10-QPeriod: Q3 FY2019

Datadog, Inc. Quarterly Report for Q3 Ended Sep 30, 2019

Filed November 13, 2019For Securities:DDOG

Summary

This 10-Q filing for Datadog, Inc. (DDOG) comes shortly after its Initial Public Offering (IPO) in September 2019. As an emerging growth company, Datadog is leveraging certain exemptions from reporting requirements, which may impact comparability with other public companies and potentially investor perception. The company raised $745.2 million in gross proceeds from its IPO, with net proceeds of $705.9 million, and has stated that the use of these funds aligns with previously disclosed plans. Investors should be aware of the company's status as an emerging growth company, which allows for extended transition periods for new accounting standards, potentially leading to less comparable financial statements. Furthermore, Datadog is in the process of developing and implementing internal controls over financial reporting as required by Sarbanes-Oxley Act Section 404, a process that is costly and could reveal material weaknesses, impacting investor confidence. Additionally, several anti-takeover provisions are in place, which could deter potential acquirers and limit stockholder influence on management changes.

Financial Highlights

46 data points
Beta

Revenue

$95.86M

75.7% Gross Margin

Net Income

-$4.16M

-4.3% Net Margin

EPS (Diluted)

$-0.04

Total Assets

$1.01B

Cash & Equivalents

$760.95M

Free Cash Flow

-$1.01M

Financial Statements
Beta
Revenue$95.86M
Cost of Revenue$23.30M
Gross Profit$72.57M
R&D Expenses$28.68M
Operating Expenses$76.78M
Operating Income-$4.22M
Net Income-$4.16M
EPS (Basic)$-0.04
Shares Outstanding (Basic)103.88M

Key Highlights

  • 1Datadog recently completed its Initial Public Offering (IPO) in September 2019, raising $745.2 million in gross proceeds.
  • 2The company is operating as an 'emerging growth company' and is utilizing exemptions from certain reporting requirements, including extended transition periods for new accounting standards.
  • 3Datadog granted stock options for 5,219,550 shares of Class B common stock and issued 2,261,730 shares upon option exercises to employees prior to its IPO registration.
  • 4The company has not materially changed its planned use of IPO proceeds as disclosed in its prospectus.
  • 5Datadog is undertaking the costly and complex process of establishing and testing internal controls over financial reporting to comply with Sarbanes-Oxley Act Section 404.
  • 6The company's charter documents and Delaware law contain anti-takeover provisions that could deter mergers or acquisitions and limit stockholder actions.
  • 7Exclusive forum provisions are in place for certain legal disputes, designating Delaware's Court of Chancery and U.S. federal district courts, although enforceability, particularly for federal courts regarding Securities Act claims, is subject to ongoing legal review.

Frequently Asked Questions

As an 'emerging growth company,' Datadog can take advantage of exemptions from various reporting requirements applicable to larger public companies. This includes an extended transition period for adopting new or revised accounting standards, which means Datadog's financial statements may not be directly comparable to those of companies that follow newer standards. This reduced comparability could potentially make the stock less attractive to some investors and may lead to a less active trading market or increased stock price volatility.

Datadog is in the process of developing and implementing internal controls over financial reporting to comply with SOX Section 404. This is a costly and time-consuming effort that requires significant management attention and the hiring of additional accounting personnel. The company must provide an assessment of the effectiveness of these internal controls, and its independent auditor will be required to attest to their effectiveness once Datadog is no longer an 'emerging growth company'. Identifying material weaknesses in these controls could negatively impact investor confidence and the stock price.

Datadog's charter documents and Delaware law include several anti-takeover provisions. These include authorizing the board to issue preferred stock, requiring stockholder actions at meetings rather than by written consent, limiting who can call special meetings, establishing advance notice procedures for proposals, a staggered board of directors, prohibition of cumulative voting, high voting thresholds for director removal and bylaw amendments, and provisions under Delaware General Corporation Law Section 203. These provisions are designed to make a change of control or management replacement more difficult, which could deter potential acquirers and limit the likelihood of stockholders receiving a premium for their shares in an acquisition.

Datadog completed its IPO in September 2019, raising $745.2 million in gross proceeds. The net proceeds after deducting underwriting discounts and expenses were $705.9 million. The company has stated that there has been no material change in the planned use of these proceeds from what was disclosed in its IPO prospectus.