DigitalOcean Announces First Quarter 2024 Financial Results

DigitalOcean Holdings, Inc. (NYSE: DOCN), the developer cloud optimized for startups and growing technology businesses, today announced results for its first quarter ended March 31, 2024.

“The first quarter was a strong start to the year as we position the company to be the leading cloud and AI platform for growing technology businesses,” said Paddy Srinivasan, CEO of DigitalOcean. “Our results demonstrate the solid performance of our core cloud and the exciting potential of our AI platform.”

First Quarter 2024 Financial Highlights:

• Revenue was $185 million, an increase of 12% year-over-year.
• Annual Run-Rate Revenue (ARR) ended the quarter at $749 million, representing 12% year-over-year growth.
• Gross profit of $112 million, an increase of 20% year-over-year, and 61% of revenue.
• Net income attributable to common stockholders was $14 million and net income margin was 8%.
• Adjusted EBITDA was $74 million, an increase of 33% year-over-year, and adjusted EBITDA margin was 40%.
• Diluted net income per share was $0.15 and non-GAAP diluted net income per share was $0.43.
• Net cash from operating activities was $67 million as compared to $36 million in the first quarter 2023.
• Adjusted free cash flow was $34 million as compared to $26 million in the first quarter 2023.
• Cash and cash equivalents was $419 million as of March 31, 2024.

First Quarter 2024 Operational Highlights:

• Average Revenue Per Customer (ARPU) was $95.13, an increase of 8% over the first quarter 2023.
• Builders and Scalers, those customers spending more than $50 per month, increased 8% from the first quarter 2023 and their revenue grew 13% year-over-year.
• Net Dollar Retention Rate (NDR) was 97% as compared to 96% in the prior quarter.
• The Company repurchased 200,258 shares during the quarter.

Financial Outlook:

Based on information available as of May 10, 2024, for the second quarter of 2024 we expect:

• Total revenue of $188 to $189 million.
• Adjusted EBITDA margin of 37% to 38%.
• Non-GAAP diluted net income per share of $0.38 to $0.40.
• Fully diluted weighted average shares outstanding of approximately 102 to 103 million shares.

For the full year 2024, we expect:

• Total revenue of $760 to $775 million.
• Adjusted EBITDA margin of 36% to 38%.
• Adjusted free cash flow margin in the range of 19% to 21% of revenue.
• Non-GAAP diluted net income per share of $1.60 to $1.67.
• Fully diluted weighted average shares outstanding of approximately 102 to 103 million shares.

A reconciliation of non-GAAP outlook measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, expenses that may be incurred in the future. For example, stock-based compensation expense-related charges are impacted by the timing of employee stock transactions, the future fair market value of our common stock, and our future hiring and retention needs, all of which are difficult to predict and subject to constant change. Accordingly, a reconciliation is not available without unreasonable effort and we are unable to assess the probable significance of the unavailable information, although it is important to note that these factors could be material to our results computed in accordance with GAAP.

Conference Call Information:

DigitalOcean will host a conference call today, May 10, 2024, at 8:00 a.m. ET to review its results. The conference call can be accessed by dialing [phone] with conference ID 2333660. A live webcast and replay of the conference call can be accessed from the DigitalOcean investor relations website at http://investors.digitalocean.com.

About DigitalOcean

DigitalOcean simplifies cloud computing so businesses can spend more time creating software that changes the world. With its mission-critical infrastructure and fully managed offerings, DigitalOcean helps developers at startups and growing digital businesses rapidly build, deploy and scale, whether creating a digital presence or building digital products. DigitalOcean combines the power of simplicity, security, community and customer support so customers can spend less time managing their infrastructure and more time building innovative applications that drive business growth. For more information, visit digitalocean.com.

Forward‑Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding our performance, including but not limited to statements in the section titled “Financial Outlook.” The forward-looking statements contained in this release and the accompanying earnings call referenced in this release are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause actual results or outcomes to be materially different from any future results or outcomes expressed or implied by the forward-looking statements. These risks, uncertainties, assumptions, and other factors include, but are not limited to: (1) fluctuations in our financial results make it difficult to project future results; (2) our history of operating losses; (3) our identification of a material weakness in our internal control over financial reporting, which may impact our ability to accurately report our financial statements; (4) our ability to attract and retain customers and/or expand usage of our platform by such customers; (5) our ability to release updates and new features to our platform and adapt and respond effectively to rapidly changing technology or customer needs; (6) breaches in our security measures allowing unauthorized access to our platform, our data, or our customers’ data; (7) the competitive markets in which we participate; (8) general market, political, economic, and business conditions; (9) the operational challenges related to international operations; (10) our ability to successfully integrate acquired businesses, including Paperspace, and achieve expected synergies and benefits; (11) liability we may incur due to the activities of our customers; and (12) our customers’ ability to have continued and unimpeded access to our platform, including as a result of evolving laws and industry standards.

Further information on these and additional risks, uncertainties, assumptions and other factors that could cause actual results or outcomes to differ materially from those included in or contemplated by the forward-looking statements contained in this release are included under the caption “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023, and subsequent filings and reports we make with the SEC.

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 in this release. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur. The forward-looking statements made in this release relate only to events as of the date on which the statements are made. We assume no obligation to, and do not currently intend to, update any such forward-looking statements after the date of this release.

About Non-GAAP Financial Measures

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; (ii) non-GAAP net income and non-GAAP diluted net income per share; and (iii) adjusted free cash flow and adjusted free cash flow margin. 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. In particular, adjusted free cash flow is not a substitute for cash provided by operating activities. Additionally, the utility of adjusted free cash flow as a measure of our financial performance and liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. 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 in the tables in the section “Reconciliation of GAAP to Non-GAAP Data.”

Adjusted EBITDA and Adjusted EBITDA Margin

We define adjusted EBITDA as net income (loss) attributable to common stockholders, adjusted to exclude depreciation and amortization, stock-based compensation, interest expense, acquisition related compensation, acquisition and integration related costs, income tax expense, restructuring and other charges, restructuring related charges, impairment of long-lived assets, and other income, net. We define adjusted EBITDA margin as adjusted EBITDA as a percentage of revenue. We believe that adjusted EBITDA, when taken together with our GAAP financial results, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business, evaluating our operating performance, and for internal planning and forecasting purposes.

Our calculation of adjusted EBITDA and adjusted EBITDA margin may differ from the calculations of adjusted EBITDA and adjusted EBITDA margin by other companies and therefore comparability may be limited. Because of these limitations, when evaluating our performance, you should consider adjusted EBITDA and adjusted EBITDA margin alongside other financial performance measures, including our net income (loss) attributable to common stockholders and other GAAP results.

Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share

We define non-GAAP net income as net income (loss) attributable to common stockholders, excluding stock-based compensation, acquisition related compensation, amortization of acquired intangibles, acquisition and integration related costs, restructuring and other charges, restructuring related charges, impairment of long-lived assets, and other unusual or non-recurring transactions as they occur. We define non-GAAP diluted net income per share as non-GAAP net income divided by the weighted-average diluted shares outstanding, which includes the potentially dilutive effect of our stock options, RSUs, PRSUs, and Convertible Notes.

We believe non-GAAP diluted net income per share provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric generally eliminates the effects of unusual or non-recurring items from period to period for reasons unrelated to overall operating performance.

Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin

Adjusted free cash flow is a non-GAAP financial measure that we define as Net cash provided by operating activities less purchases of property and equipment, capitalized internal-use software costs, and excluding cash paid for restructuring and other charges, acquisition related compensation, restructuring related charges, and acquisition and integration related costs. Adjusted free cash flow margin is calculated as adjusted free cash flow divided by total revenue.

We believe that adjusted free cash flow and adjusted free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our core operations that can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in adjusted free cash flow and adjusted free cash flow margin, even if negative, provide useful information about the amount of Net cash provided by operating activities that is available (or not available) to be used for strategic initiatives. One limitation of adjusted free cash flow and adjusted free cash flow margin is that they do not reflect our future contractual commitments. Additionally, adjusted free cash flow does not represent the total increase or decrease in our cash balance for a given period.

Key Business Metrics:

We utilize the key metrics set forth below to help us evaluate our business and growth, identify trends, formulate financial projections and make strategic decisions.

Customers

We divide our customer population into the following categories:

• Testers: users that both (i) spend less than or equal to $50 per month and (ii) utilize our platform for three months or less.
• Learners: users that both (i) spend less than or equal to $50 for the month-end period and (ii) have been on our platform for more than three months.
• Builders: users that spend greater than $50 and less than or equal to $500 for the month-end period.
• Scalers: users that spend greater than $500 for the month-end period.

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. While we believe the total number of these customers is an important indicator of the growth of our business and future revenue opportunity, the trends relating to our Builders and Scalers is of particular importance to us as these customers represent a significant majority of our revenue and revenue growth, and they are representative of the SMB customers that grow on our platform and use multiple products.

ARPU

We calculate ARPU on a monthly basis as our total revenue for Learners, Builders and Scalers in that period divided by the number of total Learner, Builder and Scaler customers determined as of the last day of that period, excluding aggregate Testers revenue and total user count from the calculation. Beginning in the first quarter of 2023, we redefined ARPU to exclude testers. For a quarterly or annual period, ARPU is determined as the weighted average monthly ARPU over such three or 12-month period.

ARR

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.

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.

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (unaudited)
	March 31, 2024			December 31, 2023
Current assets:
Cash and cash equivalents	$	419,063		$	317,236
Marketable securities		—			94,532
Accounts receivable, less allowance for credit losses of $5,811 and $5,848, respectively		63,866			62,186
Prepaid expenses and other current assets		32,884			29,040
Total current assets		515,813			502,994
Property and equipment, net		322,052			305,444
Restricted cash		1,747			1,747
Goodwill		348,322			348,322
Intangible assets, net		134,416			140,151
Operating lease right-of-use assets, net		156,002			155,201
Deferred tax assets		1,945			1,994
Other assets		5,276			5,114
Total assets	$	1,485,573		$	1,460,967
Current liabilities:
Accounts payable	$	4,536		$	3,957
Accrued other expenses		24,398			31,046
Deferred revenue		5,477			5,340
Operating lease liabilities, current		81,218			81,320
Other current liabilities		73,322			70,982
Total current liabilities		188,951			192,645
Deferred tax liabilities		3,517			3,533
Long-term debt		1,479,687			1,477,798
Operating lease liabilities, non-current		95,174			91,161
Other long-term liabilities		4,316			9,528
Total liabilities		1,771,645			1,774,665
Preferred stock ($0.000025 par value per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023)		—			—
Common stock ($0.000025 par value per share; 750,000,000 shares authorized; 91,264,101 and 90,243,442 issued and outstanding as of March 31, 2024 and December 31, 2023, respectively)		2			2
Additional paid-in capital		44,615			30,989
Accumulated other comprehensive loss		(591)			(452)
Accumulated deficit		(330,098)			(344,237)
Total stockholders’ deficit		(286,072)			(313,698)
Total liabilities and stockholders’ deficit	$	1,485,573		$	1,460,967

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
	Three Months Ended
	March 31,
	2024			2023
Revenue	$	184,730		$	165,134
Cost of revenue		72,644			71,879
Gross profit		112,086			93,255
Operating expenses:
Research and development		33,971			38,272
Sales and marketing		20,804			18,231
General and administrative		45,773			48,939
Restructuring and other charges		—			20,869
Total operating expenses		100,548			126,311
Income (loss) from operations		11,538			(33,056)
Other income (expense):
Interest expense		(2,304)			(2,189)
Interest income and other income, net		5,021			7,394
Other income, net		2,717			5,205
Income (loss) before income taxes		14,255			(27,851)
Income tax (expense) benefit		(116)			11,481
Net income (loss) attributable to common stockholders	$	14,139		$	(16,370)
Net income (loss) per share attributable to common stockholders
Basic	$	0.16		$	(0.17)
Diluted	$	0.15		$	(0.17)
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders
Basic		90,794			95,565
Diluted		93,787			95,565

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
	Three Months Ended March 31,
	2024			2023
Operating activities
Net income (loss) attributable to common stockholders	$	14,139		$	(16,370)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		31,887			28,913
Stock-based compensation		22,877			31,531
Provision for expected credit losses		4,175			3,987
Operating lease right-of-use assets and liabilities, net		3,300			9,523
Net accretion of discounts and amortization of premiums on investments		2,569			(3,436)
Non-cash interest expense		1,993			1,983
Loss on impairment of long-lived assets		—			553
Deferred income taxes		—			1,589
Other		(53)			590
Changes in operating assets and liabilities:
Accounts receivable		(5,855)			(5,125)
Prepaid expenses and other current assets		(2,744)			(2,568)
Accounts payable and accrued expenses		(3,260)			(11,031)
Deferred revenue		137			(535)
Other assets and liabilities		(2,472)			(3,389)
Net cash provided by operating activities		66,693			36,215
Investing activities
Capital expenditures - property and equipment		(43,665)			(23,314)
Capital expenditures - internal-use software development		(1,563)			(1,794)
Cash paid for asset acquisitions		—			(2,500)
Purchase of available-for-sale securities		—			(195,910)
Maturities of available-for-sale securities		91,675			331,581
Purchased interest on available-for-sale securities		—			(113)
Proceeds from sale of equipment		—			6
Net cash provided by investing activities		46,447			107,956
Financing activities
Proceeds related to the issuance of common stock under equity incentive plan		5,674			5,535
Principal repayments of finance leases		(1,359)			—
Employee payroll taxes paid related to net settlement of equity awards		(6,792)			(3,864)
Repurchase and retirement of common stock		(8,770)			(265,901)
Net cash used by financing activities		(11,247)			(264,230)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(66)			(29)
Increase (decrease) in cash, cash equivalents and restricted cash		101,827			(120,088)
Cash, cash equivalents and restricted cash - beginning of period		318,983			151,807
Cash, cash equivalents and restricted cash - end of period	$	420,810		$	31,719

DIGITALOCEAN HOLDINGS, INC.
RECONCILIATION OF GAAP TO NON-GAAP DATA (unaudited)
Adjusted EBITDA and Adjusted EBITDA Margin
	Three Months Ended
	March 31,
(In thousands)	2024			2023
GAAP Net income (loss) attributable to common stockholders	$	14,139		$	(16,370)
Adjustments:
Depreciation and amortization		31,887			28,913
Stock-based compensation(1)		22,730			27,594
Interest expense		2,304			2,189
Acquisition related compensation		4,530			7,601
Acquisition and integration related costs		19			1,301
Income tax expense		116			(11,481)
Restructuring and other charges(1)		—			20,869
Restructuring related charges(1)(2)		3,620			1,907
Impairment of long-lived assets		—			553
Other income, net(3)		(5,021)			(7,394)
Adjusted EBITDA	$	74,324		$	55,682
As a percentage of revenue:
Net income (loss) margin		8 %			(10) %
Adjusted EBITDA margin		40 %			34 %

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

Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share
	Three Months Ended
	March 31,
(In thousands)	2024			2023
GAAP Net income (loss) attributable to common stockholders	$	14,139		$	(16,370)
Stock-based compensation(1)		22,730			27,594
Acquisition related compensation		4,530			7,601
Amortization of acquired intangible assets		5,735			3,790
Acquisition and integration related costs		19			1,301
Restructuring and other charges(1)		—			20,869
Restructuring related charges(1)(2)		3,620			1,907
Impairment of long-lived assets		—			553
Non-GAAP income tax adjustment(3)		(8,026)			(17,560)
Non-GAAP Net income	$	42,747		$	29,685
Non-cash charges related to convertible notes(4)	$	1,586		$	1,559
Non-GAAP Net income used to compute net income per share, diluted	$	44,333		$	31,244
	Three Months Ended
	March 31,
(In thousands, except per share amounts)	2024			2023
GAAP Net income (loss) per share attributable to common stockholders, diluted	$	0.15		$	(0.17)
Stock-based compensation(1)		0.22			0.26
Acquisition related compensation		0.04			0.07
Amortization of acquired intangible assets		0.05			0.03
Acquisition and integration related costs		—			0.01
Restructuring and other charges(1)		—			0.19
Restructuring related charges(1)(2)		0.03			0.02
Impairment of long-lived assets		—			0.01
Non-cash charges related to convertible notes(4)		0.02			0.01
Non-GAAP income tax adjustment(3)		(0.08)			(0.15)
Non-GAAP Net income per share, diluted	$	0.43		$	0.28
GAAP weighted-average shares used to compute net income (loss) per share, diluted		93,787			95,565
Weighted-average dilutive effect of potentially dilutive securities		8,403			15,659
Non-GAAP weighted-average shares used to compute net income per share, diluted		102,190			111,224

______________
	(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.
	(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.
	(3)	For the periods in fiscal year 2024, we used a tax rate of 16%, which we believe is a reasonable estimate of our long-term effective tax rate applicable to non-GAAP pre-tax income for 2024. For the periods in fiscal year 2023, we used a tax rate of 17%, which we believe was a reasonable estimate of our long-term effective tax rate applicable to non-GAAP pre-tax income for 2023.
	(4)	Consists of non-cash interest expense for amortization of deferred financing fees related to the Convertible Notes.

Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin
	Three Months Ended
	March 31,
(In thousands)	2024			2023
GAAP Net cash provided by operating activities	$	66,693		$	36,215
Adjustments:
Capital expenditures - property and equipment		(43,665)			(23,314)
Capital expenditures - internal-use software development		(1,563)			(1,794)
Restructuring and other charges		61			11,261
Restructuring related charges(1)		4,193			1,907
Acquisition related compensation		8,326			—
Acquisition and integration related costs		298			1,468
Adjusted free cash flow	$	34,343		$	25,743
As a percentage of revenue:
GAAP Net cash provided by operating activities		36 %			22 %
Adjusted free cash flow margin		19 %			16 %

___________________
	(1)	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.

 

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The DigitalOcean Holdings Stock at the time of publication of the news with a raise of +0,16 % to 30,53EUR on Tradegate stock exchange (10. Mai 2024, 12:12 Uhr).