Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue reached $611 million, a 27% increase year-over-year, surpassing the high end of guidance.
- Customer base grew to about 28,000, up from 25,500 last year, with significant growth in high-ARR customers.
- Free cash flow was strong at $187 million, with a free cash flow margin of 31%.
- High product adoption with 82% of customers using 2 or more products and significant growth in newer product lines.
- Continued innovation and expansion in AI and cloud service management, enhancing platform capabilities and customer engagement.
Negative Points
- Despite overall growth, some customers continue to be cost-conscious, impacting optimization activities.
- Challenges in ramping up sales and recruiting to meet market demands and expansion plans.
- Potential lag in revenue recognition from large consolidation deals, which may affect short-term financial reporting.
- Increased investment in sales and R&D leading to a projected decrease in operating margin for the fiscal year.
- Dependence on continued cloud migration and digital transformation trends, which could be impacted by broader market or economic factors.
Q & A Highlights
Q: It was encouraging to see that usage trends continue to improve, at least sequentially Q1 over Q4. I wanted to see if you could put like the usage trends you're seeing in your business in context of like the broader cloud landscape.
A: Olivier Pomel - Datadog, Inc. - Co-Founder, CEO & Director: Yes, it's hard to do a precise quarter-by-quarter mapping between the revenue of cloud providers and our revenue. However, over the longer term, we are very exposed to the growth trend with the cloud providers, and the correlation between our businesses is expected to remain. We are also very exposed to the same tailwinds, notably cloud migration and AI adoption.
Q: Congratulations on the revenue acceleration during the quarter. How commonly are customers in your gen AI cohort using Datadog to monitor for bias and hallucinations within their AI models as opposed to just keeping the systems running?
A: Olivier Pomel - Datadog, Inc. - Co-Founder, CEO & Director: We have products for monitoring not just the infrastructure but what the LLMs are doing. These products are still not in GA, so we're working with a smaller number of design partners. The most scaled AI workload customers tend to have their own infrastructure for monitoring the quality of the models.
Q: Congratulations to the team on very good results here. Could you talk about the consolidation trend that you're talking about?
A: Olivier Pomel - Datadog, Inc. - Co-Founder, CEO & Director: We've seen more consolidation driven by customers wanting to save money and by customers getting further into their cloud migration and rationalizing what they're using as they do 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.
Q: Oli, you mentioned newer products continue to do really well. Are these newer products resonating up and down your customer base?
A: Olivier Pomel - Datadog, Inc. - Co-Founder, CEO & Director: It depends on the product. Some products are extremely broad-based in terms of their appeal, and some others are really more directed to certain types of customers. For example, all products that have to do with monitoring physical networks tend to be more appealing to larger, older enterprises.
Q: David, you explicitly mentioned that the international book of business and activity was stronger than domestic. Could you help us understand some of the dynamics driving that divergence?
A: David M. Obstler - Datadog, Inc. - CFO: The international markets have been more immature as to their cloud migrations and their deployment of digital applications than the North American markets, and we've been more immature in terms of our footprint. We are seeing 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.
Q: David, good margins, 27%, but you're guiding full year to 23%. 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?
A: David M. Obstler - Datadog, Inc. - CFO: Sales and R&D investment, we are both the sales capacity and the whole ecosystem that we've been talking about. We are layering in more investment in both R&D and sales and marketing. There's nothing onetime or special. It relates to both sales capacity and R&D projects.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
