10-QPeriod: Q1 FY2020

Datadog, Inc. Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 12, 2020For Securities:DDOG

Summary

Datadog, Inc.'s (DDOG) Q1 2020 10-Q filing highlights its status as an 'emerging growth company,' which allows for certain regulatory and reporting exemptions. This status, while potentially reducing compliance costs, may make the stock less attractive to some investors due to non-comparable financial reporting standards and reduced disclosures. The company is investing in internal controls over financial reporting, a critical area for public companies, to comply with Sarbanes-Oxley Act (SOX) Section 404. Any identified material weaknesses could impact investor confidence and stock valuation. The filing also details anti-takeover provisions within its charter documents and Delaware law, which could deter acquisition attempts and limit shareholder influence on management changes. These provisions, including a staggered board and high voting thresholds for certain actions, are designed to ensure stability but might also limit the potential for a premium in an acquisition scenario. Furthermore, Datadog has established exclusive forum provisions for stockholder disputes, potentially restricting where investors can file lawsuits.

Financial Highlights

49 data points
Beta

Revenue

$131.25M

79.8% Gross Margin

Net Income

$6.48M

4.9% Net Margin

EPS (Diluted)

$0.02

Total Assets

$1.07B

Cash & Equivalents

$194.35M

Free Cash Flow

$22.73M

Financial Statements
Beta
Revenue$131.25M
Cost of Revenue$26.48M
Gross Profit$104.77M
R&D Expenses$40.82M
Operating Expenses$100.99M
Operating Income$3.78M
Interest Expense$707K
Net Income$6.48M
EPS (Basic)$0.02
EPS (Diluted)$0.02
Shares Outstanding (Basic)295.45M
Shares Outstanding (Diluted)327.80M

Key Highlights

  • 1Datadog is operating as an "emerging growth company," benefiting from reduced reporting requirements and the ability to delay adoption of new accounting standards, which could impact comparability with peers.
  • 2The company is actively working on establishing and maintaining robust internal controls over financial reporting to comply with SOX Section 404, a process that requires significant resources and management attention.
  • 3Failure to maintain adequate internal controls or the identification of material weaknesses could negatively affect investor confidence and the stock price.
  • 4Anti-takeover provisions in the company's charter documents and Delaware law are in place, which may deter acquisition attempts and limit shareholder ability to effect changes in management.
  • 5The company has implemented exclusive forum selection clauses for stockholder disputes, potentially limiting where shareholders can bring legal actions.
  • 6Datadog has confirmed no unregistered sales of equity securities and no material change in the planned use of proceeds from its September 2019 IPO.

Frequently Asked Questions

As an "emerging growth company," Datadog can take advantage of exemptions from certain reporting requirements, including auditor attestation for internal controls and reduced executive compensation disclosures. This can lower compliance costs but may also mean its financial statements are not directly comparable to companies that do not utilize these exemptions. Additionally, it can delay the adoption of new accounting standards, potentially making its financial reporting less current compared to some industry peers.

Datadog is in the process of developing and maintaining internal controls over financial reporting to comply with Section 404 of the Sarbanes-Oxley Act. This is a costly and time-consuming effort that involves documenting systems and processes, hiring additional accounting staff, and potentially remediation. The company acknowledges the risk of material weaknesses and the potential impact on investor confidence if controls are not deemed effective.

The anti-takeover provisions in Datadog's charter documents and under Delaware law are designed to prevent hostile takeovers and make it more difficult for stockholders to remove management. These include a staggered board of directors, high voting thresholds for certain actions, and limitations on stockholder actions outside of duly called meetings. While these provisions offer stability, they could also deter potential acquirers and reduce the likelihood of stockholders receiving a premium for their shares in an acquisition.

Datadog's charter documents designate the Court of Chancery of the State of Delaware as the exclusive forum for most disputes related to Delaware statutory or common law, and federal district courts of the United States for claims arising under the Securities Act. This provision may limit a stockholder's ability to choose a preferred venue for legal actions against the company or its management.