UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 20222023
OR
 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
 Commission File Number: 001-40252
DigitalOcean Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 45-5207470
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
101 6th Avenue
New York, New York 10013
(Address of principal executive offices and Zip Code)
(646) 827-4366
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.000025 per shareDOCNThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 28, 2022,27, 2023, there were 106,060,49488,812,515 shares of the registrant’s common stock, with a par value of $0.000025 per share, outstanding.



TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1.Financial Statements (unaudited)
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1a.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our expectations regarding our revenue, expenses and other operating results;
our ability to achieve profitability on an annual basis and then sustain such profitability;
future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
our ability to acquire new customers and successfully engage and expand usage of our existing customers;
the costs and success of our marketing efforts, and our ability to promote our brand;
our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;
our ability to effectively manage our growth;
our ability to successfully integrate acquired businesses, including Cloudways, and achieve expected synergies and benefits;
our ability to compete effectively with existing competitors and new market entrants; and
the growth rates of the markets in which we compete.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, as well as Item 1A—1A–Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021.2022, as such factors may be updated from time to time in our subsequent periodic filings with the SEC, and elsewhere in this Quarterly Report on Form 10-Q. Moreover, 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 Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
We may announce material business and financial information to our investors using our investor relations website (https://investors.digitalocean.com/). We therefore encourage investors and others interested in our company to review the



information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls.



PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
March 31, 2022December 31, 2021March 31, 2023December 31, 2022
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$464,836 $1,713,387 Cash and cash equivalents$20,872 $140,772 
Marketable securitiesMarketable securities1,090,370 — Marketable securities591,681 723,462 
Accounts receivable, less allowance for doubtful accounts of $5,155 and $4,212, respectively42,527 39,619 
Accounts receivable, less allowance for credit losses of $6,148 and $6,099, respectivelyAccounts receivable, less allowance for credit losses of $6,148 and $6,099, respectively54,972 53,833 
Prepaid expenses and other current assetsPrepaid expenses and other current assets14,171 17,050 Prepaid expenses and other current assets31,087 28,485 
Total current assetsTotal current assets1,611,904 1,770,056 Total current assets698,612 946,552 
Property and equipment, netProperty and equipment, net259,385 249,643 Property and equipment, net277,957 273,170 
Restricted cashRestricted cash2,038 2,038 Restricted cash1,747 1,935 
GoodwillGoodwill32,170 32,170 Goodwill296,579 313,718 
Intangible assets, netIntangible assets, net46,453 42,915 Intangible assets, net117,638 118,928 
Operating lease right-of-use assets, netOperating lease right-of-use assets, net185,516 154,501 
Deferred tax assetsDeferred tax assets89 88 Deferred tax assets753 751 
Other assetsOther assets4,789 4,085 Other assets5,594 6,353 
Total assetsTotal assets$1,956,828 $2,100,995 Total assets$1,584,396 $1,815,908 
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable16,329 12,657 Accounts payable$11,005 $21,138 
Accrued other expensesAccrued other expenses25,627 31,907 Accrued other expenses38,220 33,987 
Deferred revenueDeferred revenue5,248 4,826 Deferred revenue5,015 5,550 
Operating lease liabilities, currentOperating lease liabilities, current73,058 57,682 
Other current liabilitiesOther current liabilities15,247 8,849 Other current liabilities58,856 45,913 
Total current liabilitiesTotal current liabilities$62,451 $58,239 Total current liabilities186,154 164,270 
Deferred tax liabilitiesDeferred tax liabilities421 421 Deferred tax liabilities3,771 18,209 
Long-term debtLong-term debt1,464,525 1,462,676 Long-term debt1,472,148 1,470,270 
Operating lease liabilities, non-currentOperating lease liabilities, non-current133,471108,243
Other long-term liabilitiesOther long-term liabilities1,600 1,462 Other long-term liabilities6,506 3,826 
Total liabilitiesTotal liabilities$1,528,997 $1,522,798 Total liabilities1,802,050 1,764,818 
Commitments and Contingencies (Note 8)Commitments and Contingencies (Note 8)00Commitments and Contingencies (Note 8)
Preferred stock ($0.000025 par value per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021)$— $— 
Common stock ($0.000025 par value per share; 750,000,000 shares authorized; 107,956,057 and 109,175,863 issued; and 105,987,829 and 107,207,635 outstanding as of March 31, 2022 and December 31, 2021, respectively)
Treasury stock, at cost (1,968,228 shares at March 31, 2022 and December 31, 2021)(4,598)(4,598)
Preferred stock ($0.000025 par value per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022)Preferred stock ($0.000025 par value per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022)— — 
Common stock ($0.000025 par value per share; 750,000,000 shares authorized; 89,983,568 and 96,732,507 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively)Common stock ($0.000025 par value per share; 750,000,000 shares authorized; 89,983,568 and 96,732,507 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively)
Additional paid-in capitalAdditional paid-in capital639,388 769,705 Additional paid-in capital28,781 263,957 
Accumulated other comprehensive lossAccumulated other comprehensive loss(2,300)(374)Accumulated other comprehensive loss(679)(2,048)
Accumulated deficitAccumulated deficit(204,661)(186,538)Accumulated deficit(245,758)(210,821)
Total stockholders’ equity$427,831 $578,197 
Total stockholders’ (deficit) equityTotal stockholders’ (deficit) equity(217,654)51,090 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$1,956,828 $2,100,995 Total liabilities and stockholders’ equity$1,584,396 $1,815,908 
See accompanying notes to condensed consolidated financial statements
1

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months EndedThree Months Ended
March 31,March 31,
2022202120232022
RevenueRevenue$127,327 $93,661 Revenue$165,134 $127,327 
Cost of revenueCost of revenue46,757 39,544 Cost of revenue71,879 47,202 
Gross profitGross profit80,570 54,117 Gross profit93,255 80,125 
Operating expenses:Operating expenses:Operating expenses:
Research and developmentResearch and development37,241 22,402 Research and development38,272 37,241 
Sales and marketingSales and marketing19,044 10,421 Sales and marketing17,709 19,044 
General and administrativeGeneral and administrative37,424 18,040 General and administrative48,939 37,424 
Restructuring and other chargesRestructuring and other charges20,869 — 
Total operating expensesTotal operating expenses93,709 50,863 Total operating expenses125,789 93,709 
(Loss) income from operations(13,139)3,254 
Loss from operationsLoss from operations(32,534)(13,584)
Other (income) expense:Other (income) expense:Other (income) expense:
Interest expenseInterest expense2,059 2,256 Interest expense2,189 2,059 
Loss on extinguishment of debtLoss on extinguishment of debt407 3,435 Loss on extinguishment of debt— 407 
Other (income) expense, netOther (income) expense, net(820)(94)Other (income) expense, net(7,394)(820)
Other (income) expenseOther (income) expense1,646 5,597 Other (income) expense(5,205)1,646 
Loss before income taxesLoss before income taxes(14,785)(2,343)Loss before income taxes(27,329)(15,230)
Income tax expenseIncome tax expense3,338 996 Income tax expense7,608 3,338 
Net loss attributable to common stockholdersNet loss attributable to common stockholders$(18,123)$(3,339)Net loss attributable to common stockholders$(34,937)$(18,568)
Net loss per share attributable to common stockholders, basic and dilutedNet loss per share attributable to common stockholders, basic and diluted$(0.17)$(0.07)Net loss per share attributable to common stockholders, basic
and diluted
$(0.37)$(0.17)
Weighted-average shares used to compute net loss per share, basic and dilutedWeighted-average shares used to compute net loss per share, basic and diluted106,980 49,432 Weighted-average shares used to compute net loss per share,
basic and diluted
95,565 106,980 
See accompanying notes to condensed consolidated financial statements
2

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three Months EndedThree Months Ended
March 31,March 31,
2022202120232022
Net loss attributable to common stockholdersNet loss attributable to common stockholders$(18,123)$(3,339)Net loss attributable to common stockholders$(34,937)$(18,568)
Other comprehensive loss:Other comprehensive loss:Other comprehensive loss:
Foreign currency translation adjustments, net of taxesForeign currency translation adjustments, net of taxes(18)12 Foreign currency translation adjustments, net of taxes126 (18)
Unrealized loss on available-for-sale marketable securities, net of taxes(1,908)
Unrealized gain (loss) on available-for-sale marketable securities, net of taxesUnrealized gain (loss) on available-for-sale marketable securities, net of taxes1,243(1,908)
Comprehensive lossComprehensive loss$(20,049)$(3,327)Comprehensive loss$(33,568)$(20,494)
See accompanying notes to condensed consolidated financial statements
3

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(in thousands, except share amounts)
(unaudited)
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehen-sive LossAccumulated DeficitTotalCommon StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehen-sive LossAccumulated DeficitTotal
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2021109,175,863 $(1,968,228)$(4,598)$769,705 $(374)$(186,538)$578,197 
Balance at December 31, 2022Balance at December 31, 202296,732,507 $— $— $263,957 $(2,048)$(210,821)$51,090 
Issuance of common stock under equity incentive plan, net of taxes withheldIssuance of common stock under equity incentive plan, net of taxes withheld1,357,665 — — — (6,709)— — (6,709)Issuance of common stock under equity incentive plan, net of taxes withheld1,011,034 — — — 1,461 — — 1,461 
Repurchase and retirement of common stockRepurchase and retirement of common stock(2,577,471)— — — (150,000)— — (150,000)Repurchase and retirement of common stock(7,759,973)— — — (268,560)— — (268,560)
Stock-based compensationStock-based compensation— — — — 26,392 — — 26,392 Stock-based compensation— — — — 31,923 — — 31,923 
Other comprehensive loss— — — — — (1,926)— (1,926)
Other comprehensive incomeOther comprehensive income— — — — — 1,369 — 1,369 
Net loss attributable to common stockholdersNet loss attributable to common stockholders— — — — — — (18,123)(18,123)Net loss attributable to common stockholders— — — — — — (34,937)(34,937)
Balance at March 31, 2022107,956,057 $(1,968,228)$(4,598)$639,388 $(2,300)$(204,661)$427,831 
Balance at March 31, 2023Balance at March 31, 202389,983,568 $— $— $28,781 $(679)$(245,758)$(217,654)
Convertible Preferred StockCommon StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehen-sive LossAccumulated DeficitTotal
SharesAmountSharesAmountSharesAmount
Balance at December 31, 202045,472,229 $173,074 45,299,339 $(1,968,228)$(4,598)$99,783 $(245)$(167,035)$(72,094)
Issuance of common stock under equity incentive plan, net of taxes withheld— — 1,033,806 — — — 3,740 — — 3,740 
Stock-based compensation— — — — — — 6,685 — — 6,685 
Issuance of common stock in connection with initial public offering, net of underwriting discounts and issuance costs— — 16,500,000 — — 723,125 — — 723,126 
Conversion of convertible preferred stock to common stock in connection with initial public offering(45,472,229)(173,074)45,472,229 — — — 173,074 — — 173,074 
Conversion of redeemable preferred stock warrants to common stock warrants— — — — — — 13,906 — — 13,906 
Other comprehensive loss— — — — — — — 12 — 12 
Net loss attributable to common stockholders— — — — — — — — (3,339)(3,339)
Balance at March 31, 2021— $— 108,305,374 $(1,968,228)$(4,598)$1,020,313 $(233)$(170,374)$845,110 
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehen-sive LossAccumulated DeficitTotal
SharesAmountSharesAmount
Balance at December 31, 2021109,175,863 $(1,968,228)$(4,598)$769,705 $(374)$(186,538)$578,197 
Issuance of common stock under equity incentive plan, net of taxes withheld1,357,665 — — — (6,709)— — (6,709)
Repurchase and retirement of common stock(2,577,471)— — — (150,000)— — (150,000)
Stock-based compensation— — — — 26,392 — — 26,392 
Other comprehensive loss— — — — — (1,926)— (1,926)
Net loss attributable to common stockholders— — — — — — (18,568)(18,568)
Balance at March 31, 2022107,956,057 $(1,968,228)$(4,598)$639,388 $(2,300)$(205,106)$427,386 


See accompanying notes to condensed consolidated financial statements
4

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Operating activitiesOperating activitiesOperating activities
Net loss attributable to common stockholdersNet loss attributable to common stockholders$(18,123)$(3,339)Net loss attributable to common stockholders$(34,937)$(18,568)
Adjustments to reconcile net loss to net cash provided by operating activities:Adjustments to reconcile net loss to net cash provided by operating activities:Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortizationDepreciation and amortization23,933 20,951 Depreciation and amortization28,913 23,933 
Stock-based compensationStock-based compensation25,981 6,624 Stock-based compensation31,531 25,981 
Bad debt expense4,023 1,607 
Provision for expected credit lossesProvision for expected credit losses3,987 4,023 
Loss on extinguishment of debtLoss on extinguishment of debt407 3,435 Loss on extinguishment of debt— 407 
Net accretion of discounts and amortization on available-for-sale securities(117)— 
Net accretion of discounts and amortization of premiums on investmentsNet accretion of discounts and amortization of premiums on investments(3,436)(117)
Non-cash interest expenseNon-cash interest expense1,983 1,959 
Loss on impairment of long-lived assetsLoss on impairment of long-lived assets553 — 
Non-cash interest expense1,959 205 
Deferred income taxesDeferred income taxes4,150 — 
Revaluation of warrants— (556)
Operating lease right-of-use assets and liabilities, netOperating lease right-of-use assets and liabilities, net9,523 445 
OtherOther623 (335)Other590 697 
Changes in operating assets and liabilities, net of acquisition:
Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivableAccounts receivable(6,931)(3,749)Accounts receivable(5,125)(6,931)
Prepaid expenses and other current assetsPrepaid expenses and other current assets2,878 2,554 Prepaid expenses and other current assets(2,755)2,843 
Accounts payable and accrued expensesAccounts payable and accrued expenses(10,535)(7,413)Accounts payable and accrued expenses(11,031)(10,455)
Deferred revenueDeferred revenue422 48 Deferred revenue(535)422 
Other assets and liabilitiesOther assets and liabilities5,763 (241)Other assets and liabilities12,804 5,762 
Net cash provided by operating activitiesNet cash provided by operating activities30,283 19,791 Net cash provided by operating activities36,215 30,401 
Investing activitiesInvesting activitiesInvesting activities
Capital expenditures - property and equipmentCapital expenditures - property and equipment(22,976)(22,398)Capital expenditures - property and equipment(23,314)(23,045)
Capital expenditures - internal-use software developmentCapital expenditures - internal-use software development(2,276)(1,370)Capital expenditures - internal-use software development(1,794)(2,276)
Cash paid for asset acquisition(4,000)— 
Cash paid for asset acquisitionsCash paid for asset acquisitions(2,500)(4,000)
Purchase of available-for-sale securitiesPurchase of available-for-sale securities(1,091,279)— Purchase of available-for-sale securities(195,910)(1,091,279)
Maturities of available-for-sale securitiesMaturities of available-for-sale securities331,581 — 
Purchased interest on available-for-sale securitiesPurchased interest on available-for-sale securities(1,530)— Purchased interest on available-for-sale securities(113)(1,530)
Proceeds from interest on available-for-sale securitiesProceeds from interest on available-for-sale securities649 — Proceeds from interest on available-for-sale securities— 649 
Proceeds from sale of equipmentProceeds from sale of equipment457 81 Proceeds from sale of equipment457 
Net cash used in investing activities(1,120,955)(23,687)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities107,956 (1,121,024)
Financing activitiesFinancing activitiesFinancing activities
Repayment of notes payable— (33,213)
Repayment of term loan— (166,814)
Repayment of borrowings under revolving credit facility— (63,200)
Payment of debt issuance costsPayment of debt issuance costs(921)— Payment of debt issuance costs— (921)
Proceeds related to the issuance of common stock under equity incentive planProceeds related to the issuance of common stock under equity incentive plan5,426 3,740 Proceeds related to the issuance of common stock under equity incentive plan5,535 5,426 
Employee payroll taxes paid related to net settlement of equity awardsEmployee payroll taxes paid related to net settlement of equity awards(12,384)— Employee payroll taxes paid related to net settlement of equity awards(3,864)(12,384)
Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs— 723,125 
Repurchase and retirement of common stockRepurchase and retirement of common stock(150,000)— Repurchase and retirement of common stock(265,901)(150,000)
Net cash (used in) provided by financing activities(157,879)463,638 
Net cash used in financing activitiesNet cash used in financing activities(264,230)(157,879)
(Decrease) increase in cash, cash equivalents and restricted cash(1,248,551)459,742 
Effect of exchange rate changes on cash, cash equivalents, and restricted cashEffect of exchange rate changes on cash, cash equivalents, and restricted cash(29)(49)
Decrease in cash, cash equivalents and restricted cashDecrease in cash, cash equivalents and restricted cash(120,088)(1,248,551)
Cash, cash equivalents and restricted cash - beginning of periodCash, cash equivalents and restricted cash - beginning of period151,807 1,715,425 
Cash, cash equivalents and restricted cash - end of periodCash, cash equivalents and restricted cash - end of period$31,719 $466,874 
See accompanying notes to condensed consolidated financial statements
5

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Cash, cash equivalents and restricted cash - beginning of period1,715,425 102,537 
Cash, cash equivalents and restricted cash - end of period$466,874 $562,279 
Supplemental disclosures of cash flow information:Supplemental disclosures of cash flow information:Supplemental disclosures of cash flow information:
Cash paid for interestCash paid for interest$92 $2,000 Cash paid for interest$126 $92 
Cash paid for taxes (net of refunds)1,003 463 
Cash paid for taxes, net of refundsCash paid for taxes, net of refunds393 1,003 
Cash paid for amounts included in the measurement of lease liabilitiesCash paid for amounts included in the measurement of lease liabilities16,579 10,702 
Non-cash investing and financing activities:Non-cash investing and financing activities:Non-cash investing and financing activities:
Capitalized stock-based compensationCapitalized stock-based compensation$411 $62 Capitalized stock-based compensation$392 $411 
Property and equipment received but not yet paid, included in Accounts payable and Accrued other expensesProperty and equipment received but not yet paid, included in Accounts payable and Accrued other expenses20,846 18,473 Property and equipment received but not yet paid, included in Accounts payable and Accrued other expenses20,437 20,846 
Costs related to initial public offering included in accounts payable and accrued liabilities— 428 
Debt issuance costs included in accounts payable and accrued liabilitiesDebt issuance costs included in accounts payable and accrued liabilities297 — Debt issuance costs included in accounts payable and accrued liabilities— 297 
Operating right-of-use assets obtained in exchange for operating lease liabilitiesOperating right-of-use assets obtained in exchange for operating lease liabilities48,597 23,196 
See accompanying notes to condensed consolidated financial statements
6

DIGITALOCEAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)

Note 1. Nature of the Business and Organization
DigitalOcean Holdings, Inc. and its subsidiaries (collectively, the “Company”, “we”, “our”, “us”) is a leading cloud computing platform offering on-demand infrastructure, platform and platformsoftware tools for developers, start-upsstartups and small-to-medium size businesses.small and medium-sized businesses (“SMBs”). The Company was founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. The Company’s platform simplifies cloud computing, enabling its customers to rapidly accelerate innovation and increase their productivity and agility. The Company offers mission-critical infrastructure solutions across compute, storageInfrastructure-as-a-Service (“IaaS”), Platform-as-a-Service (“PaaS”) and networking, and also enables developers to extend the native capabilities of the Company’s cloud with fully managed application, container and database offerings.Software-as-a-Service (“SaaS”).
The Company has adopted a holding company structure and the primary operations are performed globally through ourits wholly-owned operating subsidiaries.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include accounts of the Company and all wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of March 31, 2022,2023, results of operations for the three months ended March 31, 20222023 and 2021,2022, cash flows for the three months ended March 31, 2023 and 2022, and 2021, and stockholders' (deficit) equity for the three months ended March 31, 20222023 and 2021.2022.
Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make, on an ongoing basis, estimates, judgments and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Such estimates include, but are not limited to, those related to revenue recognition, accounts receivable and allowance for doubtful accounts,related reserves, useful lives and realizability of long-lived assets, capitalized internal-use software development costs, accounting for stock-based compensation, the incremental borrowing rate used to determine lease liabilities, valuation allowances against deferred tax assets, fair value of marketable securities,and the fair value and useful lives of tangible and intangible assets acquired and liabilities assumed resulting from business combinations. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Reclassifications
As previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, the Company adopted Accounting Standard Update 2016-02, Leases (“ASC 842”) using the modified retrospective transition method as of the first day of fiscal year 2022. The impact of the adoption of ASC 842 on previously reported interim financial statements during the year ended December 31, 2022, included the recognition of right-of-use assets and lease liabilities for operating leases. The adoption of ASC 842 also resulted in changes to certain lines within operating activities in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statement of Cash Flows due to changes in operating assets and liabilities for the related accounts. These changes to previously disclosed amounts conform to the current period presentation. Additionally, certain other reclassifications were made to prior period amounts in order to conform to the current period presentation.
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Restricted Cash
Restricted cash includes deposits in financial institutions related to letters of credit used to secure lease agreements. The following table reconciles cash, cash equivalents and restricted cash per the Condensed Consolidated Statements of Cash Flows:
March 31,March 31,
2022202120232022
Cash and cash equivalentsCash and cash equivalents$464,836 $560,053 Cash and cash equivalents$20,872 $464,836 
Restricted cash2,038 2,226 
Restricted cash included in Prepaid expenses and other current assets(1)
Restricted cash included in Prepaid expenses and other current assets(1)
9,100 — 
Restricted cash(2)
Restricted cash(2)
1,747 2,038 
Total cash, cash equivalents and restricted cashTotal cash, cash equivalents and restricted cash$466,874 $562,279 Total cash, cash equivalents and restricted cash$31,719 $466,874 
___________________
Marketable Securities
The Company’s marketable securities consist of commercial paper, U.S. treasury securities and commercial debt securities. The Company determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable securities as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, the Company classifies its marketable securities within Current assets on the Condensed Consolidated Balance Sheets.
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Available-for-sale securities are recorded at fair value each reporting period. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective interest method. Interest income is recognized when earned. Unrealized gains and losses on these marketable securities are presented net of tax and reported as a separate component of Accumulated other comprehensive loss until realized. Realized gains and losses are determined based on the specific identification method and are reported in Other (income) expense, net in the Condensed Consolidated Statements of Operations.
The Company periodically evaluates its marketable securities to assess whether an investment’s fair value is less than its amortized cost basis and if the decline in the fair value is attributable to a credit loss. Declines in fair value judged to be(1)Includes contingent compensation deposits related to the Cloudways acquisition.
(2)Includes deposits in financial institutions related to letters of credit loss are reported in Other (income) expense, net in the Condensed Consolidated Statements of Operations.used to secure lease agreements.
Accounts Receivable andNet of Allowance for Doubtful AccountsExpected Credit Losses
Accounts receivable primarily represents revenue recognized that was not invoiced at the balance sheet date and is primarily billed and collected in the following month. Trade accounts receivable are carried at the original invoiced amount less an estimated allowance for doubtful accountsexpected credit losses based on the probability of future collection. Management determines the adequacy of the allowance based on historical loss patterns, the number of days that customer invoices are past due, reasonable and supportable forecasts of future economic conditions to inform adjustments over historical loss data, and an evaluation of the potential risk of loss associated with specific accounts. When management becomes aware of circumstances that may further decrease the likelihood of collection, it records a specific allowance against amounts due, which reduces the receivable to the amount that management reasonably believes will be collected. The Company records changes in the estimate to the allowance for doubtful accountsexpected credit losses through bad debt expenseprovision for expected credit losses and reverses the allowance after the potential for recovery is considered remote.
The following table presents the changes in our allowance for doubtful accountsexpected credit losses for the period presented:
Amount
Balance as of December 31, 20212022$4,2126,099 
Bad debt expense, net of recoveriesProvision for expected credit losses4,0233,987 
Write-offs and other(3,080)(3,938)
Balance as of March 31, 20222023$5,1556,148 
Deferred Revenue
Deferred revenue was $5,248$5,015 and $4,826$5,550 as of March 31, 20222023 and December 31, 2021,2022, respectively. Revenue recognized during the three months ended March 31, 2023 and 2022 was $2,118 and 2021 was $1,735, and $1,725, respectively, which was included in each deferred revenue balance at the beginning of each respective period.
Asset AcquisitionRestructuring Expenses
The Company appliesrecords restructuring expenses when management commits to a restructuring plan, the principles provided in ASC 805, Business Combinations ("ASC 805")restructuring plan identifies all significant actions, the period of time to determine whether a transaction involves an asset or a business. If it is determined an acquisition is an asset acquisition,complete the purchase consideration (which will include certain transaction costs) is allocatedrestructuring plan indicates that significant changes to the acquired assetsplan are not likely, and liabilities based on their relative fair values.
In March 2022, the Company acquired the assets of the CSS Tricks website (“CSS Tricks”) from Midwest Coast Studios LLC for total purchase consideration of $4,000. The intangible assets will be amortized over 3 to 5 years.employees who are impacted have been notified.
Segment Information
The Company’s chief operating decision maker, the chief executive officer, reviews discrete financial information presented on a consolidated basis for purposes of regularly making operating decisions, allocation of resources, and assessing financial performance. Accordingly, the Company has 1one operating and reporting segment.
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Geographical Information
Revenue, as determined based on the billing address of the Company’s customers, was as follows:
Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
North AmericaNorth America38 %38 %North America38 %38 %
EuropeEurope29 29 Europe29 29 
AsiaAsia23 23 Asia23 23 
OtherOther10 10 Other10 10 
TotalTotal100 %100 %Total100 %100 %
Revenue derived from customers in the United States was 31% of total revenue for the periodsthree months ended March 31, 20222023 and 2021.2022.
No country outsideLong-lived assets includes property and equipment and operating leases. The geographic locations of the United States had revenue greater than 10%Company’s long-lived assets, net, based on physical location of total consolidated revenue in any period presented.
Property and equipment located in the United States was 50%assets is as of March 31, 2022 and December 31, 2021, respectively, with the remainder of net assets residing in international locations, primarily in the Netherlands, Singapore and Germany.follows:
March 31, 2023December 31, 2022
United States$207,448 $206,118 
Singapore57,150 60,607 
Germany71,232 50,274 
Netherlands54,777 35,951 
Other72,866 74,721 
Total$463,473 $427,671 
Concentration of Credit Risk
The amounts reflected in the Condensed Consolidated Balance Sheets for cash and cash equivalents, marketable securities, restricted cash, and trade accounts receivable are exposed to concentrations of credit risk. Although the Company maintains cash and cash equivalents with multiple financial institutions, the deposits, at times, may exceed federally insured limits. The Company believes that the financial institutions that hold its cash and cash equivalents are financially sound and, accordingly, minimal credit risk exists with respect to these balances.
The Company’s customer base consists of a significant number of geographically dispersed customers. No customer represented 10% or more of accounts receivable, net as of March 31, 20222023 and December 31, 2021.2022. Additionally, no customer accounted for 10% or more of total revenue during the three months ended March 31, 2023 and 2022.
Note 3. Acquisitions, Goodwill and Intangible Assets
Cloudways Ltd.
On September 1, 2022 and 2021.
Sublease
Lease termination costs consist of expenses related to future rent payments for which(“Acquisition Date”), the Company no longer intendsacquired 100% of the outstanding equity interests of Cloudways, Ltd. (“Cloudways”) pursuant to receive any economic benefit. A sublease liability is recorded whena Share Purchase Agreement, dated as of August 19, 2022. This acquisition has been accounted for as a business combination. The results of Cloudways’ operations have been included in the accompanying condensed consolidated financial statements since the Acquisition Date. The acquisition of Cloudways, a leading managed cloud hosting and software-as-a-service provider for SMBs, strengthens the Company’s ability to simplify cloud computing by enabling customers to launch a business and scale it effortlessly. Cloudways was a customer of the Company ceasesprior to use leased space,the acquisition, and the Company recognized revenue of approximately $6,000 from Cloudways from January 1, 2022 through the Acquisition Date.
The acquisition purchase consideration, in accordance with ASC 805, totaled $311,237 and was paid in cash. The Share Purchase Agreement includes customary representations and warranties and covenants of the parties. The Company contributed $42,000 to an escrow account on the Acquisition Date to support certain post-closing indemnification obligations. The final accounting has been completed with the exception of tax procedures which is included asstill in process. The provisional tax amounts for this business combination are subject to revision until these evaluations are completed.
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The following table sets forth the components and the allocation of the purchase price for the business combination and summarizes the fair values of the assets acquired and liabilities assumed at the Acquisition Date:
Total consideration:
Cash paid to Cloudways sellers$278,187 
Cash contributed to escrow accounts42,000 
Other expenses150 
Less: Cash pre-funded from contingent compensation(9,100)
Total consideration paid$311,237
Cash and cash equivalents$5,827 
Accounts receivable4,753 
Prepayments and other current assets547 
Other long term assets
Identifiable intangible assets72,000 
Accounts payable(1,820)
Accrued expenses(957)
Deferred revenue(1,013)
Deferred tax liabilities(3,097)
Other current liabilities(29,660)
Net identifiable assets acquired46,589 
Goodwill264,648 
Total fair value of net assets acquired$311,237
During the three months ended March 31, 2023, the Company recorded measurement period adjustments of $17,139 to decrease Goodwill and corresponding $18,589 to decrease Deferred tax liabilities, $748 to decrease Prepaid expenses and other current assets, and $702 to decrease Other current liabilities and Other noncurrent liabilitiesassets on the Condensed Consolidated Balance Sheets. Lease termination costs are calculated asAdditionally, the present value of lease payments, net of expected sublease income, andchange to the loss on disposition of assets. The sublease loss is included in General and administrative on the Condensed Consolidated Statements of Operations.
Recent Accounting Pronouncements – Pending Adoption
The following effective dates represent the requirements for private companies which the Company has elected as an emerging growth company.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842), and additional changes, modifications, clarifications, or interpretations related to this guidance thereafter (“ASU 2016-02”). ASU 2016-02 requires a reporting entity to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases to increase transparency and comparability. ASU 2016-02 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022 with early adoption permitted. The Company expects to elect the package of transition practical expedients, which allows it to carry forward its historical assessment of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs. In addition, the Company expects to elect the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all classes of underlying assets.
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The Company has made substantial progress in executing its implementation plan. It is in the process of revising its controls and processes to address the lease standard and has substantially completed the implementation and data input for the lease accounting software tool that it will use post-adoption. ASU 2016-02 also requires expanded disclosure regarding the amounts, timing and uncertainties of cash flows related to a company’s lease portfolio. The Company is evaluating these disclosure requirements and is incorporating the collection of relevant data into its existing financial reporting processes. While the Company expects the adoption of this standard to resultprovisional amount resulted in an increase to Income tax expense and Deferred tax liabilities of $1,589. The measurement period adjustments are a result of new information obtained about facts and circumstances that existed as of the reportedacquisition date.
The Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed (the useful life). The fair values allocated to the identifiable intangible assets and their estimated useful lives are as follows:
Intangible assetsFair ValueWeighted Average Useful Life in Years
Trade name$9,500 10
Developed technology31,500 5
Customer relationships31,000 7
Total identifiable intangible assets$72,000 
Cloudways’ assets and liabilities were measured at estimated fair values on September 1, 2022. Estimates of fair value represent management’s best estimate and require a complex series of judgments about future events and uncertainties. Third-party valuation specialists were engaged to assist in the valuation of these assets and liabilities. The Company used the relief from royalty method to fair value the developed technology and the trade name intangible assets, and the multi-period excess earnings method to fair value the customer relationship intangible assets. The significant assumptions used to estimate the value of the intangible assets included discount rates, projected revenue growth rates, EBITDA margins, technology obsolescence and royalty rates.
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The goodwill is attributable primarily to the revenue synergies expected from combining the operations of both entities, and intangible assets that do not qualify for separate recognition, including the existing workforce acquired through the acquisition. None of the goodwill is expected to be deductible for income tax purposes.
Contingent compensation
Contingent compensation costs relate to payments due to a Cloudways seller for $38,830, of which $16,851 will be earned on September 1, 2023, and $7,326 will be earned on each of March 1, 2024, September 1, 2024 and March 1, 2025. Contingent compensation represents compensation for post-combination services because the payments are contingent on continuing employment of the Cloudways seller, with limited exceptions, at each payment date.
Unaudited Pro Forma Financial Information
The unaudited pro forma information below summarizes the combined results of the Company is currently evaluatingand Cloudways as if the impactCompany’s acquisition of adoptionCloudways closed on January 1, 2021 but does not necessarily reflect the condensed consolidated financial statements.combined actual results of operations of the Company and Cloudways that would have been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma information reflects certain adjustments that were directly attributable to the acquisition of Cloudways, including additional amortization adjustments for the fair value of the assets acquired and liabilities assumed and other adjustments the Company believes are reasonable for the pro forma presentation.
Pro Forma
Three Months Ended
March 31, 2022
Pro-forma revenue$137,404 
Pro-forma net loss23,044 
Other Asset Acquisitions
In June 2016,January 2023, the FASB issued ASU 2016-13, with subsequent amendments, Financial Instruments – Credit Losses (Topic 326): MeasurementCompany acquired certain assets of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires immediate recognition of management’s estimates of current expected credit losses. ASU 2016-13 is effectiveSnapShooter Limited for annual reporting periods beginning after December 15, 2022, and interim periods within annual periods beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of adoption on the condensed consolidated financial statements.
Recent Accounting Pronouncements – Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting$2,500, which was accounted for Income Taxes (“ASU 2019-12”). ASU 2019-12 eliminates certain exceptions in FASB Topic 740: Income Taxes (“ASC 740”) related to the approach for intra-period tax allocation, the methodology for calculating income taxes inas an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspectsasset acquisition as substantially all of the accounting for income taxes. ASU 2019-12fair value of the assets acquired was concentrated in a developed technology intangible asset and will be amortized over five years.
Additionally, the Company recognized a contingent compensation liability of $1,000 that is effective for annual reporting periods beginning after December 15, 2021,payable one year from the date of acquisition, contingent on continuing employment and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adoptedwill be recognized as compensation expense over the new standard and there was an immaterial impact to the condensed consolidated financial statements and related disclosures.period that it is earned.
Note 3.4. Marketable Securities
The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents, on the Condensed Consolidated Balance Sheets as of March 31, 2022. The Company did not hold any available-for-sale marketable securities as of2023 and December 31, 2021.2022.
March 31, 2022March 31, 2023
Amortized
Cost
Gross Unrealized GainsGross Unrealized LossesFair
Value
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
U.S. treasury securitiesU.S. treasury securities$720,546 $— $(1,231)$719,315 U.S. treasury securities$469,846 $134 $(107)$469,873 
Corporate debt securities35,145 — (70)35,075 
Commercial paperCommercial paper336,582 (603)335,980 Commercial paper121,856 25 (73)121,808 
Total Marketable securitiesTotal Marketable securities$1,092,273 $$(1,904)$1,090,370 Total Marketable securities$591,702 $159 $(180)$591,681 
December 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
U.S. treasury securities$549,944 $29 $(849)$549,124 
Corporate debt securities35,293 — (86)35,207 
Commercial paper139,489 (367)139,131 
Total Marketable securities$724,726 $38 $(1,302)$723,462 
Interest income from investments was $7,670 and $946 for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2022,2023, all of the Company’s available-for-sale short-term investments were due within one year.
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As of March 31, 2023, the Company held nine securities that were in an unrealized loss position. The Company does not believeintend to sell and expects that any unrealizedit is more likely than not that it will not be required to sell these securities until such time as the value recovers or the securities mature. Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates and not credit-related factors based on itsthe Company’s evaluation of available evidence. To determine whether a decline in value is related to credit loss, the Company evaluates, among other factors: the extent to which the fair value is less than the amortized cost basis, changes to the rating of the security by a rating agency and any adverse conditions specifically related to an issuer of a security or its industry. Management does not believe any remaining unrealized losses represent impairments based on our evaluation of available evidence. Unrealized gains and losses on marketable securities are presented net of tax.
Note 4.5. Fair Value Measurements
The fair value of our financial assets measured on a recurring basis is as follows:
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March 31, 2023
Level ILevel IITotal
Cash and cash equivalents:
Cash$19,689 $— $19,689 
Money market funds1,183 — 1,183 
Total Cash and cash equivalents$20,872 $— $20,872 
Marketable securities:
U.S. treasury securities$469,873 $— $469,873 
Commercial paper— 121,808121,808 
Total Marketable securities$469,873 $121,808 $591,681 
March 31, 2022
Level ILevel IITotal
Cash and cash equivalents:
Cash$376,909 $— $376,909 
Money market funds7,967 — 7,967 
Commercial paper— 79,96079,960 
Total Cash and cash equivalents$384,876 $79,960 $464,836 
Marketable securities:
U.S. treasury securities$719,315 $— $719,315 
Corporate debt securities— 35,07535,075 
Commercial paper— 335,980335,980 
Total Marketable securities$719,315 $371,055 $1,090,370 
December 31, 2021December 31, 2022
Level ILevel IITotalLevel ILevel IITotal
Cash and cash equivalents:Cash and cash equivalents:Cash and cash equivalents:
CashCash$1,093,425 $— $1,093,425 Cash$95,117 $— $95,117 
Money market fundsMoney market funds45,655 — 45,655 
Total Cash and cash equivalentsTotal Cash and cash equivalents$140,772 $— $140,772 
Marketable securities:Marketable securities:
U.S. treasury securitiesU.S. treasury securities$549,124 $— $549,124 
Corporate debt securitiesCorporate debt securities— 35,207 35,207 
Commercial paperCommercial paper— 269,945 269,945 Commercial paper— 139,131 139,131 
Certificate of deposits— 350,017 350,017 
Total Cash and cash equivalents$1,093,425 $619,962 $1,713,387 
Total Marketable securitiesTotal Marketable securities$549,124 $174,338 $723,462 
The Company classifies its highly liquid money market funds and U.S. treasury securities within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its commercial paper and corporate debt securities and certificates of deposit within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded. The Company had no levelLevel 3 financial assets as of March 31, 20222023 and December 31, 2021.2022.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
The Company reports financial instruments at fair value, with the exception of the 0% Convertible Senior Notes due December 1, 2026 (“Convertible Notes”). Financial instruments that are not recorded at fair value on a recurring basis are measured at fair value on a quarterly basis for disclosure purposes. The carrying values and estimated fair values of financial instruments not recorded at fair value are as follows:
March 31, 2022December 31, 2021
Carrying ValueFair ValueCarrying ValueFair Value
Convertible Notes$1,464,525 $1,197,825 $1,462,676 $1,462,676 
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March 31, 2023December 31, 2022
Carrying ValueFair ValueCarrying ValueFair Value
Convertible Notes$1,472,148 $1,175,280 $1,470,270 $1,134,030 
The carrying value of the Convertible Notes as of March 31, 20222023 and December 31, 20212022 was net of unamortized debt issuance costs of $35,475$27,852 and $37,324,$29,730, respectively.
The total fair value of the Convertible Notes was determined based on the closing trading price as of the last day of trading for the period. The Company considers the fair value to be a Level 2 valuation due to the limited trading activity.
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Note 5.6. Balance Sheet Details
Property and equipment, net
Property and equipment, net consisted of the following:
March 31, 2022December 31, 2021March 31, 2023December 31, 2022
Computers and equipmentComputers and equipment$515,557 $487,484 Computers and equipment$575,294 $564,763 
Furniture and fixturesFurniture and fixtures1,511 1,511 Furniture and fixtures1,511 1,511 
Leasehold improvementsLeasehold improvements6,820 6,820 Leasehold improvements6,820 6,820 
Internal-use softwareInternal-use software70,889 68,321 Internal-use software80,132 78,649 
Property and equipment, grossProperty and equipment, gross$594,777 $564,136 Property and equipment, gross$663,757 $651,743 
Less: accumulated amortizationLess: accumulated amortization$(52,413)$(49,268)Less: accumulated amortization$(63,876)$(61,244)
Less: accumulated depreciationLess: accumulated depreciation(282,979)(265,225)Less: accumulated depreciation(321,924)(317,329)
Property and equipment, netProperty and equipment, net$259,385 $249,643 Property and equipment, net$277,957 $273,170 
Depreciation expense on property and equipment for the three months ended March 31, 2023 and 2022 was $22,372 and 2021 was $20,326, and $17,219, respectively.
The Company capitalized costs related to the development of computer software for internal use of $2,687$2,199 and $1,432$2,687 for the three months ended March 31, 20222023 and 2021,2022, respectively, which is included in internal-use software costs within Property and equipment, net. Amortization expense related to internal-use software for the three months ended March 31, 2023 and 2022 was $2,750 and 2021 was $3,145, and $3,657, respectively.
During the three months ended March 31, 2023 and 2022, the Company recorded an impairment loss of $553 and $120, respectively, related to software that is no longer being used. There was no such impairment loss recorded for the three months ended March 31, 2021. This impairment loss is included in Cost of revenue and Research and development on the Condensed Consolidated Statements of Operations.
Note 6.7. Debt
Credit Facility
In February and March 2020, the Company entered into and subsequently amended a second amended and restated credit agreement with KeyBank National Association as administrative agent. In November 2021, the Company further amended such credit agreement to revise certain covenants that restricted the incurrence of indebtedness to permit the issuance of the convertible notes discussed below. In March 2022, the Company entered into a third amended and restated credit agreement (the “Credit Facility”) to, among other modifications, (i) remove the term loan component of the existing credit facility which had been previously repaid in full; (ii) increase the maximum borrowing limit of the revolving credit facility from $150,000 to $250,000; (iii) extend the maturity date; (iv) replace the existing maximum total net leverage ratio financial covenant with a maximum senior secured net leverage ratio financial covenant; (v) eliminate the financial covenant requirement of maintaining a minimum debt service coverage ratio; (vi) reduce the interest rates applicable to any principal amounts outstanding on the revolving credit facility as well as the annual commitment fee for unused amounts on the revolving credit facility; and (vii) replace the benchmark reference rate for U.S. Dollar loans from LIBOR to the forward-looking term rate based on the secured overnight financing rate plus a customary adjustment (“Adjusted Term SOFR”).
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At March 31, 2022,2023, the Company had available borrowing capacity of $250,000 on the Credit Facility. The Credit Facility will mature on the earlier of (a) March 29, 2027 and (b) 90 days before the maturity date applicable to any outstanding convertible notes issued by the Company in an aggregate principal amount equal to or greater than $100 million.$100,000.
The Credit Facility is secured by a first-priority security interest in substantially all of the assets of the Company. The Credit Facility contains certain financial and operational covenants, including a maximum senior secured net leverage ratio financial covenant of 3.50x. As of March 31, 2022,2023, the Company was in compliance with all covenants under the Credit Facility.

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The per annum interest rate applicable to any principal amounts outstanding under the Credit Facility for U.S. Dollar loans will be equal to (i) Adjusted Term SOFR plus (ii) an applicable margin varying from 1.25% to 2.00%, subject to a pricing grid based on the senior secured net leverage ratio. The Credit Facility provides for an annual commitment fee varying from 0.20% to 0.30%, also subject to a pricing grid based on the senior secured net leverage ratio, applied to the average daily unused amount of the revolving credit facility. The Company incurred commitment fees on the unused balance of the Credit Facility of $95$125 and $67$95 for the three months ended March 31, 2023 and 2022, and 2021, respectively.
In connection with the Credit Facility, the Company incurred $1,218 of additional debt issuance costs which, together with $662 of the then unamortized financing fees, will be amortized over the remaining term of the facility. The Company recognized a loss on extinguishment of debt of $407 for the three months ended March 31, 2022. The loss on extinguishment of debt represent a non-cash adjustment to reconcile net income to net cash provided by operating activities within the Condensed Consolidated Statements of Cash Flows.
Amortization of deferred financing fees for the three months ended March 31, 2023 and 2022 was $105 and 2021 was $92, and $1,973, respectively.
Convertible Notes
In November 2021, the Company issued $1,500,000 aggregate principal amount of Convertible Notes in a private offering, including the exercise in full of the over-allotment option granted to the initial purchasers of $200,000. The Convertible Notes are senior unsecured obligations of the Company and do not bear regular interest, and the principal amount of the Convertible Notes does not accrete. The Convertible Notes will mature on December 1, 2026 unless earlier converted, redeemed, or repurchased. The net proceeds from this offering were $1,461,795 after deducting underwriting fees, expenses and commissions. Amortization of deferred financing fees for the three months ended March 31, 2023 and 2022 was $1,868.$1,879 and $1,868, respectively.
Each $1,000$1 of principal of the Convertible Notes will initially be convertible into 5.6018 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $178.51 per share, subject to adjustment as set forth in the indenture governing the Convertible Notes. Holders of these Convertible Notes may convert their Convertible Notes at their option at any time prior to the close of the business day immediately preceding June 1, 2026, only under the following circumstances:
1.during any calendar quarter commencing after the calendar quarter ending on March 31, 2022, if the last reported sale price of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter on each applicable trading day;
2.during the 5five business day period after any 10ten consecutive trading day period (such 10ten consecutive trading day period, the “measurement period”) in which the trading price of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the common stock on such trading day and the conversion rate on such trading day;
3.if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; and
4.upon the occurrence of specified corporate events or distributions on the common stock.
As none of the above circumstances have occurred as of March 31, 2023, the Convertible Notes were not convertible for the fiscal quarter ending March 31, 2023.
On or after June 1, 2026 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Notes at the option of the holder regardless of the foregoing circumstances.
Upon conversion of the Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election. It is the Company's current intent to settle the principal amount of the Convertible Notes with common stock.
The Company may redeem for cash all or any portion of the Convertible Notes, at its option, on or after December 2, 2024 and on or before the 25th scheduled trading day immediately before the maturity date, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect on each
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of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption at a redemption
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price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus any accrued and unpaid special interest and additional interest, if any, to, but excluding, the redemption date.
Upon the occurrence of a fundamental change (as defined in the indenture governing the Convertible Notes), subject to certain conditions, holders may require the Company to repurchase all or a portion of the Convertible Notes for cash at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid special interest and additional interest, if any, to, but excluding, the fundamental change repurchase date.
Note 7. Operating Leases
The Company leases data center facilities and office space under generally non-cancelable operating lease agreements, which expire at various dates through 2027. Facility leases generally include renewal options and may include escalating rental payment provisions. Additionally, the leases may require us to pay a portion of the related operating expenses. Rent expense related to these operating leases for the three months ended March 31, 2022 and 2021 was $12,409, and $11,990, respectively.
In March 2022, the Company entered into a separate sublease agreement related to its New York office space. As defined within the lease and sublease agreements, the Company remains primarily liable to the landlord for the performance of all obligations in the event that the sublessee does not perform its obligations under the lease. As a result of the sublease arrangement, future minimum rental commitments under operating leases will be offset by sublease amounts to be paid by the sublessee. The Company recognized a loss on the sublease of $788 for the three months ended March 31, 2022. The total of minimum sublease amounts to be received in the future under non-cancelable subleases is $3,184 as of March 31, 2022.
Future minimum rental payments under operating lease agreements, which included renewals and modifications as of March 31, 2022, were as follows:
2022 (nine months remaining)$36,432 
202339,509 
202440,166 
202511,553 
20268,610 
Thereafter2,435 
Total minimum operating lease payments$138,705 
Note 8. Commitments and Contingencies
Purchase Commitments
As of March 31, 2022,2023, the Company had long-term commitments for bandwidth usage with various networks and internet service providers and entered into purchase orders with various vendors. The Company’s purchase commitments have not materially changed since December 31, 2021.2022.
Letters of Credit
In conjunction with the execution of certain office space operating leases, lettersa letter of credit in the aggregate amount of $2,038 were$1,747 and $1,935 was issued and outstanding as of March 31, 20222023 and December 31, 2021.2022, respectively. No draws have been made under such lettersthe letter of credit. These funds are included as Restricted cash on the Condensed Consolidated Balance Sheets as they are related to long-term operating leases and are included in beginning and ending Cash, cash equivalents and restricted cash in the Condensed Consolidated Statements of Cash Flows. Certain of the lettersThe letter of credit can bewas reduced on an annual basis until the end of 2022 at which pointand, beginning January 1, 2023, the deposit required will similarly reduce to meetis the minimum threshold requirements.required until the lease expiration.
Legal Proceedings
The Company may be involved in various legal proceedings and litigation arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate disposition of any such litigation matters, the Company believes that any such legal proceedings will not have a material adverse effect on its condensed consolidated financial position, results of operations, or liquidity.
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Note 9. Stockholders’ Equity
Common Stock
The Company’s amended and restated certificate of incorporation authorizes the issuance of common and preferred stock. Holders of common stock are entitled to 1one vote per share.
As of March 31, 20222023 and December 31, 2021,2022, the Company was authorized to issue 750,000,000 shares of common stock with a par value of $0.000025 per share.
Preferred Stock
In connection with the IPO, the Company'sCompany’s amended and restated certificate of incorporation became effective, which authorized the issuance of 10,000,000 shares of preferred stock with a par value of $0.000025 per share with rights and preferences, including voting rights, designated from time to time by the Company'sCompany’s Board of Directors. No shares of preferred stock were issued or outstanding as of March 31, 20222023 or December 31, 2021.2022.
Share Buyback Program
On February 23, 2022,14, 2023, the Company'sCompany’s Board of Directors approved the repurchase of up to an aggregate of $300,000$500,000 of the Company’s common stock (the “Program”“2023 Share Buyback Program”). Pursuant to the 2023 Share Buyback Program, repurchases of the Company'sCompany’s common stock will be made at prevailing market prices throughoccur using a variety of methods, which may include but are not limited to open market purchases, the implementation of a 10b5-1 plan, and/or any other available methods in negotiated transactions off the market.accordance with SEC and other applicable legal requirements. The 2023 Share Buyback Program is authorized throughout fiscal year 2022;2023; however, the Company is not obligated to acquire any particular amount of common stock and the 2023 Share Buyback Program may be extended, modified, suspended or discontinued at any time at the Company’s discretion.
During the three months ended March 31, 2022 and since the commencement of the Program,2023, the Company repurchased and retired 2,577,4717,759,973 shares of common stock at an average price of $58.20 per sharepursuant to the 2023 Share Buyback Program for an aggregate purchase price of $150,000.$265,901, which excludes the 1%
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excise tax of $2,659 imposed under the Inflation Reduction Act. All purchased shares were retired and are reflected as a reduction of Common stock for the par value of shares, with the excess applied to Additional paid-in capital. As of March 31, 2022,2023, the dollar value of shares that remained available to be purchasedrepurchased by the Company under the 2023 Share Buyback Program was $150,000.
Treasury Stock
The Company records treasury stock at the cost to acquire shares and is included as a component of Stockholders’ equity. At March 31, 2022 and December 31, 2021, the Company had 1,968,228 shares of treasury stock which were carried at its cost basis of $4,598 on the Condensed Consolidated Balance Sheets.$234,099.
Note 10. Stock-Based Compensation
Equity Incentive Plan
In March 2021, the Company’s Board of Directors adopted, and the stockholders approved, the 2021 Equity Incentive Plan. The 2021 Equity Incentive Plan is a successor to and continuation of the 2013 Stock Plan. The 2021 Equity Incentive Plan became effective on the date of the IPO with no further grants being made under the 2013 Stock Plan, however, awards outstanding under ourthe 2013 Stock Plan will continue to be governed by their existing terms. The 2021 Equity Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units awards (“RSUs”), performance awards, and other awards to employees, directors, and consultants up to an aggregate of 36,290,381 shares of common stock as of March 31, 2022.consultants. Shares issued pursuant to the exercise of these awards are transferable by the holder.
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In February 2023, the Company initiated a restructuring plan to adjust its cost structure and accelerate its timeline to achieve greater than 20% adjusted free cash flow margins (the “Restructuring Plan”), which includes both the elimination of positions across the Company as well as the shifting of additional positions across a broader geographical footprint. In connection with the Restructuring Plan, the Company recorded $3,937 of stock-based compensation related to the accelerated vesting of certain restricted stock, performance-based restricted stock units (“PRSUs”), and RSU awards during the three months ended March 31, 2023. Refer to Note 13, Restructuring, for further details of the Restructuring Plan.
Stock Options
Stock options granted have a maximum term of ten years from the grant date, are exercisable upon vesting and vest over a period of four years. Stock option activity for the three months ended March 31, 20222023 was as follows:
Number of Options OutstandingWeighted-Average Exercise PriceWeighted-Average Remaining Life in YearsAggregate Intrinsic Value
Outstanding at January 1, 202212,434,159 $7.19 7.64$909,494 
Exercised(997,561)5.44 
Forfeited or cancelled(201,916)6.75 
Outstanding at March 31, 202211,234,682 7.35 7.39567,373 
Vested and exercisable at March 31, 20226,097,743 6.11 7.01315,509 
Vested and unvested expected to vest at March 31, 20229,889,941 $7.01 7.31$502,800 
Number of Options OutstandingWeighted-Average Exercise PriceWeighted-Average Remaining Life in YearsAggregate Intrinsic Value
Outstanding at January 1, 202310,153,916 $7.23 6.16$185,188 
Exercised(814,602)6.81 
Forfeited or cancelled(205,644)11.37 
Outstanding at March 31, 20239,133,670 7.18 5.54292,231 
Vested and exercisable at March 31, 20237,314,438 6.49 5.34239,011 
Vested and unvested expected to vest at March 31, 20238,842,139 $7.02 5.50$284,271 
The aggregate intrinsic value represents the difference between the fair value of common stock and the exercise price of outstanding in-the-money options. The aggregate intrinsic value of exercised options for the three months ended March 31, 2023 and 2022 was $21,037 and 2021$54,392, respectively. The tax benefit from stock options exercised was $54,392$1,129 and $39,650,$5,758 for the three months ended March 31, 2023 and 2022, respectively.
No options were granted during the three months ended March 31, 20222023 and 2021.2022. The aggregate estimated fair value of stock options granted to participants that vested during the three months ended March 31, 2023 and 2022 was $3,836 and 2021 was $4,698, and $4,998, respectively.
As of March 31, 2022,2023, there was $25,853$12,600 of unrecognized stock-based compensation expense related to outstanding stock options granted that is expected to be recognized over a weighted-average period of 2.231.35 years.
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RSUs
RSUs granted typically vest over four years. RSU activity for the three months ended March 31, 20222023 was as follows:
SharesWeighted-Average Fair ValueSharesWeighted-Average Fair Value
Unvested balance at January 1, 20223,334,137 $45.74 
Unvested balance at January 1, 2023Unvested balance at January 1, 20234,802,435 $44.25 
GrantedGranted1,119,024 52.39 Granted3,713,808 33.97 
VestedVested(454,639)42.83 Vested(352,763)48.46 
Forfeited or cancelledForfeited or cancelled(60,762)45.26 Forfeited or cancelled(912,505)46.69 
Unvested balance at March 31, 20223,937,760 47.97 
Vested and expected to vest at March 31, 20222,437,477 $47.96 
Unvested balance at March 31, 2023Unvested balance at March 31, 20237,250,975 38.47 
Vested and expected to vest at March 31, 2023Vested and expected to vest at March 31, 20234,596,651 $38.67 
Forfeitures and cancellations of 912,505 shares during the three months ended March 31, 2023 were primarily due to the Restructuring Program.
As of March 31, 2022,2023, there was $105,405$165,227 of unrecognized stock-based compensation expense related to outstanding RSUs granted that is expected to be recognized over a weighted-average period of 3.273.15 years.
PRSUs
The Company issued performance-based restricted stock units (“PRSUs”)PRSUs which will vest based on the achievement of each award’s established performance targets. PRSU activity for the three months ended March 31, 20222023 was as follows:
SharesWeighted-Average Fair Value
Unvested balance at January 1, 2022578,949 $48.04 
Granted436,387 60.72 
Vested(103,059)41.24 
Forfeited or cancelled(30,497)41.24 
Adjusted by performance factor(89,769)41.24 
Unvested balance at March 31, 2022792,011 $56.94 
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SharesWeighted-Average Fair Value
Unvested balance at January 1, 2023666,122 $57.41 
Granted1,118,528 31.75 
Vested(21,947)41.24 
Forfeited or cancelled(250,596)34.25 
Adjusted by performance factor(436,387)60.72 
Unvested balance at March 31, 20231,075,720 $35.08 
At the end of each reporting period, the Company will adjust compensation expense for the PRSUs based on its best estimate of attainment of the below specified performance metrics. The cumulative effect on current and prior periods of a change in the estimated number of PRSUs that are expected to be earned during the performance period will be recognized as an adjustment to earnings in the period of the revision.
Compensation cost in connection with the probable number of shares that will vest will be recognized using the accelerated attribution method. As of March 31, 2022, the Company determined that it was probable that the LTIP PRSUs and the other PRSU awards would vest, resulting in $14,606 of unrecognized stock-based compensation that is expected to be recognized over a weighted-average period of 1.5 years.
LTIP PRSUs
The Company grants LTIPLong Term Incentive Plan (“LTIP”) PRSUs to certain executives of the Company during the first fiscal quarter. A percentage of the LTIP PRSUs will become eligible to vest based on the Company’s financial performance level at the end of each fiscal year. The financial performance level is determined as the percentage equal to the sum of the revenue growth percentage and profitability percentage.
The number of LTIP PRSUs received will depend on the achievement of financial metrics relative to the approved performance targets. Depending on the actual financial metrics achieved relative to the target financial metrics throughout the defined performance period of the award, the number of LTIP PRSUs that vest could range from 0% to 200% of the target amount and are subject to the Board of Director’sDirectors’ approval of the level of achievement against the approved performance targets.
Assuming the minimum performance target is achieved, one-third of the aggregate number of the LTIP PRSUs shall vest on the later of (i) March 1 of the year after grant or (ii) 2two trading days following the public release of the Company’s financial results, and the remainder shall vest in 8eight equal quarterly installments subject, in each case, to the individual’s continuous service through the applicable vesting.vesting date.
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On February 24, 2022, the financial performance of the LTIP PRSUs granted in 2021 was determined to be achieved at 155% of the target amount. This resulted in a performance factor reduction of 89,769 shares from the original maximum shares achievable of 398,949.
On March 1, 2022, 103,059 shares vested. With respect toFebruary 16, 2023, it was determined that the financial performance of the LTIP awardPRSUs granted in 2021, as2022 was not achieved. This resulted in a performance factor reduction of March 31, 2022, there were 30,497436,387 shares that had been forfeited andfrom the remaining 175,624original maximum shares will vest quarterly through March 1, 2024.achievable of 436,387.
On March 1, 2022,2023, the Company granted an LTIP PRSU award (the “2023 LTIP PRSU”) with a maximum shares achievable of 436,387,1,118,528, subject to the above actual financial metrics achieved relative to the target financial metrics for fiscal year 2022.2023. As of March 31, 2023, the Company determined that it was probable that the 2023 LTIP PRSUs granted with respect to the Company’s 2023 financial performance would vest.
There is $14,429 of unrecognized stock-based compensation that is expected to be recognized over a weighted-average period of 1.52 years in regards to the LTIP PRSUs.
Other PRSUs
In addition to the above awards, certain other PRSUs have been awarded subject to other various performance measures including the achievement of revenue targetstargets.
As part of the Restructuring Plan, 20,000 PRSU shares were deemed achieved and product launches.$1,262 of stock-based compensation was included in Restructuring and other charges in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023.
MRSUs
On July 27, 2021, the Company’s Board of Directors granted a market-based restricted stock unit (“MRSU”) award for 3,000,000 shares of the Company’s common stock to the Company’s Chief Executive Officer, Yancey Spruill, which will vest upon the satisfaction of certain service conditions and the achievement of certain Company stock price goals, as described below.
The MRSU, which is estimated to havehas a grant date fair value of approximately $75,300 derived by using a discrete model based on multiple stock price-paths developed through the use of a Monte Carlo simulation, is divided into 5five tranches that will be earned based on the achievement of stock price goals, measured based on the average of the Company’s closing stock price over a consecutive ninety (90) trading day period during the performance period as set forth in the table below.
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TrancheCompany Stock Price TargetNumber of Eligible MRSUs
1$93.50475,000
2$140.00575,000
3$187.00650,000
4$233.50650,000
5$280.50650,000
To the extent earned based on the stock price targets set forth above, the MRSU will vest over a seven-year period beginning on the date of grant in annual amounts equal to 14%, 14%, 14%, 14%, 14%, 15% and 15%, respectively, on each anniversary of the date of grant.
MRSU activity for the three months ended March 31, 20222023 was as follows:
SharesWeighted-Average Fair Value
Unvested balance at January 1, 20223,000,000 $25.12 
Granted— — 
Unvested balance at March 31, 20223,000,000 $25.12 
SharesWeighted-Average Fair Value
Unvested balance at January 1, 20233,000,000 $25.12 
Granted— — 
Unvested balance at March 31, 20233,000,000 $25.12 
As of March 31, 2022,2023, there was $63,540$46,142 of unrecognized stock-based compensation related to the MRSUs granted that is expected to be recognized over a weighted-average period of 4.173.37 years.
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ESPP
In March 2021, the Company’s Board of Directors adopted, and the stockholders approved, the 2021 Employee Stock Purchase Plan (“ESPP”). The ESPP provides for the grant of up to an aggregate of 3,272,076 shares of common stock as of March 31, 2022.
The initial offering period commenced on the IPO date and consists of two purchase periods, the first of which had a purchase date of November 19, 2021 and the second and final purchase period will have a purchase date of May 20, 2022. After the end of the initial offering period, a new offering will automatically begin on the date that immediately follows the conclusion of the preceding offering. Eligible employees enroll in the offering period at the start of each purchase period, whereby they may purchase a number of shares at a price per share equal to 85% of the lesser of (1) the stock price at the employee’s first participation in the offering period or (2) the fair market value of the Company’s common stock on the purchase date. After the end of an offering period, a new offering will automatically begin on the date that immediately follows the conclusion of the preceding offering.
There
2022 Offerings
A new offering period commenced on May 23, 2022 and was scheduled to consist of two purchase periods, with purchase dates of November 18, 2022 and May 19, 2023 (the “First 2022 Offering”). In connection with the purchase period that ended on November 18, 2022, there were 117,996111,851 shares purchased by employees during the year ended December 31, 2021,of common stock, net of shares withheld for taxes. Astaxes, purchased by employees at a price of March 31,$24.03. Under the terms of the ESPP, since the Company’s stock price on the first day of the purchase period beginning on November 21, 2022 3,154,080 shareswas lower than the stock price at the beginning of common stock remain available for issuance under the ESPP.First 2022 Offering, the First 2022 Offering terminated and a new 12 month offering automatically commenced on November 21, 2022, with scheduled purchase dates on May 19, 2023 and November 20, 2023 (the “Second 2022 Offering”).
The Company recordedtermination of the First 2022 Offering and commencement of the Second 2022 Offering was accounted for as a modification, which resulted in an incremental stock-based compensation under this plan of $1,361 for$2,069, which will be recognized over the remaining term of Second 2022 Offering.
During the three months ended March 31, 2022. No2023 and 2022, the Company recorded stock-based compensation was recorded forassociated with the three months ended March 31, 2021.ESPP of $625 and $1,361, respectively. As of March 31, 2022, $4,2302023, $2,292 has been withheld on behalf of employees.
Restricted Shares
In connection with ourthe closing of the Nimbella acquisition of Nimbella, weon September 1, 2021, the Company issued 200,204 shares of restricted stock for $63.11 per share for a total value of $12,635 to the founders of Nimbella. These shares vest equally on March 1, 2023 and September 1, 2024 and are expensed on a straight line basis over 36 months. The restricted stock is subject to forfeiture and dependent upon each founder’s continuous service on the vesting date.
As part of the Restructuring Plan, 33,963 shares of restricted stock that were issued to a former founder were vested upon the employee’s departure during the first quarter of 2023 and $2,147 of stock-based compensation was included in Restructuring and other charges in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023.
Total stock-based compensation for the three months ended March 31, 2023 and 2022 was $1,053. No stock compensation was recorded for the three months ended March 31, 2021.$934 and $1,053, respectively. As of March 31, 2022,2023, there was $10,191$3,946 of unrecognized stock-based compensation related to outstanding restricted shares granted that is expected to be recognized over a weighted-average period of 2.451.44 years.
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Stock-Based Compensation
Stock-based compensation was included in the Condensed Consolidated Statements of Operations as follows:
Three Months Ended March 31,
20222021
Cost of revenue$432 $196 
Research and development9,720 2,636 
Sales and marketing3,346 1,137 
General and administrative12,483 2,655 
Total$25,981 $6,624 
Three Months Ended March 31,
20232022
Cost of revenue$392 $432 
Research and development9,590 9,720 
Sales and marketing3,332 3,346 
General and administrative14,280 12,483 
Restructuring and other charges3,937 — 
Total stock-based compensation$31,531 $25,981 
Excess income tax benefit related to stock-based compensation$1,580 $9,418 
Note 11. Net Loss per Share Attributable to Common Stockholders
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The following table presents the calculation of basic and diluted net loss per share:
Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Numerator:Numerator:Numerator:
Net loss attributable to common stockholdersNet loss attributable to common stockholders$(18,123)$(3,339)Net loss attributable to common stockholders$(34,937)$(18,568)
Denominator:Denominator:Denominator:
Weighted average shares, in thousands, used to compute net loss per share, basic and diluted106,980 49,432 
Weighted average shares used to compute net loss per share, basic and dilutedWeighted average shares used to compute net loss per share, basic and diluted95,565 106,980 
Net loss per share attributable to common stockholders, basic and dilutedNet loss per share attributable to common stockholders, basic and diluted$(0.17)$(0.07)Net loss per share attributable to common stockholders, basic and diluted$(0.37)$(0.17)
Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
March 31,As of March 31,
2022202120232022
Warrants— 308,632 
Stock OptionsStock Options11,234,682 15,712,369 Stock Options9,133,670 11,234,682 
RSUsRSUs3,937,760 2,063,088 RSUs7,250,975 3,937,760 
PRSUsPRSUs792,011 — PRSUs1,075,720 792,011 
MRSUMRSU3,000,000 — MRSU3,000,000 3,000,000 
ESPPESPP125,524 — ESPP404,536 125,524 
Convertible NotesConvertible Notes8,402,700 — Convertible Notes8,402,700 8,402,700 
TotalTotal27,492,677 18,084,089 Total29,267,601 27,492,677 
Note 12. Income Taxes
The computation of the provision for or benefit from income taxes for interim periods is determined by applying the estimated annual effective tax rate to year-to-date income (loss) before tax and adjusting for discrete tax items recorded in the period, if any.
For the three months ended March 31, 2023, the Company recorded a tax expense of $7,608. The effective tax rate for the three months ended March 31, 2023 was (27.8)%. The effective tax rate differs from the statutory rate primarily as a result of not recognizing deferred tax assets for U.S. losses due to a full valuation allowance against the U.S. deferred tax assets, excess tax benefits from stock-based compensation, and the mix of income in foreign jurisdictions.
For the three months ended March 31, 2022, the Company recorded a tax expense of $3,338. The effective tax rate for the three months ended March 31, 2022 was (22.6)(21.9)%. The effective tax rate differs from the statutory rate primarily as a result of not recognizing deferred tax assets for U.S. losses due to a full valuation allowance against the U.S. deferred tax assets, and excess tax benefits from stock-based compensation.
For the three months ended March 31, 2021, the Company recorded a tax expense of $996. The effective tax rate for the three months ended March 31, 2021 was (42.5)%. The effective tax rate differs from the statutory rate primarily as a result of not recognizing deferred tax assets for U.S. losses due to a full valuation allowance against the U.S. deferred tax assets, and excess tax benefits from stock-based compensation.
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The provision for income taxes consists primarily of income taxes related to international jurisdictions in which the Company conducts business. Based on the available supporting evidence, including the amount and timing of future taxable income, the Company has concluded that it is more likely than not that a significant portion of the deferred tax assets will not be realized. As such, the Company maintains a full valuation allowance on its U.S. deferred tax assets.
For both the three months ended March 31, 2023 and 2022, uncertain tax positions recorded by the Company resulted in an expense of $83. For the three months ended March 31, 2021, uncertain tax positions recorded by the Company resulted in an expense of $68.$83, respectively. To the extent the remaining uncertain tax positions are ultimately recognized, the Company’s effective tax rate may be impacted in future periods. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense.
Note 13. Restructuring
In February 2023, the Company initiated the Restructuring Plan to adjust its cost structure and accelerate its timeline to achieve greater than 20% adjusted free cash flow margins, which includes both the elimination of positions across the Company as well as the shifting of additional positions across a broader geographical footprint. The aggregate restructuring charges in connection with the Restructuring Plan is approximately $24,000, which is expected to be substantially complete by the end of the third quarter of 2023.
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The Company recorded Restructuring and other charges of $20,869 for the three months ended March 31, 2023, which consisted of $16,932 primarily related to one-time severance and benefit payments, as well as $3,937 of stock-based compensation related to vesting of certain equity awards.
The following table summarizes the Company’s restructuring liability that is included in Other current liabilities in the Condensed Consolidated Balance Sheets:
Severance and Other Employee Costs
Balance as of December 31, 2022$— 
Restructuring charges16,932 
Cash payments(11,261)
Balance as of March 31, 2023$5,671 
Note 14. Subsequent Events
From April 1, 2023 through May 5, 2023, the Company repurchased and retired 1,646,270 shares of common stock pursuant to the 2023 Share Buyback Program for an aggregate purchase price of $59,949, which excludes the 1% excise tax of $599 imposed under the Inflation Reduction Act.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy, plans and objectives of management for future operations, and the potential impact that the ongoing COVID-19 pandemic may have on our business, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.
Overview
DigitalOcean is a leading cloud computing platform offering on-demand infrastructure and platform tools for developers, start-upsstartups and small and medium-sized businesses or SMBs.(SMBs). We were founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. Our platform simplifies cloud computing, enabling our customers to rapidly accelerate innovation and increase their productivity and agility.
The lifecycle of a customer typically begins with users coming to our platform to explore a new technology or test an idea. Thousands of users come to DigitalOcean every month, paying a small amount to learn and to complete their discrete tasks. In many cases, these early users do not intend to remain on our platform beyond their initial testing. We refer to these users that spend less than $50 per month and utilize our platform for three months or less as “Testers”. Given their short time on our platform and their relatively small individual and aggregate spend, we do not consider Testers to be a meaningful part of our customer base. Once a user has remained on our platform for longer than three months, or spends greater than $50 per month, we consider them to be active and ongoing customers that have the intention to remain on our platform and to potentially scale their utilization of our products. We divide this customer population into the following three categories:
Learners: users that both (i) spend less than or equal to $50 for the month-end period and (ii) have been on our platform for more than three months.
Builders: users that spend greater than $50 and less than or equal to $500 for the month-end period.
Scalers: users that spend greater than $500 for the month-end period.

As of March 31, 2022,2023, we had approximately 623,000 individual614,000 Learners, Builders and business customersScalers using our platform to build, deploy and scale software applications. While the number of Testers on our platform in any month has averaged approximately 60,000, the exact number of Testers at any point in time varies and revenue from Testers collectively represents less than
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$1 million in revenue in a single month. The Company views 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.
Our users include software engineers, researchers, data scientists, system administrators, students and hobbyists. Our customers use our platform across numerous industry verticals and for a wide range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, and managed services, among many others. We believe that our focus on simplicity, community, open source and customer support are the four key differentiators of our business, driving a broad range of customers around the world to build their applications on our platform.
We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; and Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings. Improving the developer experience and increasing developer productivity are core to our mission. Our developer cloud platform was designed with simplicity in mind to ensure that software developersstartups and SMBs can spend less time managing their infrastructure and more time turning their ideas intobuilding innovative applications to grow their businesses.that drive business growth. Simplicity guides how we design and enhance our easy-to-use-interface, the core capabilities we offer our customers and our approach to predictable and transparent pricing for our solutions. We offer mission-critical infrastructure solutions across compute, storage and networking, and we also enable developers to extend the native capabilities of our cloud with fully managed application, container and database offerings. In just minutes, developers can set up thousands of virtual machines, secure their projects, enable performance monitoring and scale up and down as needed. Our pricing is consumption-based and billed monthly in arrears, making it easy for our customers to track usage on an ongoing basis and optimize their deployments.
We generate revenue from the usage of our cloud computing platform by our customers, including but not limited to compute, storage and networking services. We recognize revenue based on the customer utilization of these resources. Our pricing is consumption-based and billed monthly in arrears, making it easy for our customers to track usage on an ongoing basis and optimize their deployments. The pricing for each of our products is available on our website.
We have historically generated almost all of our revenue from our efficient self-service customer acquisition model, which we complement with a targeted sales force focused on inside sales, outside sales and partnership opportunities to drive revenue growth. Our model enables customers to get started on our platform very quickly and without the need for assistance. We focus heavily on enabling a self-service, low-friction model that makes it easy for users to try, adopt and use our products. For the three months ended March 31, 20222023 and 2021,2022, our sales and marketing expense
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was approximately 15%11% and 11%15% of our revenue, respectively. The efficiency of our go-to-market model and our focus on the needs of the individual and SMB markets havemarket has enabled us to drive organic growth and establish a truly global customer base across a broad range of industries.
We had approximately 623,000 customers as of March 31, 2022, up from approximately 585,000 as of March 31, 2021. We have a growing number of customers with higher spending levels and these larger customers are expanding their business with us at a faster rate than our overall customer base. We had approximately 102,000 customers paying more than $50 per month as of March 31, 2022, up from approximately 85,000 as of March 31, 2021. Total customer growth for the quarter ended March 31, 2022 was approximately 6% as compared to the quarter ended March 31, 2021, while customers paying more than $50 per month for the quarter ended March 31, 2022 grew 20% as compared to the quarter ended March 31, 2021.
Our customers are spread across over 185190 countries and approximatelyaround two-thirds of our revenue has historically come from customers located outside the United States. For the three months ended March 31, 2022,2023, 38% of our revenue was generated from North America, 29% from Europe, 23% from Asia and 10% from the rest of the world. Revenue
Our average revenue per customer (consisting of the aggregate revenue and customer counts for our Learners, Builders and Scalers, but excluding revenue and user counts for Testers), or ARPU, has increased significantly from customers paying more than $50 per month as a percentage of total revenue grew from 80%$76.45 in the quarter ended March 31, 20212022 to 84%$88.35 in the quarter ended March 31, 2022.
Our average revenue per customer, or ARPU, has increased significantly from $53.68 in the quarter ended March 31, 2021 to $68.90 in the quarter ended March 31, 2022.2023. We had no material customer concentration as our top 25 customers made up approximately 11%7% and 10%11% of our revenue in the three months ended March 31, 20222023 and 2021,2022, respectively. We have experienced strong and predictable growth in recent periods. Our annual run-rate revenue, or ARR, as of March 31, 20222023 was $524$669 million up from $388$524 million as of March 31, 2021.2022. ARR as of the end of each month represents total revenue for that month multiplied by 12.
ImpactGrowing our Builders and Scalers (which we collectively refer to as our higher spend customers) is a critical focus for us, and we have successfully increased the number of Russia-Ukraine Conflict
In February 2022, Russian military forces invaded Ukraine. In response, Ukrainian military personnelthese higher spend customers and civilians are actively resisting the invasion and a variety of responsive economic sanctions and export controls measures aimed at Russia, Belarus, and certain regions of Ukraine have been imposed by countries and governmental bodies around the world, including the United States and the European Union. These measures prohibit or restrict dealings with certain entities and individuals, including banks and financial institutions, in the target countries and territories.
We are committed to conducting our activities in compliance with applicable sanctions laws and regulations issued by countries in which we do business. We do not currently have employees or direct operations in Russia, Belarus or Ukraine, nor do we engage in activities with sanctioned parties; however, certaintheir percentage of our customers conduct business in these countriestotal revenue. We had approximately 15,000 Scalers as of March 31, 2023, up from approximately 11,000 as of March 31, 2022. We had approximately 131,000 Builders as of March 31, 2023, up from approximately 91,000 as of March 31, 2022. Revenue from Builders and regions. Recent sanction measures, including those targeting major Russian banksScalers increased 42% and financial institutions and the removal of certain Russian banks from the SWIFT messaging system, have impacted our ability to receive payments involving parties located in Russia. As of27%, respectively, for the three months ended March 31, 2022, aggregate2023 and 2022. Revenue from higher spend customers as a percentage of total revenue was 86% in the quarter ended March 31, 2023 and 84% in the quarter ended March 31, 2022.
Macroeconomic Conditions
Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from our customers withchanges in gross domestic product growth, labor shortages, supply chain disruptions, inflationary pressures, rising interest rates, financial and credit market fluctuations, volatility in the capital markets, liquidity concerns at, and failures of, banks and other financial institutions, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious
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diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine or elsewhere, could cause a decrease in business activities in Russia, Belarusinvestments on information technology and Ukraine was approximately 3.5%negatively affect the growth of our total revenue. Asbusiness and our results of operations.
2023 Restructuring
On January 27, 2023, our Board of Directors approved a restructuring plan to adjust our cost structure and accelerate our timeline to achieve greater than 20% adjusted free cash flow margins. The restructuring plan includes both the situation continues to evolve, further sanctions actions may be forthcoming and could continue to impactelimination of positions across the revenues received from certain customers.
The full impact of the conflict on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflict and its impact on our customers and third-party providers,company as well as regionalthe shifting of additional positions across a broader geographical footprint over the next several months, and global economic conditions. We will continueis expected to monitor and assessbe substantially complete by the situation and pursue prudent decisions forend of the third quarter of 2023. See Note 13, Restructuring, in our team members, customers, and business.
For additional information, referNotes to Condensed Consolidated Financial Statements included in Part II,I, Item 1A—Risk Factors1 of this Quarterly Report on Form 10-Q.10-Q for further information regarding these commitments.
Key Factors Affecting Our Performance
Increasing Importance of Cloud Computing and Developers
Our future success depends in large part on the continuing adoption of cloud computing, proliferation of cloud-native start-ups and SMBs and the increasing importance of developers, all of which are driving the adoption of our developer cloud platform. We believe our market opportunity is large and that these factors will continue to drive our growth.
Increasing Usage by Our Existing Customers
Our customer base represents a significant opportunity for further consumption of our services. We planare highly focused on gaining a better understanding of the needs and growth plans of our existing customers. This deeper relationship with our customers will help us identify opportunities to educate our customer base on ways to utilize the platform more effectively for their individual use cases, as well as provide a feedback loop to inform our product roadmap. We expect to continue to invest significantlyincrease our revenue from existing customers through the introduction of new products and features tailored to our customer base in scaling across many organizational functions in orderaddition to grow our operations both domesticallyexpanded customer outreach, focused on larger customers and internationally to capitalize on these trends.
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specific use cases.
Growing our CustomerOur Base of Higher Spend Customers
We believe there is a substantial opportunity to further expand our customer base and our future growth depends, in large part,to attract more businesses that can scale on our ability to increase the number of customers using our cloud computing platform. We have historically attracted customers by offering a low-friction, self-service cloud platform combined with a highly-efficient self-service marketing model. We are investing in strategies that we believe will continue to drive new customer adoption, especially among SMBattract higher spend customers, such as implementingincluding expansion of our sales team, and new marketing initiatives that further optimize our self-service revenue funnel and expandingto help customers expand their usage. In addition, our go-to market teams in select international locations. Our ability to attract new customers will depend onCloudways acquisition added a significant number of factors, including our success in recruiting and expanding our sales and marketing organization and competitive dynamics in our target markets.
Increasing Usage by Our Existing Customers
Our customer base of approximately 623,000higher spend customers represents a significant opportunity for further consumption of our services. There are substantial opportunities to expand revenue within our large customer base through increased usage of our platform as our customers grow their businesses, adoptiondue to the higher price point of additional product offerings and targeted sales initiatives focused on our larger customers. Our consumption-based pricing model makes it frictionless for customers to increase their usage of our platform as they require more compute and storage as they grow and scale. We have also expanded the breadth of our platform offerings and will continue to do so as we have experienced strong adoption of recently developed products. To accelerate this growth across our larger customers, we complement our self-service marketing model with internal go-to-market teams that are specifically focused on expanding our business with our larger customers. Our ability to increase the usage of our platform by existing customers will depend on a number of factors, including our customers’ satisfaction with our platform and product offerings, competition, pricing and overall changes in our customers’ spending levels.its Managed Hosting offering.
Enhancing Our Platform and Product Offerings
We believe the market opportunity for serving developers, start-upsstartups and SMBs is very large and goes far beyond providing the core IaaS services of compute, storage and networking. We have a history of, and will continue to invest significantly in, developing and delivering innovative products, features and functionality targeted at our core customer base. In addition, while we have not been focused on acquisition opportunities to drive our growth, we may pursue both strategic partnerships and acquisitions that we believe will be complementary to our business, accelerate customer acquisition, increase usage of our platform and/or expand our product offerings in our core markets. Our results of operations may fluctuate as we make these investments to drive usage and take advantage of our expansive market opportunity.
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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. We are not aware of any uniform standards for calculating these key metrics, and other companies may not calculate similarly titled metrics in a consistent manner, which may hinder comparability. The table below includes the impact of our Cloudways acquisition with respect to the metrics disclosed for the three months ended March 31, 2023.
Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Customers622,749 585,466 
Customers paying more than $50 per month102,426 85,154 
LearnersLearners467,600 444,320 
BuildersBuilders131,109 91,425 
ScalersScalers15,398 11,055 
ARPUARPU$68.90 $53.68 ARPU$88.35 $76.45 
ARR (in millions)ARR (in millions)$524 $388 ARR (in millions)$669 $524 
Net dollar retention rateNet dollar retention rate117 %107 %Net dollar retention rate107 %117 %
CustomersLearners, Builders & Scalers
WeWhile we believe that the total number of these customers is an important indicator of the growth of our business and future revenue opportunity. We define a customer atopportunity, the end of any period as a person or entity who has incurred usage in the periodtrends relating to our Builders and as a result, has generated an invoice of greater than $0 for that period. We treat each customer that generates an invoice as a unique customer, and a single organization with multiple divisions, segments or subsidiaries may be counted as multiple customers if they separately signed up on our platform.
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The number and growth of our larger customersScalers is of particular importance to us as these customers represent a significant majority of our revenue and revenue growth, and they are more representative of the SMB customers that grow on our platform and use multiple products. We define customers paying more than $50 per month as customers having generated an invoice of greater than $50 for that period.
ARPU
We believe that our average revenue per customer, which we refer to as ARPU, is a strong indication of our ability to land new customers with higher spending levels and expand usage of our platform by our existing customers. We calculate ARPU on a monthly basis as our total revenue for Learners, Builders and Scalers in that period divided by the total number of Learner, Builder and Scaler customers determined as of the last day of that period. For a quarterly or annual period, ARPU is determined as the weighted average monthly ARPU over such three or 12-month period.
ARR
Given the renewable nature of our business, we view annual run-rate revenue as an important indicator of our current progress towards meeting our revenue targets and projected growth rate going forward. 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
Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue from our existing customers. We have a history of retaining customers for multiple years and in many cases increasing their spend with us over time. To help us measure our performance in this area, we monitor our 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.
Components of Results of Operations
Revenue
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We provide cloud computing services,offer mission-critical solutions across IaaS, including but not limited to compute,our Droplet virtual machines, storage and networking toofferings; PaaS, including our customers.Managed Database and Managed Kubernetes offerings; and SaaS, including our Managed Hosting and Marketplace offerings. We recognize revenue based on the customer utilization of these resources. Customer contracts are primarily month-to-month and generally do not include any minimum guaranteed quantities or fees. Fees are billed monthly, and payment is typically due upon invoicing. Revenue is recognized net of allowances for credits and any taxes collected from customers, which are subsequently remitted to governmental authorities. We may offer sales incentives in the form of promotional and referral credits and grant credits to encourage customers to use our services. These types of promotional and referral credits typically expire in two months or less if not used. For credits earned with a purchase, they are recorded as contract liabilities when earned and recognized at the earlier of redemption or expiration. The majority of credits are redeemed in the month they are earned.
Cost of Revenue
Cost of revenue consists primarily of fees related to operating in third-party co-location facilities, personnel expenses for those directly supporting our data centers and non-personnel costs, including amortization of capitalized internal-use software development costs and depreciation of our data center equipment. Third-party co-location facility costs include data center rental fees, power costs, maintenance fees, network and bandwidth. Personnel expenses include salaries, bonuses, benefits, and stock-based compensation.
We intend to continue to invest additional resources in our infrastructure to support our product portfolio and scalability of our customer base. The level, timing and relative investment in our infrastructure could affect our cost of revenue in the future.
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Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of personnel costs including salaries, bonuses, benefits and stock-based compensation. Research and development expenses also include amortization of capitalized internal-use software development costs for research and development activities, which are amortized over three years, and professional services, as well as costs related to our efforts to add new features to our existing offerings, develop new offerings, and ensure the security, performance, and reliability of our global cloud platform. We expect research and development expenses to increase in absolute dollars as we continue to invest in our platform and product offerings.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel costs of our sales, marketing and customer support employees including salaries, bonuses, benefits and stock-based compensation. Sales and marketing expenses also include costs for marketing programs, commissions, advertising and professional service fees. We expect sales and marketing expenses to continue to increase in absolute dollars as we enhance our product offerings and implement new marketing strategies.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs of our human resources, legal, finance, and other administrative functions including salaries, bonuses, benefits, and stock-based compensation. General and administrative expenses also include bad debt expense,provision for expected credit losses, software, payment processing fees, business insurance, depreciation and amortization expenses, rent and facilities costs, loss on sublease,impairment of long-lived assets, and other administrative costs. We expect to incur significant additional legal, accounting and other expenses to support our operations as a public company, including costs associated with our compliance with the Sarbanes-Oxley Act. We also expect general and administrative expenses to increase in absolute dollars as we continue to grow our business.
Restructuring and other charges
Restructuring and other charges consist primarily of personnel costs, such as notice period, employee severance payments and termination benefits, as well as stock-based compensation related to vesting of certain equity awards.
Other (Income) Expense
Other (income) expense consists primarily of accretion/amortization of premium/discounts and interest income from our available-for-sale investments, interest expense on our convertible notes and existing credit facility, and third-party equipment financing, loss on extinguishment of debt, accretion/amortization of premium/discounts of our available-for-sale investments, and gains or losses on foreign currency exchange.
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Income Tax Expense
Income tax expense consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be realized.
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Results of Operations
The following table sets forth our results of operations for the periods presented:
Three Months Ended
March 31,
20222021
(in thousands)
Revenue$127,327 $93,661 
Cost of revenue(1)
46,757 39,544 
Gross profit80,570 54,117 
Operating expenses:
Research and development(1)
37,241 22,402 
Sales and marketing(1)
19,044 10,421 
General and administrative(1)
37,424 18,040 
Total operating expenses93,709 50,863 
(Loss) income from operations(13,139)3,254 
Other (income) expense1,646 5,597 
Loss before income taxes(14,785)(2,343)
Income tax expense3,338 996 
Net loss attributable to common stockholders$(18,123)$(3,339)
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Three Months Ended
March 31,
20232022
(in thousands)
Revenue$165,134 $127,327 
Cost of revenue(1)
71,879 47,202 
Gross profit93,255 80,125 
Operating expenses:
Research and development(1)
38,272 37,241 
Sales and marketing(1)
17,709 19,044 
General and administrative(1)
48,939 37,424 
Restructuring and other charges(1)
20,869 — 
Total operating expenses125,789 93,709 
Loss from operations(32,534)(13,584)
Other (income) expense(5,205)1,646 
Loss before income taxes(27,329)(15,230)
Income tax expense7,608 3,338 
Net loss attributable to common stockholders$(34,937)$(18,568)

___________________
___________________
(1)    Includes stock-based compensation as follows:
Three Months Ended
Three Months EndedMarch 31,
March 31,20232022
20222021
(in thousands)(in thousands)
Cost of revenueCost of revenue$432 $196 Cost of revenue$392 $432 
Research and developmentResearch and development9,720 2,636 Research and development9,590 9,720 
Sales and marketingSales and marketing3,346 1,137 Sales and marketing3,332 3,346 
General and administrativeGeneral and administrative12,483 2,655 General and administrative14,280 12,483 
Total$25,981 $6,624 
Restructuring and other chargesRestructuring and other charges3,937 — 
Total stock-based compensationTotal stock-based compensation$31,531 $25,981 
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The following table sets forth our results of operations as a percentage of revenue for the periods presented:
Three Months EndedThree Months Ended
March 31,March 31,
2022202120232022
RevenueRevenue100 %100 %Revenue100 %100 %
Cost of revenueCost of revenue37 42 Cost of revenue44 37 
Gross profitGross profit63 58 Gross profit56 63 
Operating expenses:Operating expenses:Operating expenses:
Research and developmentResearch and development29 24 Research and development23 29 
Sales and marketingSales and marketing15 11 Sales and marketing11 15 
General and administrativeGeneral and administrative29 19 General and administrative30 29 
Restructuring and other chargesRestructuring and other charges13 — 
Total operating expensesTotal operating expenses73 54 Total operating expenses77 73 
(Loss) income from operations(10)
Loss from operationsLoss from operations(21)(10)
Other (income) expenseOther (income) expenseOther (income) expense(3)
Loss before income taxesLoss before income taxes(11)(2)Loss before income taxes(18)(11)
Income tax expenseIncome tax expenseIncome tax expense
Net loss attributable to common stockholders(14)%(3)%
Net loss attributable to common stockholders*Net loss attributable to common stockholders*(21)%(15)%
*    Does not foot due to rounding
Comparison of the Three Months Ended March 31, 20222023 and 20212022
Revenue
Three Months Ended March 31,
20222021$ Change% Change
(in thousands)
Revenue$127,327 $93,661 $33,666 36 %
Three Months Ended March 31,
20232022$ Change% Change
(in thousands)
Revenue$165,134 $127,327 $37,807 30 %
Revenue increased $33.7$37.8 million, or 36%30%, for the three months ended March 31, 20222023 compared to the three months ended March 31, 2021,2022, primarily due to revenue from the Cloudways acquisition, a 28%16% increase in ARPU to $68.90$88.35 from $53.68$76.45, and an increase of approximately 37,00043% in the number of customers to approximately 623,000.who spend more than $50 per month. The increase in ARPU was primarily driven by continued adoption of our products by our customers leading to higher average usage on our platform.
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Cost of Revenue
Three Months Ended March 31,
20222021$ Change% Change
(in thousands)
Cost of revenue$46,757 $39,544 $7,213 18 %
Three Months Ended March 31,
20232022$ Change% Change
(in thousands)
Cost of revenue$71,879 $47,202 $24,677 52 %
Cost of revenue increased $7.2$24.7 million, or 18%52%, for the three months ended March 31, 20222023 compared to the three months ended March 31, 2021,2022, primarily due to operating and variable lease costs relating to new co-location facilities, expansion of existing co-location facilities, and to a lesser extent higher co-location costs and depreciation, of our network equipment to support the growth in our business. Gross profit decreased to 56% for the three months ended March 31, 2023 from 63% for the three months ended March 31, 2022, primarily due to an increase in colocation and depreciation costs as a percentage of revenue.
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Operating Expenses
Three Months Ended March 31,
Three Months Ended March 31,20232022$ Change% Change
20222021$ Change% Change
(in thousands)(in thousands)
Research and developmentResearch and development$37,241 $22,402 $14,839 66 %Research and development$38,272 $37,241 $1,031 %
Sales and marketingSales and marketing19,044 10,421 8,623 83 %Sales and marketing17,709 19,044 (1,335)(7)%
General and administrativeGeneral and administrative37,424 18,040 19,384 107 %General and administrative48,939 37,424 11,515 31 %
Restructuring and other chargesRestructuring and other charges20,869 — 20,869 100 %
Total operating expensesTotal operating expenses$93,709 $50,863 $42,846 84 %Total operating expenses$125,789 $93,709 $32,080 34 %
Research and development expenses increased $14.8$1.0 million, or 66%3%, for the three months ended March 31, 20222023 compared to the three months ended March 31, 2021,2022, primarily due to higher personnelsoftware license and professional services costs, partially offset by depreciation and stock-based compensation.amortization expense.
Sales and marketing expenses increased $8.6decreased $1.3 million, or 83%7%, for the three months ended March 31, 20222023 compared to the three months ended March 31, 2021,2022, primarily due to higher personnel costs and stock-based compensation, and increasesdecreases in advertising costs.costs partially offset by amortization of acquired intangible assets.
General and administrative expenses increased $19.4$11.5 million, or 107%31%, for the three months ended March 31, 20222023 compared to the three months ended March 31, 2021,2022, primarily due to higher personnel costs andacquisition related compensation, stock-based compensation, payment processing fees, and increases in bad debt expense, insuranceVAT and software licensing fees,other foreign non-income taxes, partially offset by a decrease in professional service fees.software license costs.
Other (Income) Expense
Three Months Ended March 31,
20222021$ Change% Change
(in thousands)
Other (income) expense$1,646 $5,597 $(3,951)(71)%
Other (income) expense decreased $4.0Restructuring and other charges increased $20.9 million, or 71%100%, for the three months ended March 31, 20222023 compared to the three months ended March 31, 2021,2022, primarily due to lower interestone-time severance and benefit payments, as well as stock-based compensation related to vesting of certain equity awards in connection with the restructuring we announced on February 16, 2023.
Other (Income) Expense
Three Months Ended March 31,
20232022$ Change% Change
(in thousands)
Other (income) expense$(5,205)$1,646 $(6,851)(416)%
Other (income) expense due to the payoff of the term loan and notes payable in the first quarter of 2021 and interest income from our marketable securities, partially offset by a loss on extinguishment of debt.
Income Tax Expense
Three Months Ended March 31,
20222021$ Change% Change
(in thousands)
Income tax expense$3,338 $996 $2,342 235 %
Income tax expense increased $2.3decreased $6.9 million, or 235%416%, for the three months ended March 31, 20222023 compared to the three months ended March 31, 2021,2022, primarily due to interest income and accretion from our marketable securities.
Income Tax Expense
Three Months Ended March 31,
20232022$ Change% Change
(in thousands)
Income tax expense$7,608 $3,338 $4,270 128 %
Income tax expense increased $4.3 million, or 128%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to income taxes related to international jurisdictions in which we conduct business.
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Liquidity and Capital Resources
We have funded our operations since inception primarily with cash flow generated by operations, private offerings of our equity and debt securities, borrowings under our existing credit facility and capital expenditure financings. In March 2021,Cash provided from these sources is used primarily for operating expenses, such as personnel costs, and capital expenditures. From time to time, we consummated our IPO of 16,500,000 shares of our common stock at an offering price of $47.00 permay also use excess cash for share resulting in aggregate net proceeds to us of $723.0 million after deducting the underwriting discounts and commissions and offering expenses payable by us.repurchases.
In November 2021, we issued $1.50 billion aggregate principal amount of our Convertible Notes in a private offering. The Convertible Notes will mature on December 1, 2026, unless earlier converted, redeemed or repurchased.
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In February 2022,2023, we began oura common stock buyback program whereby we can repurchase up to an aggregate of $300.0$500.0 million of our common stock throughout fiscal year 2022.2023. During the first quarter of 2022,2023, we repurchased and retired 2.6 million7,759,973 shares of common stock at an average price of $58.20 per share for an aggregatea purchase price of $150.0$265.9 million.
In March 2022, we entered into a third amended and restated credit facility to increase our borrowing capacity from $150.0 million to $250.0 million. As of March 31, 2022, we had not drawn on the credit facility.
As of March 31, 2022,2023, we had $464.8$20.9 million in cash and cash equivalents and $1.1 billion$591.7 million in marketable securities. Our cash and cash equivalents primarily consist of cash and money market funds and commercial paper.funds. Our marketable securities consist of U.S. treasury securities, commercial debt securities and commercial paper.
We believe our existing cash and cash equivalents, marketable securities, cash flow from operations and availability under our credit facility, and convertible notesCredit Facility will be sufficient to support working capital and capital expenditure requirements and our outstanding contractual commitments for at least the next 12 months.months from the date of issuance.
We may from time to time seek to retire or purchase our outstanding equity or debt, including the repurchase of our common stock or the Convertible Notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, any such purchases or exchanges may result in us acquiring and retiring a substantial amount of such indebtedness, which could impact the trading liquidity of such indebtedness.
The following table summarizes our cash flows for the periods presented:
Three Months Ended March 31,
(In thousands)20222021
Net cash provided by operating activities$30,283 $19,791 
Net cash used in investing activities(1,120,955)(23,687)
Net cash (used in) provided by financing activities(157,879)463,638 
(Decrease) increase in cash, cash equivalents and restricted cash(1,248,551)459,742 
Three Months Ended March 31,
(In thousands)20232022
Net cash provided by operating activities$36,215 $30,401 
Net cash provided by (used in) investing activities107,956 (1,121,024)
Net cash used in financing activities(264,230)(157,879)
Decrease in cash, cash equivalents and restricted cash(120,088)(1,248,551)
Operating Activities
Our largest source of operating cash is cash collections from sales to our customers. Our primary uses of cash from operating activities are for personnel costs, data center co-location expenses, marketing expenses, payment processing fees, bandwidth and connectivity, server maintenance and software licensing fees.
Net cash provided by operating activities was $30.3$36.2 million and $19.8$30.4 million for the three months ended March 31, 20222023 and 2021,2022, respectively, for which the increases in each year were primarily driven by an increase in cash collections from higher revenues, higher interest income and a lower cash bonus, partially offset by an increase in cash expenses for personnel relatedhigher lease payments and restructuring costs.
Investing Activities
Net cash used inprovided by investing activities was $1.1 billion for the three months ended March 31, 2022 compared to $23.7$108.0 million for the three months ended March 31, 2021.2023 compared to $1.1 billion used in investing activities for the three months ended March 31, 2022. The increasechange was driven by our initial investment into the available-for-sale securities portfolio in available-for-sale marketable securitiesthe first quarter of $1.1 billion and2022, partially offset by portfolio maturities of $331.6 million in the acquisitionfirst quarter of CCS Tricks for $4.0 million.2023.
Financing Activities
Net cash used in financing activities of $264.2 million for the three months ended March 31, 2023 was primarily due to the repurchase and retirement of our common stock for $265.9 million.
Net cash used in financing activities of $157.9 million for the three months ended March 31, 2022 was primarily due to the repurchase and retirement of our common stock for $150$150.0 million.
Net cash provided by financing activities of $463.6 million for the three months ended March 31, 2021 was primarily due to proceeds from our IPO of $723.0 million partially offset by repayments on the credit facility and notes payable of $263.2 million.
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Contractual Obligations and Commitments
There have been no material changes to our obligations under our operating leases and purchase commitments as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.
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Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies as compared to those disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.
Recently Adopted Accounting Pronouncements
SeeThere were no accounting pronouncements recently issued that had or are expected to have a material impact on our consolidated financial statements. For a list of our new and recently adopted accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, in our Notes to Condensed Consolidatedconsolidated financial statements included in “Part II, Item 8. Financial Statements and Supplementary Data” included in Part I, Item 1 of this Quarterly Report onthe Form 10-Q for a discussion of recent accounting pronouncements.
Emerging Growth Company Status
We are an emerging growth company, as defined under the JOBS Act. The JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.10-K.
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 gross profitEBITDA and adjusted grossEBITDA margin; (ii) non-GAAP income from operations and non-GAAP operating margin; (iii) non-GAAP net income and non-GAAP diluted net income per share; and (iv)(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 used inprovided 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 below.
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Adjusted Gross ProfitEBITDA and Adjusted GrossEBITDA Margin
We define adjusted EBITDA as net 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, loss on extinguishment of debt, restructuring and other charges, restructuring related salary continuation charges, impairment of long-lived assets and other income. We define adjusted EBITDA margin as adjusted EBITDA as a percentage of revenue. We believe that adjusted gross profit and adjusted gross margin,EBITDA, when taken together with our GAAP financial results, provides a meaningful assessmentsupplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance and is useful for the preparation of our annual operating budget and quarterly forecasts.
We define adjusted gross profit as gross profit exclusive of stock-based compensation, amortization of capitalized internal-use software development costs and depreciation of our data center equipment included within Cost of revenue. We exclude stock-based compensation, which ison a non-cash item, because we domore consistent basis by excluding certain items that may not consider itbe indicative of our core operating performance. We exclude depreciation and amortization, which primarily relatesbusiness, results of operations or outlook. In particular, we believe that the use of adjusted EBITDA is helpful to our investmentsinvestors as it is a measure used by management in assessing the health of our data center servers that are long lived assets with an economic life of five years, because it may not reflectbusiness, determining incentive compensation, evaluating our current or future cash spending levels to support our business. While we intend to spend a significant amount on capital expenditures on an absolute basis in the coming years, our capital expenditures as a percentage of revenue has declined significantlyoperating performance, and will continue to decline. We define adjusted gross margin as a percentagefor internal planning and forecasting purposes.
Our calculation of adjusted gross profitEBITDA 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 loss attributable to revenue.common stockholders and other GAAP results.
The following table presents a reconciliation of gross profit,net loss attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to adjusted gross profit for each of the periods presented:
Three Months Ended
March 31,
(In thousands)20222021
Gross profit$80,570 $54,117 
Adjustments:
Depreciation and amortization22,262 19,225 
Stock-based compensation432 196 
Adjusted gross profit$103,264 $73,538 
Gross margin63 %58 %
Adjusted gross margin81 %79 %
Non-GAAP Income from Operations and Non-GAAP Operating Margin
We define non-GAAP income from operations as (Loss) income from operations, excluding stock-based compensation and loss on sublease. Beginning in the second quarter of 2022, we will define non-GAAP income from operations as (Loss) income from operations, excluding stock-based compensation, amortization of acquired intangibles, acquisition related costs, loss on sublease, asset impairment, restructuring and severance, and other unusual or non-recurring transactions as they occur. We believe these modifications will assist investors in performing meaningful comparisons of past, present and future operating results and better highlight the results of our ongoing operations. We define non-GAAP operating margin as non-GAAP income from operations as a percentage of revenue. We use non-GAAP income from operations to understand and evaluate our core operating performance and trends and to develop short-term and long-term operating plans. We believe that non-GAAP income from operations facilitates comparison of our operating performance on a consistent basis between periods, and when viewed in combination with our results prepared in accordance with GAAP, helps provide a broader picture of factors and trends affecting our results of operations.
The following table presents a reconciliation of (Loss) income from operations, the most directly comparable financial measure stated in accordance with GAAP, to Non-GAAP income from operationsEBITDA for each of the periods presented:
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Three Months Ended
March 31,
(In thousands)20222021
(Loss) income from operations$(13,139)$3,254 
Adjustments:
Stock-based compensation25,981 6,624 
Loss on sublease788 — 
Non-GAAP income from operations$13,630 $9,878 
Operating margin(10)%%
Non-GAAP operating margin11 %11 %
Three Months Ended
March 31,
(In thousands)20232022
GAAP Net loss attributable to common stockholders$(34,937)$(18,568)
Adjustments:
Depreciation and amortization28,913 23,933 
Stock-based compensation27,594 25,981 
Interest expense2,189 2,059 
Acquisition related compensation7,601 — 
Acquisition and integration related costs1,301 (46)
Income tax expense7,608 3,338 
Loss on extinguishment of debt— 407 
Restructuring and other charges20,869 — 
Restructuring related salary continuation charges1,907 — 
Impairment of long-lived assets553 908 
Other expense(1)
(7,394)(820)
Adjusted EBITDA$56,204 $37,192 
As a percentage of revenue:
Adjusted EBITDA margin34 %29 %
___________________
(1)Other income (expense), net primarily consists of interest and accretion income from our marketable securities.
Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share
We define non-GAAP net income as Net loss attributable to common stockholders, excluding stock-based compensation, amortization of acquired intangibles, acquisition related costs, release of VAT reserve, and loss on sublease. Beginning in the second quarter of 2022, we will define non-GAAP net income (loss) as Net loss attributable to common stockholders, excluding stock-based compensation, amortization of acquired intangibles, acquisition and integration related costs, release of VAT reserve, loss on sublease, loss on extinguishment of debt, asset impairment of long-lived assets, restructuring and severance expense, revaluation of warrants,other charges, restructuring related salary continuation charges, and other unusual or non-recurring transactions as they occur. We believe these modifications will assist investors in performing meaningful comparisons of past, present and future operating results and better highlight the results of our ongoing operations. We define non-GAAP diluted net income per share as non-GAAP net income divided by the weighted-average shares including the dilutive effects of our convertible preferred stock, warrants, stock options, RSUs, PRSUs, ESPP and Convertible Notes.
We believe non-GAAP 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.
The following table presents a reconciliation of Net loss attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to Non-GAAP Net income for each of the periods presented:
Three Months Ended
March 31,
(In thousands)20222021
GAAP Net loss attributable to common stockholders$(18,123)$(3,339)
Stock-based compensation25,981 6,624 
Amortization of acquired intangible assets462 76 
Acquisition related costs(46)— 
Loss on sublease788 — 
Income tax effects of non-GAAP adjustments(1)
309 135 
Non-GAAP net income(2)
$9,371 $3,496 
Non-GAAP diluted net income per share(2)
$0.07 $0.03 
Weighted-average shares used to compute Non-GAAP diluted net income per share126,555 103,403 
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Three Months Ended
March 31,
(In thousands)20232022
GAAP Net loss attributable to common stockholders$(34,937)$(18,568)
Stock-based compensation27,594 25,981 
Acquisition related compensation7,601 — 
Amortization of acquired intangibles3,790 462 
Acquisition and integration related costs1,301 (46)
Loss on extinguishment of debt— 407 
Impairment of long-lived assets553 908 
Restructuring and other charges20,869 — 
Restructuring related salary continuation charges1,907 — 
Income tax effects of non-GAAP adjustments(1)
36 309 
Non-GAAP net income$28,714 $9,453 
Deferred financing fees(2)
1,879 1,868 
Non-GAAP net income used in computing Non-GAAP diluted net income per share(2)
$30,593 $11,321 
Weighted-average shares used to compute Non-GAAP diluted net income per share111,224 126,555 
Non-GAAP diluted net income per share$0.28 $0.09 
___________________
(1)The income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for the relevant jurisdiction, except for those items which are non-taxable or subject to valuation allowances for which the tax expense (benefit) was calculated at 0%. The tax benefit for amortization is calculated in a similar manner as the tax effects of the non-GAAP adjustments.
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(2)Amounts are attributableNon-GAAP net income has been adjusted for both the common and convertible preferred stockholders, treated as one classdilutive impact of stock.deferred financing fees related to the Convertible Notes.
Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin
FreeAdjusted 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 purchase of intangible assets. Freeexcluding restructuring related costs, restructuring related salary 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 after the purchases of property and equipment, 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. For example, ifOne limitation of adjusted free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of 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.
The following table presents our cash flows for the periods presented and a reconciliation of adjusted free cash flow and adjusted free cash flow margin to Net cash provided by operating activities the most directly comparable financial
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measure calculated in accordance with GAAP:
Three Months EndedThree Months Ended
March 31,March 31,
(In thousands)(In thousands)20222021(In thousands)20232022
Net cash provided by operating activities$30,283 $19,791 
GAAP Net cash provided by operating activitiesGAAP Net cash provided by operating activities$36,215 $30,401 
Adjustments:Adjustments:Adjustments:
Capital expenditures - property and equipmentCapital expenditures - property and equipment(22,976)(22,398)Capital expenditures - property and equipment(23,314)(23,045)
Capital expenditures - internal-use software developmentCapital expenditures - internal-use software development(2,276)(1,370)Capital expenditures - internal-use software development(1,794)(2,276)
Free cash flow$5,031 $(3,977)
Restructuring related costsRestructuring related costs11,261 — 
Restructuring related salary continuation chargesRestructuring related salary continuation charges1,907 — 
Acquisition and integration related costsAcquisition and integration related costs1,468 97 
Adjusted free cash flowAdjusted free cash flow$25,743 $5,177 
As a percentage of revenue:As a percentage of revenue:As a percentage of revenue:
Net cash provided by operating activities24 %21 %
Free cash flow margin%(4)%
GAAP Net cash provided by operating activitiesGAAP Net cash provided by operating activities22 %24 %
Adjusted free cash flow marginAdjusted free cash flow margin16 %%
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022.2023. Based on the evaluation of our disclosure controls and procedures as of March 31, 2022,2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
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Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
3334


PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings arising from the normal course of business activities. We are not presently a party to any litigation the outcome of which, if determined adversely to us, would in our estimation, have a material adverse effect on our business, operating results, cash flows or financial condition. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
ITEM 1A. RISK FACTORS
Please refer to Item 1A—Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022 for a description of certain significantmaterial risks and uncertainties to which our business, financial condition and results of operations are subject.
There have been no material changes into the risk factors from those detaileddiscussed in our Annual Report on Form 10-K for the year ended December 31, 2021, except as set forth below.
Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our results of operations.
Our results of operations may vary based on the impact of unfavorable changes in our industry or the global economy on us or our customers and potential customers. Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth in the United States or abroad, financial and credit market fluctuations, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases (such as the ongoing COVID-19 pandemic), warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine and/or surrounding regions, could cause a decrease in business investments, including spending on information technology, disrupt the timing and cadence of key industry events, and negatively affect the growth of our business and our results of operations. For example, any reductions in information technology spending may fall disproportionately on outsourced and cloud-based solutions like ours. In addition, impacts of the COVID-19 pandemic may be exacerbated by the disproportionate impact it is having on the individual developers, early stage start-ups and small-to-medium size businesses that make a large portion of our customer base, many of which may be forced to shut down or limit operations for an indefinite period of time. Economic weakness, customer financial difficulties and constrained spending on information technology operations could adversely affect our customers’ ability or willingness to subscribe to our service offerings, delay purchasing decisions and lengthen our sales cycles, reduce the usage of our products and services, or increase churn, all of which could have an adverse effect on our sales and operating results. In addition, our competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract our customers and may be less dependent on key industry events to generate sales for their products. Further, the increased pace of consolidation in certain industries may result in reduced overall spending on our products
In February 2022, Russian military forces invaded Ukraine. In response, Ukrainian military personnel and civilians are actively resisting the invasion and a variety of responsive economic sanctions and export controls measures aimed at Russia, Belarus, and certain regions in Ukraine have been imposed by countries and governmental bodies around the world, including the United States and the European Union. The continuing conflict and the resulting international response has created significant political and economic uncertainty at a global level. As noted, we do not currently have employees or direct operations in Russia, Belarus or Ukraine, nor do we engage in activities with sanctioned parties; however, the recent sanction measures have impacted our customers with business activities in these countries and regions and have impacted our ability to realize revenues from those customers. Recent sanction measures, including those targeting major Russian banks and financial institutions and the removal of certain Russian banks from the SWIFT messaging system, have impacted our ability to receive payments involving parties located in Russia. As the situation continues to evolve, further sanctions actions may be forthcoming and could continue to impact the revenues received from certain customers.
Further, due to political uncertainty and military actions involving Russia, Ukraine and surrounding regions, we and the third parties upon which we rely may be vulnerable to a heightened risk of cyber-attacks, computer malware, viruses, supply chain attacks, social engineering (including spear phishing and ransomware attacks) and general hacking that could materially disrupt our systems and operations.
34


The full impact of the conflict on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflict and its impact on our customers and third-party providers, as well as regional and global economic conditions. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also exacerbate the impact of other risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Purchases of Equity Securities
The following table provides information with respect to repurchases of shares of common stock by the Company during the three months ended March 31, 2022:2023:
PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Program(1)
Approximate Dollar Value (in thousands) of Shares that May Yet Be Purchased Under the Program(1)
January 1-31, 2022— $— — $— 
February 1-28, 2022538,290 53.15 538,290 271,388 
March 1-31, 20222,039,181 59.53 2,039,181 150,000 
Total2,577,471 $58.20 2,577,471 
PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Program(1)
Approximate Dollar Value (in thousands) of Shares that May Yet Be Purchased Under the Program(1)
January 1-31, 2023— $— — $500,000 
February 1-28, 20231,311,933 33.51 1,311,933 456,035 
March 1-31, 20236,448,040 34.42 6,448,040 234,099 
Total7,759,973 $34.27 7,759,973 
(1)InOn February 2022,14, 2023, the Company announced that theCompany’s Board of Directors approved the repurchase of up to an aggregate of $300 million of its common stock pursuant to a share buyback program (the "Program"). As of March 31, 2022, $150$500.0 million of the authorized amount underCompany’s common stock (the “2023 Share Buyback Program”). Pursuant to the 2023 Share Buyback Program, had been utilizedrepurchases of the Company’s common stock will occur using a variety of methods, which may include but are not limited to open market purchases, the implementation of a 10b5-1 plan, and/or any other available methods in accordance with SEC and $150 million is available for future repurchases under the Program.other applicable legal requirements. The Program does not obligate the Company to acquire any specific number or dollar amount of shares. The2023 Share Buyback Program is authorized throughout fiscal year 2022;2023 and will expire on December 31, 2023; however, the Company is not obligated to acquire any particular amount of common stock and the 2023 Share Buyback Program may be extended, modified, suspended or discontinued at any time at the Company’s discretion. Under the Program, shares may be repurchased through open market purchases or in negotiated transactions off the market.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
35


ITEM 6. EXHIBITS
Incorporated by Reference
Exhibit No.Exhibit DescriptionFormFile No.ExhibitFiling DateFiled Herewith
10.1X
10.2X
10.38-K001-4025210.1March 30, 2022
31.1X
31.2X
32.1*X
101.INSInline XBRL Instance DocumentX
101.SCHInline XBRL Taxonomy Extensions SchemaX
101.CALInline XBRL Taxonomy Extension Calculation LinkbaseX
101.DEFInline XBRL Taxonomy Extension Definition LinkbaseX
101.LABInline XBRL Taxonomy Extension Label LinkbaseX
101.PREInline XBRL Taxonomy Extension Presentation LinkbaseX
104Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)X
Incorporated by Reference
Exhibit No.Exhibit DescriptionFormFile No.ExhibitFiling DateFiled Herewith
31.1X
31.2X
32.1*X
101.INSInline XBRL Instance DocumentX
101.SCHInline XBRL Taxonomy Extensions SchemaX
101.CALInline XBRL Taxonomy Extension Calculation LinkbaseX
101.DEFInline XBRL Taxonomy Extension Definition LinkbaseX
101.LABInline XBRL Taxonomy Extension Label LinkbaseX
101.PREInline XBRL Taxonomy Extension Presentation LinkbaseX
104Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)X
___________________
*    Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DigitalOcean Holdings, Inc.
Date:May 5, 20229, 2023By:/s/ Yancey Spruill
Yancey Spruill
Chief Executive Officer
(Principal Executive Officer)
Date:May 5, 20229, 2023By:/s/ William SorensonW. Matthew Steinfort
William SorensonW. Matthew Steinfort
Chief Financial Officer
(Principal Financial Officer)
37