarterly report on Form 10-Q for the quarter ended September Thirtyth 2019, and other filings and reports that we may file from time to time with the FCC.
Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release, which you can find on the Investor Relations portion of our web site for a reconciliation of those matters to their most directly comparable GAAP financial measures with that I'd like turn the call over to alleviate [noise].
Thank you Ajay and thank you all for joining US today for Q3 earnings call, which is our first as a public company.
Michael I Wonder at ICSI Anite study data dog nine years ago with a mission to break down sitos between developers an ideal pushing team.
Today, we are monitoring and then 80 platform for Dev ops and business users would provide clarity and actionable insights into software applications and that infrastructure owning real time.
Exist, so thatll customers can't understand everything that happens in that technology stack, enabling them to deliver greater innovation provide an exceptional user experience and achieve faster is only shouldn't supplementation.
Why do we are very proud of the company. We have built we're even more excited for the future the tremendous opportunity ahead of us.
I would like to start with a quick with you about business and financial result.
For the third quarter revenue was $95.9 billion, an 88% increase year over year.
non-GAAP operating income was $638000 or margin of 0.7%.
We ended the quarter with 727 customers with annual run rate revenue or <unk> or a 100000 dollar or more which is a 93% increase from a year ago.
We achieved these while maintaining 80 shouldn't deck payback.
As in past quarters or dollar base net retention rate was over 130% as customers increased our usage and add up to you don't you a product.
And we also continued to be capital efficient idle cash provided by operating activities in Q3 was $3.8 million and year to date $6.8 million.
Excuse he sees offers coal as a public company I would like to spend a few minutes, providing an overview of the market opportunity.
Correct and I'll go to market before I review of third quarter highlights.
As we all know a massive actually replatforming is underway.
Companies on moving from static on premise I T architecture to public and private cloud as good as other if criminal technologies that containers microservices several that computing.
These newer technologies, although it will increase agility and innovation, but also come on complexity and deferral.
Meanwhile, historically separate developers Nike operations team must come together in order to manifest scale and better collaborate around their share do you have Yankee stuck.
As businesses are becoming more and more digital these challenges African companies across all industries geographies inside.
We believe we ought to very early stages of assess central market opportunity, which we estimate to be approximately $35 billion based on a bottom up calculation.
From a product perspective that it up was founded in 2010 as a real time data integration platform that turns the cable somebody spread sources into digestible and actionable insights.
Vision was a single platform that would provide Devon helps users was a common view across sourcing teams and technologies.
You just doesn't 12, we launched our initial use case in fact for monitoring.
Got it was in prospects would give us brought deployment across got environment and ubiquity across Devon helps users.
In other words were deployed everywhere and use by everyone.
Since initial launch we have continued to innovate costs more environments, including containers and satellite as whereas on premise hybrid product and multi cut environment.
Because problems really stuff at the boundary between foster kind of vacation, we saw a need for food stuck up that ability and we launched data Doug application, both mismanagement or APN it doesn't 17.
Quickly I read that no blood management doesn't 18, that's completing what we like to called the three pillars of acceptability.
Earlier this year.
So low instead, it up synthetics to extending to user experience monitoring backing away by letting or customers seem like you're joining wonder what applications <unk>.
Oh product features and functionalities out offered within the same tightly integrated platform.
Well customers can frictionlessly add up new product all from this end user interface and powered by a coming back them up.
We believe we win in the market for a few reasons.
One we are truly integrated platform following us to solve our customers' end to end problems and innovate rapidly.
Two.
We were built for the modern done any stock offering end to end visibility.
Three.
We're a simple, but not simplistic easy to install with no professional services.
And fourth we are designed for use in collaboration across development operations and business team.
From a business model perspective, we had an efficient operating model, which has enabled us to achieve best in class growth and very modest cash burn.
Despite significant and ongoing investment in R&D and sales and marketing we have only burned approximately $30 million in cash since we began.
We had a very strong taxi back.
This allows us to continue to invest you know product and sort of more problems for customers.
With that I've done in mind, Let's review, our third quarter performance.
Overall, we're very pleased with our result.
Strength was broad based Susan by both robust you local additions as well as continued growth other gifting customers.
Oh platform strategy is clearly resonating.
Including strong initial uptake of synthetics product in the quarter.
From an R&D perspective, we continue to invest you know product suite.
We announced the 50, new product features and functionalities to like a dash annual user conference.
One of the products, we announced was network performance monitoring to allow customers to visualize the flow network traffic in both sub base and hybrid environments.
It is an extremely light weight solution based compatible with all major cloud providers and I'm pretty servers.
Even customers the flexibility to monitor and it will krasik without sacrificing performance.
Another new product was really is a monitoring which complements synthetics for user experience monitoring.
It allows customers to analyze the performance of application I've directly experienced by the end users.
We also continue to eat the right on existing solutions, Greg for instance.
Luxury hydration lose all customers to be load on kind of locked into the debt at a platform to enable full indexing in than anything.
And as a reminder, on both allows us to chocolate data indexing separate from injection.
We added seven level of service level objective to a platform, allowing customers to easily tracking below.
Which are relevant with engineered and business users.
And Additionally, we announced enhancements to a machine learning capabilities.
Watch dogs, our always own detection engine now automatically surfaces anomalies within the infrastructure and ERP in parts of a platform.
Metric coalition is another new feature within like any metric anything unusual trend and actively search for others that are displaying a similar pattern.
And Chris Outliers will automatically had a nice oil incoming IPM traffic bundling up customers to easily thought meaningful that lives.
Last but not least another exciting development, we announced in October is that dialogue is currently in process for federal certification and we're very excited by the potential to extend our addressable market the U.S. federal departments and agencies.
As a quick note to products I don't have dash nine beta and we are not you're talking of Christmas will then.
No.
Switching gears to talk about products, we actually already charge for.
In Q3, we begin charging for synthetics, which has gotten off to a very strong start.
This is in line with our track record of new product introductions as a unified platform lose customers two out of new products without any friction.
In Q3.
We saw strong adoption of when you a product from both new and existing customers.
Evidence of a strong platform adoption approximately 50% of our customers, we're using two or more products at the end of Q3, which is up from 40% last quarter and 15% Hugo.
I will point out that on your product on normal and about two and a half years old.
As mentioned before we have continued to invest in R&D.
For the year to date care you had to Q3 non-GAAP R&D expense was 30% of revenue, which is an increase from 27% into here of a period.
You know platform strategy, I know pravin track record of efficiently developing and setting you up products, we plan to continue to invest meaningfully in R&D.
That's it for product.
To do go to market side.
The third quarter, we saw strong and you look what additions as well as extension from existing customers.
As of the end of the third quarter, we had approximately 9500 customers up from 7100 ago.
We ended with 727 customers with an <unk> of 100000 dollar or more.
Up to 93% from a year ago.
That's an increase of more than 130 inter quarter alone.
Given that more than 70% of why aren't you generated from customers over 100000 dollar.
We expect these cohort of customers to be a large driver of a future growth.
Now, let's review some more key wins in the quarter.
First one of on your customers is a multinational telecom provider out of Europe .
These customer adopted that dog to support the ecommerce site ahead of the new iPhone launch.
Oh platform enabled them to how to successful launch without any major performance issues, but other carriers and the country experienced woodside allergies because of traffic sorted.
These initial six figure land includes all three Peters infrastructure ATM, along as what I synthetics.
Second.
Established a fortune 500 retailer had a six sigma upsell.
He's customer adopted in physician monitoring in 2017, followed by both Emin Logins doesn't 18 and more recently synthetics.
Well the 100 of their internal teams are using data dog as they add up Microsoft Azure and container technologies.
These customer spend with us has grown more than fivex since our initial deal and we believe there's still a lot more room for growth.
Next wonderful allowed us to Q3 deal was a seven figure three pillars, new logo from a higher education software and services company.
This midmarket customer with fewer than 5000 employees demonstrates the spending power of even midsize companies as they come to data dog as a strategic partner to support their digital businesses.
Finally.
The large Europe based shipping and logistics company with or gene dating back over 100 years, how to six figure up sell in the quarter.
This company was previously using built in talking about Im wondering tools, which lack the ability to correlate Fulton Bakken issue.
And he is a powerful example of how that a dog enables companies in all regions and industries for into middle of the digital transformation.
As we said during the IPO, we continue to invest in order to market.
This includes growing quota carrying reps by 70% year over year as at the end of Q3.
We do experience high returns on our says marketing investments benefiting from or very efficient business model and driven by a blend and extend go to market.
As evidence of a business model efficiency well connected back continues to be approximately one year.
And we intend to continue investing meaningfully nokseven marketing efforts globally.
With that I would like to technical over to our Chief Financial Officer Babies Osler.
David.
Thanks Olivier.
As mentioned, we are very pleased with our strong third quarter results.
This is our first earnings call I'd like to begin with a brief brief overview of our financial model.
I will then review our Q3 performance and provide our guidance for the fourth quarter and full year.
We generate revenue from the sale of subscriptions to our SaaS platform.
Customers have the option to purchase multiple products, including infrastructure monitoring ATM and logs as well as additional skews such as containers custom metric packages an anomaly detection.
Our revenue was all subscription as professional services are not required to implement our products.
Customer contracts typically have either annual or monthly commitments.
Additionally, customers are billed for on demand usage in excess of their committed them out typically monthly in arrears.
Given the mix of annual in monthly invoicing and the variability in billing we do not believe that calculated billings is the most useful metric for investors to evaluate our business performance as in any one period billings growth can vary substantially from revenue growth.
Turning to Q3 results revenue was 95.9 million up 88% year over year.
As Olivier mentioned the quarter strength was broad based driven by new and existing customers as well as strong platform adoption and initial uptake of synthetics.
Provide you with some more context.
First in Q3, we saw strong new logo additions across both sales channels and regions. This is particularly notable and what is typically a seasonally challenging third quarter.
Involving the summer I.
Additionally, we saw strong continued expansion of existing customers in the third quarter. Our dollar base net retention rate was above a 130% for the ninth consecutive quarter.
Robust retention rate is driven by increased usage of existing products as well as cross selling of newer products, including the inclusion of synthetics for the first time.
Once our customers are on the data platform. They can frictionlessly expand with us through increased use of the platform.
The cross selling of newer products is a more recent driver of our net retention rate.
Lastly, we know strength internationally, specifically, a strong sales quarter in EMEA.
This is particularly impressive given many of the teams in the region are still ramping.
Calculated billings defined as revenue plus the sequential change in deferred revenue.
As 112 million up 132% year over year.
As mentioned, we do not believe calculated billings to be focused metric for our business due to the mix of monthly in annual billing terms, among our customers and because billings growth can vary substantially from revenue growth in any one period.
Nor do we plan to comment on on a regular basis going forward, but to give you. An example of the variance between billings and revenue growth.
We want to add a few comments first we had a multimillion dollar deal which was renewed and build in Q3 19.
This customer was not build in Q3 last year in addition.
We had a want we had one large two year prepaid deal in Q3, 17, which was that's not build in Q3 18, but was built again in Q3 19.
Adjusting for these two customers normalized calculated billings growth would've been approximately 100%.
Still very strong and generally reflective of our strong Q3 sales.
Now, let's review the income statement in more detail.
As a reminder, unless otherwise noted all metrics are non gap.
We have provided a reconciliation of GAAP to non-GAAP financials in our press release.
Gross profit in the quarter was 72.9 million, representing a gross margin of 76%.
This compares to a gross margin of 77% a year ago and 75% last quarter.
As we have discussed previously we are in the middle of an accelerated innovation cycle of delivering new products as well as the build out of cloud data centers and newer geographies, we will overtime balance investment an optimist and optimization to manage our gross margin.
R&D expense was 26.8 million for 28% of revenue in the Q3 up slightly from 27% a year ago.
We continue to benefit from product led adoption and have made extensive investments in our platform.
This is evidenced by the launch of synthetics earlier in the year and the 15 plus product announcements made it that.
We continue to see a meaningful opportunity to further our innovation and expand our platform and therefore plan to continue to make meaningful investments in R&D going forward.
Sales and marketing expense was 37.3 million or 39% of revenues down from 48% in the year ago period.
Change in Q3 was more pronounced unusual due to both the outperformance of revenues and the timing of trade show events between 2019 versus 2018.
We note that for the nine months ended September .
2019 sales and marketing expense as a percentage of revenue was 41% down from 43% in a year ago period, showing the development of some leverage in sales and marketing.
We continue to see strong returns from our sales and marketing investments and plans to continue to invest to expand our go to market globally.
GNS expense was 8.2 million or 9% of revenues slightly higher than 8% a year ago, given some IPO related expenses.
Operating income was a positive 638000 4.7 operating margin compared to an operating loss of 3.2 million or negative 6% in the year ago period net income for the quarter was 695000 or breakeven per share based.
On 285 million weighted average diluted shares outstanding.
We have a highly efficient business model and experienced a high return on invested foreigner investments in sales and marketing and R&D, while we have operated around breakeven and outperform on profitability in Q3, we see ample opportunities to continue to invest in the larger and the large market.
Opportunity ahead of us.
Turning to the balance sheet and cash flow, we ended the quarter with $771 million in cash cash equivalents unrestricted cash.
This includes approximately 709 million net IPO proceeds.
Cash flow from operations was a positive 3.8 million for the quarter and a positive 6.8 million year to date.
After taking into consideration capital expenditures and capitalized software free cash flow was a negative 3.7 million for the quarter and the negative 10.1 million year to date.
Our capital expenditures consists primarily of real estate Buildouts and was slightly elevated due to projects in our New York and Paris offices.
The timing of some of the payments for New York, and Paris spilled out shifted to Q4, and we therefore expect another quarter of slightly elevated capex.
Given we are hosted entirely in the cloud our hosting cost flow through the piano not capex.
I would now like to turn to our outlook for the fourth quarter and the full year 2019.
Beginning with the fourth quarter.
We expect revenue to be in the range of $101 million to $103 million.
Which represents a year over year growth, 65.5% at the midpoint.
non-GAAP operating loss from operations is expected to be in the range of negative six to negative eight.
non-GAAP net loss per share is expected to be in the range of negative one to two cents per share based on approximately 297 million weighted average shares outstanding.
A few things to take into account in our guidance first.
In the third quarter, we saw a meaningful growth of existing accounts and bill for synthetics for the first time.
While we have seen meaningful and sustained growth of existing accounts over time and have a history of launching new products. This can be more challenging to predict over short periods.
Second on profitability.
In Q4, we will have the first full quarter, a public company costs, particularly D N O insurance as well as some sizable tradeshow expenses.
For the full year 2019 revenue is expected to be in the range of $350 million to $352 million, which represents 77% year over year growth at the midpoint.
non-GAAP loss from operations is expected to be in the range of negative 18 to negative 20 million.
non-GAAP net loss per share is expected to be in the range of negative 11 cents to negative 12 cents per share based on approximately 140 million weighted average shares outstanding.
To summarize we're very pleased with the business performance in the third quarter, we have built the leading monitoring and analytics pop platform for the class crowd age and are generating growth at scale that few companies can match, we're making continued investments for growth in the foreseeable future.
We believe we aren't there early stages of a multibillion dollar market opportunity and we feel very good about our ability to build a very large and successful company over time.
With that we will now open the call for questions operating operator, let's begin the QNX.
Ladies and gentlemen, if you have a question that's just fine expressed the sorry, and then the numbers one key on your touched on telephone.
Good question has been entry or you like yourself from the Q. Please press the pound.
To give way to other participants please limit yourselves to one question any follow up.
Thank you pause for just a moment to compiled the Q.
Okay.
Your first question comes from the line up Sanjit Singh from Morgan Stanley Your lunch.
Hi, Thank you for taking the questions and congrats the team on a successful IPO and and your first earnings call at a very strong set of results. So congrats on all fronts there.
Olivier maybe to start off the Q and a wanted to ask about the quarterly performance. This quarter did you see strength.
Coming from competitive displacements are you seeing displacing competitors are used to do you need to see a lot loved the gross coming just from a greenfield expansions and then I had a follow up.
Yeah. So it'll do business is still mostly greenfield and it's mostly net new and it's mostly cloud environments, which by definition on new for our customers.
They always have other solutions, especially when you talk about last customers and loves to price customers that have not to have existing solutions for their legacy environments, but the making a decision for the cloud environments.
We do feel so a few competitive displacement, but that's not the majority of what we do.
Understood and that's a follow up it seems like you're seeing some strong momentum.
With with new products seems like synthetic system really good early signs of traction there and you had some additional opportunities in international and also looks like you said to be an opportunity for you. So maybe if you could sort of I'm sort of stock right. Some of the opportunity in terms of what are the biggest opportunities that you see over there.
The one or two years, what are the some of the more near term opportunities that you think can drive gross for the near term whether it's a network performance monitoring will that comes off the off of a off a bit I was just continued traction with what's inside it's just sort of a a striking a a stock picking up the near term end to end up medium term opportunities well neither near.
Term we have.
Or core product ongoing concentra product is still growing very very fast.
And is what we know most of our customers use in conjunction with other products and is to grow along with that product. In addition to that or ATM and love management product also very recent and they're in both in hyper growth and so they drive a lot of our short term in near term success.
Newer products like Synthetics <unk>.
Our nice I put there they don't represent the bulk of the.
Outperformance, we've seen this quarter. So right now is still the basic steel the the three pillars of the products, we have in the market and we've been developing over the past few years that are getting us the bulk of or although overall growth as we.
As we mentioned in the cool we've been very happily surprised by the performance of synthetics vital to forget.
It's a great sign it's a great fine you in particular, when we think of all the new products were having to wins that we haven't started charging for.
But again, that's a he will be more material in the.
Quarters or even years to come.
Great. Thank you.
Thank you next question comes from the line of Sterling.
Yeah.
Morgan Your line.
Yes, Thanks, Hi, guys.
To better understand in terms of the customers that are going with multiple products, both new and existing or how would you characterize how much of that success is coming out of the midmarket versus large enterprise.
It's about the same.
We should ascend behavior in the.
In all parts of the market when it comes to that.
In fact, you know it's.
The the places, where we'll see customers not using silly a us for everything they do east companies that have been earlier into the cloud and that has used other product for one and then have everything set up that we'll wait that's where we don't have an initial opportunity to displace everything at once.
When customers.
Our newer to the cloud and they're starting their migration, which is the case of most of the enterprise customers as well as the higher end of the Midmarket.
There's an immediate opportunity to land.
In two or three or four level products at one.
That makes sense and then one follow up question the market we've seen your pricing that you're using for logging as very disruptive I think we're starting to see some of the competition make changes to their pricing wondering what what you're seeing in the competitive dynamics with all those changes.
We don't see any change in a competitive dynamics, yet you know I.
I think we've seen some pricing from some other vendors.
And.
But ultimately hasn't changed the defendable dynamics.
I guess immersion into conversations we've had so far.
Okay, great. Thank you.
Thank you next question comes from the line.
From Goldman Sachs Your line.
Okay. Thank you very much.
Maybe can you just talk a bit about how the ongoing shift to containers. This change the competitive landscape for for you at all is it.
I guess increasingly important in terms of your ability to monitor these workloads that in an increasingly important factor in determining why you win with customers.
Yes, so it's definitely when you think of would make the old guard of tooling and approaches just not work at all like containers as how one be part of that even in we've been.
Monitoring containers at scale for many years now you know we've had we've seen on customers run contenders in production.
The incentive before it was advisable to do it.
And that's a that's been a big part of wind farms for monitoring product for many years now.
We don't have enough numbers to share on the Oh the volumes, we see but I can tell you that we already see several times the numbers of containers at any point in time as we do the number of traditional instantly till the end.
Okay, Great and then as you continue to invest in R&D, maybe can you just talk a bit about some of the main projects. There I mean look obviously of the.
Very strong and comprehensive suite in the market already but with the incremental R&D investment are you looking to go broader in terms of product from here or is it just maybe more focused on deeper in terms the functionality with some of your existing products maybe to help with even further traction in the enterprise.
Well, it's a bit of both right. So we have as I mentioned know your all in financial product is still growing very fast and there's a lot of ground. We can still cover to make life easier for customers there.
So we are heavily investing in <unk> product.
Well, I Love management, and ATM products, and hyper growth and were very rapidly innovating there.
So we're investing heavily well have a few more products, we've announced a dash that we have to fully bring to market as I mentioned earlier.
Most of these products sign beta.
We haven't started charging for them, yet and that's something that you'll see in the next few quarters.
And then there's a few laundry categories, we talked about indie IPO roadshow.
That we we think we can enter into future, but that's a I would say mid to long term plan.
Okay. Thank you.
Next question comes from the line.
Yeah.
From credit Suisse.
Thats great.
Congrats on a very strong start as a public company. My first question is for Olivier.
Yeah I wanted to ask a question about open telemetry as we head towards the official convergence of open census, and open tracing and obviously you have supported the project.
Up until now, but looking forward to the extent the project is successful and standardizing instrumentation for metrics and traces what's sort of impact would you expect it to have on your business model if any at all.
It's a little bit for US you know I think we've always so that the.
The data collection, the customer side was not going to be the long term differentiator and that's why we've actually open source all about technology that leaves on the the customer side, you know agents when I berries.
Right the eyes everything is open source.
So pointing up until imagery is another step in that direction.
End of the day with matters.
He is demand deposit as easy to deploy that's possible as easy to get information even out of as possible and that's where we invest heavily on the back animal products.
That makes perfect sense, it and David can you update us on how we should expect gross margins to scale as you continue to see strength internationally and need to ramp compute capacity overseas.
I think we gave in our long term model you know a slight improvement over time, we said that weren't investment mode. So right now we're balancing the investment versus optimization you.
Do you see we've been in the range of 70 570 sex. We said we will as we get to 75, you know start to try to balance a little more so that's our approach to that but we're still in the best amount and we'll still expand geographically.
Great. Thanks, again for taking my questions.
Thanks.
Thank you next question comes from the line Raimo Lenschow from Barclays. Your line.
Hey, Thanks, Congrats from me as well Oh Lucky like if I understand you correctly like.
You know people come to you wouldn't be move over to the cloud you know because the old tools. The on premise to of storm work anymore and their my first question is more Big picture Christians question, where are we in that cloud migration. It feels very very early you would be treatments and even on infrastructure monitoring there should be huge opportunity of initial work.
It was coming over but then more and more work, let's come in well I just wanted to hear your big picture thinking there.
Yeah. So.
Look nobody knows exactly where we aren't like it's a it's hard to Refu you arms around to the whole thing.
But depending on the device people, we can ask device folks as I've tried to estimate that it's either a single digit percent Oh, it's in a low.
Low teens basically over the workloads that have moved from legacy 82 public and private cloud.
So with that in mind, you know, we have basically 95, or so 90% of the Dia end market.
That is hasn't been actually be read yet, which is why we think even for infrastructure, which is a which was a first product days a tremendous amount of runway ahead of us.
He's also compounded by the fact that as companies transform and become digital businesses steel rural impacting footprint of their application software is going to grow you know for the end state. We don't just looking at the transition from what it had before.
Yeah, that's enter into something that's more cloudy, but they'll be cool size, we see the instead is going to be a lot longer again, it's hard to quantify a anyway you can.
You can lead read a lot of Gartner report and things like not.
We are we're confident that he's a very large imports meeting we ought to very very very beginning of it.
Okay perfect team. Thank you and then the follow up with like as you launch new products like what's your thinking around just marketing or selling this as a platform versus individual products.
So oh makes it so.
The way we do this season, we may centered around the platform.
But we.
We approach customers with the infrastructure for us and the infrastructure is the immediate pain, a that customer feel that needs to be remediated and that we get a foot in the door so to speak.
But we always MRD was the platform.
So it's I mean.
Due to both yeah.
Okay perfect came congrats thank you.
Thanks.
Thank you next question comes from the line the math.
From RBC capital markets your line.
Oh, Hey, guys I'll offer my congrats as well Olivier <unk>. My question was on M&A sort of follow ups Ramos when we talk to folks out there in the industry lot of people think that maybe only 5% of apps are being monitored I'm curious.
I guess why is that and five years from now.
What do you think me could be as an industry.
Yeah, So and that's a good that's mostly used in.
In conjunction with legacy APN, you know study at the end that no was using a traditional data center.
And the reason for de slow instrumentation rate is that these cpms are very very very heavy weight and they're very expensive you know suites video hard actually to deploy them and get value out of each of them and if it ends up being limited to a small set of extremely high.
Got you applications, a full which you can be convinced to make an investment and get them our liability.
When you think of the what we're going into the will to the cloud to would've companies that are becoming increasingly software companies.
Then when you have many many many many more app and D. The solutions, we're providing to them are easier to deploy and it's actually a lot more affordable for each you need to compute they have to depot solutions.
So we're going to end up with a market that is significantly larger and I'm just gonna be a lot less investment needed to to get too good to see returns. So that's the big difference between the this world of the the 5% of the apps being monitored with VPN.
To the either one of the future where companies with Britain, mostly digitally.
And they will end up.
Instrumenting most of the application.
That's super helpful. And then maybe as a follow up congrats on the early successes of synthetics.
Imagine a lot of that's greenfield wins, but could you talk a little bit more about the competitive landscape for synthetics. Thanks.
Yeah. So there's a few different aspects to eat into the first one is a number of the APN vendors have a synthetic capability on top of there at the end product.
So that we could have first set of computers and then they are a number of companies that offer a pure play synthetics testing some of them.
I would say fairly low end he knows who have some cheap product that you can very easily adopt.
And then there's the no part of the industry that you know.
It was more in Twoq <unk> replacement and.
Hi, and software testing.
The overall landscape Oh initial focus was was not really to trying to compete with any of those specifically he wants to feel a gap. We so even dwell customers could understand and maintain the performance of the applications. So we didn't drive it from a an intent to compete head to head with those companies we drove it.
From.
What we think the future is going to look like in terms of an integrated platform that covers everything including simulating user traffic.
Thank you.
Thank you next question comes from the line.
With Jefferies Your line.
Yeah, just a quick follow up in Synthetics, you mentioned a strong uptake I was just curious if you did.
Dive a little deeper into that common in terms of what you're seeing and perhaps you know what we think the incremental revenue uplift you're seeing and at the second part is is you continue to expand its product portfolio.
Which is obviously very.
Robust is there an easier way that.
You can go to market with the enterprise license agreement or some type of suite pricing that it will make it easier for the sales force to try to go to customers and engage as as you roll up more and more features are you seeing desire from customers for that or is it still too early thank you.
Yes, one to on the first part so yes, we very impressed by what we so I don't have to get with synthetics I think its oh, we can set a it's a couple of percent of the overall growth rate then comes from synthetics, which with more than we had expected I will say, though that this includes.
A few months of pent up demand wise, we we onboarded customers their debate or we well. So you didn't start charging for the product right away after to put it went GA.
So when we started talking Q3 will you had some buildup usage basically.
We overtime that product, we expect it to grow.
We don't know if we'll see the same impact next quarter as we had this quarter again, because it had some.
Pent up.
Demand when we started talking for it.
But we are bullish.
On.
The pricing and the way to sell multiple products, we already do that in a way you know we will let customers commit to a certain amount of spending on that a dog.
With the Red card be to get at least in by any of the products and combining in any way do you see fits without having to commit to specific level of use for any of the product and that's something more products customers love you know because it let them.
Just a negotiated rates, where everything ahead of time and they'll have to worry about would their teams are going to use or not use and today it hasn't been a problem for the salesforce.
To the to sell that took us I mentioned that in great part because the buyers.
The same for everything we sell to it.
Great. Thank you.
Next question comes from Brad.
From Stifel Your line.
Great. Thanks very much.
If we compare the first time onto this year to last year have you seen any difference in customer draw down rates on existing contracts.
Well, we continue to see the same effect, which is customers are drawing down in both periods a more quickly than the pro rata. So they're consuming the products both from the usage of infrastructure as well as an additional products. So we continue to have the same muscle.
Which is that customers are finding there.
They are they're using more quickly and sort of come back for more reserved instances some more fixed capacity that happened last year and thats continuing this year.
Great. Thanks very much.
Thank you next question comes from Michael.
James Your line.
Hi, guys.
David of course, congrats on the appeal it on a good first quarter advocate.
You guys have pioneered so much in terms of.
Monitoring and looking at this from a multi song Chung approach there have been some competitive responses from public companies in space.
Along space to do you see any change in sales cycling sales cycles are decision cycles in response to that broadening the marketing people following your lead.
No. We didn't we don't see any changes and again I mean, we we.
We did it we do expect that as what Oh approach of combining to Scytodes and solving the end to end product for customers.
Is obviously successful we do expect that it's not less than our competitors, who we you know.
Having high regard to that so we see that a validation of our approach, but today, we haven't seen any any changes into competitive dynamics and I think as we said the in Q3, we had a very strong a new love, though you can see that in the customer count.
So in even over the summer months.
And then we also have had maintained the retention rates with increased usage as well as as we talked about earlier I am increased adoption of the platform. So all those things are are continuing.
In that quarter.
And then called <unk>.
Great.
And I noticed.
Scott on EBIT for next quarter, but if I had one model quickly it looks like the Opex. That's implied is less than we had originally modeling is there any push out.
Spending entering this morning, either into next quarter Orange next year.
Not at all we're continuing to grow the sales team and the R&D team and invest.
Similarly, I think you saw revenues has outperformed and with our gross margins that's dropped to the bottom line, but we're continuing with the same investment.
Pace that we had when we met our during the roadshow.
Great. Thank you Stephen living again, congratulations great quarter aggregate.
Thank you.
Thank you next question comes from a line of <unk>.
With JMP Securities Your line.
Oh, great. Thank you and let me add my congratulations so one for each of you Olivia I'd love to hear your thoughts on where customers are in there I'm.
Journey towards debt maturity and maybe how you see it there for.
By geography or by industry or by size of company.
Yes, so it can trace thing because we see.
So if you think of the tradition to Devops and more broadly to club.
The markets in a in EMEA and APAC or about two or three years behind what within the U.S. you know so when we see in particular lot enterprises in the U.S. start going to a public and private Claude at scale.
Two to three years ago.
It's something that is just starting to happen in other parts of the world today.
So we tend to cement comment that would have otherwise you know we've seen the the first companies to move to the cloud into two devops, where the yet this more companies is going to take oriented companies.
After that you saw the larger enterprise companies that you need to modernize and I think last are going to be the the midmarket nontraditional companies.
That I think to mobilize as well so we see all those various parts of the market turned on in a one of two when after each other basically.
Yeah and is the like federal government, even behind all those.
Where we federal government is federal government you happen to be to I would say, it's a bit of a different b.
Yeah.
Okay, and then David congratulations on the ninth consecutive quarter I'm just.
Yeah, I would love it if you could set our expectations a little bit in terms of the dollar base net expansion rate and what we should expect as we think about the future.
I think we had said time and the IPO that we would comment of that on that relative to 130, and we'll continue to do that we've seen no change in the environment relative to what we saw we went public relative to the drivers of that at increased usage and cross sell.
And we know perspective is 130% he's he's already best in class and.
And that's the number we're going to to use moving forward.
Hi, great. Thank you bye.
Okay.
Thank you next question comes from the line, the Jack and we need to your lunch.
Well good afternoon, and congratulations on the results I wanted to see if you could drill down a bit more on just trends in terms of the new logos specifically the you'd be landing are you seeing different perhaps higher asps are you still predominantly lending, which infrastructure or perhaps for multi product deals anymore color on the new customer wins.
You're experiencing would be helpful. Thanks.
Yeah. So.
The trends are remains the same as we've detailed during the IPO excuse to have some of the did I'd ask one or India. You Road show that we'll have that remains true and some of that you can extrapolate a little bit and you you get the good idea whats happening today.
On the.
That's on the.
New logos and.
On the eighth species.
Again to trends remain remained the same I think we had they vary they're similar and and I think we said a couple hundred thousand for enterprise and 150 under 60 for men market continues to grow with the customers and continue to have a meaningful contribution we talked about of of customers landing with me.
More than one logo with one of them one pillar and so it's very much what we said on the IPO roadshow continuing.
Great. Thanks for taking my question, yes, well.
Thank you.
For your questions at this time I wouldn't like to hand over to call to alleviate.
Okay.
Thank you well in closing I'd like to repeat that we're incredibly proud of what we've been at that a dog.
We believe we're in the early stages of a substantial replatforming opportunity.
We are very focused on executing on our growth strategy today, and we believe we have the potential to be a suspension the larger and profitable company to long term.
And I would like to thank all that up customers for their trust and of course, what did that have employees for their hard work and education.
We have completed I think so far and I believe the best is yet to come. So thank you. Thank you everybody.
Ladies and gentlemen, this concludes todays conference. Thank you for your participation and have the wonderful day you may disconnect.