Brent Thill: Good morning, David. Good margins, 27%, but you’re guiding the full year to 23%. I know you mentioned you’re stepping on the sales investments, but anything else that’s coming into the investment mix this year that is different than we’ve seen in the past years to drive that margin lower throughout the year?
David Obstler: Yeah, sales and R&D investment. We are — we have both the sales capacity and the whole ecosystem that we’ve been talking about. And as Oli often says, we have more high-return product projects than we always have capacity and are attempting to make the appropriate investment. So, it’s really that we are layering in. We all said all along that this can’t be changed, headcount can’t be changed as quickly as revenues. So, we have periods where we’re investing more than revenue growth or less. And this year is the one where we’re coming from a more conservative posture of last year into more investment in both R&D and sales and marketing. There’s nothing one time or special, it relates to both sales capacity and R&D projects. Oli, anything else?
Olivier Pomel: Yeah. Again, I mean, I bring it back to what I was saying earlier, a big focus internally is recruiting and making sure that we go fast enough there. I would say one more thing. Last year when the market was slowing down, most of our peers have laid off their recruiting teams and we didn’t do that because we knew we needed to — our success will depend on revving the recruiting engine backup and growing the engineering and the sales team fast enough for us to go after the [geographic] (ph) market opportunity we have. So, we are very happy we haven’t done that, but we still have a lot of work to do to recruit enough of the right people fast enough.
David Obstler: I’d add, as we always have said, that we have a very efficient, scalable market — business and we control the pace of our investments. And we — at the same time that we’re investing, we’ve been investing in efficiency projects like we talked about in the cloud to balance those things to deliver a strong profitability posture with strong investment.
Brent Thill: David, can I just ask a quick clarification on commitment, overage, and usage? I think you had a roughly 75%, 25% split across commit, coverage, and usage. Is that still in the same ballpark?
David Obstler: Yeah, I think we said it’s been in the range of sort of upper teens to mid-20s over time, that type of posture of clients under committing and evolving into their usage hasn’t changed over time. So that is still in the range that we’ve talked about since we went public.
Brent Thill: Great. Thanks.
David Obstler: Thanks.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Jake Roberge of William Blair. Your line is now open.
Jake Roberge: Hey, thanks for taking the questions, and great to hear that AI-native customers represented 3.5% of ARR. I’m curious though, what you’re seeing on the demand front for your own AI products like AIOps and Cloud Service Management? And then, you mentioned that the model providers have built their own tools to monitor the training of their models. As you start to roll out your own LLM observability solutions, do you see that trend changing? And is that something that customers have been asking you to build?
Olivier Pomel: So, on the first question, so we — so, look, we see a lot of interest in these new products. These are new products. So, we just announced in GA the Event Management product, which is the main missing building block we had for full AIOps platform. And we also just released into GA Bits for Incident Management. So, there’s a lot of demand for it. The products actually, I will say, for Bits for Incident Management is a joy to use. So that’s great. But you should also expect to hear more from us on that topic in the next couple of months. So, this is all very exciting. On the tooling, I would say there’s a handful of players that have been building that tooling for a few years in a way that’s very specialized to what they do internally.
They’re not necessarily very representative of the bulk of the market. So, in those situations, we’re always careful about overfitting products to a group that might not be the right target customer group in the end. In the same way, that building infrastructure monitoring for the cloud providers to use internally might be — might not be an exact fit for what the rest of the world needs. That being said, I mean, look, we work a lot with those companies and they have a number of needs that some of them they can meet internally and some of them they don’t. And if I go back to the example of hyperscalers, we actually have teams at the hyperscalers that use us for application or infrastructure or logs internally, even though they’ve built a lot of that tooling themselves.
So, I think everything is possible in the long run. But our focus is really on the vast majority of the customer base that’s going to either use those API-based products or tune and run their own models.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Karl Keirstead of UBS. Your line is now open.
Karl Keirstead: Okay, great. Maybe to Olivier, could you give a little context to the President stepping down into the Board seat? He’s obviously been there a long time and he’s been a big part of the Datadog story. And then for David, you’ve done a great job over the years dissuading us from over-indexing on DR and billings. But as you actually pointed out, the sequential decline in DR and billings was quite a bit larger than normal. I’m just curious if there’s a story there. Thank you.
Olivier Pomel: So, I’ll start with Amit, our President. So, Amit wanted to stop working as a full-time operator, but wants to stay close to the company and we want to stay close to him, too. I mean, he has been as you pointed out, a big part of Datadog story, and we definitely want to keep him involved in the company and keep working with him. So, the plan is for him to join the Board. You should expect him to maybe reappear at some point as a VC investor, something that’s less operational than what he’s doing today, and we expect him to be a part of the company for the future as well. I’ve always said, I will miss him every day in the office. David, do you want to comment on the…
David Obstler: Yeah. Now, to the more mundane topic of billings. So, yeah, I think that we did see a decel. We had a very strong Q4 in terms of commitments to us, which manifest itself in billings. We talked about the larger customers committing to multi-year deals and committing to us. We do have a sequential factor, not in our revenues, which are based on usages most, but basically in our billings and operations like that, usually in Q1 as clients sort of commit. So, in some ways, we don’t have the seasonality to speak of in the revenues, but like we talked about in billings and RPO, we do have variations in billings. We’re not reading that much into it, in that overall weighted, it’s going to vary and we point everyone back towards ARR and revenues, but acknowledge that, that seasonality may have been a little more pronounced in this cycle than in the previous one.
Karl Keirstead: Got it. Thank you, both.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Brad Reback of Stifel. Your line is now open.
Brad Reback: Great. Thanks very much. Oli, one of the fastest ways to recruit quickly is via larger acquisitions. So maybe give us your thoughts on potentially going a little bigger here given that you’re generating close to $1 billion of OCS a year right now? Thanks.
Olivier Pomel: Yeah. So, look, everything is on the table for us. Like, we’re very busy on the M&A side. We have a team that is at any point in time reviewing multiple deals, and everything is possible. I would say, the larger the acquisition, the less likely it is to happen, because we’re extremely selective in terms of not only the economics of any deal but also the fit and whether we think it’s truly going to accelerate us in the mid to long term. But everything is possible. We are very fortunate to have a very efficient business as you pointed out that is generating quite a bit of cash now and that opens a number of doors for us and we fully intend to use that if we have the right opportunity.
Brad Reback: Great. Thank you very much.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Koji Ikeda of Bank of America Securities. Your line is now open.
Koji Ikeda: Hey, guys. Thank you so much for the question here. I wanted to ask a question on AI. You mentioned in the prepared remarks about 3.5% of ARR, last quarter about 3%. So, it looks like the trend is about plus-50 basis points a quarter right now. So, really great to see the ongoing expansion there. So, from a big picture perspective, in your view, what needs to happen for this metric to start expanding, say, 1 point, 2 points, 3 points a quarter?
Olivier Pomel: I mean, look, so first of all, I’m not sure this is a metric we’ll keep bringing up. It was interesting for us to look at this small group of early AI native companies to get a sense of what might come next in the world of AI, but I think as we — as time goes by and as AI adoption broadens, I think it becomes less and less relevant. But the one thing I will say is we — so we try to compare our exposure to AI to what we see from the hyperscalers, because they are upstream from us in that respect. The hyperscaler that is the most open about it is or transparent about it in terms of numbers is Microsoft, as they disclose how much of their growth comes from AI even more specifically. And I will say that if you compare our business to theirs, the Azure part of our business is growing faster than Azure itself, and the AI-driven part of our Azure business itself is also growing faster than what you see on the overall Azure numbers.
