Datadog
Annual Report 2020

Plain-text annual report

Datadog Annual Report 2020 D a t a d o g A n n u a l R e p o r t 2 0 2 0 Datadog, Inc. 620 8th Avenue, 45th Floor New York, New York 10018 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held On June 10, 2021 To the Stockholders of Datadog, Inc.: corporation. a Delaware The Annual Meeting will On behalf of our board of directors, it is our pleasure to cordially invite you to attend the Annual Meeting of Stockholders of Datadog, Inc., at www.virtualshareholdermeeting.com/DDOG2021, originating from New York, New York, on Thursday, June 10, 2021 at 2:00 p.m., Eastern Time. We believe hosting a virtual meeting enables participation by more of our stockholders, while lowering the cost of conducting the meeting. Further, we believe the virtual meeting format is critical in light of the ongoing COVID-19 pandemic, as the safety of our employees, communities and stockholders is our first priority. Stockholders attending the virtual meeting will be afforded the same rights and opportunities to participate as they would at an in-person meeting. We encourage you to attend online and participate. We recommend that you log in a few minutes before 2:00 p.m., Eastern Time, on June 10, 2021 to ensure you are logged in when the Annual Meeting starts. live webcast virtually, held via be The Annual Meeting will be held for the following purposes: 1. 2. 3. 4. To elect two Class II directors, Alexis Lê-Quôc and Michael Callahan, each to hold office until our Annual Meeting of Stockholders in 2024; To approve, on an advisory basis, the compensation of our named executive officers, as disclosed in this proxy statement; To indicate, on an advisory basis, the preferred frequency of shareholder advisory votes on the compensation of our named executive officers; To ratify the selection by the audit committee of our board of directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021; and 5. To conduct any other business properly brought before the Annual Meeting. These items of business are more fully described in the Proxy Statement accompanying this Notice. The record date for the Annual Meeting is April 13, 2021. Only stockholders of record at the close of business on that date may vote at the Annual Meeting or any adjournment thereof. By Order of the Board of Directors Laszlo Kopits General Counsel and Secretary New York, New York April 23, 2021 You are cordially invited to attend the Annual Meeting. Whether or not you expect to attend the Annual Meeting, PLEASE VOTE YOUR SHARES. As an alternative to voting online at the Annual Meeting, you may vote your shares in advance of the Annual Meeting through the internet, by telephone or, if you receive a paper proxy card in the mail, by mailing the completed proxy card. Voting instructions are provided in the Notice of Internet Availability of Proxy Materials or, if you receive a paper proxy card by mail, the instructions are printed on your proxy card. Even if you have voted by proxy, you may still vote online if you attend the Annual Meeting. Please note, however, that if your shares are held of record by a broker, bank or other agent and you wish to vote at the Annual Meeting, you must follow the instructions from such organization and will need to obtain a proxy issued in your name from that record holder. Table of Contents QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING............................................................. Page 2 PROPOSAL 1 ELECTION OF DIRECTORS .................................................................................................................................... 9 INFORMATION REGARDING DIRECTOR NOMINEES AND CURRENT DIRECTORS ......................................................... 10 INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE .................................... 13 PROPOSAL 2 APPROVAL, ON A NON-BINDING, ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS .............................................................................................................................................................. 20 EXECUTIVE OFFICERS .................................................................................................................................................................. 21 EXECUTIVE COMPENSATION ..................................................................................................................................................... 23 NON-EMPLOYEE DIRECTOR COMPENSATION ........................................................................................................................ 40 PROPOSAL 3 APPROVAL, ON A NON-BINDING, ADVISORY BASIS, OF THE FREQUENCY OF FUTURE NON- BINDING, ADVISORY VOTES TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS ...... PROPOSAL 4 RATIFICATION OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................................................................................................................................................................... 42 43 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ....................................................... 45 TRANSACTIONS WITH RELATED PERSONS ............................................................................................................................. 48 HOUSEHOLDING OF PROXY MATERIALS ................................................................................................................................. 49 OTHER MATTERS ........................................................................................................................................................................... 50 -i- Datadog, Inc. 620 8th Avenue, 45th Floor New York, New York 10018 PROXY STATEMENT FOR THE 2021 ANNUAL MEETING OF STOCKHOLDERS To Be Held on June 10, 2021 at 2:00 p.m., Eastern Time Our board of directors is soliciting your proxy to vote at the 2021 Annual Meeting of Stockholders (the “Annual Meeting”) of Datadog, Inc., a Delaware corporation, to be held virtually, via live webcast at www.virtualshareholdermeeting.com/DDOG2021, originating from New York, New York, on Thursday, June 10, 2021 at 2:00 p.m., Eastern Time, and any adjournment or postponement thereof. We believe hosting a virtual meeting enables participation by more of our stockholders, while lowering the cost of conducting the meeting. Further, we believe the virtual meeting format is critical in light of the ongoing COVID-19 pandemic, as the safety of our employees, communities and stockholders is our first priority. Stockholders attending the virtual meeting will be afforded the same rights and opportunities to participate as they would at an in-person meeting. For the Annual Meeting, we have elected to furnish our proxy materials, including this proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”), to our stockholders primarily via the internet. On or about April 23, 2021, we expect to mail to our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) that contains notice of the Annual Meeting and instructions on how to access our proxy materials on the internet, how to vote at the Annual Meeting, and how to request printed copies of the proxy materials. Stockholders may request to receive all future materials in printed form by mail or by email by following the instructions contained in the Notice. A stockholder’s election to receive proxy materials by mail or email will remain in effect until revoked. We encourage stockholders to take advantage of the availability of the proxy materials on the internet to help reduce the environmental impact and cost of our Annual Meeting. Only stockholders of record at the close of business on April 13, 2021 (the “Record Date”) will be entitled to vote at the Annual Meeting. On the Record Date, there were 233,870,998 shares of Class A common stock and 74,473,211 shares of Class B common stock outstanding and entitled to vote (together, the “common stock”). Each holder of Class A common stock will have the right to one vote per share of Class A common stock and each holder of Class B common stock will have the right to ten votes per share of Class B common stock. The holders of shares of common stock will vote together as a single class on all matters submitted to a vote at the Annual Meeting. A list of stockholders entitled to vote at the Annual Meeting will be available for examination for ten days before the Annual Meeting by emailing us at IR@datadoghq.com. The stockholder list will also be available online during the Annual Meeting. For at www.virtualshareholdermeeting.com/DDOG2021 and on page 2 of this proxy statement. the Annual Meeting, please instructions on how instructions attend see the to In this proxy statement, we refer to Datadog, Inc. as “Datadog,” “we” or “us” and the board of directors of Datadog as “our board of directors.” The Annual Report, which contains consolidated financial statements as of and for the fiscal year ended December 31, 2020, accompanies this proxy statement. You also may obtain a copy of the Annual Report without charge by emailing IR@datadoghq.com. 1 QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING Why did I receive a notice regarding the availability of proxy materials on the internet? Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), we have elected to provide access to our proxy materials over the internet. Accordingly, we have sent you the Notice because our board of directors is soliciting your proxy to vote at the 2021 Annual Meeting of Stockholders, including at any adjournments or postponements thereof. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or to request a printed set of the proxy materials. Instructions on how to access the proxy materials over the internet or to request a printed copy may be found in the Notice. We intend to mail the Notice on or about April 23, 2021 to all stockholders of record entitled to vote at the Annual Meeting. Will I receive any other proxy materials by mail? We may send you a proxy card, along with a second Notice, after ten calendar days have passed since our first mailing of the Notice. How do I attend, participate in, and ask questions during the Annual Meeting? We will be hosting the Annual Meeting via live webcast only. Any stockholder can attend the Annual Meeting live online at www.virtualshareholdermeeting.com/DDOG2021. The meeting will start at 2:00 p.m., Eastern Time, on Thursday, June 10, 2021. Stockholders attending the Annual Meeting will be afforded the same rights and opportunities to participate as they would at an in- person meeting. In order to enter the Annual Meeting, you will need the control number, which is included in the Notice or on your proxy card if you are a stockholder of record, or included with your voting instruction card and voting instructions received from your broker, bank or other agent if you hold your shares in “street name.” Instructions on how to attend and participate are available at www.virtualshareholdermeeting.com/DDOG2021. We recommend that you log in a few minutes before 2:00 p.m., Eastern Time to ensure you are logged in when the Annual Meeting starts. The webcast will open 15 minutes before the start of the Annual Meeting. you would If at during www.virtualshareholdermeeting.com/DDOG2021 using your control number, type your question into the “Ask a Question” field, and click “Submit.” the Annual Meeting, you may question submit like log to in a To help ensure that we have a productive and efficient meeting, and in fairness to all stockholders in attendance, you will a lso find posted our rules of conduct for the Annual Meeting when you log in prior to its start. These rules of conduct will include the following guidelines: • You may submit questions and comments electronically through the meeting portal during the Annual Meeting. • Only stockholders of record as of the Record Date for the Annual Meeting and their proxy holders may submit questions or comments. • • • Please direct all questions to Olivier Pomel, our Chief Executive Officer. Please include your name and affiliation, if any, when submitting a question or comment. Limit your remarks to one brief question or comment that is relevant to the Annual Meeting and/or our business. • Questions may be grouped by topic by our management. 2 • Questions may also be ruled as out of order if they are, among other things, irrelevant to our business, related to pending or threatened litigation, disorderly, repetitious of statements already made, or in furtherance of the speaker’s own personal, political or business interests. • Be respectful of your fellow stockholders and Annual Meeting participants. • No audio or video recordings of the Annual Meeting are permitted. What if I have technical difficulties or trouble accessing the Annual Meeting? We will have technicians ready to assist you with any technical difficulties you may have accessing the Annual Meeting. If you encounter any difficulties accessing the Annual Meeting during the check-in or meeting time, please call the technical support number that will be posted at www.virtualshareholdermeeting.com/DDOG2021 or at www.proxyvote.com. Technical support will be available starting at 1:00 p.m., Eastern Time on June 10, 2021. Who can vote at the Annual Meeting? Only stockholders of record at the close of business on the Record Date, April 13, 2021, will be entitled to vote at the Annual Meeting. On the Record Date, there were 233,870,998 shares of Class A common stock and 74,473,211 shares of Class B common stock outstanding and entitled to vote. • Stockholder of Record: Shares Registered in Your Name. If, on the Record Date, your shares were registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, then you are a stockholder of record. As a stockholder of record, you may vote online during the Annual Meeting or by proxy in advance. Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares by proxy in advance of the Annual Meeting through the internet, by telephone or by completing and returning a printed proxy card that you may request or that we may elect to deliver at a later time to ensure your vote is counted. • Beneficial Owner: Shares Registered in the Name of a Broker or Bank. If, on the Record Date, your shares were held not in your name, but rather in an account at a brokerage firm, bank or other similar organization, then you are the beneficial owner of shares held in “street name” and the Notice is being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your broker, bank or other agent regarding how to vote the shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may vote your shares online during the Annual Meeting only by following the instructions from such organization and after obtaining a valid proxy from your broker, bank or other agent. How many votes do I have? Each holder of shares of our Class A common stock will have one vote per share of Class A common stock held as of the Record Date, and each holder of shares of our Class B common stock will have ten votes per share of Class B common stock held as of the Record Date. The holders of the shares of our Class A common stock and Class B common stock will vote as a single class on all matters described in this proxy statement for which your vote is being solicited. What am I voting on? There are four matters scheduled for a vote: • Proposal 1: Election of two Class II directors, each to hold office until our annual meeting of stockholders in 2024; 3 • • • Proposal 2: Advisory approval of the compensation of our named executive officers, as disclosed in this proxy statement in accordance with SEC rules; Proposal 3: Advisory indication of the preferred frequency of shareholder advisory votes on the compensation of our named executive officers; and Proposal 4: Ratification of the selection by the audit committee of our board of directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021. What if another matter is properly brought before the Annual Meeting? Our board of directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote on those matters in accordance with their best judgment. How do I vote? • Stockholder of Record: Shares Registered in Your Name. If you are a stockholder of record, you may vote (1) online during the Annual Meeting or (2) in advance of the Annual Meeting by proxy through the internet, by telephone or by using a proxy card that you may request or that we may elect to deliver at a later time. Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the Annual Meeting and vote online even if you have already voted by proxy. • • • • To vote online during the Annual Meeting, follow the provided instructions to join the Annual Meeting at www.virtualshareholdermeeting.com/DDOG2021, starting at 2:00 p.m., Eastern Time on Thursday, June 10, 2021. The webcast will open 15 minutes before the start of the Annual Meeting. To vote in advance of the Annual Meeting through the internet, go to www.proxyvote.com to complete an electronic proxy card. You will be asked to provide the company number and control number from the Notice or the printed proxy card. Your internet vote must be received by 11:59 p.m., Eastern Time on Wednesday, June 9, 2021 to be counted. To vote in advance of the Annual Meeting by telephone, dial 1-800-690-6903 using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the Notice or the printed proxy card. Your telephone vote must be received by 11:59 p.m., Eastern Time on Wednesday, June 9, 2021 to be counted. To vote in advance of the Annual Meeting using a printed proxy card that may be delivered to you, simply complete, sign and date the proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the Annual Meeting, we will vote your shares as you direct. • Beneficial Owner: Shares Registered in the Name of Broker or Bank. If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a Notice containing voting instructions from that organization rather than from us. Simply follow the voting instructions in the Notice to ensure that your vote is counted. To vote online during the Annual Meeting, you must follow the instructions from your broker, bank or other agent and will need to obtain a proxy issued in your name from that record holder. Internet voting during the Annual Meeting and/or internet proxy voting in advance of the Annual Meeting allows you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your vote instructions. Please be aware that you must bear any costs associated with your internet access. 4 Can I vote my shares by filling out and returning the Notice? No. The Notice identifies the items to be voted on at the Annual Meeting, but you cannot vote by marking the Notice and returning it. The Notice provides instructions on how to vote by proxy in advance of the Annual Meeting through the internet, by telephone, using a printed proxy card or online during the Annual Meeting. What does it mean if I receive more than one Notice? If you receive more than one Notice, your shares may be registered in more than one name or in different accounts. Please follow the voting instructions on the Notices to ensure that all of your shares are voted. Can I change my vote after submitting my proxy? • Stockholder of Record: Shares Registered in Your Name. If you are a stockholder of record, then yes, you can revoke your proxy at any time before the final vote at the Annual Meeting. You may revoke your proxy in any one of the following ways: • Submit another properly completed proxy card with a later date. • Grant a subsequent proxy by telephone or through the internet. • Send a timely written notice that you are revoking your proxy via email at IR@datadoghq.com. • Attend the Annual Meeting and vote online during the meeting. Simply attending the Annual Meeting will not, by itself, revoke your proxy. Even if you plan to attend the Annual Meeting, we recommend that you also submit your proxy or voting instructions or vote in advance of the Annual Meeting by telephone or through the internet so that your vote will be counted if you later decide not to attend the Annual Meeting. Your most current proxy card or telephone or internet proxy is the one that is counted. • Beneficial Owner: Shares Registered in the Name of Broker or Bank. If you are a beneficial owner and your shares are held in “street name” by your broker, bank or other agent, you should follow the instructions provided by your broker, bank or other agent. If I am a stockholder of record and I do not vote, or if I return a proxy card or otherwise vote without giving specific voting instructions, what happens? If you are a stockholder of record and do not vote through the internet, by telephone, by completing the proxy card that may be delivered to you or online during the Annual Meeting, your shares will not be voted. If you return a signed and dated proxy card or otherwise vote without marking voting selections, your shares will be voted in accordance with the recommendations of our board of directors: “FOR” the election of each of the two nominees for director; “FOR” the advisory approval of executive compensation; for “ONE YEAR” as the preferred frequency of advisory votes to approve executive compensation; and “FOR” the ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021. If any other matter is properly presented at the Annual Meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his best judgment. If I am a beneficial owner of shares held in “street name” and I do not provide my broker, bank or other agent with voting instructions, what happens? If you are a beneficial owner and do not instruct your broker, bank or other agent how to vote your shares, the question of whether your broker or nominee will still be able to vote your shares depends on whether, pursuant to stock exchange rules, the particular proposal is deemed to be a “routine” matter. Brokers and nominees can use 5 their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non- routine” matters. Under applicable rules and interpretations, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholders, such as mergers, stockholder proposals, elections of directors (even if not contested), executive compensation, and certain corporate governance proposals, even if management-supported. Accordingly, your broker or nominee may vote your shares on Proposal 4. Your broker or nominee, however, may not vote your shares on Proposals 1 through 3 without your instructions. Such an event would result in a “broker non-vote” and these shares will not be counted as having been voted on the applicable proposal. Please instruct your bank, broker or other agent to ensure that your vote will be counted. What are “broker non-votes”? As discussed above, when a beneficial owner of shares held in “street name” does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed to be “non-routine,” the broker or nominee cannot vote the shares. These unvoted shares are counted as “broker non-votes.” As a reminder, if you are a beneficial owner of shares held in “street name,” in order to ensure your shares are voted in the way you would prefer, you must provide voting instructions to your broker, bank or other agent by the deadline provided in the materials you receive from such organization. How are votes counted? Votes will be counted by the inspector of election appointed for the Annual Meeting, who will separately count: (1) with respect to Proposal 1, votes “FOR,” “WITHHOLD” and broker non-votes, (2) with respect to Proposal 2, votes “FOR,” “AGAINST,” abstentions and broker non-votes, (3) with respect to Proposal 3, votes for “ONE YEAR,” “TWO YEARS,” “THREE YEARS,” abstentions and broker non-votes, and (4) with respect to Proposal 4, votes “FOR,” “AGAINST” and abstentions. Abstentions will be counted towards the vote total for Proposals 2 and 4, and will have the same effect as “AGAINST” votes. Broker non-votes have no effect and will not be counted towards the vote total for any proposal. How many votes are needed to approve each proposal? The following table summarizes the minimum vote needed to approve each proposal and the effect of abstentions and broker non- votes: Proposal 1. Election of directors 2. Advisory Vote on the Compensation of our Named Executive Officers “Withhold” Vote No effect Not applicable Broker Non-Votes No effect Abstentions Not applicable Against No effect Vote Required for Approval The two nominees receiving the most “FOR” votes will be elected. This proposal, commonly referred to as the “say-on-pay” vote, must receive “FOR” votes from the holders of a majority in voting power of the shares present at the meeting (by virtual attendance) or represented by proxy and entitled to vote on the proposal. Since this proposal is an advisory vote, the result will not be binding on our board of directors. However, our board of directors values our stockholders’ opinions, and our board of directors and the compensation committee will take into account the outcome of the advisory vote when considering future executive compensation decisions. 6 Proposal 3. Advisory Vote on Frequency of “Say-on-Pay” Vote “Withhold” Vote Not applicable Broker Abstentions Non-Votes No effect No effect Vote Required for Approval The option of one, two or three years that receives the highest number of votes will be approved. Since this proposal is an advisory vote, the result will not be binding on our board of directors. However, our board of directors values our stockholders’ opinions, and our board of directors and the compensation committee will take into account the outcome of the advisory vote when determining how often we should submit to stockholders future “say-on-pay” votes. 4. Ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021 Must receive “FOR” votes from the holders of a majority of shares present by virtual attendance or represented by proxy and entitled to vote on the matter. Not applicable Against Not applicable What is the quorum requirement? A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the voting power of the outstanding shares entitled to vote are present at the Annual Meeting by virtual attendance or represented by proxy. On the Record Date, there were 233,870,998 shares of our Class A common stock and 74,473,211 shares of our Class B common stock outstanding and entitled to vote. Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other agent) or if you vote online during the Annual Meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the holders of a majority of the voting power of the shares present at the Annual Meeting by virtual attendance or represented by proxy may adjourn the Annual Meeting to another date. How can I find out the results of the voting at the Annual Meeting? Preliminary voting results will be announced at the Annual Meeting. In addition, final voting results will be published in a current report on Form 8-K that we expect to file within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the Annual Meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results. When are stockholder proposals due for next year’s annual meeting? To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by December 24, 2021, to our Secretary at 620 8th Avenue, 45th Floor, New York, New York 10018, Attention: Secretary. Pursuant to our amended and restated bylaws, if you wish to submit a proposal (including a director nomination) at the 2022 annual meeting that is not to be included in next year’s proxy materials, you must do so not later than the close of business on March 11, 2022 nor earlier than the close of business on February 10, 2022. However, if 7 the date of our 2021 annual meeting is not held between May 11, 2022 and July 10, 2022, to be timely, notice by the stockholder must be received (A) not earlier than the close of business on the 120th day prior to the 2022 annual meeting and (B) not later than the close of business on the later of the 90th day prior to the 2022 annual meeting or, if later than the 90th day prior to the 2022 annual meeting, the 10th day following the day on which public announcement of the date of the 2022 annual meeting is first made. You are also advised to review our amended and restated bylaws, which contain additional requirements about advance notice of stockholder proposals and director nominations. Who is paying for this proxy solicitation? We will pay for the cost of soliciting proxies. In addition to these proxy materials, our directors and employees may also solicit proxies in person, by telephone or by other means of communication. Directors and employees will not be paid additional compensation for soliciting proxies. We may reimburse brokers, banks and other agents for the cost of forwarding proxy materials to beneficial owners. 8 PROPOSAL 1 ELECTION OF DIRECTORS Our board of directors currently consists of seven members and is divided into three classes. Each class consists, as nearly as possible, of one-third of the total number of directors, and each class has a three-year term. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election until the third annual meeting following the election. Our directors are divided into the three classes as follows: • Class II directors: Alexis Lê-Quôc and Michael Callahan, whose terms will expire at the upcoming Annual Meeting; • Class III directors: Julie Richardson and Matthew Jacobson, whose terms will expire at the annual meeting of stockholders to be held in 2022; and • Class I directors: Olivier Pomel, Dev Ittycheria and Shardul Shah, whose terms will expire at the annual meeting of stockholders to be held in 2023. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. Vacancies on the board of directors may be filled only by persons elected by a majority of the remaining directors. A director elected by the board of directors to fill a vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for the remainder of the full term of that class and until the director’s successor is duly elected and qualified. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of Datadog. Each of Mr. Lê-Quôc and Mr. Callahan is currently a member of our board of directors, was previously elected by the stockholders and has been nominated for reelection to serve as a Class II director. Each of these nominees has agreed to stand for reelection at the Annual Meeting. Our management has no reason to believe that any nominee will be unable to serve. If elected at the Annual Meeting, each of these nominees would serve until the annual meeting of stockholders to be held in 2024 and until his successor has been duly elected, or if sooner, until the director’s death, resignation or removal. Directors are elected by a plurality of the votes of the holders of shares present by virtual attendance or represented by proxy and entitled to vote on the election of directors. Accordingly, the two nominees receiving the highest number of “FOR” votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the two nominees named above. If any nominee becomes unavailable for election as a result of an unexpected occurrence, shares that would have been voted for that nominee will instead be voted for the election of a substitute nominee proposed by us. Our nominating and corporate governance committee seeks to assemble a board that, as a whole, possesses the appropriate balance of professional and industry knowledge, financial expertise, diversity and high-level management experience necessary to oversee and direct our business. To that end, the committee has identified and evaluated nominees in the broader context of the board’s overall composition, with the goal of recruiting members who complement and strengthen the skills of other members and who also exhibit integrity, collegiality, sound business judgment and other qualities that the committee views as critical to effective functioning of the board. To provide a mix of experience and perspective on the board, the committee also takes into account geographic, gender, and ethnic diversity. The biographies below include information, as of the date of this proxy statement, regarding the specific and particular experience, qualifications, attributes or skills of each director or director nominee that led the committee to believe that that nominee should continue to serve on the board. However, each of the members of the committee may have a variety of reasons why a particular person would be an appropriate nominee for the board, and these views may differ from the views of other members. OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH CLASS II DIRECTOR NOMINEE NAMED ABOVE. 9 INFORMATION REGARDING DIRECTOR NOMINEES AND CURRENT DIRECTORS The following table sets forth, for the Class II nominees and our other directors who will continue in office after the Annual Meeting, their ages and position or office held with us as of the date of this proxy statement: Name Age Principal Occupation/Position Class II director nominees for election at the 2021 Annual Meeting of Stockholders Alexis Lê-Quôc ............................. 46 President, Chief Technology Officer, Co-Founder and Director Michael Callahan ........................... 51 Director Class III directors continuing in office until the 2022 Annual Meeting of Stockholders Matthew Jacobson ......................... 37 Director Julie Richardson ............................ 58 Director Class I directors continuing in office until the 2023 Annual Meeting of Stockholders Olivier Pomel................................. 44 Chief Executive Officer, Co-Founder and Director Dev Ittycheria ................................ 54 Director Shardul Shah .................................. 38 Director Set forth below is biographical information for the director nominees and each person whose term of office as a director will continue after the Annual Meeting. This includes information regarding each director’s experience, qualifications, attributes or skills that led our board of directors to recommend them for board service. Nominees for Election at the 2021 Annual Meeting of Stockholders Alexis Lê-Quôc is one of the co-founders of our company and has served as our President, Chief Technology Officer and a member of our board of directors since June 2010. Prior to co-founding Datadog, Mr. Lê-Quôc worked at Wireless Generation from March 2004 to December 2010, where he most recently served as Director of Live Operations. Previously, Mr. Lê-Quôc held engineering positions at a number of technology and software companies, including IBM Research and France Télécom S.A. Mr. Lê-Quôc received his M.S. in Computer Science from CentraleSupélec. We believe Mr. Lê-Quôc is qualified to serve as a member of our board of directors because of his experience building and leading the development of our technology and his insight into our business as our Chief Technology Officer. Michael Callahan has served as a member of our board of directors since June 2011. Mr. Callahan served as Chief Executive Officer of Awake Security, Inc., a private cyber security company that he co-founded, from August 2014 to July 2018. From September 2011 to August 2014, Mr. Callahan was an Entrepreneur in Residence at Greylock Partners. Earlier in his career, Mr. Callahan was Chief Technologist for Enterprise NAS at Hewlett Packard from April 2007 to October 2009; Chief Technology Officer and co-founder of PolyServe, a software company, from May 2000 to April 2007; and Director of Advanced Development at Ask Jeeves, a search engine, from January 1999 to May 2000. Mr. Callahan received his A.B. in Social Studies from Harvard University and was a Rhodes Scholar and Junior Research Fellow in mathematics at the University of Oxford. We believe that Mr. Callahan is qualified to serve as a member of our board of directors because of his extensive experience in the technology industry. Directors Continuing in Office Until the 2022 Annual Meeting of Stockholders Matthew Jacobson has served as a member of our board of directors since July 2019, and previously served as a board observer from December 2015 through July 2019. He is a General Partner and a Managing Director at ICONIQ Capital, an investment and venture capital firm, where he has worked since September 2013 and sits on the firm’s investment and management committees. Mr. Jacobson currently serves on the boards of a number of private technology companies, including GitLab Inc., Collibra NV, BambooHR LLC, Braze, Inc., Sprinklr Inc., Relativity ODA LLC, InVisionApp Inc. and Intercom Inc. Mr. Jacobson previously served on the board of 10 directors of Twistlock Inc. from August 2018 to July 2019 and as a shareholder representative for Adyen NV from September 2015 to June 2018. Prior to ICONIQ Capital, Mr. Jacobson held operating roles at Groupon and investing roles at Battery Ventures and Technology Crossover Ventures. He began his career as an investment banker at Lehman Brothers. Mr. Jacobson received his B.S. in Economics with concentrations in Finance and Management from The Wharton School at the University of Pennsylvania. We believe that Mr. Jacobson is qualified to serve as a member of our board of directors because of his extensive experience in the venture capital and technology industries. Julie G. Richardson has served as a member of our board of directors since May 2019. From November 2012 to October 2014, Ms. Richardson was a Senior Adviser to Providence Equity Partners LLC, a global asset management firm. From April 2003 to November 2012, Ms. Richardson was a Partner and Managing Director at Providence Equity, a private equity investment fund, and oversaw its New York office. Prior to Providence Equity, Ms. Richardson served as Global Head of JP Morgan’s Telecom, Media and Technology Group, and was previously a Managing Director in Merrill Lynch & Co.’s investment banking group. Ms. Richardson has served on the board of directors of VEREIT, Inc., a publicly held real estate investment operating property company, since April 2015, UBS Group AG, a publicly held financial services company, since May 2017, and Yext Inc., a technology and online brand management company, since May 2015. Ms. Richardson previously served on the boards of directors of Arconic, Inc. from 2016 to 2018 and The Hartford Financial Group from 2014 to 2020. Ms. Richardson holds a B.B.A from the University of Wisconsin- Madison. We believe that Ms. Richardson is qualified to serve as a member of our board of directors because of her investment management and financial services experience, and her extensive experience serving on public company boards. Directors Continuing in Office Until the 2023 Annual Meeting of Stockholders Olivier Pomel is one of the co-founders of our company and has served as our Chief Executive Officer and a member of our board of directors since June 2010. Prior to co-founding Datadog, Mr. Pomel was Vice President of Technology at Wireless Generation, Inc., a SaaS technology company, from 2002 until its acquisition by News Corp. in 2010. Previously, Mr. Pomel held engineering positions at a number of technology and software companies, including IBM Research. Mr. Pomel received his M.S. in Computer Science from Ecole Centrale Paris. We believe Mr. Pomel is qualified to serve as a member of our board of directors because of his experience building and leading our business and his insight into corporate matters as our Chief Executive Officer. Dev Ittycheria has served as a member of our board of directors since February 2014. Mr. Ittycheria has served as President and Chief Executive Officer of MongoDB, Inc. and as a member of its board of directors since September 2014. In 2020, Mr. Ittycheria was elected to the board of directors of Altimeter Growth Corporation, a public special purpose investment vehicle formed to invest in a technology company. Prior to joining MongoDB, Mr. Ittycheria served as a Managing Director at OpenView Venture Partners, a venture capital firm, from October 2013 to September 2014. From February 2012 to June 2013, Mr. Ittycheria served as a Venture Partner at Greylock Partners, a venture capital firm. From April 2008 to February 2010, Mr. Ittycheria served as President-Enterprise Management at BMC Software, Inc., a computer software company, which he joined in connection with its acquisition of BladeLogic, Inc., a computer software company that Mr. Ittycheria co-founded and for which he served as Chief Executive Officer. Mr. Ittycheria previously served on the board of directors of athenahealth, Inc., a public cloud-based services company, from June 2010 to February 2019; Bazaarvoice, Inc., a public software company, from January 2010 to August 2014; and AppDynamics, Inc., a private software company, from March 2011 until its acquisition by Cisco Systems, Inc. in March 2017. Mr. Ittycheria received his B.S. in Electrical Engineering from Rutgers University. We believe that Mr. Ittycheria is qualified to serve as a member of our board of directors because of his experience in building and leading high-growth businesses and his service on the boards of multiple public companies. Shardul Shah has served as a member of our board of directors since November 2012. He is a partner at Index Ventures, a venture capital firm, where he has worked since 2008. Mr. Shah’s investment focus is primarily centered around cloud infrastructure, security and enterprise software. Mr. Shah currently serves on the board of 11 directors of multiple private technology companies, including AttackIQ, Inc., Brightback Inc., Castle Intelligence, Inc., Expel Inc., Gatsby, Inc. and Iterable, Inc. Mr. Shah was previously a director of Adallom Ltd. (acquired by Microsoft), FutureSimple Inc. (previously Base CRM) (acquired by Zendesk) and Lacoon Mobile Security (acquired by Check Point) and an investor in Duo Security (acquired by Cisco). Prior to Index Ventures, Mr. Shah was an associate at Summit Partners. Mr. Shah received his B.A. in Economics and Biology from the University of Chicago. We believe that Mr. Shah is qualified to serve as a member of our board of directors because of his experience in the venture capital industry and his knowledge of infrastructure, security and software. 12 INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE Independence of the Board of Directors Our Class A common stock is listed on the Nasdaq Global Select Market (“Nasdaq”). Under the Nasdaq listing standards, a majority of the members of our board of directors must qualify as “independent,” as affirmatively determined by our board of directors. Our board of directors consults with our counsel to ensure that its determinations are consistent with relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of Nasdaq, as in effect from time to time. Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, and any of his or her family members, and Datadog, our senior management and our independent auditors, our board of directors has affirmatively determined that the following five directors are independent directors within the meaning of the applicable Nasdaq listing standards: Ms. Richardson and Messrs. Callahan, Ittycheria, Jacobson and Shah. In making this determination, our board of directors found that none of these directors or nominees for director had a material or other disqualifying relationship with Datadog. Messrs. Pomel and Lê-Quôc are not independent due to their positions as executive officers of Datadog. Accordingly, a majority of our directors are independent, as required under applicable Nasdaq rules. In making this determination, our board of directors considered the applicable Nasdaq rules and the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including their beneficial ownership of our capital stock. Board Leadership Structure Dev Ittycheria currently serves as lead independent director of our board of directors. The primary responsibilities of the lead independent director are to: work with the Chief Executive Officer to develop board meeting schedules and agendas; provide the Chief Executive Officer feedback on the quality, quantity and timeliness of the information provided to the board; develop the agenda for and moderate executive sessions of the independent members of the board; preside over board meetings when the chairperson is not present; act as principal liaison between the independent members of the board and the Chief Executive Officer; and convene meetings of the independent directors as appropriate. Accordingly, the lead independent director has substantial ability to shape the work of the board. We believe that having a lead independent director supports the board in its oversight of the business and affairs of Datadog. In addition, we believe that having a lead independent director creates an environment that is conducive to objective evaluation and oversight of management’s performance, increasing management accountability and improving the ability of the board to monitor whether management’s actions are in the best interests of Datadog and its stockholders. As a result, Datadog believes that having a lead independent director can enhance the effectiveness of the board as a whole. Role of the Board in Risk Oversight Our board of directors oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, to improve long-term organizational performance, and to enhance stockholder value. A fundamental part of risk management is not only understanding the most significant risks a company faces and what steps management is taking to manage those risks but also understanding what level of risk is appropriate for a given company. The involvement of our full board of directors in reviewing our business is an integral aspect of its assessment of management’s tolerance for risk and also its determination of what constitutes an appropriate level of risk. While our full board of directors has overall responsibility for risk oversight, it has delegated oversight of certain risks to its committees. Our audit committee monitors our major financial risk exposures and the steps our 13 management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Furthermore, our audit committee oversees risks associated with cybersecurity, information security and data privacy, and regularly reviews with management our data security programs and assessment, management and mitigation of such risk. Further, our audit committee also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function. Our compensation committee monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. Our nominating and corporate governance committee oversees our major corporate governance risks, including through monitoring the effectiveness of our Corporate Governance Guidelines. In connection with its reviews of the operations of our business, our full board of directors addresses the primary risks associated with our business including, for example, strategic planning. Our board of directors appreciates the evolving nature of our business and industry and is actively involved with monitoring new threats and risks as they emerge. In particular, our board of directors has been closely monitoring the rapidly evolving COVID-19 pandemic, its potential effects on our business, and risk mitigation strategies. At periodic meetings of our board of directors and its committees, management reports to and seeks guidance from our board and its committees with respect to the most significant risks that could affect our business, such as legal risks, information security and privacy risks, and financial, tax and audit-related risks. In addition, among other matters, management provides our audit committee periodic reports on our compliance programs and investment policy and practices. Meetings of the Board of Directors Our board of directors is responsible for the oversight of management and the strategy of our company and for establishing corporate policies. Our board of directors meets periodically during the year to review significant developments affecting us and to act on matters requiring the approval of our board of directors. Our board of directors met six times during our last fiscal year, of which each director attended 75% or more of the aggregate of the meetings of our board of directors and of the committees on which he or she served. We encourage our directors and nominees for director to attend our Annual Meeting. All of the directors attended our 2020 annual meeting of stockholders. Information Regarding Committees of the Board of Directors Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Our board of directors may establish other committees to facilitate the management of our business. Our board of directors has adopted a written charter for each of our committees, which are available to stockholders on our investor relations website at investors.datadoghq.com. The following table provides membership and meeting information for fiscal 2020 for each of the committees of our board of directors: Name Audit Compensation Nominating and Corporate Governance Olivier Pomel ............................................................................................................. Alexis Lê-Quôc .......................................................................................................... Michael Callahan ....................................................................................................... X Matthew Jacobson ...................................................................................................... X Dev Ittycheria............................................................................................................. Julie Richardson ......................................................................................................... X* Shardul Shah .............................................................................................................. X Total Meetings in 2020 .............................................................................................. 5 X* X X 4 X* X X 2 * Committee Chairperson 14 Our board of directors has determined that each member of each committee meets the applicable Nasdaq rules and regulations regarding “independence” and each member is free of any relationship that would impair his or her individual exercise of independent judgment with regard to us. Below is a description of each committee of our board of directors. Audit Committee The audit committee of our board of directors consists of Ms. Richardson and Messrs. Callahan, Jacobson and Shah. Ms. Richardson is the chair of the audit committee. Our board of directors reviews the Nasdaq listing standards definition of independence for audit committee members on an annual basis and has determined that each member of the audit committee satisfies the independence requirements under Nasdaq listing standards and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our board of directors has also determined that Ms. Richardson, the chair of the audit committee, is an “audit committee financial expert” within the meaning of SEC regulations. Each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, our board of directors has examined each audit committee member’s scope of experience and the nature of their employment in the corporate finance sector. The principal duties and responsibilities of our audit committee include, among other things: • • • • • • • • • selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; helping to ensure the independence and performance of the independent registered public accounting firm; helping to maintain and foster an open avenue of communication between management and the independent registered public accounting firm; discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent accountants, our interim and year-end operating results; developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters; reviewing our policies on risk assessment and risk management; reviewing related party transactions; obtaining and reviewing a report by the independent registered public accounting firm at least annually, that describes its internal quality-control procedures, any material issues with such procedures, and any steps taken to deal with such issues when required by applicable law; and approving (or, as permitted, pre-approving) all audit and all permissible non-audit services to be performed by the independent registered public accounting firm. Report of the Audit Committee of the Board of Directors The audit committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2020 with management. The audit committee has also reviewed and discussed with Deloitte & Touche LLP, Datadog’s independent registered public accounting firm, the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (“PCAOB”). The audit committee has also received the written disclosures and the letter from Deloitte & Touche LLP required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the audit committee concerning independence, and has discussed with Deloitte & Touche LLP the accounting firm’s independence. Based on the foregoing, the audit committee has recommended to the board of directors that the audited financial statements be included in Datadog’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and filed with the SEC. 15 Members of the Audit Committee Julie Richardson, Chairperson Michael Callahan Matthew Jacobson Shardul Shah The material in this report is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of Datadog under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. Compensation Committee The compensation committee of our board of directors consists of Messrs. Callahan and Ittycheria and Ms. Richardson. Mr. Callahan is the chair of the compensation committee. Our board of directors reviews the Nasdaq listing standards definition of independence for compensation committee members on an annual basis and has determined that each member of the compensation committee satisfies the independence requirements under Nasdaq listing standards and is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act. The compensation committee acts on behalf of our board of directors to review, oversee and approve (or make recommendations to our board of directors for approval of) our compensation strategy, policies, plans and programs, including: • • • • • • • • approving the retention of compensation consultants and outside service providers and advisors; reviewing and approving, or recommending that our board of directors approve, the compensation, individual and corporate performance goals and objectives and other terms of employment of our executive officers, including evaluating the performance of our chief executive officer and, with his assistance, that of our other executive officers; reviewing and recommending to our board of directors the compensation of our directors; administering any equity and non-equity incentive plans; reviewing our practices and policies of employee compensation as they relate to risk management and risk-taking incentives; reviewing and evaluating succession plans for the executive officers; reviewing and approving, or recommending that our board of directors approve, incentive compensation and equity plans; and reviewing and establishing general policies relating to compensation and benefits of our employees and reviewing our overall compensation philosophy. Compensation Committee Processes and Procedures The compensation committee generally meets quarterly and with greater frequency if necessary. The compensation committee also acts periodically by unanimous written consent in lieu of a formal meeting. The agenda for each meeting is usually developed by the chairperson of the compensation committee, in consultation with management. The compensation committee meets regularly in executive session. However, from time to time, various members of management and other employees as well as outside advisors or consultants may be invited by the compensation committee to make presentations, to provide financial or other background information or advice or to otherwise participate in compensation committee meetings. Our Chief Executive Officer may not participate in, or be present during, any deliberations or determinations of the compensation committee regarding his compensation. 16 The charter of the compensation committee grants the compensation committee full access to all books, records, facilities and personnel of Datadog. In addition, under the charter, the compensation committee has the authority to obtain, at our expense, advice and assistance from compensation consultants and internal and external legal, accounting or other advisors and other external resources that the compensation committee considers necessary or appropriate in the performance of its duties. The compensation committee has direct responsibility for the oversight of the work of any consultants or advisers engaged for the purpose of advising the compensation committee. In particular, the compensation committee has the authority to retain compensation consultants to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms. Compensation Committee Interlocks and Insider Participation No member of our compensation committee is currently one of our officers or employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Report of the Compensation Committee of the Board of Directors The compensation committee has reviewed and discussed the section of this proxy statement titled “Compensation Discussion and Analysis” with management. Based on such review and discussion, the compensation committee has recommended to the board of directors that the section titled “Compensation Discussion and Analysis” be included in this proxy statement and incorporated into Datadog’s annual report on Form 10-K for the fiscal year ended December 31, 2020. Respectfully submitted by the members of the compensation committee of the board of directors: Members of the Compensation Committee Michael Callahan, Chairperson Dev Ittycheria Julie Richardson The material in this report is not “soliciting material,” is furnished to, but not deemed “filed” with, the SEC and is not deemed to be incorporated by reference in any filing of Datadog under the Securities Act or the Exchange Act, other than Datadog’s Annual Report on Form 10-K, where it shall be deemed to be “furnished,” whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. Nominating and Corporate Governance Committee The nominating and corporate governance committee of our board of directors consists of Messrs. Jacobson, Ittycheria and Shah. Mr. Jacobson is the chair of the nominating and corporate governance committee. Our board of directors reviews the Nasdaq listing standards definition of independence on an annual basis and has determined that each member of the nominating and corporate governance committee satisfies the independence requirements under Nasdaq listing standards. The principal duties and responsibilities of our nominating and corporate governance committee include, among other things: • • • identifying, evaluating, and selecting, or recommending that our board of directors approve, nominees for election to our board of directors and its committees; approving the retention of director search firms; evaluating the performance of our board of directors and of individual directors; 17 • • • considering and making recommendations to our board of directors regarding the composition of our board of directors and its committees; evaluating the adequacy of our corporate governance practices and reporting; and overseeing periodic evaluations of the board’s performance. The nominating and corporate governance committee believes that candidates for director should have certain minimum qualifications, including the ability to read and understand basic financial statements and having the highest personal integrity and ethics. The nominating and corporate governance committee also intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to our affairs, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of our stockholders. These qualifications may be modified from time to time. Candidates for director nominees are reviewed in the context of the current composition of the board of directors, the operating requirements of Datadog and the long-term interests of our stockholders. In conducting this assessment, the nominating and corporate governance committee typically considers diversity (including gender, racial and ethnic diversity), skills and such other factors as it deems appropriate, given the current needs of the board of directors and our business, to maintain a balance of knowledge, experience and capability. In the case of incumbent directors whose terms of office are set to expire, the nominating and corporate governance committee reviews these directors’ overall service to Datadog during their terms, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair the directors’ independence. In the case of new director candidates, our nominating and corporate governance committee also evaluates whether the nominee is independent for Nasdaq purposes, based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. Our nominating and corporate governance committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of our board of directors. Our nominating and corporate governance committee meets to discuss and consider the candidates’ qualifications and then selects a nominee for recommendation to our board of directors. Our nominating and corporate governance committee will consider stockholder recommendations of director candidates, so long as they comply with applicable law and our amended and restated bylaws, which procedures are summarized below, and will review the qualifications of any such candidate in accordance with the criteria described in the two preceding paragraphs. Stockholders who wish to recommend individuals for consideration by our nominating and corporate governance committee to become nominees for election to our board of directors should do so by delivering a written recommendation to our nominating and corporate governance committee at 620 8th Avenue, 45th Floor, New York, New York 10018, Attention: Secretary, at least 120 days prior to the anniversary date of the mailing of our proxy statement for the last annual meeting of stockholders. Each submission must include, among other things, the name, age, business address and residence address of the proposed candidate, the principal occupation or employment of the proposed candidate, details of the proposed candidate’s ownership of our capital stock, a description of the proposed candidate’s business experience for at least the last five years, and a description of the proposed candidate’s qualifications as a director. Any such submission must be accompanied by the written consent of the proposed candidate to be named as a nominee and to serve as a director if elected. If, rather than submitting a candidate to the nominating and corporate governance committee for consideration, you wish to formally nominate a director pursuant to proxy materials that you will prepare and file with the SEC, please see the deadline described in “When are stockholder proposals due for next year’s annual meeting?” above and refer to our amended and restated bylaws for a complete description of the required procedures for nominating a candidate to our board of directors. 18 Stockholder Communications with the Board of Directors Our board of directors has adopted a formal process by which stockholders may communicate with the board or any of its directors. Stockholders and other interested parties wishing to communicate with the board or an individual director may send a written communication c/o Datadog, Inc., 620 8th Avenue, 45th Floor, New York, New York, 10018, Attn: Secretary. Written communications may be submitted anonymously or confidentially and may, at the discretion of the person submitting the communication, indicate whether the person is a stockholder or other interested party. Each communication will be reviewed by the Secretary to determine whether it is appropriate for presentation to the board or such director. Examples of inappropriate communications include product complaints, product inquiries, new product suggestions, resumes or job inquiries, surveys, solicitations or advertisements, or hostile communications. Communications determined by the Secretary to be appropriate for presentation to the board or such director will be submitted to the board or such director on a periodic basis. Communications determined by the Secretary to be inappropriate for presentation will still be made available to any non-management director upon such director’s request. Code of Business Conduct and Ethics Our board of directors has adopted the Datadog, Inc. Code of Business Conduct and Ethics that applies to all officers, directors and employees. The Code of Business Conduct and Ethics is available on our website at investors.datadoghq.com. If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code of Business Conduct and Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website. Corporate Governance Guidelines Our board of directors has adopted the Datadog, Inc. Corporate Governance Guidelines for the conduct and operation of the board in order to give directors a flexible framework for effectively pursuing our objectives for the benefit of our stockholders. The Corporate Governance Guidelines set forth the practices the board of directors intends to follow with respect to board composition and selection, board meetings and involvement of senior management, Chief Executive Officer performance evaluation and management succession planning and board committees and compensation. The Corporate Governance Guidelines may be viewed on our website at investors.datadoghq.com. Prohibition on Hedging, Short Sales and Pledging Our board of directors has adopted an insider trading policy, which prohibits hedging or monetization transactions with respect to our Class A common stock, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars, and exchange funds. In addition, our insider trading policy prohibits trading in derivative securities related to our Class A common stock, which include publicly traded call and put options, engaging in short selling of our Class A common stock, purchasing our Class A common stock on margin or holding it in a margin account and pledging our shares as collateral for a loan. 19 PROPOSAL 2 APPROVAL, ON A NON-BINDING, ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS In accordance with the requirements of Section 14A of the Exchange Act, we are providing our stockholders the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our named executive officers (as disclosed under “Executive Compensation—Compensation Discussion and Analysis,” the tables included under the heading “Executive Compensation” and the accompanying narrative). You are encouraged to review the section titled “Executive Compensation” and, in particular, the section titled “Executive Compensation—Compensation Discussion and Analysis” in this proxy statement, which provide a comprehensive review of our executive compensation program and its elements, objectives and rationale. The vote on this resolution is not intended to address any specific element of compensation, rather the vote relates to the compensation of our named executive officers in its totality, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC. In accordance with Section 14A of the Exchange Act rules, stockholders are asked to approve the following non-binding resolution: “RESOLVED, that the Company’s stockholders hereby approve, on a non-binding, advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2021 Annual Meeting of Stockholders, pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and the accompanying narrative.” The approval of this non-binding proposal requires the affirmative vote of a majority of the voting power of the shares of our common stock present at the meeting (by virtual attendance) or by proxy and entitled to vote thereon. Since this proposal is an advisory vote, the result will not be binding on our board of directors or our compensation committee. However, our board of directors values our stockholders’ opinions, and our board of directors and the compensation committee will take into account the outcome of the advisory vote when considering future executive compensation decisions. OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE NON-BINDING RESOLUTION ON NAMED EXECUTIVE OFFICER COMPENSATION. 20 The following table sets forth, for our executive officers, their ages and position held with us as of the date of this proxy statement: EXECUTIVE OFFICERS Name Olivier Pomel............................................................................................................. Alexis Lê-Quôc ......................................................................................................... Amit Agarwal ............................................................................................................ David Obstler............................................................................................................. Dan Fougere .............................................................................................................. Laszlo Kopits ............................................................................................................. Armelle de Madre ...................................................................................................... Age 44 Chief Executive Officer, Co-Founder and Director 46 President, Chief Technology Officer, Co-Founder and Director 47 Chief Product Officer 61 Chief Financial Officer 50 Chief Revenue Officer 55 General Counsel and Secretary 50 Chief People Officer Principal Position Biographical information for Olivier Pomel and Alexis Lê-Quôc is included above with the director biographies under the caption “Information Regarding Director Nominees and Current Directors.” Amit Agarwal has served as our Chief Product Officer since April 2012. Prior to Datadog, Mr. Agarwal held senior product management and engineering positions at a number of software companies, including Quest Software and IBM. Mr. Agarwal received his M.B.A. in General Management from York University and his M.S. in Computer Science from Dalhousie University. David Obstler has served as our Chief Financial Officer since November 2018. Prior to joining us, Mr. Obstler held Chief Financial Officer positions at a number of other companies including TravelClick, Inc., a hospitality technology company, where he served from September 2014 to October 2018, OpenLink Financial LLC, a financial services software provider, where he served from November 2012 to July 2014, MSCI Inc., a financial index and investment management software company, where he served from June 2010 to September 2012, and Risk Metrics Group, Inc., a risk management and corporate governance service provider, where he served from January 2005 to June 2010. Earlier in his career, Mr. Obstler held various investment banking positions at J.P. Morgan, Lehman Brothers and Goldman Sachs. Mr. Obstler received his M.B.A. from Harvard Business School and his B.A. from Yale University. Dan Fougere has served as our Chief Revenue Officer since February 2017. Prior to joining us, Mr. Fougere held various roles at Medallia, Inc., a SaaS-based customer feedback company, including Head of Global Sales from September 2016 to January 2017 and Vice President of Sales from April 2012 to August 2016. From April 2008 to April 2012, Mr. Fougere was Area Director at BMC Software, Inc., an information technology and services company. Earlier in his career, Mr. Fougere held sales positions at various technology companies including Actuate Corporation, BladeLogic Server Automation and Parametric Technology Corp. Mr. Fougere received his B.S. in Mechanical Engineering from Rensselaer Polytechnic Institute. Laszlo Kopits has served as our General Counsel since January 2018, and prior to that as our Deputy General Counsel from February 2017. Mr. Kopits served as a Director of Fluence Learning, LLC, an education technology company producing instructional assessment content and technology, from April 2016 to August 2017. Previously, Mr. Kopits worked at Wireless Generation and, after its acquisition by News Corp., Amplify Education, Inc., where he served as General Counsel from January 2006 to December 2015, and most recently as Executive Vice President. Earlier in his career, Mr. Kopits held legal positions at Thomson Reuters Corp. and Weil Gotshal & Manges LLP. Mr. Kopits received his J.D. from Stanford Law School and his M.A. in International Relations from Johns Hopkins University. Armelle de Madre has served as our Chief People Officer since September 2019. Prior to joining us, Ms. de Madre held various roles at Arkadin Cloud Communications, a provider of cloud communication services, including Chief People Officer from April 2017 to August 2019, Vice President of Human Resources for Europe, 21 the Middle East and Africa from January 2011 to November 2015 and Vice President of Marketing for Europe, the Middle East and Africa from December 2015 to March 2017. Prior to Arkadin, Ms. de Madre was a Strategy and Social Innovation Director at Schneider Electric France SAS, an electrical equipment company, from June 2010 to January 2011. Ms. de Madre began her career at Renault-Nissan Alliance, where she held multiple positions from 1993 through 2009. Ms. de Madre received her B.A. in Economics from the Columbia University and her Master’s from HEC Paris. 22 Compensation Discussion and Analysis Overview EXECUTIVE COMPENSATION We became a public company in September 2019, and we ceased to be an emerging growth company as of December 31, 2020. This proxy statement, therefore, includes detail regarding executive compensation that would not have been required had we continued to be an emerging growth company, including (i) this Compensation Discussion and Analysis, (ii) the additional compensation tables titled “Grants of Plan-Based Awards,” “Option Exercises and Stock Vested,” and “Potential Payments upon Termination or Change in Control,” and (iii) advisory votes on the compensation of our named executive officers and the preferred frequency of future advisory votes on the compensation of our named executive officers, which are included as Proposals 2 and 3 in this proxy statement. This Compensation Discussion and Analysis section discusses our executive compensation policies and how and why our compensation committee arrived at specific compensation decisions for the year ended December 31, 2020 for the individuals who served as our principal executive officer and principal financial officer and our three other most highly-compensated executive officers as of December 31, 2020, collectively referred to as our “named executive officers”: Name Position(s) Olivier Pomel .................................................. Chief Executive Officer and Co-Founder David Obstler ................................................. Chief Financial Officer Alexis Lê-Quôc ............................................... President, Chief Technology Officer and Co-Founder Amit Agarwal .................................................. Chief Product Officer Dan Fougere ................................................... Chief Revenue Officer Business Highlights Our Business Datadog is the monitoring and analytics platform for developers, IT operations teams and business users in the cloud age. Our SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management and security monitoring to provide unified, real-time observability of our customers’ entire technology stack. Datadog is used by organizations of all sizes and across a wide range of industries to enable digital transformation and cloud migration, drive collaboration among development, operations and business teams, accelerate time to market for applications, reduce time to problem resolution, understand user behavior and track key business metrics. Our platform consists of the following products that can be used individually or as a unified solution and includes a Marketplace where customers can access products built by our partners on top of the Datadog platform: • Infrastructure Monitoring provides real-time monitoring of IT infrastructure across public cloud, private cloud and hybrid environments, as well as in containers and serverless architectures, ensuring performance and availability of applications. • Application Performance Monitoring provides full visibility into the health and functioning of applications regardless of the deployment environment. • Log Management for applications, systems and cloud platforms ingests data, creates indexes and enables querying of logs with visualizations and alerting to ensure immediate insight into any performance issues. • User Experience Monitoring brings visibility up the stack to monitor the digital experience of the customer and is comprised of two products, Synthetics and Real User Monitoring. 23 • Network Performance Monitoring enables the analysis and visualization of the flow of network traffic in cloud-based or hybrid environments. • • Security Monitoring allows customers to detect threats in real time and investigate security signals across metrics, traces, and logs. Incident Management allows users to declare incidents, investigate root cause and dependencies, collaborate around a shared view of the incident, follow to resolution, and auto-generate post-mortem documentations. • Continuous Profiler measures code-level performance in any environment through an always-on, low-overhead solution. Fiscal Year 2020 Financial Highlights • Revenue was $603.5 million, an increase of 66% year-over-year. • Operating loss was $(13.8) million; operating margin was (2)%. • Non-GAAP operating income was $63.6 million; non-GAAP operating margin was 11%. • Net loss per diluted share was $(0.08); non-GAAP net income per diluted share was $0.22. • As of December 31, 2020, we had 97 customers with annual recurring revenue (“ARR”) of $1 million or more, an increase of 94% year-over-year, and 1,253 customers with ARR of $100,000 or more, an increase of 46% year-over-year. • We extended into security with the launch of Security Monitoring to detect threats in real time, and also launched Continuous Profiler and Incident Management to enhance workflows and collaboration as incidents occur. To supplement our consolidated financial statements, which are prepared in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP operating income, non-GAAP operating margin, and non-GAAP net income per diluted share. For a full reconciliation of each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP, and for information on how we calculate ARR, please see Exhibit 99.1 to our Current Report on Form 8-K filed on February 11, 2021. Executive Summary The important features of our executive compensation program include the following: • Our compensation committee consists solely of independent • We prohibit hedging and pledging of Datadog stock. What we do What we don’t do • We do not provide single-trigger vesting acceleration upon a change in control. • We do not provide our executive officers with any excise tax gross-ups or other material perquisites. members of our board of directors. • Our compensation committee has retained an independent third- in making party compensation consultant for guidance compensation decisions. • A significant portion of our named executive officers’ compensation is variable, at-risk and tied directly to our measurable performance. • Our annual performance-based bonus opportunities for all of our named executive officers are dependent upon our achievement of annual corporate objectives established each year. • Equity awards with multi-year vesting periods are an integral part of our executive compensation program, and comprise the primary at-risk portion of our named executive officer compensation package. 24 Objectives, Philosophy and Elements of Executive Compensation Our compensation program aims to achieve the following main objectives: • • • attract, retain and reward highly-qualified executives who have the skills and leadership necessary to grow our business; provide incentives that motivate and reward for achievement of our key performance goals; and align our executives’ interests with those of our stockholders by linking their long-term incentive compensation opportunities to stockholder value creation and their cash incentives to our annual performance. Our executive compensation program generally consists of the following three principal components: base salary, performance-based cash bonus and long-term equity incentive compensation. We also provide our executive officers with benefits available to all our employees, including retirement benefits under Datadog’s 401(k) plan and participation in employee benefit plans. The below chart summarizes the three main elements of our executive compensation, their objectives and key features. Element Base Salary (fixed cash) Performance-Based Cash Bonus (at-risk cash) • Objectives stable Provides performing job responsibilities. income • Attracts highly-qualified executives. Key Features for • Generally reviewed annually and determined by the compensation committee based on a number of factors (including company and individual performance) and by reference, in part, to market data obtained from our independent compensation consultant. • Motivates and for contributing to our key business objectives. rewards • Aligns management and stockholder interests by linking pay to performance. • Target amounts generally reviewed annually and determined by the compensation committee based upon positions that have similar impact on the organization and competitive bonus opportunities in our market. • Bonus opportunities are dependent upon achievement of specific corporate performance objectives consistent with our long-term strategic plan, generally determined by the compensation committee and communicated at the beginning of the year. Long-Term Incentive Equity • Motivates and rewards for long- term company performance. • Equity opportunities are generally reviewed annually and granted during the first half of the year. (at-risk equity) • Aligns management and stockholder interests by linking pay to performance. • Attracts highly-qualified executives and encourages their continued employment over the long-term. • Individual awards are determined based on a number of factors, including current corporate and individual performance and market data obtained from our independent compensation consultant. 25 We focus on providing a competitive compensation package to our executive officers that provides significant short and long-term incentives for the achievement of measurable corporate objectives. We believe that this approach provides an appropriate blend of short-term and long-term incentives to maximize stockholder value. We do not have any formal policies for allocating compensation among salary, performance bonus awards and equity grants, short- term and long-term compensation or among cash and non-cash compensation. Instead, the compensation committee uses its judgment to establish a total compensation program for each named executive officer that is a mix of current, short-term and long-term incentive compensation, and cash and non-cash compensation, that it believes appropriate to achieve the goals of our executive compensation program and our corporate objectives. However, historically we have structured a significant portion of the named executive officers’ total target compensation so that it is comprised of performance-based bonus opportunities and long-term equity awards in order to align the executive officers’ incentives with the interests of our stockholders and our corporate goals. How We Determine Executive Compensation Role of our Compensation Committee, Management and the Board The compensation committee is appointed by our board of directors and helps our board of directors oversee our compensation policies, plans and programs with the goal of attracting, incentivizing, retaining and rewarding top-quality executive management and employees. The compensation committee is responsible for reviewing and determining all compensation paid to our executive officers, including our named executive officers, and also reviews our compensation practices and policies as they relate to risk management and risk-taking incentives. Our compensation committee consists solely of independent members of the board. The compensation committee meets periodically throughout the year to manage and evaluate our executive compensation program, and generally determines the principal components of compensation (base salary, performance bonus and equity awards) for our executive officers on an annual basis; however, decisions may occur at other times for new hires, promotions or other special circumstances as our compensation committee determines appropriate. The compensation committee does not delegate authority to approve executive officer compensation. The compensation committee does not maintain a formal policy regarding the timing of equity awards to our executive officers. In fulfilling its responsibilities, the compensation committee considers input from an independent compensation consultant and, as appropriate, management. The Chief Executive Officer evaluates and provides to the compensation committee performance assessments and compensation recommendations. While the Chief Executive Officer discusses his recommendations with the compensation committee, he does not participate in the deliberations concerning, or the determination of, his own performance and compensation. The compensation committee discusses and makes final determinations with respect to executive compensation matters without the Chief Executive Officer present during discussions of the Chief Executive Officer’s compensation. From time to time, various other members of management and other employees as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, provide financial or other background information or advice or otherwise participate in the compensation committee meetings. Role of Compensation Consultant The compensation committee has the sole authority to retain compensation consultants to assist in its evaluation of executive compensation, including the authority to approve the consultant’s reasonable fees and other retention terms. The compensation committee retained Compensia as its independent compensation consultant for 2020. Compensia’s engagement included: • compiling a group of peer companies to use as a reference in making executive compensation decisions, evaluating current executive pay practices and considering different compensation programs to aid making executive pay decisions for 2020; 26 • • • conducting market research and analysis to assist the Compensation Committee in developing executive compensation levels, including appropriate salaries, target bonus amounts and equity awards for our executives, including the named executive officers; reviewing market and peer group equity usage metrics to assist with understanding of Datadog’s equity budget relative to market; and conducting a review of our director compensation policies and practices. The compensation committee has analyzed whether the work of Compensia as compensation consultant raises any conflict of interest, taking into account relevant factors in accordance with SEC guidelines. Based on its analysis, the compensation committee determined that the work of Compensia and the individual compensation advisors employed by Compensia does not create any conflict of interest pursuant to the SEC rules and stock exchange listing standards. Use of Competitive Market Compensation Data The compensation committee believes that it is important when making its compensation decisions to be informed as to the current practices of comparable public companies with which we compete for top talent. To this end, the compensation committee directed its independent compensation consultant to develop a proposed peer group list of the publicly-traded companies to be used in connection with assessing our compensation practices. The independent compensation consultant proposed, and the compensation committee approved, a group of public companies that are reasonably comparable to Datadog in terms of industry and financial characteristics to provide management and the compensation committee with relevant compensation information to support compensation decision-making. The executive compensation peer group was intended to reflect companies with executive positions of similar scope and complexity to Datadog. In determining the peer group, the independent compensation consultant considered whether a company was (i) U.S.-headquartered; (ii) a software / services company focused on SaaS and enterprise; (iii) within a range of 0.5x to 2.5x Datadog’s revenue; and (iv) within a range of 0.3x to 3.0x Datadog’s market capitalization. The independent compensation consultant also considered several secondary factors, including whether a potential peer company had strong revenue growth, recently completed an initial public offering, and had a comparable headcount. The peer group with respect to 2020 is as follows: Alteryx Anaplan Avalara Coupa Software CrowdStrike Holdings DocuSign Elastic HubSpot MongoDB New Relic Okta RingCentral Slack Technologies Smartsheet The Trade Desk Zendesk Zoom Video Communications Zscaler Zuora The compensation committee reviews our peer group at least annually and makes adjustments to its composition, if warranted, taking into account changes in both our business and the businesses of the companies in the peer group. Using data compiled from the peer companies, the independent compensation consultant completed an assessment of our executive compensation to inform the compensation committee’s determinations regarding executive compensation for 2020. The independent compensation consultant prepared, and the compensation committee reviewed, a range of market data reference points (generally at the 25th, 50th, and 75th percentiles of the market data) with respect to base salary, performance bonuses, equity compensation (valued based both on an 27 approximation of grant date fair value and as well as ownership percentage), total target cash compensation (base salary and the annual target performance bonus) and total direct compensation (total target cash compensation and equity compensation) with respect to each of the named executive officers. The compensation committee did not target pay to fall at any particular percentile of the market data, but rather reviewed these market data reference points as a helpful reference point in making 2020 compensation decisions. Market data is only one of the factors that the compensation committee considers in making compensation decisions. The compensation committee considers other factors as described below under “Factors Used in Determining Executive Compensation.” Factors Used in Determining Executive Compensation The compensation committee sets the compensation of our named executive officers at levels determined to be competitive and appropriate for each named executive officer, using their professional experience and judgment. Pay decisions are not made by use of a formulaic approach or benchmark; the compensation committee believes that executive pay decisions require consideration of a multitude of relevant factors which may vary from year to year. In making executive compensation decisions, the compensation committee generally takes into consideration the factors listed below. • Company and individual performance • • Existing business needs and criticality for future business needs and performance Scope of job function and skill set • Relative pay among our executive officers • Need to attract new talent and retain existing talent in a highly-competitive industry • Value of existing equity holdings, including the potential value of unvested equity awards • Range of market data reference points, as described above under “Use of Competitive Market Compensation Data” • Recommendations from the independent compensation consultant 2020 Executive Compensation Program Base Salary Base salary represents the fixed portion of the compensation of our executive officers, and is an important element of compensation intended to attract and retain highly-talented individuals. In February 2020, the compensation committee reviewed the base salaries of our executive officers, taking into consideration the competitive market analysis prepared by its compensation consultant and the recommendations of our Chief Executive Officer, as well as the other factors described in the section above. Following this review, the compensation committee approved base salary increases for our executive officers, including our Chief Executive Officer, effective March 1, 2020, to bring their base salaries to levels that were more aligned to the range of those of similarly-situated executives at the companies in our peer group. The base salaries approved for our executive officers, effective as of March 1, 2020, were as follows: Named Executive Officer Base Salary Olivier Pomel ..................................................................... $375,000, increased from $300,000 David Obstler ..................................................................... $375,000, increased from $350,000 Alexis Lê-Quôc.................................................................. $375,000, increased from $300,000 Amit Agarwal .................................................................... $375,000, increased from $350,000 Dan Fougere ...................................................................... $350,000, increased from $300,000 28 Annual Performance-Based Cash Bonus Our annual performance-based cash bonus awards provide incentive compensation that is specifically designed to motivate our executive officers to achieve pre-established, company-wide priorities set by the compensation committee and to reward them for results and achievements in a given year. The annual target bonus opportunities for our named executive officers are generally determined by the compensation committee in the first quarter of each year and expressed as a percentage of each individual’s annual base salary, with a potential cash bonus opportunity. The target bonus opportunities approved for and amounts earned by our executive officers for 2020 were as follows: Target Bonus Opportunity (% of Base Salary) Named Executive Officer Olivier Pomel..................................... 70%, increased from 33% David Obstler..................................... 70%, increased from 60% Alexis Lê-Quôc ................................. 70%, increased from 33% Amit Agarwal .................................... 70%, increased from 43% Dan Fougere ...................................... 100%, no increase Target Bonus Opportunity $262,500 $262,500 $262,500 $262,500 $350,000 Actual Bonus Earned $231,282 $231,282 $231,282 $231,282 $238,782 Executive Bonus Goal Setting. The compensation committee approved the performance metrics for 2020 performance-based cash bonus awards in the first quarter of fiscal year 2020. The targets against which performance is measured are generated through our annual budget and strategic planning process, which was reviewed with our board of directors and finalized in the first quarter of fiscal year 2020. For 2020, the compensation committee determined that the performance goals for our named executive officers would be based entirely on the attainment of new ARR, with certain decelerators applied for all named executive officers apart from our Chief Revenue Officer if cash burn exceeds a target amount. The performance target for new ARR was 100% of our fiscal year 2020 operating plan. The compensation committee intended this goal to be challenging to attain based on analysis of external market factors and internal forecasts. Our named executive officers, apart from our Chief Revenue Officer, will only earn a bonus if our new ARR attainment is at least 80% of the performance target. For purposes of calculating the bonus payout amount, when the new ARR attainment exceeds the performance target (which would, in the compensation committee’s view, require extraordinary efforts), accelerators are triggered in order to reward the higher than expected performance. Actual payouts for fiscal year 2020 are included in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” and are further discussed below. The variations in our Chief Revenue Officer’s bonus structure are based on a strategic determination that his bonus should be more aligned with the rest of the sales organization and be based on the generation of revenue and the efforts of the individuals who report to him. FY2020 Bonus Payouts For our named executive officers, the compensation committee generally considers and approves actual performance-based cash bonus award payments for the first half of the fiscal year at their first meeting following June 30 of that fiscal year, and considers and approves actual performance-based cash bonus award payments for the second half of the fiscal year in the first quarter of the following fiscal year. Beginning in 2021, the compensation committee determined to no longer make mid-year payments. In October 2020, the Compensation Committee approved payments for the first half of fiscal year 2020 based on the percentage attainment at mid-year against the performance target, resulting in a bonus payout equal to approximately 25% of Mr. Fougere’s annual target bonus opportunity and 31% of the other named executive officers’ annual target bonus opportunities. In February 2021, achievement of the corporate performance goals for fiscal year 2020 for Mr. Fougere was determined to be 68% of target and for the other named executive officers was determined to be 88%. Only the portion of each bonus that was earned in excess of the amount determined and paid in October 2020 (as described above) was paid in March 2021. The amount of the aggregate bonus that was paid with respect to fiscal year 2020 was determined in strict accordance with the terms of the annual bonus program based on performance, with no discretionary supplemental bonus paid to any named executive officer. 29 Equity Awards We view long-term incentive compensation in the form of equity awards as a critical element of our executive compensation program. The realized value of these equity awards bears a direct relationship to our stock price, and, therefore, these awards are an incentive for our executive officers to create value for our stockholders. Equity awards also help us retain qualified executive officers in a competitive market. Long-term incentive compensation opportunities in the form of equity awards are granted to our Chief Executive Officer and our other executive officers by the compensation committee. As with other elements of compensation, the compensation committee determines the amount of long-term incentive compensation for our executive officers as part of its annual compensation review and after taking into consideration the individual officer’s responsibilities and performance and existing equity retention profiles, our total annual projected equity budget and the other factors described in “Factors Used in Determining Executive Compensation” above. For awards to executive officers other than the Chief Executive Officer, the compensation committee also takes into account the recommendations of the Chief Executive Officer with respect to appropriate grants and any particular individual circumstances. The amounts of the equity awards are intended to provide competitively-sized awards and resulting target total direct compensation opportunities that the compensation committee believes are reasonable and appropriate taking into consideration the factors described herein. In 2020, the compensation committee determined to grant our executive officers long-term incentive compensation opportunities in the form of restricted stock unit (“RSU”) awards which may vest and be settled for shares of our Class A common stock. Since the value of RSU awards increases with any increase in the value of the underlying shares, they serve as an incentive that aligns the interests of our executive officers with the long-term interests of our stockholders. In addition, because they are subject to a multi-year vesting requirement, RSU awards serve our retention objectives since our executive officers generally must remain continuously employed by us through the applicable vesting dates to fully earn these awards. Unlike stock options, RSUs have real economic value when they vest even if the market price of our Class A common stock declines or stays flat, thus delivering more predictable value to our executive officers. Additionally, because of their “full value” nature, RSU awards deliver the desired grant date fair value using a lesser number of shares than an equivalent stock option, thereby enabling us to reduce the dilutive impact of our long-term incentive award mix and to use our equity compensation resources more efficiently. 2020 Equity Awards In February 2020, the compensation committee determined that the equity awards to be granted to named executive officers should be in the form of time-based RSU awards that may be settled for shares of our Class A common stock. The number of shares of Class A common stock subject to the RSU awards granted to our named executive officers was determined by the compensation committee after considering the factors described in “Factors Used in Determining Executive Compensation” above. Our Chief Executive Officer received the largest equity award based on his overall responsibility for our performance and success. Our other named executive officers received RSU allocations based on the compensation committee’s review of the competitive market data for their respective positions, the size and vesting schedule of the equity awards previously granted to them, and its desire for a smooth transition to a normalized annual grant program. 30 The following table sets forth the RSU awards granted to our named executive officers on May 8, 2020: Named Executive Officer Olivier Pomel ................................................. David Obstler ................................................. Alexis Lê-Quôc.............................................. Amit Agarwal ................................................ Dan Fougere .................................................. Time-Based RSUs (#) 163,621(b) 117,262(b) 117,262(b) 117,262(c) 136,351(c) Fair Value at Grant Date(a) $8,464,114 $6,065,963 $6,065,963 $6,065,963 $7,053,437 (a) Amounts reported represent the aggregate grant date fair value of RSUs granted to our executive officers under our 2019 Equity Incentive Plan (the “2019 Plan”), computed in accordance with Financial Accounting Standard Board Accounting Standards Codification, Topic 718 (“ASC Topic 718”), excluding the effect of estimated forfeitures. The assumptions used in calculating the grant date fair value of the RSUs reported in this column are set forth in the notes to our audited consolidated financial statements included in the Annual Report. This amount does not reflect the actual economic value that may be realized by the executive officer. (b) 10% of the shares underlying the RSU vest in four equal quarterly installments beginning on June 1, 2021, 40% of the shares underlying the RSU vest in four equal quarterly installments thereafter, and the remaining 50% of the shares underlying the RSU vest in four equal quarterly installments thereafter, so long as the recipient remains in the continuous service of Datadog through each applicable vesting date. (c) The shares underlying the RSU vest in 12 quarterly installments beginning on June 1, 2021, so long as the recipient remains in the continuous service of Datadog through each applicable vesting date. Other Features of Our Executive Compensation Program Employment Offer Letters Olivier Pomel. In 2011, we entered into an offer letter with Olivier Pomel, our Chief Executive Officer. The offer letter has no specific term and provides for at-will employment. David Obstler. In 2018, we entered into an offer letter with David Obstler, our Chief Financial Officer. The offer letter has no specific term and provides for at-will employment. Under Mr. Obstler’s offer letter, if he resigns for good reason or we terminate his employment other than for death, “cause” or “permanent disability” (each as defined in his offer letter), then Mr. Obstler will be eligible to receive the following severance benefits (less applicable tax withholdings): (1) six months of base salary paid in accordance with our regular payroll practices; (2) a prorated target bonus for the greater of the portion of the applicable calendar year during which he was employed or six months, payable pro rata over the six-month severance period; and (3) payment on his behalf of the premiums for him and his eligible dependents to continue coverage under our group health plan pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) for a period of up to six months following the date his employment terminates. As a condition to receiving the severance benefits above, Mr. Obstler must sign and not revoke a general release agreement in a form reasonably acceptable to us within the time period set forth in his offer letter. Further, if Mr. Obstler resigns for good reason or we terminate Mr. Obstler’s employment without cause, in either case within 12 months of a change in control, 100% of the shares subject to the option granted to him in September 2018 will vest. In addition, if the unvested portion of such option is cancelled without payment or issuance of substitute options upon the closing of a change in control, Mr. Obstler will become entitled to receive a cash payment equal to the amount, if any, that he would have received as a cash-out payment at the closing of such transaction as if the unvested portion of the option had been vested at such closing. Alexis Lê-Quôc. In 2011, we entered into an offer letter with Alexis Lê-Quôc, our Chief Technology Officer. The offer letter has no specific term and provides for at-will employment. Amit Agarwal. In 2012, we entered into an offer letter with Amit Agarwal, our Chief Product Officer. The offer letter has no specific term and provides for at-will employment. Dan Fougere. In 2017, we entered into an offer letter with Daniel Fougere, our Chief Revenue Officer. The offer letter has no specific terms and provides for at-will employment. 31 Severance and Change in Control Benefits We have entered into an executive severance agreement with each of our named executive officers. The agreements provide that upon a termination by us without “cause” or by the executive due to “good reason” (each as defined in the agreement), the executive will receive a lump sum payment equal to the sum of six months of base salary and 50% of the executive’s target bonus, as well as continued payment of COBRA premiums for six months (or, if earlier, until the date that the executive is eligible for substantially equivalent coverage under a subsequent employer’s plan). If such termination of employment occurs within three months prior to, or 12 months following, a “change in control” (as defined in the agreement), the executive will instead receive a lump sum payment equal to the sum of 12 months of base salary and 100% of the executive’s target bonus, as well as continued payment of COBRA premiums for 12 months (or, if earlier, when the executive is eligible for substantially equivalent coverage under a subsequent employer’s plan), and will also receive 100% vesting of equity awards (except in the case of the Chief Revenue Officer, who will receive vesting on the equity that would otherwise have vested during the 18-month period following termination). However, performance-based equity awards, if any, will not be subject to this acceleration, and awards granted prior to the completion of our initial public offering are subject to this acceleration only to the extent more favorable than the existing terms of such awards. In addition, Mr. Obstler’s executive severance agreement will apply only to the extent more favorable than the terms of his offer letter as described above. Other Benefits We do not generally provide perquisites or personal benefits to our named executive officers. Our named executive officers are eligible to participate in our employee benefit plans, including our medical, dental, vision, group life, disability and accidental death and dismemberment insurance plans, in each case on the same basis as all of our other employees. As with all other employees, we pay the premiums for basic life, accidental death and dismemberment and disability insurance for our named executive officers. We maintain a defined contribution retirement plan that provides eligible employees, including each of our named executive officers, with an opportunity to save for retirement on a tax-advantaged basis. Eligible employees may defer eligible compensation on a pre-tax basis, up to the statutorily prescribed annual limits on contributions under the Internal Revenue Code of 1986, as amended (the “Code”). We have the ability to make discretionary contributions to the 401(k) plan. Employee contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participant’s directions. Employees are immediately and fully-vested in their contributions. The 401(k) plan is intended to be qualified under Section 401(a) of the Code with the 401(k) plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan. Clawbacks As a public company, if we are required to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws as a result of misconduct, the Chief Executive Officer and Chief Financial Officer may be legally required to reimburse Datadog for any bonus or other incentive-based or equity-based compensation they receive in accordance with the provisions of section 304 of the Sarbanes-Oxley Act of 2002. Additionally, we intend to implement a Dodd-Frank Wall Street Reform and Consumer Protection Act-compliant clawback policy to the extent that the requirements of such clawbacks are finalized by the SEC. Policy Prohibiting Hedging and Pledging Our insider trading policy prohibits all directors, officers, other employees and designated consultants from purchasing our stock on margin or holding our stock in a margin account, pledging our stock as collateral or engaging in hedging, derivative or similar transactions with respect to our stock, such as prepaid variable forwards, equity swaps, collars, exchange funds, puts, calls and short sales. 32 Executive Compensation Tables Summary Compensation Table The following table shows, for the fiscal years ended 2020, 2019 and 2018, compensation awarded to or paid to, or earned by, our named executive officers. Name and Principal Position Year Salary ($) Olivier Pomel..................................... 2020 362,500 2019 300,000 2018 300,000 Chief Executive Officer and Co- Founder Stock Awards ($(1) 8,464,114 Option Awards ($)(1) — — 18,125,700 — — Non-Equity Incentive Compensation ($)(2) 231,282 151,873 147,791 All Other Compensation ($)(3) 300 300 240 Bonus — — — — David Obstler..................................... 2020 370,833 — 2019 350,000 2018 58,333(4) 60,000(5) Chief Financial Officer — 6,065,963 — — — 7,449,033 Alexis Lê-Quôc ................................. 2020 362,500 2019 300,000 2018 300,000 President, Chief Technology Officer and Co- Founder — — — 6,065,963 — — 10,875,420 — — 231,282 318,932 51,727 231,282 151,873 147,791 1,980 1,980 129 450 450 245 Total ($) 9,058,196 18,577,873 448,031 6,670,058 670,912 7,619,222 6,660,195 11,327,743 448,036 Amit Agarwal(6).................................. 2020 370,833 2019 350,000 Chief Product Officer — — 6,065,963 — — 10,841,400 231,282 227,809 450 450 6,668,528 11,419,659 Dan Fougere ...................................... 2020 341,667 — 7,053,437 — 238,782 690 7,634,576 Chief Revenue Officer (1) Amounts reported represent the aggregate grant date fair value of RSUs and stock options granted to our executive officers under our 2012 Equity Incentive Plan (the “2012 Plan”) and the 2019 Plan, as applicable, computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used in calculating the grant date fair value of the RSUs and stock options reported in this column are set forth in the notes to our audited consolidated financial statements included in the Annual Report. This amount does not reflect the actual economic value that may be realized by the executive officer. (2) Amounts shown represent the executive officers’ total bonuses earned for each of the years presented, as applicable, based on the achievement of company performance goals as determined by our board of directors. (3) Amounts shown represent life insurance premiums paid by us on behalf of the executive officer. (4) Mr. Obstler joined us in November 2018. Amount represents the pro rata portion of his 2018 annual base salary. (5) Amount represents a one-time signing bonus awarded to Mr. Obstler. (6) Mr. Agarwal was not a named executive officer for 2018 and, as a result, his compensation information for that year has been omitted. 33 Grants of Plan-Based Awards The following table presents information regarding each plan-based award granted to our named executive officers during the fiscal year ended December 31, 2020. Name Olivier Pomel................................. Annual Cash Grant Type David Obstler................................. Annual Cash Alexis Lê-Quôc ............................. Annual Cash Amit Agarwal ................................ Annual Cash Dan Fougere .................................. Annual Cash RSU RSU RSU RSU RSU Grant Date — 5/8/2020 — 5/8/2020 — 5/8/2020 — 5/8/2020 — 5/8/2020 Estimated Future Payouts Under Non- Equity Incentive Plan Awards(1) Threshold ($) — — — — — — — — — — Target ($) Max ($) 262,500 — — — 262,500 — — — 262,500 — — — 262,500 — — — 350,000 — — — All Other Stock Awards: Number of Shares of Stock or Units (#) Grant Date Fair Value of Stock and Option Awards ($)(2) — 163,621(3) — 117,262(3) — 117,262(3) — 117,262(4) — 136,351(4) — 8,464,114 — 6,065,963 — 6,065,963 — 6,065,963 — 7,053,437 (1) The amounts set forth in the “Target” column represent target bonus amounts for each named executive officer for 2020 under our non-equity incentive plan, and do not represent either additional or actual compensation earned by our named executive officers for the year ended December 31, 2020. The dollar value of the actual payments for these awards is included in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” above. The plan does not provide for threshold or maximum payout amounts. (2) Amounts reported represent the aggregate grant date fair value of RSUs granted to our executive officers under our 2019 Plan, computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used in calculating the grant date fair value of the RSUs reported in this column are set forth in the notes to our audited consolidated financial statements included in the Annual Report. This amount does not reflect the actual economic value that may be realized by the executive officer. (3) The RSUs were granted pursuant to our 2019 Plan. The shares underlying the RSUs vest as follows: 10% of the shares underlying the RSUs vest in four equal quarterly installments beginning on June 1, 2021 and on September 1, December 1 and March 1 thereafter; 40% of the shares underlying the RSUs vest in four equal quarterly installments beginning on June 1, 2022 and on September 1, December 1 and March 1 thereafter; and 50% of the shares underlying the RSUs vest in four equal quarterly installments beginning on June 1, 2023 and on September 1, December 1 and March 1 thereafter, in each case subject to the named executive officer’s continued service with us through each such vesting date. (4) The RSUs were granted pursuant to our 2019 Plan. The shares underlying the RSUs vest in 12 equal quarterly installments beginning on June 1, 2021, and on each September 1, December 1 and March 1 thereafter, subject to the named executive officer’s continued service with us through each such vesting date. 34 Outstanding Equity Awards as of December 31, 2020 The following table sets forth certain information regarding outstanding equity awards granted to our named executive officers that remain outstanding as of December 31, 2020. Name Number of Securities Underlying Unexercised Options (#) Exercisable Olivier Pomel........................... 10/27/2015 4,507,200 10/25/2017 1,215,000 07/19/2019 1,500,000 — 05/08/2020 Grant Date David Obstler........................... 09/06/2018 05/08/2020 900,000 — Alexis Lê-Quôc ....................... 10/27/2015 4,507,200 10/25/2017 1,215,000 900,000 07/19/2019 — 05/08/2020 Amit Agarwal .......................... 10/25/2017 07/19/2019 05/08/2020 Dan Fougere ............................ 12/22/2016 10/25/2017 05/08/2020 540,000 900,000 — 589,369 132,536 — Option Awards(1) Stock Awards(1) Number of Securities Underlying Unexercised Options (#) Unexercisable — 81,000(3) — (4) — — (6) — — 81,000(3) — (4) — — (7) — (8) — 116,280(10) 17,448(3) — Option Exercise Price ($) 0.31 0.91 10.74 — 1.55 — 0.31 0.91 10.74 — 0.91 10.74 — 0.80 0.91 — Option Expiration Date 10/26/2025 10/24/2027 07/18/2029 — 09/05/2028 — 10/26/2025 10/24/2027 07/18/2029 — 10/24/2027 07/18/2029 — 12/21/2026 10/24/2027 — Number of Shares or Units of Stock that have not Vested (#) — — — 163,621(5) — 117,262(5) — — — 117,262(5) — — 117,262(9) — — 136,351(9) Market Value of Shares of Units of Stock that have not Vested ($)(2) — — — 16,106,851 — 11,543,271 — — — 11,543,271 — — 11,543,271 — — 13,422,392 (1) All options granted prior to our initial public offering were granted pursuant to the 2012 Plan and are for shares of Class B common stock. All RSUs were granted under the 2019 Plan and are for shares of Class A common stock. (2) Market value is calculated based on the closing price of our Class A common stock on December 31, 2020, which was $98.44, as reported on Nasdaq. (3) 25% of the shares underlying this option vested on March 1, 2018, with the remaining shares vesting in equal monthly installments over the next three years, subject to the named executive officer’s continuous service through each such vesting date. (4) 1/36th of the shares underlying this option vested on September 23, 2020. Thereafter, 1/36th of the shares underlying this option vest monthly on the 23rd day in each month. In addition, the grant agreement provides for an “early exercise” feature subject to our right to repurchase unvested shares upon the named executive officer’s termination from employment or service relationship with Datadog for any reason. (5) The shares underlying the RSUs vest as follows: 10% of the shares underlying the RSUs vest in four equal quarterly installments beginning on June 1, 2021 and on September 1, December 1 and March 1 thereafter; 40% of the shares underlying the RSUs vest in four equal quarterly installments beginning on June 1, 2022 and on September 1, December 1 and March 1 thereafter; and 50% of the shares underlying the RSUs vest in four equal quarterly installments beginning on June 1, 2023 and on September 1, December 1 and March 1 thereafter, in each case subject to the named executive officer’s continued service through each such vesting date. (6) 25% of the shares underlying this option vested on September 6, 2019, with the remaining shares vesting in equal monthly installments over the next three years, subject to Mr. Obstler’s continuous service through each such vesting date. In addition, the grant agreement provides for an “early exercise” feature subject to our right to repurchase unvested shares upon Mr. Obstler’s termination from employment or service relationship with Datadog for any reason. (7) 25% of the shares underlying this option vested on March 1, 2018, with the remaining shares vesting in equal monthly installments over the next three years, subject to Mr. Agarwal’s continuous service through each such vesting date. In addition, the grant agreement provides for an “early exercise ” feature subject to our right to repurchase unvested shares upon Mr. Agarwal’s termination from employment or service relationship with Datadog for any reason. (8) 15% of the shares underlying this option vested on September 23, 2020, with the remaining 85% of the shares underlying this option vest monthly in 35 equal installments on the 23rd day in each month, subject to Mr. Agarwal’s continuous services through each such vesting date. In addition, the grant agreement provides for an “early exercise” feature subject to our right to repurchase unvested shares upon Mr. Agarwal’s termination from employment or service relationship with Datadog for any reason. (9) The shares underlying the RSUs vest in 12 equal quarterly installments beginning on June 1, 2021, and on each September 1, December 1 and March 1 thereafter, subject to the named executive officer’s continued service with us through each such vesting date. (10) 25% of the shares underlying this option vested on February 1, 2018, with the remaining shares vesting in equal monthly installments over the next three years, subject to Mr. Fougere’s continuous service through each such vesting date. 35 Option Exercises and Stock Vested The following table shows sets forth certain information regarding any option exercises and stock vested during the fiscal year ended December 31, 2020 with respect to our named executive officers. Name Dan Fougere ..................................................................................... Option Awards Number of Shares Acquired on Exercise (#) 1,702,500 Value Realized on Exercise ($)(1) 114,441,378 (1) The value realized on exercise is based on the closing price of our Class A common stock on the date of exercise minus the exercise price and does not reflect actual proceeds received. 36 Potential Payments Upon Termination or Change in Control The table below provides information with respect to potential payments and benefits to which our named executive officers wo uld be entitled under the arrangements set forth in their respective offer letters or employment agreement, as described below under the section titled, “Executive Severance Agreements,” assuming their employment was terminated as of December 31, 2020, including in connection with a change in control as of December 31, 2020. Name Olivier Pomel .................................... David Obstler .................................... Alexis Lê-Quôc ................................. Amit Agarwal ................................... Dan Fougere ..................................... Type of Termination Termination without Cause or with Good Reason Termination without Cause or with Good Reason in connection with a CIC(2) Termination without Cause or with Good Reason Termination without Cause or with Good Reason in connection with a CIC(2) Termination without Cause or with Good Reason Termination without Cause or with Good Reason in connection with a CIC(2) Termination without Cause or with Good Reason Termination without Cause or with Good Reason in connection with a CIC(2) Termination without Cause or with Good Reason Termination without Cause or with Good Reason in connection with a CIC(2) Base Salary ($) Bonus ($) Accelerated Vesting of Equity Awards(1) ($) Continuation of Insurance Coverage ($) Total ($) 187,500 131,250 — 11,181 329,931 375,000 262,500 140,940,413 22,366 141,600,279 187,500 262,500 — 10,964 460,964 375,000 262,500 126,430,521 21,928 127,089,949 187,500 131,250 — 11,312 330,062 375,000 262,500 89,603,266 22,628 90,263,394 187,500 131,250 — 8,415 327,165 375,000 262,500 83,416,258 16,834 84,070,592 175,000 175,000 — 11,371 361,371 350,000 350,000 18,647,965 22,300 19,370,265 (1) The value of accelerated vesting of unvested RSUs and unvested but early exercised stock options is based upon the closing price of our Class A Common Stock on December 31, 2020, as reported on Nasdaq, multiplied by the number of unvested RSUs. The value of accelerated vesting of unvested, unexercised stock options is based on the difference between the closing stock price on December 31, 2020, as reported on Nasdaq, and the exercise price per option multiplied by the number of unvested options. (2) Represents change in control severance benefits based on a double-trigger arrangement, which assumes the executive officer is terminated without “cause” or resigns for “good reason” (as such terms are defined in the executive officer’s executive severance agreements) in connection with, or within three months prior to or 12 months following, a change of control of Datadog. 37 Employment and Benefit Arrangements We have entered into offer letters and severance agreements with each of our named executive officers. For more information regarding these arrangements, see the section titled “Other Features of Our Executive Compensation Program.” We have granted equity awards to our executive officers. For a description of these equity awards, see the section titled “Executive Compensation.” We maintain a defined contribution retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. See the section titled “Other Features of Our Executive Compensation Program.” Limitations of Liability and Indemnification Matters Our amended and restated certificate of incorporation contains provisions that limit the liability of our current and former directors for monetary damages to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for: • • • • any breach of the director’s duty of loyalty to the corporation or its stockholders; any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; unlawful payments of dividends or unlawful stock repurchases or redemptions; or any transaction from which the director derived an improper personal benefit. Such limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated certificate of incorporation authorizes us to indemnify our directors, officers, employees and other agents to the fullest extent permitted by Delaware law. Our amended and restated bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law and provide that we may indemnify our other employees and agents. Our amended and restated bylaws also provide that, on satisfaction of certain conditions, we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. With certain exceptions, these agreements provide for indemnification for related expenses including attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these amended and restated certificate of incorporation and amended and restated bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain customary directors’ and officers’ liability insurance. The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. 38 Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Equity Compensation Plan Information The following table summarizes our equity compensation plan information as of December 31, 2020. Information is included for equity compensation plans approved by our stockholders. We do not have any equity compensation plans not approved by our stockholders: Plan Category Equity plans approved by stockholders ...................................................... Equity plans not approved by stockholders ................................................ (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1) 32,235,043 — (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) $ 3.31 — (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))(3) 52,020,315 — (1) Includes the 2012 Plan and the 2019 Plan, but does not include future rights to purchase Class A common stock under our 2019 Employee Stock Purchase Plan (“2019 ESPP”), which depend on a number of factors described in our 2019 ESPP and will not be determined until the end of the applicable purchase period. (2) The weighted-average exercise price excludes any outstanding restricted stock unit awards, which have no exercise price. (3) Includes the 2019 Plan and 2019 ESPP. Stock options or other stock awards granted under the 2012 Plan that are forfeited, terminated, expired or repurchased become available for issuance under the 2019 Plan. The 2019 Plan provides that the total number of shares of our Class A common stock reserved for issuance thereunder will automatically increase on January 1st of each year for a period of ten years commencing on January 1, 2020 and ending on (and including) January 1, 2029, in an amount equal to 5% of the total number of shares of capital stock outstanding on December 31st of the preceding year; or such lesser number of shares of Class A common stock as determined by our board of directors prior to January 1st of a given year. In addition, the 2019 ESPP provides that the total number of shares of our Class A common stock reserved for issuance thereunder will automatically increase on January 1st of each year for a period of up to ten years commencing on January 1, 2020 and ending on (and including) January 1, 2029, in an amount equal to the lesser of (i) 1% of the total number of shares of capital stock outstanding on December 31st of the preceding year, and (ii) 10,087,500 shares of Class A common stock; or such lesser number of shares of Class A common stock as determined by our board of directors prior to January 1st of a given year. Accordingly, on January 1, 2021, the number of shares of Class A common stock available for issuance under the 2019 Plan and the 2019 ESPP increased by 15,294,003 shares and 3,058,800 shares, respectively, pursuant to these provisions. These increases are not reflected in the table above. 39 NON-EMPLOYEE DIRECTOR COMPENSATION The following table sets forth information regarding compensation earned by or paid to our non-employee directors for the year ended December 31, 2020: Name Michael Callahan......................................................................... Dev Ittycheria .............................................................................. Matthew Jacobson(3) .................................................................... Julie Richardson .......................................................................... Shardul Shah(3) ............................................................................. Fees Earned or Paid in Cash $49,000 56,000 — 57,000 — Stock Awards(1)(2) $ 174,991 174,991 — 174,991 — Total $ 223,991 230,991 — 231,991 — (1) Amounts reported represent the aggregate grant date fair value of RSUs granted to our directors during 2020 under our 2019 Plan, computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used in calculating the grant date fair value of the RSUs reported in this column are set forth in the notes to our audited consolidated financial statements included in the Annual Report. This amount does not reflect the actual economic value that may be realized by the non-employee director. (2) As of December 31, 2020, the aggregate number of shares underlying outstanding options and restricted stock unit awards held by each of our non-employee directors was as follows: Name Number of Shares Underlying Options Number of RSUs Michael Callahan ........................................................................................ Dev Ittycheria ............................................................................................. Matthew Jacobson ...................................................................................... Julie Richardson ......................................................................................... Shardul Shah ............................................................................................... 7,932 240,000 — 93,750 — 2,301 2,301 — 2,301 — (3) Mr. Jacobson and Mr. Shah have waived any compensation payable under our non-employee director compensation policy described below. Each of Mr. Pomel, our co-founder and Chief Executive Officer, and Mr. Lê-Quôc, our co-founder, President and Chief Technology Officer, is also a member of our board of directors but does not receive any additional compensation for his service as a director. See the section titled “Executive Compensation” for more information regarding the compensation earned by these executive officers. Non-Employee Director Compensation Policy Under our Non-Employee Director Compensation Policy, each of our non-employee directors is eligible to receive compensation for service on our board of directors and committees of our board of directors as set forth below. Cash Compensation The Non-Employee Director Compensation Policy provides our non-employee directors with the following cash compensation for their services: • • • • $30,000 per year for each non-employee director; $45,000 per year for the lead non-employee director (if applicable) in lieu of the annual amount above; $20,000 per year for chair of the audit committee or $10,000 per year for each other member of the audit committee; $14,000 per year for chair of the compensation committee or $7,000 per year for each other member of the compensation committee; and 40 • $7,500 per year for chair of the nominating and corporate governance committee or $4,000 per year for each other member of the nominating and corporate governance committee. The cash compensation above is payable to our eligible non-employee directors in equal quarterly installments in arrears, prorated for any partial quarter of service. Equity Compensation In addition to the cash compensation structure described above, the Non-Employee Director Compensation Policy provides for the following equity incentive compensation program for non-employee directors. All such equity compensation will be granted under the 2019 Plan or any successor equity plan. Retainer Grant. Each non-employee director may elect to convert his or her cash compensation under the policy into an award of restricted stock units (the “retainer grant”). If a non-employee director timely makes this election, each such retainer grant will be automatically granted on the first business day following the date the corresponding cash compensation otherwise would be paid under the policy. Each retainer grant will cover a number of shares of our Class A common stock equal to (A) the aggregate amount of the corresponding cash compensation otherwise payable to the non-employee director divided by (B) the closing sales price per share of our Class A common stock on the date the corresponding cash compensation otherwise would be paid (or, if such date is not a business day, on the first business day thereafter), rounded down to the nearest whole share. In addition, each retainer grant will be fully vested on the grant date. Initial Grant. Each non-employee director who joins our board of directors will automatically, upon the date of his or her initial election or appointment to be a non-employee director (or, if such date is not a business day, on the first business day thereafter), be granted a one-time, initial restricted stock unit award (the “initial grant”), covering a number of shares of our Class A common stock equal to (A) $350,000 divided by (B) the closing sales price per share of our Class A common stock on the applicable grant date, rounded down to the nearest whole share. Each initial grant will vest in three equal annual installments over the three-year period following the grant date, subject to continued service through each applicable vesting date. Annual Grant. On the date of each annual meeting of our stockholders, each person who is then a non-employee director of ours will automatically be granted an annual restricted stock unit award (the “annual grant”), covering a number of shares of our Class A common stock equal to (A) $175,000 divided by (B) the closing sales price per share of our Class A common stock on the date of the applicable annual stockholder meeting (or, if such date is not a business day, the first business day thereafter). Each annual grant will vest on the earlier of the one-year anniversary of the award’s grant date or the date of our next annual stockholder meeting following the award’s grant date, subject to continued service through the vesting date. Each non-employee director’s then-outstanding equity awards granted under the policy (and any other then-outstanding equity awards held by the non-employee director that were outstanding and unvested immediately prior to the date of the execution of the underwriting agreement related to our initial public offering) will become fully vested upon a change in control (as defined in our 2019 Plan), subject to the non-employee director remaining in continuous service until immediately prior to the closing of the change in control. 41 PROPOSAL 3 APPROVAL, ON A NON-BINDING, ADVISORY BASIS, OF THE FREQUENCY OF FUTURE NON-BINDING, ADVISORY VOTES TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS Section 14A of the Exchange Act provides that every six years we must provide stockholders an opportunity to vote, on a non- binding, advisory basis, for their preference on how frequently we should seek future non-binding, advisory votes to approve the compensation of our named executive officers (such as the one described in Proposal No. 2 above). Specifically, stockholders may indicate whether they would prefer these advisory resolutions on named executive officer compensation to be presented for stockholder approval every one, two or three years. Our board of directors believes at this time that an annual frequency is appropriate for Datadog. The board of directors believes that an annual vote on named executive officer compensation provides stockholders with the opportunity to provide timely and direct input to the board of directors and the compensation committee about our executive compensation philosophy, policies and practices as disclosed in the proxy statement each year. The board of directors believes that an annual vote is therefore consistent with our efforts to engage in an ongoing dialogue with our stockholders on executive compensation and corporate governance matters. The board of directors will continue to evaluate the appropriate frequency for the stockholder executive compensation vote. Please note that stockholders are not voting to approve or disapprove the recommendation of the board of directors with respect to this proposal. Instead, the proxy card provides four choices: a one, two or three year frequency or stockholders may abstain from voting on the proposal. The option that receives the highest number of votes of the holders of shares of common stock present at the meeting (by virtual attendance) or by proxy and entitled to vote thereon will be deemed to be the frequency preferred by our stockholders. Since this proposal is an advisory vote, the result will not be binding on our board of directors. As such, the results of the vote will not be construed to create or imply any change to the fiduciary duties of our board of directors. Our board of directors may decide that it is in the best interests of Datadog and our stockholders to hold a non-binding, advisory vote on our named executive officer compensation more or less frequently than the option approved by our stockholders. However, our board of directors values our stockholders’ opinions, and our board of directors and the compensation committee will take into account the outcome of the advisory vote when determining how often we should submit to stockholders future “say-on-pay” votes. We expect that the next stockholder vote on the frequency of non-binding, advisory votes on named executive officer compensation will occur at our 2027 annual meeting of stockholders. OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR A “ONE-YEAR” FREQUENCY FOR FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION. 42 PROPOSAL 4 RATIFICATION OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The audit committee of our board of directors has selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021 and has further directed that management submit the selection of its independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. Deloitte & Touche LLP has audited our financial statements since 2016. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. Neither our amended and restated bylaws nor other governing documents or law require stockholders ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm. However, the audit committee is submitting the selection of Deloitte & Touche LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the audit committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the audit committee in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of Datadog and our stockholders. The affirmative vote of the holders of a majority of the shares present by virtual attendance or represented by proxy and entitled to vote on the matter at the Annual Meeting will be required to ratify the selection of Deloitte & Touche LLP. Principal Accountant Fees and Services The following table represents aggregate fees billed to us by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu Limited, and their related entities for the periods set forth below. Audit Fees(1) ................................................................................................................ $ 1,787 $ 2,213 — Audit-related Fees....................................................................................................... — — Tax Fees ...................................................................................................................... — All Other Fees(2) .......................................................................................................... — 2 Total Fees ................................................................................................................... $ 1,789 $ 2,213 Fiscal Year Ended 2020 2019 (in thousands) (1) Audit fees consist of fees for professional services provided in connection with the audit of our annual consolidated financial statements, the review of our quarterly consolidated financial statements, and audit services that are normally provided by an independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years. The audit fees for fiscal year 2020 also include fees for professional services provided in connection with our offering of convertible senior notes. The audit fees for fiscal year 2019 also include fees for professional services provided in connection with our initial public offering incurred during the fiscal year ended December 31, 2019, including comfort letters, consents, and review of documents filed with the SEC and with our Registration Statement on Form S-8 filed during the third fiscal quarter. Includes fees related to the subscription to Deloitte & Touche LLP’s accounting research tool. (2) All fees described above were pre-approved by the audit committee. Pre-Approval Policies and Procedures The audit committee approves all audit and non-audit related services that our independent registered public accounting firm provides to us before the engagement begins. Pre-approval may be given as part of our audit 43 committee’s approval of the scope of the engagement of the independent registered public accounting firm or on an individual, explicit, case-by-case basis before the independent registered public accounting firm is engaged to provide each service. OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 44 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of our common stock as of March 31, 2021 by: • • • • each person or entity known by us to be beneficial owners of more than five percent of our Class A common stock or Class B common stock; each of our named executive officers; each of our directors; and all of our executive officers and directors as a group. We have determined beneficial ownership in accordance with the rules and regulations of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares that they beneficially own, subject to applicable community property laws. Applicable percentage ownership is based on 232,419,196 shares of Class A common stock and 75,385,154 shares of Class B common stock outstanding as of March 31, 2021. In computing the number of shares beneficially owned by a person and the percentage ownership of such person, we deemed to be outstanding all shares subject to options held by the person that are currently exercisable, or exercisable or would vest based on service-based vesting conditions within 60 days of March 31, 2021. However, except as described above, we did not deem such shares outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address for each beneficial owner listed in the table below is c/o Datadog, Inc., 620 8th Avenue, 45th Floor, New York, New York 10018. Beneficial Owner Beneficial Ownership Class A Common Stock Class B Common Stock Number of Shares Number of Shares % % % of Total Voting Power† 5% Stockholders: 70,065 * 22,273,810 29.5 Entities associated with Index Ventures(1) ......................................................................... Entities associated with ICONIQ Strategic Partners(2) ...................................................... 5,235,836 2.3 19,550,259 25.9 — — T. Rowe Price Associates(3) ............................................................................................... 21,271,140 9.2 — — Enfield Investments Holdings Corp.(4) ............................................................................... 18,573,366 8.0 — — The Vanguard Group(5) ...................................................................................................... 16,140,348 6.9 Directors and Named Executive Officers: 496,862 * 32,169,837 38.9 Olivier Pomel(6) .................................................................................................................. 121,073 * 1,223,000 1.6 David Obstler(7) .................................................................................................................. — — 20,352,417 24.8 Alexis Lê-Quôc(8) ............................................................................................................... — — 4,449,838 5.8 Amit Agarwal(9).................................................................................................................. * 196,293 * Dan Fougere(10) ................................................................................................................... * Michael Callahan(11) ........................................................................................................... 34,158 * * Dev Ittycheria(12) ................................................................................................................ 1,246,920 * — — 108,956 * Matthew Jacobson ............................................................................................................. * — — Julie Richardson(13) ............................................................................................................. Shardul Shah ...................................................................................................................... — — 228,203 * All executive officers and directors as a group (12 persons)(14) ......................................... 2,506,460 1.1 59,764,552 64.4 690,633 534,538 173,415 90,624 22.6 20.4 2.2 1.9 1.6 30.4 1.2 19.3 4.4 * * * * * * 51.7 45 * † Less than one percent. Percentage of total voting power represents voting power with respect to all shares of our Class A and Class B common stock, as a single class. The holders of our Class B common stock are entitled to ten votes per share, and holders of our Class A common stock are entitled to one vote per share. (1) Based solely on Schedule 13G/A filed on February 12, 2021 and Form 4s filed subsequent to that date, in each case, by entities associated with Index Ventures. Consists of (a) 16,201,879 shares of Class B common stock held by Index Ventures VI (Jersey), L.P. (“Index VI”), (b) 5,452,642 shares of Class B common stock held by Index Ventures Growth III (Jersey), L.P. (“Index III”), (c) 327,038 shares of Class B common stock held by Index Ventures VI Parallel Entrepreneur Fund (Jersey), L.P. (“Index VI Parallel”), and (d) 70,065 shares of Class A common stock and 292,251 shares of Class B common stock held by Yucca (Jersey) SLP. Index Venture Associates VI Limited is the sole general partner of each of Index VI and Index VI Parallel, and Index Venture Growth Associates III Limited is the sole general partner of Index III. The address of each of these entities is 44 Esplanade, St. Helier, Jersey, Channel Islands JE4 9WG. (2) Based solely on Schedule 13G/A filed by entities associated with ICONIQ Strategic Partners on February 16, 2021. Consists of (a) 1,397,725 shares of Class A common stock and 6,790,820 shares of Class B common stock held by ICONIQ Strategic Partners II, L.P. (“ICONIQ II”), (b) 1,094,133 shares of Class A common stock and 5,315,833 shares of Class B common stock held by ICONIQ Strategic Partners II-B, L.P. (“ICONIQ II-B”), (c) 508,142 shares of Class A common stock and 2,468,799 shares of Class B common stock held by ICONIQ Strategic Partners II Co-Invest, L.P., DD Series (“ICONIQ DD”), (d) 408,849 shares of Class A common stock held by ICONIQ Strategic Partners III, L.P. (“ICONIQ III”), (e) 436,857 shares of Class A common stock held by ICONIQ Strategic Partners III-B, L.P. (“ICONIQ III-B”), (f) 199,500 shares of Class A common stock and 1,890,426 shares of Class B common stock held by ICONIQ Strategic Partners IV, L.P. (“ICONIQ IV”), (g) 325,500 shares of Class A common stock and 3,084,381 shares of Class B common stock held by ICONIQ Strategic Partners IV-B, L.P. (“ICONIQ IV-B”), (h) 389,102 shares of Class A common stock held by Divesh Makan, (i) 367,072 shares of Class A common stock held by William J.G. Griffith, and (j) 108,956 shares of Class A common stock held by Matthew Jacobson. ICONIQ Strategic Partners II GP, L.P. (“ICONIQ GP II”), is the sole general partner of ICONIQ II, ICONIQ II-B and ICONIQ DD. ICONIQ Strategic Partners II TT GP, Ltd. is the sole general partner of ICONIQ GP II. ICONIQ Strategic Partners III GP, L.P. (“ICONIQ GP III”), is the sole general partner of ICONIQ III and ICONIQ III-B. ICONIQ Strategic Partners III TT GP, Ltd. is the sole general partner of ICONIQ GP III. ICONIQ Strategic Partners IV GP, L.P. (“ICONIQ GP IV”), is the sole general partner of ICONIQ IV and ICONIQ IV-B. ICONIQ Strategic Partners IV TT GP, Ltd. is the sole general partner of ICONIQ GP IV. The address of each of these entities is 394 Pacific Avenue, 2nd Floor, San Francisco, CA 94111. (3) Based solely on Schedule 13G/A filed by T. Rowe Price Associates, Inc. (“T. Rowe Price”) on February 16, 2021, which reported that T. Rowe Price had sole voting power over 7,872,265 shares of Class A common stock and sole dispositive power over 21,271,140 shares of Class A common stock. The address of T. Rowe Price is 100 E. Pratt Street, Baltimore, MD 21202. (4) Based solely on Schedule 13G/A filed by Enfield Investments Holdings Corp. (“Enfield”) on February 16, 2021. Enfield is a wholly-owned subsidiary of LBB Foundation, whose sole beneficiary is Leonid Boguslavskiy. As a result, each of LBB Foundation and Mr. Boguslavskiy may be deemed to beneficially own the shares held directly by Enfield. The address of Enfield is 3 Afentrikas, Office 101, 6018 Larnaca, Cyprus; the address of LBB Foundation is c/o Fundationsanstalt, Heligkreuz 6, 9490, Vaduz, Liechtenstein; and the address of Leonid Boguslavskiy is via Piana 3, 50124 Firenze, Italy. (5) Based solely on Schedule 13G filed by The Vanguard Group (“Vanguard”) on February 10, 2021. The address of Vanguard is 3 Afentrikas, Office 101, 6018 Larnaca, Cyprus. (6) Consists of (a) 10,228,484 shares of Class B common stock held by Mr. Pomel, (b) 3,713,000 shares of Class B common stock held by the Olivier Pomel 2018 GRAT, (c) 50,000 shares of Class B common stock held by the Pomel Descendants’ 2018 Trust, (d) 50,000 shares of Class B common stock held by each of the Offbeat Polymath Trust and the Endearing Viceroy Trust, in each case for which Mr. Pomel acts as trustee, (e) 7,303,200 shares of Class B common stock issuable upon the exercise of options within 60 days of March 31, 2021, and (f) 496,862 shares of Class A common stock and 10,775,153 shares of Class B common stock over which Mr. Pomel has voting power pursuant to an irrevocable proxy granted by certain of the investors who purchased shares in the third- party tender offer conducted in March 2019. (7) Consists of (a) 1,073 shares of Class A common stock and 15,603 shares of Class B common stock held by Mr. Obstler, (b) 120,000 shares of Class A common stock and 307,397 shares of Class B common stock held by the David Obstler 2019 GRAT, and (c) 900,000 shares of Class B common stock issuable upon the exercise of options within 60 days of March 31, 2021. (8) Consists of (a) 10,606,204 shares of Class B common stock held by the Alexis Lê-Quôc Revocable Trust, (b) 2,893,013 shares of Class B common stock held by the Alexis Lê-Quôc 2016 GRAT, (c) 50,000 shares of Class B common stock held by each of the Offbeat Polymath Trust and the Endearing Viceroy Trust, (d) 50,000 shares of Class B common stock held by the Pomel Descendants’ 2018 Trust, for which Mr. Lê-Quôc acts as trustee, and (e) 6,703,200 shares of Class B common stock issuable upon the exercise of options within 60 days of March 31, 2021. (9) Consists of (a) 554,007 shares of Class B common stock held by Mr. Agarwal, (b) 992,500 shares of Class B common stock held by the Amit Agarwal 2019 GRAT, (c) 1,157,165 shares of Class B common stock held by the Amit Agarwal 2018 GRAT, (d) 306,166 shares of Class B common stock held by Mr. Agarwal’s spouse and (e) 1,440,000 shares of Class B common stock issuable upon the exercise of options within 60 days of March 31, 2021. (10) Consists of (a) 196,293 shares of Class A common stock held by Mr. Fougere and (b) 690,633 shares of Class B common stock issuable upon the exercise of options within 60 days of March 31, 2021. (11) Consists of (a) 26,654 shares of Class A common stock and 359,102 shares of Class B common stock held by The Callahan-Thernstrom Family Trust, (b) 7,504 shares of Class A common stock and 80,000 shares of Class B common stock held by The Michael Callahan 46 Grantor Retained Annuity Trust, (c) 87,504 shares of Class B common stock held by The Melanie Thernstrom Grantor Retained Annuity Trust, and (d) 7,932 shares of Class B common stock issuable upon the exercise of options within 60 days of March 31, 2021. (12) Consists of (a) 541,031 shares of Class A common stock held by Mr. Ittycheria, (b) 705,889 shares of Class A common stock held by LIDI 11 21 LLC, and (c) 173,415 shares of Class B common stock issuable upon the exercise of options within 60 days of March 31, 2021. (13) Consists of 90,624 shares of Class B common stock issuable upon the exercise of options within 60 days of March 31, 2021. (14) Consists of (a) 2,506,460 shares of Class A common stock and 42,409,294 shares of Class B common stock and (b) 17,355,258 shares of Class B common stock issuable upon the exercise of options within 60 days of March 31, 2021. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Datadog. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based on a review of the copies of such reports filed on the SEC’s EDGAR system and written representations that no other reports were required, during the fiscal year ended December 31, 2020, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with; except that each of Messrs. Pomel, Obstler and Lê-Quôc converted 10,084, 40,000 and 11,352 shares of Class B common stock, respectively, to Class A common stock in connection with charitable gifts. While the charitable gifts themselves were timely reported, the conversions were inadvertently reported late. 47 TRANSACTIONS WITH RELATED PERSONS Certain Related Person Transactions The following is a summary of transactions since January 1, 2020 to which we were a party or will be a party, in which: • • the amounts involved exceeded or will exceed $120,000; and any of our directors, executive officers or holders of more than 5% of Class A common stock or Class B common stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest. Employment Arrangements and Equity Grants We have entered into offer letters and severance agreements with each of our named executive officers. For more information regarding these arrangements, see the section titled “Executive Compensation.” Each of our named executive officers has also executed our standard form of proprietary information and inventions agreement. We have granted equity awards to our executive officers and certain members of our board of directors. For a description of these equity awards, see the sections titled “Executive Compensation” and “Non-Employee Director Compensation.” Indemnification Agreements Our amended and restated certificate of incorporation authorizes us to indemnify our directors, officers, employees and other agents to the fullest extent permitted by Delaware law. Our amended and restated bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law and provide that we may indemnify our other employees and agents. Our amended and restated bylaws also provide that, on satisfaction of certain conditions, we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. In addition, we have entered into an indemnification agreement with each of our directors and executive officers, which requires us to indemnify them. Policies and Procedures for Transactions with Related Persons We have adopted a policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without the approval or ratification of our board of directors or our audit committee. Any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock or any member of the immediate family of any of the foregoing persons, in which the amount involved exceeds $120,000 and such person would have a direct or indirect interest, must be presented to our board of directors or our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our board of directors or our audit committee is to consider the material facts of the transaction, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. 48 HOUSEHOLDING OF PROXY MATERIALS The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Notices of Internet Availability of Proxy Materials or other Annual Meeting materials with respect to two or more stockholders sharing the same address by delivering a single Notice of Internet Availability of Proxy Materials or other Annual Meeting materials addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. This year, a number of brokers with account holders who are our stockholders will likely be “householding” our proxy materials. A single Notice of Internet Availability of Proxy Materials will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate Notice of Internet Availability of Proxy Materials, please notify your broker or us. Direct your written request to us via email at IR@datadoghq.com. Stockholders who currently receive multiple copies of the Notice of Internet Availability of Proxy Materials at their addresses and would like to request “householding” of their communications should contact their brokers. 49 The board of directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment. OTHER MATTERS By Order of the Board of Directors Laszlo Kopits General Counsel and Secretary April 23, 2021 We have filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 with the SEC. It is available free of charge at the SEC’s web site at www.sec.gov. Stockholders can also access this proxy statement and our Annual Report on Form 10-K at investors.datadoghq.com. A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 is also available without charge upon written request to us via email at IR@datadoghq.com. 50 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-39051 Datadog, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware (State or other jurisdiction of incorporation or organization) 620 8th Avenue, 45th Floor New York, NY (Address of principal executive offices) 27-2825503 (I.R.S. Employer Identification No.) 10018 (Zip Code) Registrant’s telephone number, including area code: (866) 329-4466 Securities registered pursuant to Section 12(b) of the Act: Title of each class Class A common stock, par value $0.00001 per share Trading Symbol(s) DDOG Name of each exchange on which registered The Nasdaq Stock Market LLC (Nasdaq Global Select Market) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the registrant’s shares of Class A common stock as reported by The Nasdaq Global Select Market on June 30, 2020 was approximately $26.28 billion. As of February 15, 2021, there were 221,583,813 shares of the registrant’s Class A common stock and 84,907,962 shares of the registrant’s Class B common stock, each with a par value of $0.00001 per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s Proxy Statement for its 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2020. DATADOG, INC. 2020 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I. Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. PART III. Item 10. Item 11. Item 12. Item 13. Item 14. Business.......................................................................................................................................................... Risk Factors.................................................................................................................................................... Unresolved Staff Comments .......................................................................................................................... Properties........................................................................................................................................................ Legal Proceedings .......................................................................................................................................... Mine Safety Disclosures................................................................................................................................. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ........................................................................................................................................................ Selected Financial Data .................................................................................................................................. Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................ Quantitative and Qualitative Disclosures About Market Risk ....................................................................... Financial Statements and Supplementary Data .............................................................................................. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................ Controls and Procedures................................................................................................................................. Other Information........................................................................................................................................... Directors, Executive Officers and Corporate Governance............................................................................. Executive Compensation................................................................................................................................ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...... Certain Relationships and Related Transactions, and Director Independence............................................... Principal Accounting Fees and Services ........................................................................................................ PART IV. Exhibits, Financial Statement Schedules ....................................................................................................... Item 15. Form 10-K Summary ..................................................................................................................................... Item 16. Signatures ............................................................................................................................................................................... Page 5 13 38 38 39 39 40 42 43 60 62 99 99 100 101 101 101 101 101 102 104 105 1 RISK FACTORS SUMMARY Our operations and financial results and an investment in our Class A common stock are subject to various risks and uncertainties, the most significant of which are summarized below. You should consider carefully the summary below and the risks and uncertainties described in the “Risk Factors” section of this Annual Report on Form 10-K, as well as the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below and in “Risk Factors” are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of such risks or others not specified below or in “Risk Factors” materialize, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our Class A common stock could decline. (cid:129) The ongoing COVID-19 pandemic and any related economic downturn could negatively impact our business, financial condition and results of operations. (cid:129) 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. (cid:129) 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. (cid:129) We have a history of operating losses and may not achieve or sustain profitability in the future. (cid:129) We have a limited operating history, which makes it difficult to forecast our future results of operations. (cid:129) 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. (cid:129) 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. (cid:129) (cid:129) (cid:129) (cid:129) If we are unable to attract new customers, our business, financial condition and results of operations may be adversely affected. 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, or are unable to protect against cyber attacks, ransomware, security incidents, 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 or additional expenses. Interruptions or performance problems associated with our products and platform capabilities may adversely affect our business, financial condition and results of operations. (cid:129) 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. (cid:129) (cid:129) (cid:129) 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. 2 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Annual Report on Form 10-K including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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; the impact of the COVID-19 pandemic and responses thereto on our business, financial condition and results of operations; 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; and the growth rates of the markets in which we compete. You should not rely on forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in under the header “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained herein. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made, and we undertake no obligation to update them to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. Unless the context otherwise indicates, references in this report to the terms “Datadog”, “the Company,” “we,” “our” and “us” refer to Datadog, Inc. and its subsidiaries. “Datadog” and other trade names and trademarks of ours appearing in this report are our property. This report contains trade names and trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies. We may announce material business and financial information to our investors using our investor relations website (www.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, or the SEC, webcasts, press releases and conference calls. 3 MARKET, INDUSTRY AND OTHER DATA The statistical data, estimates and forecasts referenced throughout this Annual Report on Form 10-K are based on independent industry publications or other publicly available information, as well as information based on our internal sources. While we believe the industry and market data included in this prospectus are reliable and are based on reasonable assumptions, these data involve many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and other publicly available information. None of the industry publications referred to in this prospectus were prepared on our or on our affiliates’ behalf or at our expense. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements,” that could cause results to differ materially from those expressed in these publications and other publicly available information. The Gartner content referenced herein (the “Gartner Content”) represents research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact. The Gartner Content speaks as of its original publication date (and not as of the date of this Annual Report on Form 10-K) and the opinions expressed in the Gartner Content are subject to change without notice. 4 Item 1. Business Overview PART I Datadog is the monitoring and analytics platform for developers, IT operations teams and business users in the cloud age. Our SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management and security monitoring to provide unified, real-time observability of our customers’ entire technology stack. Datadog is used by organizations of all sizes and across a wide range of industries to enable digital transformation and cloud migration, drive collaboration among development, operations and business teams, accelerate time to market for applications, reduce time to problem resolution, understand user behavior and track key business metrics. Software applications are transforming how organizations engage with customers and operate their businesses. Companies across all industries are re-platforming their businesses to cloud infrastructures to enable this digital transformation. Historically, engineering teams have been siloed, making the development of next generation applications on dynamic cloud environments challenging. We started Datadog to break this model and facilitate collaboration among development and operations teams, enabling the adoption of DevOps practices. Since then we have continuously pushed to unify separate tools into an integrated monitoring and analytics platform, readily available to everyone who cares about applications and their impact on business. From our founding goal of breaking down silos between Dev and Ops, we set out in 2010 to build a real-time data integration platform to turn chaos from disparate sources into digestible and actionable insights. In 2012, we launched our first use case with infrastructure monitoring, purpose-built to handle increasingly ephemeral cloud-native architectures. This enabled us to be deployed on our customers’ entire cloud IT environments and gave our product broad usage across Dev, Ops and business teams, in turn allowing us to address a bigger set of challenges through our platform. In 2017 we launched our Application Performance Monitoring, or APM, product, designed to be broadly deployed in very distributed, micro-services architectures. In 2018, we were the first to combine the “three pillars of observability” with the introduction of our Log Management product. To allow for full-stack observability, in 2019, we launched user Experience Monitoring and Network Performance Monitoring. In 2020, we extended into security with the launch of Security Monitoring to detect threats in real time, as well as launched Continuous Profiler and Incident Management to enhance workflows and collaboration as incidents occur. Today, we offer end-to-end monitoring and analytics, powered by a common data model that is extensible for potential new use cases. Our proprietary platform combines the power of metrics, traces and logs to provide a unified view of infrastructure and application performance and the real-time events impacting this performance. Datadog is designed to be cloud agnostic and easy to deploy, with hundreds of out-of-the-box integrations, a built-in understanding of modern technology stacks and endless customizability. Customers can deploy our platform across their entire infrastructure, making it ubiquitous and a daily part of the lives of developers, operations engineers and business leaders. We believe that our platform currently addresses a significant portion of the IT Operations Management market. According to Gartner, the IT Operations Management market represents a $44 billion opportunity in 2024. We believe a large portion of this spend is for legacy on-premise and private cloud environments but does not fully include the opportunity in modern multi-cloud and hybrid cloud environments. Our platform is designed to address both legacy and modern environments. We employ a land-and-expand business model centered around offering products that are easy to adopt and have a very short time to value. Our customers can expand their footprint with us on a self-service basis. Our customers often significantly increase their usage of the products they initially buy from us and expand their usage to other products we offer on our platform. We grow with our customers as they expand their workloads in the public and private cloud. 5 Our Solution and Key Strengths Datadog was founded on the premise that the old model of siloed developers and IT operations engineers is broken, and that legacy tools used for monitoring static on-premise architectures do not work in modern cloud or hybrid environments. Datadog’s cloud-native platform enables development and operations teams to collaborate, quickly build and improve applications, and drive business performance. Empowered by our out-of-the box functionality and simple, self-service installation, our customers are able to rapidly deploy our platform to provide application- and infrastructure-wide visibility, often within minutes. (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Built for dynamic cloud infrastructures. Our innovative platform was born in the cloud and was built to work with ephemeral cloud technologies such as microservices, containers and serverless computing. Our data model was built to work at cloud scale with highly dynamic data sets and processes more than 10 trillion events a day. Simple but not simplistic. Our platform is easy-to-use with out-of-the-box integrations, customizable drag-and-drop dashboards, real-time visualization and prioritized alerting. The platform is deployed in a self-service installation process within minutes, allowing new users to quickly derive value without any specialized training or heavy implementation or customization. It is highly extensible across a wide array of use cases to a broad set of developers, operations engineers and business users. As a result, our platform is integral to business operations and used every day, and our users find increasing value in the solution over time. Integrated data platform. We were the first to combine the “three pillars of observability” - metrics, traces, and logs - with the introduction of our log management solution in 2018. Today, our platform combines infrastructure monitoring, application performance monitoring, log management, user experience monitoring, and network performance monitoring in one integrated data platform. This approach increases efficiency by reducing both the expense and friction of attempting to glean insights from disparate systems. We are able to provide a unified view across the IT stack, including infrastructure and application performance, as well as the real-time events impacting performance. Each of our products is integrated and taken together provide the ability to view metrics, traces and logs side-by-side and perform correlation analysis. Built for collaboration. Our platform was built to break down the silos between developers and operations teams in order to help organizations adopt DevOps practices and improve overall business performance. We provide development and operations teams with a common set of tools to develop a joint understanding of application performance and shared insights into the infrastructure supporting the applications. Additionally, our customizable and interactive dashboards can be shared with business teams to provide them with real-time actionable insights. Cloud agnostic. Our platform is designed to be deployable across all environments, including public cloud, private cloud, on-premise and multi-cloud hybrid environments, allowing organizations to diversify their infrastructure and reduce single vendor dependence. (cid:129) Ubiquitous. Datadog is frequently deployed across a customer’s entire infrastructure, making it ubiquitous. Compared to legacy systems that are often used only by a few users in an organization’s IT operations team, Datadog is a daily part of the lives of developers, operations engineers and business leaders. (cid:129) (cid:129) (cid:129) Integrates with our customers’ complex environments. We enable development and operations teams to harness the full spectrum of SaaS and open source tools. We have over 400 out-of-the-box integrations with technologies to provide significant value to our customers without the need for professional services. Our integrations provide for comprehensive data point aggregation and consistent, up-to-date, high-quality customer experiences across heterogeneous IT environments as they are fully maintained by Datadog. Powered by robust analytics and machine-learning. Our platform ingests massive amounts of data into our unified data warehouse. We develop actionable insights using our advanced analytics capabilities. Our platform features machine learning that can cross-correlate metrics, traces and logs to identify outliers and notify users of potential anomalies before they impact the business. Scalable. Our SaaS platform is highly scalable and is delivered through the cloud. Our platform is massively scalable currently monitoring more than tens of trillion events a day and millions of servers and containers at any point in time. We offer secure, easily accessible data retention at full granularity for extensive periods of time, which can provide customers with a complete view of their historical data. 6 Key Benefits to Our Customers Organizations of all sizes, in all industries, both private and public, purchase our products for a variety of use cases. As of December 31, 2020, we had approximately 14,200 customers in over 100 countries. Our platform provides the following key benefits to our customers: (cid:129) (cid:129) (cid:129) (cid:129) Accelerate digital transformation. We enable customers to take full advantage of the cloud to develop and maintain mission-critical applications with agility and with confidence in the face of increasing business and time pressure and complexity of underlying infrastructure. As a result, our platform helps accelerate innovation cycles, deliver exceptional digital experiences and optimize business performance. Reduce time to problem detection and resolution. Using infrastructure, APM and log data in our unified platform, our customers are able to quickly isolate the root cause of application issues in one place where they otherwise would be required to spend hours trying to investigate using multiple tools. The reduction in mean time to detection and mean time to resolution helps our customers avoid lost revenues and enhance customer experience. Improve agility of development, operations, security and business teams. We eliminate the historical silos of development and operations teams and provide a platform that enables efficient and agile development through the adoption of DevOps and DevSecOps. Our platform enables development, operations and security teams to collaborate closely with a shared understanding of data and analytics. This helps them develop a joint understanding of application performance and shared insights into the infrastructure supporting the applications. Enable operational efficiency. Our solution is easy to install, which eliminates the need for heavy implementation costs and professional services. We have hundreds of integrations with key technologies, from which our customers can derive significant value, avoiding internal development costs and professional services required to create those integrations. Our customer-centric pricing model is tailored to customers’ desired usage needs. Our platform empowers customers to better understand the operational needs of their applications and IT environments, enabling greater efficiency in resource allocation and spend on cloud infrastructure. Our Growth Strategies We intend to pursue the following growth strategies: (cid:129) (cid:129) (cid:129) (cid:129) Expand our customer base by acquiring new customers. Our market penetration is low. We believe there is a substantial opportunity to continue to grow our customer base. We intend to drive new customer additions by expanding our sales and marketing efforts in the markets we serve. Expand within our existing customer base through broader deployments, new use cases and new product adoption. Our base of approximately 14,200 customers as of December 31, 2020 represents a significant opportunity for further sales expansion. We plan to continue to increase sales within our existing customer base through increased usage of our platform and the cross selling of additional products. Expand our technology leadership through continued investment and new products. We intend to invest in expanding the functionality of our current platform and adding capabilities that address new market opportunities. We have a history of continued innovation. For example, in 2017 we launched APM, in 2018 we launched Log Management, in 2019 we launched User Experience Monitoring and Network Performance Monitoring, and in 2020 we launched Security Monitoring, Continuous Profiler and Incident Management. Expand our customer base internationally. We believe there is a significant opportunity to continue to expand usage of our platform outside of the United States, as international markets have increased the shift of their IT spend to the cloud. Our Platform Our proprietary platform provides real-time insights into software applications and IT infrastructure performance to enable better user experiences, faster problem detection and resolution and smarter, more impactful business decisions. Our platform is also modular and includes infrastructure monitoring, application performance monitoring, log management, user experience monitoring, network performance monitoring, security monitoring, and incident management as well as a range of shared features such as sophisticated dashboards, advanced analytics, collaboration tools and alerting capabilities. Each of our products is fully capable stand- alone so clients can choose to use different capabilities incrementally or deploy many at once. When deployed together, our products automatically enable cross-correlation, which in turn allows customers to gain greater levels of visibility across their infrastructure and applications to more rapidly troubleshoot problems. 7 Our platform is supported by hundreds of integrations to seamlessly aggregate metrics and events across all of the systems and services that power digital businesses. Our easy-to-use platform is deployed through a self-service installation process. Users can derive value from our platform within minutes without any specialized training or heavy implementation or customization. Customers can easily expand their usage of our platform on a self-serve basis, adding hosts or volumes of data monitored. Our platform is massively scalable currently monitoring more than tens of trillion events a day and millions of servers and containers. The key elements that can be leveraged across our platform: (cid:129) (cid:129) (cid:129) Single Pane of Glass. Our ability to provide a unified source of data enables users to access information from a single platform and easily explore multiple data sources. Through a single dashboard and with a common data framework, users are able to access and explore all of the relevant performance data. Users are able to more quickly assess and resolve their issues without having to toggle between multiple products. Robust, Deep Data Set. Our client-side collection technology relies on installation of a single agent for metrics, traces, and logs, allowing for a simple, seamless deployment experience for the customers. We ingest massive amounts of complex data and normalize it. The volume of data associated with combining infrastructure, APM and log management provides for a dramatically more robust data set than any of the individual data sources would provide on their own. SaaS Platform. Our cloud based multi-tenant SaaS platform allows for real-time ingestion, and analysis of massive amounts of data, without our customers needing to worry about the provisioning, sizing and capacity of their monitoring platform. (cid:129) One Data Model. Every piece of data that is ingested by our platform is consistently tagged with metadata regardless of its type. This allows for different kinds of performance data, such as a log event and an application trace, to be queried together, correlated, alerted on, and visualized in a common user interface. (cid:129) Cross-Correlation. All of our solutions are integrated and work cohesively to provide a deep level of context and insight into what is occurring in a customer’s IT environment and power faster troubleshooting. (cid:129) Out-Of-The-Box, Actionable Insights. From the moment of installation, our platform provides actionable insights through customizable dashboards, predictive analytics, automated correlations, visualizations and alerting. (cid:129) High Accuracy Machine-Learning Capabilities and Predictive Capabilities Powered by the Network Effect. Our multi- tenant cloud platform analyzes massive data sets ingested across our customers and their IT environments. It uses machine learning to predict and identify sources of performance or availability issues that customers share due to dependencies on common service providers or third-party services. (cid:129) (cid:129) 400+ Fully Supported Integrations. We offer more than 400 out-of-the-box integrations including public cloud, private cloud, on-premise hardware, databases and third-party software. Automated Alerts. We offer sophisticated real time alerting capabilities in the platform that detects issues, alerts users, and integrates with their service management systems. Our platform consists of the following products that can be used individually or as a unified solution and includes a Marketplace where customers can access products built by our partners on top of the Datadog platform. Our products include: (cid:129) (cid:129) (cid:129) Infrastructure Monitoring. Our infrastructure monitoring platform provides real-time monitoring of IT infrastructure across public cloud, private cloud and hybrid environments, as well as in containers and serverless architectures, ensuring performance and availability of applications. All infrastructure data is located in one repository with automatic correlation, regardless of environment size or rate of change, to provide a fulsome view of everything that is occurring across the IT ecosystem. Application Performance Monitoring (APM). APM provides full visibility into the health and functioning of applications regardless of the deployment environment. Distributed tracing across microservices, hosts, containers and serverless computing functions allows our customers to gain deep insights into application performance. Log Management. Log management for applications, systems and cloud platforms ingests data, creates indexes and enables querying of logs with visualizations and alerting to ensure immediate insight into any performance issues. Logging Without LimitsTM decouples the cost of log ingestion from processing, allowing customers to cost effectively collect a massive volume of logs and selectively process those they need to monitor. 8 (cid:129) User Experience Monitoring. User experience monitoring brings visibility up the stack to monitor the digital experience of the customer and is comprised of two products – Synthetics and Real User Monitoring, or RUM. Synthetics provides user-experience monitoring of applications and API endpoints via simulated AI-powered user requests to track application performance and ensure uptime. RUM provides analysis and visualization of the performance of front-end applications as experienced by all actual users. (cid:129) Network Performance Monitoring. Network Performance Monitoring, or NPM, enables the analysis and visualization of the flow of network traffic in cloud-based or hybrid environments. It is very lightweight, allowing customers to monitor the flow of network traffic without sacrificing performance. Additionally, our NPM offers monitoring of network hardware, such as routers, switches, and firewalls. NPM allows the mapping of full-stack dependencies, and is fully integrated with the Datadog platform. (cid:129) (cid:129) (cid:129) Security Monitoring. Security monitoring allows customers to detect threats in real time and investigate security signals across metrics, traces, and logs. It provides the full engineering organization, including Dev, Ops, and security teams, visibility into common data sources, in order to better operationalize IT security. Complementing our generally available Security Monitoring, Compliance Monitoring is currently available in beta to proactively notify misconfigurations and compliance drift, and runtime security is also available in beta to detect threats at the infrastructure and workload level. Incident Management. Incident management allows users to declare incidents, investigate root cause and dependencies, collaborate around a shared view of the incident, follow to resolution, and auto-generate post-mortem documentations, all within the Datadog platform. Continuous Profiler. Continuous profiler measures code level performance in any environment through an always-on, and low overhead solution. This allows customers to quickly identify and optimize the most resource-consuming parts in application code in order to improve mean time to resolution, enhance user experience and reduce cloud provider cost. Sales and Marketing Our sales team is segmented into four revenue-generating areas: an enterprise sales team that sells to large businesses; a high velocity inside sales team that is focused on acquiring new customers; a customer success team that handles new customer on- boarding and expansions in existing customers; and a partner team that works with resellers, system integrators, referral partners and managed service providers. Each of these teams is further split regionally for geographic coverage across the Americas, Asia-Pacific, or APAC, and Europe, the Middle East and Africa, or EMEA, regions. The sales teams work with marketing to actively pursue leads generated from marketing programs and help take prospective customers through an evaluation and purchase process. We focus our multi-touch marketing efforts on the strength of our product innovation, the value we provide and our domain expertise. We target the development and IT operations community through our marketing activities, using diverse tactics to connect with prospective customers, such as content marketing, email marketing, events, digital advertising, social media, public relations, partner marketing and community initiatives. We offer prospective customers free trials to help them understand the power of our platform. We also host and present at regional, national, global and virtual events to engage both customers and prospects, deliver product training, share best practices and foster community. As of December 31, 2020, we had 1,085 employees in our sales and marketing organization, including sales development, field sales, sales engineering, business development, sales operations, sales strategy, customer success and marketing personnel. We intend to continue to invest in our sales and marketing capabilities to capitalize on our market opportunity. Research and Development Our research and development organization is responsible for the design, development, testing and delivery of new technologies, features and integrations of our platform, as well as the continued improvement and iteration of our existing products. It is also responsible for operating and scaling our platform including the underlying cloud infrastructure. Our research and development investments seek to drive core technology innovation and bring new products to market. Research and development employees are located primarily in our New York and Paris offices, as well as remotely distributed. Our research and development team consists of our software engineering, product management, development and site reliability engineering teams. As of December 31, 2020, we had 927 employees in our research and development organization. We intend to continue to invest in our research and development capabilities to extend our platform and products. 9 Our Competition The worldwide monitoring and analytics market is and has been highly competitive for decades and is rapidly evolving. We compete on the basis of a number of factors, including: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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; and brand recognition and reputation. Our unified platform combines functionality from numerous traditional product categories, and hence we compete in each of these categories with different vendors: (cid:129) 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 Broadcom. (cid:129) With respect to APM, we compete with Cisco Systems, Inc., New Relic, Inc. and Dynatrace Software Inc. (cid:129) With respect to Log management, we compete with Splunk Inc. and Elastic N.V. (cid:129) With respect to Cloud monitoring, we compete with native solutions from cloud providers such as Amazon Web Services, or AWS, Google Cloud Platform, or GCP, and Microsoft Azure. Additionally, we compete with home-grown and open-source technologies across the categories described above. We believe that we compete favorably with respect to the factors listed above. However, many of our competitors have greater financial, technical and other resources, greater brand recognition, larger sales forces and marketing budgets, broader distribution networks, more diverse product and services offerings and larger and more mature intellectual property portfolios. They may be able to leverage these resources to gain business in a manner that discourages customers from purchasing our offerings. Furthermore, we expect that our industry will continue to attract new companies, including smaller emerging companies, which could introduce new offerings. We may also expand into new markets and encounter additional competitors in such markets. Human Capital Management Headcount As of December 31, 2020, we had 2,185 employees operating across 28 countries. Approximately 37% of our full-time employees as of that date were located outside of the United States, 42% of whom were located in France. In countries in which we operate, such as France, we are subject to, and comply with, local labor law requirements, which may automatically make our employees subject to industry-wide collective bargaining agreements. We have not experienced any work stoppages and we consider our relations with our employees to be good. 10 Culture and Engagement All of us at Datadog are driven by the desire to deliver a product that our customers love. In order to do that, we strive to create a culture that our employees love; one that promotes a healthy work-life balance, career growth, low drama, and a friendly office culture with plenty of fun (virtual) activities to ensure our teams remain close in these unprecedented times. To make sure our culture remains positive and strong, we conduct global engagement surveys periodically to gain a better understanding of what is important to our employees. The areas in which we are most successful include the transparency and accessibility of our leadership, support for employees during COVID-19, the strength of our product offerings, and opportunities for employee growth and development. Training and Development Datadog fosters a strong learning culture offering individual- and team-specific training on an ongoing basis, as well as a wide range of learning programs delivered by our global Talent Development team. We also provide robust manager training that shares effective tools and frameworks around recruiting, managing, and developing team members. We continually invest in our employees’ career growth and provide employees with a wide range of development opportunities, including face-to-face, virtual, social, and self-directed learning, mentoring, coaching, and external development. Compensation and Benefits We offer industry competitive wages and benefits and are committed to maintaining a workplace environment that promotes employee productivity and satisfaction. We believe our employees should have the support they need to maintain a strong work/life balance, grow personally and professionally, and save for their future. While the philosophy around our benefits is the same worldwide, specific benefits vary regionally due to local regulations and preferences. Diversity and Inclusion At Datadog, diversity means making a conscious effort to reflect the many experiences and identities of the world outside, while treating each other with fairness and without bias. Inclusion is the choice we make every day to foster an environment where people of all backgrounds not only belong but excel, so that together, as a company, we can succeed. Datadog strives for an inclusive community, both inside and out of the office. Internally, we offer training for employees around unconscious bias, and other diversity and inclusion-related topics designed to create a culture of belonging. Intellectual Property Intellectual property rights are important to the success of our business. We rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as license agreements, confidentiality procedures, non-disclosure agreements with third parties, and other contractual protections, to protect our intellectual property rights, including our proprietary technology, software, know-how and brand. We use open source software in our services. Our proprietary API and the agent used by customers to upload data to our platform are licensed by us on an open source basis. As of December 31, 2020, we own one issued patent and six patent applications pending for examination in the United States, five pending PCT applications, and no foreign patents or patent applications. The pending U.S. patent applications, if issued, would be scheduled to expire in 2038 and 2039. Despite our pending U.S. patent applications, there can be no assurance that our patent applications will result in issued patents. As of December 31, 2020, we own four registered trademarks in the United States and twenty-nine registered trademarks in various non-U.S. jurisdictions. However, as we have expanded internationally, we have been unable to register or obtain the right to use the Datadog trademark in certain jurisdictions, and as we continue to expand may face similar issues in other jurisdictions. Although we rely on intellectual property rights, including patents, copyrights, trademarks and trade secrets, as well as contractual protections to establish and protect our proprietary rights, we believe that factors such as the technological and creative skills of our personnel, creation of new services, features and functionality, and frequent enhancements to our platform are more essential to establishing and maintaining our technology leadership position. 11 We control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers and partners. We require our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and we control and monitor access to our software, documentation, proprietary technology and other confidential information. Our policy is to require all employees and independent contractors to sign agreements assigning to us any inventions, trade secrets, works of authorship, developments, processes and other intellectual property generated by them on our behalf and under which they agree to protect our confidential information. In addition, we generally enter into confidentiality agreements with our customers and partners. See the section titled “Risk Factors” for a more comprehensive description of risks related to our intellectual property. Corporate Information We were incorporated in Delaware in June 2010. Our principal executive offices are located at 620 8th Avenue, 45th Floor, New York, New York 10018, and our telephone number is (866) 329-4466. Our website address is www.datadog.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K. Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are filed with the SEC. Such reports and other information filed by us with the SEC are available free of charge on our website at www.investors.datadoghq.com when such reports are available on the SEC’s website. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The information contained on the websites referenced in this Annual Report on Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only. 12 Item 1A. Risk Factors Our operations and financial results are subject to various risks and uncertainties including those described below. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks or others not specified below materialize, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our Class A common stock could decline. Risks Related to the “COVID-19” Pandemic The ongoing COVID-19 pandemic and any related economic downturn could negatively impact our business, financial condition and results of operations. The ongoing COVID-19 pandemic may prevent us or our employees, customers, partners, suppliers or vendors or other parties with whom we do business from conducting certain marketing and other business activities for an indefinite period of time, which could adversely impact our business, financial position and results of operations. Further, in response to the COVID-19 pandemic, many state, local and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders and similar government orders and restrictions in order to control the spread of the disease. Such orders or restrictions, or the perception that such orders or restrictions could occur or reoccur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects that could negatively impact productivity and disrupt our operations or those of our customers, partners, suppliers or vendors or other parties with whom we do business. In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19 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 include 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, although we have recently and may continue to selectively reopen certain of our offices in compliance with applicable government orders and guidelines, the vast majority of our employees continue to work remotely. We have a distributed workforce and our employees are accustomed to working remotely and working with others who are working remotely. However, the temporary suspension 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. COVID-19 could also adversely affect workforces, economies and financial markets globally, potentially leading to an economic downturn and a reduction in customer spending on our solutions or an inability for our customers, partners, suppliers or vendors or other parties with whom we do business to meet their contractual obligations. While it is not possible at this time to predict the duration and extent of the impact that COVID-19 could have on worldwide economic activity and our business in particular, the continued spread of COVID-19 and the measures taken by governments, businesses and other organizations in response to COVID-19 could adversely impact our business, financial condition and results of operations. For example, during the second quarter of 2020, we experienced some impact to the rate of usage growth from our existing customers. In addition, we have provided and may continue to provide guidance about our business and future operating results, which is based on certain assumptions, estimates and expectations as of the date such guidance is given. Guidance is necessarily speculative in nature, and is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control, such as the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic. If we were to revise or fail to meet our announced guidance or expectations of analysts as a result of these factors, the price of our Class A common stock could be negatively affected. Moreover, to the extent the COVID-19 pandemic adversely affects our business, financial condition and results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, including but not limited to, those related to our ability expand within our existing customer base, acquire new customers, develop and expand our sales and marketing capabilities and expand internationally. 13 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 results of operations may vary based on the impact of unfavorable changes in our industry or the global economy on us or our customers and potential customers. Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth in the United States or abroad, financial and credit market fluctuations, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases (such as the ongoing COVID-19 pandemic), warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments, including spending on information technology, disrupt the timing and cadence of key industry events, and negatively affect the growth of our business and our results of operations. For example, these types of unfavorable conditions could disrupt the timing of and attendance at key industry events, which we rely upon in part to generate sales of our products. If those events are disrupted, our marketing investments, sales pipeline and ability to generate new customers and sales of our products could be negatively and adversely affected. In addition, our competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract our customers and may be less dependent on key industry events to generate sales for their products. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our products and solutions. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or how any such event may impact our business. Risks Associated with our Growth 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. Our revenue was $603.5 million, $362.8 million and $198.1 million for the years ended December 31, 2020, 2019 and 2018, 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: (cid:129) (cid:129) 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; (cid:129) maintain and expand the rates at which customers purchase and renew subscriptions to our platform; (cid:129) provide our customers with support that meets their needs; (cid:129) (cid:129) (cid:129) 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. We may not successfully accomplish any of these objectives, and as a result, it is difficult for us to forecast our future results of operations. If the assumptions that we use to plan our business are incorrect or change in reaction to changes in our market, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. You should not rely on our revenue for any prior quarterly or annual periods as any indication of our future revenue or revenue growth. In addition, we expect to continue to expend substantial financial and other resources on: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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. 14 These investments may not result in increased revenue growth in our business. If we are unable to maintain or increase our revenue at a rate sufficient to offset the expected increase in our costs, our business, financial position, and results of operations will be harmed, and we may not be able to achieve or maintain profitability over the long term. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays, and other unknown factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our business, financial position and results of operations may be harmed, and we may not achieve or maintain profitability in the future. We have a history of operating losses and may not achieve or sustain profitability in the future. We generated net losses of $(24.5) million, $(16.7) million and $(10.8) million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, we had an accumulated deficit of $148.2 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 achieve 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. We have a limited operating history, which makes it difficult to forecast our future results of operations. We were founded in June 2010. As a result of our limited operating history, our ability to accurately forecast our future results of operations is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue growth should not be considered indicative of our future performance. Further, in future periods, our revenue growth could slow or our revenue could decline for a number of reasons, including slowing demand for our products, increasing competition, changes to technology, a decrease in the growth of our overall market, or our failure, for any reason, to continue to take advantage of growth opportunities. We have also encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties and our future revenue growth are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, and our business could suffer. 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 and debt 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. 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. Strategic and Operational Risks 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. Our future success depends in part on our ability to sell additional subscriptions and products to our existing customers, and our customers renewing their subscriptions when the contract term expires. The terms of our subscription agreements are primarily monthly or annual, with some quarterly, semi-annual and multi-year. Our customers have no obligation to renew their subscriptions for our products after the expiration of their subscription period. In order for us to maintain or improve our results of operations, it is 15 important that our customers renew or expand their subscriptions with us. Whether our customers renew or expand their subscriptions with us may be impacted by a number of factors, including business strength or weakness of our customers, customer usage, customer satisfaction with our products and platform capabilities and customer support, our prices, the capabilities and prices of competing products, mergers and acquisitions affecting our customer base, consolidation of affiliates’ multiple paid business accounts into a single paid business account, the effects of global economic conditions, including due to the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic, or reductions in our customers’ spending on IT solutions or their spending levels generally. In addition, the factors impacting our ability to sell additional subscriptions and products to our customers may be exacerbated by the COVID-19 pandemic. These factors may also be exacerbated if, consistent with our growth strategy, our customer base continues to grow to encompass larger enterprises, which may also require more sophisticated and costly sales efforts. If our customers do not purchase additional subscriptions and products from us or our customers fail to renew their subscriptions, our revenue may decline and our business, financial condition and results of operations may be harmed. If we are unable to attract new customers, our business, financial condition and results of operations will be adversely affected. To increase our revenue, we must continue to attract new customers. Our success will depend to a substantial extent on the widespread adoption of our platform and products as an alternative to existing solutions. Many enterprises have invested substantial personnel and financial resources to integrate traditional on-premise architectures into their businesses and, therefore, may be reluctant or unwilling to migrate to cloud computing. Further, the adoption of SaaS business software may be slower in industries with heightened data security interests or business practices requiring highly customizable application software. In addition, as our market matures, our products evolve, and competitors introduce lower cost or differentiated products that are perceived to compete with our platform and products, our ability to sell subscriptions for our products could be impaired. Similarly, our subscription sales could be adversely affected if customers or users within these organizations perceive that features incorporated into competitive products reduce the need for our products or if they prefer to purchase other products that are bundled with solutions offered by other companies that operate in adjacent markets and compete with our products. As a result of these and other factors, we may be unable to attract new customers, which may have an adverse effect on 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. Our ability to increase our customer base and achieve broader market acceptance of our products and platform capabilities will depend to a significant extent on our ability to expand our sales and marketing organization. We plan to continue expanding our direct sales force, both domestically and internationally. We also plan to dedicate significant resources to sales and marketing programs. All of these efforts will require us to invest significant financial and other resources, including in channels in which we have limited or no experience to date. Our business and results of operations will be harmed if our sales and marketing efforts do not generate significant increases in revenue or increases in revenue that are smaller than anticipated. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, integrate and retain talented and effective sales personnel, if our new and existing sales personnel, on the whole, are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective. If we or our third-party service providers experience, or are unable to protect against cyber attacks, ransomware, security incidents, 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 or additional expenses. We collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of and share personal information, confidential information and other information necessary to provide our service, to operate our business, for legal and marketing purposes, and for other business-related purposes. We may use third-party service providers and sub-processors to help us deliver services to our customers. These vendors may store or process personal information on our behalf Our platform and products involve the storage and transmission of data, including personal 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, our employees are temporarily working remotely 16 due to the COVID-19 pandemic, which may pose additional data security risks (including, for example, an increase in phishing and spam emails experienced during 2020). While we have taken steps to protect the confidential and personal information that we have access to, our security measures or those of our third-party service providers that store or otherwise process certain of our and our customers’ data on our behalf could be breached or we could suffer a loss of our or our customers’ data. Our ability to monitor our third-party service providers’ data security is limited. Cyber-attacks, computer malware, viruses, employee mistakes or malfeasance, social engineering (including spear phishing and ransomware attacks), and general hacking have become more prevalent in our industry, particularly against cloud services. In addition, we do not directly control content that our customers store in our products. If our customers use our products for the transmission or storage of personal 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. We also process, store and transmit our own data as part of our business and operations. This data may include personal, confidential or proprietary information. 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. Because many different security vulnerabilities exist and exploits of such vulnerabilities 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 and physical facilities could be breached, 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, employees or service providers may inadvertently misconfigure resources or misdirect certain communications that lead to security incidents for which we must then expend effort and incur expenses to correct. Third parties may also conduct attacks designed to temporarily deny customers access to our cloud services. Any security breach or other security incident, or the perception that one has occurred, could result in a loss of customer confidence in the security of our platform and damage to our brand, reduce the demand for our products, disrupt normal business operations, require us to spend material resources to investigate or correct the breach and to prevent future security breaches and incidents, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and adversely affect our business, financial condition and results of operations. These risks are likely to increase as we continue to grow and process, store, and transmit increasingly large amounts of data. We use third-party technology, systems and services 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. We may have contractual and other legal obligations to notify relevant stakeholders of security incidents. For instance, most jurisdictions have enacted laws, such as the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), requiring companies to notify individuals, regulatory authorities, and others of security breaches involving certain types of data. Such mandatory contractual and legal disclosures are costly, could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach, and any failure to provide appropriate notice may violate the terms of our customer contracts. Our contracts, our representations, or industry standards, may require us to use industry-standard or reasonable measures to safeguard sensitive personal information or confidential information. A security breach could lead to claims by our customers, or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. As a result, we could be subject to legal action or our customers could end their relationships with us. Further, there can be no assurance that any limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages. The costs to respond to a security breach and/or mitigate any security vulnerabilities that may be identified could be significant, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service, negative publicity, and other harm to our business and our competitive position. We could be required to 17 fundamentally change our business activities and practices in response to a security breach or related regulatory actions or litigation, which could have an adverse effect on our business. Additionally, we cannot be certain that our insurance coverage will be adequate for fines, judgments, settlements, penalties, costs, attorney fees and other impacts that arise out of privacy or security incidents 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 that exceeds our available insurance coverage, or results in changes to 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 on acceptable terms or that our 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. 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. Interruptions or performance problems associated with our products and platform capabilities may adversely affect our business, financial condition and results of operations. Our continued growth depends in part on the ability of our existing and potential customers to access our products and platform capabilities at any time and within an acceptable amount of time. We have experienced, and may in the future experience, disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing our products and platform capabilities simultaneously, denial of service attacks, or other security-related incidents. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our products and platform capabilities become more complex and our user traffic increases. If our products and platform capabilities are unavailable or if our users are unable to access our products and platform capabilities within a reasonable amount of time or at all, we may experience a loss of customers, lost or delayed market acceptance of our platform and products, delays in payment to us by customers, injury to our reputation and brand, legal claims against us, and the diversion of our resources. In addition, to the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, financial condition and results of operations may be adversely affected. 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. As usage of our platform capabilities grow, we will need to devote additional resources to improving and maintaining our infrastructure and integrating with third-party applications. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support and professional services, to serve our growing customer base. Any failure of or delay in these efforts could result in impaired system performance and reduced customer satisfaction, resulting in decreased sales to new customers, lower dollar-based net retention rates or, the issuance of service credits or requested refunds, which would hurt our revenue growth and our reputation. Further, any failure in optimizing our spend on third-party cloud services as we scale could negatively impact our gross margins. Even if we are successful in our expansion efforts, they will be expensive and complex, and require the dedication of significant management time and attention. We could also face inefficiencies or service disruptions as a result of our efforts to scale our internal infrastructure. We cannot be sure that the expansion of and improvements to our internal infrastructure will be effectively implemented on a timely basis, if at all, and such failures could harm our business, financial condition and results of operations. We rely upon third-party providers of cloud-based infrastructure to host our products. Any disruption in the operations of these third-party providers, limitations on capacity or interference with our use could adversely affect our business, financial condition and results of operations. We outsource substantially all of the infrastructure relating to our cloud solution to third-party hosting services. Customers of our cloud-based products need to be able to access our platform at any time, without interruption or degradation of performance, and we provide them with service-level commitments with respect to uptime. Our cloud-based products depend on protecting the virtual cloud infrastructure hosted by third-party hosting services by maintaining its configuration, architecture, features and interconnection specifications, as well as the information stored in these virtual data centers, which is transmitted by third-party internet service providers. Any limitation on the capacity of our third-party hosting services could impede our ability to onboard new customers or expand the usage of our existing customers, which could adversely affect our business, financial condition and results of operations. In addition, any incident affecting our third-party hosting services’ infrastructure that may be caused by cyber-attacks, natural disasters, 18 fire, flood, severe storm, earthquake, power loss, telecommunications failures, outbreaks of contagious diseases, terrorist or other attacks, and other similar events beyond our control could negatively affect our cloud-based products. A prolonged service disruption affecting our cloud-based solution for any of the foregoing reasons would negatively impact our ability to serve our customers and could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the third-party hosting services we use. In the event that our service agreements with our third-party hosting services are terminated, or there is a lapse of service, elimination of services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our cloud solution for deployment on a different cloud infrastructure service provider, which could adversely affect our business, financial condition and results of operations. We offer free trials and a free tier of our platform to drive developer awareness of our products, and encourage usage and adoption. If these marketing strategies fail to lead to customers purchasing paid subscriptions, our ability to grow our revenue will be adversely affected. To encourage awareness, usage, familiarity and adoption of our platform and products, we offer free trials and a free tier of our platform. These strategies may not be successful in leading customers to purchase our products. Many users of our free tier may not lead to others within their organization purchasing and deploying our platform and products. To the extent that users do not become, or we are unable to successfully attract paying customers, we will not realize the intended benefits of these marketing strategies and our ability to grow our revenue will be adversely affected. We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price could decline. Our results of operations have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance. In addition to the other risks described herein, factors that may affect our results of operations include the following: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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; 19 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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. Any of these and other factors, or the cumulative effect of some of these factors, may cause our results of operations to vary significantly. For example, the full impact of the COVID-19 pandemic is unknown at this time, but could result in adverse changes in our results of operations for an unknown period of time as the virus and its related social and economic impacts spread. If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock could decline substantially, and we could face costly lawsuits, including securities class action suits. Seasonality may cause fluctuations in our sales and results of operations. Historically, we have experienced seasonality in new customer bookings, as we typically we enter into a higher percentage of subscription agreements with new customers and renewals with existing customers in the fourth quarter of the year. We believe that this results from the procurement, budgeting, and deployment cycles of many of our customers, particularly our enterprise customers. We expect that this seasonality will continue to affect our bookings and our results of operations in the future, and might become more pronounced as we continue to target larger enterprise customers. Downturns or upturns in our sales may not be immediately reflected in our financial position and results of operations. Because we recognize the majority 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, but could negatively affect our revenue in future quarters. This also makes it difficult for us to rapidly increase our revenue through the sale of additional subscriptions in any period, as revenue is recognized over the term of the subscription agreement. In addition, fluctuations in monthly subscriptions based on usage could affect our revenue on a period-over-period basis. If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock would decline substantially, and we could face costly lawsuits, including securities class actions. We target enterprise customers, and sales to these customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities. We have a field sales team that targets enterprise customers. Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs, and less predictability in completing some of our sales. For example, enterprise customers may require considerable time to evaluate and test our solutions and those of our competitors prior to making a purchase decision and placing an order. A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our solutions, the discretionary nature of purchasing and budget cycles, and the competitive nature of evaluation and purchasing approval processes. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Moreover, large enterprise customers often begin to deploy our products on a limited basis, but nevertheless demand configuration, integration services and pricing negotiations, which increase our upfront investment in the sales effort with no guarantee that these customers will deploy our products widely enough across their organization to justify our substantial upfront investment. If we fail to retain and motivate members of our management team or other key employees, or fail to attract additional qualified personnel to support our operations, our business and future growth prospects would be harmed. Our success and future growth depend largely upon the continued services of our executive officers, particularly Olivier Pomel, our co-founder and Chief Executive Officer, Alexis Lê-Quôc, our co-founder, President and Chief Technology Officer, and David Obstler, our Chief Financial Officer, as well as our other key employees in the areas of research and development and sales and marketing functions. From time to time, there may be changes in our executive management team or other key employees resulting from the hiring or departure of these personnel. Our executive officers and other key employees are employed on an at-will basis, which means that these personnel could terminate their employment with us at any time. The loss of one or more of our executive 20 officers, or the failure by our executive team to effectively work with our employees and lead our company, could harm our business. We also are dependent on the continued service of our existing software engineers because of the complexity of our products and platform capabilities. In addition, to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for engineers experienced in designing and developing SaaS applications and experienced sales professionals. If we are unable to attract such personnel in cities where we are located, we may need to hire in other locations which may add to the complexity and costs of our business operations. From time to time, we 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. If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, financial condition and results of operations may suffer. We believe that maintaining and enhancing the Datadog brand is important to support the marketing and sale of our existing and future products to new customers and expand sales of our platform and products to existing customers. We also believe that the importance of brand recognition will increase as competition in our market increases. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing efforts, our ability to provide reliable products that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality and use cases, and our ability to successfully differentiate our products and platform capabilities from competitive products. Our brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, our business, financial condition and results of operations may suffer. If we cannot maintain our company culture as we grow, our success and our business and competitive position may be harmed. We believe our culture has been a key contributor to our success to date and that the critical nature of the platform that we provide promotes a sense of greater purpose and fulfillment in our employees. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively focus on and pursue our corporate objectives. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our culture. If we fail to maintain our company culture, our business and competitive position may be harmed. If we fail to offer high-quality support, our reputation could suffer. Our customers rely on our customer support personnel to resolve issues and realize the full benefits that our platform provides. High-quality support is also important for the renewal and expansion of our subscriptions with existing customers. The importance of our support function will increase as we expand our business and pursue new customers. If we do not help our customers quickly resolve issues and provide effective ongoing support, our ability to maintain and expand our subscriptions to existing and new customers could suffer, and our reputation with existing or potential customers could suffer. 21 Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our business, financial condition and results of operations. We have in the past and may in the future seek to acquire or invest in businesses, joint ventures, products and platform capabilities, or technologies that we believe could complement or expand our services and platform capabilities, enhance our technical capabilities, or otherwise offer growth opportunities. Any such acquisition or investment may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the transactions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products and platform capabilities, personnel or operations of any acquired companies, particularly if the key personnel of an acquired company choose not to work for us, their software is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise. These transactions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. Any such transactions that we are able to complete may not result in any synergies or other benefits we had expected to achieve, which could result in impairment charges that could be substantial. In addition, we may not be able to find and identify desirable acquisition targets or business opportunities or be successful in entering into an agreement with any particular strategic partner. These transactions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations. In addition, if the resulting business from such a transaction fails to meet our expectations, our business, financial condition and results of operations may be adversely affected or we may be exposed to unknown risks or liabilities. Macroeconomic and Industry Risks 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. 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. 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 AWS, GCP and 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. 22 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: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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; and brand 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. 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. 23 Legal and Regulatory Risks 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. We and our third-party service providers are subject to stringent and changing laws, regulations and standards, and contractual obligations related to data privacy and security. Actual 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. We have legal and contractual obligations regarding the protection of confidentiality and appropriate use of personal information, confidential information, and other proprietary information. 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 personal 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. Internationally, nearly 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. The data protection landscape is currently unstable, resulting in possible significant operational costs for internal compliance and risk to our business. The European Economic Area, or EEA, Switzerland and the United Kingdom, collectively “Europe,” adopted the General Data Protection Regulation, or GDPR, which contains numerous requirements and changes from previously existing law, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. In addition, European data protection laws including the GDPR also 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 its recent “Schrems II” ruling, invalidated the EU-U.S. Privacy Shield framework. The Swiss Federal Data Protection and Information Commissioner also recently opined that the Swiss-U.S. Privacy Shield is inadequate for transfers of data from Switzerland to the United States. Authorities in the United Kingdom may similarly invalidate use of the EU- U.S. Privacy Shield as mechanisms for lawful personal information transfers from the U.K. to the United States. Inability to import personal information 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. 24 The Schrems II decision also raised questions about whether one of the primary alternatives to the 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 the United States or most other countries. At present, there are few, if any, viable alternatives to the SCCs. The European Commission recently proposed updates to the SCCs, and additional regulatory guidance has been released that seeks to imposes additional obligations on companies seeking to rely on the SCCs. As such, any transfers by us or our third-party service providers of personal information from Europe pursuant to SCCs may not comply with European data protection law, may increase our exposure to the GDPR’s heightened sanctions for violations of its cross-border data transfer restrictions, and may result in lower sales on our platform because of difficulty of establishing a lawful basis for personal information transfers out of Europe. While we have taken steps to mitigate the impact on us with respect to transfers of data, such as implementing SCCs, the efficacy and longevity of these transfer mechanisms remains uncertain. Moreover, as a result of the Schrems II decision, data exporters may now have an obligation to assess, analyze and verify on a case-by-case basis that personal information will be adequately protected in the country to which it is being exported, which increases the difficult of selling to European customers and may lead to longer sales cycles. Further, the United Kingdom’s decision to leave the European Union, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the United Kingdom. In particular, it is unclear whether the transfer of personal information from the EU to the United Kingdom will in the future remain lawful under the GDPR. The United Kingdom-EU post-Brexit trade deal provides that transfers of personal information to the United Kingdom will not be treated as restricted transfers to a non-EU country for a period of up to six months from January 1, 2021. However, unless the EU Commission makes an “adequacy finding” with respect to the United Kingdom before the end of that transition period, from that date the United Kingdom will be a “third country” under the GDPR and transfers of personal information from the EU to the United Kingdom will require an “adequacy mechanism,” such as the SCCs. In addition to the GDPR, the European Commission has another draft regulation in the approval process, 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. 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 may negatively impact our platform and products and our relationships with our customers. 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. Complying with the GDPR and the ePrivacy Regulation, when it becomes effective, 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, 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 EEA to maintain certain customer data (which may include personal data) originating from the EEA, we may find it necessary to establish additional systems and processes to maintain such data in the EEA, which may involve substantial expense and distraction from other aspects of our business. Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, and strict limitations to the processing of personal information, which could increase the cost and complexity of delivering our services and operating our business. In the past year, for example, Brazil enacted the General Data Protection Law, New Zealand enacted the New Zealand Privacy Act, China released its draft Personal Information Protection Law, and Canada introduced the Digital Charter Implementation Act. Domestic laws in this area are also complex and developing rapidly. In the United States, rules and regulations 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 personal 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 regulatory requirements. 25 The CCPA, which became effective on January 1, 2020, gives California residents expanded rights to access and delete their personal information, opt out of the sale of personal information, and receive detailed information about how their personal information is used. The CCPA provides a private right of action and statutory damages for data breaches and may increase our compliance costs and potential 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, the results of our operations, and our financial condition. Because the interpretation and application of many privacy and data protection laws and regulations, along with contractually imposed industry standards, are uncertain, it is possible that they 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, 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 our business activities and practices or modify our products and platform capabilities, any of which could have an adverse effect on our business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations, 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 contractual 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 contractual obligations, our business may be harmed. We publicly post our policies and other documentation regarding our practices concerning the collection, processing, use, transfer, 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 policies 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 third-party service providers or other parties with whom we do business to comply with our policies or other documentation could result in proceedings against us by governmental entities, private parties or others. We are or may also be subject to the terms of our external and internal privacy and security policies, codes, representations, certifications, industry standards, publications and frameworks and contractual obligations to third parties related to privacy, information security, including contractual obligations to indemnify and hold harmless third parties from the costs or consequences of non-compliance with data protection laws or other obligations. We are subject to anti-corruption, anti-bribery, anti-money laundering, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition and results of operations. We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, U.S. domestic bribery laws, the UK Bribery Act, and other anti-corruption and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. As we increase our international sales and business and sales to the public sector, we may engage with business partners and third-party intermediaries to market our products and to obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase. 26 Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption, anti-bribery, or anti- money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, financial condition and results of operations could be harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. Sales to government entities and highly regulated organizations are subject to a number of challenges and risks. We may sell to U.S. federal, state, and local, as well as foreign, governmental agency customers, as well as to customers in highly regulated industries such as financial services, telecommunications and healthcare. Sales to such entities are subject to a number of challenges and risks. Selling to such entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government contracting requirements may change and in doing so restrict our ability to sell into the government sector until we have attained the revised certification. Government demand and payment for our products are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products. Further, governmental and highly regulated entities may demand contract terms that differ from our standard arrangements and are less favorable than terms agreed with private sector customers. Such entities may have statutory, contractual, or other legal rights to terminate contracts with us or our partners for convenience or for other reasons. Any such termination may adversely affect our ability to contract with other government customers as well as our reputation, business, financial condition and results of operations. We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls. Our platform and products are subject to U.S. export controls, including the Export Administration Regulations, and we incorporate encryption technology into certain of our products. These encryption products and the underlying technology may be exported outside of the United States only with the required export authorizations, including by license, a license exception, or other appropriate government authorizations, including the filing of an encryption classification request or self-classification report. Furthermore, our activities are subject to U.S. economic sanctions laws and regulations administered by the Office of Foreign Assets Control that prohibit the shipment of most products and services to embargoed jurisdictions or sanctioned parties without the required export authorizations. 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. If our channel partners fail to obtain appropriate import, export, or re-export licenses or permits, we may also be adversely affected through reputational harm, as well as other negative consequences, including government investigations and penalties. Also, various countries, in addition to the United States, regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our end-customers’ ability to implement our products in those countries. Changes in our products or future changes in export and import regulations may create delays in the introduction of our platform in international markets, prevent our end-customers with international operations from deploying our platform globally or, in some cases, prevent the export or import of our products to certain countries, governments, or persons altogether. From time to time, various governmental agencies have proposed additional regulation of encryption technology. Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. Any decreased use of our platform or limitation on our ability to export or sell our products would adversely affect our business, results of operations, and growth prospects. Any 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 27 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. 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, 2020, we had NOL carryforwards for federal and state income tax purposes of approximately $263.2 million and $177.5 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 2028 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. Changes 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: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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; and limitations 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. U.S. generally accepted accounting principles, or GAAP, are subject to interpretation by the Financial Accounting Standards Board, the SEC and various bodies formed to promulgate and interpret applicable accounting principles. A change in these principles 28 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 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 in the Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. 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. Risks Related to Intellectual Property Any failure to obtain, maintain, protect or enforce our intellectual property and proprietary rights could impair our ability to protect our proprietary technology and our brand. Our success depends to a significant degree on our ability to obtain, maintain, protect and enforce our intellectual property rights, including our proprietary technology, know-how and our brand. We rely on a combination of trademarks, trade secret laws, patents, copyrights, service marks, contractual restrictions, and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights. However, the steps we take to obtain, maintain, protect and enforce our intellectual property rights may be inadequate. We will not be able to protect our intellectual property rights if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property rights. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our proprietary technology and develop and commercialize substantially identical products, services or technologies, our business, financial condition, results of operations or prospects may be harmed. In addition, defending our intellectual property rights might entail significant expense. Any patents, trademarks, or other intellectual property rights that we have or may obtain may be challenged or circumvented by others or invalidated or held unenforceable through administrative process, including re-examination, inter partes review, interference and derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings) or litigation. Despite our pending U.S. patent applications, there can be no assurance that our patent applications will result in issued patents. Even if we continue to seek patent protection in the future, we may be unable to obtain or maintain patent protection for our technology. In addition, any patents issued from pending or future patent applications or licensed to us in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. There may be issued patents of which we are not aware, held by third parties that, if found to be valid and enforceable, could be alleged to be infringed by our current or future technologies or products. There also may be pending patent applications of which we are not aware that may result in issued patents, which could be alleged to be infringed by our current or future technologies or products. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and platform capabilities and use information that we regard as proprietary to create products that compete with ours. Patent, trademark, copyright, and trade secret protection may not be available to us in every country in which our products are available. For example, as we have expanded internationally, we have been unable to register and obtain the right to use the Datadog trademark in certain jurisdictions, including in the EU, and as we continue to expand, we may face similar issues in other jurisdictions. The value of our intellectual property could diminish if others assert rights in or ownership of our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks. We may be unable to successfully resolve these types of conflicts to our satisfaction. In some cases, litigation or other actions may be necessary to protect or enforce our trademarks and other intellectual property rights. Furthermore, third parties may assert intellectual property claims against us, and we may be subject to liability, required to enter into costly license agreements, or required to rebrand our products and/or prevented from selling some of our products if third parties successfully oppose or challenge our trademarks or successfully claim that we infringe, misappropriate or otherwise violate their trademarks or other intellectual property rights. In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our products and platform capabilities and proprietary information will likely increase. Moreover, policing unauthorized use of our technologies, trade secrets, and intellectual property may be difficult, expensive, and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. 29 Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights. We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other third parties, including suppliers and other partners. However, we cannot guarantee that we have entered into such agreements with each party that has or may have had access to our proprietary information, know-how and trade secrets. Moreover, no assurance can be given that these agreements will be effective in controlling access to, distribution, use, misuse, misappropriation, reverse engineering or disclosure of our proprietary information, know-how and trade secrets. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products and platform capabilities. These agreements may be breached, and we may not have adequate remedies for any such breach. In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights, and if such defenses, counterclaims or countersuits are successful, we could lose valuable intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products and platform capabilities, impair the functionality of our products and platform capabilities, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our products, or injure our reputation. We may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business. We may become subject to intellectual property disputes. Our success depends, in part, on our ability to develop and commercialize our products and services without infringing, misappropriating or otherwise violating the intellectual property rights of third parties. However, we may not be aware that our products or services are infringing, misappropriating or otherwise violating third-party intellectual property rights and such third parties may bring claims alleging such infringement, misappropriation or violation. Lawsuits are time-consuming and expensive to resolve and they divert management’s time and attention. The software industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights. Companies in the software industry are often required to defend against litigation claims based on allegations of infringement, misappropriation or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims against their use. In addition, many companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. We do not currently have a large patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. Any litigation may also involve patent holding companies or other adverse patent owners that have no relevant product revenue, and therefore, our patent applications may provide little or no deterrence as we would not be able to assert them against such entities or individuals. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our products and platform capabilities or cease business activities related to such intellectual property. Although we carry general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our business, financial condition or results of operations. Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following: (cid:129) cease selling or using products or services that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate; (cid:129) make substantial payments for legal fees, settlement payments or other costs or damages; (cid:129) obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or (cid:129) redesign the allegedly infringing products to avoid infringement, misappropriation or violation, which could be costly, time-consuming or impossible. Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results. Moreover, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. We expect 30 that the occurrence of infringement claims is likely to grow as the market for our platform and products grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources. We use open source software in our products, which could negatively affect our ability to sell our services or subject us to litigation or other actions. We use open source software in our products and we expect to continue to incorporate open source software in our services in the future. Few of the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, we cannot ensure that we have not incorporated additional open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. If we fail to comply with these licenses, we may be subject to certain requirements, including requirements that we offer our solutions that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the open source software and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these products. From time to time, there have been claims challenging the ownership rights in open source software against companies that incorporate it into their products and the licensors of such open source software provide no warranties or indemnities with respect to such claims. As a result, we and our customers could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our business, financial condition and results of operations, or require us to devote additional research and development resources to change our products. In addition, although we employ open source software license screening measures, if we were to combine our proprietary software products with open source software in a certain manner we could, under certain open source licenses, be required to release the source code of our proprietary software products. Some open source projects have known vulnerabilities and architectural instabilities and are provided on an “as-is” basis which, if not properly addressed, could negatively affect the performance of our product. If we inappropriately use or incorporate open source software subject to certain types of open source licenses that challenge the proprietary nature of our products, we may be required to re-engineer such products, discontinue the sale of such products or take other remedial actions. Risks Associated with our International Operations Our current operations are international in scope, and we plan further geographic expansion, creating a variety of operational challenges. A component of our growth strategy involves the further expansion of our operations and customer base internationally. Revenue, as determined based on the billing address of our customers, from regions outside of North America was 25% for the year ended December 31, 2020. Beyond North America, we now have sales presence internationally, including in Dublin, Paris, London, Singapore, Tokyo, Seoul, Sydney and Amsterdam. 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 December 31, 2020, approximately 37% of our full- time employees were located outside of the United States, 42% 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. Our current and future international business and operations involve a variety of risks, including: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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 conditions; 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; 31 (cid:129) more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information, particularly in Europe; (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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, 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; 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. If we invest substantial time and resources to further expand our international operations and are unable to do so successfully and in a timely manner, our business and results of operations will suffer. We are exposed to fluctuations in currency exchange rates, which could negatively affect our results of operations. Our sales contracts are denominated in U.S. dollars, and therefore, our revenue is not subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our products and platform capabilities to our customers outside of the United States, which could adversely affect our results of operations. In addition, an increasing portion of our operating expenses are incurred outside the United States. These operating expenses are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with currency fluctuations, our results of operations could be adversely affected. Our international operations may subject us to potential adverse tax consequences. We are expanding our international operations to better support our growth into international markets. Our corporate structure and associated transfer pricing policies contemplate future growth in international markets, and consider the functions, risks, and assets of the various entities involved in intercompany transactions. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies, and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, 32 interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency. The 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. Risks Related to Ownership of Our Class A Common Stock Our stock price may be volatile, and the value of our Class A common stock may decline. The market price of our Class A common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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 stockholders, as well as the anticipation of lock-up releases; 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 market; and general economic and market conditions. Broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions, including those related to the ongoing COVID-19 pandemic, may also negatively impact the market price of our Class A common stock. The full impact of the COVID-19 pandemic is unknown at this time, but could result in material adverse changes in our results of operations for an unknown period of time as the virus and its related political, social and economic impacts spread. In addition, technology stocks have historically experienced high levels of volatility. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention. 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. Our Class B common stock has ten votes per share and our Class A common stock has one vote per share. As of December 31, 2020, our outstanding shares of Class B common stock represented approximately 80% of the voting power of our outstanding capital stock. As a result, the holders of our Class B common stock, which includes 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 if 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. Further, future transfers by holders of our Class B common stock will generally result in those shares converting into shares of our Class A common stock, subject to limited exceptions, such as certain transfers effected for tax or estate planning purposes. The 33 conversion of shares of our Class B common stock into shares of our Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. We cannot predict the impact our dual class structure may have on the market price of our Class A common stock. We cannot predict whether our dual class structure, combined with the concentrated control of our stockholders who held our capital stock prior to the completion of our initial public offering, or IPO, including our executive officers, employees and directors and their affiliates, will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple class share structures in certain of their indexes. For example, in July 2017, FTSE Russell and Standard & Poor’s announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Under the announced policies, our dual class capital structure would make us ineligible for inclusion in any of these indices. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class A common stock could be adversely affected. An active public trading market for our Class A common stock may not develop or be sustained. Prior to the closing of our IPO in September 2019, no public market for our Class A common stock existed. An active public trading market for our Class A common stock may not continue to develop or, if further developed, it may not be sustained. The lack of an active market may impair the ability of holders of our Class A common stock to sell their shares at the time they wish to sell them or at a price that the holders of our Class A common stock consider reasonable. The lack of an active market may also reduce the fair value of shares of our Class A common stock. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. Future sales of our Class A common stock in the public market could cause the market price of our Class A common stock to decline. Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. Many of our stockholders who held our capital stock prior to the completion of our IPO have substantial unrecognized gains on the value of the equity they hold based upon the price at which shares were sold in our IPO, and therefore they may take steps to sell their shares or otherwise secure the unrecognized gains on those shares. We are unable to predict the timing of or the effect that such sales may have on the prevailing market price of our Class A common stock. We have registered all of the shares of Class A common stock and Class B common stock issuable upon exercise of outstanding options or other equity incentives we may grant in the future, for public resale under the Securities Act. The 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. Further, as of December 31, 2020, 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. Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans or otherwise will dilute all other stockholders. We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors and consultants under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we have and may continue to acquire or make investments in companies, products or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline. Furthermore, if we issue additional equity or convertible debt securities, the new equity securities could have rights senior to those of our common stock. For example, if we elect to settle our conversion obligation under our 0.125% Convertible Senior Notes due 2025, or our 2025 Notes, in shares of our Class A common stock or a combination of cash and shares of our Class A common stock, the issuance of such Class A common stock may dilute the ownership interests of our stockholders and sales in the public market could adversely affect prevailing market prices. 34 If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, or if we fail to meet or significantly exceed our publicly announced financial guidance or the expectations of analysts or public investors, the market price and trading volume of our Class A common stock could decline. The market price and trading volume of our Class A common stock will be heavily influenced by the way analysts interpret our financial information and other disclosures. We do not have control over these analysts. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, our stock price would be negatively affected. If securities or industry analysts do not publish research or reports about our business, downgrade our Class A common stock, or publish negative reports about our business, our stock price would likely decline. In addition, the stock prices of many companies in the technology industry have declined significantly after those companies have failed to meet, or significantly exceed, the financial guidance publicly announced by those companies or the expectations of analysts. If our financial results fail to meet, or significantly exceed, our announced guidance or the expectations or analysts or public investors, analysts could downgrade or Class A common stock or publish unfavorable research on 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 do not intend to pay dividends for the foreseeable future. We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, holders of our Class A common stock may need to rely on sales of their holdings of Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. We will continue to incur increased costs as a result of operating as a public company, and our management will be required to continue to devote substantial time to compliance with our public company responsibilities and corporate governance practices. We have incurred significant legal, accounting, insurance, and other expenses as a public company, which we expect to further increase because we are no longer an “emerging growth company.” 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. These rules and regulations contribute to increased legal and financial compliance costs and make some activities more time-consuming and costly. As a result of being a public company, we are obligated to develop and maintain proper and effective internal controls over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock. We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the fiscal year ending December 31, 2020. 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 is required to attest to the effectiveness of our internal control over financial reporting. Our compliance with Section 404 requires 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 to comply with Section 404. During the evaluation and testing process of our internal controls in future years, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to certify that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness 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. 35 Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock. Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our Class A common stock, and they could deter potential acquirers of our company, thereby reducing the likelihood that holders of our Class A common stock would receive a premium for their shares of our Class A common stock in an acquisition. Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which could restrict our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees. Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: any derivative action or proceeding brought on our behalf; any action asserting a breach of a fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. In addition, our amended and restated certificate of incorporation provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive 36 forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. Risks Related to Our Outstanding 2025 Notes We may not have sufficient cash flow from our business to make payments on our significant debt when due, and we may incur additional indebtedness in the future. In June 2020, we issued the 2025 Notes in a private placement. We may be required to use a substantial portion of our cash flows from operations to pay interest and principal on our indebtedness. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the 2025 Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, we may incur substantial additional debt in the future, subject to the restrictions contained in our future debt agreements, some of which may be secured debt. We are not restricted under the terms of the indenture governing the 2025 Notes, from incurring additional debt, securing existing or future debt, recapitalizing our debt, repurchasing our stock, pledging our assets, making investments, paying dividends, guaranteeing debt or taking a number of other actions that are not limited by the terms of the indenture governing the 2025 Notes that could have the effect of diminishing our ability to make payments on the 2025 Notes when due. The conditional conversion feature of the 2025 Notes, if triggered, may adversely affect our financial condition and operating results. In the event the conditional conversion feature of the 2025 Notes is triggered, 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. The 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. The accounting method for convertible debt securities that may be settled in cash, such as the 2025 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 in our consolidated balance sheet at issuance, and the value of the equity component is treated as debt discount for purposes of accounting for the debt component of the 2025 Notes. As a result, we are required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the debt discount; such amortization results in the carrying value of the 2025 Notes accreting to their face amount over the term of the 2025 Notes. We have reported larger net losses or lower net income in our financial results because ASC 470-20 requires 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. However, in August 2020, the Financial Accounting Standards Board published an Accounting Standards Update 2020-06, or ASU 2020-06, eliminating the separate accounting for the debt and equity components as described above. ASU 2020-06 will be effective for SEC-reporting entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. However, early adoption is permitted in certain circumstances for fiscal years beginning after December 15, 2020, including interim periods within those fiscal 37 years. The Company chose to early adopt ASU 2020-06 on January 1, 2021. When effective, we expect the elimination of the separate accounting described above to reduce the interest expense that we expect to recognize for the 2025 Notes for accounting purposes. 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. However, when adopted, ASU 2020-06 will require the potentially more dilutive if- converted method to be used for calculating earnings per share, and the treasury stock method will no longer be allowed for convertible debt instruments whose principal amount may be settled using shares. 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. The capped call transactions may affect the value of the 2025 Notes and our Class A common stock. In connection with the pricing of the 2025 Notes, we entered into capped call transactions with the option counterparties. The capped call transactions cover, subject to customary adjustments, the number of shares of our common stock that initially underlie the 2025 Notes. The capped call transactions are expected generally to partially offset the potential dilution to our Class A common stock as a result of 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. In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions following the pricing of the 2025 Notes on June 2, 2020 and prior to the maturity of the 2025 Notes. 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. We are subject to counterparty risk with respect to the capped call transactions. The counterparties to the capped call transactions are financial institutions, and we will be subject to the risk that one or more of the option counterparties may default, fail to perform or exercise their termination rights under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If a counterparty to the capped call transactions becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transaction. Our exposure will depend on many factors but, generally, our exposure will increase if the market price or the volatility of our common stock 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. Item 1B. Unresolved Staff Comments None. Item 2. Properties Our headquarters are located in New York City, where we lease approximately 129,000 square feet pursuant to four separate subleases. One of these subleases, for approximately 33,000 square feet, will expire in December 2022. The other three subleases, totaling approximately 96,000 square feet, will expire in December 2023. We have other offices including Boston, Dublin, and Paris. These offices are leased, and we do not own any real property. We believe that our current facilities are adequate to meet our current needs. 38 Item 3. Legal Proceedings From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safety Disclosures Not applicable. 39 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders of Record Our Class A common stock is traded on The Nasdaq Global Select Market, or Nasdaq, under the symbol “DDOG”. Our Class B common stock is not listed or traded on any exchange, but each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock, and is automatically converted upon sale or transfer into one share of Class A common stock. As of February 15, 2021, there were 221,583,813 holders of record of our Class A common stock and 84,907,962 holders of record of our Class B common stock. Dividend Policy We have never declared or paid any dividends on our Class A common stock or Class B common stock. We currently intend to retain all available funds and any future earnings for the operation and expansion of our business. Accordingly, we do not anticipate declaring or paying dividends in the foreseeable future. The payment of any future dividends will be at the discretion of our Board of Directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in any debt agreements, and other factors that our Board of Directors may deem relevant. Use of Proceeds In September 2019, we closed our IPO of 27,600,000 shares of our Class A common stock at an offering price of $27.00 per share, including 3,600,000 shares pursuant to the 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. Issuer Purchases of Equity Securities None. Stock Performance Graph The graph below shows a comparison, from September 19, 2019 (the date our Class A common stock commenced trading on Nasdaq) through December 31, 2020, of the cumulative total return to stockholders of our Class A common stock relative to the Nasdaq Composite Index, or the Nasdaq Composite, and the Nasdaq Computer Index, or the Nasdaq Computer. 40 The graph assumes that $100 was invested in each of our Class A common stock, the Nasdaq Composite and the Nasdaq Computer at their respective closing prices on September 19, 2019 and assumes reinvestment of gross dividends. The stock price performance shown in the graph represents past performance and should not be considered an indication of future stock price performance. Comparison of Cumulative Total Returns $300 $250 $200 $150 $100 $50 $0 9/19/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Datadog Nasdaq composite Index Nasdaq Computer Index This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Datadog, Inc. under the Securities Act or the Exchange Act. 41 Item 6. Selected Financial Data As permitted by final SEC rulemaking effective February 10, 2021, the information called for by this Item 6 is omitted.. 42 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10- K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K. You should review the disclosure under the heading “Part I, Item 1A. Risk Factors” in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. Overview Datadog is the monitoring and analytics platform for developers, IT operations teams and business users in the cloud age. Our SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management, and security monitoring to provide unified, real-time observability of our customers’ entire technology stack. Datadog is used by organizations of all sizes and across a wide range of industries to enable digital transformation and cloud migration, drive collaboration among development, operations and business teams, accelerate time to market for applications, reduce time to problem resolution, understand user behavior and track key business metrics. We generate revenue from the sale of subscriptions to customers using our cloud-based platform. The terms of our subscription agreements are primarily monthly or annual. Customers also have the option to purchase additional products, such as additional containers to monitor, custom metrics packages, anomaly detection and app analytics. Professional services are generally not required for the implementation of our products and revenue from such services has been immaterial to date. We employ a land-and-expand business model centered around offering products that are easy to adopt and have a very short time to value. Our customers can expand their footprint with us on a self-service basis. Our customers often significantly increase their usage of the products they initially buy from us and expand their usage to other products we offer on our platform. We grow with our customers as they expand their workloads in the public and private cloud. As of December 31, 2020, we had $228.7 million in cash, cash equivalents and restricted cash and $1,292.5 million in marketable securities. We have grown rapidly in recent periods, with revenues for the fiscal years ended December 31, 2020, 2019 and 2018 of $603.5 million, $362.8 million, and $198.1 million, respectively, representing year-over-year growth of 66% from the fiscal year ended December 31, 2019 to the fiscal year ended December 31, 2020 and 83% from the fiscal year ended December 31, 2018 to the fiscal year ended December 31, 2019. Substantially all of our revenue is from subscription software sales. We expect that the rate of growth in our revenue will continue to decline as our business scales, even if our revenue continues to grow in absolute terms. We have continued to make significant expenditures and investments, including in personnel-related costs, sales and marketing, infrastructure and operations, and have incurred net losses of $(24.5) million, $(16.7) million and $(10.8) million for the fiscal years ended December 31, 2020, 2019 and 2018, respectively. Our operating cash flow was $109.1 million, $24.2 million and $10.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. Our free cash flow was $83.2 million, $0.8 million and $(5.0) million for the years ended December 31, 2020, 2019 and 2018, respectively. See the section titled “—Liquidity and Capital Resources—Non-GAAP Free Cash Flow” below. Since December 2019, COVID-19 has spread to 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, its impact on industry events, and its effect on our customers, partners, suppliers and vendors and other parties with whom we do business, 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. 43 Factors Affecting Our Performance Acquiring New Customers We believe there is substantial opportunity to continue to grow our customer base. We intend to drive new customer acquisition by continuing to invest significantly in sales and marketing to engage our prospective customers, increase brand awareness and drive adoption of our platform and products. We also plan to continue to invest in building brand awareness within the development and operations communities. As of December 31, 2020, we had approximately 14,170 customers spanning organizations of a broad range of sizes and industries, compared to approximately 10,500 as of December 31, 2019. 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. We define the number of customers as the number of accounts with a unique account identifier for which we have an active subscription in the period indicated. Users of our free trials or tier are not included in our customer count. A single organization with multiple divisions, segments or subsidiaries is generally counted as a single customer. However, in some cases where they have separate billing terms, we may count separate divisions, segments or subsidiaries as multiple customers. Expanding Within Our Existing Customer Base Our base of customers represents a significant opportunity for further sales expansion. As of December 31, 2020, we had 1,253 customers with annual run-rate revenue, or ARR, of $100,000 or more, representing 78% of our ARR, up from 858 as of December 31, 2019, representing 75% 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 and monthly subscriptions. ARR and MRR should be viewed independently of revenue, and do not represent our revenue under U.S. 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. A further indication of the propensity of our customer relationships to expand over time is our dollar-based net retention rate, which compares our ARR from the same set of customers in one period, relative to the year-ago period. As of each of December 31, 2020 and 2019, 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. We believe that our land-and-expand business model allows us to efficiently increase revenue from our existing customer base. Our customers often expand the deployment of our platform across large teams and more broadly within the enterprise as they migrate more workloads to the cloud, find new use cases for our platform, and generally realize the benefits of our platform. We intend to continue to invest in enhancing awareness of our brand and developing more products, features and functionality, which we believe are important factors to achieve widespread adoption of our platform. Our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our solution, competition, pricing and overall changes in our customers’ spending levels. Sustaining Innovation and Technology Leadership Our success is dependent on our ability to sustain innovation and technology leadership in order to maintain our competitive advantage. We believe that we have built a highly differentiated platform that will position us to further extend the adoption of our platform and products. Datadog is frequently deployed across a customer’s entire infrastructure, making it ubiquitous. Datadog is a daily part of the lives of developers, operations engineers and business leaders. We employ a land-and-expand business model centered around offering products that are easy to adopt and have a very short time to value. Our efficient go-to-market model enables us to prioritize significant investment in innovation. We have proven initial success of our platform approach, through expansion beyond our initial infrastructure monitoring solution, to include APM in 2017, logs in 2018, user experience and network performance monitoring in 2019 and security monitoring in 2020. As of December 31, 2020, approximately 72% of our customers were using more than one product, up from approximately 60% a year earlier. We believe these metrics indicate strong momentum in the uptake of our newer platform products. 44 We intend to continue to invest in building additional products, features and functionality that expand our capabilities and facilitate the extension of our platform to new use cases. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Our future success is dependent on our ability to successfully develop, market and sell existing and new products to both new and existing customers. Expanding Internationally We believe there is a significant opportunity to expand usage of our platform outside of North America. Revenue, as determined based on the billing address of our customers, from regions outside of North America was approximately 25% of our total revenue for the years ended December 31, 2020 and 2019. In addition, we have made and plan to continue to make significant investments to expand geographically, particularly in EMEA and APAC. 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, Paris, London, Singapore, Tokyo, Seoul, Sydney and Amsterdam. Components of Results of Operations Revenue We generate revenue from the sale of subscriptions to customers using our cloud-based platform. The terms of our subscription agreements are primarily monthly or annual, with the majority of our revenue coming from annual subscriptions. Our customers can enter into a subscription for a committed contractual amount of usage that is apportioned ratably on a monthly basis over the term of the subscription period, a subscription for a committed contractual amount of usage that is delivered as used, or a monthly subscription based on usage. To the extent that our customers’ usage exceeds the committed contracted amounts under their subscriptions, either on a monthly basis in the case of a ratable subscription or once the entire commitment is used in the case of a delivered-as-used subscription, they are charged for their incremental usage. Usage is measured primarily by the number of hosts or by the volume of data indexed. A host is generally defined as a server, either in the cloud or on-premise. Our infrastructure monitoring, APM and network performance monitoring products are priced per host, our logs product is priced primarily per log events indexed and secondarily by events ingested. Customers also have the option to purchase additional products, such as additional container or serverless monitoring, custom metrics packages, anomaly detection, synthetic monitoring and app analytics. In the case of subscriptions for committed contractual amounts of usage, revenue is recognized ratably over the term of the subscription agreement, generally beginning on the date that our platform is made available to a customer. As a result, much of our revenue is generated from subscriptions entered into during previous periods. Consequently, any decreases in new subscriptions or renewals in any one period may not be immediately reflected as a decrease in revenue for that period, but could negatively affect our revenue in future quarters. This also makes it difficult for us to rapidly increase our revenue through the sale of additional subscriptions in any period, as revenue is recognized over the term of the subscription agreement. In the case of a subscription for a committed contractual amount of usage that is delivered as used, a monthly subscription based on usage, or usage in excess of a ratable subscription, we recognize revenue as the product is used, which may lead to fluctuations in our revenue and results of operations. In addition, historically, we have experienced seasonality in new customer bookings, as we typically enter into a higher percentage of subscription agreements with new customers in the fourth quarter of the year. Due to ease of implementation of our products, professional services generally are not required and revenue from such services has been immaterial to date. Cost of Revenue Cost of revenue primarily consists of expenses related to providing our products to customers, including payments to our third-party cloud infrastructure providers for hosting our software, personnel-related expenses for operations and global support, including salaries, benefits, bonuses and stock-based compensation, payment processing fees, information technology, depreciation and amortization related to the amortization of acquired intangibles and internal-use software and other overhead costs such as allocated facilities. We intend to continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capability of our platform and ensure that our customers are realizing the full benefit of our platform and products. The level, timing and relative investment in our infrastructure could affect our cost of revenue in the future. 45 Gross Profit and Gross Margin Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand our products and geographical coverage. Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense and sales commissions. Operating expenses also include overhead costs for facilities and shared IT-related expenses, including depreciation expense. Research and Development Research and development expense consists primarily of personnel costs for our engineering, service and design teams. Additionally, research and development expense includes contractor fees, depreciation and amortization and allocated overhead costs. Research and development costs are expensed as incurred. We expect that our research and development expense will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments in our platform. Sales and Marketing Sales and marketing expense consists primarily of personnel costs for our sales and marketing organization, costs of general marketing and promotional activities, including the free tier and free introductory trials of our products, travel-related expenses and allocated overhead costs. Sales commissions earned by our sales force are deferred and amortized on a straight-line basis over the expected period of benefit, which we have determined to be four years. We expect that our sales and marketing expense will increase in absolute dollars as we expand our sales and marketing efforts. General and Administrative General and administrative expense consists primarily of personnel costs and contractor fees for finance, legal, human resources, information technology and other administrative functions. In addition, general and administrative expense includes non- personnel costs, such as legal, accounting and other professional fees, hardware and software costs, certain tax, license and insurance- related expenses and allocated overhead costs. We have incurred, and expect to continue to incur, additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations and professional services. We expect that our general and administrative expense will increase in absolute dollars as our business grows. 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. Other (Expense) Income, Net Other (expense) income, net consists primarily of interest expense due on the 2025 Notes, and amortization of premiums on our marketable securities, partially offset by interest income, primarily due to income earned on money market funds included in cash and cash equivalents and on marketable securities. Provision for Income Taxes Provision for income taxes consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We recorded a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. 46 Results of Operations The following table sets forth our consolidated statements of operations data for the periods indicated: Revenue............................................................................... $ Cost of revenue (1)(2)(4) ......................................................... Gross profit ......................................................................... Operating expenses Research and development (1)(3)(4) .................................. Sales and marketing (1)(3)(4)............................................. General and administrative (1)(3)(4).................................. Total operating expenses.......................................... Operating loss ..................................................................... Other (expense) income, net: Interest expense (5) ......................................................... Interest income and other income, net........................... Other (expense) income, net .......................................... Loss before provision for income taxes .............................. Provision for income taxes.................................................. Net loss................................................................................ $ __________________ (1) Includes stock-based compensation expense as follows: Cost of revenue ................................................................... $ Research and development.................................................. Sales and marketing ............................................................ General and administrative ................................................. Total............................................................................... $ __________________ (2) Includes amortization of acquired intangibles expense as follows: 2020 Years Ended December 31, 2019 (in thousands) 2018 603,466 $ 130,197 473,269 210,626 213,660 62,756 487,042 (13,773) (30,434) 21,985 (8,449) (22,222) (2,325) (24,547) $ 362,780 $ 88,949 273,831 111,425 146,657 35,889 293,971 (20,140) (32) 4,196 4,164 (15,976) (734) (16,710) $ 2020 Years Ended December 31, 2019 (in thousands) 2018 1,794 $ 38,008 20,467 14,105 74,374 $ 582 $ 7,972 5,538 4,942 19,034 $ 2020 Years Ended December 31, 2019 (in thousands) 2018 198,077 46,529 151,548 55,176 88,849 18,556 162,581 (11,033) — 793 793 (10,240) (522) (10,762) 287 1,641 1,910 1,406 5,244 Cost of revenue ................................................................... $ 943 $ 752 $ 511 (3) Includes non-cash benefit related to tax adjustment as follows: 2020 Years Ended December 31, 2019 (in thousands) 2018 $ (2,729) (449) (2,383) (5,561) $ (2,344) $ (397) (2,266) (5,007) $ — — — — Research and development.................................................. $ Sales and marketing ............................................................ General and administrative ................................................. Total............................................................................... $ __________________ (4) Includes employer payroll taxes on employee stock transactions as follows: 47 Cost of revenue ................................................................... $ Research and development.................................................. Sales and marketing ............................................................ General and administrative ................................................. Total............................................................................... $ __________________ (5) Includes amortization of debt discount and issuance costs as follows: 2020 Years Ended December 31, 2019 (in thousands) 2018 187 $ 2,836 3,756 839 7,618 $ — $ 1,157 284 19 1,460 $ — — — — — 2020 Years Ended December 31, 2019 (in thousands) 2018 Interest expense................................................................... $ 18,727 $ — $ — The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated: 2020 Years Ended December 31, 2019 2018 (as a percentage of total revenue(1)) 100% 25 75 100% 22 78 35 35 10 81 (2) (5) 4 (1) (4) (0) (4)% 31 40 10 81 (6) 0 1 1 (5) (0) (5)% 100% 23 77 28 45 9 82 (5) 0 1 1 (4) (1) (5)% Revenue .............................................................................. Cost of revenue................................................................... Gross profit......................................................................... Operating expenses Research and development ........................................... Sales and marketing ...................................................... General and administrative ........................................... Total operating expenses ......................................... Operating loss..................................................................... Other (expense) income, net: Interest expense............................................................. Interest income and other income, net .......................... Other (expense) income, net ......................................... Loss before provision for income taxes ............................ Provision for income taxes ................................................. Net loss............................................................................... __________________ (1) Certain items may not total due to rounding. Comparison of the Years Ended December 31, 2020 and 2019 Revenue Years Ended December 31, Revenue.................................................................. $ 603,466 $ 2020 2019 (dollars in thousands) 362,780 $ Change % Change 240,686 66% 48 Revenue increased by $240.7 million, or 66%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. Approximately 59% of the increase in revenue was attributable to growth from existing customers, and the remaining 41% was attributable to growth from new customers. Cost of Revenue and Gross Margin Years Ended December 31, 2020 2019 Change % Change Cost of revenue ..................................................... $ 130,197 Gross margin ......................................................... (dollars in thousands) $ 75% $ 78% 88,949 41,248 46% 3% Cost of revenue increased by $41.2 million, or 46%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily due to an increase of $34.7 million in third-party cloud infrastructure hosting and software costs, an increase of $4.9 million in personnel expenses as a result of increased headcount, and an increase of $1.6 million of depreciation and amortization, credit card processing fees and other fees, and allocated overhead costs as a result of an increase in overall costs necessary to support the growth of the business and related infrastructure. Our gross margin increased by 3% for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily as a result of increased revenue and cost savings from our third-party cloud infrastructure providers. Research and Development Years Ended December 31, Research and development .................................... $ 210,626 Percentage of revenue............................................ 35% $ 31% 2020 2019 (dollars in thousands) $ 111,425 Change % Change 99,201 89% Research and development expense increased by $99.2 million, or 89%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily due to an increase of $82.1 million in personnel costs for our engineering, product and design teams as a result of increased headcount, an increase of $12.9 million in cloud infrastructure related investments, an increase of $3.3 million in allocated overhead costs necessary for supporting the growth of the business and an increase of $0.9 million in other research and development costs. Sales and Marketing Years Ended December 31, Sales and marketing............................................... $ 213,660 Percentage of revenue............................................ 35% $ 40% 2020 2019 (dollars in thousands) $ 146,657 Change % Change 67,003 46% Sales and marketing expense increased by $67.0 million, or 46%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily due to an increase of $60.5 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 $4.4 million in marketing and promotional activities, and an increase of $2.1 million of allocated overhead costs necessary to support the growth of the business and related infrastructure. General and Administrative General and administrative.................................... $ Percentage of revenue............................................ 62,756 $ 10% 35,889 $ 10% 26,867 75% Years Ended December 31, 2020 2019 (dollars in thousands) Change % Change 49 General and administrative expense increased by $26.9 million, or 75%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily due to an increase of $16.4 million in personnel expenses as a result of increased headcount, an increase of $4.3 million related to outside professional fees primarily related to insurance, finance and legal fees, an increase of $4.1 related to other costs and allocated overhead costs to support the growing business and an increase of $2.1 million related to bad debt expense. Other (Expense) Income, Net Years Ended December 31, Other (expense) income, net ................................. $ Percentage of revenue ........................................... 2020 2019 (dollars in thousands) $ 1% 4,164 (8,449) $ -1% Change % Change (12,613) (303%) Other (expense) income, net decreased by $12.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. For the year ended December 31, 2020, other expense included $19.3 million interest expense related to our 2025 Notes and $11.1 million amortization of premiums on our marketable securities. These amounts were partially offset by an increase of $17.8 million in interest income, mainly due to income earned from investments in marketable securities and money market funds. Comparison of the Years Ended December 31, 2019 and 2018 Revenue Years Ended December 31, Revenue ................................................................. $ 362,780 $ 2019 2018 (dollars in thousands) 198,077 $ Change % Change 164,703 83% Revenue increased by $164.7 million, or 83%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. Approximately 60% of the increase in revenue was attributable to growth from existing customers, and the remaining 40% was attributable to growth from new customers. Cost of Revenue and Gross Margin Years Ended December 31, 2019 2018 Change % Change Cost of revenue ..................................................... $ Gross margin ......................................................... 88,949 (dollars in thousands) $ 77% $ 75% 46,529 42,420 91% -2% Cost of revenue increased by $42.4 million, or 91%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. This increase was primarily due to an increase of $35.2 million in third-party cloud infrastructure hosting and software costs, an increase of $3.2 million in personnel expenses as a result of increased headcount, an increase of $2.5 million of depreciation and amortization expense, an increase of $0.8 million in credit card processing fees and other fees, and an increase of $0.7 million in allocated overhead costs as a result of an increase in overall costs necessary to support the growth of the business and related infrastructure. Our gross margin declined by 2% for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily as the result of the timing and amount of our investments to expand the capacity of our third-party cloud infrastructure providers. 50 Research and Development Research and development.................................... $ 111,425 Percentage of revenue ........................................... $ 31% 55,176 $ 28% 56,249 102% Years Ended December 31, 2019 2018 (dollars in thousands) Change % Change Research and development expense increased by $56.2 million, or 102%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. This increase was primarily due to an increase of $38.5 million in personnel costs for our engineering, product and design teams as a result of increased headcount, and an increase of $17.7 million in cloud infrastructure related investments and in allocated overhead costs necessary for supporting the growth of the business. Sales and Marketing Sales and marketing .............................................. $ 146,657 Percentage of revenue ........................................... $ 40% 88,849 $ 45% 57,808 65% Years Ended December 31, 2019 2018 (dollars in thousands) Change % Change Sales and marketing expense increased by $57.8 million, or 65%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. This increase was primarily due to an increase of $39.6 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 $10.4 million in allocated overhead costs as a result of an increase in overall costs necessary to support the growth of the business and related infrastructure, and an increase of $7.8 million in marketing and promotional activities. General and Administrative General and administrative ................................... $ Percentage of revenue ........................................... 35,889 $ 10% 18,556 $ 9% 17,333 93% Years Ended December 31, 2019 2018 (dollars in thousands) Change % Change General and administrative expense increased by $17.3 million, or 93%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. This increase was primarily due to an increase of $8.6 million in personnel expenses as a result of increased headcount, an increase of $6.9 million related to outside professional fees primarily related to legal and accounting services, an increase of $1.8 million in allocated overhead expenses related to an increase in overall costs necessary to support the growth of the business and related infrastructure. Other (Expense) Income, Net Other income, net .................................................. $ Percentage of revenue ........................................... 4,164 $ 1% 793 $ 1% 3,371 425% Years Ended December 31, 2019 2018 (dollars in thousands) Change % Change Other (expense) income, net increased by $3.4 million, or 425%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. This increase was primarily due to interest income earned from investments in money market funds and marketable securities. 51 Quarterly Results of Operations The following tables summarize our selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended December 31, 2020. The information for each of these quarters has been prepared on the same basis as our audited annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10-K. Historical results are not necessarily indicative of the results that may be expected for the full fiscal year or any other period. Three Months Ended December 31, 2020 September 30, 2020 June 30, 2020 (in thousands, except per share data; unaudited) December 31, 2019 March 31, 2020 September 30, 2019 June 30, 2019 March 31, 2019 Revenue............................. $ 177,531 $ Cost of revenue (1)(2)(4) ....... 40,856 Gross profit ....................... 136,675 Operating expenses: Research and development (1)(3)(4) ... Sales and marketing (1)(3)(4) ........ General and administrative (1)(3)(4) . Total operating expenses(3)................. Operating (loss) income .... Other (expense) income: 145,613 (8,938) 17,881 60,034 67,698 154,675 $ 140,012 $ 131,248 $ 113,644 $ 25,724 33,984 26,479 28,878 87,920 120,691 111,134 104,769 95,864 $ 83,222 $ 20,978 23,297 62,244 72,567 70,050 18,950 51,100 56,440 45,664 40,824 35,894 28,684 24,032 22,815 57,142 51,269 45,215 41,596 38,836 36,118 30,107 16,376 13,547 14,952 12,696 9,265 6,088 7,840 129,958 110,480 100,991 3,778 (9,267) 654 90,186 (2,266) 76,785 (4,218) 66,238 (3,994) 60,762 (9,662) Interest expense (5) ....... Interest income and other income, net ...... Other (expense) income, net................... (Loss) income before income taxes................... Provision for income taxes Net (loss) income .............. $ Net (loss) income per share, basic ..................... $ Net (loss) income per share, diluted .................. $ Weighted average shares used in calculating basic net (loss) income per share ............................... Weighted average shares used in calculating diluted net (loss) income per share ......................... (13,010) (12,423) (4,294) (707) (32) — — — 6,781 7,135 4,466 3,603 3,550 90 326 230 (6,229) (5,288) 172 2,896 3,518 90 326 230 (15,167) (993) (16,160) $ (14,555) (595) (15,150) $ 826 (542) 284 $ 6,674 (195) 6,479 $ 1,252 (361) 891 $ (4,128) (33) (4,161) $ (3,668) (281) (3,949) $ (9,432) (59) (9,491) (0.05) $ (0.05) $ 0.00 $ 0.02 $ 0.00 $ (0.04) $ (0.05) $ (0.12) (0.05) $ (0.05) $ 0.00 $ 0.02 $ 0.00 $ (0.04) $ (0.05) $ (0.12) 304,057 302,554 299,267 295,455 294,515 103,876 82,043 77,061 304,057 302,554 330,847 327,801 327,333 103,876 82,043 77,061 (1) Includes stock-based compensation expense as follows: 52 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Three Months Ended Cost of revenue ................. $ Research and development Sales and marketing .......... General and administrative ........................................... Stock-based compensation expense........................... $ 627 $ 13,285 6,784 529 $ 10,173 6,068 407 $ 8,703 4,541 (in thousands) 231 $ 5,847 3,074 210 $ 4,263 2,262 161 $ 1,934 1,540 112 $ 989 1,007 4,068 3,946 3,183 2,908 2,283 1,042 786 99 786 729 831 24,764 $ 20,716 $ 16,834 $ 12,060 $ 9,018 $ 4,677 $ 2,894 $ 2,445 (2) Includes amortization of acquired intangibles expense as follows: Three Months Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Cost of revenue..................$ 275 $ 274 $ 147 $ (in thousands) 247 $ 221 $ 179 $ 177 $ 175 (3) Includes non-cash benefit related to tax adjustment as follows: December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Three Months Ended Research and development Sales and marketing .......... General and administrative................. Total .................................. $ — — — — $ (in thousands) — $ — (2,729) (449) — — $ (2,383) (5,561) $ — $ — — — — $ — $ — (2,344) (397) — — $ (2,266) (5,007) $ — — — — (4) Includes employer payroll taxes on employee stock transactions as follows: Three Months Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Cost of revenue ................. $ Research and development Sales and marketing .......... General and administrative................. Total .................................. $ 33 $ 959 742 32 $ 418 1,354 121 $ 1,423 1,508 (in thousands) 1 $ 36 152 287 2,021 $ 282 2,086 $ 212 3,264 $ 58 247 $ — $ 896 5 - 901 $ — $ — 88 — 88 $ 0 $ 262 191 7 460 $ 0 0 0 12 12 (5) Includes amortization of debt discount and issuance costs as follows: December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Interest expense .................$ 8,181 $ 8,062 $ 2,484 $ (in thousands) — $ — $ — $ — $ — Three Months Ended 53 The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated: December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Three Months Ended Revenue............................. Cost of revenue ................. Gross profit ....................... Operating expenses: Research and development ................... Sales and marketing ....... General and administrative.............. Total operating expenses....................... Operating (loss) income.... Other (expense) income: Interest expense ........... Interest income and other income, net ......... Other (expense) income, net .................. (Loss) income before income taxes................... Provision for income taxes .................................. Net (loss) income .............. 100% 23 77 (as a percentage of total revenue(1)) 100% 22 78 100% 21 79 100% 20 80 100% 23 77 100% 24 76 100% 25 75 100% 27 73 38 34 10 82 (5) (7) 4 (4) (9) 36 37 11 84 (6) (8) 5 (3) (9) 33 36 10 79 0 (3) 3 0 0 31 35 11 77 3 0 2 2 5 32 36 11 79 (2) 0 3 3 1 30 41 10 81 (4) 0 0 0 29 43 7 79 (4) 0 0 0 33 43 11 87 (14) 0 1 1 (4) (4) (13) (1) (9)% 0 (10)% 0 0% (1) 4% 0 1% (1) (5)% (1) (5)% (1) (14)% (1) Certain items may not total due to rounding. Quarterly Revenue Trends Total revenue increased sequentially in each of the quarters presented primarily due to the growth from existing customers and the addition of new customers. We recognize revenue ratably over the terms of our subscription contracts. As a result, a substantial portion of the revenue we report in a period is attributable to orders we received during prior periods. Therefore, increases or decreases in new sales, customer expansion or renewals in a period may not be immediately reflected in revenue for the period. Quarterly Cost of Revenue Trends Our quarterly cost of revenue has generally increased quarter-over-quarter in each period presented above primarily as a result of third-party cloud infrastructure hosting and software costs, as well as increase headcount, which resulted in increased personnel expenses. Quarterly Gross Margin Trends Our quarterly gross margins have fluctuated between 73% and 80% in each period presented. Our gross margins decreased in the last three quarters ended December 31, 2020 as a result of an increase in our third-party cloud infrastructure hosting and software costs as well as increased headcount. Quarterly Operating Expense Trends Operating expenses have fluctuated between 77% and 87% of revenue in each period presented above, with increases primarily due to the increased headcount, infrastructure and related costs to support our growth. We intend to continue to make 54 significant investments in research and development as we add features and enhance our platform. We also intend to invest in our sales and marketing organization to drive future revenue growth. Quarterly Other (Expense) Income, Net Trends Other (expense) income, net consisted primary of interest expense related to our 2025 Notes and of amortization of premiums on our marketable securities. We issued the 2025 Notes in June 2020 and increased our investments in marketable securities, which both led to an increase in the interest expenses incurred during the 12 months ended December 31, 2020. Other income consisted primarily of interest income earned from investments in money market funds and marketable securities, which was increased due to the increase in the investment in marketable securities. Liquidity and Capital Resources Since inception, we have financed operations primarily through sales of subscriptions and the net proceeds we have received from issuance of equity and debt securities. In June 2020, we issued $747.5 million aggregate principal amount of the 2025 Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The total net proceeds from the sale of the 2025 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $730.2 million. As of December 31, 2020, we had $224.9 million in cash and cash equivalents, and $1,292.5 million in marketable securities. We believe that our existing cash and cash equivalents, marketable securities and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, including the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, and the continuing market adoption of our platform. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition. A substantial source of our cash from operations is from our deferred revenue, which is included in the liabilities section of our consolidated balance sheet. Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As of December 31, 2020, we had deferred revenue of $208.3 million, of which $204.8 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. The following table shows a summary of our cash flows for the periods presented: Cash provided by operating activities ................................. $ Cash used in investing activities ......................................... Cash provided by financing activities ................................. 109,091 $ (1,152,624) 670,276 $ 24,234 (202,220) 714,216 10,829 (17,456) 7,782 2020 Years Ended December 31, 2019 (in thousands) 2018 Operating Activities Our largest source of operating cash is cash collection from sales of subscriptions to our customers. Our primary uses of cash from operating activities are for personnel expenses, marketing expenses, hosting expenses and overhead expenses. We have generated positive cash flows and have supplemented working capital requirements through net proceeds from the sale of equity securities. Cash provided by operating activities for the fiscal year ended December 31, 2020 of $109.1 million was primarily related to our net loss of $24.5 million, adjusted for non-cash charges of $146.1 million and net cash outflows of $12.5 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of 55 debt discount and issuance costs related to our 2025 Notes, depreciation and amortization of property and equipment, amortization of capitalized software, amortization of acquired intangibles and amortization of deferred contract costs. The main drivers of the changes in operating assets and liabilities were related to a $69.8 million increase in deferred revenue, resulting primarily from increased billings for subscriptions, a $6.5 million increase in accounts payable, a $4.0 million increase in accrued expenses and other liabilities, and a $1.0 million decrease in other assets. These amounts were offset by a $64.2 million increase in accounts receivable, net, due to increases in sales, a $25.1 million increase in deferred contract costs related to commissions paid on new bookings, a $4.5 million increase in prepaid expenses and other current assets, primarily driven by prepaid hosting services. Cash provided by operating activities for the fiscal year ended December 31, 2019 of $24.2 million was primarily related to our net loss of $16.7 million, adjusted for non-cash charges of $50.5 million and net cash outflows of $9.5 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 capitalized software, amortization of acquired intangibles and amortization of deferred contract costs. The main drivers of the changes in operating assets and liabilities were related to a $67.8 million increase in deferred revenue, resulting primarily from increased billings for subscriptions, a $6.4 million increase in accrued expenses and other liabilities, and a $2.5 million increase in accounts payable. These amounts were partially offset by a $47.5 million increase in accounts receivable, net, due to increases in sales, a $20.1 million increase in deferred contract costs related to commissions paid on new bookings, a $10.0 million increase in prepaid expenses and other current assets, primarily driven by prepaid hosting services, and a $8.5 million increase in other assets. Cash provided by operating activities for the fiscal year ended December 31, 2018 of $10.8 million was primarily related to our net loss of $10.8 million, adjusted for non-cash charges of $14.4 million and net cash inflows of $7.2 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, net of amounts capitalized, depreciation and amortization of property and equipment, amortization of capitalized software, and amortization of acquired intangibles. The main drivers of the changes in operating assets and liabilities were related to a $31.6 million increase in deferred revenue, resulting primarily from increased billings for subscriptions, a $7.2 million increase in accounts payable, and a $10.9 million increase in accrued expenses and other liabilities, due to an increase in headcount. These amounts were partially offset by a $25.3 million increase in accounts receivable, net, due to increases in sales, a $1.3 million increase in prepaid expenses and other current assets, primarily driven by prepaid hosting services, an $8.9 million increase in deferred contract costs related to commissions paid on new bookings, and a $7.0 million increase in other assets. Investing Activities Cash used in investing activities for the year ended December 31, 2020, was $1,152.6 million, and was primarily the result of investment in marketable securities of $1,794.6 million, a $20.4 million increase in capitalization of software development costs, a $5.4 million increase in capital expenditures to purchase property and equipment to support office space and site operations, and $2.4 million paid for an acquisition. These amounts were partially offset by proceeds of $506.6 million and $163.6 million from maturities and sales of marketable securities, respectively. Cash used in investing activities for the years ended December 31, 2019 and 2018 was $202.2 million and $17.5 million, respectively, and was primarily the result of investment in marketable securities, increases in capital expenditures to purchase property and equipment to support additional office space and site operations, increases in capitalization of software development costs and increases in acquired intangibles. Financing Activities Cash provided by financing activities for the year ended December 31, 2020 was $670.3 million and was primarily attributable to proceeds from the issuance of the 2025 Notes in the amount of $730.2 million, net of issuance costs, proceeds from the exercise of stock options in the amount of $15.9 million, and proceeds from the issuance of common stock under the employee stock purchase plan, or “ESPP”, in the amount of $15.2 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 initial public offering, or IPO, costs. Cash provided by financing activities for the year ended December 31, 2019 was $714.2 million and was primarily the result of aggregate net proceeds from our IPO in the amount of $706.3 million and proceeds from the exercise of stock options in the amount of $7.9 million. Cash provided by financing activities for the fiscal year ended December 31, 2018 was $7.8 million and was primarily the result of proceeds from the exercise of stock options. 56 Non-GAAP Free Cash Flow We report our financial results in accordance with U.S. GAAP. To supplement our consolidated financial statements, we provide investors with the amount of free cash flow, which is a non-GAAP financial measure. Free cash flow represents net cash used in operating activities, reduced by capital expenditures and capitalized software development costs, if any. Free cash flow is a measure used by management to understand and evaluate our liquidity and to generate future operating plans. The reduction of capital expenditures and amounts capitalized for software development facilitates comparisons of our liquidity on a period-to-period basis and excludes items that we do not consider to be indicative of our liquidity. We believe that free cash flow is a measure of liquidity that provides useful information to our management, board of directors, investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business. Nevertheless, our use of free cash flow has limitations as an analytical tool, and you should not consider 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 comparability may be limited. You should consider free cash flow alongside our other GAAP-based financial performance measures, such as net cash used in operating activities, and our other GAAP financial results. The following table presents our cash flows for the periods presented and a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP: Net cash provided by operating activities ........................... $ Less: Purchases of property and equipment .................. Less: Capitalized software development costs .............. Free cash flow ..................................................................... $ 109,091 $ (5,415) (20,468) 83,208 $ $ 24,234 (13,315) (10,128) 791 $ 10,829 (9,662) (6,176) (5,009) 2020 Years Ended December 31, 2019 (in thousands) 2018 Contractual Obligations and Commitments The following table summarizes our contractual obligations as of December 31, 2020: Operating lease commitments .............................................. $ Purchase commitments......................................................... Total ..................................................................................... $ 94,618 184,167 278,785 $ $ 19,808 96,143 115,951 Total Less than 1 Year 1-3 Years (in thousands) 43,030 $ 88,004 131,034 $ $ $ 3-5 Years More than 5 Years 10,142 20 10,162 $ $ 21,638 — 21,638 Payments Due By Period The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. Our operating lease commitments relate primarily to our office space. The significant operating lease obligations relate to leases for our New York, Boston, Paris and Dublin office spaces. Purchase commitments relate mainly to hosting agreements as well as computer software used to facilitate our operations at the enterprise level. We have also excluded unrecognized tax benefits from the contractual obligations table above. A variety of factors could affect the timing of payments for the liabilities related to unrecognized tax benefits. Therefore, we cannot reasonably estimate the timing of such payments. We believe that these matters will likely not be resolved in the next 12 months and accordingly we have classified the estimated liability as non-current in the consolidated balance sheet. For further information see Note 15 in our Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10-K. Off-Balance Sheet Arrangements As of December 31, 2020, 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. 57 Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We believe that the accounting policies described below involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. Revenue Recognition We generate revenue from the sale of subscriptions to customers using our cloud-based platform. The terms of our subscription agreements are primarily monthly or annual, with the majority of our revenue coming from annual subscriptions. Our customers can enter into a subscription for a committed contractual amount of usage that is apportioned ratably on a monthly basis over the term of the subscription period, a subscription for a committed contractual amount of usage that is delivered as used, or a monthly subscription based on usage. To the extent that our customers’ usage exceeds the committed contracted amounts under their subscriptions, either on a monthly basis in the case of a ratable subscription or once the entire commitment is used in the case of a delivered-as-used subscription, they are charged for their incremental usage. We account for revenue contracts with customers through the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as we satisfy a performance obligation. Our subscriptions are generally non-cancellable. Once we have determined the transaction price, the total transaction price is allocated to each performance obligation in the contract on a relative stand-alone selling price basis, or SSP. The determination of a relative stand-alone SSP for each distinct performance obligation requires judgment. We determine SSP for performance obligations based on overall pricing objectives, which take into consideration market conditions and customer-specific factors. This includes a review of internal discounting tables, the service(s) being sold, and customer demographics. Revenue is recognized when control of these services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those services. We determine an output method to be the most appropriate measure of progress because it most faithfully represents when the value of the services is simultaneously received and consumed by the customer, and control is transferred. For committed contractual amounts of usage, revenue is recognized ratably over the term of the subscription agreement generally beginning on the date that the platform is made available to a customer. For committed contractual amount of usage that is delivered as used, a monthly subscription based on usage, or usage in excess of a ratable subscription, we recognize revenue as the services are rendered. Stock-Based Compensation We account for stock-based compensation expense related to stock-based awards based on the estimated fair value of the award on the grant date. We historically issued options to purchase shares of our common stock under our 2012 equity incentive plan, or the 2012 Plan. Following the IPO, we ceased granting awards under the 2012 Plan, and all shares that remained available for issuance under the 2012 Plan at that time were transferred to our 2019 equity incentive plan, or the 2019 Plan. Under the 2019 Plan, we may grant stock options, stock appreciation rights, restricted stock awards, restricted stock units, or RSUs, and performance-based and other awards, each valued or based on our Class A common stock, to our employees, directors, consultants, and advisors. Through December 31, 2019, we have only issued stock options and RSUs in connection with the 2012 Plan and 2019 Plan. For further information see Note 11 in our Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10-K. 58 Compensation expense related to stock-based transactions, including employee, consultant, and non-employee director stock option awards, is measured and recognized in the consolidated financial statements based on fair value. The fair value of each option award is estimated on the grant date using the Black Scholes option-pricing model. Expense is recognized on a straight-line basis over the vesting period of the award. Forfeitures are accounted for in the period in which the awards are forfeited. Our option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected term of the option, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions used in our option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. These assumptions are estimated as follows: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Fair value. Prior to our IPO, the fair value of common stock underlying the stock options had historically been determined by our Board of Directors, with input from our management. Our Board of Directors previously determined the fair value of the common stock at the time of grant of the options by considering a number of objective and subjective factors, including the results of contemporaneous independent third-party valuations of our common stock, the prices, rights, preferences, and privileges of our redeemable convertible Preferred Stock relative to those of our common stock, the prices of common or convertible preferred stock sold to third-party investors by us and in secondary transactions or repurchased by us in arm’s-length transactions, the lack of marketability of our common stock, actual operating and financial results, current business conditions and projections, the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our company given prevailing market conditions. Subsequent to our IPO, the fair value of the underlying common stock is determined by the closing price, on the date of grant, of our Class A common stock, as reported by the Nasdaq. Expected volatility. Expected volatility is a measure of the amount by which the stock price is expected to fluctuate. Since we do not have sufficient trading history of our common stock, we estimate the expected volatility of our stock options at the grant date by taking the average historical volatility of a group of comparable publicly traded companies over a period equal to the expected life of the options. Expected term. We determine the expected term based on the average period the stock options are expected to remain outstanding using the simplified method, generally calculated as the midpoint of the stock options’ vesting term and contractual expiration period, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Risk-free rate. We use the U.S. Treasury yield for our risk-free interest rate that corresponds with the expected term. Expected dividend yield. We utilize a dividend yield of zero, as we do not currently issue dividends, nor do we expect to do so in the future. The following assumptions were used to calculate the fair value of stock options granted to employees: Expected dividend yield............. Expected volatility ..................... Expected term (years) ................ Risk-free interest rate................. 2020 Year Ended December 31, 2019 — 38.9% 6.1 1.7% — 38.9% - 39.5% 5.2 - 6.3 1.4% -2.6% 2018 — 38.4% - 39.0% 5.8 - 6.1 2.6% - 3.0% Assumptions used in valuing non-employee stock options are generally consistent with those used for employee stock options with the exception that the expected term is over the contractual life, or 10 years. We adopted ASU No. 2016-09, Compensation–Stock Compensation (Topic 718), effective January 1, 2018, and elected to account for forfeitures as they occur, rather than estimating expected forfeitures over the course of a vesting period. We recognized a cumulative effect of $0.8 million to accumulated deficit as of January 1, 2018 upon adoption. For further information see Note 2 in our Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements” of this Annual Report on Form 10- K. We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense. 59 Internal Use Software Development Costs We capitalize certain costs related to the development of our platform and other software applications for internal use. In accordance with authoritative guidance, we begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. We stop capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant testing. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally estimated to be two years. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within research and development expenses in our consolidated statements of operations. We exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized. To the extent that we change the manner in which we develop and test new features and functionalities related to our platform, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of internal-use software development costs we capitalize and amortize could change in future periods. Convertible Senior Notes In accounting for the issuance of the Company’s 2025 Notes, the 2025 Notes were separated into liability and equity components. The carrying amounts 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 is amortized to interest expense over the contractual terms of the 2025 Notes using the effective interest rate method. 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. In accounting for the debt issuance costs related to the 2025 Notes, the Company allocated the total amount incurred to the liability and equity components of the 2025 Notes based on their relative values. Issuance costs attributable to the liability component are being amortized to interest expense over the contractual terms of the 2025 Notes. The issuance costs attributable to the equity component were netted against the equity component in additional paid-in capital. Recently Adopted Accounting Pronouncements See Note 2, in our Notes to Consolidated Financial Statements included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. 60 Interest Rate Risk As of December 31, 2020, we had $206.9 million in cash equivalents, and $1,292.5 million in marketable securities, which consisted of commercial debt, certificates of deposit, U.S. government treasury and agency securities, and commercial paper. In addition, we had $3.8 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 December 31, 2020, a hypothetical 10% relative change in interest rates would not have a material impact on our consolidated financial statements. On June 2, 2020, we issued $747.5 million aggregate principal amount of the 2025 Notes. The fair value of the 2025 Notes is subject to interest rate risk, market risk and other factors due to the conversion feature. The fair value of the 2025 Notes will generally increase as our Class A common stock price increases and will generally decrease as our Class A common stock price declines. The interest and market value changes affect the fair value of the 2025 Notes but do not impact our financial position, cash flows, or results of operations due to the fixed nature of the debt obligation. 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. Foreign Currency Exchange Risk Our reporting currency and the functional currency of our wholly 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 and Australia. 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. 61 Item 8. Financial Statements and Supplementary Data DATADOG, INC. Form 10-K For the Fiscal Year Ended December 31, 2020 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ......................................................................................................... Consolidated Balance Sheets as of December 31, 2020 and 2019................................................................................................ Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018............................................... Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020, 2019 and 2018 .............................. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2020, 2019 and 2018 ............................................................................................................................................................... Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 ............................................. Notes to Consolidated Financial Statements ................................................................................................................................. Page 63 66 67 68 69 70 71 62 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Datadog, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Datadog, Inc. and its subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders' equity (deficit) , and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting. Change in Accounting Principle As discussed in Note 2 to the financial statements, effective January 1, 2019, the company has adopted the FASB Accounting Standards Update 2016-2, Leases, using the modified retrospective approach. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition — Identification of Performance Obligations – Refer to Note 2 to the financial statements Critical Audit Matter Description As described in Note 2 to the financial statements, the Company generates revenue from the sale of subscription services contracts to customers using its cloud-based platform. Subscription services contracts with certain of the Company’s customers may include non- standard terms and conditions and promises to transfer multiple services. 63 Contracts with customers that contain non-standard terms and conditions and promises to transfer multiple services require significant judgment by management to identify the distinct performance obligations in the arrangement. Distinct performance obligations will be accounted for as separate performance obligations, while non-distinct services are combined with others to form a single performance obligation. Given the complexity of the Company’s subscription services contracts with certain customers, coupled with management’s judgments involved in identifying distinct performance obligations and non-standard terms and conditions, auditing the Company’s subscription services contracts with certain customers required a high degree of auditor judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s subscription contracts with certain customers included, among others: o We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over revenue recognition. This includes management’s controls over the identification of performance obligations and non-standard terms and conditions in subscription contracts with certain large customers, as well as the allocation of revenue to each performance obligation. o We evaluated a sample of subscription contracts with customers to determine if all the promises referred to in the contract were properly identified by management and accounted for as distinct performance obligations by performing the following: (cid:129) Obtained and read the subscription contract and independently assessed the terms of the contract to identify all promises and non-standard terms and conditions. (cid:129) For each promise identified, we evaluated whether such promise represented a distinct “performance obligation”, as prescribed by Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. (cid:129) We evaluated the completeness and accuracy of the performance obligations by comparing those identified by us to those identified by management. Convertible Senior Notes – Refer to Note 9 to the financial statements Critical Audit Matter Description As discussed in Note 9 to the financial statements, in June 2020, the Company issued convertible senior notes due 2025 (the “Convertible Notes”). Concurrent with the issuance of the Convertible Notes, the Company entered into capped call transactions that are exercisable upon conversion of the Convertible Notes (collectively with the Convertible Notes referred to as the “Convertible Notes Transactions”). In accounting for the issuance of the Convertible Notes, management allocated the total proceeds into liability and equity components. The valuation model used in determining the fair value of the liability component for the Convertible Notes, includes inputs subject to management's judgment including the non-convertible coupon interest rate. The determination of the non- convertible coupon interest rate is complex and involves significant judgment exercised by management. Additionally, the accounting for the Convertible Notes Transactions was complex, as it required assessment as to whether features, other than the conversion feature, required bifurcation and separate valuation. We identified the accounting for and valuation of the Convertible Notes Transactions as a critical audit matter because of the complexity in applying the accounting framework and the significant estimates and judgments made by management in the determination of the fair value of the liability component. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the appropriateness of the accounting framework and assess the reasonableness of the fair value estimates and assumptions, including the involvement of our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the accounting for the Convertible Notes Transactions, including management’s judgments and calculations related to the determination of the fair value of the liability component of the Convertible Notes, involved the following procedures, among others: 64 (cid:129) We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s accounting for the Convertible Notes Transactions as well as the determination of the fair value of the liability component. (cid:129) With the assistance of professionals in our firm having expertise in accounting treatment for financial instruments, we evaluated the Company’s conclusions regarding the accounting treatment applied to the Convertible Notes Transactions. (cid:129) With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and the significant assumptions used to determine the fair value of the liability component. /s/ Deloitte & Touche LLP New York, New York March 1, 2021 We have served as the Company's auditor since 2016. 65 DATADOG, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2020 December 31, 2019 ASSETS CURRENT ASSETS: Cash and cash equivalents.......................................................................................................................... $ Marketable securities.................................................................................................................................. Accounts receivable, net of allowance for credit losses of $2,468 and $817 as of December 31, 2020 and 2019, respectively.................................................................................................................... Deferred contract costs, current ................................................................................................................. Prepaid expenses and other current assets.................................................................................................. Total current assets .............................................................................................................................. Property and equipment, net....................................................................................................................... Operating lease assets................................................................................................................................. Goodwill..................................................................................................................................................... Intangible assets, net .................................................................................................................................. Deferred contract costs, non-current .......................................................................................................... Restricted cash............................................................................................................................................ Other assets ................................................................................................................................................ TOTAL ASSETS ....................................................................................................................................... $ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ....................................................................................................................................... $ Accrued expenses and other current liabilities........................................................................................... Operating lease liabilities, current.............................................................................................................. Deferred revenue, current........................................................................................................................... Total current liabilities......................................................................................................................... Operating lease liabilities, non-current ...................................................................................................... Convertible senior notes, net...................................................................................................................... Deferred revenue, non-current ................................................................................................................... Other liabilities........................................................................................................................................... Total liabilities ..................................................................................................................................... COMMITMENTS AND CONTINGENCIES (NOTE 10) STOCKHOLDERS' EQUITY: Class A common stock, $0.00001 par value per share; 2,000,000,000 shares authorized as of December 31, 2020 and 2019; 218,510,509 and 64,308,498 shares issued and outstanding as of December 31, 2020 and 2019, respectively ...................................................................... Class B common stock, $0.00001 par value per share; 310,000,000 shares authorized as of December 31, 2020 and 2019; 87,369,554 and 232,078,452 shares issued and outstanding as of December 31, 2020 and 2019, respectively ...................................................................... Additional paid-in capital ................................................................................................................................. Accumulated other comprehensive income...................................................................................................... Accumulated deficit.......................................................................................................................................... Total stockholders’ equity ................................................................................................................... 224,927 $ 1,292,532 163,359 13,638 23,624 1,718,080 47,197 57,829 17,609 2,069 26,750 3,784 16,967 1,890,285 $ 21,342 $ 55,351 16,326 204,825 297,844 51,433 575,864 3,450 4,262 932,853 597,297 176,674 102,394 8,346 19,231 903,942 32,749 53,002 9,058 1,435 17,409 3,456 16,990 1,038,041 15,429 38,746 11,916 134,148 200,239 48,510 — 4,340 2,611 255,700 2 1 1 1,103,305 2,287 (148,163) 957,432 2 905,821 133 (123,616) 782,341 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................................................................................................................................ $ 1,890,285 $ 1,038,041 See accompanying notes to consolidated financial statements. 66 DATADOG, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Revenue ................................................................................................................$ Cost of revenue..................................................................................................... Gross profit........................................................................................................... Operating expenses: Research and development ............................................................................. Sales and marketing ........................................................................................ General and administrative ............................................................................. Total operating expenses ........................................................................... Operating loss....................................................................................................... Other (expense) income: Interest expense............................................................................................... Interest income and other income, net ............................................................ Other (expense) income, net ........................................................................... Loss before provision for income taxes ............................................................... Provision for income taxes ................................................................................... Net loss.................................................................................................................$ Net loss attributable to common stockholders .....................................................$ Basic and diluted net loss per share .....................................................................$ Weighted average shares used in calculating basic and diluted net loss per share: .................................................................................................... See accompanying notes to consolidated financial statements. 2020 Year Ended December 31, 2019 2018 $ 603,466 130,197 473,269 $ 362,780 88,949 273,831 210,626 213,660 62,756 487,042 (13,773) (30,434) 21,985 (8,449) (22,222) (2,325) (24,547) (24,547) (0.08) $ $ $ 111,425 146,657 35,889 293,971 (20,140) (32) 4,196 4,164 (15,976) (734) (16,710) (16,710) (0.12) $ $ $ 198,077 46,529 151,548 55,176 88,849 18,556 162,581 (11,033) — 793 793 (10,240) (522) (10,762) (10,762) (0.15) 300,350 139,873 70,951 67 DATADOG, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Net loss............................................................................................................... Other comprehensive income: $ Foreign currency translation adjustments..................................................... Unrealized gain on available-for-sale marketable securities........................ Other comprehensive income .................................................................... Comprehensive loss ........................................................................................... $ See accompanying notes to consolidated financial statements. 2020 Year Ended December 31, 2019 2018 (24,547) $ (16,710) $ (10,762) 1,089 1,065 2,154 (22,393) $ 55 47 102 (16,608) $ 78 — 78 (10,684) 68 . 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k c o t S f o e s i c r e x e n o p u k c o t s n o m m o c f o e c n a u s s I y t r a p - d r i h t h t i w n o i t c e n n o c n i k c o t s n o m m o c o t k c o t s d e r r e f e r p e l b i t r e v n o c f o n o i s r e v n o C ) 3 5 ( ) 1 8 4 , 3 0 8 ( . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . r e f f o r e d n e t A s s a l c o t k c o t s n o m m o c f o n o i t a c i f i s s a l c e R 4 4 6 , 1 0 1 , 9 8 — — . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . k c o t s n o m m o c B s s a l c d n a 1 3 4 , 1 1 0 , 9 7 1 ) 2 5 7 , 0 4 1 ( ) 1 3 4 , 1 1 0 , 9 7 1 ( . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g n i r e f f o c i l b u p s s a l c o t k c o t s d e r r e f e r p e l b i t r e v n o c f o n o i s r e v n o C l a i t i n i h t i w n o i t c e n n o c n i k c o t s n o m m o c B — — 0 0 0 , 0 0 6 , 7 2 $ 0 5 9 , 6 8 3 , 6 9 2 — — — — 2 9 8 , 0 7 1 2 9 9 , 0 2 1 4 7 2 , 3 5 7 , 8 5 5 9 , 7 4 4 — — — — — — — — — — — — $ — — — — — — — — — — — — . . . . . . . . . . . . . . . . . . . . . . . . s t s o c e c n a u s s i d n a s t n u o c s i d g n i t i r w r e d n u . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e m o c n i e v i s n e h e r p m o c r e h t O . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s s o l t e N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1 0 2 , 1 3 r e b m e c e D — E C N A L A B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s n o i t p o k c o t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s n o i t p o k c o t s d e s i c r e x e y l r a e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s t i n u k c o t s d e t c i r t s e r f o f o g n i t s e V g n i t s e V f o e s i c r e x e n o p u k c o t s n o m m o c f o e c n a u s s I . . . . . . . . . . . . . . . . . . . . . k c o t s n o m m o c f o s e r a h s d e t c i r t s e r e h t r e d n u k c o t s n o m m o c f o f o e c n a u s s I e c n a u s s I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s e x a t r o f d l e h h t i w s e r a h s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n o i t a s n e p m o c d e s a b - k c o t S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . t e n , s e t o N r o i n e S e l b i t r e v n o C 5 2 0 2 f o t n e n o p m o c y t i u q E f o t e n , n a l p e s a h c r u p k c o t s e e y o l p m e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s e t o N r o i n e S e l b i t r e v n o C 5 2 0 2 . . . . . . . . . . e m o c n i e v i s n e h e r p m o c r e h t o d e t a l u m u c c a n i e g n a h C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s s o l t e N o t d e t a l e r s l l a c d e p p a c f o s e s a h c r u P f o t e n , g n i r e f f o c i l b u p l a i t i n i h t i w n o i t c e n n o c n i k c o t s n o m m o c A s s a l c f o e c n a u s s I 2 3 4 , 7 5 9 $ ) 3 6 1 , 8 4 1 ( $ 7 8 2 , 2 $ 5 0 3 , 3 0 1 , 1 $ — $ — — $ — 3 $ 3 6 0 , 0 8 8 , 5 0 3 — $ — . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 2 0 2 , 1 3 r e b m e c e D — E C N A L A B . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n g n i y n a p m o c c a e e S 9 6 DATADOG, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 2020 Year Ended December 31, 2019 2018 (24,547 ) $ (16,710 ) $ (10,762 ) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ............................................................................................................................................................. $ Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.................................................................................................................. Amortization of discounts or premiums on marketable securities ........................................................... Amortization of debt discount and issuance costs.................................................................................... Amortization of deferred contract costs ................................................................................................... Stock-based compensation, net of amounts capitalized ........................................................................... Non-cash lease expense ............................................................................................................................ Allowance for credit losses on accounts receivable ................................................................................. Loss on disposal of property and equipment ............................................................................................ Changes in operating assets and liabilities: Accounts receivable, net ................................................................................................................... Deferred contract costs ..................................................................................................................... Prepaid expenses and other current assets ........................................................................................ Other assets....................................................................................................................................... Accounts payable.............................................................................................................................. Accrued expenses and other liabilities ............................................................................................. Deferred revenue .............................................................................................................................. Net cash provided by operating activities................................................................................. CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities................................................................................................................... Maturities of marketable securities .................................................................................................................. Proceeds from sale of marketable securities .................................................................................................... Purchases of property and equipment .............................................................................................................. Capitalized software development costs .......................................................................................................... Cash paid for acquisition of businesses; net of cash acquired ......................................................................... Net cash used in investing activities ......................................................................................... CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options .......................................................................................................... Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs ................................................................................................................................. Proceeds from issuance of common stock under the employee stock purchase plan ...................................... Employee payroll taxes paid related to net share settlement under the employee stock purchase plan .......... Proceeds from issuance of convertible senior notes, net of issuance costs...................................................... Purchase of capped call related to convertible senior notes............................................................................. Net cash provided by financing activities................................................................................. 15,450 9,753 18,727 10,447 74,374 14,060 3,283 10 (64,248 ) (25,080 ) (4,403 ) 968 6,539 3,970 69,788 109,091 (1,794,562 ) 506,554 163,630 (5,415 ) (20,468 ) (2,363 ) (1,152,624 ) 15,985 (421 ) 15,170 (1,040 ) 730,207 (89,625 ) 670,276 12,370 12 — 5,400 19,034 11,763 1,195 708 (47,510 ) (20,146 ) (10,046 ) (8,486 ) 2,484 6,376 67,790 24,234 (176,639 ) — — (13,315 ) (10,128 ) (2,138 ) (202,220 ) 7,899 706,317 — — — — 714,216 Effect of exchange rate changes on cash, cash equivalents and restricted cash....................................................... 779 (21 ) NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH............................................. CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period........................................... CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period .................................................... $ (372,478 ) 601,189 228,711 $ 536,209 64,980 601,189 $ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes .............................................................................................................................. $ 410 $ 143 $ 36 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Accrued property and equipment purchases .................................................................................................... $ Stock-based compensation included in capitalized software development costs............................................. $ Vesting of early exercised options ................................................................................................................... $ Costs related to initial public offering included in accounts payable and accrued liabilities ........................................................................................................................................................ $ Issuance of restricted shares of common stock for the acquisition of businesses............................................ $ Acquisition holdback........................................................................................................................................ $ 234 3,404 1,177 $ $ $ — 5,169 1,500 $ $ $ 315 201 1,883 $ $ $ 423 — — $ $ $ RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOWN IN THE STATEMENTS OF CASH FLOWS ABOVE: Cash and cash equivalents................................................................................................................................ $ Restricted cash – Including amounts in prepaid expense and other current assets and other assets .................................................................................................................................................... Total cash, cash equivalents and restricted cash .............................................................................................. $ 224,927 $ 597,297 $ 3,784 228,711 $ 3,892 601,189 $ 25 167 375 — — — 53,639 11,341 64,980 See accompanying notes to consolidated financial statements. 70 6,026 — — 2,671 5,244 — 477 9 (25,322 ) (8,925 ) (1,331 ) (6,955 ) 7,241 10,857 31,599 10,829 — — — (9,662 ) (6,176 ) (1,618 ) (17,456 ) 7,782 — — — — — 7,782 47 1,202 63,778 64,980 DATADOG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Description of Business Description of Business Datadog, Inc. (“Datadog” or the “Company”) was incorporated in the State of Delaware on June 4, 2010. The Company is the monitoring and analytics platform for developers, IT operations teams and business users in the cloud age. The Company’s SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management and security monitoring, to provide unified, real-time observability of its customers’ entire technology stack. The Company is headquartered in New York City and has various other global office locations. 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Principles of Consolidation The consolidated financial statements include the accounts of Datadog, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Initial Public Offering On September 23, 2019, the Company completed its initial public offering (“IPO”), in which the Company issued and sold 24,000,000 shares of its Class A common stock at a public offering price of $27.00 per share, which resulted in net proceeds of $615.6 million after deducting underwriting discounts and commissions. On September 25, 2019, the underwriters exercised their option to purchase an additional 3,600,000 shares of Class A common stock at $27.00 per share, resulting in additional proceeds of $92.3 million, net of underwriters’ discounts and commissions. Immediately prior to the closing of the IPO, all shares of common stock then outstanding were reclassified as Class B common stock and all shares of the convertible preferred stock then outstanding automatically converted into 179,011,431 shares of Class B common stock. The Company incurred $2.0 million of net offering costs in connection with the IPO which were recorded as an offset against IPO proceeds. Stock Split and Authorized Shares On January 2, 2018, the Company’s Board of Directors (the “Board”) and stockholders approved a 4-for-1 stock split of the Company’s then-outstanding common stock and convertible preferred stock was effected without any change in the par value per share. On 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 3-for-1 stock split on September 6, 2019. 71 On September 23, 2019, an amended and restated certificate of incorporation of the Company was filed immediately prior to the closing of the IPO authorizing an aggregate of 2,330,000,000 shares of capital stock of the Company, including 2,000,000,000 shares of Class A common stock, 310,000,000 shares of Class B common stock and 20,000,000 shares of preferred stock. Segment Information The Company has a single operating and reportable segment as well as one business activity, monitoring and providing analytics on companies’ information technology (“IT”) infrastructure. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources. There are no segment managers who are held accountable for operations or results below the consolidated level. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include the fair value of marketable securities, the allowance for credit losses, the fair value of acquired assets and assumed liabilities from business combinations, useful lives of property, equipment, software, and finite lived intangibles, stock-based compensation, stock- based compensation including the determination of the fair value of the Company’s stock prior to its 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 period for deferred contract costs, 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. Foreign Currency Translation The reporting currency of the Company is the United States dollar (“USD”). The functional currency of the Company is USD, and the functional currency of the Company’s subsidiaries is generally the local currency of the jurisdiction in which the foreign subsidiary is located. The assets and liabilities of the Company’s subsidiaries are translated to USD at exchange rates in effect at the balance sheet date. All income statement accounts are translated at monthly average exchange rates. Resulting foreign currency translation adjustments are recorded directly in accumulated other comprehensive (loss) income as a separate component of stockholders’ equity (deficit). Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in other (expense) income, net in the accompanying consolidated statements of operations when realized. Revenue Recognition The Company generates revenue from the sale of subscriptions to customers using its cloud-based platform. The terms of the Company’s subscription agreements are primarily monthly, annual or multi-year. The Company’s customers can enter into (1) a subscription agreement for a committed contractual amount of usage that is apportioned ratably on a monthly basis over the term of the subscription period, (2) a subscription agreement for a committed contractual amount of usage that is delivered as used, or (3) a monthly subscription based on usage. The Company typically bills customers on an annual or multi-year subscription in advance, with any usage in excess of the committed contracted amount billed monthly in arrears. The Company typically bills customers on a monthly plan in arrears. Customers also have the option to purchase additional services priced at rates at or above the stand- alone selling price. The Company accounts for revenue contracts with customers through the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation. 72 The Company’s revenue arrangements may include infrastructure monitoring, application performance monitoring, log management, synthetics monitoring, security monitoring, continuous profiling, serverless monitoring, network monitoring, real user monitoring and incident management as well as secondary services including custom metrics in dashboard monitoring, docker container monitoring, and indexed spans. The Company has identified each service as a separate performance obligation. The transaction price is based on the fixed price for the contracted level of service plus variable consideration for additional optional purchases. Billing periods correspond to the periods over which services are performed and there are no discounts given on the purchase of future services. The Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on a range of actual prices charged to customers. Revenue is recognized when control of these services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services. The Company determined an output method to be the most appropriate measure of progress because it most faithfully represents when the value of the services is simultaneously received and consumed by the customer, and control is transferred. For committed contractual amounts of usage, revenue is recognized ratably over the term of the subscription agreement generally beginning on the date that the platform is made available to a customer. For committed contractual amount of usage that is delivered as used, a monthly subscription based on usage, or usage in excess of a ratable subscription, the Company recognizes revenue as the product is used. Subscription revenue excludes sales and other indirect taxes. The Company applied the practical expedient in Topic 606 and did not evaluate contracts of one year or less for the existence of a significant financing component. Deferred Revenue and Remaining Performance Obligations Certain of the Company’s customers pay in advance of satisfaction of performance obligations and other customers with monthly contract terms are billed in arrears on a monthly basis. The Company records contract liabilities to deferred revenue when customers are billed or when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts. Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include unearned revenue, multi-year contracts with future installment payments and certain unfulfilled orders against accepted customer contracts at the end of any given period. Convertible Senior Notes In accounting for the issuance of the Company’s convertible senior notes (the “2025 Notes”), the 2025 Notes were separated into liability and equity components. The carrying amounts 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 is amortized to interest expense over the contractual terms of the 2025 Notes using the effective interest rate method. 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. In accounting for the debt issuance costs related to the 2025 Notes, the Company allocated the total amount incurred to the liability and equity components of the 2025 Notes in the same proportion as the allocation of the proceeds. Issuance costs attributable to the liability component are being amortized to interest expense over the contractual terms of the 2025 Notes. The issuance costs attributable to the equity component were netted against the equity component in additional paid-in capital. 73 Cost of Revenue Cost of revenue consists primarily of costs related to providing subscription services to paying customers, including data center and networking expenses, employee compensation (including stock-based compensation) and other employee-related expenses for customer experience and technical operations staff, payments to outside service providers, payment processing fees, amortization of capitalized internally developed software costs and acquired developed technology, and allocated overhead costs. Research and Development Costs Research and development costs are expensed as incurred. Research and development costs consist of employee compensation (including stock-based compensation) and other employee-related expenses, materials and supplies, and allocated overhead costs such as rent and facilities costs. Sales and Marketing Costs Sales and marketing costs consist primarily of personnel costs for the Company’s sales and marketing organization, including stock-based compensation and commissions, costs of general marketing and promotional activities, including the free tier and introductory trials of the Company’s products, travel-related expenses and allocated overhead costs. Advertising Costs Advertising costs are expensed as incurred and were approximately $21.6 million, $9.5 million and $8.3 million for the years ended December 31, 2020, 2019 and 2018, respectively, and are included in sales and marketing expense in the accompanying consolidated statement of operations. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts for financial reporting and the tax bases of assets and liabilities. The deferred assets and liabilities are recorded at the statutorily enacted tax rates anticipated to be in effect when such temporary differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is established; when based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company engages in transactions in which the tax consequences may be subject to uncertainty. The Company accounts for uncertain tax positions based on an evaluation as to whether it is more likely than not that a tax position will be sustained on audit, including resolution of any related appeals or litigation processes. This evaluation is based on all available evidence and assumes that the appropriate tax authorities have full knowledge of all relevant information concerning the tax position. The Company accounts for uncertain tax positions as non-current tax liabilities or through a reduction of a corresponding deferred tax asset. The tax benefit recognized is based on the largest amount that is greater than 50% likely of being realized upon ultimate settlement. The Company includes potential interest expense and penalties related to its uncertain tax positions in income tax expense. Stock-Based Compensation The Company recognizes and measures compensation expense for all stock-based payment awards granted to employees, directors, and nonemployees, including stock options, restricted stock units (“RSUs”), and the employee stock purchase plan (the “ESPP”) based on the fair value of the awards on the date of grant. The fair value of each stock option granted is estimated using the Black Scholes option pricing model. The determination of the grant date fair value using an option-pricing model is affected by the estimated fair value of the Company’s common stock as well as assumptions regarding a number of other complex and subjective variables. These variables include expected stock price volatility over the expected term of the award, actual and projected employee stock option exercise behaviors, the risk-free interest rate for the expected term of the award and expected dividends. The fair value of RSUs is determined by the closing price on the date of grant of the Company’s Class A common stock, as reported on The Nasdaq Global Select Market. The Company estimates the fair value of the rights to acquire stock under the ESPP using the Black-Scholes option pricing model. Stock-based compensation is recognized on a straight-line basis over the requisite service period and account for forfeitures as they occur. 74 The Company also has certain options that have performance-based vesting conditions; stock-based compensation expense for such awards is recognized on a straight-line basis from the time the vesting condition is likely to be met through the time the vesting condition has been achieved. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of funds deposited into money market funds. Marketable Securities The Company’s marketable securities consist of commercial debt securities, U.S. government treasury securities, and commercial paper. The Company determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable securities as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, the Company classifies its marketable securities within current assets on the consolidated balance sheet. Available-for-sale securities are recorded at fair value each reporting period. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective interest method. Interest income is recognized when earned. Unrealized gains and losses on these marketable securities are presented net of tax and reported as a separate component of accumulated other comprehensive income until realized. Realized gains and losses are determined based on the specific identification method and are reported in Interest income and other income, net in the consolidated statements of operations. The Company periodically evaluates its marketable securities to assess whether an investment’s fair value is less than its amortized cost basis and if the decline in the fair value is attributable to a credit loss. Declines in fair value judged to be related to credit loss are reported in Interest income and other income, net in the consolidated statements of operations. Restricted Cash Restricted cash primarily consists of collateralized letters of credit established in connection with lease agreements for the Company’s facilities. Restricted cash is included in current assets for leases that expire within one year and is included in non-current assets for leases that expire in more than one year from the balance sheet date. Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivable. Cash deposits may, at times, exceed amounts insured by the Federal Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”). The Company has not experienced any losses on its deposits of cash and cash equivalents to date. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amounts recorded on the accompanying consolidated balance sheets. Geographical Information- Long lived assets As of December 31, 2020, and 2019, 68% and 70% of the Company’s long lived assets were located in the United States and 32% and 30% were located outside of the United States, respectively. 75 Fair Value of Financial Instruments The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows: Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The Company’s financial instruments consist of cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses. Cash equivalents are stated at amortized cost, which approximates fair value at the balance sheet dates, due to the short period of time to maturity. Marketable securities are recorded at fair value. Accounts receivable, accounts payable, and accrued expenses are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounts Receivable and Allowance for Credit Losses Accounts receivable includes billed and unbilled receivables. Trade accounts receivable are recorded at invoiced amounts and do not bear interest. The expectation of collectability is based on a review of credit profiles of customers, contractual terms and conditions, current economic trends, and historical payment experience. The Company regularly reviews the adequacy of the allowance for credit losses by considering the age of each outstanding invoice and the collection history to determine the appropriate amount of allowance for credit losses. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. Unbilled accounts receivable represents revenue recognized on contracts for which billings have not yet been presented to customers because the amounts were earned but not contractually billable as of the balance sheet date, substantially all of which is expected to be billed and collected within one year. Internal Use Software Development Costs The Company capitalizes qualifying internal use software development costs related to its cloud platform. The costs consist of personnel costs (including related benefits and stock-based compensation) that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (1) the preliminary project stage is completed, and (2) it is probable that the software will be completed and used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. Costs related to preliminary project activities and post implementation operating activities are expensed as incurred. Capitalized costs are included in property and equipment. These costs are amortized over the estimated useful life of the software, which is two years, on a straight-line basis, which represents the manner in which the expected benefit will be derived. The amortization of costs related to the platform applications is included in cost of revenue and sales and marketing expense based on an allocation between paid customer accounts and free customer accounts not generating revenue. 76 Property and Equipment, Net Property and equipment, net is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life of the related asset. Expenses that improve an asset or extend its remaining useful life are capitalized. Costs of maintenance or repairs that do not extend the lives of the respective assets are charged to expenses as incurred. Deferred Contract Costs Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. There are no sales commissions earned on renewals. These costs are deferred and then amortized over a period of benefit which is determined to be four years. The Company determined the period of benefit by taking into consideration the length of terms in its customer contracts, life of the technology and other factors. Amounts expected to be recognized within one year of the balance sheet date are recorded as deferred contract costs, current; the remaining portion is recorded as deferred contract costs, non-current, in the consolidated balance sheets. Deferred contract costs are periodically analyzed for impairment. Amortization expense is included in sales and marketing expenses in the accompanying consolidated statements of operations. Business Combinations When the Company acquires a business, the purchase consideration is allocated to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated respective fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require the Company to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to other income, net in the consolidated statement of operations. Accounting for Impairment of Long-Lived Assets (Including Goodwill and Intangibles) Long-lived assets with finite lives include property and equipment, capitalized development software costs and acquired intangible assets. Long-lived assets are amortized over their estimated useful lives which are as follows: Computers and equipment................................................................................. 3 years Furnitures and fixtures....................................................................................... 5 years Leasehold improvements................................................................................... Shorter of lease term or useful life of asset Capitalized software development costs ........................................................... 2 years Intangible assets................................................................................................. 3 years The Company evaluates long lived assets, including acquired intangible assets and capitalized software development costs, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or the estimated useful life becomes shorter than originally estimated. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds these estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group, based on discounted cash flows. Goodwill is not amortized but rather tested for impairment at least annually on October 1, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Goodwill impairment is recognized when the quantitative assessment results in the carrying value exceeding the fair value, in which case an impairment charge is recorded to the extent the carrying value exceeds the fair value. The Company did not recognize any impairment of goodwill during the years ended December 31, 2020, 2019 or 2018. 77 Operating Leases The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are reflected within operating lease assets, operating lease liabilities, current, and operating lease liabilities, non-current, on the consolidated balance sheets. For short-term leases (an initial term of 12 months or less), an operating lease asset and corresponding lease liability are not recorded and the Company records rent expense in its consolidated statements of operations on a straight-line basis over the lease term. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease assets also include any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight- line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. Prior to the adoption of ASC 842, Leases on January 1, 2019, the Company recorded the difference between the rent paid and the straight-line rent expense as a deferred rent liability within accrued expenses and other current liabilities and other liabilities. Net Income (Loss) Per Share Attributable to Common Shareholders Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period giving effect to all potentially dilutive securities to the extent they are dilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income (loss) per share by application of the two-class method. During the periods when the Company is in a net loss position, the net loss attributable to common stockholders was not allocated to the convertible preferred stock and unvested common stock under the two-class method as these securities do not have a contractual obligation to share in the Company’s losses. Accounting Pronouncements Recently Adopted In June 2016, the Financial Accounting Standards Board (“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 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 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. 78 Accounting Pronouncements Not Yet Adopted In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU No. 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU No. 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such convertible debt instruments. Similarly, the debt 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 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 effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. The Company chose to early adopt ASU No. 2020-06 on January 1, 2021, using the modified retrospective basis. Adoption is expected to result in $16.8 million decrease to the opening balance of accumulated deficit. 3. Marketable Securities The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents on the consolidated balance sheet as of December 31, 2020 and December 31, 2019 (in thousands): Amortized Cost 926,836 $ 47,214 108,092 209,111 Marketable securities ..................................................................... $ 1,291,253 $ Commercial debt securities ................................................................. $ Certificates of deposit ......................................................................... U.S. government treasury securities ................................................... Commercial paper ............................................................................... Unrealized Gain 1,157 $ 43 203 32 1,435 $ Unrealized Losses Fair Value 927,850 (143) $ 47,256 (1) 108,294 (1) (11) 209,132 (156) $ 1,292,532 December 31, 2020 December 31, 2019 Amortized Cost Unrealized Gain Unrealized Losses Fair Value Commercial debt securities ................................................................. $ U.S. government treasury securities.................................................... Commercial paper ............................................................................... Marketable securities ..................................................................... $ 80,376 $ 72,467 23,784 176,627 $ 46 $ 10 — 56 $ (5) $ (4) — (9) $ 80,417 72,473 23,784 176,674 As of December 31, 2020, the fair values of available-for-sale marketable securities, by remaining contractual maturity, were as follows (in thousands): Due within one year......................................................................................................... Due in one year through five years.................................................................................. Total ........................................................................................................................... $ $ 994,178 298,354 1,292,532 79 The Company does not believe that any unrealized losses are attributable to credit-related factors based on its evaluation of available evidence. To determine whether a decline in value is related to credit loss, the Company evaluates, among other factors: the extent to which the fair value is less than the amortized cost basis, changes to the rating of the security by a rating agency and any adverse conditions specifically related to an issuer of a security or its industry. Unrealized gain and losses on marketable securities are presented net of tax. 4. Fair Value Measurements The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value on a recurring basis as of December 31, 2020 and 2019, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands): Fair Value Measurement as of December 31, 2020 Level 1 Level 2 Level 3 Total Financial Assets: Cash equivalents: Money market funds......................................................................... $ Commercial paper ............................................................................ 181,743 $ — — $ 25,195 — $ — 181,743 25,195 Marketable Securities: Corporate debt securities .................................................................. Certificates of deposit....................................................................... U.S. government treasury securities................................................. Commercial paper ............................................................................ Total financial assets ..................................................................... $ — — — — 927,850 47,256 108,294 209,132 181,743 $ 1,317,727 $ 927,850 — 47,256 — 108,294 — — 209,132 — $ 1,499,470 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 .................................................................. U.S. government treasury securities................................................. Commercial paper ............................................................................ Total financial assets ..................................................................... $ — — — 588,762 $ 80,417 72,473 23,784 176,674 $ — — — — $ 80,417 72,473 23,784 765,436 The Company classifies its highly liquid money market funds within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its commercial paper, corporate debt securities, certificates of deposit and U.S. government treasury securities within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded. In addition to its cash equivalents and marketable securities, the Company measures the fair value of its outstanding convertible senior notes on a quarterly basis for disclosure purposes. The Company considers the fair value of the convertible senior notes to be a Level 2 measurement due to limited trading activity of the convertible senior notes. Refer to Note 9, Convertible Senior Notes, to the consolidated financial statements for further details. 80 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following (in thousands): Hosting.................................................................................................................................... $ General prepaid expenses ....................................................................................................... Other receivables .................................................................................................................... Rent......................................................................................................................................... Marketing................................................................................................................................ Restricted cash ........................................................................................................................ Total prepaid expenses and other current assets..................................................................... $ 7,196 $ 8,224 7,836 336 32 — 23,624 $ 9,180 5,700 2,578 821 516 436 19,231 December 31, 2020 December 31, 2019 6. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): Computers and equipment...................................................................................................... $ Furniture and fixtures ............................................................................................................. Leasehold improvements........................................................................................................ Capitalized software development costs ................................................................................ Total property and equipment........................................................................................... $ Less: accumulated depreciation and amortization ................................................................. Total property and equipment, net ......................................................................................... $ December 31, 2020 December 31, 2019 11,490 $ 5,087 17,639 48,502 82,718 $ (35,521) 47,197 $ 7,536 4,804 16,517 24,630 53,487 (20,738) 32,749 As discussed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies—Internal Use Software Development Costs, the Company capitalizes costs related to the development of computer software for internal use and is included in capitalized software development costs within property and equipment, net. Depreciation and amortization expense was approximately $14.5 million, $11.6 million, and $5.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. 7. Acquisition, Intangible Assets and Goodwill 2020 Acquisition During the year ended December 31, 2020, the 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. 81 2019 Acquisition On November 6, 2019, the Company entered into a Stock Purchase Agreement whereby the Company acquired all of the issued and outstanding shares of a target company for $2.2 million in cash consideration. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. Goodwill resulted primarily from the expectation of integrating and enhancing the Company's current data streaming platform. The preliminary allocation of the purchase price was based on available information and assumptions at the time of the initial valuation and may be subject to change within the measurement period. The results of the operations have been included in the Company’s consolidated statements of operations since the acquisition date and were not material. Pro forma results of operations for this acquisition have not been presented because it was also not material to the consolidated results of operations. The aggregate purchase consideration and estimated fair values of the assets acquired and liabilities assumed at the date of acquisition were as follows (in thousands): Fair value of net assets acquired: Net tangible assets ...................................................................................................... $ Software technology ................................................................................................... Goodwill ..................................................................................................................... Total fair value of net assets acquired .............................................................................. $ 9 910 1,285 2,204 Fair Value 2018 Acquisition On September 28, 2018, the Company entered into a Stock Purchase Agreement whereby the Company acquired all of the issued and outstanding shares of a target company for $1.6 million in cash consideration. The target company created an artificial intelligence platform that the Company plans to use to strengthen the Company’s current product offering. Goodwill was not deductible for tax purposes. Goodwill resulted primarily from the expected integration of the target company’s platform with the Company’s existing product offerings. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The results of the operations have been included in the Company’s consolidated statements of operations and comprehensive loss since the acquisition date and were not material. Pro forma results of operations for this acquisition have not been presented because it was also not material to the consolidated results of operations. Transaction costs amounted to approximately $0.1 million and were expensed as incurred. The aggregate purchase consideration and estimated fair values of the assets acquired and liabilities assumed at the date of acquisition were as follows (in thousands): Fair value of net assets acquired: Net tangible assets (liabilities).................................................................................... $ Developed technology ................................................................................................ Goodwill ..................................................................................................................... Total fair value of net assets acquired .............................................................................. $ (536) 825 1,334 1,623 Fair Value Intangibles, net consisted of the following (in thousands): Developed technology........................................................................ $ 3,331 $ (1,262) $ 2,069 3 years Gross Carrying Amount December 31, 2020 Accumulated Amortization Net Carrying Amount Amortization Period Developed technology......................................................................... $ 3,046 $ (1,611) $ 1,435 Gross Carrying Amount December 31, 2019 Accumulated Amortization Net Carrying Amount Amortization Period 2-3 years 82 Intangible amortization expense was approximately $0.9 million, $0.8 million and $0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. Amortization of developed technology and customer relationships are included in cost of revenue on the Company’s consolidated statement of operations and comprehensive loss. As of December 31, 2020, future amortization expense by year is expected to be as follows (in thousands): 2021.................................................................................................................................. $ 2022.................................................................................................................................. 2023.................................................................................................................................. Total ................................................................................................................................. $ The changes in the carrying amount of goodwill were as follows (in thousands): Balance as of December 31, 2019 .................................................................................... $ Foreign currency translation adjustments ........................................................................ 2020 acquisition ............................................................................................................... $ Balance as of December 31, 2020 .................................................................................... $ Amount 1,042 774 253 2,069 Amount 9,058 737 7,814 17,609 8. Accrued Expenses and Other Current Liabilities Certain prior year amounts have been reclassified for consistency in presentation with the current year presentation. These reclassifications had no effect on the reported results of operations. Accrued expenses and other current liabilities consisted of the following (in thousands): Accrued compensation and commissions............................................................................... $ Accrued expenses ................................................................................................................... Early exercise liability-stock options...................................................................................... Other tax liability and sales tax .............................................................................................. Total accrued expenses and other current liabilities............................................................... $ 22,186 $ 20,008 599 12,558 55,351 $ 16,256 12,505 1,776 8,209 38,746 December 31, 2020 December 31, 2019 9. Convertible Senior Notes On June 2, 2020, the Company issued $747.5 million aggregate principal amount of 0.125% convertible senior notes due 2025 (the “2025 Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Securities Act”). The total net proceeds from the sale of the 2025 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $730.2 million. The 2025 Notes bear interest at a rate of 0.125% per year, payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The 2025 Notes will mature on June 15, 2025, unless earlier converted, redeemed or repurchased. 83 Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding March 15, 2025 only under the following circumstances: (1) (2) (3) (4) 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; during the five business day period after any ten consecutive trading day period (the “measurement 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; 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 upon the occurrence of specified corporate events, as set forth in the indenture governing the 2025 Notes (“the Indenture”). On or after March 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in integral multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. The conversion rate for the 2025 Notes is initially 10.8338 shares of Class A common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $92.30 per share of Class A common stock), subject to adjustment as set forth in the Indenture. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class 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 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 30 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. It is the Company’s current intent to settle the principal amount of the 2025 Notes in cash. During the 12 months ended December 31, 2020, the conditions allowing holders of the 2025 Notes to convert have not been met. The 2025 Notes were therefore not convertible during the 12 months ended December 31, 2020 and were classified as long-term debt on the Company’s consolidated balance sheets. The Company may not redeem the 2025 Notes prior to June 20, 2023. On or after June 20, 2023, and prior to the 31st scheduled trading day immediately preceding the maturity date, the Company may redeem for cash all or any portion of the 2025 Notes, at its option, if the last reported sale price of its Class A common stock was at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. In accounting for the issuance of the 2025 Notes, the 2025 Notes were separated into liability and equity components. 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 is amortized to interest expense over the contractual 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. In accounting for the debt issuance costs of $17.3 million related to the 2025 Notes, the Company allocated the total amount incurred to the liability and equity components of the 2025 Notes in the same proportion as the allocation of the proceeds. Issuance costs attributable to the liability component were $13.2 million and will be amortized, along with the debt discount, to interest expense over the contractual term of the 2025 Notes at an effective interest rate of 5.97%. Issuance costs attributable to the equity component were $4.1 million and are netted against the equity component in additional paid-in capital. 84 The net carrying amount of the liability component of the 2025 Notes was as follows (in thousands): Principal .............................................................................................................................................................. $ Unamortized debt discount ................................................................................................................................. Unamortized debt issuance costs ........................................................................................................................ Net carrying amount............................................................................................................................................ $ The net carrying amount of the equity component of the 2025 Notes was as follows (in thousands): December 31, 2020 747,500 (159,547) (12,089) 575,864 December 31, 2020 Debt discount for conversion option ................................................................................................................... $ Issuance costs ...................................................................................................................................................... Net carrying amount............................................................................................................................................ $ 177,169 (4,099) 173,070 As of December 31, 2020, the total estimated fair value of the 2025 Notes was approximately $981.7 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. The following table sets forth the interest expense related to the 2025 Notes for years ended December 31, 2020 (in thousands): Contractual interest expense ............................................................................................................................... $ Amortization of debt discount............................................................................................................................. Amortization of issuance costs ........................................................................................................................... Total............................................................................................................................................................... $ 540 17,621 1,106 19,267 Year Ended December 31, 2020 Capped Calls In connection with the pricing of the 2025 Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (“Capped Calls”). The Capped Calls each have an initial strike price of approximately $92.30 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2025 Notes. The Capped Calls have initial cap prices of $151.04 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s Class A common stock upon any conversion of the 2025 Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 8.1 million shares of the Company’s Class A common stock. For accounting purposes, the Capped Calls are separate transactions, and not part 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. 10. Commitments and Contingencies Non-cancelable Material Commitments—As of December 31, 2020, the Company had purchase commitments of $184.2 million, primarily related to cloud hosting and other software-based services. Lease Commitments—The Company has entered into various noncancelable operating leases for its facilities expiring between fiscal 2021 and 2029. Certain operating leases contain provisions under which monthly rent escalates over time. When lease agreements contain escalating rent clauses or free rent periods, the Company recognizes rent expense on a straight-line basis over the term of the lease. Rent expense for the years ended December 31, 2020, 2019 and 2018 was $20.8 million, $16.7 million and $10.0 million, respectively. 85 During 2020, 2019 and 2018, the Company recorded $1.0 million, $1.0 million and $0.7 million, respectively, in sub-lease income which were recorded as a credit to rent expense. Non-Income Tax Matters— In January 2015, the Company recorded a $5.0 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, 2019, 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 $5.0 million benefit in the operating expenses section of the consolidated statement of operations during the year ended December 31, 2019. 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 operating expenses section of the consolidated statement of operations during the year ended December 31, 2020. 401(k) Plan—The Company sponsors a 401(k) defined contribution plan covering all eligible US employees. Contributions to the 401(k) plan are discretionary. The Company did not make any matching contributions to the 401(k) plan for the years ended December 31, 2020 and 2019. Legal Matters—The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings will have a material adverse effect on its financial position or results of operations. Indemnification—The Company enters into indemnification provisions under some agreements with other parties in the ordinary course of business, including business partners, investors, contractors, customers, and the Company’s officers, directors and certain employees. The Company has agreed to indemnify and defend the indemnified party claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claim because of the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. To date, losses recorded in the Company’s consolidated statements of operations in connection with the indemnification provisions have not been material. 11. Leases The Company has entered into various noncancelable operating leases for its facilities expiring between fiscal 2021 and 2029. Certain lease agreements contain an option for the Company to renew a lease for a term of up to five years or an option to terminate a lease early within three 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. Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. The components of lease cost recognized within the Company’s consolidated statements of operations were as follows (in thousands): Operating lease cost(1) ........................................... $ Variable lease cost(2) ............................................. Short-term lease cost ............................................. 17,081 $ — 3,717 13,636 94 2,925 Year Ended December 31, 2020 Year Ended December 31, 2019 1) 2) Includes non-cash lease expense of $14.0 million and $10.4 million for the years ended December 31, 2020 and 2019, respectively. Primarily related to Consumer Price Index adjustments, common area maintenance and property tax. 86 Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows (in thousands): Year Ended December 31, 2020 Year Ended December 31, 2019 Cash paid for amounts included in measurement of lease liabilities ................................................. $ Operating lease assets obtained in exchange for new lease liabilities .............................................. 15,074 $ 9,767 17,379 14,618 Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands): 2021 ............................................................................................... $ 2022 ............................................................................................... 2023 ............................................................................................... 2024 ............................................................................................... 2025 ............................................................................................... Thereafter ...................................................................................... Total lease payments ..................................................................... $ Less: imputed interest.................................................................... Present value of lease liabilities .................................................... $ Amount 19,072 20,292 18,210 2,572 2,766 12,747 75,659 (7,900) 67,759 As of December 31, 2020, the Company had one additional operating lease that had not yet commenced, which is excluded from the table above. The operating lease will commence in fiscal year 2021 and had $19.0 million of undiscounted future payments with a lease term of 7.75 years. Weighted average remaining lease term and discount rate for the Company’s operating leases are as follows: Weighted average remaining lease term (years)........ Weighted average discount rate ................................. 4.4 4.71% 4.0 4.98% December 31, 2020 December 31, 2019 12. Revenue Geographical Information Revenue by location is determined by the billing address of the customer. The following table sets forth revenue by geographic area (in thousands): North America...................................................................................... $ International ......................................................................................... Total ................................................................................................ $ 449,899 $ 153,567 603,466 $ 272,190 $ 90,590 362,780 $ 150,945 47,132 198,077 2020 Year Ended December 31, 2019 2018 Other than the United States, no other individual country accounted for 10% or more of total revenue for the years ended December 31, 2020, 2019, or 2018. 87 Accounts Receivable As of December 31, 2020, and 2019, unbilled accounts receivable of approximately $20.1 million and $14.4 million, respectively, was included in accounts receivable on the Company’s consolidated balance sheets. During the years ended December 31, 2020 and 2019, the Company charged $1.6 million and $0.9 million, respectively, of accounts receivable deemed uncollectible against the allowance for credit losses. Deferred Revenue and Remaining Performance Obligations Revenue recognized during the years ended December 31, 2020, 2019 and 2018 which was included in the deferred revenue balances at the beginning of each respective period, was $126.8 million, $71.0 million, and $37.1 million. As of December 31, 2020, and 2019, the aggregate transaction price allocated to remaining performance obligations was $434.1 million and $243.8 million, respectively. There is uncertainty in the timing of revenues associated with the Company’s drawdown contracts, as future revenue can often vary significantly from past revenue. However, the Company expects to recognize substantially all of the remaining performance obligations over the next 24 months and more than a majority will be recognized to revenue over the next 12 months. Deferred Contract Costs Deferred contract costs on the Company’s consolidated balance sheets were $40.4 million and $25.8 million as of December 31, 2020 and 2019, respectively. Amortization expense was $10.4 million, $5.4 million and $2.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. The following table represents a rollforward of the Company’s deferred contract costs (in thousands): Balance as of December 31, 2017.................................................................................................................. $ Additions to deferred contract costs .............................................................................................................. Amortization of deferred contract costs......................................................................................................... Balance as of December 31, 2018.................................................................................................................. $ Additions to deferred contract costs .............................................................................................................. Amortization of deferred contract costs......................................................................................................... Balance as of December 31, 2019.................................................................................................................. $ Additions to deferred contract costs .............................................................................................................. Amortization of deferred contract costs......................................................................................................... Balance as of December 31, 2020.................................................................................................................. $ Amount 4,755 8,925 (2,671) 11,009 20,146 (5,400) 25,755 25,080 (10,447) 40,388 13. Stockholders’ Equity Class A and Class B Common Stock The Company has two 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 one vote per share and each share of Class B common stock is entitled to ten 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, subject to certain limited exceptions. During the year ended December 31, 2020, 145,387,306 shares of Class B common stock were converted into Class A common stock. As of December 31, 2020, 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 218,510,509 shares of Class A common stock and 87,369,554 shares of Class B common stock were issued and outstanding. 88 As of December 31, 2020 and 2019, the Company had reserved shares of common stock for future issuance as follows: Options and RSU's outstanding......................................................................................... Shares available for future option and RSU grants ........................................................... Shares available subject to the 2019 ESPP ....................................................................... December 31, 2020 32,235,043 42,797,432 9,222,883 84,255,358 2019 37,031,861 31,729,237 6,725,000 75,486,098 Equity Incentive Plans The Company has two equity incentive plans, the 2012 equity incentive plan (the “2012 Plan”) and the 2019 equity incentive plan (the “2019 Plan”). In connection with the IPO, the Company ceased granting awards under the 2012 Plan, and all shares that remained available for issuance under the 2012 Plan at that time were transferred to the 2019 Plan. Additionally, as of December 31, 2020, there were 27,033,564 shares of Class A common stock issuable upon conversion of Class B common stock underlying options outstanding under the 2012 Plan. Under the 2019 Plan, the Board and any other committee or subcommittee of the Board may grant stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and performance-based and other awards, each valued or based on the Company’s Class A common stock, to employees, consultants, and advisors of the Company. As of December 31, 2020, the Company was authorized to grant awards representing up to 86,086,351 shares under the 2019 Plan and had awards representing 42,797,432 shares of Class A common stock available to grant under the 2019 Plan. Stock Options The Company uses the Black-Scholes option pricing model to value stock options. The fair value of each award is recognized on a straight-line basis over the vesting or service period, which is typically four years. The Black-Scholes model requires specified inputs to determine the fair value of stock-based awards, consisting of (i) the expected volatility of the Company’s common stock over the expected option life, (ii) the risk-free interest rate, (iii) the expected dividend yield, and (iv) the expected option life. The following table summarizes the assumptions used during the years ended December 31, 2020, 2019 and 2018: Expected volatility.......................................................................................... Risk-free interest rate ..................................................................................... Expected dividend yield ................................................................................. Expected term (in years) ................................................................................ Fair value of common stock ........................................................................... $ 2020 38.9% 1.7% —% 6.1 41.19 Year Ended December 31, 2019 38.9% - 39.5% 1.4% - 2.6% —% 5.2 - 6.3 $6.16 - $38.21 2018 38.4% - 39.0% 2.6% - 3.0% —% 5.8 - 6.1 $2.23 - $5.63 Expected volatility—The Company performed an analysis of its peer companies with similar expected lives to develop an expected volatility assumption. Expected term—Derived from the life of the options granted under the option plan and is based on the simplified method which is essentially the weighted average of the vesting period and contractual term. Risk-free interest rate—Based upon quoted market yields for the United States Treasury debt securities. Expected dividend yield—Since the Company has never paid and has no intention to pay cash dividends on common stock, the expected dividend yield is zero. Fair value of the common stock—Prior to the IPO, the fair value of common stock underlying the stock-based awards was determined by the Company’s Board of Directors. The Board of Directors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards were approved. The factors considered included, but were not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s redeemable convertible Preferred Stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the 89 Company’s shares. Since the Company’s IPO, the fair value of the underlying common stock is determined by the closing price, on the date of grant, of the Company’s Class A common stock, which is traded publicly on The Nasdaq Global Select Market. Stock option activity during the year ended December 31, 2020 is as follows: Number of Options Outstanding Weighted- Average Weighted- Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value (in thousands) Balance—December 31, 2018 ............................................................. 38,865,057 $ Options granted.................................................................................... 9,518,730 $ Options exercised................................................................................. (10,546,987) $ Options forfeited or expired................................................................. (1,452,033) $ Balance—December 31, 2019 ............................................................. 36,384,767 $ Exercisable—December 31, 2019 ....................................................... 22,327,967 $ Balance—December 31, 2019 ............................................................. 36,384,767 $ 14,600 Options granted.................................................................................... (8,753,274) Options exercised................................................................................. Options forfeited or expired................................................................. (577,770) Balance—December 31, 2020 ............................................................. 27,068,323 Exercisable—December 31, 2020 ....................................................... 16,545,562 $ Exercise Price 0.83 9.15 0.75 2.54 2.96 2.19 2.96 41.19 1.83 4.93 3.31 1.39 7.9 7.6 7.0 — — — $ 1,266,938 — — — 6.70 2,575,069 5.86 $ 1,605,723 As of December 31, 2020, there were 34,759 shares of Class A common stock and 27,033,564 shares of Class B common stock issuable upon the exercise of options outstanding. As of December 31, 2019, there were 20,700 shares of Class A common stock and 36,364,067 shares of Class B common stock issuable upon the exercise of options outstanding. Total compensation cost related to unvested awards not yet recognized was approximately $60.6 million and $90.5 million as of December 31, 2020 and December 31, 2019, respectively. The weighted-average period over which this compensation cost related to unvested employee awards will be recognized is 2.0 years and 2.7 years as of December 31, 2020 and December 31, 2019, respectively. The weighted average grant-date fair value of options granted during 2020, 2019 and 2018 was $16.55, $8.69 and $2.48, respectively. The Company received approximately $16.0 million, $7.9 million and $7.8 million in cash proceeds from options exercised during 2020, 2019 and 2018, respectively. The intrinsic value of options exercised in 2020, 2019 and 2018 was approximately $554.3 million, $121.3 million and $36.4 million, respectively. The aggregate fair value of options vested during 2020, 2019 and 2018 was $27.6 million, $10.8 million and $3.5 million, respectively. Restricted Stock Units The following table summarizes the activity for the Company’s unvested RSUs: Unvested and outstanding balance as of December 31, 2019............................ $ Awarded............................................................................................................. Vested ................................................................................................................ Forfeited/canceled.............................................................................................. Unvested and outstanding balance as of December 31, 2020............................ Shares 647,094 $ 4,860,097 (170,892) (169,579) 5,166,720 $ Weighted- Average Fair Value Aggregate Intrinsic Value (in thousands) 36.08 $ 61.42 36.41 48.24 59.50 $ 24,447 — — — 508,612 The Company granted 244,445 and 96,210 restricted shares of Class A common stock in November 2019 and June 2020, respectively, which are subject to service-based vesting conditions over approximately four years. 90 Total compensation cost related to unvested RSUs and restricted shares of common stock not yet recognized was approximately $281.5 million and $30.4 million as of December 31, 2020 and December 31, 2019, respectively. The weighted- average period over which this compensation cost related to unvested RSUs and restricted shares will be recognized is 3.4 years and 3.9 years as of December 31, 2020 and December 31, 2019, respectively. The Company expects to settle RSUs with shares of its Class A common stock. Stock-Based Compensation Stock-based compensation expense was included in the consolidated statement of operations as follows (in thousands): Cost of revenue .................................................................................................. $ Research and development ................................................................................ Sales and marketing ........................................................................................... General and administrative ................................................................................ Stock-based compensation, net of amounts capitalized ............................... Capitalized stock-based compensation expense ................................................ Total stock-based compensation expense..................................................... $ 1,794 $ 38,008 20,467 14,105 74,374 3,404 77,778 $ 582 $ 7,972 5,538 4,942 19,034 201 19,235 $ 287 1,641 1,910 1,406 5,244 167 5,411 2020 Year Ended December 31, 2019 2018 Common stock purchased pursuant to an early exercise of stock options is not deemed to be outstanding for accounting purposes until those shares vest. The consideration received for an exercise of an option is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability. The shares issued upon the early exercise of these unvested stock option awards, which are reflected as exercises in the table above, are considered to be legally issued and outstanding on the date of exercise. Upon termination of service, the Company may repurchase unvested shares acquired through early exercise of stock options at a price equal to the price per share paid upon the exercise of such options. The Company has recorded liabilities related to early exercises of 438,750 shares of common stock and 1,239,750 shares of common stock as of December 31, 2020 and December 31, 2019, respectively. Employee Stock Purchase Plan In September 2019, the Board adopted and approved the 2019 ESPP, which became effective on the date of the final prospectus for the Company’s IPO. The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of the Company’s Class A common stock on specified dates during such offerings. Under the ESPP, the Company may specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each offering. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s Class A common stock on the first trading day of the offering period, or (2) the fair market value of the Company’s Class A common stock on the purchase date, as defined in the ESPP. The Company recognized $5.0 million and $1.2 million of stock-based compensation expense related to the ESPP during the years ended December 31, 2020, and 2019, respectively. As of December 31, 2020, and 2019, $2.8 million and $3.3 million, respectively has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions. There were no purchases for the year ended December 31, 2019 related to the ESPP. During the year ended December 31, 2020, the Company issued 447,955 shares of Class A common stock under the ESPP. As of December 31, 2020, 9,222,883 shares of Class A common stock remain available for grant under the ESPP. Total compensation cost related to the ESPP not yet recognized was approximately $2.5 million and $1.5 million as of December 31, 2020 and 2019, respectively. The weighted average period over which this compensation cost will be recognized is 0.4 years as of December 31, 2020 and 2019. 91 14. Interest income and other income, net Interest income and other income, net consist of the following (in thousands): Interest income.................................................................................................... $ Other income (expense), net ............................................................................... Interest income and other income, net................................................................ $ 21,234 $ 751 21,985 $ 4,110 86 4,196 $ $ 913 (120) 793 For the Year Ended December 31, 2019 2018 2020 15. Income Taxes Income Taxes—For financial reporting purposes, loss before income taxes, includes the following components (in thousands): Domestic ............................................................................................................. $ Foreign................................................................................................................ Loss before income taxes.................................................................................... $ 2020 (32,033) $ 9,811 (22,222) $ December 31, 2019 (18,330) $ 2,354 (15,976) $ 2018 (11,273) 1,033 (10,240) Total income taxes allocated to operations for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands): 2020 Federal................................................................................................................ $ State.................................................................................................................... Foreign ............................................................................................................... Total.............................................................................................................. $ Current Deferred Total — $ 124 2,239 2,363 $ — $ — (38) (38) $ — 124 2,201 2,325 92 2019 Federal................................................................................................................ $ State.................................................................................................................... Foreign ............................................................................................................... Total.............................................................................................................. $ Current Deferred Total — $ 126 967 1,093 $ — $ — (359) (359) $ 2018 Federal................................................................................................................ $ State.................................................................................................................... Foreign ............................................................................................................... Total.............................................................................................................. $ Current Deferred Total — $ (127) 559 432 $ — $ — 90 90 $ — 126 608 734 — (127) 649 522 Tax Rate Reconciliation—Income tax expense was $2.3 million, $0.7 million and $0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively, and differed from the amounts computed by applying the U.S. federal statutory income tax rate of 21% for the years ended December 31, 2020, 2019 and 2018, to pretax loss from operations as a result of the following (in thousands): 2020 December 31, 2019 2018 Income tax expense at federal statutory rate ...................................................... $ Nondeductible expenses ............................................................................... State taxes (net of federal benefit) ................................................................ Net change in valuation allowance ............................................................... Uncertain tax positions ................................................................................. US tax costs on international operations....................................................... Foreign taxes................................................................................................. Share based compensation deductions.......................................................... Return to provision ....................................................................................... Other ............................................................................................................. Total ................................................................................................................... $ (4,667) $ 132 98 51,892 17 1,818 126 (47,032) (48) (11) 2,325 $ (3,355) $ 380 100 5,043 23 201 92 (1,630) (120) — 734 $ (2,151) 452 (100) 1,052 241 296 191 541 — — 522 The Company incurred U.S. operating and tax losses, mainly driven by significant equity compensation deductions. These deductions had an impact of $47.0 million on the effective tax rate. The Company also early adopted the provisions of ASU No. 2019- 12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”) during the year ended December 31, 2020. As a result of the adoption of ASU No. 2019-12, the tax effect of the Company’s loss from continuing operations for the year ended December 31, 2020 was computed without regard to items other than from continuing operations. Prior to early adoption, for the quarter ended June 30, 2020, the taxable temporary difference resulting from the convertible debt issuance provided an additional source of income to support the realizability of the Company's pre-existing deferred tax assets and the Company released a valuation allowance of $15.1 million through additional paid-in capital as a result of the intra-period allocation guidance. For the year ended December 31, 2020, the Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the United States. Due to uncertainties surrounding the realization of the deferred tax assets, the Company recorded a full valuation allowance against substantially all of its net deferred tax assets. When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made. 93 On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021. The act includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the COVID-related Tax Relief Act of 2020, both of which extend many credits and other COVID-19 relief, among other extenders. The Consolidated Appropriations Act is retroactively applied to the original date of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). Like the CARES Act, under ASC 740, the effects of new legislation would need to be recognized in the period of enactment. Therefore, the effects of the Consolidated Appropriations Act would need to be accounted for in the year ended December 31, 2020. The Company evaluated the provisions of the Consolidated Appropriations Act and determined that there was no material impact for the year ended December 31, 2020. On March 27, 2020, the CARES Act was enacted 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 year ended December 31, 2020. The Company evaluated the provisions of the CARES Act and determined that there was no material impact for the year ended December 31, 2020. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected the Company’s financial results for the year ended December 31, 2017, including, but not limited to: (1) requiring a one-time transition tax (payable over eight years) on certain un-repatriated earnings of foreign subsidiaries; (2) a future reduction of the U.S. federal corporate tax rate from 34% to 21% effective January 1, 2018, that reduced the current value of the Company’s deferred tax assets and liabilities; and (3) bonus depreciation that allows for full expensing of qualified property placed in service after September 27, 2017. In addition, the Tax Act establishes new tax laws that may affect the Company’s financial results for the years ending after December 31, 2017, including, but not limited to: (1) a reduction of the U.S. federal income tax rate from 34% to 21%; (2) limitation of the deduction for interest expense; (3) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (4) a new provision designed to tax global intangible low-taxed income; (5) limitations on the deductibility of certain executive compensation; and (6) limitations on the use of Foreign Income Tax Credit to reduce the Company’s income tax liability. Pursuant to the Staff Accounting Bulletin published by the SEC on December 22, 2017, addressing the challenges in accounting for the effects of the Tax Act in the period of enactment, companies reported provisional amounts for those specific income tax effects of the Tax Act for which the accounting was incomplete, but a reasonable estimate could be determined. Those provisional amounts were subject to adjustment during a measurement period of up to one year from the enactment date (a “measurement-period adjustment”). Pursuant to this guidance, the estimated impact of the Tax Act was based on a preliminary review of the new tax law and projected future financial results and was subject to revision based upon further analysis and interpretation of the Tax Act and to the extent that actual results differed from projections available at that time. In 2018, the Company completed its accounting with respect to the Tax Act and did not make any measurement-period adjustments to the initial tax expense of $4.0 million recorded in 2017. 94 Components of Deferred Taxes—The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are presented below (in thousands): Deferred tax assets: Net operating losses........................................................................................... Stock-based compensation ................................................................................ Federal withholding tax reserve ........................................................................ Internal use software.......................................................................................... Lease liability .................................................................................................... Convertible senior notes - issuance costs .......................................................... Other .................................................................................................................. Total deferred tax assets.......................................................................................... Less: valuation allowance.................................................................................. Deferred tax assets, net of valuation allowance ...................................................... Deferred tax liabilities: Commissions ..................................................................................................... Right of use asset............................................................................................... Convertible senior notes .................................................................................... Other .................................................................................................................. Total deferred tax liabilities .................................................................................... Deferred tax assets, net ........................................................................................... $ $ $ $ $ $ December 31, 2020 2019 66,801 11,820 — 2,153 12,566 832 2,632 96,804 (33,847) 62,957 (10,247) (11,394) (40,478) (800) (62,919) 38 $ $ $ $ $ $ 14,631 2,085 815 1,746 10,440 — 1,297 31,014 (15,205) 15,809 (6,514) (9,210) (85) (15,809) — The Company accounts for income taxes using an asset and liability method and deferred income tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. The Company’s deferred tax assets and liabilities are comprised primarily of federal and state net operating loss carryforwards and basis differences for financial reporting and tax purposes of certain assets and liabilities. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the weight of all available evidence, which includes the historical operating performance and the recorded cumulative losses in prior fiscal periods, management does not believe as of December 31, 2020 and 2019 that it is more likely than not that the Company will realize its U.S. deferred tax assets. As a result, a valuation allowance of $33.8 million and $15.2 million has been provided at December 31, 2020 and 2019, respectively. The valuation allowance changed by $18.6 million and $5.5 million at December 31, 2020 and 2019, respectively. During the period, the Company fully released the valuation allowance due to the convertible debt issuance then subsequently recorded a valuation allowance due to the Company’s loss position. At December 31, 2020 and 2019, the Company has net operating loss carryforwards for federal tax purposes of approximately $263.2 million and $56.6 million, respectively, which is available to offset federal taxable income. The federal net operating loss carryforwards generated at December 31, 2017 and prior will begin to expire in 2031, if not utilized. Net operating losses generated at December 31, 2018 and after have an indefinite carryforward period but are subject to an 80% of taxable income limitation. The Company has approximately $177.5 million and $42.0 million of post-apportioned net operating loss carryforwards as of December 31, 2020 and 2019, respectively for various state tax purposes. The state net operating loss carryforwards will begin to expire in 2028, if not utilized. Utilization of the net operating losses may be subject to an annual limitation provided for in the Internal Revenue Code of 1986, as amended, under Section 382 and similar state codes. The Company has prepared an analysis to determine whether its net operating losses may be limited under such provisions. It has been determined that any annual limitation would not result in the expiration of net operating loss carryforwards before utilization. 95 In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. Historically, the Company has not made a provision for U.S. income tax with respect to accumulated earnings of foreign subsidiaries where the foreign investment of such earnings is essentially permanent in duration. Generally, such amounts would become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. The Company has not provided U.S. taxes on unremitted earnings of its foreign subsidiaries as it asserts permanent reinvestment on any accumulated earnings and profits. Consistent with the provisions of ASC 740, Income Taxes, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The following table shows the changes in the gross amount of unrecognized tax benefits as of December 31, 2020, 2019 and 2018 (in thousands): Beginning balance .............................................................................................. $ Increases based on tax positions during the current period................................ (Decreases) based on tax positions during the current period............................ Ending balance ................................................................................................... $ 920 $ — (388) 532 $ $ 920 — — $ 920 563 357 — 920 2020 December 31, 2019 2018 The total amount of unrecognized tax benefits that, if recognized would impact the effective tax rate would be $0.5 million for the years ended December 31, 2020 and 2019. The Company’s policy for classifying interest and penalties associated with unrecognized income tax benefits is to include such items in income tax expense. The total amount of interest and penalties associated with unrecognized income tax benefits is $0.4 million for the years ended December 31, 2020 and 2019. It is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next 12 months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, as such the Company anticipates insignificant changes to unrecognized tax benefits over the next 12 months. The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and in various international jurisdictions. Tax years 2015 and forward generally remain open for examination for federal and state tax purposes. The Company closed its audit of the U.S., a major tax jurisdiction, for the 2017 tax year during 2020 with no changes noted. To the extent utilized in future years’ tax returns, net operating loss carryforwards at December 31, 2020 and 2019 will remain subject to examination until the respective tax year is closed. 16. Net (Loss) Income Per Share Basic and diluted net income (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 in the Company. Basic and diluted net income (loss) per share is computed using the weighted-average number of common 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 shares 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) per share of Class A common stock, the undistributed earnings are equal to net income (loss) for that computation. 96 The following table presents the calculation of basic and diluted net (loss) income per share (in thousands, except per share data): Basic net loss per share: Numerator: Year Ended December 31, 2020 2019 2018 Class A Class B Class A Class B Net loss .............................................................................. $ (13,614) $ (10,933) $ (1,149) $ (15,561) $ (10,762) Denominator: Weighted average shares used in calculating net loss per share, basic ........................................................ Basic net loss per share ........................................................... $ Diluted net loss per share: Numerator: Allocation of distributed loss for basic computation......... $ Reallocation of undistributed loss as a result of conversion of Class B to Class A shares ........................ Allocation of undistributed loss ...................................... $ Denominator: Number of shares used in basic calculation ......................... Weighted average effect of diluted securities: Conversion of Class B to Class A common shares outstanding...................................................................... Number of shares used in diluted calculation ................. Diluted net loss per share ........................................................ $ 166,582 133,768 (0.08) $ (0.08) $ 9,611 (0.12) $ 130,262 (0.12) $ 70,951 (0.15) (13,614) $ (10,933) $ (1,149) $ (15,561) $ (10,762) (10,933) (24,547) $ — (10,933) $ (15,561) (16,710) $ — (15,561) $ — (10,762) 166,582 133,768 9,611 130,262 70,951 133,768 300,350 — 133,768 130,262 139,873 — 130,262 (0.08) $ (0.08) $ (0.12) $ (0.12) $ — 70,951 (0.15) 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. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands): Year Ended December 31, 2020 2019 2018 Convertible Preferred Stock ............................................................................... $ Shares subject to outstanding stock options and restricted stock units .............. Unvested early exercised stock options.............................................................. Shares subject to the 2019 ESPP ........................................................................ Shares underlying the conversion spread in the convertible senior notes .......... Total.................................................................................................................... $ — $ 32,235 718 141 608 33,702 $ — $ 37,032 1,240 353 — 38,625 $ 179,815 38,865 2,096 — — 220,776 The Company uses the treasury stock method for calculating the potential dilutive effect of the conversion spread on diluted net income per share; if any, as the Company currently expects to settle the principal amount of the 2025 Notes in cash, and 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. Although the Notes were not convertible as of December 31, 2020, the Company calculated the potentially dilutive effect of the conversion spread, which is included in the table above. The Company entered into Capped Calls in connection with the issuance of the 2025 Notes. The effect of the Capped Calls was also excluded from the calculation of diluted net income per share as the effect of the Capped Calls would have been anti-dilutive. The Capped Calls are expected to partially offset the potential dilution to the Company’s Class A common stock upon any conversion of the 2025 Notes. 97 17. Subsequent Events In February 2021, the Company entered into an agreement to acquire Sqreen, Inc, a SaaS based security platform, for approximately $260 million in cash and stock, subject to certain customary adjustments, of which approximately 25% is deferred. In addition, the Company completed the acquisition of Timber Technologies, the producer of a vendor-agnostic and high-performance observability data pipeline. The Company is currently evaluating the purchase price allocation for these transactions. ****** 98 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain “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’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. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, 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. Management's Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of its evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020. Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an auditors’ report on the effectiveness of our internal control over financial reporting, which is included in Item 8 of this Form 10-K. Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d15(d) of the Exchange Act that occurred during the fiscal quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 99 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Datadog, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Datadog, Inc. and its subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 1, 2021, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP New York, New York March 1, 2021 Item 9B. Other Information None. 100 Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by this Item (other than as set forth below) will be included in the proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2020, or the 2021 Proxy Statement, and is incorporated herein by reference. We have adopted a Code of Conduct that applies to all our employees, officers and directors. The Code of Conduct is available on our website at www.investors.datadoghq.com. The nominating and corporate governance committee of our board of directors is responsible for overseeing the Code of Conduct and must approve any waivers of the Code of Conduct for employees, executive officers and directors. We expect that any amendments to the Code of Conduct, or any waivers of its requirements, will be disclosed on our website, as required by applicable law or the listing standards of Nasdaq. Our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K. Item 11. Executive Compensation The information required by this Item will be included in the 2021 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item will be included in the 2021 Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item will be included in the 2021 Proxy Statement and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services The information required by this Item will be included in the 2021 Proxy Statement and is incorporated herein by reference. 101 PART IV Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this report (1) All financial statements Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm............................................................................................................ Consolidated Balance Sheets as of December 31, 2020 and 2019 .................................................................................................. Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 ................................................. Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020, 2019 and 2018 ................................. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2020, 2019 and 2018........................................................................................................................................................................ Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 ................................................ Notes to Consolidated Financial Statements.................................................................................................................................... Page 63 66 67 68 69 70 71 (2) Financial Statement Schedules All financial schedules have been omitted because the required information is either presented in the consolidated financial statements filed as part of this Annual Report on Form 10-K or the notes thereto or is not applicable or required. (3) Exhibits Exhibit Number Description 3.1 3.4 4.1 Amended and Restated Certificate of Incorporation of Datadog, Inc. Amended and Restated Bylaws of Datadog, Inc. S-1 333-233428 Form of Class A Common Stock Certificate. S-1/A 333-233428 4.2 Description of Securities. 10-K 001-39051 Incorporated by Reference File No. Exhibit Filing Date Filed Herewith Form 8-K 001-39051 3.1 3.4 4.1 4.2 4.1 September 23, 2019 August 23, 2019 September 9, 2019 February 25, 2020 June 2, 2020 4.1 4.4 10.1 10.2# 10.3# 10.4# Indenture, dated June 2, 2020, between Datadog, Inc. and U.S. Bank National Association, as Trustee. Form of Global Note representing Datadog, Inc.’s 0.125% Convertible Senior Notes due 2025 Fourth Amended and Restated Investor Rights Agreement, dated December 28, 2015. Datadog, Inc. 2012 Equity Incentive Plan, and terms of agreements thereunder. Datadog, Inc. 2019 Equity Incentive Plan and terms of agreements thereunder. Datadog, Inc. 2019 Employee Stock Purchase Plan. 8-K 001-39051 8-K 001-39051 4.4 June 2, 2020 S-1 333-233428 10.1 S-1 333-233428 10.2 S-1/A 333-233428 10.3 S-1/A 333-233428 10.4 August 23, 2019 August 23, 2019 September 9, 2019 September 9, 2019 102  10.5# 10.6# 10.7# 10.8# 10.9 10.10 10.11 Form of Indemnity Agreement entered into by and between Datadog, Inc. and each director and executive officer. Offer Letter, by and between Datadog, Inc. and Olivier Pomel, dated May 20, 2011. Offer Letter, by and between Datadog, Inc. and David Obstler, dated August 28, 2018. Offer Letter, by and between Datadog, Inc. and Laszlo Kopits, dated February 27, 2017. Agreement of Sub-Sub-Sublease, by and between Datadog, Inc. and Ideeli Inc., dated April 14, 2016. Agreement of Sub-Sublease, by and between Datadog, Inc. and BT Americas Inc., dated September 18, 2017. Sublease, by and between Datadog, Inc. and Covington & Burling LLP, dated July 19, 2018. S-1/A 333-233428 10.5 S-1/A 333-233428 10.6 S-1/A 333-233428 10.7 S-1/A 333-233428 10.8 S-1 333-233428 10.9 S-1 333-233428 10.10 S-1 333-233428 10.11 10.12# Non-Employee Director Compensation S-1/A 333-233428 10.12 Policy. 10.13# Form of Change of Control and Severance S-1/A 333-233428 10.13 September 9, 2019 September 9, 2019 September 9, 2019 September 9, 2019 August 23, 2019 August 23, 2019 August 23, 2019 September 9, 2019 September 9, 2019 10.1 10.14 21.1 23.1 24.1 31.1 31.2 Agreement. Form of Confirmation for Capped Call Transaction. Agreement of Sublease, by and between Datadog, Inc. and Clearbridge Investments, LLC, dated July 9, 2020 List of Significant Subsidiaries of Datadog, Inc. Consent of Deloitte & Touche LLP, independent registered public accounting firm. Power of Attorney (incorporated by reference to the signature pages of this Annual Report on Form 10-K). Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as 8-K 001-39051 10.1 June 2, 2020 103 X X X X X X X Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X X X X X X X # * Indicates management contract or compensatory plan. 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. Item 16. Form 10-K Summary None. 104 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIGNATURES Date: March 1, 2021 DATADOG, INC. /s/ Olivier Pomel By: Name: Olivier Pomel Title: Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Olivier Pomel and Alexis Lê-Quôc, and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in their name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Olivier Pomel Olivier Pomel Chief Executive Officer and Director (Principal Executive Officer) Chief Financial Officer (Principal Financial and Accounting Officer) March 1, 2021 March 1, 2021 /s/ David Obstler David Obstler /s/ Alexis Le-Quôc Alexis Le-Quôc /s/ Michael Callahan Michael Callahan /s/ Matthew Jacobson Matthew Jacobson /s/ Dev Ittycheria Dev Ittycheria /s/ Julie Richardson Julie Richardson /s/ Shardul Shah Shardul Shah President, Chief Technology Officer and Director March 1, 2021 Director Director Director Director Director 105 March 1, 2021 March 1, 2021 March 1, 2021 March 1, 2021 March 1, 2021 Executive Leadership Olivier Pomel CEO & Co-Founder Alexis Lê-Quôc CTO & Co-Founder Amit Agarwal Chief Product Officer David Obstler Chief Financial Officer Dan Fougere Chief Revenue Officer Laszlo Kopits General Counsel & Secretary Armelle de Madre Chief People Officer Board of Directors Olivier Pomel CEO & Co-Founder Alexis Lê-Quôc CTO & Co-Founder Michael Callahan Co-Founder, Awake Security Dev Ittycheria President & CEO, MongoDB Matt Jacobson General Partner, ICONIQ Capital Julie Richardson Board Member Shardul Shah Partner, Index Ventures Common Stock Listing Listed: NASDAQ Global Market Symbol: DDOG Investor Relations For copies of this report or other financial information, please visit our website or contact: Transfer Agent and Registrar American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 Independent Accountants Deloitte & Touche LLP 30 Rockefeller Plaza 41st Floor New York, NY 10112 Datadog Investor Relations IR@datadoghq.com Website: ir.datadoghq.com Corporate Headquarters Datadog 620 8th Ave 45th Floor New York, NY 10018 Website: datadoghq.com Datadog Annual Report 2020 D a t a d o g A n n u a l R e p o r t 2 0 2 0 

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