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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2021
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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Delaware | 27-2825503 | ||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer | ||||||||||
620 8th Avenue, | 45th Floor
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New York, | NY | 10018 | |||||||||
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| 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) | ||||||||
| Large accelerated filer |
| Accelerated filer | ☐ | |||||||||||||
Non-accelerated filer |
| Small reporting company | ☐ | |||||||||||||
Emerging growth company |
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•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; •the growth rates of the markets in which we compete; and •the potential impact of the ongoing COVID-19 pandemic on our business, results of operations and financial condition. FINANCIAL STATEMENTS September 30, 2020 December 31, 2019 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 198,523 $ 597,297 Marketable securities 1,296,261 176,674 Accounts receivable, net of allowance for credit losses of $2,589 and $817 as of September 30, 2020 and December 31, 2019, respectively 120,992 102,394 Deferred contract costs, current 11,544 8,346 Prepaid expenses and other current assets 25,655 19,231 Total current assets 1,652,975 903,942 Property and equipment, net 42,059 32,749 Operating lease assets 55,365 53,002 Goodwill 17,211 9,058 Intangible assets, net 2,327 1,435 Deferred contract costs, non-current 22,667 17,409 Restricted cash 3,607 3,456 Other assets 18,073 16,990 TOTAL ASSETS $ 1,814,284 $ 1,038,041 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 21,199 $ 15,429 Accrued expenses and other current liabilities 54,383 38,746 Operating lease liabilities, current 15,058 11,916 Deferred revenue, current 164,010 134,148 Total current liabilities 254,650 200,239 Operating lease liabilities, non-current 49,675 48,510 Convertible senior notes, net 567,683 — Deferred revenue, non-current 2,444 4,340 Other liabilities 3,644 2,611 Total liabilities 878,096 255,700 COMMITMENTS AND CONTINGENCIES (NOTE 8) STOCKHOLDERS' EQUITY: Class A common stock, $0.00001 par value per share; 2,000,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 206,054,826 and 64,308,498 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 2 1 Class B common stock, $0.00001 par value per share; 310,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 98,337,015 and 232,078,452 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 1 2 Additional paid-in capital 1,065,543 905,821 Accumulated other comprehensive income 2,645 133 Accumulated deficit (132,003 ) (123,616 ) Total stockholders’ equity 936,188 782,341 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,814,284 $ 1,038,041 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue $ 154,675 $ 95,864 $ 425,935 $ 249,136 Cost of revenue 33,984 23,297 89,340 63,225 Gross profit 120,691 72,567 336,595 185,911 Operating expenses: Research and development 56,440 28,684 142,928 75,531 Sales and marketing 57,142 38,836 153,626 105,061 General and administrative 16,376 9,265 44,876 23,193 Total operating expenses 129,958 76,785 341,430 203,785 Operating loss (9,267 ) (4,218 ) (4,835 ) (17,874 ) Other (expense) income: Interest expense (12,423 ) — (17,424 ) — Interest income and other income, net 7,135 90 15,204 646 Other (expense) income, net (5,288 ) 90 (2,220 ) 646 Loss before provision for income taxes (14,555 ) (4,128 ) (7,055 ) (17,228 ) Provision for income taxes (595 ) (33 ) (1,332 ) (373 ) Net loss $ (15,150 ) $ (4,161 ) $ (8,387 ) $ (17,601 ) Net loss attributable to common stockholders $ (15,150 ) $ (4,161 ) $ (8,387 ) $ (17,601 ) Basic and diluted net loss per share $ (0.05 ) $ (0.04 ) $ (0.03 ) $ (0.20 ) Weighted average shares used in calculating basic and diluted net loss per share 302,554 103,876 299,105 87,758 LOSS Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net loss $ (15,150 ) $ (4,161 ) $ (8,387 ) $ (17,601 ) Other comprehensive income (loss): Foreign currency translation adjustments 536 (45 ) 446 (85 ) Unrealized gain on available-for-sale marketable securities 44 — 2,066 — Other comprehensive income (loss): 580 (45 ) 2,512 (85 ) Comprehensive loss $ (14,570 ) $ (4,206 ) $ (5,875 ) $ (17,686 ) Class A and Class B Additional Accumulated Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Capital (Loss) Income Deficit Equity BALANCE—June 30, 2020 302,254,533 $ 3 $ 1,027,656 $ 2,065 $ (116,853 ) $ 912,871 Issuance of common stock upon exercise of stock options 2,132,732 — 5,156 — — 5,156 Vesting of early exercised stock options — — 295 — — 295 Vesting of restricted stock units 4,576 — — — — — Stock-based compensation — — 21,936 — — 21,936 Reversal of prior income tax associated with the issuance of the 2025 convertible senior notes — — 10,500 — — 10,500 Change in accumulated other comprehensive income — — — 580 — 580 Net loss — — — — (15,150 ) (15,150 ) BALANCE—September 30, 2020 304,391,841 $ 3 $ 1,065,543 $ 2,645 $ (132,003 ) $ 936,188 Convertible Class A and Class B Additional Accumulated Other Total Preferred Stock Common Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital (Loss) Income Deficit Equity (Deficit) BALANCE—June 30, 2019 179,011,431 $ 140,752 — $ — 86,823,234 $ — $ 41,132 $ (9 ) $ (120,346 ) $ (79,223 ) Issuance of common stock upon exercise of stock options — — — — 2,278,410 — 2,106 — — 2,106 Vesting of early exercised stock options — — — — — — 1,177 — — 1,177 Stock-based compensation — — — — — — 4,691 — — 4,691 Issuance of class A common stock in connection with initial public offering, net of underwriting discounts and issuance costs — — 27,600,000 1 — — 705,937 — — 705,938 Conversion of convertible preferred stock to common stock in connection with initial public offering (179,011,431 ) (140,752 ) 179,011,431 2 — — 140,750 — — 140,752 Change in accumulated other comprehensive income — — — — — — — (45 ) — (45 ) Reclassification of common stock to class A and class B common stock — — 89,101,644 — (89,101,644 ) — — — — — Net loss — — — — — — — — (4,161 ) (4,161 ) BALANCE—September 30, 2019 — $ — 295,713,075 $ 3 — $ — $ 895,793 $ (54 ) $ (124,507 ) $ 771,235 Class A and Class B Additional Accumulated Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Capital (Loss) Income Deficit Equity BALANCE—December 31, 2019 296,386,950 $ 3 $ 905,821 $ 133 $ (123,616 ) $ 782,341 Issuance of common stock upon exercise of stock options 7,555,561 — 12,391 — — 12,391 Vesting of early exercised stock options — — 883 — — 883 Vesting of restricted stock units 8,234 — — — — — Issuance of restricted shares of common stock 120,992 — 5,169 — — 5,169 Issuance of common stock under the employee stock purchase plan, net of shares withheld for taxes 320,104 — 6,703 — — 6,703 Stock-based compensation — — 51,131 — — 51,131 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 — — — 2,512 — 2,512 Net loss — — — — (8,387 ) (8,387 ) BALANCE—September 30, 2020 304,391,841 $ 3 $ 1,065,543 $ 2,645 $ (132,003 ) $ 936,188 Convertible Class A and Class B Additional Accumulated Other Total Preferred Stock Common Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital (Loss) Income Deficit Equity (Deficit) 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 — — — $ — 10,117,557 — 6,576 — — 6,576 Vesting of early exercised stock options — — — — — — 1,490 — — 1,490 Stock-based compensation — — — — — — 10,153 — — 10,153 Issuance of class A common stock in connection with initial public offering, net of underwriting discounts and issuance costs — — 27,600,000 1 — — 705,937 — — 705,938 Conversion of convertible preferred stock to common stock in connection with third-party tender offer (803,481 ) (53 ) — — 803,481 — 53 — — 53 Conversion of convertible preferred stock to common stock in connection with initial public offering (179,011,431 ) (140,752 ) 179,011,431 2 — — 140,750 — — 140,752 Change in accumulated other comprehensive loss — — — — — — — (85 ) — (85 ) Reclassification of common stock to class A and class B common stock — — 89,101,644 — (89,101,644 ) — — — — — Net loss — — — — — — — — (17,601 ) (17,601 ) BALANCE—September 30, 2019 — $ — 295,713,075 $ 3 — $ — $ 895,793 $ (54 ) $ (124,507 ) $ 771,235 Nine Months Ended September 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (8,387 ) $ (17,601 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 11,367 8,776 Amortization of discounts or premiums on marketable securities 5,344 — Amortization of debt discount and issuance costs 10,546 — Amortization of deferred contract costs 7,348 3,688 Stock-based compensation, net of amounts capitalized 49,610 10,016 Non-cash lease expense 10,004 8,403 Allowance for credit losses on accounts receivable 2,656 835 Loss on disposal of property and equipment 4 442 Changes in operating assets and liabilities: Accounts receivable, net (21,253 ) (32,224 ) Deferred contract costs (15,804 ) (10,894 ) Prepaid expenses and other current assets (6,821 ) (9,476 ) Other assets (605 ) (8,480 ) Accounts payable 6,406 4,213 Accrued expenses and other liabilities 6,884 (1,990 ) Deferred revenue 27,964 51,096 Net cash provided by operating activities 85,263 6,804 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (1,477,063 ) — Maturities of marketable securities 268,500 — Proceeds from sale of marketable securities 85,700 — Purchases of property and equipment (4,336 ) (9,813 ) Capitalized software development costs (14,371 ) (7,058 ) Cash paid for acquisition of businesses; net of cash acquired (2,363 ) — Net cash used in investing activities (1,143,933 ) (16,871 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 12,354 7,306 Proceeds from initial public offering, net of underwriting discounts and commissions and other offering cost (421 ) 708,659 Proceeds from issuance of common stock under the employee stock purchase plan 7,680 — Employee payroll taxes paid related to net share settlement under the employee stock purchase plan (977 ) — Proceeds from issuance of convertible senior notes, net of issuance costs 730,207 — Purchase of capped call related to convertible senior notes (89,625 ) — Net cash provided by financing activities 659,218 715,965 Effect of exchange rate changes on cash, cash equivalents and restricted cash 393 49 NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (399,059 ) 705,947 CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 601,189 64,980 CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $ 202,130 $ 770,927 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes $ 186 $ 97 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Accrued property and equipment purchases $ 315 $ 1,574 Stock-based compensation included in capitalized software development costs $ 1,521 $ 137 Vesting of early exercised options $ 883 $ 1,490 Costs related to initial public offering included in accounts payable and accrued liabilities $ — $ 2,721 Issuance of restricted shares of common stock for the acquisition of businesses $ 5,169 $ — Acquisition holdback $ 1,500 $ — RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOWN IN THE STATEMENTS OF CASH FLOWS ABOVE: Cash and cash equivalents $ 198,523 $ 760,945 Restricted cash – Including amounts in prepaid expense and other current assets and other assets 3,607 9,982 Total cash, cash equivalents and restricted cash $ 202,130 $ 770,927 balance sheet. September 30, 2020 Amortized Cost Unrealized Gain Unrealized Losses Fair Value Commercial debt securities $ 965,398 $ 1,784 $ (154 ) $ 967,028 Certificates of deposit 34,225 37 — 34,262 U.S. government treasury securities 169,306 427 (2 ) 169,731 Commercial paper 125,218 30 (8 ) 125,240 Marketable securities $ 1,294,147 $ 2,278 $ (164 ) $ 1,296,261 December 31, 2019 Amortized Cost Unrealized Gain Unrealized Losses Fair Value Commercial debt securities $ 80,376 $ 46 $ (5 ) $ 80,417 U.S. government treasury securities 72,467 10 (4 ) 72,473 Commercial paper 23,784 — — 23,784 Marketable securities $ 176,627 $ 56 $ (9 ) $ 176,674 As of September 30, Due within one year $ 1,074,047 Due in one year through five years 222,214 Total $ 1,296,261 Fair Value Measurement as of September 30, 2020 Level 1 Level 2 Level 3 Total Financial Assets: �� Cash equivalents: Money market funds $ 159,536 $ — $ — $ 159,536 Commercial paper — 10,500 — 10,500 Corporate debt securities — 10,601 — 10,601 Marketable Securities: Corporate debt securities — 967,028 — 967,028 Certificates of deposit — 34,261 — 34,261 U.S. government treasury securities — 169,731 — 169,731 Commercial paper — 125,240 — 125,240 Total financial assets $ 159,536 $ 1,317,361 $ — $ 1,476,897 Fair Value Measurement as of December 31, 2019 Level 1 Level 2 Level 3 Total Financial Assets: Cash equivalents: Money market funds $ 588,762 $ — $ — $ 588,762 Marketable Securities: Corporate debt securities — 80,417 — 80,417 U.S. government treasury securities — 72,473 — 72,473 Commercial paper — 23,784 — 23,784 Total financial assets $ 588,762 $ 176,674 $ — $ 765,436 September 30, 2020 December 31, 2019 Computers and equipment $ 10,544 $ 7,536 Furniture and fixtures 5,090 4,804 Leasehold improvements 17,510 16,517 Capitalized software development costs 40,522 24,630 Total property and equipment $ 73,666 $ 53,487 Less: accumulated depreciation and amortization (31,607 ) (20,738 ) Total property and equipment, net $ 42,059 $ 32,749 September 30, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortization Period Developed technology $ 3,291 $ (964 ) $ 2,327 2-3 years December 31, 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortization Period Developed technology $ 3,046 $ (1,611 ) $ 1,435 2-3 years Amount Remainder of 2020 $ 273 2021 1,027 2022 774 2023 253 Total $ 2,327 Amount Balance as of December 31, 2019 $ 9,058 Foreign currency translation adjustments 339 2020 acquisition 7,814 Balance as of September 30, 2020 $ 17,211 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. sheet. capital. and a $156.3 million increase to the opening balance of convertible senior notes, net on the condensed consolidated balance sheet. September 30, 2020 Principal $ 747,500 Unamortized debt discount (167,240 ) Unamortized debt issuance costs (12,577 ) Net carrying amount $ 567,683 September 30, 2020 Debt discount for conversion option $ 177,169 Issuance costs (4,099 ) Net carrying amount $ 173,070 As of September 30, Three Months Ended September 30, Nine Months Ended September 30, 2020 2020 Contractual interest expense $ 234 $ 306 Amortization of debt discount 7,589 9,929 Amortization of issuance costs 473 617 Total $ 8,296 $ 10,852 2021, other than certain non-cancelable operating leases described in Note 9, 2020. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Operating lease cost(1) $ 4,252 $ 3,885 $ 12,322 $ 9,715 Variable lease cost(2) — 126 — 136 Short-term lease cost 867 564 2,763 2,148 Nine Months Ended September 30, 2020 2019 Cash paid for amounts included in measurement of lease liabilities $ 10,622 $ 6,077 Operating lease assets obtained in exchange for new lease liabilities 11,581 14,618 Amount Remainder of 2020 $ 4,421 2021 17,627 2022 17,410 2023 15,291 2024 2,572 2025 and beyond 15,512 Total lease payments $ 72,833 Less: imputed interest (8,100 ) Present value of lease liabilities $ 64,733 September 30, 2020 December 31, 2019 Weighted-average remaining lease term (years) 4.8 4.0 Weighted-average discount rate 4.75 % 4.98 % Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 North America $ 114,679 $ 70,904 $ 320,166 $ 186,340 International 39,996 24,960 105,769 62,796 Total $ 154,675 $ 95,864 $ 425,935 $ 249,136 Amount Balance as of December 31, 2019 $ 25,755 Additions to deferred contract costs 15,804 Amortization of deferred contract costs (7,348 ) Balance as of September 30, 2020 $ 34,211 Number Of Options Outstanding Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value (in thousands) Balance outstanding—December 31, 2019 36,384,767 $ 2.96 7.6 $ 1,266,938 Options granted 14,600 41.19 Options exercised (7,555,561 ) 1.64 Options forfeited or expired (511,680 ) 4.63 Balance outstanding—September 30, 2020 28,332,126 $ 3.31 6.9 $ 2,800,772 and Restricted Stock Awards Shares Weighted- Average Fair Value Balance—December 31, 2019 647,094 $ 36.08 Awarded 4,102,243 54.12 Vested (8,234 ) 35.81 Forfeited/canceled (101,468 ) 42.97 Unvested and outstanding—September 30, 2020 4,639,635 $ 51.88 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Cost of revenue $ 529 $ 161 $ 1,167 $ 372 Research and development 10,173 1,934 24,723 3,709 Sales and marketing 6,068 1,540 13,683 3,276 General and administrative 3,946 1,042 10,037 2,659 Stock-based compensation, net of amounts capitalized 20,716 4,677 49,610 10,016 Capitalized stock-based compensation expense 1,220 14 1,521 137 Total stock-based compensation expense $ 21,936 $ 4,691 $ 51,131 $ 10,153 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Interest income $ 6,585 $ 507 $ 14,734 $ 1,036 Other income, net 550 (417 ) 470 (390 ) Interest income and other income, net $ 7,135 $ 90 $ 15,204 $ 646 impact. three and nine months ended September 30, 2021. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Basic net loss per share: Class A Class B Class A Class B Numerator: Net loss $ (9,773 ) $ (5,377 ) $ (93 ) $ (4,068 ) $ (4,257 ) $ (4,130 ) $ (157 ) $ (17,444 ) Denominator: Weighted-average shares used in calculating net loss per share, basic 195,176 107,378 2,322 101,554 151,806 147,299 782 86,976 Basic net loss per share $ (0.05 ) $ (0.05 ) $ (0.04 ) $ (0.04 ) $ (0.03 ) $ (0.03 ) $ (0.20 ) $ (0.20 ) Diluted net loss per share: Numerator: Allocation of distributed loss for basic computation $ (9,773 ) $ (5,377 ) $ (93 ) $ (4,068 ) $ (4,257 ) $ (4,130 ) $ (157 ) $ (17,444 ) Reallocation of undistributed loss as a result of conversion of Class B to Class A shares (5,377 ) — (4,068 ) — (4,130 ) — (17,444 ) — Allocation of undistributed loss $ (15,150 ) $ (5,377 ) $ (4,161 ) $ (4,068 ) $ (8,387 ) $ (4,130 ) $ (17,601 ) $ (17,444 ) Denominator: Number of shares used in basic calculation 195,176 107,378 2,322 101,554 151,806 147,299 782 86,976 Weighted-average effect of diluted securities: Conversion of Class B to Class A common shares outstanding 107,378 — 101,554 — 147,299 — 86,976 — Number of shares used in diluted calculation 302,554 107,378 103,876 101,554 299,105 147,299 87,758 86,976 Diluted net loss per share $ (0.05 ) $ (0.05 ) $ (0.04 ) $ (0.04 ) $ (0.03 ) $ (0.03 ) $ (0.20 ) $ (0.20 ) As of September 30, 2020 2019 Shares subject to outstanding stock options and restricted stock units 32,972 37,153 Unvested early exercised stock options and restricted stock 919 1,548 Shares subject to the employee stock purchase plan 131 — Total 34,022 38,701 period presented. dollars as we expand our sales and marketing efforts. securities. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Revenue $ 154,675 $ 95,864 $ 425,935 $ 249,136 Cost of revenue (1)(2)(4) 33,984 23,297 89,340 63,225 Gross profit 120,691 72,567 336,595 185,911 Operating expenses Research and development (1)(3)(4) 56,440 28,684 142,928 75,531 Sales and marketing (1)(3)(4) 57,142 38,836 153,626 105,061 General and administrative (1)(3)(4) 16,376 9,265 44,876 23,193 Total operating expenses 129,958 76,785 341,430 203,785 Operating loss (9,267 ) (4,218 ) (4,835 ) (17,874 ) Other (expense) income, net: Interest expense (5) (12,423 ) — (17,424 ) — Interest income and other income, net 7,135 90 15,204 646 Other (expense) income, net (5,288 ) 90 (2,220 ) 646 Loss before provision for income taxes (14,555 ) (4,128 ) (7,055 ) (17,228 ) Provision for income taxes (595 ) (33 ) (1,332 ) (373 ) Net loss $ (15,150 ) $ (4,161 ) $ (8,387 ) $ (17,601 ) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Cost of revenue $ 529 $ 161 $ 1,167 $ 372 Research and development 10,173 1,934 24,723 3,709 Sales and marketing 6,068 1,540 13,683 3,276 General and administrative 3,946 1,042 10,037 2,659 Total $ 20,716 $ 4,677 $ 49,610 $ 10,016 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Cost of revenue $ 274 $ 179 $ 668 $ 531 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Research and development $ — $ — $ (2,729 ) $ (2,344 ) Sales and marketing — — (449 ) (397 ) General and administrative — — (2,383 ) (2,266 ) Total $ — $ — $ (5,561 ) $ (5,007 ) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Cost of revenue $ 32 $ — $ 154 $ — Research and development 418 — 1,877 262 Sales and marketing 1,354 88 3,014 279 General and administrative 282 — 552 19 Total $ 2,086 $ 88 $ 5,597 $ 560 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Interest expense $ 8,062 $ — $ 10,546 $ — Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (as a percentage of total revenue(1)) Revenue 100 % 100 % 100 % 100 % Cost of revenue 22 24 21 25 Gross profit 78 76 79 75 Operating expenses Research and development 36 30 34 31 Sales and marketing 37 41 36 42 General and administrative 11 10 11 9 Total operating expenses 84 81 80 82 Operating loss (6 ) (4 ) (1 ) (7 ) Other (expense) income, net: Interest expense (8 ) 0 (4 ) 0 Interest income and other income, net 5 0 4 0 Other (expense) income, net (3 ) 0 0 0 Loss before provision for income taxes (9 ) (4 ) (2 ) (7 ) Provision for income taxes 0 (1 ) 0 (1 ) Net loss (10 )% (5 )% (2 )% (8 )% 2020 Three Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Revenue $ 154,675 $ 95,864 $ 58,811 61 % Three Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Cost of revenue $ 33,984 $ 23,297 $ 10,687 46 % Gross margin 78 % 76 % 2 % headcount and an increase of $1.4 million in depreciation and amortization. Three Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Research and development $ 56,440 $ 28,684 $ 27,756 97 % Percentage of revenue 36 % 30 % costs. Three Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Sales and marketing $ 57,142 $ 38,836 $ 18,306 47 % Percentage of revenue 37 % 41 % activities. Three Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) General and administrative $ 16,376 $ 9,265 $ 7,111 77 % Percentage of revenue 11 % 10 % Three Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Other (expense) income, net $ (5,288 ) $ 90 $ (5,378 ) (5,976 %) Percentage of revenue (3 %) 0 % Nine Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Revenue $ 425,935 $ 249,136 $ 176,799 71 % Nine Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Cost of revenue $ 89,340 $ 63,225 $ 26,115 41 % Gross margin 79 % 75 % 4 % Nine Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Research and development $ 142,928 $ 75,531 $ 67,397 89 % Percentage of revenue 34 % 31 % Nine Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Sales and marketing $ 153,626 $ 105,061 $ 48,565 46 % Percentage of revenue 36 % 42 % Nine Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) General and administrative $ 44,876 $ 23,193 $ 21,683 93 % Percentage of revenue 11 % 9 % Nine Months Ended September 30, 2020 2019 Change % Change (dollars in thousands) Other (expense) income, net $ (2,220 ) $ 646 $ (2,866 ) (444 %) Percentage of revenue 0 % 0 % will mature on June 15, 2025, unless earlier converted, redeemed or repurchased. Nine Months Ended September 30, 2020 2019 (in thousands) Cash provided by operating activities $ 85,263 $ 6,804 Cash used in investing activities (1,143,933 ) (16,871 ) Cash provided by financing activities 659,218 715,965 liabilities. connection with the ESPP. Nine Months Ended September 30, 2020 2019 (in thousands) Net cash provided by operating activities $ 85,263 $ 6,804 Less: Purchases of property and equipment (4,336 ) (9,813 ) Less: Capitalized software development costs (14,371 ) (7,058 ) Free cash flow $ 66,556 $ (10,067 ) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK CONTROLS AND PROCEDURES LEGAL PROCEEDINGS RISK FACTORS •The ongoing COVID-19 pandemic and any related economic downturn could negatively impact our business, financial condition and results of operations. •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. •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 •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, •Interruptions or performance problems associated with our products and platform capabilities may adversely affect 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. the "COVID-19" Pandemic While the rollout of COVID-19 vaccines is ongoing, vaccination rates and the lifting of occupancy and movement restrictions varies from location to location, is evolving, and to varying degrees remains unknown. •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; •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. •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. liabilities or additional expenses. 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. 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. •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; •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, including those related to the ongoing COVID-19 pandemic; •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; •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. data processing capabilities in Europe or elsewhere at significant expense. customers, including by increasing the cost of online marketing, reducing our revenue, and causing us to expend significant resources to change the way we market our products. Following Brexit, it is unclear whether, and if so how, the United Kingdom will introduce any or all of the ePrivacy Regulation into law in the United Kingdom. business, the results of our operations, and our financial condition. Just this year, Virginia passed its Consumer Data Protection Act, and Colorado passed the Colorado Privacy Act, both of which differ from the CPRA and become effective in 2023. •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. •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 •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, 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; •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; •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; •an outbreak of a contagious disease •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. Risks Related to Ownership of Our Class A Common Stock •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; •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 •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 laws. •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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS DEFAULTS UPON SENIOR SECURITIES MINE SAFETY DISCLOSURES OTHER INFORMATION Incorporated by Reference Exhibit Number Description Form File No. Exhibit Filing Date Filed Herewith 3.1 Amended and Restated Certificate of Incorporation of Datadog, Inc. 8-K 001-39051 3.1 September 23, 2019 3.2 S-1/A 333-233428 3.4 August 23, 2019 31.1 X 31.2 X 32.1* X 32.2* X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL 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 /s/ Olivier Pomel Olivier Pomel Date: November /s/ David Obstler David ObstlerPagePage 1011253738393939(www.investors.datadoghq.com)(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, webcasts, press releases and conference calls.I-FINANCIALI-FINANCIAL INFORMATIONFinancial StatementsSeptember 30,
2021December 31,
2020ASSETS CURRENT ASSETS: Cash and cash equivalents $ 286,966 $ 224,927 Marketable securities 1,180,160 1,292,532 224,602 163,359 Deferred contract costs, current 19,933 13,638 Prepaid expenses and other current assets 24,675 23,624 Total current assets 1,736,336 1,718,080 Property and equipment, net 68,820 47,197 Operating lease assets 61,972 57,829 Goodwill 255,735 17,609 Intangible assets, net 12,803 2,069 Deferred contract costs, non-current 35,508 26,750 Restricted cash 3,572 3,784 Other assets 19,427 16,967 TOTAL ASSETS $ 2,194,173 $ 1,890,285 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 34,654 $ 21,342 Accrued expenses and other current liabilities 85,173 55,351 Operating lease liabilities, current 19,425 16,326 Deferred revenue, current 300,950 204,825 Total current liabilities 440,202 297,844 Operating lease liabilities, non-current 53,189 51,433 Convertible senior notes, net 734,643 575,864 Deferred revenue, non-current 3,266 3,450 Other liabilities 5,461 4,262 Total liabilities 1,236,761 932,853 COMMITMENTS AND CONTINGENCIES (NOTE 8) 0 0 STOCKHOLDERS' EQUITY: Class A common stock, $0.00001 par value per share; 2,000,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 255,875,718 and 218,510,509 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively Class A common stock, $0.00001 par value per share; 2,000,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 255,875,718 and 218,510,509 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 2 2 Class B common stock, $0.00001 par value per share; 310,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 56,025,741 and 87,369,554 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively Class B common stock, $0.00001 par value per share; 310,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 56,025,741 and 87,369,554 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 1 1 Additional paid-in capital 1,116,872 1,103,305 Accumulated other comprehensive (loss) income Accumulated other comprehensive (loss) income (188) 2,287 Accumulated deficit (159,275) (148,163) Total stockholders’ equity 957,412 957,432 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,194,173 $ 1,890,285 Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 Revenue $ 270,488 $ 154,675 $ 702,586 $ 425,935 Cost of revenue 63,332 33,984 167,096 89,340 Gross profit 207,156 120,691 535,490 336,595 Operating expenses: Research and development 112,675 56,440 286,720 142,928 Sales and marketing 75,827 57,142 210,592 153,626 General and administrative 23,549 16,376 65,789 44,876 Total operating expenses 212,051 129,958 563,101 341,430 Operating loss (4,895) (9,267) (27,611) (4,835) Other income (loss): Other income (loss): Interest expense (4,912) (12,423) (15,448) (17,424) Interest income and other income, net 5,040 7,135 16,105 15,204 Other income (loss), net Other income (loss), net 128 (5,288) 657 (2,220) Loss before provision for income taxes (4,767) (14,555) (26,954) (7,055) Provision for income taxes (717) (595) (960) (1,332) Net loss $ (5,484) $ (15,150) $ (27,914) $ (8,387) Net loss attributable to common stockholders $ (5,484) $ (15,150) $ (27,914) $ (8,387) Basic and diluted net loss per share $ (0.02) $ (0.05) $ (0.09) $ (0.03) Weighted average shares used in calculating basic and diluted net loss per share 310,247 302,554 308,115 299,105 INCOME (LOSS)Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 Net loss $ (5,484) $ (15,150) $ (27,914) $ (8,387) Other comprehensive (loss) income: Other comprehensive (loss) income: Foreign currency translation adjustments (652) 536 (1,346) 446 Unrealized (loss) income on available-for-sale marketable securities Unrealized (loss) income on available-for-sale marketable securities (368) 44 (1,129) 2,066 Other comprehensive (loss) income Other comprehensive (loss) income (1,020) 580 (2,475) 2,512 Comprehensive loss $ (6,504) $ (14,570) $ (30,389) $ (5,875) CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)Class A and Class B
Common StockAdditional
Paid-in
CapitalAccumulated
Other
Comprehensive (Loss) IncomeAccumulated
DeficitTotal
Stockholders'
EquityShares Amount BALANCE—June 30, 2021 309,841,134 $ 3 $ 1,065,835 $ 832 $ (153,791) $ 912,879 Issuance of common stock upon exercise of stock options 1,715,963 — 4,459 — — 4,459 Vesting of early exercised stock options — — 33 — — 33 Vesting of restricted stock units 344,362 — — — — — Stock-based compensation — — 46,545 — — 46,545 Change in accumulated other comprehensive (loss) income — — — (1,020) — (1,020) Net loss — — — — (5,484) (5,484) BALANCE—September 30, 2021 311,901,459 $ 3 $ 1,116,872 $ (188) $ (159,275) $ 957,412 Class A and Class B
Common StockAdditional
Paid-in
CapitalAccumulated
Other
Comprehensive (Loss) IncomeAccumulated
DeficitTotal
Stockholders'
EquityShares Amount BALANCE—June 30, 2020 302,254,533 $ 3 $ 1,027,656 $ 2,065 $ (116,853) $ 912,871 Issuance of common stock upon exercise of stock options 2,132,732 — 5,156 — — 5,156 Vesting of early exercised stock options — — 295 — — 295 Vesting of restricted stock units 4,576 — — — — Stock-based compensation — — 21,936 — — 21,936 Reversal of prior income tax associated with the issuance of the 2025 convertible senior notes — — 10,500 — — 10,500 Changes in accumulated other comprehensive income — — — 580 — 580 Net loss — — — (15,150) (15,150) BALANCE—September 30, 2020 304,391,841 $ 3 $ 1,065,543 $ 2,645 $ (132,003) $ 936,188 7DATADOG, INC.CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)(in thousands, except share data)(unaudited) Class A and Class B
Common StockAdditional
Paid-in
CapitalAccumulated
Other
Comprehensive (Loss) IncomeAccumulated
DeficitTotal
Stockholders' EquityShares Amount BALANCE—December 31, 2020 305,880,063 $ 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, 2021 305,880,063 3 930,235 2,287 (131,361) 801,164 Issuance of common stock upon exercise of stock options 4,246,592 — 10,676 — — 10,676 Vesting of early exercised stock options — 533 — — 533 Vesting of restricted stock units 1,133,572 — — — — — Issuance of restricted shares of common stock from acquisitions 501,583 — 51,501 — — 51,501 Issuance of common stock under the Employee Stock Purchase Plan 139,649 — 9,794 — — 9,794 Stock-based compensation — — 114,133 — — 114,133 Change in accumulated other comprehensive (loss) income — — — (2,475) — (2,475) Net loss — — — — (27,914) (27,914) BALANCE—September 30, 2021 311,901,459 $ 3 $ 1,116,872 $ (188) $ (159,275) $ 957,412 8Class A and Class B
Common StockAdditional
Paid-in
CapitalAccumulated
Other
Comprehensive (Loss) IncomeAccumulated
DeficitTotal
Stockholders'
EquityShares Amount BALANCE—December 31, 2019 296,386,950 $ 3 $ 905,821 $ 133 $ (123,616) $ 782,341 Issuance of common stock upon exercise of stock options 7,555,561 — 12,391 — — 12,391 Vesting of early exercised stock options — — 883 — — 883 Vesting of restricted stock units 8,234 — — — — — Issuance of restricted shares of common stock from acquisition 120,992 — 5,169 — — 5,169 Issuance of common stock under the Employee Stock Purchase Plan, net of shares withheld for taxes 320,104 — 6,703 — — 6,703 Stock-based compensation — — 51,131 — — 51,131 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 — — — 2,512 — 2,512 Net loss — — — — (8,387) (8,387) BALANCE—September 30, 2020 304,391,841 $ 3 $ 1,065,543 $ 2,645 $ (132,003) $ 936,188 9Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (27,914) $ (8,387) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 16,062 11,367 Amortization of discounts or premiums on marketable securities 11,829 5,344 Amortization of issuance costs Amortization of issuance costs 2,510 10,546 Amortization of deferred contract costs 12,557 7,348 Stock-based compensation, net of amounts capitalized 107,371 49,610 Non-cash lease expense 12,605 10,004 Allowance for credit losses on accounts receivable 1,226 2,656 Loss on disposal of property and equipment 258 4 Changes in operating assets and liabilities: Accounts receivable, net (61,880) (21,253) Deferred contract costs (27,610) (15,804) Prepaid expenses and other current assets (941) (6,821) Other assets (1,844) (605) Accounts payable 12,432 6,406 Accrued expenses and other liabilities 19,226 6,884 Deferred revenue 94,865 27,964 Net cash provided by operating activities 170,752 85,263 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (897,412) (1,477,063) Maturities of marketable securities 935,692 268,500 Proceeds from sale of marketable securities 61,132 85,700 Purchases of property and equipment (7,551) (4,336) Capitalized software development costs (19,364) (14,371) Cash paid for acquisition of businesses; net of cash acquired (200,202) (2,363) Net cash used in investing activities (127,705) (1,143,933) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 10,651 12,354 Initial public offering costs Initial public offering costs — (421) Proceeds from issuance of common stock under the employee stock purchase plan 9,794 7,680 Employee payroll taxes paid related to net share settlement under the employee stock purchase plan (245) (977) Proceeds from issuance of convertible senior notes, net of issuance costs — 730,207 Purchase of capped call related to convertible senior notes — (89,625) Net cash provided by financing activities 20,200 659,218 Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,420) 393 NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 61,827 (399,059) CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 228,711 601,189 CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period $ 290,538 $ 202,130 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes $ 939 $ 186 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Accrued property and equipment purchases $ 1,250 $ 315 Stock-based compensation included in capitalized software development costs $ 6,762 $ 1,521 Vesting of early exercised options $ 533 $ 883 Issuance of restricted shares of common stock for the acquisition of businesses $ 51,501 $ 5,169 Acquisition holdback $ 1,195 $ 1,500 RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOWN IN THE STATEMENTS OF CASH FLOWS ABOVE: Cash and cash equivalents $ 286,966 $ 198,523 Restricted cash Restricted cash 3,572 3,607 Total cash, cash equivalents and restricted cash $ 290,538 $ 202,130 1020202021 or for any other interim period or for any other future year. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, as filed with the SEC on February 25, 2020March 1, 2021 (the “Annual Report”).wholly ownedwholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.Stock SplitOn 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 3-for-1 stock split on September 6, 2019.including the determination of the fair value of the Company’s stock prior to its initial public offering (“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 for deferred contract costs, the incremental borrowing rate for operating leases, 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.11June 2016,August 2020, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”), which requires an entity to utilize 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 cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. Additionally, ASU No. 2016-13 amends the current available-for-sale security impairment model for debt securities held for investment. The new model will require an estimate of expected credit losses when the fair value is below the amortized cost of the asset. The credit-related impairment (and subsequent recoveries) are recognized as an allowance on the balance sheet with a corresponding adjustment to the income statement. Non-credit related losses will continue to be recognized through Other Comprehensive Income (Loss) (“OCI”). This guidance also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company adopted this ASU on January 1, 2020 and determined that ASU No. 2016-13 had no material impact on the Company’s condensed consolidated financial statements.In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU No. 2018-15”), which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under Accounting Standard Codification (“ASC”) 350-40, Internal-Use Software, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. The Company adopted ASU No. 2018-15 on January 1, 2020 and applied it prospectively to implementation costs incurred after the date of adoption. The Company’s adoption of ASU No. 2018-15 had no material impact on the Company's condensed consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”), which aims to reduce complexity in accounting standards by improving certain areas of GAAP without compromising information provided to users of financial statements. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. It is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company early adopted ASU No. 2019-12 during the quarter ended September 30, 2020 with no material impact on the Company’s consolidated financial statements.Accounting Pronouncements Not Yet AdoptedIn August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion Options (“Subtopic 470-20”)Derivatives and Hedging—Contracts in an Entity’s Own Equity (“Subtopic 815-40”) (“ASU No. 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts onin an entity's own equity. Among other changes, ASU No. 2020-06 also improvesremoves from GAAP the liability and amendsequity separation model forrelated Earnings Per Share guidancedebt 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 both Subtopics.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 reclassification 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 part of the FASB's simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. ASU No. 2020-06 will be effective for annual reporting periodsfiscal years beginning after December 15, 2021. Early2021, with early adoption is permitted but not before annual reporting periodsfor fiscal years beginning after December 15, 2020. We are currently evaluating2020 and can be adopted on either a fully retrospective or modified retrospective basis. The Company early adopted ASU No. 2020-06 on January 1, 2021, using the impactmodified retrospective basis. Adoption resulted in a $16.8 million decrease to the opening balance of accumulated deficit, a $173.1 million decrease to the new guidanceopening balance of additional paid-in capital and a $156.3 million increase to the opening balance of Convertible senior notes, net on ourthe condensed consolidated financial statements.20202021 and December 31, 20192020 (in thousands):September 30, 2021 Amortized
CostUnrealized
GainUnrealized
LossesFair
ValueCommercial debt securities $ 917,016 $ 340 $ (296) $ 917,060 Certificates of deposit 23,997 21 — 24,018 U.S. government treasury securities 67,792 62 (22) 67,832 Commercial paper 171,205 45 — 171,250 Marketable securities $ 1,180,010 $ 468 $ (318) $ 1,180,160 December 31, 2020 Amortized
CostUnrealized
GainUnrealized
LossesFair
ValueCommercial debt securities $ 926,836 $ 1,157 $ (143) $ 927,850 Certificates of deposit 47,214 43 (1) 47,256 U.S. government treasury securities 108,092 203 (1) 108,294 Commercial paper 209,111 32 (11) 209,132 Marketable securities $ 1,291,253 $ 1,435 $ (156) $ 1,292,532 122020,2021, the fair values of available-for-sale marketable securities, by remaining contractual maturity, were as follows (in thousands):Due within one year $ 678,149 Due in one year through five years 502,011 Total $ 1,180,160 gaingains and losses on marketable securities are presented net of tax.SeptemberSeptember 30, 20202021 and December 31, 2019,2020, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):Fair Value Measurement as of September 30, 2021 Level 1 Level 2 Level 3 Total Financial Assets: Cash equivalents: Money market funds $ 259,957 $ — $ — $ 259,957 Corporate debt securities — 1,115 — 1,115 Marketable Securities: Corporate debt securities — 917,060 — 917,060 Certificates of deposit — 24,018 — 24,018 U.S. government treasury securities — 67,832 — 67,832 Commercial paper — 171,250 — 171,250 Total financial assets $ 259,957 $ 1,181,275 $ — $ 1,441,232 Fair Value Measurement as of December 31, 2020 Level 1 Level 2 Level 3 Total Financial Assets: Cash equivalents: Money market funds $ 181,743 $ — $ — $ 181,743 Commercial paper Commercial paper — 25,195 — 25,195 Marketable Securities: Corporate debt securities — 927,850 — 927,850 Certificates of deposit Certificates of deposit — 47,256 — 47,256 U.S. government treasury securities — 108,294 — 108,294 Commercial paper — 209,132 — 209,132 Total financial assets $ 181,743 $ 1,317,727 $ — $ 1,499,470 13September 30,
2021December 31,
2020Computers and equipment $ 14,960 $ 11,490 Furniture and fixtures 5,809 5,087 Leasehold improvements 21,329 17,639 Capitalized software development costs 75,970 48,502 Total property and equipment $ 118,068 $ 82,718 Less: accumulated depreciation and amortization (49,248) (35,521) Total property and equipment, net $ 68,820 $ 47,197 Depreciation and amortization expense was approximately $3.8 million and $8.3 million for the three and nine months ended September 30, 2019, respectively.Acquisition,Acquisitions, Intangible Assets and Goodwillnine monthsyear ended September 30,December 31, 2020, wethe Company completed an acquisition with the purchase price in cash and stock. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The purchase price was allocated to intangible assets in the amount of $1.5 million and goodwill in the amount of $7.8 million based on the respective estimated fair values. The resulting goodwill is not deductible for income tax purposes.September 30, 2021 Gross
Carrying
AmountAccumulated
AmortizationNet
Carrying
AmountAmortization
PeriodDeveloped technology $ 12,860 $ (2,965) $ 9,895 3 years Customer relationships 3,300 (392) 2,908 4 years Total $ 16,160 $ (3,357) $ 12,803 0 December 31, 2020 Gross
Carrying
AmountAccumulated
AmortizationNet
Carrying
AmountAmortization
PeriodDeveloped technology $ 3,331 $ (1,262) $ 2,069 3 years 14$0.3$1.5 million and $0.2$0.3 million for the three months ended September 30, 20202021 and 2019,2020, respectively, and $0.7$3.0 million and $0.5$0.7 million for the nine months ended September 30, 2021 and 2020, and 2019, respectively. Amortization of developed technology is included in cost of revenue on the Company’s condensed consolidated statement of operations.2020,2021, future amortization expense by year is expected to be as follows (in thousands): Amount Remainder of 2021 Remainder of 2021 $ 1,278 2022 5,066 2023 4,544 2024 2024 1,688 2025 2025 227 Total $ 12,803 Amount Balance as of December 31, 2020 $ 17,609 Foreign currency translation adjustments (476) 2021 acquisitions 238,602 Balance as of September 30, 2021 $ 255,735 (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;
(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(2)during the five business day period after any ten consecutive trading day 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
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;(4)upon the occurrence of specified corporate events, as set forth in the indenture governing the 2025 Notes (“the Indenture”).the Company’s Class A common stock or a combination of cash and shares of the Company’sClass 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 its 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 3015 It is the Company’s current intent to settle the principal amount of the 2025 Notes in cash.2020,2021, the conditions allowing holdersconditional conversion feature of the 2025 Notes to convert havewas triggered as the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not been met. The 2025 Notes were therefore not convertibleconsecutive) during a period of 30 consecutive trading days ending on, and including, the three monthslast trading day of the quarter ended September 30, 2020 and2021 was greater than or equal to 130% of the conversion price on each applicable trading day. Therefore the 2025 Notes are convertible, in whole or in part, at the option of the holders between October 1, 2021 through December 31, 2021. 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.Company’sCompany's condensed consolidated balance sheets.components.components through December 31, 2020. 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 iswas amortized to interest expense over the expected 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.along with the debt discount, to interest expenserepresenting the conversion option in additional paid-in capital.. September 30,
2021December 31,
2020Convertible senior notes, net: Convertible senior notes, net: Principal $ 747,500 $ 747,500 — (159,547) (12,857) (12,089) Net carrying amount $ 734,643 $ 575,864 $ — $ 173,070 The net carrying amountequity component of the 2025 Notes was as follows (in thousands):modified retrospective method.2020,2021, the total estimated fair value of the 2025 Notes was approximately $994.1$1,237.1 million. The fair value was determined based on the closing trading 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.16each of the three and nine months ended September 30, 20202021 (in thousands):Three Months Ended
September 30,Nine Months Ended
September 30,2021 2021 Contractual interest expense $ 234 $ 234 $ 701 $ 306 Amortization of debt discount — 7,589 — 9,929 Amortization of issuance costs 838 473 2,510 617 Total $ 1,072 $ 8,296 $ 3,211 $ 10,852 terms 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 incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital and will not be remeasured.In January 2020, the Company entered into a cloud hosting agreement for a total purchase commitment of $21.0 million payable over the three years following the date of the applicable agreement.In September 2020, the Company entered into a cloud hosting agreement for a total purchase commitment of $76.7 million payable over three years through October 2023. Non-Income Tax Matters—In January 2016, the Company recorded a $5.4 million contingent Federal payroll tax liability in conjunction with common stock repurchase transactions, as part of a capital raise, with certain of its employees. The potential payroll tax treatment of these transactions was subject to uncertainty, and the contingent payroll tax liability was deemed probable and reasonably estimable. On April 15, 2020, the period of limitations for assessing the contingent Federal payroll tax liability expired and the Company was legally released from being the primary obligor. As a result, the Company recognized a $5.6 million benefit in the condensed consolidated statement of operations duringDuring the nine months ended September 30, 2020.USU.S. employees. Contributions to the 401(k) plan are discretionary. The Company did notmake any matching contributions to the 401(k) plan for the three and nine months ended September 30, 20202021 and 2019.17noncancelablenon-cancelable operating leases for its facilities expiring between 20202021 and 2029.2030. Certain lease agreements contain an option for the Company to renew a lease for a term of up to fivefour years or an option to terminate a lease early within threetwo 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.Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 $ 5,245 $ 4,252 $ 14,765 $ 12,322 Short-term lease cost 1,075 867 2,528 2,763 1)Includes non-cash lease expense of $3.4 million and $3.1 million for the three months ended September 30, 2020 and 2019, respectively, and $10.0 million and $7.6 million for the nine months ended September 30, 2020 and 2019, respectively.
1)Includes non-cash lease expense of $4.5 million and $3.4 million for the three months ended September 30, 2021 and 2020, respectively, and $12.6 million and $10.0 million for the nine months ended September 30, 2021 and 2020, respectively.2)Primarily related to Consumer Price Index adjustments, common area maintenance and property tax.Nine Months Ended
September 30,2021 2020 Cash paid for amounts included in measurement of lease liabilities $ 14,878 $ 10,622 Operating lease assets obtained in exchange for new lease liabilities 17,476 11,581 Amount Remainder of 2021 Remainder of 2021 $ 5,063 2022 23,813 2023 20,928 2024 4,938 2025 2025 5,203 2026 and beyond 2026 and beyond 21,638 Total lease payments $ 81,583 Less: imputed interest (8,969) Present value of lease liabilities $ 72,614 2020,2021, the Company had two1 additional operating leaseslease that had not yet commenced,is set to commence in the fourth quarter of 2021, which areis excluded from the table above. The first operating1 additional lease will commence in fiscal year 2021 and had $19.0 million ofhas total undiscounted future payments of $4.2 million with a lease term of 7.758.3 years. The second operating lease will commence in October 2020 and had $7.1 million of undiscounted future payments with a lease term of 3.25 years.September 30,
2021Weighted-average remaining lease term (years) 4.7 Weighted-average discount rate 4.68 % 18Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 North America $ 192,269 $ 114,679 $ 503,356 $ 320,166 International 78,219 39,996 199,230 105,769 Total $ 270,488 $ 154,675 $ 702,586 $ 425,935 2019$73.3 million, respectively. Revenue recognized during the nine months ended September 30, 2021 and 2020 that was included in the deferred revenue balances at the beginning of each such period was $73.3$192.4 million and $43.5$121.0 million, respectively. Revenue recognized during the nine months ended September 30, 2020 and 2019 that was included in the deferred revenue balances at the beginning of each such period was $121.0 million and $62.9 million, respectively.20202021 and December 31, 2019,2020, the aggregate transaction price allocated to remaining performance obligations was $316.3$718.6 million and $243.8$434.1 million, respectively. There is uncertainty in the timing of revenues associated with the Company’s drawdown contracts, as future revenue can often20202021 and 2019,2020, the Company charged $0.9$1.2 million and $0.2$0.9 million, respectively, of accounts receivable deemed uncollectible against the allowance for credit losses.2020,2021 and December 31, 2019,2020, unbilled accounts receivable of approximately $17.2$35.1 million and $14.4$20.1 million, respectively, was included in accounts receivable on the Company’s condensed consolidated balance sheets.19$34.2$55.4 million and $25.8$40.4 million as of September 30, 20202021 and December 31, 2019,2020, respectively. Amortization expense was $2.7$4.7 million and $1.4$2.7 million for the three months ended September 30, 20202021 and 2019,2020, respectively, and was $7.3$12.6 million and $3.7$7.3 million for the nine months ended September 30, 2021 and 2020, and 2019, respectively.Amount Balance as of December 31, 2020 $ 40,388 Additions to deferred contract costs 27,610 Amortization of deferred contract costs (12,557) Balance as of September 30, 2021 $ 55,441 two2 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 one1 vote per share and each share of Class B common stock is entitled to ten10 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 the sale or transfer to Class A common stock upon sale or transfer, subject to certain limited exceptions.2020, 16,808,9332021, 14,363,180 shares and 134,419,84432,379,252 shares of Class B common stock were converted into Class A common stock, respectively.2020,2021, the Company had authorized 2,000,000,000 shares of Class A common stock and 310,000,000 shares of Class B common stock, each at a par value per share of $0.00001, of which 206,054,826255,875,718 shares of Class A common stock and 98,337,01556,025,741 shares of Class B common stock were issued and outstanding.two2 equity incentive plans, the 2012 equity incentive planEquity Incentive Plan (the “2012 Plan”) and the 2019 equity incentive planEquity Incentive Plan (the “2019 Plan”). In connection with the IPO,Company's initial public offering of Class A common stock (the "IPO"), the Company ceased granting awards under the 2012 Plan, and all shares that remained available for issuance under the(“SARs”), restricted stock awards, (“RSAs”), restricted stock units (“RSUs”), and performance-based 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. As of September 30, 2020,2021, there were 43,324,87655,390,029 shares available for grant under the 2019 Plan.20Number Of
Options
OutstandingWeighted-
Average
Exercise PriceWeighted-
Average
Remaining
Contractual
Life (in Years)Aggregate
Intrinsic Value
(in thousands)Balance outstanding—December 31, 2020 Balance outstanding—December 31, 2020 27,068,323 $ 3.31 6.7 $ 2,575,069 Options granted — — Options exercised (4,246,592) 2.51 Options forfeited or expired (495,782) 6.84 Balance outstanding—September 30, 2021 Balance outstanding—September 30, 2021 22,325,949 $ 3.38 5.8 $ 3,080,305 Ending Exercisable—September 30, 2021 Ending Exercisable—September 30, 2021 16,428,418 $ 1.98 5.2 $ 2,289,558 2020,2021, there were 35,30033,421 shares of Class A common stock and 28,296,82622,292,528 shares of Class B common stock issuable upon the exercise of options outstanding. As of December 31, 2019,2020, there were 20,70034,759 shares of Class A common stock and 36,364,06727,033,564 shares of Class B common stock issuable upon the exercise of options outstanding.awardsoptions not yet recognized was approximately $67.8$37.8 million and $90.5$60.6 million as of September 30, 20202021 and December 31, 2019,2020, respectively. The weighted-average period over which this compensation cost related to unvested employee awardsoptions will be recognized is 2.21.5 years and 2.72.0 years as of September 30, 20202021 and December 31, 2019,2020, respectively.and 2019 was $16.55 and $8.68, respectively.$16.55. The Company received approximately $12.4$10.7 million and $7.3$12.4 million in cash proceeds from options exercised during the nine months ended September 30, 20202021 and 2019,2020, respectively. The intrinsic value of options exercised during the nine months ended September 30, 20202021 and 20192020 was approximately $443.4$434.1 million and $106.0$443.4 million, respectively. The aggregate fair value of options vested during the nine months ended September 30, 2021 and 2020 was $21.5 million and 2019 was $19.6 million, and $8.5 million, respectively.639,000options for 63,000 and 438,750 shares of common stock and 1,239,750 shares ofClass B common stock as of September 30, 20202021 and December 31, 2019,2020, respectively.Shares Weighted-
Average
Fair ValueBalance—December 31, 2020 Balance—December 31, 2020 5,166,720 $ 59.50 Awarded 3,866,023 105.73 Vested (1,133,572) 50.59 Forfeited/canceled (668,835) 63.59 Unvested and outstanding—September 30, 2021 Unvested and outstanding—September 30, 2021 7,230,336 $ 85.23 In June 2020, the$227.2$585.3 million and $30.4$281.5 million as of September 30, 20202021 and December 31, 2019,2020, respectively. The weighted-average period over which this compensation cost related to unvested RSUs and restricted shares will be recognized is 3.53.1 years and 3.93.4 years as of September 30, 20202021 and December 31, 2019,2020, respectively.21Company’s IPO (the “Final Prospectus”). As of September 30, 2020, 9,354,2222021, 12,142,034 shares of Class A common stock remain available for grant under the ESPP.$1.4$2.1 million and $3.5$5.7 million of stock-based compensation expense related to the ESPP during the three and nine months ended September 30, 2020,2021, respectively. As of September 30, 2020, $5.92021, $8.7 million has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions. During the nine months ended September 30, 2020,2021, the Company issued 320,104139,649 shares of Class A common stock under the ESPP.Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 Cost of revenue $ 1,427 $ 529 $ 2,957 $ 1,167 Research and development 27,239 10,173 64,947 24,723 Sales and marketing 9,739 6,068 23,355 13,683 General and administrative 5,590 3,946 16,112 10,037 Stock-based compensation, net of amounts capitalized 43,995 20,716 107,371 49,610 Capitalized stock-based compensation expense 2,550 1,220 6,762 1,521 Total stock-based compensation expense $ 46,545 $ 21,936 $ 114,133 $ 51,131 Three Months Ended
September 30,Nine Months Ended
September 30, 2021 2020 2021 2020 Interest income $ 4,830 $ 6,585 $ 15,970 $ 14,734 Other income, net 210 550 135 470 Interest income and other income, net $ 5,040 $ 7,135 $ 16,105 $ 15,204 (4.09)(15.04)% and (0.8)(4.09)% for the three months ended September 30, 20202021 and 2019,2020, respectively, and (18.88)(3.56)% and (2.2)(18.88)% for the nine months ended September 30, 20202021 and 2019,2020, respectively. The Company has incurred U.S. operating losses and has minimal profits in its foreign jurisdictions.2220202021 and 2019.2020.The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company is subject to U.S. federal tax authority, U.S.U.S. state tax authority and foreign tax authority examinations.The Company early adoptedprovisions of FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the 2020-06, Accounting for Income TaxesConvertible Instruments and Contracts in an Entity’s Own Equity (“ASU No. 2019-12”2020-06”) during, which simplifies the quarter ended September 30, 2020. As a resultaccounting for certain financial instruments with characteristics of the adoption ofliabilities and equity, including convertible instruments and contracts in an entity's own equity. The Company chose to early adopt ASU No. 2019-12,2020-06 on January 1, 2021, using the modified retrospective basis. See Note 2, Basis of Presentation and Summary of Significant Accounting Policies—Accounting Policies Recently Adopted for more information. The early adoption resulted in no material tax effect of the Company’s loss from continuing operations for the nine months ended September 30, 2020 was computed without regard to items other than from continuing operations. Furthermore, a valuation allowance was recorded to reduce the Company’s net deferred tax assets to its realizable value.March 27,December 21, 2020, Congress passed the Coronavirus Aid,Consolidated Appropriations Act, 2021. The act includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and Economic Securitythe COVID-related Tax Relief Act ("CARES Act") was enactedof 2020, both of which extend many credits and signed into law. The CARES Act makes changes to the U.S. tax code, including, but not limited to: (1) modifications to the business interest deduction limitation for tax years 2019 and 2020; (2) a technical correction of the recovery period of qualified improvement property from 39 to 15 years; and (3) a repeal of the 80% taxable income limitation on the deduction of net operating losses ("NOLs") for tax years beginning before January 1, 2021 as well as a five-year carryback period allowed for NOLs generated in tax years beginning after December 31, 2017 and before January 1, 2021.Under ASC 740, the effects of new legislation would need to be recognized in the period of enactment. Therefore, the effects of the CARES Act would need to be accounted for in the quarter that includes March 27, 2020.other COVID-19 relief, among other extenders. The Company evaluated the provisions of the CARESConsolidated Appropriations Act, including but not limited to the Employee Retention Credit extension, the extension for the IRC Section 45S credit for paid family and medical leave, and the provision allowing a full deduction for certain business meals, and determined that there was no material impact for the three and nine months ended September 30, 2020.2021.will continue to monitor any updates toreviewed the legislationprovisions of the new law and assessdetermined it has no material impact for the potential income tax impact.Income (Loss)Loss Per Shareincome (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 inshares of capital stock of the Company.income (loss)loss per share is computed using the weighted-average number of 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 income (loss)loss per share of Class A common stock, the undistributed earnings are equal to net income (loss)loss for that computation.23Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 Basic net loss per share: Class A Class B Class A Class B Class A Class B Class A Class B Numerator: Net loss $ (4,338) $ (1,146) $ (9,773) $ (5,377) $ (21,287) $ (6,627) $ (4,257) $ (4,130) Denominator: Weighted-average shares used in calculating net loss per share, basic 245,431 64,816 195,176 107,378 234,969 73,146 151,806 147,299 Basic net loss per share $ (0.02) $ (0.02) $ (0.05) $ (0.05) $ (0.09) $ (0.09) $ (0.03) $ (0.03) Diluted net loss per share: Numerator: Allocation of distributed net loss for basic computation Allocation of distributed net loss for basic computation $ (4,338) $ (1,146) $ (9,773) $ (5,377) $ (21,287) $ (6,627) $ (4,257) $ (4,130) Reallocation of undistributed net loss as a result of conversion of Class B to Class A shares Reallocation of undistributed net loss as a result of conversion of Class B to Class A shares (1,146) — (5,377) — (6,627) 0 (4,130) — Allocation of undistributed loss $ (5,484) $ (1,146) $ (15,150) $ (5,377) $ (27,914) $ (6,627) $ (8,387) $ (4,130) Denominator: Number of shares used in basic calculation 245,431 64,816 195,176 107,378 234,969 73,146 151,806 147,299 Weighted-average effect of diluted securities: Conversion of Class B to Class A common shares outstanding 64,816 — 107,378 — 73,146 — 147,299 — Number of shares used in diluted calculation 310,247 64,816 302,554 107,378 308,115 73,146 299,105 147,299 Diluted net loss per share $ (0.02) $ (0.02) $ (0.05) $ (0.05) $ (0.09) $ (0.09) $ (0.03) $ (0.03) 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. As of September 30, 2021 2020 Shares subject to outstanding stock options and RSUs Shares subject to outstanding stock options and RSUs 29,556 32,972 Unvested early exercised stock options and restricted shares of common stock Unvested early exercised stock options and restricted shares of common stock 903 919 Shares subject to the employee stock purchase plan 169 131 Shares issuable upon conversion of the convertible senior notes Shares issuable upon conversion of the convertible senior notes 8,098 — Total 38,726 34,022 treasury stockif-converted method for calculating theany potential dilutive effect of the conversion spreadoptions embedded in the 2025 Notes on diluted net income per share; if any, ashowever, since the Company currently expects to settle the principal amount of the 2025 Notesis in cash, anda net loss position, there was no dilutive effect during any excess in shares of the Company’s Class A common stock. The shares of the underlying conversion option for the 2025 Notes were not considered in the calculation of diluted net income per share as the effect would have been anti-dilutive. The effect of the conversion spread becomes dilutive when the average share price for the Company’s Class A common stock exceeds the conversion price of $92.30 per share, which did not occur as of September 30, 2020.2410- Q10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, or the Annual Report. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy, plans and objectives of management for future operations and the potential impact that the ongoing COVID-19 pandemic may have on our business, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading “Risk Factors” in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.2020,2021, we had $202.1$290.5 million in cash, cash equivalents and restricted cash.cash and $1,180.2 million in marketable securities. We generated revenue of $154.7$270.5 million and $95.9$154.7 million in the three months ended September 30, 20202021 and 2019,2020, respectively, representing year-over-year growth of 61%75%. For the nine months ended September 30, 20202021 and 2019,2020, our revenue was $425.9$702.6 million and $249.1$425.9 million, respectively, representing year-over-year growth of 71%65%. Substantially all of our revenue is subscription software sales. Our net loss was $(15.2)$(5.5) million and $(4.2)$(15.2) million for the three months ended September 30, 20202021 and 2019,2020, respectively, and $(8.4)$(27.9) million and $(17.6)$(8.4) million for the nine months ended September 30, 20202021 and 2019,2020, respectively. We generated operating cash flow of $85.3$170.8 million and $6.8$85.3 million in the nine months ended September 30, 20202021 and 2019,2020, respectively. Our free cash flow was $66.6$143.8 million and $(10.1)$66.6 million in the nine months ended September 30, 20202021 and 2019,2020, respectively. See the section titled “—Liquidity and Capital Resources—Non-GAAP Free Cash Flow” for additional information. multiple countries, including the United States and other countries in which we and our customers, partners, suppliers, vendors and other parties with whom we do business operate. The extent of the impact of the COVID-19 pandemic on our operational and financial performance depends on certain developments, including the duration and spread of the outbreak, especially in light of the emergence of new variant strains of COVID-19, its impact on industry events, and its effect on our customers, partners, suppliers and vendors and other parties with whom we do business, and the availability, distribution and acceptance of vaccines, all of which are uncertain and cannot be predicted at this time. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and employee work locations and cancelling or holding virtually Datadog marketing events. We are continuing to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our business operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, vendors and stockholders. The extent to which the COVID-19 pandemic may impact our results of operations and financial condition remains uncertain. In addition, due to our subscription model, the effect of the COVID-19 pandemic, if any, may not be fully reflected in our results of operations until future periods.252020,2021, we had approximately 13,10017,500 customers spanning organizations of a broad range of sizes and industries, compared to approximately 9,50013,100 as of September 30, 2019.2020. 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.2020,2021, we had 1,1071,800 customers with annual run-rate revenue, or ARR, of $100,000 or more, representing 77%82% of our ARR, up from 7271,082 customers as of September 30, 2019,2020, representing 73%77% 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 retroactively.ARR and MRR should be viewed independently of revenue, and do not represent our revenue under generally accepted accounting principles in the United States, or 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.20202021 and 2019,2020, 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.monitoringplatform in April 2020.2020. As of September 30, 2020,2021, approximately 71%77% of our customers were using more than one product, up from approximately 50%71% a year earlier. We believe these metrics indicate strong momentum in the uptake of our newer platform products.26in each offor the nine months ended September 30, 2021 and 2020, and 2019.respectively. In addition, we have made and plan to continue to make significant investments to expand geographically, particularly in Europe, the Middle East, Africa and in the Asia Pacific region. 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 Dublin, London, Amsterdam, Paris, Singapore, Sydney, Seoul and Tokyo.27dollars. However, we expect that our general and administrative expense will decrease as a percentage of our revenue as our revenue grows over the longer term.(Expense) Income (Loss), Net(expense) income (loss), net consists of interest income, primarily ofdue to income earned on money market funds included in cash and cash equivalents and on marketable securities, partially offset by interest expense due to our 0.125% convertible senior notes due 2025, oron the 2025 Notes and amortization of premiums on our marketable securities, partially offset by interest income, primarily due to income earned from investments in marketable securities and money market funds.28Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 (in thousands) Revenue $ 270,488 $ 154,675 $ 702,586 $ 425,935 63,332 33,984 167,096 89,340 Gross profit 207,156 120,691 535,490 336,595 Operating expenses 112,675 56,440 286,720 142,928 75,827 57,142 210,592 153,626 23,549 16,376 65,789 44,876 Total operating expenses 212,051 129,958 563,101 341,430 Operating loss (4,895) (9,267) (27,611) (4,835) Other income (loss): Other income (loss): (4,912) (12,423) (15,448) (17,424) Interest income and other income, net 5,040 7,135 16,105 15,204 Other income (loss), net Other income (loss), net 128 (5,288) 657 (2,220) Loss before provision for income taxes (4,767) (14,555) (26,954) (7,055) Provision for income taxes (717) (595) (960) (1,332) Net loss $ (5,484) $ (15,150) $ (27,914) $ (8,387)
_________________(1)Includes stock-based compensation expense as follows:(2)Includes amortization of acquired intangibles expense as follows:Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 (in thousands) Cost of revenue $ 1,427 $ 529 $ 2,957 $ 1,167 Research and development 27,239 10,173 64,947 24,723 Sales and marketing 9,739 6,068 23,355 13,683 General and administrative 5,590 3,946 16,112 10,037 Total $ 43,995 $ 20,716 $ 107,371 $ 49,610
(2)Includes amortization of acquired intangibles expense as follows:(3)Includes non-cash benefit related to tax adjustment as follows: Three Months Ended
September 30,Nine Months Ended
September 30, 2021 2020 2021 2020 (in thousands) Cost of revenue Cost of revenue $ 1,311 $ 274 $ 2,574 $ 668 Sales and marketing 229 $ — 392 $ — Total $ 1,540 $ 274 $ 2,966 $ 668 (4)Includes employer payroll taxes on employee stock transactions as follows:29
_________________(5)Includes amortization of debt discount and issuance costs as follows:Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 (in thousands) Research and development $ — $ — $ — $ (2,729) Sales and marketing — — — (449) General and administrative — — — (2,383) Total $ — $ — $ — $ (5,561) Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 (in thousands) Cost of revenue $ 62 $ 32 $ 253 $ 154 Research and development 1,523 418 5,395 1,877 Sales and marketing 1,275 1,354 5,230 3,014 General and administrative 520 282 838 552 Total $ 3,380 $ 2,086 $ 11,716 $ 5,597 Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 (in thousands) Interest expense $ 838 $ 8,062 $ 2,510 $ 10,546 Three Months Ended
September 30,Nine Months Ended
September 30, 2021 2020 2021 2020 Revenue 100 % 100 % 100 % 100 % Cost of revenue 23 22 24 21 Gross profit 77 78 76 79 Operating expenses Research and development 42 36 41 34 Sales and marketing 28 37 30 36 General and administrative 9 11 9 11 Total operating expenses 78 84 80 80 Operating loss (2) (6) (4) (1) Other income (loss): Other income (loss): Interest expense (2) (8) (2) (4) Interest income and other income, net 2 5 2 4 Other income (loss), net Other income (loss), net 0 (3) 0 0 Loss before provision for income taxes (2) (9) (4) (2) Provision for income taxes 0 0 0 0 Net loss (2) % (10) % (4) % (2) %
_________________(1)Certain items may not total due to rounding.20202021 and 2019Three Months Ended
September 30, 2021 2020 Change % Change (dollars in thousands) Revenue $ 270,488 $ 154,675 $ 115,813 75 % 30$58.8$115.8 million, or 61%75%, for the three months ended September 30, 20202021 compared to the three months ended September 30, 2019.2020. Approximately 60%70% of the increase in revenue was attributable to growth from existing customers, and the remaining 40%30% was attributable to growthfrom new customers.Three Months Ended
September 30,2021 2020 Change % Change (dollars in thousands) Cost of revenue $ 63,332 $ 33,984 $ 29,348 86 % Gross margin 77 % 78 % $10.7$29.3 million, or 46%86%, for the three months ended September 30, 20202021 compared to the three months ended September 30, 2019.2020. This increase was primarily due to an increase of $9.3$24.5 million in third-party cloud infrastructure hosting and software costs, and $1.4an increase of $2.3 million ofin personnel expenses as a result of increased headcount.increased 2%decreased by 1% for the three months ended September 30, 20202021 compared to the three months ended September 30, 2019,2020, primarily as a result of increased revenue and cost savings fromspend with our third-party cloud infrastructure providers.Three Months Ended
September 30,2021 2020 Change % Change (dollars in thousands) Research and development $ 112,675 $ 56,440 $ 56,235 100 % Percentage of revenue 42 % 36 % $27.8$56.2 million, or 97%100%, for the three months ended September 30, 20202021 compared to the three months ended September 30, 2019.2020. This increase was primarily due to an increase of $22.2$40.0 million in personnel costs for our engineering, product and design teams as a result of increased headcount, an increase of $5.1$13.9 million in cloud hosting costs and an increase of $0.5$1.7 million in allocated overhead costs necessary for supporting the growth of the business.Three Months Ended
September 30, 2021 2020 Change % Change (dollars in thousands) Sales and marketing $ 75,827 $ 57,142 $ 18,685 33 % Percentage of revenue 28 % 37 % $18.3$18.7 million, or 47%33%, for the three months ended September 30, 20202021 compared to the three months ended September 30, 2019.2020. This increase was primarily due to an increase of $16.4$17.2 million in personnel costs for our sales and marketing organization as a result of increased headcount and increased variable compensation for our sales personnel.Three Months Ended
September 30, 2021 2020 Change % Change (dollars in thousands) General and administrative $ 23,549 $ 16,376 $ 7,173 44 % Percentage of revenue 9 % 11 % Three Months Ended
September 30,2021 2020 Change % Change (dollars in thousands) Other income (loss), net $ 128 $ (5,288) $ 5,416 102 % Percentage of revenue 0 % (3) % Nine Months Ended
September 30,2021 2020 Change % Change (dollars in thousands) Revenue $ 702,586 $ 425,935 $ 276,651 65 % Nine Months Ended
September 30,2021 2020 Change % Change (dollars in thousands) Cost of revenue $ 167,096 $ 89,340 $ 77,756 87 % Gross margin 76 % 79 % Nine Months Ended
September 30,2021 2020 Change % Change (dollars in thousands) Research and development $ 286,720 $ 142,928 $ 143,792 101 % Percentage of revenue 41 % 34 % Nine Months Ended
September 30, 2021 2020 Change % Change (dollars in thousands) Sales and marketing $ 210,592 $ 153,626 $ 56,966 37 % Percentage of revenue 30 % 36 % $1.5$5.9 million in marketing and promotional activities and increase of $0.4 million in allocated overhead costs.Nine Months Ended
September 30, 2021 2020 Change % Change (dollars in thousands) General and administrative $ 65,789 $ 44,876 $ 20,913 47 % Percentage of revenue 9 % 11 % 31$7.1$20.9 million, or 77%47%, forin the threenine months ended September 30, 20202021 compared to the threenine months ended September 30, 2019.2020. This increase was primarily due to an increase of $4.8 million in personnel costs as a result of increased headcount, an increase of $1.5 million related to insurance fees, an increase of $0.5 million related to bad debt expense and an increase of $0.5 million related to allocated overhead costs. These amounts were partially offset by a decrease of $0.2 million related to professional services fees.Other (Expense) Income, NetOther (expense) income, net decreased by $5.4 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. For the three months ended September 30, 2020, other expense included $8.3 million interest expense related to our 2025 Notes and $4.1 million amortization of premiums on our marketable securities. These amounts were partially offset by an increase of $7.0 million in interest income, mainly due to income earned from investments in marketable securities and money market funds.Comparison of the Nine Months Ended September 30, 2020 and 2019RevenueRevenue increased by $176.8 million, or 71%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Approximately 60% of the increase in revenue was attributable to the growth from existing customers, and the remaining 40% was attributable to growth from new customers.Cost of Revenue and Gross MarginCost of revenue increased by $26.1 million, or 41%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily due to an increase of $21.2 million in third-party cloud infrastructure hosting and software costs, an increase of $3.5$16.3 million in personnel expenses as a result of increased headcount an increase of $0.8 million of depreciation and amortization, and an increase of $0.6$2.1 million of credit card processing feesrelated to other costs and allocated overhead costs.Our gross margincosts to support the growing business.Nine Months Ended
September 30, 2021 2020 Change % Change (dollars in thousands) Other income (loss), net $ 657 $ (2,220) $ 2,877 130 % Percentage of revenue 0 % 0 % 4% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily as a result of increased revenue and cost savings from our third-party cloud infrastructure providers.32Research and DevelopmentResearch and development expense increased by $67.4 million, or 89% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily due to an increase of $57.6 million in personnel costs for our engineering, product and design teams as a result of increased headcount, an increase of $5.4 million in allocated overhead costs necessary for supporting the growth of the business and an increase of $4.4 million in cloud hosting costs.Sales and MarketingSales and marketing expense increased by $48.6 million, or 46%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily due to an increase of $41.2 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 $4.3 million in marketing and promotional activities and an increase of $3.1 million in in allocated overhead costs.General and AdministrativeGeneral and administrative expense increased by $21.7 million, or 93%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily due to an increase of $13.0 million in personnel expenses as a result of increased headcount, an increase of $4.8 million related to insurance fees, an increase of $2.0 million in allocated overhead expenses and an increase of $2.0 million related to bad debt expense. These amounts were partially offset by a decrease of $0.8 million related to professional services fees. In addition, general and administrative expense included a one-time donation in the amount of $0.7 million from Datadog and its employees in support of various charity organizations.Other (Expense) Income, NetOther (expense) income, net decreased by $2.9 million in the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019.2020. For the nine months ended September 30, 2020, other expense included $10.92021, the increase was primarily due to aduerelated to our 2025 Notes and $6.6Notes. The overall increase was partially offset by a $5.7 million increase in the amortization of premiums on our marketable securities. These amounts were partially offset by an increase of $14.6 million in interest income mainly due to income earned from investments in marketable securities and money market funds.33total net proceeds from the sale of the 2025 Notes after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $730.2 million.2020,2021, we had $198.5$287.0 million in cash and cash equivalents and $1,296.3$1,180.2 million in marketable securities.2020,2021, we had deferred revenue of $166.5$304.2 million, of which $164.0$301.0 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.summarizesshows a summary of our cash flows for the periods presented:Nine Months Ended
September 30,2021 2020 (in thousands) Cash provided by operating activities $ 170,752 $ 85,263 Cash used in investing activities (127,705) (1,143,933) Cash provided by financing activities 20,200 659,218 3420202021 of $85.3$170.8 million was primarily related to our net loss of $(8.4)$27.9 million, adjusted for non-cash charges of $96.9$164.4 million and net cash outflowsinflows of $3.2$34.2 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 acquired intangibles, amortization of discounts or premiums on marketable securities, non-cash lease expense, amortization of debt discount and issuancedeferred contract costs relating to 2025 Notes, and amortization of deferred contract costs.$28.0$94.9 million increase in deferred revenue, resulting primarily from increased billings for subscriptions, a $6.9$12.4 million increase in accounts payable and a $19.2 million increase in accrued expenses and other liabilities and a $6.4 million increase in accounts payable.liabilities. These amounts were partially offset by a $21.3$61.9 million increase in accounts receivable, net, due to increases in sales, a $15.8$27.6 million increase in deferred contract costs related to commissions paid on new bookings, a $6.8$0.9 million increase in prepaid expenses and other current assets, primarily driven by prepaid hosting servicesrent and a $0.6$1.8 million increase in other assets.20192020 of $6.8$85.3 million was primarily related to our net loss of $(17.6)$8.4 million, adjusted for non-cash charges of $32.2$96.9 million and net cash outflows of $7.8$3.2 million provided byused in changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, depreciation and amortization of property and equipment and amortization of acquired intangibles. The main drivers of the changes in operating assets and liabilities were related to a $51.1 million increase in deferred revenue, resulting primarily from increased billings for subscriptions and a $4.2 million increase in accounts payable. These amounts were partially offset by a $2.0 million decrease in accrued expenses and other liabilities, a $32.2$21.3 million increase in accounts receivable, net, due to increases in sales, a $9.5$15.8 million increase in deferred contract costs related to commissions paid on new bookings, a $6.8 million increase in prepaid expenses and other current assets, primarily driven by prepaid hosting services and a $10.9$0.6 million increase in other assets. These amounts were partially offset by a $28.0 million increase in deferred contract costs related to commissions paid on new bookings andrevenue, resulting primarily from increased billings for subscriptions, a $8.5$6.4 million increase in accounts payable and a $6.9 million increase in accrued expenses and other assets. a $2.4 million paid for an acquisition. These amounts were partially offset by proceeds of $268.5 million and $85.7 million from the maturities and sales of marketable securities, respectively.used in investingprovided by financing activities for the nine months ended September 30, 20192021 was $16.9$20.2 million and wasprimarily the result of proceeds from the issuance of Class A common stock under the ESPP in the amount of $9.8 million increaseand proceeds from the exercise of stock options in capital expenditures to purchase property and equipment to support additional office space and site operations and $7.1the amount of $10.7 million. These amounts were partially offset by $0.2 million increaseof taxes paid in capitalization of software development costs.Financing Activities$12.3 million, and proceeds from the issuance of common stock under the 2019 Employee Stock Purchase Plan, or ESPP, in the amount of $7.7$12.4 million. These amounts were partially offset by an $89.6 million purchase of the capped call in connection with the issuance of the 2025 Notes, $1.0 million of taxes paid in connection with the ESPP and $0.4 million of the initial public offering, or IPO, costs.Cash provided by financing activities for the nine months ended September 30, 2019 was $716.0 million and was primarily the result of aggregate net proceeds from our IPO in the amount of $708.7 million and proceeds from the exercise of stock options in the amount of $7.3 million.35business in the same manner as our management and board of directors.business. Nevertheless, our use of free cash flow has limitations as an analytical tool, and you should not be consideredconsider 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 comparabilityFreeYou should consider free cash flow should be considered alongside our other GAAP-based financial performance measures, such as net cash used in operating activities, and our other GAAP financial results.Nine Months Ended
September 30,2021 2020 (in thousands) Net cash provided by operating activities $ 170,752 $ 85,263 Less: Purchases of property and equipment (7,551) (4,336) Less: Capitalized software development costs (19,364) (14,371) Free cash flow $ 143,837 $ 66,556 In January 2020, we entered into a cloud services agreement, pursuant to which we are required to purchase an aggregate of at least $21.0 million of cloud services through January 2023.In April 2020, we signed a new lease agreement withexisting landlord of our officenine months ended September 30, 2021, other than certain non-cancelable operating leases described in Boston. Per the agreement, we are required to pay an aggregate amount of $19.0 million over the course of the lease term from September 2021 through May 2029 for the new premises. Additionally, our existing Boston leases were extended from November 2025 through May 2029, requiring payment of an additional aggregate amount of $13.3 million to be paid over the course of the extended term for the covered space.In June 2020, we issued $747.5 million aggregate principal amount of our 2025 Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2025 Notes will mature on June 15, 2025, unless earlier converted, redeemed or repurchased. For more information on the 2025 Notes, see Note 7, Convertible Senior Notes,9, 10-Q.In July 2020, we signed a new lease agreement relating to our office in New York City. Per the agreement, we are required to pay an aggregate amount of $7.1 million over the course of the lease term from March 2021 through December 2023 for the new premises.In September 2020, we entered into a cloud hosting agreement for a total purchase commitment of $76.7 million payable over three years through October 2023.There10-Q, there were no other material changes outside the ordinary course of business into our contractual obligations and commitments, as disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Annual Report.3620202021, 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.JOBS Act Accounting ElectionWe are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or 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. Based on the market value of our Class A common stock held by non-affiliates as of June 30, 2020, we will cease to qualify as an emerging growth company, effective as of December 31, 2020.quantitative and qualitative disclosures about market risk2020,2021, we had $180.6$261.1 million in cash equivalents and $1,296.3$1,180.2 million in marketable securities, which consistedof commercial debt, certificates of deposit, U.S. government treasury and agency securities and commercial paper. In addition, we had $3.6 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 September 30, 2020,2021, a hypothetical 10% relative change in interest rates would not have a material impact on our condensed consolidated financial statements. Additionally, we carry the 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. 37wholly ownedwholly-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, the United Kingdom, Japan, Australia, Germany, the Netherlands and the Netherlands.Spain. 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.Controls and Procedures“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.2020.2021. Based on the evaluation of our disclosure controls and procedures as of September 30, 2020,2021, 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.38Legal ProceedingsRisk FactorsInvestingstock involves numerous risks and uncertainties, as more fully described below. You should read these risks before you invest in our Class A common stock. In particular, risks associated with our business include, but are not limited to, the following:stock:maywill be adversely affected.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, 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.39We 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.Our Business and Industry and in compliance with recent shelter-in-place orders and other government executive orders directing that all non-essential businesses close their physical operations, we have taken measures intended to help minimize the risk of the virus to our employees and the communities in which we participate. These measures includeincluded 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. In addition, althoughAlthough we have recently and may continue to selectively reopen certain of our offices and hold in-person meetings and events in compliance with applicable government orders and guidelines, the vast majoritymany of our employees continue to work remotely.remotely and in-person meetings remain limited. We have a distributed workforce and our employees are accustomed to working remotely and working with others who are working remotely. However, the temporary suspensionlimitation of travel and 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. In addition, our management team has, and will likely continue, to spend significant time, attention and resources monitoring the COVID-19 pandemic and seeking to manage its effects on our business and workforce.40$249.1 million, $362.8$603.5 million and $198.1$362.8 million for the nine months ended September 30, 20202021 and 20192020 and the years ended December 31, 20192020 and 2018,2019, 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:41losslosses of $(8.4) million, $(17.6) million, $(16.7)$(27.9) million and $(10.8)$(8.4) million for the nine months ended September 30, 2021 and 2020, respectively. We generated net losses of $(24.5) million and 2019 and$(16.7) million for the years ended December 31, 20192020 and 2018,2019, respectively. As of September 30, 2020,2021, we had an accumulated deficit of $132.0$159.3 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 consistentlyachieve 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.42aor 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, 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.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 loss of our or our customers’ data, 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, we have seenmany of our employees are working remotely due to the COVID-19 pandemic, which may pose additional data security risks (including, for example, an increase in phishing and spam emails in connection with the COVID-19 pandemic. we began experiencing during 2020).personally identifiablepersonal 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.personally identifiable,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 to mitigate, detect, and remediate actual and potential vulnerabilities. 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.43 there are many different security breach techniquesvulnerabilities exist and exploits of such techniquesvulnerabilities continue to evolve, we may be unable to anticipate attempted security breaches, react in a timely 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 our 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 incur expenses to correct.systemsservices 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. Although we have developed systems and processes that are designed to protect customer data and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third-party service provider, such measures cannot provide absolute security.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, 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.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.44The 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 Amazon.com, Inc. (Amazon Web Services), Alphabet Inc. (Google Cloud Platform) and Microsoft Corporation (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;total cost of ownership; andbrand 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.454647the 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,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 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.48develop 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 ongoing COVID-19 pandemic and remote work arrangements. If we fail to maintain our company culture, our business and competitive position may be harmed.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. 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 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.49privacy 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.contractualother applicable obligations regarding the protection of confidentiality and appropriate use of personally identifiable personal 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 and regulations, and industry 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.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 General Data Protection Regulation, or 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. Among other requirements,regulatesalso generally prohibit the transfer of personal information from Europe to the United States and most other countries unless the parties to the transfer have established a legal basis for the transfer and implemented specific safeguards to protect the transferred personal information. One of the primary mechanisms allowing U.S. companies to import personal information from Europe in compliance with the GDPR has been certification to the EU-U.S. Privacy Shield and Swiss-U.S. Privacy Shield frameworks administered by the U.S. Department of Commerce. However, the Court of Justice of the European Union, in the “Schrems II” ruling, invalidated the EU-U.S. Privacy Shield framework. The Swiss Federal Data Protection and Information Commissioner also opined that the Swiss-U.S. Privacy Shield is inadequate for transfers of data from Switzerland to the United States. Inability to import personal datainformation from Europe to the United States may decrease demand for our products and services as our customers that are subject to the GDPR may seek alternatives that do not involve personal information transfers out of Europe.third countries that have not been foundthe EU-U.S. Privacy Shield, namely, the European Commission’s Standard Contractual Clauses, or “SCCs,” can lawfully be used for personal information transfers from Europe to provide adequate protectionthe United States or most other countries. At present, there are few, if any, viable alternatives to suchthe SCCs. On June 4, 2021, the European Commission adopted new SCCs under the GDPR for personal data includingtransfers outside the United States.European Economic Area, or EEA. Under this legal mechanism, we may have obligations to conduct transfer impact assessments for such cross-border data transfers and implement additional security measures, which increases the difficulty of selling to European customers and may lead to longer sales cycles. We have relied and expect to continue to rely on the new SCCs, which may require us to expend significant resources to comply with such obligations and, where needed, to update our contractual arrangements. 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 under the EU-US Privacy Shield,SCCs, the efficacy and longevity of these transfer mechanisms remains uncertain. The GDPR also introduced numerous privacy-related changes for companies operatingEU, including greater control for data subjects (including, for example,United Kingdom and particularly whether the “righttransfer of personal information from the EEA to the United Kingdom will be forgotten”), increased data portability for EU consumers, data breach notification requirements and increased fines. In particular,lawful under the GDPR. On June 28, 2021, the European Commission issued an adequacy decision under the GDPR fineswhich allows transfers (other than those carried out for the purposes of upUnited Kingdom immigration control) of personal data from the EEA to 20 million euros or upthe United Kingdom to 4%continue without restriction for a period of four years ending June 27, 2025. After that period, the adequacy decision may be renewed, however, only if the United Kingdom continues to ensure an adequate level of data protection. During these four years, the European Commission will continue to monitor the legal situation in the United Kingdom and could intervene at any point if the United Kingdom deviates from the level of data protection in place at the time of issuance of the annual global revenue ofadequacy decision. If the noncompliant company, whicheveradequacy decision 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 applywithdrawn or not only to third-party transactions, but also torenewed, transfers of personal data from the EEA to the United Kingdom will require a valid ‘transfer mechanism,’ and we may be required to implement new processes and put new agreements in place, such as SCCs, to enable transfers of personal data from the EEA to the United Kingdom to continue.betweenwhich could increase the cost and complexity of delivering our services and operating our business. Recently, 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 the Digital Charter Implementation Act.andto increase our subsidiaries, including employee information.50that 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, that would replace the current ePrivacy Directive. Originally planned to be adopted and implemented at the same time as the GDPR, the ePrivacy Regulation continues to be delayed but could be enacted in 2020.delayed. 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 time and effort may need to be spent addressing differences between the ePrivacy Regulation and the GDPR. New rules related to the ePrivacy Regulation are likely to include enhanced consent requirements in order to use communications content and communications metadata, which may negatively impact our platform and products and our relationships with our customers. and the ePrivacy Regulation, when it becomes effective, and 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.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, 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, or2020. 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 California Privacy Rights Act, or the CPRA, which amends the CCPA, was approved by California voters on November 3, 2020 and is scheduled to go into effect on January 1, 2023. The CPRA would, among other things, amend 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. Both the CCPA and CPRA could impact our business activities depending on how they are interpreted. These laws exemplify the vulnerability of our business not only to security incidents but also to the evolving regulatory environment related to personal information and protected health 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.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 ourand 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.51 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.5253Any 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.54of total revenue in each offor the nine months ended September 30, 2021 and 2020, and 2019.respectively. 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 September 30, 2020,2021, approximately 36%38% of our full-time employees were located outside of the United States, 42%40% 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.conditions, including in the United Kingdom as a result of the United Kingdom exiting the EU, or Brexit;55 including COVID-19, , 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;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.56 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.57Changes 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; andlimitations 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.Accounting principles under GAAP are subject to interpretation by the Financial Accounting Standards Board, the SEC and various other bodies formed to promulgate and interpret such 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 unaudited condensed 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. “Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 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.58stockholders, as well as the anticipation of lock-up releases; andmarket.2020, holders2021, our outstanding shares of our Class B common stock represented approximately 83%69% of the voting power of our outstanding capital stock. As a result, the holders of our Class B common stock, includingwhich includes certain of our directors, executive officers and their affiliates, will be able to 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 whileif their stock holdings represent less than 50% of the outstanding shares of our capital stock. This concentration of ownership will limit 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.59All suchThe 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 compliance with applicable securities laws, including the limitations of Rule 144 under the Securities Act applicable to our affiliates.2020,2021, 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.60ofor analysts or public investors, analysts could downgrade ouror Class A common stock or publish unfavorable research abouton us. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, 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 will no longer qualify as an “emerging growth company” as of December 31, 2020 and, as a result, we will no longer be able to avail ourselves of certain reduced reporting and disclosure requirements.We are currently an “emerging growth company,” as defined in the JOBS Act, and we have taken 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 condensed 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. It is possible that investors have found or will continue to find our Class A common stock less attractive in light of the fact that we have relied on certain of these exemptions.Based on the market value of our Class A common stock held by non-affiliates as of June 30, 2020, we will cease to qualify as an emerging growth company, effective as of December 31, 2020. We will no longer be able to take advantage of any of the exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” as described above, and we will no longer be able to use the extended transition period for complying with new or revised accounting standards. We expect that the loss of our “emerging growth company” status and compliance with these additional requirements will substantially increase our legal and financial compliance costs. In addition, any failure to comply with these additional requirements in a timely manner, or at all, could have an adverse effect on our business and results of operations and could cause a decline in the price of our Class A common stock.As a public company, we will continue to incurthat we did not incur as a privatepublic company, which we expect to further increase asbecause we transition out ofare no longer an “emerging growth company” status. Based on the market value of our Class A common stock held by non-affiliates as of June 30, 2020, we will cease to qualify as an emerging growth company, effective as of December 31, 2020.. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing 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 contribute to increased legal and financial compliance costs and make some activities more time-consuming and costly.61andfor the fiscal year ending December 31, 2021. This assessment will need to 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 for the fiscal year ending December 31, 2020. We have already 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 have hired, and need to continue to hire, additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compiled the system and process documentation necessary to perform the evaluation needed to comply with Section 404.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.62other employees. if triggered, may adversely affect our financial condition and operating results.In the event theis triggered,entitles holders of the 2025 Notes will be 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 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.63The accounting method for convertible debt securities that may be settled in cash, such as the notes, could have a material effect on our reported financial results.Under ASC 470-20, Debt with Conversion and Other Options, or ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the 2025 Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the 2025 Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at issuance, and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the 2025 Notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of the 2025 Notes to their face amount over the term of the 2025 Notes. We will report larger net losses or lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s non-convertible coupon interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the 2025 Notes.In addition, under certain circumstances, convertible debt instruments (such as the 2025 Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of such 2025 Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such 2025 Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be certain that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the 2025 Notes, then the “if converted” method of accounting would be applied and accordingly, the full number of shares that could be issued would be included in the calculation of diluted earnings per share, which would adversely affect our diluted earnings per share. For example, the FASB recently published an exposure draft proposing to amend these accounting standards to eliminate the treasury stock method for convertible instruments and instead require application of the “if-converted” method. We cannot be sure that this exposure draft will be issued, or will be issued in its current form. We also cannot be sure whether other changes may be made to the current accounting standards related to the 2025 Notes, or otherwise, that could have an adverse impact on our financial statements. any 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.Notes (andNotes. They are likely to do so on each exercise date for the 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 termination 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 our 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.64Item increases. In addition, upon a default, failure to perform or a termination of the capped call transactions by a counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock.Unregistered sales of equity Securities and Use of Proceedsunderwriters’underwriters’ option to purchase additional shares of our Class A common stock, resulting in 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.Defaults Upon Senior SecuritiesMine Safety DisclosuresOther InformationItem Incorporated by Reference Exhibit
NumberDescription Form File No. Exhibit Filing Date Filed
Herewith3.1 8-K 001-39051 3.1 September 23, 2019 3.2 S-1/A 333-233428 3.4 August 23, 2019 X 31.1 X 31.2 X 32.1* X 32.2* X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL 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
_________________*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, whether made before or after the date hereof, regardless of any general incorporation language in such filing.DATADOG, INC.DATADOG, INC. Date: November 12, 20205, 2021By: By:Name: Name:Title: Title:12, 2020By: By:Name: Name:Title: Title: