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Datadog Announces Third Quarter 2019 Results

Third quarter revenue grew 88% year-over-year to $96 million

Strong growth of larger customers, with 727 $100k+ ARR customers versus 377 a year-ago

Announced 15+ new products and functionalities at annual user conference

Raised $709 million through initial public offering

NEW YORK, Nov. 12, 2019 (GLOBE NEWSWIRE) -- Datadog, Inc. (NASDAQ:DDOG), the monitoring and analytics platform for developers, IT operations teams and business users in the cloud age, today announced financial results for its third quarter ended September 30, 2019.

“We are very pleased with our third quarter, which was highlighted by 88% year-over-year revenue growth, and continued traction with larger customers,” said Olivier Pomel, co-founder and CEO of Datadog. “Datadog has established itself as the leading monitoring and analytics platform and we have continued to extend our capabilities during the quarter. We announced over fifteen new products and functionalities at our annual user conference in July, including Network Performance Monitoring and Real User Monitoring.”

Pomel added, “Our recent IPO was an exciting milestone for Datadog and is a credit to the hard work of all our employees. We believe we are still in the early innings of a very large market opportunity, and we remain focused on solving our customers’ pain points.”

Third Quarter 2019 Financial Highlights:

  • Revenue was $95.9 million, an increase of 88% year-over-year.
  • GAAP operating loss was $(4.2) million; GAAP operating margin was (4.4)%.
  • Non-GAAP operating income was $0.6 million; non-GAAP operating margin was 0.7%.
  • GAAP net loss per basic and diluted share was $(0.04); non-GAAP net income per diluted share was $0.00.
  • Operating cash flow was $3.8 million, with free cash flow of $(3.7) million.
  • Cash, cash equivalents, and restricted cash were $771 million as of September 30, 2019.

Third Quarter & Recent Business Highlights:

  • As of September 30, we had 727 customers with ARR of $100,000 or more, an increase of 93% from 377 as of September 30, 2018.   
  • In July, we hosted our annual user conference, Dash, which was attended by more than 1,200 people in New York City. We introduced over fifteen new products and functionalities, including the addition of Network Performance Monitoring, Real User Monitoring, Serverless Functions, Logs Rehydration, and more. These new products and features extend us further on our path to providing full-stack visibility to our customers, all in a tightly integrated platform.
  • In September, we completed our initial public offering of 27.6 million shares at $27 per share, for total net proceeds of $709 million. Our Class A common stock is now traded on the Nasdaq Global Select Market under the symbol “DDOG”. We thank our customers, employees, as well as our new and existing investors, for helping to achieve this exciting company milestone.
  • In October, we announced we are currently “In Process” on the Federal Risk and Authorization Management Program (FedRAMP) Marketplace, initiating the FedRAMP certification process. Achieving FedRAMP authorization will expand our addressable market, by allowing U.S. federal government departments and agencies to adopt and use Datadog’s cloud platform.
  • Datadog has been recognized by Forrester Research as a Leader in its report, The Forrester Wave™: Intelligent Application and Service Monitoring, Q2 2019. For this report, Forrester evaluated 13 Intelligent Application and Service Monitoring (IASM) vendors across three main categories: current offering, strategy, and market presence. Datadog scored highest among all vendors in the strategy category.

Fourth Quarter and Full Year 2019 Outlook:

Based on information as of today, November 12, 2019, Datadog is providing the following guidance for the fourth quarter and full year 2019:

  • Fourth Quarter 2019 Outlook:
    -- Revenue between $101 million and $103 million.
    -- Non-GAAP operating loss between $(8) million and $(6) million.
    -- Non-GAAP net loss per share between $(0.02) and $(0.01), assuming approximately 297 million weighted average shares outstanding.
  • Full Year 2019 Outlook:
    -- Revenue between $350 million and $352 million.
    -- Non-GAAP operating loss between $(20) million and $(18) million.
    -- Non-GAAP net loss per share between $(0.12) and $(0.11), assuming approximately 140 million weighted average shares outstanding.

Datadog has not reconciled its expectations as to non-GAAP operating loss, or as to non-GAAP net loss per share attributable to common stockholders, diluted, 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:

  • What: Datadog financial results for the third quarter of 2019 and outlook for the fourth quarter and the full year of 2019
  • When: November 12, 2019 at 5:00 P.M. Eastern Time (2:00 P.M. Pacific Time)
  • Dial in: To access the call in the U.S., please dial (844) 873-9663, and for international callers, please dial (602) 563-8494. Callers may provide confirmation number 2439855 to access the call more quickly, and are encouraged to dial into the call 10 to 15 minutes prior to the start to prevent any delay in joining.
  • Webcast: https://investors.datadoghq.com (live and replay)
  • Replay: Following the completion of the call through 11:59 PM Eastern Time on November 19, 2019, a telephone replay will be available by dialing (855) 859-2056 from the United States or (404) 537-3406 internationally with conference ID 2439855.

About Datadog

Datadog is the monitoring and analytics platform for developers, IT operations teams and business users in the cloud age. 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 and business teams, accelerate time to market for applications, reduce time to problem resolution, 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 future financial performance, including our outlook for the fourth quarter and for the full year of 2019. 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 manage our growth and (12) general market, political, economic, and business conditions.  These risks and uncertainties are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled “Risk Factors” in our prospectus filed with the SEC pursuant to Rule 424(b), dated September 19, 2019. Additional information will be made available in our quarterly report on Form 10-Q for the quarter ended September 30, 2019 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 operating income (loss), non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (sales and marketing, research and development, general and administrative), 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 operating expenses (sales and marketing, research and development, general and administrative), non-GAAP gross margin, non-GAAP operating margin, non-GAAP operating income (loss) and non-GAAP net income (loss) as the respective GAAP balances, adjusted for, as applicable: (1) stock-based compensation expense; (2) the amortization of purchased intangibles and (3) non-cash benefit related to a one-time tax adjustment. Datadog defines free cash flow as Net cash provided by (used in) operating activities, minus capital expenditures and minus capitalized software development costs. 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 and amortization of stock-based compensation capitalized in software development costs. 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 purchased intangibles and transaction costs related to acquisition. Datadog views amortization of purchased 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 purchased intangibles is an expense that is not typically affected by operations during any particular period. Similarly, Datadog views acquisition related expenses as events that are not necessarily reflective of operational performance during a period.

Non-cash benefit related to one-time tax adjustment. Datadog recorded a contingent payroll tax liability in conjunction with a common stock repurchase transaction in 2015. In 2019, the period of limitations for assessing the contingent Federal payroll tax liability expired and the Company was legally released from being the primary obligor, and recognized a benefit in the consolidated statement of operations. Datadog does not believe this is reflective of on-going results and therefore adjusted for this benefit.

Assumed preferred stock conversion. As a result of Datadog’s initial public offering, all outstanding shares of preferred stock were automatically converted into shares of Class B common stock. Consequently, non-GAAP diluted net income per share for the three months ended September 30, 2019 has been calculated assuming the conversion of all outstanding shares of preferred stock into shares of Class B common stock.

Additionally, Datadog’s management believes that the non-GAAP financial measure free cash flow is meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expenditures and the capitalization of software development costs due to the fact that these expenditures are considered to be a necessary component of ongoing operations.

Operating Metrics

Datadog’s number of customers with ARR of $100,000 or more is 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. 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 is defined as the revenue run-rate of subscription agreements from all customers for the last month of the period, including committed amounts and any additional usage. ARR and MRR should be viewed independently of revenue as they are operating metrics and are not intended to be replacements or forecasts of revenue.

Condensed Consolidated Statements of Operations

(In thousands, except per share data; unaudited)

  Three Months     Nine Months  
  Ended September 30,     Ended September 30,  
  2019     2018     2019     2018  
Revenue $ 95,864     $ 51,074     $ 249,136     $ 136,467  
Cost of revenue (1)(2)   23,297       12,098       63,225       30,690  
Gross profit   72,567       38,976       185,911       105,777  
Operating expenses:                              
Research and development (1)   28,684       14,159       75,531       37,456  
Sales and marketing (1)   38,836       25,130       105,061       59,747  
General and administrative (1)   9,265       4,322       23,193       12,933  
Total operating expenses   76,785       43,611       203,785       110,136  
Operating loss   (4,218 )     (4,635 )     (17,874 )     (4,359 )
Other income, net   90       311       646       612  
Loss before provision for income taxes   (4,128 )     (4,324 )     (17,228 )     (3,747 )
Provision for income taxes   (33 )     (349 )     (373 )     (428 )
Net loss $ (4,161 )   $ (4,673 )   $ (17,601 )   $ (4,175 )
Basic and diluted net loss per share $ (0.04 )   $ (0.06 )   $ (0.20 )   $ (0.06 )
Weighted average shares used in calculating basic and diluted net loss per share   103,876       73,353       87,758       69,708  
                               
(1) Includes stock-based compensation expense as follows:                              
Cost of revenue $ 161     $ 74     $ 372     $ 182  
Research and development   1,934       387       3,709       931  
Sales and marketing   1,540       522       3,276       1,241  
General and administrative   1,042       325       2,659       697  
Total $ 4,677     $ 1,308     $ 10,016     $ 3,051  
                               
(2) Includes amortization of acquired intangibles as follows:                              
Cost of revenue $ 179     $ 112     $ 531     $ 332  
Total $ 179     $ 112     $ 531     $ 332  
                               

Condensed Consolidated Balance Sheets

(In thousands; unaudited)

  September 30,    December 31, 
  2019    2018 
ASSETS              
CURRENT ASSETS:              
Cash and cash equivalents $ 760,945     $ 53,639  
Accounts receivable, net of allowance for doubtful accounts of $516 and $477 as of September 30, 2019 and December 31, 2018, respectively   87,208       55,822  
Deferred contract costs, current   6,151       3,717  
Prepaid expenses and other current assets   18,172       8,773  
Total current assets   872,476       121,951  
Property and equipment, net   31,266       21,649  
Operating lease assets   55,695        
Goodwill   7,626       7,626  
Intangible assets, net   759       1,288  
Deferred contract costs, non-current   12,064       7,292  
Restricted cash   9,507       11,341  
Other assets   17,360       8,603  
TOTAL ASSETS $ 1,006,753     $ 179,750  
               
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)              
CURRENT LIABILITIES:              
Accounts payable $ 18,992     $ 12,638  
Accrued expenses and other current liabilities   30,481       30,290  
Operating lease liabilities, current   10,222        
Deferred revenue, current   116,966       69,306  
Total current liabilities   176,661       112,234  
Operating lease liabilities, non-current   51,684        
Deferred revenue, non-current   4,827       1,393  
Other liabilities   2,346       1,359  
Total liabilities   235,518       114,986  
               
               
CONVERTIBLE PREFERRED STOCK         140,805  
               
STOCKHOLDERS' EQUITY (DEFICIT):              
Common stock   3        
Additional paid-in capital   895,793       30,834  
Accumulated other comprehensive (loss) income   (54 )     31  
Accumulated deficit   (124,507 )     (106,906 )
Total stockholders’ equity (deficit)   771,235       (76,041 )
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,006,753     $ 179,750  
               

Condensed Consolidated Statements of Cash Flow

(In thousands; unaudited)

  Three Months     Nine Months  
  Ended September 30,     Ended September 30,  
  2019     2018     2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES:                              
Net loss $ (4,161 )   $ (4,673 )   $ (17,601 )   $ (4,175 )
Adjustments to reconcile net loss to net cash provided by operating activities:                              
Depreciation and amortization   4,007       1,743       8,776       4,239  
Amortization of deferred contract costs   1,436       725       3,688       1,806  
Stock-based compensation, net of amounts capitalized   4,677       1,308       10,016       3,051  
Noncash lease expense   3,788             8,403        
Provision for accounts receivable allowance   282       160       835       285  
Loss (gain) on disposal of property and equipment   438       (4 )     442       (1 )
Changes in operating assets and liabilities:                              
Accounts receivable, net   (20,045 )     5,685       (32,224 )     (8,577 )
Deferred contract costs   (4,782 )     (2,407 )     (10,894 )     (6,045 )
Prepaid expenses and other current assets   2,730       823       (9,476 )     (746 )
Other assets   (4,451 )     (984 )     (8,480 )     (4,939 )
Accounts payable   (3,260 )     1,250       4,213       4,814  
Accrued expenses and other liabilities   6,611       3,813       (1,990 )     6,320  
Deferred revenue   16,554       (2,690 )     51,096       19,352  
Net cash provided by operating activities   3,824       4,749       6,804       15,384  
CASH FLOWS FROM INVESTING ACTIVITIES:                              
Purchases of property and equipment   (4,834 )     (1,657 )     (9,813 )     (8,205 )
Capitalized software development costs   (2,650 )     (1,953 )     (7,058 )     (4,540 )
Cash paid for acquisition of businesses; net of cash acquired         (1,618 )           (1,618 )
Net cash used in investing activities   (7,484 )     (5,228 )     (16,871 )     (14,363 )
CASH FLOWS FROM FINANCING ACTIVITIES:                              
Proceeds from exercise of stock options   2,109       2,757       7,306       6,833  
Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs   708,815             708,659        
Net cash provided by financing activities   710,924       2,757       715,965       6,833  
                               
Effect of exchange rate changes on cash and cash equivalents   72       (11 )     49       13  
                               
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH   707,336       2,267       705,947       7,867  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period   63,591       69,378       64,980       63,778  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period $ 770,927     $ 71,645     $ 770,927     $ 71,645  
                               
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOWN IN THE STATEMENTS OF CASH FLOWS ABOVE:                              
Cash and cash equivalents $ 760,945     $ 64,003     $ 760,945     $ 64,003  
Restricted cash – Including amounts in prepaid expense and other current assets and other assets   9,982       7,642       9,982       7,642  
Total cash, cash equivalents and restricted cash $ 770,927     $ 71,645     $ 770,927     $ 71,645  
                               

Reconciliation from GAAP to Non-GAAP Results

(In thousands, except per share data; unaudited)

  Three Months     Nine Months  
  Ended September 30,     Ended September 30,  
  2019     2018     2019     2018  
Reconciliation of gross profit and gross margin                              
GAAP gross profit $ 72,567     $ 38,976     $ 185,911     $ 105,777  
Plus: Stock-based compensation expense   161       74       372       182  
Plus: Amortization of acquired intangibles   179       112       531       332  
Non-GAAP gross profit $ 72,907     $ 39,162     $ 186,814     $ 106,291  
GAAP gross margin   76 %     76 %     75 %     78 %
Non-GAAP gross margin   76 %     77 %     75 %     78 %
                               
Reconciliation of operating expenses                              
GAAP research and development $ 28,684     $ 14,159     $ 75,531     $ 37,456  
Less: Stock-based compensation expense   1,934       387       3,709       931  
Less: Non-cash benefit related to a one-time tax adjustment               (2,344 )      
Non-GAAP research and development $ 26,750     $ 13,772     $ 74,166     $ 36,525  
                               
GAAP sales and marketing $ 38,836     $ 25,130     $ 105,061     $ 59,747  
Less: Stock-based compensation expense   1,540       522       3,276       1,241  
Less: Non-cash benefit related to a one-time tax adjustment               (397 )      
Non-GAAP sales and marketing $ 37,296     $ 24,608     $ 102,182     $ 58,506  
                               
GAAP general and administrative $ 9,265     $ 4,322     $ 23,193     $ 12,933  
Less: Stock-based compensation expense   1,042       325       2,659       697  
Less: Non-cash benefit related to a one-time tax adjustment               (2,266 )      
Non-GAAP general and administrative $ 8,223     $ 3,997     $ 22,800     $ 12,236  
                               
Reconciliation of operating income (loss) and operating margin                              
GAAP operating loss $ (4,218 )   $ (4,635 )   $ (17,874 )   $ (4,359 )
Plus: Stock-based compensation expense   4,677       1,308       10,016       3,051  
Plus: Amortization of acquired intangibles   179       112       531       332  
Plus: Non-cash benefit related to a one-time tax adjustment               (5,007 )      
Non-GAAP operating income (loss) $ 638     $ (3,215 )   $ (12,334 )   $ (976 )
GAAP operating margin   -4.4 %     -9.1 %     -7.2 %     -3.2 %
Non-GAAP operating margin   0.7 %     -6.3 %     -5.0 %     -0.7 %
                               
Reconciliation of net income (loss)                              
GAAP net loss $ (4,161 )   $ (4,673 )   $ (17,601 )   $ (4,175 )
Plus: Stock-based compensation expense   4,677       1,308       10,016       3,051  
Plus: Amortization of acquired intangibles   179       112       531       332  
Plus: Non-cash benefit related to a one-time tax adjustment               (5,007 )      
Non-GAAP net income (loss) $ 695     $ (3,253 )   $ (12,061 )   $ (792 )
Net income (loss) per share - basic $ 0.01     $ (0.04 )   $ (0.14 )   $ (0.01 )
Net income (loss) per share - diluted $ 0.00     $ (0.04 )   $ (0.14 )   $ (0.01 )
Shares used in non-GAAP per share calculations:                              
Basic   103,876       73,353       87,758       69,708  
Diluted   285,397       73,353       87,758       69,708  
                               

Reconciliation of GAAP Cash Flow from Operating Activities to Free Cash Flow

(In thousands; unaudited)

  Three Months     Nine Months  
  Ended September 30,     Ended September 30,  
  2019     2018     2019     2018  
Net cash provided by operating activities $ 3,824     $ 4,749     $ 6,804     $ 15,384  
Less: Purchases of property and equipment   (4,834 )     (1,657 )     (9,813 )     (8,205 )
Less: Capitalized software development costs   (2,650 )     (1,953 )     (7,058 )     (4,540 )
Free cash flow $ (3,660 )   $ 1,139     $ (10,067 )   $ 2,639  
                               

Contact Information

AJ Ljubich, CFA
Datadog Investor Relations
(866) 329-4466
IR@datadog.com

Martin Bergman
Datadog Communications
(866) 329-4466
Press@datadog.com

Datadog is a registered trademark of Datadog, Inc.

All product and company names herein may be trademarks of their registered owners.