DigitalOcean(DOCN) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights CEO Commentary CEO highlighted solid Q2 2025 with 14% YoY revenue growth, record incremental ARR, and doubled AI/ML revenue, leading to raised full-year guidance - Total revenue grew 14% year-over-year[2] - Achieved the highest incremental ARR since Q4 of 2022[2] - AI/ML revenue more than doubled year-over-year[2] - Scalers+ revenue grew 35% year-over-year, reaching 24% of total revenue[2] - Increased full year revenue and profitability metrics guidance[2] Second Quarter 2025 Financial Highlights DigitalOcean reported Q2 2025 revenue of $219 million (14% YoY growth), net income of $37 million (93% YoY growth), and raised full-year guidance Q2 2025 Financial Performance (in millions) | Metric | Q2 2025 | YoY Change | | :----------------------- | :---------- | :--------- | | Revenue | $219 million | +14% | | Net Income | $37 million | +93% | | Adjusted EBITDA | $89 million | +10% | | Incremental ARR | $32 million | | - Raised full year revenue guidance to $888 million to $892 million[5] - Raised full year Adjusted EBITDA margin guidance to 39% to 40%[5] Second Quarter 2025 Operational Highlights Q2 2025 operational highlights include improved NDR and ARPU, strong Scalers+ growth, new products, AI collaborations, and share repurchases Key Operational Metrics (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | YoY Change | | :-------------------------------- | :---------- | :---------- | :--------- | | Net Dollar Retention Rate (NDR) | 99% | 97% | +2 ppts | | Average Revenue Per Customer (ARPU) | $111.70 | | +12% | | Scalers+ Customer Growth | +23% | | | | Scalers+ Revenue Growth | +35% | | | - Released more than 60 new products and features during the quarter[6] - Announced a collaboration with AMD, providing customers access to AMD Instinct™ GPUs for AI workloads and the AMD Developer Cloud[6][7] - Announced the General Availability of the DigitalOcean Gradient™ AI Platform, enabling developers to combine data with foundation models for customized Generative AI agents[13] - Repurchased 0.7 million shares during the quarter, with cumulative repurchases of $1.6 billion and 34.8 million shares since IPO through June 30, 2025[13] Financial Outlook Third Quarter 2025 Guidance DigitalOcean projects Q3 2025 total revenue of $226-$227 million, Adjusted EBITDA margin of 39%-40%, and non-GAAP diluted EPS of $0.45-$0.50 Q3 2025 Financial Guidance (in millions, except per share amounts) | Metric | Guidance Range | | :-------------------------------- | :--------------- | | Total Revenue | $226 to $227 million | | Adjusted EBITDA Margin | 39% to 40% | | Non-GAAP Diluted Net Income Per Share | $0.45 to $0.50 | | Fully Diluted Weighted Average Shares Outstanding | 102 to 103 million | Full Year 2025 Guidance Full year 2025 guidance includes total revenue of $888-$892 million, Adjusted EBITDA margin of 39%-40%, and non-GAAP diluted EPS of $2.05-$2.10 Full Year 2025 Financial Guidance (in millions, except per share amounts) | Metric | Guidance Range | | :-------------------------------- | :--------------- | | Total Revenue | $888 to $892 million | | Adjusted EBITDA Margin | 39% to 40% | | Adjusted Free Cash Flow Margin | 17% to 19% of revenue | | Non-GAAP Diluted Net Income Per Share | $2.05 to $2.10 | | Fully Diluted Weighted Average Shares Outstanding | 103 to 104 million | Company Information & Disclosures About DigitalOcean DigitalOcean provides a scalable cloud platform, democratizing cloud and AI for digital native enterprises, serving over 600,000 customers - DigitalOcean is a scalable cloud platform democratizing cloud and AI for digital native enterprises globally[15] - Its mission is to simplify cloud and AI, empowering builders to create impactful software[15] - Over 600,000 customers rely on DigitalOcean for cloud, AI, and ML infrastructure[15] Forward-Looking Statements This release contains forward-looking statements subject to various known and unknown risks that could cause actual results to differ materially - This release contains forward-looking statements subject to known and unknown risks, uncertainties, and factors that may cause actual results to differ materially[16] - Key risks include financial fluctuations, profitability, customer retention, market development, AI/ML offering success, technology adaptation, cost control, security breaches, and competitive markets[16] - The company operates in a competitive, rapidly changing environment and assumes no obligation to update forward-looking statements after this release date[18] Non-GAAP Financial Measures About Non-GAAP Financial Measures DigitalOcean provides non-GAAP financial measures as supplemental information, acknowledging their limitations and providing GAAP reconciliations - Non-GAAP financial measures, including Adjusted EBITDA, non-GAAP net income, and adjusted free cash flow, supplement GAAP financial statements[19] - These measures have analytical limitations and should not be considered in isolation or as a substitute for GAAP financial information[19] - Reconciliations of each non-GAAP financial measure to the most directly comparable GAAP measure are provided[19] Adjusted EBITDA and Adjusted EBITDA Margin Definition Adjusted EBITDA is net income adjusted for non-operating and non-cash items; its margin, as a percentage of revenue, offers supplemental operating performance insights - Adjusted EBITDA is net income attributable to common stockholders, adjusted for various non-operating and non-cash items including depreciation, stock-based compensation, and interest expense[20] - Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue[20] - This metric provides supplemental information on operating performance and facilitates internal comparisons by excluding non-indicative business items[20] Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share Definition Non-GAAP net income excludes specific non-cash and non-recurring items from GAAP net income; diluted EPS is calculated accordingly, enhancing comparability - Non-GAAP net income is net income attributable to common stockholders, excluding stock-based compensation, acquisition-related compensation, amortization of acquired intangibles, and other non-recurring items from GAAP net income[22] - Non-GAAP diluted net income per share is non-GAAP net income divided by weighted-average diluted shares outstanding[22] - This metric enhances consistency and comparability by removing the effects of unusual or non-recurring items[23] Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin Definition Adjusted free cash flow is operating cash flow minus capital expenditures and specific cash costs; its margin indicates cash from core operations for strategic initiatives - Adjusted free cash flow is net cash from operating activities minus capital expenditures and specific restructuring/acquisition-related cash costs[24] - Adjusted free cash flow margin is calculated as adjusted free cash flow divided by total revenue[24] - This metric indicates liquidity for strategic initiatives but does not reflect future contractual commitments or total cash balance changes[25] Key Business Metrics Customers Customer count is the average monthly customer base, categorized by monthly spend and platform tenure, with higher-spending groups defined - Customer count is the average number of customers as of the last day of each month in the most recent quarter[27] Customer Categories by Monthly Spend | Category | Monthly Spend | Platform Tenure | | :--------- | :-------------- | :---------------- | | Testers | ≤ $50 | ≤ 3 months | | Learners | ≤ $50 | > 3 months | | Builders | > $50 to ≤ $500 | Any | | Scalers | > $500 to ≤ $8,333 | Any | | Scalers+ | > $8,333 | Any | - Builders, Scalers, and Scalers+ customers are collectively referred to as Higher Spend Customers[28] ARPU (Average Revenue Per Customer) ARPU is calculated monthly as total revenue from specific customer categories divided by their count; quarterly/annual ARPU is a weighted average - ARPU is calculated monthly as total revenue from Learners, Builders, Scalers, and Scalers+ divided by their total customer count[29] - Quarterly or annual ARPU is determined as the weighted average monthly ARPU over the respective period[29] ARR (Annual Run-Rate Revenue) ARR is calculated by annualizing the most recent quarter's total revenue, encompassing all customer categories - ARR is calculated by multiplying the revenue for the most recent quarter by four[30] - ARR calculations include total revenue from all customer categories: Testers, Learners, Builders, Scalers, and Scalers+[30] Net Dollar Retention Rate Net dollar retention rate is a monthly metric comparing current revenue from a 12-month-old customer cohort to their prior revenue, accounting for expansion and re-engaged customers - Net dollar retention rate is calculated monthly by comparing current revenue from a 12-month-prior customer cohort, including expansion and net of contraction/attrition[31] - The calculation also includes revenue from re-engaged customers who previously generated revenue but not in the 12-month prior period[31] Remaining Performance Obligation (RPO) RPO represents future service commitments in customer contracts not yet recognized as revenue, excluding short-term contracts, and is not a direct indicator of future revenue growth - Remaining Performance Obligation (RPO) represents commitments in customer contracts for future services not yet recognized as revenue[32] - The company excludes contracts with an original expected term of one year or less from RPO[32] - RPO is not necessarily indicative of future revenue growth due to consumption timing, usage beyond capacity, and transitions to commitment-based agreements[32] Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets As of June 30, 2025, total assets increased to $1.72 billion, liabilities to $1.90 billion, and stockholders' deficit improved to $(175.2) million Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :-------------- | :---------------- | :------- | | Total Assets | $1,719,808 | $1,639,015 | +$80,793 | | Total Liabilities | $1,895,025 | $1,841,970 | +$53,055 | | Total Stockholders' Deficit | $(175,217) | $(202,955) | +$27,738 | | Cash and cash equivalents | $387,745 | $428,446 | -$40,701 | Condensed Consolidated Statements of Operations Q2 2025 revenue reached $218.7 million (14% YoY growth), with net income increasing 93% to $37.0 million and diluted EPS at $0.39 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $218,700 | $192,476 | $429,403 | $377,206 | | Gross profit | $130,945 | $114,148 | $260,389 | $223,296 | | Income from operations | $35,619 | $22,328 | $73,261 | $33,866 | | Net income attributable to common stockholders | $37,027 | $19,138 | $75,231 | $33,277 | | Diluted net income per share | $0.39 | $0.20 | $0.77 | $0.35 | Condensed Consolidated Statements of Cash Flows For H1 2025, operating cash flow increased to $156.5 million, while investing activities used $100.4 million and financing activities used $96.9 million, driven by capital expenditures and share repurchases Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $156,537 | $138,033 | | Net cash (used in) provided by investing activities | $(100,407) | $12,095 | | Net cash used in financing activities | $(96,876) | $(24,193) | | (Decrease) increase in cash, cash equivalents and restricted cash | $(40,701) | $125,874 | - Capital expenditures for property and equipment increased to $95.16 million for the six months ended June 30, 2025, from $75.53 million in the prior year[40] - Repurchase and retirement of common stock increased significantly to $79.20 million for the six months ended June 30, 2025, from $18.18 million in the prior year[40] Reconciliation of GAAP to Non-GAAP Data Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation Q2 2025 GAAP net income of $37.0 million adjusted to $89.5 million Adjusted EBITDA (41% margin), with H1 2025 Adjusted EBITDA at $175.7 million (41% margin) Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net income attributable to common stockholders | $37,027 | $19,138 | $75,231 | $33,277 | | Adjustments (e.g., Depreciation, Stock-based comp) | $52,438 | $62,448 | $100,518 | $122,633 | | Adjusted EBITDA | $89,465 | $81,586 | $175,749 | $155,910 | | Adjusted EBITDA margin | 41% | 42% | 41% | 41% | Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share Reconciliation Q2 2025 GAAP net income of $37.0 million adjusted to $57.8 million Non-GAAP Net income, with diluted EPS at $0.59; H1 2025 Non-GAAP Net income was $113.3 million Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share Reconciliation (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net income attributable to common stockholders | $37,027 | $19,138 | $75,231 | $33,277 | | Non-GAAP Net income | $57,815 | $47,605 | $113,264 | $90,352 | | Non-GAAP Net income per share, diluted | $0.59 | $0.48 | $1.15 | $0.91 | - A 16% tax rate was applied for non-GAAP income tax adjustments in fiscal years 2025 and 2024, reflecting a reasonable long-term effective tax rate[45] Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin Reconciliation Q2 2025 GAAP operating cash flow of $92.4 million resulted in $57.0 million Adjusted free cash flow (26% margin), with H1 2025 Adjusted free cash flow at $56.2 million (13% margin) Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net cash provided by operating activities | $92,447 | $71,340 | $156,537 | $138,033 | | Adjusted free cash flow | $57,015 | $37,429 | $56,194 | $71,772 | | Adjusted free cash flow margin | 26% | 19% | 13% | 19% |