Welcome to the Q2 2021 Datadog Earnings Conference Call. My name is John. I'll be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session.
And I will now turn the call over to Yuka Broderick, Head of Investor Relations. Yuka, you may begin.
Thank you, John. Good morning, and thank you for joining us today to review Datadog's Q2 2021 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's Co Founder and CEO and David Ochsler, 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, including our outlook for the Q3 and for the full year of Our strategy, the potential benefits of our products, partnerships and investments in R and D and go to market and 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 the quarterly report on Form 10 Q for the quarter ended March 31, 2021, filed with the SEC on May 7, 2021. Additional information will be made available in our quarterly report on Form 10 Q for the quarterly period ended June 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 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 for our morning call today. We are very pleased with our performance in Q2, which was stronger than expected On robust growth with existing customers as well as strong new customer sales, we saw real strength both across product lines and across customer segments. For a quick review of the quarter, revenue was $234,000,000 an increase of 67% year over year 18% quarter over quarter and above the high end of our guidance range. We ended the quarter with 16 10 customers with an ARR of $100,000 or more, up from 10.16 in the year ago quarter. Those customers generate about 80% of our ARR.
We have about 16,400 customers, which is up from about $12,100 last year. We also continue to be capital efficient with free cash flow of $42,000,000 And our dollar based net retention rates continue to be over 130% as customers increase their usage and add up to their newer products. We are pleased that positive business trends from recent quarters continued in Q2. 1st, Business growth from existing customers remains very robust. Among other factors, we continue to see the impact of our strong new logo growth in the past several quarters as those new customers grow into their commitment.
2nd, new logo ARR is again strong as we continue to execute against our go to market strategy. And 3rd, churn continues to remain low and in line with historical rates. Taking all these factors into account, we had a very strong quarter of ARR added with over $100,000,000 of ARR added for the 2nd consecutive quarter. Next, our platform strategy continues to resonate in the market. As of the end of Q2, 75% of customers are using 2 or more products, up from 58% a year ago.
Additionally, 28% of customers are Our platform saw strong growth in the Q2, which included another record of ARR added for Infrastructure monitoring in a single quarter. This product is still early in its last cycle. Meanwhile, We continue to see very strong performance with other products in our platform. Our APM suite, including RUM and Synthetics and Log Management together We reached over $400,000,000 in ARR. The ATM suite and log management also remain in hyper growth mode, But our newer other products are growing even faster.
As a result, we are very pleased with the customer uptake of our end to end observability platform as well as the beginning of our cloud security platform. Now let's move on to product and R and D. Our teams continue to innovate and store customer pain points. We announced 73 new features in Q2 and have continued to ship in Q3. To discuss just a few of these, we announced the general availability of 2 new security products, Cloud Security for Ser Management And Cloudboard Log Security, which targets security issues around infrastructure.
Cloud Security Posture Management runs continuous configuration audits So customers can track conformance to industry benchmarks and regulatory standards. And Cloud workload security performs real time threat detection directly within the workloads themselves, within hosts and containers. These are our 2nd and third GEA products in security, alongside security monitoring, which performs threat detection on event and logging data streams. With this offering, The first building blocks of our cloud security platform are coming together, and we can start delivering on our vision to break down silos between dev, ops and security teams. And with the addition of these two products, we now have 11 GA products on the Databog platform.
We are also at the beginning of our opportunity to bring observability to the CICD space. And we announced the beta of our CI visibility products in late July. CICD is a combined practice of continuous integration and continuous delivery, allowing software to be consistently written, Test it and release to production. The problem is that developers often don't have visibility into the SDIC pipelines. They They have a hard time figuring out what tests are filling and why and where in the CICD pipeline they are experiencing bottlenecking issues.
Our CICD product Based on our acquisition of Undefined Labs last August, EBS customer gained visibility into their testing pipeline with the goal of lowering costs Increasing efficiency for the developer teams. So we are excited about those announcements, but we're not spending steel on our existing products We continue to expand features to make each and everyone best of breed. With Synthetics, we have enabled cross border testing and our customers can now test on Microsoft Edge and In addition to Chrome, mobile RAM, we now support Android, iOS and cross platform frameworks like React Native. Our run product now covers the whole user space, including web applications on desktop, mobile and tablet as well as mobile apps. And finally, we continue to improve the AI, ML capabilities of our platform with our most recent additions including Automated detection of 40 deployments in APM and an automatic detection in security monitoring.
These are complemented by the continued extension of Watch Log Insights, The recommendation engine we are embedding directly into our users' workflows across our platform. As you can see, our end to end observability platform continues to broaden And Deepa. Meanwhile, we are beginning to see to move forward in our cloud security and we are in the early days with our CICD use cases. As always, I want to thank our engineering and product teams for their creativity, their productivity And the continued ability to deliver the right solutions to our customers' problems. Now moving on to sales market.
As hinted by our customer growth this quarter, our go to market teams continue to be very productive. So let's discuss some of our Q2 wins. First, we had an 8 figure upsell with the next gen financial services company, which is experiencing a surge of traffic in their core applications. They rely on BearDOG Log Management as a platform across the organization to find a good cause of issues. We saw a significant increase in usage of our existing products and recently added our continuous provider to better understand their good performance in production.
Next, we had a 7 figure upsell with a European e commerce company. They were using multiple commercial observability tools And one of the 2021 strategic initiatives was to consolidate and reduce costs. By standardizing our own Datadog, they satisfied that goal while improving their team's collaboration and communication. Next, we had a 7 figure upsell with a large global accounting firm. This company is experiencing rapid growth with their online products, and its teams were forced to jump from tool to tool to try and mitigate problems.
With Datadog, as our chosen solution for in platform monitoring, APM and Synthetics, they are able to decrease mean time to resolution and free up internal resources. Next, we had a 6 year upsell with a 30 years old analytics software company. This company is moving more close to Azure. With this new upsell, they standardized them better for their log management needs. With our logging without limits functionality, This company will lower cost by an order of magnitude for log management without sacrificing any of their log data.
And finally, we had a 7 figure land with a large faculty software company. This company is growing rapidly and is planning to move to hybrid cloud, but The previous monitoring adoption rate was very low, which made it difficult for their teams to collaborate. With Datadog, their entire team now has a platform for all their observability needs and they recognize Veradog's impact on improving adoption and alignment across teams. So as you can tell, we are incredibly proud of the performance of our go to market team this quarter. And I want to thank them for their hard work And for partnering with our customers, we delivered another quarter of strong results.
Now moving on to our longer term outlook. We see businesses now moving forward with their longer term digital strategies. Businesses must increasingly be digital first. IT platform remains in its early stages, and we believe we are in a great position to help our customers with our unified observatory platform. Meanwhile, we are making progress on our long term vision to break down silos between dev, ops and security teams.
As a result, we are extremely excited about the opportunities we see to democratize data and have customers increase visibility and manage complexity. And we're confident in our long term plans and continue to work hard to execute on our strategy. Before turning the call over to David, I want to mention that our teams are busy preparing for DASH 2021, our user conference, which will be held in late October this year. Every year at DASH, we showcase our latest product innovations, and we're excited to show everyone we've been up to this year. We also expect to hold an investor session at DASH, so please look out for that announcement in the call.
With that, I would like to turn the call over to our Chief Financial Officer. David?
Thanks, Olivier. In summary, we had a very strong Q2. Revenue was $233,500,000 up 67% year over year and up 18% quarter over quarter. Usage trends were strong and showed broad based growth. New logo generation was also strong and customers continued to adopt more products across the platform.
To provide some more context, first, growth of existing customers was again robust in Q2, And our dollar based net retention rate remained above 130% for the 16th consecutive quarter. Usage growth was strong, driven by customers' expanded usage of existing products and the adoption of new products. Our customers are continuing to pursue their cloud migrations. And as we expand with our customers, We see opportunities for them to standardize on us and consolidate their observability tool vendors. Next, we saw the 2nd consecutive quarter of ARR ads over $100,000,000 With broad strength across product lines, including our newer products and strength across our regions.
New logos were also very strong. We had a record number of both gross and net new logo additions in the quarter. Both our enterprise and commercial sales teams executed strongly in the quarter, and we continue to see broad opportunities across industries And customer size. Remember that given our usage based revenue model, new logo wins Generally do not immediately translate into meaningful revenue, but do so over time. Next, Our platform strategy continues to resonate with customers, and 70% of our customers are now using 2 or more products, And 28% of our customers are now using 4 or more of our products.
Lastly, churn remained low and in line with historical levels. Our dollar based gross retention rates remain unchanged in the mid-90s, and they are similar across our customer segments and products. Billings were $270,000,000 up 69% year over year, and there were no pro form a impacts in the quarter. Remaining performance obligations or RPO was $583,000,000 up 103% year over year, driven by strong sales activity and increased contract duration. The increase in contract duration was driven by a higher mix of annual and multiyear commitments relative to the year ago quarter.
As a reminder, multiyear commitments are billed annually, And we do not incentivize our sales force towards multiyear deals. Current RPO growth was also strong at over 80% year over year. I should note that we continue to believe revenue is a better indicator of our business trends than billing 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. As a reminder, unless otherwise noted, all metrics are non GAAP.
We have provided a reconciliation of GAAP to non GAAP financials in our earnings release. Gross profit in the quarter was $178,000,000 representing a gross margin of 76%. This compares to a gross margin of 77% last quarter 80% in the year ago quarter. The year over year decrease in gross margin was due to investments in our product and platform innovation. We expect gross margin in the mid- to long term to be consistent with our historical performance.
R and D expense was $71,000,000 or 30 percent of revenue compared to 27% in the year ago quarter. We continue to invest significantly in R and D, including high growth of our engineering headcount. We're pleased that we are successfully executing on our hiring and onboarding plans in R and D. Sales and marketing expense was $61,000,000 or 26 percent of revenue compared to 33% in the year ago quarter. We continue to make substantial investments in sales and marketing, but revenue growth has outpaced our investment growth.
We had only a few in person events in Q2, but we continue to plan for increased travel and event costs Later in this year, of course, depending on local health and travel guidelines, G and A expense was $16,000,000 or 7% of revenue, down from 9% in the year ago quarter. Operating income was $31,000,000 For a 13% operating margin compared to the operating income of $15,000,000 We're at an 11% operating margin in the year ago quarter. Although strong in the quarter, we are not optimizing for near term margins As we see a large and dynamic market opportunity in front of us and we are striving to invest heavily against that opportunity. But Q2, of course, demonstrates the efficiencies of our business model. Non GAAP net income in the quarter was 32 dollars or $0.09 per share on 342,000,000 weighted average diluted shares outstanding.
Turning to the balance sheet and cash flow. We ended the quarter with $1,400,000,000 in cash, Cash equivalents, restricted cash and marketable securities. Cash flow from operations was $52,000,000 in the quarter. After taking into consideration capital expenditures and capitalized software, free cash flow was $42,000,000 with a free cash flow margin of 18%. Now for our outlook for the 3rd quarter and the full year 2021.
We are optimistic about our long term opportunities and believe we will deliver high growth for the foreseeable future. We are addressing a very large market We are updating our guidance as follows. For the Q3, we expect Revenues to be in the range of $246,000,000 to $248,000,000 which represents 60% year over year growth at the midpoint. Non GAAP operating income is expected to be in the range of 18 to $20,000,000 And non GAAP net income per share is expected to be in the range of $0.05 to $0.06 per share based on approximately 344,000,000 weighted average diluted shares outstanding. And then for the full year 2021, revenue is expected to be in the range of $938,000,000 to $944,000,000 which represents a 56% year over year growth at the midpoint.
Non GAAP operating income is expected to be in the range of $87,000,000 to $93,000,000 Non GAAP net income per share is expected to be in the range of $0.26 to $0.28 per share based on an approximate 344,000,000 weighted average diluted shares outstanding. Now some notes on our guidance. First, while usage growth was strong in Q2, when providing guidance, as usual, we use more conservative assumptions. 2nd, our strategic focus remains on investing to optimize for long term growth. We are planning for continued aggressive investments in R and D and go to market through the remainder of 2021.
And next, our model assumes a return to the office and the resumption of travel and in person events during Q3. That said, we will remain flexible depending upon local regulations, and our highest priority is protecting the health of our employees. Regarding items below the operating income line, first, we expect approximately $900,000 Of Q3 non GAAP net interest and other income, which includes the interest income on our cash and marketable securities And the interest expense on our convertible debt. We do not expect to be a federal taxpayer in Q3, but have a tax provision related to our international entity. And as a result, we expect a tax provision of approximately $600,000 in Q3 $2,000,000 for the full year.
To summarize, we are very pleased with our results this quarter. Customers continue to consume more Datadog, both using more of their existing products and choosing to begin using new products. We added 2 new products this quarter and now have 11 products to offer to
our customers.
Our execution against our R and D and go to market goals remain strong And our ability to help customers to manage through their cloud migrations and digital transformation effects continues to grow. And with that, we will open the call for questions. Operator, let's begin the Q and A.
Thank you. We'll now begin the question and answer And our first question is from Brent Thill from Jefferies.
Good morning. If you could maybe provide a little more color on the large customer growth. The last two quarters, you've had Exceptional results in that segment. Maybe if you can just give us a little more color on what you're seeing As these larger enterprises are standardizing on your platform?
Yes. So We're still seeing some of those, I mean, I think some of those we mentioned in the call, fit in that category, where Customers were using something else before, a collection of EBITDAIX and they're still landing on our platform and which creates a larger land for us, But that's still not the vast majority of our customer acquisition. By and large, we're still finding small risk customers and going with them and then they'll stand out with us later on As they're further down the road in their migration to cloud environments. So we feel we see some of that in the proportion that is comparable to what we've seen in Different quarters, but we don't see any particular trend there yet.
And David, just in
terms of the sales hiring plan that you have in the second half versus the first half, can you give us some color Your quoted carrying capacity and what you're expecting to add by the back half of the year?
Yes. As we said Previously, we're trying to grow our ramp quota approximately in line with revenues. And we had, as we said, throughout COVID last year and this year, we have aggressive hiring plans, which we are Executing on, and we haven't changed our sort of goals for Hiring and quota expansion throughout the last couple of years.
Yes. Just to rebound on what David just said, we unlike many companies that have stops and starts, we kept hiring fairly, Which put us in a great position today. I think right now it's an interesting time for hiring because the job market is very hot and there's also many people taking some time off. So we say it's a lot of effort to grow the level at which we want, but we're happy with the place we're in and we're very happy we Made the choice to keep, steadily recruiting throughout the pandemic.
Thank you.
Our next question is from Sanjit Singh from Morgan Stanley.
Thank you for taking the questions and congrats on the impressive Q2 results. Olivier, I wanted
to see if I can
get a little more understanding of a comment you made in your script around infrastructure monitoring still being in its early days. From your perspective, what drives that sort of sentiment around infrastructure monitoring? It's been your core product that was sort of the foundation of the company and you're saying There's still a long runway ahead. Can you just expand upon that line of thinking a little bit?
Yes. I think there's 2 aspects to it. 1 is, In terms of penetration, I think the intersection of what we have in the cloud in the next gen is still a small fraction of Woodberry The market total, so there's a lot more we can get from that. The second aspect is that the world is transforming visually, so the market like the size of infrastructure that we have to be monitored, 5 years from now is a lot bigger than what had to be monitored 5 So when you most tackle those 2 things, there's a lot more ground to cover in terms of those market penetration And for how much stuff we can cover when you pass up to monitoring. In parallel to that, it's a field that is still evolving, right?
There's still the name of the game in the cloud is that There are ways of innovation and new ways of running workloads. And we've been through a few of those in Teladoc. We started with cloud instances and then containers in our serverless. We don't expect that to stop there. We think there's going to be new modalities for running infrastructure.
And so we're investing heavily in our products To be at the forefront of all that.
Makes total sense. And as a follow-up, I think one of The words I heard multiple times in your script was standardization. And what we've been hearing from customers is that APM has really Coming to its own. How much of a driver has that been? And where would you put sort of the log analytics solution in terms of its Maturity, it came out a year or 2 later after APM.
Where does that capability and product stand from your perspective if we use APM as an analogy.
Well, I love all my children the same. APM and logs Neck and neck in terms of the adoption across our customer base and I would say the level of maturity. Both products, we in situations where we're starting with those products in the best of breed kind of set up by customers. And they both can serve as the second leg of this tool in addition to infrastructure to be the basis for standardization for customers. And so what we see today, we proven at meaningful scale is that customers are standardizing on our offering.
They buy into the platform. And the three main lines of X2 log for them today are going to be EPM logs and infrastructure monitoring. All right. Great to hear. Thank you so much, Moshe.
Our next question is from Erwin Auty from JPMorgan.
Yes, thanks. Hi, guys. Given the number of comments that you talked about Usage in the prepared remarks is helping drive strength. Can maybe you spend a quick minute talking through Remember, we had the overages item in kind of the first half of last year. How is this different?
And how is the
I'll take that. I think what we said was we had a flattening and an optimization in Q2 of last year. And since That time, which is now Q3 of last year through now, we've had a return to more normal or consistent with the long term trends. And we continue to see that in Q2, a very Strong and similar quarter to what we've seen in the last 3, 4 quarters and very consistent with the company's long term positions in that. And that is reflective, we feel, of a return to normal in the rolling out of cloud migrations and Digital Projects.
And so like we said in previous quarters, the usage growth was very Brad, balance in products and in types of customers, very similar to what we've seen in the history of the company.
All right, great. And then one quick follow-up. In terms of the investment in go to market, when you gave guidance for this quarter, I think similar items. Obviously, sales and marketing came in well below what I think ours and most forecasts had. Can you help give us a sense How much of the sequential increase that is baked into the guidance is from headcount Versus, as you pointed out, the return to office and the travel.
Yes, let me start with that. So we said all along that we have 2 drivers. 1 is, in terms of sort of percentage of Revenue in the marketing and sort of travel sort of 3% or so 3% plus Is sort of a benefit from not having that travel and the event that does have some volatility depending upon whether you're in a quarter where You have Reinvent and Dash, which is what we're having in Q4. On that, I think we performed, as you can See on the in the revenue line, sort of above where we were planning, so essentially we had a positive surprise And the revenues, and that sort of drops down to the bottom line. And secondly and lastly, as Ali mentioned, we have very aggressive hiring plans.
We are essentially trying to get that done this year. It takes a while to get that done in this market. And so we expect that growth to accelerate that sort of people side of things to accelerate in the second half of the year, and we're already seeing that in our hiring numbers. But, we have over the last couple of years sort of ramped up into our hiring during the course of the year. Understood.
Thank you.
Our next question is from Ghajn Rangan from Goldman Sachs.
Congratulations on It's really awesome to see this, Oli and David. My question is, as you really start to experience the benefits of standardization, What are the sales cycles looking like and how do we expect that kind of hiring that you To prosecute these options, these are showing up in the pipeline. And if you could, as a result, talk about how this gets Datadog into the upper end of the enterprise market as things evolve over the next couple of years, that would be great. And also if you do have the time To answer this, as the economy if the economy opens up, your results are fantastic as they are. What could be the incremental benefit of the opening up of the economy and we get to travel and get out there.
Thank you so much and congrats.
Thank you. So I'll start with the standardization. At this point, it doesn't change our sales cycles too much, Because the way we do it is we mostly start small and we grow with customers. And then by the time we standardize, We have a solid, on a foothold that customers and their engineers are using us all the time, and it gets increasingly easier to Thank you, Kees, for sanitization. Obviously, there's going to be some changes over time as we recover more and more Of the globe with our sales force and that we have customers who have spent more and more years with us.
I do expect to make some changes over time to the way we operate, but this point, there's no major tweaks to the sales process or any the time it takes. It does like the standardization does inform a road map from a product perspective, because we are investing more and more in technologies that are not necessarily Cloud centric, and we're doing that in order to help our customers who standardize bring some of their legacy IT or on prem IT back and do So this is something really that informs that part of our development. And it will also, in the likelihood, Inform some of our efforts around professional services and spending more time bringing those customers across. On the question on the opening of the economy, I mean, look, we What's interesting to us is that it looks like we're back to the way the world was moving to the cloud more or less Before the pandemic. And we don't know if things can go any faster.
There seems to be some there was a very steady historical trend for us there, and we're back to that steady historical trend, so we're happy with that. The main thing that we're working on right now to maintain long term growth is make sure that we keep building on the platform, So we can add more products, cover the full solve the full problem on increasing the large part of the problem for our customers, but at the same time, scaling the go to market teams, So we can be in all of the conversations everywhere in the world for our customer segments. And we still have quite a bit of work to do in order to achieve that.
Thanks a lot, Ali and David.
Our next question is from Tyler Radke from Citi.
Thanks for taking my question. I Wanted to ask you just about the pricing environment broadly. Obviously, a year ago, kind of in the depths of COVID, you Awesome. Customers rationalize spend. Obviously, it didn't seem like that was an issue this quarter, but do you feel kind of longer term about your pricing strategy?
And as you continue to Innovate and build out new features. Do you feel like you could potentially have that pricing power to charge even more over time. Thanks. Yes.
So I think there's 3 parts to answer. The first one is what we saw last year was not price pressure. What we saw last year was Customer reducing their cloud footprint with Amazon and Azure and the others. And these were the customers in the largest deals because I hope this great equity to Money when they were facing a lot of uncertainty around cash, and that repo to us. That's 1.
2, when you think long term, it's almost a given That there will need to be a different way of charging for some of the for capturing some of the value provided to customers That can't just be attached to the straight volumes of data that are being exchanged because those volume of data are exploding exponentially, while our customers' revenues are not going to explode exponentially. And so that's one thing that we're working on with all of our products. We have this elimination of all of our products that is without limits, It's basically a way to align the value customers get with the price they pay and give them leverage for that and make sure that we keep unbundling things on our end. So We would give them the power to do that. The third answer to that question is that over time, we've made the choice To add new functionality, largely in the form of new SKUs when they saw new classes of products for our customers, Which is a way basically to maintain price and increase price as we grow and as we see the functionality.
We like the fact that It also gives us very good signal in terms of the value these products provide and help drive the roadmap for those products.
Thanks. And just a follow-up on the competitive environment, Ali. I think you talked about just how customers are Consolidating observability tools or maybe you kind of see that opportunity. Just as you've seen And obviously, the deal sizes have been really, really healthy this quarter, especially around the RPO growth. Are you seeing kind of more kind of legacy observability solution replacements?
Just help us understand as those deal sizes grow, what that means competitively for you guys? Thank you.
It's similar to what we've seen before and the motion is really on prime or legacy It is being consolidated into the cloud. That's what we see. So we see like the same trend that we've seen in the past. There's nothing there's no Other very interesting comments to make about that today, but this is what we still see.
Our next question is from Matt Hedberg from RBC Capital Markets.
Hi, guys. Congrats on the quarter. Thanks for taking my questions. Ali, obviously, you talked a little bit in your script about secure really a building security Obviously, a little different buyer, than sort of core, sort of your core infrastructure or even logging products for that matter. Can you talk about sort of how you're building out the sales motion there and really how you see additional leverage there?
Yes. So the sales motion there is very much built on for now on what we had with Observability. And as we're building those products, we're leaning on those customers that are already built into the Datadog platform and that can self select to start adopting from our security product. That's step 1. Step 2 will be add more and more of those products with GA in which we So I mean, for critical mass to actually start pushing them more directly through the sales force.
I think for that, we're actually learning quite a bit from the screen acquisition we've done recently, and we expect that We'll have some interesting things to do in the future. We don't have anything specific to share today though.
Got it. Okay. And then David, one for you. You noted in the call that You had a higher level of multiyear commitments. And obviously, we realize you don't necessarily push for that.
Just wondering, what was some of the customer conversations
I think it has correlation to Larger customers who are investing more in Datadog as their standardized observability And want to commit long term, it generally is pull from the client rather than we go out. Remember, in land and expand, we often see The motion of growing over time and amending contracts with more commitment. So this is really more Enterprise customers and larger cloud natives committing to Datadog as a core platform And wanting that commitment to be longer term.
Got it. Super helpful, guys. Thank you.
Yes. Thanks.
Our next question is from Kamiel Milsgarzik from William Blair.
Hi. Thank you for taking my question and congrats on the incredible quarter. So it's great to hear about the platform expansion. So you've added 2 offerings. You have David's dog DASH coming up in a few months.
And yet research and development expense, I believe, is up 84% year to date. Can you give us more detail around the decision to accelerate the level of R and D spend? And how should we think about the pace of new product introductions? And Given the increasing diversity of your offerings, what changes do you need to make to the sales organization to support the sale of these new solutions?
Yes. We're investing as aggressively as we can on France. So we're going to have opportunities to accelerate R and D, which we've done through a few acquisitions also and these actually largely show up in our R and D expenses On an ongoing basis, so we're doing it. We still think we're very early in what's a very, very, very large opportunity The cross observability, security, and we mentioned today also some of the developer use cases around CICD, but also later on, there's a lot of things we can do in real time Hi, Maryina. Mattias.
And there's a lot of different things we can touch on. So we're very early. We intend to keep investing heavily in R and D for a very long time. In terms of the impact on the go to market, really where we'll see the first Need for some changes in the on the go to market side is as we start pushing the sales side of the security product more aggressively. It hasn't happened yet.
It's not something that we're doing today as those products just barely reached GA for a few of them, but it's something that we'll certainly do in the future. So Nothing to share today on that, but definitely something that we're working on.
That's great to hear. And Quickly, can you just give me an update on the competitive backdrop? Is there any change in who you're seeing on deals? And have win rates improved? And how might that vary by product?
Thank you.
So it's very boring. We see it same thing as before. From where we stand, the commitment hasn't changed. And our focus is still mostly Greenfield, new environment, confinement, Teams that are going to start small with us and are going to grow with us until they turn on us for just about everything they do. That's the motion, it hasn't changed and our The landscape around us hasn't changed that much either.
Sounds good. Thanks and congrats again.
Our next question is from Brad Reback from Stephens.
Great. Thanks very much. As we think about new customer growth on the platform, is the recent cohort of new ads growing into their commitments faster? So they ramping faster than customers a couple of years ago?
So it's It depends a little bit because we also have some larger commitments on day 1 than we used to. We mentioned that in the previous on the cost you call. So overall, the cohorts are larger. It's not larger. The ASPs are going up over time generally.
And the growth we see is very commensurate with what we've seen in the past in terms of growth in usage from the 1st month there with us to 6 months and 12 months in the range. So it's a 2 part of the answer.
Broadly speaking, when you look at the consistency of the net retention And the longevity of it, it's still very similar in the land and expand with cohorts expanding, similar to previous periods and very importantly expanding for a long time. So they last the cohort expansion continues on For quite a long time, which is very consistent with what we've seen in previous periods.
That's great. Thanks very much guys.
Yes.
Our next question is from Zack Andrews from Needham.
Good morning and congratulations on the results.
Oli, I was wondering as you continue to push more into security, what are the lessons learned from the previous conversions of The dev and ops personas that could be applied to gaining traction in DevSecOps? And how is this conversion to security Perhaps different than when dev and ops merged that you need to account for?
Yes. So it's a great question. I mean, there's a lot of commonality In that, a lot of it is about reducing friction and making things Otherwise, we require a lot of effort and a lot of different people involved and a lot of different departments involved to be very easy and that you can do on your own. And so that's we know how to do that. That's what we've done throughout the history of the company.
And so that's the first part. The second part though is that the buyer is a little bit different. And in some cases, that buyer might need to be addressed a little bit differently. And that's something A few other of the questions touched upon earlier, so I won't repeat myself too much there, but it's still something that we're working on in terms of how we add that The motion we have is fulfilling the platform.
Thanks for that. And then just as
a quick follow-up. Again, when
we think about the broadening portfolio of your solutions, could you just update us in terms of just how you're keeping your sales force in your partner Ecosystem just up to speed with their ability to understand the value propositions and the nuances of everything that you are offering these days?
Yes. So it's a major effort. It's actually one of the areas, Adam, who joined us as a Chief Operating Officer Recently, I just wanted to make sure I'm able to focus today is to make sure that we scale the team that does enablement And I teach you to everyone on the sales team and all the go to market teams, with the product offering ease and how it works and who to Bringing into every single deal that we're understanding that you optimize that product to the right customer. So that's one of his major areas of focus. We're investing in that.
Thanks very much.
Our next question is from Ittai Kidron from Oppenheimer.
Yes. Hey, guys. Great quarter. Ali, I wanted to follow-up on the security questions And really talk about the 2 new announcements you've made, the posture management and workload protection. There isn't a security vendor at this point that doesn't have those solutions available as well.
So even though the market is early, it seems like everybody is chasing this. Maybe you can help me think about What differentiation you can bring into the security space from your perspective? And also, I know it's still early, but perhaps maybe you could talk about the ARR contribution of your cloud security platform at this point?
Yes. So on the second one, I mean, we don't have anything to share just yet. We're actually the only thing I can say is we're very happy with the way it's trending And the way to draw in, we'll probably share some more at some point, but we don't have anything to say today. On the differentiation what we're bringing to those categories, we already are in streaming all those workloads. So we are present on those machines.
Our agents are running there. The logs are being collected by us already. We already connect to all the cloud configuration. So there's nothing else to be done really by our customers to turn on security, and that's a major, major differentiator. And we also have all the developers and all the ops people that are watching what we do all day.
And they can get they can consume the security signals as well. They can be part of the solution As opposed to leaving a separate title from the security team, they are tasked with securing those workloads. So when you combine those two things, I think we have something that's very powerful, very different. And I would say almost impossible for the competition that comes solely from instrumenting the workload From a security perspective, we appreciate. Very good.
Good luck.
Our next question is from Michael Turits from KeyBanc.
Hey, guys. First, obviously, great quarter. The pricing discussion, so you talked, Ali, a little bit about the Change pricing at some point. There has been in the market already some changes from some of the competitors in Their pricing, which does seem aimed at commoditizing usage of data in particular, has that had any kind of impact In terms of competition and how does that relate to some of your thoughts about what you would do with pricing long term?
No, it's So we've seen some of that in the market, but it hasn't had any impact on us directly. But I should say that We are investing and we have been investing a lot in new models for charging customers and Putting any control of their spend and making sure that we align with the volume, adjust with the raw data volumes they're producing. And that's a lot of what our Without limit offerings are doing, we started with that for logs. We're also doing more and more for APN and infrastructure. And that's something that our customers subscribe to when they stand back on us.
And we mentioned that on the call, some of our customers Are able to slash their spending on logs in particular because they can spend on what matters to them. They can get over there. They can categorize it and retain it. They can only index some of it for some of the very specific purposes they they can make the rest of the world on the moon, if they want, they can do anything they want, but give them all the levers and all the flexibility for that, so that their deal doesn't grow linearly in retail at a volume. So that's That company we've already been investing in.
So it's not a big change for us, just a continuation of what we've been doing.
And then, Al, you made an interesting point about legacy investment in R and D for For legacy replacement, I mean, we've done some of that in the past. So what do you need to do from an R and D or product perspective to enable that? And are we at the point where that could unlock an upgrade cycle that would be very important to you?
I mean, right now, we're still early in that too. I mean, we're connecting to all sorts of Non cloud equipment, so network equipment, physical network equipment, power distribution units, that sort of stuff. And we'll do more and more of it until we reach the point where A significant part of the market is mature enough in the cloud that they it's time for them to standardize. Today, I would say that the customers that standardize And bring their legacy IT into the cloud are still the ones that are at the forefront or we are at the forefront of the cloud migration to start with, They're leading edge. So there are signs of things to come, not that we're at that Thanks, Will, just yet.
Okay. Thanks, Oleg. Thanks, David.
Our next question is from Gregg Moskovitz from Mizuho.
All right. Thank you.
And I'll echo my congratulations very strong quarter. I guess the first question just regarding the cloud security platform. In addition to a la carte, is the plan to offer CSPM, CWS, security monitoring and App Security as a suite as well?
There will likely be a few pricing options there. I mean, We haven't communicated on any of that yet, but we're thinking hard about the various ways this product can be packaged.
Okay. And then Ali, one of your competitors recently spoke about a large uplift in the number of deals closed with their hyperscaler partners such as And Azure, can you update us on your cloud partnerships and the go to market activity that you're seeing there?
So we see continuity as we've been doing before. So we're getting more and more from those cloud partnerships and all of those cloud partnerships are developing more and more. We released it on the GCP marketplace recently, where that is that makes it easier for customers to deploy. Our partnership with Azure has taken another step forward recently also as we've been integrated directly to the console. There's still a few parts of that partnership that need to be implemented, so we're still not completely done yet, but there's still we're still making progress on that.
And we're also working on deeper partnerships with AWS. So it's happening across the board and the things are trending in the right direction. And at this point, this is not a major part of our success. I would say it's more of a potential upside for the future. All right.
That's great. Thank
you.
And our next question is from Romeo Lenchow from Barclays.
Thank you. Can you hear me okay? Yes. Yes. Okay.
Hey, perfect. Thanks for squeezing me in and congrats from me as well. Olivier, can you talk going towards CICD now, it's obviously like it's a whole new Market, but not many people who have really come there before. Like can you talk a little bit about like How this will play out for you? How big the opportunity is?
Like how important that is? Because in theory, it's like that's where everything starts. But like I never thought about it from a monitor or observability perspective. Thank you.
Yes. So it's interesting, it's very early. We know the product space is very big because engineers spend a lot of time wrestling with testing and deploying. And so we know it's a jagged amount of time and spending involved there. It's interesting to us because it pushes the boundary of where we operate also and get closer and more closely embedded into The developer workflows will happen on their laptop or their writing code in the bread and test loops on their own environments before they reach even Development of staging environment.
So it's very interesting to us for that reason. It's more of a nascent category in terms of Observing and optimizing those environments. So we'll have to see exactly what the market opportunity is there, but we know the problem space is at launch. Yes.
Okay, perfect. And then one question for David. You were $130,000,000 NRR number. You remember last year when the number kind of came down a little bit, you mentioned it. Just and I know you're not going to give me a number, but like Trend wise, is the number trending higher now?
Is there a lag effect? Or like how do we think about it? And I know you don't can you give me a number, but just So I'm actually within that 130 above, what are you seeing?
Yes. We won't give you
a number, but help you a little bit in trends. Yes, I think that we said the combination of the strong sales and the continued uptick from both Use of more products on the usage side and adoption of products, combined with the compare from The flattening in the second quarter has resulted in the point in time metrics there increasing in the quarter.
Perfect. Congrats. Great news.
Yes.
And I'll now turn the call back over to Olivier for closing comments.
All right. Thank you. And just to close this call, I'll just reiterate that we are very, very pleased with our performance this quarter. And I also want to thank again all of BetterDocs Worldwide for their very hard work and for a job really, really well done. So thank you all.