Datadog, Inc. Q2 FY2025 earnings call

Business Drivers: Overall, usage growth from existing customers in Q2 was higher than expectations. Strong growth in AI native cohort. Consistent usage growth in rest of business. Solid demand environment with cloud migration and digital transformation. Low churn with gross revenue retention stable in mid- to high 90s. ### Platform Adoption: 83% of customers using two or more products, 52% using four or more, 29% using six or more, 14% using eight or more. Security suite ARR over $100M and growing mid-40s YOY. ### R&D: Held DASH user conference in June with over 125 new products/features. Launched AI agents, AI voice agent, handoff notifications, status pages. Delivered products for software shipping. Reimagined observability with APM latency Investigator, proactive app recommendations, etc. Security products cover new AI attack vectors. Showcased AI and data observability capabilities. ### Sales and Marketing: Had great new logo wins and customer expansions. Signed 7-figure contracts with large banks, insurance companies, media conglomerates, e-commerce, retailer apps, mortgage companies.

Revenue was $827 million, an increase of 28% year-over-year. Ended Q2 with about 31,400 customers. About 3,850 customers with an ARR of $100,000 or more, generating about 89% of ARR. Security suite of products generates over $100 million in ARR and is growing mid-40s percent year-over-year.

Q3 Guidance: Revenues expected to be in range of $847 million to $851 million, +23% YOY. Non-GAAP operating income expected to be in range of $176 million to $180 million, operating margin 21%. Non-GAAP net income per share expected to be $0.44 to $0.46. ### Fiscal 2025 Guidance: Revenue expected to be in range of $3.312 billion to $3.322 billion, +23% to 24% YOY. Non-GAAP operating income expected to be in range of $684 million to $694 million, operating margin 21%. Non-GAAP net income per share expected to be in range of $1.80 to $1.83.

Potential volatility in revenue growth due to renegotiations with AI native customers. Market competition risks. Uncertainty in cloud efficiency optimization progress.

Q: How should we think about AI contribution broadening out and market opportunity?

A: Olivier Pomel discussed multiple layers of AI opportunity including infrastructure layer and new observability area for AI applications.

Q: Talk about sales guys ramp and productivity curve?

A: David Obstler said they have increased salespeople, seeing evidence of new logo production and pipeline, but need to go through ramping.

Q: Fair to assume no much volatility from AI native cohort given strong guidance?

A: David Obstler said they incorporate conservative assumptions as there might be volatility in unit rates and contract negotiations.

Q: Change in buying behavior for security?

A: Olivier Pomel said security product set is good, but need to improve standardized adoption in large enterprises.

Q: Characterize trends between customer demographics?

A: David Obstler said usage trends across segments were roughly consistent, SMB showing small gradual improvement.

Q: Response to Toto and BOOM announcements?

A: Olivier Pomel said there's much opportunity in automation with AI agents, research output is state-of-the-art.

Q: Mechanics driving R&D spending and operating income guidance?

A: David Obstler said R&D investment due to recruitment and execution, operating income affected by DASH timing and FX.

Q: Contract visibility with large AI native customers?

A: Olivier Pomel said confident in forecasting, but short-term drops and long-term growth with customer renegotiations.

Q: Security product expansion plans?

A: Olivier Pomel said looking at more M&A and product development in security.

Q: Margins related to AI native cohort?

A: David Obstler said pricing based on volume and term, not specific to AI native.

Q: Gross margins optimism in second half?

A: David Obstler said due to cloud efficiency efforts mentioned by Olivier.

Q: Flex Logs progress?

A: Olivier Pomel said Flex Logs is a big draw in enterprise deals, working on painless migration.

Q: Optimization of AI native cohort?

A: Olivier Pomel said hard to tell when optimization will happen.

Q: Uptake and feedback for AI solutions?

A: Olivier Pomel said initial response to AI agents is positive.

Q: Quota-carrying rep capacity?

A: David Obstler said executing plan, front weighted, will calibrate for next year.

Q: Efficiency with headcount?

A: Olivier Pomel said spend shifting on engineering side with AI training, still constrained by product opportunity.

Q: Sales capacity ramp broad-based?

A: David Obstler said international footprint less developed, growth rate higher internationally.

Q: Attach rates acceleration?

A: Olivier Pomel said balance between upselling existing and landing new customers.

Q: Competition in observability?

A: Olivier Pomel said win by offering integrated platform, being more innovative and covering more adjacencies faster.