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Third quarter revenue grew 61% year-over-year to $437 million
Strong growth of larger customers, with about 2,600 $100k+ ARR customers, up from about 1,800 a year ago
Announced 18 new products and features at Dash
NEW YORK, Nov. 3, 2022 /PRNewswire/ -- Datadog, Inc. (NASDAQ:DDOG), the monitoring and security platform for cloud applications, today announced financial results for its third quarter ended September 30, 2022.
"We are pleased with our third quarter results, with 61% year-over-year revenue growth, strong adoption of our products and robust opportunities with new customers," said Olivier Pomel, co-founder and CEO of Datadog.
Pomel added, "We recently held our 2022 Dash conference, and announced 18 new products and features across our platform, for a variety of observability, security, and developer experience use cases. We are innovating rapidly to help our customers to manage the exponentially rising complexity of their cloud systems."
Third Quarter 2022 Financial Highlights:
Third Quarter & Recent Business Highlights:
Fourth Quarter and Full Year 2022 Outlook:
Based on information as of today, November 3, 2022, Datadog is providing the following guidance:
Datadog has not reconciled its expectations as to non-GAAP operating income, or as to non-GAAP net income per share, to their most directly comparable GAAP measure as a result of uncertainty regarding, and the potential variability of, reconciling items such as stock-based compensation and employer payroll taxes on equity incentive plans. Accordingly, reconciliation is not available without unreasonable effort, although it is important to note that these factors could be material to Datadog's results computed in accordance with GAAP.
Conference Call Details:
About Datadog
Datadog is the monitoring and security platform for cloud applications. Our SaaS platform integrates and automates infrastructure monitoring, application performance monitoring and log management to provide unified, real-time observability of our customers' entire technology stack. Datadog is used by organizations of all sizes and across a wide range of industries to enable digital transformation and cloud migration, drive collaboration among development, operations, security and business teams, accelerate time to market for applications, reduce time to problem resolution, secure applications and infrastructure, understand user behavior and track key business metrics.
Forward-Looking Statements
This press release and the earnings call referencing this press release contain "forward-looking" statements, as that term is defined under the federal securities laws, including but not limited to statements regarding Datadog's strategy, product and platform capabilities, the benefits and expected closing of acquisitions, growth in and ability to capitalize on long-term market opportunities including the pace and scope of cloud migration and digital transformation, gross margins and operating margins including with respect to sales and marketing, research and development expenses, investments and capital expenditures as well as the impact of increased office activity and marketing, and Datadog's future financial performance, including its outlook for the fourth quarter and fiscal year 2022. These forward-looking statements are based on Datadog's current assumptions, expectations and beliefs and are subject to substantial risks, uncertainties, assumptions and changes in circumstances that may cause Datadog's actual results, performance or achievements to differ materially from those expressed or implied in any forward-looking statement.
The risks and uncertainties referred to above include, but are not limited to (1) our recent rapid growth may not be indicative of our future growth; (2) our history of operating losses; (3) our limited operating history; (4) our business depends on our existing customers purchasing additional subscriptions and products from us and renewing their subscriptions; (5) our ability to attract new customers; (6) our ability to effectively develop and expand our sales and marketing capabilities; (7) risk of a security breach; (8) risk of interruptions or performance problems associated with our products and platform capabilities; (9) our ability to adapt and respond to rapidly changing technology or customer needs; (10) the competitive markets in which we participate; (11) risks associated with successfully managing our growth; (12) general market, political, economic, and business conditions including concerns about reduced economic growth and associated decreases in information technology spending; and (13) the impact that the ongoing COVID-19 pandemic and any related economic downturn could have on our or our customers' businesses, financial condition and results of operations. These risks and uncertainties are more fully described in our filings with the Securities and Exchange Commission (SEC), including in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022. Additional information will be made available in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 and other filings and reports that we may file from time to time with the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements, or events and circumstances reflected in the forward-looking statements will occur. Forward-looking statements represent our beliefs and assumptions only as of the date of this press release. We disclaim any obligation to update forward-looking statements.
About Non-GAAP Financial Measures
Datadog discloses the following non-GAAP financial measures in this release and the earnings call referencing this press release: non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (research and development, sales and marketing and general and administrative), non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per diluted share, non-GAAP net income (loss) per basic share, and free cash flow. Datadog uses each of these non-GAAP financial measures internally to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate Datadog's financial performance. Datadog believes they are useful to investors, as a supplement to GAAP measures, in evaluating its operational performance, as further discussed below. Datadog's non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in its industry, as other companies in its industry may calculate non-GAAP financial results differently, particularly related to non-recurring and unusual items. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact on Datadog's reported financial results.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.
Datadog defines non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (research and development, sales and marketing and general and administrative), non-GAAP operating income (loss), non-GAAP operating margin and non-GAAP net income (loss) as the respective GAAP balances, adjusted for, as applicable: (1) stock-based compensation expense; (2) the amortization of acquired intangibles; (3) employer payroll taxes on employee stock transactions; and (4) amortization of issuance costs. Datadog defines free cash flow as net cash provided by operating activities, minus capital expenditures and minus capitalized software development costs, if any. Investors are encouraged to review the reconciliation of these historical non-GAAP financial measures to their most directly comparable GAAP financial measures.
Management believes these non-GAAP financial measures are useful to investors and others in assessing Datadog's operating performance due to the following factors:
Stock-based compensation. Datadog utilizes stock-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of its stockholders and at long-term retention, rather than to address operational performance for any particular period. As a result, stock-based compensation expenses vary for reasons that are generally unrelated to financial and operational performance in any particular period.
Amortization of acquired intangibles. Datadog views amortization of acquired intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of acquired intangibles is an expense that is not typically affected by operations during any particular period.
Employer payroll taxes on employee stock transactions. Datadog excludes employer payroll tax expense on equity incentive plans as these expenses are tied to the exercise or vesting of underlying equity awards and the price of Datadog's common stock at the time of vesting or exercise. As a result, these taxes may vary in any particular period independent of the financial and operating performance of Datadog's business.
Amortization of issuance costs. In May 2020, Datadog issued $747.5 million of convertible senior notes due 2025, which bear interest at an annual fixed rate of 0.125%. Debt issuance costs, which reduce the carrying value of the convertible debt instrument, are amortized as interest expense over the term. The expense for the amortization of debt issuance costs is a non-cash item, and we believe the exclusion of this interest expense will provide for a more useful comparison of our operational performance in different periods.
Additionally, Datadog's management believes that the non-GAAP financial measure free cash flow is meaningful to investors because it is a measure of liquidity that provides useful information in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business. Free cash flow represents net cash provided by operating activities, reduced by capital expenditures and capitalized software development costs, if any. The reduction of capital expenditures and amounts capitalized for software development facilitates comparisons of Datadog's liquidity on a period-to-period basis and excludes items that management does not consider to be indicative of our liquidity.
Operating Metrics
Datadog's number of customers with ARR of $100,000 or more and number of customers with ARR of $1 million or more are based on the ARR of each customer, as of the last month of the quarter.
We define the number of customers as the number of accounts with a unique account identifier for which we have an active subscription in the period indicated. Users of our free trials or tier are not included in our customer count. A single organization with multiple divisions, segments or subsidiaries is generally counted as a single customer. However, in some cases where they have separate billing terms, we may count separate divisions, segments or subsidiaries as multiple customers.
We define ARR as the annualized revenue run-rate of subscription agreements from all customers at a point in time. We calculate ARR by taking the monthly recurring revenue, or MRR, and multiplying it by 12. MRR for each month is calculated by aggregating, for all customers during that month, monthly revenue from committed contractual amounts, additional usage, usage from subscriptions for a committed contractual amount of usage that is delivered as used, and monthly subscriptions. We updated the definition of MRR as of the quarter ended September 30, 2021 to capture usage from subscriptions with committed contractual amounts and applied this change retrospectively. ARR and MRR should be viewed independently of revenue, and do not represent our revenue under GAAP on a monthly or annualized basis, as they are operating metrics that can be impacted by contract start and end dates and renewal rates. ARR and MRR are not intended to be replacements or forecasts of revenue.
Datadog, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data; unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Revenue
$ 436,533
$ 270,488
$ 1,205,701
$ 702,586
Cost of revenue (1)(2)(3)
93,599
63,332
249,986
167,096
Gross profit
342,934
207,156
955,715
535,490
Operating expenses:
Research and development (1)(3)
205,388
112,675
533,695
286,720
Sales and marketing (1)(2)(3)
129,493
75,827
345,929
210,592
General and administrative (1)(3)
39,395
23,549
100,158
65,789
Total operating expenses
374,276
212,051
979,782
563,101
Operating loss
(31,342)
(4,895)
(24,067)
(27,611)
Other income (loss):
Interest expense (4)
(3,728)
(4,912)
(13,516)
(15,448)
Interest income and other income, net
12,011
5,040
25,367
16,105
Other income, net
8,283
128
11,851
657
Loss before provision for income taxes
(23,059)
(4,767)
(12,216)
(26,954)
Provision for income taxes
(2,926)
(717)
(8,910)
(960)
Net loss
$ (25,985)
$ (5,484)
$ (21,126)
$ (27,914)
Net loss per share - basic
$ (0.08)
$ (0.02)
$ (0.07)
$ (0.09)
Net loss per share - diluted
$ (0.08)
$ (0.02)
$ (0.07)
$ (0.09)
Weighted average shares used in calculating net loss per share:
Basic
315,990
310,247
314,753
308,115
Diluted
315,990
310,247
314,753
308,115
(1) Includes stock-based compensation expense as follows:
Cost of revenue
$ 3,165
$ 1,427
$ 7,173
$ 2,957
Research and development
65,321
27,239
163,326
64,947
Sales and marketing
21,145
9,739
53,330
23,355
General and administrative
11,731
5,590
26,816
16,112
Total
$ 101,362
$ 43,995
$ 250,645
$ 107,371
(2) Includes amortization of acquired intangibles as follows:
Cost of revenue
$ 1,900
$ 1,311
$ 4,795
$ 2,574
Sales and marketing
208
229
617
392
Total
$ 2,108
$ 1,540
$ 5,412
$ 2,966
(3) Includes employer payroll taxes on employee stock transactions as follows:
Cost of revenue
$ 47
$ 62
$ 219
$ 253
Research and development
1,799
1,523
7,925
5,395
Sales and marketing
620
1,275
2,334
5,230
General and administrative
245
520
719
838
Total
$ 2,711
$ 3,380
$ 11,197
$ 11,716
(4) Includes amortization of issuance costs as follows:
Interest expense
$ 843
$ 838
$ 2,525
$ 2,510
Total
$ 843
$ 838
$ 2,525
$ 2,510
Datadog, Inc.
Condensed Consolidated Balance Sheets
(In thousands; unaudited)
September 30,
2022
December 31,
2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$ 294,815
$ 270,973
Marketable securities
1,471,448
1,283,473
Accounts receivable, net of allowance for credit losses of $5,430 and $2,997 as of
September 30, 2022 and December 31, 2021, respectively
348,830
268,824
Deferred contract costs, current
29,873
23,235
Prepaid expenses and other current assets
31,603
24,443
Total current assets
2,176,569
1,870,948
Property and equipment, net
110,889
75,152
Operating lease assets
88,930
61,355
Goodwill
332,649
292,176
Intangible assets, net
15,616
15,704
Deferred contract costs, non-current
50,154
42,062
Restricted cash
3,019
3,490
Other assets
19,777
19,907
TOTAL ASSETS
$ 2,797,603
$ 2,380,794
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$ 27,625
$ 25,270
Accrued expenses and other current liabilities
146,290
111,284
Operating lease liabilities, current
21,751
20,157
Deferred revenue, current
478,742
371,985
Total current liabilities
674,408
528,696
Operating lease liabilities, non-current
76,934
52,106
Convertible senior notes, net
738,003
735,482
Deferred revenue, non-current
9,455
13,896
Other liabilities
9,364
9,411
Total liabilities
1,508,164
1,339,591
STOCKHOLDERS' EQUITY:
Common stock
3
3
Additional paid-in capital
1,487,992
1,197,136
Accumulated other comprehensive loss
(25,324)
(3,830)
Accumulated deficit
(173,232)
(152,106)
Total stockholders' equity
1,289,439
1,041,203
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 2,797,603
$ 2,380,794
Datadog, Inc.
Condensed Consolidated Statements of Cash Flow
(In thousands; unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$ (25,985)
$ (5,484)
$ (21,126)
$ (27,914)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
9,313
6,197
24,825
16,062
Amortization of discounts or premiums on marketable securities
520
3,716
7,217
11,829
Amortization of issuance costs
843
838
2,525
2,510
Amortization of deferred contract costs
7,361
4,704
19,941
12,557
Stock-based compensation, net of amounts capitalized
101,362
43,995
250,645
107,371
Non-cash lease expense
5,550
4,544
15,236
12,605
Allowance for credit losses on accounts receivable
1,998
699
3,929
1,226
Loss on disposal of property and equipment
3
102
1,152
258
Changes in operating assets and liabilities:
Accounts receivable, net
(45,638)
(36,972)
(83,738)
(61,880)
Deferred contract costs
(13,202)
(10,909)
(34,671)
(27,610)
Prepaid expenses and other current assets
1,349
1,596
(11,280)
(941)
Other assets
(168)
(912)
(1,920)
(1,844)
Accounts payable
(20,696)
5,060
2,483
12,432
Accrued expenses and other liabilities
31,660
11,918
27,350
19,226
Deferred revenue
29,348
38,287
101,398
94,865
Net cash provided by operating activities
83,618
67,379
303,966
170,752
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities
(348,947)
(406,429)
(1,067,732)
(897,412)
Maturities of marketable securities
340,439
365,486
857,193
935,692
Proceeds from sale of marketable securities
84
19,417
2,090
61,132
Purchases of property and equipment
(9,706)
(3,324)
(25,207)
(7,551)
Capitalized software development costs
(6,812)
(6,972)
(21,592)
(19,364)
Cash paid for acquisition of businesses; net of cash acquired
(736)
146
(40,302)
(200,202)
Net cash used in investing activities
(25,678)
(31,676)
(295,550)
(127,705)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
1,816
4,489
8,267
10,651
Proceeds for issuance of common stock under the employee stock purchase plan
—
—
13,557
9,794
Employee payroll taxes paid related to net share settlement under the employee stock
purchase plan
—
—
—
(245)
Repayments of convertible senior notes
—
—
(3)
—
Net cash provided by financing activities
1,816
4,489
21,821
20,200
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(3,995)
(758)
(6,866)
(1,420)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
55,761
39,434
23,371
61,827
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period
242,073
251,104
274,463
228,711
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period
$ 297,834
$ 290,538
$ 297,834
$ 290,538
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS
TO THE AMOUNTS SHOWN IN THE STATEMENTS OF CASH FLOWS ABOVE:
Cash and cash equivalents
$ 294,815
$ 286,966
$ 294,815
$ 286,966
Restricted cash
3,019
3,572
3,019
3,572
Total cash, cash equivalents and restricted cash
$ 297,834
$ 290,538
$ 297,834
$ 290,538
Datadog, Inc.
Reconciliation from GAAP to Non-GAAP Results
(In thousands, except per share data; unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Reconciliation of gross profit and gross margin
GAAP gross profit
$ 342,934
$ 207,156
$ 955,715
$ 535,490
Plus: Stock-based compensation expense
3,165
1,427
7,173
2,957
Plus: Amortization of acquired intangibles
1,900
1,311
4,795
2,574
Plus: Employer payroll taxes on employee stock transactions
47
62
219
253
Non-GAAP gross profit
$ 348,046
$ 209,956
$ 967,902
$ 541,274
GAAP gross margin
79 %
77 %
79 %
76 %
Non-GAAP gross margin
80 %
78 %
80 %
77 %
Reconciliation of operating expenses
GAAP research and development
$ 205,388
$ 112,675
$ 533,695
$ 286,720
Less: Stock-based compensation expense
(65,321)
(27,239)
(163,326)
(64,947)
Less: Employer payroll taxes on employee stock transactions
(1,799)
(1,523)
(7,925)
(5,395)
Non-GAAP research and development
$ 138,268
$ 83,913
$ 362,444
$ 216,378
GAAP sales and marketing
$ 129,493
$ 75,827
$ 345,929
$ 210,592
Less: Stock-based compensation expense
(21,145)
(9,739)
(53,330)
(23,355)
Less: Amortization of acquired intangibles
(208)
(229)
(617)
(392)
Less: Employer payroll taxes on employee stock transactions
(620)
(1,275)
(2,334)
(5,230)
Non-GAAP sales and marketing
$ 107,520
$ 64,584
$ 289,648
$ 181,615
GAAP general and administrative
$ 39,395
$ 23,549
$ 100,158
$ 65,789
Less: Stock-based compensation expense
(11,731)
(5,590)
(26,816)
(16,112)
Less: Employer payroll taxes on employee stock transactions
(245)
(520)
(719)
(838)
Non-GAAP general and administrative
$ 27,419
$ 17,439
$ 72,623
$ 48,839
Reconciliation of operating (loss) income and operating margin
GAAP operating loss
$ (31,342)
$ (4,895)
$ (24,067)
$ (27,611)
Plus: Stock-based compensation expense
101,362
43,995
250,645
107,371
Plus: Amortization of acquired intangibles
2,108
1,540
5,412
2,966
Plus: Employer payroll taxes on employee stock transactions
2,711
3,380
11,197
11,716
Non-GAAP operating income
$ 74,839
$ 44,020
$ 243,187
$ 94,442
GAAP operating margin
(7) %
(2) %
(2) %
(4) %
Non-GAAP operating margin
17 %
16 %
20 %
13 %
Reconciliation of net (loss) income
GAAP net loss
$ (25,985)
$ (5,484)
$ (21,126)
$ (27,914)
Plus: Stock-based compensation expense
101,362
43,995
250,645
107,371
Plus: Amortization of acquired intangibles
2,108
1,540
5,412
2,966
Plus: Employer payroll taxes on employee stock transactions
2,711
3,380
11,197
11,716
Plus: Amortization of issuance costs
843
838
2,525
2,510
Non-GAAP net income
$ 81,039
$ 44,269
$ 248,653
$ 96,649
Net income per share - basic
$ 0.26
$ 0.14
$ 0.79
$ 0.31
Net income per share - diluted
$ 0.23
$ 0.13
$ 0.72
$ 0.28
Shares used in non-GAAP net income per share calculations:
Basic
315,990
310,247
314,753
308,115
Diluted
345,100
344,453
345,603
343,071
Datadog, Inc.
Reconciliation of GAAP Cash Flow from Operating Activities to Free Cash Flow
(In thousands; unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Net cash provided by operating activities
$ 83,618
$ 67,379
$ 303,966
$ 170,752
Less: Purchases of property and equipment
(9,706)
(3,324)
(25,207)
(7,551)
Less: Capitalized software development costs
(6,812)
(6,972)
(21,592)
(19,364)
Free cash flow
$ 67,100
$ 57,083
$ 257,167
$ 143,837
Free cash flow margin
15 %
21 %
21 %
20 %
Contact Information
Yuka Broderick
Datadog Investor Relations
IR@datadoghq.com
Dan Haggerty
Datadog Public Relations
Press@datadoghq.com
Datadog is a registered trademark of Datadog, Inc.
All product and company names herein may be trademarks of their registered owners.
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SOURCE Datadog, Inc.