Datadog, Inc. (NASDAQ:DDOG) Citi’s 2022 Global Technology Conference September 7, 2022 9:00 AM ET
Company Participants
David Obstler – Chief Financial Officer
Conference Call Participants
Fatima Boolani – Citi
Fatima Boolani
Good morning everyone. It’s delightful to see everyone’s faces as we kick off day 1 of Citi’s Global TMT Conference. I’m Fatima Boolani. For those of you who don’t know me, I jointly head up the U.S. software research practice here at Citi, and I have the pleasure of starting my set of firesides today with the CFO of Datadog, David Obstler. Thank you so much for joining us.
David Obstler
Thank you for having us. I appreciate it.
Fatima Boolani
Excellent. So I want to dive right into the discussion here, and I know it’s topical for most investors right now is macro, macros online. And so maybe we can just start from the standpoint of walking us through where you saw the biggest changes in the business or deviations or deviations from your expectations in the business as you started calendar 2022 and as we’ve sort of progressed through the year and frankly what sort of caught you by surprise and certainly all of us who sort of trying to put our fingers around sort of what’s happening in the broader market, so we’d love to kind of start the dialogue from there.
David Obstler
I’ll start off by saying we reported our earnings in the first week of August. So everything that I’m discussing will be what we said in that call, and as of that period of time, it wasn’t so long ago. I think we said during the call that we compared it a lot to what happened in COVID because when it comes to surprise, we had seen a major dislocation in March of 2020 with COVID. So what we said at that — at this point was that we had seen a continuation of new logo aggregation. We had a record number of new logos, the pipeline remained strong, and we had done quite well in that area, that we saw digital projects continuing to be a priority. Now, remind everybody that our business is about monitoring customer facing real time delivery of digital applications. So it’s really foundational to our client’s business.
And we’ve had gross retentions getting to the point of gross retention that are in the mid-90s for quite some time. During COVID and in the period we reported on, we saw no change of that and that indicates to us that at least in our business, that the use of our product is quite sticky and quite fundamental and necessary. So we said that did not change, that the new logos were very strong, but what we did see, which we also saw in COVID is we saw in certain segments of our customer base, we saw the rationalization of cost management within our usage model.
Now, in COVID, what we saw was we saw a very rapid decline and then a very rapid resumption of normal usage trends, and this was between the way it was before and COVID. So it didn’t go down to shrinkage or rationalization across, but the rate of growth of the use of the product by existing clients was pared. So where was that? So that was concentrated in some of the larger customers who had ramped up very quickly. We said that the areas or the industries where it happened were in consumer discretionary, not surprising the areas that were more affected by the economic trends.
We are very diversified, so we service all sorts of businesses across their digital initiatives, so we don’t have that type of concentration. We said that we did not see a regional factor. We did not see in Europe or in Asia different patterns. And what we said was that in our business, and we’ll get into it, our subscription business, there’s certain aspects where you can modulate usage for instance, the amount of logs that indexing and that’s where we saw some modulation, so the areas where it might have been easier to control the usage.
And so that’s the report we gave. We said that’s what happened in the second quarter. We also said I gave a little flavor for the first month of the third quarter where we said, we didn’t see that much different. We saw a little better in usage trends. We continued to get commitments and do business in a normal way. But what we also said was that was too small of a timeframe to draw any conclusions going forward. So most of what we saw in the second quarter and in the very beginnings of the third were similar to what we said on the call.
Now surprise or not, I would say having gone through the COVID we weren’t surprised. We know that our customers in the land-and-expand model ramp up usage and on an ongoing basis all the time we have this process of, they grow very fast, look at their usage. They fix out in commitment. They might modulate a little bit. So in our revenue model and in our growth rate in the last four years, we’ve had that. So the fact that that happens, isn’t a surprise to us. Where it happened in a more intense way, of course we couldn’t have predicted, but it makes sense logically to us given the economy.
Fatima Boolani
David, I want to come back to this notion of aggregate spending scrutiny, you know most organizations are putting a lot of their spending under the microscope, but it is not a surprise. So I do want to come back to this notion and unpack it a little bit more, but just staying zoomed out, you know, as a general matter, hyperscaler and public cloud adoption has been and offered a substantial tailwind to your entire business and your value proposition over the last several years. And so, you know, and certainly in now what has become a more perceptively challenging macroeconomic backdrop, we’ve certainly heard mixed feedback on how very large scale transformational cloud migration projects in the aggregate are going to take shape or executed on in the next couple years, or at least near term.
So, you know, as I was saying, as your core value proposition is sort of kind of rides on those coattails of this broader trend, how are you thinking about or navigating what could potentially be maybe a little bit of a near-term plateauing from a public cloud adoption velocity?
David Obstler
Yes, I mean, this has been looking at, you know, the history fundamental transformation of workloads going into the cloud. If you look at various bits of research it still is not even the majority, it’s still 20 or some percent applications being put in the cloud. This is still a very long journey. It’s a really large market. And based on our feedback from our clients, it is fundamental to their business initiatives. So they may well be focusing on cost management and doing things in a number of areas. And there may be bumps in the road, but we think this is really strategic and foundational to our clients’ digital initiatives and cloud migration. So we can’t predict what happens every quarter cetera, but we think we’re in a very long-term trend.
Also based on our client feedback and based on what we said about new logos and efforts, it continues to be of strong strategic focus. And more of what we saw was pruning around how they are using. I think in these types of environments, people like me, CFOs, et cetera, start to say, ah, can’t you calibrate a little bit. And so we haven’t seen a situation of less priority. We’ve seen more of a carefulness, which happens from time-to-time in our client base.
Fatima Boolani
Now, just jumping back and closing the loop, so clearly there is a tremendous amount of ROI. You know, I can recollect this anecdote that you shared that during the pandemic, you actually had a hospitality customer who cut their head count by 51, but their Datadog investments certainly didn’t get cut by that magnitude. Right? So just along those themes, and as we, as you contend with customers who naturally have more constraints, what is Datadog doing from a sales and marketing and product penetration and education perspective to make the ROI proposition much more clearer?
David Obstler
Yes. And I’d like to — you bring up some examples, and we saw that again, and we talked about on our earnings call, we saw some of the more affected industries make very large investments because of what you’re saying. In terms of our selling, I completely agree with you. Number one, when you’re monitoring your real time delivery of your product to clients, doing that is not discretionary. It’s like the lights being on. You have to do this. So that’s why the gross retention rates and the stickiness are so high. So that’s on the protective side.
In terms of trends, we sell in two ways, we sell in that way, if you have any loss of service or uptime or optimization, this is the revenue that you lose and that is very, very clear. But we also sell on that, on the side of, you can do it yourself because our largest competition really in our market, which is real time monitoring of customer facing digital applications is really for IT departments do it yourself or do a platform. And we also sell that way, showing that it is efficient to buy a platform. And not only that, you get best in breed, because that’s what we do.
And we don’t know, but we — there could be in this constrain where environment, where companies are trying to constrain their IP resources, that there is a strong efficiency argument for buying a platform rather than building it yourself. So, I agree with what you said and we sell that way. We have invested both in our go-to-market, our sales people, but also our sales engineers, our marketers. And as you said, our value added selling processes, the people that work with clients, all of these are involved in demonstrating that. And when you look at the adoption rate, the platform, the number of products what’s happening once you land and expand where everything gets put into the platform, we are pretty good at this and the argument is pretty compelling for our clients.
Fatima Boolani
So just pulling on that thread, I believe you have 14 modules on your platform today. Okay you’ve got 15…
David Obstler
Yes, one more, but of course…
Fatima Boolani
And I know you love all your modules equally.
David Obstler
Yes, yes, yes.
Fatima Boolani
But the metrics you’ve shared with us is the number of customers who have graduated to having four or more or six or more modules. It, you know, continues to be on an upward trajectory, right? So we’ve seen those improvements quarter-over-quarter. Now again, in the context of sort of where we are in an economic cycle, what’s the level of confidence here that these metrics can sort of continue to climb against sort of the, you know, some of the observations you’ve made around some of your very, very large customers who are starting to become or exercise some more efficiency, and give us some more granularity as to the puts and takes there?
David Obstler
Yes, so also remind everybody that we’re land-and-expand. So if you, so as we’ve shown, we have 35% to 80% of customers landing with more than one and using two or more. But that’s not a comment on boot penetration. So we land always with the infrastructure. We then, as we said, landing too, we land with logs and APM in the vast majority of the case, but that’s not full penetration. So what we have seen is the efficacy of putting everything in this platform and that whether it be the expansion from a Greenfield, whether it be from an expansion of the functionality and use or the consolidation, maybe you’ve landed with us, you have some open source, you have another solution, you might be using some other data. We found a very compelling case, which has driven the business to have consolidation for this use case on our platform, which is driving growth.
So and our clients, we talk about these SKUs. They are modules within a platform and we make it very frictionless. So clients essentially by capacity get permission and they can use various aspects of the platform. So as we reported, we really haven’t seen any change of behavior in the adoption of more products and the use of the platform. Because when you put more and more functionality into a frictionless platform, the clients can sell it. Yes, we educate them. Yes, we have marketing. Yes, but because they’re best of the individual SKUs, our clients can use it frictionlessly and we haven’t seen change of behavior doing that.
Fatima Boolani
And maybe zeroing in on that, you shared metric with us around the growth and size of your 100K cohort which loosely characterizes some of your Lighthouse customers.
David Obstler
Yes.
Fatima Boolani
Right? If I double click into there, I think on average, your above 100K cohort customers typically pay you close to $600,000 per annum, right?
David Obstler
Yes.
Fatima Boolani
And so when I think about maybe peeling off a marque customer, what does their usage look like? What is their expansion velocity and level of product penetration look like at a $600,000 spending envelope of Datadog?
David Obstler
Yes, also that number, that 600 before I get into that, that 600 is very interesting, because we really, that number is the largest enterprises in the world and some very strong cloud native companies. So it really depends on what they’re doing in their business. It depends about what they’re doing in their delivery of the digital products, more than whether they’re called Fortune 50 or emerging. And we’ve seen, and this goes way back. We’ve seen very, very long cohort expansion at the net retention rates. And most of those customers because of land-and-expand started below 100,000. As we said, because we’re land-and-expand we’re not in the business of landing. We do, we do, because there’s a number of instances and increasingly we do, but the vast majority are land-and-expand.
So what would happen in that customer base would be they would be growing their digital business and using more of us. And the vast majority of what they’re doing in expansion is using more of the products they had already purchased last year and of course, over time, as they layer in more products that contributes to that net retention. So it’s a combination. The majority of that is, there’s a using more of the products they bought and then as we’ve expanded the suite that’s accelerated because there are more products for them to have bought in previous years.
Fatima Boolani
Got it.
David Obstler
And it ranges, another question we get is, okay, is that, well, usually they’re infrastructure. What does that mean? Well, we have customers that are using all the products and we have customers that are using our infrastructure and APM. It varies tremendously. And their spend in each product really varies based on their DevOps practices and their business. Certain businesses are more log intensive, some are more applications. So it varies across the board and across our customers by size and by industry.
Fatima Boolani
Are there any very high level patterns you’ve been able to tease out as it relates to, if you’ve had a very loyal infrastructure monitoring customer, what their ASP, ACV, ARR uplift looks like as they incrementally add new modules, understanding the units of value for your different modules differ, but at a high level, any sort of consistent sort of patterns in terms of uplift that you typically see with the accounts?
David Obstler
Yes. We said that when you go to more than one product you double the spend. This is on weighted average. So there’s lots of different patterns, but so you double the, on average you would double, or maybe it’s a little more than that right now. But I would point out that when you look at our — one of the great things about our model is that we’re following the expansion of the client business, and the clients are leaning in, as we said, more to digital. So if you look, or do you have something where on weighted average, now we do have customers that are — their spend levels off, but weighted average are cohorts like customers that landed five years ago have an expansion rate that has continued to be a weighted average, still very upwardly sloping. So our cohorts and our net retention are not only very consistent or have been, but also are long and that’s because of what they’re doing in their business and they’re focused on cloud migrations and digital projects.
Fatima Boolani
Just shifting gears, you know, what’s been topical in the investor community and certainly with my levels and intensity of dialogue is just the newness and the volatility and elasticity and usage or consumption-oriented models that are very much tethered to the cloud. So a lot of heartburn and debate here that I want to kind of pull you into, at a high level there’s certainly big benefits, but certainly drawbacks because what the usage model given and also taken away. So I’d love for you to maybe set the stage and clear the air for us on how you compare and contrast or Datadog’s business and financial model compares and contrasts versus peers, or some of your peers like MongoDB or Snowflake or Confluent, with whom you typically do get compared.
David Obstler
Yes. We’re hybrid in that way. So 80 — 95% of our business is associated with a associated with a subscription contract. You know, about 5% of our business is month-to-month consumption, meaning that they, in a second month, they don’t have an obligation. They’re using it as it goes that’s month-to-month. Now of that 95% about 75%, 80% is related to a take or pay subscription and the remainder, so 75, 20 is sort of on-demand 15 to 20 related to a subscription. So what happens in a digital migration or Greenfield is that our clients commit to something and this is very typical to what you see in the industry, AWS and others have it. And then as they scale, when they get to their amount of subscription, I’ll go into that in a second. You have an on-demand show charge, which is a little more expensive and the normal pattern is then they commit to more and fix out.
So all of that is related to subscriptions. Now within that take or pay subscription, there’s two flavors. One, you sign up to a subscription where you’re committed to and usually the standard is a year, is each month’s usage. So that gets recognized whether you use it or not each month. And then there’s a contract where you commit to a capacity, let’s say over a year, $1 million over the year. So within the course of the year, you owe us the $1 million and you’re, you’re paying us, but we recognize that revenue as it’s used. So it’s a hybrid model where a lot of the revenue is recognized in the period based on usage, but underlying there’s a take or pay subscription, which protects us and if they don’t use it, we recognize that revenue.
So I would say that it is hybrid in that way. It also is, I would say on the infrastructure side, the number of hosts and et cetera, that’s infrastructure. So it tends not to be as volatile, but as we said, we have a number of products like data, like log indexing, or we have a product called spans and APM indexing of data where it can vary. So I guess this is a long way to say we’re hybrid. There are consumption elements, but there’s subscription bedrock. And so we are going to have variability, but there’s some risk management in that in terms of the revenue model.
Fatima Boolani
So just on the 75% to 80% take or pay subscription level, I’d imagine that’s directly sort of tethered to planning, planning, cloud migrations, et cetera. And I think one of the comments you mentioned in your last earnings call is, was just around or with respect to increased levels of conservatism on how organizations are committing to you. Right? And I think it’s unique that you have an on demand bucket, because that leads me to conclude that a lot of your customers, who certainly that the vast majority of them tend to trip the wires and certainly blow through their caps for whatever they’ve committed. But I think what you’ve mentioned is the level of baseline commitment has also receded again in response to the environment. So I’m curious, how is that manifesting in terms of behavior and pushing that forward, how you thought about incorporating that into your financial outlook for the back half of this year?
David Obstler
Yes. So essentially it still, it hasn’t changed in that the vast majority of our clients are conservative, always have been conservative, because these are Greenfield, meaning that they commit to less than they ultimately spend. And so this affects, and I’ll go into this, it affects more billings than it affects revenues. So let’s say a client is in on-demand and they’re paying a higher unit price, and they don’t know about the future, so they delay. And I think we said in July, we had a number of customers that did delay a little bit in June go and commit that results, that compliments revenues in the short term, because it’s a higher unit price, but it — we don’t send another bill out. So I think the point we were making on the call, which we’ve tried to make every time is there’s a lot of noise in the billings because of this land-and-expand. For instance, in Q1, our billings grew 100% and in Q2 they grew less. On average, they grew around 70%, roughly the same as the revenue growth, because that has to do with the timing of billing.
So I think it cuts a number of ways. In some ways clients, at that very marginal clients delaying that commitment actually compliments the top line, but we haven’t seen any change of the basic behavior of once you get to that borderline, it makes sense and it’s a galvanizing event for clients to commit. And because the gross retention is staying exactly where it is, that’s evidence that client behavior is staying the same. It just may have a little more of a timing variation.
Fatima Boolani
I’m going to throw another metric span in the works here, the backlog, so reported performance obligations as sort of another metric that you share. Help us sort of myth bust as to why that is or isn’t important and why we shouldn’t hang our hats on that particular metric as being indicative or not of kind of the momentum that you’re seeing understanding that there’s clearly some sort of intricacies in the model?
David Obstler
Yes. I mean, directionally over the longer term, like on average it is, there’s correlation, but it’s the same thing. It has to do with when the contract is. So the metric that we have and so we’ve basically said, and this isn’t in COVID, this isn’t right now, this is since we had our first IPO meetings that because we’re frictionless land-and-expand. The real metric that drives our revenue, which I think is what you’re getting at is our ARR. And our ARR we’ve given this sort of advice to everybody, the way you take from the past revenues to a forward looking metric is you can take the last quarter’s revenues. Because there’s some ramp in the quarter, you would take a little higher percentage of that than one-third. So we set around, let’s say on average 35%, 35.5%.
And if you do that math and then multiply that by 12, that is the very pure usage or revenue metric. Now that is unobstructed by or unpolluted by when bills went out and so that’s the best metric. Another thing that I think is the reason why RPO may not be for us is that our strategy is not to sign customers up to multi-year deals, that compliments RPO. But why? Because that we’re Greenfield and expansion. our clients are growing that spend. So to commit out three years, we’re not really, we’re not giving discounts for that and it’s really complimented us. It’s really been the right thing to do.
So and a lot of software companies, they’re landing the full bore, they’re landing as long as possible. And that might be something you really look at, but in land-and-expand, and this just doesn’t apply to Datadog and I think it applies to the SaaS land-and-expand usage models. Really that ARR is the pure metric and where others have some informational content in an individual quarter it cannot, it may not be correlated to that metric of revenue growth or UAR [ph] growth.
Fatima Boolani
And just to kind of cap off this discussion around, land-and-expand and adoption velocity, I think one of the discussions I’ve had very extensively with you and your founder is just around this notion of enterprise license agreements, enterprise adoption agreements, whatever permutation, all you can eat software buffet, you can think of, now that you have 15 products in the portfolio and you’re thinking about or responding to customers who may be engaging slightly differently, broadly and what is the philosophy around maybe leaning into more of that traditional style of go-to-market?
David Obstler
We have always tried to correlate our pricing to client usage and value. We make it very transparent. Our prices are on the website. Our clients know that based on this usage and this volume and that our clients appreciate that. Our clients, we have never been in a pricing model where for instance, it’s based on the amount of data, the vast majority, and then, and data storage really on usage. And so, it’s got good and bad clients can calibrate that’s the usage part of it. So we found that to be it’s mainly because we found clients to want that and to be able to have their sort of their hands on their usage and to be able to look at it.
Sure, our clients when they get to a certain price, all clients want to negotiate, but we’re not, given our percentage of spend our line we’re probably not at the point right now where you’re in that enterprise, you’re really in a business use case type of mode. And we don’t know what’s going to happen in the future, but so far that pricing model has been very transparent, very linked to providing value to client and has produced stable unit pricing for us over a very long period of time.
Fatima Boolani
All right. I’m going to drift down the income statement here and just kind of get your sense on the cost structure. You are a hyper power user of AWS, since you are partner of choice to deliver the platform. So I’m curious, a lot of these interesting things that Amazon and AWS itself is doing on driving more efficiencies in this platform, how does that impact you as one of their perhaps largest ISVs, and how does the model, and how do you internalize some of those infrastructure related efficiencies that AWS is passing through? And then how does that ultimately move on down to your customers from, for how attractively you’re able to price your end products?
David Obstler
Yes. Good question. So we, first of all we, AWS is our largest partner, but we partner with all the hyperscalers. We essentially monitor all the clouds. We have technology investments with all the clouds. We’re on their marketplaces. We sell with them. We follow technology. So we’re — we really want to be with where any of our clients wants either delivery of our product or the monitoring. And in terms of that, we essentially, I think you’ve seen, we’ve been very consistent in our gross margin. And it’s an input into, as you said, our technology investments, though there are a number of inputs we’re constantly evolving our platform.
There are technology investments that are being made by AWS that we’re integrating in. And what we’re trying to do is sort of balance out that price point based on our volume and those investments, as we said to land our gross margin in the upper 70s. It fluctuates a little as we have different type of IT projects, some of which may be related to AWS innovations, but we’ve been able to over a long period of time to land there. So it’s one of the inputs into our constant evolution of our platform. And essentially we’ve used that, both the volume and the technology to manage that cost line as a technology input and be able to maintain gross margins with pretty stable pricing across our customer base.
Fatima Boolani
Well, to be fair, you’ve been tracking nicely above so – there you go.
David Obstler
Yes. Well, that’s just all, that’s all the technology, that’s all the timing of that technology investment. A lot of this has to do with efficiency of our platform and at different times we’re going to make lean in technology investments. It might be a new cloud instance that isn’t to scale. And so we run that like a plan and it sometimes it’s very efficient and at sometimes is a little less, but we said it’s really landed in that band.
Fatima Boolani
From a go-to-market perspective, David there’s certainly been a build out of the go-to-market organization new leadership in the last, each week to 24 months. I’m curious, I look at your investments and sort of think about where your focus is, how have things changed for you purely from a hiring standpoint in the go-to-market organization and we can talk independently about the technical organization, but given the labor environment we’ve seen, and clearly there’s been modulation, year-to-date there, but what have been the inputs and priority sequences around outbound and classic enterprise sales force type headcount editions? And then additionally on the technical side would, kind of want to get your perspectives on sort of the hiring patterns and relative to plans that you’ve had?
David Obstler
Yes. We have done quite well. Even though it’s a competitive environment, we’re an attractive place to work. We have very good culture. We have very good sort of engagement in our organization and whereas it’s taken more of an effort to get that investment done, we’ve also invested in the effort to do that, and I think we’ve matured. So we’ve had a couple of very good hiring years, the most we’ve ever hired. We’ve hired, we’ve been able to hire the right people. Our retention of employees hasn’t really changed and I think that’s because even though it has become more competitive, we’ve — we’re an attractive place to work and we’ve been able to attract very good people. We are, as I think we mentioned, we’re continuing to invest in both the go-to-market and the sales teams and the R&D in similar ways that we’ve done in the past.
Meaning we’ve been pretty consistent. The top line has moved up and down a bit, but we’ve maintained that consistency and we’ve always lived within our means. We’ve always, if you look back in the history, we’ve been cash flow positive forever. We’ve been profitable. We try to maintain a very consistent investment and it’s a strong investment and it’s limited by what we can do internally and responsibly hiring people, training them, putting them and making them productive. So that’s really been the limit and that really hasn’t changed that much. So I think we’ve done, we’ve adopted, we’ve put more effort into that and we’ve been gotten better at doing it.
Fatima Boolani
I’m going to do a quick scan of the audience to see if anybody has any burning questions for David. I’ve a pretty robust list that I can keep going. All right. Well, thinking about your hiring plans and activity, I think certainly given sort of the changes that you also has to respond, you have to respond to as a business. How are you today thinking about OpEx plans, hiring velocity in the face of, hey things maybe are looking like they’re going to slow down. I mean, how do you kind of balance that level of consideration and especially how that’s sort of dovetailing in your financial outlook?
David Obstler
Yes. Well, we are, as I said, we’ve been investing in OpEx pretty consistently. And in periods of time where the revenue is accelerated up in the 70s, 80s [Audio Gap] you’ve seen the opportunity we are at the core continuing what we were doing, investing.
Fatima Boolani
So nothing more, nothing sort of more accelerated because you feel that you’re in a strong position and you don’t want to lift the foot off the gas. Maybe you’re pressing on the gas a little bit, but that’s no change.
David Obstler
We’ve — the limit has been for us what we can operationally integrate. Now, what we said to everybody is, of course, we’re going to watch the market. Of course, there’s prioritization. And as we see everything isn’t the top priority. So we’ve always been good at that. So like everyone else in the world, we’re not blind, we’re going to watch and see what happens. But since our investment has been very stable in growth and very related to what we can do at the foundation it isn’t changing. We’ve always invested in, as you know in product getting to that 15, we continue to see we’re going to continue to press our advantage.
We do feel in this environment that there, this could widen the moat, because we’re in a very good position of winning in the market, being a product leader, being product driven and this is a great opportunity when others might be pulling back to continue to invest. So yes, we’ve always done that and will continue to do that.
Fatima Boolani
And in terms of being a little bit more specific, but we didn’t really talk about your international presence as much but, the incremental R&D dollar, the incremental sales and marketing dollar, is there a sort of a blueprint as to, hey, maybe there’s a little bit more of a focus on potentially verticalizing the sales force because there’s certain sectors in the economy that are more regulation sensitive, or in international regions where demand patterns and cloud maturation are different. I’d love to kind of maybe get a little bit more nuance on kind of the OpEx envelope in terms of the incremental development.
David Obstler
Definitely. And we’ve been investing substantially in international for some time. The percentage of international has grown slightly, but so it’s very strong if you’re growing 70% and it’s growing a little more than pro-rata, but the U.S. also continues to grow very well. So we’re investing there. I think that we have had a little more rapid increase of sales and marketing in some of the areas that are newer, like APAC. In terms of verticalization, we really haven’t done that. We haven’t found the need to do that, except for areas like fed, which are new areas for us, so we have a specialized of course fed sales team. But I would say we’re, we benefit from the fact that that digital initiatives have a good amount of commonality. So we’re basically organized on a regional basis right now, and can — and don’t have any plans to change the deployment of the sales team in this market.
Fatima Boolani
And in the last minute I have you with me, certainly a lot of different variables that have gone into your guidance and been considered in your guidance. So if I were to ask you sort of very bluntly, what are the one or two things that could happen, that could surprise you to the upside relative to the parameters that you’ve shared with respect to guidance and both, factors that could surprise you to the upside versus downside as well.
David Obstler
Yes. I mean, the biggest variable as we said, we’ve had the same practice of guidance. We essentially take the major inputs, which are really the organic growth and the new logos, and we discount them. So the surprises up or down could be there. If we had a rebound to the high end of the range in usage, we will outperform more than we wouldn’t if we didn’t. And similarly, if we flattened out more, so that’s probably the most important proximate type. And then longer term it’s the new logo accumulation. And whether that, and as we said are, we’ve always been conservative. We’ve always sort of discounted those assumptions in the guidance to beat and raise and that’s what could happen positive or negative.
Fatima Boolani
Perfect.
David Obstler
Thank you very much, everybody.
Fatima Boolani
Here we go. Thank you so much.
David Obstler
Thanks, comprehensive.
Question-and-Answer Session
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