DigitalOcean(DOCN) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue in Q1 2024 was $184.7 million, representing a 12% year-over-year increase and a sequential increase from Q4 2023 [43] - Adjusted EBITDA margin was 40%, consistent with the previous quarter, while gross margin improved to 61% from 56% year-over-year [17][18] - Net dollar retention (NDR) improved to 97% in Q1, showing a steady increase since July 2023 [16][36] Business Line Data and Key Metrics Changes - The managed hosting product, Cloudways, generated$ 22 million in revenue in Q1, growing 34% year-over-year [44] - AI and machine learning platforms contributed $4 million in revenue in Q1, with annual recurring revenue (ARR) for AI exceeding$ 19 million, a 128% annualized increase [12][44] - Average revenue per customer increased by 8% year-over-year to $95.13, with the number of builders and scalers on the platform increasing by 8% year-over-year [46] Market Data and Key Metrics Changes - The company saw a 150% month-over-month increase in overall droplets being backed up daily from March to April 2024 [38] - GPU hours sold and consumed increased by 67% from March to April 2024, indicating strong traction in the AI infrastructure market [12][44] Company Strategy and Development Direction - The company is focusing on product innovation and enhancing customer experience to meet the emerging needs of its core target customers [4][8] - There is a strong emphasis on AI and machine learning as a growth opportunity, with plans to integrate these capabilities into the developer experience [13][42] - The company aims to democratize access to AI and machine learning capabilities while maintaining a focus on profitability and cash flow [14][42] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's near and long-term growth potential, citing solid performance and improving growth fundamentals [14][36] - The company anticipates Q2 revenue to be in the range of$ 188 million to $189 million, representing an 11% year-over-year growth at the midpoint [19] - Management highlighted the importance of customer feedback in shaping the company's product roadmap and strategy [8][41] Other Important Information - The company ended Q1 with$ 419 million in cash and cash equivalents and repurchased 200,000 shares of common stock for $8 million [46] - The company is committed to maintaining attractive overall margins while investing in faster-growing platforms [47] Q&A Session Summary Question: What is the current state of AI adoption on the platform? - Management noted that they are in the early stages of AI adoption, focusing on the needs of customers who are primarily AI extenders and consumers [50] Question: How is net dollar retention (NDR) expected to evolve? - Management indicated that NDR has been steadily improving, driven by enhancements in product development and customer success initiatives [51] Question: What is the expected contribution from Paperspace? - Management remains confident that Paperspace will contribute approximately 3% to overall growth, with early signs of success already visible [79] Question: Can you provide insights on GPU CapEx spend and its impact? - Management confirmed that they are capacity constrained but are deploying capital to increase revenue growth, with expected paybacks in less than three years for GPU investments [64] Question: What gaps in the product portfolio were identified? - Management highlighted the importance of understanding customer needs deeply to address gaps, particularly in AI and machine learning capabilities [72]