Le Lézard
Classified in: Science and technology, Business
Subjects: EARNINGS, Conference Call, Webcast

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:

First Quarter 2024 Operational Highlights:

Financial Outlook:

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

For the full year 2024, we expect:

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 (800) 715-9871 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:

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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