DigitalOcean(DOCN) - 2023 Q1 - Quarterly Report

Customer Metrics - As of March 31, 2023, DigitalOcean had approximately 614,000 active customers categorized as Learners, Builders, and Scalers, with revenue from Testers representing less than $1 million in a single month[123][124] - The average revenue per customer (ARPU) increased from $76.45 in Q1 2022 to $88.35 in Q1 2023, indicating a strong growth in customer spending[130] - Annual run-rate revenue (ARR) reached $669 million as of March 31, 2023, up from $524 million in the same period of 2022, reflecting a significant year-over-year growth[130] - The number of Scalers increased from approximately 11,000 in Q1 2022 to about 15,000 in Q1 2023, while Builders grew from approximately 91,000 to 131,000 in the same timeframe[131] - Revenue from Builders and Scalers increased by 42% and 27%, respectively, for the three months ended March 31, 2023, compared to the same period in 2022[131] - For the three months ended March 31, 2023, 38% of revenue was generated from North America, 29% from Europe, 23% from Asia, and 10% from the rest of the world, highlighting a diverse customer base[129] Financial Performance - Revenue for the three months ended March 31, 2023, was $165.1 million, a 30% increase from $127.3 million in the same period of 2022, driven by the Cloudways acquisition and a 16% increase in ARPU to $88.35[160] - The net dollar retention rate was 107% for the three months ended March 31, 2023, down from 117% in the same period of 2022, indicating a slight decrease in revenue growth from existing customers[141] - GAAP net loss attributable to common stockholders for Q1 2023 was $34,937,000, compared to a loss of $18,568,000 in Q1 2022[186] - Adjusted EBITDA for Q1 2023 was $56,204,000, representing an adjusted EBITDA margin of 34%, up from 29% in Q1 2022[186] - Non-GAAP net income for Q1 2023 was $28,714,000, compared to $9,453,000 in Q1 2022, with non-GAAP diluted net income per share increasing to $0.28 from $0.09[190] - Adjusted free cash flow for Q1 2023 was $25,743,000, with an adjusted free cash flow margin of 16%, significantly up from 4% in Q1 2022[195] - GAAP net cash provided by operating activities for Q1 2023 was $36,215,000, compared to $30,401,000 in Q1 2022, reflecting a margin of 22%[195] Expenses and Costs - Cost of revenue increased by $24.7 million, or 52%, to $71.9 million for the three months ended March 31, 2023, primarily due to operating and variable lease costs related to new co-location facilities[161] - Gross profit margin decreased to 56% for the three months ended March 31, 2023, down from 63% in the same period of 2022, attributed to higher colocation and depreciation costs[161] - Total operating expenses rose by $32.1 million, or 34%, to $125.8 million for the three months ended March 31, 2023, with significant increases in general and administrative expenses[162] - Research and development expenses increased by $1.0 million, or 3%, to $38.3 million, primarily due to higher software license and professional services costs[162] - General and administrative expenses surged by $11.5 million, or 31%, to $48.9 million, driven by acquisition-related compensation and stock-based compensation[164] - Stock-based compensation expenses increased to $27,594,000 in Q1 2023 from $25,981,000 in Q1 2022[186] - Acquisition-related compensation for Q1 2023 was $7,601,000, with additional costs related to acquisitions and integrations amounting to $1,301,000[186] - Restructuring and other charges amounted to $20.9 million, a 100% increase, primarily due to one-time severance and benefit payments[165] - Restructuring and other charges totaled $20,869,000 in Q1 2023, indicating ongoing strategic adjustments[186] Cash and Investments - As of March 31, 2023, the company had $20.9 million in cash and cash equivalents and $591.7 million in marketable securities[170] - Net cash provided by operating activities was $36.2 million for the three months ended March 31, 2023, compared to $30.4 million in the same period of 2022, reflecting higher revenues and interest income[175] - The company initiated a common stock buyback program in February 2023, repurchasing 7,759,973 shares for $265.9 million during the first quarter[169] Strategic Initiatives - DigitalOcean's restructuring plan aims to achieve over 20% adjusted free cash flow margins by the end of Q3 2023, involving position eliminations and geographical adjustments[134] - The company is focused on enhancing its platform and product offerings, with plans for strategic partnerships and acquisitions to drive customer acquisition and usage[138] - DigitalOcean's self-service customer acquisition model has historically generated nearly all revenue, with sales and marketing expenses constituting approximately 11% of revenue for the three months ended March 31, 2023[128] Market Risk - There were no material changes in market risk from the previous fiscal year, maintaining stability in financial operations[196]