UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

☒

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

2022

OR

☐

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to

______

Commission File Number: 001-39051

Datadog, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware

27-2825503

Delaware

27-2825503
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

620 8th Avenue,

45th Floor

New York, NY

10018

New York,

NY10018
(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (866) 329-4466

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.00001 per share

DDOG

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐☒  No  ☒

☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   Yes  ☐   No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

☒

Accelerated filer

☐

Non-accelerated filer

☒

☐

Smaller reporting company

☐

Emerging growth company

☒

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒

x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the registrant’s shares of Class A common stock as reported by The Nasdaq Global Select Market on December 31, 2019,June 30, 2022 was approximately $2.4$25.9 billion. The registrant has elected to use December 31, 2019 as the calculation date, which was the last trading date of the registrant’s most recently completed fiscal year, because on June 30, 2019 (the last business day of the registrant’s second fiscal quarter), the registrant was a privately-held company.

As of February 14, 2020,15, 2023, there were 65,045,636294,055,143 shares of the registrant’sregistrant’s Class A common stock and 232,027,59825,837,848 shares of the registrant’sregistrant’s Class B common stock, each with a par value of $0.00001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 20202022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2019.

2022.



DATADOG, INC.

2019

2022 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Page

PART I.

Page

Item 1.

Business

3

5

10

13

32

38

32

38

32

38

33

39

34

40

Selected Financial Data41

35

38

41

53

52

55

54

85

86

85

86

85

87

Item 9C.

88

PART III.

86

89

86

89

86

89

86

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92

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93


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RISK FACTORS SUMMARY
Our operations and financial results and an investment in our Class A common stock are subject to various risks and uncertainties, the most significant of which are summarized below. You should consider carefully the summary below and the risks and uncertainties described in the “Risk Factors” section of this Annual Report on Form 10-K, as well as the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below and in “Risk Factors” are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of such risks or others not specified below or in “Risk Factors” materialize, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our Class A common stock could decline.
◦Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our results of operations.
◦Our recent rapid growth may not be indicative of our future growth. Our rapid growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
◦We have a history of operating losses and may not achieve or sustain profitability in the future.
◦We have a limited operating history, which makes it difficult to forecast our future results of operations.
◦We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.
◦Our business depends on our existing customers purchasing additional subscriptions and products from us and renewing their subscriptions. If our customers do not renew or expand their subscriptions with us, our future operating results would be harmed.
◦If we are unable to attract new customers, our business, financial condition and results of operations will be adversely affected.
◦Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our products.
◦If we or our third-party service providers experience, or are unable to protect against cyber attacks, ransomware, security incidents, or security breaches, or if unauthorized parties otherwise obtain access to our customers’ data, our data, or our platform and information technology systems, then our solution may be perceived as not being secure, our reputation may be harmed, demand for our platform and products may be reduced, and we may incur significant liabilities or additional expenses.
◦Interruptions or performance problems associated with our products and platform capabilities may adversely affect our business, financial condition and results of operations.
◦We may not be able to successfully manage our growth, and if we are not able to grow efficiently, our business, financial condition and results of operations could be harmed.
◦The COVID-19 pandemic and any related economic downturn could negatively impact our business, financial condition and results of operations.
◦If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, or to changing customer needs, requirements or preferences, our platform and products may become less competitive.
◦The markets in which we participate are competitive, and if we do not compete effectively, our business, financial condition and results of operations could be harmed.
◦The dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, including our executive officers, directors and their affiliates, which will limit the ability of holders of our Class A common stock to influence the outcome of important transactions.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Annual Report on Form 10-K including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

•our expectations regarding our revenue, expenses and other operating results;

•our ability to acquire new customers and successfully retain existing customers;

•our ability to increase usage of our platform and upsell and cross sell additional products;

•our ability to achieve or sustain our profitability;

•future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;

•the costs and success of our sales and marketing efforts, and our ability to promote our brand;

•our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;

•our ability to effectively manage our growth, including any international expansion;

•our ability to protect our intellectual property rights and any costs associated therewith;

•our ability to compete effectively with existing competitors and new market entrants; and

•the growth rates of the markets in which we compete.

compete; and
•the potential impact of general market, political, economic, and business conditions in our industry, or reductions in information technology spending, on our business, results of operations and financial condition.

You should not rely on forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in under the header “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained herein. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made, and we undertake no obligation to update them to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law.

Unless the context otherwise indicates, references in this report to the terms “Datadog”, “the Company,” “we,” “our” and “us” refer to Datadog, Inc. and its subsidiaries.

“Datadog” and other trade names and trademarks of ours appearing in this report are our property. This report contains trade names and trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

We may announce material business and financial information to our investors using our investor relations website (www.investors.datadoghq.com). We therefore encourage investors and others interested in Datadog to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, or the SEC, webcasts, press releases and conference calls.

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MARKET, INDUSTRY AND OTHER DATA
The statistical data, estimates and forecasts referenced throughout this Annual Report on Form 10-K are based on independent industry publications or other publicly available information, as well as information based on our internal sources. While we believe the industry and market data included in this Annual Report on Form 10-K are reliable and are based on reasonable assumptions, these data involve many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and other publicly available information. None of the industry publications referred to in this Annual Report on Form 10-K were prepared on our or on our affiliates’ behalf or at our expense. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements,” that could cause results to differ materially from those expressed in these publications and other publicly available information.
The Gartner content referenced herein (the “Gartner Content”) represents research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact. The Gartner Content speaks as of its original publication date (and not as of the date of this Annual Report on Form 10-K) and the opinions expressed in the Gartner Content are subject to change without notice.
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PART I

Item 1. Business

Overview

Datadog is the monitoringobservability and analyticssecurity platform for developers, IT operations teams and business users in the cloud age.

applications.

Our SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, and log management, real-user monitoring, and many other capabilities to provide unified, real-time observability ofand 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.

Software applications are transforming how organizations engage with customers and operate their businesses. Companies across all industries are re-platforming their businesses to cloud native or hybrid on-premise and cloud infrastructures to enable this digital transformation. Historically, engineering teams have been siloed, making the development of next generation applications onin dynamic cloud environments challenging. We started Datadog to break this model and facilitate collaboration among development and operations teams, enabling the adoption of DevOps practices. Since then we have continuously pushed to unify separate tools into an integrated monitoring and analytics platform, readily available to everyone who cares about applications and their impact on business.

And while we continue to broaden our capabilities in observability, we have continued to expand our platform into use cases beyond observability. Starting in 2020, we began to develop products in cloud security, and in 2021, we expanded into developer-focused products.

From our founding goal of breaking down silos between Dev and Ops, we set out in 2010 to build a real-time data integration platform to turn chaos of having uncorrelated data from disparate sources into digestible and actionable insights. In 2012, we launchedSince launching our first use case with infrastructure monitoring, purpose-built to handle increasingly ephemeral cloud-native architectures. This enabled us to be deployed onInfrastructure Monitoring in 2012, we have expanded our customers’ entire cloud IT environmentsplatform rapidly, and gave our product broad usage across Dev, Ops and business teams, in turn allowing us to address a bigger set of challenges through our platform. In 2017 we launched our Application Performance Monitoring, or APM, product, designed to be broadly deployed in very distributed, micro-services architectures. In 2018, we were the first to combine the “three pillars of observability” with the introduction of our log management product. To allow for full-stack observability, in 2019, we launched user experience monitoring and network performance monitoring, and announced the addition of security monitoring to our platform. Today,today, we offer end-to-end monitoring and analytics, powered by a common data model that is extensible for potential new use cases.

cases across observability, security, and developer observability. In 2022, we launched Application Security Management to detect attacks on web applications and APIs, Cloud Security Management to provide visibility, threat detection, and configuration audits across the entire cloud infrastructure, Audit Trail to maintain and enforce compliance and governance, Observability Pipelines to collect, transform and route data, Cloud Cost Management to take control of cloud costs, and Universal Service Monitoring to discover and monitor every service.

Our proprietary platform combines the power of metrics, traces, logs, and logsother data from over 600 integrations to provide a unified view of infrastructure, and application performance and the real-time events impacting this performance. Datadog is designed to be cloud agnostic and easy to deploy, with hundreds of out-of-the-box integrations, a built-in understanding of modern technology stacks and endless customizability.extensive customizations. Customers can deploy our platform across their entire infrastructure, making it ubiquitous and a daily part of the lives of developers, operations engineers and business leaders.

We believe that our platform currently addresses a significant portion of the IT Operations Management market. According to Gartner, the IT Operations Management market represents a $37$62 billion opportunity in 2023.2026. We believe a large portion of this spend is for legacy on-premise and private cloud environments but does not fully include the opportunity in modern multi-cloud and hybrid cloud environments. Our platform is designed to address both legacy and modern environments.

We employ a land-and-expand business model centered around offering products that are easy to adopt and have a very short time to value. Our customers can expand their footprint with us on a self-service basis. Our customers often significantly increase their usage of the products they initially buy from us and expand their usage to other products we offer on our platform. We grow with our customers as they expand their workloads in the public and private cloud.  

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Our Solution and Key Strengths

Datadog was founded on the premise that the old model of siloed developers and IT operations engineers is broken, and that legacy tools used for monitoring static on-premise architectures do not work in modern cloud or hybrid environments. Datadog’s cloud-native platform enables development and operations teams to collaborate, quickly build and improve applications, and drive business performance. Empowered by our out-of-the box functionality and simple, self-service installation, our customers are able to rapidly deploy our platform to provide application- and infrastructure-wide visibility, often within minutes.

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•Built for dynamic cloud and hybrid infrastructures. Our innovative platform was born in the cloud and was built to work with ephemeral cloud technologies such as microservices, containers and serverless computing. Our data model was built to work at cloud scale with highly dynamic data sets and processes more than 10 trillion events a day.

•Simple but not simplistic. Our platform is easy-to-use with out-of-the-box integrations, customizable drag-and-drop dashboards, real-time visualization and prioritized alerting. The platform is deployed in a self-service installation process within minutes, allowing new users to quickly derive value without any specialized training or heavy implementation or customization. It is highly extensible across a wide array of use cases to a broad set of developers, operations engineers, security professionals, product managers, product designers, support staff, and business users. As a result, our platform is integral to business operations and used every day, and our users find increasing value in the solution over time.

•Integrated data platform. We were the first to combine the “three pillars of observability” - metrics, traces, and logs - with the introduction of our log management solution in 2018. Today, our platform combines infrastructure monitoring, application performance monitoring, log management, user experience monitoring, and network performance monitoring, database monitoring, security monitoring, incident management, and developer testing and pipeline monitoring in one integrated data platform.This approach increases efficiency by reducing both the expense and friction of attempting to glean insights from disparate systems. We are able to provide a unified view across the IT stack, including infrastructure and application performance, as well as the real-time events impacting performance. Each of our products is integrated and taken together, they provide the ability to view metrics, traces, logs, and logsother data side-by-side and to perform correlation analysis.

•Built for collaboration. Our platform was built to break down the silos between developers and operations teams in order to help organizations adopt DevOps practices and improve overall business performance. We provide development and operations teams with a common set of tools to develop a joint understanding of application performance and shared insights into the infrastructure supporting the applications. Additionally, our customizable and interactive dashboards can be shared with business teams to provide them with real-time actionable insights.

Over time, as the use cases for our platform have expanded, the types of users that we can serve and help to collaborate have expanded as well, to include security professionals, support staff, and business users.

•Cloud agnostic. Our platform is designed to be deployable across all environments, including public cloud, private cloud, on-premise and multi-cloud hybrid environments, allowing organizations to diversify their infrastructure and reduce single vendor dependence.

•Ubiquitous. Datadog is frequently deployed across a customer’s entire infrastructure, making it ubiquitous. Compared to legacy systems that are often used only by a few users in an organization’s IT operations team, Datadog is a daily part of the lives of developers, operations engineers and business leaders. For example, a leading communications software technology provider has over 1,000 Datadog users, representing about half of the company’s total employee count and greater than the total number of the company’s engineers. Further, a Fortune 500 financial services firm has over 6,000 Datadog users.

•Integrates with our customers’ complex environments. We enable development and operations teams to harness the full spectrum of SaaS and open source tools. We have over 400600 out-of-the-box integrations with technologies to provide significant value to our customers without the need for professional services. Our integrations provide for comprehensive data point aggregation and consistent, up-to-date, high-quality customer experiences across heterogeneous IT environments as they are fully maintained by Datadog.

•Powered by robust analyticsmachine-learning and machine-learningartificial intelligence. Our platform ingests massive amounts of data into our unified data warehouse. We develop actionable insights using our advanced analytics capabilities. Our platform featuresplatform's Watchdog capabilities feature artificial intelligence and machine learning that can cross-correlate metrics, traces, logs, and logsother data to identify outliers and notify users of potential anomalies before theyanomalies; discover and help resolve issues quickly with automated root cause analysis; augment the troubleshooting workflow with contextual insights; and minimize impact the business.

on customers.

•Scalable. Our SaaS platform is highly scalable and is delivered through the cloud. Our platform is massively scalable, currently monitoring more than 10tens of trillion events a day and millions of servers and containers at any point in time. We offer secure, easily accessible data retention at full granularity for extensive periods of time, which can provide customers with a complete view of their historical data.

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Key Benefits to Our Customers

Organizations of all sizes, in all industries, both private and public, purchase our products for a variety of use cases. As of December 31, 2019,2022, we had approximately 10,50023,200 customers in over 100 countries. Our platform provides the following key benefits to our customers:

•Accelerate digital transformation. We enable customers to take full advantage of the cloud to develop and maintain mission-critical applications with agility and with confidence in the face of increasing business and time pressure and complexity of underlying infrastructure. As a result, our platform helps accelerate innovation cycles, deliver exceptional digital experiences and optimize business performance.

•Reduce time to problem detection and resolution. Using infrastructure, APM, and log data, and data from integrations in our unified platform, our customers are able to quickly isolate the root cause of application issues in one place where they otherwise would be required to spend hours trying to investigate using multiple tools. The reduction in mean time to detection and mean time to resolution helps our customers avoid lost revenues and enhance customer experience.

•Improve agility of development, operations, security and business teams. We eliminate the historical silos of development and operations teams and provide a platform that enables efficient and agile development through the adoption of DevOps.DevOps and DevSecOps. Our platform enables development, operations and operationssecurity teams to collaborate closely with a shared understanding of data and analytics. This helps them develop a joint understanding of application performance and shared insights into the infrastructure supporting the applications.

•Enable operational efficiency. Our solution is easy to install, which eliminates the need for heavy implementation costs and professional services. We have hundreds of integrations with key technologies, from which our customers can derive significant value, avoiding internal development costs and professional services required to create those integrations. Our customer-centric pricing model is tailored to customers’ desired usage needs. For example, our log management solution has differentiated pricing for logs indexed versus logs ingested. Our platform empowers customers to better understand the operational needs of their applications and IT environments, enabling greater efficiency in resource allocation and spend on cloud infrastructure.

Our Growth Strategies

We intend to pursue the following growth strategies:

•Expand our customer base by acquiring new customers. Our market penetration is low. We believe there is a substantial opportunity to continue to grow our customer base. We intend to drive new customer additions by expanding our sales and marketing efforts in the markets we serve.

•Expand within our existing customer base through broader deployments, new use cases and new product adoption. Our base of approximately 10,50023,200 customers as of December 31, 20192022 represents a significant opportunity for further sales expansion. We plan to continue to increase sales within our existing customer base through increased usage of our platform and the cross selling of additional products.

•Expand our technology leadership through continued investment and new products. We intend to invest in expanding the functionality of our current platform and adding capabilities that address new market opportunities. We have a history of continued innovation. For example, in 2017 we launched APM, in 2018 we launched log management, andLog Management, in 2019 we launched user experience monitoringUser Experience Monitoring and network performance monitoring,Network Performance Monitoring, in 2020 we launched Cloud SIEM, Continuous Profiler and announced the addition of security monitoring to our platform.

Incident Management, in 2021 we launched Cloud Security Posture Management, Cloud Workload Security, Database Monitoring, and Sensitive Data Scanner, and in 2022 we launched Application Security Management, Cloud Security Management, Audit Trail, Observability Pipelines, Cloud Cost Management, and Universal Service Monitoring.

•Expand our customer base internationally. We believe there is a significant opportunity to continue to expand usage of our platform outside of the United States, as international markets have increased the shift of their IT spend to the cloud.

Our Platform

Our proprietary platform provides real-time insights into software applications and IT infrastructure performance to enable better user experiences, faster problem detection and resolution and smarter, more impactful business decisions. Our
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platform is also modular and includes infrastructure monitoring, application performance monitoring, log management, user experience monitoring, and network performance monitoring, cloud security, developer-focused observability, and incident management, as well as a range of shared features such as sophisticated dashboards, advanced analytics, collaboration tools and alerting capabilities. Each of our products is fully capable stand-alone so clients can choose to use different capabilities incrementally or deploy many at once. When deployed together, our products automatically enable cross-correlation, which in turn allows customers to gain greater levels of visibility across their infrastructure and applications to more rapidly troubleshoot problems.

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Our platform is supported by hundreds ofmore than 600 integrations to seamlessly aggregate metrics and events across all of the systems and services that power digital businesses. Our easy-to-use platform is deployed through a self-service installation process. Users can derive value from our platform within minutes without any specialized training or heavy implementation or customization. Customers can easily expand their usage of our platform on a self-serve basis, adding hosts or volumes of data monitored. Our platform is massively scalable currently monitoring more than 10tens of trillion events a day and millions of servers and containers.

The key elements that can be leveraged across our platform:

•Single Pane of Glass. Our ability to provide a unified source of data enables users to access information from a single platform and easily explore multiple data sources. Through a single dashboard and with a common data framework, users are able to access and explore all of the relevant performance data. Users are able to more quickly assess and resolve their issues without having to toggle between multiple products.

•Robust, Deep Data Set. Our client-side collection technology relies on installation of a single agent for metrics, traces, logs, and logs,other data, allowing for a simple, seamless deployment experience for the customers. We ingest massive amounts of complex data and normalize it. The volume of data associated with combining infrastructure, APM and log management provides for a dramatically more robust data set than any of the individual data sources would provide on their own.

•SaaS Platform. Our cloud based multi-tenant SaaS platform allows for real-time ingestion, and analysis of massive amounts of data, without our customers needing to worry about the provisioning, sizing and capacity of their monitoring platform.

•One Data Model. Every piece of data that is ingested by our platform is consistently tagged with metadata regardless of its type. This allows for different kinds of performance data, such as a log event and an application trace, to be queried together, correlated, alerted on, and visualized in a common user interface.

•Cross-Correlation. All of our solutions are integrated and work cohesively to provide a deep level of context and insight into what is occurring in a customer’s IT environment and power faster trouble-shooting.

troubleshooting.

•Out-Of-The-Box, Actionable Insights. From the moment of installation, our platform provides actionable insights through customizable dashboards, predictive analytics, automated correlations, visualizations and alerting.

•High Accuracy Machine-Learning Capabilities and Predictive Capabilities Powered by the Network Effect. Our multi-tenant cloud platform analyzes massive data sets ingested across our customers and their IT environments. It uses machine learning to predict and identify sources of performance or availability issues that customers share due to dependencies on common service providers or third-party services.

400+•600+ Fully Supported Integrations. We offer more than 400600 out-of-the-box integrations including public cloud, private cloud, on-premise hardware, databases and third-party software.

•Automated Alerts. We offer sophisticated real time alerting capabilities in the platform that detects issues, alerts users, and integrates with their service management systems.

Our platform consists of seven products that can be used individually or as a unified solution, including:

and includes a Marketplace where customers can access products built by our partners on top of the Datadog platform. Our products include:

•Infrastructure Monitoring. Our infrastructure monitoringInfrastructure Monitoring platform provides real-time monitoring of IT infrastructure across public cloud, private cloud and hybrid environments, as well as in containers and serverless architectures, ensuring performance and availability of applications. All infrastructure data is located in one repository with automatic correlation, regardless of environment size or rate of change, to provide a fulsome view of everything that is occurring across the IT ecosystem.

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•Application Performance Monitoring (APM). APM provides full visibility into the health and functioning of applications regardless of the deployment environment. Distributed tracing across microservices, hosts, containers and serverless computing functions allows our customers to gain deep insights into application performance. In-context correlation

•Log Management. Log Management for applications, systems and cloud platforms ingests data, creates indexes and enables querying of APM traceslogs with visualizations and alerting to provide immediate insight into any performance issues. Logging Without Limits™ decouples the cost of log ingestion from processing, allowing customers to cost effectively collect a massive volume of logs and infrastructure metrics provides for faster troubleshooting allowing issuesselectively process those they need to be resolved in minimal time.

monitor.

•

Log Management. Log management for applications, systems and cloud platforms ingests data, creates indexes and enables querying of logs with visualizations and alerting to ensure immediate insight into any performance issues. Logging Without LimitsTM decouples the cost of log ingestion from processing, allowing customers to cost effectively collect a massive volume of logs and selectively process those they need to monitor.

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•

User Experience Monitoring. User•Digital Experience Monitoring. Digital experience monitoring brings visibility up the stack to monitor the digital experience of the customer and is comprised of two products – Synthetics and Real User Monitoring, or RUM. Synthetics provides user-experience monitoring of applications and API endpoints via simulated AI-powered user requests to track application performance and ensure uptime. RUM provides analysis and visualization of the performance of front-end applications as experienced by all actual users.

Network Performance Monitoring. Network Performance Monitoring, or NPM,RUM. Synthetics provides user-experience monitoring of applications and API endpoints via simulated AI-powered user requests to track application performance and ensure uptime. RUM provides analysis and visualization of the performance of front-end applications as experienced by all actual users.

•Continuous Profiler. Continuous Profiler measures code level performance in any environment through an always-on, and low overhead solution. This allows customers to quickly identify and optimize the most resource-consuming parts in application code in order to improve mean time to resolution, enhance user experience and reduce cloud provider cost.
•Database Monitoring. Database Monitoring allows customers to view query metrics and explain plans from all of their databases in a single place. With Database Monitoring, they can quickly pinpoint costly and slow queries and drill into precise execution details to address bottlenecks. Additionally, query and host metric correlation makes it easy to identify and understand the impact of resource constraints on database performance.
•Network Monitoring. Network Monitoring enables the analysis and visualization of the flow of network traffic in cloud-based or hybrid environments. It allows the mapping of full-stack dependencies, and is fully integrated with the Datadog platform. It is very lightweight, allowing customers to monitor the flow of network traffic without sacrificing performance.

With the launch of Network Device Monitoring in 2021, our Network Monitoring solution also offers monitoring of network hardware, such as routers, switches, and firewalls. Network Monitoring allows the mapping of full-stack dependencies, and is fully integrated with the Datadog platform.
•Incident Management. Incident Management allows users to declare incidents, investigate root cause and dependencies, collaborate around a shared view of the incident, follow to resolution, and auto-generate post-mortem documentations, all within the Datadog platform.

•Observability Pipelines. Observability Pipelines enables IT and security teams to cost-effectively collect, transform, and route logs, metrics, and traces from any source to any destination at scale.

•Cloud Cost Management. Cloud Cost Management provides granular visibility into costs across cloud resources, automatically surfacing changes in cloud costs and visualizing cost data alongside metrics, traces, logs, and other data, and making it easy to find and fix cost inefficiencies.
•Universal Service Monitoring. 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.
•Cloud Security Monitoring. Currently availableManagement. Cloud Security Management delivers visibility, real-time threat detection, and continuous configuration audits across the entire cloud infrastructure, all in beta,a unified platform for seamless collaboration and faster remediation. This product includes Cloud Security Posture Management, Cloud Workload Security, and Resource Catalog, and allows security monitoringand DevOps teams to act on shared context of observability data and security risks to determine the impact of a threat quickly.
•Application Security Management. Application Security Management (ASM) delivers deep, real-time visibility into attacks that target customers' web applications and APIs. By leveraging Datadog’s distributed tracing capabilities, ASM reveals attack flows and determines which threats trigger abnormal application behavior, helping teams prioritize efforts.
•Cloud SIEM. Cloud SIEM (Security Information and Event Management) allows customers to detect threats in real time and investigate security signals across metrics, traces, logs, and logs.other data. It provides the full engineering organization, including Dev, Ops, and security teams, visibility into common data sources, in order to better operationalize IT security.

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•Sensitive Data Scanner. Sensitive Data Scanner helps businesses meet compliance goals by discovering, classifying, and protecting sensitive data, in real-time and at scale. Datadog scans for patterns of sensitive data upon ingestion and then hashes or redacts it, following built-in or user-defined rules to support compliance with GDPR, HIPAA, CCPA, and more.
•CI Visibility. CI, or Continuous Integration, Visibility provides deep insight into the health and performance of customers' CI environment. Datadog auto-instruments pipelines and tests, so developers can dive into traces for problematic builds and executions. They can also scope CI data by repository, branch, or commit in order to surface trends and troubleshoot issues. This provides a comprehensive view into CI activity and makes it easier to resolve bottlenecks, reduce CI costs, and deliver better software.
Sales and Marketing

Our sales team is segmented into four revenue-generating areas: an enterprise sales team that sells to large businesses; a high velocity inside-salesinside sales team that is focused on acquiring new customers; a customer success team that handles new customer on-boarding and expansions in existing customers; and a partner team that works with resellers, system integrators, referral partners and managed service providers. Each of these teams is further split regionally for geographic coverage across the Americas, Asia-Pacific, or APAC, and EMEA.Europe, the Middle East and Africa, or EMEA, regions. The sales teams work with marketing to actively pursue leads generated from marketing programs and help take prospective customers through an evaluation and purchase process.

We focus our multi-touch marketing efforts on the strength of our product innovation, the value we provide, and our domain expertise. We target the development and IT operations community through our marketing activities, using diverse tactics to connect with prospective customers, such as content marketing, email marketing, events, digital advertising, social media, public relations, partner marketing and community initiatives. We offer prospective customers free trials to help them understand the power of our platform. We also host and present at regional, national, global and globalvirtual events to engage both customers and prospects, deliver product training, share best practices and foster community.

As of December 31, 2019,2022, we had 581approximately 2,300 employees in our sales and marketing organization, including sales development, field sales, sales engineering, technical solutions, business development, sales operations, sales strategy, customer success and marketing personnel. We intend to continue to invest in our sales and marketing capabilities to capitalize on our market opportunity.

Research and Development

Our research and development organization is responsible for the design, development, testing and delivery of new technologies, features and integrations of our platform, as well as the continued improvement and iteration of our existing products. It is also responsible for operating and scaling our platform including the underlying cloud infrastructure. Our research and development investments seek to drive core technology innovation and bring new products to market. Research and development employees are located primarily in our New York and Paris offices, as well as remotely distributed.

Our research and development team consists of our software engineering, product management, development and site reliability engineering teams. As of December 31, 2019,2022, we had 566approximately 2,000 employees in our research and development organization. We intend to continue to invest in our research and development capabilities to extend our platform and products.

Our Competition

The worldwide monitoring and analytics market is and has been highly competitive for decades and is rapidly evolving. We compete on the basis of a number of factors, including:

•ability to provide unified, real-time observability of IT environments;

•ability to operate in dynamic and elastic environments;

•extensibility across the enterprise, including development, operations and business users;

•propensity to enable collaboration between development, operations and business users;

•ability to monitor any combination of public clouds, private clouds, on-premise and multi-cloud hybrids;

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•

ability to provide advanced analytics and machine learning;

•ability to provide advanced analytics and machine learning;

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•ease of deployment, implementation and use;

•breadth of offering and key technology integrations;

•performance, security, scalability and reliability;

•quality of service and customer satisfaction;

•total cost of ownership; and

•brand recognition and reputation.

Our unified platform combines functionality from numerous traditional product categories, and hence we compete in each of these categories with different vendors:

•With respect to on-premise infrastructure monitoring, we compete with diversified technology companies and systems management vendors including IBM, Microsoft Corporation, Micro Focus International plc, BMC Software, Inc. and Broadcom.

SolarWinds Corporation.

•With respect to APM, we compete with Cisco Systems, Inc., New Relic, Inc. and Dynatrace Software Inc.

•With respect to Log management,Management, we compete with Splunk Inc. and Elastic N.V.

•With respect to Cloud monitoring, we compete with native solutions from cloud providers such as Amazon Web Services, or AWS, Microsoft Azure, and Google Cloud Platform, or GCP, and Microsoft Azure.

GCP.

Additionally, we compete with home-grown and open-source technologies across the categories described above. We believe that we compete favorably with respect to the factors listed above. However, many of our competitors have greater financial, technical and other resources, greater brand recognition, larger sales forces and marketing budgets, broader distribution networks, more diverse product and services offerings and larger and more mature intellectual property portfolios. They may be able to leverage these resources to gain business in a manner that discourages customers from purchasing our offerings. Furthermore, we expect that our industry will continue to attract new companies, including smaller emerging companies, which could introduce new offerings. We may also expand into new markets and encounter additional competitors in such markets.

Our Employees

Human Capital Management
Headcount
As of December 31, 2019,2022, we had 1,403approximately 4,800 employees operating across 2732 countries. NoneApproximately 40% of our full-time employees are represented by a labor union with respect to his or her employment.as of that date were located outside of the United States, 33% of whom were located in France. In certain countries in which we operate, such as France, we are subject to, and comply with, local labor law requirements, which may automatically make our employees subject to industry-wide collective bargaining agreements. We have not experienced any work stoppages and we consider our relations with our employees to be good.

Culture and Engagement
We strive to create a culture that promotes a healthy work-life balance, career growth, low drama, and a friendly office environment. As part of our commitment to our employees, we periodically assess our culture by conducting global engagement surveys to gain a better understanding of what is important to our employees. The areas in which we have been rated most favorable include employee pride and belief in Datadog's mission and purpose, the strength of our product offerings, and opportunities for employee growth and development. 
Training and Development
Datadog promotes professional growth by offering individual- and team-specific training on an ongoing basis, as well as a wide range of learning programs delivered by our global Talent Development team. We also provide robust manager training that shares effective tools and frameworks around recruiting, managing, and developing team members.
We continually invest in our employees’ career growth and provide employees with a wide range of development opportunities, including face-to-face, virtual, social, and self-directed learning and mentoring.
Compensation and Benefits
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We offer industry competitive wages and benefits and are committed to maintaining a workplace environment that promotes employee productivity and satisfaction. We believe our employees should have the support they need to maintain a strong work/life balance, grow personally and professionally, and save for their future. While the philosophy around our benefits is the same worldwide, specific benefits vary regionally due to local regulations and preferences.
Diversity and Inclusion
At Datadog, diversity means making a conscious effort to reflect the many experiences and identities of the world outside, while treating each other with fairness and without bias. Inclusion is the choice we make every day to foster an environment where people of all backgrounds not only belong but excel, so that together, as a company, we can succeed.
We are committed to creating inclusive work spaces for employees with diverse backgrounds and experiences. Our diversity and inclusion programming includes a focus on training workshops and resources that increase education, promote moments of celebration, support belonging, and help our employees feel welcome and respected. 
Intellectual Property

Intellectual property rights are important to the success of our business. We rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as license agreements, confidentiality procedures, non-disclosure agreements with third parties, and other contractual protections, to protect our intellectual property, rights, including our proprietary technology, software, know-how and brand. We use open source software in our services. Our proprietary API libraries and the agent used by customers to uploadsend data to our proprietary platform are licensed by us on an open source basis.

As of December 31, 2019,2022, we own fivetwenty-six patents globally, six patent applications pending for examination in the United States, three pending PCT applications, and no non-U.S. patents orfive pending foreign patent applications. The pending U.S. patent applications, if issued, would be scheduled to expire in 2038between 2039 and 2039.2041. Despite our pending U.S. patent applications, there can be no assurance that our patent applications will result in issued patents. As of December 31, 2019,2022, we own twoseven registered trademarks in the United States and sixone hundred sixteen registered trademarks in various non-U.S. jurisdictions. However, as we have expanded internationally, we have been unable to register or obtain the exclusive right to use the Datadog trademark in certain jurisdictions, and as we continue to expand may face similar issues in other jurisdictions.

Although we rely on intellectual property rights, including patents, copyrights, trademarks and trade secrets, as well as contractual protections to establish and protect our proprietary rights, we believe that factors such as the technological and creative skills of our personnel, creation of new services, features and functionality, and frequent enhancements to our proprietary platform are more essential to establishing and maintaining our technology leadership position.

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We control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers and partners. We require our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and we control and monitor access to our software, internal documentation, proprietary technology and other confidential information. Our policy is to require all employees and independent contractors to sign agreements assigning to us any inventions, trade secrets, works of authorship, developments, processes and other intellectual property generated by them on our behalf and under which they agree to protect our confidential information. In addition, we generally enter into confidentiality agreements with our customers and partners. See the section titled “Risk Factors” for a more comprehensive description of risks related to our intellectual property.

Corporate Information

We were incorporated in Delaware in June 2010. Our principal executive offices are located at 620 8th Avenue, 45th Floor, New York, New York 10018, and our telephone number is (866) 329-4466. Our website address is www.datadog.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the
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Exchange Act, are filed with the SEC. Such reports and other information filed by us with the SEC are available free of charge on our website at www.investors.datadoghq.com when such reports are available on the SEC’s website. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The information contained on the websites referenced in this Annual Report on Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.

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Item 1A. RiskRisk Factors

Our operations and financial results are subject to various risks and uncertainties including those described below. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks or others not specified below materialize, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our Class A common stock could decline.

Risks RelatedAssociated with our Growth
Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our results of operations.
Our Businessresults of operations may vary based on the impact of unfavorable changes in our industry or the global economy on us or our customers and Industry

potential customers. Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth in the United States or abroad, financial and credit market fluctuations, inflation, rising interest rates, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases (such as the COVID-19 pandemic), warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments, including spending on information technology, disrupt the timing and cadence of key industry events, and negatively affect the growth of our business and our results of operations. The war in Ukraine and the related political and economic responses imposed on Russia such as sanctions, may exacerbate these issues and trends especially in Europe. More recently, in response to persistently high inflation, the U.S. Federal Reserve has increased interest rates, which may reduce economic growth and cause companies to decrease spending on information technology. These types of unfavorable conditions could disrupt the timing of and attendance at key industry events, which we rely upon in part to generate sales of our products. If those events are disrupted, our marketing investments, sales pipeline and ability to generate new customers and sales of our products could be negatively and adversely affected. Our competitors, many of which are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract our customers and may be less dependent on key industry events to generate sales for their products. The increased pace of consolidation in certain industries may result in reduced overall spending on our products and solutions. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or how any such event may impact our business.

Our recent rapid growth may not be indicative of our future growth. Our rapid growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

Our revenue was $362.8$1,675.1 million, $198.1$1,028.8 million and $100.8$603.5 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. Even if our revenue continues to increase, we expect that our revenue growth rate will decline in the future as a result of a variety of factors, including the maturation of our business. Overall growth of our revenue depends on a number of factors, including our ability to:

•price our products effectively so that we are able to attract new customers and expand sales to our existing customers;

•expand the functionality and use cases for the products we offer on our platform;

•maintain and expand the rates at which customers purchase and renew subscriptions to our platform;

•provide our customers with support that meets their needs;

•continue to introduce our products to new markets outside of the United States;

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•successfully identify and acquire or invest in businesses, products or technologies that we believe could complement or expand our platform; and

•increase awareness of our brand on a global basis and successfully compete with other companies.

We may not successfully accomplish any of these objectives, and as a result, it is difficult for us to forecast our future results of operations. If the assumptions that we use to plan our business are incorrect or change in reaction to changes in our market, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. You should not rely on our revenue for any prior quarterly or annual periods as any indication of our future revenue or revenue growth.

In addition, we expect to continue to expend substantial financial and other resources on:

•our technology infrastructure, including systems architecture, scalability, availability, performance and security;

•our sales and marketing organization to engage our existing and prospective customers, increase brand awareness and drive adoption of our products;

•product development, including investments in our product development team and the development of new products and new functionality for our platform as well as investments in further optimizing our existing products and infrastructure;

•acquisitions or strategic investments;

•international expansion; and

•general administration, including increased legal and accounting expenses associated with being a public company.

These investments may not result in increased revenue growth in our business. If we are unable to maintain or increase our revenue at a rate sufficient to offset the expected increase in our costs, our business, financial position, and results of operations will be harmed, and we may not be able to achieve or maintain profitability over the long term. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays, and other unknown factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our business, financial position and results of operations may be harmed, and we may not achieve or maintain profitability in the future.

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We have a history of operating losses and may not achieve or sustain profitability in the future.


We have experiencedgenerated net losses in each periodyear since inception. We generatedour inception, including net losses of $(16.7)$50.2 million, $(10.8)$20.7 million and $(2.6)$24.5 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. As of December 31, 2019,2022, we had an accumulated deficit of $123.6$202.3 million. While we have experienced significant revenue growth in recent periods, we are not certain whether or when we will obtain a high enough volume of sales to sustain or increase our growth or achieve or maintain profitability in the future. We also expect our costs and expenses to increase in future periods, which could negatively affect our future results of operations if our revenue does not increase. In particular, we intend to continue to expend significant funds to further develop our platform, including by introducing new products and functionality, and to expand our inside and field sales teams and customer success team to drive new customer adoption, expand use cases and integrations, and support international expansion. We will also face increased compliance costs associated with growth, the expansion of our customer base, and being a public company. Our efforts to grow our business may be costlier than we expect, or the rate of our growth in revenue may be slower than we expect, and we may not be able to increase our revenue enough to offset our increased operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described herein, and unforeseen expenses, difficulties, complications or delays, and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and Class A common stock may significantly decrease.

We have a limited operating history at our current scale, which makes it difficult to forecast our future results of operations.

We were founded in June 2010.

As a result of our limited operating history at our current scale and the introduction of several new products in recent years, our ability to accurately forecast our future results of operations is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue growth should not be considered indicative of our future performance. Further, in future periods, our revenue growth could slow or our revenue could decline for a number of reasons, including slowing demand for our products, increasing competition, changes to technology, a decrease in the growth of our overall market, or our failure, for any reason, to continue to take advantage of growth opportunities. We have also encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and
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uncertainties and our future revenue growth are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, and our business could suffer.

We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.
We have funded our operations since inception primarily through equity and debt financings and sales of our products. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results, and financial condition. If we incur additional debt, the debt holders would have rights senior to holders of common stock to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Because our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.
Strategic and Operational Risks
Our business depends on our existing customers purchasing additional subscriptions and products from us and renewing their subscriptions. If our customers do not renew or expand their subscriptions with us, our future operating results would be harmed.

Our future success depends in part on our ability to sell additional subscriptions and products to our existing customers, and our customers renewing their subscriptions when the contract term expires. The terms of our subscription agreements are primarily monthly or annual, with some quarterly, semi-annual and multi-year. Our customers have no obligation to renew their subscriptions for our products after the expiration of their subscription period. In order for us to maintain or improve our results of operations, it is important that our customers renew or expand their subscriptions with us. Whether our customers renew or expand their subscriptions with us may be impacted by a number of factors, including business strength or weakness of our customers, customer usage, customer satisfaction with our products and platform capabilities and customer support, our prices, the capabilities and prices of competing products, mergers and acquisitions affecting our customer base, consolidation of affiliates’ multiple paid business accounts into a single paid business account, the effects of global economic conditions, or reductions in our customers’ spending on IT solutions or their spending levels generally. These factors may be exacerbated by unfavorable conditions in the economy, see "Risks Associated with our Growth—Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our results of operations” above. These factors may also be exacerbated if, consistent with our growth strategy, our customer base continues to grow to encompass larger enterprises, which may also require more sophisticated and costly sales efforts. If our customers do not purchase additional subscriptions and products from us or our customers fail to renew their subscriptions, our revenue may decline and our business, financial condition and results of operations may be harmed.

If we are unable to attract new customers, our business, financial condition and results of operations will be adversely affected.

To increase our revenue, we must continue to attract new customers. Our success will depend to a substantial extent on the widespread adoption of our platform and products as an alternative to existing solutions. Many enterprises have invested substantial personnel and financial resources to integrate traditional on-premise architectures into their businesses and, therefore, may be reluctant or unwilling to migrate to cloud computing. Further, the adoption of SaaS business software may be slower in industries with heightened data security interests or business practices requiring highly-customizable application software. In addition, as our market matures, our products evolve, and competitors introduce lower cost or differentiated products that are perceived to compete with our platform and products, our ability to sell subscriptions for our products could be impaired. Similarly, our subscription sales could be adversely affected if customers or users within these organizations perceive that features incorporated into competitive products reduce the need for our products or if they prefer to purchase other products that are bundled with solutions offered by other companies that operate in adjacent markets and compete with our products. As a result of these and other factors, we may be unable to attract new customers, which may have an adverse effect on our business, financial condition and results of operations.

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Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our products.

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Our ability to increase our customer base and achieve broader market acceptance of our products and platform capabilities will depend to a significant extent on our ability to expand our sales and marketing organization. We plan to continue expanding our direct sales force, both domestically and internationally. We also plan to dedicate significant resources to sales and marketing programs. All of these efforts will require us to invest significant financial and other resources, including in channels in which we have limited or no experience to date. Our business and results of operations will be harmed if our sales and marketing efforts do not generate significant increases in revenue or increases in revenue that are smaller than anticipated. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, integrate and retain talented and effective sales personnel, if our new and existing sales personnel, on the whole, are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective.

If we or our third-party service providers experience, aor are unable to protect against cyber attacks, ransomware, security breachincidents, or security breaches, or if unauthorized parties otherwise obtain access to our customers’ data, our data, or our platform and information technology systems, then our solution may be perceived as not being secure, our reputation may be harmed, demand for our platform and products may be reduced, and we may incur significant liabilities.

liabilities or additional expenses.


We collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of and share personal information, confidential information and other information necessary to provide our service, to operate our business, for legal and marketing purposes, and for other business-related purposes.
Our platform and products involve the storage and transmission of data, including personally identifiablepersonal information, and security breaches or unauthorized access to our platform and products, or those of our third-party service providers, could result in the unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to sensitive information including our or our customers’ data,customers' data. Consequently, we may be subject to significant litigation, indemnity obligations, fines, penalties, disputes, investigations and other liabilities. We have previously and may in the future become the target of cyber-attacks by third parties seeking unauthorized access to our or our customers’ data or to disrupt our ability to provide our services. For example, in July 2016 an unidentified third party gained unauthorized access to, and exfiltrated data from, certain of our infrastructure resources, including a database that stored our customers’ credentials for our platform and for third-party integrations. Some of the customer credentials accessed and exfiltrated included confidential and personal information. As a precautionary measure following this event, we reset customer passwords and instructed customers to revoke credentials that had been shared with us. In addition, many of our employees are working remotely, which may pose additional data security risks (including, for example, an increase in phishing and spam emails we began experiencing during 2020). The reliability and continuous availability of our platform is critical to our success. However, complex software such as ours can contain errors, defects, security vulnerabilities or software bugs that, despite testing by us, are difficult to detect and correct, particularly when such vulnerabilities are first introduced or when new versions or enhancements of our platform are released. Real or perceived errors, defects, security vulnerabilities or software bugs in our products could result in reputational harm, reduce the demand for our products and expose us to breach of contract claims, regulatory fines and related liabilities.
We may use third-party service providers and sub-processors to help us deliver services to our customers. These vendors may store or process personal information on our behalf. We use third-party technology, systems and services in a variety of contexts, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, credit card processing and other functions. While we have taken steps to protect the confidential and personal information that we have access to, our security measures or those of our third-party service providers that store or otherwise process certain of our and our customers’ data on our behalf could be breached or we could suffer a loss of our or our customers’ data. Our ability to monitor our third-party service providers’ data security is limited. Cyber-attacks, computer malware, viruses, employee mistakes or malfeasance, social engineering (including spear phishing and ransomware attacks), malicious code, denial-of-service attacks, credential harvesting and general hacking have become more prevalent in our industry, particularly against cloud services. In addition,Ransomware attacks, including those from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and can lead to significant interruptions, delays, or outages in our operations, loss of data (including customer data), loss of income, significant extra expenses to restore data or systems, reputational loss and the diversion of funds. To alleviate the financial, operational and reputational impact of a ransomware attack it may be preferable to make extortion payments, but we may be unwilling or unable to do so (including, for example, if applicable laws or regulations prohibit such payments). Similarly, supply chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain have not been compromised or that they do not directly control contentcontain exploitable defects or bugs that could result in a breach of or disruption to our customers store in our products. If our customers use our products forplatform, systems and networks or the transmission or storagesystems and networks of personally identifiable informationthird parties that support us and our services. Despite the security measurescontrols we have in place, such attacks are or are believedvery difficult to have been breached as a result of third-party action, employee error, malfeasance or otherwise, our reputation could be damaged, our business may suffer, and we could incur significant liability. In addition, our remediation efforts may not be successful.

We also process, store and transmit our own data as part of our business and operations. This data may include personally identifiable, confidential or proprietary information. avoid.

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There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. While we have developed systems and processes designed to protect the integrity, confidentiality, and security of our and our customers’ data, our security measures or those of our third-party service providers could fail and result in unauthorized access to or disclosure, modification, misuse, loss or destruction of such data.

Because there are many different security breach techniques and such techniques continue to evolve, we may be unable to anticipate attempted security breaches, react in a timely manner or implement adequate preventative measures.

Third parties may also conduct attacks designed to temporarily deny customers access to our cloud services. Any security breach or other security incident, or the perception that one has occurred, could result in a loss of customer confidence in the security of our platform and damage to our brand, reduce the demand for our products, disrupt normal business operations, require us to spend material resources to investigate or correct the breach and to prevent future security breaches and incidents, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and adversely affect our business, financial condition and results of operations. These risks are likely to increase as we continue to grow and process, store, and transmit increasingly large amounts of data.

In addition, we do not directly control content that our customers store in our products. If our customers use our products for the collection, transmission or storage of personal information and our security measures are or are believed to have been breached as a result of third-party action, employee error, malfeasance or otherwise, our reputation could be damaged, our business may suffer, and we could incur significant liability. In addition, our remediation efforts may not be successful.
We use third-partyalso process, store and transmit our own data as part of our business and operations. This data may include personal, confidential or proprietary information. We may expend significant resources, fundamentally change our business activities and practices, or modify our operations or information technology in an effort to protect against security incidents and systemsto mitigate, detect, and remediate actual and potential vulnerabilities.

Because many different security vulnerabilities exist and exploits of such vulnerabilities continue to evolve, we may be unable to anticipate attempted security breaches, react in a varietytimely manner or implement adequate preventative measures. Among other things, our applications, systems, networks, software, other computer assets and physical facilities could be breached or could otherwise malfunction or fail, or the personal or confidential information that we store could be otherwise compromised due to employee error or malfeasance, if, for example, third parties fraudulently induce our employees or our members to disclose information or user names and/or passwords, or otherwise compromise the security of contexts, including, without limitation, encryptionour networks, systems and/or physical facilities. Additionally, from time to time employees or service providers may inadvertently misconfigure resources or misdirect certain communications, leading to security vulnerabilities or incidents that we must then expend effort and authentication technology, employee email, content deliveryincur expenses to customers, back-office support, credit card processingcorrect.
We may have contractual and other functions. Althoughlegal obligations to notify relevant stakeholders of security incidents. For instance, most jurisdictions have enacted laws, such as the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), requiring companies to notify individuals, regulatory authorities, and others of security breaches involving certain types of data. Such mandatory contractual and legal disclosures are costly, could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach, and any failure to provide appropriate notice may violate the terms of our customer contracts. Applicable laws, our contracts, our representations, or industry standards may require us to use industry-standard or reasonable measures to safeguard sensitive personal information or confidential information. A security breach could lead to claims by our customers, or other relevant stakeholders, that we have developed systems and processesfailed to comply with such legal or contractual obligations. As a result, we could be subject to legal action or our customers could end their relationships with us. Further, there can be no assurance that are designedany limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages.

The costs to protect customer data and prevent data loss and other security breaches, including systems and processes designedrespond to reduce the impact of a security breach atand/or mitigate any security vulnerabilities that may be identified could be significant, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service, negative publicity, and other harm to our business and our competitive position. We could be required to fundamentally change our business activities and practices in response to a third-party service provider, such measures cannot provide absolute security.

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security breach or related regulatory actions or litigation, which could have an adverse effect on our business.


Additionally, we cannot be certain that our insurance coverage will be adequate for datafines, judgments, settlements, penalties, costs, attorney fees and other impacts that arise out of privacy or security liabilities actually incurred, will cover any indemnificationincidents or breaches. If the impacts of a privacy or security incident or breach, or the successful assertion of one or more large claims against us relatingthat exceeds our available insurance coverage, or results in changes to any incident,our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), it could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance coverage, cyber coverage and coverage for errors and omissions will continue to be available to us on economically reasonableacceptable terms or at all, or that any insurerour insurers will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies,
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including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our reputation, business, financial condition and results of operations.

Our risks are likely to increase as we continue to expand, grow our customer base, and process, store, and transmit increasingly large amounts of proprietary and sensitive data.

Interruptions or performance problems associated with our products and platform capabilities may adversely affect our business, financial condition and results of operations.

Our continued growth depends in part on the ability of our existing and potential customers to access our products and platform capabilities at any time and within an acceptable amount of time. We have experienced, and may in the future experience, disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing our products and platform capabilities simultaneously, denial of service attacks, or other security-related incidents.

It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our products and platform capabilities become more complex and our user traffic increases. If our products and platform capabilities are unavailable or if our users are unable to access our products and platform capabilities within a reasonable amount of time or at all, we may experience a loss of customers, lost or delayed market acceptance of our platform and products, delays in payment to us by customers, injury to our reputation and brand, legal claims against us, and the diversion of our resources. In addition, to the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, financial condition and results of operations may be adversely affected.

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, or to changing customer needs, requirements or preferences, our platform and products may become less competitive.

Our ability to attract new users and customers and increase revenue from existing customers depends in large part on our ability to enhance and improve our existing products, increase adoption and usage of our products, and introduce new products and capabilities. The market in which we compete is relatively new and subject to rapid technological change, evolving industry standards, and changing regulations, as well as changing customer needs, requirements and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. If we were unable to enhance our products and platform capabilities that keep pace with rapid technological and regulatory change, or if new technologies emerge that are able to deliver competitive products at lower prices, more efficiently, more conveniently, or more securely than our products, our business, financial condition and results of operations could be adversely affected.

The success of our platform depends, in part, on its ability to be deployed in a self-service installation process. We currently offer more than 400 out-of-the-box integrations to assist customers in deploying Datadog, and we need to continuously modify and enhance our products to adapt to changes and innovation in existing and new technologies to maintain and grow our integrations. We expect that the number of integrations we will need to support will continue to expand as developers adopt new software platforms, and we will have to develop new versions of our products to work with those new platforms. This development effort may require significant engineering, sales and marketing resources, all of which would adversely affect our business. Any failure of our products to operate effectively with future infrastructure platforms and technologies could reduce the demand for our products. If we are unable to respond to these changes in a cost-effective manner, our products may become less marketable and less competitive or obsolete, and our business, financial condition and results of operations could be adversely affected.

The markets in which we participate are competitive, and if we do not compete effectively, our business, financial condition and results of operations could be harmed.

Our unified platform combines functionality from numerous traditional product categories, and hence we compete in each of these categories with home-grown and open-source technologies, as well as a number of different vendors. With respect to on-premise infrastructure monitoring, we compete with diversified technology companies and systems management vendors including IBM, Microsoft Corporation, Micro Focus International plc, BMC Software, Inc. and Computer Associates International, Inc. With respect to APM, we compete with Cisco Systems, Inc., New Relic, Inc. and Dynatrace Software Inc. With respect to log management, we compete with Splunk Inc. and Elastic N.V. With respect to cloud monitoring, we compete with native solutions from cloud providers such as AWS, GCP and Microsoft Azure. In addition, we may increasingly choose to allow these third-party hosting providers to offer our solutions directly through their customer marketplaces. An increasing number of sales through cloud provider marketplaces could reduce both the number of customers with whom we have direct commercial relationships as well as our profit margins on sales made through such marketplaces.

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With the introduction of new technologies and market entrants, we expect that the competitive environment will remain intense going forward. Some of our actual and potential competitors have been acquired by other larger enterprises and have made or may make acquisitions or may enter into partnerships or other strategic relationships that may provide more comprehensive offerings than they individually had offered or achieve greater economies of scale than us. In addition, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships or strategic relationships. As we look to market and sell our products and platform capabilities to potential customers with existing internal solutions, we must convince their internal stakeholders that our products and platform capabilities are superior to their current solutions.

We compete on the basis of a number of factors, including:

ability to provide unified, real-time observability of IT environments;

ability to operate in dynamic and elastic environments;

extensibility across the enterprise, including development, operations and business users;

propensity to enable collaboration between development, operations and business users;

ability to monitor any combination of public clouds, private clouds, on-premise and multi-cloud hybrids;

ability to provide advanced analytics and machine learning;

ease of deployment, implementation and use;

breadth of offering and key technology integrations;

performance, security, scalability and reliability;

quality of service and customer satisfaction;

total cost of ownership; and

brand recognition and reputation.

Our competitors vary in size and in the breadth and scope of the products offered. Many of our competitors and potential competitors have greater name recognition, longer operating histories, more established customer relationships and installed customer bases, larger marketing budgets and greater resources than we do. Further, other potential competitors not currently offering competitive solutions may expand their product or service offerings to compete with our products and platform capabilities, or our current and potential competitors may establish cooperative relationships among themselves or with third parties that may further enhance their resources and product offerings in our addressable market. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, and customer requirements. An existing competitor or new entrant could introduce new technology that reduces demand for our products and platform capabilities. In addition to product and technology competition, we face pricing competition. Some of our competitors offer their solutions at a lower price, which has resulted in, and may continue to result in, pricing pressures.

For all of these reasons, we may not be able to compete successfully against our current or future competitors, and this competition could result in the failure of our platform to continue to achieve or maintain market acceptance, any of which would harm our business, results of operations, and financial condition.

We may not be able to successfully manage our growth, and if we are not able to grow efficiently, our business, financial condition and results of operations could be harmed.

As usage of our platform capabilities grow, we will need to devote additional resources to improving and maintaining our infrastructure and integrating with third-party applications. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support and professional services, to serve our growing customer base. Any failure of or delay in these efforts could result in impaired system performance and reduced customer satisfaction, resulting in decreased sales to new customers, lower dollar-based net retention rates or, the issuance of service credits or requested refunds, which would hurt our revenue growth and our reputation. Further, any failure in optimizing our spend on third-party cloud services as we scale could negatively impact our gross margins. Even if we are successful in our expansion efforts, they will be expensive and complex, and require the dedication of significant management time and attention. We could also face inefficiencies or service disruptions as a result of our efforts to scale our internal infrastructure. We cannot be sure that the expansion of and improvements to our internal infrastructure will be effectively implemented on a timely basis, if at all, and such failures could harm our business, financial condition and results of operations.

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We rely upon third-party providers of cloud-based infrastructure to host our products. Any disruption in the operations of these third-party providers, limitations on capacity or interference with our use could adversely affect our business, financial condition and results of operations.

We outsource substantially all of the infrastructure relating to our cloud solution to third-party hosting services. Customers of our cloud-based products need to be able to access our platform at any time, without interruption or degradation of performance, and we provide them with service-level commitments with respect to uptime. Our cloud-based products depend on protecting the virtual cloud infrastructure hosted by third-party hosting services by maintaining its configuration, architecture, features and interconnection specifications, as well as the information stored in these virtual data centers, which is transmitted by third-party internet service providers. Any limitation on the capacity of our third-party hosting services could impede our ability to onboard new customers or expand the usage of our existing customers, which could adversely affect our business, financial condition and results of operations. In addition, any incident affecting our third-party hosting services’ infrastructure that may be caused by cyber-attacks, natural disasters, fire, flood, severe storm, earthquake, power loss, telecommunications failures, outbreaks of contagious diseases, terrorist or other attacks, and other similar events beyond our control could negatively affect our cloud-based products. A prolonged service disruption affecting our cloud-based solution for any of the foregoing reasons would negatively impact our ability to serve our customers and could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the third-party hosting services we use.

In the event that our service agreements with our third-party hosting services are terminated, or there is a lapse of service, elimination of services or features that we utilize, interruption of internet service provider connectivity or damage to
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such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our cloud solution for deployment on a different cloud infrastructure service provider, which could adversely affect our business, financial condition and results of operations.

We offer free trials and a free tier of our platform to drive developer awareness of our products, and encourage usage and adoption. If these marketing strategies fail to lead to customers purchasing paid subscriptions, our ability to grow our revenue will be adversely affected.

To encourage awareness, usage, familiarity and adoption of our platform and products, we offer free trials and a free tier of our platform. These strategies may not be successful in leading customers to purchase our products. Many users of our free tier may not lead to others within their organization purchasing and deploying our platform and products. To the extent that users do not become, or we are unable to successfully attract paying customers, we will not realize the intended benefits of these marketing strategies and our ability to grow our revenue will be adversely affected.

We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price could decline.

Our results of operations have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance. In addition to the other risks described herein, factors that may affect our results of operations include the following:

•fluctuations in demand for or pricing of our platform and products;

•fluctuations in usage of our platform and products;

•our ability to attract new customers;

•our ability to retain our existing customers;

•customer expansion rates and the pricing and quantity of subscriptions renewed;

•the pricing of subscriptions from customers in our cloud-provider marketplaces;

•timing and amount of our investments to expand the capacity of our third-party cloud infrastructure providers;

•seasonality driven by industry conferences;

•the investment in new products and features relative to investments in our existing infrastructure and products;

•the timing of our customer purchases;

•

fluctuations or delays in purchasing decisions in anticipation of new products or enhancements by us or our competitors;

•fluctuations or delays in purchasing decisions in anticipation of new products or enhancements by us or our competitors;

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•changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions;

•our ability to control costs, including our operating expenses;

•the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions;

•the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges;

•the amount and timing of costs associated with recruiting, training and integrating new employees and retaining and motivating existing employees;

•the effects of acquisitions and their integration;

•general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate;

participate, including those impacted by the COVID-19 pandemic and war in Ukraine;
•the effect of other economic factors, including inflation, pricing and currency fluctuations;

•the impact of new accounting pronouncements;

•changes in regulatory or legal environments that may cause us to incur, among other elements, expenses associated with compliance;

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•changes in the competitive dynamics of our market, including consolidation among competitors or customers; and

•significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our products and platform capabilities.

The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates, higher interest rates and uncertainty about economic stability. For example, the COVID-19 pandemic resulted in widespread unemployment, economic slowdown and extreme volatility in the capital markets. The ongoing military conflict between Russia and Ukraine has also created extreme volatility in the global capital markets and is expected to have further global economic consequences. Any such volatility and disruptions may have adverse consequences on us or the third parties on whom we rely. If the equity and credit markets deteriorate, or do not improve, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates can adversely affect us by increasing our costs, including personnel costs.

Any of these and other factors, or the cumulative effect of some of these factors, may cause our results of operations to vary significantly. For example, the full impact of the COVID-19 pandemic is unknown at this time, but could result in adverse changes in our results of operations as the pandemic's related social and economic impacts evolve. If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock could decline substantially, and we could face costly lawsuits, including securities class action suits.

Seasonality may cause fluctuations in our sales and results of operations.

Historically, we have experienced seasonality in new customer bookings, as we typically we enter into a higher percentage of subscription agreements with new customers and renewals with existing customers in the fourth quarter of the year. We believe that this results from the procurement, budgeting, and deployment cycles of many of our customers, particularly our enterprise customers. We expect that this seasonality will continue to affect our bookings and our results of operations in the future, and might become more pronounced as we continue to target larger enterprise customers.

Downturns or upturns in our sales may not be immediately reflected in our financial position and results of operations.

Because we recognize the majoritya large portion of our revenue ratably over the term of the subscription agreement, any decreases in new subscriptions or renewals in any one period may not be immediately reflected as a decrease in revenue for that period, but could negatively affect our revenue in future quarters. This also makes it difficult for us to rapidly increase our revenue through the sale of additional subscriptions in any period, as revenue is recognized over the term of the subscription agreement. In addition, fluctuations in monthly subscriptions based on usage could affect our revenue on a period-over-period basis. If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock would decline substantially, and we could face costly lawsuits, including securities class actions.

We target enterprise customers, and sales to these customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities.

We have a field sales team that targets enterprise customers. Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs, and less predictability in completing some of our sales. For example, enterprise customers may require considerable time to evaluate and test our solutions and those of our competitors prior to making a purchase decision and placing an order. A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our solutions, the discretionary nature of purchasing and budget cycles, and the competitive nature of evaluation and purchasing approval processes. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Moreover, large enterprise customers often begin to deploy our products on a limited basis, but nevertheless demand configuration, integration services and pricing negotiations, which increase our upfront investment in the sales effort with no guarantee that these customers will deploy our products widely enough across their organization to justify our substantial upfront investment.

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The COVID-19 pandemic and any related economic downturn could negatively impact our business, financial condition and results of operations.

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The COVID-19 pandemic adversely affected workforces, economies and financial markets globally, leading to a reduction or an inability for our customers, partners, suppliers or vendors or other parties with whom we do business to meet their contractual obligations, and for a period of time, a reduction in customer spending on our solutions, and such conditions may reoccur. While it is not possible at this time to predict the duration and extent of the impact that COVID-19 could have on worldwide economic activity and our business in particular, COVID-19 could adversely impact our business, financial condition and results of operations. For example, during the second quarter of 2020, we experienced some impact to the rate of usage growth from our existing customers. In addition, we have provided and may continue to provide guidance about our business and future operating results, which is based on certain assumptions, estimates and expectations as of the date such guidance is given. Guidance is necessarily speculative in nature, and is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control, such as the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic. If we were to revise or fail to meet our announced guidance or expectations of analysts as a result of these factors, the price of our Class A common stock could be negatively affected. Moreover, to the extent the COVID-19 pandemic adversely affects our business, financial condition and results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, including but not limited to, those related to our ability expand within our existing customer base, acquire new customers, develop and expand our sales and marketing capabilities and expand internationally.
Beginning in March 2020, we took measures intended to help minimize the risk of the virus to our employees and the communities in which we participate. These measures included temporarily suspending all non-essential travel worldwide for our employees, canceling, postponing or holding virtually any Datadog events and discouraging employee attendance at any industry events or in-person work-related meetings. Towards the end of the quarter ended March 31, 2022, we increased our office activity, such as in-person meetings and events, and we have also resumed travel in compliance with applicable government orders and guidelines. However, many of our employees continue to work remotely and in-person meetings have not fully returned to levels before the pandemic. We have a distributed workforce and our employees are accustomed to working remotely and working with others who are working remotely. However, the limitation of in-person meetings could negatively impact our marketing efforts, the length or variability of our sales cycles, our international expansion efforts or the length of our average recruiting cycle for employees across the organization. Further, operational or other challenges could arise as we and our customers, partners, suppliers and vendors and other parties with whom we do business continue to operate via a remote workforce.
If we fail to retain and motivate members of our management team or other key employees, or fail to attract additional qualified personnel to support our operations, our business and future growth prospects would be harmed.

Our success and future growth depend largely upon the continued services of our executive officers, particularly Olivier Pomel, our co-founder and Chief Executive Officer, Alexis Lê-Quôc, our co-founder, President and Chief Technology Officer, and David Obstler, our Chief Financial Officer, as well as our other key employees in the areas of research and development and sales and marketing functions. From time to time, there may be changes in our executive management team or other key employees resulting from the hiring or departure of these personnel. Our executive officers and other key employees are employed on an at-will basis, which means that these personnel could terminate their employment with us at any time. The loss of one or more of our executive officers, or the failure by our executive team to effectively work with our employees and lead our company, could harm our business. We also are dependent on the continued service of our existing software engineers because of the complexity of our products and platform capabilities.

In addition, to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for engineers experienced in designing and developing SaaS applications and experienced sales professionals. If we are unable to attract such personnel in cities where we are located, we may need to hire in other locations which may add to the complexity and costs of our business operations. From time to time, weWe have experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the value or perceived value of our equity awards declines, experiences significant volatility, or increases such that prospective employees believe there is limited upside to the value of our equity awards, it may adversely affect our ability to recruit and retain key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects would be harmed.

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If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, financial condition and results of operations may suffer.

We believe that maintaining and enhancing the Datadog brand is important to support the marketing and sale of our existing and future products to new customers and expand sales of our platform and products to existing customers. We also believe that the importance of brand recognition will increase as competition in our market increases. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing efforts, our ability to provide reliable products that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality and use cases, and our ability to successfully differentiate our products and platform capabilities from competitive products. Our brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, our business, financial condition and results of operations may suffer.

If we cannot maintain our company culture as we grow, our success and our business and competitive position may be harmed.

We believe our culture has been a key contributor to our success to date and that the critical nature of the platform that we provide promotes a sense of greater purpose and fulfillment in our employees. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively focus on and pursue our corporate objectives. As we continue to grow and develop the infrastructure of a public company,expand globally, we may find it difficult to maintain these important aspects of our culture.culture particularly given the COVID-19 pandemic and remote work arrangements. If we fail to maintain our company culture, our business and competitive position may be harmed.

If we fail to offer high-quality support, our reputation could suffer.
Our customers rely on our customer support personnel to resolve issues and realize the full benefits that our platform provides. High-quality support is also important for the renewal and expansion of our subscriptions with existing customers. The importance of our support function will increase as we expand our business and pursue new customers. If we do not help our customers quickly resolve issues and provide effective ongoing support, our ability to maintain and expand our subscriptions to existing and new customers could suffer, and our reputation with existing or potential customers could suffer.
Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our business, financial condition and results of operations.
We have in the past and may in the future seek to acquire or invest in businesses, joint ventures, products and platform capabilities, or technologies that we believe could complement or expand our services and platform capabilities, enhance our technical capabilities, or otherwise offer growth opportunities. Any such acquisition or investment may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the transactions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products and platform capabilities, personnel, internal controls or operations of any acquired companies, particularly if the key personnel of an acquired company choose not to work for us, their software is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise. These transactions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. Any such transactions that we are able to complete may not result in any synergies or other benefits we had expected to achieve, which could result in impairment charges that could be substantial. In addition, we may not be able to find and identify desirable acquisition targets or business opportunities or be successful in entering into an agreement with any particular strategic partner. These transactions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations. In addition, if the resulting business from such a transaction fails to meet our expectations, our business, financial condition and results of operations may be adversely affected or we may be exposed to unknown risks or liabilities.
Industry and Competitive Risks
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, or to changing customer needs, requirements or preferences, our platform and products may become less competitive.
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Our ability to attract new users and customers and increase revenue from existing customers depends in large part on our ability to enhance and improve our existing products, increase adoption and usage of our products, and introduce new products and capabilities. The market in which we compete is relatively new and subject to rapid technological change, evolving industry standards, and changing regulations, as well as changing customer needs, requirements and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. If we were unable to enhance our products and platform capabilities that keep pace with rapid technological and regulatory change, or if new technologies emerge that are able to deliver competitive products at lower prices, more efficiently, more conveniently, or more securely than our products, our business, financial condition and results of operations could be adversely affected.
The success of our platform depends, in part, on its ability to be deployed in a self-service installation process. We currently offer more than 600 out-of-the-box integrations to assist customers in deploying Datadog, and we need to continuously modify and enhance our products to adapt to changes and innovation in existing and new technologies to maintain and grow our integrations. We expect that the number of integrations we will need to support will continue to expand as developers adopt new software platforms, and we will have to develop new versions of our products to work with those new platforms. This development effort may require significant engineering, sales and marketing resources, all of which would adversely affect our business. Any failure of our products to operate effectively with future infrastructure platforms and technologies could reduce the demand for our products. If we are unable to respond to these changes in a cost-effective manner, our products may become less marketable and less competitive or obsolete, and our business, financial condition and results of operations could be adversely affected.
The markets in which we participate are competitive, and if we do not compete effectively, our business, financial condition and results of operations could be harmed.
Our unified platform combines functionality from numerous traditional product categories, and hence we compete in each of these categories with home-grown and open-source technologies, as well as a number of different vendors. With respect to on-premise infrastructure monitoring, we compete with diversified technology companies and systems management vendors including IBM, Microsoft Corporation, and SolarWinds Corporation. With respect to APM, we compete with companies including Cisco Systems, Inc., New Relic, Inc. and Dynatrace Software Inc. With respect to log management, we compete with companies including Splunk Inc. and Elastic N.V. With respect to cloud monitoring, we compete with native solutions from cloud providers such as AWS, GCP and Microsoft Azure. In addition, we may increasingly choose to allow these third-party hosting providers to offer our solutions directly through their customer marketplaces. An increasing number of sales through cloud provider marketplaces could reduce both the number of customers with whom we have direct commercial relationships as well as our profit margins on sales made through such marketplaces.
With the introduction of new technologies and market entrants, we expect that the competitive environment will remain intense going forward. Some of our actual and potential competitors have been acquired by other larger enterprises and have made or may make acquisitions or may enter into partnerships or other strategic relationships that may provide more comprehensive offerings than they individually had offered or achieve greater economies of scale than us. In addition, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships or strategic relationships. As we look to market and sell our products and platform capabilities to potential customers with existing internal solutions, we must convince their internal stakeholders that our products and platform capabilities are superior to their current solutions.
We compete on the basis of a number of factors, including:
•ability to provide unified, real-time observability of IT environments;
•ability to operate in dynamic and elastic environments;
•extensibility across the enterprise, including development, operations and business users;
•propensity to enable collaboration between development, operations and business users;
•ability to monitor any combination of public clouds, private clouds, on-premise and multi-cloud hybrids;
•ability to provide advanced analytics and machine learning;
•ease of deployment, implementation and use;
•breadth of offering and key technology integrations;
•performance, security, scalability and reliability;
•quality of service and customer satisfaction;
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•total cost of ownership; and
•brand recognition and reputation.
Our competitors vary in size and in the breadth and scope of the products offered. Many of our competitors and potential competitors have greater name recognition, longer operating histories, more established customer relationships and installed customer bases, larger marketing budgets and greater resources than we do. Further, other potential competitors not currently offering competitive solutions may expand their product or service offerings to compete with our products and platform capabilities, or our current and potential competitors may establish cooperative relationships among themselves or with third parties that may further enhance their resources and product offerings in our addressable market. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, and customer requirements. An existing competitor or new entrant could introduce new technology that reduces demand for our products and platform capabilities. In addition to product and technology competition, we face pricing competition. Some of our competitors offer their solutions at a lower price, which has resulted in, and may continue to result in, pricing pressures.
For all of these reasons, we may not be able to compete successfully against our current or future competitors, and this competition could result in the failure of our platform to continue to achieve or maintain market acceptance, any of which would harm our business, results of operations, and financial condition.
The market for our solutions may develop more slowly or differently than we expect.

It is difficult to predict customer adoption rates and demand for our products, the entry of competitive products or the future growth rate and size of the cloud-based software and SaaS business software markets. The expansion of these markets depends on a number of factors, including: the cost, performance, and perceived value associated with cloud-based and SaaS business software as an alternative to legacy systems, as well as the ability of cloud-based software and SaaS providers to address heightened data security and privacy concerns. If we have a security incident or other cloud-based software and SaaS providers experience security incidents, loss of customer data, disruptions in delivery or other similar problems, which is an increasing focus of the public and investors in recent years, the market for these applications as a whole, including our platform and products, may be negatively affected. If cloud-based and SaaS business software does not continue to achieve market acceptance, or there is a reduction in demand caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data security or privacy concerns, governmental regulation, competing technologies and products, or decreases in information technology spending or otherwise, the market for our platform and products might not continue to develop or might develop more slowly than we expect, which would adversely affect our business, financial condition and results of operations.

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Legal and Regulatory Risks
We typically provide service-level commitments under our subscription agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service or face subscription termination with refunds of prepaid amounts, which would lower our revenue and harm our business, financial condition and results of operations.

Our subscription agreements typically contain service-level commitments. If we are unable to meet the stated service-level commitments, including failure to meet the uptime and response time requirements under our customer subscription agreements, we may be contractually obligated to provide these customers with service credits which could significantly affect our revenue in the periods in which the failure occurs and the credits are applied. We could also face subscription terminations and a reduction in renewals, which could significantly affect both our current and future revenue. Any service-level failures could also damage our reputation, which could also adversely affect our business, financial condition and results of operations.

Indemnity provisions in various agreements to which we are party potentially expose us to substantial liability for infringement, misappropriation or other violation of intellectual property rights, data protection and other losses.

Our agreements with our customers and other third parties may include indemnification provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of infringement, misappropriation or other violation of intellectual property rights, data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our software, services, platform, our acts or omissions under such agreements or other contractual obligations. Some of these indemnity agreements provide for uncapped liability and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, financial condition and results of operations. Although we attempt to contractually limit our liability with respect to such indemnity obligations, we are not always successful and may still incur substantial liability related to them, and we may be
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required to cease use of certain functions of our platform or products as a result of any such claims. Any dispute with a customer or other third party with respect to such obligations could have adverse effects on our relationship with such customer or other third party and other existing or prospective customers, reduce demand for our products and services and adversely affect our business, financial conditions and results of operations. In addition, although we carry general liability insurance, our insurance may not be adequate to indemnify us for all liability that may be imposed or otherwise protect us from liabilities or damages with respect to claims alleging compromises of customer data, and any such coverage may not continue to be available to us on acceptable terms or at all.

If we fail to offer high-quality support, our reputation could suffer.

Our customers rely on our customer support personnel to resolve issues and realize the full benefits that our platform provides. High-quality support is also important for the renewal and expansion of our subscriptions with existing customers. The importance of our support function will increase as we expand our business and pursue new customers. If we do not help our customers quickly resolve issues and provide effective ongoing support, our ability to maintain and expand our subscriptions to existing and new customers could suffer,

We and our reputation with existing or potential customers could suffer.

Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our business, financial condition and results of operations.

We have in the past and may in the future seek to acquire or invest in businesses, joint ventures, products and platform capabilities, or technologies that we believe could complement or expand our services and platform capabilities, enhance our technical capabilities, or otherwise offer growth opportunities. Any such acquisition or investment may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the transactions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products and platform capabilities, personnel or operations of any acquired companies, particularly if the key personnel of an acquired company choose not to work for us, their software is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise. These transactions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. Any such transactions that we are able to complete may not result in any synergies or other benefits we had expected to achieve, which could result in impairment charges that could be substantial. In addition, we may not be able to find and identify desirable acquisition targets or business opportunities or be successful in entering into an agreement with any particular strategic partner. These transactions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations. In addition, if the resulting business from such a transaction fails to meet our expectations, our business, financial condition and results of operations may be adversely affected or we may be exposed to unknown risks or liabilities.

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Wethird-party service providers are subject to stringent and changing privacy laws, regulations and standards, information security policies and contractual obligations related to data privacy and security. Our actualActual or perceived failure by us or our third-party service providers to comply with such laws, regulations, standards, or contractual obligations could harm our business.

We have legal, contractual and contractualother applicable obligations regarding the protection of confidentiality and appropriate use of personally identifiablepersonal information, confidential information, and other proprietary information.information that we, our third-party service providers or other partners process. We are subject to a variety of federal, state, local and international laws, directives, regulations, and regulationsindustry standards, relating to the collection, use, retention, security, disclosure, transfer and other processing of personally identifiablepersonal information. The regulatory framework for privacy and security issues worldwide is rapidly evolving and as a result implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. We publicly post documentation regarding our practices concerning the collection, processing, use and disclosure of data. Although we endeavor to comply with our published policies and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policy and other documentation that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices. Any failure by us, our suppliers or other parties with whom we do business to comply with this documentation or with federal, state, local or international regulations could result in proceedings against us by governmental entities, private parties or others. In many jurisdictions, enforcement actions and consequences for noncompliance are rising. In the United States, these include enforcement actions in response to rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards with which we must legally comply or that contractually apply to us. If we fail to follow these security standards even if no customer information is compromised, we may incur significant fines or experience a significant increase in costs.


Internationally, virtuallynearly every jurisdiction in which we operate has established its own data security and privacy legal framework with which we, our third-party service providers, or our customers must comply, including but not limited to the European Union, or EU.comply. The EU’s data protection landscape is currently unstable, resulting in possible significant operational costs for internal compliance and risk to our business. The EU has adoptedFor example, the European Union's General Data Protection Regulation, or EU GDPR, which went into effect in May 2018 and contains numerous requirements and changes from previously existing EU law, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Amongcompanies and data protection authorities.
In addition, certain jurisdictions have enacted data localization laws and cross-border personal data transfer laws. For example, absent appropriate safeguards or other requirements,circumstances, the GDPR regulates transfersEuropean Economic Area (EEA) and the United Kingdom have significantly restricted the transfer of personal data subject to the GDPRUnited States and other countries whose privacy laws it believes are inadequate. In June 2021, the European Commission released a new set of Standard Contractual Clauses, or “EU SCCs,” that can lawfully be used for personal information transfers from Europe to third countries that have not been found to provide adequate protection to such personal data, including the United States.States or most other countries. The EU SCCs require parties that rely upon that legal mechanism to comply with additional obligations, such as conducting transfer impact assessments and implementing additional security and privacy measures, which increases the difficulty of selling to European customers and may lead to longer sales cycles. While we have taken steps to mitigate the impact on us with respect to transfers of data, such as implementing standard contractual clauses and self-certifying underrelying on the EU-US Privacy Shield,new EU SCCs, the efficacy and longevity of these transfer mechanisms remains uncertain. The GDPR alsoThese mechanisms are subject to legal challenges and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. In addition, laws in Switzerland and the United Kingdom similarly restrict transfers of personal data outside of those jurisdictions to countries such as the United States that do not provide an adequate level of personal data protection but require their own, slightly modified transfer mechanisms, resulting in a patchwork of different methods and requirements for Europe alone. If there is no lawful manner for us to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant costs relating to updating and amending vendor agreements to reflect changing transfer mechanisms or requirements.
Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, and strict limitations to the processing of personal information, which could increase the cost and complexity of delivering our services and operating our business. For example, Brazil enacted the General Data Protection Law, New Zealand enacted the New Zealand Privacy Act, China enacted its Personal Information Protection Law, and Canada introduced numerous privacy-related changesthe Digital Charter Implementation Act.
If we are unable to implement a valid compliance mechanism for companies operatingcross-border personal information transfers, we may face increased exposure to regulatory actions, substantial fines and injunctions against processing or transferring personal information from Europe or elsewhere. Inability to import personal information from other jurisdictions to the United States may significantly and negatively impact our business operations, including by lowering sales on our platform due to the difficulty of establishing a lawful mechanism for personal information transfers out of Europe or other jurisdictions, or requiring us to increase our data processing capabilities in Europe or elsewhere at significant expense.

Additionally, European legislative proposals and present laws and regulations apply to cookies and similar tracking technologies, electronic communications, and marketing. In the EU including greater control for data subjects (including, for example,and the “right to be forgotten”), increased data portability for EU consumers, data breach notificationUnited Kingdom, regulators are increasingly focusing on compliance with requirements and increased fines. In particular, under the GDPR, fines of up to 20 million euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s requirements. Such penalties are in addition to any civil litigation claims by customers and data subjects. The GDPR requirements apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, including employee information.

In additionrelated to the GDPR,online behavioral advertising ecosystem and requirements around consent. It is anticipated that the European Commission has another draft regulation in the approval process that focuses on a person’s right to conduct a private life (in contrast to the GDPR, which focuses on protection of personal data). The proposed legislation, known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation wouldwill replace the current national laws that implement the ePrivacy Directive. Originally planned to be adopted

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Directive that governs electronic communications. Outside of Europe, other laws and implemented at the same time as the GDPR, the ePrivacy Regulation continues to be delayed but could be enacted in 2020. While the new legislation contains protections for those using communications services (for example, protections against online tracking technologies), the timing of its proposed enactment following the GDPR means that additional timeregulations, including legislative proposals, individual behavior and effort may need to be spent addressing differences between the ePrivacy Regulation and the GDPR. New rules relatedindustry practices are increasingly resistant to the ePrivacy Regulation are likelyuse of personal data to include enhanced consent requirementsdeliver targeted advertising, making certain online advertising activities more difficult and subject to additional scrutiny. For example, the CCPA grants California residents the right to opt-out of a company’s sharing of personal data for advertising purposes in orderexchange for money or other valuable consideration. As a result of these developments, we may be required to use communications content and communications metadata,change the way we market our products, which may negatively impactwould impair our platform and products and our relationships with ourability to reach new or existing customers.


Complying with the GDPRthese and the ePrivacy Regulation, when it becomes effective,other applicable laws may cause us to incur substantial operational costs or require us to change our business practices. Despite our efforts to bring practices into compliance before the effective date of the GDPR and ePrivacy Regulation,with all applicable laws, we may not be successful in our efforts to achieve compliance either due to internal or external factors such as resource allocation limitations or a lack of vendor cooperation. Non-compliance could result in proceedings against us by governmental entities, customers, data subjects or others. We may also experience difficulty retaining or obtaining new European or multi-national customers due to the legal requirements, compliance cost, potential risk exposure, and uncertainty for these entities, and we may experience significantly increased liability with respect to these customers pursuant to the terms set forth in our engagements with them. While we utilize a data center in the European Economic AreaEEA to maintain certain customer data (which may include personal data) originating from the EU in the European Economic Area,EEA, we may find it necessary to establish additional systems and processes to maintain such data in the European Economic Area,EEA, which may involve substantial expense and distraction from other aspects of our business.

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Domestic laws in this area are also complex and developing rapidly.rapidly, and we are, or may become, subject to numerous U.S. data privacy and security laws. In the United States, laws governing data privacy and security include those promulgated under the authority of the Federal Trade Commission Act, the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the California Consumer Privacy Act, or CCPA, HIPAA, and other state and federal laws relating to privacy and data security. Many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security and data breaches. Laws in all 50 states require businesses to provide notice to customers whose personally identifiablepersonal information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is costly. States are also constantly amending existing laws, requiring attention to frequently changing regulatorylegal requirements. Further, California recently enacted the California Consumer Privacy Act, or
The CCPA, which became effective on January 1, 2020. The CCPA2020, gives California residents expanded rights to access and delete their personal information, opt out of certainthe sale of personal information, sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action and statutory damages for data breaches that is expected to increase data breach litigation. The CCPAand may increase our compliance costs and potential liability.liability with respect to other personal information we collect about California residents. In addition, the amendments to the CCPA made by the California Privacy Rights Act, or the CPRA, went into effect on January 1, 2023. The CPRA amends the CCPA to give California residents the ability to limit the use of their sensitive information, provide additional penalties for CPRA violations concerning California residents under the age of 16, and establish a new California Privacy Protection Agency to implement and enforce the law. The CPRA also expands the scope of the CCPA to include job applicant and employee personal information. These changes to the CCPA could impact our business activities depending on how they are interpreted. These laws exemplify the vulnerability of our business to the evolving regulatory environment related to the protection of personal information. Some observers have noted that the CCPA and CPRA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential liability and adversely affect our business.

business, the results of our operations, and our financial condition. For example, Colorado, Utah, Virginia and Connecticut recently passed similar consumer privacy legislation, all of which differ from the CCPA and become effective in 2023.

Because the interpretation and application of many privacy and data protection laws and regulations, along with contractually imposed industry standards are uncertain, it is possible that these lawsthey may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our products and platform capabilities. If so, in addition to the possibility of fines, lawsuits, regulatory investigations and imprisonment of company officials, and public censure, other claims and penalties, significant costs for remediation and damage to our reputation, we could be required to fundamentally change our business activities and practices or modify our products and platform capabilities, any of which could have an adverse effect on our business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations, and policies,or contractual obligations, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policiescontractual obligations that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our products. Privacy and data security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and foreign countries. If we are not able to adjust to these changing laws, regulations, and standards related to the internet,contractual obligations, our business may be harmed.

We publicly post our policies and other documentation regarding our practices concerning the collection, processing, use, transfer, and disclosure of data. Although we endeavor to comply with our published policies and documentation, we may
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at times fail to do so or be alleged to have failed to do so. The publication of our policies and other documentation that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices. Any failure by us, our third-party service providers or other parties with whom we do business to comply with our policies or other documentation could result in proceedings against us by governmental entities, private parties or others. We are or may also be subject to the terms of our external and internal privacy and security policies, codes, representations, certifications, industry standards, publications and frameworks and contractual obligations to third parties related to privacy, information security, including contractual obligations to indemnify and hold harmless third parties from the costs or consequences of non-compliance with data protection laws or other obligations.
We are subject to anti-corruption, anti-bribery, anti-money laundering, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition and results of operations.

We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, U.S. domestic bribery laws, the UK Bribery Act, and other anti-corruption and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. As we increase our international sales and business and sales to the public sector, we may engage with business partners and third-party intermediaries to market our products and to obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners and agents, even if we do not explicitly authorize such activities.

While we have policies and procedures to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase.

Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, financial condition and results of operations could be harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

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Sales to government entities and highly regulated organizations are subject to a number of challenges and risks.

We may sell to U.S. federal, state, and local, as well as foreign, governmental agency customers, as well as to customers in highly regulated industries such as financial services, telecommunications and healthcare. Sales to such entities are subject to a number of challenges and risks. Selling to such entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government contracting requirements may change and in doing so restrict our ability to sell into the government sector until we have attained the revised certification. Government demand and payment for our products are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products.

Further, governmental and highly regulated entities may demand contract terms that differ from our standard arrangements and are less favorable than terms agreed with private sector customers. Such entities may have statutory, contractual, or other legal rights to terminate contracts with us or our partners for convenience or for other reasons. Any such termination may adversely affect our ability to contract with other government customers as well as our reputation, business, financial condition and results of operations.

We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls.

Our platform and products are subject to U.S. export controls, including the Export Administration Regulations, and we incorporate encryption technology into certain of our products. These encryption products and the underlying technology may be exported outside of the United States only with the required export authorizations, including by license, a license exception,
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or other appropriate government authorizations, including the filing of an encryption classification request or self-classification report.

Furthermore, our activities are subject to U.S. economic sanctions laws and regulations administered by the Office of Foreign Assets Control that prohibit the shipment of most products and services to embargoed jurisdictions or sanctioned parties without the required export authorizations. Additionally, the Trump administration has been critical of existing trade agreements and may impose more stringent export controls. Obtaining the necessary export license or other authorization for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Violations of U.S. sanctions or export control regulations can result in significant fines or penalties and possible incarceration for responsible employees and managers.

If our channel partners fail to obtain appropriate import, export, or re-export licenses or permits, we may also be adversely affected through reputational harm, as well as other negative consequences, including government investigations and penalties.

Also, various countries, in addition to the United States, regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our end-customers’ ability to implement our products in those countries. Changes in our products or future changes in export and import regulations may create delays in the introduction of our platform in international markets, prevent our end-customers with international operations from deploying our platform globally or, in some cases, prevent the export or import of our products to certain countries, governments, or persons altogether. From time to time, various governmental agencies have proposed additional regulation of encryption technology. Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. Any decreased use of our platform or limitation on our ability to export or sell our products would adversely affect our business, results of operations, and growth prospects.

Any future litigation against us could be costly and time-consuming to defend.
We are and in the future may become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes or employment claims made by our current or former employees. Litigation might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, financial condition and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, potentially harming our business, financial position and results of operations.
We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our clients would have to pay for our products and adversely affect our results of operations.
An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. Additionally, the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. et al, or Wayfair, that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. A successful assertion by one or more states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could have a material adverse effect on our business and results of operations.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
As of December 31, 2022, we had NOL carryforwards for federal and state income tax purposes of approximately $243.4 million and $92.0 million, respectively, which may be available to offset taxable income in the future, and which expire in 2026 for state purposes if not utilized. Unused U.S. federal NOLs for taxable years beginning before January 1, 2018, may be carried forward to offset future taxable income, if any, until such unused NOLs expire. Under current law, U.S. federal NOLs incurred in taxable years after December 31, 2017, can be carried forward indefinitely, but the deductibility of such U.S. federal NOLs in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent
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various states will conform to federal tax laws. A lack of future taxable income would adversely affect our ability to utilize portions of these NOLs before they expire. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” (as defined under Section 382 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs to offset post-change taxable income. We may experience a future ownership change under Section 382 of the Code that could affect our ability to utilize the NOLs to offset our income. Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to reduce future income tax liabilities, including for state tax purposes. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheets, even if we attain profitability, which could potentially result in increased future tax liability to us and could adversely affect our operating results and financial condition.
Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations.
Our effective tax rate could increase due to several factors, including:
•changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
•changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Cuts and Jobs Act and the Inflation Reduction Act;
•any implementation of a global minimum tax, as agreed upon by the Organisation for Economic Co-operation and Development (OECD);
•changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
•the outcome of current and future tax audits, examinations, or administrative appeals; and
•limitations or adverse findings regarding our ability to do business in some jurisdictions.
Any of these developments could adversely affect our results of operations.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
GAAP is subject to interpretation by the Financial Accounting Standards Board, the SEC and various bodies formed to promulgate and interpret applicable accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and could affect the reporting of transactions already completed before the announcement of a change.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as described in Note 2 in the Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve revenue recognition, business combinations, and internal-use software development costs. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.
Risks Related to Intellectual Property
Any failure to obtain, maintain, protect or enforce our intellectual property and proprietary rights could impair our ability to protect our proprietary technology and our brand.

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Our success depends to a significant degree on our ability to obtain, maintain, protect and enforce our intellectual property rights, including our proprietary technology, know-how and our brand. We rely on a combination of trademarks, trade secret laws,secrets, patents, copyrights, service marks, contractual restrictions, and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights. However, the steps we take to obtain, maintain, protect and enforce our intellectual property rights may be inadequate. We will not be able to protect our intellectual property rights if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property rights. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our proprietary technology and develop and commercialize substantially identical products, services or technologies, our business, financial condition, results of operations or prospects may be harmed. In addition, defending our intellectual property rights might entail significant expense. Any patents, trademarks, or other intellectual property

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rights that we have or may obtain may be challenged or circumvented by others or invalidated or held unenforceable through administrative process,processes, including re-examination, inter partes review, interference and derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings) or litigation. Despite our pending U.S. patent applications, there can be no assurance that our patent applications will result in issued patents. Even if we continue to seek patent protection in the future, we may be unable to obtain or maintain patent protection for our technology. In addition, any patents issued from pending or future patent applications or licensed to us in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. There may be issued patents of which we are not aware, held by third parties that, if found to be valid and enforceable, could be alleged to be infringed by our current or future technologies or products. There also may be pending patent applications of which we are not aware that may result in issued patents, which could be alleged to be infringed by our current or future technologies or products. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and platform capabilities and use information that we regard as proprietary to create products that compete with ours. Patent, trademark, copyright, and trade secret protectionprotections may not be available to us in every country in which our products are available. For example, as we have expanded internationally, we have been unable to register and obtain the exclusive right to use the Datadog trademark in certain jurisdictions, including incertain European countries outside of the EU, and as we continue to expand, we may face similar issues in other jurisdictions. The value of our intellectual property could diminish if others assert rights in or ownership of our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks. We may be unable to successfully resolve these types of conflicts to our satisfaction. In some cases, litigation or other actions may be necessary to protect or enforce our trademarks and other intellectual property rights. Furthermore, third parties may assert intellectual property claims against us, and we may be subject to liability, required to enter into costly license agreements, or required to rebrand our products and/or prevented from selling some of our products if third parties successfully oppose or challenge our trademarks or successfully claim that we infringe, misappropriate or otherwise violate their trademarks or other intellectual property rights. In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our products and platform capabilities and proprietary information will likely increase. Moreover, policing unauthorized use of our technologies, trade secrets, and intellectual property may be difficult, expensive, and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other third parties, including suppliers and other partners. However, we cannot guarantee that we have entered into such agreements with each party that has or may have had access to our proprietary information, know-how and trade secrets. Moreover, no assurance can be given that these agreements will be effective in controlling access to, distribution, use, misuse, misappropriation, reverse engineering or disclosure of our proprietary information, know-how and trade secrets. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products and platform capabilities. These agreements may be breached, and we may not have adequate remedies for any such breach.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights, and if such defenses, counterclaims or countersuits are successful, we could lose valuable intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products and platform capabilities, impair the functionality of our products and
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platform capabilities, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our products, or injure our reputation.

We may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business.

We have been and may becomecontinue to be subject to intellectual property disputes. Our success depends, in part, on our ability to develop and commercialize our products and services without infringing, misappropriating or otherwise violating the intellectual property rights of third parties. However, we may not be aware that our products or services are infringing, misappropriating or otherwise violating third-party intellectual property rights and such third parties may bring claims alleging such infringement, misappropriation or violation. Lawsuits are time-consuming and expensive to resolve and they divert management’s time and attention. The software industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets, and other intellectual and

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proprietary rights. Companies in the software industry are often required to defend against litigation claims based on allegations of infringement, misappropriation or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims against their use. In addition, many companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. We do not currently have a large patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. Any litigation may also involve patent holding companies or other adverse patent owners that have no relevant product revenue, and therefore, our patent applicationsportfolio may provide little or no deterrence as we would not be able to assert them against such entities or individuals. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our products and platform capabilities or cease business activities related to such intellectual property. Although we carry general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our business, financial condition or results of operations. Any intellectual property litigation to which we might become a party, or for which we arehave been or may continue to be required to provide indemnification, may require us to do one or more of the following:

•cease selling or using products or services that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate;

•make substantial payments for legal fees, settlement payments or other costs or damages;

•obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or

•redesign the allegedly infringing products to avoid infringement, misappropriation or violation, which could be costly, time-consuming or impossible.

Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results. Moreover, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. We expect that the occurrence of infringement claims is likely to grow as the market for our platform and products grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.

Any future litigation against us could be costly and time-consuming to defend.

We may become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes or employment claims made by our current or former employees. Litigation might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, financial condition and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, potentially harming our business, financial position and results of operations.

We use open source software in our products, which could negatively affect our ability to sell our services or subject us to litigation or other actions.

We use open source software in our products and we expect to continue to incorporate open source software in our services in the future. Few of the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, we cannot ensure that we have not incorporated additional open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. If we fail to comply with these licenses, we may be subject to certain requirements, including requirements that we offer our solutions that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to
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incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the open source software and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these products. From time to time, there have been claims challenging the ownership rights in open source software against companies that incorporate it into their products and the licensors of such open source software provide no warranties or indemnities with respect to

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such claims. As a result, we and our customers could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our business, financial condition and results of operations, or require us to devote additional research and development resources to change our products. In addition, although we employ open source software license screening measures, if we were to combine our proprietary software products with open source software in a certain manner we could, under certain open source licenses, be required to release the source code of our proprietary software products. Some open source projects have known vulnerabilities and architectural instabilities and are provided on an “as-is” basis which, if not properly addressed, could negatively affect the performance of our product. If we inappropriately use or incorporate open source software subject to certain types of open source licenses that challenge the proprietary nature of our products, we may be required to re-engineer such products, discontinue the sale of such products or take other remedial actions.

Unfavorable conditions in

Risks Associated with our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our results of operations.

Our results of operations may vary based on the impact of unfavorable changes in our industry or the global economy on us or our customers and potential customers. Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth in the United States or abroad, financial and credit market fluctuations, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region, Japan or elsewhere, could cause a decrease in business investments, including spending on information technology, disrupt the timing and cadence of key industry events, and negatively affect the growth of our business and our results of operations. For example, these types of unfavorable conditions could disrupt the timing of and attendance at key industry events, which we rely upon in part to generate sales of our products. If those events are disrupted, our marketing investments, sales pipeline and ability to generate new customers and sales of our products could be negatively and adversely affected. In addition, our competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract our customers and may be less dependent on key industry events to generate sales for their products. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our products and solutions. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or how any such event may impact our business.

International Operations

Our current operations are international in scope, and we plan further geographic expansion, creating a variety of operational challenges.

A component of our growth strategy involves the further expansion of our operations and customer base internationally. Revenue, as determined based on the billing address of our customers, from regions outside of North America was 25%28% for the year ended December 31, 2019.2022. Beyond North America, we now have sales presence internationally, including in Amsterdam, Dublin, London, Paris, London,Seoul, Singapore, Tokyo, SeoulSydney, and Sydney.Tokyo. We are continuing to adapt to and develop strategies to address international markets, but there is no guarantee that such efforts will have the desired effect. For example, we anticipate that we will need to establish relationships with new partners in order to expand into certain countries, and if we fail to identify, establish and maintain such relationships, we may be unable to execute on our expansion plans. As of December 31, 2019,2022, approximately 34%40% of our full-time employees were located outside of the United States, 48%33% of whom were located in France. We expect that our international activities will continue to grow for the foreseeable future as we continue to pursue opportunities in existing and new international markets, which will require significant dedication of management attention and financial resources.

Our current and future international business and operations involve a variety of risks, including:

•slower than anticipated availability and adoption of cloud and hybrid IT infrastructures by international businesses;

•changes in a specific country’s or region’s political or economic conditions, including in the United Kingdom as a result of the United Kingdom exiting the EU, or Brexit;

conditions;

•the need to adapt and localize our products for specific countries;

•greater difficulty collecting accounts receivable and longer payment cycles;

•potential changes in trade relations, sanctions, regulations, or laws;

•unexpected changes in laws, regulatory requirements, or tax laws;

•more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information, particularly in Europe;

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•

differing and potentially more onerous labor regulations, especially in Europe, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

Europe and the United Kingdom;
•differing and potentially more onerous labor regulations, especially in Europe, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

•challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs that are specific to each jurisdiction;

•potential changes in laws, regulations and costs affecting our U.K. operations and local employees due to Brexit;

•difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems;

•increased travel, real estate, infrastructure, and legal compliance costs associated with international operations;

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•currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;

•limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;

•laws and business practices favoring local competitors or general market preferences for local vendors;

•limited or insufficient intellectual property protection or difficulties obtaining, maintaining, protecting or enforcing our intellectual property rights, including our trademarks and patents;

•political instability, or terrorist activities;

activities and military conflict, including the war in Ukraine;

•an outbreak of a contagious disease, which may cause us or our third-party providers and/or customers to temporarily suspend our or their respective operations in the affected city or country;

•exposure to liabilities under anti-corruption and anti-money laundering laws, including the FCPA, U.S. bribery laws, the UK Bribery Act, and similar laws and regulations in other jurisdictions; and

•adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.

If we invest substantial time and resources to further expand our international operations and are unable to do so successfully and in a timely manner, our business and results of operations will suffer.

Legal, political and economic uncertainty surrounding the exit of the United Kingdom from the EU may be a source of instability in international markets, create significant currency fluctuations, adversely affect our operations in the United Kingdom and pose additional risks to our business, financial condition and results of operations.

The United Kingdom formally left the EU on January 31, 2020, commonly referred to as Brexit. Under the terms of the withdrawal agreement agreed to between the United Kingdom and the EU, the United Kingdom will be subject to a transition period through December 31, 2020, during which EU rules will continue to apply. Negotiations between the United Kingdom and the EU are expected to continue in relation to their customs and trading relationship following this transition period.

The uncertainty concerning the United Kingdom’s legal, political and economic relationships with the EU after the transition period may be a source of instability in the international markets, create significant currency fluctuations, and otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise). Further, if the United Kingdom and the EU are unable to negotiate acceptable trading and customs terms or if other EU Member States pursue withdrawal, barrier-free access between the United Kingdom and other EU Member States or among the European Economic Area overall could be diminished or eliminated. The long-term effects of Brexit will depend on any agreements (or lack thereof) between the United Kingdom and the EU and, in particular, any arrangements for the United Kingdom to retain access to EU markets after the transition period.

Such a withdrawal from the EU is unprecedented, and it is unclear how the United Kingdom’s access to the European single market for goods, capital, services and labor within the EU, or the European single market, and the wider commercial, legal and regulatory environment, will impact our U.K. operations, including our customers in the United Kingdom. We may also face new regulatory costs and challenges that could have an adverse effect on our operations. Brexit has already created economic uncertainty, and its consequences could adversely impact our business, financial condition and results of operations.

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We are exposed to fluctuations in currency exchange rates, which could negatively affect our results of operations.

Our sales contracts are denominated in U.S. dollars, and therefore, our revenue is not subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our products and platform capabilities to our customers outside of the United States, which could adversely affect our results of operations. In addition, an increasing portionamount of our operating expenses are incurred outside the United States. These operating expenses are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with currency fluctuations, our results of operations could be adversely affected.

Our international operations may subject us to potential adverse tax consequences.

We are expanding our international operations to better support our growth into international markets. Our corporate structure and associated transfer pricing policies contemplate future growth in international markets, and consider the functions, risks, and assets of the various entities involved in intercompany transactions. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies, and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.

The Tax Cuts and Jobs Act, or the Tax Act, makes broad and complex changes to the U.S. tax code including, among other things, changes to U.S. federal tax rates, imposes additional limitations on the deductibility of interest, has both positive and negative changes to the utilization of future net operating loss, or NOL, carryforwards, allows for the expensing of certain capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system.

We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our clients would have to pay for our products and adversely affect our results of operations.

An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. Additionally, the Supreme Court of the United States recently ruled in South Dakota v. Wayfair, Inc. et al, or Wayfair, that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. A successful assertion by one or more states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could have a material adverse effect on our business and results of operations.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

As of December 31, 2019, we had NOL carryforwards for federal and state income tax purposes of approximately $56.6 million and $42.0 million, respectively, which may be available to offset taxable income in the future, and which expire in various years beginning in 2031 for federal purposes and 2029 for state purposes if not utilized. A lack of future taxable income would adversely affect our ability to utilize these NOLs before they expire. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” (as defined under Section 382 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. We may experience a future ownership change under Section 382 of the Code that could affect our ability to utilize the NOLs to offset our income. Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to reduce future income tax liabilities, including for state tax purposes. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheets, even if we attain profitability, which could potentially result in increased future tax liability to us and could adversely affect our operating results and financial condition.

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Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations.

Our effective tax rate could increase due to several factors, including:

changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;

changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Act;

changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;

the outcome of current and future tax audits, examinations, or administrative appeals; and

limitations or adverse findings regarding our ability to do business in some jurisdictions.

Any of these developments could adversely affect our results of operations.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

U.S. generally accepted accounting principles, or GAAP, are subject to interpretation by the Financial Accounting Standards Board, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and could affect the reporting of transactions already completed before the announcement of a change.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as described in Note 2 in the Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10-K. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve revenue recognition, deferred contract costs, and the valuation of our stock-based compensation awards, among others. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.

We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.

We have funded our operations since inception primarily through equity financings and sales of our products. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results, and financial condition. If we incur additional debt, the debt holders would have rights senior to holders of common stock to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.

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Risks Related to Ownership of Our Class A Common Stock

Our stock price may be volatile, and the value of our Class A common stock may decline.

The market price of our Class A common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including:

•actual or anticipated fluctuations in our financial condition or results of operations;

•variance in our financial performance from expectations of securities analysts;

•changes in the pricing of subscriptions to our products;

•changes in our projected operating and financial results;

•changes in laws or regulations applicable to our platform and products;

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•announcements by us or our competitors of significant business developments, acquisitions, or new offerings;

•significant data breaches, disruptions to or other incidents involving our software;

•our involvement in litigation;

•future sales of our Class A common stock by us or our stockholders, as well as the anticipation of lock-up releases;

stockholders;

•changes in senior management or key personnel;

•the trading volume of our Class A common stock;

•changes in the anticipated future size and growth rate of our market; and

•general economic and market conditions.

Broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions may also negatively impact the market price of our Class A common stock. Additional risks are described in "Risks Associated with our Growth—Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our results of operations”. In addition, technology stocks have historically experienced high levels of volatility. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.

The dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, including our executive officers, directors and significant holders of our capital stock prior to the completion of our IPO,their affiliates, which will limit the ability of holders of our Class A common stock to influence the outcome of important transactions.

Our Class B common stock has ten votes per share and our Class A common stock has one vote per share. As a result, as of December 31, 2019, holders2022, our outstanding shares of our Class B common stock collectively beneficially owned shares representingrepresented approximately 97% of the voting power of our outstanding capital stock and our executive officers, directors and holders of 5% or more of our Class B common stock collectively beneficially owned, in the aggregate, shares representing approximately 85%47% of the voting power of our outstanding capital stock. As a result, the holders of our Class B common stock, will be able towhich includes certain of our directors, executive officers and their affiliates, exercise considerable influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock. This concentration of ownership will limitlimits the ability of other stockholders to influence corporate matters and may cause us to make strategic decisions that could involve risks to holders of our Class A common stock or that may not be aligned with the interests of holders of our Class A common stock. This control may adversely affect the market price of our Class A common stock.

Further, future transfers by holders of our Class B common stock will generally result in those shares converting into shares of our Class A common stock, subject to limited exceptions, such as certain transfers effected for tax or estate planning purposes. The conversion of shares of our Class B common stock into shares of our Class A common stock has had and will continue to have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.

Class B shares.

We cannot predict the impact our dual class structure may have on the market price of our Class A common stock.

We cannot predict whether our dual class structure, combined with the concentrated control of our stockholders who held our capital stock prior to the completion of our initial public offering, or IPO, including our executive officers, employees and directors and their affiliates, will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple class

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share structures in certain of their indexes. For example, in July 2017, FTSE Russell and Standard & Poor’s announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Under the announced policies, our dual class capital structure would make us ineligible for inclusion in any of these indices. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class A common stock could be adversely affected.

An active public trading market for our Class A common stock may not develop or be sustained.

Prior to the closing of our IPO in September 2019, no public market for our Class A common stock existed. An active public trading market for our Class A common stock may not continue to develop or, if further developed, it may not be sustained. The lack of an active market may impair the ability of holders of our Class A common stock to sell their shares at the time they wish to sell them or at a price that the holders of our Class A common stock consider reasonable. The lack of an active market may also reduce the fair value of shares of our Class A common stock. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

Future sales of our Class A common stock in the public market could cause the market price of our Class A common stock to decline.

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Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. Many of our stockholders who held our capital stock prior to the completion of our IPO have substantial unrecognized gains on the value of the equity they hold based upon the price at which shares were sold in our IPO, and therefore they may take steps to sell their shares or otherwise secure the unrecognized gains on those shares. We are unable to predict the timing of or the effect that such sales may have on the prevailing market price of our Class A common stock.

In connection with our IPO, all of our directors and officers and the holders of a substantial majority all of our capital stock and securities convertible into our capital stock entered into lock-up agreements that restricted their ability to transfer shares of our capital stock. On December 10, 2019, 20% of the shares subject to these lock-up agreements became eligible for sale in the public market, and the remaining shares (excluding shares purchased by certain investors in our March 2019 tender offer) are expected to be released from the lock-up agreements and become eligible for immediate sale in the public market at the open of trading on March 9, 2020, in each case subject to trading limitations on shares held by our affiliates, continued vesting of any unvested equity awards as of such date, and our insider trading policies. As a result, a substantial number of shares of our Class A common stock will become eligible for sale in the public market in March 2020. The shares purchased by entities affiliated with Dragoneer Investment Group, Index Ventures, ICONIQ Capital Management and Institutional Venture Partners in our March 2019 tender offer will remain subject to lock-up agreements that restrict their ability to transfer such shares for 18 months from September 18, 2019, the date of the Final Prospectus for our IPO.

In addition, we

We have registered all of the shares of Class A common stock and Class B common stock issuable upon exercise of outstanding options or other equity incentives we may grant in the future, for public resale under the Securities Act. The shares of Class A common stock and Class B common stock will become eligible for sale in the public market to the extent such options are exercised, subject to the lock-up agreements described above and compliance with applicable securities laws.

Further, as of December 31, 2019,2022, holders of a substantial number of shares had rights, subject to certain conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans or otherwise will dilute all other stockholders.

We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to continue to grant equity awards to employees, directors and consultants under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we have and may continue to acquire or make investments in companies, products or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline.

29

Furthermore, if we issue additional equity or convertible debt securities, the new equity securities could have rights senior to those of our common stock. For example, if we elect to settle our conversion obligation under our 0.125% Convertible Senior Notes due 2025, or our 2025 Notes, in shares of our Class A common stock or a combination of cash and shares of our Class A common stock, the issuance of such Class A common stock may dilute the ownership interests of our stockholders and sales in the public market could adversely affect prevailing market prices.

If securities or industry analysts do not publishcease publishing research or publish unfavorable or inaccurate research about our business, or if we fail to meet or significantly exceed our publicly announced financial guidance or the expectations of analysts or public investors, the market price and trading volume of our Class A common stock could decline.

The market price and trading volume of our Class A common stock will be heavily influenced by the way analysts interpret our financial information and other disclosures. We do not have control over these analysts. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, our stock price would be negatively affected. If securities or industry analysts do not publish research or reports about our business, downgrade our Class A common stock, or publish negative reports about our business, our stock price would likely decline. In addition, the stock prices of many companies in the technology industry have declined significantly after those companies have failed to meet, or significantly exceed, the financial guidance publicly announced by those companies or the expectations of analysts. If one or more of these analysts cease coverage of us orour financial results fail to meet, or significantly exceed, our announced guidance or the expectations or analysts or public investors, analysts could downgrade or Class A common stock or publish reportsunfavorable research on us regularly,us. As a result, demand for our Class A common stock could decrease, which might cause our stock price to decline and could decrease the trading volume of our Class A common stock.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, holders of our Class A common stock may need to rely on sales of their holdings of Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.

We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, or Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our Class A common stock less attractive to investors. In addition, if we cease to be an emerging growth company, we will no longer be able to use the extended transition period for complying with new or revised accounting standards.

We will remain an emerging growth company until the earliest of: (1) December 31, 2024; (2) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the last day of the fiscal year in which the market value of our Class A common stock held by non-affiliates exceeded $700 million as of June 30 of such fiscal year.

We cannot predict if investors will find our Class A common stock less attractive if we choosecontinue to rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future results of operations may not be as comparable to the results of operations of certain other companies in our industry that adopted such standards. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock, and our stock price may be more volatile.

We will incur increased costs as a result of operating as a public company, and our management will be required to continue to devote substantial time to compliance with our public company responsibilities and corporate governance practices.

As a public company, we will incur

We have incurred significant legal, accounting, insurance, and other expenses that we did not incur as a privatepublic company, which we expect to further increase after we are no longer an “emerging growth company.”increase. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing
35

requirements of the Nasdaq Global Select Market and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel devote a substantial amount of time to compliance with these requirements. Moreover, theseThese rules and regulations will increase ourcontribute to increased legal and financial compliance costs and will make some activities more time-consuming and costly.
We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific timing of such costs.

30

As a result of being a public company, we are obligated to develop and maintain proper and effective internal controls over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the fiscal year ending December 31, 2020.on an annual basis. This assessment will need tomust include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In addition, our independent registered public accounting firm will beis required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company.” We have recently commenced the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404, but we may not be able to complete our evaluation, testing and any required remediation in a timely fashion once initiated.reporting. Our compliance with Section 404 will requirerequires that we incur substantial expenses and expend significant management efforts. We willhave hired, and need to continue to hire, additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404.

During the evaluation and testing process of our internal controls in future years, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to certify that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:

•authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our Class A common stock;

•require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

•specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer;

•establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

•establish that our board of directors is divided into three classes, with each class serving three-year staggered terms;

•prohibit cumulative voting in the election of directors;

•provide that our directors may be removed for cause only upon the vote of at least 66 2/3% of our outstanding shares of voting stock;

•provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and

•require the approval of our board of directors or the holders of at least 66 2/3% of our outstanding shares of voting stock to amend our bylaws and certain provisions of our certificate of incorporation.

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31


These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our Class A common stock, and they could deter potential acquirers of our company, thereby reducing the likelihood that holders of our Class A common stock would receive a premium for their shares of our Class A common stock in an acquisition.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and to the extent enforceable, the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which could restrict our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: any derivative action or proceeding brought on our behalf; any action asserting a breach of a fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. In addition, our amended and restated certificate of incorporation provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision.

Act.

These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees. If a court were to find eitherWhile the Delaware courts have determined that such choice of forum provision containedprovisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, weincorporation. This may incurrequire significant additional costs associated with resolving such action in other jurisdictions. For example,jurisdictions and there can be no assurance that the Courtprovisions will be enforced by a court in those other jurisdictions.
Risks Related to Our Outstanding 2025 Notes
We may not have sufficient cash flow from our business to make payments on our significant debt when due, and we may incur additional indebtedness in the future.
In June 2020, we issued the 2025 Notes in a private placement. We may be required to use a substantial portion of Chanceryour cash flows from operations to pay interest and principal on our indebtedness. Our ability to make scheduled payments of the Stateprincipal of, Delaware recently determinedto pay interest on or to refinance our indebtedness, including the 2025 Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the exclusive forum provisioncapital markets and our financial condition at such time. We may not be able to engage in any of federal district courtsthese activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
In addition, we may incur substantial additional debt in the future, subject to the restrictions contained in our future debt agreements, some of which may be secured debt. We are not restricted under the terms of the United Statesindenture governing the 2025 Notes, from incurring additional debt, securing existing or future debt, recapitalizing our debt, repurchasing our stock, pledging our assets, making investments, paying dividends, guaranteeing debt or taking a number of Americaother actions that are not limited by the terms of the indenture governing the 2025 Notes that could have the effect of diminishing our ability to make payments on the 2025 Notes when due.
The conditional conversion feature of the 2025 Notes may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the 2025 Notes is triggered, as it was during the quarter ended March 31, 2022, holders of the 2025 Notes are entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their 2025 Notes, unless we elect to satisfy our conversion obligation by delivering solely
37

shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their 2025 Notes when these conversion triggers are satisfied, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2025 Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
The capped call transactions may affect the value of the 2025 Notes and our Class A common stock.
In connection with the pricing of the 2025 Notes, we entered into capped call transactions with the option counterparties. The capped call transactions cover, subject to customary adjustments, the number of shares of our common stock that initially underlie the 2025 Notes. The capped call transactions are expected generally to partially offset the potential dilution to our Class A common stock as a result of conversion of the 2025 Notes. In connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates entered into various derivative transactions with respect to our Class A common stock concurrently with or shortly after the pricing of the 2025 Notes, including with certain investors in the 2025 Notes.
In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions following the pricing of the 2025 Notes on June 2, 2020 and prior to the maturity of the 2025 Notes. They are likely to do so on each exercise date for resolvingthe capped call transactions, which are expected to occur during each 30 trading day period beginning on the 31st scheduled trading day prior to the maturity date of the 2025 Notes, or following any complaint asserting atermination of any portion of the capped call transactions in connection with any repurchase, redemption or early conversion of the 2025 Notes. This activity could also cause or prevent an increase or decrease in the price of action arisingour Class A common stock or the 2025 Notes. The potential effect, if any, of these transactions on the price of our Class A common stock or the 2025 Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our Class A common stock.
We are subject to counterparty risk with respect to the capped call transactions.
The counterparties to the capped call transactions are financial institutions, and we will be subject to the risk that one or more of the option counterparties may default, fail to perform or exercise their termination rights under the Securities Act is not enforceable. The Court of Chancery’s decision has been appealedcapped call transactions. Our exposure to the Delaware Supreme Court.credit risk of the option counterparties will not be secured by any collateral. If a counterparty to the Delaware Supreme Court reverses the Court of Chancery’s decision and holds that such a provision is cognizable under Delaware law,capped call transactions becomes subject to insolvency proceedings, we will enforcebecome an unsecured creditor in those proceedings with a claim equal to our exposure at the federal district court exclusive forum provision. Untiltime under such time astransaction. Our exposure will depend on many factors but, generally, our exposure will increase if the Delaware courts declaremarket price or the federal district court exclusive forum provision legally cognizable, we do not intend to enforce that provisionvolatility of our amended and restated certificatecommon stock increases. In addition, upon a default, failure to perform or a termination of incorporation.

the capped call transactions by a counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our headquartersheadquarter is located in New York City, where we lease approximately 97,000163,000 square feet pursuant to threefour separate subleases. One of theseThree subleases, fortotaling approximately 33,00098,000 square feet, will expire in December 2022.2023. The other two subleases, togethersublease, for approximately 64,00065,000 square feet, will both expire in December 2023.June 2033. We have other offices including Paris, Boston Dublin and Paris.Denver. These offices are leased, and we do not own any real property. We believe that our current facilities are adequate to meet our current needs.

Item 3. Legal Proceedings

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

32

38


Item 4. Mine SafetySafety Disclosures

Not applicable.

33

39


PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information for Common Stock

and Holders of Record

Our Class A common stock began tradingis traded on The Nasdaq Global Select Market, or Nasdaq, under the symbol “DDOG” on September 19, 2019. Prior to that date, there was no public trading market for our Class A common stock..  Our Class B common stock is not listed or traded on any exchange, but each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock, and is automatically converted upon sale or transfer into one share of Class A common stock.

Holders of Record

As of February 14, 2020,15, 2023, there were 43 stockholders57 holders of record of our Class A common stock and the closing price of our Class A common stock was $47.03 per share as reported on Nasdaq. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. As of February 14, 2020, there were 771 stockholders34 holders of record of our Class B common stock.

Dividend Policy

We have never declared or paid any dividends on our Class A common stock or Class B common stock. We currently intend to retain all available funds and any future earnings for the operation and expansion of our business. Accordingly, we do not anticipate declaring or paying dividends in the foreseeable future. The payment of any future dividends will be at the discretion of our Board of Directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in any debt agreements, and other factors that our Board of Directors may deem relevant.

Recent Sales of Unregistered Equity Securities

On November 6, 2019,

During the year ended December 31, 2022, we issued 244,445327,662 shares of Class A common stock as consideration in an acquisition.acquisitions. The issuance was deemed exempt from registration under the Securities Act pursuant to the exemption provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.

Use of Proceeds

In September 2019, we closed our IPO of 27,600,000 shares of our Class A common stock at an offering price of $27.00 per share, including 3,600,000 shares pursuant to the underwriters’ option to purchase additional shares of our Class A common stock, resulting in aggregate net proceeds to us of $705.9 million after deducting underwriting discounts and commissions of $37.3 million and net offering expenses of $2.0 million. All of the shares issued and sold in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-233428), which was declared effective by the SEC on September 18, 2019.

There has been no material change in the planned use of proceeds from our IPO from those disclosed in the Final Prospectus for our IPO dated as of September 18, 2019 and filed with the SEC pursuant to Rule 424(b)(4) on September 19, 2019.

Issuer Purchases of Equity Securities

None.

Stock Performance Graph

The graph below shows a comparison, from September 19, 2019 (the date our Class A common stock commenced trading on Nasdaq) through December 31, 2019,2022, of the cumulative total return to stockholders of our Class A common stock relative to the Nasdaq Composite Index, or the Nasdaq Composite, and the Nasdaq Computer Index, or the Nasdaq Computer.

34

40


The graph assumes that $100 was invested in each of our Class A common stock, the Nasdaq Composite and the Nasdaq Computer at their respective closing prices on September 19, 2019 and assumes reinvestment of gross dividends. The stock price performance shown in the graph represents past performance and should not be considered an indication of future stock price performance.

ddog-20221231_g1.jpg
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Datadog, Inc. under the Securities Act or the Exchange Act.

Item 6. Selected Financial Data

The following selected consolidated financial data should be read in conjunction with “Part II, [Reserved]


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10-K. The consolidated statements of operations data for the fiscal years ended December 31, 2019, 2018, and 2017, and the consolidated balance sheet data as of December 31, 2019 and 2018 are derived from our audited consolidated financial statements and related notes included elsewhere in this Form 10-K. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes, and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of our results in any future period.

35

The summary consolidated financial data for the year ended December 31, 2019 reflects the adoption of ASU 2016-02,Leases(ASC842). See Note 2 to our consolidated financial statements elsewhere in this Annual Report on Form 10-K for a summary of adjustments. The summary consolidated financial data for the years ended December 31, 2018 and 2017 do not reflect the adoption of ASC 842

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

(in thousands, except per share data)

 

Revenue

 

$

362,780

 

 

$

198,077

 

 

$

100,761

 

Cost of revenue (1)(2)

 

 

88,949

 

 

 

46,529

 

 

 

23,414

 

Gross profit

 

 

273,831

 

 

 

151,548

 

 

 

77,347

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (1)

 

 

111,425

 

 

 

55,176

 

 

 

24,734

 

Sales and marketing (1)

 

 

146,657

 

 

 

88,849

 

 

 

44,213

 

General and administrative (1)

 

 

35,889

 

 

 

18,556

 

 

 

11,356

 

Total operating expenses(3)

 

 

293,971

 

 

 

162,581

 

 

 

80,303

 

Operating loss

 

 

(20,140

)

 

 

(11,033

)

 

 

(2,956

)

Other income, net

 

 

4,164

 

 

 

793

 

 

 

843

 

Loss before income taxes

 

 

(15,976

)

 

 

(10,240

)

 

 

(2,113

)

Provision for income taxes

 

 

(734

)

 

 

(522

)

 

 

(457

)

Net loss

 

$

(16,710

)

 

$

(10,762

)

 

$

(2,570

)

Net loss per share attributable to common stockholders,

   basic and diluted(4)

 

$

(0.12

)

 

$

(0.15

)

 

$

(0.04

)

Weighted average shares used in calculating basic and

   diluted net loss per share(4)

 

 

139,873

 

 

 

70,951

 

 

 

61,321

 

(1)

Includes stock-based compensation expense as follows:

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Cost of revenue

 

$

582

 

 

$

287

 

 

$

112

 

Research and development

 

 

7,972

 

 

 

1,641

 

 

 

1,160

 

Sales and marketing

 

 

5,538

 

 

 

1,910

 

 

 

977

 

General and administrative

 

 

4,942

 

 

 

1,406

 

 

 

819

 

Total stock-based compensation expense

 

$

19,034

 

 

$

5,244

 

 

$

3,068

 

(2)

Includes amortization of acquired intangibles expense as follows:

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Cost of revenue

 

$

752

 

 

$

511

 

 

$

484

 

(3)

Includes a $2.3 million, $0.4 million and $2.3 million benefit within Research and development, Sales and marketing and General and administrative expenses, respectively, related to the release of a non-income tax liability for the year ended December 31, 2019. See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion.

Operations

(4)

See Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for an explanation of the calculations of our basic and diluted earnings per share attributable to common stockholders and the weighted-average number of shares used in the computation of the per share amounts.


 

 

December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

597,297

 

 

$

53,639

 

 

$

60,024

 

Total assets

 

 

1,038,041

 

 

 

179,750

 

 

 

127,062

 

Total liabilities

 

 

255,700

 

 

 

114,986

 

 

 

61,958

 

Working capital(1)

 

 

703,703

 

 

 

9,717

 

 

 

43,164

 

Convertible preferred stock

 

 

—

 

 

 

140,805

 

 

 

140,805

 

Total stockholders’ equity (deficit)

 

$

782,341

 

 

$

(76,041

)

 

$

(75,701

)

(1)

Working capital is defined as current assets less current liabilities.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10- K.10-K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K. You should review the disclosure under the heading “Part I, Item 1A. Risk Factors” in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

This section of our Annual Report on Form 10-K discusses our financial condition and results of operations for the fiscal years ended December 31, 2022 and 2021, and year-to-year comparisons between fiscal 2022 and fiscal 2021. A discussion of our financial condition and results of operations for the fiscal year ended December 31, 2020 and year-to-year comparisons between fiscal 2021 and fiscal 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed on February 25, 2022.

Overview

Datadog is the monitoringobservability and analyticssecurity platform for developers, IT operations teams and business users in the cloud age.

applications.

41

Our SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, and log management, real-user monitoring, and many other capabilities to provide unified, real-time observability ofand 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.

We generate revenue from the sale of subscriptions to customers using our cloud-based platform. Our paid subscriptions are available in Pro and Enterprise tiers. The terms of our subscription agreements are primarily monthly or annual. Customers also have the option to purchase additional products, such as additional containers to monitor, custom metrics packages, anomaly detection and app analytics. Professional services are generally not required for the implementation of our products and revenue from such services has been immaterial to date.

We employ a land-and-expand business model centered around offering products that are easy to adopt and have a very short time to value. Our customers can expand their footprint with us on a self-service basis. Our customers often significantly increase their usage of the products they initially buy from us and expand their usage to other products we offer on our platform. We grow with our customers as they expand their workloads in the public and private cloud.

As of December 31, 2019,2022, we had $601.2$342.3 million in cash, cash equivalents and restricted cash and $176.7$1,545.3 million in marketable securities. We have grown rapidly in recent periods, with revenues for the fiscal years ended December 31, 2019, 20182022, 2021 and 20172020 of $362.8$1,675.1 million, $198.1$1,028.8 million, and $100.8$603.5 million, respectively, representing year-over-year growth of 83%63% from the fiscal year ended December 31, 20182021 to the fiscal year ended December 31, 20192022 and 97%70% from the fiscal year ended December 31, 20172020 to the fiscal year ended December 31, 2018.2021. Substantially all of our revenue is from subscription software sales. We expect that the rate of growth in our revenue will decline as our business scales, even if our revenue continues to grow in absolute terms. We have continued to make significant expenditures and investments, including in personnel-related costs, sales and marketing, infrastructure and operations, and have incurred net loss in each period since our inception, including net losslosses of $(16.7)$50.2 million, $(10.8)$20.7 million and $(2.6)$24.5 million for the fiscal years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. Our operating cash flow was $24.2$418.4 million, $10.8$286.5 million and $13.8$109.1 million for the years ended December 31, 2019, 20182022, 2021 and 20172020, respectively. Our free cash flow was $0.8$353.5 million, $(5.0)$250.5 million and $6.0$83.2 million for the years ended December 31, 2019, 20182022, 2021 and 20172020, respectively. See the section titled “—Liquidity and Capital Resources—Non-GAAP Free Cash Flow” below.

Our employee headcount has increased to 1,403 employees as of December 31, 2019 from 886 as of December 31, 2018. We plan to continue to aggressively invest

Unfavorable conditions in the economy both in the United States and abroad may negatively affect the growth of our business and our results of operations. For example, macroeconomic events including the COVID-19 pandemic, rising inflation, the U.S. Federal Reserve raising interest rates and the Russian invasion of Ukraine have led to take advantageeconomic uncertainty. Historically, during periods of economic uncertainty and downturns, businesses may slow spending on information technology, which may impact our market opportunity.

business and our customers’ businesses. In recent quarters, we have seen slower usage growth from some existing customers, which may be related to the uncertain macroeconomic environment.

Throughout the COVID-19 pandemic to the extent possible, we conducted business as usual, with necessary or advisable modifications to employee travel and employee work locations and canceling or holding virtually Datadog marketing events. Since the end of the quarter ended March 31, 2022, we have continued to increase our office activity, such as in-person meetings, events, and travel in compliance with applicable government orders and guidelines. As we continue to increase office activity globally, increase travel, participate in and hold more in-person meetings and events, continue hiring and increase capital expenditures for additional office space, our costs and expenses may increase and our margins may decrease in future quarters.
Due to our subscription model, the effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. However, if economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see "Risk Factors" included in Part I, Item 1A of this report.
Factors Affecting Our Performance

Acquiring New Customers

We believe there is substantial opportunity to continue to grow our customer base. We intend to drive new customer acquisition by continuing to invest significantly in sales and marketing to engage our prospective customers, increase brand awareness and drive adoption of our platform and products. We also plan to continue to invest in building brand awareness within the development and operations communities. As of December 31, 2019,2022, we had approximately 10,50023,200 customers spanning organizations of a broad range of sizes and industries.industries, compared to approximately 18,800 as of December 31, 2021. Customers as of December 31, 2022 exclude customers from a recent acquisition, which did not contribute
42

meaningful revenue during the fiscal year. Our ability to attract new customers will depend on a number of factors, including the effectiveness and pricing of our products, offerings of our competitors, and the effectiveness of our marketing efforts.

38

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.

Expanding Within Our Existing Customer Base

Our base of customers represents a significant opportunity for further sales expansion. As of December 31, 2019,2022, we had 858approximately 2,780 customers with annual run-rate revenue, or ARR, of $100,000 or more, representing 85% of our ARR, up from 4532,010 as of December 31, 2018.2021, representing 83% of our ARR. We monitor our number of customers with ARR of $100,000 or more, and believe it is useful to investors, as an indicator of our ability to grow the number of customers that are exceeding this ARR threshold. We define ARR as the annual run-rate revenue of subscription agreements from all customers at a point in time. We calculate ARR by taking the monthly run-rate 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 U.S. 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.

A further indication of the propensity of our customer relationships to expand over time is our dollar-based net retention rate, which compares our ARR from the same set of customers in one period, relative to the year-ago period. As of each of December 31, 2022 and 2021, our dollar-based net retention rate was above 130%. We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period-end, or the Prior Period ARR. We then calculate the ARR from these same customers as of the current period-end, or the Current Period ARR. Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months, but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time dollar-based net retention rate. We then calculate the weighted average of the trailing 12-month point-in-time dollar-based net retention rates, to arrive at the dollar-based net retention rate.
We believe that our land-and-expand business model allows us to efficiently increase revenue from our existing customer base. Our customers often expand the deployment of our platform across large teams and more broadly within the enterprise as they migrate more workloads to the cloud, find new use cases for our platform, and generally realize the benefits of our platform. We intend to continue to invest in enhancing awareness of our brand and developing more products, features and functionality, which we believe are important factors to achieve widespread adoption of our platform. Our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our solution, competition, pricing and overall changes in our customers’ spending levels.

Sustaining Innovation and Technology Leadership

Our success is dependent on our ability to sustain innovation and technology leadership in order to maintain our competitive advantage. We believe that we have built a highly differentiated platform that will position us to further extend the adoption of our platform and products. Datadog is frequently deployed across a customer’s entire infrastructure, making it ubiquitous. Datadog is a daily part of the lives of developers, operations engineers and business leaders. We employ a land-and-expand business model centered around offering products that are easy to adopt and have a very short time to value. Our efficient go-to-market model enables us to prioritize significant investment in innovation. We have proven initialdemonstrated the success of our platform approach, through expansion beyond our initial infrastructure monitoring solution to include APM in 2017 and logs in 2018. In 2019, we launched user experience monitoring and network performance monitoring, and announced the addition of security monitoring to our platform.over 17 products. As of December 31, 2019,2022, approximately 60%81% of our customers were using more than one product, up from approximately 25%78% a year earlier. Additionally, as of December 31, 2022, approximately 42% of our customers were using more than four products, up from approximately 33% a year earlier, and approximately 18% of our customers were using more than six products, up from approximately 10% a year earlier. We believe these metrics indicate strong momentum in the uptake of our newer platform products.

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We intend to continue to invest in building additional products, features and functionality that expand our capabilities and facilitate the extension of our platform to new use cases. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Our future success is dependent on our ability to successfully develop, market and sell existing and new products to both new and existing customers.

Expanding Internationally

We believe there is a significant opportunity to expand usage of our platform outside of North America. Revenue, as determined based on the billing address of our customers, from regions outside of North America was 25%approximately 28% of our total revenue for each of the yearyears ended December 31, 2019.2022 and 2021. In addition, we have made and plan to continue to make significant investments to expand geographically, particularly in EMEA and APAC. Although these investments may adversely affect our operating results in the near term, we believe that they will contribute to our long-term growth. Beyond North America, we now have sales presence internationally, including in Amsterdam, Dublin, London, Paris, Amsterdam,Seoul, Singapore, Sydney, and Tokyo.

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Components of Results of Operations

Revenue

We generate revenue from the sale of subscriptions to customers using our cloud-based platform. The terms of our subscription agreements are primarily monthly, annual or annual,multi-year, with the majority of our revenue coming from annual subscriptions. Our customers can enter into a subscription for a committed contractual amount of usage that is apportioned ratably on a monthly basis over the term of the subscription period, a subscription for a committed contractual amount of usage that is delivered as used, or a monthly subscription based on usage. To the extent that our customers’ usage exceeds the committed contracted amounts under their subscriptions, either on a monthly basis in the case of a ratable subscription or once the entire commitment is used in the case of a delivered-as-used subscription, they are charged for their incremental usage.

Usage is measured primarily by the number of hosts or by the volume of data indexed. A host is generally defined as a server, either in the cloud or on-premise. Our infrastructure monitoring, APM and network performance monitoring products are priced per host, our logs product is priced primarily priced per log events indexed and secondarily by events ingested. Customers also have the option to purchase additional products, such as additional container or serverless monitoring, custom metrics packages, anomaly detection, synthetic monitoring and app analytics.

In the case of subscriptions for committed contractual amounts of usage, revenue is recognized ratably over the term of the subscription agreement, generally beginning on the date that our platform is made available to a customer. As a result, much of our revenue is generated from subscriptions entered into during previous periods. Consequently, any decreases in new subscriptions or renewals in any one period may not be immediately reflected as a decrease in revenue for that period, but could negatively affect our revenue in future quarters. This also makes it difficult for us to rapidly increase our revenue through the sale of additional subscriptions in any period, as revenue is recognized over the term of the subscription agreement. In the case of a subscription for a committed contractual amount of usage that is delivered as used, a monthly subscription based on usage, or usage in excess of a ratable subscription, we recognize revenue as the product is used, which may lead to fluctuations in our revenue and results of operations. In addition, historically, we have experienced seasonality in new customer bookings, as we typically enter into a higher percentage of subscription agreements with new customers in the fourth quarter of the year.

Due to ease of implementation of our products, professional services generally are not required and revenue from such services has been immaterial to date.

Cost of Revenue

Cost of revenue primarily consists of expenses related to providing our products to customers, including payments to our third-party cloud infrastructure providers for hosting our software, personnel-related expenses for operations and global support, including salaries, benefits, bonuses and stock-based compensation, payment processing fees, information technology, depreciation and amortization related to the amortization of acquired intangibles and internal-use software and other overhead costs such as allocated facilities.

We intend to continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capability of our platform and ensure that our customers are realizing the full benefit of our
44

platform and products. The level, timing and relative investment in our infrastructure could affect our cost of revenue in the future.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand our products and geographical coverage.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense and sales commissions. Operating expenses also include overhead costs for facilities and shared IT-related expenses, including depreciation expense.

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Research and Development

Research and development expense consists primarily of personnel costs for our engineering, service and design teams. Additionally, research and development expense includes contractor fees, depreciation and amortization and allocated overhead costs. Research and development costs are expensed as incurred. We expect that our research and development expense will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments in our platform.

Sales and Marketing

Sales and marketing expense consists primarily of personnel costs for our sales and marketing organization, costs of general marketing and promotional activities, including the free tier and free introductory trials of our products, travel-related expenses, amortization of acquired customer relationships, and allocated overhead costs. Sales commissions earned by our sales force are deferred and amortized on a straight-line basis over the expected period of benefit, which we have determined to be four years. We expect that our sales and marketing expense will increase in absolute dollars and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts. However, we expect that our sales and marketing expense will decrease as a percentage of our revenue over the long term.

General and Administrative

General and administrative expense consists primarily of personnel costs and contractor fees for finance, legal, human resources, information technology and other administrative functions. In addition, general and administrative expense includes non-personnel costs, such as legal, accounting and other professional fees, hardware and software costs, certain tax, license and insurance-related expenses and allocated overhead costs.

We have incurred, and expect to continue to incur, additional expenses as a result of operating as a newly public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations and professional services. We expect that our general and administrative expense will increase in absolute dollars as our business grows.

Other Income (Loss), Net

Other income (loss), net consists of interest income, primarily due to income earned on our money market funds included in cash and cash equivalents and on marketable securities, partially offset by interest expense due on the 2025 Notes and amortization of premiums on our marketable securities.

Provision for Income Taxes

Provision for income taxes consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintainrecorded a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.

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45


Results of Operations

The following table sets forth our consolidated statements of operations data for the periods indicated:

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Revenue

 

$

362,780

 

 

$

198,077

 

 

$

100,761

 

Cost of revenue (1)(2)

 

 

88,949

 

 

 

46,529

 

 

 

23,414

 

Gross profit

 

 

273,831

 

 

 

151,548

 

 

 

77,347

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (1)

 

 

111,425

 

 

 

55,176

 

 

 

24,734

 

Sales and marketing (1)

 

 

146,657

 

 

 

88,849

 

 

 

44,213

 

General and administrative (1)

 

 

35,889

 

 

 

18,556

 

 

 

11,356

 

Total operating expenses(3)

 

 

293,971

 

 

 

162,581

 

 

 

80,303

 

Operating loss

 

 

(20,140

)

 

 

(11,033

)

 

 

(2,956

)

Other income, net

 

 

4,164

 

 

 

793

 

 

 

843

 

Loss before provision for income taxes

 

 

(15,976

)

 

 

(10,240

)

 

 

(2,113

)

Provision for income taxes

 

 

(734

)

 

 

(522

)

 

 

(457

)

Net loss

 

$

(16,710

)

 

$

(10,762

)

 

$

(2,570

)

Year Ended December 31,
202220212020
(in thousands)
Revenue$1,675,100 $1,028,784 $603,466 
Cost of revenue (1)(2)(4)
346,743 234,245 130,197 
Gross profit1,328,357 794,539 473,269 
Operating expenses:
Research and development (1)(3)(4)
752,351 419,769 210,626 
Sales and marketing (1)(2)(3)(4)
495,288 299,497 213,660 
General and administrative (1)(3)(4)
139,413 94,429 62,756 
Total operating expenses1,387,052 813,695 487,042 
Operating loss(58,695)(19,156)(13,773)
Other income (loss):
Interest expense (5)
(16,535)(21,052)(30,434)
Interest income and other income, net37,160 21,786 21,985 
Other income (loss), net20,625 734 (8,449)
Loss before provision for income taxes(38,070)(18,422)(22,222)
Provision for income taxes(12,090)(2,323)(2,325)
Net loss$(50,160)$(20,745)$(24,547)

(1)

Includes stock-based compensation expense as follows:

____________________

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Cost of revenue

 

$

582

 

 

$

287

 

 

$

112

 

Research and development

 

 

7,972

 

 

 

1,641

 

 

 

1,160

 

Sales and marketing

 

 

5,538

 

 

 

1,910

 

 

 

977

 

General and administrative

 

 

4,942

 

 

 

1,406

 

 

 

819

 

Total

 

$

19,034

 

 

$

5,244

 

 

$

3,068

 

(1)Includes stock-based compensation expense as follows:

(2)

Includes amortization of acquired intangibles expense as follows:

Year Ended December 31,
202220212020
(in thousands)
Cost of revenue$10,827 $4,565 $1,794 
Research and development237,120 101,942 38,008 
Sales and marketing76,735 35,035 20,467 
General and administrative38,472 22,195 14,105 
Total$363,154 $163,737 $74,374 

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Cost of revenue

 

$

752

 

 

$

511

 

 

$

484

 

____________________

(3)

Includes a $2.3 million, $0.4 million and $2.3 million benefit within Research and development, Sales and marketing and General and administrative expenses, respectively, related to the release of a non-income tax liability for the year ended December 31, 2019. See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion.

(2)Includes amortization of acquired intangibles expense as follows:

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Year Ended December 31,
202220212020
(in thousands)
Cost of revenue$6,750 $3,792 $943 
Sales and marketing825 600 — 
Total$7,575 $4,392 $943 
(3)Includes non-cash benefit related to tax adjustment as follows:
46


Year Ended December 31,
202220212020
(in thousands)
Research and development$— $— $(2,729)
Sales and marketing— — (449)
General and administrative— — (2,383)
Total$— $— $(5,561)
_____________________
(4)Includes employer payroll taxes on employee stock transactions as follows:
Year Ended December 31,
202220212020
(in thousands)
Cost of revenue$266 $345 $187 
Research and development10,384 8,143 2,836 
Sales and marketing2,766 6,349 3,756 
General and administrative830 1,248 839 
Total$14,246 $16,085 $7,618 
____________________
(5)Includes amortization of debt discount and issuance costs as follows:
Year Ended December 31,
202220212020
(in thousands)
Interest expense$3,369 $3,349 $18,727 
The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:

 

Years Ended December 31,

 

Year Ended December 31,

 

2019

 

 

2018

 

 

2017

 

202220212020

 

(as a percentage of total revenue)

 

(as a percentage of total revenue(1))

Revenue

 

 

100

%

 

 

100

%

 

 

100

%

Revenue100 %100 %100 %

Cost of revenue

 

 

25

 

 

 

23

 

 

 

23

 

Cost of revenue21 23 22 

Gross profit

 

 

75

 

 

 

77

 

 

 

77

 

Gross profit79 77 78 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:Operating expenses:

Research and development

 

 

31

 

 

 

28

 

 

 

25

 

Research and development45 41 35 

Sales and marketing

 

 

40

 

 

 

45

 

 

 

44

 

Sales and marketing30 29 35 

General and administrative

 

 

10

 

 

 

9

 

 

 

11

 

General and administrative8 9 10 

Total operating expenses

 

 

81

 

 

 

82

 

 

 

80

 

Total operating expenses83 79 81 

Operating loss

 

 

(6

)

 

 

(5

)

 

 

(3

)

Operating loss(4)(2)(2)

Other income, net

 

 

1

 

 

 

1

 

 

 

1

 

Other income (loss):Other income (loss):
Interest expenseInterest expense(1)(2)(5)
Interest income and other income, netInterest income and other income, net2 2 4 
Other income (loss), netOther income (loss), net1 0 (1)

Loss before provision for income taxes

 

 

(5

)

 

 

(4

)

 

 

(2

)

Loss before provision for income taxes(2)(2)(4)

Provision for income taxes

 

 

(0

)

 

 

(1

)

 

 

(1

)

Provision for income taxes(1)0 0 

Net loss

 

 

(5

)%

 

 

(5

)%

 

 

(3

)%

Net loss(3)%(2)%(4)%

_____________________
(1)Certain items may not total due to rounding.
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Comparison of the Years Ended December 31, 20192022 and 2018

2021

Revenue

 

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Change

 

 

% Change

 

 

 

(dollars in thousands)

 

 

 

 

 

Revenue

 

$

362,780

 

 

$

198,077

 

 

$

164,703

 

 

 

83

%

Year Ended December 31,
20222021Change% Change
Revenue$1,675,100 $1,028,784 $646,316 63 %

Revenue increased by $164.7$646.3 million or 83%63%, for the year ended December 31, 20192022 compared to the year ended December 31, 2018. The2021. Approximately 75% of the increase in revenue was primarily dueattributable to growth from existing customers, withand the remaining increase25% was attributable to growth from new customers.

Cost of Revenue and Gross Margin

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2019

 

 

2018

 

 

Change

 

 

% Change

 

20222021Change% Change

 

(dollars in thousands)

 

 

 

 

 

(dollars in thousands)

Cost of revenue

 

$

88,949

 

 

$

46,529

 

 

$

42,420

 

 

 

91

%

Cost of revenue$346,743 $234,245 $112,498 48 %

Gross margin

 

 

75

%

 

 

77

%

 

 

-2

%

 

 

 

 

Gross margin79 %77 %2 %

Cost of revenue increased by $42.4$112.5 million, or 91%48%, for the year ended December 31, 20192022 compared to the year ended December 31, 2018. 2021. This increase was primarily due to an increase of $35.2$82.1 million in third-party cloud infrastructure hosting and software costs, an increase of $3.2$16.6 million in personnel expenses as a result of increased headcount, an increase of $2.5 million of depreciation and amortization expense, an increase of $0.8 million in credit card processing fees and other fees, and an increase of $0.7$7.2 million in depreciation and amortization expense.
Our gross margin increased by 2% for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily as the result of revenue growth exceeding the growth of third-party cloud infrastructure provider costs due to cost savings.
Research and Development
Year Ended December 31,
20222021Change% Change
(dollars in thousands)
Research and development$752,351 $419,769 $332,582 79 %
Percentage of revenue45 %41 %
Research and development expense increased by $332.6 million, or 79%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This increase was primarily due to an increase of $273.6 million in personnel costs for our engineering, product and design teams as a result of increased headcount, an increase of $40.3 million in cloud infrastructure-related investments, and an increase of $15.0 million in allocated overhead costs as a result of an increase in overall costs necessary to support the growth of the business and related infrastructure.

Our gross margin declined

Sales and Marketing
Year Ended December 31,
20222021Change% Change
(dollars in thousands)
Sales and marketing$495,288 $299,497 $195,791 65 %
Percentage of revenue30 %29 %
48

Sales and marketing expense increased by 2%$195.8 million, or 65%, for the year ended December 31, 20192022 compared to the year ended December 31, 2018, primarily as the result of the timing and amount of our investments to expand the capacity of our third-party cloud infrastructure providers.

43

Research and Development

 

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Change

 

 

% Change

 

 

 

(dollars in thousands)

 

 

 

 

 

Research and development

 

$

111,425

 

 

$

55,176

 

 

$

56,249

 

 

 

102

%

Percentage of revenue

 

 

31

%

 

 

28

%

 

 

 

 

 

 

 

 

Research and development expense increased by $56.2 million, or 102%, for the year ended December 31, 2019 compared to the year ended December 31, 2018.2021. This increase was primarily due to an increase of $38.5 million in personnel costs for our engineering, product and design teams as a result of increased headcount, and an increase of $17.7 million in cloud infrastructure related investments and in allocated overhead costs necessary for supporting the growth of the business.  

Sales and Marketing

 

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Change

 

 

% Change

 

 

 

(dollars in thousands)

 

 

 

 

 

Sales and marketing

 

$

146,657

 

 

$

88,849

 

 

$

57,808

 

 

 

65

%

Percentage of revenue

 

 

40

%

 

 

45

%

 

 

 

 

 

 

 

 

Sales and marketing expense increased by $57.8 million, or 65%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. This increase was primarily due to an increase of $39.6$154.2 million in personnel costs for our sales and marketing organization as a result of increased headcount and increased variable compensation for our sales personnel, an increase of $10.4$22.4 million in marketing and promotional activities, and an increase of $15.1 million in allocated overhead costs as a result of an increase in overall costs necessary to support the growth of the business and related infrastructure, and an increase of $7.8 million in marketing and promotional activities.

infrastructure.

General and Administrative

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2019

 

 

2018

 

 

Change

 

 

% Change

 

20222021Change% Change

 

(dollars in thousands)

 

 

 

 

 

(dollars in thousands)

General and administrative

 

$

35,889

 

 

$

18,556

 

 

$

17,333

 

 

 

93

%

General and administrative$139,413 $94,429 $44,984 48 %

Percentage of revenue

 

 

10

%

 

 

9

%

 

 

 

 

 

 

 

 

Percentage of revenue8 %9 %

General and administrative expense increased by $17.3$45.0 million, or 93%48%, for the year ended December 31, 20192022 compared to the year ended December 31, 2018. 2021. This increase was primarily due to an increase of $8.6$39.2 million in personnel expenses as a result of increased headcount and an increase of $6.9$2.9 million related to outside professional fees primarily related to legal and accounting services, an increase of $1.8 million in allocated overhead expenses related to an increase in overall costs necessary to support the growth of the business and related infrastructure.

Comparison of the Years Ended December 31, 2018 and 2017

Revenue

bad debt expense.

 

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

% Change

 

 

 

(dollars in thousands)

 

 

 

 

 

Revenue

 

$

198,077

 

 

$

100,761

 

 

$

97,316

 

 

 

97

%

Other Income, Net

Revenue

Year Ended December 31,
20222021Change% Change
(dollars in thousands)
Other income, net$20,625 $734 $19,891 2,710 %
Percentage of revenue1 %0 %
Other income, net increased by $97.3$19.9 million, or 97%,2,710% for the year ended December 31, 20182022 compared to the year ended December 31, 2017. Approximately 60% of the increase in revenue was attributable to the growth from existing customers, and the remaining increase in revenue was attributable to new customers.

44

Cost of Revenue and Gross Margin

 

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

% Change

 

 

 

(dollars in thousands)

 

 

 

 

 

Cost of revenue

 

$

46,529

 

 

$

23,414

 

 

$

23,115

 

 

 

99

%

Gross margin

 

 

77

%

 

 

77

%

 

 

 

 

 

 

 

 

Cost of revenue increased by $23.1 million, or 99%, for the year ended December 31, 2018 compared to the year ended December 31, 2017.2021. This increase was primarily due todriven by an increase of $17.2$13.5 million in third-party cloud infrastructure hosting and software costs, an increase of $2.5 million in personnel expenses as a result of increased headcount, an increase of $1.8 million of depreciation and amortization expense, an increase of $0.9 million in credit card processing fees and other fees, and an increase of $0.7 million in allocated overhead costs as a result of an increase in overall costs necessary to support the growth of the business and related infrastructure.

Our gross margin remained relatively constant for the fiscal year ended December 31, 2018 compared to the fiscal year ended December 31, 2017.

Research and Development

 

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

% Change

 

 

 

(dollars in thousands)

 

 

 

 

 

Research and development

 

$

55,176

 

 

$

24,734

 

 

$

30,442

 

 

 

123

%

Percentage of revenue

 

 

28

%

 

 

25

%

 

 

 

 

 

 

 

 

Research and development expense increased by $30.4 million, or 123%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. This increase was primarilyinterest income, mainly due to an increase of $21.7 million in personnel costs for our engineering, product and design teams as a result of increased headcount and an increase of $8.7 million in cloud infrastructure related investments and in allocated overhead costs necessary for supporting the growth of the business.

Sales and Marketing

 

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

% Change

 

 

 

(dollars in thousands)

 

 

 

 

 

Sales and marketing

 

$

88,849

 

 

$

44,213

 

 

$

44,636

 

 

 

101

%

Percentage of revenue

 

 

45

%

 

 

44

%

 

 

 

 

 

 

 

 

Sales and marketing expense increased by $44.6 million, or 101%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. This increase was primarily due to an increase of $26.1 million in personnel costs for our sales and marketing organization as a result of increased headcount and increased variable compensation for our sales personnel, an increase of $11.6 million in marketing and promotional activities, and an increase of $6.9 million in allocated overhead costs as a result of an increase in overall costs necessary to support the growth of the business and related infrastructure.

General and Administrative

 

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

% Change

 

 

 

(dollars in thousands)

 

 

 

 

 

General and administrative

 

$

18,556

 

 

$

11,356

 

 

$

7,200

 

 

 

63

%

Percentage of revenue

 

 

9

%

 

 

11

%

 

 

 

 

 

 

 

 

General and administrative expense increased by $7.2 million, or 63%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. This increase was primarily due to an increase of $4.7 million in personnel expenses as a result of increased headcount, an increase of $0.9 million related to outside professional fees primarily related to legal and accounting services, an increase of $1.6 million in allocated overhead expenses related to an increase in overall costs necessary to support the growth of the business and related infrastructure.

45

Quarterly Results of Operations

The following tables summarize our selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended December 31, 2019. The information for each of these quarters has been prepared on the same basis as our audited annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10-K. Historical results are not necessarily indicative of the results that may be expected for the full fiscal year or any other period.

 

 

Three Months Ended

 

 

 

December 31,

2019

 

 

September 30,

2019

 

 

June 30,

2019

 

 

March 31,

2019

 

 

December 31,

2018

 

 

September 30,

2018

 

 

June 30,

2018

 

 

March 31,

2018

 

 

 

(in thousands, except per share data; unaudited)

 

Revenue

 

$

113,644

 

 

$

95,864

 

 

$

83,222

 

 

$

70,050

 

 

$

61,610

 

 

$

51,074

 

 

$

45,678

 

 

$

39,715

 

Cost of revenue(1)(2)

 

 

25,724

 

 

 

23,297

 

 

 

20,978

 

 

 

18,950

 

 

 

15,839

 

 

 

12,098

 

 

 

9,450

 

 

 

9,142

 

Gross profit

 

 

87,920

 

 

 

72,567

 

 

 

62,244

 

 

 

51,100

 

 

 

45,771

 

 

 

38,976

 

 

 

36,228

 

 

 

30,573

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development(1)

 

 

35,894

 

 

 

28,684

 

 

 

24,032

 

 

 

22,815

 

 

 

17,720

 

 

 

14,159

 

 

 

12,426

 

 

 

10,871

 

Sales and marketing(1)

 

 

41,596

 

 

 

38,836

 

 

 

36,118

 

 

 

30,107

 

 

 

29,102

 

 

 

25,130

 

 

 

19,335

 

 

 

15,282

 

General and administrative(1)

 

 

12,696

 

 

 

9,265

 

 

 

6,088

 

 

 

7,840

 

 

 

5,623

 

 

 

4,322

 

 

 

4,344

 

 

 

4,267

 

Total operating expenses(3)

 

 

90,186

 

 

 

76,785

 

 

 

66,238

 

 

 

60,762

 

 

 

52,445

 

 

 

43,611

 

 

 

36,105

 

 

 

30,420

 

Operating (loss) income

 

 

(2,266

)

 

 

(4,218

)

 

 

(3,994

)

 

 

(9,662

)

 

 

(6,674

)

 

 

(4,635

)

 

 

123

 

 

 

153

 

Other income, net

 

 

3,518

 

 

 

90

 

 

 

326

 

 

 

230

 

 

 

181

 

 

 

311

 

 

 

28

 

 

 

273

 

Income (loss) before

   income taxes

 

 

1,252

 

 

 

(4,128

)

 

 

(3,668

)

 

 

(9,432

)

 

 

(6,493

)

 

 

(4,324

)

 

 

151

 

 

 

426

 

Provision for income taxes

 

 

(361

)

 

 

(33

)

 

 

(281

)

 

 

(59

)

 

 

(94

)

 

 

(349

)

 

 

2

 

 

 

(81

)

Net income (loss)

 

$

891

 

 

$

(4,161

)

 

$

(3,949

)

 

$

(9,491

)

 

$

(6,587

)

 

$

(4,673

)

 

$

153

 

 

$

345

 

Net income (loss) per share,

  basic

 

 

0.00

 

 

 

(0.04

)

 

 

(0.05

)

 

 

(0.12

)

 

 

(0.09

)

 

 

(0.06

)

 

 

0.00

 

 

 

0.01

 

Net income (loss) per share,

  diluted

 

 

0.00

 

 

 

(0.04

)

 

 

(0.05

)

 

 

(0.12

)

 

 

(0.09

)

 

 

(0.06

)

 

 

0.00

 

 

 

0.00

 

Weighted average shares used in calculating basic net income (loss) per share

 

 

294,515

 

 

 

103,876

 

 

 

82,043

 

 

 

77,061

 

 

 

74,640

 

 

 

73,353

 

 

 

71,942

 

 

 

63,723

 

Weighted average shares used in calculating diluted net income (loss) per share

 

 

327,333

 

 

 

103,876

 

 

 

82,043

 

 

 

77,061

 

 

 

74,640

 

 

 

73,353

 

 

 

86,673

 

 

 

74,433

 

(1)

Includes stock-based compensation expense as follows:

 

 

Three Months Ended

 

 

 

December 31,

2019

 

 

September 30,

2019

 

 

June 30,

2019

 

 

March 31,

2019

 

 

December 31,

2018

 

 

September 30,

2018

 

 

June 30,

2018

 

 

March 31,

2018

 

 

 

(in thousands)

 

Cost of revenue

 

$

210

 

 

$

161

 

 

$

112

 

 

$

99

 

 

$

105

 

 

$

74

 

 

$

62

 

 

$

46

 

Research and development

 

 

4,263

 

 

 

1,934

 

 

 

989

 

 

 

786

 

 

 

710

 

 

 

387

 

 

 

265

 

 

 

279

 

Sales and marketing

 

 

2,262

 

 

 

1,540

 

 

 

1,007

 

 

 

729

 

 

 

669

 

 

 

522

 

 

 

420

 

 

 

299

 

General and administrative

 

 

2,283

 

 

 

1,042

 

 

 

786

 

 

 

831

 

 

 

709

 

 

 

325

 

 

 

202

 

 

 

170

 

Stock-based compensation

   expense

 

$

9,018

 

 

$

4,677

 

 

$

2,894

 

 

$

2,445

 

 

$

2,193

 

 

$

1,308

 

 

$

949

 

 

$

794

 

(2)

Includes amortization of acquired intangibles expense as follows:

46

 

 

Three Months Ended

 

 

 

December 31,

2019

 

 

September 30,

2019

 

 

June 30,

2019

 

 

March 31,

2019

 

 

December 31,

2018

 

 

September 30,

2018

 

 

June 30,

2018

 

 

March 31,

2018

 

 

 

(in thousands)

 

Cost of revenue

 

$

221

 

 

$

179

 

 

$

177

 

 

$

175

 

 

$

179

 

 

$

112

 

 

$

108

 

 

$

112

 

(3)

Includes a $2.3 million, $0.4 million and $2.3 million benefit within Research and development, Sales and marketing and General and administrative expenses, respectively, related to the release of a non-income tax liability for the three months ended June 30, 2019. See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion.

 

 

Three Months Ended

 

 

 

December 31,

2019

 

 

September 30,

2019

 

 

June 30,

2019

 

 

March 31,

2019

 

 

December 31,

2018

 

 

September 30,

2018

 

 

June 30,

2018

 

 

March 31,

2018

 

 

 

(as a percentage of total revenue)

 

Revenue

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

Cost of revenue

 

 

23

 

 

 

24

 

 

 

25

 

 

 

27

 

 

 

26

 

 

 

24

 

 

 

21

 

 

 

23

 

Gross profit

 

 

77

 

 

 

76

 

 

 

75

 

 

 

73

 

 

 

74

 

 

 

76

 

 

 

79

 

 

 

77

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

32

 

 

 

30

 

 

 

29

 

 

 

33

 

 

 

29

 

 

 

28

 

 

 

27

 

 

 

27

 

Sales and marketing

 

 

36

 

 

 

41

 

 

 

43

 

 

 

43

 

 

 

47

 

 

 

49

 

 

 

42

 

 

 

38

 

General and administrative

 

 

11

 

 

 

10

 

 

 

7

 

 

 

11

 

 

 

9

 

 

 

8

 

 

 

10

 

 

 

11

 

Total operating expenses

 

 

79

 

 

 

81

 

 

 

79

 

 

 

87

 

 

 

85

 

 

 

85

 

 

 

79

 

 

 

76

 

Operating (loss) income

 

 

(2

)

 

 

(4

)

 

 

(4

)

 

 

(14

)

 

 

(11

)

 

 

(9

)

 

 

0

 

 

 

1

 

Other income, net

 

 

3

 

 

 

0

 

 

 

0

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

0

 

 

 

1

 

Income (loss) before

   income taxes

 

 

1

 

 

 

(4

)

 

 

(4

)

 

 

(13

)

 

 

(10

)

 

 

(8

)

 

 

0

 

 

 

2

 

Provision for income taxes

 

 

(0

)

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

0

 

 

 

(1

)

Net income (loss)

 

 

1

%

 

 

(5

)%

 

 

(5

)%

 

 

(14

)%

 

 

(11

)%

 

 

(9

)%

 

 

0

%

 

 

1

%

Quarterly Revenue Trends

Total revenue increased sequentially in each of the quarters presented primarily due to the growth from existing customers and the addition of new customers. We recognize revenue ratably over the terms of our subscription contracts. As a result, a substantial portion of the revenue we report in a period is attributable to orders we received during prior periods. Therefore, increases or decreases in new sales, customer expansion or renewals in a period may not be immediately reflected in revenue for the period.

Quarterly Cost of Revenue Trends

Our quarterly cost of revenue has generally increased quarter-over-quarter in each period presented above primarily as a result of third-party cloud infrastructure hosting and software costs, as well as increased headcount, which resulted in increased personnel expenses.

Quarterly Gross Margin Trends

Our quarterly gross margins have fluctuated between 73% and 79% in each period presented. Our gross margins increased in the last three quarters ended December 31, 2019 as a result of better optimization of cloud spend.

Quarterly Operating Expense Trends

Operating expenses have generally increased in each sequential quarter presented above primarily due to the increased headcount, infrastructure and related costs to support our growth. We intend to continue to make significant investments in research and development as we add features and enhance our platform. We also intend to invest in our sales and marketing organization to drive future revenue growth.

Quarterly Other Income, Net Trends

Other income net stayed flat over the seven quarters ended September 30, 2019. During the last quarter ended December 31, 2019, we earned interest income from investments in money market fundsmarketable securities, and a decrease of $4.5 million in amortization of premiums on our marketable securities.

47


Liquidity and Capital Resources

Since inception, we have financed operations primarily through sales of subscriptions and the net proceeds we have received from sales of equity securities as further detailed below. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our marketable securities consist of U.S. government treasury securities, commercial paper and corporate bonds. As of December 31, 2019, we had cash and cash equivalents of $597.3 million and marketable securities of $176.7 million.

In September 2019, we closed our IPO of 27,600,000 shares of our Class A common stock at an offering price of $27.00 per share, including 3,600,000 shares pursuant to the underwriters’ option to purchase shares of our Class A common stock, resulting in aggregate net proceeds to us of $705.9 million after deducting underwriting discounts and commissions of $37.3 million and net offering expenses of $2.0 million.

We believe that our existing cash and cash equivalents, marketable securities and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, including the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, and the continuing market adoption of our platform. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.

A substantial source of our cash from operations is from our deferred revenue, which is included in the liabilities section of our consolidated balance sheet. Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As of December 31, 2019, we had deferred revenue of $138.5 million, of which $134.1 million was recorded as a current liability and expected to be recognized as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

The following table shows a summary of our cash flows for the periods presented:

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Cash provided by operating activities

 

$

24,234

 

 

$

10,829

 

 

$

13,832

 

Cash used in investing activities

 

 

(202,220

)

 

 

(17,456

)

 

 

(12,760

)

Cash provided by financing activities

 

$

714,216

 

 

$

7,782

 

 

$

462

 

Operating Activities

Our largest source of operating cash is cash collection from sales of subscriptions to our customers. Our primary uses of cash from operating activities are for personnel expenses, marketing expenses, hosting expenses, facility expenses, and overheadmarketing expenses. We have generated positive cash flows from operations during the years ended December 31, 2022, 2021, and have supplemented2020. When assessing sources of liquidity, we also include cash and cash equivalents of $339.0 million and marketable securities of $1.5 billion as of December 31, 2022. We believe that our existing cash and cash equivalents, marketable securities and cash flow from operations will be sufficient to support our cash requirements for the next 12 months and beyond.

Our working capital requirements throughare principally comprised of workforce salaries, bonuses, commissions, and benefits and, to a lesser extent, cancellable and non-cancelable licenses and services arrangements that are integral to our business operations, and operating lease obligations. Non-cancelable purchase commitments for business operations and operating lease obligations total $721.5 million and $326.6 million, respectively, as of December 31, 2022, due primarily over the next five years. Purchase commitments for business operations are primarily related to cloud hosting and other software-based services.

We have also issued long-term debt to finance our business. In June 2020, we issued $747.5 million aggregate principal amount of the 2025 Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The total net proceeds from the sale of equity securities.

the 2025 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $730.2 million. The principal and future interest payments related to our 2025 Notes are $749.9 million.

49

Cash Flows
The following table shows a summary of our cash flows for the periods presented:
Year Ended December 31,
20222021
(in thousands)
Cash provided by operating activities$418,407 $286,545 
Cash used in investing activities(384,670)(273,740)
Cash provided by financing activities36,023 34,940 
Operating Activities
Net cash provided by operating activities for the fiscal year ended December 31, 2019 of $24.22022 increased $131.9 million wascompared to the year ended December 31, 2021, primarily related to our net loss of $16.7 million, adjusted fordriven by an increase in non-cash charges of $50.5$218.3 million. The increase in non-cash charges related primarily to an increase of $199.4 million and netin stock-based compensation as we continued to increase headcount to support the growth of the business. The increase in cash outflows of $9.5 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, depreciation and amortization of property and equipment, amortization of capitalized software, amortization of acquired intangibles and amortization of deferred contract costs. The main drivers of the changes in operating assets and liabilities were related to a $67.8 million increase in deferred revenue, resulting primarily from increased billings for subscriptions, a $6.4 million increase in accrued expenses and other liabilities, and a $2.5 million increase in accounts payable. These amounts wereactivities was partially offset by a $47.5 millionan increase in accounts receivable net,of $28.6 million due to increasesan increase in sales, a $20.1 millionan increase in deferred contract costs related to commissions paid on new bookings,of $8.3 million, a $10.0decrease in deferred revenue of $7.6 million, and an increase in prepaid expenses and other current assets primarily driven by prepaid hosting services, and a $8.5 million increase in other assets.

Cash provided by operating activities for the fiscal year ended December 31, 2018 of $10.8 million was primarily related to our net loss of $10.8 million, adjusted for non-cash charges of $14.4 million and net cash inflows of $7.2 million provided by changes

48

in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, net of amounts capitalized, depreciation and amortization of property and equipment, amortization of capitalized software, and amortization of acquired intangibles. The main drivers of the changes in operating assets and liabilities were related to a $31.6 million increase in deferred revenue, resulting primarily from increased billings for subscriptions, a $7.2 million increase in accounts payable, and a $10.9 million increase in accrued expenses and other liabilities, due to an increase in headcount. These amounts were partially offset by a $25.3 million increase in accounts receivable, net, due to increases in sales, a $1.3 million increase in prepaid expenses and other current assets, primarily driven by prepaid hosting services, an $8.9 million increase in deferred contract costs related to commissions paid on new bookings, and a $7.0 million increase in other assets.

Cash provided by operating activities for the fiscal year ended December 31, 2017 of $13.8 million was primarily related to our net loss of $2.6 million, adjusted for non-cash charges of $7.4 million and net cash inflows of $9.0 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, net of amounts capitalized, depreciation and amortization of property and equipment, amortization of capitalized software, and amortization of acquired intangibles. The main drivers of the changes in operating assets and liabilities were related to a $29.8 million increase in deferred revenue, resulting primarily from increased billings for subscriptions, a $4.6 million increase in accounts payable, and a $2.9 million increase in accrued expenses and other liabilities, due to an increase in headcount. These amounts were partially offset by a $19.3 million increase in accounts receivable, net, due to increases in sales, a $4.3 million increase in prepaid expenses and other current assets, a $3.4 million increase in deferred contract costs related to commissions paid on new bookings, and a $1.5 million increase in other assets.

$5.8 million.

Investing Activities

Cash

Net cash used in investing activities for the yearsyear ended December 31, 2019, 2018 and 2017 was $202.22022 increased by $110.9 million $17.5 million and $12.8 million, respectively, and wascompared to the year ended December 31, 2021, primarily driven by a increase in the result of investment in marketable securities increasesof $288.2 million, a decrease in capital expenditures to purchaseproceeds from the sale of marketable securities of $65.7 million, and an increase in purchases of property and equipment to support additional office spaceof $25.3 million. The increase in cash used in investing activities was partially offset by a decrease in cash paid for the acquisition of businesses net of cash acquired of $180.6 million and site operations, increasesan increase in capitalizationproceeds from maturities of software development costs and increases in acquired intangibles.

marketable securities of $91.2 million.

Financing Activities

Cash

Net cash provided by financing activities for the year ended December 31, 2019 was $714.22022 increased by $1.1 million compared to the year ended December 31, 2021, primarily due to an increase in proceeds from the issuance of Class A common stock under the ESPP of $5.7 million and was primarily the result of aggregate net proceeds from our IPOpartially offset by a decrease in the amount of $706.3 million and proceeds from the exercise of stock options in the amount of $7.9$4.9 million. Cash provided by financing activities for the fiscal years ended December 31, 2018 and 2017 was $7.8 million and $0.5 million, respectively, and was primarily the result of proceeds from the exercise of stock options.

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Non-GAAP Free Cash Flow

We report our financial results in accordance with U.S. GAAP. To supplement our consolidated financial statements, we provide investors with the amount of free cash flow, which is a non-GAAP financial measure. Free cash flow represents net cash used inprovided by operating activities, reduced by capital expenditures and capitalized software development costs, if any. Free cash flow is a measure used by management to understand and evaluate our liquidity and to generate future operating plans. The reduction of capital expenditures and amounts capitalized for software development facilitates comparisons of our liquidity on a period-to-period basis and excludes items that we do not consider to be indicative of our liquidity. We believe that free cash flow is a measure of liquidity that provides useful information to our management, board of directors, investors and others 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. Nevertheless, our use of free cash flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Further, our definition of free cash flow may differ from the definitions used by other companies and therefore comparability may be limited. You should consider free cash flow alongside our other GAAP-based financial performance measures, such as net cash used in operating activities, and our other GAAP financial results.
The following table presents a reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP measure, for each of the periods indicated.

The following table presents our cash flows for the periods presented and a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP:

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Net cash provided by operating activities

 

$

24,234

 

 

$

10,829

 

 

$

13,832

 

Less: Purchases of property and equipment

 

 

(13,315

)

 

 

(9,662

)

 

 

(2,351

)

Less: Capitalized software development costs

 

 

(10,128

)

 

 

(6,176

)

 

 

(5,452

)

Free cash flow

 

$

791

 

 

$

(5,009

)

 

$

6,029

 

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2019:

 

 

Payments Due By Period

 

 

 

Total

 

 

Less than 1

Year

 

 

1-3 Years

 

 

3-5 Years

 

 

More than 5

Years

 

 

 

(in thousands)

 

Operating lease commitments

 

$

66,837

 

 

$

14,576

 

 

$

48,244

 

 

$

4,017

 

 

$

—

 

Purchase commitments

 

 

213,229

 

 

 

74,875

 

 

 

138,354

 

 

 

—

 

 

 

—

 

Total

 

$

280,066

 

 

$

89,451

 

 

$

186,598

 

 

$

4,017

 

 

$

—

 

The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timingGAAP, for each of the actions under the contracts. Our operating lease commitments relate primarily to our office space. The significant operating lease obligations relate to leases for our New York, Boston, Paris and Dublin office spaces. Purchase commitments relate mainly to hosting agreements as well as computer software used to facilitate our operations at the enterprise level.

In January 2020, we entered into an agreement with Microsoft Azure, pursuant to which we are required to purchase an aggregate of at least $21.0 million of cloud services through January 2023. This agreement is not reflected in the table above.

We have also excluded unrecognized tax benefits from the contractual obligations table above. A variety of factors could affect the timing of payments for the liabilities related to unrecognized tax benefits. Therefore, we cannot reasonably estimate the timing of such payments. We believe that these matters will likely not be resolved in the next 12 months and accordingly we have classified the estimated liability as non-current in the consolidated balance sheet. For further information see Note 12 in our Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10-K.

periods indicated:

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Off-Balance Sheet Arrangements

As of December 31, 2019 we did not have any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.


Year Ended December 31,
202220212020
(in thousands)
Net cash provided by operating activities$418,407 $286,545 $109,091 
Less: Purchases of property and equipment(35,261)(9,956)(5,415)
Less: Capitalized software development costs(29,628)(26,069)(20,468)
Free cash flow$353,518 $250,520 $83,208 

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

The significant accounting policies and methods used in the preparation of our consolidated financial statements are discussed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.We believe that the accounting policies described below involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition

We generate revenue from the sale of subscriptions to customers using our cloud-based platform. The terms of our subscription agreements are primarily monthly or annual, with the majority of our revenue coming from annual subscriptions. Our customers can enter into a subscription for a committed contractual amount of usage that is apportioned ratably on a monthly basis over the term of the subscription period, a subscription for a committed contractual amount of usage that is delivered as used, or a monthly subscription based on usage. To the extent that our customers’ usage exceeds the committed contracted amounts under their subscriptions, either on a monthly basis in the case of a ratable subscription or once the entire commitment is used in the case of a delivered-as-used subscription, they are charged for their incremental usage.

We elected to early adopt Financial Accounting Standards Board, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or Topic 606, effective January 1, 2017, using the full retrospective method of adoption. As such, the consolidated financial statements present revenue in accordance with Topic 606 for the period presented.

usage.

We account for revenue contracts with customers through the following steps:

(1)identify the contract with a customer;

(2)identifytheperformanceobligationsin thecontract;

(3)determinethetransactionprice;

(4)allocatethetransactionprice to the performance obligations in the contract; and

(5)recognizerevenuewhen or as we satisfya performanceobligation.

Our subscriptions are generally non-cancellable. Once we have determined the transaction price, the total transaction price is allocated to each performance obligation in the contract on a relative stand-alone selling price basis, or SSP. The determination of a relative stand-alone SSP for each distinct performance obligation requires judgment. We determine SSP for performance obligations based on overall pricing objectives, which take into consideration market conditions and customer-specific factors. This includes a review of internal discounting tables, the service(s) being sold, and customer demographics.

Revenue is recognized when control of these services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those services. We determineddetermine an output method to be the most appropriate measure of progress because it most faithfully represents when the value of the services areis simultaneously received and consumed by the customer, and control is transferred.

For committed contractual amounts of usage, revenue is recognized ratably over the term of the subscription agreement generally beginning on the date that the platform is made available to a customer. For committed contractual amount of usage that is delivered as used, a monthly subscription based on usage, or usage in excess of a ratable subscription, we recognize revenue as the services are rendered.

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Stock-Based Compensation

We account for stock-based compensation expense related to stock-based awards based on the estimated fair value of the award on the grant date. We historically issued options to purchase shares of our common stock under our 2012 equity incentive plan, or the 2012 Plan. Following the IPO, we ceased granting awards under the 2012 Plan, and all shares that remained available for issuance under the 2012 Plan at that time were transferred to our 2019 equity incentive plan, or the 2019 Plan. Under the 2019 Plan, we may grant stock options, stock appreciation rights, restricted stock awards, restricted stock units, or RSUs, and performance-based and other awards, each valued or based on our Class A common stock, to our employees, directors, consultants, and advisors. Through December 31, 2019, we have only issued stock options and RSUs in connection with the 2012 Plan and 2019 Plan. For further information see Note 11 in our Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10-K.

Compensation expense related to stock-based transactions, including employee, consultant, and non-employee director stock option awards, is measured and recognized in the consolidated financial statements based on fair value. The fair value of each option award is estimated on the grant date using the Black Scholes option-pricing model. Expense is recognized on a straight-line basis over the vesting period of the award. Forfeitures are accounted for in the period in which the awards are forfeited.

Our option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected term of the option, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions used in our option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

These assumptions are estimated as follows:

Fair value. Prior to our IPO, the fair value of common stock underlying the stock options had historically been determined by our Board of Directors, with input from our management. Our Board of Directors previously determined the fair value of the common stock at the time of grant of the options by considering a number of objective and subjective factors, including theresultsof contemporaneous independentthird-partyvaluationsof ourcommonstock,theprices, rights, preferences,and privilegesofourredeemableconvertiblePreferredStockrelativetothoseofourcommonstock, the prices of common or convertible preferred stock sold to third-party investors by us and in secondary transactions or repurchased by us in arm’s-length transactions, thelackofmarketabilityof ourcommonstock,actualoperatingandfinancialresults,currentbusinessconditionsandprojections,thelikelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our company given prevailing market conditions. Subsequent to our IPO, the fair value of the underlying common stock is determined by the closing price, on the date of grant, of our Class A common stock, as reported by the Nasdaq.              

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Expected volatility. Expected volatility is a measure of the amount by which the stock price is expected to fluctuate. Since we do not have sufficient trading history of our common stock, we estimate the expected volatility of our stock options at the grant date by taking the average historical volatility of a group of comparable publicly traded companies over a period equal to the expected life of the options.

Expected term. We determine the expected term based on the average period the stock options are expected to remain outstanding using the simplified method, generally calculated as the midpoint of the stock options’ vesting term and contractual expiration period, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

Risk-free rate. We use the U.S. Treasury yield for our risk-free interest rate that corresponds with the expected term.

Expected dividend yield. We utilize a dividend yield of zero, as we do not currently issue dividends, nor do we expect to do so in the future.

The following assumptions were used to calculate the fair value of stock options granted to employees:

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Expected dividend yield

 

 

—

 

 

 

—

 

 

 

—

 

Expected volatility

 

38.9% - 39.5%

 

 

38.4% - 39.0%

 

 

37.1% - 38.8%

 

Expected term (years)

 

5.2 - 6.3

 

 

5.8 - 6.1

 

 

5.1 - 6.1

 

Risk-free interest rate

 

1.4% -2.6%

 

 

2.6% - 3.0%

 

 

1.8% - 2.2%

 

52

Assumptions used in valuing non-employee stock options are generally consistent with those used for employee stock options with the exception that the expected term is over the contractual life, or 10 years.

Prior to January 1, 2018, we estimated a forfeiture rate to calculate stock-based compensation. We adopted ASU No. 2016-09, Compensation–Stock Compensation (Topic 718), effective January 1, 2018, and elected to account for forfeitures as they occur, rather than estimating expected forfeitures over the course of a vesting period. We recognized a cumulative effect of $0.8 million to accumulated deficit as of January 1, 2018 upon adoption. For further information see Note 2 in our Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10-K.

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

Internal UseInternal-Use Software Development Costs

We capitalize certain costs related to the development of our platform and other software applications for internal use.internal-use. In accordance with authoritative guidance, we begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. We stop capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant testing. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally estimated to be two years. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within research and development expenses in our consolidated statements of operations.

We exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized. To the extent that we change the manner in which we develop and test new features and functionalities related to our platform, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of internal-use software development costs we capitalize and amortize could change in future periods.

Business Combinations
When we acquire a business, the purchase consideration is allocated to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated respective fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to other income, net in the consolidated statement of operations.
Recently Adopted Accounting Pronouncements

See Note 2, in our Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements”Statements and Supplementary Data” of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates.

53

Interest Rate Risk

As of December 31, 2019,2022, we had $588.8$305.4 million ofin cash equivalents, investedand $1.5 billion in money market funds and marketable securities, totaling $176.7 million.which consisted of commercial debt, commercial paper, certificates of deposit, U.S. government treasury securities, and U.S. government agency securities. In addition, we had $3.9$3.3 million of restricted cash due to the outstanding letters of credit established in connection with lease agreements for our facilities. Our cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. As of December 31, 2019,2022, a hypothetical 10% relative change in interest rates would not have a material impact on our consolidated financial statements.

On June 2, 2020, we issued $747.5 million aggregate principal amount of the 2025 Notes. The fair value of the 2025 Notes is subject to interest rate risk, market risk and other factors due to the conversion feature. The fair value of the 2025 Notes will generally increase as our Class A common stock price increases and will generally decrease as our Class A common stock price declines. The interest and market value changes affect the fair value of the 2025 Notes but do not impact our financial position, cash flows, or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the
52

2025 Notes at face value less unamortized discount and unamortized issuance costs on our balance sheet, and we present the fair value for required disclosure purposes only.
Foreign Currency Exchange Risk

Our reporting currency and the functional currency of our wholly owned foreign subsidiaries is the U.S. dollar. All of our sales are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Canada, France, Ireland, and the United Kingdom, Japan and Australia.Kingdom. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on our operating results.

54

53


Item 8. Financial StatementsStatements and Supplementary Data

DATADOG, INC.

Form 10-K

For the Fiscal Year Ended December 31, 2019

2022

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Page

56

55

57

58

59

60

61

62


55

54


REPORT OF INDEPENDENT REGISTEREDREGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Datadog, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Datadog, Inc. and its subsidiaries (the “Company”"Company"), as of December 31, 20192022 and 2018, and2021, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2019,2022, and the related notes (collectively referred to as the “financial statements”"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle

As discussed in Note 2 to the financial statements, effective January 1, 2019,2021, the Companycompany has adopted the FASB Accounting Standards Update 2016-02, Leases,2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, using the modified retrospective approach.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition — Identification of Performance Obligations – (Refer to Note 2 of the Financial Statements)
Critical Audit Matter Description
As described in Note 2 to the consolidated financial statements, the Company generates revenue from the sale of subscription services contracts to customers using its cloud-based platform. Subscription services contracts with certain of the Company’s customers may include non-standard terms and conditions and promises to transfer multiple services.

55

Contracts with customers that contain non-standard terms and conditions and promises to transfer multiple services require significant judgment by management to identify the distinct performance obligations in the arrangement. Distinct performance obligations will be accounted for as separate performance obligations, while non-distinct services are combined with others to form a single performance obligation.

Given the complexity of the Company’s subscription services contracts with certain customers, coupled with management’s judgments involved in identifying distinct performance obligations and non-standard terms and conditions, auditing the Company’s subscription services contracts with certain customers required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s subscription contracts with certain customers included, among others:
◦We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over revenue recognition. This includes management’s controls over the identification of performance obligations and non-standard terms and conditions in subscription contracts, as well as the allocation of revenue to each performance obligation.
◦We evaluated a sample of subscription contracts with customers to determine if all the promises referred to in the contract were properly identified by management and accounted for as distinct performance obligations by performing the following:
•Obtained and read the subscription contract and independently assessed the terms of the contract to identify all promises and non-standard terms and conditions.
•For each promise identified, we evaluated whether such promise represented a distinct “performance obligation”, as prescribed by Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.
•We evaluated the completeness and accuracy of the performance obligations by comparing those identified by us to those identified by management.
/s/ Deloitte & Touche LLP

New York, New York  

February 25, 2020  

24, 2023 

We have served as the Company's auditor since 2016.

56


DATADOG, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

December 31,

2019

 

 

December 31,

2018

 

December 31,
2022		December 31,
2021

ASSETS

 

 

 

 

 

 

 

 

ASSETS

CURRENT ASSETS:

 

 

 

 

 

 

 

 

CURRENT ASSETS:

Cash and cash equivalents

 

$

597,297

 

 

$

53,639

 

Cash and cash equivalents$338,985 $270,973 

Marketable securities

 

 

176,674

 

 

 

—

 

Marketable securities1,545,341 1,283,473 

Accounts receivable, net of allowance for doubtful accounts of $817 and $477 as of December 31,

2019 and 2018, respectively

 

 

102,394

 

 

 

55,822

 

Accounts receivable, net of allowance for credit losses of $5,626 and $2,997 as of December 31, 2022 and 2021, respectivelyAccounts receivable, net of allowance for credit losses of $5,626 and $2,997 as of December 31, 2022 and 2021, respectively399,551 268,824 

Deferred contract costs, current

 

 

8,346

 

 

 

3,717

 

Deferred contract costs, current33,054 23,235 

Prepaid expenses and other current assets

 

 

19,231

 

 

 

8,773

 

Prepaid expenses and other current assets27,303 24,443 

Total current assets

 

 

903,942

 

 

 

121,951

 

Total current assets2,344,234 1,870,948 

Property and equipment, net

 

 

32,749

 

 

 

21,649

 

Property and equipment, net125,346 75,152 

Operating lease assets

 

 

53,002

 

 

 

—

 

Operating lease assets87,629 61,355 

Goodwill

 

 

9,058

 

 

 

7,626

 

Goodwill348,277 292,176 

Intangible assets, net

 

 

1,435

 

 

 

1,288

 

Intangible assets, net16,365 15,704 

Deferred contract costs, non-current

 

 

17,409

 

 

 

7,292

 

Deferred contract costs, non-current55,338 42,062 

Restricted cash

 

 

3,456

 

 

 

11,341

 

Restricted cash3,303 3,490 

Other assets

 

 

16,990

 

 

 

8,603

 

Other assets24,360 19,907 

TOTAL ASSETS

 

$

1,038,041

 

 

$

179,750

 

TOTAL ASSETS$3,004,852 $2,380,794 

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

(DEFICIT)

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

Accounts payable

 

$

15,429

 

 

$

12,638

 

Accounts payable$23,474 $25,270 

Accrued expenses and other current liabilities

 

 

38,746

 

 

 

30,290

 

Accrued expenses and other current liabilities171,158 111,284 

Operating lease liabilities, current

 

 

11,916

 

 

 

—

 

Operating lease liabilities, current22,092 20,157 

Deferred revenue, current

 

 

134,148

 

 

 

69,306

 

Deferred revenue, current543,024 371,985 

Total current liabilities

 

 

200,239

 

 

 

112,234

 

Total current liabilities759,748 528,696 

Operating lease liabilities, non-current

 

 

48,510

 

 

 

—

 

Operating lease liabilities, non-current76,582 52,106 
Convertible senior notes, netConvertible senior notes, net738,847 735,482 

Deferred revenue, non-current

 

 

4,340

 

 

 

1,393

 

Deferred revenue, non-current12,944 13,896 

Other liabilities

 

 

2,611

 

 

 

1,359

 

Other liabilities6,226 9,411 

Total liabilities

 

 

255,700

 

 

 

114,986

 

Total liabilities1,594,347 1,339,591 

COMMITMENTS AND CONTINGENCIES (NOTE 9)

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (NOTE 9)

CONVERTIBLE PREFERRED STOCK:

 

 

 

 

 

 

 

 

Convertible preferred stock; $0.00001 par value per share; 0 and 179,814,912 shares authorized as of

December 31, 2019 and 2018, respectively; 0 and 179,814,912 shares issued and outstanding as of

December 31, 2019 and 2018, respectively

 

 

—

 

 

 

140,805

 

STOCKHOLDERS' EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

Preferred stock; $0.00001 par value per share; 20,000,000 and 0 shares authorized as of December 31,

2019 and 2018, respectively; 0 shares issued and outstanding as of December 31, 2019 and 2018,

respectively

 

 

—

 

 

 

—

 

Common stock, $0.00001 par value per share; 0 and 380,000,000 shares authorized as of December 31,

2019 and 2018, respectively; 0 and 78,180,606 shares issued and outstanding as of December 31, 2019

and 2018, respectively

 

 

—

 

 

 

—

 

Class A common stock, $0.00001 par value per share; 2,000,000,000 and 0 shares authorized as of

December 31, 2019 and 2018, respectively; 64,308,498 and 0 shares issued and

outstanding as of December 31, 2019 and 2018, respectively

 

 

1

 

 

 

—

 

Class B common stock, $0.00001 par value per share; 310,000,000 and 0 shares authorized as of

December 31, 2019 and 2018, respectively; 232,078,452 and 0 shares issued and

outstanding as of December 31, 2019 and 2018, respectively

 

 

2

 

 

 

—

 

STOCKHOLDERS' EQUITY:STOCKHOLDERS' EQUITY:
Class A common stock, $0.00001 par value per share; 2,000,000,000 shares authorized as of December 31, 2022 and 2021; 293,573,825 and 263,339,585 shares issued and outstanding as of December 31, 2022 and 2021, respectivelyClass A common stock, $0.00001 par value per share; 2,000,000,000 shares authorized as of December 31, 2022 and 2021; 293,573,825 and 263,339,585 shares issued and outstanding as of December 31, 2022 and 2021, respectively3 2 
Class B common stock, $0.00001 par value per share; 310,000,000 shares authorized as of December 31, 2022 and 2021; 25,616,018 and 50,025,852 shares issued and outstanding as of December 31, 2022 and 2021, respectivelyClass B common stock, $0.00001 par value per share; 310,000,000 shares authorized as of December 31, 2022 and 2021; 25,616,018 and 50,025,852 shares issued and outstanding as of December 31, 2022 and 2021, respectively— 1 

Additional paid-in capital

 

 

905,821

 

 

 

30,834

 

Additional paid-in capital1,625,190 1,197,136 

Accumulated other comprehensive income

 

 

133

 

 

 

31

 

Accumulated other comprehensive lossAccumulated other comprehensive loss(12,422)(3,830)

Accumulated deficit

 

 

(123,616

)

 

 

(106,906

)

Accumulated deficit(202,266)(152,106)

Total stockholders’ equity (deficit)

 

 

782,341

 

 

 

(76,041

)

TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'

EQUITY (DEFICIT)

 

$

1,038,041

 

 

$

179,750

 

Total stockholders’ equityTotal stockholders’ equity1,410,505 1,041,203 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITYTOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$3,004,852 $2,380,794 

See accompanying notes to consolidated financial statements.


57


DATADOG, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

Year Ended December 31,

 

Year Ended December 31,

 

2019

 

 

2018

 

 

2017

 

202220212020

Revenue

 

$

362,780

 

 

$

198,077

 

 

$

100,761

 

Revenue$1,675,100 $1,028,784 $603,466 

Cost of revenue

 

 

88,949

 

 

 

46,529

 

 

 

23,414

 

Cost of revenue346,743 234,245 130,197 

Gross profit

 

 

273,831

 

 

 

151,548

 

 

 

77,347

 

Gross profit1,328,357 794,539 473,269 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

Research and development

 

 

111,425

 

 

 

55,176

 

 

 

24,734

 

Research and development752,351 419,769 210,626 

Sales and marketing

 

 

146,657

 

 

 

88,849

 

 

 

44,213

 

Sales and marketing495,288 299,497 213,660 

General and administrative

 

 

35,889

 

 

 

18,556

 

 

 

11,356

 

General and administrative139,413 94,429 62,756 

Total operating expenses

 

 

293,971

 

 

 

162,581

 

 

 

80,303

 

Total operating expenses1,387,052 813,695 487,042 

Operating loss

 

 

(20,140

)

 

 

(11,033

)

 

 

(2,956

)

Operating loss(58,695)(19,156)(13,773)

Other income, net

 

 

4,164

 

 

 

793

 

 

 

843

 

Other income (loss):Other income (loss):
Interest expenseInterest expense(16,535)(21,052)(30,434)
Interest income and other income, netInterest income and other income, net37,160 21,786 21,985 
Other income (loss), netOther income (loss), net20,625 734 (8,449)

Loss before provision for income taxes

 

 

(15,976

)

 

 

(10,240

)

 

 

(2,113

)

Loss before provision for income taxes(38,070)(18,422)(22,222)

Provision for income taxes

 

 

(734

)

 

 

(522

)

 

 

(457

)

Provision for income taxes(12,090)(2,323)(2,325)

Net loss

 

$

(16,710

)

 

$

(10,762

)

 

$

(2,570

)

Net loss$(50,160)$(20,745)$(24,547)

Net loss attributable to common stockholders

 

$

(16,710

)

 

$

(10,762

)

 

$

(2,570

)

Net loss attributable to common stockholders$(50,160)$(20,745)$(24,547)

Basic and diluted net loss per share

 

$

(0.12

)

 

$

(0.15

)

 

$

(0.04

)

Basic and diluted net loss per share$(0.16)$(0.07)$(0.08)

Weighted average shares used in calculating basic and diluted net

loss per share:

 

 

139,873

 

 

 

70,951

 

 

 

61,321

 

Weighted average shares used in calculating basic and diluted net loss per share:315,410 309,048 300,350 

See accompanying notes to consolidated financial statements.

58


DATADOG, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

Year Ended December 31,

 

Year Ended December 31,

 

2019

 

 

2018

 

 

2017

 

202220212020

Net loss

 

$

(16,710

)

 

$

(10,762

)

 

$

(2,570

)

Net loss$(50,160)$(20,745)$(24,547)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:Other comprehensive (loss) income:

Foreign currency translation adjustments

 

 

55

 

 

 

78

 

 

 

(48

)

Foreign currency translation adjustments(1,322)(1,853)1,089 

Unrealized gain on available-for-sale marketable securities

 

 

47

 

 

 

—

 

 

 

—

 

Other comprehensive income (loss)

 

 

102

 

 

 

78

 

 

 

(48

)

Unrealized (loss) gain on available-for-sale marketable securitiesUnrealized (loss) gain on available-for-sale marketable securities(7,270)(4,264)1,065 
Other comprehensive (loss) incomeOther comprehensive (loss) income(8,592)(6,117)2,154 

Comprehensive loss

 

$

(16,608

)

 

$

(10,684

)

 

$

(2,618

)

Comprehensive loss$(58,752)$(26,862)$(22,393)

See accompanying notes to consolidated financial statements.

59


DATADOG, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

 

 

Convertible

 

 

 

Class A and Class B

 

 

 

 

 

 

 

 

 

 

Non-Voting

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

Stockholders'

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Common Stock

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

(Deficit)

 

BALANCE—December 31, 2016 (as reported)

 

 

179,814,912

 

 

$

140,805

 

 

 

 

—

 

 

$

—

 

 

 

57,692,496

 

 

$

—

 

 

 

1,137,000

 

 

$

—

 

 

$

13,785

 

 

$

—

 

 

$

(95,476

)

 

$

(81,691

)

Effect of adoption of ASC 606

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,677

 

 

 

2,677

 

BALANCE—January 1, 2017 (as adjusted)

 

 

179,814,912

 

 

 

140,805

 

 

 

 

—

 

 

 

—

 

 

 

57,692,496

 

 

 

—

 

 

 

1,137,000

 

 

 

—

 

 

 

13,785

 

 

 

—

 

 

 

(92,799

)

 

 

(79,014

)

Issuance of common stock upon exercise of

   stock options

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

2,165,976

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

449

 

 

 

—

 

 

 

—

 

 

 

449

 

Vesting of early exercised stock options

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

143

 

 

 

—

 

 

 

—

 

 

 

143

 

Issuance of common stock for acquisition

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

2,292,012

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,015

 

 

 

—

 

 

 

—

 

 

 

2,015

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3,316

 

 

 

—

 

 

 

—

 

 

 

3,316

 

Other comprehensive income (loss)

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(48

)

 

 

—

 

 

 

(48

)

Other

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

10,500

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8

 

 

 

—

 

 

 

—

 

 

 

8

 

Net loss

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,570

)

 

 

(2,570

)

BALANCE—December 31, 2017

 

 

179,814,912

 

 

$

140,805

 

 

 

 

—

 

 

$

—

 

 

 

62,160,984

 

 

$

—

 

 

 

1,137,000

 

 

$

—

 

 

$

19,716

 

 

$

(48

)

 

$

(95,369

)

 

$

(75,701

)

Effect of adoption of ASU 2016-19

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

775

 

 

 

—

 

 

 

(775

)

 

 

—

 

BALANCE—January 1, 2018

 

 

179,814,912

 

 

 

140,805

 

 

 

 

—

 

 

 

—

 

 

 

62,160,984

 

 

 

—

 

 

 

1,137,000

 

 

 

—

 

 

 

20,491

 

 

 

(48

)

 

 

(96,144

)

 

 

(75,701

)

Issuance of common stock upon exercise of

   stock options

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

14,882,622

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,557

 

 

 

—

 

 

 

—

 

 

 

4,557

 

Vesting of early exercised stock options

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

375

 

 

 

—

 

 

 

—

 

 

 

375

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5,411

 

 

 

—

 

 

 

—

 

 

 

5,411

 

Conversion of non-voting common stock

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

1,137,000

 

 

 

—

 

 

 

(1,137,000

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other comprehensive income (loss)

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

79

 

 

 

—

 

 

 

79

 

Net loss

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10,762

)

 

 

(10,762

)

BALANCE—December 31, 2018

 

 

179,814,912

 

 

$

140,805

 

 

 

 

—

 

 

$

—

 

 

 

78,180,606

 

 

$

—

 

 

 

—

 

 

$

—

 

 

$

30,834

 

 

$

31

 

 

$

(106,906

)

 

$

(76,041

)

Issuance of common stock upon exercise of

   stock options

 

 

—

 

 

 

—

 

 

 

 

429,430

 

 

 

—

 

 

 

10,117,557

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7,173

 

 

 

—

 

 

 

—

 

 

 

7,173

 

Issuance of restricted shares of common stock

 

 

—

 

 

 

—

 

 

 

 

244,445

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Vesting of early exercised stock options

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,883

 

 

 

—

 

 

 

—

 

 

 

1,883

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,235

 

 

 

—

 

 

 

—

 

 

 

19,235

 

Conversion of convertible preferred stock to

   common stock in connection with third-party

   tender offer

 

 

(803,481

)

 

 

(53

)

 

 

 

—

 

 

 

—

 

 

 

803,481

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

53

 

 

 

—

 

 

 

—

 

 

 

53

 

Reclassification of common stock to class A

   and class B common stock

 

 

—

 

 

 

—

 

 

 

 

89,101,644

 

 

 

—

 

 

 

(89,101,644

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Conversion of convertible preferred stock to class

   B common stock in connection with initial

   public offering

 

 

(179,011,431

)

 

 

(140,752

)

 

 

 

179,011,431

 

 

 

2

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

140,750

 

 

 

—

 

 

 

—

 

 

 

140,752

 

Issuance of class A common stock in

   connection with initial public offering, net of

   underwriting discounts and issuance costs

 

 

—

 

 

 

—

 

 

 

 

27,600,000

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

705,893

 

 

 

—

 

 

 

—

 

 

 

705,894

 

Other comprehensive income (loss)

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

102

 

 

 

—

 

 

 

102

 

Net loss

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(16,710

)

 

 

(16,710

)

BALANCE—December 31, 2019

 

 

—

 

 

$

—

 

 

 

 

296,386,950

 

 

$

3

 

 

 

—

 

 

$

—

 

 

 

—

 

 

$

—

 

 

$

905,821

 

 

$

133

 

 

$

(123,616

)

 

$

782,341

 

Class A and Class B
Common Stock		Additional
Paid-in
Capital		Accumulated Other Comprehensive Income (Loss)Accumulated
Deficit		Total
Stockholders'
Equity
(Deficit)
SharesAmount
BALANCE—December 31, 2019296,386,950 $3 $905,821 $133 $(123,616)$782,341 
Issuance of common stock upon exercise of stock options8,753,274 — 16,009 — — 16,009 
Vesting of early exercised stock options— — 1,177 — — 1,177 
Vesting of restricted stock units170,892 — — — — — 
Issuance of restricted shares of common stock120,992 — 5,169 — — 5,169 
Issuance of common stock under the Employee Stock Purchase Plan, net of shares withheld for taxes447,955 — 13,906 — — 13,906 
Stock-based compensation— — 77,778 — — 77,778 
Equity component of 2025 Convertible Senior Notes, net— — 173,070 — — 173,070 
Purchases of capped calls related to 2025 Convertible Senior Notes— — (89,625)— — (89,625)
Change in accumulated other comprehensive income— — — 2,154 — 2,154 
Net loss— — — — (24,547)(24,547)
BALANCE—December 31, 2020305,880,063 $3 $1,103,305 $2,287 $(148,163)$957,432 
Effect of adoption of ASU 2020-06— — (173,070)— 16,802 (156,268)
BALANCE—January 1, 2021305,880,063 3 930,235 2,287 (131,361)801,164 
Issuance of common stock upon exercise of stock options5,109,688 — 14,941 — — 14,941 
Vesting of early exercised stock options— — 566 — — 566 
Vesting of restricted stock units1,483,639 — — — — — 
Issuance of restricted shares of common stock from acquisitions600,176 — 57,720 — — 57,720 
Issuance of common stock under the Employee Stock Purchase Plan291,871 — 20,278 — — 20,278 
Stock-based compensation— — 173,397 — — 173,397 
Change in accumulated other comprehensive loss— — — (6,117)— (6,117)
Net loss— — — — (20,745)(20,745)
BALANCE—December 31, 2021313,365,437 $3 $1,197,136 $(3,830)$(152,106)$1,041,203 
Issuance of common stock upon exercise of stock options2,687,334 — 9,970 — — 9,970 
Vesting of early exercised stock options— — 33 — — 33 
Vesting of restricted stock units2,492,535 — — — — — 
Issuance of restricted shares of common stock from acquisitions327,662 — 14,019 — — 14,019 
Issuance of common stock under the Employee Stock Purchase Plan316,875 — 26,025 — — 26,025 
Stock-based compensation— — 378,007 — — 378,007 
Change in accumulated other comprehensive loss— — — (8,592)— (8,592)
Net loss— — — — (50,160)(50,160)
BALANCE—December 31, 2022319,189,843 $3 $1,625,190 $(12,422)$(202,266)$1,410,505 

See accompanying notes to consolidated financial statements.


60


DATADOG, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

Year Ended December 31,

 

Year Ended December 31,

 

2019

 

 

2018

 

 

2017

 

202220212020

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

 

$

(16,710

)

 

$

(10,762

)

 

$

(2,570

)

Net loss$(50,160)$(20,745)$(24,547)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

 

 

12,370

 

 

 

6,026

 

 

 

2,704

 

Depreciation and amortization34,629 22,938 15,450 

Amortization of discounts or premiums on marketable securities

 

 

12

 

 

 

—

 

 

 

—

 

Amortization of discounts or premiums on marketable securities4,726 16,236 9,753 
Amortization of debt discount and issuance costsAmortization of debt discount and issuance costs3,369 3,349 18,727 

Amortization of deferred contract costs

 

 

5,400

 

 

 

2,671

 

 

 

1,274

 

Amortization of deferred contract costs28,003 17,866 10,447 

Stock-based compensation, net of amounts capitalized

 

 

19,034

 

 

 

5,244

 

 

 

3,068

 

Stock-based compensation, net of amounts capitalized363,154 163,737 74,374 

Non-cash lease expense

 

 

11,763

 

 

 

—

 

 

 

—

 

Non-cash lease expense21,416 17,201 14,060 

Provision for accounts receivable allowance

 

 

1,195

 

 

 

477

 

 

 

378

 

Allowance for credit losses on accounts receivableAllowance for credit losses on accounts receivable5,215 2,311 3,283 

Loss on disposal of property and equipment

 

 

708

 

 

 

9

 

 

 

4

 

Loss on disposal of property and equipment1,662 274 10 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

Accounts receivable, net

 

 

(47,510

)

 

 

(25,322

)

 

 

(19,274

)

Accounts receivable, net(135,701)(107,112)(64,248)

Deferred contract costs

 

 

(20,146

)

 

 

(8,925

)

 

 

(3,352

)

Deferred contract costs(51,098)(42,775)(25,080)

Prepaid expenses and other current assets

 

 

(10,046

)

 

 

(1,331

)

 

 

(4,250

)

Prepaid expenses and other current assets(6,565)(737)(4,403)

Other assets

 

 

(8,486

)

 

 

(6,955

)

 

 

(1,482

)

Other assets(5,179)(2,627)968 

Accounts payable

 

 

2,484

 

 

 

7,241

 

 

 

4,647

 

Accounts payable(1,286)3,078 6,539 

Accrued expenses and other liabilities

 

 

6,376

 

 

 

10,857

 

 

 

2,860

 

Accrued expenses and other liabilities37,578 37,270 3,970 

Deferred revenue

 

 

67,790

 

 

 

31,599

 

 

 

29,825

 

Deferred revenue168,644 176,281 69,788 

Net cash provided by operating activities

 

 

24,234

 

 

 

10,829

 

 

 

13,832

 

Net cash provided by operating activities418,407 286,545 109,091 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of marketable securities

 

 

(176,639

)

 

 

—

 

 

 

—

 

Purchases of marketable securities(1,413,717)(1,125,519)(1,794,562)
Maturities of marketable securitiesMaturities of marketable securities1,137,724 1,046,560 506,554 
Proceeds from sale of marketable securitiesProceeds from sale of marketable securities2,090 67,749 163,630 

Purchases of property and equipment

 

 

(13,315

)

 

 

(9,662

)

 

 

(2,351

)

Purchases of property and equipment(35,261)(9,956)(5,415)

Capitalized software development costs

 

 

(10,128

)

 

 

(6,176

)

 

 

(5,452

)

Capitalized software development costs(29,628)(26,069)(20,468)

Cash paid for acquisition of businesses; net of cash acquired

 

 

(2,138

)

 

 

(1,618

)

 

 

(4,957

)

Cash paid for acquisition of businesses; net of cash acquired(45,878)(226,505)(2,363)

Net cash used in investing activities

 

 

(202,220

)

 

 

(17,456

)

 

 

(12,760

)

Net cash used in investing activities(384,670)(273,740)(1,152,624)

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options

 

 

7,899

 

 

 

7,782

 

 

 

462

 

Proceeds from exercise of stock options10,001 14,907 15,985 

Proceeds from initial public offering, net of underwriting discounts and commissions

and other offering costs

 

 

706,317

 

 

 

—

 

 

 

—

 

Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs— — (421)
Proceeds from issuance of common stock under the employee stock purchase planProceeds from issuance of common stock under the employee stock purchase plan26,025 20,278 15,170 
Employee payroll taxes paid related to net share settlement under the employee stock purchase planEmployee payroll taxes paid related to net share settlement under the employee stock purchase plan— (245)(1,040)
Proceeds from issuance of convertible senior notes, net of issuance costsProceeds from issuance of convertible senior notes, net of issuance costs— — 730,207 
Repayments of convertible senior notesRepayments of convertible senior notes(3)— — 
Purchase of capped call related to convertible senior notesPurchase of capped call related to convertible senior notes— — (89,625)

Net cash provided by financing activities

 

 

714,216

 

 

 

7,782

 

 

 

462

 

Net cash provided by financing activities36,023 34,940 670,276 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(21

)

 

 

47

 

 

 

(54

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash(1,935)(1,993)779 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

536,209

 

 

 

1,202

 

 

 

1,480

 

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASHNET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH67,825 45,752 (372,478)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period

 

 

64,980

 

 

 

63,778

 

 

 

62,298

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period274,463 228,711 601,189 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

601,189

 

 

$

64,980

 

 

$

63,778

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period$342,288 $274,463 $228,711 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for income taxes

 

$

143

 

 

$

36

 

 

$

40

 

Cash paid for income taxes$1,595 $1,486 $410 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING

ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Accrued property and equipment purchases

 

$

315

 

 

$

25

 

 

$

—

 

Accrued property and equipment purchases$972 $1,746 $234 

Stock-based compensation included in capitalized software development costs

 

$

201

 

 

$

167

 

 

$

248

 

Stock-based compensation included in capitalized software development costs$14,853 $9,660 $3,404 

Vesting of early exercised options

 

$

1,883

 

 

$

375

 

 

$

143

 

Vesting of early exercised options$33 $566 $1,177 

Acquisition of intangible assets through issuance of common stock

 

$

—

 

 

$

—

 

 

$

2,015

 

Costs related to initial public offering included in accounts payable and accrued

liabilities

 

$

423

 

 

$

—

 

 

$

—

 

Issuance of restricted shares of common stock for the acquisition of businessesIssuance of restricted shares of common stock for the acquisition of businesses$14,019 $57,720 $5,169 
Acquisition holdbackAcquisition holdback$8,123 $5,555 $1,500 

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

WITHIN THE CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOWN

IN THE STATEMENTS OF CASH FLOWS ABOVE:

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOW IN THE STATEMENTS OF CASH FLOWS ABOVE:RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOW IN THE STATEMENTS OF CASH FLOWS ABOVE:

Cash and cash equivalents

 

$

597,297

 

 

$

53,639

 

 

$

60,024

 

Cash and cash equivalents$338,985 $270,973 $224,927 

Restricted cash – Including amounts in prepaid expense and other current assets and

other assets

 

 

3,892

 

 

 

11,341

 

 

 

3,754

 

Restricted cashRestricted cash3,303 3,490 3,784 

Total cash, cash equivalents and restricted cash

 

$

601,189

 

 

$

64,980

 

 

$

63,778

 

Total cash, cash equivalents and restricted cash$342,288 $274,463 $228,711 

See accompanying notes to consolidated financial statements.


61


DATADOG, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

Description of Business

Datadog, Inc. (“Datadog” or the “Company”) was incorporated in the State of Delaware on June 4, 2010. The Company is the monitoringobservability and analyticssecurity platform for developers, IT operations teams and business users in the cloud age.applications. The Company’s SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, and log management, real-user monitoring, and many other capabilities to provide unified, real-time observability and security of its customers’ entire technology stack. The Company is headquartered in New York City and has various other global office locations.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The consolidated financial statements include the accounts of Datadog, Inc. and its wholly owned subsidiaries. All intercompanyintercompany transactions and balances have been eliminated in consolidation.

Initial Public Offering

On September 23, 2019, the Company completed its initial public offering (“IPO”), in which the Company issued and sold 24,000,000 shares of its Class A common stock at a public offering price of $27.00 per share, which resulted in net proceeds of $615.6 million after deducting underwriting discounts and commissions. On September 25, 2019, the underwriters exercised their option to purchase an additional 3,600,000 shares of Class A common stock at $27.00 per share, resulting in additional proceeds of $92.3 million, net of underwriters’ discounts and commissions. Immediately prior to the closing of the IPO, all shares of common stock then outstanding were reclassified as Class B common stock and all shares of the convertible preferred stock then outstanding automatically converted into 179,011,431 shares of Class B common stock.  

The Company incurred $2.0 million of net offering costs in connection with the IPO which were recorded as an offset against IPO proceeds.

Stock Split and Authorized Shares

On January 2, 2018, the Company’s Board of Directors (the “Board”) and stockholders approved a 4-for-1 stock split of the Company’s then-outstanding common stock and convertible preferred stock was effected without any change in the par value per share.

On September 6, 2019, the Board and stockholders approved an amended and restated certificate of incorporation of the Company effecting a 3-for-1 stock split of the Company’s issued and outstanding shares of common stock and convertible preferred stock, and an increase to the authorized shares of the Company’s common stock and convertible preferred stock to 380,000,000 shares and 179,814,912 shares, respectively. The split was effected on September 6, 2019 and without any change in the par value per share.

All information related to the Company’s common stock, convertible preferred stock and stock awards has been retroactively adjusted to give effect to the 4-for-1 stock split on January 2, 2018 and 3-for-1 stock split on September 6, 2019.  

On September 23, 2019, an amended and restated certificate of incorporation of the Company was filed immediately prior to the closing of the IPO authorizing an aggregate of 2,330,000,000 shares of capital stock of the Company, including 2,000,000,000 shares of Class A common stock, 310,000,000 shares of Class B common stock and 20,000,000 shares of preferred stock.


Segment Information

The Company has a single operating and reportable segment as well as one business activity, monitoring and providing analytics on companies’ information technology (“IT”) infrastructure. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources. There are no segment managers who are held accountable for operations or results below the consolidated level.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include the fair value of marketable securities, the allowance for doubtful accounts,credit losses, the fair value of acquired assets and assumed liabilities from business combinations, useful lives of property, equipment, software, and finite lived intangibles, stock-based compensation,stock-based compensation including the determination of the fair value of the Company’s stock prior to its IPO, fair value of common stock and redeemable convertible preferred stock prior to the IPO, valuation of long-lived assets and their recoverability, including goodwill, the incremental borrowing rate for operating leases, estimated expected period of benefit period for deferred contract costs,fair value of the liability component of the convertible debt, realization of deferred tax assets and uncertain tax positions, revenue recognition and the allocation of overhead costs between cost of revenue and operating expenses. The Company bases its estimates on historical experience and also on assumptions that management considers reasonable. The Company assesses these estimates on a regular basis; however, actual results could materially differ from these estimates.

Foreign Currency Translation

The reporting currency of the Company is the United States dollar (“USD”). The functional currency of the Company is USD, and the functional currency of the Company’s subsidiaries is generally the local currency of the jurisdiction in which the foreign subsidiary is located. The assets and liabilities of the Company’s subsidiaries are translated to USD at exchange rates in effect at the balance sheet date. All income statement accounts are translated at monthly average exchange rates. Resulting foreign currency translation adjustments are recorded directly in accumulated other comprehensive (loss) (loss) income as a separate component of stockholders’ equity (deficit).

equity.

62

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in other incomeincome (loss), net in the accompanying consolidated statements of operations when realized.

Revenue Recognition

The Company generates revenue from the sale of subscriptions to customers using its cloud-based platform. The terms of the Company’s subscription agreements are primarily monthly, annual or annual.multi-year. The Company’s customers can enter into (1) a subscription agreement for a committed contractual amount of usage that is apportioned ratably on a monthly basis over the term of the subscription period, (2) a subscription agreement for a committed contractual amount of usage that is delivered as used, or (3) a monthly subscription based on usage. The Company typically bills customers on an annual or multi-year subscription in full up-front,advance, with any usage in excess of the committed contracted amount billed monthly in arrears. The Company typically bills customers on a monthly plan in arrears. Customers also have the option to purchase additional services priced at rates at or above the stand-alone selling price.

The Company elected to early adopt Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”), effective January 1, 2017, using the full retrospective method of adoption. As such, the consolidated financial statements present revenue in accordance with Topic 606 for all of the periods presented.

The Company accounts for revenue contracts with customers through the following steps:

(1)

identify the contract with a customer;

(2)

identifytheperformanceobligationsin thecontract;

(1)identify the contract with a customer;

(3)

determinethetransactionprice;

(2)identifytheperformanceobligationsin thecontract;

(4)

allocatethetransactionprice; and

(3)determinethetransactionprice;

(5)

recognizerevenuewhen or as theCompany satisfiesa performanceobligation.

(4)allocatethetransactionprice to the performance obligations in the contract; and

(5)recognizerevenuewhen or as theCompany satisfiesa performanceobligation.

The Company’s revenue arrangements may include infrastructure monitoring, application performance monitoring, log management, synthetics monitoring, security monitoring, continuous profiling, serverless monitoring, network monitoring, real user monitoring and synthetics,incident management as well as secondary services including custom metrics in dashboard monitoring, serverless monitoring, docker container monitoring, and app analytics.indexed spans. The Company has identified each service as a separate performance obligation.

The transaction price is based on the fixed price for the contracted level of service plus variable consideration for additional optional purchases. Billing periods correspond to the periods over which services are performed and there are no discounts given on the purchase of future services.

The Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on a range of actual prices charged to customers.

Revenue is recognized when control of these services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services. The Company determined an output method to be the most appropriate measure of progress because it most faithfully represents when the value of the services areis simultaneously received and consumed by the customer, and control is transferred.

For committed contractual amounts of usage, revenue is recognized ratably over the term of the subscription agreement generally beginning on the date that the platform is made available to a customer.customer. For committed contractual amount of usage that is delivered as used, a monthly subscription based on usage, or usage in excess of a ratable subscription, the Company recognizes revenue as the product is used. Subscription revenue excludes sales and other indirect taxes.

The Company applied the practical expedient in Topic 606 and did not evaluate contracts of one year or less for the existence of a significant financing component.

Deferred Revenue and Remaining Performance Obligations
Certain of the Company’s customers pay in advance of satisfaction of performance obligations and other customers with monthly contract terms are billed in arrears on a monthly basis. The Company records contract liabilities to deferred revenue when customers are billed or when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts.
63

Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include unearned revenue, multi-year contracts with future installment payments and certain unfulfilled orders against accepted customer contracts at the end of any given period.
Convertible Senior Notes
In accounting for the issuance of the Company’s convertible senior notes (the “2025 Notes”), the 2025 Notes were separated into liability and equity components through December 31, 2020. The carrying amounts of the liability component was calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the respective 2025 Notes. This difference represents the debt discount that is amortized to interest expense over the contractual terms of the 2025 Notes using the effective interest rate method. The equity component was recorded in additional paid-in capital.
In accounting for the debt issuance costs related to the 2025 Notes, the Company allocated the total amount incurred to the liability and equity components of the 2025 Notes in the same proportion as the allocation of the proceeds. Issuance costs attributable to the liability component are being amortized to interest expense over the contractual terms of the 2025 Notes. The issuance costs attributable to the equity component were netted against the equity component in additional paid-in capital.
On January 1, 2021 the Company adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. As a result of the adoption, the debt conversion option of $177.2 million and debt issuance costs of $4.1 million previously attributable to the equity component are no longer presented in equity. Similarly, the debt discount, that is equal to the carrying value of the embedded conversion feature upon issuance, is no longer amortized into income as interest expense over the life of the instrument. This resulted in a $16.8 million decrease to the opening balance of accumulated deficit, a $173.1 million decrease to the opening balance of additional paid-in capital and a $156.3 million increase to the opening balance of convertible senior notes, net on the consolidated balance sheet.
Cost of Revenue

Cost of revenue consists primarily of costs related to providing subscription services to paying customers, including data center and networking expenses, employee compensation (including stock-based compensation) and other employee-relatedemployee-related expenses for customer experience and technical operations staff, payments to outside service providers, payment processing fees, amortization of capitalized internally developed software costs and acquired developed technology, and allocated overhead costs.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist of employee compensation (including stock-based compensation) and other employee-related expenses,expenses, materials and supplies, and allocated overhead costs such as rent and facilities costs.

Sales and Marketing Costs

Sales and marketing costs consist primarily of personnel costs for the Company’s sales and marketing organization, including stock-based compensation and commissions, costs of general marketing and promotional activities, including the free tier and introductory trials of the Company’s products, travel-related expenses and allocated overhead costs.

Advertising Costs

Advertising costs are expensed as incurred and were approximately $9.5$25.5 million, $8.3$20.8 million and $4.4$21.6 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively, and are included in sales and marketing expense in the accompanying consolidated statement of operations.


Income Taxes

IncomeTaxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts for financial reporting and the tax bases of assets and liabilities. The deferred assets
64

and liabilities are recorded at the statutorily enacted tax rates anticipated to be in effect when such temporary differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is established; when based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company engages in transactions in which the tax consequences may be subject to uncertainty. The Company accounts for uncertain tax positions based on an evaluation as to whether it is more likely than not that a tax position will be sustained on audit, including resolution of any related appeals or litigation processes. This evaluation is based on all available evidence and assumes that the appropriate tax authorities have full knowledge of all relevant information concerning the tax position. The Company accounts for uncertain tax positions as non-current tax liabilities or through a reduction of a corresponding deferred tax asset. The tax benefit recognized is based on the largest amount that is greater than 50% likely of being realized upon ultimate settlement. The Company includes potential interest expense and penalties related to its uncertain tax positions in income tax expense.

Stock-Based Compensation

The Company recognizes and measures compensation expense for all stock-based payment awards granted to employees, directors, and nonemployees, including stock options, restricted stock units (“RSUs”), performance-based awards ("PSUs"), and the employee stock purchase plan (the “ESPP”) based on the fair value of the awards on the date of grant. The fair value of each stock option granted is estimated using the Black ScholesBlack-Scholes option pricing model. The determination of the grant date fair value using an option-pricing model is affected by the estimated fair value of the Company’s common stock as well as assumptions regarding a number of other complex and subjective variables. These variables include expected stock price volatility over the expected term of the award, actual and projected employee stock option exercise behaviors, the risk-free interest rate for the expected term of the award and expected dividends. The fair value of RSUs and PSUs is determined by the closing price on the date of grant of the Company’s Class A common stock, as reported on The Nasdaq Global Select Market. The Company estimates the fair value of the rights to acquire stock under the ESPP using the Black-Scholes option pricing model. Stock-based compensation for stock options and RSUs is recognized on a straight-line basis over the requisite service period and account for forfeitures as they occur.

Stock-based compensation for PSUs is amortized under the accelerated attribution method and may be adjusted over the vesting period based on interim estimates of performance against pre-set objectives. PSUs will vest upon achievement of specified performance targets and subject to continuous service through the applicable vesting dates. The compensation cost is recognized over the requisite service period when it is probable that the performance condition will be satisfied and the Company accounts for forfeitures as they occur.

The Company also has certain options that have performance-based vesting conditions; stock-based compensation expense for such awards is recognized on a straight-line basis from the time the vesting condition is likely to be met through the time the vesting condition has been achieved.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of funds deposited into money market funds.

Marketable Securities

The Company’s marketable securities consist of commercial debt, securities,commercial paper, certificates of deposit, U.S. government treasury securities, U.S. government agency securities, and commercial paper.Non-U.S. government securities. The Company determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable securities as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, the Company classifies its marketable securities within current assets on the consolidated balance sheet.

Available-for-sale securities are recorded at fair value each reporting period. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective interest method. Interest income is recognized when earned. Unrealized gains and losses on these marketable securities are presented net of tax and reported as a separate component of accumulated other comprehensive (loss) income on the consolidated balance sheetloss until realized. Realized gains and losses are determined based on the specific identification method and are reported in interestInterest income and other income, net in the consolidated statements of operations.
65

The Company periodically evaluates its marketable securities to assess whether those with unrealized loss positions are otheran investment’s fair value is less than temporarily impaired. The Company considers various factors in determining whether to recognize an impairment charge. If the Company determines thatits amortized cost basis and if the decline in an investment'sthe fair value is other-than-temporary, the difference is recognized as an impairmentattributable to a credit loss. Declines in fair value judged to be related to credit loss are reported in Interest income and other income, net in the consolidated statements of operations. As of December 31, 2019 and 2018, the Company has not recorded any other-than-temporary-impairment charges in its consolidated statements of operations.


Restricted Cash

Restricted cash primarily consists of collateralized letters of credit established in connection with lease agreements for the Company’s facilities. Restricted cash is included in current assets for leases that expire within one year and is included in non-current assets for leases that expire in more than one year from the balance sheet date.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivable. Cash deposits may, at times, exceed amounts insured by the Federal Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”). The Company has not experienced any losses on its deposits of cash and cash equivalents to date. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amounts recorded on the accompanying consolidated balance sheets.

There were no customers representing greater than 10% of total revenue for the years ended December 31, 2019, 2018, and 2017. No customers represented greater than 10% of accounts receivable as of December 31, 2019 and 2018.

Geographical Information

Revenue by location is determined by the billing address for the customer. The following table sets forth revenue by geographic area (in thousands):

- Long-Lived Assets

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

North America

 

$

272,190

 

 

$

150,945

 

 

$

76,352

 

International

 

 

90,590

 

 

 

47,132

 

 

 

24,409

 

Total

 

$

362,780

 

 

$

198,077

 

 

$

100,761

 

Other than the United States, no other individual country accounted for 10% or more of total revenue for the years ended December 31, 2019, 2018, or 2017. As of December 31, 2019,2022, and 2018, 70%2021, 66% and 85%76% of the Company’s long livedlong-lived assets were located in the United States and 30%34% and 15%24% were located outside of the United States, primarily in Europe,EMEA, respectively.

Fair Value of Financial Instruments

The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tieredthree-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1 Inputs: Unadjustedquotedpricesinactivemarketsforidenticalassetsorliabilitiesaccessible to thereportingentityatthemeasurementdate.

Level 2 Inputs: Otherthanquotedpricesincludedin Level1 inputsthatareobservablefortheasset or liability,eitherdirectlyor indirectly,forsubstantiallythefulltermof theassetor liability.

Level 3 Inputs: Unobservableinputsfortheassetorliabilityusedtomeasurefairvaluetotheextent thatobservableinputsarenot available,therebyallowingforsituationsin which there is little,if any, marketactivityfortheassetor liabilityatmeasurementdate.

The Company’s financial instruments consist of cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses. Cash equivalents are stated at amortized cost, which approximates fair value at the balance sheet dates, due to the short period of time to maturity. Marketable securities are recorded at fair value. Accounts receivable, accounts payable, and accrued expenses are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.


A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Accounts Receivable

and Allowance for Credit Losses

Accounts receivable includes billed and unbilled receivables. Trade accounts receivable are recorded at invoiced amounts and do not bear interest. The Company generally does not require collateral and provides for expected losses. The expectation of collectability is based on a review of credit profiles of customers, contractual terms and conditions, current economic trends, and historical payment experience. The Company regularly reviews the adequacy of the allowance for doubtful accountscredit losses by considering the age of each outstanding invoice and the collection history of each customer to determine the appropriate amount of allowance for doubtful accounts.credit losses. Accounts receivable deemed uncollectible are charged against the allowance for doubtful accountscredit losses when identified. During the years ended December 31, 2019 and 2018, the Company charged $0.9 million and $0.4 million, respectively, of accounts receivable deemed uncollectible against the allowance for doubtful accounts.

66

Unbilled accounts receivable represents revenue recognized on contracts for which billings have not yet been presented to customers because the amounts were earned but not contractually billable as of the balance sheet date, substantially all of which is expected to be billed and collected within one year. As of December 31, 2019 and 2018, unbilled accounts receivable of approximately $14.4 million and $13.1 million, respectively, was included in accounts receivable on the Company’s consolidated balance sheets.

Internal Use

Internal-Use Software Development Costs

The Company capitalizes qualifying internal useinternal-use software development costs related to its cloud platform. The costs consist of personnel costs (including related benefits and stock-based compensation) that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (1) the preliminary project stage is completed, and (2) it is probable that the software will be completed and used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. Costs related to preliminary project activities and post implementation operating activities are expensed as incurred.

Capitalized costs are included in property and equipment. These costs are amortized over the estimated useful life of the software, which is two years, on a straight-line basis, which represents the manner in which the expected benefit will be derived. The amortization of costs related to the platform applications is included in cost of revenue and sales and marketing expense based on an allocation between paid customer accounts and free customer accounts not generating revenue.

Property and Equipment, Net

Property and equipment, net is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life of the related asset. Expenses that improve an asset or extend its remaining useful life are capitalized. Costs of maintenance or repairs that do not extend the lives of the respective assets are charged to expenses as incurred.

Deferred Contract Costs

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. There are no sales commissions earned on renewals.renewals. These costs are deferred and then amortized over a period of benefit which is determined to be four years. TheCompanydeterminedtheperiodof benefitby takingintoconsideration thelengthoftermsinitscustomercontracts,lifeof thetechnologyand other factors.factors. Amounts expected to be recognized within one year of the balance sheet date are recorded as deferred contract costs, current; the remaining portion is recorded as deferred contract costs, non-current, in the consolidated balance sheets. Deferredcontractcostsareperiodicallyanalyzedforimpairment.Amortizationexpenseisincludedin salesand marketingexpensesin theaccompanyingconsolidatedstatementsof operations.

The adoption of ASC 606 related to the deferral of incremental commission costs of obtaining a contract, primarily sales commissions, resulted in a decrease to accumulated deficit of $2.7 million as of January 1, 2017.


The followingtablerepresentsa rollforwardof theCompany’sdeferredcontractcosts(inthousands):

 

 

Amount

 

Balance as of January 1, 2017

 

$

2,677

 

Additions to deferred contract costs

 

 

3,352

 

Amortization of deferred contract costs

 

 

(1,274

)

Balance as of December 31, 2017

 

$

4,755

 

Additions to deferred contract costs

 

 

8,925

 

Amortization of deferred contract costs

 

 

(2,671

)

Balance as of December 31, 2018

 

$

11,009

 

Additions to deferred contract costs

 

 

20,146

 

Amortization of deferred contract costs

 

 

(5,400

)

Balance as of December 31, 2019

 

$

25,755

 

Business Combinations

When the Company acquires a business, the purchase consideration is allocated to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated respective fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require the Company to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to other income,income, net in the consolidated statement of operations.

Accounting for Impairment of Long-Lived Assets (Including Goodwill and Intangibles)

Long-lived assets with finite lives include property and equipment, capitalized development software costs and acquired intangible assets. Long-lived assets are amortized over their estimated useful lives which are as follows:

67

Computers and equipment

3 years

FurnituresFurniture and fixtures

5 years

Leasehold improvements

Shorter of lease term or useful life of asset

Capitalized software development costs

2 years

Intangible assets

Developed technology

3 years
Customer relationships

1-34 years

The Company evaluates long lived assets, including acquired intangible assets and capitalized software development costs, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or the estimated useful life becomes shorter than originally estimated. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds these estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group, based on discounted cash flows.

Goodwill is not amortized but rather tested for impairment at least annually on October 1, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Goodwill impairment is recognized when the quantitative assessment results in the carrying value exceeding the fair value, in which case an impairment charge is recorded to the extent the carrying value exceeds the fair value. The Company did not recognize any impairment of goodwill during the years ended December 31, 2019, 20182022, 2021 or 2017.

2020.

Operating Leases

OperatingLeases

The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are reflected within operating lease assets, operating lease liabilities, current, and operating lease liabilities, non-current, on the consolidated balance sheets. For short-term leases (an initial term of 12 months or less), an operating lease asset and corresponding lease liability are not recorded and the Company records rent expense in its consolidated statements of operations on a straight-line basis over the lease term. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease assets also include any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately.

Prior to the adoption of ASC 842, Leases on January 1, 2019, the Company recorded the difference between the rent paid and the straight-line rent expense as a deferred rent liability within accrued expenses and other current liabilities and other liabilities.

Deferred Revenue

The Company records contract liabilities to deferred revenue when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts. Certain of the Company’s customers pay in advance of satisfaction of performance obligations and other customers with monthly contract terms are billed in arrears on a monthly basis.

Revenue recognized during the years ended December 31, 2019, 2018 and 2017, which was included in the deferred revenue balances at the beginning of each respective period, was $71.0 million, $37.1 million, and $9.2 million.

Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include unearned revenue, multi-year contracts with future installment payments and certain unfulfilled orders against accepted customer contracts at the end of any given period and does not include usage of our products beyond the contractually committed level. As of December 31, 2019, and December 31, 2018, the aggregate transaction price allocated to remaining performance obligations was $243.8 million and $127.1 million, respectively. There is uncertainty in the timing of revenues associated with the Company’s drawdown contracts, as future revenue can often vary significantly from past revenue. However, the Company expects to recognize substantially all of the remaining performance obligations over the next 24 months and more than a majority will be recognized to revenue over the next 12 months.

Net Income (Loss) Per Share Attributable to Common Shareholders

Stockholders

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period giving effect to all potentially dilutive securities to the extent they are dilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income (loss) per share by application of the two-class method. During the periods when the Company is in a net loss position, the net loss attributable to common stockholders was not allocated to the convertible preferred stock and unvested common stock under the two-class method as these securities do not have a contractual obligation to share in the Company’s losses.

Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not result in a restatement of prior period financial statements.
Accounting Pronouncements Recently Adopted

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes(Topic740),BalanceSheetClassificationofDeferredTax. ASU No. 2015-17 was issued by the FASB as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in ASU 2015-17 require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments of ASU 2015-17. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted for financial statements that have not been previously issued. The ASU was adopted January 1, 2019 and applied retrospectively to all deferred tax assets and liabilities for all periods presented. The Company adoption of this ASU had no material impact on the Company’s consolidated financial statements.


In August 2016, the FASB issued ASU 2016-15, StatementofCashFlows. The ASU provides guidance on how certain cash receipts and outflows should be classified on entities’ statement of cash flows. The Company adopted the ASU on January 1, 2019 on a retrospective basis to all periods presented. Adoption of this ASU did not have a material impact on the Company’s consolidated statements of cash flows for the periods presented.

In November 2016, the FASB issued ASU 2016-18, StatementofCashFlows. The standard requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted the ASU on January 1, 2019 on a retrospective basis for all periods presented. As a result of adopting the ASU, the Company includes restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the statement of consolidated cash flows. Accordingly, the statement of cash flows has been revised to include restricted cash as a consolidated component of cash, cash equivalents, and restricted cash.

In February 2016, the FASB issued ASU 2016-02, Leases(ASC842), which requires, among other items, lessees to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures are also enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. The Company adopted this ASU on January 1, 2019 and has elected the transition option prescribed by ASU 2018-11, and accordingly will not restate prior periods under ASC 842. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification and determination of the lease term. Upon adoption, the Company recognized a right of use asset of $47.9 million and a lease liability of $51.4 million with no impact to accumulated deficit or consolidated statement of cash flows.

In June 2018, the FASB issued ASU 2018-07, Compensation—StockCompensation (Topic718): Improvements to Nonemployee Share-Based Payment Accounting. The updated guidance simplifies the accounting for nonemployee share-based payment transactions. The amendments in the new guidance specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company adopted this ASU on January 1, 2019 and it had no impact on the Company’s financial statements.

Accounting Pronouncements Not Yet Adopted

In August 2018,2020, the FASB issued ASU No. 2018-15, Intangibles—Goodwill2020-06, Accounting for Convertible Instruments andOther—Internal-Use Software Contracts in an Entity’s Own Equity (“ASU No. 2020-06”), which alignsimplifies the requirementsaccounting for capitalizing implementation costs incurredcertain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity. Among other

68

changes, ASU No. 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such convertible debt instruments. Similarly, the debt discount, that is equal to the carrying value of the embedded conversion feature upon issuance, will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income and result in a hosting arrangementreclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities. Additionally, ASU No. 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. ASU No. 2020-06 is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019,2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted.can be adopted on either a fully retrospective or modified retrospective basis. The Company does not expectearly adopted ASU No. 2020-06 on January 1, 2021, using the adoptionmodified retrospective basis. Adoption resulted in a $16.8 million decrease to the opening balance of this ASUaccumulated deficit, a $173.1 million decrease to havethe opening balance of additional paid-in capital and a material effect$156.3 million increase to the opening balance of Convertible senior notes, net on the Company’s consolidated financial statements.

balance sheet.

In June 2016,October 2021, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses2021-08, Business Combinations (Topic 326)805): Measurement of Credit Losses on Financial InstrumentsAccounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU No. 2021-08"), which requiresintends to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an entity to utilizeacquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. It is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. The Company early adopted ASU No. 2021-08 on January 1, 2022 on a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized costprospective basis of the financial asset, presents the net amount expected to be collectedwith no material impact on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. This guidance also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. This guidance will be effective for the Company beginning January 1, 2020. The Company does not expect the adoption of this ASU to have a material effect on the Company’sCompany's consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which aims to reduce complexity in accounting standards by improving certain areas of generally accepted accounting principles (GAAP) without compromising information provided to users of financial statements. This guidance will be effective for the Company beginning January 1, 2021. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.


3. Marketable Securities

The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents on the consolidated balance sheet as of December 31, 20192022 and December 31, 2021 (in thousands):

December 31, 2022

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Losses

 

 

Fair

Value

 

Amortized
Cost		Unrealized
Gain		Unrealized
Losses		Fair
Value

Commercial debt securities

 

$

80,376

 

 

$

46

 

 

$

(5

)

 

$

80,417

 

Commercial debt securities$813,598 $64 $(7,554)$806,108 
Commercial paperCommercial paper357,030 64 (821)356,273 
Certificates of depositCertificates of deposit174,080 37 (587)173,530 

U.S. government treasury securities

 

 

72,467

 

 

 

10

 

 

 

(4

)

 

 

72,473

 

U.S. government treasury securities120,977 — (1,099)119,878 

Commercial paper

 

 

23,784

 

 

 

—

 

 

 

—

 

 

 

23,784

 

U.S. government agency securitiesU.S. government agency securities89,718 12 (178)89,552 

Marketable securities

 

$

176,627

 

 

$

56

 

 

$

(9

)

 

$

176,674

 

Marketable securities$1,555,403 $177 $(10,239)$1,545,341 

December 31, 2021
Amortized
Cost		Unrealized
Gain		Unrealized
Losses		Fair
Value
Commercial debt securities$1,034,573 $43 $(2,564)$1,032,052 
Commercial paper151,379 14 (37)151,356 
U.S. government treasury securities77,628 18 (204)77,442 
Certificates of deposit14,574 5 (10)14,569 
Non-U.S. government securities8,071 — (17)8,054 
Marketable securities$1,286,225 $80 $(2,832)$1,283,473 
As of December 31, 2019,2022, the fair values of available-for-sale marketable securities, by remaining contractual maturity, were as follows (in thousands):

Due within one year

 

$

97,816

 

Due in one year through five years

 

 

78,858

 

Total

 

$

176,674

 

69


Due within one year$1,448,990 
Due in one year through five years96,351 
Total$1,545,341 
The Company does not believe that any unrealized losses represent other-than-temporary impairmentsare attributable to credit-related factors based on its evaluation of available evidence. To determine whether a decline in value is other-than-temporary,related to credit loss, the Company evaluates, among other factors: the duration and extent to which the fair value has beenis less than the carrying valueamortized cost basis, changes to the rating of the security by a rating agency and any adverse conditions specifically related to an issuer of a security or its intentindustry. Unrealized gains and ability to retain thelosses on marketable securities for a periodare presented net of time sufficient to allow for any anticipated recovery in fair value.

tax.

4. Fair Value Measurements

The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value on a recurring basis as of December 31, 20192022 and 2018,2021, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):

 

Fair Value Measurement as of December 31, 2019

 

Fair Value Measurement as of December 31, 2022

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Level 1Level 2Level 3Total

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

Money market funds

 

$

588,762

 

 

$

—

 

 

$

—

 

 

$

588,762

 

Money market funds$302,902 $— $— $302,902 
Corporate debt securitiesCorporate debt securities— 2,493 — 2,493 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable Securities:

Corporate debt securities

 

 

—

 

 

 

80,417

 

 

 

—

 

 

 

80,417

 

Corporate debt securities— 806,108 — 806,108 
Commercial paperCommercial paper— 356,273 — 356,273 
Certificates of depositCertificates of deposit— 173,530 — 173,530 

U.S. government treasury securities

 

 

—

 

 

 

72,473

 

 

 

—

 

 

 

72,473

 

U.S. government treasury securities— 119,878 — 119,878 

Commercial paper

 

 

—

 

 

 

23,784

 

 

 

—

 

 

 

23,784

 

U.S. government agency securitiesU.S. government agency securities— 89,552 — 89,552 

Total financial assets

 

$

588,762

 

 

$

176,674

 

 

$

—

 

 

$

765,436

 

Total financial assets$302,902 $1,547,834 $— $1,850,736 

 

Fair Value Measurement as of December 31, 2018

 

Fair Value Measurement as of December 31, 2021

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Level 1Level 2Level 3Total

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

Money market funds

 

$

47,187

 

 

$

—

 

 

$

—

 

 

$

47,187

 

Money market funds$241,571 $— $— $241,571 
Marketable Securities:Marketable Securities:
Corporate debt securitiesCorporate debt securities— 1,032,052 — 1,032,052 
Commercial paperCommercial paper— 151,356 — 151,356 
U.S. government treasury securitiesU.S. government treasury securities— 77,442 — 77,442 
Certificates of depositCertificates of deposit— 14,569 — 14,569 
Non-U.S. government treasury securitiesNon-U.S. government treasury securities— 8,054 — 8,054 

Total financial assets

 

$

47,187

 

 

$

—

 

 

$

—

 

 

$

47,187

 

Total financial assets$241,571 $1,283,473 $— $1,525,044 

The Company classifies its highly liquid money market funds within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its commercial paper, corporate debt securities, andcertificates of deposit, U.S. government treasury securities, and Non-U.S. government securities within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.


5. Prepaid ExpensesIn addition to its cash equivalents and OtherCurrentAssets

Prepaid expenses and other current assets consistedmarketable securities, the Company measures the fair value of its outstanding convertible senior notes on a quarterly basis for disclosure purposes. The Company considers the fair value of the following (in thousands):

convertible senior notes to be a Level 2 measurement due to limited trading activity of the convertible senior notes. Refer to Note 8, Convertible Senior Notes, to the consolidated financial statements for further details.

 

 

December 31,

2019

 

 

December 31,

2018

 

Hosting

 

$

9,180

 

 

$

3,356

 

General prepaid expenses

 

 

5,700

 

 

 

3,607

 

Other receivables

 

 

2,578

 

 

 

526

 

Rent

 

 

821

 

 

 

1,066

 

Marketing

 

 

516

 

 

 

218

 

Restricted cash

 

 

436

 

 

 

—

 

Total prepaid expenses and other current assets

 

$

19,231

 

 

$

8,773

 

70

6.


5. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

December 31,

2019

 

 

December 31,

2018

 

December 31,
2022		December 31,
2021

Computers and equipment

 

$

7,536

 

 

$

4,540

 

Computers and equipment$33,376 $16,885 

Furniture and fixtures

 

 

4,804

 

 

 

2,621

 

Furniture and fixtures13,315 6,595 

Leasehold improvements

 

 

16,517

 

 

 

8,554

 

Leasehold improvements27,683 20,669 

Capitalized software development costs

 

 

24,630

 

 

 

15,000

 

Capitalized software development costs134,890 86,189 

Total property and equipment

 

$

53,487

 

 

$

30,715

 

Total property and equipment$209,264 $130,338 

Less: accumulated depreciation and amortization

 

 

(20,738

)

 

 

(9,066

)

Less: accumulated depreciation and amortization(83,918)(55,186)

Total property and equipment, net

 

$

32,749

 

 

$

21,649

 

Total property and equipment, net$125,346 $75,152 

As discussed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies—Internal UsePolicies—Internal-Use Software Development Costs, the Company capitalizes costs related to the development of computer software for internal useinternal-use and is included in capitalized software development costs within property and equipment, net.

Depreciation and amortization expense was approximately $11.6$27.0 million, $5.5$18.5 million, and $2.2$14.5 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.

7. Acquisition,

6. Acquisitions, Intangible Assets and Goodwill

2019 Acquisition

On November 6, 2019,

2022 Acquisitions
During the year ended December 31, 2022, the Company entered into four purchase agreements for acquisitions of businesses, each of which were accounted for as business combinations in accordance with ASC 805, Business Combinations. The Company does not consider these acquisitions to be material, individually or in aggregate. The total purchase price was allocated to intangible assets in the amount of $8.2 million and goodwill in the amount of $56.6 million based on the respective estimated fair values. The resulting goodwill from each of the agreements is not deductible for income tax purposes. Pro forma results of operations from these acquisitions have not been presented because they were not material to the consolidated results of operations.
2021 Acquisitions
In October and December 2021, the Company entered into two purchase agreements for acquisitions of businesses, each of which were accounted for as business combinations in accordance with ASC 805, Business Combinations. The Company does not consider these acquisitions to be material, individually or in aggregate. The total purchase price was allocated to intangible assets in the amount of $4.3 million and goodwill in the amount of $36.6 million based on the respective estimated fair values. The resulting goodwill from both agreements is not deductible for income tax purposes. Pro forma results of operations from these acquisitions have not been presented because they were not material to the consolidated results of operations.
In April 2021, the Company entered into a Stock Purchase Agreementstock purchase agreement whereby the Company acquired all of the issued and outstanding shares of a target company for $2.2SaaS based security platform company. The consideration was approximately $219.4 million, incomprising cash consideration.and Class A common stock. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. Goodwill resulted primarily from the expectation of integrating and enhancing the Company's current data streaming platform. Combinations. The preliminary allocation of the purchase price was allocated to intangible assets in the amount of $12.0 million and goodwill in the amount of $204.3 million based on available information and assumptions at the timerespective estimated fair values. The resulting goodwill is not deductible for income tax purposes. Intangible assets consisted of the initial valuation and may be subject to change within the measurement period. The results of the operations have been includeddeveloped technology in the Company’s consolidated statementsamount of operations$8.7 million and comprehensive loss sincecustomer relationships in the amount of $3.3 million. The useful life for developed technology and customer relationships are three and four years, respectively. Additionally, there was a one-time severance charge of $1.3 million recorded on the acquisition date and were not material. Pro forma results of operations for this acquisition have not been presented because it was also not material to the consolidated results of operations.

date.

The aggregate purchase consideration and estimated fair values of the assets acquired and liabilities assumed at the date of acquisition were as follows (in thousands):

 

 

Fair Value

 

Fair value of net assets acquired:

 

 

 

 

Net tangible assets

 

$

9

 

Software technology

 

 

910

 

Goodwill

 

 

1,285

 

Total fair value of net assets acquired

 

$

2,204

 

Madumbo Acquisition

On September 28, 2018,In February 2021, the Company entered into a Stock Purchase Agreement with Madumbostock purchase agreement whereby the Company acquired all of the issued and outstanding shares of Madumbo for $1.6 millionan observability data pipeline tool company with the purchase price paid in cash consideration. Madumbo created an artificial intelligence platform that the Company plans to use to strengthen the Company’s current product offering. Goodwill was not deductible for tax purposes. Goodwill resulted primarily from the expected integration of Madumbo’s platform with the Company’s existing product offerings.and Class A common stock. The acquisition was accounted for as a business combination in accordance with ASC 805, BusinessCombinations Combinations. The results of Madumbo’s operations have been includedpurchase price was allocated to intangible assets in the Company’s consolidated statementsamount of operations$1.7 million and comprehensive loss sincegoodwill in the acquisition date and wereamount of $34.3 million based on the respective estimated fair values. The resulting goodwill is not material. deductible for income tax purposes.

71

Pro forma results of operations for this acquisition have not been presented because it was alsothey were not material to the consolidated results of operations. Transaction costs amounted to approximately $0.1 million and were expensed as incurred.

The aggregate purchase consideration and estimated fair values of

2020 Acquisition
During the assets acquired and liabilities assumed at the date of acquisition were as follows (in thousands):

 

 

Fair Value

 

Fair value of net assets acquired:

 

 

 

 

Net tangible assets (liabilities)

 

$

(536

)

Developed technology

 

 

825

 

Goodwill

 

 

1,334

 

Total fair value of net assets acquired

 

$

1,623

 

Focusmatic Acquisition

On March 28, 2017,year ended December 31, 2020, the Company completed an acquisition of Focusmatic SAS (“Focusmatic”). Focusmatic is a log processing and analytics company that aligns with the Company’s goal of improving visibility for its customers IT infrastructure. Goodwill was not deductible for tax purposes. Pursuant to the Agreementpurchase price in cash and Plan of Merger, the entire ownership of Focusmatic was purchased by the Company in exchange for 2,292,012 shares of the Company’s common stock and $5.4 million of cash consideration. Goodwill resulted primarily from the expected integration of the employee base and product offerings of Focusmatic with the Company.stock. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations with the results of Focusmatic’s operations included. The purchase price was allocated to intangible assets in the consolidated financial statements from the dateamount of acquisition. Results of operations for this acquisition have been included$1.5 million and goodwill in the Company’s consolidated statementsamount of operations and comprehensive loss since$7.8 million based on the acquisition date and were not material. Pro forma results of operations for this acquisition have not been presented because it was also not material to the consolidated results of operations. Transaction costs amounted to approximately $0.1 million and were expensed as incurred.

The aggregate purchase consideration andrespective estimated fair values of thevalues. The resulting goodwill is not deductible for income tax purposes.

Intangible Assets
Intangible assets, acquired and liabilities assumed at the date of acquisition were as follows (in thousands):

 

 

Fair Value

 

Fair value of purchase consideration:

 

 

 

 

Cash consideration

 

$

5,397

 

Common stock

 

 

2,015

 

Total fair value of net assets acquired

 

$

7,412

 


 

 

Fair Value

 

Fair value of net assets acquired:

 

 

 

 

Net tangible assets (liabilities)

 

$

(200

)

Developed technology

 

 

1,300

 

Customer relationships

 

 

20

 

Goodwill

 

 

6,292

 

Total fair value of net assets acquired

 

$

7,412

 

Intangibles, net consisted of the following (in thousands):

 

 

December 31, 2019

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Amortization

Period

Developed technology

 

$

3,046

 

 

$

(1,611

)

 

$

1,435

 

 

2-3 years

December 31, 2022
Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount		Amortization
Period
Developed technology$24,460 $(9,970)$14,490 3 years
Customer relationships3,300 (1,425)1,875 4 years
Total$27,760 $(11,395)$16,365 

 

December 31, 2018

December 31, 2021

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Amortization

Period

Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount		Amortization
Period

Developed technology

 

$

2,125

 

 

$

(837

)

 

$

1,288

 

 

2-3 years

Developed technology$17,186 $(4,182)$13,004 3 years

Customer relationships

 

 

20

 

 

 

(20

)

 

 

—

 

 

1 year

Customer relationships3,300 (600)2,700 4 years

Total

 

$

2,145

 

 

$

(857

)

 

$

1,288

 

 

 

Total$20,486 $(4,782)$15,704 

Intangible amortization expense was approximately $0.8$7.6 million, $0.5$4.4 million and $0.5$0.9 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. Amortization of developed technology and customer relationships are included in cost of revenue on the Company’s consolidated statement of operations and comprehensive loss.

As of December 31, 2019,2022, future amortization expense by year is expected to be as follows (in thousands):

 

 

Amount

 

2020

 

$

675

 

2021

 

 

501

 

2022

 

 

259

 

Total

 

$

1,435

 

Amount
2023$8,741 
20245,740 
20251,884 
Total$16,365 

Goodwill
The changes in the carrying amount of goodwill were as follows (in thousands):

 

 

Amount

 

Balance as of December 31, 2017

 

$

6,292

 

Madumbo acquisition

 

 

1,334

 

Balance as of December 31, 2018

 

$

7,626

 

2019 acquisition

 

 

1,285

 

Foreign currency translation adjustments

 

 

147

 

Balance as of December 31, 2019

 

$

9,058

 

Amount
Balance as of December 31, 2021$292,176 
2022 Acquisitions56,553 
Foreign currency translation adjustments(452)
Balance as of December 31, 2022$348,277 



8.

72

7. Accrued Expenses and OtherCurrentLiabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

December 31,

2019

 

 

December 31,

2018

 

Accrued compensation and commissions

 

$

21,910

 

 

$

15,229

 

Accrued expenses

 

 

12,692

 

 

 

6,940

 

Early exercise liability-stock options

 

 

1,776

 

 

 

2,931

 

Payroll and sales taxes

 

 

1,626

 

 

 

1,147

 

Other tax liability

 

 

742

 

 

 

516

 

Deferred rent

 

 

—

 

 

 

3,527

 

Total accrued expenses and other current liabilities

 

$

38,746

 

 

$

30,290

 

December 31,
2022		December 31,
2021
Accrued cloud hosting and infrastructure expenses$73,566 $34,532 
Accrued compensation and commissions46,736 43,050 
Other tax liability and sales tax25,818 17,316 
Accrued expenses25,038 16,353 
Early exercise liability - stock options— 33 
Total accrued expenses and other current liabilities$171,158 $111,284 

9. Commitments


8. Convertible Senior Notes
On June 2, 2020, the Company issued $747.5 million aggregate principal amount of 0.125% convertible senior notes due 2025 (the “2025 Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Securities Act”). The total net proceeds from the sale of the 2025 Notes, after deducting the initial purchasers’ discounts and Contingencies

Lease Commitments—debt issuance costs, were approximately $730.2 million. The 2025 Notes bear interest at a rate of 0.125% per year, payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The 2025 Notes will mature on June 15, 2025, unless earlier converted, redeemed or repurchased.

Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding March 15, 2025 only under the following circumstances:  
(1)during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
(2)during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day;
(3)if the Company calls such 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
(4)upon the occurrence of specified corporate events, as set forth in the indenture governing the 2025 Notes (“the Indenture”).
On or after March 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in integral multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. The conversion rate for the 2025 Notes is initially 10.8338 shares of Class A common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $92.30 per share of Class A common stock), subject to adjustment as set forth in the Indenture. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of Class A common stock, the amount of cash and shares of Class A common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 30 trading day observation period as described in the Indenture. In addition, if specific corporate events occur prior to the applicable maturity date, or if the Company elects to redeem the 2025 Notes, the Company will increase the conversion rate for a holder who elects to convert their notes in connection with such a corporate event or redemption in certain circumstances.
During the three months ended December 31, 2022, the conditional conversion feature of the 2025 Notes was not triggered as the last reported sale price of the Company’s Class A common stock was not greater than or equal to 130% of the conversion price for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending
73

on, and including, the last trading day of the quarter ended December 31, 2022. Therefore the 2025 Notes are not convertible, in whole or in part, at the option of the holders between January 1, 2023 through March 31, 2023. Whether the 2025 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future.
When a conversion notice is received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination thereof. During the year ended December 31, 2022, the Company received and settled an immaterial amount of conversion notices from the holders in cash and as of December 31, 2022, the 2025 Notes were classified as long-term debt on the Company's consolidated balance sheet.
The Company has entered into various noncancelable operating leases for its facilities expiringbetween fiscal 2019may not redeem the 2025 Notes prior to June 20, 2023. On or after June 20, 2023, and 2025. Certain operatingleases contain provisions under which monthlyrentescalatesovertime.When leaseagreementscontainescalatingrentclausesor freerentperiods,prior to the 31st scheduled trading day immediately preceding the maturity date, the Company recognizesrentexpenseon a straight-linebasisoverthetermmay redeem for cash all or any portion of thelease.

Rent 2025 Notes, at its option, if the last reported sale price of its Class A common stock was at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In accounting for the issuance of the 2025 Notes, the 2025 Notes were separated into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the respective 2025 Notes. This difference represents the debt discount that is amortized to interest expense over the contractual terms of the 2025 Notes using the effective interest rate method. The carrying amount of the equity component representing the conversion option was $177.2 million. The equity component was recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the debt issuance costs of $17.3 million related to the 2025 Notes, the Company allocated the total amount incurred to the liability and equity components of the 2025 Notes in the same proportion as the allocation of the proceeds. Issuance costs attributable to the liability component were $13.2 million and will be amortized, along with the debt discount, to interest expense over the contractual term of the 2025 Notes at an effective interest rate of 5.97%. Issuance costs attributable to the equity component were $4.1 million and are netted against the equity component in additional paid-in capital.
On January 1, 2021 the Company adopted ASU No. 2020-06. As a result of the adoption, the debt conversion option of $177.2 million and debt issuance costs of $4.1 million previously attributable to the equity component are no longer presented in equity. Similarly, the debt discount, that is equal to the carrying value of the embedded conversion feature upon issuance, is no longer amortized into income as interest expense over the life of the instrument. This resulted in a $16.8 million decrease to the opening balance of accumulated deficit, a $173.1 million decrease to the opening balance of additional paid-in capital and a $156.3 million increase to the opening balance of convertible senior notes, net on the consolidated balance sheet.
The net carrying amount of the liability component of the 2025 Notes was as follows (in thousands):
December 31,
2022		December 31,
2021
Convertible senior notes, net:
Principal$747,496 $747,500 
Unamortized debt issuance costs(8,649)(12,018)
Net carrying amount$738,847 $735,482 
As of December 31, 2022, the total estimated fair value of the 2025 Notes was approximately $819.4 million. The fair value was determined based on the closing trading price or quoted market price per $100 of the 2025 Notes as of the last day of trading for the period. The fair value of the 2025 Notes is primarily affected by the trading price of the Company’s Class A common stock and market interest rates.
The following table sets forth the interest expense related to the 2025 Notes for the years ended December 31, 2019, 20182022 and 2017 was $16.7 million, $10.0 million and $3.8 million, respectively.

During 2019, 2018 and 2017, 2021 (in thousands):

74

Year Ended December 31,
202220212020
Contractual interest expense$934 $934 $540 
Amortization of debt discount— — 17,621 
Amortization of issuance costs3,369 3,349 1,106 
Total$4,303 $4,283 $19,267 
Capped Calls
In connection with the pricing of the 2025 Notes, the Company recorded $1.0entered into privately negotiated capped call transactions with certain counterparties (“Capped Calls”). The Capped Calls each have an initial strike price of approximately $92.30 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2025 Notes. The Capped Calls have initial cap prices of $151.04 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s Class A common stock upon any conversion of the 2025 Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 8.1 million $0.7shares of the Company’s Class A common stock. For accounting purposes, the Capped Calls are separate transactions, and not part of the 2025 Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The cost of $89.6 million and $0.1 million, respectively, in sub-lease income which wereincurred to purchase the Capped Calls was recorded as a creditreduction to rent expense.

additional paid-in capital and will not be remeasured.

9. Commitments and Contingencies
The Company enters into non-cancelable purchase commitments and operating leases in the normal course of business. Non-cancelable purchase commitments for business operations and operating lease obligations total $721.5 million and $326.6 million, respectively, as of December 31, 2022, due primarily over the next five years. Purchase commitments for business operations are primarily related to cloud hosting and other software-based services.
The Company also issued long-term debt to finance the business. The principal and future interest payments related to the 2025 Notes are $749.9 million.
Non-Income Tax MattersMatters—InJanuary2015, 2016, theCompanyrecordeda$5.0 $5.4 millioncontingentFederal payrolltaxliabilityinconjunctionwithcommonstockrepurchasetransactions,aspartofacapitalraise,with common stock repurchase transactions, as part of a capital raise, with certainof itsemployees.The potentialpayrolltaxtreatmentof thesetransactionswas subjectto uncertainty,and thecontingentpayrolltaxliabilitywasdeemedprobableand reasonablyestimable.On April15, 2019,2020, theperiod oflimitationsforassessingthecontingentFederalpayrolltaxliabilityexpiredandtheCompanywas legally releasedfrombeingtheprimaryobligor.As a result,theCompany recognizeda $5.0$5.6 millionbenefitin the operating expenses section of the consolidatedstatementof operationsduringtheyearended December 31, 2019.

2020.

401(k) Plan—The Company sponsors a 401(k) defined contribution plan covering all eligible USU.S. employees.Contributions The Company is responsible for administrative costs of the 401(k) plan and beginning on January 1, 2022, the Company began making matching contributions tothe401(k)planarediscretionary. plan. For the year ended December 31, 2022, the Company incurred expense of $5.7 million for matching contributions.The Company did not makeany matching contributionsto the401(k)planfortheyearsended December31, 20192021 and 2018.

2020.

Legal MattersMatters—TheCompanyisinvolvedfromtimetotimeinvariousclaimsandlegalactionsarisingin theordinarycourseofbusiness.Whileitisnotfeasibletopredictordeterminetheultimateoutcomeofthese matters,theCompanybelievesthatnoneofitscurrentlegalproceedingswillhave a materialadverseeffecton its financialpositionor resultsof operations.

Indemnificationoperations.

Indemnification—TheCompanyentersintoindemnificationprovisionsundersomeagreementswith other partiesintheordinarycourseof business,includingbusinesspartners,investors,contractors,contractors, customers,and the Company’sofficers,directorsandcertainemployees.TheCompany has agreedto indemnifyand defendthe indemnifiedpartyclaims and related losses suffered or incurred by the indemnified party from actual or threatenedthird-partyclaimbecauseoftheCompany’sactivitiesor non-compliancewith certainrepresentations and warrantiesmadeby theCompany. Itisnot possibleto determinethemaximumpotentialloss under these indemnificationprovisionsduetotheCompany’slimitedhistoryof priorindemnificationclaimsand theunique factsandcircumstancesinvolvedineachparticularprovision.To date,lossesrecordedin theCompany’s consolidatedstatementsofoperationsandcomprehensive(loss)incomeinconnectionwith theindemnification provisionshave not been material.


75


10. Leases

The Company has entered into various noncancelablenon-cancelable operating leases for its facilities expiring between fiscal 20192023 and 2025.2033. Certain lease agreements contain an option for the Company to renew a lease for a term of up to five years or an option to terminate a lease early within three years. The Company considers these options, which may be elected at the Company’s sole discretion, in determining the lease term on a lease-by-lease basis.

Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.

Rent expense for the years ended December 31, 2022, 2021 and 2020 was $34.0 million, $23.8 million, and $20.8 million, respectively.
The Company recorded $1.0 million in sub-lease income for each of the years ended December 31, 2022, 2021 and 2020. Sub-lease income is recorded as a credit to rent expense.
The components of lease cost recognized within the Company’s consolidated statements of operations and comprehensive loss were as follows (in thousands):

 

 

Year Ended

December 31, 2019

 

Operating lease cost(1)

 

$

13,636

 

Variable lease cost(2)

 

 

94

 

Short-term lease cost

 

 

2,925

 

1)

Includes non-cash lease expense of $10.4 million

2)

Primarily related to Consumer Price Index adjustments, common area maintenance and property tax.

Year Ended December 31,
202220212020
Operating lease cost (1)
$25,212 $20,198 $17,081 
Short-term lease cost8,739 3,609 3,717 

_____________________
1)Includes non-cash lease expense of $21.4 million, $17.2 million, and $14.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows (in thousands):

Year Ended December 31,

 

Year Ended

December 31, 2019

 

202220212020

Cash paid for amounts included in measurement of lease liabilities

 

$

9,767

 

Cash paid for amounts included in measurement of lease liabilities$24,752 $20,741 $15,074 

Operating lease assets obtained in exchange for new lease liabilities

 

 

14,618

 

Operating lease assets obtained in exchange for new lease liabilities48,404 17,476 17,379 

Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands):

 

Amount

 

2020

 

$

14,576

 

2021

 

 

16,944

 

2022

 

 

16,731

 

Amount

2023

 

 

14,569

 

2023$11,510 

2024 and beyond

 

 

4,017

 

2024202419,185 
2025202517,258 
2026202615,110 
2027202714,536 
ThereafterThereafter48,761 

Total lease payments

 

$

66,837

 

Total lease payments$126,360 

Less: imputed interest

 

 

(6,411

)

Less: imputed interest(27,685)

Present value of lease liabilities

 

$

60,426

 

Present value of lease liabilities$98,675 

As of December 31, 2019,2022, the Company had one additionalvarious operating leaseleases that hashad not yet commenced. Thiscommenced, which are excluded from the table above. The operating leaseleases will commence inbetween fiscal year 20202023 and 2025 with total undiscounted future payments of $200.3 million and a weighted-average lease term of six8.9 years. Pursuant to the terms of the office lease, the Company will pay $2.2 million in aggregate through the life of the lease. 

Weighted average remaining lease term and discount rate for the Company’s operating leases are as follows:

December 31,

2019

Weighted average remaining lease term (years)

4.00

Weighted average discount rate

4.98

%

76



December 31,
2022		December 31,
2021
Weighted average remaining lease term (years)6.24.9
Weighted average discount rate5.12 %4.55 %

11. Stockholders’ Equity (Deficit)

In January 2018,Revenue

Geographical Information
Revenue by location is determined by the Company converted the then outstanding shares of non-voting common stock to common stock. The non-voting common stock had the same rights and preferences as common stock except that the non-voting stock did not contain any voting rights.

In March 2019, certain investors proposed a tender offer to purchase sharesbilling address of the Company’s capital stock from certain stockholders at a pricecustomer. The following table sets forth revenue by geographic area (in thousands):

Year Ended December 31,
202220212020
North America$1,200,719 $736,218 $449,899 
International474,381 292,566 153,567 
Total$1,675,100 $1,028,784 $603,466 
Other than the United States, no other individual country accounted for 10% or more of $15.92 per share, pursuant to an offer to purchase to whichtotal revenue for the Company was not a party. The Company agreed to waive certain transfer restrictions in connection with, and assist in the administration of, the tender offer. The tender offer was completed in the second quarter of 2019, and an aggregate of 14,366,871 shares of the Company’s capital stock were successfully tendered, including 803,481 shares of Preferred stock that converted into an equal number of shares of common stock in conjunction with the sale.

years ended December 31, 2022, 2021, or 2020.

Accounts Receivable
As of December 31, 2019,2022 and 2021, unbilled accounts receivable of approximately $60.0 million and $44.2 million, respectively, was included in accounts receivable on the Company’s consolidated balance sheets.
During the years ended December 31, 2022 and 2021, the Company had authorized 2,000,000,000 sharescharged $2.7 million and $1.7 million, respectively, of Class A common stockaccounts receivable deemed uncollectible against the allowance for credit losses.
Deferred Revenue and 310,000,000 shares of Class B common stock, each at a par value per share of $0.00001, of which 64,308,498 shares of Class A common stock and 232,078,452 shares of Class B common stock were issued and outstanding.

AtRemaining Performance Obligations

Revenue recognized during the years ended December 31, 20192022, 2021 and 2018,2020 which was included in the deferred revenue balances at the beginning of each respective period, was $374.6 million, $206.6 million, and $126.8 million.
As of December 31, 2022, and 2021, the aggregate transaction price allocated to remaining performance obligations was $1,057.2 million and $815.0 million, respectively. There is uncertainty in the timing of revenues associated with the Company’s drawdown contracts, as future revenue can often vary significantly from past revenue. However, the Company had reserved shares of common stock for future issuance as follows:

 

 

December 31,

 

 

 

2019

 

 

2018

 

Seed Preferred Stock

 

 

—

 

 

 

19,403,952

 

Series A Preferred Stock

 

 

—

 

 

 

49,195,632

 

Series B Preferred Stock

 

 

—

 

 

 

39,619,992

 

Series C Preferred Stock

 

 

—

 

 

 

30,389,424

 

Series D Preferred Stock

 

 

—

 

 

 

41,205,912

 

2012 and 2019 stock option plans:

 

 

 

 

 

 

 

 

Options and RSU's outstanding

 

 

37,031,861

 

 

 

38,865,057

 

Shares available for future option and RSU grants

 

 

31,729,237

 

 

 

69,225

 

Shares available subject to the 2019 ESPP Plan

 

 

6,725,000

 

 

 

—

 

 

 

 

75,486,098

 

 

 

218,749,194

 

Convertible Preferred Stock—Immediately priorexpects to the completionrecognize substantially all of the IPO in September 2019, all sharesremaining performance obligations over the next 24 months.

Deferred Contract Costs
Deferred contract costs on the Company’s consolidated balance sheets were $88.4 million and $65.3 million as of convertible preferred stock then outstanding were converted into 179,011,431 shares of Class B common stock.

December 31, 2022 and 2021, respectively. Amortization expense was $28.0 million, $17.9 million and $10.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

12. Stockholders’ Equity
Class A and Class B Common Stock—
The Company has two classes of common stock, Class A and Class B. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder and are automatically converted upon sale or transfer to Class A common stock upon sale or transfer, subject to certain limited exceptions.

77

During the year ended December 31, 2019, 36,464,0532022, 24,517,506 shares of Class B common stock were converted into Class A common stock.

Employee Stock Purchase Plan—In September 2019,

As of December 31, 2022, the Board adopted and approved the 2019 ESPP, which became effective on September 18, 2019.  The ESPP initially reserved andCompany had authorized the issuance of up to a total of 6,725,0002,000,000,000 shares of Class A common stock to participating employees.  Asand 310,000,000 shares of December 31, 2019, 6,725,000Class B common stock, each at a par value per share of $0.00001, of which 293,573,825 shares of Class A common stock remain available for grant under the ESPP. The initial offering period began on September 18, 2019 and will end on May 15, 2020. On each purchase date, eligible employees will purchase the25,616,018 shares at a price per share equal to 85% of the lesser of (1) the $27.00 initial public offering price of the Company’s Class AB common stock or (2) the fair market value of the Company’s Class A common stock on the purchase date, as defined in the ESPP.

The Company recognized $1.2 million of stock-based compensation expense related to the ESPP during the year ended December 31, 2019, beginning upon the IPO in September 2019. Total compensation cost related to the ESPP not yet recognized was approximately $1.5 million as of December 31, 2019. The weighted average period over which this compensation cost will be recognized is 0.4 years as of December 31, 2019.

were issued and outstanding.

As of December 31, 2019, $3.3 million has been withheld on behalf2022 and 2021, the Company had reserved shares of employeescommon stock for a future purchase under the ESPP.  There were no purchases for the year ended December 31, 2019 related to the ESPP.

Stock-Based Compensation—issuance as follows:

December 31,
20222021
Options and RSUs outstanding30,930,540 29,453,830 
Shares available for future option and RSU grants63,291,013 54,279,321 
Shares subject to the employee stock purchase plan14,806,591 11,989,812 
109,028,144 95,722,963 
Equity Incentive Plans
The Company has two equity incentive plans, the 2012 equity incentive planEquity Incentive Plan (the “2012 Plan”) and the 2019 equity incentive planEquity Incentive Plan (the “2019 Plan”). On September 18, 2019,In connection with the Company's initial public offering ("the IPO"), the Company ceased granting awards under the 2012 Plan, and all shares that remained available for issuance under the 2012 Plan at that time were transferred to the 2019 Plan.  Plan.Additionally, as of December 31, 2019,2022, there were 36,364,06718,523,300 shares of Class A common stock issuable upon conversion of Class B common stock underlying options outstanding under the 2012 Plan. Under the 2019 Plan, the Board and any other committee or subcommittee of the Board may grant stock options, stock appreciation rights, restricted stock awards, RSUsrestricted stock units (“RSUs”), and performance-basedperformance stock units ("PSUs") and other awards, each equity award valued or based on the Company’s Class A common stock, to employees, directors, consultants, and advisors of the Company. Through December 31, 2019, the Company has only issued stock options and RSUs in connection with the 2012 and 2019 Plans. As of December 31, 2019, the Company was authorized to grant awards representing up to 70,296,7332022, there were 63,291,013 shares under the 2019 Plan and had awards representing 31,729,237 shares of Class A common stock available tofor grant under the 2019 Plan.

Stock Options
The Company uses the Black-Scholes option pricing model to value stock options. The fair value of each award is recognized on a straight-line basis over the vesting or service period, which is typically four years. The Black-Scholes model requires specified inputs to determine the fair value of stock-based awards, consisting of (i) the expected volatility of the Company’s common stock over the expected option life, (ii) the risk-free interest rate, (iii) the expected dividend yield, and (iv) the expected option life.

The following table summarizes the assumptions used during the years ended December 31, 2019, 20182022, 2021 and 2017:

2020:

 

 

Year Ended December 31,

 

 

2019

 

2018

 

2017

Expected volatility

 

38.9% - 39.5%

 

38.4% - 39.0%

 

37.1% - 38.8%

Risk-free interest rate

 

1.4% - 2.6%

 

2.6% - 3.0%

 

1.8% - 2.2%

Expected dividend yield

 

—%

 

—%

 

—%

Expected term (in years)

 

5.2 - 6.3

 

5.8 - 6.1

 

5.1 - 6.1

Fair value of common stock

 

$6.16 - $38.21

 

$2.23 - $5.63

 

$0.87 - $1.02

Year Ended December 31,
2022 (1)
2021 (1)
2020
Expected volatilityn/an/a38.9%
Risk-free interest raten/an/a1.7%
Expected dividend yieldn/an/a—%
Expected term (in years)n/an/a6.1
Fair value of common stockn/an/a$41.19
_____________________

1) There were no stock options granted during the years ended December 31, 2022 and 2021.
Expected volatilityvolatility—TheCompanyperformedananalysisofitspeercompanieswith similarexpectedlives to developan expectedvolatilityassumption.

Expected term—Derivedfromthelifeoftheoptionsgrantedundertheoptionplanand isbasedon the simplifiedmethodwhich isessentiallytheweightedaverageof thevestingperiodand contractualterm.

Risk-free interest raterate—Based upon quotedmarketyieldsfortheUnitedStatesTreasurydebtsecurities.

78

Expected dividend yieldyield—SincetheCompany has neverpaidand has no intentionto pay cashdividendson commonstock,theexpecteddividendyieldiszero.

Fair value of the common stockstock—Prior to the IPO, the fair value of common stock underlying the stock-based awards was determined by the Company’s Board of Directors. TheBoardofDirectorsconsiderednumerousobjective andsubjectivefactorsto determinethefairvalueof theCompany’scommonstockateachmeetingin which awardswereapproved.Thefactorsconsideredincluded,butwerenotlimitedto:(i)theresultsof contemporaneous independentthird-partyvaluationsof theCompany’scommonstock;(ii)theprices, rights, preferences,and privilegesoftheCompany’sredeemableconvertiblePreferredStockrelativetothoseofitscommonstock; (iii)thelackofmarketabilityoftheCompany’scommonstock;(iv)actualoperatingandfinancialresults; (v)currentbusinessconditionsandprojections;(vi)thelikelihoodofachievingaliquidityevent,suchasan initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactionsinvolvingtheCompany’sshares. Since the Company’s IPO, the fair value of the underlying common stock is determined by the closing price, on the date of grant, of the Company’s Class A common stock, which is traded publicly on The Nasdaq GlobalSelectMarket.


StockThe following table summarizes the Company's stock optionactivityduringtheyearsendedDecember31,2019,2018 and 2017 isas follows:  

weighted-average exercise prices:

 

 

Number Of

Options

Outstanding

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining

Contractual Life

(in Years)

 

Balance—January 1, 2017

 

 

35,825,160

 

 

$

0.39

 

 

 

8.9

 

Options granted

 

 

12,841,968

 

 

$

0.89

 

 

 

 

 

Options exercised

 

 

(2,165,976

)

 

$

0.21

 

 

 

 

 

Options forfeited

 

 

(1,623,264

)

 

$

0.64

 

 

 

 

 

Balance—December 31, 2017

 

 

44,877,888

 

 

$

0.53

 

 

 

8.3

 

Options granted

 

 

11,236,803

 

 

$

1.61

 

 

 

 

 

Options exercised

 

 

(14,882,622

)

 

$

0.52

 

 

 

 

 

Options forfeited

 

 

(2,367,012

)

 

$

0.79

 

 

 

 

 

Balance—December 31, 2018

 

 

38,865,057

 

 

$

0.83

 

 

 

7.9

 

Options granted

 

 

9,518,730

 

 

$

9.15

 

 

 

 

 

Options exercised

 

 

(10,546,987

)

 

$

0.75

 

 

 

 

 

Options forfeited

 

 

(1,452,033

)

 

$

2.54

 

 

 

 

 

Balance—December 31, 2019

 

 

36,384,767

 

 

$

2.96

 

 

 

7.6

 

Exercisable—December 31, 2019

 

 

22,327,967

 

 

$

2.19

 

 

 

7.0

 

Number of
Options
Outstanding		Weighted-
Average
Exercise Price		Weighted-
Average
Remaining
Contractual Life
(in Years)		Aggregate
Intrinsic Value
(in thousands)
Balance—December 31, 202121,372,561$3.31 5.5$3,735,819 
Options granted— — 
Options exercised(2,687,334)3.71 
Options forfeited or expired(133,370)5.85 
Balance—December 31, 202218,551,857$3.24 4.4$1,303,464 
Exercisable—December 31, 202217,373,753$2.74 4.3$1,229,289 

As of December 31, 2019,2022, there were 20,70028,557 shares of Class A common stock and 36,364,06718,523,300 shares of Class B common stock issuable upon the exercise of options outstanding.

As of December 31, 2021, there were 31,671 shares of Class A common stock and 21,340,890 shares of Class B common stock issuable upon the exercise of options outstanding.

Total compensation cost related to unvested awards not yet recognized was approximately $10.1 million and $31.6 million as of December 31, 2022 and December 31, 2021, respectively. The weighted-average period over which this compensation cost related to unvested employee awards will be recognized is 0.6 years and 1.3 years as of December 31, 2022 and December 31, 2021, respectively.
There were no options granted during the years ended December 31, 2022 and 2021. The weighted average grant-date fair value of options granted during 2019, 2018 and 2017the year ended December 31, 2020 was $8.69, $2.48 and $0.40, respectively.$16.55. The Company received approximately $7.9$10.0 million,, $7.8 $14.9 million and $0.5$16.0 million in cash proceeds from options exercised during 2019, 2018the years ended December 31, 2022, 2021 and 2017,2020, respectively. The intrinsic value of options exercised in 2019, 2018during the years ended December 31, 2022, 2021 and 20172020 was approximately $121.3$301.6 million, $36.4$579.6 million and $1.5$554.3 million, respectively. The aggregate fair value of options vested during 2019, 2018the years ended December 31, 2022, 2021 and 20172020 was $10.8$23.9 million, $3.5$28.1 million and $4.2$27.6 million, respectively.

Total compensation cost related to unvested stock options not yet recognized was approximately $90.5 million and $28.4 million as of December 31, 2019 and December 31, 2018, respectively. The weighted average period over which this compensation cost related to unvested stock options will be recognized is 2.7 years and 3.4 years as of December 31, 2019 and December 31, 2018, respectively.

The following table summarizes the activity for the Company's unvested RSUs:

 

 

Shares

 

 

Weighted-Average

Fair Value

 

Balance at December 31, 2018

 

 

—

 

 

$

—

 

Granted

 

 

647,094

 

 

$

36.08

 

Vested

 

 

—

 

 

$

—

 

Forfeited/canceled

 

 

—

 

 

$

—

 

Balance at December 31, 2019

 

 

647,094

 

 

$

36.08

 

In November 2019, the Company granted 244,445 restricted shares of Class A common stock, which are subject to service-based vesting conditions over approximately four years. Total compensation cost related to unvested RSUs and restricted shares of common stock not yet recognized was approximately $30.4 million as of December 31, 2019. The weighted average period over which this compensation cost related to unvested RSUs will be recognized is 3.9 years as of December 31, 2019. The Company expects to settle RSUs with shares of its Class A common stock.


Stock-basedcompensation expense wasincluded intheconsolidated statement ofoperations as follows(inthousands):

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Cost of revenue

 

$

582

 

 

$

287

 

 

$

112

 

Research and development

 

 

7,972

 

 

 

1,641

 

 

 

1,160

 

Sales and marketing

 

 

5,538

 

 

 

1,910

 

 

 

977

 

General and administrative

 

 

4,942

 

 

 

1,406

 

 

 

819

 

Stock-based compensation, net of amounts capitalized

 

 

19,034

 

 

 

5,244

 

 

 

3,068

 

Capitalized stock-based compensation expense

 

 

201

 

 

 

167

 

 

 

248

 

Total stock-based compensation expense

 

$

19,235

 

 

$

5,411

 

 

$

3,316

 

Common stock purchased pursuant to an early exercise of stock options is not deemed to be outstanding for accounting purposes until those shares vest. The consideration received for an exercise of an option is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability. The shares issued upon the early exercise of these unvested stock option awards, which are reflected as exercises in the table above, are considered to be legally issued and outstanding on the date of exercise. Upon termination of service, the Company may repurchase unvested shares acquired through early exercise of stock options at a price equal to the price per share paid upon the exercise of such options. The Company has no liability recorded related to early exercises of options as of December 31, 2022. As of December 31, 2021, the Company had recorded liabilities related to early exercises of 1,239,750options for 31,500 shares of Class B common stock.

79

Restricted Stock Units, Restricted Stock Awards and Performance Stock Units
The following table summarizes the activity for the Company’s unvested RSUs and PSUs:
SharesWeighted-Average
Fair Value		Aggregate
Intrinsic Value
(in thousands)
Unvested and outstanding balance as of December 31, 20218,081,269$101.21 $1,439,355 
Awarded7,639,262106.51 
Vested(2,492,535)90.84 
Forfeited/canceled(849,313)106.74 
Unvested and outstanding balance as of December 31, 202212,378,683$106.19 $909,833 
The Company granted a total of 1,130,999 restricted shares of Class A common stock in connection with acquisitions during the period of November 2019 to November 2022, which are subject to service-based vesting conditions over approximately four years from the respective grant dates.
Total compensation cost related to unvested RSUs and restricted shares of common stock not yet recognized was approximately $1,151.1 million and 2,095,656$773.6 million as of December 31, 2022 and December 31, 2021, respectively. The weighted-average period over which this compensation cost related to unvested RSUs and restricted shares of common stock will be recognized is 2.9 years and 3.1 years as of December 31, 2022 and December 31, 2021, respectively.
Total compensation cost related to unvested PSUs not yet recognized was approximately $19.0 million as of December 31, 2022. The weighted-average period over which this compensation cost related to unvested PSUs will be recognized is 1.4 years as of December 31, 2022. There were no PSUs outstanding during the year ended December 31, 2021.
Stock-Based Compensation
Stock-based compensation expense was included in the consolidated statement of operations as follows (in thousands):
Year Ended December 31,
202220212020
Cost of revenue$10,827 $4,565 $1,794 
Research and development237,120 101,942 38,008 
Sales and marketing76,735 35,035 20,467 
General and administrative38,472 22,195 14,105 
Stock-based compensation, net of amounts capitalized363,154 163,737 74,374 
Capitalized stock-based compensation expense14,853 9,660 3,404 
Total stock-based compensation expense$378,007 $173,397 $77,778 
Employee Stock Purchase Plan
In September 2019, the Board adopted and 2018,approved the 2019 ESPP, which became effective on the date of the final prospectus for the Company’s IPO.
The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of the Company’s Class A common stock on specified dates during such offerings. Under the ESPP, the Company may specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each offering. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1)the fair market value of the Company’s Class A common stock on the first trading day of the offering period, or (2)the fair market value of the Company’s Class A common stock on the purchase date, as defined in the ESPP.
The Company recognized $11.2 million, $7.6 million, and $5.0 million of stock-based compensation expense related to the ESPP during the years ended December 31, 2022, 2021, and 2020, respectively.

12.

80

As of December 31, 2022, and 2021, $6.0 million and $4.2 million, respectively has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions.
During the years ended December 31, 2022, 2021, and 2020, the Company issued 316,875, 291,871, and 447,955 shares of Class A common stock under the ESPP. As of December 31, 2022, 14,806,591 shares of Class A common stock remain available for grant under the ESPP.
Total compensation cost related to the ESPP not yet recognized was approximately $7.1 million and $3.5 million as of December 31, 2022 and 2021, respectively. The weighted average period over which this compensation cost will be recognized is 0.4 years as of December 31, 2022 and 2021, respectively.
13. Interest Income and Other Income, Net
Interest income and other income, net consist of the following (in thousands):
Year Ended December 31,
202220212020
Interest income$34,931 $21,412 $21,234 
Other income, net2,229 374 751 
Interest income and other income, net$37,160 $21,786 $21,985 

14. Income Taxes

Income Taxes—For financialreportingpurposes,lossbeforeincometaxes,includesthefollowing components(inthousands):

 

December 31,

 

Year Ended December 31,

 

2019

 

 

2018

 

 

2017

 

202220212020

Domestic

 

$

(18,330

)

 

$

(11,273

)

 

$

(2,498

)

Domestic$(76,694)$(29,617)$(32,033)

Foreign

 

 

2,354

 

 

 

1,033

 

 

 

385

 

Foreign38,624 11,195 9,811 

Loss before income taxes

 

$

(15,976

)

 

$

(10,240

)

 

$

(2,113

)

Loss before income taxes$(38,070)$(18,422)$(22,222)

Total income taxes allocated to operations for the years ended December 31, 2019, 20182022, 2021 and 20172020 were as follows (in thousands):

2019

 

Current

 

 

Deferred

 

 

Total

 

20222022CurrentDeferredTotal

Federal

 

$

—

 

 

$

—

 

 

$

—

 

Federal$3,122 $— $3,122 

State

 

 

126

 

 

 

—

 

 

 

126

 

State183 — 183 

Foreign

 

 

967

 

 

 

(359

)

 

 

608

 

Foreign9,179 (394)8,785 

Total

 

$

1,093

 

 

$

(359

)

 

$

734

 

Total$12,484 $(394)$12,090 

2018

 

Current

 

 

Deferred

 

 

Total

 

20212021CurrentDeferredTotal

Federal

 

$

—

 

 

$

—

 

 

$

—

 

Federal$232 $— $232 

State

 

 

(127

)

 

 

—

 

 

 

(127

)

State44 — 44 

Foreign

 

 

559

 

 

 

90

 

 

 

649

 

Foreign2,091 (44)2,047 

Total

 

$

432

 

 

$

90

 

 

$

522

 

Total$2,367 $(44)$2,323 

2017

 

Current

 

 

Deferred

 

 

Total

 

20202020CurrentDeferredTotal

Federal

 

$

41

 

 

$

—

 

 

$

41

 

Federal$— $— $— 

State

 

 

60

 

 

 

—

 

 

 

60

 

State124 — 124 

Foreign

 

 

477

 

 

 

(121

)

 

 

356

 

Foreign2,239 (38)2,201 

Total

 

$

578

 

 

$

(121

)

 

$

457

 

Total$2,363 $(38)$2,325 


81


Tax Rate ReconciliationReconciliation—Incometaxexpensewas $0.7$12.1 million, $0.5$2.3 millionand$0.52.3 million fortheyearsended December31,2019, 2018 2022,2021 and 2017,2020, respectively,and differedfromtheamountscomputedby applyingtheU.S.federal statutoryincometaxrateof21%, 21%fortheyearsendedDecember 31, 2022, 2021 and 34%fortheyearsendedDecember31,2019, 2018 and 2017,respectively,2020,to pretaxlossfromoperationsas a resultof thefollowing(inthousands):

 

December 31,

 

Year Ended December 31,

 

2019

 

 

2018

 

 

2017

 

202220212020

Income tax expense at federal statutory rate

 

$

(3,355

)

 

$

(2,151

)

 

$

(719

)

Income tax expense at federal statutory rate$(7,995)$(3,868)$(4,667)

Nondeductible expenses

 

 

(1,049

)

 

 

1,289

 

 

 

735

 

Nondeductible expenses1,678 368 132 

State taxes (net of federal benefit)

 

 

100

 

 

 

(100

)

 

 

60

 

State taxes (net of federal benefit)140 18 98 

Impacts of United States tax reform—rate change and mandatory

repatriation

 

 

—

 

 

 

—

 

 

 

4,353

 

Change in valuation allowance

 

 

5,043

 

 

 

1,052

 

 

 

(4,146

)

Net change in valuation allowanceNet change in valuation allowance25,573 62,173 51,892 

Uncertain tax positions

 

 

23

 

 

 

241

 

 

 

366

 

Uncertain tax positions3 (728)17 
US tax costs on international operationsUS tax costs on international operations5,722 1,478 1,818 

Foreign taxes

 

 

92

 

 

 

191

 

 

 

(146

)

Foreign taxes(835)424 126 
Share based compensation deductionsShare based compensation deductions(1,580)(57,350)(47,032)
Return to provisionReturn to provision(1,149)(193)(48)
US R&D tax creditsUS R&D tax credits(9,467)— — 

Other

 

 

(120

)

 

 

—

 

 

 

(46

)

Other— 1 (11)

Total

 

$

734

 

 

$

522

 

 

$

457

 

Total$12,090 $2,323 $2,325 

On

For the year ended December 22, 2017,31, 2022, the Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the United States. Due to uncertainties surrounding the realization of the deferred tax assets, the Company recorded a full valuation allowance against substantially all of its net deferred tax assets. When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made.
The Company is subject to tax laws in the United States and numerous foreign jurisdictions. The United States and many international legislative and regulatory bodies continually propose and enact legislation that could significantly impact how U.S. government enacted comprehensivemultinational corporations are taxed. The Company is closely monitoring proposed legislation and its potential impact. For tax legislation commonly referred to asyears beginning on or after January 1, 2022, the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broadof 2017 eliminates the option to deduct research and complex changesdevelopment expenditures, as defined under IRC Section 174, in the year incurred. Instead, taxpayers are required to amortize such expenditures over five years if incurred in the U.S. tax code that affectedand over fifteen years if incurred in a foreign jurisdiction. For the Company’s financial results for the yeartwelve months ended December 31, 2017, including, but not limited to: (1) requiring a one-time transition tax (payable over eight years) on certain un-repatriated earnings of foreign subsidiaries; (2) a future reduction of2022, the U.S. federal corporate tax rate from 34% to 21% effective January 1, 2018, that reduced the current value of the Company’s deferred tax assets and liabilities; and (3) bonus depreciation that allows for full expensing of qualified property placed in service after September 27, 2017. In addition, the Tax Act establishes new tax laws that may affect the Company’s financial results for the years ending after December 31, 2017, including, but not limited to: (1) a reduction of the U.S. federal income tax rate from 34% to 21%; (2) limitation of the deduction for interest expense; (3) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (4) a new provision designed to tax global intangible low-taxed income; (5) limitations on the deductibility of certain executive compensation; and (6) limitations on the use of Foreign Income Tax Credit to reduce the Company’s income tax liability.

Pursuant to the Staff Accounting Bulletin published by the SEC on December 22, 2017, addressing the challenges in accounting for the effects of the Tax Act in the period of enactment, companies reported provisional amounts for those specific income tax effects of the Tax Act for which the accounting was incomplete but a reasonable estimate could be determined. Those provisional amounts were subject to adjustment during a measurement period of up to one year from the enactment date (a “measurement-period adjustment”). PursuantCompany conformed to this guidance, the estimated impact of the Tax Act was based on a preliminary review of the newchange in tax law and projected future financial results and was subject to revision based upon further analysis and interpretation of the Tax Act and to the extent that actual results differed from projections available at that time.

In 2018, the Company completed its accounting with respect to the Tax Act and did not make any measurement-period adjustments to the initial tax expense of $4.0 million recorded in 2017. The accounting is summarized below:

law.

ReductionofU.S.FederalCorporateTaxRate:TheTaxActreducedthecorporatetaxrateto21%, effectiveJanuary1,2018.Consequently,theCompanyrecordedadecreaserelatedtodeferredtax assetsand liabilitieswith a correspondingnetadjustmentto deferredincometax expense for the year ended December31, 2017 of $4.0 million.In addition,thevaluationallowancewas reducedby $4.0 million,astheCompanyisinafullvaluationallowancepositionfortheU.S. DeferredTaxAsset position.TheCompanydidnotmakeanymeasurement-periodadjustmentsrelatedtothisitemin 2018. The Company’saccountingforthiselementof theTax Act iscomplete.

82

One-TimeMandatoryDeemedRepatriationTax:Theone-timemandatorydeemedrepatriationtaxis imposedonpreviouslyuntaxedaccumulatedandcurrentearningsandprofitsof theCompany’sforeign subsidiaries. The Company was able to reasonably estimate the one-time mandatory deemed repatriationtaxandrecordedaninitialprovisionaltaxobligation,with a correspondingadjustmentto incometaxexpensefortheyearendedDecember31,2017,whichdid not have a materialimpact. The Companydidnotmakeanymeasurement-periodadjustmentsrelatedto thisitemin 2018. The Company’saccountingforthiselementof theTax Act iscomplete.


•

Valuation Allowances: The Company must assess whether its valuation allowance analyses are affectedbythevariousaspectsof theTax Act. During 2017, theCompany released$4.0 millionof valuationallowancecorrespondingwiththereductionoftheassociatedU.S. deferredtaxassets.The Companydidnotmakeanymeasurement-periodadjustmentsrelatedto thisitemin 2018. The Company’saccountingforthiselementof theTax Act iscomplete.

GlobalIntangibleLow-TaxedIncome(GILTI)PolicyElection:TheFASBallowscompaniestoadopt anaccountingpolicytoeitherrecognizedeferredtaxforGILTIortreatsuchtaxcostasacurrent periodexpensewhenincurred.The Company has adoptedan accountingpolicyto treattaxesdue on GILTI as a currentperiodexpense.

Components of Deferred Taxes—Thetaxeffectsoftemporarydifferencesthatgiverisetothedeferredtax assetsand deferredtaxliabilitiesatDecember31, 2019 2022and 2018 2021arepresentedbelow (inthousands):

 

December 31,

 

December 31,

 

2019

 

 

2018

 

20222021

Deferred tax assets:

 

 

 

 

 

 

 

 

Deferred tax assets:

Net operating losses (federal and state)

 

$

14,631

 

 

$

7,448

 

Net operating lossesNet operating losses$54,974 $128,263 

Stock-based compensation

 

 

2,085

 

 

 

1,668

 

Stock-based compensation48,872 23,669 

Federal withholding tax reserve

 

 

815

 

 

 

1,550

 

Internal use software

 

 

1,746

 

 

 

725

 

Section 174 capitalizationSection 174 capitalization76,625 — 

Lease liability

 

 

10,440

 

 

 

—

 

Lease liability18,793 14,374 

Other

 

 

1,297

 

 

 

2,091

 

Other15,494 11,829 

Total deferred tax assets

 

$

31,014

 

 

$

13,482

 

Total deferred tax assets$214,758 $178,135 

Less: valuation allowance

 

 

(15,205

)

 

 

(9,730

)

Less: valuation allowance(174,976)(148,648)

Net deferred tax assets

 

$

15,809

 

 

$

3,752

 

Deferred tax assets, net of valuation allowanceDeferred tax assets, net of valuation allowance$39,782 $29,487 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Deferred tax liabilities:

Commissions

 

$

(6,514

)

 

$

(2,796

)

Commissions(22,182)(16,590)

Right of use asset

 

 

(9,210

)

 

 

—

 

Right of use asset(17,151)(12,815)

Other

 

 

(85

)

 

 

(956

)

Total deferred tax liabilities

 

$

(15,809

)

 

$

(3,752

)

Total deferred tax liabilities$(39,333)$(29,405)

Net deferred tax assets/liabilities

 

$

—

 

 

$

—

 

Deferred tax assets, netDeferred tax assets, net$449 $82 

The Company accounts for income taxes using an asset and liability method and deferred income tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. The Company’s deferred tax assets and liabilities are comprised primarily of federal and state net operating loss carryforwards and basis differences for financial reporting and tax purposes of certain assets and liabilities. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the weight of all available evidence, which includes the historical operating performance and the recorded cumulative losses in prior fiscal periods, management does not believe as of December 31, 20192022 and 20182021 that it is more likely than not that the Company will realize its U.S. deferred tax assets. As a result, a valuation allowance of $15.2$175.0 million and $9.7$148.6 million has been provided at December 31, 20192022 and 2018,2021, respectively. The valuation allowance changed by $5.5$26.3 million and $1.2$114.8 million at December 31, 20192022 and 2018,2021, respectively.
At December 31, 20192022 and 2018,2021, the Company has net operating loss carryforwards for federal tax purposes of approximately $56.6$243.4 million and $28.0$505.4 million, respectively, which is available to offset federal taxable income. The federal net operating loss carryforwards generated at December 31, 20192017 and prior will begin to expire in 2031, if not utilized. Net operating losses generated atafter December 31, 2018 and after2017 have an indefinite carryforward period but are subject to an 80% of taxable income limitation.limitation after December 31, 2020. The Company has approximately $42.0$92.0 million and $24.2$342.1 million of post-apportioned net operating loss carryforwards as of December 31, 20192022 and 2018,2021, respectively for various state tax purposes. The state net operating loss carryforwards will begin to expire in 2029,2026, if not utilized.

Utilization

Generally, the utilization of the net operating losses may be subject to an annual limitation provided for in the Internal Revenue Code of 1986, as amended, under Section 382 and similar state codes. The Company has prepared an analysis to determine whether its net operating losses may be limited under such provisions. It has been determined that any annual limitation would not result in the expiration of net operating loss carryforwards before utilization.


In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiariesinthoseoperations.Historically,theCompanyhasnotmadeaprovisionforU.S. incometaxwith respectto accumulatedearningsof foreignsubsidiarieswhere theforeigninvestmentof such earningsis essentiallypermanentinduration.Generally,suchamountswouldbecomesubjecttoU.S. taxationupon the remittanceofdividendsandundercertainothercircumstances.TheCompanyhasnotprovidedU.S. taxeson unremittedearningsof itsforeignsubsidiariesas itassertspermanentreinvestmenton any accumulatedearnings and profits.

Consistent with the provisions of ASC 740, IncomeTaxes, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at
83

the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The following table shows the changes in the gross amount of unrecognized tax benefits as of December 31, 2019, 20182022, 2021 and 20172020 (inthousands):

 

December 31,

 

December 31,

 

2019

 

 

2018

 

 

2017

 

202220212020

Beginning balance

 

$

920

 

 

$

563

 

 

$

—

 

Beginning balance$106 $532 $920 

Increases based on tax positions during the current period

 

 

—

 

 

 

357

 

 

 

563

 

Increases based on tax positions during the current period— — — 
(Decreases) based on tax positions during the current period(Decreases) based on tax positions during the current period— (426)(388)

Ending balance

 

$

920

 

 

$

920

 

 

$

563

 

Ending balance$106 $106 $532 

The total amount of unrecognized tax benefits that, if recognized would impact the effective tax rate would be $0.5 million and $0.8$0.1 million for the yearsyear ended December 31, 2019 and 2018, respectively.

2022.

The Company’s policy for classifying interest and penalties associated with unrecognized income tax benefits is to include such items in income tax expense. The total amount of interest and penalties associated with unrecognized income tax benefits is $0.4$0.1 million and $0.4$0.1 million for the years ended December 31, 20192022 and 2018, respectively.

Although it2021.

It is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next 12 months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities,activities. As such the Company does not anticipated any significantanticipates insignificant changes to unrecognized tax benefits over the next 12 months.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and in various international jurisdictions. Tax years 20142017 and forward generally remain open for examination for federal and state tax purposes. The Company is currently under audit in the U.S., a major tax jurisdiction, for the 2017 tax year. To the extent utilized in future years’ tax returns, net operating loss carryforwards at December 31, 20192022 and 20182021 will remain subject to examination until the respective tax year is closed.


13.

15. Net (Loss) IncomeLoss Per Share

Basic and diluted net income (loss)loss per common share is presented in conformity with the two-class method required for participating securities.

Immediately prior to the consummation of the Company’s IPO in September 2019, all outstanding shares of convertible preferred stock and common stock were converted into shares of Class B common stock. As a result, Class A and Class B common stock are the only outstanding equity in the Company.

Basic and diluted net loss per share is computed using the weighted-average number of common shares of common stock outstanding during the period. The undistributed earnings are allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as the conversion of Class B common stock is assumed in the computation of the diluted net loss per share of Class A common stock, the undistributed earnings are equal to net loss for that computation.
84

The following table presents the calculation of basic and diluted net (loss) incomeloss per share (in thousands, except per share data):

 

Year Ended December 31,

 

Year Ended December 31,

 

2019

 

 

2018

 

 

2017

 

202220212020

Basic net loss per share:

 

Class A

 

 

Class B

 

 

 

 

 

 

 

 

 

Basic net loss per share:Class AClass BClass AClass BClass AClass B

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

Net loss

 

$

(1,149

)

 

$

(15,561

)

 

$

(10,762

)

 

$

(2,570

)

Net loss$(45,163)$(4,997)$(16,177)$(4,568)$(13,614)$(10,933)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

Weighted average shares used in calculating net

loss per share, basic

 

 

9,611

 

 

 

130,262

 

 

 

70,951

 

 

 

61,321

 

Weighted average shares used in calculating net loss per share, basic283,989 31,421 240,999 68,049 166,582 133,768 

Basic net loss per share

 

$

(0.12

)

 

$

(0.12

)

 

$

(0.15

)

 

$

(0.04

)

Basic net loss per share$(0.16)$(0.16)$(0.07)$(0.07)$(0.08)$(0.08)

Diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net loss per share:

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

Allocation of distributed loss for basic computation

 

$

(1,149

)

 

$

(15,561

)

 

$

(10,762

)

 

$

(2,570

)

Allocation of distributed loss for basic computation$(45,163)$(4,997)$(16,177)$(4,568)$(13,614)$(10,933)

Reallocation of undistributed loss as a result of

conversion of Class B to Class A shares

 

 

(15,561

)

 

 

—

 

 

 

—

 

 

 

—

 

Reallocation of undistributed loss as a result of conversion of Class B to Class A shares(4,997)— (4,568)— (10,933)— 

Allocation of undistributed loss

 

$

(16,710

)

 

$

(15,561

)

 

$

(10,762

)

 

$

(2,570

)

Allocation of undistributed loss$(50,160)$(4,997)$(20,745)$(4,568)$(24,547)$(10,933)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

Number of shares used in basic calculation

 

 

9,611

 

 

 

130,262

 

 

 

70,951

 

 

 

61,321

 

Number of shares used in basic calculation283,989 31,421 240,999 68,049 166,582 133,768 

Weighted average effect of diluted securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average effect of diluted securities:

Conversion of Class B to Class A common shares outstanding

 

 

130,262

 

 

 

—

 

 

 

—

 

 

 

—

 

Conversion of Class B to Class A common shares outstanding31,421 — 68,049 — 133,768 — 

Number of shares used in diluted calculation

 

 

139,873

 

 

 

130,262

 

 

 

70,951

 

 

 

61,321

 

Number of shares used in diluted calculation315,410 31,421 309,048 68,049 300,350 133,768 

Diluted net loss per share

 

$

(0.12

)

 

$

(0.12

)

 

$

(0.15

)

 

$

(0.04

)

Diluted net loss per share$(0.16)$(0.16)$(0.07)$(0.07)$(0.08)$(0.08)

Since the Company was in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands):

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Convertible Preferred Stock

 

 

—

 

 

 

179,815

 

 

 

179,815

 

Shares subject to outstanding stock options and restricted stock units

 

 

37,032

 

 

 

38,865

 

 

 

44,877

 

Unvested early exercised stock options

 

 

1,240

 

 

 

2,096

 

 

 

263

 

Shares subject to the 2019 ESPP Plan

 

 

353

 

 

 

—

 

 

 

—

 

Total

 

 

38,625

 

 

 

220,776

 

 

 

224,955

 

Year Ended December 31,
202220212020
Shares subject to outstanding stock options and RSUs30,931 29,454 32,235 
Unvested early exercised stock options and restricted shares of common stock1,120 946 718 
Shares subject to the employee stock purchase plan316 94 141 
Shares issuable upon conversion of the convertible senior notes8,098 8,098 608 
Total40,465 38,592 33,702 

14. Subsequent Events

In

ASU No. 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share when the instruments may be settled in cash or shares. See Note 2, Basis of Presentation and Summary of Significant Accounting Policies—Accounting Policies Recently Adopted for more information. During the three months ended December 31, 2022, the conditional conversion feature of the 2025 Notes was not triggered and the 2025 Notes are not convertible, in whole or in part, at the option of the holders between January 2020,1, 2023 through March 31, 2023. The Company uses the if-converted method for calculating any potential dilutive effect of the conversion options embedded in the 2025 Notes on diluted net income per share; however, since the Company is in a net loss position, there was no dilutive effect during any period presented.

The Company entered into an agreementCapped Calls in connection with Microsoft Azurethe issuance of the 2025 Notes. The effect of the Capped Calls was also excluded from the calculation of diluted net income per share as the effect of the Capped Calls would have been anti-dilutive. The Capped Calls are expected to purchase an aggregatepartially offset the potential dilution to the Company’s Class A common stock upon any conversion of at least $21.0 million of cloud services over the course of three years through January 2023.

******

2025 Notes.

85


Item 9. Changes in and Disagreements with AccountantsAccountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure“disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019.2022. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019,2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management's Report on Internal Control over Financial Reporting

This Annual Report on Form 10-K does not include a report

Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. Our management conducted an evaluation of management’s assessment regardingthe effectiveness of our internal control over financial reporting or an attestation reportas of December 31, 2022 based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on the results of its evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022. Our independent registered public accounting firm, due to a transition period established byDeloitte & Touche LLP, has issued an auditors’ report on the ruleseffectiveness of the SEC for newly public companies.

our internal control over financial reporting, which is included in Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d15(d) of the Exchange Act that occurred during the fiscal quarter ended December 31, 20192022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

86

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Datadog, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Datadog, Inc. and its subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 24, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
February 24, 2023

87

Item 9B. Other Information

None.


Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
88

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item (other than as set forth below) will be included in the 2020 Proxy Statementproxy statement for our 2022 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2019,2022, or the 20202023 Proxy Statement, and is incorporated herein by reference.

We have adopted a Code of Conduct that applies to all our employees, officers and directors. The Code of Conduct is available on our website at www.investors.datadoghq.com. The nominating and corporate governance committee of our board of directors is responsible for overseeing the Code of Conduct and must approve any waivers of the Code of Conduct for employees, executive officers and directors. We expect that any amendments to the Code of Conduct, or any waivers of its requirements, will be disclosed on our website, as required by applicable law or the listing standards of Nasdaq. Our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K.

Item 11. Executive Compensation

The information required by this Item will be included in the 20202023 Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be included in the 20202023 Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item will be included in the 20202023 Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information required by this Item will be included in the 20202023 Proxy Statement and is incorporated herein by reference.


89


PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of this report

(1) All financial statements

Index to Consolidated Financial Statements

Page

56

55

57

58

58

59

60

61

62

(2) Financial Statement Schedules

All financial schedules have been omitted because the required information is either presented in the consolidated financial statements filed as part of this Annual Report on Form 10-K or the notes thereto or is not applicable or required.

(3) Exhibits

 

 

 

Incorporated by Reference

 

 

Incorporated by Reference

Exhibit

Number

 

Description

 

Form

 

File No.

 

Exhibit

 

Filing Date

 

Filed

Herewith

Exhibit
Number		DescriptionFormFile No.ExhibitFiling DateFiled
Herewith

 

 

 

 

 

 

 

 

 

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Datadog, Inc.

 

8-K

 

001-39051

 

3.1

 

September 23, 2019

 

 

3.18-K001-390513.1September 23, 2019

 

 

 

 

 

 

 

 

 

 

 

 

3.2

 

Amended and Restated Bylaws of Datadog, Inc.

 

S-1

 

333-233428

 

3.4

 

August 23, 2019

 

 

3.2S-1333-2334283.4August 23, 2019

 

 

 

 

 

 

 

 

 

 

 

 

4.1

 

Form of Class A Common Stock Certificate.

 

S-1/A

 

333-233428

 

4.1

 

September 9, 2019

 

 

4.1S-1/A333-2334284.1September 9, 2019

 

 

 

 

 

 

 

 

 

 

 

 

4.2

 

Description of Securities.

 

 

 

 

 

 

 

 

 

X

4.210-K001-390514.2February 25, 2020
4.34.38-K001-390514.1June 2, 2020
4.44.48-K001-390514.2June 2, 2020

 

 

 

 

 

 

 

 

 

 

 

 

10.1

 

Fourth Amended and Restated Investor Rights Agreement, dated December 28, 2015.

 

S-1

 

333-233428

 

10.1

 

August 23, 2019

 

 

10.1S-1333-23342810.1August 23, 2019

 

 

 

 

 

 

 

 

 

 

 

 

10.2#

 

Datadog, Inc. 2012 Equity Incentive Plan, and terms of agreements thereunder.

 

S-1

 

333-233428

 

10.2

 

August 23, 2019

 

 

10.2#S-1333-23342810.2August 23, 2019

 

 

 

 

 

 

 

 

 

 

 

 

10.3#

 

Datadog, Inc. 2019 Equity Incentive Plan and terms of agreements thereunder.

 

S-1/A

 

333-233428

 

10.3

 

September 9, 2019

 

 

10.3#S-1/A333-23342810.3September 9, 2019

 

 

 

 

 

 

 

 

 

 

 

 

10.4#

 

Datadog, Inc. 2019 Employee Stock Purchase Plan.

 

S-1/A

 

333-233428

 

10.4

 

September 9, 2019

 

 

10.4#S-1/A333-23342810.4September 9, 2019

 

 

 

 

 

 

 

 

 

 

 

 

10.5#

 

Form of Indemnity Agreement entered into by and between Datadog, Inc. and each director and executive officer.

 

S-1/A

 

333-233428

 

10.5

 

September 9, 2019

 

 

10.5#10-Q001-3905110.1August 8, 2022

 

 

 

 

 

 

 

 

 

 

 

 

10.6#

 

Offer Letter, by and between Datadog, Inc. and Olivier Pomel, dated May 20, 2011.

 

S-1/A

 

333-233428

 

10.6

 

September 9, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  10.7#

 

Offer Letter, by and between Datadog, Inc. and David Obstler, dated August 28, 2018.

 

S-1/A

 

333-233428

 

10.7

 

September 9, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  10.8#

 

Offer Letter, by and between Datadog, Inc. and Laszlo Kopits, dated February 27, 2017.

 

S-1/A

 

333-233428

 

10.8

 

September 9, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.9

 

Agreement of Sub-Sub-Sublease, by and between Datadog, Inc. and Ideeli Inc., dated April 14, 2016.

 

S-1

 

333-233428

 

10.9

 

August 23, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  10.10

 

Agreement of Sub-Sublease, by and between Datadog, Inc. and BT Americas Inc., dated September 18, 2017.

 

S-1

 

333-233428

 

10.10

 

August 23, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  10.11

 

Sublease, by and between Datadog, Inc. and Covington & Burling LLP, dated July 19, 2018.

 

S-1

 

333-233428

 

10.11

 

August 23, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    10.12#

 

Non-Employee Director Compensation Policy.

 

S-1/A

 

333-233428

 

10.12

 

September 9, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    10.13#

 

Form of Change of Control and Severance Agreement.

 

S-1/A

 

333-233428

 

10.13

 

September 9, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21.1

 

List of Subsidiaries of Datadog, Inc.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

23.1

 

Consent of Deloitte & Touche LLP, independent registered public accounting firm.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

24.1

 

Power of Attorney (incorporated by reference to the signature pages of this Annual Report on Form 10-K).

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

  32.1*

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

  32.2*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

X

90


10.6#S-1/A333-23342810.5September 9, 2019
10.7#S-1/A333-23342810.6September 9, 2019
10.8#S-1/A333-23342810.7September 9, 2019
10.9#10-Q001-3905110.1May 7, 2021
10.10#10-Q001-3905110.2May 7, 2021
10.11#10-Q001-3905110.1May 6, 2022
10.12#X
10.13S-1333-23342810.9August 23, 2019
10.14S-1333-23342810.10August 23, 2019
10.15#10-Q001-3905110.1November 5, 2021
10.16#S-1/A333-23342810.13September 9, 2019
10.178-K001-3905110.1June 2, 2020
10.1810-K001-3905110.14March 1, 2021
10.1910-Q001-3905110.2August 8, 2022
21.1X
23.1X
24.1X
31.1X
91

101.CAL

31.2

XBRL Taxonomy Extension Calculation Linkbase Document

X

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

X

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

X

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

X

#

Indicates management contract or compensatory plan.

*

This certification is deemed not filed for purposesCertification of Section 18 ofPrincipal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, or otherwise subjectAdopted Pursuant to Section 302 of the liability of that section, nor shall it be deemed incorporated by reference into any filing under the SecuritiesSarbanes-Oxley Act of 1933,2002.

X
32.1*X
32.2*X
101.INSXBRL Instance DocumentX
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABXBRL Taxonomy Extension Label Linkbase DocumentX
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentX
#    Indicates management contract or compensatory plan.
*    This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

Item 16. Form 10-K Summary

None.


92

SIGNATURES


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATADOG, INC.

DATADOG, INC.

Date: February 25, 2020

24, 2023

By:

By:

/s/ Olivier Pomel

Name:

Name:

Olivier Pomel

Title:

Title:

Chief Executive Officer and Director

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Olivier Pomel and Alexis Lê-Quôc, and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in their name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

93

Signature

Title

Date

Signature

TitleDate
/s/ Olivier Pomel

Olivier Pomel

Chief Executive Officer and Director

(Principal Executive Officer)

February 25, 2020

24, 2023

Olivier Pomel

/s/ David Obstler

Chief Financial Officer

(Principal Financial and Accounting Officer)

February 25, 2020

24, 2023

David Obstler

/s/ Alexis Le-Quôc

Alexis Le-Quôc

President, Chief Technology Officer and Director

February 25, 2020

24, 2023

Alexis Le-Quôc

/s/ Michael Callahan

Michael Callahan

Director

February 25, 2020

24, 2023

Michael Callahan

/s/ Matthew Jacobson

Matthew Jacobson

Director

February 25, 2020

24, 2023

Matthew Jacobson

/s/ Dev Ittycheria

Dev Ittycheria

Director

February 25, 2020

24, 2023

Dev Ittycheria

/s/ Julie Richardson

Julie Richardson

Director

February 25, 2020

24, 2023

Julie Richardson

/s/ Shardul Shah

DirectorFebruary 24, 2023
Shardul Shah

Director

/s/ Titi ColeDirectorFebruary 25, 2020

24, 2023
Titi Cole

90


94