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, ~~2022~~2023

☐ 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 class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.000025 per share	DOCN	The 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 filer	☐☒	Accelerated filer	☐
Non-accelerated filer	☒☐	Smaller 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 ~~106,060,494~~88,812,515 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)
	Condensed Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, 2202 02 12	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022 ~~and~~ ~~2021~~	3
	Condensed Consolidated Statements of ~~Convertible Preferred Stock and Stockholders'~~Stockholders ’ (Deficit) Equity for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2022~~2023 and 202 ~~2021~~2	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2021
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3233
Item 4.	Controls and Procedures	3233

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3435
Item 1a.	Risk Factors	3435
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	37

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, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	464,836	$	1,713,387	Cash and cash equivalents	$	20,872	$	140,772
Marketable securities	Marketable securities	1,090,370		—		Marketable securities	591,681		723,462
Accounts receivable, less allowance for doubtful accounts of $5,155 and $4,212, respectively		42,527		39,619
Accounts receivable, less allowance for credit losses of $6,148 and $6,099, respectively						Accounts receivable, less allowance for credit losses of $6,148 and $6,099, respectively	54,972		53,833
Prepaid expenses and other current assets	Prepaid expenses and other current assets	14,171		17,050		Prepaid expenses and other current assets	31,087		28,485
Total current assets	Total current assets	1,611,904		1,770,056		Total current assets	698,612		946,552

Property and equipment, net	Property and equipment, net	259,385		249,643		Property and equipment, net	277,957		273,170
Restricted cash	Restricted cash	2,038		2,038		Restricted cash	1,747		1,935
Goodwill	Goodwill	32,170		32,170		Goodwill	296,579		313,718
Intangible assets, net	Intangible assets, net	46,453		42,915		Intangible assets, net	117,638		118,928
Operating lease right-of-use assets, net						Operating lease right-of-use assets, net	185,516		154,501
Deferred tax assets	Deferred tax assets	89		88		Deferred tax assets	753		751
Other assets	Other assets	4,789		4,085		Other assets	5,594		6,353
Total assets	Total assets	$	1,956,828	$	2,100,995	Total assets	$	1,584,396	$	1,815,908

Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	16,329		12,657		Accounts payable	$	11,005	$	21,138
Accrued other expenses	Accrued other expenses	25,627		31,907		Accrued other expenses	38,220		33,987
Deferred revenue	Deferred revenue	5,248		4,826		Deferred revenue	5,015		5,550

Operating lease liabilities, current						Operating lease liabilities, current	73,058		57,682
Other current liabilities	Other current liabilities	15,247		8,849		Other current liabilities	58,856		45,913
Total current liabilities	Total current liabilities	$	62,451	$	58,239	Total current liabilities	186,154		164,270

Deferred tax liabilities	Deferred tax liabilities	421		421		Deferred tax liabilities	3,771		18,209
Long-term debt	Long-term debt	1,464,525		1,462,676		Long-term debt	1,472,148		1,470,270
Operating lease liabilities, non-current						Operating lease liabilities, non-current	133,471		108,243
Other long-term liabilities	Other long-term liabilities	1,600		1,462		Other long-term liabilities	6,506		3,826
Total liabilities	Total liabilities	$	1,528,997	$	1,522,798	Total liabilities	1,802,050		1,764,818
Commitments and Contingencies (Note 8)	Commitments and Contingencies (Note 8)	0		0		Commitments 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)		2		2
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)	2		2

Additional paid-in capital	Additional paid-in capital	639,388		769,705		Additional paid-in capital	28,781		263,957
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,300)		(374)		Accumulated other comprehensive loss	(679)		(2,048)
Accumulated deficit	Accumulated deficit	(204,661)		(186,538)		Accumulated deficit	(245,758)		(210,821)
Total stockholders’ equity		$	427,831	$	578,197
Total stockholders’ (deficit) equity						Total stockholders’ (deficit) equity	(217,654)		51,090

Total liabilities and stockholders’ equity	Total 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

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


		Three Months Ended				Three Months Ended
		March 31,				March 31,
		2022		2021				2023		2022
Revenue	Revenue	$	127,327	$	93,661		Revenue	$	165,134	$	127,327
Cost of revenue	Cost of revenue	46,757		39,544			Cost of revenue	71,879		47,202
Gross profit	Gross profit	80,570		54,117			Gross profit	93,255		80,125
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	37,241		22,402			Research and development	38,272		37,241
Sales and marketing	Sales and marketing	19,044		10,421			Sales and marketing	17,709		19,044
General and administrative	General and administrative	37,424		18,040			General and administrative	48,939		37,424
Restructuring and other charges							Restructuring and other charges	20,869		—
Total operating expenses	Total operating expenses	93,709		50,863			Total operating expenses	125,789		93,709

(Loss) income from operations		(13,139)		3,254
Loss from operations							Loss from operations	(32,534)		(13,584)

Other (income) expense:	Other (income) expense:						Other (income) expense:
Interest expense	Interest expense	2,059		2,256			Interest expense	2,189		2,059
Loss on extinguishment of debt	Loss on extinguishment of debt	407		3,435			Loss on extinguishment of debt	—		407
Other (income) expense, net	Other (income) expense, net	(820)		(94)			Other (income) expense, net	(7,394)		(820)
Other (income) expense	Other (income) expense	1,646		5,597			Other (income) expense	(5,205)		1,646

Loss before income taxes	Loss before income taxes	(14,785)		(2,343)			Loss before income taxes	(27,329)		(15,230)
Income tax expense	Income tax expense	3,338		996			Income tax expense	7,608		3,338
Net loss attributable to common stockholders	Net 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 diluted	Net 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 diluted	Weighted-average shares used to compute net loss per share, basic and diluted	106,980		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

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


		Three Months Ended				Three Months Ended
		March 31,				March 31,
		2022		2021				2023		2022
Net loss attributable to common stockholders	Net 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 taxes	Foreign currency translation adjustments, net of taxes	(18)		12			Foreign currency translation adjustments, net of taxes	126		(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 taxes							Unrealized gain (loss) on available-for-sale marketable securities, net of taxes	1,243		(1,908)
Comprehensive loss	Comprehensive loss	$	(20,049)	$	(3,327)		Comprehensive loss	$	(33,568)	$	(20,494)

See accompanying notes to condensed consolidated financial statements

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(in thousands, except share amounts)

(unaudited)


		Common Stock			Treasury Stock			Additional Paid-In Capital				Accumulated Other Comprehen-sive Loss			Accumulated Deficit				Total				Common Stock						Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehen-sive Loss			Accumulated Deficit			Total
		Shares	Amount		Shares	Amount								Shares								Amount			Shares			Amount
Balance at December 31, 2021		109,175,863	$	2	(1,968,228)	$	(4,598)			$	769,705						$	(374)			$	(186,538)		$	578,197
Balance at December 31, 2022																						Balance at December 31, 2022	96,732,507			$	2		—	$	—		$	263,957		$	(2,048)		$	(210,821)		$	51,090
Issuance of common stock under equity incentive plan, net of taxes withheld	Issuance of common stock under equity incentive plan, net of taxes withheld	1,357,665	—		—	—		(6,709)				—			—				(6,709)			Issuance of common stock under equity incentive plan, net of taxes withheld	1,011,034			—			—	—		1,461			—			—			1,461

Repurchase and retirement of common stock	Repurchase 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 compensation	Stock-based compensation	—	—		—	—		26,392				—			—				26,392			Stock-based compensation	—			—			—	—		31,923			—			—			31,923

Other comprehensive loss		—	—		—	—		—				(1,926)			—				(1,926)
Other comprehensive income																						Other comprehensive income	—			—			—	—		—			1,369			—			1,369
Net loss attributable to common stockholders	Net loss attributable to common stockholders	—	—		—	—		—				—			(18,123)				(18,123)			Net loss attributable to common stockholders	—			—			—	—		—			—			(34,937)			(34,937)
Balance at March 31, 2022		107,956,057	$	2	(1,968,228)	$	(4,598)	$	639,388			$	(2,300)		$	(204,661)			$	427,831
Balance at March 31, 2023																						Balance at March 31, 2023	89,983,568			$	2		—	$	—	$	28,781		$	(679)		$	(245,758)		$	(217,654)

Convertible Preferred Stock Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehen-sive Loss Accumulated Deficit Total
Shares Amount Shares Amount Shares Amount
Balance at December 31, 2020 45,472,229 $ 173,074 45,299,339 $ 1 (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 1 — — 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 $ 2 (1,968,228) $ (4,598) $ 1,020,313 $ (233) $ (170,374) $ 845,110


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehen-sive Loss		Accumulated Deficit		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	109,175,863	$	2	(1,968,228)	$	(4,598)	$	769,705	$	(374)	$	(186,538)	$	578,197
Issuance of common stock under equity incentive plan, net of taxes withheld	1,357,665	—		—	—		(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, 2022	107,956,057	$	2	(1,968,228)	$	(4,598)	$	639,388	$	(2,300)	$	(205,106)	$	427,386

See accompanying notes to condensed consolidated financial statements

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Operating activities	Operating activities						Operating activities
Net loss attributable to common stockholders	Net 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 amortization	Depreciation and amortization	23,933		20,951			Depreciation and amortization	28,913		23,933
Stock-based compensation	Stock-based compensation	25,981		6,624			Stock-based compensation	31,531		25,981
Bad debt expense		4,023		1,607
Provision for expected credit losses							Provision for expected credit losses	3,987		4,023

Loss on extinguishment of debt	Loss on extinguishment of debt	407		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 investments							Net accretion of discounts and amortization of premiums on investments	(3,436)		(117)
Non-cash interest expense							Non-cash interest expense	1,983		1,959
Loss on impairment of long-lived assets							Loss on impairment of long-lived assets	553		—

Non-cash interest expense		1,959		205
Deferred income taxes							Deferred income taxes	4,150		—

Revaluation of warrants		—		(556)
Operating lease right-of-use assets and liabilities, net							Operating lease right-of-use assets and liabilities, net	9,523		445
Other	Other	623		(335)			Other	590		697
Changes in operating assets and liabilities, net of acquisition:
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(6,931)		(3,749)			Accounts receivable	(5,125)		(6,931)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	2,878		2,554			Prepaid expenses and other current assets	(2,755)		2,843
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(10,535)		(7,413)			Accounts payable and accrued expenses	(11,031)		(10,455)

Deferred revenue	Deferred revenue	422		48			Deferred revenue	(535)		422
Other assets and liabilities	Other assets and liabilities	5,763		(241)			Other assets and liabilities	12,804		5,762
Net cash provided by operating activities	Net cash provided by operating activities	30,283		19,791			Net cash provided by operating activities	36,215		30,401

Investing activities	Investing activities						Investing activities
Capital expenditures - property and equipment	Capital expenditures - property and equipment	(22,976)		(22,398)			Capital expenditures - property and equipment	(23,314)		(23,045)
Capital expenditures - internal-use software development	Capital 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 acquisitions							Cash paid for asset acquisitions	(2,500)		(4,000)
Purchase of available-for-sale securities	Purchase of available-for-sale securities	(1,091,279)		—			Purchase of available-for-sale securities	(195,910)		(1,091,279)

Maturities of available-for-sale securities							Maturities of available-for-sale securities	331,581		—
Purchased interest on available-for-sale securities	Purchased 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 securities	Proceeds from interest on available-for-sale securities	649		—			Proceeds from interest on available-for-sale securities	—		649
Proceeds from sale of equipment	Proceeds from sale of equipment	457		81			Proceeds from sale of equipment	6		457
Net cash used in investing activities		(1,120,955)		(23,687)
Net cash provided by (used in) investing activities							Net cash provided by (used in) investing activities	107,956		(1,121,024)

Financing activities	Financing activities						Financing 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 costs	Payment of debt issuance costs	(921)		—			Payment of debt issuance costs	—		(921)

Proceeds related to the issuance of common stock under equity incentive plan	Proceeds related to the issuance of common stock under equity incentive plan	5,426		3,740			Proceeds related to the issuance of common stock under equity incentive plan	5,535		5,426

Employee payroll taxes paid related to net settlement of equity awards	Employee 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 stock	Repurchase 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 activities							Net 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 cash							Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(29)		(49)
Decrease in cash, cash equivalents and restricted cash							Decrease in cash, cash equivalents and restricted cash	(120,088)		(1,248,551)
Cash, cash equivalents and restricted cash - beginning of period							Cash, cash equivalents and restricted cash - beginning of period	151,807		1,715,425
Cash, cash equivalents and restricted cash - end of period							Cash, cash equivalents and restricted cash - end of period	$	31,719	$	466,874

See accompanying notes to condensed consolidated financial statements

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


Cash, cash equivalents and restricted cash - beginning of period		1,715,425		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 interest	Cash 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 refunds						Cash paid for taxes, net of refunds	393		1,003
Cash paid for amounts included in the measurement of lease liabilities						Cash paid for amounts included in the measurement of lease liabilities	16,579		10,702
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Capitalized stock-based compensation	Capitalized 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 expenses	Property and equipment received but not yet paid, included in Accounts payable and Accrued other expenses	20,846		18,473		Property and equipment received but not yet paid, included in Accounts payable and Accrued other expenses	20,437		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 liabilities	Debt issuance costs included in accounts payable and accrued liabilities	297		—		Debt issuance costs included in accounts payable and accrued liabilities	—		297
Operating right-of-use assets obtained in exchange for operating lease liabilities						Operating right-of-use assets obtained in exchange for operating lease liabilities	48,597		23,196

See accompanying notes to condensed consolidated financial statements

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 ~~platform~~software tools for ~~developers, start-ups~~startups 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, storage~~Infrastructure-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 ~~our~~its 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, ~~2022~~2023 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, ~~2022~~2023 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.

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,
		2022		2021			2023		2022
Cash and cash equivalents	Cash and cash equivalents	$	464,836	$	560,053	Cash and cash equivalents	$	20,872	$	464,836
Restricted cash		2,038		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 cash	Total 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.

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 ~~and~~Net of Allowance for ~~Doubtful Accounts~~Expected 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 accounts~~expected 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 accounts~~expected credit losses through ~~bad debt expense~~provision 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 accounts~~expected credit losses for the period presented:

Amount

Balance as of December 31, ~~2021~~2022

~~4,212~~6,099

~~Bad debt expense, net of recoveries~~Provision for expected credit losses

~~4,023~~3,987

Write-offs and other

~~(3,080)~~(3,938)

Balance as of March 31, ~~2022~~2023

~~5,155~~6,148

Deferred Revenue

Deferred revenue was ~~$5,248~~$5,015 and ~~$4,826~~$5,550 as of March 31, ~~2022~~2023 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 Acquisition~~Restructuring Expenses

The Company ~~applies~~records 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 allocated~~restructuring plan indicates that significant changes to the ~~acquired assets~~plan 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.

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,
		2022		2021				2023		2022
North America	North America	38	%	38	%		North America	38	%	38	%
Europe	Europe	29		29			Europe	29		29
Asia	Asia	23		23			Asia	23		23
Other	Other	10		10			Other	10		10
Total	Total	100	%	100	%		Total	100	%	100	%

Revenue derived from customers in the United States was 31% of total revenue for the ~~periods~~three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

~~No country outside~~Long-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, 2023		December 31, 2022
United States	$	207,448	$	206,118
Singapore	57,150		60,607
Germany	71,232		50,274
Netherlands	54,777		35,951
Other	72,866		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, ~~2022~~2023 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 intends~~acquired 100% of the outstanding equity interests of Cloudways, Ltd. (“Cloudways”) pursuant to ~~receive any economic benefit. A sublease liability is recorded when~~a 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 ~~ceases~~prior 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 as~~still in process. The provisional tax amounts for this business combination are subject to revision until these evaluations are completed.

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 accounts	42,000
Other expenses	150
Less: Cash pre-funded from contingent compensation	(9,100)
Total consideration paid	$	311,237

Cash and cash equivalents	$	5,827
Accounts receivable	4,753
Prepayments and other current assets	547
Other long term assets	9
Identifiable intangible assets	72,000
Accounts payable	(1,820)
Accrued expenses	(957)
Deferred revenue	(1,013)
Deferred tax liabilities	(3,097)
Other current liabilities	(29,660)
Net identifiable assets acquired	46,589
Goodwill	264,648
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 liabilities~~assets on the Condensed Consolidated Balance Sheets. ~~Lease termination costs are calculated as~~Additionally, the ~~present value of lease payments, net of expected sublease income, and~~change 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.

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 ~~reported~~acquisition 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 assets	Fair Value		Weighted Average Useful Life in Years
Trade name	$	9,500	10
Developed technology	31,500		5
Customer relationships	31,000		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.

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 evaluating~~and Cloudways as if the ~~impact~~Company’s acquisition of ~~adoption~~Cloudways 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 loss	23,044

Other Asset Acquisitions

In ~~June 2016,~~January 2023, the ~~FASB issued ASU 2016-13, with subsequent amendments, Financial Instruments – Credit Losses (Topic 326): Measurement~~Company 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 effective~~SnapShooter 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 aspects~~asset acquisition as substantially all of the ~~accounting for income taxes. ASU 2019-12~~fair 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 adopted~~will 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 of~~2023 and December 31, ~~2021.~~2022.


		March 31, 2022									March 31, 2023
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. treasury securities	U.S. treasury securities	$	720,546	$	—	$	(1,231)	$	719,315	U.S. treasury securities	$	469,846	$	134	$	(107)	$	469,873
Corporate debt securities		35,145		—		(70)		35,075

Commercial paper	Commercial paper	336,582		1		(603)		335,980		Commercial paper	121,856		25		(73)		121,808
Total Marketable securities	Total Marketable securities	$	1,092,273	$	1	$	(1,904)	$	1,090,370	Total Marketable securities	$	591,702	$	159	$	(180)	$	591,681


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. treasury securities	$	549,944	$	29	$	(849)	$	549,124
Corporate debt securities	35,293		—		(86)		35,207
Commercial paper	139,489		9		(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.

As of March 31, 2023, the Company held nine securities that were in an unrealized loss position. The Company does not ~~believe~~intend to sell and expects that ~~any unrealized~~it 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 ~~its~~the 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:


	March 31, 2023
	Level I		Level II		Total
Cash and cash equivalents:
Cash	$	19,689	$	—	$	19,689
Money market funds	1,183		—		1,183


Total Cash and cash equivalents	$	20,872	$	—	$	20,872
Marketable securities:
U.S. treasury securities	$	469,873	$	—	$	469,873

Commercial paper	—		121,808		121,808
Total Marketable securities	$	469,873	$	121,808	$	591,681

March 31, 2022
Level I Level II Total
Cash and cash equivalents:
Cash $ 376,909 $ — $ 376,909
Money market funds 7,967 — 7,967
Commercial paper — 79,960 79,960
Total Cash and cash equivalents $ 384,876 $ 79,960 $ 464,836
Marketable securities:
U.S. treasury securities $ 719,315 $ — $ 719,315
Corporate debt securities — 35,075 35,075
Commercial paper — 335,980 335,980
Total Marketable securities $ 719,315 $ 371,055 $ 1,090,370


		December 31, 2021							December 31, 2022
		Level I		Level II		Total			Level I		Level II		Total
Cash and cash equivalents:	Cash and cash equivalents:							Cash and cash equivalents:
Cash	Cash	$	1,093,425	$	—	$	1,093,425	Cash	$	95,117	$	—	$	95,117
Money market funds								Money market funds	45,655		—		45,655

Total Cash and cash equivalents								Total Cash and cash equivalents	$	140,772	$	—	$	140,772

Marketable securities:								Marketable securities:
U.S. treasury securities								U.S. treasury securities	$	549,124	$	—	$	549,124
Corporate debt securities								Corporate debt securities	—		35,207		35,207
Commercial paper	Commercial 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 securities								Total 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 ~~level~~Level 3 financial assets as of March 31, ~~2022~~2023 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, 2022 December 31, 2021
Carrying Value Fair Value Carrying Value Fair Value
Convertible Notes $ 1,464,525 $ 1,197,825 $ 1,462,676 $ 1,462,676


	March 31, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair 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, ~~2022~~2023 and December 31, ~~2021~~2022 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.

Note 5.6. Balance Sheet Details

Property and equipment, net

Property and equipment, net consisted of the following:


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Computers and equipment	Computers and equipment	$	515,557	$	487,484	Computers and equipment	$	575,294	$	564,763
Furniture and fixtures	Furniture and fixtures	1,511		1,511		Furniture and fixtures	1,511		1,511
Leasehold improvements	Leasehold improvements	6,820		6,820		Leasehold improvements	6,820		6,820
Internal-use software	Internal-use software	70,889		68,321		Internal-use software	80,132		78,649
Property and equipment, gross	Property and equipment, gross	$	594,777	$	564,136	Property and equipment, gross	$	663,757	$	651,743

Less: accumulated amortization	Less: accumulated amortization	$	(52,413)	$	(49,268)	Less: accumulated amortization	$	(63,876)	$	(61,244)
Less: accumulated depreciation	Less: accumulated depreciation	(282,979)		(265,225)		Less: accumulated depreciation	(321,924)		(317,329)
Property and equipment, net	Property 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, ~~2022~~2023 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”).

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.

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

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

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
2023 39,509
2024 40,166
2025 11,553
2026 8,610
Thereafter 2,435
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, ~~letters~~a letter of credit in the ~~aggregate~~ amount of ~~$2,038 were~~$1,747 and $1,935 was issued and outstanding as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022, respectively. No draws have been made under ~~such letters~~the 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 letters~~The letter of credit ~~can be~~was reduced on an annual basis until the end of 2022 ~~at which point~~and, beginning January 1, 2023, the deposit required ~~will similarly reduce to meet~~is 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.

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, ~~2022~~2023 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's~~Company’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's~~Company’s Board of Directors. No shares of preferred stock were issued or outstanding as of March 31, ~~2022~~2023 or December 31, ~~2021.~~2022.

Share Buyback Program

On February ~~23, 2022,~~14, 2023, the ~~Company's~~Company’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's~~Company’s common stock will ~~be made at prevailing market prices through~~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 ~~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 ~~2,577,471~~7,759,973 shares of common stock ~~at an average price of $58.20 per share~~pursuant to the 2023 Share Buyback Program for an aggregate purchase price of ~~$150,000.~~$265,901, which excludes the 1%

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 ~~purchased~~repurchased 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 ~~our~~the 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.

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, ~~2022~~2023 was as follows:
Number of Options Outstanding Weighted-Average Exercise Price Weighted-Average Remaining Life in Years Aggregate Intrinsic Value
Outstanding at January 1, 2022 12,434,159 $ 7.19 7.64 $ 909,494
Exercised (997,561) 5.44
Forfeited or cancelled (201,916) 6.75
Outstanding at March 31, 2022 11,234,682 7.35 7.39 567,373
Vested and exercisable at March 31, 2022 6,097,743 6.11 7.01 315,509
Vested and unvested expected to vest at March 31, 2022 9,889,941 $ 7.01 7.31 $ 502,800


	Number of Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Life in Years	Aggregate Intrinsic Value
Outstanding at January 1, 2023	10,153,916	$	7.23	6.16	$	185,188

Exercised	(814,602)	6.81
Forfeited or cancelled	(205,644)	11.37
Outstanding at March 31, 2023	9,133,670	7.18		5.54	292,231
Vested and exercisable at March 31, 2023	7,314,438	6.49		5.34	239,011
Vested and unvested expected to vest at March 31, 2023	8,842,139	$	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, ~~2022~~2023 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 ~~2.23~~1.35 years.

RSUs

RSUs granted typically vest over four years. RSU activity for the three months ended March 31, ~~2022~~2023 was as follows:


		Shares	Weighted-Average Fair Value			Shares	Weighted-Average Fair Value
Unvested balance at January 1, 2022		3,334,137	$	45.74
Unvested balance at January 1, 2023					Unvested balance at January 1, 2023	4,802,435	$	44.25
Granted	Granted	1,119,024	52.39		Granted	3,713,808	33.97
Vested	Vested	(454,639)	42.83		Vested	(352,763)	48.46
Forfeited or cancelled	Forfeited or cancelled	(60,762)	45.26		Forfeited or cancelled	(912,505)	46.69
Unvested balance at March 31, 2022		3,937,760	47.97
Vested and expected to vest at March 31, 2022		2,437,477	$	47.96
Unvested balance at March 31, 2023					Unvested balance at March 31, 2023	7,250,975	38.47
Vested and expected to vest at March 31, 2023					Vested and expected to vest at March 31, 2023	4,596,651	$	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 ~~3.27~~3.15 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, ~~2022~~2023 was as follows:

Shares Weighted-Average Fair Value
Unvested balance at January 1, 2022 578,949 $ 48.04
Granted 436,387 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, 2022 792,011 $ 56.94


	Shares	Weighted-Average Fair Value
Unvested balance at January 1, 2023	666,122	$	57.41
Granted	1,118,528	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, 2023	1,075,720	$	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 ~~LTIP~~Long 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’s~~Directors’ 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.

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 to~~February 16, 2023, it was determined that the financial performance of the LTIP ~~award~~PRSUs granted in ~~2021, as~~2022 was not achieved. This resulted in a performance factor reduction of ~~March 31, 2022, there were 30,497~~436,387 shares ~~that had been forfeited and~~from the ~~remaining 175,624~~original 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 ~~targets~~targets.

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 have~~has 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.


Tranche	Company Stock Price Target	Number of Eligible MRSUs
1	$93.50	475,000
2	$140.00	575,000
3	$187.00	650,000
4	$233.50	650,000
5	$280.50	650,000

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, ~~2022~~2023 was as follows:

Shares Weighted-Average Fair Value
Unvested balance at January 1, 2022 3,000,000 $ 25.12
Granted — —
Unvested balance at March 31, 2022 3,000,000 $ 25.12


	Shares	Weighted-Average Fair Value
Unvested balance at January 1, 2023	3,000,000	$	25.12
Granted	—	—


Unvested balance at March 31, 2023	3,000,000	$	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 ~~4.17~~3.37 years.

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 ~~117,996~~111,851 shares ~~purchased by employees during the year ended December 31, 2021,~~of common stock, net of shares withheld for ~~taxes. As~~taxes, 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 shares~~was 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 recorded~~termination 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. No~~2023 and 2022, the Company recorded stock-based compensation ~~was recorded for~~associated with the ~~three months ended March 31, 2021.~~ESPP of $625 and $1,361, respectively. As of March 31, ~~2022, $4,230~~2023, $2,292 has been withheld on behalf of employees.

Restricted Shares

In connection with ~~our~~the closing of the Nimbella acquisition ~~of Nimbella, we~~on 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 ~~2.45~~1.44 years.

Stock-Based Compensation

Stock-based compensation was included in the Condensed Consolidated Statements of Operations as follows:
Three Months Ended March 31,
2022 2021
Cost of revenue $ 432 $ 196
Research and development 9,720 2,636
Sales and marketing 3,346 1,137
General and administrative 12,483 2,655
Total $ 25,981 $ 6,624


	Three Months Ended March 31,
	2023		2022
Cost of revenue	$	392	$	432
Research and development	9,590		9,720
Sales and marketing	3,332		3,346
General and administrative	14,280		12,483
Restructuring and other charges	3,937		—
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

The following table presents the calculation of basic and diluted net loss per share:


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Numerator:	Numerator:						Numerator:
Net loss attributable to common stockholders	Net 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 diluted		106,980		49,432
Weighted average shares used to compute net loss per share, basic and diluted							Weighted average shares used to compute net loss per share, basic and diluted	95,565		106,980
Net loss per share attributable to common stockholders, basic and diluted	Net 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,
		2022	2021		2023	2022
Warrants		—	308,632

Stock Options	Stock Options	11,234,682	15,712,369	Stock Options	9,133,670	11,234,682
RSUs	RSUs	3,937,760	2,063,088	RSUs	7,250,975	3,937,760

PRSUs	PRSUs	792,011	—	PRSUs	1,075,720	792,011
MRSU	MRSU	3,000,000	—	MRSU	3,000,000	3,000,000
ESPP	ESPP	125,524	—	ESPP	404,536	125,524
Convertible Notes	Convertible Notes	8,402,700	—	Convertible Notes	8,402,700	8,402,700
Total	Total	27,492,677	18,084,089	Total	29,267,601	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.

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.

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 charges	16,932
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-ups~~startups 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 individual~~614,000 Learners, Builders and ~~business customers~~Scalers 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

$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 developers~~startups and SMBs can spend less time managing their infrastructure and more time ~~turning their ideas into~~building 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, ~~2022~~2023 and ~~2021,~~2022, our sales and marketing expense

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 have~~market 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 ~~185~~190 countries and ~~approximately~~around 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, ~~2021~~2022 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, ~~2022~~2023 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, ~~2022~~2023 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.

~~Impact~~Growing 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 personnel~~these 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 countries~~total 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 banks~~Scalers 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 of~~27%, respectively, for the three months ended March 31, ~~2022, aggregate~~2023 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 with~~changes 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

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, Belarus~~investments on information technology and ~~Ukraine was approximately 3.5%~~negatively affect the growth of our ~~total revenue. As~~business 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 impact~~elimination 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 ~~regional~~the shifting of additional positions across a broader geographical footprint over the next several months, and ~~global economic conditions. We will continue~~is expected to ~~monitor and assess~~be substantially complete by the ~~situation and pursue prudent decisions for~~end of the third quarter of 2023. See Note 13, Restructuring, in our ~~team members, customers, and business.~~

~~For additional information, refer~~Notes to Condensed Consolidated Financial Statements included in Part ~~II,~~I, Item ~~1A—Risk Factors~~1 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 ~~plan~~are 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 significantly~~increase 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 order~~addition to ~~grow our operations both domestically~~expanded customer outreach, focused on larger customers and ~~internationally to capitalize on these trends.~~

specific use cases.

Growing ~~our Customer~~Our 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 SMB~~attract higher spend customers, ~~such as implementing~~including expansion of our sales team, and new marketing initiatives that further optimize our self-service revenue funnel ~~and expanding~~to help customers expand their usage. In addition, our ~~go-to market teams in select international locations. Our ability to attract new customers will depend on~~Cloudways 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 623,000~~higher 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, adoption~~due 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-ups~~startups 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.

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,
		2022			2021					2023			2022
Customers		622,749			585,466
Customers paying more than $50 per month		102,426			85,154

Learners									Learners	467,600			444,320
Builders									Builders	131,109			91,425
Scalers									Scalers	15,398			11,055
ARPU	ARPU	$	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 rate	Net dollar retention rate	117		%	107		%		Net dollar retention rate	107		%	117		%

~~Customers~~Learners, 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 at~~opportunity, the ~~end of any period as a person or entity who has incurred usage in the period~~trends 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.

~~The number and growth of our larger customers~~Scalers 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

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.

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.

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.

Results of Operations

The following table sets forth our results of operations for the periods presented:
Three Months Ended
March 31,
2022 2021
(in thousands)
Revenue $ 127,327 $ 93,661
Cost of revenue(1)
46,757 39,544
Gross profit 80,570 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 expenses 93,709 50,863
(Loss) income from operations (13,139) 3,254
Other (income) expense 1,646 5,597
Loss before income taxes (14,785) (2,343)
Income tax expense 3,338 996
Net loss attributable to common stockholders $ (18,123) $ (3,339)


	Three Months Ended
	March 31,
	2023		2022

	(in thousands)
Revenue	$	165,134	$	127,327
Cost of revenue(1)	71,879		47,202
Gross profit	93,255		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 expenses	125,789		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 expense	7,608		3,338
Net loss attributable to common stockholders	$	(34,937)	$	(18,568)

___________________

~~___________________~~

(1) Includes stock-based compensation as follows:


									Three Months Ended
		Three Months Ended					March 31,
		March 31,					2023		2022
		2022		2021
		(in thousands)				(in thousands)
Cost of revenue	Cost of revenue	$	432	$	196			Cost of revenue	$	392	$	432
Research and development	Research and development	9,720		2,636				Research and development	9,590		9,720
Sales and marketing	Sales and marketing	3,346		1,137				Sales and marketing	3,332		3,346
General and administrative	General and administrative	12,483		2,655				General and administrative	14,280		12,483
Total		$	25,981	$	6,624
Restructuring and other charges								Restructuring and other charges	3,937		—
Total stock-based compensation								Total stock-based compensation	$	31,531	$	25,981

The following table sets forth our results of operations as a percentage of revenue for the periods presented:


		Three Months Ended				Three Months Ended
		March 31,				March 31,
		2022		2021				2023		2022
Revenue	Revenue	100	%	100	%		Revenue	100	%	100	%
Cost of revenue	Cost of revenue	37		42			Cost of revenue	44		37
Gross profit	Gross profit	63		58			Gross profit	56		63
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	29		24			Research and development	23		29
Sales and marketing	Sales and marketing	15		11			Sales and marketing	11		15
General and administrative	General and administrative	29		19			General and administrative	30		29
Restructuring and other charges							Restructuring and other charges	13		—
Total operating expenses	Total operating expenses	73		54			Total operating expenses	77		73

(Loss) income from operations		(10)		4
Loss from operations							Loss from operations	(21)		(10)
Other (income) expense	Other (income) expense	1		6			Other (income) expense	(3)		1
Loss before income taxes	Loss before income taxes	(11)		(2)			Loss before income taxes	(18)		(11)
Income tax expense	Income tax expense	3		1			Income tax expense	5		3
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, ~~2022~~2023 and ~~2021~~2022

Revenue
Three Months Ended March 31,
2022 2021 $ Change % Change
(in thousands)
Revenue $ 127,327 $ 93,661 $ 33,666 36 %


	Three Months Ended March 31,
	2023		2022		$ 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, ~~2022~~2023 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 37,000~~43% 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.

Cost of Revenue
Three Months Ended March 31,
2022 2021 $ Change % Change
(in thousands)
Cost of revenue $ 46,757 $ 39,544 $ 7,213 18 %


	Three Months Ended March 31,
	2023		2022		$ 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, ~~2022~~2023 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.

Operating Expenses


											Three Months Ended March 31,
		Three Months Ended March 31,									2023		2022		$ Change		% Change
		2022		2021		$ Change		% Change
		(in thousands)									(in thousands)
Research and development	Research and development	$	37,241	$	22,402	$	14,839	66	%	Research and development	$	38,272	$	37,241	$	1,031	3	%
Sales and marketing	Sales and marketing	19,044		10,421		8,623		83	%	Sales and marketing	17,709		19,044		(1,335)		(7)	%
General and administrative	General and administrative	37,424		18,040		19,384		107	%	General and administrative	48,939		37,424		11,515		31	%
Restructuring and other charges										Restructuring and other charges	20,869		—		20,869		100	%
Total operating expenses	Total 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, ~~2022~~2023 compared to the three months ended March 31, ~~2021,~~2022, primarily due to higher ~~personnel~~software license and professional services costs, partially offset by depreciation and ~~stock-based compensation.~~amortization expense.

Sales and marketing expenses ~~increased $8.6~~decreased $1.3 million, or ~~83%~~7%, for the three months ended March 31, ~~2022~~2023 compared to the three months ended March 31, ~~2021,~~2022, primarily due to ~~higher personnel costs and stock-based compensation, and increases~~decreases 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, ~~2022~~2023 compared to the three months ended March 31, ~~2021,~~2022, primarily due to ~~higher personnel costs and~~acquisition related compensation, stock-based compensation, payment processing fees, and ~~increases in bad debt expense, insurance~~VAT 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,
2022 2021 $ Change % Change
(in thousands)
Other (income) expense $ 1,646 $ 5,597 $ (3,951) (71) %

~~Other (income) expense decreased $4.0~~Restructuring and other charges increased $20.9 million, or ~~71%~~100%, for the three months ended March 31, ~~2022~~2023 compared to the three months ended March 31, ~~2021,~~2022, primarily due to ~~lower interest~~one-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,
	2023		2022		$ 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,
2022 2021 $ Change % Change
(in thousands)
Income tax expense $ 3,338 $ 996 $ 2,342 235 %

~~Income tax expense increased $2.3~~decreased $6.9 million, or ~~235%~~416%, for the three months ended March 31, ~~2022~~2023 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,
	2023		2022		$ 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.

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 per~~may 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.

In February ~~2022,~~2023, we began ~~our~~a 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 million~~7,759,973 shares of common stock ~~at an average price of $58.20 per share~~ for ~~an aggregate~~a 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 notes~~Credit 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) 2022 2021
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)	2023		2022
Net cash provided by operating activities	$	36,215	$	30,401
Net cash provided by (used in) investing activities	107,956		(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, ~~2022~~2023 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 related~~higher lease payments and restructuring costs.

Investing Activities

Net cash ~~used in~~provided 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 ~~increase~~change was driven by our initial investment into the available-for-sale securities portfolio in ~~available-for-sale marketable securities~~the first quarter of ~~$1.1 billion and~~2022, partially offset by portfolio maturities of $331.6 million in the ~~acquisition~~first 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.

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.

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

~~See~~There 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 Consolidated~~consolidated financial statements included in “Part II, Item 8. Financial Statements and Supplementary Data” included in ~~Part I, Item 1 of this Quarterly Report on~~the 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 profit~~EBITDA and adjusted ~~gross~~EBITDA 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 in~~provided 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.

Adjusted ~~Gross Profit~~EBITDA and Adjusted ~~Gross~~EBITDA 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 ~~assessment~~supplemental 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 do~~more consistent basis by excluding certain items that may not ~~consider it~~be indicative of our ~~core operating performance. We exclude depreciation and amortization, which primarily relates~~business, results of operations or outlook. In particular, we believe that the use of adjusted EBITDA is helpful to our ~~investments~~investors 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 reflect~~business, 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 percentage~~for internal planning and forecasting purposes.

Our calculation of adjusted ~~gross profit~~EBITDA 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) 2022 2021
Gross profit $ 80,570 $ 54,117
Adjustments:
Depreciation and amortization 22,262 19,225
Stock-based compensation 432 196
Adjusted gross profit $ 103,264 $ 73,538
Gross margin 63 % 58 %
Adjusted gross margin 81 % 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 operations~~EBITDA for each of the periods presented:

Three Months Ended
March 31,
(In thousands) 2022 2021
(Loss) income from operations $ (13,139) $ 3,254
Adjustments:
Stock-based compensation 25,981 6,624
Loss on sublease 788 —
Non-GAAP income from operations $ 13,630 $ 9,878
Operating margin (10) % 3 %
Non-GAAP operating margin 11 % 11 %


	Three Months Ended
	March 31,
(In thousands)	2023			2022
GAAP Net loss attributable to common stockholders	$	(34,937)		$	(18,568)

Adjustments:
Depreciation and amortization	28,913			23,933
Stock-based compensation	27,594			25,981
Interest expense	2,189			2,059
Acquisition related compensation	7,601			—
Acquisition and integration related costs	1,301			(46)
Income tax expense	7,608			3,338
Loss on extinguishment of debt	—			407
Restructuring and other charges	20,869			—
Restructuring related salary continuation charges	1,907			—
Impairment of long-lived assets	553			908


Other expense(1)	(7,394)			(820)
Adjusted EBITDA	$	56,204		$	37,192
As a percentage of revenue:

Adjusted EBITDA margin	34		%	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) 2022 2021
GAAP Net loss attributable to common stockholders $ (18,123) $ (3,339)
Stock-based compensation 25,981 6,624
Amortization of acquired intangible assets 462 76
Acquisition related costs (46) —
Loss on sublease 788 —
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 share 126,555 103,403


	Three Months Ended
	March 31,
(In thousands)	2023		2022
GAAP Net loss attributable to common stockholders	$	(34,937)	$	(18,568)
Stock-based compensation	27,594		25,981
Acquisition related compensation	7,601		—
Amortization of acquired intangibles	3,790		462
Acquisition and integration related costs	1,301		(46)

Loss on extinguishment of debt	—		407
Impairment of long-lived assets	553		908
Restructuring and other charges	20,869		—
Restructuring related salary continuation charges	1,907		—

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 share	111,224		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.

(2)~~Amounts are attributable~~Non-GAAP net income has been adjusted for ~~both~~ the ~~common and convertible preferred stockholders, treated as one class~~dilutive impact of ~~stock.~~deferred financing fees related to the Convertible Notes.

Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin

~~Free~~Adjusted 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. Free~~excluding 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, if~~One 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

measure calculated in accordance with GAAP:


		Three Months Ended							Three Months Ended
		March 31,							March 31,
(In thousands)	(In thousands)	2022			2021			(In thousands)		2023			2022
Net cash provided by operating activities		$	30,283		$	19,791
GAAP Net cash provided by operating activities								GAAP Net cash provided by operating activities		$	36,215		$	30,401
Adjustments:	Adjustments:							Adjustments:
Capital expenditures - property and equipment	Capital expenditures - property and equipment	(22,976)			(22,398)			Capital expenditures - property and equipment		(23,314)			(23,045)
Capital expenditures - internal-use software development	Capital 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 costs								Restructuring related costs		11,261			—
Restructuring related salary continuation charges								Restructuring related salary continuation charges		1,907			—
Acquisition and integration related costs								Acquisition and integration related costs		1,468			97
Adjusted free cash flow								Adjusted 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 activities		24		%	21		%

Free cash flow margin		4		%	(4)		%
GAAP Net cash provided by operating activities								GAAP Net cash provided by operating activities		22		%	24		%
Adjusted free cash flow margin								Adjusted free cash flow margin		16		%	4		%

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.

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.

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 ~~significant~~material 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 detailed~~discussed 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.

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

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:
Period Total Number of Shares Purchased Average 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, 2022 538,290 53.15 538,290 271,388
March 1-31, 2022 2,039,181 59.53 2,039,181 150,000
Total 2,577,471 $ 58.20 2,577,471


Period	Total Number of Shares Purchased	Average 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, 2023	1,311,933	33.51		1,311,933	456,035
March 1-31, 2023	6,448,040	34.42		6,448,040	234,099
Total	7,759,973	$	34.27	7,759,973

(1)InOn February ~~2022,~~14, 2023, the ~~Company announced that the~~Company’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 under~~Company’s common stock (the “2023 Share Buyback Program”). Pursuant to the 2023 Share Buyback Program, ~~had been utilized~~repurchases 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. The~~2023 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.

ITEM 6. EXHIBITS

Incorporated by Reference
Exhibit No. Exhibit Description Form File No. Exhibit Filing Date Filed Herewith
10.1
Employment Agreement between DigitalOcean, LLC and Alan Shapiro, dated March 8, 2021.
X
10.2
Employment Agreement between DigitalOcean, LLC and Gabriel Monroy, dated September 10, 2021.
X
10.3
Third Amended and Restated Credit Agreement, dated as of March 29, 2022, between DigitalOcean Holdings, Inc., DigitalOcean, LLC, the lenders party thereto and KeyBank National Association, as Administrative Agent.
8-K 001-40252 10.1 March 30, 2022
31.1
Certification of Yancey Spruill, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of William Sorenson, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
32.1*
Certifications of Yancey Spruill, Chief Executive Officer, and William Sorenson, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
101.INS Inline XBRL Instance Document X
101.SCH Inline XBRL Taxonomy Extensions Schema X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase X
104 Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101) X

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing Date

Filed Herewith

31.1

Certification of Yancey Spruill, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of W. Matthew Steinfort, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certifications of Yancey Spruill, Chief Executive Officer, and W. Matthew Steinfort, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extensions Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

104

Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)

___________________

* 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.

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, 2022~~9, 2023

By:

/s/ Yancey Spruill

Yancey Spruill

Chief Executive Officer

(Principal Executive Officer)

Date:

May ~~5, 2022~~9, 2023

By:

/s/ ~~William Sorenson~~W. Matthew Steinfort

~~William Sorenson~~W. Matthew Steinfort

Chief Financial Officer

(Principal Financial Officer)


	Convertible Preferred Stock			Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehen-sive Loss		Accumulated Deficit		Total
	Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2020	45,472,229	$	173,074	45,299,339	$	1	(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	1		—	—		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	$	2	(1,968,228)	$	(4,598)	$	1,020,313	$	(233)	$	(170,374)	$	845,110


2022 (nine months remaining)	$	36,432
2023	39,509
2024	40,166
2025	11,553
2026	8,610
Thereafter	2,435
Total minimum operating lease payments	$	138,705