Q1 2024 Datadog Inc Earnings Call
Unknown Executive: Good day, and thank you for standing by. Welcome to the first quarter 2024 Datadog earnings conference call.
Okay.
Speaker Change: Good day and thank you for standing by welcome to the first quarter of 2024 Teradata earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated.
Unknown Executive: At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Yuka Broderick, Vice President of El Paso Relations. Please go ahead.
Kiran Badri: Message of Mic in your hand as race to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded on I'd like to hand, the conference over to your first speaker today, you kept Badri Vice President of Investor Relations. Please go ahead.
Yuka Broderick: Thank you, Marvin. Good morning, and thank you for joining us to review Datadog's first quarter 2024 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's CFO. During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the second quarter and 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
Kapil Badri: Thank you Marvin and good morning, and thank you for joining us to review data dogs first quarter of 'twenty 'twenty four financial results, which we announced in our press release issued this morning.
Kurt Badri: Joining me on the call today are Olivier Flamel did at odds cofounder and CEO, David Oakes like data dog CFO.
Kurt Badri: During this call we will make forward looking statements, including statements related to our future financial performance our outlook for the second quarter and 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 will and.
Yuka Broderick: The words anticipate, believe, continue, estimate, expect, intend, will, and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31, 2023.
Kurt Badri: Similar expressions are intended to identify forward looking statements or similar indications of future expectations. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially for a discussion of the material risks and other important factors that could affect our actual results. Please refer to our Form 10-K for the year ended December 31 two.
Yuka Broderick: Additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ended March 31, 2024, 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 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
Kurt Badri: 23, additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ended March 31st 2024, 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 discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial.
Kurt Badri: Measures in the tables in our earnings release, which is available at investors dog eat dog HQ dotcom.
Olivier Pomel: With that, I'd like to turn the call over to Olivier.
Kurt Badri: With that I'd like to turn the call over to Olivier.
Olivier Pomel: Thank you, Kat, and thank you all for joining us this morning. We are pleased with our progress at the start of 2024. First, we have continued to broaden our platform across observability, cloud security, software delivery, as well as closing the loop with cloud service management. We have also continued to support our customers' adoption of new technologies, including NextGen AI and large language models. And we have continued to add new customers and to see existing customers increase their usage growth and product adoption. Let me start with a review of our Q1 financial performance. Revenue was $611 million, an increase of 27% year-over-year and above the high end of our guidance range.
Olivier Flamel: Thank you Scott and thank you all for joining us this morning.
Olivier Flamel: We are pleased with our execution at the start of 2024.
Olivier Pomel: First we have continued to broaden our platform across the deliverability got security software delivery as well as closing the loop with cloud service management.
Olivier: We also kept supporting our customers' adoption of new technologies, including next Nai and logging English models.
Olivier: And we have continued to add new customers and to see existing customers increase their usage growth and product adoption.
Olivier Pomel: We ended the quarter with about 28,000 customers, up from about 25,500 last year. We had about 3,340 customers with an ARR of $100,000 or more, up from about 2,910 last year. These customers generated about 87% of our revenue. And we generated free cash flow of $187 million with a free cash flow margin of 31%.
Speaker Change: Let me start with a review of our Q1 financial performance.
Speaker Change: Revenue was $611 million, an increase of 27% year over year and above the high end of our guidance range.
Speaker Change: We ended the quarter with about 28000 customers.
Speaker Change: About 25500 last year.
Speaker Change: We had about 3340 customers with an eight or 900000.
Speaker Change: In dollars or more.
Speaker Change: Asking about 2910 last year.
Speaker Change: These customers generated about 87%, although a R.
Speaker Change: And we generated free cash flow of $187 million with a free cash flow margin of 31%.
Olivier Pomel: Turning to Platform Adoption. Our platform strategy continues to resonate in the market. As of the end of Q1, 82% of customers were using two or more products, up from 81% a year ago. 47% of customers were using four or more products, up from 43% a year ago.
Speaker Change: Turning to cut some adoption.
Speaker Change: Our platform strategy continues to resonate in the market.
Speaker Change: As of the end of Q1, 82% of customers were using two or more products up from 81% a year ago.
Speaker Change: 47% of customers were using four or more products up from 43% a year ago.
Olivier Pomel: 23% of our customers were using six or more products, up from 19% a year ago, and 10% of our customers were using eight or more products, up from 7% last year. We continue to see robust growth in our three pillars of observability, infrastructure monitoring, APM, and log management. But we also have many younger products that are becoming more meaningful contributors to our business over time. For example, our products outside of Infrastructure Monitoring, APM Suite, and Log Management exceeded $200 million in AR in Q1. And as a reminder, within the APM Suite, we include Core APM, Synthetix, RUM, and Continuous Profiler.
Speaker Change: 23% of our customers were using six or more products up from 19% a year ago.
Speaker Change: And 10% of our customers were using eight or more products up from 7% last year.
Speaker Change: We continue to see robust growth in all three pillars of Absorbability infrastructure monitoring APM and log management.
Speaker Change: But we also have many younger products that are becoming more meaningful contributors to our business over time.
Speaker Change: For example, <unk>.
Speaker Change: Alex outside of infrastructure monitoring APM suite, and log management exceeded 200 million in a R. In Q1.
Speaker Change: And as a reminder, within the APM suite. We include core APM Synthetics run and continues to fire.
Olivier Pomel: And as we look at the 12 products that we launched between 2020 and 2022, those now contribute about 11% to our ARR. Of those 12 products, 8 are over 10 million in revenue, which is a nice milestone for these relatively new additions. And we are seeing some products go faster than we initially expected. For example, database monitoring is already 1% of our revenue, with strong and growing product penetration across our customer base.
Speaker Change: And as we look at the 12 products that we launched between 2020 and 2022, those now contribute about 11% to our a R.
Speaker Change: Of those 12 products eight out of $10 million, an hour, which is a nice milestone for this relatively new additions.
Speaker Change: And we are seeing some products grew faster than we initially expected for example database monitoring is already 1% of our revenue with strong and growing product penetration across our customer base.
Olivier Pomel: So we are very pleased with the progress of our newer products, even though we know we have much further to go with them. Now, let's discuss this quarter's business drivers. In Q1, we saw user growth from existing customers that was higher than in Q4. And this year's growth in Q1 was similar to what we experienced in Q2 and Q3 of 2022.
Speaker Change: So we are very pleased with the progress of on your product, even though we know we have much further to go with them.
Speaker Change: Now, let's discuss this quarter's business drivers.
Speaker Change: In Q1, we saw usage growth from existing customers that was higher than in Q4.
Speaker Change: And do you see this growth in Q1 was similar to what we experienced in Q2 and Q3 of 2022.
Olivier Pomel: As a reminder, that was the period when we started to see a normalization of usage following the accelerated growth we had experienced in 2021. Overall, we saw healthy growth across our product lines, and, as usual, our newer products grew at a faster rate from a smaller base. While some of our customers are continuing to be cost-conscious, we are seeing optimization activity reduce in intensity. As an illustration, the optimizing cohort we identified several quarters ago did grow sequentially again this quarter.
Speaker Change: As a reminder that was a period when we started to see a normalization of usage. Following the accelerated growth we have experienced in 2021.
Speaker Change: Overall, we saw healthy growth across our product lines and as usual while newer products grew at a faster rate from a smaller base.
Speaker Change: While some of our customers are continuing to be cost conscious we are seeing optimization activity reducing intensity.
Speaker Change: As an illustration the optimizing cohort we identified several quarters ago did grow sequentially again this quarter.
Olivier Pomel: We also see that customers are adopting more products and increasing their usage with us. We think this shows that they are moving forward with their cloud migration and digital transformation plans, and that we are executing on opportunities to consolidate point solutions into our platform. And finally, churn continues to be low, with gross revenue retention stable in the mid to high 90s.
Speaker Change: We also see that customers are looking more products and increasing use it with us.
Speaker Change: We think these shows that they are moving forward with their cloud migration and digital transformation plans and that we are executing on opportunities to consolidate point solutions into our platform.
Speaker Change: And finally churn continues to be low with gross revenue retention and stable in the mid to high Ninety's high.
Olivier Pomel: Highlighting the mission-critical nature of our platform for our customers. Moving on to R&D, we had another very productive quarter.
Speaker Change: I think the mission critical nature of our platform for our customers.
Speaker Change: Moving on to R&D.
Speaker Change: <unk> had another very productive quarter.
Olivier Pomel: In the next GEN-AI space, we announce the general availability of BIT-AI for incident management. By using Bits.ai for incident management, incident responders get auto-generated incident summaries to quickly understand the context and scope of a complex incident. And users can also query Bits.ai to ask about related incidents and perform tasks on the fly from incident creation to resolution. We're also continuing to see more interest in AI for more customers. As a data point, ARR for more next-gen AI customers was about 3.5% of our total.
In the Nexgen AI space, we announced general availability of <unk> AI for incident management.
Speaker Change: By using <unk> for incident management incident responders get auto generated incident summaries to quickly understand the context and scope of our complex incident.
Speaker Change: And users can also quarry beats AI to ask about related incidents and perform task on the fly from incident creation to regulation.
Speaker Change: We're also continuing to see more interest in AI for more customers.
Speaker Change: As a data point.
Speaker Change: If I'm a nexgen AI customers was about 3.5% of our total.
Olivier Pomel: A strong sign of the growing ecosystem of companies in this area to help customers understand AI technologies and bring them into products and applications. Our AI integrations allow customers to pull their AI data into the Datadog platform. And today, about 2000 of our customers are using one or more of these AI integrations. And we continue to keep up with the rapid innovation in this space, for example, adding new integration in Q1 with the NVIDIA Triton Ethernet server.
Speaker Change: But a strong sign of the growing ecosystem of companies in this area.
Speaker Change: To have customers understand AI technologies and bring them into production applications.
Speaker Change: Our AI integrations allow customers to pull the AI data and to do that on our platform.
Speaker Change: And today about 2000 of our customers are using one or more of these integrations.
Speaker Change: And we've continued to keep up with the rapid innovation in this space for example, adding a new integration in Q1 with the Nvidia tried to an Ethernet server.
Olivier Pomel: In the cloud service management area, we release event management in general availability. All customers face increasing complexity at scale, causing the volume of alerts and events to explode, which makes it difficult for teams to identify, prioritize, summarize, and route issues to the right responders. Event management addresses this challenge by automatically reducing a massive volume of events and alerts into actionable insights.
Speaker Change: In the cloud service management Arena, we released <unk> management in general availability.
Speaker Change: Our customers face increasing complexity at scale, causing the volume of alerts and events to explode.
Speaker Change: Which makes it difficult for teams to identify prioritize summarize and route issue sooner about responders.
Speaker Change: David Management addresses this challenge by automatically reducing a massive volume of events and alerts into actionable insights.
Olivier Pomel: These are then used to generate tickets, call an incident, or trigger an automated response, and by combining event management with Watchdogs, Bits.ai, and Workflow Automations, Datadog now provides a full AIops solution that helps teams automate remediation, proactively prevent outages, and reduce the impact of incidents. In the observability space, our log management product continues to expand its capabilities. In March, we made error tracking for logs generally available.
Speaker Change: Danny you used to generate the tickets.
Speaker Change: An incident or trigger an automated remediation.
Speaker Change: And by combining management with watch dogs, with AI and workflow automation.
<unk> now provides a full AI ops solution that helps teams automate remediation proactively prevent outages and reduce the impact of incidents.
Speaker Change: In the absurdity space.
Speaker Change: The management product continues to expand and capability.
Speaker Change: In March we made are tracking for logs generally available.
Olivier Pomel: Error tracking intelligently combines millions of errors from logs into a manageable number of issues for customers. And beyond error tracking, we are delivering new features to allow our customers to do more with their logs within the Datadog platform, starting with new query capabilities such as enhanced full-text search and support for advanced subqueries, both highly desired by our customers. We also continue to make progress with FlexLogs. As a reminder, FlexLogs allows customers to easily scale storage and compute separately, which in turn allows for new, very high-volume use cases in a cost-effective manner.
Speaker Change: Eric trucking intelligently combines millions of errors from logs into a manageable number of issues for customers.
Speaker Change: And beyond that we're tracking we're delivering new features to allow our customers to do more with their logs within the digital platform.
Speaker Change: Starting with nuclear capabilities, such as enhanced full text search and support for advanced sub queries, both highly desired by our customers.
Speaker Change: We also continue to make progress with flex logs.
Speaker Change: As a reminder reflects logs allow customers to easily scale storage and compute separately.
Speaker Change: Which in turn allows for new very high volume use cases in a cost effective manner.
Olivier Pomel: While FlexLogs remains in limited availability, we are seeing a high level of interest from customers, many of whom want to retain logs for long-term purposes such as audit, security, and compliance. And we're pleased to see that with only a limited set of customers so far, FlexLogs has already exceeded $10 million in AR today. In the digital experience area, we launched mobile app testing for general availability, giving access to fast, no code, reliable testing on real mobile devices, which was a big challenge for customers given the wide range of devices and operating systems in use by consumers.
Speaker Change: While flex loves it remains in limited availability, we are seeing a high level of interest from customers many of whom want to weaken logs for long term purposes, such as Audi security and compliance.
Speaker Change: And we were pleased to see that with only a limited set of customers. So far flex logs already exceed $10 million in <unk>.
Speaker Change: Today.
Speaker Change: In the digital experience area, we launched mobile up testing in general availability, giving access to fast no-code reliable testing on mobile devices, which was a big challenge for customers given the wide range of devices and operating systems in use by consumers.
Olivier Pomel: And in cloud cost management, we've added full support for Google Cloud, so FinOps and DevOps teams can optimize their cloud spend across their AWS, Azure, and GCP footprint. Cost management is another of our newer products that exceeds the $10 million ARM milestone, and we believe there's significantly more opportunity for us to have our customers there. As usual, I'd like to thank our product and engineering teams for the quarter, and I'm looking forward to the many announcements we'll make at our Dash the Conference in late June here in New York. Now, let's move on to sales and marketing. We've been pleased to once again add some exciting new customers and expand with many more. So let's go through a few examples.
Speaker Change: And in cloud cost management, we've added four support for Google Cloud, So seen ups and Dev ops teams can optimize their cloud spans across their AWS Azure and GCB footprint.
Speaker Change: Cut cost management is another of our newer products that exceeds the $10 million Rmi stone and we believe there is significantly more opportunity for us to help our customers there.
Speaker Change: As usual I'd like to thank our product and engineering teams for the quarter and I'm looking forward to the many announcements will make it our dash the conference in late June here in New York.
Speaker Change: Now, let's move on to sales and marketing.
Speaker Change: We've been pleased to once again add some exciting new customers and expand with many more.
Speaker Change: So let's go through a few examples.
Olivier Pomel: First, we signed a three-year, seven-figure expansion with a leading online grocery business. This customer has used Datadog as their platform of choice for several years. And as they migrate to Azure, they are looking to ensure reliability and security as they deploy at scale. With this renewal, they are adding cloud security management, application security management, and cloud theme to enable a shift to a DevSecOps culture in their organization, and this customer expects to add 7 products for a total of 14 across the Datadog platform. Next, in two deals over the past six months, we had a seven-figure expansion with a medical device company.
Speaker Change: First we signed a three year seven figure expansion with a leading online grocery business.
Speaker Change: This customer has used teladoc as their platform of choice for several years now.
Speaker Change: And as they migrate to Azure they are looking to ensure reliability and security as a deploy at scale.
Speaker Change: We lease renewal they are adding cloud security management application security management and cloud team to enable a shift to a desk Jacobs culture in the organization.
Speaker Change: And this customer expects to add seven products for a total of 14 across the digital platform.
Speaker Change: Next in two deals over the past six months, we had a seven figure expansion with a medical device company.
Olivier Pomel: This customer was primarily using infrastructure monitoring in APM Suite, but its legacy logging solution was becoming cost prohibitive, while a lack of correlation across siloed teams was causing frustration and higher time-series solutions. With this expansion, the customer plans to adopt nine products and consolidate its log management tool, as well as four other commercial and cloud-native tools into Datadog. We signed a high six-figure expansion with an athletic apparel company
Speaker Change: This customer was primarily using our infrastructure monitoring APM suite, but its legacy logging solution was becoming cost prohibitive, while the lack of correlation across siloed teams with coding frustration and higher time series solution.
Speaker Change: With this extension.
Speaker Change: <unk> plans to add up nine products and consolidated slow management tool as well as for other commercial and cloud native tools into that at all.
Speaker Change: Next we signed a high six figure expansion was in athletic apparel company.
Olivier Pomel: This company had a dozen disparate monitoring tools, which wasted time and would impact operations, revenue, and customer experience. With this expansion, the company plans to consolidate out of four commercial and open source point solutions. They also expect to save millions of dollars over the next several years while providing a great consumer experience. Next, we signed a high six-figure expansion with a European division of one of the world's largest carmakers.
Speaker Change: This company had a dozen disparate monitoring tools, which wasted time and was impacted operations revenue and customer experience.
Speaker Change: With this expansion the company plans to consolidate out of four commercial level principles point solutions.
Speaker Change: They also expect to save millions of dollars over the next several years, while providing a great consumer experience.
Speaker Change: Next we signed a high six figure expansion with a European division of one of the worlds largest carmakers.
Olivier Pomel: This customer has chosen Datadog as its observability vendor in many business units globally. And in Europe, they currently monitor about a quarter of the applications with us and are migrating hundreds of applications to fully move to Datadog in the next two years. With this expansion, this customer is using 8 products in the Datadog platform. Next, we sign a six-figure deal with a division of a Fortune 500 industrial company. The company is moving its e-commerce applications to Google Cloud.
This customer has chosen embedded dog observer ability lender in many business units globally.
Speaker Change: And in Europe. They currently monetary about a quarter of the obligations with us and are migrating hundreds of applications to fully move to get a dog in the next two years.
Speaker Change: With this expansion.
So margins in Ed products integrated platform.
Speaker Change: Next we signed a six figure land with a division of a fortune 500 industrial company.
Speaker Change: The company is moving its e-commerce applications, if you will cloud.
Olivier Pomel: They felt that using on-premises monitoring tools would not transition well to the cloud and are starting with three of our products as they are confident in Datadog's ability to keep innovating in modern cloud and serverless environments. Finally, we signed a six-figure deal with one of the world's largest communication infrastructure companies. This company started a cloud migration a couple of years ago and found itself limited by fragmented tooling and a lack of data correlation.
Speaker Change: There are you seeing on Prem monitoring tools would not tradition, well to the cloud and are starting with three of our products as they are confident in <unk> ability to keep innovating in modern cloud and server environments.
Speaker Change: Finally, we signed a six figure land with one of the worlds largest communication infrastructure companies.
Speaker Change: Please keep any federal cloud migration, a couple of years ago, and funded self limited by fragmented tooling and lack of direct correlation.
Olivier Pomel: In contrast, the Datadog service catalog gives them a single view for performance, ownership, security, SLOs, and KPIs, which its customers believe is a unique capability among the vendors it considers and which aligns with their goal of delivering centralized observability across the business. Additionally, this customer is adopting seven data products initially and consolidating out of four tools. And that's it for another Productive Quarter from our Go-To-Market teams. Now, let me say a few words on the longer term outlook.
Speaker Change: In contrast to that Doug service catalog gives them a single view for performance ownership security <unk> and Kpis.
Speaker Change: Which is customer believes is a unique capability amongst the vendors to consider and which aligns with our goal of delivering centralize them stability across the business.
Speaker Change: And these customers adopting seven data products initially and consolidated out of four tools.
Speaker Change: And thats it for another productive quarter and well go to market teams.
Speaker Change: Sure.
Speaker Change: Let me also a few words on our longer term outlook.
Olivier Pomel: Overall, we continue to see no change in a multi-year trend toward digital transformation and cloud migration. We are seeing improved usage growth with less impact from optimization than we had seen in the last few quarters. For those customers who are remaining cost-focused, we are very happy to help them get value from their observability solutions and consolidate into the Datadog platform to achieve time and cost savings. Meanwhile, we are seeing continued experimentation with new technologies, including a growing adoption of AI, which we believe will be an accelerator of technical innovation and cloud migration over time. And we're working every day to innovate and help our customers adopt new technologies with confidence and become better businesses in the process. With that, I will turn it over to our CFO. David
Speaker Change: Overall, we continue to see no change in a multi year trend towards digital transformation and cloud migration.
Speaker Change: We are seeing improved you said growth with less impact from optimization than we had seen in the last few quarters.
Speaker Change: For those customers who are remaining cost focused we are very happy to have them get value from the Arabs and ability solutions and consolidate into the data platform to achieve time and cost savings.
Speaker Change: Meanwhile, we are seeing continued experimentation with new technologies, including a growing adoption of AI, which we believe will be an accelerator of technical innovation and cloud migration over time.
Speaker Change: And we're working everyday to innovate and help our customers adopt new technologies with confidence and become better business. He is in the process.
Speaker Change: With that I will turn it over to our CFO David.
David M. Obstler: Thanks Olivier.
David M. Obstler: Q1 revenue was $611 million, up 27% year over year and up 4% quarter over quarter. Let's dive into some of the drivers of the Q1 performance.
David M. Obstler: Q1 revenue was $611 million up 27% year over year, and up 4% quarter over quarter to.
David M. Obstler: First, regarding usage growth. In Q1, we saw sequential usage growth from existing customers that was higher than the usage growth in Q4. Q1's usage growth was similar to what we experienced in Q2 and Q3 of 2022. And given this growth and off a larger base, our sequential ARR dollars added was the highest since Q4 2021. During Q1, we experienced a linearity pattern that was very typical for us, which included UCIS growth in March that was higher than in January and February.
David M. Obstler: To dive into some of the drivers of the Q1 performance first regarding usage growth in Q1, we saw sequential usage growth from existing customers that was higher than the usage growth in Q4.
David M. Obstler: Q1's usage growth was similar to what we experienced in Q2 and Q3 of 2022.
David M. Obstler: And given this growth and off a larger base our sequential AOR dollars added was the highest since Q4 2021.
David M. Obstler: During Q1, we experienced a linearity pattern that will it's very typical for US which included usage growth in March that was higher than January and February.
David M. Obstler: Regarding usage growth by customer size in Q1, we saw usage growth accelerate across our larger customers, those with $100,000 of annual spend or higher. And we saw particularly strong usage growth with our largest customers, who spend multiple millions of dollars with us annually. Geographically, we experience stronger year over year revenue growth in international markets than in North America. And finally, for our retention metrics.
David M. Obstler: Regarding NUCYNTA growth by customer size in Q1, we saw usage growth accelerate across our larger customers those with $100000 of annual spend or higher.
David M. Obstler: And we saw particularly strong usage growth with our largest customers who spend multiple millions of dollars with us annually.
David M. Obstler: Geographically, we experienced stronger year over year revenue growth in international markets than in North America.
David M. Obstler: And finally for our retention metrics are trailing 12 months net revenue retention was in the mid one hundreds in Q1 sorry.
David M. Obstler: Our trailing 12-month net revenue retention was in the mid-100s in Q1, sorry, in the mid-110s in Q1, similar to last quarter. Our trailing 12-month gross revenue retention continues to be stable in the mid to high 90s. Now moving on to our financial results. Billings were $618 million, up 21% year over year. Billings duration increased year over year. However, sequential billings growth was seasonally lower as it was in
Sorry in the mid 100 patents in Q1 similar to last quarter.
David M. Obstler: Our trailing 12 month gross revenue retention continues to be stable in the mid to high Ninety's.
Speaker Change: Now moving onto our financial results.
Speaker Change: Billings were $618 million up 21% year over year.
Speaker Change: Billings duration increase year over year.
Speaker Change: Sequential billings growth was seasonally lower as it was in Q1 2023.
David M. Obstler: Remaining Performance Obligations, or RPO, was $1.73 billion, up 52% year over year, and current RPO growth was in the low 40s percent growth year over year. RPO duration increased year-over-year but was down quarter-over-quarter as we saw fewer multi-year deals relative to last quarter. In general, we are continuing to see an increasing interest from our larger customers in multi-year commitments, which results in longer RPO duration in both total and current RPO. As a reminder, our RPO has been and continues to be lumpy, an effect that may be amplified as our customers move towards multi-year deals.
Speaker Change: Remaining performance obligations or RP O was $173 billion up 52% year over year and.
Speaker Change: And current <unk> growth was in the low 40% growth year over year.
Speaker Change: <unk> duration increase year over year, but was down quarter over quarter as we saw fewer multi year deals relative to last quarter and.
Speaker Change: In general we are continuing to see an increasing interest with our larger customers in multiyear commitments, which results in long our RP O duration in both total and current RP out.
Speaker Change: As a reminder, our RP O has been and continues to be lumpy and in fact that may be amplified as our customers move towards multi year deals.
David M. Obstler: We continue to believe revenue is a better indication of our business trends than billings and 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 key income statement results. Except as noted, all metrics are non-GAAP.
Speaker Change: We continue to believe revenue is a better indication of our business trends than billings and RP O. As those can fluctuate relative to revenue based on the timing of invoicing and the duration of customer contracts.
Speaker Change: Now, let's review some key income statement results.
Speaker Change: Unless otherwise noted all metrics are non-GAAP, we have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.
David M. Obstler: We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. First, gross profit in the quarter was $509 million, representing a gross margin of 83.3%. This compares to a gross margin of 83.4% last quarter and 80.5% 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.
Speaker Change: First gross profit in the quarter was $509 million, representing a gross margin of 83, 3%.
Speaker Change: This compares to a gross margin of 83, 4% last quarter and 85% in the year ago quarter. We continued to experience efficiencies in cloud costs reflected in our cost of goods sold as our engineering teams pursue cost savings and efficiency projects.
David M. Obstler: Our Q1 OPEX grew 14% year-over-year and increased from 10% year-over-year growth last quarter. As discussed last quarter, we intend to invest in headcount in 2024, and we have accelerated hiring, sales, marketing, and R&D to execute on our growth. Q1 operating income was $164 million, or a 27% operating margin compared to 28% last quarter and 18% in the year-ago quarter. And now turning to the balance sheet and cash flow statements, we ended the quarter with $2.8 billion in cash, cash equivalents, and marketable security. Cash flow from operations was $212 million in the quarter.
Speaker Change: Our Q1, Opex grew 14% year over year and increased from 10% year over year growth last quarter.
Speaker Change: As discussed last quarter, we intend to invest in head count in 2024, and we have accelerated hiring in sales and marketing and R&D to execute on our growth plans.
Speaker Change: Q1, operating income was $164 million or 27% operating margin compared to 28% last quarter and 18% in the year ago quarter.
Speaker Change: And now turning to the balance sheet and cash flow statements. We ended the quarter with $2 $8 billion in cash cash equivalents in marketable securities cash flow from operations was $212 million in the quarter.
David M. Obstler: After taking into consideration capital expenditures and capitalized software, free cash flow was $187 million for a free cash flow margin of 31%. Now for our outlook for the second quarter and the fiscal year 2024. Our guidance philosophy remains unchanged.
Speaker Change: After taking into consideration capital expenditures and capitalized software free cash flow was $187 million for free cash flow margin of 31%.
Speaker Change: Now for our outlook for the second quarter and the fiscal year 2024.
Speaker Change: Our guidance philosophy remains unchanged.
David M. Obstler: As a reminder, we base our guidance on trends observed in recent months and apply conservatism to these growth trends. So, for the second quarter, we expect revenue to be in the range of $620 to $624 million, which represents a 22% year-over-year growth. Non-GAAP operating income is expected to be in the range of $134 to $138 million, which implies an operating margin of 22%. In Q2, we will be holding our Dash User Conference, which we estimate to cost about $11 million.
Speaker Change: As a reminder, we based our guidance on trends observed in recent months and apply conservativism on these growth trends.
Speaker Change: So for the second quarter, we expect revenue to be in the range of $620 million to $624 million, which represents a 22% year over year growth.
Speaker Change: non-GAAP operating income is expected to be in the range of $134 million to $138 million, which implies an operating margin of 22%.
Speaker Change: In Q2, we will be holding our dash user conference, which we estimate to cost about $11 million. Our operating income guidance reflects this event.
David M. Obstler: Our operating income guidance reflects this event. Non-GAAP net income per share is expected to be $0.34 to $0.36 per share based on approximately $360 million weighted average diluted shares outstanding. For fiscal year 2024, we expect revenue to be in the range of $2.59 to $2.61 billion, which represents 22 to 23% year-over-year growth. Non-GAAP operating income is expected to be in the range of $585 to $605 million, which implies an operating margin of 23%. And non-GAAP net income per share is expected to be in the range of $1.51 to $1.57 per share, based on approximately 361 million weighted average diluted shares outstanding.
Speaker Change: non-GAAP net income per share is expected to be 34 to 36 per share based on approximately $360 million million weighted average diluted shares outstanding.
Speaker Change: For fiscal year 2024, we expect revenue to be in the range of 2.59 to six 1 billion, which represents 22% to 23% year over year growth.
Speaker Change: non-GAAP operating income is expected to be in the range of $585 million to $605 million, which implies an operating margin of 23%.
Speaker Change: And non-GAAP net income per share is expected to be in the range of $1 51 to $1 57 per share based on approximately 361 million weighted average diluted shares outstanding.
David M. Obstler: Now for some additional notes on our guidance. First, we expect net interest income and other income together for fiscal 2024 to be approximately $110 million. Next, we expect cash taxes in 2024 to be in the $20 to $25 million range, and we continue to apply a 21% non-gap tax rate for 2024 and going forward. And finally, we continue to expect capital expenditures and capitalized software together to be three to four percent of revenues in fiscal 2024. To summarize, we are pleased with how we started 2024, and I want to thank Datadogs worldwide for their efforts. And now, with that, we will open the call for questions. Operator, let's begin the Q&A.
Speaker Change: Now for some additional notes on our guidance.
Speaker Change: First we expect net interest income.
Speaker Change: And other income together for fiscal 2024 to be approximately $110 million.
Speaker Change: Next we expect cash taxes in 2024 to be in the $20 million to $25 million range and we continue to imply apply a 21% non-GAAP tax rate for 2024 and going forward.
Speaker Change: And finally, we continue to expect capital expenditures and capitalized software together to be 3% to 4% of revenues in fiscal 2024.
Speaker Change: To summarize we are pleased with how we started 2024.
Speaker Change: And one and I want to thank data dogs worldwide for their efforts.
Speaker Change: And now with that we will open the call for questions operator, let's begin the Q&A.
Unknown Executive: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Sanjit Singh of Morgan Stanley. Your line is now open.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Sanjay <unk> of Morgan Stanley. Your line is now open.
Sanjit Kumar Singh: Thank you for taking the questions. It was encouraging to see that usage trends continue to improve sequentially from Q1 over Q4. I wanted to see if you could put the usage trends you're seeing in your business in context of the broader cloud landscape. And we're seeing some really nice results from the hyperscalers Obviously, you know, those are much larger businesses and can be in different product areas. But when we think about the tailwinds of like cloud migrations and also AI workloads starting to come on board, How is that playing out in Datadog's business versus what we may be seeing from companies like the hyperscales who seem to be accelerating to a higher degree?
Sanjay: Thank you for taking the questions. It was encouraging to see that usage trends continue to improve at least sequentially Q1 over Q4 also wanted to see if you could put like the user trends youre seeing in your business and.
Sanjay: In context of like the broader cloud landscape, though we're seeing some really nice results out of the Hyperscale. There's obviously.
Sanjay: Those are much larger businesses and indifferent.
Can be in different product areas, but when we think about the tail winds of like cloud migrations and also AI workloads starting to come on board.
Sanjay: How does that how is that playing out in data Douglas business versus.
Sanjay: What we may be seeing from like the hyperscale or who are seem to be accelerating to it to a higher degree.
Olivier Pomel: Yeah, hi Sanjit, this is Olivier. So I think, in general, it's hard to draw a precise quarter by quarter one to one mapping between revenue and the cloud providers and our revenue. I think you pointed out there are things in their products that don't relate to us directly, or things that enter the revenue that don't relate to us directly. We have products that don't tie one to one with infrastructure on their end.
Speaker Change: Yeah, Hi, this is <unk>.
Speaker Change: Okay. So.
Speaker Change: I think in general.
Speaker Change: It's hard to be too precise quarter by quarter, one to one mapping between the revenue undercut providers and our revenue.
Speaker Change: I think you pointed out there.
Speaker Change: We are seizing their products that don't relate to us directly or things that enter our revenue had alluded to or directly we have products that don't tie one to one with.
Speaker Change: In fact I'm sure on their end.
Olivier Pomel: But in general, over the longer term, we are very exposed to the growth trend you will see with cloud providers, and the correlation you've seen in the past between our businesses, we expect will remain in some form in the future. We're also very exposed to the same tailwinds of cloud migration but also AI adoption. I will say also on AI adoption that some of the revenue jumps you might see from the cloud providers might relate to the supply of GPUs coming online and a lot of training clusters being provisioned.
Speaker Change: But in general over the longer term, we are very exposed to the growth trend you will see with the cloud providers and the correlation you've seen in the past.
Speaker Change: Between all businesses, we expect will remain in some form in the future. We also are very exposed to the same tailwind obviously card migration, but also AI adoption will fail, so NII adoption that.
Speaker Change: Some of the revenue jumps you might see from the cloud providers might relate to.
Olivier Pomel: And those typically won't generate a lot of new usage for us. We tend to be more correlated with the live applications, production applications, and inference workloads that tend to follow after that, and that are more tied to all of these applications going into production. So these are the things that factor. But overall, 10 trends, just not a one-to-one timing.
Speaker Change: Supply of Gpus, coming online and a lot of training closer to being provision and those typically will generate a lot of new.
Speaker Change: Use it for us we tend to be more correlated with the live applications products and applications in inference workloads that tend to follow after that and that are more tied to all of these applications going into production.
Speaker Change: So these are these are the things that factor, but overall same trends.
Speaker Change: Just not a one to one timing.
David M. Obstler: That makes complete sense, and I was wondering if you had any comments on how YouTube trends coming out of March would seem to be stronger than in the beginning of Q1, and how that sort of played out in April.
Speaker Change: That makes complete sense and I was wondering if it any comments on how you should trends coming out of March would seem to be stronger than in the beginning of Q1, how that sort of played out in April.
David M. Obstler: Sure. Hey Sanjit, how are you? I'm David here.
Speaker Change: Sure Hey, Sanjay how are you.
David M. Obstler: David here.
Sanjay: As we always say, we try to look into the next month, but that's a small time set in this case the April trends continue to exhibit higher sequential growth rates than the year ago quarter.
David M. Obstler: As we always say, we try to look into the next month, but that's a small time set. In this case, the April trends continue to exhibit higher sequential growth rates than the year ago quarter. But we warn everybody that one month does not a quarter make. And we'll continue to update that next quarter as we report.
David M. Obstler: But we you know we caution everybody that.
David M. Obstler: One month does not a quarter make and we'll continue to update that next quarter as we report in 2019 in Q1 was.
Olivier Pomel: At the end of the season, I think Q1 was a very usual every year. There's a drop around the holidays, and Q1 in January starts slowly, and then it accelerates into March. And we've seen that pretty much everything else so far. And we've seen it this year as well.
David M. Obstler: It's very usual.
David M. Obstler: Every year Theres, a drop around the holidays in Q1 and are generally start slowly and then it accelerates into into March and we've seen that pretty much everything we know so far and with senior Dci as well.
Olivier Pomel: I appreciate it, Connor. Thanks, Olivier. Thanks, David. And thank you one more for our next question.
Speaker Change: I appreciate the color. Thanks, Olivia Thanks, David.
Unknown Executive: Thank you one moment for our next question. Our next question comes from the line of Mark Murphy of J.P. Morgan. Your line is now open.
Speaker Change: Thank you Omar for next question.
Speaker Change: Our next question comes from the line of Mark Murphy of Jpmorgan. Your line is now open.
Mark Ronald Murphy: Thank you so much and congratulations on the revenue acceleration during the quarter. Olivier, I'm wondering how commonly customers in your Gen AI cohort are using Datadog to monitor for bias and hallucinations within their AI models, as opposed to just keeping the systems running. And also, do you see more concentration of customers within that cohort, or is there actually more diversity as more of the models move beyond the training stage and into the inferencing stage?
Mark Ronald Murphy: Alright. Thank you so much and congratulations on the revenue acceleration during the quarter Olivier.
Mark Ronald Murphy: I'm wondering how commonly are customers in your gen AI cohort using data dog to monitor for bias.
Mark Ronald Murphy: Hallucinations within their AI models.
Mark Ronald Murphy: As opposed to just keeping the systems running and.
Mark Ronald Murphy: Also do you see more concentration of customers within that.
Mark Ronald Murphy: <unk> or is there actually more diversity as more of the models moved beyond the training stage and into the Inferencing Fitch.
Olivier Pomel: So we have products for monitoring not just the infrastructure but what the LLMs are doing. Those products are still not in GA, so we're working with a smaller number of design partners for those, as I think not only these products are maturing, but also the industry around us is maturing, and more of these applications are getting into production. You should expect to hear more from us on that topic in the near future.
Mark Ronald Murphy: So we have product.
Mark Ronald Murphy: For monitoring not just the infrastructure, but what the airlines are doing those products are still not in <unk>. So we're working with a smaller number of design partners for that.
Mark Ronald Murphy: I think not only to these products are maturing, but also the industry around us is maturing and more of these.
Mark Ronald Murphy: Applications are getting into production you should expect to hear more from us on that topic in the in the near future.
Olivier Pomel: The customers we have that are the most scaled on AI workloads are the model providers themselves, and they tend to have their own infrastructure for monitoring the quality of the models. But we think they're a good bellwether in terms of what the adoption of AI is going to be from all the other companies, and we definitely see a trend where customers start with an API-driven or API-accessible model, build applications, and then offload some of that application to other models that typically come from open source, and they might train and fine-tune themselves to get to a lower cost.
Mark Ronald Murphy: The customers we have that are the most scaled on AI workloads automotive providers himself and they tend to have their own infrastructure.
Mark Ronald Murphy: For monitoring the quality of the malls.
Mark Ronald Murphy: But we think they're a good bellwether in terms of the adoption of AI is going to be from all the other companies and we definitely see a trend where customers start with the API driven or IP access IBO model.
Mark Ronald Murphy: Build applications and then offload some of that application to other models.
Mark Ronald Murphy: That typically come from the open source and they might they might.
Mark Ronald Murphy: Training fine tuned himself.
Mark Ronald Murphy: To get to a lower cost than <unk>.
Mark Ronald Murphy: Okay.
Mark Ronald Murphy: Lower time to Islam.
Olivier Pomel: I understand. Okay.
Speaker Change: I understand Okay, and then David you had mentioned I think last quarter that the cloud native spending had rebounded it was outpacing the broader business.
Speaker Change: Just to clarify are you, saying that the traditional large enterprise business during Q1.
Speaker Change: You picked up in terms of the cloud migration activity as the Hyperscale.
David M. Obstler: Might have suggested was that just wondering if you could double click on that comment and whether there was something really noticeable intangible there among the large enterprise more traditional businesses.
David M. Obstler: And then, David, you had mentioned, I think, last quarter that cloud native spending had rebounded and was outpacing the broader business. And just to clarify, are you saying that the traditional large enterprise business during Q1 picked up in terms of cloud migration activity, as the hyperscalers might have suggested? Was that, I'm just wondering if you could double-click on that comment and whether there was something, you know, really noticeable and tangible there among the large enterprise, more traditional business? Yeah, we saw, um, we
Speaker Change: Yes, we saw we said we saw.
Speaker Change: Growth accelerate in our larger customers.
Speaker Change: Including the larger cloud native and enterprise. So we did see.
Speaker Change: More normal activity, including new workloads in both of those cohorts.
David M. Obstler: Yeah, we saw, we said we saw growth accelerate in our larger customers, including the larger cloud natives and enterprises. So we did see more normal activity, including new workloads in both of those cohorts. Thank you.
Speaker Change: Thank you.
Unknown Executive: Thank you. One moment for the next question. Our next question comes from the line of Cash Reagan of GS. Your line is now open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Kash Rangan of Ges. Your line is now open.
Cash Reagan: So good to go right after Mark. Congratulations to the team on the very good results here. Olivier, I was wondering if you could talk about the consolidation trend that you're talking about. It looks like the pace of consolidation and also the intensity of lands and expanse seems to be a bit more remarkable at the starting point of this calendar. So if you could expand on that a little bit and one for you, David, our CRPO has been accelerating.
Kasthuri Gopalan Rangan: So good to go right after Mark congratulations.
Kasthuri Gopalan Rangan: To the team.
Kasthuri Gopalan Rangan: Very good results here Olivier I was wondering if you could talk about the consolidation trend that youre talking about the it looks like the pace of consolidation and also the intensity of lands and expense seems to be a bit more for market will start starting part of business categories. So if you could expand on that a little bit on one thing.
Kasthuri Gopalan Rangan: David.
Cash Reagan: I think it's been low 20s to 30s to 40s over the last few quarters, but revenue expectations have not edged up pretty significantly. So can you just talk about the lead lag effect, granted that you always try to tell us that revenue is the best indicator. Nonetheless, it's hard to dismiss the CRPO acceleration we've seen off of the last few quarters.
Kasthuri Gopalan Rangan: <unk> has been accelerating.
Kasthuri Gopalan Rangan: <unk> 2034 days over the last few quarters.
Kasthuri Gopalan Rangan: But revenue expectations have not.
Kasthuri Gopalan Rangan: Hedged up pretty significantly so can you just talk about the lead lag effect.
Kasthuri Gopalan Rangan: But you're always trying to tell us that revenue is the best indicator with nonetheless, it's hard to dismiss the <unk> acceleration we've seen off of.
Olivier Pomel: Thank you so much.
Speaker Change: The last few quarters. Thank you so much.
Olivier Pomel: Yes, so I'll let David speak about the CRPO dynamics, but we, so look, we've seen over the past couple of years, really, but really the past two quarters, more consideration than we've seen in the past. In part driven by customers wanting to, being cross-country, wanting to save money, but in part also by customers getting a little bit further into their cloud migration and rationalizing what they're using as far as they do that.
Speaker Change: Yes, so and let David speak about that.
Speaker Change: The CRP aerodynamics Padilla.
David M. Obstler: So look we've seen over the past.
David M. Obstler: A.
David M. Obstler: A couple of years really but really the past few quarters.
David M. Obstler: More consideration that we've seen in the past.
Olivier Pomel: So we keep saying that we've mentioned a number of those deals in the examples we've given. That's a large part of what our enterprise business is doing, in particular. There's no particular change in Q1 compared to what we've seen in Q4 before. However, we typically do a lot of larger deals in Q1 compared to Q4 seasonally, in general. To the point you made earlier, we do typically see a bit of a lag between these big consolidation deals and the moment when we see our revenue recognized.
David M. Obstler: In part driven by customers wanting to.
David M. Obstler: I mean cost countries wanting to save money, but in parallel so that customers getting a little bit further into their cloud migration and rationalizing where they're using as far as they do that.
David M. Obstler: So we keep saying that we've mentioned a number of those deals.
David M. Obstler: Deals in the examples we've given.
David M. Obstler: That's a large part of what our enterprise business is doing in particular Theres No particular change in Q1 compared to what we've seen in Q4 before you know Q1 is we typically do a lot of larger deals.
David M. Obstler: In Q1, and Q4 compared to Q1 seasonally in general.
David M. Obstler: To the point you made earlier.
David M. Obstler: We do see typically a bit of a lag between these big consolidation deals in the moment, where we see our revenue.
Olivier Pomel: Typically, when we consolidate products, what we'll see is we'll assume the ramp time for moving usage from other products to our platform over what can be a number of quarters or even years sometimes, and it might take some time for those deals to materialize in revenue. On the flip side, we also have a number of deals where customers are growing very quickly in their usage, and we capture new commitments with them that might lag a little bit their consumption and the revenue we recognize. So we see a little bit of both. David, do you want to speak a little bit more? Sure.
David M. Obstler: <unk> recognized.
David M. Obstler: Typically when we consolidate products we'll see.
David M. Obstler: Oh.
David M. Obstler: I assume the ramp time for moving.
David M. Obstler: Usage from other products to our platform over what can be a number of quarters or even years sometimes.
David M. Obstler: It might take some time for those deals to those numbers to materialize into revenue.
David M. Obstler: <unk>.
David M. Obstler: On the flip side, we also have a number of deals where.
David M. Obstler: Customers are growing very quickly to their usage and we capture new commitments with them that might lag a little bit.
David M. Obstler: There are.
David M. Obstler: The consumption and the revenue we recognize so we see a retail booth.
David M. Obstler: Sure. Similar to what we said last time, we are seeing our customers, particularly our larger customers, commit longer to us. That can be multi-year deals or even out towards the weighted average towards annual deals, as opposed to, you know, shorter-term deals. So basically, it is a positive in that it does connote that clients are committing to Datadog more as their core platform. It is a trend that we're seeing, particularly among larger customers.
David M. Obstler: David do you want to speak a little bit more sure similar to what we said last time, we are seeing our customers, particularly our larger customers.
David M. Obstler: Commit longer to us.
David M. Obstler: That can be multi year deals or even out towards.
David M. Obstler: The weighted average towards annual deals as opposed to shorter term deals.
David M. Obstler: So I.
David M. Obstler: Basically it is a positive and that it does can note that clients are committing to data dog more as their core platform.
David M. Obstler: But we repeat what we said, that really, how we contract and bill is not necessarily one to one correlated with our revenues. Our revenues are correlated with our usage, so it's a positive, but I think that we want to keep everybody grounded on our revenues as the most important metric, and then, secondarily, our ARR as predicting future revenue growth.
David M. Obstler: It is a trend that we're seeing particularly in larger customers, but we're repeating what we said that really how we contract and bill is not necessarily one to one correlated with our revenues our revenues are correlated with our usage. So it's a pause.
David M. Obstler: <unk>, but I think that we want to keep everybody grounded on our revenues as the most important metric and then secondarily are a R. R as predicting future revenue growth.
David M. Obstler: Wonderful. Thank you so much and congratulations. Thank you. One moment for our next question.
Speaker Change: Wonderful. Thank you so much and congrats.
Speaker Change: Thank you gentlemen for next question.
Unknown Executive: Our next question comes from the line of Raimo Lenschow of Barclays. Your line is now open.
Speaker Change: Our next question comes from the line of Raimo <unk> of Barclays. Your line is now open.
Raimo Lenschow: Thank you. Going back to the workload migration that seems to be kicking back in again from listening to the hyperscalers, you talked about the timing difference there. I wanted to kind of ask about a different aspect here. And that's kind of your sales capacity and the ramp and sales capacity that we should think about. Can you speak about where you are at the moment, in terms of capacity, and then as the market reaccelerates, like, what sort of investment we should think about there? Thank you.
Raimo: Thank you.
Raimo: Going back to the workload migration that seems to be kicking back in again from listening to the hyperscale lessons.
Raimo: You talked about the timing difference there.
Raimo: I wanted to kind of ask on a different aspect here and thats kind of curious sales capacity.
Raimo: And sales capacity that we should think about it like can you speak about like where you are at the moment.
Raimo: In terms of capacity and then as the market reaccelerate like what sort of investments should we think about there. Thank you.
Olivier Pomel: So we're growing our sales capacity. We've been growing it for the past few years. We grew it a little bit slower, mostly last year, as we were careful about profitability and not getting too far ahead of ourselves in what looked like a tough market. But we're definitely growing sales capacity. And there's a ramp model that is associated with that. So the capacity typically lags a little bit behind the growth in terms of headcount. It takes time for people to be productive.
Raimo: So where we're growing sales capacity.
Raimo: We've been growing it for the past few years, we grew it a little bit slower most Louis last year.
Raimo: We were careful about profitability and not getting too far ahead of ourselves.
Raimo: Looks like a tough market, but we are definitely growing sales capacity and there was a rent.
Raimo: Moral that is associated with that so.
Raimo: The capacity typically lags a little bit.
Raimo: The growth in terms of head count.
David M. Obstler: But we're investing, and we're growing. And long-term sales capacity is very much calibrated to revenue and UAR growth. As Ali mentioned, there are periods where it will move higher than that as we make investments.
Raimo: It takes time for people to be productive, but we're investing we're growing.
Raimo: Yeah long term sales capacity is is very much calibrated to.
Raimo: Revenue in <unk> growth.
Raimo: As Ali mentioned, there are periods, where it will move a higher than that as we make investments and there's periods, where we might optimize I think last year was a period, where we digested previous investments optimize debate and we said this year we're leaning into.
David M. Obstler: And there are periods where, you know, we might optimize. I think last year was a period where we digested previous investments and optimized a bit. And we said this year, we're leaning into the expansion of our sales capacity and investment. But long term, it correlates with revenue.
Raimo: Expansion of our sales capacity and divestment, but long term it correlates with revenue and we look at that we look at do we have enough sales capacity relative to what we see as the demand in the market the territories and the expected the AOR growth to give you a just a tiny bit more color like one of the big.
Olivier Pomel: And we look at that; we look at whether we have enough sales capacity relative to what we see as the demand in the market, the territories, and the expected UAR growth. To give you just a little bit more color, like one of the big areas of focus inside the company is ramping up recruiting again, you know, so we're recruiting a lot faster, a lot more than we were last year. And so we had to rev up that recruiting engine again. I think they're listening to us. I want to congratulate our business recruiting team there for doing a fantastic job really bringing that engine back up.
Raimo: Areas of focus inside of companies ramping up recruiting again, so we are recruiting a lot faster a lot more than we were last year and so we had to ramp up that recruiting engine again, I won't I won't I think they're listening to us I want to congrats.
Raimo: Congratulate our business recruiting team there for doing a fantastic job really bringing that engine backup.
Olivier Pomel: Perfect. Hey, thank you. That's really encouraging. Thank you. One moment for our next question.
Speaker Change: Perfect. Thank you.
Raimo: Perfect.
Speaker Change: Thank you Bob for next question.
Unknown Executive: Our next question comes from the line of Matt Hedberg of ArtBC. Your line is now open. Great, thanks for taking my questions, guys.
Raimo: Our next question comes from the line of Matt Hedberg of RBC. Your line is now open.
Matthew George Hedberg: Great. Thanks for taking my questions guys.
Matthew George Hedberg: Ali you mentioned newer products.
Matthew George Hedberg: You need to do really really well you gave some interesting data on database monitoring for instance, I'm wondering are these newer products resonating up and down your customer base or are these some of these cross sell statistics stronger.
Matthew George Hedberg: Some of your bigger.
Matthew George Hedberg: Bigger customers.
Matthew George Hedberg: Yes, so it really depends on the product. Some products are extremely broad in terms of their appeal. And some others are really more directed at certain types of customers, you know, for example, or products that have to do with monitoring physical networks. They tend to be more appealing to larger, older enterprises because they're the ones with large physical footprints. Whereas products like cloud cost management, for example, or even database monitoring, have a very, very broad appeal.
Ali: Yes so.
Ali: It really depends on the product.
Matthew George Hedberg: Some products are extremely broad based in terms of their appeal.
Matthew George Hedberg: And some others are really more directed at certain types of customers. For example are products that have to do is.
Matthew George Hedberg: Monitoring physical networks.
Matthew George Hedberg: They tend to be more appealing to larger older enterprises, because they are the ones with large physical footprint.
Matthew George Hedberg: Whereas products.
Matthew George Hedberg: Management for example, or even better live monitoring have very very broad appeal, because every single customer cares about their cloud cost and every single customer is using that it is at the center of their applications and that absolutely critical to understand.
Matthew George Hedberg: Every single customer cares about their cloud costs, and every single customer is using databases that are at the center of their applications and that are absolutely critical to understand. And we mentioned those products because, really, we see those as our efforts paying off in terms of broadening the offering and investing in R&D. And these are green shoots that we expect to grow into the future. Some of those products we have extremely high expectations for because they correspond to very large categories, which we think can be very meaningful to the business in the long run. Some others are surprising us a little bit.
Matthew George Hedberg: And we mentioned those products.
Matthew George Hedberg: And really we see that as the.
Matthew George Hedberg: Our efforts paying off in terms of broadening the offering and invested in R&D and as a green shoot.
Matthew George Hedberg: That we expect to grow into the future of some of those products, we have extremely high expectations for because they correspond to the loss category, which we can think can be very meaningful to the business in the long run.
Olivier Pomel: That's why we mentioned database monitoring. We were not sure if it was going to be a huge category in the cloud environment, but it turns out not only is there a very big problem our customers need us to solve there, but also this product hits that problem head on from day one, really, and we expect, now we expect a lot more from it. Got it. Thanks a lot. Congratulations on the results.
Matthew George Hedberg: Some others are surprising us it will be that's why we mentioned database monitoring and we were not sure. If it was going to be a huge category in cloud environment, but it turns out not only is there a very big problem for customers solve there, but also this product hit T that problem on their on their head.
Matthew George Hedberg: From day, one really and we expect now we expect a lot more from it.
Speaker Change: Got it thanks, a lot congrats on the results guys.
Unknown Executive: Thank you one moment for the next question. Our next question comes from the line of Fatima Boolani of Citi. Your line is now open.
Speaker Change: Thank you Ron for next question.
Speaker Change: Our next question comes from the line of Fatima <unk> of Citi. Your line is now open.
Fatima: Good morning, Thank you for taking my questions.
Fatima: David you explicitly mention that the international book of business and activity was stronger than domestic so I wanted to better understand.
Fatima: Some of the more intrinsic and maybe extrinsic dynamics that are driving that divergence in terms of geographic theater performance and if you could sort of help us understand.
Fatima: And Mark add a product based.
Matthew George Hedberg: We're we're a budgetary.
Speaker Change: Just some distinctions that would be very helpful. Thank you.
Fatima Aslam Boolani: Yeah, it's very similar to what we've been saying over time; the international markets have been more immature as to their cloud migrations and their deployment of digital applications, then North American markets, and we've been more immature in terms of our footprint. So we've talked about some examples, on Investor Day and otherwise, of places like Brazil and Korea, to name just a couple, where we are seeing an increase in activity as well as an increase in our deployment of our capacity, which has resulted in an uptick of international demand over time.
Mark Ronald Murphy: Yes, it's very similar to what <unk> been saying over time, the international markets have been more immature as to their cloud migrations and our deployment of digital applications than than the North American markets and we've been more immature in terms of our footprints. So we've talked about some examples in investor day, and otherwise a place.
Mark Ronald Murphy: As like Brazil, and Korea to name just a couple where we are.
Mark Ronald Murphy: <unk>, an increase of activity as well as an increase of our deployment of our capacity, which has resulted in an uptick of the international demand over time for us to be successful.
Olivier Pomel: Yeah, for us to be successful, there are two factors that are needed. So, first one is, cloud adoption needs to happen, because we can't run it without it. And the second one is we need to deploy sales capacity and grow sales capacity. And that's really the combination of the two.
Mark Ronald Murphy: Two factors that are.
Mark Ronald Murphy: They are not needed. So the first one is cut adoption needs to happen.
Mark Ronald Murphy: Because we.
Mark Ronald Murphy: And the second one is we need to deploy sales capacity and grow sales capacity and Thats really a commission of the tube in most markets today cloud adoption is happening in the field, maybe a few holdouts that although it's lower.
Mark Ronald Murphy: And but we're not yet deploying enough sales capacity everywhere and that's one of our bigger rather focus as I mentioned earlier.
Olivier Pomel: In most markets today, cloud adoption is happening; there's still maybe a few holdouts that are a little bit slower, but we're not yet deploying enough sales capacity everywhere. And that's one of our big areas of focus, as I mentioned earlier. Thank you.
Speaker Change: Thank you.
Unknown Executive: Thank you. I'll move it for our next question. Our next question comes from the line of Brent Doe of Jeffries. Your line is now open.
Speaker Change: Thank you Amit for next question.
Speaker Change: Our next question comes from the line of Brent Thill of Jefferies. Your line is now open.
Brent John Thill: Good morning, David good margins, 27%, but youre guiding the full year to 23.
Brent John Thill: I know you mentioned, you're stepping on the sales investments, but anything else that's coming into the investment mix. This year that is different than we've seen in the past years to drive that margin lower throughout the year.
Brent John Thill: If sales and R&D investment we are, you know, we have both the sales capacity and the whole ecosystem that we've been talking about. And, you know, as Ali often says, we have more high return product projects, then we always have capacity and are you know attempting to make the appropriate investment so it's really that we are layering in we all said all along that this can't be changed headcount can't be changed as quickly as revenues so we have periods where we're investing more than revenue growth or less and this year is the one where we're coming from a more conservative posture of last year into more investment in both R&D and sales and marketing there's nothing one time or special it relates to both sales capacity and R&D projects Ali anything else yeah again I mean I bring it back to what I was saying earlier a big focus internally is recruiting and making sure that we go fast enough there I would say one more thing Last year, when the market was slowing down, most of our peers have let off their recruiting teams.
Brent John Thill: Our sales and R&D investment we are we have both the sales capacity and the whole ecosystem that we've been talking about and.
Brent John Thill: As Ali often says we have more high return product projects. Then we always have capacity an art attempting to make the appropriate investments. So it's really that we are layering in we saw set all along that this can't be changed head count can't be changed.
Mark Ronald Murphy: As quickly as revenues so we have.
Mark Ronald Murphy: <unk>, where we're investing more than revenue growth or less and this year is the one where we're coming from a more conservative.
Mark Ronald Murphy: Oster of last year into more investment in both R&D and in.
Mark Ronald Murphy: Sales and marketing, there's nothing one time or special it relates to both sales capacity and R&D projects Ali anything out yet again.
Mark Ronald Murphy: Bringing it back to what I was saying earlier.
Mark Ronald Murphy: A big focus internally.
Brent John Thill: And we didn't do that. Because we knew our success would depend on raising the recruiting engine backup and bringing in the engineering and sales team fast enough for us to go after the gigantic market opportunity we have. So we're very happy we haven't done that.
Mark Ronald Murphy: Is recruiting.
Mark Ronald Murphy: And making sure that we grow fast enough there I will say one more thing.
David M. Obstler: But we still have a lot of work to do to recruit enough of the right people fast enough. I'd add, as we always have said, that we have a very efficient, scalable market business, and we, you know, control the pace of our investments. And at the same time that we're investing, we've been investing in efficiency projects, like we talked about in the cloud, to balance those things to deliver a strong profitability posture with strong investment. David, can I just ask a quick clarification on commitment, overage, and usage?
Mark Ronald Murphy: Last year, when the market was slowing down.
Mark Ronald Murphy: Most of our peers have laid out there recruiting teams and we didn't do that because we knew we need to.
Mark Ronald Murphy: Our success will depend on readying, the recruiting engine backup and going to engineering and sales team fast enough.
Mark Ronald Murphy: For us to go after the January market opportunity. We have so we're very happy with having done that but we still have a lot of work to do to recruit enough of the right people fast enough I'd add is we always have said that we have a very efficient scalable.
Mark Ronald Murphy: Market.
Mark Ronald Murphy: Business and we control the pace of our investments.
Mark Ronald Murphy: And we at the same time that we're investing we've been investing in efficiency projects like we talked about in the cloud to balance those things to to deliver a strong <unk>.
Mark Ronald Murphy: Profitability up posture with strong investment.
David M. Obstler: I think you had a roughly 75-25% split across Commit, Coverage, and Usage. Is that still in the same ballpark? Yeah, it's I think we said it was in the range of sort of upper teens to mid 20s over time, but that type of posture of clients under committing and evolving into their usage hasn't changed over time. So that is still in the range that we've talked about since we went public. Great, thanks. Thank you
Speaker Change: David can I just ask a quick clarification on commitment overage in usage I think you had a roughly 70, 525% split across.
David M. Obstler: Commit coverage and usage is that is that still in the same ballpark.
David M. Obstler: Yes, I think we said it's been in the range of sort of upper teens to mid twenties over time that that type of <unk>.
David M. Obstler: Posture of clients under committing and evolving into their usage hasn't changed over time so that.
David M. Obstler: That is still in the range that we've talked about since we went public.
Speaker Change: Great. Thanks.
Unknown Executive: Thank you, one minute for the next question. Our next question comes from the line of Jake Robert on William Blair. Your line is not open.
Speaker Change: Yeah.
Speaker Change: Thank you Bob for next question.
Speaker Change: Our next question comes from the line of Jacob <unk> of William Blair. Your line is now open.
Jacob: Hey, Thanks for taking my questions and great to hear that AI native customers.
Jacob: Represented three 5% of air I'm curious of what Youre seeing on the demand front for your own AI products like AI ops and cloud service management, and then you mentioned that the model providers have built their own tools to monitor the training of their models as you start to roll out your own LLM observer ability solutions do you see that trend changing and is that something that <unk>.
Jacob: Customers have been asking you to build.
Jacob Roberge: So on the first question, so we look, we see a lot of interest in these new products. These are new products, so we just announced in GA the event management product, which is the main missing building block we had for the AIOS platform. And we also just released Bits for Incident Management in GA, so there's a lot of demand for it. So these new products actually, I will say for Bits for Incident Management, it's a joy to use, so that's great, but you should also expect to hear more from us on that topic in the next couple of months. So this is all very exciting.
Jacob: So on the first question is who we are.
Jacob: So look we see a lot of interest in the new product is our new products too. So we just.
Jacob: And <unk> the event management product, which is the main.
Jacob: Missing billing, what we had for full AOS platform.
Jacob: And we are we also address relates into into J B for incident management. So there's a lot of demand for it products actually.
Jacob: I will say for beats for ease of management is a joy to use select got great book, We also expect to hear more from us on that topic in the next couple of months. So this is all very exciting.
Olivier Pomel: On the tooling, I would say. There are a handful of players that have been building that tooling for a few years in a way that's very specialized to what they do internally. They're not necessarily very representative of the bulk of the market. So in those situations, we're always careful about overfitting products to a group that might not be the right target customer group in the end. In the same way that building infrastructure monitoring for cloud providers to use internally might not be an exact fit for what the rest of the world needs.
Jacob: On the tooling I would say.
Jacob: There's a handful of players that have been building that tooling for a few years for a way.
Jacob: In a way that's very specialized to what to do internally.
Jacob: They are not necessarily very representative of the bulk of the market.
Jacob: In those situations, we're always careful about over fitting products too.
Jacob: A group that might not be there.
Jacob: Right.
Jacob: Target customer grouping the yen.
Jacob: The same way that building.
Jacob: Building infrastructure monitoring for the two cloud providers to use internally you know it might be might not be.
Jacob: An exact fit for would be or the rest of the world needs.
Olivier Pomel: That being said, I mean, look, we work a lot with those companies, and they have a number of needs that some of them they can meet internally, and some of them they don't. And if I go back to the example of hyperscalers, we actually have teams at the hyperscalers that use us for application or infrastructure logs internally, even though they've built a lot of that tooling themselves. So I think everything's possible in the long run, but our focus is really on the vast majority of the customer base that's going to either use those API-based products or tune and run their own models.
Jacob: That being said I mean look we work a lot with those companies in there.
Jacob: Do you have a number of needs that some of them. They can meet internally and some of them. They don't and if I go back to the example that Hyperscale is we actually have teams at the Hyperscale orders that use us for application of our infrastructure, our logs internally, even though they've built a lot of that tooling themselves.
Jacob: So I think everything is possible in the long run, but our focus is really on the.
Jacob: The divestment of radio of the customer base, that's going to either use of API based product or.
Jacob: Tune in and run their own models.
Olivier Pomel: Thank you. One moment for our next question. Our next question comes from the line of Karl Keirstead of UBS. Your line is now open. OK, great.
Speaker Change: Thank you Omar for next question.
Jacob: Our next question comes from the line of Karl Keirstead of UBS. Your line is now open.
Karl Emil Keirstead: Okay, Great maybe to Olivia could you give a little context too.
Karl Emil Keirstead: The president stepping down into the board <unk>, obviously been there a long time and it's been a big part of the data Dark story and then for David <unk>.
Speaker Change: You've done a great job over the years.
Speaker Change: Dissuading us from over indexing on.
Speaker Change: Dr in billings, but as you actually pointed out the <unk>.
Speaker Change: Sequential decline in Dr and billings was quite a bit larger than normal and just curious if there's a story there. Thank you.
Karl Emil Keirstead: So I'll start with Amit, our president. Amit wanted to stop working as a full-time operator but wants to stay close to the company. And we want to stay close to him, too. I mean, it's been, as you pointed out, a big part of that story.
Speaker Change: Yeah.
Speaker Change: So I'll start with Ami top residents.
Speaker Change: I mean.
Speaker Change: We wanted to.
Olivier Pomel: And we definitely want to keep him involved in the company and keep working with him. So the plan is for him to join the board. You should expect him to maybe reappear at some point as a VC investor, something that's less operational than what he's doing today. And we expect him to be a part of the company for the future as well. I've always said I would miss him every day in the office. David, do you want to comment on the... Yeah, now to the Mormons.
Speaker Change: Stop working as a full time operator.
Speaker Change: But wants to stay close to the company and we won't stay close to him too I mean, it's been as you pointed out a big part of that story.
Speaker Change: We definitely want to keep him involved in our company and keep working with them. So the plan is for him to join the board. If you would expect him to maybe <unk> at some point either as a BDC investor.
Speaker Change: Something that's less operational now what he is doing today and we expect them to be a part of the company for the year for the future as well.
Speaker Change: I've always said I will miss him every day in the office.
David M. Obstler: So yeah, I think that we did see a de-sell. We had a very strong Q4 in terms of commitments to us, which manifests itself in billing. We talked about the larger customers committing to multi-year deals and committing to us.
Speaker Change: David do you want to comment on now to the more mundane topic of billings.
David M. Obstler: So, yes, I think that we did see a diesel.
David M. Obstler: We had a very strong Q4.
David M. Obstler: In terms of commitments to us, which manifest itself in billings, we talked about the larger customers committing to multiyear deals and committing to us we do have.
Speaker Change: Our sequential factor not in our revenues, which are based on usage moths, but basically in our billings and and and and operations like that.
David M. Obstler: We do have a sequential factor, not in our revenues, which are based on usage as a minimum, but basically in our billings and operations like that, usually in Q1, as clients sort of commit. So in some ways, we don't have the seasonality to speak of in revenues, but like we talked about in billings and RPO, we do have variations in billings. We're not reading that much into it because overall weighted it's going to vary, and we point everyone back towards AR and revenues but acknowledge that that seasonality may have been a little more pronounced in this cycle than in the previous. Thank you both.
Speaker Change: Usually in Q1 as clients sort of commit so and.
Speaker Change: In some ways and we don't have the seasonality to speak of in the revenues but.
Speaker Change: Like we talked about and in billings and RP Oh, we do have variations in billings, we're not reading that much into it and that overall weighted it's going to vary and we point everyone back towards <unk> and revenues.
Speaker Change: But acknowledged that that seasonality may have been a little more pronounced in this cycle than in the previous one.
Speaker Change: Got it thank you both.
Olivier Pomel: Thank you one moment for our next question. Our next question comes from the line of Brad Redbrack on Steve Hill. Your line is now open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Brad Rich pack of Stifel. Your line is now open.
Brad Robert Reback: Great. Thanks, very much Ali one of the fastest ways to recruit quickly as the larger acquisitions. So maybe you can give us your thoughts on potentially going a little bigger here given that you're generating close to $1 billion of Ocs a year right now thanks.
Unknown Executive: Yes, look, everything's on the table for us. Like we were very busy on the M&A side, we have a team that is, at any point in time, reviewing multiple deals. And everything's possible. But I would say the larger the acquisition, the less likely it is to happen. Because we're extremely selective in terms of not only the economics of any deal but also the fit and whether we think it's truly going to accelerate us in the mid to long term.
Brad Robert Reback: Yeah, So look everything's on the table for us like we were very busy on the M&A side, we have a team that is.
Unknown Executive: At any point in time reviewing multiple deals.
Olivier Pomel: And everything is possible I would say the larger the acquisition. The later, they're less likely to happen because we are extremely selective.
Unknown Executive: In terms of not only the economics of any deal, but also to fit in.
Unknown Executive: Whether we think its truly go into oxeia write off in the mid to long term.
Unknown Executive: But everything is possible.
Unknown Executive: We are very.
Unknown Executive: Fortunate to have a very efficient business as you pointed out Dave.
Olivier Pomel: But everything's possible. We are very fortunate to have a very efficient business, as you pointed out, that is generating quite a bit of cash now. And that opens a number of doors for us. And we fully intend to use that if we have the right opportunity. Great, thank you very much.
Unknown Executive: Guarantee and quite a bit of cash now and that opens a number of doors for us and we.
Olivier Pomel: Fully intend to.
Olivier Pomel: To us that if we have the right opportunity.
Speaker Change: Great. Thank you very much.
Unknown Executive: Thank you. One moment for our next question. Our next question comes from the line of Koji Ikeda of Bank of America Securities. Your line is now open. Hey guys.
Speaker Change: Thank you one moment for our next question.
Unknown Executive: Okay.
Koji Ikeda: Our next question comes from the line of <unk> of Bank of America Securities. Your line is now open.
Koji Ikeda: Hey, guys. Thank you so much for the question here I wanted to ask a question on AI.
Koji Ikeda: You mentioned in the prepared remarks about three 5% of <unk>.
Koji Ikeda: Last quarter about 3% so it looks like the trend is about plus 50 basis points a quarter a quarter right now so really great to see the ongoing expansion there so from a big picture perspective.
Koji Ikeda: In your view what needs to happen for this metric to start expanding say 123 points a quarter.
Koji Ikeda: I mean, look at So first of all, I'm not sure this is a metric we'll keep bringing up, you know. It was interesting for us to look at this small group of early AI-native companies to get a sense of what might come next, you know, in the world of AI. But I think as we, as we, as time goes by, and as AI adoption broadens, I think it will become less and less relevant.
Koji Ikeda: I mean look at so.
Koji Ikeda: So first of all I'm not sure. This is a metric will keep bringing up it was interesting for us to locate the small group of early.
Koji Ikeda: Native companies to get a sense of what might come next noida wale of AI, but I think as we as as we have.
Koji Ikeda: As time goes by and as AI adoption broader and I think it becomes less and less relevant.
Koji Ikeda: But the one thing I will say is that we try to compare our exposure to AI to what we see from the hyperscalers, you know, because they are upstream from us, you know, in that respect. The hyperscaler that is the most open about it, or transparent about it in terms of numbers, is Microsoft, as they disclose how much of their growth comes from AI, even more specifically. And I will say that if you compare our business to theirs, the Azure part of our business is growing faster than Azure itself.
Koji Ikeda: But the one thing I will say.
Koji Ikeda: So we tried to compare our exposure to AI to what we see from the hyper scaler sooner because it Dr upstream from us in that respect.
Koji Ikeda: Hyperscale it is the most.
Koji Ikeda: Open about it is a transplant about it in terms of numbers is Microsoft as they disclose.
Koji Ikeda: A whole much of their growth comes from AI more specifically.
Koji Ikeda: And I will say that if you compare our business to two or.
Koji Ikeda: There's the agile parts of our business is growing faster than azure itself and the AIG have been part of our onshore business itself is also growing faster than what you see on the.
Koji Ikeda: And the AI-driven part of our Azure business is also growing faster than what you see in the overall Azure numbers, so we think we have similar exposure, and we track to the same trends broadly. The other providers are not as forthcoming with metrics, so it's harder to do a direct comparison, but in the longer term, we expect the same trends to apply. Thank you.
Koji Ikeda: On the overall actual numbers. So we think we have similar exposure and we track to the same trends broadly the other.
Koji Ikeda: Providers are not as forthcoming with metrics. So it's harder to do a direct comparison, but in the longer term we expect.
Koji Ikeda: The same trends to apply.
Olivier Pomel: Thank you. One moment for the next question. Our next question comes from the line of Peter M. Weed of Bernstein. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Thank you gentlemen for next question.
Speaker Change: Our next question comes from the line of Peter <unk> of Bernstein. Your line is now open.
Unknown Executive: Thank you very much. One of the things that jumped out at me is, you know, you saw some improvement in net new customer ads quarter over quarter, kind of for the first time maybe over the last year or so, which is, you know, pretty exciting. Obviously, I know there's a long tail effect with this, but, you know, as you look at that, you see that as kind of a reflection of momentum in kind of the larger enterprise or rebound and kind of the digital native venture-backed community, perhaps from that born in AI. And if you think of that pipeline going forward, should we anticipate kind of this bottoming and strength to continue and maybe accelerate?
Speaker Change: Thank you very much what are the things that jumped out at me is you saw us.
Unknown Executive: Improvement in net new customer adds quarter over quarter kind of for the first time, maybe over the last year or so which is pretty exciting.
Unknown Executive: I know, there's a long tail effect with this but.
Unknown Executive: As you look at that do you see that as kind of a reflection of momentum in kind of the larger enterprise or a rebound in kind of the digital native venture backed community, perhaps from that born in AI.
Unknown Executive: And if you think about pipeline going forward should we anticipate kind of this bottoming and strength to continue and maybe accelerate.
Olivier Pomel: So I mean, yes, the number of customers is going up faster than it was in the past few quarters. But I would say it's hard to read too much into it because we have a large number of smaller customers. And there's more viability to the number of those smaller customers we get and lose at any point in time without really having a very large impact on the business. So I wouldn't read too much into that.
Unknown Executive: So yes, the number of customers going up.
Olivier Pomel: And it was the past few quarters.
Olivier Pomel: It's hard to read too much into it because we have a.
Olivier Pomel: A large number of smaller customers and there is more variability to the number of those smaller customers, we gain and we lose at any point in time and without really having a very large impact on the business.
Olivier Pomel: I will say that the trends are rolling, customer acquisitions and retention are good, and another number we reported on, which I think is worth mentioning, is that we saw a higher number of customers above $100,000, across that mark, close to the mark of $100,000 in revenue. And that's a return to the mean of what we had seen before, although I think last quarter's number was a little bit lower.
Olivier Pomel: So I wouldn't read too much into that I will say that the trends are rolling customer acquisition and retention are good.
Olivier Pomel: Another number.
Olivier Pomel: We reported on which I think is a.
Olivier Pomel: It is worth mentioning is we saw a higher number of customers about $100000 across that Mark <unk> mark of $100000 in revenue.
Olivier Pomel: And Thats a return.
Olivier Pomel: The return to the mean of what we had seen before I think last quarter that number was a little bit lower.
Olivier Pomel: And it really shows what we saw last quarter, which is that customers are growing on that revenue curve. And sometimes there are little peaks and valleys in that distribution of customers across the revenue curve for us. But overall, the motion is still the same. Customers are lending more to us, and they're growing, and they're getting bigger. And as a result, we're getting a larger and larger number of customers above $100,000, above a million, and that's driving the majority of our revenue. Thank you.
Olivier Pomel: It really shows what we're seeing last quarter, which is that customers are growing on that revenue curve and sometimes their audio peaks and valleys in that distribution of customers across our revenue curve for us.
Olivier Pomel: But overall the motion is still the same customers are planning with a small and theyre growing theyre getting bigger and as a result, we're getting a larger and larger number of customers about an $1000 on both the median and at <unk>.
Olivier Pomel: India.
Olivier Pomel: The majority of our revenue.
Unknown Executive: Thank you. Thank you. One moment for the next question. Our next question comes from the line of Eric Heath of KeyBank. Your line is now open. Hey, thanks.
Speaker Change: Thank you.
Eric Michael Heath: Thank you ma'am for next question.
Eric Michael Heath: Our next question comes from the line of Patrick <unk> of Keybanc. Your line is now open.
Eric Michael Heath: Okay. Thank you.
Eric Michael Heath: In your prepared remarks, I don't think you'd talk too much unsecured interest given around here at RSA. This week was curious if you could talk about traction you're seeing there and then maybe any feedback on adoption trends following the new packaging and rolled out a couple of quarters ago.
Eric Michael Heath: Yeah, so far, the news is pretty good on these new packages. Again, we want to wait to see them in the market for a few quarters before we comment too much on those. But the uptake is good. They seem to resonate well with customers, and they correspond to the right needs. And they're fairly easy to insert into the sales process.
Eric Michael Heath: Yes, so the.
Eric Michael Heath: So far the news up pretty good on this.
Eric Michael Heath: These new packages.
Eric Michael Heath: Again, we want to wait to have seen them in the market for a few quarters before we comment too much on those.
Eric Michael Heath: But the uptake is good they seem to resonate well with customers great sponsor right need and they are fairly easy to lead <unk> into the two SaaS process. All that are good news so far.
Eric Michael Heath: I realize we didn't put too much into the script on their own security we have a.
Eric Michael Heath: We actually have a few things coming up.
Olivier Pomel: So all that is good news so far. I realize we didn't put too much into the script on security. We actually have a few things coming up. There's an RSA this week in San Francisco, and our team is there to meet with customers. One of the new pieces of functionality we announced last week was agent-led scanning for infrastructure security products, which we think is going to help a lot of customers deploy our product much more broadly, much more quickly, so we're very excited about that.
Eric Michael Heath: Yeah.
Olivier Pomel: RSA this week in San Francisco and our team in there is there to meet with customers.
Olivier Pomel: One of the new piece of functionality, we've announced last week with their agent by scanning for us for infrastructure security product, which.
Olivier Pomel: Which we think is going to have a lot of customers deploy our products much more broadly much more quickly. So we're very excited by that.
Olivier Pomel: It's in beta right now. And overall, the same trends we commented on last quarter are still true, you know, thousands of customers voting on security, revenue growth, growth on a number of different pillars at the same time, which is very exciting and really speaks to our platform approach for security as well. Thanks.
Olivier Pomel: In beta right now.
Olivier Pomel: And you have some overall the same trends we commented on last quarters are still true with thousands of customers on boarding on security revenue growth.
Olivier Pomel: Growth on a number of different theaters at the same time, which is very exciting and it speaks to our.
Olivier Pomel: Platform approach for security as well.
Speaker Change: Thanks, a lot.
Unknown Executive: Thank you. One moment for the next question. Our next question comes from the line of Andrew Nowinski of Wells Fargo. Your line is now open. Okay, I had a question on guidance for Q2.
Speaker Change: Thank you Bob for next question.
Unknown Executive: Our next question comes from the line of Andrew Nowinski of Wells Fargo. Your line is now open.
Andrew James Nowinski: Okay had a question on guidance for Q2, yet you had strong net new <unk>.
Andrew James Nowinski: In Q1, and you said youre seeing improved usage growth and less optimization, but based on your Q2 revenue guidance. It looks like Youre, assuming net new <unk> in Q2 declined pretty significantly I guess did you have some deals that pulled into Q1 and if not why wouldn't that nowhere are in queue to be down year over year.
Andrew James Nowinski: No, I mean, we do it the same thing that we've said in every quarter that our guidance is taking the trends, both in terms of usage growth and new business accumulation, and it discounts them. And that's exactly the same, as we said, since we've been a public company. So that's what we do and provide the guidance and continue to do that in this quarter. All right.
Andrew James Nowinski: No I mean, we were it's the same thing that we've set in every quarter that our guidance is taking that trends both in terms of usage growth and new business accumulation and discounts them and thats exactly the same as we said since we have been.
Andrew James Nowinski: Public companies. So that's what we do in providing the guidance and continue to do that and in this quarter.
Speaker Change: Alright, and I am wondering if youre seeing any sort of uptick in consolidation of the log management in some markets given the M&A activity in that space.
Olivier Pomel: Yes, there's definitely opportunities there. And so we spoke on the, I think, in the script on the, about some of the advanced query functionalities we're adding to logs; we spoke about flex logs. So those are all geared towards going after this opportunity. And we think there's also, more specifically, an opportunity around SIEM workloads, which is why we're investing heavily in our Cloud SIEM products, and so we think there's definitely a lot of opportunity there, and the teams are very focused on that. I don't expect these opportunities to make a big dent in our numbers in the next couple of quarters, but in the next year or so, definitely, we expect to see more. Thank you. Thank you.
Speaker Change: Yes, there's definitely opportunities there.
Olivier Pomel: And so we spoke on the I think in the script about some of the advanced functionalities, we're adding two logs, we split about flex logs.
Olivier Pomel: Those are all geared towards going after this opportunity and we think also they have a more specific opportunity around <unk>.
Olivier Pomel: <unk> workloads.
Olivier Pomel: Which is why we're investing heavily in our cloud Siem product and so we think there is definitely a lot of opportunity there and the teams are very focused on that.
Olivier Pomel: I don't expect these opportunities to make.
Olivier Pomel: <unk> numbers in the next couple of quarters.
Olivier Pomel: So in the next in Europe, So definitely we expect to see more.
Speaker Change: Thank you.
Unknown Executive: Thank you one moment for the next question. Our next question comes from the line of Mike Cikos of Needham. Your line is now open.
Speaker Change: Thank you Omar for next question.
Michael Joseph Cikos: Our next question comes from the line of Mike sequels of need him. Your line is now open.
Michael Joseph Cikos: Hey, thanks for getting me on the call here, guys. Just one topic, a bit of a two porter here. But I think the prepared remarks management incited improved trends for the number of or the cohort of customers who are moving past optimization sequentially. So I guess the question is really, can you help us think about the rate or pace of customers that are moving into this cohort? That is the first piece of the question.
Michael Joseph Cikos: Hey, Thanks for getting me on the call here guys.
Michael Joseph Cikos: Just one one topic a bit of a two parter here, but I think in the prepared remarks management incited improve.
Michael Joseph Cikos: Improving trends.
Michael Joseph Cikos: For the number of.
Michael Joseph Cikos: The cohort of customers, who are moving past optimization sequentially.
Michael Joseph Cikos: And then the second piece, what kind of assumptions do you have for sustained improvement or additional customers entering that cohort? As we think about the guidance that we have here today, I'm wondering how much needs to happen on that front for you guys to get more comfortable with the guidance, or are you guys assuming steady state here and anything else is kind of really just upside. Thank you.
Michael Joseph Cikos: So I guess the question is really can you help us think about the rate or pace cuts.
Michael Joseph Cikos: Customers that are moving into this cohort is the first piece of the question on the second piece.
Michael Joseph Cikos: What kind of assumptions do you have for sustained improvement.
Michael Joseph Cikos: Or additional customers entering that cohort as we think about the guidance that we have here today I'm wondering.
Michael Joseph Cikos: How much needs to happen on that front for you guys to.
Michael Joseph Cikos: To get more comfortable with the guidance or are you guys, assuming steady state here and anything else is and kind of really just upside. Thank you.
David M. Obstler: Yeah, no, I said that we don't provide guidance on the percentage of customers that are in this cohort; we just are commenting that the trends that we mentioned last quarter of the abatement of optimization in this cohort manifested themselves again, and they continue to grow. Like always, our guidance provides it takes conservative assumptions, and, and, you know, looks across the trends in the business. And, you know, assumes that there would be more conservative drivers of the business than we've had in the last quarters. So we continue with that methodology. And we mentioned that
Michael Joseph Cikos: Yes.
David M. Obstler: We said that we don't provide guidance on the percentage of customers that are in this cohort. We just are commenting that the trends that we mentioned last quarter of the abatement of optimization.
David M. Obstler: In this cohort.
David M. Obstler: Manifested itself again and they continue to grow.
David M. Obstler: Like always our guidance provide it takes conservative assumptions and and.
David M. Obstler: And it looks across the trends in the business.
David M. Obstler: And.
David M. Obstler: Assumes that there would be.
David M. Obstler: More conservative drivers of the business than we've had in the last.
David M. Obstler: Quarters, So we continue with that methodology.
Olivier Pomel: And look, we mentioned that cohort because we thought it was bad weather, right? We thought they were the first to really optimize, and they felt they exhibited all the highest needs, I would say, for a quick turnaround on their own financial profile. But there are other pockets of optimization in the business. There are other customers that are going through that process later. There are customers still going through it. It's an ongoing, and it's going to be an ongoing phenomenon.
David M. Obstler: We mentioned that cohort because we thought it was a bad weather we felt they were the first to really optimize.
Olivier Pomel: They fail, they're exhibiting older the highest need I would say for a quick turnaround on their own financial profile.
Olivier Pomel: But there are other pockets of optimization of the business. There are other customers that are going through that later at our customer are still going through it.
Olivier Pomel: It's an ongoing it's going to be an ongoing phenomenon. It's been throughout the history of the company. So as we get further and further from there.
Olivier Pomel: It's been throughout the history of the company. So as we get further and further from the macro situation from last year, I think this cohort will lose relevance in terms of its... relevance to the rest of the business.
Unknown Executive: I understand. Thank you for the additional color guides.
Unknown Executive: The macro situation last year from last year I think the this cohort we are losing relevance in terms of it.
Unknown Executive: What we can read into it for the rest of the business.
Speaker Change: Understood. Thank you for the additional color guys.
Speaker Change: Thank you.
Olivier Pomel: Thank you. This concludes the question and answer session. I would now like to turn it back to CEO Olivier Pomel for closing remarks.
Speaker Change: Thank you. This concludes the question answer session I would now like to.
Olivier Pomel: Turn it back to CEO, Olivia Palmer for closing remarks.
Unknown Executive: All right, thank you. So again, I want to thank the whole team for what was a great quarter. And I know many of our customers and users are listening to this Earnings Call. So I want to make sure everybody knows we're having our Dash conference in June in New York. You can go to dashcon.io, and we really look forward to seeing you there. So, thank you all. Thank you.
Olivier Pomel: Alright. Thank you so again I want to thank the whole team for what was a great quarter and I know many of our customers and users are listening to the earnings call. So I want to make sure everybody knows we're having our dash conference.
Unknown Executive: In June in New York, you can go to dash grown in Idaho, and we really look forward to seeing you. There. So thank you all thank you.
Unknown Executive: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Unknown Executive: Okay.
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