Datadog(DDOG) - 2022 Q4 - Annual Report

Revenue and Financial Performance - The company's revenue for the fiscal year ended December 31, 2022, was $1,675.1 million, representing a 63% year-over-year growth from 2021[218] - Revenue increased by$ 646.3 million or 63% for the year ended December 31, 2022 compared to 2021, with 75% of the growth from existing customers and 25% from new customers[250] - Revenue is primarily generated from annual subscriptions to the company's cloud-based platform, with customers charged for incremental usage beyond committed contractual amounts[270] - Revenue from regions outside North America accounted for approximately 28% of total revenue for both 2022 and 2021[230] - The company's revenue is primarily generated from subscriptions, with revenue recognized ratably over the term of the subscription agreement, making it difficult to rapidly increase revenue in any single period[233] Cash Flow and Financial Position - The company's operating cash flow for the year ended December 31, 2022, was $418.4 million, compared to$ 286.5 million in 2021[218] - The company's free cash flow for the year ended December 31, 2022, was $353.5 million, compared to$ 250.5 million in 2021[218] - Cash provided by operating activities increased to $418,407 thousand in 2022, up from$ 286,545 thousand in 2021[261] - Cash used in investing activities rose to $384,670 thousand in 2022, compared to$ 273,740 thousand in 2021[261] - Net cash provided by operating activities increased by $131.9 million in 2022 compared to 2021, primarily due to a$ 218.3 million increase in non-cash charges, including $199.4 million in stock-based compensation[262] Expenses and Profitability - The company incurred net losses of$ 50.2 million, $20.7 million, and$ 24.5 million for the fiscal years ended December 31, 2022, 2021, and 2020, respectively[218] - Operating loss widened to $58.7 million in 2022 from$ 19.2 million in 2021, primarily due to increased operating expenses[246] - Research and development expenses increased to $752.4 million in 2022, up from$ 419.8 million in 2021, reflecting continued investment in the platform[246] - Sales and marketing expenses rose by 65% to $495.3 million in 2022, accounting for 30% of revenue[254] - Cost of revenue increased by$ 112.5 million or 48% in 2022, driven by higher third-party cloud infrastructure costs and personnel expenses[251] - Operating loss was 4% of revenue in 2022, compared to 2% in both 2021 and 2020[248] - Net loss was 3% of revenue in 2022, compared to 2% in 2021 and 4% in 2020[248] Gross Margin and Profitability Metrics - Gross margin increased by 2% to 79% for the year ended December 31, 2022, driven by revenue growth exceeding third-party cloud infrastructure costs[252] - Gross profit margin improved to 79% in 2022, up from 77% in 2021 and 78% in 2020[248] - The company's gross margin may fluctuate due to revenue changes and investments in product expansion and geographical coverage[238] Customer Metrics and Growth - The company had approximately 23,200 customers as of December 31, 2022, compared to 18,800 as of December 31, 2021, representing a 23.4% increase[222] - Approximately 2,780 customers had annual run-rate revenue (ARR) of $100,000 or more as of December 31, 2022, representing 85% of total ARR, up from 2,010 customers (83% of ARR) as of December 31, 2021[225] - As of December 31, 2022, 81% of customers used more than one product, up from 78% in 2021, and 42% used more than four products, up from 33% in 2021[228] - The company's dollar-based net retention rate remained above 130% as of December 31, 2022, indicating strong customer expansion[226] Business Model and Strategy - The company's land-and-expand business model aims to increase revenue from existing customers by expanding platform deployment across teams and enterprises[227] - The company plans to continue investing in product development, strategic acquisitions, and market expansion to sustain innovation and technology leadership[229] - The SaaS platform integrates infrastructure monitoring, application performance monitoring, and log management, serving organizations across various industries[215] Regulatory and Compliance Risks - The company faces challenges with cross-border data transfer restrictions, particularly in Europe, which could increase costs and complexity of operations[127][128][129] - The company may face increased regulatory actions and fines if it fails to implement valid compliance mechanisms for cross-border personal information transfers[129] - The company's exposure to data privacy laws, such as the CCPA and CPRA, could increase compliance costs and potential liability[134] - Compliance with Section 404 of the Sarbanes-Oxley Act requires significant expenses and management efforts to maintain internal controls over financial reporting[184] Capital Structure and Stock - The company's 2025 Notes may adversely affect its financial condition if holders elect to convert the notes, potentially leading to significant cash outflows[193] - Class B common stock holders control approximately 47% of the voting power as of December 31, 2022, limiting the influence of Class A common stock holders[172] - The dual-class structure may exclude the company from certain stock indices, potentially reducing investment attractiveness and affecting the stock price[174] - Future sales of Class A common stock could depress its market price, especially as pre-IPO stockholders may sell shares to realize gains[176] - The company expects to issue additional capital stock, which may dilute ownership interests and reduce the per-share value of Class A common stock[179] - The company does not intend to pay dividends in the foreseeable future, relying on stock price appreciation for investor returns[181] - As of February 15, 2023, there were 57 holders of record of Class A common stock and 34 holders of record of Class B common stock[205] - The company issued 327,662 shares of Class A common stock as consideration in acquisitions during the year ended December 31, 2022[207] - The company's capped call transactions may affect the value of the 2025 Notes and Class A common stock, with potential dilution partially offset by these transactions[196] Operating Expenses and Investments - The company's operating expenses primarily consist of research and development, sales and marketing, and general and administrative expenses, with personnel costs being the most significant component[239] - Research and development expenses increased to$ 10,384 thousand in 2022, up from $8,143 thousand in 2021 and$ 2,836 thousand in 2020[248] - Sales and marketing expenses increased by $195.8 million, or 65%, in 2022 compared to 2021, driven by higher personnel costs, marketing activities, and overhead costs[255] - Total operating expenses accounted for 83% of revenue in 2022, compared to 79% in 2021 and 81% in 2020[248] Other Financial Metrics - Other income, net surged by$ 19.9 million (2,710%) in 2022, driven by a $13.5 million increase in interest income and a$ 4.5 million decrease in amortization of premiums on marketable securities[257] - Interest expense decreased to 1% of revenue in 2022, down from 2% in 2021 and 5% in 2020[248] - The company issued $747.5 million in long-term debt in June 2020, with net proceeds of approximately$ 730.2 million after deducting discounts and issuance costs[260] - Non-cancelable purchase commitments for business operations and operating lease obligations totaled $721.5 million and$ 326.6 million, respectively, as of December 31, 2022[259] Real Estate and Facilities - The company leases approximately 163,000 square feet for its headquarters in New York City, with three subleases totaling 98,000 square feet expiring in December 2023 and one sublease for 65,000 square feet expiring in June 2033[200] Human Resources and Key Personnel - The company's reliance on key personnel, including executive officers and software engineers, is critical to its success and future growth[107]