DigitalOcean Announces Second Quarter 2022 Financial Results

Company Meets Q2 Targets Despite Macro Headwinds

Profitability and Cash Flow Improvement Highlight its Second Quarter

Increases Operating Income and Free Cash Flow Outlook for Fiscal 2022

DigitalOcean Holdings, Inc. (NYSE: DOCN), the cloud for developers, startups and SMBs, announced results for its second quarter ended June 30, 2022.

"We are taking a number of actions in the second half to deliver 30% growth with improving profitability and cash flow despite an uncertain environment driven by macroeconomic factors beyond our control," said Yancey Spruill, CEO of DigitalOcean.

Second Quarter 2022 Financial Highlights:

• Revenue was $133.9 million, an increase of 29% year-over-year.
• Annual Run-Rate Revenue (ARR) ended the quarter at $544.1 million, representing 28% year-over-year growth.
• Gross profit of $86.6 million or 65% of revenue, an increase of 700 basis points year-over-year, and adjusted gross profit of $109.7 million or 82% of revenue.
• Loss from operations was $7.4 million and operating margin was (6)%.
• Non-GAAP income from operations was $22.3 million and non-GAAP operating margin was 17%.
• Net loss per share was $(0.06) and non-GAAP diluted net income per share was $0.20.
• Cash, cash equivalents, and marketable securities was $1.2 billion as of June 30, 2022.

Second Quarter 2022 Operational Highlights:

• Net Dollar Retention Rate (NDR) was 112%.
• Average Revenue Per Customer (ARPU) was $71.76, an increase of 24% from the second quarter of 2021.
• Customers spending more than $50 per month grew 16% to 105,000 with revenue growth of 34% year-over-year. These customers had an NDR of 113% and represented 85% of revenue in the quarter.
• The company repurchased approximately 10.0 million shares in the quarter through its share repurchase programs.

CFO Transition:

The Company is also announcing that Chief Financial Officer Bill Sorenson plans to retire from the Company in 2023 and that it will commence a search for his successor. Mr. Sorenson will continue in his capacity throughout the search process and then will serve as an advisor to the company until his departure in August 2023 ensuring a smooth transition and onboarding of a new chief financial officer.

"Bill has been an incredible partner, leader, and team builder," said Yancey Spruill. "His financial acumen and experience have been critical over the past three years as we have turned the company around while dealing with a global pandemic, improved our financial profile through raising over $2.5 billion in capital and positioned the company to scale and achieve our first billion of revenue in 2024."

Financial Outlook:

Based on information available as of August 8, 2022, for the third quarter of 2022 we expect:

• Total revenue of $145.5 to $147 million.
• Non-GAAP operating margin of 17% to 18%.
• Non-GAAP diluted net income per share of $0.22 to $0.23.
• Fully diluted weighted average shares outstanding of approximately 113 to 115 million shares.

For the full year 2022, we expect:

• Total revenue of $564 to $568 million.
• Non-GAAP operating margin of 15% to 16%.
• Free cash flow in the range of 9% to 10% of revenue.
• Non-GAAP diluted net income per share of $0.74 to $0.75.
• Fully diluted weighted average shares outstanding of approximately 117 to 119 million shares.

A reconciliation of non-GAAP guidance 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.

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