Q1 2023 Datadog Inc Earnings Call
Good morning, and thank you for standing by welcome to the first quarter 2023 data Dog earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
I ask a question. During this session you will need to press star one one on your telephone you didn't hear an automated message of bites in your hand, it's right to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your <unk>.
Weaker today, you've got broad break Vice President of Investor Relations. Please go ahead.
Thank you Michele good morning, and thank you for joining us to review data dogs first quarter 2023 financial results, which we announced in our press release issued this morning.
Joining me on the call today are Olivier parallel data dogs, co founder and CEO and David Oops alert data dog CFO .
During this call we will make forward looking statements, including statements related to our future financial performance our outlook for the second quarter and the fiscal year, 2020, three and related notes and assumptions, our gross margins and operating margins our strategy, our product capabilities and our ability to capitalize on market opportunities.
They believe continue estimate expect intend will and similar expressions are intended to identify forward looking statements or similar indications of future expectations. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to our Form 10-K for the year ended December 31st 2022.
More information will be made available in our upcoming Form 10-Q for the fiscal quarter ended March 31st 2023, and other filings with the SEC.
Information is also available on the Investor Relations section of our website along with a replay of this call.
Just also discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors thought they did all gauge to dot com.
With that I'd like to turn the call over to Olivier.
Thanks again, thank you all for joining us this morning.
We are pleased with our execution in Q1, we continued burdening our platform delivering new use cases for existing users as well as.
Signing up more customers all on a backdrop of continued macro uncertainty and optimization of cloud workloads.
Let me start with a review of our Q1 financial performance.
In Q1 revenue was $482 million, an increase of 33% year over year and above the high end of our guidance range.
Note that this number of factors in the impact every service outage, we experienced in March and which reduced our revenue for the quarter by about $5 million.
We ended with about 25500 customers up from about 19800 last year.
Also note that we are now including customers, who joined following our acquisition of cloud craft, representing about 1400 net new customers this quarter.
Ended the quarter with about 2910 customers with <unk> of $100000 or more from about 2250 last year.
So imagine you're right you did about 85% of our a R.
And we generated free cash flow of $116 million.
Free cash flow margin of 24%.
Our platform strategy continues to resonate in the market.
As of the end of Q1, 81% of customers were using two or more product in line with last year.
43% of customers were using four or more products up from 35% a year ago, and 19% of our customers were using six or more products up from 12% last year.
Now, let's discuss this quarter's business drivers.
We expect business conditions that were similar to the previous several quarters.
In Q1, you just growth from existing customers came in roughly as expected.
So existing customers growth in Q1 improved from the levels. We saw in Q4, but remain a bit lower than the levels, we experienced in Q2 and Q3.
And as in recent quarters, we continue to see customers optimize their cloud spend particularly towards further alumina depth migration and hosting a larger portion of their infrastructure in the cloud.
Additionally, our new logo acquisition in bookings in Q1 were solid for what is a seasonally slower quarter.
<unk> bookings reached a new record for Q1 and were up slightly from last year as we continue to add many promising new logos, which I'll discuss in a bit.
With our land and expand model, we expect many of these new logos will turn into much larger customers as they adopt more of our products over time.
Despite a more cost conscious demand environment, we have continued to land new customers and expand existing ones and we are very proud to achieve several key milestones in Q1.
So first our total are exceeded $2 billion for the first time.
Two achievement for all of us at their dog, even though we all know we're only getting started.
Second our APM suite and load management products together exceeded $1 billion in a R.
This demonstrates the expansion of our business well beyond our price infrastructure monitoring product and our successful execution on the broad observer platform.
Remember that our APM suite increased fourth additive products core APM synthetics real user monitoring and continues for higher.
Third we continue to make steady progress with our cloud security products with continued growth in our energy customers and I am very pleased to announce that we now have more than 5000 customers using our cloud security products.
Now, let's move on to R&D.
We introduced a number of new security capabilities last month.
We announced the general availability of application vulnerability management, which provides visibility into the attack surface of production environment automatically so facing vulnerabilities.
And instead of submitting users with thousands upon thousands of in diabetes. These new functionalities is opposite ability data to prioritize risks based on the estimated impact to the business and closes the loop between security operations and development teams.
We also introduced a number of new capabilities to our cloud security management product.
Cloud security profiles allow customers to fly an amount of activity and improve overall accuracy of threat detection directly with network load.
And we know for our food and our ability detection for containers automatically scanning container images for known vulnerabilities.
Now moving on from security to observe ability, we also announced the general availability of data streams monitoring.
These products, specifically targets queuing streaming and even driven pipelines such as Kafka RMB 10-Q.
These systems often span many different teams and technologies and are notoriously difficult to manage and troubleshoot.
And for this even standard APM and log management solutions are not specialized enough.
That is true monitoring automatically identifies the topology interdependencies and key metrics of complex streaming data pipelines, allowing customers to maintain a variability correct medicine latency for what is now a critical part of their business.
Lastly, we were thrilled to unveil our newest data center in Japan last month with your large opportunity to serve our customers in the Asia Pacific region, which has seen significant growth over time and now represents high single digits as a percent of our revenue.
I also want to take a moment and share our excitement for the latest wave of AI innovation.
And I am going to use AI indiscriminately here to refer to the recent advances in deep learning Lash language models and generated AI.
First from a market perspective.
The long term, we believe AI will significantly expand our opportunity in <unk> and beyond.
We seek massive improvements and developer productivity, we all are in.
The video is to write more applications and to do so faster than ever before and.
And as with past productivity increases we think this will further shift value from writing code to observing managing fixing and securing line applications.
In the short to medium term, we believe the rise of AI will increase the demand for compute and storage to train and run models, but it would also increase the value of proprietary data and further drive digital transformation and cloud migration.
All prerequisite for adoption.
We also do expect quite a bit of noise in the market as a technology stack is progressing and changing very quickly.
Now from a product perspective, we believe that we added a dog are uniquely positioned to deliver value to our customers in this new world.
First we built that up from day, one as a pure SaaS business precisely to be able to put that to work at full scale and to train models to solve our customers' problems.
Second or larger fits us contact with our customers gives us it gives us the insertion points to make AI relevant.
This is where we see the value of having a very good customer base and being designed to be used every day by every single engineer.
And third we serve today some of the largest builders and consumers of AI services and are quickly adapting to their needs in a rapidly changing field.
So in other words, we are really excited about the potential of AI for us and for the observer ability and security markets.
Sue will discuss this topic further in future.
Okay, let's move on to sales and marketing.
As I said earlier, our go to market teams had another productive quarter.
So, let's discuss some of our wins.
First we signed an expansion into eight figures are with a leading AI companies.
This customer saw an order of magnitude increase in user demand and a surge in new customers following enormous innovation and interest in generic dji.
As a result this customer now uses six standard products and realized in our platform to track record at key business metrics ranging from a time data to use of subscription revenue.
Next we signed a high seven figures expansion to another eight figure deal with one of the world's largest fintech companies.
This customer has expanded meaningfully over time and today is that a platform used by thousands of users across dozens of business units.
With this expansion this customer now uses <unk> product and as consolidating multiple open source homegrown and commercial tools across our durability and security into the digital platform.
Next we signed a seven figure expansion with a fortune 500 healthcare company.
Before using data dog major incidents with mobile up to 150 employees for an average of three to four hours.
With that Doug the owner.
Indeed, 20 employees for about 30 minutes, we have an opportunity to further reduce these numbers.
I will note that we're also replacing a commercial availability competitor with new pricing model was causing an increase in cost with lower value.
This customer now expects to sell more than half a million dollars every year by moving that to that a dog across several business units.
Next we signed a six figure land with a multinational clothing company.
This company was previously heavily siloed with each team using different monitoring tools.
And as is often the case is cause issues impacting revenue and customer experience.
<unk>, starting with <unk> added a product and expect to consolidate and replace a total of 13 commercial and open source tools is that at all.
And last but not least we signed a seven figure multiyear land with a leading university in Australia.
<unk> has historically relied on a peso solutions.
They evaluated a few commercial competitors and that alone is a requirement for both cloud and on premise across large user experience and network device monitoring.
This customer plans over time to migrate from more than 10 tool to the digital platform.
And that's it for this quarter to highlight.
Like to thank our go to market teams again for their continued execution in Q1.
Now switching gears, let me speak to our longer term outlook.
Overall, we continue to see no change to the multiyear trend towards digital transformation and cloud migration.
We do continue to see customers optimizing their cloud usage and visibility remains limited as to when this optimization cycle will end, but we firmly believe it will.
As before we remain confident that we will continue to deliver value to more customers in their digital transformation and cloud migration journey.
And it is increasingly clear with each wave of technical innovation that every company in every industry. In every geographic region has to take advantage of the cloud micro services container generated AI and more.
By relentlessly broadening the <unk> platform, we will continue to help our customers seven costs execute with you at our engineering efficiency drive competitive differentiation and deliver value to their own customers.
So our long term plans have not changed we are continuing to invest to capture long term opportunities.
And as David will discuss in a moment the strengths of our business model allows us to balance that with delivering financial performance.
With that I will turn it over to our CFO David.
Thanks, Olivier in Q1, we continued to execute well and deliver value to our customers.
Revenue was $482 million up 33% year over year, and up 3% quarter to quarter.
To dive into some of the drivers of the Q1 performance.
First we had an unusual outage in March and we estimate that the impact to our revenues from that outage to be about $5 million.
As we mentioned last quarter, we saw subdued usage growth in the month of December which created a lower growth trajectory to start the first quarter and drove seasonally weaker sequential growth in the first quarter.
During Q1, we experienced a linearity pattern that is typical for US which included usage growth in March that was higher than that in January and February .
Overall, we saw existing customer usage growth in Q1 <unk>.
Improve from the levels, we saw in Q4.
So it was slightly lower than the levels, we experienced in Q2 and Q3 last year.
Next we continue to see larger spending customers grow smaller co grow slower than smaller spending customers.
From an industry perspective, we continue to see the slowest growth in the consumer discretionary vertical, particularly in e-commerce and food delivery.
Graphically, we saw faster year over year growth in international than in North America.
Our trailing 12 months dollar based net retention rate or NRI are continued to be over 130% as customers increase their usage and adopted more product.
Based on our current growth trajectory. However, we expect our trailing 12 month and IRR to be below 130% in Q2.
While our net retention rate is expected to go below a 130% we continued to execute strongly on our platform innovation and our land and expand business model as evidenced by our latest product announcements are expanding cross sell of products and the examples of the strong Q1 renewal.
All that Olivier discussed.
Our dollar based gross retention rate remained stable in the mid to high nineties, an indication of the mission critical nature of the data to our platform for our customers.
Now moving onto our financial results.
Billings were $511 million up 15% year over year.
We had a large upfront.
Bill for a client in Q1 'twenty two that did not recur at the same level or timing in Q1 'twenty three.
Pro forma for this client billings growth was in the low 30% year over year.
In the mid to long term, we continue to expect growth gross margin to be in the high 70 per cent range.
Q1, non-GAAP Opex grew 45% year over year. This is a decline from 54% year over year growth in the previous quarter.
We continue to grow our head count and R&D and go to market, but at a more moderate pace than last year.
Q1, operating income was $86 million or an 18% operating margin flat sequentially to Q4 2022 margin also of 18% in.
In the year ago quarter operating margins was 23% and it benefitted from lack of in person.
Office travel an event costs due to COVID-19 policies during the pandemic.
Turning to the balance sheet and cash flow statements. We ended the quarter with $2 billion in cash cash equivalents restricted cash and marketable securities cash.
Cash flow from operations was $134 million in the quarter after taking into consideration capital expenditures and capitalized software free cash flow was $116 million for free cash flow margin of 24%.
Now for our outlook for the second quarter and the rest of fiscal year 2000 2003.
Informing our guidance, we continue to use conservative assumptions as to the organic growth of our customers compared to historical periods.
And as usual we are basing our near term guidance on recent activity, we see with our customers.
While existing customers are still expanding with US we continued to assume our in our guidance that cloud optimization is affecting their expansion rate for the rest of 2023.
For the second quarter as a result, we expect revenue to be in the range of $498 million to $502 million, which represents 23% to 24% year over year growth.
non-GAAP operating income is expected to be in the range of $82 million to $86 million and non-GAAP net income per share is expected to be and the 27 to 29 per share range based on approximately 349 million weighted average diluted shares outstanding.
For the fiscal year 2023, we expect revenue to be in the range.
$2.08 billion to $2.101 billion, which represents 24% to 25% year over year growth.
non-GAAP operating income is expected to be in the range of $340 million to $360 million.
And non-GAAP net income per share is expected to be in the range of a dollars 13 to $1.20 per share based on approximately $351 million weighted average diluted shares outstanding.
Some additional notes in our guidance first we have continued to balance near term financial strength.
With investment in our large longterm opportunities and we are executing well on our plans to invest efficiently.
We expect to continue moderation of headcount growth.
And the lapping of the Covid affected historical expenses to result, and continued slowing of Opex growth during the remainder of 2023.
We now plan to grow our non-GAAP operating expenses, excluding Cogs in fiscal year 2023 by approximately 30% year over year.
With an exit right in queue for in the low twenties percent year over year.
And we expect our tax expense in fiscal year 2023 to be in the range of $14 million to $16 million.
Finally, we continue to expect capital expenditures and capitalized software it together to be in the range of 4% to 5% of revenues and fiscal year 2000 2023.
Now finally to reiterate Olivia is comments, we remain excited about our long term opportunities as our customers embark and expand on their cloud migration and digital transformation plans.
We are continuing to invest to further expand the.
The ways, we reached our customers and help them along these journeys.
I want to thank our data dogs worldwide for their efforts in this quarter.
With that we will open the call for questions operator, let's begin the Q&A. Thanks.
It's a reminder to ask a question. Please press star one one on your telephone.
And wait for your name to be announced to withdraw your question. Please press star one one again, please stand by what we compiled the Q&A roster.
Our first question comes from remote lands Chow with Barclays. Your line is now open.
Thank you <unk> good morning the.
Could I speak could you speak to the optimization, Olivia a little bit more in detail, obviously, it's a journey for customers and there's like there's initial steps and and then the follow on fifth if you think about the customer behavior in terms of what they do and optimization is that I still see the same steps that are getting.
Taken or are we going through some kind of wrong chewed on <unk>. So I just tried to understand a little bit where we all have that open motivation journey. If you have more color and then I have one follow up please yeah.
Sort of issue.
We we don't know exactly yet so we.
I'm going to give it a man who is going to be very similar to the answer I gave last quarter, but we see consumers taking another bite their own workforce like we you know we still get a number of <unk>. This morning actually even so yeah, I don't think customers themselves no where they're done.
So we're very prudent in terms of assuming an end to it in the near future.
When we look at all data when we look at the what we hear from the Hyperscalers also we also listened carefully to their commentary on with the <unk>.
Future.
We don't see anything that gives us.
Ah confidence that we can call. The <unk> optimization, you know next quarter over quarter after that so as far as or guidance goes and or plans for the year. We we ask you that this is going to continue at a similar level for the rest of the year now.
<unk> seemed to be done with it and others that have.
I haven't done anything.
So we we tried to keep an eye on that and <unk> <unk>, not including any of that guidance.
Yes, Okay, perfect and then.
David on the on the cost side, so thanks for giving us the the Opex reached 40 year and the and the exit right. If you think about the there's always that that's such a <unk> or investing for the future I need somebody to come out versus like some.
Surviving or like living in the current environment. How do you think about that investment philosophy of balancing like today versus getting ready for tomorrow.
Yeah, I would say that we've made substantial consistent investments both in our go to market Anna R&D over the last few years and and this year, we're balancing continuing to do that with with two things with prioritization as well as injecting some optimus.
<unk> into the investments we had we had made we're seeing the opportunity to get returns from the previous investments and to think through a little more the prioritization of those.
Please stand by for our next question.
Our next question comes from San G sang with Morgan Stanley . Your line is open.
Thank you for taking the questions I had a question Olivier on on a it seems like we're on the cusp of another sort of computer cycle driven by a I. The last complete cycle you guys will all over all over in terms of being ahead of the curve in terms of the shift from <unk>.
Until microservices and so with this new new sort of computer cycled, though we're about to embark on.
What do you see <unk> applications, and that's sort of the application stack how is that going to change and what are the implications for data dog at some monitoring bender or what or potentially the puts and takes with with with in terms of how applications can be built going forward.
Yeah. So first I'd say, it's a it's a <unk>.
<unk>, so fascinating fascinating time to be alive, two field is rapid innovation in the in the <unk>. The first thing I'd say is that it's still fairly early in terms of what the.
Mark is going to look like and Mmm Mmm AI world.
Right no there's one.
Particular thing that's been there used to be very hard which was in the building congressional models, and chatbots and things like that which almost overnight became almost a commodity basically anybody can incorporate it in any application you can it be I called away and.
There's even a number of different options you know commercial Lola. So she can use today. So that just happened that plan has massive traction you see it everywhere.
But it also is opening two gay too many many more <unk> more.
More customize deeper applications on AI that maybe bill spoke to vendors will <unk> by a large number of competing studies not quite clear yet.
We see them on our end.
Is that.
Eight according to drive will compute is going to drive more value in the data is being gathered by companies.
Is going to drive digital transformation is going to drive cloud migration, because again, you can't actually a dot.
Yeah, unless you have the data.
You can't actually I <unk> without having a modem.
Architecture in an application you can't get up and down and in fact show you can quickly provision in the provision.
You need to capture all of your ticket for your data you need to be digitally to transform so we have data of all your customer interactions and everything thanks appropriate to your business. So in the mid term, we see that is a very clear <unk> around to to a business.
Maybe with a.
A little bit of noise as I mentioned in on the on the Street earlier in terms of wood technologies end up being the winning ones and with technologies ended up being feeling you know after after a few a few a few years you know because it's still if slowly and there's so much innovation that out of.
200, new things.
There's probably only 10 O 20 that will matter to you some now, but it's hard to know, which one to which one is it out today.
So we were short answer is midterm lots more of the current workload the types of workloads, we see maybe with different types of technologies.
Longer term I think we can a glimpse at with future were put up T V T for everyone, including software engineers increases.
Increases dramatically.
And the way, we see that as a business is.
<unk> job is to to.
To <unk> as soon as the absorb the complexity of the applications they've built so they can understand and modify them run them secured M and we think that the more productivity there is.
People can write.
Any amount of time, the lessee I understand this off to a to produce and the more data that's the most valued it it it seems all way. So that's that's what makes us great confidence too long term here.
I appreciate the thoughts of a V as as a follow up and getting back to sort of the topic of cloud optimization, what <unk>. What did you sort of see in April versus Martin typically you sort of based on what April typically looks like <unk> for the company and are there any customers that are begun optimization that maybe <unk>.
Start in 2022, everything incremental mucus rep cohorts get get onboard the cloud optimization trained.
So I would say it probably is broadly consistent with what we've seen in the queue.
<unk>, one I think it <unk>, there's no major difference to call out there and it's too early also for us to call Dakota, usually.
So there's nothing we where do you shop to point out to about April .
On the the customer up to musician.
Look we have a large number of customers that are early in the in migration early enter that about that it'll get the option that are going very fast <unk>.
Very carefully Noah.
Guidance, we don't ask you basically that the the automation will stop at the <unk> you have done it and that the rest of the customer base is going to be fine after that.
Makes sense. Thank you live in.
Please stay on line for our next question.
The next question comes from Mark Murphy with J P. Morgan Your line is now open.
Thank you very much David looking at the map on this large upfront bill that did not recur it seems to be about $65 million.
Running that correctly, okay can you, possibly shed a little more light.
For instance will you recapture that some of that in Q2 and what type of customer in customer dynamic is is operating at that level and then I have a quick follow up.
Yeah that is a customer of ours, what we said was the billing frequency change in the size. So that customers Bill will one be spread out more overtime that company that was a crypto company and continues to be a customer.
<unk>, but that was an early optimizer, we had always talked at some of the industries that are most affected optimized.
And and that is so we will get that we will get that bill at a smaller size then was build last year in a in a more of a chunked up billing way look. This is this is one of those situations where.
So this customer was in the industry that the vehicle that got.
And their own business was getting three or four in terms of the their revenue.
Revenue.
And when that's the case that we really work with customers to restructure the contract with US we want to be part of the solution for them not part of the problem.
And that's what we need to hear we restructure the contract.
We kept him as a happy customer for many more years.
Do deal that works for everyone.
The idea of business profile in our company since we've been public we've.
Pointed out when we have an unusual bell so we don't have.
Multiple of these types of situations and what we've done if you look back through our commentary is when we've had one of those would change of timing or a change of the duration of a bill or a size of a bill we've tried to pro forma <unk> in order to give everyone.
A sense of what the rest of the business is doing.
Thank you.
Much appreciated.
On our part and.
And as the bulb Olivier congrats on passing at $2 billion in a R. R. What are the <unk>.
Software companies ever to to do that pretty amazing.
I did want to ask you as well on the authorizations at the moment, Microsoft seems more optimistic that.
The optimization activity would start to normalize in the next couple or few quarters.
Then Amazon does and will be tear it apart as your has less exposure to tech companies, which you're doing lay offs. They have more exposure to generative AI, which is which is booming realm.
Relative to AWS. So I'm wondering if that part lines up with your telemetry and your forecasting that.
Perhaps your as your monitoring business is gonna start to turn the corner sooner.
Then and then perhaps AWS would follow after that.
Okay.
It's too early to tell and by the way, it's a bit hard to just project on numbers from the size of the reminder, it's hard to predict on numbers from the members of the.
Okay providers, because even though it's not the one to one in terms of what the report and would consider is the infrastructure and the applications directly decent.
Decent call providers have different things in there.
And also.
These these vendors have in addition to the volumes that drug consumption on our end. We also have their own pricing dynamics and typically in the situations the vendors with the largest bills or the one that pushes the most.
In this case that would be a W. S.
But.
10th of what we see no data there's no nothing to suggest that any particular cloudy is recovering from optimization just yet. We also tried to read the video Hyperscaler comments and you know.
Depending on what you read before and after they look more let's put it even though so I'm not quite sure I would project as much enthusiasm in the in new Mexico a comment.
But we know that adhere today, it doesn't really matter for us equally what position.
To capture workloads on <unk> as we all need to be with.
N G C P and the only part I would say of the Microsoft stack.
We don't cover as well is everything there is a lift and shift of purely Microsoft technology.
Microsoft Security office or <unk>.
Because that can typically be done very well with the ability to Microsoft Julie.
But when you think of any market share game that might happen now from the loan from Microsoft and the others.
As you can imagine that.
That would be a more clubs you walk throughs <unk> workloads local news that have to gather data and call into into AI models and these are things that we would say well positioned to to get Ya.
Excellent. Thank you very much.
Please stand by for our next question.
Mmm.
The next question comes from cash Roentgen with Goldman Sachs. Your line is now open.
Thank you very much I appreciate it I was curious Olivier <unk> is it merely a factor just waiting for these workers come on.
Since you have such a strong presence of infrastructure monitoring.
Close to just run on these big cloud and you will optimize them.
Do you have to do something specific product site.
To date, a dog to better handle a <unk> have a follow up question.
Well, so I think you know the.
Clearly, there's going to be more protein low productivity in a week.
The way. This has played out in the past it it needs you just end up generating more stuff and more mess you know.
So basically if one person can produce 10 times more.
And we spent time was 10 times more stuff and that person will still not understand everything they produce.
So do.
The way we imagine the future is companies are going to deliver a lot more functionality to their users.
<unk> they are going to solve a lot more problems.
In software.
But the the.
They won't be as tight and understanding from their engineering teams as to what did you use a building code. They built it in with my break in what might be the corner case is that one word and things like that.
And that's consistent with what we can see people building with a a coke.
Copilots today and things like that so that's very very very good for solving.
A small problem, but.
But it won't help you build <unk> babies or it didn't help you build software platforms than <unk>.
The the way we see it in the future is.
Will will feel customers do a lot more.
And it will still need help to catch up with everything in their domain.
And it will be the ones to do that for them.
Got it. Thank you so much and also Microsoft talked about the anniversary effect of optimization that the headwinds would be less going forward, whereas aws's called out deceleration the month of April but it looks like your business is to study in the month of your purses fair to say that you're sort of pick coupling away from the.
<unk> it'll be S V celebration, and maintaining but steady pace as far as consumption transient Sir that's it for me. Thank you.
Well, I mean look where.
For the rest of the year, we're not assuming any change in trajectory and also.
Now in terms of where we are compared to the other crop providers give me. One thing you can do is you can look at the.
The secret Shaw gross numbers.
Quarter to quarter, and you'll see that.
It gives you look at the three major providers.
Decelerated to about 1%.
Quarter to quarter growth for the last quarter.
We feel significantly higher than that and when you look at the <unk> you know considering the fact that we ended we exited slower in.
In 22, and we exited higher in Q1.
Because <unk> is actually a differently around the holidays.
<unk> that was higher than the sequential eight in the capital letters. So we already decoupled from the growth of the of the Hyperscaler to a certain extent.
Wonderful. Thank you so much.
Please stand by for the next question.
The next question comes from <unk>, which city, you're lying is now open.
Hi, This is Joe along for 15.
Thanks for taking our questions. So just just a chocolate another vertical here given the continued uncertainty in the financial services vertical I'm. Just wondering if you could speak to your exposure here uhm, perhaps any related behavior and you're staying with your customers. If at all and then just have a quick follow up right here.
So we don't.
I don't think we have numbers too sure on the exact exposure to essential services are busy it's been.
Growing vertical for US is the essential services are.
Early adopters of software and I would say not necessarily earliest adopters of the cloud, but definitely a threat scale today of Catholics energy.
Haven't seen any changes.
In customer behavior on that side.
And that includes you know when when they were all this trouble with all this trouble with <unk>.
Other banks failing.
We were still seeing.
Great uptake from a products from your from Punctual services, new logos as well as.
Extension deals so nothing to report on alright.
Okay. Okay. Okay.
Details there and then just you mentioned the expenses of your with with a large printer which displaced.
Open source software in addition to other tools. So just wanted to see if you could speak to the competitive dynamic versus open source, especially in this <unk> the cost of sensitive environment.
Why you know ligated out still wins and perhaps works as a consolidation destination.
Yeah.
The situation is very similar to what you <unk> you know it's.
We win because we didn't even more value you know it's.
At the end of the day works better and cheaper with what we do and what will provide than trying to be with yourself and and.
Lightning your own team and trying to fish together different different parts of open source.
For some customers they will still won't part of that they will still want to build somebody that's more of a cultural thing but.
For the vast majority of customers. It's it's not a rational thing to do and that's why we win Indiana.
Because there is remarkably unchanged from you know could have said the exact same thing 10 years ago.
Excuse me to open source projects with different footprint as a committee was different but.
It makes when we sold the customer was there a nurse at all.
Okay alright, thank you.
Please stand by for our next question.
The next question comes from Brad read back with Steve for your line is now open.
Great. Thanks very much.
Earlier, you mentioned sort of the opportunity or you're sort of focus on the asher ecosystem what types of things on a go to market perspective can you do to increase your penetration there as you sort of historically been much larger inside of AWS. Thanks.
Also there's one other things we're doing you know whether it's working directly with other cloud provider is in addition to very strong relationship with anybody with.
Whether that's.
Billing will more integration specifically into the vehicle system.
Technology integration and if you look at our our announcements product announcements you will see that we've done quite a bit in partnership with Microsoft for example.
And.
Part of it is also expanding all Sir 14 territory that tend to be to lean more towards Microsoft in terms of <unk>. So when you look at the early customers, we had women, which tended to be a lot of the software companies companies and it used to be.
Based on the West coast in the U S that typically do you didn't lean hard Microsoft.
But when when you look at the more recent enterprise teams will call you back to your say for example in the U S central areas like.
These tend to be way heavier on the on the Microsoft.
So it's a combination of all of the above basically like does not just one single thing we do it's a lot of different things and then you can level to make sure that we have the right product to show in front of the <unk>.
From a <unk> customer and have devised salesforce to enable that.
That's great thanks very much.
Please stand by for our next question.
The next question comes from Matt Hedberg with our D. C. Your line is open.
Great. Thanks for taking my questions.
Thanks for the ATM log management data point over a billion dollars in error and I'm wondering can you provide a frame of reference for maybe the growth of these two businesses versus core infrastructure and maybe between the two eight PM logging or are they about equal in size or is one is one sort of relatively larger than the other.
Although amazing to the same I mean, we're not going to give you the Mexican specific.
Numbers there but.
And the the growth rate.
Of course like the.
Generally speaking the smaller products grow faster than the problem that'd be good and then that's pretty much true about a whole set of products.
The growth of all of the products have come down a little bit, especially the ones that have a lot of volume component X for example logs nowhere.
When you think of optimization like days optimization that happens <unk> provide a level and there's some that can happen at the observatory level too.
Overwhelmingly it observes the level, that's love and everything that's.
Each customer that a a decent enough to turn.
For everything else, it's it's a mutation correct phones do with the proper iced tea.
Got it thank thanks for that and then.
On the outage that you referenced the $5 million I'm curious what did you what did you guys learn from that to to prevent maybe this in the future and you know outside of the 5 million dollar hit that David talked about is are there any other repercussions from a customer perspective.
So.
We we've made a lifetime of learning in a day. So that's the positive part of of having an incident like that.
I want to say.
I've I've always personally very impressed by the response of Martine it'll be we shared some some information in a post mortem on what happened you know I encourage them to read it because fascinating document, but because of the very wide nature of this of this issue.
We ended up having three shift of five to 600 engineers.
Working on on on this outage and that will that work beautifully obviously with learn about number of things nobody on the root cause of the outage that.
Most anecdotal like it's the one that was no small.
Small things that can have a big impact, but don't worry so much about it happening again.
We've learned is more about the advice things, we can do better to recover faster for our systems and to provide <unk>.
<unk> way for customers to me to get an issue when that happens. So these are the most of the learnings and most of the.
The new sources of work that we have internally to follow up on that and make sure that will reduce the chance of it happening again and when he does we recover faster and better for our customers.
Very humbling experience and.
And I want to make sure that we do at our customers know if you're in your future. There we don't see any.
<unk> coming back to the way we've handled it is by being very transparent with our customers about what was happening.
And addressing any political consequences with him after that and we think.
In those situations when you do things right and when you don't repeat the mistakes too often the effect is actually to strengthen the relationship with the customer.
And I hope you succeed in doing that.
Thanks for the call or Alexandra.
Please stand by for our next question.
The next question comes from Brent Dale with Jeffrey Your line is now open.
David just wanted a large customer at zero 130 versus an average of 170 240 or last four quarters.
And any color there and can you just thoughts is this just more.
<unk> what is this execution related to how would you characterize the large on a budget gotcha.
Yeah, a couple of factors one first quarter is R seasonally lowest amount of new logo or or the first quarter of this year was very similar I think we said slightly higher than the year before N N N.
Similar to our other quarters, that's one factor secondly, as we've talked about most of our.
Our customers are in that larger customer group aren't born there, but expand into that and when the organic growth rate goes down you will naturally have a slower evolution, our graduation of customers into that larger customer classification.
So both of those factors.
Caused that slowed down in that accumulation of customers over $100000.
Mmm living in just a quick follow up on the cloud authorization solution or you can you give us a sense of attraction, what you're seeing in terms of the box in there.
And do you have for whatever I need to bring up your question.
Please stand by for our next question.
Hey, guys. Thanks for taking the question to just one for me here in the interest of time wanted to ask you a question on on the cloud security management platform and specifically the sales motion for it. So so so how is that shaping up this year and how should we be thinking about the investments and strategy for that segment. This year.
And as as you attack that opportunity how how is it in a competitive environment and shaping up as you head into D. O Bay cost is it coming in as expected. Thanks guys.
Yeah, and there's no no dramatic change from what we've seen before.
Oh focus is really on on getting getting the product into as many hands as possible and as we mentioned in the Covid savings working <unk>.
We have more than 5000 customers on those products.
And this is really what gives us the the music it closes the loop. So that we can keep building those products and and bring them all to maturity.
The one thing I'll say.
Our strategy or approach for the for security is is ambitious and that we don't have.
With specific to download trying to build a point solution we building.
Which means we're moving in many different direction at the same time for this and everything we do in terms of going to market and.
Driving to surmount looking for that is in service of the of this product development. So we can build on that platform.
So with that in mind to go to market hasn't changed from what we've done before.
And we tend to land heavily on crossing over from the loft teams into security.
And and that's working well to to get a lot more consumer adoption.
On the community side does know there'll be Chinese there you know received.
<unk> dynamics out and it'd be different because it typically have narrower solution and more defined sell motions around though.
And but the we're very pleased with <unk>.
Got it. Thank you very much thanks for taking the question.
Please stand by for our next question.
The next question comes from Greg mascot Wits with Mizzou, how your line is now elephant.
Okay. Thank you for for taking the the question Livia you you laid out a pretty compelling case for why generally I will have a positive impact on David catalogue of presumably he has ever ability market at large both over the near to medium term as well as a longterm, but do you see any offsets any partial offset from organization.
Having greater intelligence and automation at their fingertips are there certain workloads that may no longer need to to be monitored buying is her ability platform.
The <unk>.
The long term future everything's possible, but I don't think that today I don't think that's.
<unk>, that's not what we <unk>.
I think the again to the workload not getting a more complex of the indigenous of management and getting better and we see visiting your continuation of that.
To.
In terms of what consumers do through their like it's it's hard to project.
Adoption of AI into what it might look like into the future because right now.
AI is mostly.
Use as a as an API cole almost companies but.
But we don't think it's necessarily going to be the case, you know one to five years from now.
Okay got it thanks, and then just for a David on the outage are the credits et cetera is that now fully behind you or is there any lingering financial impact in the queue to you that you were a betting at the guide thanks.
Yeah, we we provide for what we know and are at time at our crawls. So we believe that we provide in for that through the revenue impact and and Q1.
Okay. Thanks very much.
Please stand by for our last question.
The last question comes from my <unk> need them. Your line is open.
Hey, guys. Thanks for getting me on here before the before the end of the call I guess my question for Raleigh.
The first question is really around the a R discussion and I. Appreciate the color you guys provided around the a T M and log management could.
Could you highlight.
His date of dog, winning new customers on pure a T M and logging at this point or as infrastructure is still the heavyweight <unk> as far as where those new logos are being predominantly one and then secondarily.
Can you talk to maybe some of the newer products and the portfolio of what you are seeing the strongest uptake today just given we have I think it's 17 plus modules in the portfolio more broadly <unk>, where <unk>, where should we be focusing we're thinking about.
Growth going forward from here.
Yeah. So looked forward motion is still to land with infrastructure.
<unk> when we start I would say, it's getting increasingly difficult to separate all of those.
So the market in general is just to.
Converging them to adding all three under one roof.
So you know it.
Whether customers stomach residually of our a T M O along the way they started or from infrastructure it doesn't matter.
<unk> on your customers.
Uhm.
I would say, though that you know we definitely have best of breed products also an a T M and logs knowing those products when on their own and sometimes you know when we enter a mucus somewhere network <unk> solutions for other things you know we can we can start by displacing a vendor on the.
Inside of the <unk> definitely something that we do on a regular basis.
On the the question of the products that are occurring faster like the.
Took all the newer products actually getting pretty good uptake so it's hard to pick one I.
I mentioned earlier, so cloud cost optimization is actually very popular product right now so very early in this lifetime, but as a popular product and we also see a lot of interests actually for some of the new products, we announced that that last year and some of which <unk>.
Mm mmm.
Mmm not generally available.
So there's a number of things we're doing in terms of.
The mating response to issues and timber.
<unk> walk throughs and sorting through issues and.
Managing issues with your lifecycle that that are getting a lot of attention from customers today too. So we were excited about what's coming next.
Obviously, the expectation for some of those products are changing over time to know that everyone can see what can be done with the I you know everybody expects to see a lot more of that so I guess <unk> <unk> in the near future.
Looking forward to it and thank you very much for the color.
I would now like to turn the call over to alleviate for closing remarks.
Thank you and I want to thank again Oh.
If we want to get a dog for crossing is really important milestones.
Obviously will already focused on the next month, but.
I want to thank everyone for the hardware shipping product getting your phone of customers I also want to thank our teams for responding to that system outage, we had in our customers.
Oh very currently are working with us through that and on this I will speak to you again after Q too.
This concludes today's conference call. Thank you for participating you may now disconnect.
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