DigitalOcean Holdings Inc

Previous wording

As of March 31, 2024, we had approximately 637,000 Learners, Builders and Scalers using our platform to build, deploy and scale applications. We view Learners, Builders and Scalers as the most appropriate measure of our customer population, and Testers have therefore been excluded from the total customer population count.

Current wording

As of June 30, 2024, we had approximately 638,000 Learners, Builders and Scalers using our platform to build, deploy and scale applications. We view Learners, Builders and Scalers as the most appropriate measure of our customer population, and Testers have therefore been excluded from the total customer population count.

Previous wording

We have a highly efficient self-service customer acquisition model, which we complement with a sales force focused on inside sales, targeted outside sales and partnership opportunities to drive revenue growth. Our model enables customers to get started on our platform very quickly and without the need for assistance. We focus heavily on enabling a self-service, low-friction model that makes it easy for users to try, adopt and use our products. For each of the three months ended March 31, 2024 and 2023, our sales and marketing expense was approximately 11% of our revenue. The efficiency of our go-to-market model and our focus on the needs of startups and growing technology businesses has enabled us to drive organic growth and establish a truly global customer base across a broad range of industries.

Current wording

We have a highly efficient self-service customer acquisition model, which we complement with a sales force focused on inside sales, targeted outside sales and partnership opportunities to drive revenue growth. Our model enables customers to get started on our platform very quickly and without the need for assistance. We focus heavily on enabling a self-service, low-friction model that makes it easy for users to try, adopt and use our products. For each of the three months ended June 30, 2024 and 2023, our sales and marketing expense was approximately 10% and 9% of our revenue, respectively. The efficiency of our go-to-market model and our focus on the needs of startups and growing technology businesses has enabled us to drive organic growth and establish a truly global customer base across a broad range of industries.

Previous wording

Our customers are spread across approximately 190 countries and around two-thirds of our revenue has historically come from customers located outside the United States. For the three months ended March 31, 2024, 37% of our revenue was generated from North America, 29% from Europe, 24% from Asia and 10% from the rest of the world.

Current wording

Our customers are spread across approximately 190 countries and around two-thirds of our revenue has historically come from customers located outside the United States. For the three months ended June 30, 2024, 38% of our revenue was generated from North America, 28% from Europe, 23% from Asia and 11% from the rest of the world.

Previous wording

Our average revenue per customer (consisting of the aggregate revenue and customer counts for our Learners, Builders and Scalers, but excluding revenue and customer counts for Testers), or ARPU, has increased from $88.35 in the quarter ended March 31, 2023 to $95.13 in the quarter ended March 31, 2024. We had no material customer concentration as our top 25 customers made up approximately 7% of our revenue in each of the three months ended March 31, 2024 and 2023. Our annual run-rate revenue, or ARR, as of March 31, 2024 was $749 million, up from $669 million as of March 31, 2023. ARR as of the end of each month represents total revenue for that month multiplied by 12.

Current wording

Our average revenue per customer (consisting of the aggregate revenue and customer counts for our Learners, Builders and Scalers, but excluding revenue and customer counts for Testers), or ARPU, has increased from $90.84 in the quarter ended June 30, 2023 to $99.45 in the quarter ended June 30, 2024. We had no material customer concentration as our top 25 customers made up approximately 8% and 7% of our revenue in the three months ended June 30, 2024 and 2023, respectively. Our annual run-rate revenue, or ARR, as of June 30, 2024 was $781 million, up from $682 million as of June 30, 2023. ARR as of the end of each month represents total revenue for that month multiplied by 12.

Previous wording

Growing our Builders and Scalers is a critical focus for us, and we have successfully increased the number of these customers and their percentage of our total revenue. We had approximately 17,000 Scalers as of March 31, 2024, up from approximately 15,000 as of March 31, 2023. We had approximately 140,000 Builders as of March 31, 2024, up from approximately 131,000 as of March 31, 2023. Revenue from Builders and Scalers increased 9% and 15%, respectively, for the three months ended March 31, 2024 from the three months ended March 31, 2023. Revenue from Builders and Scalers as a percentage of total revenue was 87% in the three months ended March 31, 2024 and 86% in the three months ended March 31, 2023.

Current wording

Growing our Builders and Scalers is a critical focus for us, and we have successfully increased the number of these customers and their percentage of our total revenue. We had approximately 18,000 Scalers as of June 30, 2024, up from approximately 16,000 as of June 30, 2023. We had approximately 143,000 Builders as of June 30, 2024, up from approximately 134,000 as of June 30, 2023. Revenue from Builders and Scalers increased 8% and 19%, respectively, for the three months ended June 30, 2024 from the three months ended June 30, 2023. Revenue from Builders and Scalers as a percentage of total revenue was 87% in the three months ended June 30, 2024 and 86% in the three months ended June 30, 2023.

Previous wording

We believe that our average revenue per customer, which we refer to as ARPU, is a strong indication of our ability to land new customers with higher spending levels and expand usage of our platform by our existing customers. We calculate ARPU on a monthly basis as our total revenue from Learners, Builders and Scalers in that period divided by the total number of Learner, Builder and Scaler customers determined as of the last day of that period. For a quarterly or annual period, ARPU is determined as the weighted average monthly ARPU over such three or 12-month period.

Current wording

We believe that our average revenue per customer, which we refer to as ARPU, is a strong indication of our ability to land new customers with higher spending levels and expand usage of our platform by our existing customers. We calculate ARPU on a monthly basis as our total revenue from Learners, Builders and Scalers in that period divided by the total number of Learner, Builder and Scaler customers determined as of the last day of the reported period. For a quarterly or annual period, ARPU is determined as the weighted average monthly ARPU over such three or 12-month period.

Previous wording

Given the recurring nature of our business, we view annual run-rate revenue as an important indicator of our current progress towards meeting our revenue targets and projected growth rate going forward. We calculate ARR at a point in time by multiplying the latest monthly period’s revenue by 12. For our ARR calculations, we include the total revenue from all customers, including Testers, Learners, Builders and Scalers.

Current wording

Given the recurring nature of our business, we view annual run-rate revenue as an important indicator of our current progress towards meeting our revenue targets and projected growth rate going forward. We calculate ARR at a point in time by multiplying the revenue of the last month of the reported period by 12. For our ARR calculations, we include the total revenue from all customers, including Testers, Learners, Builders and Scalers.

Previous wording

Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue from our existing customers. We have a history of retaining customers for multiple years and in many cases increasing their spend with us over time. To help us measure our performance in this area, we monitor our net dollar retention rate. We calculate net dollar retention rate monthly by starting with the revenue from the cohort of all customers during the corresponding month 12 months prior, or the Prior Period Revenue. We then calculate the revenue from these same customers as of the current month, or the Current Period Revenue, including any expansion and net of any contraction or attrition from these customers over the last 12 months. The calculation also includes revenue from customers that generated revenue before, but not in, the corresponding month 12 months prior, but subsequently generated revenue in the current month and are therefore reflected in the Current Period Revenue. We include this group of re-engaged customers in this calculation because our customers frequently use our platform for projects that stop and start over time. We then divide the total Current Period Revenue by the total Prior Period Revenue to arrive at the net dollar retention rate for the relevant month. For our net dollar retention rate calculations, we include the total revenue from all customers, including Testers, Learners, Builders and Scalers. For a quarterly or annual period, the net dollar retention rate is determined as the average monthly net dollar retention rates over such three or 12-month period.

Current wording

Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue from our existing customers. We have a history of retaining customers for multiple years and in many cases increasing their spend with us over time. To help us measure our performance in this area, we monitor our net dollar retention rate. We calculate net dollar retention rate monthly by starting with the revenue from customers, including Testers, Learners, Builders and Scalers, for our IaaS, PaaS and SaaS offerings during the corresponding month 12 months prior, or the Prior Period Revenue. We then calculate the revenue from these same customers as of the current month, or the Current Period Revenue, including any expansion and net of any contraction or attrition from these customers over the last 12 months. The calculation also includes revenue from customers that generated revenue before, but not in, the corresponding month 12 months prior, but subsequently generated revenue in the current month and are therefore reflected in the Current Period Revenue. We include this group of re-engaged customers in this calculation because our customers frequently use our platform for projects that stop and start over time. We then divide the total Current Period Revenue by the total Prior Period Revenue to arrive at the net dollar retention rate for the relevant month. For our net dollar retention rate calculations, we include the total revenue from customers, including Testers, Learners, Builders and Scalers, for our IaaS, PaaS and SaaS offerings. For a quarterly or annual period, the net dollar retention rate is determined as the average monthly net dollar retention rates over such three or 12-month period.

Previous wording

Cost of revenue consists primarily of fees related to operating in third-party co-location facilities, personnel expenses for those directly supporting our data centers and non-personnel costs, including amortization of acquired technology, amortization of capitalized internal-use software development costs, and depreciation of our data center equipment. Third-party co-location facility costs include data center rental fees, power costs, maintenance fees, network and bandwidth. Personnel expenses include salaries, bonuses, benefits, and stock-based compensation.

Current wording

Cost of revenue consists primarily of fees related to operating in third-party co-location space at data center facilities, personnel expenses for those directly supporting our co-location facilities and non-personnel costs, including amortization of acquired technology, amortization of capitalized internal-use software development costs, and depreciation of our data center equipment. Third-party co-location facility costs include data center rental fees, power costs, maintenance fees, network and bandwidth. Personnel expenses include salaries, bonuses, benefits, and stock-based compensation.

Previous wording

General and administrative expenses consist primarily of personnel costs of our human resources, legal, finance and other administrative functions including salaries, bonuses, benefits, and stock-based compensation. General and administrative expenses also include provision for expected credit losses, software, payment processing fees, business insurance, depreciation and amortization expenses, rent and facilities costs, impairment of long-lived assets, acquisition related compensation, and other administrative costs. We also expect general and administrative expenses to increase in absolute dollars as we continue to grow our business.

Current wording

General and administrative expenses consist primarily of personnel costs of our human resources, legal, finance and other administrative functions including salaries, bonuses, benefits, and stock-based compensation. General and administrative expenses also include provision for expected credit losses, software, payment processing fees, business insurance, depreciation and amortization expenses, rent and facilities costs, impairment of long-lived assets, acquisition related compensation, and other administrative costs. General and administrative expenses may increase in absolute dollars as we continue to grow our business.

Previous wording

Other income (expense), net consists primarily of accretion/amortization of premium/discounts and interest income from our marketable securities, amortization of deferred financing fees on our convertible notes, loss on extinguishment of debt, and gains or losses on foreign currency exchange.

Current wording

Other income, net consists primarily of accretion/amortization of premium/discounts and interest income from our marketable securities, amortization of deferred financing fees on our convertible notes, loss on extinguishment of debt, and gains or losses on foreign currency exchange.

Previous wording

Revenue increased $19.6 million, or 12%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to contributions from acquiring new customers, and increases in utilization from the existing customer base, our Managed Hosting offering and our AI/ML offerings. The increase in our existing customer base was primarily driven by an 8% increase in ARPU to $95.13 from $88.35, and a 13% increase in revenue from Builders and Scalers. The increase in ARPU was primarily driven by continued adoption of our products by our customers leading to higher average usage on our platform.

Current wording

Revenue increased $22.7 million, or 13%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily driven by a 9% increase in ARPU to $99.45 from $90.84, and a 15% increase in revenue from Builders and Scalers. The increase in ARPU was primarily driven by continued adoption of our products by our customers leading to higher average usage on our platform.

Previous wording

Research and development expenses decreased $4.3 million, or 11%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease is largely due to a reduction in personnel costs primarily relating to the restructuring we announced in February 2023, and decreases in amortization of capitalized software and acquired intangibles, and in other expenses.

Current wording

Research and development expenses decreased $4.5 million, or 12%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease is primarily due to a $3.6 million reduction in personnel costs primarily relating to the restructuring we announced in February 2023 and a $2.3 million increase in capitalized internal-use software development costs, partially offset by a $1.3 million increase in professional services costs.

Previous wording

General and administrative expenses decreased $3.2 million, or 6%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease is primarily due to a reduction in stock-based compensation largely as a result of the departure of our former CEO, and decreases in deferred compensation and business insurance, partially offset by increases in costs relating to the executive reorganization, professional service fees, and personnel costs.

Current wording

General and administrative expenses decreased $8.0 million, or 16%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease is due to a $9.0 million reduction in personnel costs relating to stock-based compensation largely as a result of the departure of our former CEO, partially offset by a $0.9 million increase in recruiting costs and a $0.5 million increase in payment processing costs.

Previous wording

Other income, net decreased $2.5 million, or 48%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to the maturity of interest bearing marketable securities in order to fund our share repurchases throughout 2023 and into 2024.

Current wording

Other income, net decreased $3.0 million, or 55%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to the maturity of interest bearing marketable securities used for our share repurchases and capital expenditures.

Previous wording

Cost of revenue increased $0.8 million, or 1%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase is primarily due to increases in amortization from acquired finance leases and acquired developed technology and in various other expenses, partially offset by decreases in ancillary equipment and bandwidth expenses due to a reduction in our consumption from certain vendors. Gross profit increased to 61% for the three months ended March 31, 2024 from 56% for the three months ended March 31, 2023, primarily due to a decrease in ancillary equipment and bandwidth expenses as a percentage of revenue.

Current wording

Cost of revenue increased $8.6 million, or 6%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase is primarily due to a $7.9 million increase in depreciation and amortization from acquired finance leases and acquired developed technology, a $1.3 million increase in partnership costs and a $1.1 million increase in third-party license fees, partially offset by decreases of $1.5 million in bandwidth expenses due to reduction in our consumption from certain vendors and $1.4 million in ancillary equipment. Gross profit increased to 61% for the six months ended June 30, 2024 from 58% for the six months ended June 30, 2023, primarily due to a decrease in co-location costs and ancillary equipment expenses as a percentage of revenue as a result of our ongoing cost optimization efforts.

Previous wording

There were $20.9 million in Restructuring and other charges during the three months ended March 31, 2023 and no such charges during the three months ended March 31, 2024. These charges were primarily due to one-time severance and benefit payments, as well as stock-based compensation related to vesting of certain equity awards in connection with the restructuring we announced in February 2023 which was substantially completed by the third quarter of 2023.

Current wording

Restructuring and other charges decreased $21.3 million, or 100%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. These charges were primarily due to one-time severance and benefit payments, as well as stock-based compensation related to vesting of certain equity awards in connection with the restructuring we announced in February 2023, which was substantially completed by the third quarter of 2023.

Previous wording

Income tax expense increased $11.6 million, or 101%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily as a result of U.S. pre-tax losses creating a tax benefit in 2023 as compared to U.S. pre-tax income creating a tax expense in 2024.

Current wording

Income tax expense increased $14.0 million, or 171%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily as a result of U.S. pre-tax losses creating a tax benefit in 2023 as compared to U.S. pre-tax income creating a tax expense in 2024.

Previous wording

In February 2024, our Board of Directors approved an additional repurchase program of up to an aggregate of $140 million of our common stock through fiscal year 2025. For the three months ended March 31, 2024, we repurchased and retired 200,258 shares of common stock for an aggregate purchase price of $7.8 million. The program will expire on December 31, 2025.

Current wording

In February 2024, our Board of Directors approved an additional repurchase program of up to an aggregate of $140 million of our common stock through fiscal year 2025. For the six months ended June 30, 2024, we repurchased and retired 497,364 shares of common stock for an aggregate purchase price of $18.2 million. The program will expire on December 31, 2025.

Previous wording

As of March 31, 2024, we had $419.1 million in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash and money market funds.

Current wording

As of June 30, 2024, we had $443.1 million in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash and money market funds.

Previous wording

Our largest source of operating cash is cash collections from sales to our customers. Our primary uses of cash from operating activities are for personnel costs, data center co-location expenses, payment processing fees, bandwidth and connectivity, server maintenance and software licensing fees.

Current wording

Our largest source of operating cash is cash collections from sales to our customers. Our primary uses of cash from operating activities are for personnel costs, co-location costs, payment processing fees, bandwidth and connectivity, server maintenance and software licensing fees.

Previous wording

Net cash provided by operating activities was $66.7 million and $36.2 million for the three months ended March 31, 2024 and 2023, respectively. The increase was primarily driven by an increase in cash collections from higher revenues and less severance payments associated with our restructuring and reorganization plan. These increases were partially offset by payments for leases, acquisition related compensation and timing of insurance premiums.

Current wording

Net cash provided by operating activities was $138.0 million and $100.4 million for the six months ended June 30, 2024 and 2023, respectively. The increase was primarily driven by an increase in cash collections from higher revenues. These increases were partially offset by payments for leases, acquisition related compensation and cash bonuses.

Previous wording

Net cash provided by investing activities was $46.4 million for the three months ended March 31, 2024 compared to $108.0 million for the three months ended March 31, 2023. The decrease in cash provided by investing activities was primarily driven by a $43.9 million reallocation of our marketable securities portfolio to cash equivalents and an increase of $20.4 million in cash payments for capital expenditures, partially offset by a $2.5 million increase in cash activity for asset acquisitions.

Current wording

Net cash provided by investing activities was $12.1 million for the six months ended June 30, 2024 compared to $243.7 million for the six months ended June 30, 2023. The decrease in cash provided by investing activities was primarily driven by a $204.0 million reallocation of our marketable securities portfolio to cash equivalents and an increase of $28.7 million in cash payments for capital expenditures, partially offset by a $2.5 million decrease in cash activity for asset acquisitions.

Previous wording

Net cash used in financing activities of $11.2 million and $264.2 million for the three months ended March 31, 2024 and 2023, respectively, was primarily due to the repurchase and retirement of our common stock for $8.8 million and $265.9 million, respectively.

Current wording

Net cash used in financing activities of $24.2 million and $365.0 million for the six months ended June 30, 2024 and 2023, respectively, was primarily due to the repurchase and retirement of our common stock for $18.2 million and $368.9 million, respectively.

Previous wording

There have been no material changes to our obligations under our operating leases and purchase commitments as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Current wording

Except as disclosed in Note 8. Commitments and Contingencies in our condensed consolidated financial statements, there have been no material changes to our obligations under our operating leases and purchase commitments as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Previous wording

There were no accounting pronouncements recently issued that had or are expected to have a material impact on our consolidated financial statements. For a list of our new and recently adopted accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, in our Notes to consolidated financial statements included in “Part II, Item 8. Financial Statements and Supplementary Data” included in the Form 10-K.

Current wording

For information on recently issued accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, in our Notes to condensed consolidated financial statements included in Part I, Item 1. “Financial Statements and Supplementary Data” included in this Form 10-Q.

Previous wording

To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with non-GAAP financial measures including: (i) adjusted EBITDA and adjusted EBITDA margin and (ii) non-GAAP net income and non-GAAP diluted net income per share. These measures are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Our calculations of each of these measures may differ from the calculations of measures with the same or similar titles by other companies and therefore comparability may be limited. Because of these limitations, when evaluating our performance, you should consider each of these non-GAAP financial measures alongside other financial performance measures, including the most directly comparable financial measure calculated in accordance with GAAP and our other GAAP results. A reconciliation of each of our non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP is set forth below.

Current wording

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with non-GAAP financial measures including: (i) adjusted EBITDA and adjusted EBITDA margin and (ii) non-GAAP net income and non-GAAP diluted net income per share. These measures are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Our calculations of each of these measures may differ from the calculations of measures with the same or similar titles by other companies and therefore comparability may be limited. Because of these limitations, when evaluating our performance, you should consider each of these non-GAAP financial measures alongside other financial performance measures, including the most directly comparable financial measure calculated in accordance with GAAP and our other GAAP results. A reconciliation of each of our non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP is set forth below.

Previous wording

(1)For the three months ended March 31, 2024, non-GAAP stock-based compensation excludes $0.1 million as it is presented in Restructuring related charges. For the three months ended March 31, 2023, non-GAAP stock-based compensation excludes $3.9 million as it is presented in Restructuring and other charges.

Current wording

(1)For the six months ended June 30, 2024, non-GAAP stock-based compensation excludes $0.1 million as it is presented in Restructuring related charges. For the six months ended June 30, 2023, non-GAAP stock-based compensation excludes $3.9 million, as it is presented in Restructuring and other charges. There were no reclassifications of stock-based compensation for the three months ended June 30, 2024 and 2023.

Previous wording

(2)For the three months ended March 31, 2024, primarily consists of executive reorganization charges. For the three months ended March 31, 2023, primarily consists of salary continuation charges.

Current wording

(2)For the three and six months ended June 30, 2024, primarily consists of executive reorganization charges. For the three and six months ended June 30, 2023, primarily consists of salary continuation charges.

Previous wording

(3)For the three months ended March 31, 2024 and 2023, primarily consists of interest and accretion income from our marketable securities.

Current wording

(3)For the three and six months ended June 30, 2024 and 2023, primarily consists of interest and accretion income from our cash and cash equivalents and marketable securities.

Previous wording

(1)For the three months ended March 31, 2024, non-GAAP stock-based compensation excludes $0.1 million as it is presented in Restructuring related charges. For the three months ended March 31, 2023, non-GAAP stock-based compensation excludes $3.9 million as it is presented in Restructuring and other charges.

Current wording

(1)For the six months ended June 30, 2024, non-GAAP stock-based compensation excludes $0.1 million as it is presented in Restructuring related charges. For the six months ended June 30, 2023, non-GAAP stock-based compensation excludes $3.9 million, as it is presented in Restructuring and other charges. There were no reclassifications of stock-based compensation for the three months ended June 30, 2024 and 2023.

Previous wording

(2)For the three months ended March 31, 2024, primarily consists of executive reorganization charges. For the three months ended March 31, 2023, primarily consists of salary continuation charges.

Current wording

(2)For the three and six months ended June 30, 2024, primarily consists of executive reorganization charges. For the three and six months ended June 30, 2023, primarily consists of salary continuation charges.