Datadog : 1Q Earnings Transcript

Datadog, Inc. NasdaqGS:DDOG

FQ1 2024 Earnings Call Transcripts

Tuesday, May 7, 2024 12:00 PM GMT

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Contents

Table of Contents

Call Participants	3
Presentation	4
Question and Answer	8

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DATADOG, INC. FQ1 2024 EARNINGS CALL MAY 07, 2024

Call Participants

EXECUTIVES

David M. Obstler

Chief Financial Officer

Olivier Pomel

Co-Founder, CEO & Director

Yuka Broderick

Investor Relations

ANALYSTS

Andrew James Nowinski

Wells Fargo Securities, LLC, Research Division

Brad Robert Reback

Stifel, Nicolaus & Company,

Incorporated, Research Division

Brent John Thill

Jefferies LLC, Research Division

Eric Michael Heath

KeyBanc Capital Markets Inc.,

Research Division

Fatima Aslam Boolani

Citigroup Inc., Research Division

Jacob Roberge

William Blair & Company L.L.C., Research Division

Karl Emil Keirstead

UBS Investment Bank, Research Division

Kasthuri Gopalan Rangan

Goldman Sachs Group, Inc., Research Division

Koji Ikeda

BofA Securities, Research Division

Mark Ronald Murphy

JPMorgan Chase & Co, Research Division

Matthew George Hedberg

RBC Capital Markets, Research Division

Michael Joseph Cikos

Needham & Company, LLC, Research Division

Peter Weed

Sanford C. Bernstein & Co., LLC., Research Division

Raimo Lenschow

Barclays Bank PLC, Research Division

Sanjit Kumar Singh

Morgan Stanley, Research Division

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DATADOG, INC. FQ1 2024 EARNINGS CALL MAY 07, 2024

Presentation

Operator

Good day and thank you for standing by. Welcome to the First Quarter 2024 Datadog Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Yuka Broderick, Vice President of Investor Relations. Please go ahead.

Yuka Broderick

Investor Relations

Thank you, Marvin. Good morning and thank you for joining us to review Datadog's First Quarter 2024 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's Co-Founder and CEO; and David Obstler, Datadog's CFO.

During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the second quarter and fiscal year 2024 and related notes and assumptions, our gross margins and operating margins, our product capabilities, our ability to capitalize on market opportunities and usage optimization trends. The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially.

For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31, 2023. Additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ended March 31, 2024, and other filings with the SEC. This information is also available on the Investor Relations section of our website, along with a replay of this call.

We will discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors.datadoghq.com. With that, I'd like to turn the call over to Olivier.

Olivier Pomel

Co-Founder, CEO & Director

Thanks, Yuka, and thank you all for joining us this morning. We are pleased with our execution at the start of 2024. First, we have continued to broaden our platform across observability, cloud security, software delivery as well as closing the loop with cloud service management. We also kept supporting our customers' adoption of new technologies including next-gen AI and large language models. And we have continued to add new customers and to see existing customers increase their usage growth and product adoption.

Let me start with a review of our Q1 financial performance. Revenue was $611 million, an increase of 27% year-over-year and above the high end of our guidance range. We ended the quarter with about 28,000 customers, up from about 25,500 last year. We had about 3,340 customers, with an ARR of $100,000 or more, up from about 2,910 last year. These customers generated about 87% of our ARR. And we generated free cash flow of $187 million, with a free cash flow margin of 31%.

Turning to platform adoption. Our platform strategy continues to resonate in the market. As of the end of Q1, 82% of customers were using 2 or more products, up from 81% a year ago. 47% of customers were using 4 or more products, up from 43% a year ago. 23% of our customers were using 6 or more products, up from 19% a year ago. And 10% of our customers were using 8 or more products, up from 7% last year.

We continue to see robust growth in our 3 pillars of observability: Infrastructure monitoring, APM and log management. But we also have many younger products that are becoming more meaningful contributors to our business over time. For example, our products outside of infrastructure monitoring, APM suite and Log Management exceeded $200 million in ARR in Q1. And as a reminder, within the APM suite, we include core APM, Synthetics, RUM and Continuous Profiler. And as we look at the 12 products that we launched between 2020 and 2022, those now contribute about 11% to our ARR.

Of those 12 products, 8 are over $10 million in ARR, which is a nice milestone for these relatively new additions. And we are seeing some products grow faster than we initially expected. For example, Database Monitoring is already 1% of our revenue with strong and growing product penetration across our customer base. So we are very pleased with the progress of our newer products, even though we know we have much further to go with them.

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DATADOG, INC. FQ1 2024 EARNINGS CALL MAY 07, 2024

Now let's discuss this quarter's business drivers. In Q1, we saw usage growth from existing customers that was higher than in Q4. And this usage growth in Q1 was similar to what we experienced in Q2 and Q3 of 2022. As a reminder, that was a period when we started to see a normalization of usage following the accelerated growth we had experienced in 2021. Overall, we saw healthy growth across our product lines. And as usual, our newer products grew at a faster rate from a smaller base.

While some of our customers are continuing to be cost conscious, we are seeing optimization activity reduce in intensity. As an illustration, the optimizing cohort we identified several quarters ago did grow sequentially again this quarter. We also see that customers are adopting more products and increasing usage with us. We think this shows that they are moving forward with their cloud migration and digital transformation plans, and that we are executing on opportunities to consolidate point solutions into our platform.

And finally, churn continues to be low, with gross revenue retention stable in the mid- to high 90s, highlighting the mission-critical nature of our platform for our customers.

Moving on to R&D. We had another very productive quarter. In the next-gen AI space, we announced general availability of Bits AI for incident management. By using Bits AI for incident management, incident responders get auto-generated incident summaries to quickly understand the context and scope of a complex incident. And users can also query Bits AI to ask about relative incidents and perform tasks on the fly from incident creation to resolution.

We're also continuing to see more interest in AI from our customers. As a data point, ARR for our next-gen AI customers was about 3.5% of our total, a strong sign of the growing ecosystem of companies in this area.

To help customers understand AI technologies and bring them into production applications, our AI integrations allow customers to put their AI data into the Datadog platform. And today, about 2,000 of our customers are using 1 or more of these AI integrations. And we've continued to keep up with the rapid innovation in this space. For example, adding a new integration in Q1 with the NVIDIA Triton Inference Server.

In the cloud service management area, we released Event Management in general availability. Our customers face increasing complexity at scale, causing the volume of alerts and events to explode, which makes it difficult for teams to identify, prioritize, summarize and route issue to the right responders. Event Management addresses this challenge by automatically reducing a massive volume of events and alerts into actionable insights. These are then used to generate tickets, call an incident or trigger an automated remediation.

And by combining Event Management with Watchdog, Bits AI and Workflow Automations, Datadog now provides a full AIOps solution that helps teams automate remediation, proactively prevent outages and reduce the impact of incidents.

In the observability space, our Log Management product continues to expand in capability. In March, we made error tracking for logs generally available. Error tracking intelligently combines millions of errors from logs into a manageable number of issues for customers. And beyond error tracking, we are delivering new features to allow our customers to do more with their logs within the Datadog platform, starting with new core capabilities such as enhanced full-text search and support for advanced subqueries, both highly desired by our customers.

We also continue to make progress with Flex Logs. As a reminder, Flex Logs allow customers to easily scale storage and compute separately which in turn allows for new, very high-volume use cases in a cost-effective manner. While Flex Logs remains in limited availability, we are seeing a high level of interest from customers, many of whom want to retain logs for long-term purposes such as audit, security and compliance. And we're pleased to see that with only a limited set of customers so far, Flex Logs already exceed $10 million in ARR today.

In the digital experience area, we launched mobile app testing in general availability, giving access to fast, no code, reliable testing on real mobile devices, which was a big challenge for customers given the wide range of devices and operating systems in use by consumers. And in Cloud Cost Management, we've added full support for Google Cloud, so FinOps and DevOps teams can optimize their cloud spend across their AWS, Azure and GCP footprint. Cloud Cost Management is another of our newer products that exceeds the $10 million ARR milestone, and we believe there's significantly more opportunity for us to have our customers there.

As usual, I'd like to thank our product and engineering teams for the quarter, and I'm looking forward to the many announcements we'll make at our DASH user conference in late June, here in New York.

Now let's move on to sales and marketing. We've been pleased to once again add some exciting new customers and expand with many more. So let's go through a few examples. First, we signed a 3-year,7-figure expansion with a leading online grocery business.

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DATADOG, INC. FQ1 2024 EARNINGS CALL MAY 07, 2024

This customer has used Datadog as their platform of choice for several years now. And as they migrate to Azure, they are looking to ensure reliability and security as they deploy at scale. With this renewal, they are adding Cloud Security Management, Application Security Management and Cloud SIEM to enable a shift to a DevSecOps culture in the organization. And this customer expects to add 7 products for a total of 14 across the Datadog platform.

Next, in 2 deals over the past 6 months, we had a 7-figure expansion with a medical device company. This customer was primarily using our infrastructure monitoring and APM suite, but its legacy logging solution was becoming cost prohibitive, while the lack of correlation across siloed teams was causing frustration and higher times to resolution. With this expansion, the customer plans to add up 9 products and consolidate its log management tool as well as 4 other commercial and cloud-native tools into Datadog.

Next, we signed a high 6-figure expansion with an athletic apparel company. This company had a dozen disparate monitoring tools, which wasted time and was impacting operations, revenue and customer experience. With this expansion, the company plans to consolidate out of 4 commercial and open-source point solutions. They also expect to save millions of dollars over the next several years, while providing a great consumer experience.

Next, we signed a high 6-figure expansion with a European division of 1 of the world's largest car makers. This customer has chosen Datadog as its observability vendor in many business units globally. And in Europe, they currently monitor about 1/4 of their applications with us and are migrating hundreds of applications to fully move to Datadog in the next 2 years. With this expansion, this customer is using eight products in the Datadog platform.

Next, we signed a 6-figure land with a division of a Fortune 500 industrial company. The company is moving its e-commerce application to Google Cloud. They felt that using on-prem monitoring tools would not transition well to the cloud and are starting with 3 of our products as they are confident in Datadog's ability to keep innovating in modern cloud and serverless environments.

Finally, we signed a 6-figure land with 1 of the world's largest communication infrastructure companies. This company started cloud migration a couple of years ago and found itself limited by fragmented tooling and lack of data correlation. In contrast, the Datadog service catalog gives them a single view for performance, ownership, security, SLOs and KPIs, which customer believes is a unique capability among the vendors it considered, and which aligns with their goal of delivering centralized observability across the business. And this customer is adopting 7 Datadog products initially and consolidating out of 4 tools.

And that's it for another productive quarter for our go-to-market teams.

Let me now say a few words on our longer-term outlook. Overall, we continue to see no change in the multiyear trend towards digital transformation and cloud migration. We are seeing improved usage growth with less impact from optimization than we had seen

in the last few quarters. For those customers who are remaining cost focused, we are very happy to help them get value from their observability solutions and consolidate into the Datadog platform to achieve time and cost savings.

Meanwhile, we are seeing continued experimentation with new technologies, including a growing adoption of AI, which we believe will be an accelerator of technical innovation and cloud migration over time. And we're working every day to innovate and help our customers adopt new technologies with confidence and become better businesses in the process.

With that, I will turn it over to our CFO. David?

David M. Obstler

Chief Financial Officer

Thanks, Olivier. Q1 revenue was $611 million, up 27% year-over-year and up 4% quarter-over-quarter. To dive into some of the drivers of the Q1 performance, first, regarding usage growth, in Q1, we saw sequential usage growth from existing customers that was higher than the usage growth in Q4. Q1's usage growth was similar to what we experienced in Q2 and Q3 of 2022. And given this steep growth and off a larger base, our sequential ARR dollars added was the highest since Q4 2021. During Q1, we experienced a linearity pattern that was very typical for us, which included usage growth in March that was higher than January and February.

Regarding usage growth by customer size in Q1, we saw usage growth accelerate across our larger customers, those with $100,000 of annual spend or higher. And we saw particularly strong usage growth with our largest customers who spend multiple millions of dollars with us annually. Geographically, we experienced stronger year-over-year revenue growth in international markets than in North America. And finally, for our retention metrics, our trailing 12-month net revenue retention was in the mid-100s in Q1 -- sorry, in the mid-110s in Q1, similar to last quarter. Our trailing 12-month gross revenue retention continues to be stable in the mid- to high 90s.

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DATADOG, INC. FQ1 2024 EARNINGS CALL MAY 07, 2024

Now moving on to our financial results. Billings were $618 million, up 21% year-over-year. Billings duration increased year-over- year. Sequential billings growth was seasonally lower as it was in Q1 2023. Remaining performance obligations, or RPO, was $1.73 billion, up 52% year-over-year, and current RPO growth was in the low 40% growth year-over-year. RPO duration increased year- over-year but was down quarter-over-quarter as we saw fewer multiyear deals relative to last quarter.

In general, we are continuing to see an increasing interest with our larger customers in multiyear commitments, which results in longer RPO duration in both total and current RPO. As a reminder, our RPO has been and continues to be lumpy, an effect that may be amplified as our customers move towards multiyear deals.

We continue to believe revenue is a better indication of our business trends than billings and RPO as those can fluctuate relative to revenue based on the timing of invoicing and the duration of customer contracts.

Now let's review some key income statement results. Unless otherwise noted, all metrics are non-GAAP. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.

First, gross profit in the quarter was $509 million, representing a gross margin of 83.3%. This compares to a gross margin of 83.4% last quarter and 80.5% in the year-ago quarter. We continue to experience efficiencies in cloud costs reflected in our cost of goods sold as our engineering teams pursue cost savings and efficiency projects.

Our Q1 OpEx grew 14% year-over-year and increased from 10% year-over-year growth last quarter. As discussed last quarter, we intend to invest in headcount in 2024, and we have accelerated hiring in sales and marketing and R&D to execute on our growth plans. Q1 operating income was $164 million, or a 27% operating margin compared to 28% last quarter and 18% in the year-ago quarter.

And now turning to the balance sheet and cash flow statements. We ended the quarter with $2.8 billion in cash, cash equivalents and marketable securities. Cash flow from operations was $212 million in the quarter. After taking into consideration capital expenditures and capitalized software, free cash flow was $187 million for a free cash flow margin of 31%.

Now for our outlook for the second quarter and the fiscal year 2024. Our guidance philosophy remains unchanged. As a reminder, we based our guidance on trends observed in recent months and apply conservatism on these growth trends. So for the second quarter, we expect revenue to be in the range of $620 million to $624 million, which represents a 22% year-over-year growth. Non-GAAP operating income is expected to be in the range of $134 million to $138 million, which implies an operating margin of 22%. In Q2, we will be holding our DASH user conference, which we estimate to cost about $11 million. Our operating income guidance reflects this event.

Non-GAAP net income per share is expected to be $0.34 to $0.36 per share based on approximately 360 million weighted average diluted shares outstanding. For fiscal year 2024, we expect revenue to be in the range of $2.59 billion to $2.61 billion, which represents 22% to 23% year-over-year growth. Non-GAAP operating income is expected to be in the range of $585 million to $605 million, which implies an operating margin of 23%. And non-GAAP net income per share is expected to be in the range of $1.51 to $1.57 per share based on approximately 361 million weighted average diluted shares outstanding.

Now for some additional notes on our guidance. First, we expect net interest income and other income together for fiscal 2024 to be approximately $110 million. Next, we expect cash taxes in 2024 to be in the $20 million to $25 million range, and we continue to apply a 21% non-GAAP tax rate for 2024 and going forward. And finally, we continue to expect capital expenditures and capitalized software together to be 3% to 4% of revenues in fiscal 2024.

To summarize, we are pleased with how we started 2024. And I want to thank Datadogs worldwide for their efforts. And now with that, we will open the call for questions. Operator, let's begin the Q&A.

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DATADOG, INC. FQ1 2024 EARNINGS CALL MAY 07, 2024

Question and Answer

Operator

[Operator Instructions] Our first question comes from the line of Sanjit Singh of Morgan Stanley.

Sanjit Kumar Singh

Morgan Stanley, Research Division

It was encouraging to see that usage trends continue to improve, at least sequentially Q1 over Q4. I wanted to see if you could put like the usage trends you're seeing in your business in context of like the broader cloud landscape. And we're seeing some really nice results out of the hyperscalers. Obviously, there's -- those are much larger businesses and in different -- can be in different product areas. But when we think about the tailwinds of like cloud migrations and also AI workloads starting to come on board, how does that

• how is that playing out in Datadog's business versus what we may be seeing from like the hyperscales who are -- who seem to be accelerating to a higher degree?

Olivier Pomel

Co-Founder, CEO & Director

Yes. Sanjit, this is Olivier. So I think, in general, it's hard to be -- to do a precise quarter-by-quarterone-to-one mapping between the revenue and the cloud providers and our revenue. I think you pointed out, there are things in their products that don't relate to us directly or things in their internal revenue that don't relate to us directly. We have products that don't tie one-to-one with infrastructure on their end. But in general, over the longer term, we are very exposed to the growth trend you will see with the cloud providers, and the correlation you've seen in the past between our businesses, we expect will remain in some form in the future.

We also are very exposed to the same tailwinds, obviously, cloud migration, but also AI adoption. I will say also on AI adoption that some of the revenue jumps you might see from the cloud providers might relate to supply of GPUs coming online and a lot of training clusters being provisioned. And those typically won't generate a lot of new usage for us. We tend to be more correlative with the live applications, production applications and inference workloads that tend to follow after that, and that are more tied to all of these applications going into production. So these are the things to factor. But overall, same trends, just not a one-to-one timing.

Sanjit Kumar Singh

Morgan Stanley, Research Division

That makes complete sense. And I was wondering if you had any comments on how usage trends coming out of March would seem to be stronger than in the beginning of Q1, how that sort of played out in April?

David M. Obstler

Chief Financial Officer

Sure. Sanjit, it's David here. As we always say, we try to look into the next month, but that's a small-time set. In this case, the April trends continue to exhibit higher sequential growth rates than the year-ago quarter. But we caution everybody that 1 month does not a quarter make, and we'll continue to update that next quarter as we report.

Olivier Pomel

Co-Founder, CEO & Director

And the seasonality in Q1 was very usual. Every year, there's a drop around the holidays in Q1 and January starts slowly, and then it accelerates into March, and we've seen that pretty much every year so far and we're seeing it this year as well.

Operator

Our next question comes from the line of Mark Murphy of JPMorgan.

Mark Ronald Murphy

JPMorgan Chase & Co, Research Division

Congratulations on the revenue acceleration during the quarter. Olivier, I'm wondering how commonly are customers in your gen AI cohort using Datadog to monitor for bias and hallucinations within their AI models as opposed to just keeping the systems running?

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DATADOG, INC. FQ1 2024 EARNINGS CALL MAY 07, 2024

And also, do you see more concentration of customers within that cohort? Or is there actually more diversity as more of the models move beyond the training stage and into the inferencing stage?

Olivier Pomel

Co-Founder, CEO & Director

Yes. So we have products for monitoring, not just the infrastructure, but what the LLMs are doing. Those products are still not in GA, so we're working with a smaller number of design partners for that. As I think not only these products are maturing, but also the industry around us is maturing and more of these applications are getting into production. You should expect to hear more from us on that topic in the near future.

The customers we have that are the most scaled on AI workloads are the model providers themselves, and they tend to have their own infrastructure for monitoring the quality of the models. But we think there are good/bad weather in terms of what the adoption of AI is going to be from all the other companies, and we definitely see a trend where customers start with an API-driven or API-accessible model, build applications and then offload some of that application to other models that typically come from the open source and they might train, fine-tune themselves to get to a lower cost and lower time to respond.

Mark Ronald Murphy

JPMorgan Chase & Co, Research Division

I understand. Okay. And then, David, you had mentioned, I think, last quarter that the cloud-native spending had rebounded. It was outpacing the broader business. And just to clarify, are you saying that the traditional large enterprise business during Q1 you picked up in terms of the cloud migration activity as the hyperscalers might have suggested, was that -- I'm just wondering if you could double-click on that comment and whether there was something really noticeable, intangible there among the large enterprise, more traditional businesses?

David M. Obstler

Chief Financial Officer

Yes, we saw -- as said, we saw growth accelerate in our larger customers including the larger cloud natives and enterprise. So we did see more normal activity, including new workloads in both of those cohorts.

Operator

Our next question comes from the line of Kash Rangan of GS.

Kasthuri Gopalan Rangan

Goldman Sachs Group, Inc., Research Division

Congratulations to the team on very good results here. Olivier, I was wondering if you could talk about the consolidation trend that you're talking about. It looks like the pace of consolidation and also, the intensity of lands and expands seems to be a bit more remarkable at the starting point of this calendar year. So if you could expand on that a little bit.

And one for you, David, our cRPO has been accelerating. I think at low 20s to 30s to 40s over the last few quarters. but revenue expectations have not edged up pretty significantly. So can you just talk about the lead lag effect, granted that you always try to tell us that revenue is best indicator but none the less it's hard to dismiss the cRPO acceleration we've seen off of -- in the last few quarters.

Olivier Pomel

Co-Founder, CEO & Director

Yes. So I'll let David speak about the cRPO dynamics, but the -- so look, we've seen over the couple of years really, but really the past few quarters, more consolidation than we've seen in the past, in part driven by customers wanting to -- being cost conscious, wanting to save money, but in part also by customers getting a little bit further into their cloud migration and rationalizing what they're using as they do that. So we keep seeing that. We've mentioned a number of those deals in the examples we've given. That's a large part of what our enterprise business is doing in particular. There's no particular change in Q1 compared to what we've seen in Q4 before. Q1 is -- we typically do a lot of larger deals in Q1 -- in Q4 compared to Q1, seasonally in general.

To the point you made earlier, we do see typically a bit of a lag between these big consolidation deals and the moment where we see our revenue recognized. Typically, when we consolidate products, what we'll see is, we'll assume the ramp time for moving usage from other products to our platform over what can be a number of quarters or even years sometimes. And it might take some time for those deals to or those numbers to materialize in the revenue.

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DATADOG, INC. FQ1 2024 EARNINGS CALL MAY 07, 2024

On the flip side, we also have a number of deals where customers are growing very quickly into their usage, and we capture new commitments with them. That might lag a little bit their consumption and the revenue we recognize, so we see a little bit of both.

David, do you want to speak a little bit more?

David M. Obstler

Chief Financial Officer

Sure. Similar to what we said last time, we are seeing our customers, particularly our larger customers commit longer to us. That can be multiyear deals or even out towards -- the weighted average towards annual deals as opposed to shorter-term deals. So basically, it is a positive in that it does connote that clients are committing to Datadog more as their core platform. It is a trend that we're seeing, particularly in larger customers. But we repeat what we said that really how we contract, and bill is not necessarily one-to-one correlated with our revenues. Our revenues are correlated with our usage. So it's a positive, but I think that we want to keep everybody grounded on our revenues as the most important metric, and then secondarily, our ARR as predicting future revenue growth.

Operator

Our next question comes from the line of Raimo Lenschow of Barclays.

Raimo Lenschow

Barclays Bank PLC, Research Division

Going back to the workload migration that seems to be kicking back in again from listening to the hyperscalers and you talked about the timing difference there. I wanted to kind of ask on a different aspect here and that's kind of your sales capacity and the ramp in sales capacity that we should think about it. Like can you speak about like where you are at the moment in terms of capacity? And then as the market reaccelerates, like what sort of investments should we think about there?

Olivier Pomel

Co-Founder, CEO & Director

So we're growing sales capacity. We've been growing it for the past few years. We grew it a little bit slower -- more slowly last year as we were careful about profitability and not getting too far ahead of ourselves in what looked like a tough market, but we're definitely growing sales capacity. And there's a ramp model that is associated with that. So the capacity typically lags a little bit the growth in terms of headcount. It takes time for people to get productive. But we're investing. We're growing and...

David M. Obstler

Chief Financial Officer

Long-term sales capacity is very much calibrated to revenue and UAR growth. As Oli mentioned, there are periods where it will move higher than that as we make investments, and there's periods where we might optimize. I think last year was a period where we digested previous investments, optimized a bit. And we said, this year, we're leaning into expansion of our sales capacity and investment. But long term, it correlates with revenue. And we look at that. We look at do we have enough sales capacity relative to what we see as the demand in the market, the territories and the expected ARR growth.

Olivier Pomel

Co-Founder, CEO & Director

To give you just a -- kind of a bit more color, like one of the big areas of focus inside the company is ramping up recruiting again. So we're recruiting a lot faster, a lot more than we were last year. And so we had to rev up that recruiting engine again. I won't -- I think they're listening to us, I want to congratulate our business recruiting team there for doing a fantastic job, really bringing that engine back up.

Operator

Our next question comes from the line of Matt Hedberg of RBC.

Matthew George Hedberg

RBC Capital Markets, Research Division

Oli, you mentioned newer products continue to do really, really well. You gave some interesting data on Database Monitoring, for instance. I'm wondering, are these newer products resonating up and down your customer base? Or are these -- some of these cross- sell statistics stronger with some of your bigger customers?

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