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DDOG Datadog

Participants
A.J. Ljubich Director, IR
Olivier Pomel Co-Founder and CEO
David Obstler CFO
Mark Rende Morgan Stanley
Chris Merwin Goldman Sachs
Sterling Auty JP Morgan
Brad Zelnick Credit Suisse
Mohit Gogia Barclays
Matt Swanson RBC Capital Markets
George Iwanyc Oppenheimer
Bhavan Suri William Blair
Joey Marincek JMP Securities
Brad Rebeck Stifel
Michael Turits KeyBanc
Gregg Moskowitz Mizuho
Yun Kim Loop Capital Markets
Call transcript
Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 Datadog Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Thank you. I’d now like to turn the call over to your speaker today Mr. A.J. Ljubich. Please go ahead.

A.J. Ljubich

Thank you, [Keena]. Good afternoon and thank you for joining us today to review Datadog’s fourth quarter and full-year 2020 financial results which we announced in our press release issued after the close of market today.

Joining me on the call today are Olivier Pomel, Datadog’s Co-Founder and CEO; and David Obstler, Datadog’s CFO.

During this call, we will make statements related to our business that are forward-looking under federal securities laws and made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 including statements related to our future financial performance; including our outlook for the fourth quarter and for the full-year 2021, our strategy, potential benefits of our products, partnerships and investments in R&D and go-to-market; our ability to capitalize on our market opportunity and the impact of the COVID-19 pandemic from our customers usage of our platform; and industry trends as well as our ability to benefit from these trends. The words anticipate, will be you continue, estimate, expect, intend, will, and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and not as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a discussion of the material risks and other important factors that could affect our actual results, please refer to our quarterly report on Form 10-Q for the quarterly period ended September 30, 2020 filed with the SEC on November 12, 2020.

Additional information will be made available in our annual report on Form 10-K for the period ended December 31, 2020 and other filings and reports that we may file from time-to-time with the SEC.

Our filings with the SEC are available on the Investor Relations section of our website. A replay of this call will also be made available there for a limited time. Non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release which you can find on the Investor Relations portion of our website for a reconciliation of these measures to the most directly comparable GAAP financial measure. With that, I’d like to turn the call over to Olivier.

Olivier Pomel

Thank you, A.J. and thank you all for joining us today.

We are very pleased with our performance in Q4 which once again showed high growth at scale and demonstrated efficiencies. Despite the unique challenges presented by COVID.

We continued in 2020 to introduce new products at a high velocity growth top line at a rapid rate and demonstrate stronger product efficiencies.

We are in particular, very proud of the way our team have handled the pandemic as well as the years others unprecedented challenges. We ended the year with 2,185 employees globally. The 56% increase year-over-year with high growth of both our go-to-market and R&D teams.

One of our strategic decisions at the beginning of the pandemic was to keep on hiring and we have been able to interview, hire and onboard remotely for maintaining high employee engagement and productivity. Throughout the year we have worked to keep our employees safe and productive and to be good citizens of our communities as they face significant challenges.

We are very proud of the exceptional grants we have awarded to our employees in Q2 and Q4 both to support them individually and to allow them to donate nearly $1 million to charities focused on COVID relief, as well as social and racial justice efforts. Last but certainly not least we have maintained our relentless focus on delivering value to our customers. And while the pandemic has been a source of challenges to businesses this year, we believe it will prove to be an accelerate to our cloud migration and digital transformation over time. In other words, we learned a lot this year, including our ability to execute in the face of challenges as well as confirmation of a very large and growing market opportunity.

Now onto review of the quarter, to summarize Q4 at a high level revenue was $178 million, but increased a 56% year-over-year and above the high end of our guidance range.

We also ended the year with 97 customers with an ARR of $1 million or more, almost doubled a 50 last year and more than three times the 29 we had just two years ago. We ended the year with 1,253 customers with an ARR of 100,000 or a little more up from 858 last year. These customers generate over 75% of ARR.

We have about 14,200 customers up from about 10,500 last year, which means we added about 1,100 customers in the quarter making it another strong quarter of ads after the 1,000 we added in Q3.

We also continued to be capital efficient with free cash flow of $70 million.

As in past quarters our dollar-based net retention rate was over 130% as customers increased their usage and adopted on your product.

For the full-year we generated revenue of $603 million, the 66% increase year-over-year, which was above the high end of our guidance and free cash flow was $83 million or a margin of 14% from the year.

Now to review Q4 in more detail. Execution was very strong with outstanding sales performance, particularly against the macro backdrop.

New logo generation was very strong, including a new record of new logo ARR added that was significantly above last year’s number. Very strong performance across the board from commercial and enterprise sales channel as well as a record number of million dollar plus new logo customers. Gross of existing customers was robust as customers of all sizes continue to grow their user to Datadog for both increased consumption and cross-selling and Q4s growth of existing customers was broadly in line with pre-COVID trend.

Lastly, churn remains very low and consistent with pre-pandemic historical rates.

Next our platform strategy continues to resonate and win in the market.

As of the end of Q4, 72% of customers are using two or more products, which is up from 58% last year.

Additionally, 22% of customers are using four or more products, which is up from only 10% a year ago. And we have another quarter in which approximately 75% of new logos branded with two or more products.

We are very happy with our platform traction, including uptake of the newest product, NPM, RUM and Security each of which has which hundreds or thousands of customers in a short amount of time.

As a reminder, our newer product are often adopted first by staff selection customers at small scale before our land and expand model enables greater adoption over time. And frictionless adoption from a single integrated platform is a key value proposition for our customers. Overall, our ability to both land and expand in a very challenging time speaks to our strong execution, to our leading product and to our status as a strategic partner to our customers as they prioritize the digital operations.

Now onto product and R&D. Today, we announced two acquisitions.

First, we announced an agreement to acquire Sqreen, a SaaS based security platform that enables enterprises to detect, block and respond to application level attacks. Sqreen’s technology provides Runtime Application Self-Protection or RASP and in-app web application firewall also known as WAF and is already used by hundreds of companies today. Security issues in the application layer are complex to solve, because application security causes lines of responsibility between dev, ops and security team.

As a result, we believe this will be a powerful combination for our customers using APM or Synthetics.

Next, we also announced the acquisition of Timber Technologies, the developers of Vector, a vendor-agnostic, and high-performance observability data pipeline. With Vector customers can collect, enrich and transform logs and other signals across multiple tools and data sources in both on-premise and cloud environment, and can route this data to the destination of their choice.

We expect this technology to further empower our customers to control their observability data, while providing broader points of entry to our platform. I speak for everyone at Datadog is saying that we are extremely excited for the teams of both companies to join us in our quest to break down silos.

Beyond the acquisitions we had a number of new developments in Q4. We launched the general availability of Incident Management, which allows users to declare incidents, investigate root case and collaborate without leaving Datadog. And we also delivered more than 60 other new capabilities and features across our products, including new and enhanced integration, such as Snowflake, Oracle Cloud or vulnerability analysis monitoring Snyk with our brand new Continuous Profiler.

Now taking a step back, we exit 2020 with nine generally available products. To put these in context, just four years ago we had only one product and we have been able to build the most complete integrated and cloud-native observability platform because of our filing as an integration platform that is extensible to various cases.

Looking forward to 2021, we continue to feel that we’re just getting started.

First, we are doubling down on building out our platform for observability. This core market alone is a very large opportunity and is growing quickly with a re-platforming to cloud architectures.

We are still early in this transition and are aggressively adding functionality to both the new SKUs as well as the more mature products.

Second, we are just getting started in security with our first product launch in 2020. We consider security a very large opportunity with a long runway of planned product development and we envision the silos between dev, tech and ops working down in a similar way to what we have seen between dev and ops.

Third, we are investing in the platform and ecosystem.

In addition to building up the Datadog marketplace, we now have strategic partnerships with all of the major cloud vendors.

For example, we announced the expansion of our partnerships with Azure and GCP last quarter, which should be in the market in 2021.

We are also introducing new cloud instances in regions such as Go Cloud.

Our goal is to gain distribution across vendors and regions and in customers where they are to lower friction to adoption and two lower time to value. And as we think longer-term beyond 2021, we do believe there may be more use cases we can solve for our customers beyond current reach of our platform.

Let’s move on to the sales and marketing.

As I mentioned earlier, I’m very pleased with the continued productivity of our go-to-market teams and Q4 was a very strong sales quarter.

So let’s discuss some of our wins in the quarter.

First, let’s talk a bit about the way COVID has accelerated digital transformation.

As expected in the quarter, we saw a seven-figure AR increases from COVID beneficiaries such as a consumer device company, a large e-commerce platform and a global video games company. Perhaps more surprisingly though we also had a number of notable upsales in companies that were negatively impacted by the pandemic, including a seven-figure upsales with a travel technology company and six-figure upsales with two separate airlines as well as a physical event company. These deals demonstrate that Datadog is a key strategic partner to companies that are scaling rapidly overlap in line as well as the [founded] businesses even in the most negatively impacted industries are investing heavily in their digital operations.

Now let’s dive into some of our other key wins for the quarter.

First, I’ll highlight two notable seven-figure lands both with Fortune 100 companies, the retailer and an insurance company. Both have been struggling with teams in separate silos and are consolidating dozens of tools into Datadog giving a single view to both dev and ops teams.

Next, we had a seven-figure land from a streaming sports platform in Asia, which was enabled by our new Datadog partner program. This company adopted the full data platform and our Tracing without Limits approach was a key differentiator as they are previous [ATM] solutions suffer compliance spots due to sampling and to a lack of integration with infrastructure data.

Next, we had yet another seven-figure land this time from a SaaS company based in India. This company moves to us from a build it yourself approach and free its engineers so there could be more products and deliver innovation.

Lastly, we had a nearly $1 million upsale to a very large management consulting firm. This company is now using our network direct monitoring products to replace the legacy point solution and getting visibility into physical network devices. I would also note that this was one of the first expansion deals to benefit from a brand new marketplace offerings. In this case a partner developed integration with Office 365.

Now moving on to our outlook, it is clear to us that the market trends that have driven our success so far have only gotten stronger. Businesses must be digital first like never before. The massive - platform driven by cloud migration is still in its early stages and engineers and developers are truly strategic employees whose productivity and ability to collaborate are key drivers of business performance.

While there is a possibility for more near-term volatility caused by the macro environment, we are increasingly confident in our ability to execute in our long-term opportunity. And we believe that we can continue to sustain strong growth both in the near-term and over time. With that, I would like to turn the call over to our Chief Financial Officer, David Obstler. David?

David Obstler

Yes. Thanks Olivier.

As mentioned, we delivered strong fourth quarter top and bottom line results amid a difficult macro backdrop. Revenue was $177.5 million, up 56% year-over-year against the challenging year-ago comp.

New logo generation was very strong, usage trends were solid, platform traction continued to be strong and churn was in line to better than historical norms. To provide some more context.

First new logo results were very strong. Both new logo ARR and the number of new logos were records for Datadog displaying strong growth versus a year ago.

New business contributions came across regions and from both our commercial and enterprise sales channels. Remember that given our usage based revenue model, new logo wins generally do not immediately translate into revenue. Growth of existing customers was robust and our dollar based net retention remained above 130% for the 14th consecutive quarter.

We are pleased with the usage growth of existing customers, which showed continued adoption of our platform and their cloud migration even in the face of the macro pressures. To go into a little more detail. Growth of existing customers was broadly in line with long-term trends and meaningfully better than the level experienced in Q2 of last year.

As a reminder, even though we have now experienced two quarters of usage growth that was approximately in line with pre-pandemic levels, Q2 was meaningfully pressured and that pressure will impact our year-over-year metrics, including revenue growth and net retention until we lap that compare.

Next in the fourth quarter, we saw continued strength of our platform strategy with over 70% of our customers using two or more products and 22% of our customers now using four or more products, up from only 10% a year ago.

Given that 75% plus of our lands now come from two or more products, we believe the overall share of customers using two-plus products is closing in on that number.

Lastly, churn was in line to slightly better than historical levels. This demonstrates the importance of our solution to our customers even during challenging times.

Our dollar-based gross retention rate has remained largely unchanged in the low to mid 90s.

Now turning to billings, which were $219.4 million, up 68% year-over-year. After adjusting for the timing of $6 million of billings in last year’s fourth quarter pro forma billings growth was 61% year-over-year, strong and approximately in line with revenue growth. Remaining performance obligations or RPO was $434 million, up 78% year-over-year. Both billings and contract duration extended in the quarter, driven by strong annual billings and commitments as well as a few larger multi-year commits. It is important to note that those multi-year commits were built annually and we do not incentivize our sales force for multi-year deals given our high net retention rate. Current RPO growth was strong in the mid-60s similar to billings growth.

As a reminder, billings and RPO can fluctuate versus revenue based on the timing of invoicing and the signing of customer contracts while revenue incorporates customer usage.

Now let’s review the income statement in more detail.

As a reminder, unless otherwise noted all metrics are non-GAAP.

We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. Gross profit in the quarter was $137.6 million, representing a gross margin of 78%. This compares to a gross margin of 79% last quarter and 78% in the year-ago period. The slight decrease in gross margin sequentially is due to minor inefficiencies created from our investments in products and platform innovation.

As a reminder, our gross margins may fluctuate quarter to quarter within an acceptable range as we prioritize product development and innovation as well as the build-out of our cloud data centers in newer geographies. R&D expense was $53.5 million or 30% of revenues compared to 27% in the year-ago quarter.

We have continued to invest significantly in R&D, including high growth of our engineering headcount, which we added approximately 370 net R&D heads over the course of 2020.

We have been able to attract talent and execute on hiring and onboarding during COVID. Sales and marketing expense was $52.5 million or 30% of revenues compared to 35% in the year-ago period. Similar to R&D we continue to make substantial investments in sales and marketing, but the pace of revenue growth has outpaced that investment. This was another quarter of no in-person trade shows or marketing events.

While we have successfully redeployed much of the events budget to advertising and other lead generating activities, it was not on a one-for-one ratio. G&A expense was $13.5 million or 8% of revenues, slightly lower than the 9% in the year-ago quarter and operating income was $18.1 million or 10% operating margin compared to an operating income of $7.9 million with a 7% margin in the year-ago period. The continued reduction in marketing events, travel and entertainment and facilities overhead due to COVID were the primary drivers in the year-over-year leverage. Headcount growth was approximately in line with revenue growth in the quarter. Non-GAAP net income in the quarter was $19.1 million or $0.06 per share based on a 334 million weighted average diluted shares outstanding.

Turning to the balance sheet and cash flow, we ended the quarter with $1.5 billion in cash, cash equivalents, restricted cash and marketable securities. Cash flow from operations was $23.8 million in the quarter. After taking into consider capital expenditures and capitalized software, free cash flow was $16.7 million for a margin of 9%.

For the full year free cash flow was $83.2 million or 14% margin.

Now turning to the outlook.

For the first quarter and the full-year of 2021.

As Olivier mentioned, we believe we can deliver high growth for the foreseeable future as we are addressing a very large Greenfield market and are executing well against that opportunity.

As we look out to 2021, COVID continues to present some uncertainty.

On the one hand, we believe that the pandemic will accelerate digital transformation and cloud migration once the near-term pressure subsides.

However, the timing and path of normalization remains uncertainty. Taking in combination, we are initiating the following 2021 guidance which includes continued high growth. Beginning with the first quarter, we expect revenue to be in the range of $185 million to $187 million, which represents a year-over-year growth of 42% at the midpoint. Non-GAAP operating income is expected to be in the range of $8 million to $10 million, and non-GAAP net income per share is expected to be $0.02 to $0.03 per share based on approximately 345 million weighted average diluted shares.

For the full-year revenue was expected to be in the range of $825 million to $835 million, which represents 38% year-over-year growth at the midpoint. Non-GAAP operating income is expected to be in the range of $35 million to $45 million, and non-GAAP net income per share is expected to be in the range of $0.10 to $0.14 per share based on approximately 348 million weighted average diluted shares.

Now some notes on the guidance. Embedded in the guidance are prudent assumptions on growth of existing customers as well as new logo at payment, which reflect some of the current macro uncertainties.

Next, our strategic focus remains on investing to optimize for long-term growth. Therefore, we’re planning to continue aggressive investments in both R&D and go-to-market throughout 2021.

While we have been profitable throughout 2020 and plan to be in 2021, we are not focused on optimizing near-term profitability. Rather the efficiencies of our business are clearly evident and we are confident in our ability to be a sizable materially profitable company over the long term.

Additionally, our model assumes a return to the office and a resumption of travel and in-person events in the second half of the year.

We have limited visibility presently on these topics, but believe it’s prudent to incorporate that in our outlook.

Next, of the two acquisitions, Timber Technologies has closed and has no impact to our guidance.

We also announced the agreement to acquire screen, for a total transaction cost of $260 million, of which approximately 25% is deferred in a mix of cash and stock.

We expect screen to close in Q2 subject to customary closing conditions, including regulatory approvals. Screen is not included in our guidance, but we expect it to have an immaterial impact to both our revenue and operating income guidance in 2021 upon deal closure.

Now below operating income.

We expect approximately $1.2 million of quarterly non-GAAP other income, which is net including the interest income on our cash and marketable securities, less the interest expense of our convertible.

Next, we don’t expect to be a federal taxpayer next year, but have a tax provision related to our international entity and expect that tax provision to be approximately $600,000 in Q1 and $3 million for the full-year.

Lastly, we have early-adopted ASC 2020-06 as of January 1st which changes the accounting for our convertible debt. Therefore going forward, our convertible notes will be accounted for wholly as debt on our balance sheet. GAAP and other expenses should now be more aligned to non-GAAP as there is no longer a non-cash component related to the debt discount.

More importantly, our share count forecast now considers an additional 8.1 million shares as the new standard requires all underlying shares of the convert to be included. And this has been taken into account in our EPS guidance. To summarize, we are pleased with our results for the quarter. Execution was very strong, including strong sales results and continued product innovation. Customers continue to consume more Datadog both in terms of usage and the cross-selling to newer products.

Our continued execution throughout the challenges of 2020 give us even greater confidence heading into 2021 and the importance of our solutions will only be heightened long-term by the pandemic. Therefore we’re continuing to reinvest in our business and are very excited for the year ahead, sorry.

Finally, we would like to thank AJ, who is having his last earnings call with us today at Datadog. I’m sure our investors have appreciated his contributions as much as we have. And with that, we will now open our call for questions. Operator, let’s begin the Q&A.

Operator

[Operator Instructions] First question we do have Sanjit Singh from Morgan Stanley.

You are now live.

Mark Rende

Hi, this is Mark Rende on for Sanjit. Thanks for taking my questions and congrats on the results and continued strong growth here.

First, I just want to quickly get an update on the headwinds you're seeing the top line from the lower expansion you saw last summer. It seems like those trends have largely turned around, and we should expect another quarter of two to kind of work through those impacts. I guess my question is, as we get into the back half of next year and the growth comp become easier, should we be expecting the combination of easier growth comps and ramping kind of products and partnerships with like Azure to result in an acceleration of growth is that an appropriate way for us to be thinking about it?

David Obstler

I think that we’ve given our guidance taking into account all of the potential upsides in rev, but you are right. The headwinds created in Q2 do create a drag on the revenue growth as we talked about, through Q2 of next year, and while we are not providing that quarterly guidance through next year, we expect that headwind in terms of the comp to a beta in the second half of the year.

Mark Rende

Got it helpful. And then maybe just on the two acquisitions announced, so on the security side with screen, you're building out quite a portfolio now across observability and insecurity at Datadog. And I guess my question on screen is kind of how does this integrate with the core Datadog platform? How does it work with core Datadog versus being a standalone functionality? And then on the timber purchase, what is, you know, what's the need for an observability data pipeline in the platform? Can you help us kind of better understand what timber is bringing to Datadog and in the platform and why customers really need this functionality? Thanks so much, really helpful.

David Obstler

Yes.

So I'll take the questions on M&A.

So on the screen side, and then what's really interesting is that the focus is application security, and application security is one of the areas where the conflict, I would say between application to that basically ops and security is the, is the most present. And the responsibility is on that really clear cutting there. And we think its one area where we can show particular strength because our APM is already deployed already in the heart of the application. And we can inject the security protection and detection in Dell directly.

So we, we think this is a product will make a lot of sense to our customers that are using APM, and, that's going to be code the same way basically.

So that's those Korean for, timber in vector, which is a product what's really interesting varies, we hear and we see from customers over and over again that they have a number of different data sources that produce lugs in particular, but also other kinds of observability data, and many of those sources of our legacy system, log management systems, for example. And one thing they want to be able to do is to aggregate all that data before it leaves their own network environment. Make sure they have the right privacy controls on them, so they can filter PII for example, and things like that, and then decide to rock these data to us, for example, that's to I've got sororities, but also maybe to other places, maybe to an archive, they want to keep them in-house.

So we think this would allow us to do is to satisfy that need from customers, make sure they're fully in control of jobs diversity data, and make it a lot easier for customers to in the end send us all the data that is relevant to them.

Mark Rende

Great. Thank you.

Operator

Next question comes from the line of Chris Merwin from Goldman Sachs.

You are now live.

Chris Merwin

Okay. Thanks so much for taking my question. I wanted to ask about new lands.

I think you called out that 75% of those lands are with two or more products.

So beyond infrastructure, can you give us a sense of where you're seeing the strongest traction more recently with the rest of your sweet thanks?

Olivier Pomel

It's pretty much in the order of introduction of the products, so the, the most mature behind that are APM and logs that are authentic and neck in terms of we all the other ones that are getting a dash first, and then you go one step down to synthetics, and then you go one step down to NPM and rum, and then you go down to security.

And so that's the order, which by the way I think you've a question we might get later, but we're planning to invest a lot more because we see so much success with that platform approach. We see all these products have a pretty interesting growth curve, and we think there is a lot more public space for us to cover, which is why we are aggressively building the team and hiring. And we're also proceeding through these acquisitions.

Chris Merwin

Great. Thank you. And just to follow up, if we look at billings, I mean, on a portfolio basis, I think you said it was up 61% RPO, CRPO was up in the mid-60s, but then the revenue grow guide for 21 is in the high 30.

So I realized billings aren't going to factor in usage, but can you help us think about how to reconcile the really strong feelings for if we saw exiting ‘20 and with the revenue growth guide for ‘21? Thanks.

Olivier Pomel

Thanks. Yes, I think we had a strong new logo.

We also had, as we mentioned extension of the duration of billings and contracts from our clients.

So those were some of the factors that cause the strong performance, we try to get everyone sort of back to the revenue growth and then the linearity within the quarter, which one can look at ARR because of the variabilities in billing and RPO due to billings. But we did have strong new sales as well as the extension of duration in the quarters we mentioned, which contributed to that performance.

Chris Merwin

Understood. Thank you.

Operator

Next one on line is Sterling Auty from JP Morgan.

You are now live.

Sterling Auty

Yes. Thanks. Hi guys. Wanted to revisit the security topic again and traditionally when we think about whap adoption, that's usually been the security so-so organization kind of driving that adoption. Rasp is a newer area. And what I'm curious is do you need a dedicated security Salesforce to properly penetrate the opportunity or is there enough buying decision and influence coming out of the dev ops areas that your existing Salesforce can adequately push the security products that you have?

Olivier Pomel

So the short answer to that is we don't know yet.

First of all, it's going to pass it. The deal is not close yet, right? So we're spitting in a hypothetical with the companies and the companies are not murky yet. But the way we sing it is by starting from an APM product, we really lowered the friction that is involved in deploying an application security product, which typically is the problem you have when you try to deploy or last product, there is a high friction to the low and the person who wants to deploy it is not the person who actually has the authority to do it. Or can manages the server the managers the application, and we sold that with Datadog, so we think it opens up new avenues of frictionlessly deploying those products.

Now how we translate on the go-to market side, if we need to officially sale, we don't know yet we're open to it.

Sterling Auty

All right. Great. And then one follow-up would be just in the two plus products, you mentioned kind of the land and the adoptions by the maturity curve. But what I'm curious about is are you seeing the use cases, especially for log in APM, driving into newer areas than what you saw, let's say maybe three or four quarters ago, are you getting expansion of those products in particular new areas of your customers?

Olivier Pomel

So those products are still expanding a lot, right? So the adoption curve for our customer, they usually start small and then they grow and they expand the products to more and more and more of their business units and various activities, and so love and APM on the different, like they keep going with customers that way.

So even when we say 70% of the customers have adopted updated product, there is still a lot of growth to be had in those customers.

Sterling Auty

Got it. Thank you.

Operator

Next one on the queue is Brad Zelnick from Credit Suisse.

You are now live.

Brad Zelnick

Great. Thank you so much and congrats on a strong end to a crazy year. Oli, my question is on timber. Yes, for sure. My question on timber is the idea of vector to be an agnostic data pipeline and to be able to feed data to any observability platform. And in that case, how should we think about then rolling that into your offering, potentially create cooperation if you will, amongst observability platforms, or am I not thinking about it right to express it that way?

Olivier Pomel

No, I mean, you're right. I mean, it's important for like - if you want customers to send all the data from all the sources, they have to have some flexibility to send it to various places, right? So that's actually part of the mix there. We think it actually makes sense for us to do it, easily the, integrity experience with that will be that deacon so that it makes the most sense. And we could use the most interesting from a value perspective to send him any better, but it is important for these to be open and to cater to devalue sees Casey's who our customers have.

Another destination they want to consume the data or another source they want to add or some flexibility to filter on the fly with this end. In a way you can see that as an extension of login without limits that reaches back into the customers and prospects.

Brad Zelnick

Sure. Got it. Thank you. And maybe a up for David. David, how should we think about the level of sales hiring this year and the ability to ramp reps on the entire portfolio, which has expanded quite significantly?

David Obstler

Yes, we've been successful last year as well as our plans for this year and ramping sales higher, slightly ahead of revenues.

So we've been - as we talked about in the 60s, we have plants do it again. And as we've talked about, it involves both expanding into new geographies. It involves building out the teams within geographies where we've been successful. And it's what we did last year and believe we can do it again the next year.

Brad Zelnick

Great. Thank you guys.

David Obstler

Yes.

Operator

Next one on the line is Mohit Gogia from Barclays.

You are now live.

Mohit Gogia

Thanks for taking my question and all in all congrats on a very strong quarter as well.

So my first question is only Mendix deals that you announced last week.

So I am wondering if you can give us some more color there. It sounds like this is Mendix standardizing on Datadog as its substitutability platform.

I think the release also mentioned that you guys replaced the existing convenience, which were like five or six tools that the customer is using.

So if you can go into some stuff like the dynamics or of your land there, or maybe you're already there and expanded from there, but any more color on the customer will be very helpful.

Olivier Pomel

Yes, I actually don’t have much more color, I can provide, because I am not sure which I can speak publicly, we didn't prepare anything for that, but interestingly - this was not one of the customers we mentioned in the rest of the call in the prepared notes. But I think as - has mentioned it’s - have to be a press release, but it’s typical of what has been happening with the expansion of the products across the platform where most of the motion is landing smaller and then expanding given the value of the platform to across the product set.

So it’s a typical type of motion.

Mohit Gogia

Understood. My follow-up question is for David.

So David in terms of - so I think you followed up the record new ARR in Q3 another strong quarter here in Q4. Right.

So if I mean, obviously we understand the puts and takes to billings and RPO, but if I just look at ARR it seems to be things coming together very nicely off-third like a slight or other dip in Q2.

So like, how should we think about the guidance? I know this question was already asked, but if I…

David Obstler

Yeah.

Mohit Gogia

If I sort of like compared that to next fiscal year guidance, what to say this really two strong quarters of ARR and can you help us reconcile that?

David Obstler

Yeah, as we said last time, and it’s a typical approach there’s a lots of positives and we are very proud of it, but we continue to take a conservative approach towards guidance given the uncertainty in the world from COVID and what might happen to enterprises.

As we said, we’ve seen a less bowel to world in terms of both the growth of client usage and new logos, but continue to remain prudent and conservative when we provide guidance as we have in our quarters as a public company.

Olivier Pomel

One thing I will say is, when we look at our metrics internally and our usage metrics in particular those are still noisier than they were before the pandemic. And that’s - because they basically track the way the various economical impacts of the pandemic we pull through the world and the various layers of the economy.

And so we want to be a little bit cautious there, if people’s behaviors have changed - and I could tell it different from what it was a year before, an example of that is, TPP at the last year or the next week of the year, there is a drop in activity, because pretty much everyone takes the week off.

And some companies turn off their development environments and things like that. This year it was more pronounced, I think because many people hadn’t taken any time off during the year, and everybody took that time off at that time.

So we want to be a little bit careful about what we predict in the future. We’ve learned in Q2 that the numbers can change fast as changes to the economy happen.

Mohit Gogia

Okay. Very helpful. Good advice. Thank you.

Operator

Next question comes from Matt Hedberg from RBC Capital Markets.

You are now live.

Matt Swanson

Yeah, great. Thanks. This is actually Matt Swanson on for Matt. Olivier the strengthened multi-product adoption has trended well throughout the year. I know we talk a lot of time as well your opportunity being Greenfield in rather than displacement, but when we start to talk about more and more customers adopting more and more solutions, is this leading you into more of a displacement cycle? And how does that kind of affecting your go-to-market strategy and the sale cycles to those upsales?

Olivier Pomel

We’re still, I would say just as - by Greenfield as we were before. And I think it’s going to be the case for the foreseeable future, which is why a lot of what we’re doing today is investing in building more products and in growing the salesforce.

So we can capture as much of these Greenfield market as possible.

Matt Swanson

Yeah, that’s helpful. And then I know security is a newer opportunity, but could you touch on any changes you’ve seen following sunburst, maybe even outside of security. It feels like there might be some elevated concerns for enterprises around observability and just kind of a renewed focus on knowing what’s happening in their environment.

Olivier Pomel

Yeah. Well, it’s both a challenging opportunity right.

I think the whole world has asked themselves what was happening with their software supply chain, where they were running, which is good.

I think it opens some opportunities that some, I would say minor short-term opportunity, because we do see some customers that want to replace their network monitoring and our network device monitoring product is fairly new, but we see some interest in that for that reason.

I think longer-term, there’s definitely a growing problem that is understanding what’s running, understanding your supply chain, understanding what your applications doing, and that’s why we’re investing in security.

I think there’s going to be a long-term opportunity there.

So many short-term some replacement there, but the real opportunity is the longer-term. And with the – can happen to prices basically was going on in their network and in the applications.

Matt Swanson

All right. Thank you.

Operator

Next question comes from Jack Andrews from Needham & Company.

You are now live.

Unidentified Analyst

This is Colin for Jack. Can you provide some color on how your relationship with Microsoft with Azure is progressing and expected ramp time in 2021? How should we be thinking about a new logo type contribution from partnership compared to organic code emotion given Microsoft leverage?

Olivier Pomel

It’s still not in library, still in preview.

So we have some customers that have limited access to it, and we’re expecting these to be live in the first half of the year, but we don’t fully control it.

So there’s two or three billings out before that. We look at hard to tell, would be in fact going to be - we do expect it’s going to have a positive impact. I don’t want to tell us before it happens. What I will say though, is that we already got back from existing customers and - already in our pipeline that this integration and the partnership with Microsoft is helping them move with confidence in better again and extend with us.

So we’ve seen a few last steps really very positively to that.

So we are, I would say we’re already pretty satisfied with the impact.

Unidentified Analyst

Thank you. That’s helpful. And can you talk about some of the gains you’re seeing from customers to adopt solutions from your marketplace in terms of sales cycles and ease of use or using any changes in my cohort behavior, given that these customers can derive value from your platform more quickly?

Olivier Pomel

So we democratize telling you, right.

So it’s still quite a bit that needs to happen in terms of the offering there and the breadth of the attorney, I would say. But we do have some -

Unidentified Analyst

Not clear anymore.

Olivier Pomel

I might on mute.

Sorry.

Unidentified Analyst

Yeah.

Okay.

Olivier Pomel

All right.

Let me try again. I would be saying that the platform is still fairly new like the marketplace. And but we do see some customers that are only the adopting applications to the marketplace, and completing their additive platform with software that we haven’t written it out which is very, very interesting.

And some of these marketplace it’s actually fairly meaningful.

So this is I would say this is an encouraging sign. Again just see a lot of work to be done, a lot of building and lots of partners to recruit on to platform.

So still fairly early, but we have some very good validating signs very early on.

Unidentified Analyst

Thank you. Appreciate the color.

Operator

Next line on the queue is George Iwanyc from Oppenheimer.

You are now allowed.

George Iwanyc

Thank you for taking my question.

So Olivier kind of following up on the strong multi-product adoption. Are you seeing any consolidation of the number of tools at your customers and kind of just a broad look at the overall competitive landscape?

Olivier Pomel

Yeah, so we definitely, we mentioned a few examples of customers that are considering on us, right. Because they don’t want to have their teams jump between tools. They don’t want to have separate tools between the teams.

So we definitely see that.

In terms of the competitive landscape, it’s a bit boring in that we haven’t seen any noticeable change in the past year, I would say to a pretty much the same situation as it was before where the most of the opportunity is Greenfield, a lot of up in petition is open source to yourself. And then occasionally, we’re going to have some large lends from customers that have already had something before and switched to us, but that’s not the dominant motion.

George Iwanyc

All right, thank you. And then David, when you talked about the duration extending a bit. When you’re looking at your guidance, do you expect that to either flatten out or start to contract maybe later in the year?

David Obstler

We think that that can be ascetic with, as we talked about with that particular quarter and the contracts that come up. There hasn’t been any change in strategy.

Our strategy is to get annual commits and to offer mainly upfront billing on demand. That’s still the dominant way to go-to-market.

So what happens in the variability is some clients want a multi-year arrangement, or they want a certain billing, but we really haven't changed our assumptions sort of where we are longer term in terms of duration.

George Iwanyc

Thank you.

Operator

Next one on the line is Bhavan Suri from William Blair.

You are now live.

Bhavan Suri

Thanks for the question guys. And I'll echo my congrats. And that was a solid quarter. I guess, I just want to touch a couple of quick things here on Synthetics.

You started charging for Synthetics.

I think it was - correct me if I'm wrong. Q3 ‘19, you've talked about seeing all attractions, just not to assume what the growth has been in that business specifically, attach rates maybe how it's trending relative to your expectations, because you do bring up a little bit in the call, but we didn't get much color. I'd love to hear how that's doing?

Olivier Pomel

Yes, it's going very well.

I think we talked about the size and growth of the products is really aligned to when they were initiated. And we set last quarter, we were having tremendous success that Synthetics was multiple tens of millions of dollars type customer, early in its growth, had very strong adoption, and it's been as we talked about sort of the number four product in terms of the size after infrastructure logs and APM together.

So we're continued to see very strong reception as part of the overall platform.

David Obstler

Yes, look, we're very, as we said, and I said, if you go to your network monitoring and run, which were introduced after Synthetics, both have adoption is very similar will occur and a very good growth curve.

So we have to think about all those products. The curves might differ a little bit between the products, because they have different levels of friction to heavily from levels of applicability and both maps and have in depth I would say, but overall, we so far we don't have any data in our platform, so we feel good about that.

Bhavan Suri

Good to know. Absolutely. And then one other one from me, you usually you disclose this metric and maybe a better wrong, but I don't think you've given the 1 million customer count in previous quarters. I'd love to understand how that trended through the year. And if you saw a budget flush of December, which might've driven a jump in seven figure deals?

David Obstler

Yes, we said that we would be delivering that once a year and providing some color.

So it's the end of the year.

As I think we told you, we saw steady growth of that in a year.

I think it sort of mimic the rest of the effect in the business where that type of evolution either from land or expand was more difficult in Q2 and improved throughout the year commensurate with our new logo around our expansion.

Bhavan Suri

Got you. That's super helpful. Thanks guys. I really appreciate you taking my question.

David Obstler

You're welcome.

Operator

For the next question we do have Pat Walravens from JMP Securities.

You are now live.

Joey Marincek

Thank you. This is Joey Marincek for Pat. I was going off that last question, I wanted to dig in on those larger customers. I'm just wondering, has your conversations changed at all of these larger customers, maybe just how you're approaching them? Thank you.

David Obstler

The conversation hasn't really changed much.

I think continuity, which is what has happened in the past, which is that those customers are adopting more and more of our products, and they're deploying us more and more broadly, and they themselves are getting deeper and deeper into the cloud.

So the boundaries between customers that are million plus or 10 million it's arbitrary, but we have a large number of customers right above it, large number customers with below it. And we keep pushing customers up. Basically there's nothing new or different there, I think, would you speak to leave customers continue to end up more of a product and more of a platform and they continue to move to the cloud.

Joey Marincek

Thank you so much.

Operator

Next one on the line is Brad Rebeck from Stifel.

You are now live.

Brad Rebeck

Thank you very much. Oli, traditionally you've talked about the frictionless adoption of the platform as being a key, focus.

So as you continue to build out into new areas, how important is it to maintain that frictionless type of environment versus taking on some more difficult problems that may include get deeper sales efforts up front? Thanks.

Olivier Pomel

Well, we're okay with both, right? But we can also - like there is a lot - we can still do to play to our strengths. And we're very far from covering the full spectrum of problems we can solve in a completely frictionless way.

So in summary, as especially security, like it's possible that we will need different kinds of sales. And I would say a bit more friction that deployments, but we're not done with the frictionless products. And the one that we have today are still very far from being fully penetrated and maybe variety of customers.

So there is a very long runway for all of that.

Brad Rebeck

Great. Thanks very much.

Operator

Next one on the line will be Michael Turits from KeyBanc.

You are now live.

Michael Turits

Hi, David and Oli.

One of your competitors has made some very extensive changing to change their pricing structure. Are you seeing any impact from that or any pressure to make any kinds of changes structurally in the way you press?

Olivier Pomel

We haven't seen any developments there though.

I think it's - and look it's possible that customers want to change the way to consume services and things, but we haven't seen anything so far to where, as I said, the competitive landscape is boring in ugly so far.

Michael Turits

And David just a quick housekeeping, you talked about billings getting some boost from duration extension. Can you quantify that for this corner?

David Obstler

Both in contracts and billing that were both a couple months.

So both of them had been sort of in 7 to 10, 12.

And so they both extended a couple of months, but again, we want to caution everybody that may be related the bill that went out at the end of the year, et cetera. And we don't expect any real changes in the way we're sort of going to market and interacting with our customers.

Michael Turits

And what is the invoicing duration on average now, what has been roughly?

David Obstler

That range has been sort of in the six to eight range. And the contact duration has been a couple months longer than that, and they both expanded, but again, we're not drawing conclusions based on one quarter, I'm pausing everybody.

So it has been six to eight and it was up a couple of months this quarter on invoicing duration.

Operator

Next one on the queue is Gregg Moskowitz from Mizuho.

You are now live.

Gregg Moskowitz

Okay. Thank you. Hi guys.

So it's great that the usage trends were good again this quarter and that you're now approximately back to pre-COVID levels. And what I was curious about is now that we're another quarter removed from the Q2, just to get your thoughts on the likelihood of a similar spike in cloud optimization reoccurring at some point. In other words, do you think that we would probably need to see another exogenous shock or long tail type event for usage to move around materially in any given quarter?

Olivier Pomel

So I don't have - even what is going to happen to the vaccines in the rest of the pandemic.

So I'll defer on that.

In terms of what the cycles of optimization that, they happen from time-to-time from our customers now, whether they all got on the same schedule, not because they would optimize at the same time. I don't know. I don't think we'll continue to work the same way. But again, we want to be a little bit prudent with our numbers because as I said, the early it'll be a noisier than pre-pandemic. And we won't set the right expectation there.

Gregg Moskowitz

Okay. Thanks Oli. And then just David any changes to average deal size of this quarter across either new or existing customers?

David Obstler

We did have more an increase of the new logos. Broadly speaking, we have some, some range of that.

So we talked about that was part of our new logo performance in Q4. And over time, we have a steady increase of the average spend with our customers as they grow with us as part of the land and expand.

Gregg Moskowitz

All right. Thank you.

Operator

Next question comes from line of Yun Kim from Loop Capital Markets.

You are now live.

Yun Kim

Thank you.

So, Oli, there was an earlier question on the impact of solar winds and summers. Are you seeing that events dragging closer collaboration between dev ops and security ops? And is that what's driving somewhat of a waiting…

Olivier Pomel

I'm sorry.

I think you got cut off.

David Obstler

We will take the next.

Olivier Pomel

Yes, Maybe David and operator we end the call here.

David Obstler

So we are ending the call.

So yes, thank you everyone. Again, I'd like to reset the setup. We're very pleased with performance in the fourth quarter and as well as the performance for the full-year.

As a closing word, I am very proud of the execution, and I want to thank our employees for their hard work and a high output is what has been a difficult year for most people. One thing that's important to remember is that we are more critical to our customers than ever before, and as we move to cloud is proving to be truly essential.

So I and Datadog are excited to continue to make their life easier in 2021 and years to come.

So thank you all.

Operator

Ladies and gentleman this concludes today’s conference call.

You may now disconnect.