Datadog Announces Fourth Quarter and Fiscal Year 2022 Financial Results
02/16/2023 - 07:00 AM
Fourth quarter revenue grew 44% year-over-year to $469 million
Strong growth of larger customers, with 317 $1 million + ARR customers, up from 216 a year ago
Launched Universal Service Monitoring
NEW YORK Feb. 16, 2023
"We are pleased with our fourth quarter performance, as we delivered more value to more customers across our broadening platform, while driving strong profitability and cash generation," said Olivier Pomel, co-founder and CEO of Datadog. "We are proud of our strong execution in fiscal year 2022, with 63% year-over-year revenue growth, $418 million $354 million
Pomel added, "In a time when efficiency, cost savings, and agility are more important than ever for our customers, we are excited to deliver even more innovations and business value to our customers in 2023."
Fourth Quarter 2022 Financial Highlights:
Revenue was $469.4 million 44% year-over-year. GAAP operating loss was $(34.6) million Non-GAAP operating income was $83.1 million 18% . GAAP net loss per diluted share was $(0.09) ; non-GAAP net income per diluted share was $0.26 . Operating cash flow was $114.4 million $96.4 million Cash, cash equivalents, restricted cash, and marketable securities were $1.9 billion December 31, 2022 . Fiscal Year 2022 Financial Highlights:
Revenue was $1.68 billion 63% year-over-year. GAAP operating loss was $(58.7) million Non-GAAP operating income was $326.3 million 19% . GAAP net loss per diluted share was $(0.16) ; non-GAAP net income per diluted share was $0.98 . Operating cash flow was $418.4 million $353.5 million Fourth Quarter & Recent Business Highlights:
As of December 31, 2022 , we had 317 customers with ARR of $1 million 47% from 216 as of December 31, 2021 . As of December 31, 2022 , we had about 2,780 customers with ARR of $100,000 or more, an increase of 38% from 2,010 as of December 31, 2021 . Datadog was named a Leader in the "Forrester Wave: Artificial Intelligence for IT Operations, Q4 2022." Forrester research identifies, evaluates and scores the 11 top vendors offering products with AIOps capabilities. Announced a new integration with Amazon Security Lake. The integration, announced during AWS re:Invent, makes it easy for Amazon Security Lake users to send cloud security logs to Datadog in a standard format. Launched Universal Service Monitoring for general availability. Universal Service Monitoring automatically detects all microservices across an organization's environment and provides instant visibility into their health and dependencies — all without any code changes. First Quarter and Fiscal Year 2023 Outlook:
Based on information as of today, February 16, 2023, Datadog is providing the following guidance:
First Quarter 2023 Outlook: Revenue between $466 million $470 million Non-GAAP operating income between $68 million $72 million Non-GAAP net income per share between $0.22 and $0.24 , assuming approximately 348 million weighted average diluted shares outstanding. Fiscal Year 2023 Outlook: Revenue between $2.07 billion $2.09 billion Non-GAAP operating income between $300 million $320 million Non-GAAP net income per share between $1.02 and $1.09 , assuming approximately 351 million weighted average diluted shares outstanding. 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:
What: Datadog financial results for the fourth quarter and fiscal year 2022 and outlook for the first quarter and the fiscal year 2023When: February 16, 2023 at 8:00 A.M. Eastern Time (5:00 A.M. Pacific Time )Dial in: To access the call in the U.S., please register here Webcast: https://investors.datadoghq.com Replay: A replay of the call will be archived on the investor relations websiteAbout Datadog
Datadog is the observability and security platform for cloud applications. Our SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management real-user monitoring and many other capabilities to provide unified, real-time observability and security for 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 first quarter and fiscal year 2023 and related notes and assumptions. 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; and (12) general market, political, economic, and business conditions including concerns about reduced economic growth and associated decreases in information technology spending as well as the impact of the COVID-19 pandemic. 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 , filed with the SEC on November 4, 2022 . Additional information will be made available in our Annual Report on Form 10-K for the year ended December 31, 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 June 2020 , Datadog issued $747.5 million 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
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 December 31,
Year Ended December 31,
2022
2021
2022
2021
Revenue
$ 469,399
326,198
$ 1,675,100
$ 1,028,784
Cost of revenue (1)(2)(3)
96,757
67,149
346,743
234,245
Gross profit
372,642
259,049
1,328,357
794,539
Operating expenses:
Research and development (1)(3)
218,656
133,049
752,351
419,769
Sales and marketing (1)(2)(3)
149,359
88,905
495,288
299,497
General and administrative (1)(3)
39,255
28,640
139,413
94,429
Total operating expenses
407,270
250,594
1,387,052
813,695
Operating (loss) income
(34,628)
8,455
(58,695)
(19,156)
Other income:
Interest expense (4)
(3,019)
(5,604)
(16,535)
(21,052)
Interest income and other income, net
11,793
5,681
37,160
21,786
Other income, net
8,774
77
20,625
734
(Loss) income before provision for income taxes
(25,854)
8,532
(38,070)
(18,422)
Provision for income taxes
(3,180)
(1,363)
(12,090)
(2,323)
Net (loss) income
$ (29,034)
7,169
$ (50,160)
$ (20,745)
Net (loss) income per share - basic
$ (0.09)
$ 0.02
$ (0.16)
$ (0.07)
Net (loss) income per share - diluted
$ (0.09)
$ 0.02
$ (0.16)
$ (0.07)
Weighted average shares used in calculating net (loss) income per share:
Basic
317,348
311,817
315,410
309,048
Diluted
317,348
345,877
315,410
309,048
(1) Includes stock-based compensation expense as follows:
Cost of revenue
$ 3,654
$ 1,608
$ 10,827
$ 4,565
Research and development
73,794
36,995
237,120
101,942
Sales and marketing
23,405
11,680
76,735
35,035
General and administrative
11,656
6,083
38,472
22,195
Total
$ 112,509
$ 56,366
$ 363,154
$ 163,737
(2) Includes amortization of acquired intangibles as follows:
Cost of revenue
$ 1,955
$ 1,218
$ 6,750
$ 3,792
Sales and marketing
208
208
825
600
Total
$ 2,163
$ 1,426
$ 7,575
$ 4,392
(3) Includes employer payroll taxes on employee stock transactions as follows:
Cost of revenue
$ 47
$ 92
$ 266
$ 345
Research and development
2,459
2,748
10,384
8,143
Sales and marketing
432
1,119
2,766
6,349
General and administrative
111
410
830
1,248
Total
$ 3,049
$ 4,369
$ 14,246
$ 16,085
(4) Includes amortization of issuance costs as follows:
Interest expense
$ 844
$ 839
$ 3,369
$ 3,349
Total
$ 844
$ 839
$ 3,369
$ 3,349
Datadog, Inc. Condensed Consolidated Balance Sheets (In thousands; unaudited)
December 31, 2022
December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$ 338,985
$ 270,973
Marketable securities
1,545,341
1,283,473
Accounts receivable, net of allowance for credit losses of $5,626 and $2,997 as of
399,551
268,824
Deferred contract costs, current
33,054
23,235
Prepaid expenses and other current assets
27,303
24,443
Total current assets
2,344,234
1,870,948
Property and equipment, net
125,346
75,152
Operating lease assets
87,629
61,355
Goodwill
348,277
292,176
Intangible assets, net
16,365
15,704
Deferred contract costs, non-current
55,338
42,062
Restricted cash
3,303
3,490
Other assets
24,360
19,907
TOTAL ASSETS
$ 3,004,852
$ 2,380,794
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$ 23,474
$ 25,270
Accrued expenses and other current liabilities
171,158
111,284
Operating lease liabilities, current
22,092
20,157
Deferred revenue, current
543,024
371,985
Total current liabilities
759,748
528,696
Operating lease liabilities, non-current
76,582
52,106
Convertible senior notes, net
738,847
735,482
Deferred revenue, non-current
12,944
13,896
Other liabilities
6,226
9,411
Total liabilities
1,594,347
1,339,591
STOCKHOLDERS' EQUITY:
Common stock
3
3
Additional paid-in capital
1,625,190
1,197,136
Accumulated other comprehensive loss
(12,422)
(3,830)
Accumulated deficit
(202,266)
(152,106)
Total stockholders' equity
1,410,505
1,041,203
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 3,004,852
$ 2,380,794
Datadog, Inc. Condensed Consolidated Statements of Cash Flow (In thousands; unaudited)
Three Months Ended December 31,
Year Ended December 31,
2022
2021
2022
2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
$ (29,034)
$ 7,169
$ (50,160)
$ (20,745)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
9,804
6,876
34,629
22,938
Amortization of discounts or premiums on marketable securities
(2,491)
4,407
4,726
16,236
Amortization of issuance costs
844
839
3,369
3,349
Amortization of deferred contract costs
8,062
5,309
28,003
17,866
Stock-based compensation, net of amounts capitalized
112,509
56,366
363,154
163,737
Non-cash lease expense
6,180
4,596
21,416
17,201
Allowance for credit losses on accounts receivable
1,286
1,085
5,215
2,311
Loss on disposal of property and equipment
510
16
1,662
274
Changes in operating assets and liabilities:
Accounts receivable, net
(51,963)
(45,232)
(135,701)
(107,112)
Deferred contract costs
(16,427)
(15,165)
(51,098)
(42,775)
Prepaid expenses and other current assets
4,715
204
(6,565)
(737)
Other assets
(3,259)
(783)
(5,179)
(2,627)
Accounts payable
(3,769)
(9,354)
(1,286)
3,078
Accrued expenses and other liabilities
10,228
18,044
37,578
37,270
Deferred revenue
67,246
81,416
168,644
176,281
Net cash provided by operating activities
114,441
115,793
418,407
286,545
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities
(345,985)
(228,107)
(1,413,717)
(1,125,519)
Maturities of marketable securities
280,531
110,868
1,137,724
1,046,560
Proceeds from sale of marketable securities
—
6,617
2,090
67,749
Purchases of property and equipment
(10,054)
(2,405)
(35,261)
(9,956)
Capitalized software development costs
(8,036)
(6,705)
(29,628)
(26,069)
Cash paid for acquisition of businesses; net of cash acquired
(5,576)
(26,303)
(45,878)
(226,505)
Net cash used in investing activities
(89,120)
(146,035)
(384,670)
(273,740)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
1,734
4,256
10,001
14,907
Proceeds for issuance of common stock under the employee stock purchase plan
12,468
10,484
26,025
20,278
Employee payroll taxes paid related to net share settlement under the employee stock
—
—
—
(245)
Repayments of convertible senior notes
—
—
(3)
—
Net cash provided by financing activities
14,202
14,740
36,023
34,940
Effect of exchange rate changes on cash, cash equivalents and restricted cash
4,931
(573)
(1,935)
(1,993)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
44,454
(16,075)
67,825
45,752
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period
297,834
290,538
274,463
228,711
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period
$ 342,288
$ 274,463
$ 342,288
$ 274,463
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents
$ 338,985
$ 270,973
$ 338,985
$ 270,973
Restricted cash
3,303
3,490
3,303
3,490
Total cash, cash equivalents and restricted cash
$ 342,288
$ 274,463
$ 342,288
$ 274,463
Datadog, Inc. Reconciliation from GAAP to Non-GAAP Results (In thousands, except per share data; unaudited)
Three Months Ended December 31,
Year Ended December 31,
2022
2021
2022
2021
Reconciliation of gross profit and gross margin
GAAP gross profit
$ 372,642
$ 259,049
$ 1,328,357
$ 794,539
Plus: Stock-based compensation expense
3,654
1,608
10,827
4,565
Plus: Amortization of acquired intangibles
1,955
1,218
6,750
3,792
Plus: Employer payroll taxes on employee stock transactions
47
92
266
345
Non-GAAP gross profit
$ 378,298
$ 261,967
$ 1,346,200
$ 803,241
GAAP gross margin
79 %
79 %
79 %
77 %
Non-GAAP gross margin
81 %
80 %
80 %
78 %
Reconciliation of operating expenses
GAAP research and development
$ 218,656
$ 133,049
$ 752,351
$ 419,769
Less: Stock-based compensation expense
(73,794)
(36,995)
(237,120)
(101,942)
Less: Employer payroll taxes on employee stock transactions
(2,459)
(2,748)
(10,384)
(8,143)
Non-GAAP research and development
$ 142,403
$ 93,306
$ 504,847
$ 309,684
GAAP sales and marketing
$ 149,359
$ 88,905
$ 495,288
$ 299,497
Less: Stock-based compensation expense
(23,405)
(11,680)
(76,735)
(35,035)
Less: Amortization of acquired intangibles
(208)
(208)
(825)
(600)
Less: Employer payroll taxes on employee stock transactions
(432)
(1,119)
(2,766)
(6,349)
Non-GAAP sales and marketing
$ 125,314
$ 75,898
$ 414,962
$ 257,513
GAAP general and administrative
$ 39,255
$ 28,640
$ 139,413
$ 94,429
Less: Stock-based compensation expense
(11,656)
(6,083)
(38,472)
(22,195)
Less: Employer payroll taxes on employee stock transactions
(111)
(410)
(830)
(1,248)
Non-GAAP general and administrative
$ 27,488
$ 22,147
$ 100,111
$ 70,986
Reconciliation of operating (loss) income and operating margin
GAAP operating (loss) income
$ (34,628)
$ 8,455
$ (58,695)
$ (19,156)
Plus: Stock-based compensation expense
112,509
56,366
363,154
163,737
Plus: Amortization of acquired intangibles
2,163
1,426
7,575
4,392
Plus: Employer payroll taxes on employee stock transactions
3,049
4,369
14,246
16,085
Non-GAAP operating income
$ 83,093
$ 70,616
$ 326,280
$ 165,058
GAAP operating margin
(7) %
3 %
(4) %
(2) %
Non-GAAP operating margin
18 %
22 %
19 %
16 %
Reconciliation of net (loss) income
GAAP net (loss) income
$ (29,034)
$ 7,169
$ (50,160)
$ (20,745)
Plus: Stock-based compensation expense
112,509
56,366
363,154
163,737
Plus: Amortization of acquired intangibles
2,163
1,426
7,575
4,392
Plus: Employer payroll taxes on employee stock transactions
3,049
4,369
14,246
16,085
Plus: Amortization of issuance costs
844
839
3,369
3,349
Non-GAAP net income
$ 89,531
$ 70,169
$ 338,184
$ 166,818
Net income per share - basic
$ 0.28
$ 0.23
$ 1.07
$ 0.54
Net income per share - diluted
$ 0.26
$ 0.20
$ 0.98
$ 0.48
Shares used in non-GAAP net income per share calculations:
Basic
317,348
311,817
315,410
309,048
Diluted
345,009
345,877
345,727
343,997
Datadog, Inc. Reconciliation of GAAP Cash Flow from Operating Activities to Free Cash Flow (In thousands; unaudited)
Three Months Ended December 31,
Year Ended December 31,
2022
2021
2022
2021
Net cash provided by operating activities
$ 114,441
$ 115,793
$ 418,407
$ 286,545
Less: Purchases of property and equipment
(10,054)
(2,405)
(35,261)
(9,956)
Less: Capitalized software development costs
(8,036)
(6,705)
(29,628)
(26,069)
Free cash flow
$ 96,351
$ 106,683
$ 353,518
$ 250,520
Free cash flow margin
21 %
33 %
21 %
24 %
Contact Information Yuka Broderick IR@datadoghq.com
Dan Haggerty 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.
