Q4 2023 Datadog Inc Earnings Call

Okay.

Operator: Good day, and thank you for standing by. Welcome to the fourth quarter 2023 Datadog Earnings Conference call. At this time, all participants are in a listen-only mode.

Good day and thank you for standing by welcome to the fourth quarter 2023 data Dog earnings Conference call.

This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to participate just press star one one on your telephone you will then hear an automated message by senior hand. This waste to withdraw your question. Please press star one again, please be advised that too.

Operator: After the speaker's presentation, there will be a question and answer session. To participate, just press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.

Operator: To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Vice President of Investor Relations, Yuka Broderick. Thank you, Carmen.

Speaker Change: Today's conference is being recorded I would now like to hand, the conference over to the Vice President of Investor Relations you kept Roderick.

Kept Roderick: Thank you Carmen good morning, and thank you for joining us to review <unk> fourth quarter 2023 financial results, which we announced in our press release issued this morning, joining me on the call today are Olivier Pamela <unk> co founder and CEO and David Oops located at all.

Yuka Broderick: Good morning, and thank you for joining us to review Datadog's fourth quarter 2023 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's co-founder and CEO, and David Obstler, Datadog CFO. During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the first quarter and the fiscal year 2024, 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.

During this call we will make forward looking statements, including statements related to our future financial performance our outlook for the first quarter and the fiscal year 'twenty 'twenty, four 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.

Kept Roderick: And similar expressions are intended to identify forward looking statements or similar indications of future expectations. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially.

Yuka Broderick: These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of material risks and other important factors that could affect our actual results, please refer to our Form 10-2 for the quarter ended September 30th, 2023. Additional information will be made available in our upcoming Form 10-K for the fiscal year ended December 31st, 2023, and other filings with the SEC. 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. With that, I'd like to turn the call over to Olivier.

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 September 32023, additional information will be made available in our upcoming Form 10-K for the fiscal year ended December 31st 2023, and other filings with the SEC. This information is also available on the Investor Relations section.

Kept Roderick: 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 all gauge Q dot com.

Kept Roderick: With that I'd like to turn the call over to Olivier.

Olivier Pomel: We had a good Q4 to end what has been a very productive year 2023. Throughout the year, we kept innovating at a fast pace, going broader and deeper into the problems we solve for our customers. We also continue to add new customers and expand with existing ones, driving both usage growth and adoption of new products. But most of all, I'm very pleased that we mobilize as a company to help our customers get through a tougher economic environment. We help our customers make more efficient use of their cloud and observability, leaving them in a better position at the end of the year from which they can focus again on growing their businesses and migrating to the cloud. Now, let me start with a review of our Q4 financial performance. Revenue was $590 million, an increase of 26% year-over-year and above the high end of O'Gallon's range.

Olivier: And thank you all for joining us this morning.

Olivier: We had a good Q4 to end what has been a very productive year to 233.

Olivier: Throughout the year, we kept innovating at a fast pace going broader and deeper into the programs. We so for our customers.

We also continued to add new customers and expand with existing ones driving both usage growth and adoption of new products.

Olivier: But most of all I'm very pleased that we mobilized the company to help our customers get through a tougher economic environment.

Olivier: We have our customers make more efficient use of their cloud and availability, leaving them in a better position at the end of the year from which they can focus again on growing their businesses and migrating to the cloud.

Speaker Change: Now, let me start with a review of our Q4 financial performance.

Speaker Change: Revenue was $519 million, an increase of 26% year over year and above the high end of our guidance range.

Speaker Change: We ended with about 27300 customers.

Speaker Change: About 23200 last year.

Speaker Change: We ended the quarter with about 3190 customers with an <unk> of.

Speaker Change: $100000 or more.

Speaker Change: Up from about 2780 last year.

Speaker Change: He's got some opened right at about 86% of where you are.

Olivier Pomel: We ended the quarter with about 27,300 customers, up from about 23,200 last year. These customers are interested in about 86% of who I am. We had 396 customers with an ARR of a million dollars or more compared to the 317 we had at the end of last year. And we generated free cash flow of $201 million with a free cash flow margin of 34%.

Speaker Change: We had 396 customers with an <unk> of a.

Speaker Change: $1 million or more compared to the 317, we had at the end of last year.

Speaker Change: And we generated free cash flow of $201 million with a free cash flow margin of 34%.

Speaker Change: Turning to customer adoption.

Speaker Change: Our platform strategy continues to resonate in the market.

Speaker Change: As of the end of Q4, 83% of customers were using two or more product from 81% a year ago.

Speaker Change: 47% of customers were using four or more products up from 42% a year ago.

Speaker Change: 22% of our customers were using six or more products up from 18% a year ago.

Speaker Change: And as a sign of continued penetration of our platform, 9% of our customers were using eight or more products up from 6% a year ago.

Olivier Pomel: Turning to platform adoption. Our platform strategy continues to resonate in the market. As of the end of Q4, 83% of customers were using two or more products from 81% available.

Speaker Change: And our success with cross boarder adoption isn't limited to core observer ability.

Speaker Change: Our newer products continued to gain traction.

Speaker Change: <unk> for example.

Speaker Change: For products outside of infrastructure monitoring APM suite, and log management grew by more than 75% year over year.

Olivier Pomel: 47% of customers were using four or more products, up from 42% a year ago. 22% of our customers were using six or more products, up from 18% a year ago. And as a sign of continued penetration of our platform, 9% of our customers were using eight or more products compared to 6% a year ago. And our success with cross-product adoption isn't limited to core observability, as our newer products continue to gain traction. Note, for example, that the ARR for products outside of infrastructure monitoring, the APM suite, and log management grew by more than 75% year-over-year. As a reminder, within the APM suite, we include core APM, synthetics, RAM, and continuous profiler.

Speaker Change: As a reminder, within the APM suite, we include core APM synthetics and continuous provider.

Speaker Change: During 2023, we continue to land and expand with larger customers as.

Speaker Change: As of December 2023, 42% of the Fortune 500 customers.

Speaker Change: From 37% last year.

Speaker Change: We think many of the largest enterprises are still very early in their journey to the cloud the median.

Speaker Change: Our four fortune 500 customers is still less than half a million dollars.

Speaker Change: Which leaves a very large opportunity for us to grow with these customers.

Speaker Change: Now, let's discuss this quarter's business drivers.

Speaker Change: In Q4, we saw usage growth from existing customers that was similar to Q3.

Speaker Change: User growth during the quarter played out roughly as expected, including a strong start in October and the slowdown we typically see at the end of December.

Speaker Change: We also note that the greater intensity of optimization, we've seen over the past six quarters appears to have dissipated.

Speaker Change: For the last couple of quarters, we have discussed with you a cohort of customers who were optimizing.

Speaker Change: In Q4. This course users grew at a faster pace that the broader customer base with.

Olivier Pomel: During 2023, we continue to land and expand with larger customers. As of December 2023, 42% of the Fortune 500 are Datadog customers, up from 37% last year. We think many of the largest enterprises are still very early in their journey to the cloud.

Speaker Change: We take this as a positive sign.

Speaker Change: To be clear, we see optimization activity with our customers every quarter, we expect them to continuously make sure. They are using their card efficiently and we'll keep having them do that and we do still see attention to cost in certain parts of our customer base.

Speaker Change: But overall, we see less headwinds than we did a few quarters ago.

Speaker Change: Meanwhile, we had a strong bookings quarter in Q4.

Olivier Pomel: The median Datadog ARR for Fortune 500 customers is still less than half a million dollars, which leaves a very large opportunity for us to grow with these customers. Now, let's discuss this quarter's business drivers. In Q4, we saw usage growth from existing customers that was similar to Q3. Our usage growth during the quarter played out roughly as expected, including a strong start in October and a slowdown we typically see at the end of December. We also note that the greater intensity of optimization we've seen over the past six quarters appears to have dissipated.

Speaker Change: Our go to market teams delivered our largest annualized bookings since Q1 of 'twenty two.

Speaker Change: And our enterprise team in particular executing on a record amount of annualized bookings in Q4.

Speaker Change: We are also seeing more customers enter into multi year deals with us, which speaks to our deepening relationships with them as well as customers planning for growth and for the longer term after a period of optimization and uncertainty.

Speaker Change: As a reminder, our bookings don't translate immediately into revenue growth, but it is an indicator that we continue to serve on new and existing customers well and they are growing with us over time.

Speaker Change: Finally churn has remained low with gross revenue retention stable in the mid to high <unk>.

Speaker Change: I think the mission critical nature of our platform for our customers.

Speaker Change: Moving onto R&D.

Speaker Change: We released over 400, new features and capabilities during 2023.

Speaker Change: Of course, that's too much for us to cover today, but let me speak to a few.

Speaker Change: And observe ability, we now have more than 700 integrations, allowing our customers to benefit from the latest AWS Azure and TCP capabilities as well as from the newly emerging AI stack.

Olivier Pomel: For the last couple of quarters, we have discussed with you a cohort of customers who are optimized. In Q4, this course usage grew at a faster pace than the broader customer base. We take this as a positive sign.

Speaker Change: We continue to see increasing engagement there with the use of our nexgen AI integrations growing 75% sequentially in Q4.

In the generating of AI, and then 11 space, we continue to add capabilities to beat AI natural language incident management provider.

And we are advancing edit MLB their ability to add customers investigate whether it can safely deploy and manage their models in production.

Olivier Pomel: To be clear, we see optimization activity with our customers every quarter. We expect them to continuously make sure they are using their cloud efficiently, and we'll keep helping them do that. And we do still see attention to cost in certain parts of our customer base. But overall, we see fewer headwinds than we did a few quarters ago.

Speaker Change: Today about 3% of our <unk> comes from Nexgen, AI native customers, but we believe the opportunities fall out during the future customers of every industry and every size start deploying AI functionality in production.

Speaker Change: In the APM space, we don't have data streams monitoring to monitor queuing streaming and even driven pipelines, which is a technically challenging type of workloads APM products have historically struggled to cover.

Speaker Change: We also rolled out single step APM onboarding, allowing a single engineered to enable APM across complex applications in minutes.

Olivier Pomel: Meanwhile, we had a strong bookings quarter in Q4. Our go-to-market teams delivered our largest annualized bookings since Q1 of 2022, and our enterprise team, in particular, executed a record amount of annualized bookings in Q4. We are also seeing more customers enter into multi-year deals with us, which speaks to our deepening relationships with them, as well as customers planning for growth and for the longer term after a period of optimization and uncertainty. As a reminder, our bookings don't translate immediately into revenue growth, but they are an indicator that we continue to serve our new and existing customers well, and they are growing with us over time. Finally, churn has remained low, with gross revenue retention stable in the mid to high 90s, highlighting the mission-critical nature of our platform for our customers.

Speaker Change: And with dynamic instrumentation engineers can add logs metrics and traces to the applications on the fly without <unk> our redeployment.

In the digital experience area, we've added <unk> <unk> to a real user monitoring product to show developer and product owners with their users actually fee.

Speaker Change: Consumers can now create synthetic test directly from session replay for which we have received very positive feedback.

Speaker Change: And in log management, we continue to expand our capabilities.

Speaker Change: With flex logs customers can have cost effect very cost effective way to return dialogues at a very large scale.

Speaker Change: We are tracking for logs customers can quickly cut down millions of airlines into a handful of actionable summary.

Speaker Change: And our loan pipeline scanner allows customers to inspect log events in near real time building greater visibility to data quality and governance.

Speaker Change: In cloud service management, we made workflow automation generally available, enabling customers to easily automate and orchestrate processes across operations and security.

Speaker Change: And today, we are announcing the general availability of case management.

Speaker Change: <unk> engineers with a single view for investigations ticketing to do items tasks and follow ups across the digital platform.

Olivier Pomel: Moving on to R&D, we released over 400 new features and capabilities during 2023. Of course, that's too much for us to cover today, but let me speak to a few.

Moving onto cloud security, we kept executing against an ambitious roadmap and are pleased to know count over 6000 customers using one or more data security products.

Speaker Change: This month, we launched software composition analysis to enable our customers to proactively detect and remediate vulnerabilities before the court yet to production.

Olivier Pomel: In Observability, we now have more than 700 integrations, allowing our customers to benefit from the latest AWS, Azure, and GCP capabilities, as well as from the newly emerging AI stack. We continue to see increasing engagement there, with the use of our next-gen AI integrations growing 75% sequentially in Q4. In the generative AI and LLM space, we continue to add capabilities to BIT.AI, or the Natural Language Incident Management Copilot, and we are advancing LLM observability to help customers investigate where they can safely deploy and manage their models in production.

Speaker Change: We announced cloud infrastructure entitlement management to help customers prevent identity and access management security issues.

Speaker Change: We shipped cloud Siem investigator.

Speaker Change: <unk> can kind of deep security investigation using logged over long periods of time.

Speaker Change: We simplified security operation with a security embark to allow our customers to call. It security issues into one single list to investigate and remediate and we also expanded our data security capabilities sensitive data scanner now finding secrets and sensitive data in Tracy's and run events. In addition to logs.

Speaker Change: In software delivery, we launched intelligent test runner, which dramatically accelerates the testing process and see ICD and we shipped code quality and security gate to enforce best practices catch security vulnerabilities and payments related to this.

Speaker Change: And last but not least we delivered a number of platform wide initiatives.

Speaker Change: We launched our latest data center in Japan to help customers comply with local data privacy laws.

Speaker Change: We opened up cost created throughout our platform for collaboration incident response programming and debugging.

Olivier Pomel: Today, about 3% of our ARR comes from next-gen AI-native customers, but we believe the opportunity is far larger in the future as customers of every industry and every size start deploying AI functionality in production. In the APM space, we launched Data Streams Monitoring to monitor queuing, streaming, and event-driven pipelines, which is a technically challenging type of workload APM products have historically struggled to cover. We also rolled out single-step APM onboarding, allowing a single engineer to enable APM across complex applications in minutes.

We extended cut cost management, which is now <unk> for AWS and Azure and will soon be for GCB to offer a comprehensive view of cost across our customers' cloud footprint.

Speaker Change: And we announced our intent to achieve <unk> high and impact level five authorizations.

Speaker Change: So I'd like to thank our product and engineering teams for a very productive 2023.

Speaker Change: And I'm Super excited with what we have planned for 2024.

Speaker Change: Let's move on to sales and marketing.

Speaker Change: First of all I would like to welcome ceremony to the team as our new Chief Marketing Officer.

Ceremony: So Rob brings more than 15 years of marketing experience centered around developers and enterprise software.

Ceremony: And we really look forward to her leadership in these people to enroll.

Ceremony: As I said earlier, we had a very strong close to 2023.

Ceremony: Record levels of bookings and some very exciting new logos and extensions.

Ceremony: So, let's discuss some of our wins.

Ceremony: First we signed a three year extension and our first ever nine figure <unk> deal with a major global Fintech company.

Olivier Pomel: And with dynamic instrumentation, engineers can add logs, metrics, and traces to their applications on the fly without code changes or redeployment. In the digital experience area, we've added heatmaps and scrollmaps to our real user monitoring product to show developers and product owners what their users are actually seeing. And our customers can now create synthetic tests directly from Session Replace, for which we have received very positive feedback.

Ceremony: This extension brings us into a major new business unit that we were not deployed before.

And this time the customer focused on bringing into an observer ability to their mobile applications and are focused in particular on being in front of any user impacting issues through the use of our real user monitoring product.

Ceremony: With this renewal this customer expects to use 16 data product and we'll consolidate what used to be 10 separate tools, including the replacement of three commercial products across infrastructure monitoring APM and Rome.

Ceremony: Next we signed a seven figure expansion with one of the world's largest restaurant chains.

Ceremony: Customers using AWS, Azure, <unk> and Oracle cloud and they believe that a dog is the only platform that can deliver a consistent experience across all four clouds.

Olivier Pomel: And in log management, we continue to expand our capabilities, starting with FlexLogs so customers can have a very cost-effective way to retain their logs at a very large scale. With error tracking for logs, customers can quickly cut down millions of error lines into a handful of actionable summaries. And our Log Pipeline Scanner allows customers to inspect log events in near real time, building greater visibility into data quality and data governance. In cloud service management, we made workflow automation generally available, enabling customers to easily automate and orchestrate processes across operations and security.

Ceremony: With this extension the customer plans to deploy <unk> for cloud service management use cases and will expand to a total of standout at home products.

Ceremony: Next we signed an eight figure multi year expansion with a leading European financial services company.

Ceremony: This customer is undergoing a large scale migration to azure and we will expand its use of that Adobe has on prime.

Ceremony: In public cloud.

Ceremony: Today that is looking to use by 3000 users every month.

Ceremony: 400 teams to monitor 13000 hosts.

Ceremony: With the migration to data platform usage will expand to more than 1000 teams and 50000 hosts.

Ceremony: This customer plans to use 14 embedded products and consolidate more than 10 legacy open source and cloud monitoring tools.

Ceremony: Next we signed a seven figure land with one of the worlds largest food and consumer goods companies.

Olivier Pomel: And today, we are announcing the general availability of case management to provide engineers with a single view for investigations, ticketing, to-do items, tasks, and follow-ups across the Datadog platform. Moving on to cloud security. We kept executing against an ambitious roadmap and are pleased to now count over 6000 customers using one or more Datadog security products. This month, we launched software composition analysis to enable our customers to proactively detect and remediate vulnerabilities before the code gets to production.

Ceremony: This customer wants to be more proactive with risk mitigation and system resilience as they migrate to out here.

Ceremony: They also want to reduce the thousands of hours of engineering time to spend every year in insignia triage.

Ceremony: He's got some abroad embedded dock to be obviously very foundation of the <unk> strategy in particular, using watchdog and our incident management capabilities.

Ceremony: These new land includes 17 digital products and a customer expects to consolidate at least six commercial <unk> tools.

Ceremony: Finally, we signed a six figure land deal with one of the largest U S utilities.

Ceremony: <unk> re architecture, it's customer facing website and re platforming, it's customer support experience.

De identified data Doug is the only platform that could still easily into integrate end to end with existing sales customer experience and workflows.

Olivier Pomel: We announced Cloud Infrastructure and Title Management to help customers prevent identity and access management security issues. We shipped Cloud Theme Investigator so customers can conduct deep security investigations using logs over long periods of time. We simplified security operations with our security inbox to allow our customers to correlate security issues into one single list to investigate and remediate. We have also expanded our data security capabilities. Sensitive Data Scanner, now finding secret and sensitive data in traces and run events in addition to logs.

This customer expects to start with six additive products and they will displace two commercial adobe tools in the process.

Ceremony: And that's it for this quarter to highlight congrats again to our go to market teams for their great work in 2023 and excellent close of the year and ambitious plans for 2024.

Ceremony: Before I turn it over to David for a financial review a few words on our longer term outlook.

David: During 2023, we.

David: We continued to execute on our product innovation plans, and we still have more problems and deliver more value to customers.

David: As we enter 2024, it appears that the worst of cloud optimization, maybe behind us.

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

Olivier Pomel: In software delivery, we launched Intelligent Test Runner, which dramatically accelerates the testing process in CICD. And we shipped code quality and security gates to enforce best practices, catch security vulnerabilities, and prevent flaky tests. Last but not least, we delivered a number of platform-wide initiatives. For example, we launched our latest data center in Japan to help customers comply with local data privacy laws. We opened up Cold Screen to other platforms for collaboration, incident response, fair programming, and debugging.

David: We see AI adoption as an additional driver of investment and accelerator of technical innovation and glove migration.

David: And more than ever we feel ideally position to achieve our goals and help customers of every size in every industry to transform innovate and drive value through technology adoption.

David: With that I will turn it over to David David.

Speaker Change: Thanks Olivier Q.

David: Q4 revenue was $590 million up 26% year over year, and up 8% quarter over quarter to dive into some of the drivers of this Q4 performance first regarding usage growth.

David: Overall, we saw usage growth from existing customers in Q4 that was similar to what we saw in Q3.

Olivier Pomel: We extended Cloud Cost Management, which is now GEA for AWS and Azure and will soon be for GCP, to offer a comprehensive view of costs across our customer's cloud footprint. And we announced our intent to achieve FedRAMP High and Impact Level 5 authorizations. So I'd like to thank our product and engineering teams for a very productive 2023, and I'm super excited about what we have planned for 2024. Let's move on to sales and marketing. First of all, I'd like to welcome Sarah Varney to the team as our new Chief Marketing Officer. Sarab brings more than 15 years of marketing experience centered around developers and enterprise software, and we really look forward to her leadership in this pivotal role. As I said earlier, we had a very strong close to 2023 with record levels of bookings and some very exciting new logos and expansions. So let's discuss some of our wins.

David: Last quarter, we mentioned that the larger and more intense optimizes had begun to show signs of stabilization.

In Q4, we saw those trends continue and the large optimizer is begin to grow again.

David: While we may still be in a cost conscious environment. Overall, we believe that the higher intensity of optimization has dissipated and clients are continuing to invest in new digital applications.

For the first time in six quarters, our sequential <unk> adds in Q4 were higher than in the year ago quarter.

David: As we look at early data for Q1 January usage growth was solid.

David: The rebound we are seeing from the slower end of December is better than what we experienced last January.

Speaker Change: We note as always that it's too early to know how the quarter will play out and we would caution investors from extrapolating too much but we're encouraged by the near term trend.

Speaker Change: Regarding usage growth by customer size, we experienced our highest growth in our largest and smaller spending customers and this quarter. This.

Speaker Change: This includes a record increase in sequential IRR added from customers, who spend $1 billion or more annually with us and an expansion of 1 million plus customers from 317 to 396 over 2023.

Olivier Pomel: First, we signed a three-year extension and our first ever non-figure TCV deal with a major global fintech company. This expansion brings us into a major new business unit that we were not deployed in before. This time, the customer focused on bringing end-to-end observability to their mobile applications, and they focused in particular on being in front of any user-impacting issues through the use of a real user monitoring product.

Speaker Change: In terms of new logos, our customer additions on a gross and net basis as well as on a new dollar low our new logo dollar basis were similar to that of Q3.

Speaker Change: As before our net adds including slight included slightly elevated churn in our very long tail of small customers many of whom are self service.

Olivier Pomel: With this renewal, this customer expects to use 15 Datadog products and will consolidate what used to be 10 separate tools, including the replacement of three commercial products across infrastructure monitoring, APM, and RAM. Next, we signed a seven-figure expansion with one of the world's largest restaurant chains. This customer is using AWS, Azure, GCP, and Oracle Cloud, and they believe Datadog is the only platform that can deliver a consistent experience across all four clouds.

Speaker Change: Geographically.

Speaker Change: We experienced stronger year over year revenue growth in international markets in North America.

Speaker Change: Our international markets represented 31% of our revenue in Q4 2023 up from 28% in Q4 of last year.

Speaker Change: Finally for our retention metrics are trailing 12 months net revenue retention was in the mid <unk> in Q4.

Our trailing 12 months gross revenue retention continues to be stable in the mid to high nineties.

Olivier Pomel: With this expansion, the customer plans to deploy Datadog for cloud service management use cases and will expand to a total of 10 Datadog products. Next, we signed an eight-figure multi-year expansion with a leading European financial services company. This customer is undergoing a large-scale migration to Azure and will explain its use of Datadog across on-prem, private, and public clouds.

Speaker Change: And our dollar churn is low and declined sequentially.

Speaker Change: Now moving on to our financial results.

Speaker Change: Billings were $723 million up 35% year over year.

Speaker Change: Billings duration increased year over year.

Speaker Change: Remaining performance obligations or RPM was $1 $84 billion up 74% year over year.

Speaker Change: Current RPI growth was in the mid 40 percents year over year.

Olivier Pomel: Today, Datadog is used by 3,000 users every month in over 400 teams to monitor 13,000 hosts. With the migration, the Datadog platform will be used by more than 1,000 teams and 50,000 hosts. This customer plans to use 14 Datadog products and consolidate more than 10 legacy open source and cloud monitoring tools. Next, we found a 17-year-old partnership with one of the world's largest food and consumer goods companies. This customer wants to be more proactive with risk mitigation and system resilience as they migrate to Azure. They also want to reduce the thousands of hours of engineering time they spend every year on incident triage. This customer brought Datadog in to be the observability foundation of their AI, in particular using Watchdog and our incident management capabilities.

Speaker Change: We are continuing to see an increasing interest with our larger customers and multiyear commitments.

Speaker Change: Which results in longer duration in both total and current RPI.

Speaker Change: We welcome the opportunity to have these longer term strategic partnerships with our clients.

Speaker Change: And we see that once customers are farther along in their optimizations, they feel comfortable committing over longer periods of time in the future.

Speaker Change: As we said before we continue to believe revenue is a better indicator of our business trends some billings for our Po as those can fluctuate relative to revenue based on the timing of invoice invoicing and the duration of customer contracts.

Speaker Change: Now, let's review some of our key income statement results unless otherwise noted all metrics are non-GAAP.

Olivier Pomel: This new land includes 17 Datadog products, and the customer expects to consider at least six commercial observability tools. Finally, we signed a six-annual land deal with one of the largest U.S. utilities. This customer is re-architecting its customer-facing website and re-platforming its customer support experience. They identified Datadog as the only platform that could still easily integrate end-to-end with their existing sales, customer experience, and data workflows. Each customer expects to start with six Datadog products, and they will replace two commercial observability tools in the process. And that's it for this quarter's highlights.

Speaker Change: We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.

First gross profit in the quarter was $492 million.

Speaker Change: <unk> gross margin of 83, 4%.

Speaker Change: This compares to a gross margin of 82, 3% last quarter and 80.

Speaker Change: Six in the year ago quarter.

Speaker Change: We continue to experience efficiencies and cloud costs reflected in our cost of goods sold as our engineering teams pursue cost savings and efficiency products projects.

Olivier Pomel: Congratulations again to our go-to-market teams for their great work in 2023, an excellent close to the year, and ambitious plans for 2024. Before I turn it over to David for a financial review, a few words on our longer-term outlook. During 2023, we continue to execute on our product innovation plans, and we solve more problems and deliver more value to customers. As we enter 2024, it appears that the worst of cloud optimization may be behind us.

Speaker Change: Our Q4, Opex grew 10% year over year decline from 17% year over year growth last quarter.

Speaker Change: As we discussed last quarter, while making meaningful investments in 2023, we were more cautious than in previous years, given the macro condition and focused more on efficiency and optimization.

Speaker Change: We believe this will put us in a good position to accelerated investment in 2024, while maintaining margin discipline.

Olivier Pomel: We continue to believe digital transformation and cloud migration are long-term secular growth drivers of our business and critical activities for every company to deliver value and competitive advantage. We see AI adoption as an additional driver of investment and accelerator of technical innovation and cloud migration. And more than ever, we feel ideally positioned to achieve our goals and help customers of every size in every industry transform, innovate, and drive value through technology adoption. With that, I will turn it over to David. Thanks, Olivier.

Speaker Change: Q4, operating income was $167 million or a 28% operating margin up from 24% last quarter and 18% in the year ago quarter.

Speaker Change: As with last quarter, our margins ended up being higher than we expected in Q4, as we executed well on our internal optimization and cost management efforts.

Turning to the balance sheet and cash flow statements. We ended the quarter with $2 $6 billion of cash cash equivalents in marketable securities.

David M. Obstler: Q4 revenue was $590 million, up 26% year over year and up 8% quarter over quarter. Let's dive into some of the drivers of this Q4 performance. First, regarding usage growth. Overall, we saw usage growth from existing customers in Q4 that was similar to what we saw in Q3. Last quarter, we mentioned that the larger and more intense optimizers had begun to show signs of stabilization.

Speaker Change: Cash flow from operations was $220 million in the quarter and after taking into consideration capital expenditures and capitalized software free cash flow was $201 million with a free cash flow margin of 34%.

Speaker Change: Now for our outlook for the first quarter and the fiscal year 2024.

Speaker Change: Our guidance philosophy remains unchanged.

Speaker Change: As a reminder, we base our guidance on trends observed in recent months and apply conservativism on these growth trends.

David M. Obstler: In Q4, we saw those trends continue and the large optimizers begin to grow again. While we may still be in a cost-conscious environment overall, we believe that the higher intensity of optimization has dissipated, and clients are continuing to invest in new digital applications. For the first time in six quarters, our sequential ARR ads in Q4 were higher than in the year-ago quarter.

Speaker Change: For the first quarter, we expect revenue to be in the range of $587 million to $591 million, which.

Speaker Change: That's a 22% to 23% year over year growth.

Speaker Change: non-GAAP operating income is expected to be in the range of $128 million to $132 million, which implies an operating margin of 22%.

David M. Obstler: As we look at early data for Q1, January usage growth was solid. The rebound we're seeing from the slower end of December is better than what we experienced last January. We note, as always, that it's too early to know how the quarter will play out, and we would caution investors from extrapolating too much.

Speaker Change: non-GAAP net income per share is expected to be 33 to 35 per share based on approximately 35 $357 million of average diluted shares outstanding.

Speaker Change: For fiscal 2024, we expect revenues to be in the range of 2555 to $2 $5 75 billion.

David M. Obstler: But we're encouraged by the near-term trends. Regarding usage growth by customer size, we experienced our highest growth in our largest and smaller spending customers in this quarter. This includes a record increase in sequential ARR added from customers who spend $1 million or more annually with us and an expansion of 1 million plus customers from 317 to 396 in 2023. In terms of new logos, our customer additions on a gross and net basis, as well as on a New Logo dollar basis. We're similar to that of Q3.

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

Speaker Change: non-GAAP operating income is expected to be in the range of $535 million to $555 million, which implies an operating margin of 21% to 22% and non-GAAP net income per share is expected to be in the range of $1 38 to $1 44 per share based on 300.

Speaker Change: 61 million average shares diluted outstanding some additional notes on guidance.

Speaker Change: As it relates to our growth and Opex in hiring as I mentioned.

Speaker Change: And earlier, we took a more cautious attitude towards hiring during 2023 and our head count ended fiscal 2023 at about 5200 people growing in the high single digits year over year.

David M. Obstler: As before, our net ads included slightly elevated churn in our very long tail of small customers, many of whom are self-serving. Geographically, we experienced stronger year-over-year revenue growth in international markets in North America. Our international markets represented 31% of our revenue in Q4 2023, up from 28% in Q4 of last year.

Speaker Change: We remain excited by our numerous long term growth opportunities and as a result, our operating profit guidance reflects our intent to invest for future growth in 2024.

Speaker Change: We intend to accelerate hiring in R&D to execute on our long term growth opportunities and in sales and marketing to reach customers worldwide.

David M. Obstler: Finally, for our retention metric. Our trailing 12-month net revenue retention was in the mid-110s in Q4, our trailing 12-month gross revenue retention continues to be stable in the mid to high 90s, and our dollar churn is low and declined sequentially. Now moving on to our financial results. Billings were worth $723 million, up 35% year over year. Billing duration increased year over year. Remaining performance obligations, or RPO, were $1.84 billion, up 74% year over year.

Speaker Change: Because of that our operating profit guidance implies operating expense growth in the mid 20% range year over year with operating expense year over year growth ramping throughout 2024, as we execute on our hiring plans.

Speaker Change: Meanwhile, we will continue to balance our investments in long term growth with financial discipline as we have executed in the past.

Now turning to other areas of the P&L first we expect net interest and other income for fiscal year 2020 for it to be approximately $100 million.

David M. Obstler: Current RPR growth was in the mid 40s percent year over year. We are continuing to see an increasing interest with our larger customers in multi-year commitments, which results in longer RPO duration in both total and current RPO. We welcome the opportunity to have these longer-term strategic partnerships with our clients, and we see that once customers are farther along in their optimizations, they feel comfortable committing to longer periods of time in the future. As we said before, we continue to believe revenue is a better indicator of our business trends than billings or RPO, as those can fluctuate relative to revenue based on the timing of invoicing and the duration of customer contracts. Now, let's review some of our key income statement results. Unless otherwise noted, all metrics are non-GAAP.

Speaker Change: Regarding taxes.

Speaker Change: While we expect to continue to be a modest cash payer in 2020 for estimated to be 20% to $25 million. We are establishing a non-GAAP tax rate of 21% in fiscal year 2024 and going forward.

Speaker Change: And this is reflected in our non-GAAP net income per share guidance.

Speaker Change: We have re casted, our fiscal 2022 and.

Speaker Change: And 23, non-GAAP net income to reflect this non-GAAP tax rate.

Speaker Change: And that is available in the tables in our earnings release as well as the financial supplemental.

Speaker Change: Finally, we expect capital expenditures and capitalized software together to be in the 3% to 4% of revenue range in fiscal year 2024.

David M. Obstler: We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. For example, gross profit in the quarter was $492 million, representing a gross margin of 83.4%. This compares to a gross margin of 82.3% last quarter and 80.6% in the year-ago quarter. We continue to experience efficiencies in cloud costs reflected in our cost of goods sold as our engineering teams pursue cost savings and efficiency projects. Our Q4 OPEX grew 10% year-over-year, a decline from 17% year-over-year growth last quarter.

Speaker Change: Now to summarize.

Speaker Change: We are pleased with our execution in 2023.

Speaker Change: We are well positioned to help our existing and prospective customers with their cloud migration and digital transformation journeys.

Speaker Change: And we plan to innovate further and expand the set of problems, we solve for our customers.

Speaker Change: In 2024 and beyond.

Speaker Change: I want to thank and data dogs worldwide for their efforts in 2023 and I'm excited about our plans in 2024 finally.

Speaker Change: I'd like to invite you to join US for our Investor Day. This Thursday in New York City.

David M. Obstler: As we discussed last quarter... While making meaningful investments in 2023, we were more cautious than in previous years, given the macro conditions, and focused more on efficiency and optimization. We believe this will put us in a good position to accelerate investment in 2024 while maintaining margin dis- Q4 operating income was $167 million, or a 28% operating margin, up from 24% last quarter and 18% in the year-ago quarter. As with last quarter, our margins ended up being higher than we expected in Q4 as we executed well on our internal optimization and cost management efforts. Turning to the balance sheet and cash flow statements, we ended the quarter with $2.6 billion of cash, cash equivalents, and marketable security. Cash flow from operations was $220 million in the quarter.

Speaker Change: Please go to the data dog IR website for the live stream or contact the IR team at IR at data dog HQ dot com to attend in person.

Speaker Change: And with that we'll open the call for questions operator, let's begin the Q&A. Thank you and as a reminder to ask a question simply press star one one to get in the queue.

To withdraw your question Press Star one again, our first question is from Sandeep Singh with Morgan Stanley. Please proceed.

Sanjit Singh: Thank you for taking the questions and congrats on the great bookings result.

Sanjit Singh: In the year Ali as we sort of come out of this sort of down cycle, reflecting the optimization cycle that we've seen for the last several quarters. I was wondering how you think about where the sources of growth youre going to come from in terms of your various customer cohorts I'm thinking about the digital natives, which drove a lot of growth in 2019.

Sanjit Singh: 'twenty 2020 one.

David M. Obstler: And after taking into consideration capital expenditures and capitalized software, free cash flow was $201 million with a free cash flow margin of 34%. Now for our outlook for the first quarter and the fiscal year 2024. Our guidance philosophy remains unchanged.

Sanjit Singh: Versus your enterprise opportunity and your mid market customers as we come out go into sort of the next cycle, where does that dollar growth do you think comes from.

Sanjit Singh: For data.

Sanjit Singh: Quick question I would say it pretty much all of the above I think.

Sanjit Singh: It's an OLED little bit hard to time.

The cycles for a specific subset of your customer base.

Sanjit Singh: Avaya, if macro conditions ripple through the economy that could be offered via different different.

David M. Obstler: As a reminder, we base our guidance on trends observed in recent months and apply conservatism to these growth traps. For the first quarter, we expect revenue to be in the range of $587 to $591 million, which represents a 22 to 23% year-over-year growth. Non-GAAP operating income is expected to be in the range of $128 to $132 million, which implies an operating margin of 22%. And non-GAAP net income per share is expected to be $0.33 to $0.35 per share, based on approximately 357 million average diluted shares outstanding.

Sanjit Singh: Parts of our customer base.

We suddenly saw a big slowdown for the digital and the digital natives over the past year.

Sanjit Singh: On the other hand, there might be the first ones to fully leverage AI and deployed in production. So we might see some re acceleration earlier from some of them at least.

Sanjit Singh: If you zoom out a little bit of focus over the past few years has been on really going to market aggressively on the enterprise and mid market. The more traditional side of the world that still has to largely.

Sanjit Singh: Get us carry to the cloud we've planted a lot of seats there with a number of large companies that seem to have relatively small deployments in Atlanta and our focus over the next couple of years is going to be too to grow them in Disneyland did the one who still don't have we mentioned on the call about 42% of the fortune five hundreds.

Sanjit Singh: I don't know if customers near field largely small account few hundreds of thousands of dollars a year spent on us.

David M. Obstler: For fiscal 2024, we expect revenues to be in the range of $2.555 to $2.575 billion, which represents 20 to 21% year-over-year growth. Non-GAAP operating income is expected to be in the range of $535 to $555 million, which implies an operating margin of 21 to 22 percent. And non-GAAP net income per share is expected to be in the range of $1.38 to $1.44 per share, based on 361 million average shares diluted.

Sanjit Singh: So that's where we direct our efforts.

Speaker Change: I appreciate the thoughts and one quick follow up when you get customers adopting almost 10% of the base.

Speaker Change: Eight or more products and the number of customers you highlighted in your script had over 10 plus products.

How are those deals being structured meaning that are they are they buying sort of individual skus at a time and sort of adding them on over time or are they being folded into a sort of like a rate card agreement or.

Speaker Change: An enterprise license agreement.

Speaker Change: How that pricing and packaging works for customers that get up to that level of adoption.

Speaker Change: So in general.

Speaker Change: Would we do is when we do these are larger.

Speaker Change: Multi product or consider the consolidation deals.

Speaker Change: We have a specific rate card and customers and their.

David M. Obstler: Additional notes on guidance as relates to our growth in OPEX and hiring. As I mentioned earlier, we took a more cautious attitude towards hiring during 2023, and our headcount ended fiscal 2023 at about 5200 people, growing in the high single digits year over year. We remain excited by our numerous long-term growth opportunities, and as a result, our operating profit guidance reflects our intent to invest for future growth in 2024. We intend to accelerate hiring and R&D to execute on our long-term growth opportunities and in sales and marketing to reach customers worldwide. Because of that, our operating profit guidance implies operating expense growth in the mid 20% range year-over-year with operating expense year-over-year growth ramping throughout 2024 as we execute on our hiring plan.

Speaker Change: Total fund commitment and customers can allocate to fund in real time to the products they need when they need them, which by the way gives them a lot of flexibility. They don't have new when they have to manage that five different vendors.

Speaker Change: Four two.

Speaker Change: Different parts of their of their coverage.

Speaker Change: There are some exceptions awesome consumers that have such a specific and larger volume requirement for one product in particular, you know typically these would be things like logs are.

Speaker Change: The metrics and things like that.

Speaker Change: Where the specific commitments in place around the product, but in general most customers have a lot of flexibility when Dave when you take these coming back with us.

Speaker Change: And we will see you will show. Some examples also at the Investor day, and other holders the mix of spend can change over time with customers, while we expand and cover more and more of an environment.

Speaker Change: Great looking forward to it.

Speaker Change: Thank you one moment for our next question. Please.

Speaker Change: And it comes from the line of Mark Murphy with Jpmorgan. Please proceed.

Mark Murphy: Thank you so much David the billings growth accelerated five points as a result of seasonally it's stronger than a year ago and just eyeballing. The CRP figure. It's a pretty massive number is that strong bookings performance more tied to a small number of mega deals coming from your cloud data.

Mark Murphy: <unk>.

Speaker Change: Did you feel that it was kind of a broader phenomenon across multiple verticals and then I have a quick follow up.

David: Yes, there is a couple of aspects first of all given the sort of renewal cycle Q4 tends to have more.

David: More rig commitments. So I think if you look back you'll see that that we tend to have.

David M. Obstler: Meanwhile, we will continue to balance our investments in long-term growth with financial discipline as we have done in the past. Now, turning to other areas of the P&L. First, we expect net interest and other income for fiscal year 2024 to be approximately $100 million. Regarding taxes, we expect to continue to be a modest cash payer in 2024, estimated to be $20 to $25 million. We are establishing a non-gap tax rate of 21% in fiscal year 2024 and going forward.

David: Nice nice billings growth, but in terms of where it really was correlated with larger customers, who as Ali mentioned are buying a more complete suite of data dogs it wasn't cloud.

Native or not cloud native it was our larger customers who have standardized on data dog have a good sense of their volumes and have.

David: And have committed longer resulting in a longer average billing and contract duration in Q4 than we have had previously and really.

We should emphasize is that this is really a change of stance of the customer base compared to last year. So last year customers were in optimization mode. They didn't know what their consumption should look like they didn't know.

David M. Obstler: And this is reflected in our non-GAAP net income per share guide. We have recasted our fiscal 2022 and 23 non-GAAP net income to reflect this non-GAAP tax rate raise. And that is available in the tables in our earnings release, as well as the financial supplemental.

David: Economically would be aware shooting for.

David: As businesses.

David: After a year of optimization.

David: Euro exhibiting everything.

David: We've seen customers recommit for much longer periods of time than it did before.

David: We are focused on growing and investing so it's a it's a.

David: We like to set up a lot more than we had last year from my perspective, and youll see that into the into billings numbers, yes.

David M. Obstler: And finally, we expect capital expenditures and capitalized software together to be in the 3 to 4% of revenue range in fiscal year 2024. Now to summarize, we are pleased with our execution in 2023. We are well positioned to help our existing and prospective customers with their cloud migration and digital transformation journeys. And we plan to innovate further and expand the set of problems we solve for our customers in 2024 and beyond. I want to thank Datadogs worldwide for their efforts in 2023, and I'm excited about our plans for 2024. Finally, I'd like to invite you to join us for our Investor Day this Thursday in New York City. Please go to the Datadog IR website for the live stream or contact the IR team at ir.datadoghq.com to attend in person.

Speaker Change: Yes, that's very encouraging thank you Olivier and just.

Speaker Change: I will follow up.

Speaker Change: Think about the very long term.

Speaker Change: Would you think attach rates of observed ability will end up being higher or lower.

Speaker Change: The AI workload.

Speaker Change: Bergen traditional workloads because on the surface.

Speaker Change: It's bringing the risk of nations and buy your products help to control that it's also more computationally intensive and there's more value to unlock if the LLM runs reliably and create that kind of a great user experience. So I'm just wondering how you might think about that attach rate.

Speaker Change: Three to five years down the road.

Speaker Change: Yes, we see the attach rate going up the the reason for that is all frameworks with what.

Speaker Change: That is I think in terms of complexity.

Speaker Change: It just adds more complexity you.

Speaker Change: You create more things faster without understanding what they do.

Speaker Change: Meaning you need you shift a lot of the value from building two running managing understanding securing all of the other things that need to keep happening after that.

Speaker Change: So.

Speaker Change: The shape of some of the products might change a little bit because of the shape of the software that runs the exchanges, which means the royalty which is no different from what happened over the past 10, 15 years, but we think it's going to drive more and more need for visibility for security products around that.

Speaker Change: Thank you very much and congrats.

Speaker Change: Thank you.

Speaker Change: For our next question please.

Raimo: And he is from Raimo <unk> with Barclays.

Raimo: Please go ahead.

Raimo: Thank you.

Raimo: Congrats from me as well two quick questions first of all of you and then one for David Olivia.

Speaker Change: Think about.

Raimo: Some of your customers have some very very large contract, but then you talked earlier about like if you look at the average kind of large customers still relatively small in terms of their spending with you can you speak a little bit about the difference between one <unk> and then what you can do to kind of change that for those that are not spending as much with you and then also.

Operator: And with that, we'll open the call for questions. Operator, let's begin the Q&A. Thank you. And as a reminder, to ask a question, simply press star one one to get in the queue. And to withdraw a question, press star one one.

Raimo: Maybe as part of that is the competitive landscape changing with all the consolidation in the space.

Sanjit Singh: Our first question is from Sanjit Singh with Morgan Stanley. Please proceed. Thank you for taking the questions, and congratulations on the great bookings results to end the year. Ali, as we sort of come out of this sort of down cycle, you know, reflecting the optimization cycle that we've seen for the last several quarters, I was wondering how you think about where the sources of growth are going to come from in terms of your various customer cohorts. I'm thinking about, you know, the digital natives, which drove a lot of growth in 2019, 2020, and 2021, and versus your enterprise opportunity and your mid-market customers. As we come out and go into sort of the next cycle, where does that dollar go? That's a good question. I would say pretty much all of the above.

Some of your larger competitors actually kind of being in a new home now and then for David.

Raimo: Any.

Raimo: More yardstick in terms of like how the timing of the investments play out. This year I know you mentioned the comment but like is there more sales and marketing earlier in the year to get the ceded Scott.

Raimo: In the latter part of the year, but so how should we think about that modeling. Thank you.

Speaker Change: Okay. So I'll start with the <unk>.

Speaker Change: Large large company there are still small customers.

Speaker Change: That's completely due to them being small in the cloud today and so typically they have maybe one of the business units to other business units and their cloud with maybe some of some fraction of the applications there.

Speaker Change: The goal is to have them consolidate on us as they move more into the cloud. So go end to end and SPC business unit, and then expand to the whole enterprise with yet so the difference between a customer that.

Speaker Change: The ones I mentioned today that signs.

Speaker Change: The signs there.

Speaker Change: 900, your deal with us and the customer that still at low hundreds of thousands of dollars is that the one that has the large deal has pretty much wall tool in a significant part of their business and has consolidated a large part of the opportunity I should say to customer that pays us a nine figure still hasn't consolidated every.

Olivier Pomel: I think it's always a little bit hard to time the cycle for specific subsets of the customer base, you know, as various macro conditions ripple through the economy. For example, we suddenly saw a big slowdown from digital natives over the past year. On the other hand, they might be the first ones to fully leverage AI and deploy it in production, you know, so we might see some reaction from some of them earlier, at least. If you zoom out a little bit, our focus over the past few years has been really going to market aggressively in the enterprise, the mid-market, the more traditional side of the world that still has to largely get scaled into the cloud.

Speaker Change: Thing on us with their steel more upside to be had more parts of their business is more parts of their coverage we can get.

Speaker Change: The good news is that all of that business is.

Speaker Change: Coming to us as these customers move into the cloud the bad news is that we don't drive the move to the cloud right. So in periods, where it goes a little bit more slowly that we've seen over the past year.

Speaker Change: That growth can be a little bit slower but.

Speaker Change: But we're very confident into the fact that this is going to happen AI is going to accelerate it.

Speaker Change: Great executive and more relevant.

Speaker Change: And that's the trend is going to stay with us for the next few years.

Speaker Change: On the competition side.

Speaker Change: There is no real change I think.

Olivier Pomel: We've planted a lot of seeds there with a number of large companies that still have relatively small deployments in the cloud, and our focus over the next couple of years is going to be to grow them and usually land the ones we still don't have. We mentioned on the call that about 42% of the Fortune 500 companies are undernourished customers, and they're still largely small, like a few hundred thousand dollars a year spent on us. So that's where we direct our efforts. Now, I appreciate the thoughts.

Speaker Change: I would say very.

Speaker Change: Very boring from a competitive perspective and that does attrition commercial same as it was last quarter and quarter before.

Speaker Change: There is definitely opportunity with a number of companies, including one is longer than it has been.

Speaker Change: Sold.

Speaker Change: Hi, everybody vaccine.

Speaker Change: We're not competitors, we were seeing very often on the on the <unk>.

Speaker Change: Cloud side of the World already I think as competitors have retreated a bit more to the year.

Speaker Change: That traditional on Prem bread and butter.

Speaker Change: But we think it is going to open more opportunities in the in the midterm differently, So thats something where the world.

Speaker Change: Okay.

Speaker Change: Yes, and on your second question.

Olivier Pomel: And one quick follow-up. When you get customers adopting, you know, almost 10% of the base, you know, eight or more products, as a number of customers you highlighted in your script had over 10 products. How are those deals being structured? Meaning that are they buying sort of individual SKUs at a time and sort of adding them on over time? Or are they being folded into a sort of rate card agreement or an enterprise license agreement?

Much of this growth is related to our hiring.

Speaker Change: Which takes time to do.

Speaker Change: We are trying to invest both in quota capacity in terms of sales as well as an R&D capacity.

Speaker Change: Our.

Speaker Change: Intent is to open the heads earlier in the year in order to try to get return.

Speaker Change: In the near term.

Speaker Change: But I think you can assume that that investment will ramp throughout the year because it takes time to get the head count in.

Olivier Pomel: Just how that pricing and patching works for customers that get up to that level. So, in general, what we do is, when we do these larger multi-product or consolidation deals, we have a specific red card and customers and a total fund commitment, and customers can allocate the funds in real time to the products they need when they need them, which, by the way, gives them a lot of flexibility they don't have when they have to manage like five different vendors for different parts of their coverage. There are some exceptions; there are some customers that have such a specific and large volume requirement for one product in particular, you know, typically this would be things like logs or maybe metrics and things like that, where they have specific commitments in place around specific products.

Speaker Change: And and we gave the guidance for Q1, indicating in what we think happened in Q1.

Speaker Change: Okay perfect. Thank you congrats.

Speaker Change: Thank you.

Speaker Change: And for our next question.

Ray Mcdonald: And it comes from the line of Ray Mcdonald with Guggenheim. Please proceed.

Ray Mcdonald: Great. Thanks for taking the questions maybe first for.

Ray Mcdonald: For Ali or maybe David as you think about the investments youre, making to the sales force and you're hiring capacities are there any changes youre, making to your go to market motion are you, adding incremental overlay sales forces for security or anything else, we should be thinking about in terms of changes to the go to market motion.

Ray Mcdonald: There's no change at scale that we have.

Olivier Pomel: But in general, most customers have a lot of flexibility when they take these commits with us. And we'll see, we'll show some examples at investor day, how the mix of span can change over time with customers while we expand and cover more and more of the environment. Great; I'm looking forward to it.

Ray Mcdonald: Worth noting on this call we make a lot of adjustments in the way we said all the time, we make adjustments in the way we package our products for example.

Ray Mcdonald: We package some of our security products directly into our.

Ray Mcdonald: Infrastructure and APM products, so we have a new tier colder depths hiccups.

Ray Mcdonald: For both APM and infrastructure and these are great way for us to actually bring those products into the conversation.

Sanjit Singh: Thank you. One moment for our next question, please. And it comes from the line of Mark Murphy with J.P. Morgan. Please proceed. Thank you so much, David.

Ray Mcdonald: Easier for customers discover and also making it easier for the sales force to bring up into sale and we are actually starting to see great success with that so still very early obviously, because we've rolled that out last quarter.

Ray Mcdonald: But we like what we see with those with those skus.

Ray Mcdonald: More broadly we are investing.

Ray Mcdonald: In the Salesforce, we're increasing capacity as we've increased capacity last year, even though it was.

Mark Murphy: The billing growth accelerated five points. It was also seasonally stronger than a year ago. And just eyeballing the CRPO figure, it's a pretty massive number. Is that strong bookings performance more tied to a small number of mega deals coming from your cloud natives? Or did you feel that it was kind of a broader phenomenon across multiple verticals?

Ray Mcdonald: It was slow down here in the economy, and we have plans to increase the capacity again this year and we think there is plenty more market for us to be had.

Ray Mcdonald: Both in terms of the inside the segment in which we're already very present, but also in a number of new categories to our new.

Ray Mcdonald: New segments of the market, new Geography's that we don't cover very well yet.

David M. Obstler: And I have a quick question. Yeah, there's a couple aspects. First of all, given the sort of renewal cycle, Q4 tends to have more recommitments. So I think if you look back, you'll see that we tend to have nice, nice billings growth. But in terms of where it really was correlated with larger customers, who, as Ali mentioned, are buying a more complete suite of Datadogs. It wasn't cloud native, or it wasn't cloud-native.

Speaker Change: Thanks, So maybe just as a follow up can you talk a little bit more about your pipeline construction, specifically how are larger opportunities weighted in your pipeline at this point you've talked a lot about more multiyear deals we talked about kind of the construction of billings and CRP O.

Speaker Change: But maybe alongside that can you talk about how long it takes typically to close an opportunity like the nine figure deal. You mentioned, obviously your go to market motion is more of a land and expand motion, but I'm just wondering if as you see larger opportunities in your pipeline deals may be taking a little longer to close still than you've typically.

David M. Obstler: It was our larger customers who had standardized on Datadog, had a good sense of their volumes, and had committed longer, resulting in a longer average billing and contract duration in Q4 than we have had previously. And really, what we should emphasize is that this was really a change of attitude of the customer base compared to last year. So last year, customers were in optimization mode; they didn't know what their consumption should look like, they didn't know economically what they were shooting for as businesses. After a year of optimization, a year of examining everything they could examine, we see customers recommit for much longer periods of time than they did before, as they focus on growing and investing. So it's, it's we like the setup a lot more than we did last year from that perspective, and you see that in the beginnings now. Yeah, that's very encouraging. Thank you, Olivier.

Speaker Change: Yes.

Speaker Change: Because of the way we do business.

Speaker Change: We try and learn fast and small.

Speaker Change: We experiment after that on an ongoing basis.

Speaker Change: We don't really we haven't seen even in last year in what's been a tougher year for.

Speaker Change: Most sales organizations, we haven't seen an elongation of.

Speaker Change: Sales cycles.

Speaker Change: Yes.

Speaker Change: Very very stable in general we always felt that our sales pipelines were very solid.

CEO: As a CEO when I when I start the quarter.

CEO: I can trust that what I see in the pipeline and the forecast is going to materialize at the end of the quarter.

CEO: <unk> growth during the quarter. It doesn't it doesn't go down so it speaks I think to the quality of the work. The sales team is doing into the purchase of the motion we are putting in place.

CEO: When you talk about <unk> because that pays us.

CEO: 809 figures.

CEO: These deals are growth deals they are expansion deals.

CEO: And so we get those deals by making those customers successful over long periods of time.

Mark Murphy: And just as a follow-up, if you think about the very long term, would you think attach rates of observability will end up being higher or lower for these AI workloads, you know, versus traditional workloads? Because on the surface, AI is bringing the risk of hallucinations and bias; your products help to control that. It's also more computationally intensive, and there's more value to unlock if the LLM runs reliably and creates that kind of great user experience. So I'm just wondering what you might think about that attach rate three to five years down the road. Yeah, we see the attachment going up. The reason for that is a framework for thinking about that is, I think in terms of complexity, AI just adds more complexity; you create more things faster without understanding what they do.

CEO: And and engaging with their teams as we ship new products, making sure they get the handle these products and Baidu time.

CEO: We get to have assessed conversation typically they'll use issues there to customers have tried to product they understand them. They have spoken to our product teams about them all support teams about them.

CEO: And then it's more a matter of understanding who we package that commercially and we make a good case for it with the customer.

CEO: Excluding understanding with other products they might retire as part of that.

CEO: When you think of our sales times four.

CEO: On brand new customers.

CEO: The time it takes is highly dependent on the size of the land most of our lands are small and can grow very fast which is for a large enterprise could be a quarter or two which is very very short for for an enterprise deal could be longer for some larger deals.

Speaker Change: Great. Thanks for the color I appreciate it.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And it comes from the line of <unk> Kidron with Oppenheimer. Please go ahead.

Speaker Change: Thanks.

Olivier Pomel: Meaning you need to shift a lot of the value from building to running, managing, understanding, securing all of the other things that need to keep happening after that. So, the shape of some of the products might change a little bit because the shape of the software that runs the exchange has changed a little bit, which is no different from what happened over the past 10-15 years. But we think it's going to drive more need for observability, and more need for security products around that. Thank you very much and congratulations.

Kidron: Ali I wanted to dig into your comments on security I think you mentioned that you have 6000 customers that are now using one or more security products could you give us a little bit more color.

Oppenheimer: First of all who is the buyer usually do you see for <unk> solutions initially.

And then second.

Oppenheimer: Maybe you can kind of parse out a little bit more color on.

Oppenheimer: A ranking order kind of the more popular versus lease popular security products right now, but love to give more color on that.

Oppenheimer: Yes.

Speaker Change: So the buyer so it depends for.

Speaker Change: Infrastructure security an application security is tends to be a dev ops teams that start buying.

Mark Murphy: Thank you. One moment for our next question. And he's on the Rymel Land Show with Barclays.

Speaker Change: We have some involvement on the security teams on their own.

Cloud Siem product buyer tends to be the security team.

Rymel Land Show: Rymel, please go ahead. Hey, thank you. And congratulations for me as well. I have two quick questions. First for Olivier and then one for David.

Speaker Change: So we have a little bit of both and it turns out we were successful on both ends.

Speaker Change: Both types of products are growing in.

Speaker Change: A similar way.

Speaker Change: The focus has been over the past.

Olivier Pomel: Olivier, if I think about some of your customers, they have some very, very large contracts. But then you talked earlier about, if you look at the average kind of large customers, still relatively small in terms of their spending with you, can you speak a little bit about the difference between one and the other? And then what can you do to kind of change that for those that are not spending as much with you?

Speaker Change: Last year.

Speaker Change: Developing new products getting them to maturity getting them into the hands of as many customers as possible and also gaining as much use out of those products as possible. So the metrics, we look at internally with our security products or even more than the revenue.

Speaker Change: Which can vary with usage and things like that we look at the activity co. Many of those customers actually using the product issues are being trucked or being sold to the products and these are the northstar, we use internally as we develop those products.

Olivier Pomel: And then also, maybe as part of that, like, you know, is the competitive landscape changing with all the consolidation in the space? Some of your larger competitors actually kind of in a new home now? And then for David, any little more yardsticks in terms of like, how the timing of the investments will play out this year? I know you mentioned a comment, but like, is there more sales and marketing early in the year to get the sales guys rammed in the latter part of the year? But so, how should we think about that modeling? Thank you. So I'll start with the large companies that are still small customers. That's completely due to them being small in the cloud today.

Speaker Change: Got it and then as a follow up maybe just to dig into this a little bit more.

Speaker Change: When customers buy these how often is it.

Speaker Change: There is a vacuum there there is no solution versus.

Speaker Change: Display displacement or how often do you kind of sit side by side <unk> solutions to do the same thing the same way the company has had multiple monitoring solutions.

Speaker Change: Just have a room.

Security solutions from other vendors or this is a complete replacement or Greenfields, we will love to give more color on that.

Speaker Change: Yes in most situations, we start side by side with other things because customers are going to have other security solution and that typically have a patchwork.

Speaker Change: A lot of different things.

Speaker Change: Not very different from the situation when we started selling or infrastructure and APM products in a way I would say seven 810 years ago.

Olivier Pomel: And so typically, they have maybe one of their business units, two of their business units in the cloud with maybe some fraction of the applications there. The goal is to have them consolidate on us as they move more into the cloud. So go end-to-end in a specific business unit and then expand to the whole enterprise at the end. So the difference between a customer that, you know, like the ones we mentioned today, that signs a nine-figure deal with us and a customer that's still in the low hundreds of thousands of dollars is that the one that signs a large deal has us pretty much wall-to-wall in a significant part of their business and has I should say, the customer that pays us nine figures still hasn't consolidated everything on us. With there still being more upside to be had, more parts of their businesses, more parts of their coverage we can get.

Speaker Change: So very similar the customers that spend more with us. So we have a number of customers that's been more than a million dollars a year with us in security.

Speaker Change: A large number of customers.

Speaker Change: That's been more than 100000 malaria with us some security does tend to to use less other products and consolidate more on to what we do with obviously the playbook here is the same for us as it has been Forbes of ability.

Speaker Change: But you did ask me to stack rank the discrete products that you can forget about that.

Speaker Change: It's easy to in order of introduction the cloud team has the most users and was introduced first.

Speaker Change: And then the other products are.

Speaker Change: Alright.

Speaker Change: Alright I appreciate it thank you.

Speaker Change: Thank you one moment for our next question. Please.

Speaker Change: And it comes from the line of Mike <unk> with Needham. Please proceed.

Hey, guys. Thanks for taking the questions here.

Mike: I guess first a question for David again, just coming back to the guidance here wanted to get some more color. If we could on December into January so it's great to hear the January.

Olivier Pomel: The good news is that all of that business is coming to us as these customers move into the cloud. The bad news is that we don't drive the move to the cloud, right? So in periods where it goes a little bit more slowly, like we've seen over the past year, that growth can be a little bit slower.

Mike: Each year.

Mike: To be trending better than the seasonal.

Mike: A seasonal drop that.

Speaker Change: That we saw in January of last year, but just wanted to get a better sense.

Speaker Change: Holidays seem to play out the way that you guys expected, but can you provide some more color or parameters on that December holiday slowdown and then how that how that is playing out in January versus where we stand today in mid February.

Olivier Pomel: But we're very confident in the fact that this is going to happen, AI is going to accelerate it, it's going to make it even more relevant, and that's the trend that's going to stay with us for the next few years. On the competition side, there's no real change. I think the, you know, I would say the very... Very boring from a competitive perspective in that the situation is pretty much the same as it was last quarter and the quarter before. However, there is definitely opportunity with a number of companies, including one that's larger than what has been sold. I'm sure everybody that's seen it.

Speaker Change: Yes, as you said, we've seen and we've tried to flag that in the second half of December we have a slowdown of usage, particularly.

Speaker Change: In our sort of our more use oriented products like logs.

Speaker Change: Laid out very similarly to what we expected and.

Speaker Change: I think we caution everybody, it's too narrow of a data point, but the bounce back from that and the growth in January was stronger than the bounce back.

Speaker Change: Last year, and we'll have to see how the rest of the quarter plays out.

Speaker Change: And in general I think throughout the retail activity we've seen.

Olivier Pomel: These were not competitors we were seeing very often on the cloudy side of the world already. I think these competitors had retreated a bit more to the traditional on-prem bread and butter. But we think it is going to open up more opportunities in the midterm, definitely. So that's something we're aware of. Yeah, on your second question, much of this growth is related to hiring, which takes time to do. We are trying to invest both in quota capacity in terms of sales, as well as in R&D capacity. Our intent is to open the heads earlier in the year in order to try to get a return in the near term.

Speaker Change: A slowdown in December for him and for good reasons like there's all sorts of environments get to announce developers some companies close closed shop to get altogether for when we get into Europe.

Speaker Change: It's become more pronounced funding last year, I think because companies put more emphasis on cost controls and maybe the automated some processes to downscale or.

Speaker Change: Our team has done at the end of the year and this year was consistent with last year, it's hard to compare you to your exactly here because some of that for example depends on which days.

Speaker Change: The week the holidays are.

Speaker Change: In terms of how much impact that use it.

Speaker Change: But overall, it's what we saw was very consistent with what we had last year.

Speaker Change: Great.

Speaker Change: Rebel.

Speaker Change: Understood and thanks for that.

David M. Obstler: But I think you can assume that that investment will ramp throughout the year because it takes time to get the headcount in. And we gave the guidance for Q1 indicating what we think will happen in Q1. Thank you. Thank you. Thank you. Thank you.

Speaker Change: Appreciate the additional color and just a quick follow up here I know that you guys are citing the.

Speaker Change: Expanded penetration of the Fortune 500, and it's great to hear that five points of pick up when you think about the 42% of fortune 500 customers using it today.

Speaker Change: Wanted to get a better sense.

Speaker Change: How you guys are saying that.

Ray Mcdonough: Please proceed. Great, thanks for taking the questions. Maybe first for Holly, or maybe David, as you think about the investments you're making in the sales force and your hiring capacities, are there any changes you're making to your go-to-market strategy? Are you adding incremental overlay sales forces for security or anything else we should be thinking about in terms of changes to the go-to-market strategy? There's no change at scale that you know, we are worth noting on this call; we make a lot of adjustments in the way we sell all the time. We make adjustments in the way we package our products. For example, we package some of our security products directly into our infrastructure and APM products. We have a new tier called DevSecOps for both APM and infrastructure.

Speaker Change: I guess those those customers on average are still spending less than $500000 with you.

Speaker Change: I know, it's a bit of a of a point in time here, but.

Speaker Change: Two parter first could you help us think about it.

Speaker Change: If you had 37% of the Fortune 500 last year and 42%. This year like how has that average spend per customer within the fortune 500 increased over the last year and then the second part of that question is if it's a 42% of fortune 500 customers with fewer on average under $500000 at this point, whereas the data.

Speaker Change: <unk> got ultimately seize that opportunity to go into just given I know you guys are talking about the 400, new features and capabilities launched over the last year.

Speaker Change: Where does that that spend increase to over time.

Speaker Change: Yeah, just to give you we're not we're not sort of giving.

Speaker Change: Specific data on the expansion of that group, we have if you look at our larger customers and you just look at the trend over time, you can see that in Atlanta and expand.

Speaker Change: Model, we have had an increase of average customer side Psi size with us in the group over 100000, and we said previously that we have customers in the tens of millions.

Ray Mcdonough: And these are great ways for us to actually bring those products into the conversation, make them easier for customers to discover, and also make them easier for the Salesforce team to bring up and sell. And we see we are actually starting to see great success with that. So, still very early, obviously, because we rolled that up last quarter, but we like what we see with those SKUs.

Speaker Change: Have those customers within the fortune.

Speaker Change: The fortunate statistic as well as outside and so we said in the past that we see a buying patterns in the tens of millions we think that in many of the larger more traditional enterprises. They are just getting started and there's a lot of upside is what we're trying to communicate.

Olivier Pomel: More broadly, we're investing in the salesforce. We're increasing capacity. So we increased capacity last year, even though it was a slowdown year in the economy. And we have plans to increase capacity again this year.

Speaker Change: And actually the customer.

Speaker Change: In the first year sovereign debt.

Olivier Pomel: And we think there's plenty more market for us to be had. Both in terms of the segments in which we're already very present, but also in a number of new categories, new segments of the market, new geographies that we don't cover very well yet. Maybe just as a follow-up, can you talk a little bit more about your pipeline? Specifically, how are larger opportunities weighted in your pipeline?

Speaker Change: <unk> thousand should be in the millions tens of millions with us.

Speaker Change: There's no question about that.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Thank you one moment for our next question. Please.

Speaker Change: And he is from the line of Frederic <unk> with Macquarie Capital. Please proceed.

Frederic: Hi, Thank you very much I wanted to ask a bit more of a forward looking technological question here, perhaps Ali.

Frederic: It has been quite a lot of this point, let's say testing and development, but a lot of interesting development with like autonomous agents for Dev ops related tasks.

Ray Mcdonough: We talked a lot about more multi-year deals. But maybe alongside that, can you talk about how long it takes, typically, to close an opportunity like this? GoToMarket.com, and more.

Curious as you're considering the opportunity and potential risks also around generative beihai, perhaps like a gentex.

Frederic: Usage of large language model, how are you thinking that data dollar's positioned strategically both from a product and perhaps pricing perspective around this technology trends.

Olivier Pomel: As you see larger, little Yes, because of the way we do business, where we try and land fast and small, and we expand after that on an ongoing basis, we don't really, we haven't seen, even in last year, in what's been a tougher year for most sales organizations, we haven't seen an elongation of sales cycles. It's remained very, very stable, and, in general, we always felt that our sales pipelines were very solid. As a CEO, when I start the quarter, I can trust that what I see in the pipeline and in the forecast is going to materialize at the end of the quarter. It typically grows during the quarter; it doesn't go down, so it speaks, I think, to the quality of the work the sales team is doing and the push of the movement we have put in place.

Well, we think we are.

Frederic: Ideally positioned for that it's actually one of the things maybe we if you attend our Investor day, we will share some of our thinking on the topic, but.

Frederic: We.

Frederic: We so we've been actively building on our beta AI assistant we've been interacting with customers based on that because.

Frederic: There is a number of them.

Frederic: Whereas for us to build on that and to do more and to automate work for customers and Thats something were working on.

Frederic: And.

Frederic: We also see a lot of the.

Frederic: Demand.

Frederic: Four quakes in expectations on the customer side for incorporating generative AI in the product so I think from it.

Frederic: <unk> perspective, we feel we feel great about that.

Frederic: We don't have much more to share today, but.

Frederic: Where.

Frederic: It is definitely top of mind.

Speaker Change: Sorry, I don't mean to ask about.

Speaker Change: The Investor day too early here, so I'll look forward to that this week.

Speaker Change: Typically that also.

Olivier Pomel: When you talk about this particular customer, like a customer that pays us 8 or 9 figures, these deals are growth deals, they're expansion deals. And so we get those deals by making those customers successful over long periods of time and then engaging with their teams as we ship new products and making sure they get their hands on these products. And by the time we get to have a sales conversation, typically, the usage is there, the customers have tried the product, they understand it, they've spoken to our product teams about it, or support teams about it. And then it's more a matter of understanding how we package that commercially and how we make a good case for it with the customer and understanding what other products they might retire as part of that. When you think of sales times for brand new customers, the time it takes is highly dependent on the size of the land. Most of our lands are small and can grow very fast, which for a large enterprise could be a quarter or two, which is very, very short for an enterprise deal, but could be longer for some larger deals.

Speaker Change: I understand the perspective on complexity driving more more usage of observer ability to get off to it but I think last quarter, we get an update on where gen. AI related operations were contributing to the business. When you have into Q4, any any data or points you could share about how much did you.

Speaker Change: Thank you.

Speaker Change: Yes, Yes, we said so we said 3% of our comes from.

Speaker Change: <unk>.

Speaker Change: AI native companies and look it's hard for us to wrap <unk> exactly around <unk> and what is not among our customer base and their workload. So the way we chose to do it as we looked at.

Speaker Change: A smaller number of companies that we know are substantially all based on AI.

Speaker Change: Community like the module providers and things like that.

Speaker Change: So the 3% of our which is up from what we had disclosed last time and the one number that everyone has been thinking about it.

Speaker Change: One cloud in particular, Microsoft disclosed that.

Speaker Change: 6% of their of their growth.

Speaker Change: With attributable attributable to AI.

Speaker Change: And we definitely see the benefits of that online too if I look at our R&R business in particular.

Ray Mcdonough: Great. Thanks for the call. I appreciate it. Thank you. One moment for our next question, and it comes from the line of Itay Kitron with Oppenheimer. Please go ahead.

Speaker Change: There is substantially more than 6% that is attributable to AI initiatives.

Speaker Change: As part of our business, so we see concretely.

Speaker Change: This trend is very.

Speaker Change: Very true for us as well, it's harder to tell with the other cloud providers because they didn't break those numbers out.

Itay Kitron: Thanks. And Ali, I wanted to dig into your comments on security. I think you mentioned that you have 6,000 customers that are now using one or more security products. Can you give us a little bit more color?

Great. Thank you and congrats on a good quarter.

Speaker Change: Yeah.

Speaker Change: Thank you one moment for our next question. Please.

Speaker Change: Okay.

Speaker Change: And it comes from the line of Patrick Colville with Scotiabank. Please proceed.

Alright, Thank you Paul.

Patrick D. Walravens: Taking my question and it's really great to be on the call.

Patrick D. Walravens: I would like to actually double click on.

Olivier Pomel: First of all, who is the typical buyer that you see for these solutions initially? And then second, maybe you can kind of parse out a little bit more color on the ranking order, kind of the more popular versus least popular security products right now. We'd love to get more color on that.

Earl: This is Earl.

Earl: AI native companies.

Earl: My question is like other products Skus. These these kind of generic companies are adopting of a similar or different to the kind of other customer cohorts and then.

Olivier Pomel: Yeah. So the buyers, it depends. For infrastructure security and application security, it tends to be DevOps teams that start buying, with some involvement from the security teams at the end.

Earl: I guess when I think about.

Earl: Generally I think we can all agree that these are pretty typically pretty conventionally.

Earl: Tensive workloads, so how does gen II.

Earl: How do these companies sort of impact the financial model in versus traditional kind of your other customer cohort is there any kind of differences to call out.

Olivier Pomel: For a CloudSim product, the buyer tends to be the security team, so we have a little bit of both. And it turns out we're successful on both ends, you know, so both types of products are growing in a similar way. The focus has been over the past year on developing the products, getting them to maturity, getting them into the hands of as many customers as possible, and also getting as much usage of those products as possible. So the metrics we look at internally with our security products are even more than revenue, which can vary, you know, with usage and things like that. We look at activity, how many customers are actually using the product, how many issues are being tracked, are being sold to the product, and these are the north stars we use internally as we develop those products. Got it. And then, as a follow-up, maybe just to dig into this a little bit more. When customers buy these, I mean, how often is it that there's a vacuum there, there's no solution versus.., a displacement, or how often do you kind of sit side by side with other solutions that do the same thing?

Earl: Yes. So there is not many differences today I think and today. This is largely the same skewed as everybody else I know these are infrastructure APM logs, providing these kind of things that there really isn't a monitoring these kind of things that these customers are using.

Earl: It's worth noting that they are in a bit of a civic will because they're largely to builders of the models.

Earl: So all the tooling required to understand the models and.

Earl: That's not that's less applicable to them thats more applicable to their own customers, which is also the rest of our customer base.

Earl: And we see also where we see the bulk of the opportunity in the longer term not into a handful of them.

Earl:

Earl: Total providers that anybody is going to use.

Earl: In terms of the.

Earl: The economics look.

Earl: Sure.

Earl: So there is two two.

Earl: Parts to the.

Earl: The AI workloads today, there's training and there's in trends.

Earl: The vast majority of the players are still training theres only a few debt.

Earl: That are.

Earl: Scaling with insurance.

Earl: The ones that are getting away with insurance are the ones that are driving our AI.

Earl: Because we are.

We're not really present on the training side, but we're very present on the insurance side and I think that also lines up with what you might see from some of the top providers, where a lot of the players or some of the peers that are getting the most are on on the <unk>.

Itay Kitron: Like in the same way that companies have multiple monitoring solutions, will they just have the same security solutions from other vendors, or is this a complete replacement or Greenfield? We'll have to get more calls on that. Yeah, in most situations, we start side by side with other things, because customers are going to have other security solutions, and they typically have a patchwork of a lot of different things, which is not very different from the situation when we started selling our infrastructure and APM products, in a way, I would say, seven, eight, or 10 years ago. So, very similar, the customers that spend more with us, you know, so we have a number of customers that spend more than a million dollars a year with us on security, a larger number of customers that spend more than $100,000 a year with us on security, those tend to use fewer other products and consolidate more onto what we do. And obviously, the playbook here is the same for us as it has been for observability. By the way, you did ask me to rank the three products; I didn't forget about that. It's easy; it's in order of introduction, like the cloud team has the most users and was introduced first.

Earl: <unk> today.

Earl: On the insurance side, whereas a lot of the other players are still largely training on some of the other clouds.

Speaker Change: Okay very helpful.

Speaker Change: I guess the other question I want to touch on is <unk>.

Speaker Change: For me the standout.

Speaker Change: Comments from your prepared remarks that.

Speaker Change: Which is fascinating were about the kind of intensity of optimization, having dissipates. It. Thank you.

Speaker Change: You also called out headwinds over the last few quarters.

Speaker Change: Yes.

Speaker Change: <unk>.

Speaker Change: Load materially, which is really great to hear.

Speaker Change: With that in mind looking at the guidance.

Speaker Change: <unk> for <unk> was 22%.

Speaker Change: <unk> is the same and for the fiscal year.

Speaker Change: 21% growth so.

Speaker Change: Yes.

Speaker Change: Help us understand the puts and takes between the commentary about kind of optimization had anticipated and guidance and we will.

Speaker Change: The.

Speaker Change: The levers you pulled thinking about that guidance.

Speaker Change: Yes.

Stick to our guns for guidance, which is.

Speaker Change: Our practice is we look at the trends for the past two quarters.

We discount them and we carry that forward Dcs, where we build guidance.

Speaker Change: <unk>.

Speaker Change: The beauty of our model is that it is usage driven and we benefit from the.

Speaker Change: Move to the cloud of orchestrate all of our customers and the way to scale. The only problem with that is that we do not drive that and it is hard to time. It is hard to understand even if the customers have the intent to scale and they wanted to put in your position is hard to time, it and understanding whether it is going to be next quarter or two quarters from now. So that's why we look at the past trends and we try not to think too hard about what we are.

Olivier Pomel: And then the other products are a step below that. Very good. I appreciate it.

Mike Sikos: Thank you. Thank you. And it comes from the line by Mike Sikos with Mayhem.

Olivier Pomel: Please proceed. Hey guys. Thanks for taking the questions here. I guess first, a question for David. Again, just coming back to the guidance here, we wanted to get some more color if we could on December into January. So it's great to hear that January this year seems to be trending better than the seasonal drawdown that we saw in January of last year. We just wanted to get a better sense. The holidays seem to be playing out the way that you guys expected, but can you provide some more color or parameters on that December holiday slowdown and then how that is playing out in January versus where we stand today in mid-February? Yeah, it's as you said, oh, you know, we've seen, and we've tried to flag that in the second half of December, we had a slowdown of usage, particularly in our sort of our more usage-oriented products like logs. It played out very similarly to what we expected.

Speaker Change: Hope might happen in the near term obviously, we're in a much stronger set of them where last year, though I think if you have to repeat them a little bit different words, what Alan said I think if you look at our history. We are always take the most recent performance trends and discount that so even if we are seeing improvement what we do on our guidance and conservativism again because of the <unk>.

Speaker Change: <unk> model is we do discount that so that would be.

Speaker Change: That would be consistent with what we've done throughout our history as a public company.

Speaker Change: Just to give you.

Speaker Change: For example, we had a number of customers signed large large long term commitments with us that are well above their current level of consumption, but we do not know when those commitments are going to turn into revenue.

Speaker Change: Trust that they will customers further they will they spent a lot of time over the past year thinking about optimizing and what they actually needed and where they were going in the future.

Speaker Change: Where I think they are less.

Speaker Change: Brilinta over committing that they might they might have been a couple of years ago.

Speaker Change: Again, we do not we cannot put that onto the revenue yet.

David M. Obstler: And, you know, I think we caution everybody about this, it's too narrow of a data point. But the bounce back from that and the growth in January was stronger than the bounce back last year. And we'll have to see how the rest of the quarter plays out.

Speaker Change: Aman, taking the last question. Thank you.

Speaker Change: Last question comes from Keith Bachman with BMO.

Alright, Thank you very much and congratulations on a really solid set of results for the quarter.

Keith Bachman: I'll ask my question jointly.

Mike Sikos: And in general, I think throughout the history of the company, we've seen a slowdown in December for good reasons, like there are all sorts of environments that get turned off for developers. Some companies closed shop altogether for one week at the end of the year, so it's become more pronounced starting last year. I think it's because companies put more emphasis on cost control and maybe they automated some processes to downscale or shut things down at the end of the year. And This year was consistent with last year. It's hard to compare year to year exactly because some of that, for example, depends on which days of the week the holidays are in terms of how much the impact of usage is. But overall, what we saw was very consistent with what we had last year. Great

Keith Bachman: Could you talk about.

Keith Bachman: How you see the net retention rate unfolding.

Keith Bachman: Unfolding for the year and I realize that's a backwards looking metric, but I just wanted to understand how youre thinking about that as we progress through the year, even directionally in the second broader question is about diversification one of the interesting stats you gave was growth of outside of your core APM.

And then for our growing 75% just is there any metrics you can give on what percent of that is your base or how we should be thinking about the diversification of the portfolio.

Keith Bachman: The opinion data dog has certainly the broadest portfolio in.

Keith Bachman: The category and just wondering how that diversity is contributing to your growth as we look out and again, if im pulling from the Investor Day, then I apologize.

Olivier Pomel: And for a quick follow-up. Understandable. And thanks for that, Ali. I do appreciate the additional color.

Speaker Change: Yes, so we do not provide guidance on net retention I think we said that for the first time in Q4, we had more ad.

Mike Sikos: And just for a quick follow up here. I know that you guys are citing the, and Matthew Hedberg. We are going to be talking about the expanded penetration of the Fortune 500, and it's great to hear the five points of pickup when you think about the 42% of Fortune 500 customers using it today. But we wanted to get a better sense. I guess those customers, on average, are still spending less than $500,000. So I know it's a bit of a point in time here, but this is a two-porter.

Speaker Change: Then we had in the year ago quarter and that would indicate a stabilization.

Speaker Change: Net retention, but do not provide guidance, it's all incorporated in our revenue guidance as far as.

Speaker Change: As platform, yes, totally we've given a number of metrics about this remember last quarter, we talked about the three pillars, and we said that.

Speaker Change: We had essentially the $1 $500 million and $500 million and and Thats been a huge driver.

Keith Frances Bachman: First, can you help us think about 37% of the Fortune 500 last year and 42% this year. Like, how has the average spend per customer within the Fortune 500 increased over the last year? And then the second part of that question is if the 42% of Fortune 500 customers with you are on average under $500,000 at this point, where does Datadog ultimately see that opportunity going to? Just given, I know you guys are talking about the 400 new features and capabilities launched over the last year. But where does that spend increase?

Speaker Change: In terms of of this metric. This is this is in addition to that a metric that expansion as you said of the platform is further than those three pillars and as an additional products and is a significant driver of our growth I will say, though having the broad portfolio of photographs of Rehabs.

Speaker Change: These consolidation deals in particular, sometimes maybe a couple of products that are only going to get us to 100 K each as part of our.

Speaker Change: $5 million deal.

Speaker Change: Having those two products have the customary rationalize what they have on the other end setups. You mean, another doesn't have makes the case for the other $4 8 million of the deal.

David M. Obstler: Just to give you, we're not, we're not sort of giving, you know, specific data on the expansion of that group. We have, if you look at our larger customers and you just look at the trend over time, you can see that in the land and expand model, we have had an increase in average customer size with us in the group over 100,000. And we said previously that we have, you know, customers in the tens of millions. We have those customers within the Fortune 500 as well as outside. And so we said in the past that, you know, we see buying patterns in the tens of millions. We think that in many of the larger, more traditional enterprises, they're just getting started.

Speaker Change: So it's really the platform as a whole really has a strong impact beyond the revenue of some of the individual products.

Speaker Change: Okay excellent. Thank you.

Speaker Change: Thank you and with that we conclude the Q&A session for now I will turn it back to Olivia Pall Mall for final comments.

Speaker Change: Thank you again I want to thank you everyone for everyone at <unk>.

Speaker Change: For a great year all of our customers.

Speaker Change: We're going through.

Speaker Change: I know it was a tougher time for them as well, we're actually very exciting in what was coming in 2024, I think we have a great set up from a customer perspective, a great lineup on the product side and we're excited to build so thank you all.

Speaker Change: And thank you all for joining our call today you may now disconnect.

Olivier Pomel: And, you know, there's a lot of upside to what we're trying to communicate. Yeah, and definitely, like you said, the customer on the Fortune 500 that's in the hundreds of thousands should be in the millions to tens of millions with us. There's no question about that.

Speaker Change: Okay.

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Keith Frances Bachman: Thank you. Thank you. One moment for our next question. And he's from the line of Frederick Havmeyer with Macquarie Capital. Please proceed. Thank you very much. Let's ask a bit more of a forward-looking, technological question. Ali.

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Frederick Havmeyer: There's been quite a lot of, at this point, let's say testing development, but a lot of interesting development with like autonomous agents for DevOps related tasks. So I'm curious, as you're considering the opportunity and potentially some of the risks also around generative AI and perhaps agentic usage of large language models, how are you thinking that Datadog is positioned strategically both from a product and perhaps pricing perspective around this technology? Well, we think we're ideally positioned for that. It's actually one of the things maybe we, if you attend or invest a day, we will share some of our thinking on the topic, but we We've been actively building on our Bits.ai assistant, and we've been interacting with customers based on that.

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Frederick Havmeyer: There's a number of ways for us to build on that and to do more to automate work for customers. And that's something we're working on, and We also see a lot of demand from the customer side for incorporating generative AI into the product. So I think, from a positioning perspective, we feel great about that. We don't have much more to share today, but we are definitely double-minded.

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Olivier Pomel: Sorry, I don't mean to ask about Investor Day too early here, so I'll look forward to that this week. Just quickly, also, I understand the perspective on complexity driving more usage of observability and DevOps tooling, but I think last quarter we got an update on where Gen AI-related operations were contributing to the business. Will you have, into Q4, any data or points you could share about how much generative AI-related use cases are contributing? Yeah, we said 3% of AI comes from AI-native companies. And look, it's hard for us to wrap our arms exactly around what Gen AI is, what isn't among our customer base and their workload. So the way we chose to do it is we looked at a smaller number of companies that we know are substantially all based on AI. So these are companies like the model providers and things like that.

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Olivier Pomel: So 3% of AR, which is up from what we had disclosed last time. I know one number that everyone has been thinking about is one cloud in particular. Microsoft disclosed that 6% of their growth was attributable to AI. We definitely see the benefits of that on our end too. If I look at our Azure business in particular, there is a substantially more than 6% that is attributable to AI as part of our Azure business. So we see completely that this trend is very true for us as well. It's harder to tell with the other cloud providers because they don't break those numbers out. Thank you, and congrats on a good quorum.

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Frederick Havmeyer: Thank you. One moment for our next question, please. And it comes from the line of Patrick Colville with Scotiabank. Please proceed. Hi there, thank you for taking my question and it's really great to be on the call. I would like to actually double click on... And this is from AI native companies. I mean, my question is like, are the products SKUs these kind of Gen AI companies are adopting, are they similar or are they different to the kind of other customer cohorts? And then.

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Patrick D. Walravens: I guess when I think about Gen AI, I think we can all agree that it is a pretty typically pretty computationally intensive workload. So how do these companies kind of impact the financial model versus the traditional kind of your other customer cohorts? Are there any kind of differences to call out?

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Olivier Pomel: Yeah, there are not many differences today, I think. And today, this is largely the same skew as everybody else. You know, these are infrastructure, APM logs, profiling, these kind of things, or release or monitoring, these kind of things that these customers are using. It's worth noting that they're in a bit of a separate world because they're largely the builders of the models. So all the tooling required to understand the models, and you know, that's less applicable to them, that's more applicable to their own customers, which is also the rest of our customer base.

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Olivier Pomel: And this is also where we see the bulk of the opportunity in the longer term, not in the handful of model providers that everybody's going to use. In terms of the economics, look, We have two parts to the AI workloads today: training and inference. The vast majority of the players are still training.

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Olivier Pomel: There are only a few that are scaling with inference. The ones that are scaling with inference are the ones that are driving our AIAR because we're not really present on the training side, but we're very present on the inference side. And I think that also lines up with what you might see from some of the cloud providers where a lot of the players or some of the players that are scaling the most are on Azure today on the inference side, whereas a lot of the other players are still loudly training on some of the other clouds. Okay, very helpful.

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Patrick D. Walravens: I guess the other question I want to touch on is, for me to stand out, comments from your prepared remarks, which were fascinating, were about the kind of intensity of optimization having dissipated. I think you also called out that, you know, headwinds over the last few quarters have slowed materially, which is really great to hear. I guess with that in mind, looking at the guidance, the guidance for 4Q was 22%. The guidance for 1Q is the same, and for the fiscal year, it's 21% growth. So I guess... Help us understand the puts and takes between the commentary about optimization having dissipated and guidance and the levers you pulled thinking about that guidance. Yeah, you know, we stick to our guns for guidance, which is our practice. We look at the trends for the past two quarters.

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Patrick D. Walravens: We discount them, and we carry that forward. This is how we build guidance. The beauty of our model is that it is usage-driven, and we benefit from the move to the cloud of our customers and the way they scale. The only problem with that is that we do not drive that, and it is hard to time. It's hard to understand.

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David M. Obstler: Even if the customers have the intent to scale, and they want to deploy your application, it's hard to time it and understand whether it's going to be next quarter or two quarters from now. So that's why we look at the past trends, and we try not to think too hard about what we hope might happen in the near term. Obviously, we're in a much stronger setup than we were last year, though.

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Olivier Pomel: Yeah, I think if you repeat in a little bit different words what I always said, I think if you look at our history, we always take the most recent performance trends and discount that. So even if we are seeing improvement, what we do in our guidance on conservatism, again, because of the consumption model, is we do discount that. So that would be consistent with what we've done throughout our history as a public company. And just to give you a better example, we had a number of customers sign large, long-term commitments with us that are well above their current level of consumption, but we do not know when those commitments are going to turn into revenue. We trust that they will. Customers trust that they will, too.

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David M. Obstler: They spent a lot of time over the past year thinking about optimizing and what they actually needed and where they were going in the future, so I think they are less prone to overcommitting than they might have been a couple of years ago. But again, we cannot call that on revenue yet. Carmen, I'll take the last question.

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Keith Frances Bachman: Thank you. Our last question comes from Keith Bachman with BMO. Hi, thank you very much, and congratulations on a really solid set of results for the quarter. I'll ask my question jointly, and could you please talk first about how you see the net retention rate unfolding for the year? And I realize that's a backwards looking metric, but I just want to understand how you're thinking about that as we progress through the year, even directionally. And the second broader question is about diversification. One of the interesting stats you gave was growth outside of your core, APM and Infra growing 75%. Are there any metrics you can give on what percent of that is your base or how we should be thinking about the diversification of the portfolio?

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David M. Obstler: In my opinion, Datadog certainly has the broadest portfolio in the category, and I'm just wondering how that diversity is contributing to your growth as we look ahead. And again, if I'm pulling from investor day, then I apologize. Yeah, so we do not provide guidance on net retention. I think we said that for the first time in Q4, we had more ARR ads than we had in the year-ago quarter. And that would indicate a stabilization of net retention, but it does not provide guidance.

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David M. Obstler: It's all incorporated in our revenue guidance. As far as platform, yes, totally. We've given a number of metrics about this. Remember, last quarter, we talked about the three pillars, and we said that we had essentially the billion, 500 million, and 500 million. And that's been a huge driver.

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Olivier Pomel: In terms of this metric, this is, in addition to that, a metric that the expansion, as you said, of the platform is further than those three pillars and is an additional product and is a significant driver of our growth. I will say, though, having the growth portfolio product also really helps with this consolidation deal in particular. Sometimes, maybe a couple of products are only going to get us 100K each as part of a $5 million deal, but having those two products helps the customer rationalize what they have on the other end, save a few million dollars, and help make the case for the other 4.8 million of the deal.

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Olivier Pomel: So it's really, the platform as a whole really has a strong impact beyond the revenue of some of the individual products. Okay, excellent. Thank you. Thank you. And with that, we conclude the Q&A session for now. I will turn it back to Olivier Pomel for final comments.

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Olivier Pomel: Thank you. Again, I want to thank you everyone at Datadog for a great year. All of our customers for going through what I know was a tougher time for them as well. We're actually very excited about what's coming in 2024. I think we have a great setup from a customer perspective, a great lineup on the product side, and we're excited to build. So thank you all, and thank you all for joining our call today. You may now disconnect, www.youtube.com.uk www.youtube.com.uk www.youtube.com.uk www.youtube.com.uk www.youtube.com.uk www.youtube.com.uk www.youtube.com.uk www.youtube.com.uk www.youtube.com.uk www.youtube.com.uk ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Don't forget to subscribe

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