Q2 2020 Datadog Inc Earnings Call
Ladies and gentlemen, that's just the operator today's conference is scheduled to begin momentarily and so that's fine. Your line. So that makes an hold until the time frames, but again I can't believe second gentlemen, that's just the operator.
Today's conference is scheduled to begin momentarily.
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After the speakers presentation, there will be a question and answer session.
The question during this session.
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Thank you your friend the good afternoon, especially for joining US today through you did it all second quarter 2020 financial results, which we announced a press release issued after the close of market today, joining me on the call today are Libby Amil cigarettes, co founder and CEO.
David hopes alert the girls CFO.
During this call will make statements related to wear business that are forward looking under federal Securities laws are made pursuant to the safe Harbor provisions for the private Securities Litigation Reform Act.
Including statements related to our future financial performance, including our outlook <unk> third quarter and for the full year 2020 or strategy the central benefits for product R&D and go to market investment expected capital expenditures anticipated hiring the size, Oh, and our ability to capitalize on our market opportunity as well the impact of the Coke 19 pending on or off.
On our customers their usage or products, our market industry trends and our business and operating results. The words anticipate believe continue estimate expect me to end wheel and other similar expressions are intended to identify forward looking statements were somewhere indications of future expectations.
What's her views only as of today not as with any subsequent to the students are subject to a variety of risks and uncertainties that could cause actual results could differ materially from expectations.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to work. What are you report on form 10-Q, four quarterly period ended March 31st 2020 filed with the FCC on May 12, 2020, additional information will be made available in our quarterly report on form 10-Q quarterly period ended June Thirtyth 2020, and other filings.
Sure Court. So we may file from time to time with the FCC.
Our filings with the FCC are available on the Investor Relations section of our website.
Before I give the coal will be available there for a limited time additional information. They also made available in our other filings and reports that we may file from time to time at the FCC. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to tables in our earnings release, which you can find on the Investor Relations portion of our web site for a reconciliation of these measures for the most directly compare.
<unk> GAAP financial measure with that I'd like turn the call over to Olivier.
Thank you again and thank you all for joining us today.
Before discussing the results of the quarter I want to probably report that together with our employee raise over $1 billion, which hurts you supporting could release as when its organizations working to dismantle the systemic discrimination expands like black communities.
We all these things I appreciate any time, so many reasons.
Wanted to apart to help.
And that's always the dog is committed to supporting diversity and inclusion we didn't know company owned communities.
Now turning to Q2 results.
Happy to report another another quarter of strong growth demonstrates financial efficiencies.
Execution was strong during challenging times, you pretty robust you look much information and continued platform adoption.
Why do we are pleased with our execution in the quarter. We did experience some impact the rest of users grew about customers related to them I couldn't Barton.
Well I just macro uncertainty remains in the near term we continue to believe that this environment accentuate the need to be diesel first and the Jive and confirms the cloud as the best not to achieve these outcomes over the long term.
And we see maybe then subsidies in growing up real demand in the form of new customers and new use cases existing customers.
To summarize Q2 at a high level revenue was $114 million increase of 68% year over year and above the high end of on guidance range.
We ended the quarter with 1015 customer.
Our 100000 total more which is an increase of 71% from last year.
He's got so much internet about 75% of what Youre.
We have about 12100 customers, which represent growth of 37% on the but yeah hunger last year.
We also continued to be capital efficient with free cash flow of $19 million.
And as in past quarters, all done a bit net retention rate was of a 130% as customers increased usage and attitude on you were color.
So we are continuing today, but I grew up at scale.
Now looking at Q2 in more detail.
Utica generation was robust in the quarter.
HM.
Last quarter and year over year, and gross new customers additions matched to record set in Q1.
We feel companies of all sizes and geographies prioritize gotten migration and digital transformation.
For instance in the quarter, we had a few small yet notable Utica, we from global auto chains Newsmen block chain log U.S. University and the European Airlines.
As we shouldn't even in the face a challenging time for these customers transformed me to ensure business resilient JBT is a top priority.
[noise] next Oh platform strategy continues the reason that we did the market.
It's at the end of Q2.
<unk>, 8% of customers are using two or more products, which is up from 40% a year ago.
We had another quarter, which approximately 75% of you Liberals muddied was two more product.
I had that will go up 15% of what customers are now using four or more products. What do you have zero last year.
We are also very pleased with a pickup on U.S. products. You know short period of time, we synthetics wrong NPM security already submitted last year.
We are winning in the market because we are club meeting or support of cloud and older assembled architectures is more important than ever at a rapid change from what come home has demonstrated the limitation of legacy infrastructure.
We believe recent events will accelerate the migration to the cloud as the economy improves.
We will because we offer the broadest solution integrated visibility from Bucketing process true older with some to the end user experience and no security as well.
We win because we offer a truly integrated platform for single country Ricchiuti Jackie stuck.
No as we mentioned earlier, what execution was strong the macro environment do you have some impact and I'll talk on results in particular on growth uninteresting customers.
Well customers continued to grow your digital platform in Q2, but the rate of these cost was below the trends we sold before dependent.
Dynamic was front are you seeing you know larger customers already have sizable cut environment.
Given macro uncertainty we saw these customers look to conserve cash for these two could end up we'll optimize the consumption of cloud infrastructure.
The flipside smaller customers and last Friday said earlier index headroom continued to see spend to cool.
To be plainly customers with last club deals when they do anyway, our general GCP look for short term savings.
Nobody is nothing you motion as we see many enterprises both of these up to me they should decide you on a regular basis.
It was unusual this quarter well since your last number of companies great <unk> at the same time.
I would also note that why these customers are the greatest killing the screen to cloud they mostly remain at the low penetration, but it keeps ago overruled I T environment.
For these customers continued to have a lot more real cool, they're kinda adoption over time.
Lastly, why do we do not want to get into the how do you Oh, providing intra quarter update I'd love to provide some commentary on what we saw in July given the unique mckusick isn't it.
So last month, a notable improvement in usage growth when it keeps acute driven by broad based trends across our customer base.
You deal with it too soon to know you disclosed sustained given the macro environments.
As a result, and once we are encouraged by these trends remain prudently conservative in our outlook for the remainder of the year, which David will speak to.
As a reminder, we have both the subscription and usage based revenue model and to create a couple of revenues related to the growth what customers cut.
Definitely.
Finally, the book empties topic I'm very proud of the performance of all go to market teams during a challenging times as we're executing well against what we can control and our teams are they bring record levels, you locals and put a cross sell.
Next well onto R&D.
We continue to make significant investments to rapidly Delever innovation.
We have a proven track record of success introducing new products.
We see many new opportunities to extend up what what do you.
For example.
Recently and now the general availability private location for synthetics, which enables Devon ops teams to proactively test internal applications that I'm not accessible from the public.
We also acquired undefined lab, a provider of UBS ever be people Devon textbook.
Clinical data dog to be Jackie earlier interceptor lifecycle, starting before could you give me compete with central depository and yes, we equip customers with better trucking of continuous integration and deployment will enable them to anything like she was people would you production.
All their continued product innovations include the general availability if it doesn't go by up to provide engineers with access to get alerts and that wasn't legal support for Muslim Kienitz. These data fire hose tunable screening luck directly correlated with everything you said that a dog and you preacher. He did a dog able to you didn't provide visibility into intended to easy license.
We also added any pools, and then broke integration, including I'd be west when could deployed I think you Apache at night and he will cast.
As we keep investing in R&D, we plan for continued rapid pace of innovation and will be showcasing some of the newer products annual user conference Dash, which is held online next week on August 11.
Switching gears a bit we recently achieved federal authorization for Lloyds back SAS indebted, Doug is now fully available in the second marketplace.
We continue to be about public sector go to market motion and what it is likely to take some time, we're excited about d. Sloane chemical GP.
Now, let's talk briefly about some home when in the quarter.
First we had seven seven figure Upsells, who is a large fintech company.
With that dog. These customer has been able to move multiple disparate monitoring tools using a single platform for all people Oh I'm sorry.
He said loved them to refocus engineering teams on building new features and they expect more million saving from considered to be spread monitoring looking vendors to that.
Another seven figure expansion came from a European automotive company, which is modernizing and adopting Microsoft Azure.
Two items that are looking for such a monetary ATM and NPM, if you've done a collaborative you want to ship platform and I'm moving to an increasingly edge aren't going up.
Next we still are lost entertainment platform it had been using more and more of a product could be two over $10 million Neil.
He's company has made a decision to increase investment in terms of ability and go to use up then a dog, both with new products and by getting up and existing park.
I will mention a high six figure lend deal was a leading asset manager, which is not using us for infrastructure monitoring you'd given logs, but it seems that he and all the adoption of security.
And last we had a six figure upsells to seven figure or there's a social networking platform that has seen tremendous growth during dependent.
At record levels of skin. It can you instead adopt completely drill down into any failed request and easily identify layers.
Companies not using all repeaters exiting synthetic run an ATM and has standardized monitoring and better though.
Now moving onto <unk>.
As we look ahead to the second half of the year, we remain very excited about but on market opportunity.
Recent events have made once the very clear is more important than ever to be a digital first business and the cloud is the best back which you'd be cycle.
What did you get to believe that a dog is the primary beneficiary of these trends in remains very well positioned to win in the market.
In the near term the macro environment is lucky to get you to close uncertainty, but don't focus remains on executing against our strategy priorities, which have not changed.
First we got building on a strong track record of innovation by introducing new products entering you can think are continuing to improve existing solutions.
Second.
We continue to higher rapidly in R&D, not pushing time no other what you in the market.
And third we are aggressively expanding all go to market globally anytime anywhere channel.
We are very confident that we can get huge assisting strong growth both in the near term and overtime.
With that I would like to turn the call over to what Chief Financial Officer <unk>. They did.
Thanks to Libya.
As mentioned, we delivered strong second quarter top and bottom line results amid a difficult macro backdrop.
Revenue was $140 million, 68% year over year against the challenging compare.
Execution was strong with robust new logo generation and continued platform traction.
All the macro environment did pressure usage of existing customers.
To provide some more context first in Q2, we strong we saw strong new logo additions with robust contributions from both enterprise and commercial sales channels and sequential growth of new logo are.
Execution against our platform has been very strong with 68% of customers now using two or more products versus just 40% a year ago written by both land and cross selling.
In the second quarter, our dollar base net retention was once again above 130% for the 12 consecutive quarter.
We saw continued growth of our existing customers driven by both increased usage of existing solutions and robust cross selling to newer solutions.
Our net retention rate, which remains best in class above 130 did however decline from Q1.
As Olivier Gosh macro factors pressured usage increases.
Add some detail.
First well existing customers did grow the rate of growth.
Oh pre endemic levels.
This was primarily seen from our larger customers with the greater scale in the cloud who experienced business pressures and self to save in the near term Mike slowing down their consumption.
Additionally, one dynamic, which we discussed at the possibility on our Q1 call is that we did see the normalization outcomes spike usage from Q1.
In March we had a number of customers such a streaming media vendors yeah rapidly in the face of coding.
Over the following month some of these customers were able to optimize usage and save on cloud spending budget pressures and normalization of business activities.
Next some customers such as the Liberty I know media companies have continued to see elevated demand and therefore have continued to meaningfully grow their data dog usage.
Lastly, we saw some of our cold it impacted customers reduced usage.
As a reminder, these customers such as those in hospitality and travel contribute less than 10% of our A.R.R.
And therefore, they were a mild track detractors.
Lastly, churn was a bit elevated related to the most hard hit coded customers, but better than expected.
Our dollar based gross retention rate has remained largely unchanged in the low to mid nineties.
Performance of our SMB customer base has been robot.
Including stable dollar base churn and continued rapid growth year over year.
Now turning to billings, which was $160.1 billion and 62% year over year.
Relatively in line with revenue growth.
Answering the quarter as we discussed on the last call. We thought it was possible some customers would seek to renegotiate terms were slow payment.
But that did not happen in a material way pointing to the importance of our solution.
Remaining performance obligations or RPL was $287 million up 53% year over year.
We did not see a material change in billings duration in Q2.
We did see some light shortening of contract duration year over year related to large multiyear contracts close in the year ago quarter.
We continue to have great that success enclose the annual committed deals which remains our strategic focus.
As a reminder, billings in RPL can fluctuate versus revenues based on the timing of invoicing and signing of customer contracts, while revenue incorporates customer usage.
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 earnings release.
Gross profit in the quarter was 108 hundred 11.8 million, representing a gross margin of 80%.
This compares to gross margin of 80% also last quarter and 75% in the year ago period.
Year over year improvement gross margin was driven by efficient use in our cloud hosting.
Gross margins may fluctuate quarter to quarter within acceptable ranges as we prioritize product development in innovation as well as the build out of cloud data centers in newer geography.
R&D expense was $38.3 million or 27% of revenue compared to 30% in the year ago quarter.
We have continued to invest significantly in R&D as Olivier mentioned, including high growth of our engineering headcount.
However, the growth that revenue continues to outpace even our substantial investments and we did have some leverage from t. any and overhead savings related to work from home.
We continue to see a meaningful opportunity innovate and expand our platform and therefore plan to continue to make meaningful investments in R&D going forward.
Sales and marketing expenses were $45.7 million were 33% or revenue compared to 42% in the year ago period.
Similar to R&D, we continue to make substantial investments, but the pace of revenue growth has outpaced that investment.
This was the first full quarter of no in person trade shows we're marketing events.
While we have successfully redeployed much of the events budget advertising and other lead generating activities. It is not so on a one for one ratio.
DNA expense was 12.5 million or 9% of revenue inline with the same or be a ratio a year ago quarter.
Operating income was 15 point Threemillion werent for an 11% operating margin compared to a loss of 5 million and a negative 7% margin in the year ago period.
Beyond the improvement in gross margin and revenues outpacing investments the reduction in travel and entertainment.
Facilities ever had contributed to the operating margin.
Non-GAAP net income in the quarter was 17.5 million or five cents per share based on 331 million weighted average diluted shares outstanding.
Note that our non-GAAP net income does not include the $5.6 million noncash benefit related to payroll taxes.
We have a very efficient business model. It men experienced a high return on that our investments in sales and marketing and R&D.
Well, we have delivered four consecutive quarters, a breakeven to positive operating income we note that our priority remains topline growth and we intend to continue investments.
Possibly in R&D and go to market.
Turning to the balance sheet and cash flow. We ended the quarter with 1.5 billion in cash cash equivalents restricted cash and marketable securities which includes the 641 billion a proceeds from our convertible note issuance during the quarter net of issuance costs and the.
Capped call transaction.
Cash flow from operations was 24.7 million in the corner.
After taking into consideration capex and capitalized software free cash flow was 18.6 million in the quarter for a margin of 13%.
Free cash flow includes an approximately 4.4 million dollar outflow related to the conclusion of our first employee stock purchase program.
I would now like to turn to our outlook for the third quarter and the full year 2020.
We're pleased with our execution and ability to drive new sales in an uncertain macro environment.
As discussed we did see some lower growth in usage from our existing customers in Q2 due to the overall slowing of the economy.
As Olivier noted however in July we experienced an improvement in usage trends relative to Q2 that were closer to our pre pandemic historical levels.
However, it is too soon to know if this will prove to be sustainable and given the lack of clarity of economic trends, we are assuming usage growth of existing customers be low pre cobot growth rate.
Additionally, while we have not yet seen immaterial impact to our new cells. We think it it's prudent to expect some impact in the second half given that the Mike macro backdrop.
Beginning with the third quarter, we expect revenues to be in the range of 143 $245 million.
Which represents a year over year growth of 50% at the midpoint.
Non-GAAP operating income is expected to be in the range of a loss of $1 million to an income of 1 billion.
Non-GAAP net income per share is expected to be breakeven to one cents per share.
Based on approximately 333 million weighted average diluted shares outstanding.
Now for the full year 2020.
Revenue is expected to be in the range of 566.
$572 million, which represent a 57% year over year growth at the midpoint.
Non-GAAP operating income is expected to be in the range $28 million to $34 million and non-GAAP net income per share is expected to be in the range of 11 to 13 cents per share based on approximately 332 million I fully weighted average fully diluted shares.
A few things should take into account in our guidance.
First when evaluating our quarterly growth rate. It is important to consider the accelerated growth rates in the second half of 2019, creating more challenging comp.
Next well, we see continued improvement in our gross margin.
We are running towards the top end of our long term target.
As we prioritize product development and diversifying our cloud hosting vendors and regions. Our gross margins may fluctuate within a range of acceptability.
No.
As I mentioned earlier, our intention continues to be to invest meaningfully including aggressive hiring in R&D and sales and marketing and we have not changed their plans during cobot.
Then some notes below operating income.
We expect approximately 2.4 million of quarterly non-GAAP other income, which is net including interest income in our cash and marketable securities.
<unk> expenses of our convertible debt.
Next we do not expect to be a federal taxpayer, but have a tax provision related to our international entities. We expect the tax provision of approximately $350000 per quarter.
Note that our share count forecasts for Q3 in the full year, our diluted given that we expect to be non-GAAP net income Brett break even the profitable for both periods.
To summarize we are pleased with our execution during a very challenging time.
Well the macro environment has impacted our topline results in the near term. We believe the current environment will prove to be a catalyst.
For digital transformation and cloud migration over the long term.
And we are very well position to be a primary beneficiary of those trends.
We have a highly efficient business model and are making investments across the organization today in order to capitalize on the large opportunity ahead of us.
With that we will now open the call for questions operator, let's begin the QNX.
Thank you again participants in order to ask the question You Me Press Star then to number one on your telephone keypad here first question comes from the line Sanjay theme of Morgan Stanley. Your line is something.
Hi, Ed. Thank you for taking the question and I really appreciate all of the detail on that you guys provided ralphie byard and usage trends. If that's that's it that's very helpful context.
So I guess maybe to start we're starting with Ali.
You sort of a single about the sort of primary factor and correct me, if I'm wrong, but the primary factor being large customers that have large scale cloud deployments, what sort of just makes sense right, it's sort of a walmart shepherds impact there as well.
What gives you confidence always that you think this is a temporary pause for just customers versus something something more sustained is there any sort of customer conversations you're having what's it just kind of like the secular tailwinds of digital transformation just want to get a sense, though what gives you got the confidence that and these large customer cohorts that it's more of.
Digestion period after period, a strong growth for some more and more sustained downturn.
Yes, so the first thing I'll say.
It's something we've seen before it happens from time to time, the companys ramp up their critical consumption at some point they know to use their their build going up and they ask themselves can we optimize it look we've done that too as a company you've seen no gross margin.
We'll go up from basket that was fairly seen in that respect.
What happened there is that everybody has the same idea the same time that anybody asked himself or how can we set some cash to award Kim <unk> pretty much every single company.
I think you don't know by Cobi that because of the uncertainties attach it to be conserved.
One of the good things about cloud is that a lot to VTS, all six and activity seems to not to beat that has to be that in the next deal and they smoke some costs for the our fuel savings can be made you know if you if you take action.
So that's what we see will happen.
In terms of the.
Continuing on that again, it's hard to tell what's going to happen in the near term, but you know we do broader scheme of things Committee is off to moving to the cloud you companies I'm moving to the cloud that were not before and we mentioned that on the cool that we've had a number of.
Yes, it keeps company that started using our right now.
You know when you when you think hotel chains and.
He has been parkinsons on that.
We see no good to July data and even some of the of the June data that companies that have optimized there can you talk show and by the way in general, but we mean by that he's not that you called that adopt to could there be able to two good deal is that they're trying to figure out would be could.
Shut down to optimize on the on the Amazon side on the Google side on the Agora sites and so what we see some decrease of the identical you boisterous exercise these.
Over because it could have a few weeks, but then what we see after that is that they use this talk going again, because then you know that seems to keep building and it can be playing keeps having this americas reichstuhl. So it's not the knicks decides that either.
You are no unexpected.
I think whats different now is that it say does it make sense for all these companies we had the same time.
And he just habit.
Understood that.
That makes total sense and then David I think about the guidance right, 60% growth this quarter this quarter and I look at Q3. The high end, it's roughly around 50 and the Q4 is roughly around 40 at least by Fivenine My mouth I think it would be helpful to understand the underlying assumptions.
Behind that that guidance and particularly around those those usage trends right. So I know there was no. There was a you know prior to close it there was enough enough customers that were sort of overspending relative to their to their committed usage. It because it gives us like the free or pre level of usage anybody should occur.
Hi that well it looks like post cause it to understand the the underlying assumptions behind your got it because I think what your guidance assumes that some of the weaker usage trends persist for the for the second half and so anyway to frame that out I think would be very helpful. In terms of understand yeah, I think that got yeah, I think that's right.
Our guidance throughout our history as a public company been fairly prudent and are forward looking usage and and implicit net retention and were particularly cognizant of that given given coal bed. Most of our guidance has conservative assumptions in that and we will continue to do that.
I think as we said we had strong cross sell and so we see a continued adoption of the platform, which is a good sign and as far as to the usage. The more valuable usage. We saw its Ali just mentioned some constraints. So we try to use conservative assumptions going forward in our guidance.
Understood.
Thank you very much.
Okay.
Your next question comes from the line Chris Merwin.
Net Sachs. Your line is open.
Okay. Thanks, very much for taking my questions.
For for Olivier I wanted to ask about your thoughts on pricing, particularly in light of all the convergence that we're saying going on within the interoperability States I remember with your log product. When you launched it you had a pretty disruptive pricing strategy, where you're charging a pretty low price for ingestion and you're letting the customers pay just fell off at the actually want to index and now we're seeing other players in this space.
If away entire aspects of their platform for free and creating free tier. So I guess the question is how do you see your pricing model evolving a if at all in time and you keep up the industry, leading pace of innovation do you see the ability to even raise price I should deliver more value to your customers. Thanks.
Yeah, I think we're so we wake up a little bit pricing I mean that.
The way we do it the first of all we encourage having the maximum deployments of deployments at all customers, meaning that's why we we don't try to buy the user who want absolutely everybody to use it.
And then we want to make sure that customers have the levers to align pricing to anybody <unk> two data dog with value to get.
And he know case that means that being differentiated pricing for very different parts of the very compatible platform because not every single gigabytes a bit as being sent to US has the same but you do the customer and the same amount of Oh processing the listings on the line.
So we try to align that.
Right now, we're happy with our pricing model works well in the market. It gives customers that flexibility, but look we've we've had a question what will evolve over time, you'll probably see little in the future we.
We believe he know or I mean, do we didn't know market niche wouldn't do bucket and even more and more about do you have pricing power in the long term and that's where we argue that we want to be in the future I think when you.
When you when you only two leased to stay on pricing buckets. It's usually button you can read things you can actually win a basin to to put it kept you put up to them.
Understood. Thank you and maybe just fault for David.
When you Peel Ashish more detailed out some of the trends that you saw by customer segment during the quarter, a as it relates to that expansion or Chris churn or or any any any metrics you could share beat us or I guess across I'd be that market and then you're at or better press customers. Thank you.
Yeah that was one of the surprised as we had a very stable gross churn dollar based approach stern and it's very similar to what we have discussed in the last calls that all of the metrics on gross are in the ninetys with enterprise tending to be towards the upper part of that range and SMB.
The towards the lower but all of them strong in into 90, So we really didnt see very much disruption from that and similarly, we saw you know net retention rates come down we set a little more at the at the larger and because of this concentration on costs, but all within the same.
Same type of bands we've had since we became a public company.
Great. Thanks very much.
Yep.
Your next question comes from the line Sterling Auty JP Morgan Your line is something.
Yeah. Thanks, Hi, guys. So in terms of the macro impacts and the slowing of usage of existing customers is there any evidence that you've seen of some of those customers slowing the usage of your tools, but supplementing it with maybe the cloud platform tools or something else or they're just slowing down.
Usage and that's it.
No I think what we said mostly their slowly that you didn't have the cloud infrastructure, that's and that's directly related to who recognize and your revenue.
So that's that's what we thought we didn't know the terms.
They did use less the mezzanine sense seasonal containers.
Well it azure instant season containers.
And that's that's I would end up more than needle for us.
And I should say you know he sees.
It's something that we used to seeing the other way we used to see like the way we salaries, we sent to Kiss American there's still early index up transition and we go with them I think what would happen. This quarter is that their growth slowed overall during the quarter Itougu and there seems to me to grow and would be that we say Nicole either.
In July and also with you know two we saw some acceleration of the growth again, but we want to remain prudent considering.
Oh the uncertainty there there is right now in terms of how long do there could be crack he's doing a lot and what's going to be the impact by close to the economy. We remain prudent in what we think going to happen in the near term.
Understood and then one follow up how would you characterize the ramping.
Oh, the new sales resources that you've hired over the last couple of quarters of ramping up the same pace that you've traditionally seen or the ramping faster or slower.
We haven't seen any changes there and you know everything back.
That is weed control of the sales team actually worked pretty well we mentioned during the call, but we've had a record level of new logos, both in terms of numbers and attempt that revenue.
We had a record level of new product attach and he sees what our CFO to spend time on.
The two groups of customers once they're set up every single mode.
You've only partially related to the year to what it does seem to them. We don't have spoken tool that we should also why you know when we set expectations around or net retention and we initially we resetting to reconsider that went on and 30% because we don't really control that number we.
Part of the season by the rate of migration to the cloud a underwritten which doesn't without getting into the cloud again were very early that transition and customers are going to keep transition core.
Look longer time, we keep scaling and we see that they only want to do that more now that they see the back to Oh can become WPS and the need to transform but you know from a quarter to quarter babies.
In the near term, we don't exactly know what that's going.
Understood. Thank you.
Your next question comes from the line Red cell make credit Suisse. Your line is.
Mr., Brad Zelnick credit Sneeze your line is no.
Hi, sorry about that this is remic done on for for Brad Zelnick, Thanks for taking the questions.
I I just wanted to ask you know.
Ken can you help us understand a little bit more thrilled to size or recent attach rates of grape him in log management solution, both of which I think you mentioned last quarter were growing faster than the overall business. So that remain the case in this recent quarter.
Yeah. So there wasn't hypergrowth. So you know the picture hasn't changed a lot to the last time. We took you know the profit sure I own a was to be a cigarette probably company.
Yeah logs and APPM are seeking hyper growth not growing much faster than data was that the skill and the other products all smaller an earlier I'll cover in eastern mismatched right now so we're no longer party hockey rebuild.
And the attach rate and their contribution to net retention.
Has been very similar to the trends that we've talked about last time. So we continue to have increasing number of customers using the platform and and there what they're spending on the additional components of the platform continues to grow and hyper growth.
Which is.
What I'm trying to send a week signs of I keep demand are a really strong or whether it's new logo new products. Like we do you have to trace hockey up you know from would have been before and we keep it just keeps going all the time. So all that is great. Yeah. There. The one thing that's been a tractor this quarter has been that would city.
The batteries conception, I don't like the word Patsy because it makes it sound like we're not doing anything that customers not doing anything, but it's something that's oh not directly related to an action get somebody got taken with us today.
Thanks, that's helpful. Coke color and then if I could building on Christmas question from earlier and appreciating that the majority of your lands or Greenfield you know how do you think you're one of your competitors recent pricing changes in packaging changes will impact your ability to cross.
So a pam into your customer <unk> customer base and an overall what do you think the medium or long term implications are for your business. As you know this one competitor in particular seems to be focused on completing a competing more aggressively on pricing and total cost of ownership at this point.
Yeah. So it'll just canvas changes like we always have to keep an open mind when he.
See.
What can work in network.
At the same time look we don't.
We don't see that having imaginary impact on us because we don't actually a business have you said, mostly greenfield and you sold to down the strength of wanting to do a product that get tied together in the platform and there's no problem with all customers adopting a pro product little by didn't like they cannot up as little as they want as a P. M I do not.
They want as lock them to put their infrastructure, whether they want a synthetic that's not an issue with a three something we have a we actually give them differentiate pricing that tells or that he's more tailored.
To that but you'd agree to get to each of those product. So I don't see any anything very disruptive there in some very different to forget Kumar and there's no change there.
Hi, Thank you for the color.
Your next question comes from the line.
Chow from Barclays.
Your line is now open.
Hey, Thank you.
Quick question for me. So you know you mentioned about like is slowing usage in the public cloud I mean like you know the one benefit we haven't that we see azure and Amazon and Pwc Symbicort numbers before you.
And and so you know in the way you will always seen this little bit of a derivative of those and if I look at E.W. escrow slows down I was going to slow down I'm. Just wondering you know like the almost you almost soon.
Directly into growth numbers, but just directionally related is that something that you're paying attention to is wrong because it seems like you know there. It just seems to be a correlation here.
Oh, there's definitely a correlation I mean, we we don't quote it exactly was then right because they have different product portfolio than some of these I too would we what we.
Do today that kind of the production ought to be hospital customers consume but the what I will say, we understand the dynamics of would add to it took a couple of writers we thought we'd hopping to use their customers basically which she's that's right you said with the Knicks deals because you know every million dollar account in big companies right now.
And they you know before didn't know where the trend is going to want to make sure that we do everything they can.
We have we're quality to the end the one thing I will say Oh, we are growing a lot faster than the <unk> providers.
Because we keep adding more products and we see under penetrated the market. So we are.
Growing a lot faster than they are and we still growing faster and everything even in the most important.
Yeah, exactly I don't know exactly yeah, I know that's that's a that's true deep and then the other question I had on that subject into your read the bomb offsets you have is like one is consumption of use different that's all that much you can do about on the other half. Your you mentioned some starts around the product uptake et cetera.
Have you taken any action to kind of change or the incentivized seems fours or a push more towards more upselling and cross selling of of a product or is this something look we rising it up because I call with is there for everyone and you saw some better printed trends in July.
Or you know you taking extra action here.
No we didn't change anything.
The this hasn't done is at the same the.
The way, we sell as it seems to do the same so we haven't changed anything to the either way we proceed.
The.
We are doing right now he's working like we said earlier, we did bring the direct numbers up new logos right numbers across <unk> sort of cross sale that was off because before that people focus today.
The rest of the growth in usage will come because the.
The transition into a digital business you moved to the cloud is not going to stop.
Yeah makes sense. Thank you one of them.
Your next question comes from the line, Matt Hedberg from RBC capital markets. Your line is now.
It's Dan Bergstrom, Brad Burke. Thanks for taking your question wondering about linearity in the quarter given call outs around the macro and then large enterprise you provided some color on July that was helpful. But anything else from a linear you perspective in the quarter to know term maybe different than what you expected.
Yeah. So this quarter was actually I mean, they need to I hope you that lets say if I take a numbers question, but Oh go ahead.
[laughter].
Yeah, the where do you looked at this quarter was that a little bit different in that what we feel from a early july or lose a fairly consistent with what we had before in Q1. So we feel good growth and no great. But you have you all know goods, which is what we discussed in the last cool.
Three I mentioned that budget I it from.
The first few weeks of if we were able to growth and can you logos.
No go to remain for the rest of the quarter, but what we saw used towards the end of it real and then the full month of May we had much lower growth.
And then things recovered started recovering in June so growth was going up in June and he's recovery recovering further you in July. So these are the trend we've seen.
No no. This is what we thought about chlorate was not lose your and what we used to that we used to having very consistent numbered month of a mall.
We can't really tell whether in the near term, we'll see some returned to the previous normal or if we'll still see some with relation as you know the <unk> instead of the economy another thing.
Approval to defend motion you know customers.
Great. Thanks helpful. Then security monitoring that's been generally available here for a little over three months.
Just curious of initial reception from customers and security Engineers I know what saw strong demand a beta and then maybe where should we think about you heading with security certainly a long runway left there.
Yes, so we look to Super all you're right. It's a very very early product.
It has some very focused use case used to start with for some very focused types of customers.
We're very happy with the uptick we we did get.
I'm sorry in terms of customers wanting to use it and therefore it.
But again Supers brothers, so I think maybe with somebody somewhere in the picture when it becomes more material and we will have more product.
It took about there.
But where you know who they were excited with Sidoti Sidoti <unk>.
Thank you.
Your next question comes from the line Yeah right back from Stifel. Your line is now.
David I know you don't guide to billing, but I believe looking through my notes next quarter, you have some difficult comps with.
Pretty significant contracts that.
Without last through to any color on that would be super helpful. Thank you.
We didn't have gotten but we didn't present the pro forma because it wasn't as impactful we did say in Rpls, we had the multiyear contracts and a quarter ago, which were more concentrated than we had in creating RPL, but it didn't affect the billings.
Ah numbers that much and so there was nothing to point out.
Okay and no issue for Twoq, you as we look forward.
Sorry, I can't hear you issues with.
Oh, sorry [laughter].
She is for three Q.
Difficult comps from the year before.
Yeah, we havent nothing that were pointing out on this call. So we.
You know nothing that we wanted to point out.
Okay. Thanks, very much yep yep.
Your next question comes from the line Jack I'm curious from your line is now.
Oh good afternoon. Thanks for taking my question I wanted to follow up on the go to market strategy. You talked about you haven't really changed anything but I'm. Just wondering as you continue to innovate rapidly and roll out. These new products are you running into a new buyers or new persona is within organizations and how do we think about the implications of that whether you might need to.
You did make more investments or maybe change you should your strategy over time.
Yeah, you sort of I think on the for the full due to the bulk of a product portfolio. We still talk to buyers that are going to be willing to assemble working the same way.
For everything that lets tubes in the D. I will say when he comes to security in some cases, not where thing to see some different buyers. So today, we still think the same way I mean, the siguiri brought your focus enough in terms of the kits that are going after that it works that way, but it's something that we're monitoring its possible that will make changes in the future that motion nothing yet.
We'll get more did I will get more would see more hotel product behave.
And who the customers behave as we as we keep expanding the oh the target audience for that product, but that's something that we're aware of and where are the monitoring.
Okay, Great just as a follow up could you elaborate on how you're thinking about the opportunity for the the private locations for synthetic monitoring product. I mean is this essentially a new way to leverage your technology for a employee use or how do you think about the opportunity around that.
Yeah, I think it more for all of these are not every screen that I'd be exposed in fact companies that don't have a what they see why.
One of the and classes many great I've got nothing to use but it will need it's more difficult to go in reaching today, some endpoints that on an explicit Ethernet so that that told that so it allows customers to a two to boot probably inside the old networks to <unk> automatic test and verified <unk> and there will that be.
Occasion, but you also love them to Twinkled probe.
The networks, they might maniche renewal or there.
Well that their employees must be using that for example, they might deploy that that you know cable providers or.
I see cloud provider things that we would not what's sitting there then a dog, but they want to monitor didn't get a clean food you opens a whole ran duplicate easy for them.
Great. Thank you.
Your next question comes from the line Bob.
William Blair. Your line is now open.
Hi, This Camille <unk> I'm sorry.
You announced the launch of your formal partner network in January which expand support for partners via things like go to market collateral self service training for implementation opportunity registration a partner locator listing.
Can you talk about early interest across partner categories, and your near near and medium term channel strategy and how important evoke roekel ever do you see the channel being overtime and at least qualitatively or can you talk about how it's been impacted by the macro environments like.
Thanks, So yes, we know weaved into a fairly recent program for us.
We.
That's great uptick, we signed up or <unk> partner is actually larger than we thought we would I don't think with somebody who can you give that number publicly so I will wouldn't do it today.
But it's a bit off to a strong start.
I think we're working on making sure we'd have to write a process in place we can enable those partners.
Dave lump them so.
Got enough to just your partner, but that's different levels of ownership.
That out.
<unk>.
There are also going to oh different expectations in terms of would they provide to us provide to them and so we're working on promoting a partner scooba four different levels right now so far we've seen some interesting.
Outputs from that so we've closed deals lost deals much earlier than we thought no through partners and we've done that in multiple regions.
We haven't seen a specific impact on govi, just because that.
The <unk> well keep school you that you know, it's going very fast no matter, what and we can focus on the partners that want to go down that have opportunities now as opposed to maintaining or the launch phase of the leasing partner. So so far with the only that's fine.
But a lot more to do.
Hi, it's very helpful. Thank you and can you talk a little bit more on your international performance. This quarter are there any specific regions, where you're seeing a particular strength and additionally, he talked about your plans for international investment this year, and where you maybe see the most opportunity.
Thanks.
Yeah, David you want to take this one.
Yeah, we are continuing as we talked about before to build out regions either when we get the critical mass and have a successful sales team or one where landing and new territory. So we're continuing to same plan, we had which is to build out HM complete the build out of the me as well.
So as to expand in some areas like Latin America.
We saw you know I'm a good performance as we've talked about before and the second quarter in AMEA on the back of the build outs, we had done and West. We said all along were earlier in the Asia building out team in filling out seems to the first time. So we'll continue that as part of our plan and the remainder of the year.
You know one thing that's trip opinions that the depend Emmett you. He didn't use in parts of the world at different time, you know so we have these are supposed to go get turned on and turned off you know with you at different times and we've seen that two to three to basically we're getting hard to tell a what's going to happen in in Q3 was of the specs for that.
Okay. That's great. Thanks for the color.
Your next question comes from the line a Brad you from Jefferies. Your line.
Thanks. This is all parts of on for Brent.
I wanted to ask about the the undefined acquisition they help us free.
The opportunity, perhaps never believed to be the application testing spacing.
I guess, you know how should we think of of usage patterns and developing environments relative to production of moments.
Yes, so what's what's very interesting with them. They find he said he spoke is completely on what happens when developers that's their own codes first on day one machine.
And then to a shared and actually I T D. A process until it ends up being deployed and production absolutely nothing area, where we'd be prism before we haven't been typically use a was developers on quota on machine before they could mean anything tour.
<unk>.
So that's new for us it looks to be clear because they blocker go to the clean many was and also allows us to do we need yet extremely high fidelity information.
I would happen.
From the time to equity is committed to Oh, we went through the release of production. So very good changed a little.
If there.
So we're super excited about it because so many that they've built a great product and that's what amount of time.
And we were excited about the but dealing with them and product together right now we're busy as opposed to sunset doesn't seem like into rebuilding the data platform to drive anything Maxim integrated.
And did the team is hot it towards that right now.
Okay got it thank you.
Your next question comes from the line outside the Wild everything from JMP. Your line is now.
Thank you forgetting in [laughter] solely I'd like to ask you pretty much. The same question I asked you last quarter, which was you know you've been doing this for 20 seat 20 years, you've seen you've seen a number of sort of slowdowns and.
In the economy, how does this one feel in comparison and then just to remind you last time, you said that the one thing. He's learned was that you don't really know where it's going until it's over so you still feel the same way or what are you learned.
Yes, I think when you.
When you last time was that we wouldn't exact no. We haven't got some ideas and somebody thinks we thought would happen.
Happen some others are hoping that it would be differently, because when we thought about Q2 back in Q1.
We felt we might see into they turn you might we thought we might see might be certain parts of our customer base being much more effective than others and you know it's not exactly what happened we actually didn't see the churn we're expecting to see.
But we saw a broader slowdown the most couldn't get degree of new Lattus check this summer.
<unk> I mean with respect you can explain easily you understand the behavior you see what's happening and it makes sense I think predicting it before that with it was a difficult part.
So going back to where we are today, we're super confident about what we are well the product, leaving the market Hawker customers are adopting it met up into various parts of eastern agreeing with it or the one thing we are little bit more careful about he's our understanding of what's going to happen or the next few months. The next few quarters.
As it wasn't mitigates with who the end of defend any hopefully.
Right.
Thank you very much.
Your next question.
I've drags in the school.
Mhm Your line is now open.
Hey, Thanks, very much hi, guys and thanks for taking the questions for Olivier you know the increased level of cloud optimization among larger customers that you saw this quarter do you think that this will have any impact on the pace of multi cloud adoption going forward.
I don't I don't think so they could when customers adopting multi cloud. They typically have one cargo scaled and all the smaller one nation to that.
So I think is going to adopt the two between PUC, mostly they're kinda scale first.
That's that's my.
That's my guess and maybe what we've seen in some cases, but we'll see what happens again, so we get harder to tell.
So that's that's my guess.
Okay, Thanks, and just for for David or your gross and RPL on a year over year basis did decelerate quite a bit this quarter I think he said that your annual contract billing has remained strong and that you were coming up against some longer duration contract from a year ago and I know you don't breakout current RPL. Just wondering if you have any commentary on a duration.
Yes, it RPL growth or just how we should be thinking about that.
Yeah, you're exactly right the rpls occur in our P.O. is its similar growth to the billings much closer to the revenues in the sixties.
The difference there is the timing of of multi of of some multiyear contracts and the second quarter of last year I'm. So the billing duration didn't the billing period, yes. He didn't change the contract duration came down slightly just because.
Those contracts are being consumed and that's the reason why do we had a current RPL it would be much more aligned with the billings in the revenue.
Okay very clear very helpful. Thank you yeah.
And right now I would like to 30 feel free to Mr. Almir <unk>.
<unk>.
Thank you.
All right.
So.
Took it's cool I'd like to repeat that we're very pleased with execution Q2 against what has been a challenging backdrop.
That was the macro environment as presented near term uncertainties. The situation has made more temporary than ever for business seems to be digital first any decline.
We believe that Adobes ideally positioned to get primary beneficiary of these long terms and we continue to invest to capture that what you need.
Thank you both wanting to cool.
Ladies and gentlemen, this concludes todays conference call. Thank you for your participation you may now disconnect.
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