Q1 2025 Datadog Inc Earnings Call
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Good day and thank you for standing by.
Speaker Change: Welcome to the Q1 2025, Datadog and his conference call. At this time, our 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 111 on your telephone. You would be in here in the automated message, advising your hand is raised. You will need to press star 111 on your phone.
Speaker Change: To withdraw your question, please press start one one again. Please be advised that today's conference is being recorded. I would now like to hand a conference over to your first speaker today, Yuka Broderick from SVP of investor relations. Please go ahead. Thank you very much.
Antoine: Thank you, Antoine. Good morning and thank you for joining us to review Datadog's first quarter, 2025 financial results, which we announced in our press release issues this morning.
Antoine: Joining me on the call today are Olivier Pomel, David Obstler, David Obstler, David Obstler, David Obstler,
Antoine: During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the second quarter and the fiscal year 2025 and related notes and assumptions, our growth margins and operating margins, our product capabilities, our ability to capitalize on market opportunities and usage trends.
Antoine: The words anticipate, believe, continue, estimate, expect, intends, will, and similar expressions, or intend to identify forward-looking statements or similar indications to future expectations. These statements reflect our views only as of today, and our subject to a variety of risks and uncertainties that could cause actual results to defer material.
Antoine: For a discussion of the material risks and other important factors that could affect our actual results, please report to the form 10k for the quarter ended December 31, 2024.
Antoine: Relentational information will be made available in our upcoming 1-10-2 for the fiscal quarter ended March 31, 2025, and other filings for the SEC
Olivier Pomel: With that, I'd like to turn the call over to Olivier.
Olivier Pomel: Thanks, Yuka, and thank you all for joining us this morning to go through our Q1 results and what was a solid start to the year.
Olivier Pomel: Let me begin with a review of a Q1 financial performance.
Olivier Pomel: Revenue with $762 million, an increase of 25% year over year, and above the high end of
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Olivier Pomel: We ended with about 30,500 customers, up from about 28,000 years ago?
Olivier Pomel: We ended Q1 with about 3,770 customers with an ARR, the $100,000 or more, up from about 3,340 a year ago, these customers generated about 88% of our ARR
Olivier Pomel: And we generated free cash flow of $244 million, with a free cash flow margin of 32%.
Olivier Pomel: Turning to platform adoption, our platform strategy continues to resonate in the market
Olivier Pomel: At the end of Q1, 83% of customers were using two or more products, built from 82% of the year ago.
Olivier Pomel: 51% of customers were using four or more products up from 47% a year ago.
Olivier Pomel: 28% of our customers were using 6 Omo products that from 23% of the year ago.
Olivier Pomel: 13% of our customers were using 8 or more products, up from 10% of your goal.
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Olivier Pomel: We're pleased to see that Kasthamir is adopting more products and I'd like to highlight two of our newer products with you.
Olivier Pomel: First, Flex Logs is off to a fast start and now exceeds $50 million in ARR. [inaudible]
Olivier Pomel: Flex Logs has achieved this milestone in six quarters, which is the fastest ramp we've seen to that level, and which echoes its value to customers, as well as the size of the log management market opportunity.
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Olivier Pomel: I'll also note that by adopting flex logs, our customers are adding new use cases at the right economics, and these flex logs adopters ultimately spend more on their adoblog management as well as more on overall platform.
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Olivier Pomel: Second, our database monitoring product is approaching the $60 million AR level as well and is growing 60% year-over-year the $60 million AR level as well and is growing 60% year-over-year-over-year-over-year--over-year--over-year--over-
Edwards Monitoring has now been adopted by over 5,000 customers.
Olivier Pomel: We are very excited about the early traction we're seeing there and are doubling down on our investment into broader dead-elves of obesity as we see strong demand signals in that area and we'll come back to that in a few minutes we'll come back to that in a few minutes.
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Now, let's discuss this quarter's business drivers.
Olivier Pomel: Overall, we saw trends for usage growth from existing customers in Q1 that were in line with our expectations.
Olivier Pomel: We are seeing high growth, AI cohort, as well as consistent and stable growth in the rest of the business.
Olivier Pomel: We also had a strong bookings quarter, with gradually strong education in new logos and larger bookings
Olivier Pomel: Dora Buking, for New Logos, where up over 70% year-over-year, and much stronger than a typical seasonal
Olivier Pomel: And on the large deal side, in Q1, we signed a total of 11 deals with the TCDF $10 million or more, up from just 1 in the year quarter, as we continue to expand our business as other customers
Olivier Pomel: Finally, Churn has remained low with close revenue retention stable in the mid to high 90s, highlighting the mission critical nature of our platform for our customers.
Now, moving on to R&D.
Olivier Pomel: We continue to see rising customer interest for next gen AIMs of ABDT and amenities. Thank you.
Olivier Pomel: At the end of Q1, more than 4,000 customers used one or more Datadog AI integrations, and this number has doubled the overall year.
Olivier Pomel: With Elements of Ability, we are seeing continued growth in customers and usage as they seek to manage end-to-end model performance, security, and quality.
Olivier Pomel: I'll call out the fact that the number of companies using LED observability has more than doubled in past six months.
Olivier Pomel: And we are adding to BTCI with capabilities for customers to take action with work automation and at builder using next GNI to help our customers immediate issues more quickly and move towards auto remediation in the future. Thank you.
Olivier Pomel: Zooming up, we're making progress on all of our AI initiatives, and you feel expect more announcement in this area at Daesh, or user conference, taking place in June .
Speaker Change: © 2013 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Creative Services
Olivier Pomel: Moving on to security, our teams have been very busy building up products and features for customer's death's sake of needs [inaudible]
Teggy Vio, Quico Viova, Capabilites
Olivier Pomel: First, we have a comprehensive set of products to identify and manage the near abilities across software and infrastructure .
Olivier Pomel: In Infastructure, our Cloud Security Product identifies vulnerability in hosts, containers, Kubernetes clusters, and Infastructure ask code.
Olivier Pomel: or Cikudi Customers can use Adjutless Scanning to cover their entire infrastructure stack in minutes.
Olivier Pomel: An existing Datadog customer choosing a lightweight agent immediately gained deep, granular and timely security visibility.
Olivier Pomel: On the application vulnerability side, or code security product, identifies vulnerability in code, from development to production, and for first party code, as well as third party open source libraries
Olivier Pomel: This product area has launched very recently and already has over 1000 customers paying for the product
Olivier Pomel: Because we bring visibility to production workload, we are uniquely positioned to identify which vulnerabilities are most critical in production and break down silos between developers, developers, DevOps, and security teams
Olivier Pomel: 2nd Insecurity, Azuna Beatty, Chase Threats & Attacks, or Threat Management Products, Helps or Customer Identify and Remediet Them [inaudible]
Olivier Pomel: They can use our cloud theme to identify 13 logs and they can throw the product from threats in infrastructure with workload protection and in software with app and API protection. Thank you for your attention.
Olivier Pomel: Finally, all customers use a sensitive data scanner product to discover, classify, and redact sensitive data at scale across their logs, traces, events, user sessions, data stores, code, and all the way to LLM prompts. [inaudible]
Olivier Pomel: What we have much more to do today, we are serving over 7,500 customers with a security product or about a quarter of a total customer base [inaudible]
Olivier Pomel: And over half of our Fortune 500 customers use our security products, a good sign of our opportunity with the largest entrepreneurs.
Now moving on from security. [inaudible]
Olivier Pomel: Last month, we announced all plans to launch our latest data center in Australia.
Olivier Pomel: We see a lot of opportunity to serve all student customers and help them meet local data residency, privacy, and security requirements [inaudible]
Finally, we recently announced a couple of acquisitions [inaudible]
Olivier Pomel: First, we acquired Epo, a next-generation feature management and experimentation platform [inaudible]
Olivier Pomel: The APO platform helps increase the velocity of releases while also lowering risk by helping customers to release and vary their features in the control manner.
Olivier Pomel: Epo Augments and References in Product Narratives, helping customers improve their experience and tie future performance to business outcomes.
Olivier Pomel: More broadly, we see automated experimentation as a key part of modern application development, with the rapid adoption of AI Generative Code, as well as more and more of the application logic itself being implemented with non-deterministic AI models. [inaudible]
Olivier Pomel: Second, we also acquired Metaplane, the Dera Observability Platform, built for modern data teams
Olivier Pomel: Metaplan helps prevent, detect and resolve that availability and quality issues across the companies that are warehouses and that are pipelines.
Olivier Pomel: We've seen for several years now that better freshness and quality work critical for applications and business analytics
Olivier Pomel: And we believe that they are now becoming key enablers of the creation of New Enterprise AI workload.
Olivier Pomel: which is why we intend to integrate the Metaplan capability into our end-to-end at observity offerings.
Olivier Pomel: We are very excited to welcome both the Meetup line and the April teams to Datadog as we have a lot to build together.
And that's it for production engineering. And that's it for production engineering.
Olivier Pomel: Our teams are very hard at work this quarter and we're looking forward to sharing many new products and feature announcements at our dashes of conference on June 10th and 11th in New York City.
Now let's move on to sales and marketing.
Olivier Pomel: As I mentioned earlier, we had a number of great Udo Gowins and Kessamer expansions this quarter
So let's go through a few of those. [inaudible]
Olivier Pomel: First, we landed a seven-seguer and utilize deal with one of the largest US car manufacturers.
Olivier Pomel: This customer has a complex hybrid environment, including on-prem, multiple clouds, Incah IoT, and mobile apps.
Olivier Pomel: They expect to unify observability across teams and across all their text packs while accelerating wood cause notices
Olivier Pomel: And they are stunning with 13 David Obstler products, consolidating a dozen tools and rolling out two dozens of business units. [inaudible]
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Olivier Pomel: Next, we'll need a seven-story annualized deal with a major Latin American bank.
Olivier Pomel: They expect to use our unified observability to reduce operational costs and enable autonomy for departments that previously had to depend on specialized teams for visibility
Olivier Pomel: This customer is Tony with six set-up products and is replacing three existing tools.
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Olivier Pomel: Next, we'll need a seven-figure annualized deal with a major American pet supply convener.
Discassomers, Truggle with Tools Pro, and Limited User Adoption
Olivier Pomel: With Datadog, they expect to sell over $1 million every year, both in engineering time and avoidance of lost revenue. [inaudible]
Olivier Pomel: This customer is stunning with 11 data products, including cloud theme, and is replacing 7 commercial tools
Olivier Pomel: Next, we welcome back an insurance tech customer with a six-year-on-year ideal.
Olivier Pomel: This customer found that their previous observatory tool involved manual workflows and customization, a high operational overhead and user frustration and added fatigue.
Olivier Pomel: By returning to Datadog, they expect to benefit from Datadog's ease of views and out-of-the-box capabilities while using or built-in usage controls to manage observability and cloud costs [inaudible]
Olivier Pomel: This customer now expects to use flex logs, cross-coast management, and on coal, among the 10 products
Olivier Pomel: Next, we signed a seven-figure annualized expansion with one of the largest U.S. health insurers.
Olivier Pomel: This customer is using Datadog across dozens of business units to support millions of customers.
Olivier Pomel: As an example, one team estimated reductions in meantime to resolution from three to four hours down to three to four minutes by using Datadog [inaudible]
Olivier Pomel: With this expansion, this customer is using 17 products in the Datadog platform, including the full Datadog security suite
Olivier Pomel: Finally, we signed a seven-figure expansion as an annualized contract with a leading next-gen AI company.
Olivier Pomel: This customer needs to reduce tool fragmentation to keep on top of its hypergrowth in usage and employee headtown [inaudible]
Olivier Pomel: With this expansion, the customer will use five drug products and will replace the commercial tool for APM and log management.
And that's it for another Productive Quarter from OgotoMarketTeams.
Olivier Pomel: Before I turn it over to David for a financial review, let's have a few words on our longer-term outlook.
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Olivier Pomel: Recognize that there are many cross-currents impacting the local global economy right now.
For all of you of our long-term market opportunities, remains unchanged. [inaudible]
Olivier Pomel: We continue to believe digital transformation and cloud migration are long-term secular growth drivers of our business, as well as critical for every company to deliver value and gain competitive advantage.
Olivier Pomel: and we continue to focus on delivering innovation and value to our customers against the mission critical needs including the AI efforts.
Olivier Pomel: And with that, I will turn it over to our CFO , David. David.
Thanks Olivier [inaudible]
Olivier Pomel: Q1 revenue with $762 million, up 25% year over year, and up 3% quarter over quarter [inaudible]
Olivier Pomel: To dive into some of the drivers of Q1 revenue growth, first overall we saw trends for usage growth from existing customers in line with our expectations and similar to the second half of 2022 of 2024.
Olivier Pomel: We saw a continued rise in contribution from AI native customers who represented about 8.5% of Q1 ARR up from about 6% of ARR last quarter and up from about 3.5% of ARR in the year ago quarter. We saw a continued rise in contribution from AI native customers who represented about 8.5% of ARR.
Olivier Pomel: AI native customers contributed about six points of year-to-year revenue growth in Q-1 versus about five points last quarter and about two points in the year-ago quarter.
Olivier Pomel: We continue to believe that adoption of AI will benefit Datadog in the long term.
Olivier Pomel: But we remain mindful that we may see volatility in our revenue growth on the backdrop of long-term volume growth from this cohort as customers renew with us on different terms and as they may choose to optimize cloud and observability usage. [inaudible]
Next regarding usage growth by customer segment
Olivier Pomel: Year-over-year usage growth with our enterprise customers remain healthy, if a bit lower than last quarter, which we see as a product of a volatility that can occur among customers from quarter to quarter.
Olivier Pomel: Meanwhile, we saw strong booking activity from our enterprise customers in Q1. And as Olivier noted, this included some large TCV deals.
Olivier Pomel: From our SMB Admid Market customers, excluding the AI cohort, your every year usage growth was roughly similar compared to last quarter.
Olivier Pomel: As a reminder, we define enterprise as customers with 5000 employees or more, mid-market as customers with 1000 to 5000 employees and as SMB as customers with less than 1000 employees.
Olivier Pomel: Looking ahead to April , our usage growth was consistent with the year-to-date trends. As usual, we have contemplated near-term trends in our guidance. [inaudible]
regarding retention metrics.
Olivier Pomel: Our trailing 12-month net revenue retention percentage was in the high 110 percent in Q1 similar to last quarter. Finally, our trailing 12-month gross retention revenue percentage remained stable in the mid to high 90s.
Olivier Pomel: On New Logos, Gross New Logo Editions were roughly the same as in Q1 last year, but Dollar New Logos increased 70% year over year, indicating a higher average land in the SMB mid market and enterprise sectors.
Olivier Pomel: and our pipeline for Q2 is strong and growing healthily your every year.
Olivier Pomel: As a reminder, our sales pipeline doesn't convert into revenue immediately [inaudible]
Now moving on to our financial results.
Billings were $748 million, up 21% year over year. [inaudible]
Olivier Pomel: Remaining Performance Obligations, or RPO, was $2.31 billion up 33% year-over-year, and current RPI growth was about 30% year-over-year. RPO duration was roughly flat year-over-year year-over-year, and current RPI growth was about 30% year-over-year.
Olivier Pomel: We continue to believe Revenue is a better indication of our business trends than Billings or RPO, as those can fluctuate relative to Revenue based on the timing of invoicing and the duration of customer contracts.
Olivier Pomel: Now let's review some of the key income statement results unless otherwise noted all metrics are non-GAAP we have provided a reconciliation of gap to non-GAAP financial s in our earnings release.
Olivier Pomel: First, gross profit in the quarter was $612 million, and gross margin was 80.3%. This compares to a gross margin of 81.7% in the last quarter and 83.3% in the year-go quarter. This compares to a gross margin of 81.7% in the last quarter and 83.3% in the year-go quarter.
Olivier Pomel: While gross margin remained in the range that we have expected over the long term, our cloud hosting costs rose more quickly than we expected in Q1 as we supported large growth spikes from some of our largest customers.
Olivier Pomel: We also continue to innovate with new products and capabilities for our customers, which tend to put downward pressure on gross margins in the short term.
Olivier Pomel: While we expect some of the costs to support customers to persist, we are also focused on executing projects to improve our cloud cost efficiency and expect to realize savings throughout the rest of the year.
Olivier Pomel: Our Q1 OPX grew 29% year-over-year, similar to the 30% last quarter and roughly as expected, as we continue to execute on our hiring plans.
Olivier Pomel: As we have spoken about in previous quarters, it has been our plan to grow our investments to pursue our long-term growth opportunities [inaudible]
Olivier Pomel: and we've been successful in increasing sales rep headcount with over 25% year-over-year growth in total reps including over 30% growth year-over-year in enterprise reps
Olivier Pomel: This investment has been weighted a little bit towards international expansion, where sales rep headcount growth was in the mid 30% year over year.
Olivier Pomel: In addition, we grew our R&D head count by over 30% year every year with R&D expense as a percent of sales at 30% in Q1, so we can deliver on the rapid pace of innovation for our customers.
Olivier Pomel: As always, we continue to prioritize our investments to balance near-term adjustments with our long-term plans and continue to look for opportunities to optimize our operating costs
Olivier Pomel: Q1 operating income was $167 million for 22% operating margin compared to 24% last quarter and 27% in the year ago you go quarter [inaudible]
Olivier Pomel: Now, turning to the balance sheet and cash flow statements, we ended the quarter with 4.4 billion in cash, cash equivalence and marketable securities
Olivier Pomel: Cashflow from Operations was $272 million in the quarter, and after taking into consideration CapEx, Capitalized Software, pre-cashflow was $244 million for free cashflow margin of 32%.
Olivier Pomel: And now for our outlook for the second quarter and the full fiscal year 2025.
First, our guidance philosophy overall remains unchanged.
Olivier Pomel: As a reminder, we base our guidance on trends observed in recent months, and apply conservativeism on these growth trends.
Olivier Pomel: So, for the second quarter, we expect revenue to be in the range of $787 to $791 million, which represents 22 to 23% year-over-year growth.
Olivier Pomel: non-GAAP Operating Income is expected to be in the range of $148 to $152 million, which implies an operating margin of 19%.
Olivier Pomel: As a reminder, in Q2, we will be hosting our Dash user conference, which we estimate to cost about $13 million, and which we have reflected in our operating income guidance.
Olivier Pomel: non-GAAP net income per share is expected to be 40 to 42 cents per share based on approximately 361 million weighted average diluted shares outstanding.
Olivier Pomel: To note, our weighted average deluded share count is expected to decline sequentially, as the shares related to the 2025 convertible note will be removed upon redemption.
Olivier Pomel: For fiscal year 2025, in total, we expect revenue to be in the range of 3.215 to 3.25 billion dollars, which represents a growth rate of 21 to 21 percent.
Now we have raised our 2025 revenue guidance.
Olivier Pomel: Range by $40 million related to the previous guidance, which incorporate higher revenues in the first half of 2025 based on our Q1 results and our visibility as of today into Q2.
Olivier Pomel: Our employee guidance in the second half of 2025 is roughly unchanged. [inaudible]
Olivier Pomel: Non-Gaff Operating Income is expected to be in the range of 625 to 645 million dollars, which implies an operating margin of 19 to 20 percent.
Olivier Pomel: Relative to our previous operating income guidance range of $655 to $675 million, the difference is mainly due to lower gross profit as a result of the previously discussed lower gross profit margin all set by higher revenues.
Olivier Pomel: As we said before, we're focused on executing cost deficiencies in our cloud costs and believe our gross margins will remain in our historical range.
Overall plans for up-ex investment are roughly unchanged. [inaudible]
Olivier Pomel: with continuing investment in hiring across R&D and sales and marketing. [inaudible]
There are some changes of distribution within that. [inaudible]
Olivier Pomel: We expect $15 million of higher international costs to do currency rate changes and 10 million in net expected additional costs from our recently announced acquisition, all set by other
Olivier Pomel: non-GAAP Net Income per share is expected to be in the range of $1.67 to $1.71 per share based on approximately 362 million weighted average diluted shares outstanding.
and finally some additional notes on the guidance.
Olivier Pomel: The remaining approximately 635 principal of our 2025 convertible notes will mature in June , and we expect to redeem this mainly in cash
Olivier Pomel: We estimate that the gap purchase price from our acquisition activity.
Olivier Pomel: We'll be about $180 million, of which we estimate about $110 million to be paid in cash during Q2.
Olivier Pomel: We expect net interest and other income for the fiscal year 2025 to be approximately $140 million in dollars.
Olivier Pomel: And we expect Kasthaks to be about 1% of revenue, or about 30 to 35 million dollars. We continue to apply a 21% non-GAAP tax rate for 2025 and going forward.
Olivier Pomel: And finally, we continue to expect capital expenditures and capitalized software together to be in the 4-5% of revenue range in the year.
Olivier Pomel: Finally, to summarize, we are pleased with our execution in Q1.
Olivier Pomel: We are well positioned to help our existing and prospective clients with their cloud migration and digital transformation journeys
And I want to thank Datadog's worldwide for their efforts.
Olivier Pomel: Now with that, we'll open the call for questions. Operator, let's begin the Q&A. Thanks We'll open the call for questions.
Olivier Pomel: Thank you. At this time we will conduct a question and answer session as a reminder to ask a question you need to press Star 1 1 on your telephone and wait for your name to be announced.
Olivier Pomel: To withdraw your question, please press star one one again. Please be advised.
Speaker Change: Please stand by while it comes out of Q&A roster. Our first question comes from Mark Murphy from JP Morgan. Please go ahead.
Speaker Change: I'm sure there's a bit of hyperbole there, but directionally it's intriguing. Can you comment on the opportunity that might open up for Datadog if that sheer volume?
Mark Murphy: of applications being put into production starts to rise because AI writes so much code so rapidly and just does that AI generated code require more or less monitoring than human written code and then have a quick follow up for David.
Yeah, that's a great question, and there's, and there's definitely a... [inaudible]
Mark Murphy: A big transition that is happening right now, we see the rise of AI, right, Britain, Good Good, Good, Good, Good, Good,
Mark Murphy: We see it across our customers, we also see it inside of Datadog where...
Mark Murphy: We've had very rapid adoption of this technology as well. While I don't think this is going to replace all of software engineering, and I'm pretty sure that Anthropic is still hiring software engineers too, I do expect big changes to come to the way software is being shipped and being run this way.
The way we see it is that...
Mark Murphy: This means that there's a lot less value in writing the code itself, like everybody can do it pretty quickly, you can do a lot of it, you can have the machine to do a lot of it, and you can complement it with a little bit of your own work.
Mark Murphy: But the real difficulty is invalidating that code, making sure that it says, making sure it runs well, that it's performing, and that it does what it's supposed to do for the business. Also making sure that when 15 different people are changing a code at the same time, all of these different changes come together and work the right way and you understand the way these different pieces interact in the way.
Mark Murphy: So the way we see it is, this moves on a lot of the value from writing the code to observing it and understanding it in production environments, which is what we do.
Mark Murphy: So a lot of the investments we're making right now, including some of the acquisitions that we've announced, built towards that, making sure that we're in the right spot so we can tell you exactly what every piece of code you've written, make sure that it works well, you understand it well and it does what it's supposed to do for the business. [inaudible]
Okay, okay, very interesting. And then, David, it's just amazing, the booking stats
Speaker Change: So impressive, 11 deals over 10 million, only one to year ago. And then these big AI numbers, the combination there, it's just incredible. What do you attribute that level of booking strengths?
Speaker Change: Two, you know, it's a quarter where you have the specter of a trade war and it seemed like it was weighing on business confidence. So, I don't know if you can comment on the booking strike.
Speaker Change: Yeah, we entered the quarter with Strong Pipeline, and if it gets consistent with our investments for making in Go To Market, where we're increasing our investments and enterprise across the board. And so, and we've been good about proving value to clients across the platform. [inaudible]
Speaker Change: I'm allowing us to land larger as you saw, consolidate, and add more value. I think that much of this is related to product strength and expansion of quote capacity. Yeah, and look, we...
Speaker Change: Like everybody we read the news and we see, you know, we look hard for any signs of trouble in our customer days and we're going to give some.
Speaker Change: We haven't seen that in the deal-making so far. We are self-cycle, we haven't been affected, our pipelines are growing healthily.
Speaker Change: And I can tell you that at least one of the customers we mentioned in the Co, in the Co, one of the new land
Speaker Change: He's also a Jew that is very affected by the the the the tariff and you know he's having to moderate it some plans and all for the future I think what this tells you is that
Speaker Change: Club migration and observability in particular are deflectionary for these communities and these are tools that help them set money and move faster and we are on the right side of the problem for them.
Speaker Change: And that go a little bit what Ali said in our prepare marks. We continue to see that. We said we have, you know, in Q2, you know, the same quality of poke pipeline higher than last year. So it continues, we continue to have that situation.
Excellent, great to hear, thank you. Thank you.
Thank you for watching!
Thank you, our moment for our next question.
Speaker Change: Our next question comes from Sanjit Singh from Morgan Stanley , please go ahead [inaudible]
Sanjit Singh: Great, thanks for taking the question, and congrats on the quarter. I want to pick up where Mark left off, and as we talk about kind of the core drivers, digital transformation, cloud migrations.
Speaker Change: Based on your comment, Ali, it sounds like that's likely or could actually pick up potentially going into a lower economic environment. So in terms of just what we've seen through the early parts of the year, more the trend lines on core cloud migration. We've seen that in the early parts of the year, more the trend lines on core cloud migration.
Speaker Change: It's very consistent. It's consistent with what we've seen before. It's also consistent with what you've heard from the hyperscaders of the past couple of weeks.
So we'd say it's...
Speaker Change: Steady, unremarkable, it's not really training up, not training done right now, but we see the same desire from customers to move more into the cloud and to let the groundwork so they can also add up AI because digital transformation and cloud migrations are prerequisites for that.
Speaker Change: Awesome. I want to talk a little bit about some of the expansion, additional expansion opportunities into data observability. I mean that's been a space I've been talked about sort of buzzies last couple of years. I'm not sure it's gotten
Speaker Change: Super big just yet. Maybe just some of the what the vision is about moving into data observability and how consequential of an opportunity could it could be for data dogs. [inaudible]
So, it's a space we've been watching for a while.
Speaker Change: Initially, we were worried that it would be a little too small impact, because if we're just talking about debugging the availability of reports for executives, it's differently valuable, but we thought it might be a smaller market opportunity in the end.
Speaker Change: What we see though is that the city is evolving into a big enabler, or it can be the opposite of an enabler if you don't do it right, for building enterprise workloads, for being air workloads, sorry [inaudible]
Speaker Change: So, in other words, making sure the data is being extracted from the right place, transformed the right way, and is being fed into the right AI model on the other end. And so we're building towards that with the acquisition of the metadata plan we just know. [inaudible]
Speaker Change: Data Streams Monitoring Product for Streaming Data Deconzators.
that monitors spot jobs and non-deductive formation jobs.
Speaker Change: or customers to manage everything from getting data from their core data stores into all of the products and AI workloads and reports they need to put the data and so we think it's a big opportunity for us.
Like I said, Kangat Singh, he wants... [inaudible]
Thank you [inaudible]
Thank you
Speaker Change: Our next question comes from Raimo Lenschow, from Barclays, please go ahead
Raimo Linsho: Perfect, thank you, congrats for me as well. Two quick questions, actually more for David this time. David, if you think about the guidance, I know you've been, you've always been a conservative team. You raised it more than the Q1B, so you know, obviously you've kind of seen good trends in Q2 there as well. What was the thinking process of terms of kind of showing us that upside that you kind of might expect in Q2 versus kind of buffering that and just kind of giving the uncertain environment? It's first question, thank you.
Raimo Linsho: Reckon Christianis on the gross margin change for the full year guidance. Can you just remind us like, you know, obviously that's three months after you guided the first time? Can you remind us a little bit like what you saw there and what's the action that you're taking there to kind of change that? Thank you.
Raimo Linsho: Yeah, so on the first question, we haven't changed any of our strategy towards guidance. We look at the recent trends. I think it's important to note that we obviously beat in Q1 and we sort of looked at the run rate.
Raimo Linsho: And another thing that's important to note is because of the uncertainty in the market, we left the second half of the year unchanged. We essentially have done that. There's no change in our strategies. We do all the time, but as we go out more in time, we have less visibility. So I think there's no change in philosophy. It's just sort of a follow through on our run rate. [inaudible]
Raimo Linsho: In terms of Gross Margin, we've always said that our Gross Margin would fluctuate within the range and we've been in the range of the upper 70s to low 80s [inaudible]
Raimo Linsho: for a long time. And so, what we sort of designed the business that way, at some times we're going to lean into investment.
and in some cases will optimize. [inaudible]
Raimo Linsho: In Q1, as we talked about, we did lead into investment and we also had a little more of a spiky pattern from our customers which we're learning about. We're learning as we grow in size, how to deal with that. And so from those learnings, we feel like on that, we can do a better job in provisioning and as we always said, we run in the spectrum. We're learning how to deal with that. We're learning how to deal with that. We're learning how to deal with that.
Raimo Linsho: So I think there were higher cloud cost than we expected, it is largely due to those two factors
Raimo Linsho: And we said some of that will persist and some of that we will work on optimizing. This is no different than on that sort of pattern than we have over time of growth and that optimization. Yeah, just to include that, we have some engineers basically shipping functionality and optimizing performance.
Raimo Linsho: We did a certain range of margin we're comfortable with, I would say last year we were very comfortable with our work.
Raimo Linsho: Now we're getting a little bit less constable with what we have in the last quarter and so we're shifting some resources, you know, some towards optimization so we can write that [inaudible]
Raimo Linsho: As David said, in addition to keeping a lot of new functionality that might not be as optimized as the rest in terms of the system utilization, we also saw some spiky growth from some of our largest customers. Thank you very much.
and that might continue.
Raimo Linsho: Especially as they deploy new workload, but our job is to optimize and we feel very confident that we can remain in the year. The rent we've been in before focused margin, or even better in the future, there's no question about that.
Okay, perfect, thank you, thank you [inaudible]
Thank you
Speaker Change: Our next question comes from Kasthuri Rangan, from Goldman Sachs, please go ahead
Cash Rangan: Hi, thank you very much for taking my question, Ali, one for you and one for your David, Ali, when you look at the AI market, certainly it looks like we're about to move from training into inference
Cash Rangan: What does that leave Datadog more product perspective like an ad more consistent value without being optimized?
Speaker Change: And once again, David, as you look at the stepped up recess development, sales marketing investments, how from my financial perspective are we to see the incremental benefits of those incremental investments. Thank you so much.
Speaker Change: Yeah, so on the workloads turning more towards different, so there's definitely more product to build there. So we have a, so we built an MLM of the Webkey product that is being...
Speaker Change: Getting increasing usage from customers as they move into production.
Speaker Change: And we think there's more that we need to build both down the stack across the GPUs and up the stack across the agents that are being built on top of these models. So you should expect to hear more from us at our conference on those topics.
Speaker Change: There's quite a bit to emerging as a set of needs from customers as we move towards in front. [inaudible]
Speaker Change: And on the investments, I think you're seeing it, we're trying to report on it regularly when we're making disclosures of being over $50 million or being around $50 million in database and then in flex . . . . . . . . . .
Speaker Change: That is the evidence of being able to monetize the investments in R&D.
Speaker Change: and continue to do that in the various product offerings. So, that's how we look at that and we've gotten a lot of evidence, you know, over the years and continued report on that. In turn, we always said that the investment for R&D, you know, takes...
Speaker Change: Two, sometimes three years, to realize itself because of building in products, but we're reporting on investments that we made previously and the result of that in products [inaudible]
Speaker Change: In sales and marketing, it's the same thing, where we identify end markets or customers, which we haven't have covered covered [inaudible]
Feel like we can add additional capacity
Speaker Change: and there we have to go through the ramp periods, so the increase of capacity that we've been executing on, we said we'll pay back in sort of the year plus as we ramp our reps and get returns and we'll continue to report on that. Yeah, just as a quick anecdote like in a week.
Speaker Change: So we talked about DB, database monitoring is a problem that is taken off [inaudible]
Speaker Change: And that's really a product that shows the power of your platform. So we have a product that is over 50 million or closing on 50 million in AR with a lot of customers. And that's a product that was built specifically by 10 to 15 people.
Speaker Change: Just the ability for a small team to build on top of our platform and on top of all of the existing services we have that already collect customer data and deliver the data to them and to make your large difference in terms of revenue in a short amount of time.
Super, thank you so much.
Thank you
Speaker Change: Our next question comes from Jake Roberge, from William Blair, please go ahead [inaudible]
Jake Roberge: Yeah, thanks for taking my questions. Could you talk a little bit more about what you're seeing with the AI-Native cohort? Sounds like growth remains solid in that segment, but still something potential for optimization there. So could you talk about what you're seeing from some of those AI-Native contracts that have already come up for renewal and just how those conversations have been trending?
Jake Roberge: Yeah, so I mean, all the contras that come from you all, they're healthy. The triplets accord is that growing fast, there's also a revenue concentration there. You know, we now have our largest customer in that court and they're going very fast.
Jake Roberge: And on the flip side of that, we also have a larger number of large customers that are also growing, you know, so we, I think we mentioned more than 10 customers now that are spending a million or more with us in that AI community court, and that are also growing fast. [inaudible]
Jake Roberge: So when you add up all of that, like a number of New York customers that are going fast and some concentration in one customer is larger than the others, there is definitely some potential volatility there and we want to be careful. We've seen that movie before, we've seen that with the Cloud Native.
a few years ago.
Jake Roberge: As they were going very, very fast out of COVID, they had to optimize after that quite sharply.
Jake Roberge: Now, of course, the situation is different, like it's a small part of our business today, where a very large part of our business was made a few years ago But we want to be mindful of what might happen next and that's also part of a whole week operate that that really needs growth in terms of our [inaudible]
Gaiden, and Tlaude Refleur.
Jake Roberge: Okay, that's helpful. And then, great to see the strong ramp in FLEX logs over the past year. Can you talk a little bit more about what you're seeing in the log management market specifically? We've definitely been hearing about some more disruption at the start of the year from the recent acquisitions in the space, so just curious if you're seeing an even more meaningful opportunity on that front this year.
We see tremendous opportunity there.
Jake Roberge: We validated that Flexlogs was really solving big problems for customers . . .
We've also valued the fact that...
Jake Roberge: This was, you use cases for us, you know, and this was not really just a cheaper product I can't imagine is the rest of what we have, like we do see customers out of things like slugs and then consuming a lot more of everything after that, so this is great for us.
Jake Roberge: We also see a ton of opportunity to display some interesting players in log management with a lot of functionality towards that, to close whatever...
Jake Roberge: Gap in functionality, or specific implementation of functionality that might have been perceived by Kosomer's on that end. And so we see a ton of opportunity there. And...
One of the reasons we're... [inaudible]
Jake Roberge: Rolling the CES capacity in the way we are currently is that we see no opportunities in the market. We see great return of investment when we deploy more CES capacity to go after them because these tend to be large enterprise opportunities that require some CES capacity. [inaudible]
Jake Roberge: And we intend to fully capitalize on that. So, we're super bullish about this.
Very helpful. Thanks for taking the questions.
Speaker Change: Thank you. Our next question comes from Greg Moskowitz, from the Zooho, please go ahead.
Greg Moskowitz: Okay, thank you very much for taking the questions. I have two. I'll just ask them concurrently.
Speaker Change: First, the AI native cohort is getting back to that, so the percentage of total AI are coming from this cohort rose really impressively Just so that we have a little better understanding of this dynamic because Ali just mentioned a reference customer concentration to the patient.
Speaker Change: Can you say us the increase from a percentage basis was driven by perhaps one or two of these larger customers or were the broader base than that? And then secondly for David, just given the second half step up in sales and marketing investment that we saw last year, at Datadog that Team Pet continued at the 2025, how is your productivity tracking at this stage compared to your expectation? I don't know if that's the case. I don't know. I don't know. I don't know. I don't know.
Thank you.
Speaker Change: Yeah, so, I mean, look on the, on the, I said, we, we do have, as I mentioned, one Kasthuri Rangan, the others there. They're contributing more than European and the others.
Speaker Change: But we see goals in the rest of the cohort as well, you know, so again, study typical. We've always had in every single one of us as a cohort. We do have some form of revenue concentration and I remind you that the small fraction of our customers. [inaudible]
Speaker Change: Otherwise there are payouts of more than $100,000 of AR and they represent almost 90% of our revenue, so that's sort of how the business is structured.
Speaker Change: We are careful about the size and the rate of both of those customers there, which is also why we call attention to potential volatility there in the future. Thank you.
Speaker Change: Yeah, that's something we watch a lot. So once the reps are ramped, we look at productivity and do we have productivity from those added that are similar and the answers yes.
It is due to where we're putting the reps, we're not doing it sort of, you know...
Speaker Change: In a non-target away, we're looking at territories, so when we see ramps, ref ramps
Speaker Change: Rept Ramp, that's a hard one. We see similar productivity and that gives us the signal that we are doing the right thing and we can continue to add additional reps. Just as a quick reminder, you know, when you think of an outgoing capacity, I think it's a little bit different for sales and useful engineering. Thank you very much.
Speaker Change: For engineering, you can do it in the top-down fashion, you can decide how much you're going to grow the team, and then you can distribute your engineering on different types of products after that, more or less.
Speaker Change: On the sales side, we need to do it in the bottom of fashion because you need to understand which territories can carry for many new reps, which ones have the right productivity, which ones have the right market opportunity and where you're going with people.
Tvertis, thank you [inaudible]
Thank you
Speaker Change: Our next question comes from Brent Thill, from Jeffries, please go ahead
Speaker Change: Thanks, David, on the 25 to 30% sales capacity that you're seeing now, is that what you're continuing to plan for for the year? Do you expect that growth rate to say that you're getting to the back half a year? Just give us a sense of the shape of the that quote of carrying ramp in 2025. Thanks. We're continuing doing that, but what we see is that the ramp capacity. The ramp capacity. The ramp capacity. The ramp capacity. The ramp capacity. The ramp capacity. The ramp capacity. The ramp capacity. The ramp capacity.
because we essentially have this six month, 12 month ramp.
Speaker Change: If our plans are realized, the investment in headcount will translate into a higher ramp capacity increase. That's dependent upon getting the right people, training and enabling the right people and retaining them, but that's the idea and we're hopeful for that.
Okay, Ollie, that was it. Thank you so much. Thank you so much.
Thanks.
Thank you
Our next question comes from Kirk Materne, from Evercore, ISS. Ittai Kidron,
Please go ahead. Yeah, thanks very much
Thank you very much, good morning guys.
Speaker Change: Ali, could you just talk about whether you've seen any discernible change in terms of...
Speaker Change: Yeah, the AI natives that you're working with in terms of you know what you're helping with them with meaning I assume its majority is training at this point in time but I was curious
Speaker Change: What's training for the A&D stands to be largely homegrown one-off and different from between each and every one of them?
We expect that as an if.
Speaker Change: Most other capabilities and surprises do significant training, that this will not be the case, it will not be one-off and homegrown But right now it is still the E-I-N-E that do most of the training, and they still do it in the way that's largely homegrown So when we see growth on the E-I-N-E of course, that's...
Speaker Change: Growth of AI adoption because that's growth of customer-facing war clothes by and much.
Okay, and then just one follow-up, maybe this for David, just-
Speaker Change: Today versus where they could be a longer period of time. Thanks.
David Obstler: Yeah, and for right now, I think we're seeing the returns in productivity, whether that be salespeople getting more information or R&D, we're essentially trying to create an environment where we're encouraging the various departments to use it and learning from it. Long term, there might well be, you know, efficiency gains, but there may be efficiency gains that can be manifested in head count, but right now we're essentially trying to make the head
and make it grow.
David Obstler: You're producing more, or whether that's on the revenue side or on the product and engineering side.
David Obstler: Long term of use, we have strong believers in the fact that AI is a big driver of electricity and, you know, we beat.
David Obstler: We can see how it can be if it's going to see that it can be 10 times cheaper to produce the same amount of software and things like that. So I think we definitely headed there.
[inaudible]
Thank you
Speaker Change: Our next question comes from Howard Maugh, from Guggenheim, please go ahead [inaudible]
Great, thanks for taking the question.
Speaker Change: I was hoping you guys could reconcile the consumption downtick in the enterprise segment versus the strong new logo AR growth as we've said it's over 70% year over year. Thank you.
Speaker Change: Yeah, I mean, there's no contradiction there. I think there's always viability in the usage. We see that most of us see that quarter to quarter and we see there is within the bounds of that. [inaudible]
Speaker Change: Yeah, we obviously we take a strong look at so we so I think the first one is when we talk about a ready which is
Product,
sales capacity, winning market share in the market.
Speaker Change: The second one is, we've always said we have some volatility now. Back when we had the post-COVID, we saw some correlation around broad parts of our customer base indicating that we're broader trends. In this case, we've looked at it and it's sort of volatility of usage but not a broad trend. Yeah, and remember also when we said we have strong bookings.
Speaker Change: It takes time for bookings to turn into revenue for us.
So there's definitely a timing effect there.
Got it, thank you.
Thank you [inaudible]
Speaker Change: Our next question comes from Matt Hedberg, from RBC Please Go Head
Matt Hedeberg: Great, thank you for taking my questions, guys. Two quick ones. I guess, Molly, you know, can obviously change uses, for instance, due to macros. We can't hear you. I'm sorry, we can't hear you. Matt, you're breaking up.
Okay.
Speaker Change: Let me try this. You know, philosophically speaking, you know, customers optimized in 2022 and 2023 are they still operating at fairly optimized levels? [inaudible]
Speaker Change: Well, Kasthuri Rangan, I think, are running tighter optimization cycles now, so we don't think they're...
Speaker Change: That's our commitment or when they renew their observatory commitment is when they're going to look at what they need to optimize and come back to it. But we think in general that cycle has become much tighter for customers. Thank you very much.
Speaker Change: God, thanks. It may be just a quick one for David. It sounds like $10 million of expenses for Epo and MetaPlanes. Curious if your guidance includes any impact from a revenue perspective for those two? Thank you.
David Obstler: Well, for the second half of the year, we did not change the, you know, revenue guide and so I would say net net when you put everything together we did not include it
Thank you.
David Obstler: Yes, I think that's important to say the impact is small, the combination of the revenues per and the quarterly in the second half. Based on what we acquired, now we're obviously going to try to accelerate that is small anyway.
Yeah.
Speaker Change: Thank you. Our next question comes from Brad Reback from Stiffle. Please go ahead
Speaker Change: A great thanks very much. Holly, there's been growing kind of customer focus on bring your own cloud. How should we think about you're well I should what do you think you philosophically is related to that maybe on prem workloads in general thanks.
Thank you for watching! Bye!
Speaker Change: Well, I think it's two different things. There are on-prem workloads because some customers still have a lot.
Speaker Change: of Laud and Premua Clude that are not going anywhere and we're seeing that. [inaudible]
Speaker Change: And we have new product offerings that go squarely after that, so we can cover.
Speaker Change: From the cloud, their own framework loads, anywhere they discuss it like it's for them and that they can use in conjunction with the monitoring of their own plan environment. So that's one thing and we are addressing that with your big opportunity there. [inaudible] one and that's one
Speaker Change: The same thing is, these are the focus simmers to run on their own infrastructure, whether it's
Speaker Change: Cloud, or some on-premise version of the cloud. Within the definitely a future where that becomes more important, especially if there's more geopolitical separations between the responsible world.
Speaker Change: Physically, we go wherever customers want us to go, you know, so if that's the way they want to consume software at the end, that's definitely the way we're going to deliver it.
Speaker Change: We are testing right now some ways for customers to manage a lot of their data directly on their own cloud. We'll have a new product that is being...
Speaker Change: in customer's hands for that. And if we see strong market pool for that, and if we see the world going in that direction, we're definitely in the heart of into that. So for us, this can be a big opportunity in the future.
That's great. Thank you very much.
Thank you.
Thank you [inaudible]
In the interest of Tom, we have one more question.
Speaker Change: Our next question comes from Andrew Sermon, from TD Cowell, and please go ahead
Andrew Sermon: Oh great, thanks for squeezing me in. The NetNew adds 100K plus of 160 were the strongest since 4Q22. Let me just talk about the drivers of expansion there across new use cases, new products, share gains, and it sounds like some boomerang customers coming back to you as well. Thanks.
Andrew Sermon: Yes, all of the above, that's with you. And look. [inaudible]
Speaker Change: I'm happy this number is high but you know it's uh...
Andrew Sermon: Do I see that it's consistent, you know, sometimes a bit lower, sometimes a bit higher, but all of our customers are going up to Kirk with us as they consolidate more and more of what they're doing into a platform and bring us more and more of their workloads and they go with us.
Speaker Change: Of course, we're also very happy to see some customers coming back, you know, so do one customer we mentioned on the call here . . .
Speaker Change: I decided to sort of build the own using some commercial open source. [inaudible]
Speaker Change: And they decided to come back and it's a motion we do see. We're very happy to see that in the end some customers have tried everything, including us in the competition. We've seen as being the best long-term choice. And maybe we can close it on that.
Thank you.
Thank you.
Speaker Change: The question and succession is now closed. I will now turn it over to Olivier Pomel for closing remarks.
Speaker Change: All right, thank you very much. So, again, I want to thank all of our employees and customers for working with us in Florida 30-40 and I remind everyone that we saw that work, preparing our conference dash
Speaker Change: On June 10th and 11th in New York, we have a lot of exciting stuff to show there, so we expect to see as many of you there as possible.
Thank you for watching!
Speaker Change: Thank you. For your participation in today's conference, this does conclude the program you may now disconnect.