Welcome to the Q3 2021 Datadog Earnings Conference Call. My name is Adrianne, and I’ll be your operator for today’s call. At this time all participants are in a listen-only mode. I’ll now turn the call over to Yuka Broderick, Head of Investor Relations. Yuka Broderick, you may begin.

Thank you, Adrianne. Good evening, and thank you for joining us to review Datadog’s third-quarter 2021 financial results, which we announced in our press release issued after market close. 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 statements related to our business that are forward-looking under federal securities laws and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our future financial performance, our outlook for the fourth quarter and the full year 2021, our strategy, the potential benefits of our products, partnerships, investments in R&D and go-to-market, our ability to capitalize on our market opportunity. 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 not as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our quarterly report on Form 10-Q for the quarter ended June 30, 2021, filed with the SEC on August 6, 2021. Additional information will be made available in our quarterly report on Form 10-Q for the quarterly period ended September 30, 2021, and other filings and reports that we may file from time to time with the SEC. Our filings with the SEC are available on the Investor Relations section of our website. A replay of this call will also be available there for a limited time. Non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release, which you can find on the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measures. With that, I’d like to turn the call over to Olivier.

Thanks, Yuka, and thank you all for joining us this evening. We are extremely pleased with our performance in Q3, which was stronger than expected on robust growth with existing customers as well as strong new customer sales. We saw broad-based strength across product lines and across customer segments. Let me give you a quick summary of the quarter. Revenue was $270 million, an increase of 75% year-over-year, and above the high end of our guidance range. We ended the quarter with 1,800 customers with ARR of $100,000 or more, up from 1,082 in the year-ago quarter. These customers generated about 80% of our ARR. We have about 17,500 customers, which is up from about 13,100 last year. The leverage and efficiency of our business model is coming through with free cash flow of $57 million. And our dollar-based net retention rate continued to be over 130% as customers increase their usage and adopted on newer products. At a high level, positive business trends from recent quarters continued in Q3. Usage growth from existing customers was very strong this quarter across products. New logo ARR was robust with some large new deals closing, and churn remains low and in line with historical rates. Taking all these factors into account, we had a record quarter of ARR added, and we crossed the milestone by exceeding $1 billion in ARR in Q3. Next, our platform strategy continues to resonate in the market. As of the end of Q3, 77% of customers are using two or more products, up from 71% a year ago. Additionally, 31% of customers are now using four or more products, which is up from 20% last year. And this quarter, about 70% of new logos landed with two or more products. Most strikingly, our whole platform saw strong growth in the third quarter. But in particular, all of our major products added a record amount of ARR during the quarter. This shows the year-over-year growth of infrastructure monitoring ARR on its own accelerated this quarter. Our log management and APM suite, which includes Synthetics, user monitoring, and continuous profiler, remain in hyper growth mode. Together in Q3, they exceeded $500 million in the ARR. Now, let’s move on to product and R&D. Our teams continue to innovate at a rapid pace. We had 40 new product-related announcements in Q3, and we made many announcements last week at Dash, our Annual User Conference. You can review our Dash press releases as well as tonight's earnings for further details. To summarize briefly, we announced the availability of CI visibility, session replay, funnel analysis, network device monitoring, Datadog Apps and Online Archives for Log Management. We launched private betas for Cloud Cost Management, Observability Pipelines, Universal Service Monitoring, and Application Security. We also announced official Datadog support of the Vector open-source product. Looking back at these announcements: Some of them will increase Datadog’s usefulness for business personas, users who are not engineers and can benefit from the data flowing to Datadog. With Session Replay and Funnel Analysis, we believe support organizations, product designers, and product managers can gain value from understanding user behavior and interactions with applications. We expect Cloud Cost Management will benefit anyone involved in understanding and controlling the expense of cloud implementations from engineering teams to product managers to finance teams. We are also advancing our efforts to support our customers with large-scale complex data needs. So, I want to talk a bit about Vector, Observability Pipelines, and Online Archives. Nine months ago, we acquired Timber, the developer of Vector. Vector is an open-source product that allows users to collect, enrich, and transform observability data and automatically route it to the destination of their choice. Our Observability Pipelines product extends Vector and increases enterprise-level capabilities for its data pipelines and the ability for users to seamlessly manage it from Datadog across both on-premise and cloud accounts. Vector and Observability Pipelines let customers make value-based decisions on data as early as possible before sending data to Datadog or any other partner. We are always looking for ways to give customers more control over how they use their data and how they manage the cost of their cloud deployments. This is another step in that direction. And with online archive, we are aiming to solve the growing problem of storing all logs and enabling complex historical investigations on them. Online Archives is an always-on log warehousing solution that provides 15 months or more of extremely cost-effective storage online query capabilities. I also wanted to mention the database monitoring, which we announced for general availability in August, and which gives our customers deep visibility into the performance and execution of queries across all of their databases. Finally, as announced in the press release issued this evening, we acquired Ozcode, a live debugging solution for .NET applications, which lets developers solve problems in real-time, whether in development or in product environments. It is another example of our growing push into developer workflows. So, as we can see, we were very busy in Q3. I want to thank our engineering and product teams for their hard work and relentless focus on our customers. Now, moving on to sales and marketing. Our go-to-market teams continue to be very productive, and we added 1,100 net new customers this quarter. Let’s review some of our Q3 wins. First, we had our largest deal ever by total contract value, a $60 million five-year upsell with a multinational financial services company. Our history of success with this customer has led to the use of nine products, including early adoption of newer products such as RUM, Synthetics, and APM. This customer began the second phase of their migration to the cloud and is standardizing on Datadog, adopting our newer products as we add them to our platform. Next, we had a seven-figure upsell with a global fashion retailer based in Asia. This customer saw e-commerce sales increase dramatically during the pandemic and began using Datadog after several outages resulted in missed sales. After a disappointing implementation of a competing solution, they chose Datadog APM across their global e-commerce sites and saw immediate improvement in stability. Next, we had a six-figure land with a U.S.-based professional sports league, which came in partnership with Google Cloud Platform. This customer experienced a large spike in application usage as fans returned to games after the pandemic, but they had no client monitoring and therefore, nowhere to analyze and optimize the user experience. With Datadog Real User Monitoring and Synthetics, along with infrastructure monitoring and APM, the customer now has a single solution to manage experience from front-end to back-end. Finally, we had a large six-figure land with a U.S. distributor of plumbing and building equipment. This company needed to migrate from on-premise to Azure and to deploy on Azure Kubernetes Service. However, its existing APM solution had limited visibility into containers. With Datadog, this customer can effectively monitor the health of their Azure ecosystem, allowing them to confidently and efficiently complete migrations and retire legacy infrastructure. As you can see, our go-to-market teams had another quarter of strong execution, and I want to thank them for once more successfully helping both new and existing customers to generate value from Datadog. Now moving on to our longer-term outlook. If you could not join us for our investor meeting last week, I encourage you to watch a video on the Investor Relations section of our website. At the meeting, we described our long-term opportunities, our differentiators, and the expansion of our platforms over the years. To summarize my part of the presentation, we see digital transformation and cloud migration as large forces driving exponential growth. We believe Datadog helps solve the growing problem of managing complexity for our customers and that our open-ended unified platform, designed to be simple but not simplistic, is deployed everywhere and used by everyone at our customers, helping to break down silos between teams. We believe it is still early days for our opportunity in observability. While we have made a lot of progress in building out a broad observability platform, we still have much to do to solve all of our customers' pain points. One next step for us is in security, with our cloud security platform. We believe we have a part to play in breaking down silos between development, corporations, and security teams. We’re also making progress on developer workflows with the general availability of CI Visibility. We believe over time, we have opportunities to help our customers in several other large adjacent markets as well. In other words, we are just getting started. With that, I would like to turn the call over to our CFO. David?

Thanks, Olivier. In summary, we had a very strong Q3. Revenue was $270 million, up 75% year-over-year and up 16% quarter-over-quarter. Usage trends were strong and showed broad-based growth. Customers continue to adopt more products across the platform, and new logo generation was also strong. To provide some more context, growth of existing customers was robust in Q3, and our dollar-based net retention rate remained above 130% for the 17th consecutive quarter. Usage growth was driven by customers’ expanded usage of existing products and the adoption of new products. Our new customers have expanded their usage quite rapidly, and we had some significant renewals with large customers in Q3. We also had a record quarter of ARR adds, including record ARR adds in all of our major products. We saw strong growth across geographical regions, with all regions accelerating on a year-over-year basis compared to Q2. New logo results were also strong. Our enterprise and commercial sales teams executed crisply this quarter, and new logo ARR was up strongly year-over-year. We continue to see opportunities broadly across industries and customer sizes. Given our usage-based revenue model, new logo wins generally do not immediately translate into meaningful revenue. Next, our platform strategy continues to resonate with customers. As we mentioned, 77% of our customers are now using two or more products, and 31% of our customers are using four or more products. Lastly, churn remained low and in line with historical levels. Our dollar-based gross retention rate remained unchanged in the mid-90s and is similar across all our customer segments and products. Turning to billings, billings were $309 million, up 98% year-over-year. There were no pro forma impacts in the quarter. It’s worth noting that we called out shorter-term billings duration in Q3 2020. Billing duration in Q3 of this year is in line with recent quarters, but is higher on a year-over-year basis, driving higher year-over-year billings growth. Remaining performance obligations, or RPO, stood at $719 million, up 127% year-over-year driven by strong sales activity and increased contract duration. The increase in contract duration was supported by several large renewals with multiyear terms. As a reminder, multiyear commitments are built annually, and we don’t incentivize our sales team toward multiyear deals. Current RPO growth was about 100% year-over-year as our mix shifted away from month-to-month deals towards semiannual and annual. We believe revenue is a better indicator 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 the income statement in more detail. Unless otherwise noted, all metrics are non-GAAP. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. Starting with gross profit, our gross profit in the quarter was $210 million, representing a gross margin of 78%. This compares to a gross margin of 76% last quarter and 79% in the year-ago quarter. Due to efforts to drive efficiencies in cloud costs, we expect our gross margin to increase sequentially in Q4. In the mid- to long term, we expect gross margin to remain in the high 70s range, typical of our historical performance. R&D expense was $84 million or 31% of revenue compared to 30% in the year-ago quarter. We continue to invest significantly in R&D, including high growth in our engineering headcount. Sales and marketing expenses were $65 million or 24% of revenue compared to 32% in the year-ago quarter. We are seeing strong efficiencies with our frictionless land-and-expand selling motion. We also had relatively few in-person events in Q3, with plans to increase travel and event costs depending on local health and travel guidelines. G&A expenses were $17 million or 6% of revenues compared to 8% in the year-ago quarter. Operating income was $44 million or a 16% operating margin compared to an operating income of $14 million or 9% in the year-ago quarter. We continue to invest heavily against the large and dynamic market opportunity we see in front of us. Our product innovation, coupled with a strong go-to-market effort and a frictionless land-and-expand model, is driving strong revenue growth and business model efficiencies. Non-GAAP net income in the quarter was $44 million or $0.13 per share based on 344 million weighted average diluted shares outstanding. Turning to the balance sheet and cash flow, we ended the quarter with $1.5 billion in cash, cash equivalents, restricted cash, and marketable securities. Cash flow from operations was $67 million in the quarter. After accounting for capital expenditures and capitalized software, free cash flow was $57 million for a free cash flow margin of 21%. Now for our outlook for the fourth quarter and the full year 2021. We remain highly optimistic about our long-term opportunities, and we continue to work hard to execute against these opportunities. Taking this into account with the usual conservatism applied, we are updating our guidance as follows: For the fourth quarter, we expect revenues to be in the range of $290 million to $292 million, which represents 64% year-over-year growth at the midpoint. Non-GAAP operating income is expected in the range of $38 million to $40 million, and non-GAAP net income per share is expected between $0.11 and $0.12 based on 347 million average diluted shares outstanding. For the full year 2021, revenue is expected in the range of $993 million to $995 million, representing a 65% year-over-year growth at the midpoint. Non-GAAP operating income is projected between $113 million to $135 million. Non-GAAP net income per share is expected to be between $0.39 and $0.40 based on approximately 344 million weighted average shares outstanding. Notes on guidance: while usage growth remained robust in Q3, when providing guidance, as usual, we use more conservative assumptions. Typically, we see slower business activity towards the end of the fourth quarter as employees take vacations around the winter holidays. Our strategic focus remains on investing aggressively in R&D and go-to-market to optimize for long-term growth, and our model assumes greater expenses related to travel and in-person events going forward. However, we will remain flexible depending upon local regulations. Our highest priority is protecting the health of our employees. Regarding items below operating income, we expect approximately $0.7 million of Q4 non-GAAP net interest and other income. We do not expect to be a federal taxpayer, but for a tax provision related to international entities, we estimate it to be approximately $600,000 in Q4 and $2 million for the full year. In summary, we are very pleased with the results of this quarter. Our platform is resonating in the marketplace, and we saw strong performance across our products in Q3. Our execution against our go-to-market goals remains strong, and our ability to help our customers manage through their cloud migration and digital transformation efforts continues to expand. With that, we will open up the call for questions. Operator, let’s begin the Q&A.

Thank you. Our first question comes from Sanjit Singh from Morgan Stanley. Your line is open.

Thank you for taking the questions and congrats on another really strong quarter. I had a question for Olivier. It’s kind of a higher-level product-related question coming off of the user conference. The theme is that we hear the word observability much more often in 2021 compared to 2019. I think you’re starting to refer to different aspects of software in different domains. I’m wondering, from your perspective, do you see opportunities for bringing observability into other domains, whether it’s the data pipeline or potentially in process mining? Are those potential opportunities in terms of bringing observability to different domains from the Datadog perspective? Or are you confining it to more of IT?

We’re all about breaking down silos and bringing more use cases under the same roof. We strongly believe that with digital transformation, applications are going to run the business. If you understand the application, you can understand everything that happens around the business, which gives you an opportunity to bring many more teams in. So, long term, yes, all of these are interesting opportunities for us. We see some of our customers implementing new use cases that we haven’t productized on Datadog already today. However, we are still focused on the products we have brought to market and the ones that are still in beta, taking it step by step. But yes, there’s much more we can do.

Understood. Regarding usage and cohort behaviors over the last several quarters, coming off the slowdown we saw at the end of last summer, the theme has been that usage trends and expansion trends have returned to and even exceeded pre-pandemic levels. As we approach the end of the year, how have those cohorts changed? Is it a matter of continuing usage, or are you seeing different longer-term contracts? What commonalities are you seeing across these cohorts that differ from just a recovery off the end of last year?

There are not many differences between what we see in the most recent cohorts compared to previous cohorts. The two main trends underpinning the success you’ve observed in the past few quarters are, first, the pace of cloud migration and digital transformation has resumed to its pre-pandemic speed. That’s the first ingredient, which we don’t fully control and is dependent on the business environment. The second ingredient is that our newer products are reaching scale, being successful, and are significantly contributing to our growth. The combination of those two factors drives the success you’ve seen.

Our usage increase is still about two-thirds from existing products and about one-third from the adoption of new products, which has been consistent over time. We continue to see similar adoption paths.

That makes sense and is very helpful, David, in terms of shedding light on the split between those vectors. Thank you very much and congrats on the strong Q3.

Hey, thanks. Congrats from me as well. Olivier, could you describe the large renewals you saw this quarter? We would think they are from heavy users of Datadog. Can you describe how much of their estate is monitored by you? What differentiates those customers from smaller users on your platform?

The specifics depend on the customers, but for some of those we've mentioned, it’s clear they are standardizing on Datadog. We had a very large five-year deal, which is still somewhat atypical for us. This indicates that this customer is far enough along in their cloud transformation that they know where they’re going and plan to bring a significant portion of their workloads to Datadog over the next five years. Currently, we only see this from our large customers that are far along in their cloud migration, and we anticipate wider adoption over the coming years.

If I look at the billings growth, you pointed out slight improvements in duration. Could you help quantify that? Is it a 20-points swing, a 10-points swing? Can you give us more detail?

We typically have a billing duration of seven months. Last year during COVID, we saw some contraction down into the sixes. Now we’re back up into seven to eight months. This also applies to contract duration, enhanced by multiyear contracts that expanded the RPO this quarter.

As you look at calendar 2022, you've had a slew of new products added to the portfolio. Any changes or tweaks in go-to-market as you look at 2022? Do you see an opportunity to pursue larger enterprise sales channels more aggressively?

Customers indeed see us differently over time. We are becoming one of the platforms that they standardize big parts of their business around. This signifies a different relationship with them compared to just using it casually. Regarding pursuing larger deals, we have teams focused on new logos, growth within existing customers, and very large customers. We envision more segmentation in the future, but we’re still not actively seeking out very long-term high-value deals; we do them as customers want them. We think our product is very sticky, and it grows well with our customers. We will continue to balance our focus on acquiring new customers alongside growing existing relationships. In closing, thank you all for sticking with us through the call. We are very pleased with our performance, which reflects the hard work of the entire Datadog team. Congratulations to everyone for a job well done, and we will see you all next quarter. Thank you.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.