Q3 2023 Datadog Inc Earnings Call

November 7, 2023

Speaker 1: you

Speaker 1: You

Okay.

Good day, and thank you for standing by.

Speaker 2: Welcome to the third quarter 2023 DataDog 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.

Speaker 2: Welcome to the third quarter 2023 Datadog 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.

Welcome to the third 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.

Speaker 2: To ask a question during the session, you will need to press star one one on your telephone, you will then hear an automated message advising your hand is raised to withdraw your question, please press star one one again.

Speaker 2: To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again.

To ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand just raised.

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Speaker 2: please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Yuka Broderick, Vice President of Investor Relations. Please go ahead.

Speaker 2: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jukka Broderick, Vice President of Investor Relations. Please go ahead.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Yoga Broderick Vice President of Investor Relations. Please go ahead.

Speaker 3: Thank you, DeeDee. Good morning, and thank you for joining us to review Datadog's third quarter 2023 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pommel, Datadog's co-founder and CEO , and David Opsler, Datadog's CFO .

Speaker 3: Thank you, Dee Dee. Good morning and thank you for joining us to review Datadog's third quarter 2023 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pamel, Datadog's co founder and CEO , and David Oopstler, Datadog's CEO .

Thank you Judy good morning, and thank you for joining us to review data dogs third quarter 2022 financial results, which we announced in our press release issued this morning, joining me on the call today are Olivier P&L did adopt co founder and CEO and David Oops alert data dog CFO.

Speaker 3: During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the fourth quarter in the fiscal year 2023, and related notes and assumptions, our gross margins and operating margins, our product capabilities, our ability to capitalize on market opportunities, and usage optimization trends. The words anticipate, believe, continue, estimate, expect, intend, will, and similar expressions are intended to identify forward-looking statements or similar indications of future expectations.

This call, we will make forward looking statements, including statements related to our future of future financial performance, our outlook for the fourth quarter and fiscal year 2023, and related notes and assumptions, our gross margins and operating margins our product capabilities, our ability to capitalize on market opportunities and usage optimization trend.

The words anticipate believe continue estimate expect intend will and similar expressions are intended to identify forward looking statements or similar indications of future expectations. These.

Speaker 3: 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.

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.

Speaker 3: For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-Q for the quarter ended June 30, 2023. Additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ended September 30, 2023 and other filings with the SEC.

Speaker 3: For discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-Q for the quarter ended June 30th 2023 additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ended September 30th. 2023 and other filings with the FCC.

For a discussion of the material risks and other important factors that could affect our actual results. Please refer to our Form 10-Q for the quarter ended June 30th 2023, additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ended September 30th 2023, and other filings with the SEC.

Speaker 3: This information is also available on the Investor Relations section of our website, along with a replay of this call. We will 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.datadoghq.com.

This information is also available on the Investor Relations section of our website along with a replay of this call. We will 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 I get Ya Chu dotcom.

Speaker 3: With that, I'd like to turn the call over to Olivier. Thanks, Sukha, and thank you all for joining us this morning.

Speaker 3: With that, I'd like to turn the call over to Olivier. Thanks, Suka. And thank you all for joining us this morning.

I'd like to turn the call over to Olivier.

Thanks, Scott and thank you all for joining us this morning.

Speaker 3: We are pleased with our execution in Q3. We delivered another quarter of profitable growth and robust new logo bookings, and we continue to broaden our platform to help customers become and grow digital businesses.

Speaker 3: We are pleased with our execution in Q3. We delivered another quarter of profitable growth and robust new to go bookings. And we continue to broaden our platform to help customers become and grow digital businesses.

We are pleased with our execution in Q3, we delivered another quarter of profitable growth and robust notable bookings and we continue to broaden our platform to help customers become and grow our digital businesses.

Speaker 4: Let me start with a review of our Q3 financial performance.

Let me start with a review of our Q3 financial performance.

Speaker 4: Revenue was $548 million, an increase of 25% year-over-year and above the high end of our guidance range.

Speaker 4: Revenue was $548 million, an increase of 25% year over year and above the high end of our guidance range.

Revenue was $548 million, an increase of 25% year over year and above the high end of our guidance range.

Speaker 4: We ended with about 26,800 customers, up from about 22,200 last year.

We ended with about 26800 customers up from about 22200 last year.

Speaker 4: We ended the quarter with about 3,130 customers with an ARR of $100,000 or more, up from about $2,600 last year.

We ended the quarter with about 3130 customers with an R over $100000 or more up from about 2600 last year.

Speaker 4: And this customer generated about 86% of our AR.

Speaker 4: and its customers generated about 86% of our ARR.

These customers generated about 86% of our E R.

Speaker 4: And we generated free cash flow of $138 million with a free cash flow margin of 25%.

And we generated free cash flow of $138 million with a free cash flow margin of 25%.

Speaker 4: Turning to platform adoption, our platform strategy continues to resonate in the market.

Turning to platform adoption.

Our platform strategy continues to resonate in the market.

Speaker 4: As of the end of Q3, 82% of customers were using two or more products, up from 80% a year ago. 46% of customers were using four or more products, up from 40% a year ago. And 21% of our customers were using six or more products, up from 16 last year.

As of the end of Q3, 82% of customers were using two or more products up from 80% a year ago, 46% of customers were using four or more products up from 40%, but a year ago and 21% of our customers were using six or more products up from 16 last year.

Now, let's discuss this quarter's business drivers.

Speaker 4: In Q3, we saw usage growth making customers improve compared to Q2.

In Q3, we saw usage growth medicine customers improve compared to Q2.

Speaker 4: Overall growth in Q3 was relatively consistent throughout the quarter and comparable to levels we've seen in Q1.

Speaker 4: Overlowing growth in Q3 was relatively consistent throughout the quarter and comparable to levels we've seen in Q1.

Although our growth in Q3 was relatively consistent throughout the quarter and comparable to levels. We've seen in Q1.

Speaker 4: we are seeing signs that the crowd optimization activity from some of our customers may be moderating.

We are seeing signs that the crowded optimization activity from some of our customers may be moderating.

Speaker 4: As a reminder, last quarter, we discussed a cohort of customers who began optimizing about a year ago, and we said that they appear to stabilize their users growth at the end of Q2.

As a reminder, last quarter, we discussed a cohort of customers, who began optimizing about a year ago, and we said that they appear to stabilize that usage growth at the end of Q2.

Speaker 4: That trend has held for the past month, with that cohort usage remaining stable throughout Q3.

That trend has held for the past several months with that cohorts use edge remaining stable throughout Q3.

Speaker 4: Overall, we continue to see impact from optimization in our business, but we believe that the intensity and breadth of optimization we've experienced in recent quarters is moderating.

Overall, we continue to see impactful optimization in our business, but we believe that the intensity and breath of optimization, we've experienced in recent quarters is moderating.

Meanwhile, our new logo activity has remained robust.

Speaker 4: New logo bookings continue to scale and grow year-over-year. And for the second quarter in a row, we closed a record number of new deals with more than $100,000 in annual commitment.

New logo bookings continue to scale and grow year over year.

And for the second quarter in a row, we closed a record number of new deals with more than $100000 in annual commitment.

Speaker 4: With our land and expand model, we expect new logos to turn into much larger customers over time as they lead into the cloud and add up more and more products.

With our land and expand model, we expect new logo, so turning to much larger customers over time as the leading to the cloud and add up more and more products.

Speaker 4: Finally, regarding customer growth, we are pleased with the new logos, new workloads, and new product patches we added this quarter. We added a number of exciting new customers in Q3, and I'll discuss a couple examples later.

Finally regarding customer growth, we are pleased with the new logos, new workloads and new product attach easy.

This quarter, we added a number of exciting you get some might be Q3 and I've just got a couple of examples later.

Speaker 4: Note that our total customer count is largely driven by our long tail of very small customers, while our sales motions are more targeted to the middle and high end of our prospects. And as a reflection of our team's strong execution, our net ads of customers over $100,000 saw an increase in Q3 compared to Q2.

Note that our total customer count is largely driven by our long tail of very small customers. While our sales motions are more targeted to the middle and high end of our prospects.

And as a reflection of our team's strong execution, our net adds of customers over $100000 saw an increase in Q3 compared to Q2.

Speaker 4: Despite a more cost-conscious demand environment over the past year, our business has continued to grow across product lines, and we are very proud to achieve several key milestones.

Despite a market cost conscious demand environment over the past year. Our business has continued to grow across product lines and we are very proud to achieve several key milestones.

Speaker 4: First, our infrastructure monitoring ARR exceeded $1 billion.

First on <unk>.

Aspects of monitoring or exceeded $1 billion.

Speaker 4: Today, our infrastructure products cover monitoring the performance of hosts, networks, containers, Kubernetes deployments, serverless functions, and other aspects of infrastructure in the cloud, as well as a full set of AI and machine learning tools to help our customers separate signal from noise.

Today, our infrastructure products cover monitoring the performance of posts networks containers kubernetes deployments, several ex functions and other aspects of infrastructure in the cloud as well as a full set of AI and machine learning tools to help our customers separate signal from noise.

Second or a P M suite which includes core PM synthetics, red CE, a monitoring and continuous for fghter exceed five million in a and we continue to expand our capabilities in a PM, most recently with single stck instrumentation which Al a single engineer to able a P M across all applications without core changes and we shipped advances in mobile moniagement, including mobile application testing and mobile session replied.

Speaker 4: Second, our APM suite, which includes core APM, synthetics, real user monitoring, and continuous profiler, exceeded $500 million in ARR. And we continue to expand our capabilities in APM, most recently with single-step instrumentation, which allows a single engineer to enable APM across all applications without code changes. And we shipped advances in mobile app monitoring, including mobile application testing and mobile session replay.

Second our APM suite, which includes core APM synthetics real user monitoring and conscious provider exceeded 500 million.

And we continue to expand our capabilities in APM, most recently with single step instrumentation, which although the single engineered to enable APM across all applications with adequate changes and we ship advances in mobile app monitoring, including mobile application testing and mobilization replay.

Speaker 4: Third, our log management product exceeded $500 million in AR. We also continue to expand our capabilities in log management. And with FlexLogs, customers can easily scale storage and compute separately, allowing for new, very high-volume logging use cases in a cost-effective manner.

Third our log management product exceeded 500 million a day are we also continued to expand our capabilities in wealth management and with flex logs customers can easily scale storage and compute separately, allowing for you with very high volume logging use cases in a cost effective manner.

From the very beginning, my co-founder Alexi and I had a vision to create a unified platform that serves end-to-end use cases across datasets, products, and team boundaries.

Speaker 4: From the very beginning, my co-founder Alexi and I had a vision to create a unified platform that serves end-to-end use cases across datasets, products, and team boundaries.

From the very beginning my co founder Alex C&I had the vision to create a unified platform that sort of end to end use cases across datasets products and team boundaries.

Speaker 4: We believe that these ARR milestones and their balance across the three pillars of observability demonstrate that Datadog is unique within the industry in establishing true platform value for customers.

We believe that these are milestone.

Milestones and their balance across the three pillars of liberate availability demonstrate that <unk> is unique within the industry in establishing true platform value for customers.

And of course, even though these products have become significant in size, we are only just getting started. We will continue to innovate to deliver more solutions for our customers across observability and beyond.

Speaker 4: And of course, even though these products have become significant in size, we are only just getting started. We will continue to innovate to deliver more solutions for our customers across observability and beyond.

And of course, even though these products have become significantly side. We are only just getting started.

We will continue to innovate to deliver more solutions for customers across Absorbability, India.

Speaker 4: I will add that we have empathy for customers and their pain points, in part because we are ourselves users of cloud and next-gen technologies at a meaningful scale.

I will add that we have empathy for our customers and their pain point in part because we are ourselves uses of cloud and next into annuities at a meaningful scale and.

and we extensively deploy and use our own solution, which is appropriately known as dog fooding.

Speaker 4: and we extensively deploy and use our own solution, which is appropriately known as dog fooding.

And we extensively deploy unusual one solution, which is appropriately known as Dr. Footing.

Speaker 4: As an example, we have extensively relied on our cloud cost management product as we expanded its capabilities this past year.

As an example, we have extensively rely on our cloud cost management product as we expanded its capability of this past year.

Speaker 4: And the use of our product has played a large role in delivering cost, performance, and efficiency improvements, optimizing our own cloud usage, and ultimately resulting in expansion of our gross margins in return quarters.

And the use of our product has played a large role in delivering cost performance and efficiency improvements optimizing our own cloud usage and ultimately resulting in expansion of our gross margins in recent quarters.

Speaker 4: We also continue to innovate in the DevSecOps space.

We also continued to innovate in the desktop space.

Speaker 4: Our recent expansions in Cloud Security include Cloud Scene Investigator, where customers can visualize logs over long periods of time to conduct security investigations.

Recent expansions in cloud security include cloud Siem investigator, where customers can visualize logs over long periods of time to conduct security investigation.

And within our Cloud Security Management product, we have introduced Cloud Infrastructure Entitlement Management, or CIEM, to help customers prevent identity and access management security issues.

Speaker 4: And within our Cloud Security Management product, we have introduced Cloud Infrastructure Entitlement Management, or CIEM, to help customers prevent identity and access management security issues.

And within our cloud security management product, we have introduced cloud infrastructure entitlement management or E. R. E M to have customers prevent identity and access management security issues.

Speaker 4: For a few years now, the industry has been talking about the idea of DevSecOps, the breaking down of silos among development, operations, and security teams.

For a few years now the industry has been talking about the idea of deaths hiccups, the breaking down the silos among development operations and security teams.

And we entered the security space on the premise that DevOps and security teams should share the same data in the same platform.

Speaker 4: And we entered the security space on the premise that DevOps and security teams should share the same data in the same platform.

And we entered the securities based on the premise that Dev ops security teams share the same data in the same platform.

Speaker 4: So starting this month, we are making the practice of DevSecOps easy to adopt for all customers by bringing together all the components needed to fully monitor and secure their entire stack with two simple packages.

So starting this month, we are making the practice of <unk> easy to adopt for all customers by bringing together all the components needed to fully monitor and secure their entire stack with two simple packages.

First, within FileStructure DevSecOps, our customers can observe and secure their entire cloud environment in one package.

Speaker 4: First, within FileStructure DevSecOps, our customers can observe and secure their entire cloud environment in one package.

First with infrastructure depth hiccups or customers can observe and secure their entire cut environment in one package.

Speaker 4: With a simple per host price and a single agent deployed, customers get end-to-end visibility into performance, availability, and security issues in one place. And from that one place, teams can also quickly remediate problems using built-in workflows and without any code or configuration changes.

With a simple per horse price and a single agent deployed customers get end to end visibility into performance availability and security issues in one place.

And from that one place kill can also quickly remediate problems using building workflows and without any code or configuration changes.

Speaker 4: Second, with APM DevSecOps, we take this one step further. Customers can instrument cloud applications for both performance and vulnerability issues in one single package, enabled with the same unified agent used for infrastructure DevSecOps.

Second with APM their setups, we take this one step further customers can instrument code application for both performance and being a REIT issues in one single package enable with Sam unified agent used for infrastructure.

Speaker 4: APM DevSecOps complements infrastructure DevSecOps by surfacing open source and code-level security vulnerabilities alongside performance issues.

APM their pickup complement infrastructure that pickups are surfacing open source and code level security vulnerabilities alongside performance issues.

Speaker 4: Finally, we continue to be excited about the opportunity in generative AI and large language models.

Finally, we continue to be excited about the opportunity in generative AI and last language models.

First, we believe adopting next-gen AI would require the use of cloud and other modern technologies and drive additional growth in cloud workloads.

Speaker 4: First, we believe adopting next-gen AI would require the use of cloud and other modern technologies and drive additional growth in cloud workloads.

First we believe adopting nexgen AI will require the use of cloud and other modern technologies and drive additional growth and cloud workloads.

Speaker 4: So we are continuing to invest by integrating with more components at every layer of the new AI stack and by developing our own LLM observability product.

So we are continuing to invest by integrating with more components at every layer of the new AI stack and by developing our own LLM availability product.

And while we see signs of AI adoption across large parts of our customer base, in the near term, we continue to see AI-related usage manifest itself most accurately with next-gen AI-native customers, who contributed about 2.5% of our ARR this quarter.

Speaker 4: And while we see signs of AI adoption across large parts of our customer base, in the near term, we continue to see AI-related usage manifest itself most accurately with next-gen AI-native customers, who contributed about 2.5% of our ARR this quarter.

And why do we see signs of AI adoption across large parts of our customer base in the near term. We continue to see AI related usage manifest itself, most accurately with nexgen AI native customers, who contributed about 205% of our August quarter.

Speaker 4: In the mid to long term, we expect customers of all industries and sizes to keep adding value to their products using AI and to get from early exploration to development and into production, thus driving larger cloud and observability usage across our customer base.

In the mid to long term, we expect customers of all shapes and sizes to keep adding value to their products using AI and to get there early exploration to get from early exploration.

To develop mine into production, thus driving larger cloud an observer to usage across our customer base.

Besides observing the AI stack, we also expect to keep adding value to our own platform using AI.

Speaker 4: Besides observing the AI stack, we also expect to keep adding value to our own platform using AI.

Besides observing the AI stack, we also expect to keep adding value to our own platform using AI.

Speaker 4: Datadog's unified platform and purely SAS model, combined with strong multi-product adoption by our customers, generates a large amount of deep and precise observability data.

That Adobe is unified platform and purely SaaS model combined with strong multi product adoption by our customers generate a large amount of deep and precise the durability data.

Speaker 4: We believe combining AI capabilities with this broad data set will allow us to deliver differentiated value to customers.

We believe combining AI capabilities with his broad dataset will allow us to deliver differentiated value to customers.

Speaker 4: And we are working to productize these differentiated values through recently announced capabilities, such as our BITS AI Assistant, AI-generated synthetic tests, and AI-led error analysis and resolution. And we expect to deliver many more related innovations to customers over time.

And we are working to protect a differentiated value through our recently announced capabilities such as our AI assistant AI generated synthetic test and AI led our analysis and regulation.

And we expect to deliver many more related innovation to customers all the time.

Speaker 4: Let's move on to sales and marketing, where we continue to execute on both new logos and existing customers.

Let's move on to sales and marketing, where we continue to execute on both new logos and existing customers.

So, let's discuss some of our wins.

Speaker 4: First, we founded Seven Figure Lens over five years with a leading provider of dental care.

First.

We signed a seven figure land over five years with a leading provider of dental care.

This company's legacy monitoring just didn't cut and it contributed to delays with their migration to Azure.

Speaker 4: This company's legacy monitoring just didn't cut and it contributed to delays with their migration to Azure.

These companies legacy monitoring just didnt cut and it contributed to delays with the migration to Azure.

Speaker 4: What was concerning to them was that customers noticed poor application performance and were complaining publicly on social media.

Well concerning to them was that customers notice for a patient.

And we're complaining publicly on social media.

By adopting six Adderall products, they expect to find and fix the vast majority of incidents internally before their customers are affected.

Speaker 4: By adopting six Adderall products, they expect to find and fix the vast majority of incidents internally before their customers are affected.

We are adopting six additive products, they expect to find and fix the vast majority of incidence internally before their customers are effective.

Speaker 4: And in signing a five-year deal, this customer showed its confidence in Datadog as a long-term partner in their migration.

And in signing a five year deal this customer shortage confidence embedded Doug as a long term partner in their migration.

Speaker 4: Next, we signed a seven-figure land with a South American FinTech company.

Next we signed a seven figure land with a south American Fintech company.

Speaker 4: By moving from basic, built-in cloud monitoring, legacy tooling, and open source tools to Datadog, this customer expects to significantly reduce costs by spending less on tooling, reducing time to resolution, and giving time back to engineers to innovate on their own product.

By moving from basic built in crop monitoring legacy tooling and open source tools to that at all.

This customer expects to significantly reduce cost by spending less on tooling, reducing time to resolution and giving time back to engineers on their own products.

Next, we signed an eight-figure renewal over three years with a major American chain of convenience stores.

Speaker 4: Next, we signed an eight-figure renewal over three years with a major American chain of convenience stores.

Next we signed an eight figure renewal over three years with a major American chain of convenience stores.

With this expansion, Datadog will bring all aspects of these customers' tech systems into one platform, including their applications, hybrid clouds, networks, in-store IoT technology, point-of-sale systems, self-serve kiosks, fuel pumps, and corporate infrastructure.

Speaker 4: With this expansion, Datadog will bring all aspects of these customers' tech systems into one platform, including their applications, hybrid clouds, networks, in-store IoT technology, point-of-sale systems, self-serve kiosks, fuel pumps, and corporate infrastructure.

With this expansion that will bring all aspects of these customers test systems into one platform, including the application hybrid cloud network is the Iot technology point of sale system sales or kiosks fuel pumps and corporate infrastructure.

Speaker 4: This will free up employee time to focus on customer service with expectations to save millions of dollars annually.

This will free up employee time to focus on customer service with expectations to save millions of dollars annually.

This customer plans to use 6 pallet of products, replacing 3 commercial deliverability tools.

Speaker 4: This customer plans to use 6 pallet of products, replacing 3 commercial deliverability tools.

This customer plans to use six cellulose product, replacing three commercial level beauty tools.

Speaker 4: Next, we signed a seven-figure expansion with a major U.S. federal agency.

Next we signed a seven figure expansion with a major U S Federal agency.

When we first started working with this customer a year ago, Datadog was approved for a limited subset of programs. But as we have demonstrated value and gained internal adoption, this customer is now deploying Datadog across the entire agency.

Speaker 4: When we first started working with this customer a year ago, Datadog was approved for a limited subset of programs. But as we have demonstrated value and gained internal adoption, this customer is now deploying Datadog across the entire agency.

When we first started working with this customer a year ago that <unk> was approved for a limited subset of program.

But as we have demonstrated value and gaining final adoption. This customer is now deploying <unk> across the entire agency.

Speaker 4: They have adopted six analog products, and by doing so, consolidated out of seven tools.

<unk> added a product and by doing so consolidated out of seven tools.

Speaker 4: Next, we signed a seven-figure expansion with a Fortune 500 industrial company.

Next we signed a seven figure expansion with a fortune 500 industrial company.

Speaker 4: The customer was concerned with out-of-control costs with its legacy log management product and was using a dozen different tools.

This customer was concerned with out of control costs with its legacy log management product and we're using a dozen different tools.

And when they began using Datadog, they noticed far fewer support tickets submitted to their reliability team.

Speaker 4: And when they began using Datadog, they noticed far fewer support tickets submitted to their reliability team.

And Wednesday began using data dog, they noticed far fewer support ticket submitted to their reliability team.

Speaker 4: By growing usage with Datadog and expanding to seven products, this customer expects to deliver better service while saving time and reducing cost.

By growing you said was that a dog and expanding to seven product this customer expects to deliver better service, while saving time and reducing cost.

Speaker 4: And last, we signed a seven-figure expansion with a software business that is part of a tech hyperscaler.

And lastly, we signed a seven figure expansion with a software business that is part of a tech hyperscale.

Speaker 4: This long time customer has used Datadog for infrastructure metrics and will now expand to adopt seven Datadog products.

This long time customer has used that a dog fight production metrics and we will now expand to add up seven delta product.

Speaker 4: Datadog will be replacing its commercial APM tool, which wasn't well adopted by its engineers and led to inefficient troubleshooting, outages, and revenue impacts.

Data will be replacing its commercial APM tool, which wasn't a well adopted by its engineers and led to an interesting troubleshooting outages and revenue impact.

Our support of open telemetry, in particular, was key to their decision to expand with Datadog, as it makes it possible for APM tracing to be democratized and used across their entire DevOps team.

Speaker 4: Our support of open telemetry, in particular, was key to their decision to expand with Datadog, as it makes it possible for APM tracing to be democratized and used across their entire DevOps team.

Our support of open telemetry in particular with key to their decision to extend with that Doug is it makes it possible for APM traces to be democratized and use across their entire Dev ops team.

Speaker 4: And that's it for this quarter's highlights. I'd like to thank our go-to-market teams for their strong execution in Q3.

And that's it for this quarters highlights.

I'd like to thank our go to market teams for their strong execution in Q3.

Speaker 4: Before I turn it over to David for a financial review, let me reiterate our longer-term outlook.

Before I turn it over to David for a financial review, let me reiterate our longer term outlook.

Speaker 4: As we have said throughout this period of cloud optimization and macro uncertainty, our long-term plans have remained unchanged.

As we have said throughout this period of cloud optimization and macro uncertainty our long term plans have remained unchanged.

We continue to believe digital transformation and cloud migration are long term secular growth drivers of our business and critical motions for every company to deliver value and competitive advantage.

Speaker 4: We continue to believe digital transformation and cloud migration are long term secular growth drivers of our business and critical motions for every company to deliver value and competitive advantage.

We continue to believe digital transformation and cloud migration or long term secular growth drivers of our business and critical motion for every company to deliver value and competitive advantage.

Speaker 4: So we continue to invest aggressively to broaden our platform. And we aim to be our customers' mission-critical partners as they move to cloud and to modern DevSecOps. With that, I will turn it over to our CFO .

So we continue to invest aggressively to build on our platform and we have got.

Alright.

And we aimed to be our customers' mission critical partners as they move to cloud and to modern desktops.

With that I will turn it over to our CFO David.

Thanks Olivier.

Speaker 5: Q3 revenue was $548 million, up 25% year over year, and up 7% quarter over quarter.

Q3 revenue was $548 million up 25% year over year and up 7% quarter over quarter.

to dive into some of the drivers of this Q3 performance, first regarding usage growth.

Speaker 5: to dive into some of the drivers of this Q3 performance, first regarding usage growth.

To dive into some of the drivers of this Q3 performance first regarding usage growth we.

Speaker 5: we saw an improvement in usage growth in Q3 versus Q2.

We saw an improvement in usage growth in Q3 versus Q2.

Speaker 5: The Q3 usage growth was more similar to Q1 and relatively steady throughout the quarter.

The Q3 usage growth was more similar to Q1 and relatively steady throughout the quarter.

Speaker 5: We had a very healthy start to Q4 in October .

We had a very healthy start to Q4 in October while it is too early in the quarter to know for sure what will happen in the next couple of months the trends we see in early Q4 are stronger than they've been for the past year.

while it is too early in the quarter to know for sure what will happen in the next couple months, the trends we see in early Q4 are stronger than they've been for the past year.

Speaker 5: while it is too early in the quarter to know for sure what will happen in the next couple months, the trends we see in early Q4 are stronger than they've been for the past year.

Speaker 5: Regarding usage growth by customer size, we continue to see larger spending customer growth at a slower rate than smaller spending customers, but usage growth improved for all customer sizes in Q3 relative to Q2.

Regarding usage growth by customer size, we continue to see larger spending customer growth at a slower rate than smaller spending customers, but usage growth improved for all customer sizes in Q3 relative to Q2.

And as Olivier discussed, we believe there are signs that the optimization activity we've been seeing is moderating.

Speaker 5: And as Olivier discussed, we believe there are signs that the optimization activity we've been seeing is moderating.

And as Olivier discussed we believe there are signs that the optimization activity, we've been seeing is moderating.

Speaker 5: Last quarter, we discussed a cohort of customers who started optimizing about a year ago.

Last quarter, we discussed the cohort of customers, who started optimizing about a year ago.

This cohort's usage has been stable, was stable throughout Q3.

Speaker 5: This cohort's usage has been stable, was stable throughout Q3.

Cohorts usage has been stable to stable throughout Q3.

Speaker 5: As we look at our overall customer activity, we continue to see customers optimizing but with less impact than we experienced in Q2, contributing to our usage growth with existing customers improving in Q3 relative to Q2.

As we look at our overall customer activity, we continue to see customers optimizing but with less impact than we experienced in Q2 contributing to our usage or usage growth with existing customers improving in Q3 relative to Q2.

While we expect cost management to continue, we believe we are seeing moderation that is still present, but a moderation that is still present, but is less intense and less widespread than we experienced in recent quarters.

Speaker 5: While we expect cost management to continue, we believe we are seeing moderation that is still present, but a moderation that is still present, but is less intense and less widespread than we experienced in recent quarters.

While we expect cost management to continue we believe we are seeing moderation that is still present, but.

But a moderation of that still present, but is less intense and less widespread than we experienced in recent quarters.

Speaker 5: Geographically, we experience similar sequential revenue growth in North America and in our international market.

Geographically, we experienced similar sequential revenue growth in North America and in our international markets.

Speaker 5: And finally, as regard to retention metrics, our trailing 12-month net revenue retention was in line with our expectations and came in slightly below 120% in Q3.

And finally as regard to retention metrics are trailing 12 months net revenue retention was in line with our expectations and came in slightly below a 120% in Q3.

Speaker 5: our trailing 12-month gross revenue retention continues to be stable in the mid-to-high 90s, a sign of the mission-critical nature of our platform for our customers. Moving

Our trailing 12 months gross revenue retention continues to be stable in the mid to high Ninety's a sign of the mission critical nature of our platform for our customers.

Moving on to our financial results.

Speaker 5: Billings were $607 million, up 30% year over year. Billings duration increased slightly year over year.

Billings were $607 million up 30% year over year Bill.

Billings duration increased slightly year over year.

Speaker 5: Remaining performance obligations for RPO was $1.45 billion, up 54% year-over-year.

Remaining performance obligations or <unk>.

Was 145 billion up 54% year over year.

Speaker 5: Current RPO growth was about 30% year over year.

Current RPI growth was about 30% year over year.

Speaker 5: Over the past couple quarters, we have seen an increasing preference from our customers to sign multi-year deals, and our weighted average booking duration was up sequentially and year over year.

Over the past couple of quarters, we have seen an increasing preference from our customers to sign multi year deals and our weighted average booking duration was up sequentially and year over year.

We see continued interest in multi-year duration deals in our pipeline as customers seek longer-term strategic partnerships with us.

Speaker 5: We see continued interest in multi-year duration deals in our pipeline as customers seek longer-term strategic partnerships with us.

We see continued interest in multiyear duration deals in our pipeline as customers seek longer term strategic partnerships with us.

Speaker 5: We continue to believe that revenue is a better indicator of our business trends than billings and RPO, as those can fluctuate relative to revenues based on the timing of invoice and the duration of customer contracts.

We continue to believe that revenue is a better indicator of our business trends than billings in our Po as those can fluctuate relative to revenues based on the timing of invoice and the duration of customer contracts.

Speaker 5: Now let's review some of the key income statement results. Unless otherwise noted, all metrics are non-GAAP . We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.

Now, let's review some of the key income statement results unless otherwise noted all metrics are non-GAAP. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.

Speaker 5: Gross profit in the quarter was $451 million, representing a gross margin of 82.3%.

Gross profit in the quarter was $451 million representing.

<unk>, a gross margin of 82, 3%.

This compares to a gross margin of 81.3% last quarter and 79.7% in the year ago quarter.

Speaker 5: This compares to a gross margin of 81.3% last quarter and 79.7% in the year ago quarter.

This compares to a gross margin of 81, 3% last quarter and 79, 7% in the year ago quarter.

Speaker 5: As Olivier mentioned, we continue to experience efficiencies in cloud costs reflected in our cost of goods sold in the quarter, as our engineering teams pursue cost savings and efficiency projects.

As Olivier mentioned, we continued to experience efficiencies and cloud costs reflected in our cost of goods sold in the quarter as our engineering teams pursue cost savings and efficiency product projects.

Our Q3 OPEX grew 17% year-over-year. This is a decline from 26% year-over-year growth last quarter. We continue to execute on controlling costs given the uncertain environment.

Speaker 5: Our Q3 OPEX grew 17% year-over-year. This is a decline from 26% year-over-year growth last quarter. We continue to execute on controlling costs given the uncertain environment.

Our Q3 Opex grew 17% year over year. This is a decline from 26% year over year growth last quarter, we continued to execute on controlling costs, given the uncertain environment and.

Speaker 5: And Q3 operating income was $131 million, for a 24% operating margin, up from 21% last quarter and above the 17% in the year-ago quarter.

Q3, operating income was $131 million for a 24% operating margin up from 21% last quarter and above the 17% in the year ago quarter.

Our margins were higher than we expected in Q3, as our organic growth was higher than in Q2, while our internal optimization and cost management efforts were successful.

Speaker 5: Our margins were higher than we expected in Q3, as our organic growth was higher than in Q2, while our internal optimization and cost management efforts were successful.

Our margins were higher than we expected in Q3 as our organic growth was higher than in Q2, while our internal optimization and cost management efforts were successful.

Speaker 5: Turning to the balance sheet and cash flow statements, we ended the quarter with $2.3 billion in cash, cash equivalents, and marketable securities. And cash flow from operations was $153 million in the quarter.

Turning to the balance sheet and cash flow statements. We ended the quarter with $2 $3 billion in cash cash equivalents and marketable securities and cash flow from operations was $153 million in the quarter.

Speaker 5: After taking into consideration capital expenditures and capitalized software, free cash flow was $138 million for a free cash flow margin of 25%.

After taking into consideration capital expenditures and capitalized software free cash flow was $138 million for a free cash flow margin of 25%.

Speaker 5: And now for our outlook for the fourth quarter and for the full fiscal year 2023. A reminder, our guidance philosophy remains unchanged.

And now for our outlook for the fourth quarter and for the full fiscal year 2023.

A reminder, our guidance philosophy remains unchanged.

Speaker 5: We base our guidance on trends observed in recent months and apply conservatism on these growth trends.

We based our guidance on trends observed in recent months and apply conservativism.

These growth trends.

Speaker 5: For the fourth quarter, we expect revenues to be in the range of $564 to $568 million.

For the fourth quarter, we expect revenues to be in the range of $564 million to $568 million.

Speaker 5: which represents about 20 to 21 percent growth year over year.

Which represents about 20% to 21% growth year over year.

Speaker 5: Non-gas operating income is expected to be in the range of $129 to $133 million.

non-GAAP operating income is expected to be in the range of $129 million to $133 million.

Speaker 5: And non-GAAP net income per share is expected to be $0.42 to $0.44 per share based on approximately 355 million weighted average diluted shares outstanding.

And non-GAAP net income per share is expected to be 42 to <unk> 44 per share based on approximately 355 million weighted average diluted shares outstanding.

Speaker 5: For fiscal year 2023, we expect revenues to be in the range of $2.103 billion to $2.107 billion, which represents 26 percent year-over-year growth.

For fiscal year 2023, we expect revenues to be in the range of $2, one 3% to $1 7 billion, which represents 26% year over year growth.

Speaker 5: non-GAAP operating income is expected to be in the range of $453 to $457 million and non-GAAP net income per share is expected to be in the range of $1.52 to $1.54 per share based on approximately 351 million weighted average diluted shares outstanding.

non-GAAP operating income is expected to be in the range of $453 million to $457 million and non-GAAP net income per share is expected to be in the range of $1 52 to $1 54 per share based on approximately 351 million weighted average diluted.

<unk> shares outstanding.

Speaker 5: Some additional notes for our guidance. First, we expect net interest and other income for fiscal 2023 to be approximately $95 million. We expect tax expense in the fiscal year to be 12 to $14 million. And finally, we expect capital expenditures and capitalized software together to be in the three to 4% of revenue range in fiscal 2023. And now.

Some additional notes for our guidance first we expect net interest income and net interest and other income for fiscal 2023 to be approximately $95 million, we expect tax expense in the fiscal year to be $12 million to $14 million and finally, we expect capital expenditures.

And capitalized software together to be in that 3% to 4% of revenue range in fiscal 2023.

And now regarding 2024.

Speaker 5: It is too early for us to speak to 2024 revenue growth. We will digest the information we see over the next several months and give you our 2024 revenue guidance next quarter.

It is too early for us to speak to 2020 for our revenue growth, we will digest the information we see over the next several months and give you our 2020 for revenue guidance next quarter.

Speaker 5: as it relates to non-GAAP profitability are operating income and margins.

As it relates to non-GAAP profitability, our operating income and margins were a little higher in Q3 than we targeted as usage growth improved from Q2 levels and we were successful with our cost efficiencies.

Speaker 5: were a little higher in Q3 than we targeted, as usage growth improved from Q2 levels, and we were successful with our cost efficiency.

Speaker 5: We expect continued strong execution on profitability in Q4.

We expect continued strong execution on profitability in Q4.

Speaker 5: At the same time, we continue to be excited by our numerous long-term growth opportunities, and we have no shortage of investments to make and are confident in our ability to execute to strong ROI on those investments.

At the same time, we continue to be excited by our numerous long term growth opportunities and we have no show a shortage of investments to make and are confident in our ability to execute to strong ROI on those investments.

Speaker 5: As a result, while we are not providing 2024 margin guidance at this point, as always, we will balance our investments in long-term growth with margin distance.

As a result, while we are not providing 2020 for margin guidance at this point as always we will balance our investments in long term growth with margin discipline.

Speaker 5: And we will update you on that in more detail next quarter.

And we will update you on that in more detail next quarter.

Speaker 5: With that, we will open the call for questions. Operator, let's begin the Q&A.

With that we will open the call for questions operator, let's begin the Q&A.

Speaker 2: Thank you. As a reminder to ask a question please press star 11 on your telephone and wait for your name to be announced. To withdraw your question please press star 11 again.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker 2: Please stand by while we compile the Q&A roster.

Please standby, while we compile the Q&A roster.

And one moment for our first question.

Okay.

Speaker 2: Our first question comes from Mark Murphy of J.P. Morgan.

Our first question comes from Mark Murphy of Jpmorgan.

Speaker 6: Thank you very much and congratulations on a very strong performance. Olivier, I'm interested in your mention of 2.5% of ARR being driven by the native AI providers. Should we think of that mostly consisting of OpenAI, LLAMA, Anthropic, Cohere, etc., or

Thank you very much and congratulations on a very strong performance Olivier.

Interested in your mention of two 5% and they are being driven by the native AI providers should rethink of that mostly consisting of <unk> Lama and drop it.

Here et cetera, or.

Speaker 6: Are you meaning that as a slightly different reference? And can you just help us understand, is that up from close to zero a year ago? Then I have a quick follow-up.

Are you, meaning that as a slightly different referenced in can you just help us understand is that up from close to zero a year ago, then I have a quick follow up.

Speaker 4: Yeah, so it's a number of companies that, without naming any ones there, they tend to be mobile providers, but not just on the language side, like mobile providers on the language, image side, like there's a number of different, or video side, there's a number of different types of companies there, or even some code copilot type companies. These customers all had revenue one year ago, but they've been growing a little bit faster than the rest of the customer base recently.

So it's a it's a number of companies.

That debt without naming anyone so there they tend to be mobile providers, but not just in the on the language side I wont providers on the language image side like it has a number of different <unk>.

Video side, there's a lot of different types of communities there.

Some.

So good copilot type companies.

The customers all had revenue one year ago, but they've been growing a little bit faster than the rest of the customer base recently.

Speaker 7: The reason we should do that in the script is, today we see the...

And the reason we included that into accretive we today, we see the.

The.

Speaker 4: the usage growth related directly to AI coming mostly for these customers that provide models to others.

The usage growth related directly to AI coming mostly for these customers that provide models to others.

Speaker 4: whereas we see broad usage of AI functionality across the customer base, but at low volumes. And it corresponds to the fact that for most customers, or most enterprises, really.

Whereas we see broad usage of AI functionality across the customer base, but that low volumes and it corresponds to the fact that for most customers are most enterprises really.

Speaker 4: they're still in the early stages of developing and shipping AI applications. So for now, the usage is concentrated among the model providers. Okay. Yeah, that makes sense.

They are still in the early stages of developing and shipping applications. So for now the user is concentrated among the module providers.

Okay, yes that makes sense.

Speaker 6: And Olivier, as a quick follow-up, you mentioned that log management costs $500 million in ARR. It's quite a milestone. You also mentioned the replacement of some legacy products. I'm curious if you see the acquisition of Splunk or any other acquisition activity in that market as a beneficial development. Just wondering if Splunk customers or other companies that have been provided.

And Olivier as a quick follow up you mentioned the log management is plus $500 million in IRR, it's quite a milestone.

Also mentioned the replacement of some legacy products I'm curious if you see.

The acquisition of Splunk or any other acquisition activity in that market as the beneficial development, just wondering if slow customers or.

Or other.

Companies that have been provided.

Speaker 6: That have been acquired, excuse me, might be looking for any alternatives out there that that are more modern and a more converged platform. And if you're seeing that in the pipe.

That had been acquired excuse me it might be looking for any alternatives out there that are more modern and a more converged platform and if youre seeing that in the pipeline.

Speaker 4: I mean, we've seen that for a while now, that your customers were looking for more integrated platforms, more motor offering, things that were more cloud first. And that's been one of the reasons of our success in landing largely in brand new applications, brand new environment, brand new cloud initiatives, and then over time, consolidating our customers away from whatever they were using in the legacy.

I mean, we've seen that for a while now that your customers were looking for more integrated platforms motor offering things that were more.

Cloud first.

And that's been one of the reason of our success in new lending.

Largely in brand new applications of ammonia environment brand, new cloud initiatives, and then overtime consolidating our customers away from whatever wherever they were using in the legacy.

Speaker 4: We don't think that it is going to change with the various acquisitions and tech privates that we've seen over the past quarter. So we think we'll just see more of that over time. One extra thing, by the way, on your first question. One interesting tidbit, if you.

We don't think that it is going to change with the various acquisitions and take privates that we've seen over the past quarter.

So we think we will just see more of that overtime.

One thing about one your first question one interesting tidbit.

Speaker 4: I know many of you are trying to understand what the AI landscape is made of.

As I know many of you are trying to understand what the landscape is made of.

Speaker 4: Interestingly enough, when we look at our cohort of customers that are considered to be AI native and built largely on AI and all AI providers,

Interestingly enough when we look at our cohort of customers that are that we consider to be a native and build largely on AI and <unk> providers.

Speaker 8: They tend to be on different clouds. What we see is that the majority of these companies actually have a lot of their usage on AWS. Today, the larger part of the usage, the larger of these customers are on Azure. So we see really several different adoption trends there that I think are interesting to the broader market. Thank you for that insight. Appreciate it.

Tend to be answer on different clouds.

What we see is that the majority of this companies actually have a lot of their usage on AWS.

<unk>.

Today, the larger part of the user to the larger customers.

Or on Azure, So we see really several different adoption trends there that I think are interesting to you to go to market.

Thank you for that insight I appreciate it.

Thank you one moment for our next question.

Speaker 2: And our next question comes from Sanjit Singh of Morgan Stanley .

And our next question comes from Sandy sang of Morgan Stanley.

Yeah.

Speaker 9: Thank you for taking the questions. Olivier, the company's been innovating throughout the sound.

Thank you for taking the questions Olivier the company's been elevating throughout this downturn quite quite aggressively across core visibility security and as well as AI.

Speaker 9: quite aggressively across core observability, security, you know, as well as AI. As we look into 2024.

As we look into 2024, and we think about.

Speaker 9: a potential new product cycle for Datadog. What parts of the portfolio do you think could be contributors either in 2024, later in 2024, 2025? What are the things that you think the customers will be most receptive to? Just wanted to get a sense of where you think.

Potential a potential new product cycle for David.

What parts of the portfolio do you think could be contributors either.

In 2020 for later in 2020.

<unk> what are the things that you think the customers will be most receptive to just wanted to get a sense of where you think.

Worthy of the sort of the timing.

New products that we've been delivering over the past couple of years.

Speaker 4: Well, mathematically, the products that we contribute the most to the growth next year are going to be the products that have been here the longest and the core observability products. We mentioned a billion in infrastructure, half a billion in APM, half a billion in logs. This is great, but still a small fraction of these products can be at scale, and we're primarily going after that.

Well.

Mathematically the products that will contribute the most to the growth next year are going to be the price had been here the longest and the core visibility products.

Mentioned in the $1 billion in infrastructure has $1 billion.

In APM half a billion logs.

This is great, but it's still a small fraction of these products can be at scale and we are primarily going after that.

Speaker 7: There's a number of other things we've been investing in and growing, and we're fairly happy with the way things are going, you know, in security, as I mentioned on the call, with some new packaging. We've also rolled out and some of the new initiatives that stand, I would say, a little bit left or right of what we've been doing in observability. This year, as you mentioned, was a year of innovation for us.

There is a number of other things we've been investing in and growing and we're fairly happy with the way things are going and security as I mentioned on the call.

Some new packaging, we've also rolled that.

And.

Some of the new initiatives that Stan I would say a little bit left or right to what we've been doing and ability.

This year as you mentioned was a year of innovation for us.

Speaker 7: I think it was also a year of cost optimization for customers. It's not necessarily the best year to get products to very quick.

Also Europe.

Cost optimization for customers is not necessarily the best year or two to get products to very quick.

Speaker 7: extremely quick revenue growth, but we've planted a lot of seeds that we think are going to deliver in the next couple of years.

Extremely quick to revenue growth, but we have plenty of a lot of seeds that we think are going to deliver in the next couple of years.

Speaker 9: Yeah, that's great. And I had a sort of follow-up question on the sort of new packaging for the DevSecOps, the two new package. I was wondering if you could give us a little bit of color around why you sort of went with the packaging approach and what you're trying to solve for. Is it sort of trying to adopt the capabilities in a single integrated capability?

That's great that is sort of follow up question on the sort of new packaging for.

Yes.

Two new package I was wondering if you can give us.

A little bit of color around why you sort of what the packaging approach in what you're trying to solve for is it sort of.

And to adopt the capabilities in a single integrated capability or is it also about sort of consolidated pricing okay.

Speaker 9: Or is it, you know, also about, you know, sort of consolidated pricing, you know, paying potentially one, one SKU, one SKU price to consume all these capabilities. So just love some, some detail around the motivation.

One one SKU, one SKU price to consume all these capabilities so just loves.

Sure.

Detail around.

Motivation for these new packages.

Speaker 7: Yes, a couple of things. So the first one is, we

Yes couple of things so the first one is.

Speaker 4: Our security products have reached a certain level of maturity and so we think they can be brought into the conversation with a larger set of our customers as opposed to being something that our customers self-select to, which is how we started and how we start with most products really.

Our security products have reached a certain level of maturity and so we think there they can be they can be brought into the conversation with.

A larger set of our customers as opposed to being something that our customers have setup, II, which is where we started and who we start with most products really.

Speaker 4: But also, we're trying to bring those products into the same conversation as the initial adoption of DevOps, basically, as opposed to having to branch that conversation into, oh, hey, you're doing operations and applications, and can I interest you in some security with that, which would be a different conversation.

But also.

We're trying to bring those products into the same conversation as the initial adoption of Dev ops basically as opposed to having to branch out conversion into Oh, Hey, Youre doing youre doing operations and applications and can I interest you in some security with that which would be a different conversation. So we so far the signs.

Speaker 4: So we, so far, you know, the signs for this are encouraging. And again, we think it goes with the broader market trends, the adoption of DevSecOps and, you know, what customers actually want to do and what we think is going to help them deliver better outcomes and security. But obviously it's still, I mean, we just rolled that out. So it's still too early to tell, you know, whether we got it right or whether we still need to tweak it a little bit. Appreciate it.

For these are encouraging and again, we think it goes with the broader market trends the adoption of Dev ops and what customers actually want to do and we think is going to help them deliver better outcomes in security.

But obviously still I mean, we just rolled that out so it's still too early to tell.

Whether we got it right or whether we still need to tweak a little bit.

I appreciate the thoughtful okay. Thank you.

Thank you one moment for our next question.

Speaker 2: And our next question comes from Rima Wenchao of Barclays.

And our next question comes from Raimo <unk> of Barclays.

Speaker 10: Hey, thank you. Congrats for me as well.

Hey, Thank you congrats from me as well.

All of you.

Speaker 10: We're almost a year into this kind of current situation and you saw Q2, obviously saw the digital natives that you commented, just kind of.

Almost a year into this kind of current situation and he saw Q2, obviously saw the digitally native said you commented.

Speaker 10: you know, having extra savings, but we're now back to kind of Q1 usage patterns. What do you see in terms of changing behavior on customers? Not, not thinking end to month, but more like how do you think about observability and how that potentially would change the world as we think about 24, 25 coming out of this, uh, in terms of kind of vendor consolidation, how to kind of build observability, et cetera. And then I have one follow up for David. Thank you. Uh, so.

Just kind of.

Having extra savings, but we're now back to your Q1 usage pattern, what do you see in terms of changing behavior on customers.

Thank you and the market more like how do we think about obviously the ability and.

How that potentially would change the world as we think about 2425 coming out of this in terms of kind of vendor consolidation. How it is kind of the opposite of ability et cetera, but I had one.

Follow up for David Thank you.

So we think the trends are.

Speaker 4: Vendor consolidation will continue. So basically, customers are getting more sophisticated, more mature in their needs. They're getting further into the cloud. And as part of that, they will want to act less as integrators. And they can use one platform instead of 12 different products. That's something that they all react very positively to. And we see that again and again as we expand into our customers.

Vendor consideration will continue so basically customers.

Are getting more sophisticated more mature in their needs, they're getting further into the cloud and they're as part of that they will want to to Atlas as integrators and they can use one platform instead of 12 different products, that's something that they all react very positively purpose assembly too and we see that again and again as we expand into into our customers.

Speaker 7: In terms of the broader trend, I think it's too early to tell exactly what the next couple quarters are going to be made of. We said it looks like we've hit an inflection point, it looks like there's a...

In terms of the broader trend.

I think we will we it's too early to tell exactly.

The next couple of quarters are going to be made of we said.

Looks like we've hit an inflection inflection point it looks like there is a.

Speaker 4: There's a lot less overhang now in terms of what needs to be optimized or could be optimized by customers. It looks like also optimization is less intense and less widespread across the customer base. So all that is positive. Now, you know, there's still quite a bit of uncertainty in the macro environment. So I don't think we should get ahead of ourselves either and declare that it's the end of it for the foreseeable future.

There is a lot less of an overhang now in terms of what needs to be optimized or could be optimized by customers. It looks like also optimization is.

More is less intense than less widespread across the customer base. So all that is positive.

There is still quite a bit of uncertainty in the macro environment. So.

So I don't think we should get ahead of ourselves either in declared that it's the end of it for the foreseeable future.

Speaker 4: So we feel positive about things, but it's still hard to know exactly what's going to happen in a couple of quarters from now.

So we are we feel positive about things.

But it's still hard to.

To know exactly what's going to happen a couple of quarters from now.

Speaker 7: From a buying behavior perspective.

From a buying group buying.

Behavior perspective, we.

Speaker 4: We've never seen customers really slow down in their intent to move to the cloud and the rate of adoption of new platforms, new products from us. You know, we we've done well and we scaled the new acquisition, we scaled the new product actually. So that has been a constant throughout this optimization phase.

We've never seen customers really slowdown in their intent to move to the cloud and the rate of adoption of new new.

So the new platforms, new products from us we would've done when we scaled to new logo acquisition with scale that you put on <unk>. So that has been a constant throughout the year. This optimization phase in terms of the users growth in customers scaling new workloads.

Speaker 7: In terms of the user's growth and customers scaling new workloads.

Speaker 4: I don't think we're back to the exuberant times of 2021, but maybe we're reverting back to the mean of what was happening before that.

I don't think we're back to the exhibitor in times of.

2021.

But maybe we're reverting back to the meaning of what was happening before that.

Okay. Okay.

Speaker 10: Okay, makes sense. And if I can, excuse me, one quick one. And David, we talked about OPEX and OPEX growth and this quarter was lower than others. Should I read your comments about next year? And, you know, clearly there is a big investment opportunity that OPEX growth, like maybe wasn't quite where you wanted it to be. Just any comments there. I know you can't.

Excuse me one quick one and David.

We talked about Opex and Opex growth this quarter was lower than others and Im sure.

Sure I read your comments about next year.

Clearly there is a big investment opportunity that that opex grow like maybe bolting quite quite where you wanted it to be just any comment there.

Great.

Speaker 5: Yeah, I think as we talked about, the movement of the top line, because of consumption, moves more quickly than we can adjust resources.

Yes, I think as we talked about the movement of the topline because of consumption moves more quickly than we can adjust resources. So we've taken more of a optimization and cost prioritization. This year, but we offset if not we do think there is very large opera.

Speaker 5: more of a optimization and, you know, cost prioritization this year. But we offset of that, we do think there's a very large opportunity. So we are expecting to increase the level of investment. But as we say that, we've always been looking at the balance between maximizing the top-line growth with producing profit and are going to continue to operate on that, taking advantage of the long-term opportunities.

<unk>, so we are expecting.

Two to increase the level of investment, but as we say that we've always been looking at the balance between maximizing the topline growth with producing profit NR can it continue to operate on that taking advantage of long term opportunities.

Speaker 11: OK. Bye-bye. Thanks.

Okay perfect. Thank you.

Speaker 2: Thanks. Thank you. One moment for our next question.

Thanks, Thank you.

One moment for our next question.

Speaker 2: And our next question comes from Karl Kirstedt of UBS.

And our next question comes from Karl Keirstead of UBS.

Thanks, So much maybe David I'll direct this to you I was intrigued by your comment that the fourth quarter or the month of October was off to a healthy start understanding that thats just a month, but just curious if you could unpack that a little bit largely because investors on this call we are picking up.

Speaker 12: The fourth quarter of the month of October was off to a healthy start, understanding that that's just a month. But just curious if you could unpack that a little bit, largely because

Speaker 12: Investors on this call, we are picking up signals from other tech firms that would suggest a still very tough macro environment or maybe even slightly tougher. So I'm just curious where you might be seeing pockets of strength if you could add a little more color.

Knowles from other tech firms that would suggest a still very tough macro environment or maybe even slightly tougher. So I'm, just curious where you might be seeing pockets of strength. If you could add a little more color. Thanks, so much.

Speaker 5: I think it's just essentially what we tried to do in the last couple quarters is to caution everybody that we still expect that there will be continued optimization and cost management, but give everyone a flavor for the direction. And what we're seeing, as I think Olivier and I mentioned, we're seeing the continuation of that, but at a more moderated level, and that was across the customer base. So we're seeing essentially clients leaning a little more into growth, again, early in the quarter, too early to call it, but the trends seem to be a moderation of the previous

Yes, I think it's just essentially what we tried to do in the last couple of quarters is two <unk>.

And everybody that we still expect that there will be continued optimization and cost management, but give everyone a flavor for the direction and what we're seeing as I think Olivier and I mentioned, we're seeing the continuation of that but at a more moderated level and that was across the customer base. So we're seeing essentially.

<unk> clients leaning a little more into growth again early in the quarter. It too early to call it but the trends seem to be a moderation of the previous cost management and optimization, although it's still continuing.

Speaker 7: cost management and optimization, although it's still continuing. Yeah, and just like color on the, so yes, we had a healthy start to Q4.

She is a color on the so yes, we had a healthy start to Q4.

We see we see trends that are not as strong as they've been.

Speaker 7: We see trends that are not as strong as they've been for the past year, in terms of what happened early in the quarter. That being said, Q4 is a tough quarter to call because it has fairly high seasonality. There's typically a drop of usage at the very end of the quarter with the holidays. And that drop in different years can be more or less pronounced. Last year in particular, it was very pronounced.

For the past year in terms of the.

Would have been early in the quarter that being said Q4 is a tough quarter to call because it has fairly high seasonality. There is there typically a drop of usage in there at the very end of the quarter with the holiday and that drop in on different years has been can be more or less pronounced last year in particular, it was very pronounced so where we.

Speaker 5: So we've given guidance with all that in mind, basically. Let me just add, because this question has been talked about, like last quarter, we didn't take the strength of October into account. We took the exact same guidance approach, which was to take the weighted average historical trends and discount, apply conservativism.

We've given guidance with all that in mind.

Let me just add because this question has been talked about.

Like last quarter, we didn't take the strength of October into account. We took the exact same guidance approach, which was to take the weighted average historical trends and discount applied conservativism. So like last quarter. We had said that the first quarter looked a little more stable, we didn't take that into consideration in our guy.

Speaker 7: So like last quarter, we had said that the first quarter looked a little more stable. We didn't take that into consideration in our guidance. And we have stuck to the exact same guidance methodology, which is to act with that conservatism. One last thing, too, just to comment on the, because I know a lot of you are trying to.

And we have stuck to the exact same guidance methodology, which is to act with that conservativism.

To just to comment on because.

Because I know a lot of you are trying to.

Speaker 4: understand how we fit with respect to the large cloud providers and how our trends correspond to theirs. Remember that while our trends are similar in the long run, in the short term there can be differences of timing in terms of when we're going to see certain effects, where they're going to see them. We also have a different mix of cloud providers, not exactly the same as the broader market, and a different mix of customers and geographies than the individual cloud providers as well. So things are not exactly one-to-one there. Okay. Well, that's very helpful, and congrats on the...

Understand how we fit with respect to the large cloud providers.

Core trends correspond to <unk> remember that we are what our trends are similar in the long run we in the short term.

There can be differences of timing in terms of when we're going to see a certain effect, where you're going to see them with a different mix with a mix of copper is not exactly the same as the broader market and a different mix of customers and geographies and the debt and the individual cloud providers as well. So if things are not exactly one to one there.

Okay very helpful and congrats on the nice results.

Speaker 2: Thank you. Thank you. One moment for our next question.

Okay. Thank you one moment for our next question.

Speaker 2: And our next question comes from Matt Hedberg of RBC.

And our next question comes from Matt Hedberg of RBC.

Speaker 9: Great, thanks for taking my question guys and and I'll offer my congrats as well. Um, you know, I wanted to double click on some of the improved usage trends, you know, can you can you provide us with.

Great. Thanks for taking my question guys.

I'll offer my congrats as well.

Ali I wanted to double click on some of the improved usage trends could you can you provide us with.

Speaker 13: You know, an overview on how some of your large sort of strategic customers think about optimization. That's really part of an ongoing spending strategy. Coupled with with what's driving some of this increased issues, I guess I'm wondering, you know, have I. T. executives from your perspective changed their view on the level of monitoring needed with with new levels of work.

Overview on how some of your large strategic customers think about optimization, that's really part of an ongoing.

Spending strategy, coupled with what's driving some of this increase futures I guess I'm wondering.

Executives from your perspective changed their view on the level of monitoring needed with new levels of workload.

Speaker 4: No, so they didn't change their view on the level of monitoring needed. I think they tried to save money wherever they could save it. By far, the biggest area they can save in their cloud infrastructure is their cloud bill itself. As a reminder, you know, when customers pay one dollar to us, you know, they pay ten or twenty dollars to their cloud provider. So there's a lot more savings to be had there. But these savings flow down to us. You know, we charge commensurate to the size of our customer's infrastructure.

No. So the didn't change our view on the level of monitoring needed I think they try to save money wherever they could save it.

By far the biggest area they can save in their in their current infrastructure is there.

<unk> Bill itself as a reminder, you know when customers pay $1 to us.

The $10 $20 to their cloud provider, so theres a lot more savings to be had there, but these savings flow down to us we charge commensurate to the size of our customers' infrastructure.

Speaker 7: They also try to save what they could in the observability specifically. And usually, there's always a bit of fat you can cut. You can always sample certain things a bit more. You can retain your logs a bit less. You can remove some of the debug logging, things like that that can drive your costs up, but don't necessarily generate a ton of value. And that's a behavior, by the way, that we see all the time. Like we see it.

They also try to save with liquidity and availability, specifically and usually there is always a bit of that you can cut it can always.

Certain things a bit more you can retain your love Les can remove some of the debug logging racks things like that that.

Ken glad your costs up but don't necessarily generate a ton of value.

And that's a behavior by the way that we see all the time like we see it.

Speaker 4: For most customers, once a year, maybe twice a year, sometimes, usually before contractual negotiations and things like that, where they try to understand what they're going to need for the next two or three years.

For most customers once a year, maybe twice a year sometimes.

Usually before contract renegotiation and things like that in a way to try to understand what it is.

Going to need for the next two or three years.

Speaker 4: The big difference over the past year has been that everybody has been doing that at once and multiple times. It was really an environment where everyone was feeling very uncertain about the economy and needed to save money very quickly.

The big difference over the past year has been that everybody has been doing that at once and multiple times.

It was really an environment, where everyone was feeling very uncertain about the economy and.

Needed to save money very quickly.

Speaker 13: So, we expect optimization to continue as part of this macro trend in the near future. And in perpetuity after that, we'll have that continuous cycle of customers optimizing, reducing what they can reduce, and then growing workloads and maybe creating a little bit more mess over time as well, and then optimizing again on a regular basis, though not everyone at the same time. Super. Thanks a lot, guys. Great call. I'll congratulate you. Thank you.

So we expect optimization to continue as part of this macro trend in the near future and in perpetuity. So that we'll have that continuous cycle of customers optimizing.

Reducing where they can reduce.

And then growing workload, and maybe creating a little bit more or less overtime as well and then optimizing again on a regular basis.

Not everyone at the same time.

Super Thanks, a lot guys great color congrats again.

Thank you one moment for our next question.

Speaker 2: And our next question comes from Fatima Boulani of Citi.

And our next question comes from Fatima <unk> of Citi.

Speaker 14: Good morning. Thank you for taking my questions. One for Ali and one for Dave, if I may alleviate the packaging and pricing motions that you discussed for the DevSecOps solutions that I wanted to zoom out generally a little bit in, you know, knowing what you know about how.

Good morning, Thank you for taking my question.

One for Ali and one for Dave If I may.

Olivier.

Packaging and pricing promotions that you discussed for the GAAP Black ops solutions that I wanted to bring out generally a little bit in knowing what you know about how.

Speaker 14: buying behavior and procurement behavior for a lot of your customers has changed over the course of this past year. I was wondering if you can kind of shed light on how you're thinking about an ELA or EAA type selling motion. I know it's something that historically you've been averse to, but I'm curious how you're thinking about it in.

Buying behavior and procurement behavior for a lot of your customers has changed over the course of this past year. I was wondering if you can kind of shed light on how you're thinking about an MLA or EAA type selling notion and I know, it's something that historically, you've been averse Q, but im curious how youre thinking about it in.

Speaker 14: sort of the current day and age, if you will, in terms of how your customers have changed the way they're buying and deploying. And then for David, just wanted to get a sense of what expectations on net retention rates are built into your guidance. And in other words, should this be the quarter that we see a trough in expansion rates or net retention rates as you're thinking about it in the guidance? Thank you.

Got it.

Current day and age if you will in terms of how your customers have changed the way they're buying.

Buying and deploying and then for David just wanted to get a sense of what expectation on net retention rates are built into your guidance on in other words should this be the quarter that we see at trough.

Expansion rates or net retention rates as youre thinking about it in the guidance. Thank you.

Speaker 7: Yeah, so on the ELAs, in general, look, we're always very open to new approaches in packaging. We try to see how things are consumed from the customer side and what makes the most sense to them.

Yes, so on the on the <unk>.

So.

Look we are always very open to.

Two new approaches and packaging, we tried to see.

Things are consumed from the customer side would make more sense to them.

Speaker 4: Now, ELAs and things that are very difficult for or very inappropriate for business like ours, one because we are fully SaaS based and there's a very, very large volume dimension to absolutely everything we do for our customers. So it's very, very hard to provide a one price fit all for them.

Now <unk> and things that are very difficult for very inappropriate for a business like ours.

Because we are fully SaaS based and there is a very very large volume dimension to authority everything we do for our customers.

So it's very very hard to provider one price at all.

Speaker 4: We also, philosophically, we like to get signal from what customers are willing or not willing to pay for, and that drives a lot of our product innovation.

For them.

We also philosophically.

We like to have to get signal from what customers are willing are not willing to pay for.

And that drives a lot of our product innovation.

Speaker 4: We get a lot of good news this way because customers want to buy products and they scale them a lot. We also get bad news. We get customers who don't find there is enough value in a given product or think it should be doing more or think it should be doing things differently or think that the packaging doesn't make sense and we will...

We get a lot of good news this way because customers want to buy products in the scale them.

We'll also get bad news, we had customers who don't find areas and are valuing a given product or seeing it should be doing more or I think you should be doing things differently or think that the packaging doesn't make sense and we like to have that the reason why we we simplified the pricing there and we created two new Skus is really to try and change of motion.

Speaker 4: The reason why we simplified the pricing there and we created those new skews is really to try and change the motion a little bit and integrate further the security side and make it easier to bring security into the conversation for this.

And integrate further.

The ADT in the security side.

And make it easier to bring security into the conversation for these customers.

Speaker 4: So far, we have some early evidence that it seems to resonate, but it's way, way, way too early to call it. We'll need two, three quarters of that to understand the implications of the new packaging.

So far we have some early evidence that.

It's.

It seems to two years.

With the net.

We're way too early to call it will need.

The two or three quarters of that too to understand the implications of the new packaging.

Speaker 5: Yeah, and as it relates to net retention, we do not provide guidance, but just the way that we think about it and some of the drivers, we don't provide guidance, sorry, on net retention per se, but essentially what we said was that that Q3 organic growth.

Yes, and as it relates to net retention, we do not provide guidance, but just the way that we think about it in some of the drivers we don't provide guidance sorry on net retention per se, but essentially what we said was.

That that Q3 organic growth was similar to what it was in Q1 and we have said previously that in Q2 and Q3 of last year, we had lower than before but higher than that for Q1.

Speaker 5: was similar to what it was in Q1. And we had said previously that in Q2 and Q3 of last year, we had lower than before, but higher than that Q1, Q4, Q1, and now Q3. So it really is a matter of lapping those comps. The comps have gotten increasingly easy to lap.

Q4, Q1, and now Q3, so it really is a matter of lapping those those comps the comps have gotten it increasingly easy to laugh flat.

Speaker 5: and we will let everybody know if we do produce an organic growth that's higher this Q4 than it was in Q4 last year, we will have in this period trough in net retention and it will begin to head up.

And we will let everybody know if we do produce and organic growth that is higher this Q4 than it was in Q4 last year, we will have an NES period trough and net retention and it will begin to head up so thats sort of how we think about it in term.

Speaker 5: So that's sort of how we think about it. In terms of our guidance, that's a different story. As we said, we provide conservativism. So what's implicit in the guidance is something worse than we're experiencing, which would apply a lower organic growth. But in terms of the business trends themselves.

Our guidance that's a different story as we said we provide conservativism. So what's implicit in the guidance is something worse than we're experiencing which would imply a lower organic growth, but in terms of the business trends themselves.

Speaker 3: It's really a matter of do we lap the Q4 and produce the higher organic growth in the Q4 coming up than we had in the Q4 last year. Thank you.

It's really a matter of do we lap do we lap that Q4 and produced a higher.

Organic growth in this in the Q4 coming up than we had in the Q4 last year.

Thank you I appreciate the detail.

Thank you one moment for the next question.

Okay.

Speaker 2: And our next question comes from Brent Phil of Jeffries.

And our next question comes from Brent Thill of Jefferies.

Hi, Good morning, David I was curious if you could focus on the enterprise traction and what Youre seeing maybe for Olivier and David I guess on the customer add your 700 and that that's lower than your normal cruise altitude of 1000 plus per per quarter can you just talk about has that number been misled because the enterprise traction is higher.

Speaker 15: David, I was curious if you could focus on the enterprise traction and what you're seeing maybe for Olivier and David.

Speaker 15: 700 and that's lower than your normal cruise altitude of 1,000 plus.

Speaker 15: about is that number being misled because the enterprise traction is higher and that number is therefore going to be lower.

And that numbers, therefore going to be lower could.

Could you just drive drive into that a little bit yeah. As a reminder, we have a broad range of customers with a long tail and similar to what we discussed last quarter. The gross number of ads of the accumulation and in the enterprise.

Speaker 5: Yeah, as a reminder, we have a broad range of customers, a long tail and similar to what we discussed last quarter, the gross number of ads of the accumulation and in the enterprise, um, it was, it was quite strong, um, was very similar to what we've experienced.

It was it was quite strong.

Very similar to what we've experienced and we have a very small tail that has a larger attrition rate, but doesn't have a lot of dollars attached to it. So the trends continue which is very strong as Olivier mentioned new logo accumulation. Both in terms of number of new logos and IRR and.

Speaker 5: and we have a very small tail that has a larger attrition rate but doesn't have a lot of dollars attached to it. So the trends continue, which is very strong, as Olivier mentioned. New logo accumulation, both in terms of number of new logos and ARR, and that was true, and Olivier can talk about the enterprise side of it, offset by this tail that has very little dollars associated with it.

That was true and Olivier can talk about the enterprise side of it offset by this tail that has very little dollar associated with it.

Speaker 7: Yeah, and just to comment on that, remember the bottom half of our customer is represent around 1% of our revenue, and the lower increase in customer number comes from the very, very low end, you know, which is customers that pay us.

Yes, yes.

As you come out on that remember that at the bottom half of our customer represents around 1% of our revenue.

And the.

The lower increase in customer number comes from the very very low end, which is customers appears in.

Tens of dollars a month.

And those customers, we're getting a little bit less of those to start Wayne I think that's part of the economic environment.

And the churn is a little bit higher than it used to be there too. So that's why these numbers will be depressed right now that being said, we had a record number of new logos over $100000. We're.

Speaker 7: That being said, we had a record number of new logos over $100,000.

Speaker 4: We're doing very well in the enterprise, we're doing very well in the mid-market also, and we're also doing very well at the high end of the SMB. So we are very happy with all of the segments we are targeting with our sales and marketing motions today.

We're doing very well in the enterprise, we're doing very well in the market also we're also doing very well at the high end of the SMB. So we're.

We're very happy with all of the segments, we are targeting with our sales and marketing motions today on the enterprise side, we actually mentioned a few of the very exciting contracts on the on the call.

Speaker 7: On the enterprise side, we actually mentioned a few of those very exciting contracts on the call.

Speaker 7: Um, we get really, really excited when we see.

We get really really excited when we see very traditional enterprises moving to the cloud and adopting us and consolidate on us in a wall to wall.

Speaker 4: very traditional enterprises moving to the cloud and adopting us and concentrating on us in a world to world. You know, David is, we can't see the, in the room, David's smiling because he's excited when he sees the, you know, dental care companies. He's excited when he sees the,

David is we completed in the room, David smiling because he is excited when he sees the dental care companies excited when you see the.

The the network of convenient stores nowhere, we even instrument a few pumps. So these are great deployment good development for us and we are.

Speaker 4: the network of convenience stores where we even instrument the fuel pumps. So these are great developments for us, and we're leaning hard into that.

We're leaning hard into that.

Okay.

Thank you one moment for our next question.

Speaker 2: And our next question comes from Cash Rankin of Goldman Sachs.

And our next question comes from Kash Rangan of Goldman Sachs.

Speaker 16: Hello, thank you very much. Good to see you. I'm sure that you're all smiling at your results. Two things. One is, with respect to LLM monitoring, which was demoed at the Dash conference, which was, I thought, absolutely fascinating. I know you quantified, Ali, at two and a half percentage points of growth coming from generative AI workloads. How do we think about the revenue opportunity for LLM monitoring at an early stage?

Hello, Thank you very much to see I'm sure that you're all smiling at your results.

Two things one is.

With respect to <unk>.

Lola monitoring, which was downloaded the dash conference, which was I thought absolutely fascinating.

Quantified Ali two five percentage points of growth coming from generally AI workloads.

How do we think about the revenue opportunity for Ela monitoring.

Early stage and I also have a second question slightly more controversial.

Speaker 16: I also have a second question, slightly more controversial, that when and if we run into customers that think their spending, their bills for Datadog are getting to be a little bit on the larger side, that is a sign of success. But how do you ensure that that success does not work against the company, that it opens up the door for price competition from others? Thank you so much and congrats.

But when when and if we had hundreds of customers that think.

They are spending their bills for data dog are getting to be a little bit on the larger side that is a sign of success, but how do you ensure that that success does not work against the company.

Opens up the door for price competition from others. Thank you so much and congrats.

Speaker 7: Yes, on the LLM website, I think it's too early to tell how much revenue opportunity there is in the tooling specific to LLM apps.

Yes.

So I think it's too early to tell how much.

Our revenue opportunity there is in the in the tooling specific to our remarks.

Speaker 7: When you think of the whole spectrum of tools, the closer you get to the developer side, the harder it is to monetize, and the further you get towards operations and infrastructure, the easier it is to monetize.

Dear when you look when you think of the whole spectrum of tools.

The closer you get to the developer side to <unk> to monetize in the further you get towards operations and infrastructure to easier to monetize.

Speaker 4: You can ship things that are very useful, very creative to a platform because they get you a lot of users, a lot of attention, and a lot of stickiness that are harder to monetize.

You can see things that are very useful and very accretive to our platform because they get you a lot of users a lot of attention.

And a lot of stickiness that are harder to monetize.

Speaker 4: So we'll see where on the spectrum that is. What we know, though, is that the broader generative AI, up and down the stack, from the components themselves, or the GPUs, all the way up to the models and the various things that are used to orchestrate them and store the data and move the data around, all of that is going to generate a lot of opportunity for us.

We'll see where on the spectrum that is what we know though is that the broader regenerative AI.

Up and down the stack from the the components themselves. The Gpus, all the way up to the the models and the various things that are used to orchestrate demonstrated data and move the data around all of that is going to generate.

A lot of opportunity for us.

Speaker 7: We said right now it's considered among the AI native, largely mobile providers.

We said right now it's concentrated among the native.

Largely mobile providers.

Speaker 4: But we see that it's going to broaden and concern a lot more of our customers down the road.

But we see that it's going to have to broaden and concern a lot more of our customers down the road.

Speaker 4: And your second question was, you know, so when we grow a lot, we are very successful with some customers, how do we not create a long-term issue where they spend a lot of money and that creates competition?

Sure.

And your second question was you know so when we will rollout.

Very quickly with some customers how do we create a long term issue, where they spend a lot of money in that calculation.

Speaker 3: Look, it's a great situation to be in to have customers spend a lot of money on you and have to justify that value over time. I think it's very healthy. I think that, again, that's what drives innovation and great product development. And our role there is to make sure we have a healthy partnership with customers every single step of the way. And, you know, we

Look it's a great situation to be in to have customers spend a lot of money on new.

And have to justify that value over time, I think it's very healthy I think that again thats, what would drive innovation and great product development and all role there is to make sure we have a healthy partnership with customers every single step of the way.

And.

Speaker 4: Again, we charge them an order of magnitude less than what they spend for their cloud infrastructure. Maybe two orders of magnitude less than what they spend on their R&D. And so we think we should be in a position of leverage, where if we do our jobs right, we show a lot of value for our customers. We sell them a lot of money. We make them a lot faster. And we have them generate a lot more revenue. So that's how we see things and how we hold ourselves to.

We.

Again, we charge them.

Other of magnitude less than what they spend for their cloud infrastructure, maybe two orders of magnitude less than what their spend on their.

R&D and so we think we should be in a position of leverage where if we do our jobs right. We show a lot of value for customers, we sell them a lot of money with Mcdaniel a lot faster than we have them. We have done generate a lot more revenue. So thats, how we see things and we hold ourselves to.

Thank you one moment for our next question.

Yeah.

Yes.

Speaker 2: And our next question comes from Alex Zukin of Wolf Research.

And our next question comes from Alex Zukin of Wolfe Research.

Speaker 16: Hey guys, thanks for taking the question and congrats on a great quarter. Maybe just two quick ones for me, you mentioned the federal opportunity or you mentioned the federal activity in the quarter with a deal that would

Hey, guys. Thanks for taking my question and congrats on a great quarter.

Maybe just two quick ones for me.

You mentioned that the federal opportunity or you mentioned a thorough activity in the quarter.

All of that.

Speaker 16: Pretty interesting. That's something that we've picked up as an area of excitement for you guys. Can you maybe just talk about what the opportunity there is over the next 12 months and beyond? Maybe stack rank it as a priority for you guys. And then I've got a quick call.

Pretty interesting.

Something that we picked up as an area.

Excitement for you guys can you maybe just talk about what the opportunity there is over the next 12 months and beyond.

Maybe stack rank it as a priority for you guys.

And then I'd like to call out.

Speaker 4: So I missed the domain you're talking about first, Fed. So that's definitely an area of investment for us. It's a look where we're happy with two things. Happy with the fact that we're moving further and further into the various level of certifications needed. We're happy with the early success with some agencies where we are spreading and, you know.

I am sorry, Mr. Mr demand, you're talking about sorry that our fab.

So that's definitely an area of investment for us.

Hello Pierre.

But how do we still think is happy with the salad where.

Moving further and further into the various level of certifications needed. We're happy with the early success with some agencies, where we are spreading and.

Speaker 7: those government agencies and now getting to go some of those wall-to-wall, but we're only scratching the surface of what we can do inside, and there's a lot more we need to do. Some of it on the certification side and the product side, and some of it on the go-to-market side and making sure we have all of the different parts of the motion working. So I expect that to be a...

Every single government agencies, and now getting to grow some of those wall to wall.

But we're only scratching the surface of what we can do inside and there is a lot more we need to do.

Some of it on the certification side on the product side.

And some of it on the go to market side, and making sure we have all of the factor.

The impact of the emotional working.

So we expect that to be.

Speaker 4: one of the main areas of investment on the go-to market side next year in terms of new markets we're going after.

One of the main areas of investment on the go to market side next year in terms of new markets, we're going after.

Speaker 17: and then maybe on the back on the AI.

And then maybe on the back on the NII question.

Speaker 16: I guess maybe just drill a little bit deeper within those AI-native companies, the criticality of their data-guided uses. Meaning, are you seeing something different where, in a world where these applications become more prevalent, there's the opportunity to kind of expand wallet share as observability becomes even more important? And how should we think about the growth opportunity from those types of workloads in either 2024 or 2035?

Maybe just drill a little bit deeper.

Those who are native companies the criticality.

Are you seeing something different we're in a world where these applications become more prevalent there is the opportunity to kind of expand wallet share.

The observer ability becomes even more important.

And how should we think about the growth opportunities for both types of workloads in either 2024 or 2020.

Speaker 7: Yeah, so, you know, in general, the more complexity there is, the more useful...

Yes.

In general there.

The more complexity there is.

The more.

Euphore observe it is the more you.

Speaker 7: observability is, the more you shift value from writing code to actually understanding it and observing it. So to caricature, if you only spend a whole year writing five lines of code that are really, really deep, you actually know those five lines really well. Maybe you don't need observability for it, because you'll understand exactly how they work and what's going on with them. On the other hand, if, thanks to all the major advances of technology and all of the various open source and AI, and you can just.

She is value from writing code to actually understanding it and observing.

So to carry catch up like if you. If you only spent a whole year, writing five lines of code that a really deep you actually noticed time and Thats really where maybe you don't observe any for it because youll see exactly how they work and what's going on with them on the other hand, if thanks to all of them are major advances of technology in all of the various <unk>.

AI and you can just very quickly generate thousands of lines of code.

Speaker 4: very quickly generate thousands of lines of code, ship them, and start operating them, you actually have no idea how these work, what they do, and you'll need a lot of tooling and observability to actually understand that and keep track of that and secure it and do everything you need to do with it all the time. So we think that overall...

Ship them and start operating them.

You actually have no idea, who is who do you work with they do and you'll need a lot of tooling and also our ability to actually understand that and keep driving that and securities.

You need to do with it over time, so we think that overall.

Speaker 4: these increases in productivity are going to...

This increase.

Increases in productivity are going to have to.

Speaker 18: to favor observability.

To favor.

Stability.

Speaker 7: In terms of the future growth of AI, look, I think...

In terms of.

The future future growth of AI, It look I think.

Speaker 18: Like everyone, we're trying to guess, you know, how transformative it's going to be. Looks like it's going to be pretty transformative if you judge from just internally how much of that technology we are adopting and how much of a productivity impact it seems to be having. So I again.

Like everyone. We're we're trying to guess how transformative it's going to be looks like it's going to be <unk>.

From just internally.

How much of that technology, we are adopting and how much productivity.

Productivity impact it seems to be having.

So.

Again soon.

Speaker 18: So today, we only see a tiny, tiny bit of it, which is early adoption, bimodal providers, and a lot of companies that are trying to scale up and experiment and figure out how it applies to their businesses and what they can ship to use the technology. But we think it's going to drive a lot of growth in the years to come.

Today, we will only see a tiny tiny bit of it which is.

Early adoption bimodal providers and a lot of companies that are trying to scale up and.

Experiment and figure out who it applies to that business isn't what they can ship to use the technology, but we think it is.

Going to drive a lot of positive growth in the years to come.

Okay. Thank you guys.

Thank you one moment for our next question.

Speaker 2: And our next question comes from Jake Robert of William Blair.

And our next question comes from Jake <unk> of William Blair.

Yeah.

Speaker 19: Hey, thanks for taking the questions and all I can do is congratulate you on the great results. Olivia, you called out the two and a half points from AI native customers a few times, but you've also said that the broader customer base should start adding AI workloads to your platform over time. When do you think that actually takes place and the broader customer base starts to impact that AI growth and more earnings?

Hey, Thanks for taking the questions and I'll Echo my congrats on the great results and Olivier you called out the two five points from AI native customers a few times, but you've also said that the broader customer base should start adding AI workloads third platform over time when do you think that actually takes place in the broader customer base starts to impact that AI growth in more earnest.

Speaker 4: We don't know. I think it's too early to tell. For one part, there's so much uncertainty in terms of these customers having to figure out what it is they're going to ship to their own customers. I think everybody is trying to learn that right now.

So we don't know.

And I think it's too early to tell for one part <unk> in terms of these customers having to figure out what it is they're going to ship to their own customers. I think everybody is trying to learn that in right now.

Speaker 4: experimenting. But the other part is also that right now, the innovation is largely concentrated among the mobile providers. And so it's rational right now for most customers to rely on those instead of deploying their own infrastructure.

Experimenting and but the other part is also that right now.

Innovation is largely concentrated among the mobile providers.

And so it is rational right now for most customers to rely on those.

Instead of develop deploy they're deploying their own infrastructure.

Speaker 4: Again, we think it's likely going to change. We see a lot of demand and interest in other ways to host models and run models and custom models and things like that. But today, these are the trends of the market today, basically.

Again, we think it's likely going to change, we see a lot of demand and interest in <unk>.

Other ways to host models, and Remo and custom models and things like that but today, that's the trend of the market today basically.

Speaker 7: Okay, helpful. And then just to follow up on the optimization front, sounds like the early optimizers took about a year to complete those initiatives. But what type of timelines are you seeing from kind of the second or third layer of customers that started their optimizations later in the game? Have those also started to stabilize given they weren't as large as the early optimizers? Just trying to kind of parse out the customer base there. Yeah, so we don't really know for sure. That's also why, you know, we're careful not to go into this forever, you know. I would say that for

Okay helpful. And then just a follow up on the optimization front. It sounds like the early optimizer took about a year to complete those initiatives, but what type of timeline are you seeing from kind of the secondary third layer of customers that started their optimizations later in the game had those also started to stabilize given they weren't as large as the early optimizer is just trying to kind of.

Parse out the customer base there.

So we don't really know for sure. That's also why we're careful not to call an end to this forever.

I would say four.

Speaker 4: For customers that are not part of this initial cohort, there's less of an overhang. So the customers that were the early optimizers and that had the most acute optimizations tended to be cloud natives, so all in on the cloud, very heavy on IT spend in general, and substantially all of their IT being in the cloud. They tended to be also companies that were fairly high growth but low profitability that needed to pivot their financials over a fairly short amount of time.

For customers that are not part of this initial cohort there is less of an overhang.

The customers that were the early optimizer that had the most acute optimization tended to be cloud native so all in on the cloud.

Very heavy on it spending in general and.

Substantially all of it being in the cloud these tended to be also companies that were fairly.

Clearly high growth, but low profitability that needed to pivot their.

Financials over a fairly short amount of time.

Speaker 4: I think if you look at the rest of the customer base, they're mostly not in that situation. So we expect the behavior to be different.

I think if you look at the rest of the customer base. They are mostly not in that situation. So we expect that behavior to be different.

Okay.

Speaker 2: Thank you. This concludes the question and answer session. I would now like to

Thank you. This concludes our question and answer session I would now like to turn it back to CEO Olivier Parnell for closing remarks.

Speaker 18: Thank you very much. I want to thank everyone for attending the call today. I also want to take a minute to thank our customers for their trust. You know, we know these are trying times with all the micro uncertainty. And we thank them for their trust. I also want to thank our employees, all the data dogs for a quarter of hard work and great successes. And on these good words, we'll all get back to work and get busy for the end of the year. So thank you very much.

Thank you very much I want to thank everyone for attending the call today.

I want to take a minute to thank our customers for their trust and we know.

These are trying times with all the macro uncertainty and.

We thank them for their trust.

I want to thank our employees or their dogs for a quarter of hard work and great successes.

And.

On the good words will all get back to work and get busy for the end of the year. So thank you very much.

Speaker 2: This concludes today's conference call. Thank you for participating and you may now disconnect.

This concludes today's conference call.

Thank you for participating and you may now disconnect.

Yes.

Okay.

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Okay.

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Yeah.

Yes.

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Okay.

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Yes.

Q3 2023 Datadog Inc Earnings Call

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