UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM ~~10-Q~~10-Q/A

(Amendment No. 1)

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 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 ~~October~~April 27, ~~2022,~~2023, there were ~~96,297,098~~88,812,515 shares of the registrant’s common stock, with a par value of $0.000025 per share, outstanding.

EXPLANATORY NOTE

DigitalOcean Holdings, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q/A, Amendment No. 1 (the “Amended Report”) to amend its Quarterly Report on Form 10-Q for the three months ended March 31, 2023 originally filed with the Securities and Exchange Commission (“SEC”) on May 9, 2023 (the “Original Report”). The purpose of this Amended Report is to amend and restate the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2023.

As previously disclosed in the Company’s Current Report on Form 8-K, filed on August 3, 2023, management determined that the Company’s previously issued unaudited condensed consolidated financial statements for the three months ended March 31, 2023, as included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2023 filed with the SEC on May 9, 2023 (the “First Quarter 2023 10-Q”), should no longer be relied upon due to the discovery, in the course of preparing the Company’s interim financial statements for the fiscal quarter ended June 30, 2023, of errors in the Company’s accounting for income tax expense primarily relating to the calculation of certain capitalized research or experimental expenditures under Section 174 of the Internal Revenue Code of 1986, which impacted the Company’s income tax provision ("Section 174 Error") resulting in adjustments to other current liabilities, deferred tax assets and tax expense (benefit). Additionally, in connection with the restatement, the Company is correcting other immaterial errors.

As a result of the Section 174 Error, accrued taxes as of March 31, 2023 were overstated and the income tax expense for the three months ended March 31, 2023 was overstated by approximately $15 million. Additionally, the Company is correcting other immaterial errors, which includes the following: an income tax error related to transfer pricing reduced tax expense by approximately $4 million; and other immaterial errors that impacted operating lease right-of-use assets, net, operating lease liabilities, current, operating lease liabilities, non-current and sales and marketing expenses.The Company concluded these errors relating to the three months ended March 31, 2023 and other previously identified immaterial errors relating to the year ended December 31, 2022, which were originally recorded as out-of-period adjustments in the three months ended March 31, 2023, in aggregate, were material to the condensed consolidated financial statements. Therefore, the Company has corrected the errors and restated the previously issued unaudited condensed consolidated financial statements for the three months ended March 31, 2023.

The restatement of the Company's unaudited condensed consolidated financial statements for the three months ended March 31, 2023 included in this Amended Report does not impact the Company’s reported revenue or net cash provided by operating activities for the three months ended March 31, 2023. Additional details regarding the restatement and an explanation of the impact on the Company’s financial statements as originally reported are contained in Note 2. Summary of Significant Accounting Policies, Restatement of Previously Issued Financial Statements in this Amended Report.

As a result of the errors described above and the related restatement, the Company has identified a material weakness in its internal control over financial reporting (“ICFR”), as described in more detail in Part I — Item 4. Controls and Procedures. The Company’s management concluded that the Company’s disclosure controls and procedures (“DCP”) and ICFR were not effective as of December 31, 2022 and the Company's DCP were not effective as of March 31, 2023 because of this material weakness. A discussion of the Company’s plans to remediate this material weakness is set forth in Part I — Item 4. Controls and Procedures.

Items Amended in This Filing

This Amended Report amends and restates the following items of the Original Report for the fiscal quarter ended March 31, 2023:

•Special Note Regarding Forward-Looking Statements

•Part I — Item 1. Financial Statements (Unaudited)

•Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

•Part I — Item 4. Controls and Procedures

•Part II — Item 1A. Risk Factors

•Part II — Item 6. Exhibits

This Form 10-Q/A has not been updated for events occurring after the filing of the Original Form 10-Q, except to reflect the foregoing. Except as relating to the identified errors and the restatement described above, discussions within Part

I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other forward-looking statements made in our Original Report have not been revised in this Amended Report to reflect events that occurred at a later date or facts that subsequently became known to the Company and should be read in their historical context.

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Amended Report includes new certifications specified in Rule 13a-14 under the Exchange Act, from the Company’s Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Amended Report.

Pursuant to Rule 12b-15 under the Exchange Act, this Amended Report contains only the items and exhibits to the Original Report that are being amended and restated, and unaffected items and exhibits are not included herein. Except as noted herein, the information included in the Original Report remains unchanged. This Amended Report continues to describe the conditions as of the date of the Original Report and, except as contained herein, we have not updated or modified the disclosures contained in the Original Report to reflect any events that have occurred after the Original Report. Accordingly, forward-looking statements included in this Amended Report may represent management’s views as of the Original Report and should not be assumed to be accurate as of any date thereafter. This Amended Report should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Report, including any amendment to those filings.


TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2023 ~~September~~ ~~30, 2022~~ and December 31, ~~2021~~2022	1
	Condensed Consolidated Statements of Operations for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30,~~March 31, 2023 and 2022 ~~and 2021~~	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30,~~March 31, 2023 and 2022 ~~and 2021~~	3
	Condensed Consolidated Statements of ~~Stockholders'~~Stockholders’ (Deficit) Equity for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30,~~March 31, 2023 and 2022 ~~and 2021~~	4
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September~~ ~~30,~~March 31, 2023 and 2022 ~~and 2021~~	75
	Notes to Condensed Consolidated Financial Statements	97
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2623
~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	39
Item 4.	Controls and Procedures	3935

	PART II. OTHER INFORMATION
~~Item 1.~~	~~Legal Proceedings~~	41
Item 1a.	Risk Factors	4137
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	41
~~Item 3.~~	~~Defaults Upon Senior Securities~~	42
~~Item 4.~~	~~Mine Safety Disclosures~~	42
~~Item 5.~~	~~Other Information~~	42
Item 6.	Exhibits	4338
	Signatures	4439

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This ~~Quarterly~~Amended 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~~Amended 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.~~compete;

•risks related to the restatement of our previously issued unaudited condensed consolidated financial statements for the three months ended March 31, 2023, as included in the Original Report, and any potential litigation or investigation related to such restatement;

•our ability to maintain effective ICFR and DCP, including our ability to remediate any existing material weakness in our ICFR and the timing of any such remediation, as well as to reestablish effective ICFR and DCP; and

•the other factors that are described under the heading “Risk Factors” in our Annual Report on Form 10-K/A and elsewhere in this report.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this ~~Quarterly~~Amended 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-Risk Factors~~ in our Annual Report on Form ~~10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2025,~~10-K/A and ~~Item 1A-Risk Factors~~elsewhere in ~~our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 5, 2022, as such factors may be updated from time to time in our periodic filings with the SEC.~~this Amended Report. 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.~~Amended Report. 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.~~Amended Report. 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~~Amended 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~~Amended Report ~~on Form 10-Q~~ to reflect events or circumstances after the date of this ~~Quarterly~~Amended 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, 2023		December 31, 2022
		September 30, 2022		December 31, 2021			(restated)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	24,115	$	1,713,387	Cash and cash equivalents	$	20,872	$	140,772
Marketable securities	Marketable securities	800,539		—		Marketable securities	591,681		723,462
Accounts receivable, less allowance for doubtful accounts of $6,402 and $4,212, respectively		52,425		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	31,277		17,050		Prepaid expenses and other current assets	31,087		27,924
Total current assets	Total current assets	908,356		1,770,056		Total current assets	698,612		945,991

Property and equipment, net	Property and equipment, net	270,985		249,643		Property and equipment, net	277,957		273,170
Restricted cash	Restricted cash	1,935		2,038		Restricted cash	1,747		1,935
Goodwill	Goodwill	315,161		32,170		Goodwill	296,579		315,168
Intangible assets, net	Intangible assets, net	122,543		42,915		Intangible assets, net	117,638		118,928
Operating lease right-of-use assets, net						Operating lease right-of-use assets, net	185,081		153,701
Deferred tax assets	Deferred tax assets	82		88		Deferred tax assets	753		751
Other assets	Other assets	4,625		4,085		Other assets	5,594		5,987
Total assets	Total assets	$	1,623,687	$	2,100,995	Total assets	$	1,583,961	$	1,815,631

Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	11,762	$	12,657	Accounts payable	$	11,005	$	21,138
Accrued other expenses	Accrued other expenses	36,645		31,907		Accrued other expenses	38,220		33,987
Deferred revenue	Deferred revenue	5,476		4,826		Deferred revenue	5,015		5,550

Operating lease liabilities, current						Operating lease liabilities, current	73,080		57,432
Other current liabilities	Other current liabilities	44,925		8,849		Other current liabilities	43,203		47,409
Total current liabilities	Total current liabilities	98,808		58,239		Total current liabilities	170,523		165,516

Deferred tax liabilities	Deferred tax liabilities	22,107		421		Deferred tax liabilities	4,379		20,757
Long-term debt	Long-term debt	1,468,393		1,462,676		Long-term debt	1,472,148		1,470,270
Operating lease liabilities, non-current						Operating lease liabilities, non-current	133,013		107,693
Other long-term liabilities	Other long-term liabilities	4,162		1,462		Other long-term liabilities	6,506		3,826
Total liabilities	Total liabilities	1,593,470		1,522,798		Total liabilities	1,786,569		1,768,062
Commitments and Contingencies (Note 9)
Commitments and Contingencies (Note 8)						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 September 30, 2022 and December 31, 2021)		—		—
Common stock ($0.000025 par value per share; 750,000,000 shares authorized; 96,229,736 and 109,175,863 issued; and 96,229,736 and 107,207,635 outstanding as of September 30, 2022 and December 31, 2021, respectively)		2		2
Treasury stock, at cost (0 shares at September 30, 2022 and 1,968,228 shares at December 31, 2021)		—		(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	235,278		769,705		Additional paid-in capital	28,781		263,957
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,308)		(374)		Accumulated other comprehensive loss	(679)		(2,048)
Accumulated deficit	Accumulated deficit	(200,755)		(186,538)		Accumulated deficit	(230,712)		(214,342)
Total stockholders’ equity		30,217		578,197
Total stockholders’ (deficit) equity						Total stockholders’ (deficit) equity	(202,608)		47,569

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,623,687	$	2,100,995	Total liabilities and stockholders’ equity	$	1,583,961	$	1,815,631

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				Nine Months Ended					March 31,
		September 30,				September 30,					2023		2022
		2022		2021		2022		2021			(restated)
Revenue	Revenue	$	152,115	$	111,428	$	413,324	$	308,899	Revenue	$	165,134	$	127,327
Cost of revenue	Cost of revenue	54,536		43,506		148,539		126,195		Cost of revenue	71,879		47,202
Gross profit	Gross profit	97,579		67,922		264,785		182,704		Gross profit	93,255		80,125
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	30,243		29,927		104,440		79,450		Research and development	38,272		37,241
Sales and marketing	Sales and marketing	19,097		13,312		56,360		35,545		Sales and marketing	18,231		19,044
General and administrative	General and administrative	38,847		26,354		115,109		68,756		General and administrative	48,939		37,424
Restructuring and other charges										Restructuring and other charges	20,869		—
Total operating expenses	Total operating expenses	88,187		69,593		275,909		183,751		Total operating expenses	126,311		93,709

Income (loss) from operations		9,392		(1,671)		(11,124)		(1,047)
Loss from operations										Loss from operations	(33,056)		(13,584)

Other (income) expense:	Other (income) expense:									Other (income) expense:
Interest expense	Interest expense	2,127		186		6,281		2,675		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	(3,274)		140		(6,206)		(157)		Other (income) expense, net	(7,394)		(820)
Other (income) expense	Other (income) expense	(1,147)		326		482		5,953		Other (income) expense	(5,205)		1,646

Income (loss) before income taxes		10,539		(1,997)		(11,606)		(7,000)
Income tax expense (benefit)		442		(145)		2,611		378
Net income (loss) attributable to common stockholders		$	10,097	$	(1,852)	$	(14,217)	$	(7,378)
Basic and diluted net income (loss) per share		$	0.10	$	(0.02)	$	(0.14)	$	(0.08)
Loss before income taxes										Loss before income taxes	(27,851)		(15,230)
Income tax (benefit) expense										Income tax (benefit) expense	(11,481)		3,338
Net loss attributable to common stockholders										Net loss attributable to common stockholders	$	(16,370)	$	(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)	$	(0.17)

Weighted average shares used to compute basic net income (loss) per share		96,559		107,955		102,134		88,265
Weighted average shares used to compute diluted net income (loss) per share		104,931		107,955		102,134		88,265
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

See accompanying notes to condensed consolidated financial statements

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2022		2021		2022		2021			2023		2022
Net income (loss) attributable to common stockholders		$	10,097	$	(1,852)	$	(14,217)	$	(7,378)
											(restated)
Net loss attributable to common stockholders										Net loss attributable to common stockholders	$	(16,370)	$	(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	(252)		(73)		(458)		(101)		Foreign currency translation adjustments, net of taxes	126		(18)
Unrealized gain (loss) on available-for-sale marketable securities, net of taxes	Unrealized gain (loss) on available-for-sale marketable securities, net of taxes	912		—		(3,476)		—		Unrealized gain (loss) on available-for-sale marketable securities, net of taxes	1,243		(1,908)
Comprehensive income (loss)		$	10,757	$	(1,925)	$	(18,151)	$	(7,479)
Comprehensive loss										Comprehensive loss	$	(15,001)	$	(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 June 30, 2022		98,856,183	$	2	(1,968,228)	$	(4,598)			$	268,689						$	(4,968)			$	(210,852)		$	48,273
Balance at December 31, 2022																						Balance at December 31, 2022	96,732,507			$	2		—	$	—		$	263,957		$	(2,048)		$	(214,342)		$	47,569
Issuance of common stock under equity incentive plan, net of taxes withheld	Issuance of common stock under equity incentive plan, net of taxes withheld	420,431	—		—	—		(2,894)				—			—				(2,894)			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	(1,078,650)	—		—	—		(50,000)				—			—				(50,000)			Repurchase and retirement of common stock	(7,759,973)			—			—	—		(268,560)			—			—			(268,560)
Retirement of treasury stock		(1,968,228)	—		1,968,228	4,598		(4,598)				—			—				—

Stock-based compensation	Stock-based compensation	—	—		—	—		24,081				—			—				24,081			Stock-based compensation	—			—			—	—		31,923			—			—			31,923

Other comprehensive loss		—	—		—	—		—				660			—				660
Other comprehensive income																						Other comprehensive income	—			—			—	—		—			1,369			—			1,369
Net loss attributable to common stockholders	Net loss attributable to common stockholders	—	—		—	—		—				—			10,097				10,097			Net loss attributable to common stockholders	—			—			—	—		—			—			(16,370)			(16,370)
Balance at September 30, 2022		96,229,736	$	2	—	$	—	$	235,278			$	(4,308)		$	(200,755)			$	30,217
Balance at March 31, 2023 (restated)																						Balance at March 31, 2023 (restated)	89,983,568			$	2		—	$	—	$	28,781		$	(679)		$	(230,712)		$	(202,608)


		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 June 30, 2021		109,213,693	$	2	(1,968,228)	$	(4,598)			$	1,035,514						$	(273)			$	(172,561)		$	858,084
Balance at December 31, 2021																						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	Issuance of common stock under equity incentive plan, net of taxes withheld	907,272	—		—	—		3,888				—			—				3,888			Issuance of common stock under equity incentive plan, net of taxes withheld	1,357,665			—			—	—		(6,709)			—			—			(6,709)
Exercise of common stock warrants		232,520	—		—	—		—				—			—				—

Repurchase and retirement of common stock																						Repurchase and retirement of common stock	(2,577,471)			—			—	—		(150,000)			—			—			(150,000)
Stock-based compensation	Stock-based compensation	—	—		—	—		18,820				—			—				18,820			Stock-based compensation	—			—			—	—		26,392			—			—			26,392

Issuance of common stock for acquisition		636,994	—		—	—		27,566				—			—				27,566
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				(73)			—				(73)			Other comprehensive loss	—			—			—	—		—			(1,926)			—			(1,926)
Net loss attributable to common stockholders	Net loss attributable to common stockholders	—	—		—	—		—				—			(1,852)				(1,852)			Net loss attributable to common stockholders	—			—			—	—		—			—			(18,568)			(18,568)
Balance at September 30, 2021		110,990,479	$	2	(1,968,228)	$	(4,598)	$	1,085,788			$	(346)		$	(174,413)			$	906,433
Balance at March 31, 2022																						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 ~~STOCKHOLDERS’ EQUITY~~CASH FLOWS

(in ~~thousands, except share amounts)~~thousands)

(unaudited)

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 2,503,828 — — — (14,116) — — (14,116)
Issuance of common stock under employee stock purchase plan, net of taxes withheld 144,867 — — — 5,244 — — 5,244
Repurchase and retirement of common stock (13,626,594) — — — (600,000) — — (600,000)
Retirement of treasury stock (1,968,228) — 1,968,228 4,598 (4,598) — — —
Stock-based compensation — — — — 79,043 — — 79,043
Other comprehensive loss — — — — — (3,934) — (3,934)
Net loss attributable to common stockholders — — — — — — (14,217) (14,217)
Balance at September 30, 2022 96,229,736 $ 2 — $ — $ 235,278 $ (4,308) $ (200,755) $ 30,217


	Three Months Ended March 31,
	2023		2022
	(restated)
Operating activities
Net loss attributable to common stockholders	$	(16,370)	$	(18,568)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	28,913		23,933
Stock-based compensation	31,531		25,981
Provision for expected credit losses	3,987		4,023

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

Deferred income taxes	1,589		—

Operating lease right-of-use assets and liabilities, net	9,523		445
Other	590		697
Changes in operating assets and liabilities:
Accounts receivable	(5,125)		(6,931)
Prepaid expenses and other current assets	(2,568)		2,843
Accounts payable and accrued expenses	(11,031)		(10,455)

Deferred revenue	(535)		422
Other assets and liabilities	(3,389)		5,762
Net cash provided by operating activities	36,215		30,401

Investing activities
Capital expenditures - property and equipment	(23,314)		(23,045)
Capital expenditures - internal-use software development	(1,794)		(2,276)


Cash paid for asset acquisitions	(2,500)		(4,000)
Purchase of available-for-sale securities	(195,910)		(1,091,279)

Maturities of available-for-sale securities	331,581		—
Purchased interest on available-for-sale securities	(113)		(1,530)
Proceeds from interest on available-for-sale securities	—		649
Proceeds from sale of equipment	6		457
Net cash provided by (used in) investing activities	107,956		(1,121,024)

Financing activities








Payment of debt issuance costs	—		(921)


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	(3,864)		(12,384)


Repurchase and retirement of common stock	(265,901)		(150,000)

Net cash used in financing activities	(264,230)		(157,879)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(29)		(49)
Decrease in cash, cash equivalents and restricted cash	(120,088)		(1,248,551)
Cash, cash equivalents and restricted cash - beginning of period	151,807		1,715,425
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 ~~STOCKHOLDERS’ EQUITY~~CASH FLOWS

(in ~~thousands, except share amounts)~~thousands)

(unaudited)

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 — — 2,785,069 — — — 10,368 — — 10,368
Exercise of common stock warrants — — 296,848 — — — — — — —
Stock-based compensation — — — — — — 37,966 — — 37,966
Issuance of common stock for acquisition — — 636,994 — — — 27,566 — — 27,566
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 — — — — — — — (101) — (101)
Net loss attributable to common stockholders — — — — — — — — (7,378) (7,378)
Balance at September 30, 2021 — $ — 110,990,479 $ 2 (1,968,228) $ (4,598) $ 1,085,788 $ (346) $ (174,413) $ 906,433



Supplemental disclosures of cash flow information:
Cash paid for interest	$	126	$	92
Cash paid for taxes, net of refunds	393		1,003
Cash paid for amounts included in the measurement of lease liabilities	16,579		10,702
Non-cash investing and financing activities:
Capitalized stock-based compensation	$	392	$	411
Property and equipment received but not yet paid, included in Accounts payable and Accrued other expenses	20,437		20,846



Debt issuance costs included in accounts payable and accrued liabilities	—		297
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.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

Nine Months Ended September 30,
2022 2021
Operating activities
Net loss attributable to common stockholders $ (14,217) $ (7,378)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 73,900 64,922
Stock-based compensation 77,758 37,380
Bad debt expense 12,217 6,055
Loss on extinguishment of debt 407 3,435
Net accretion of discounts and amortization of premiums on investments (3,099) —
Release of VAT reserve — 3,188
Non-cash interest expense 5,898 386
Loss on impairment 144 212
Revaluation of warrants — (556)
Deferred income taxes 247 —
Other 2,396 477
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (20,270) (14,462)
Prepaid expenses and other current assets (4,580) (134)
Accounts payable and accrued expenses (5,771) 4,001
Deferred revenue (364) 263
Other assets and liabilities 5,342 2,587
Net cash provided by operating activities 130,008 100,376
Investing activities
Capital expenditures - property and equipment (77,717) (66,480)
Capital expenditures - internal-use software development (6,593) (4,297)
Purchase of intangible assets (4,915) (5,636)
Cash paid for acquisition of businesses, net of cash acquired (305,163) (5,000)
Cash paid for asset acquisitions (5,400) —
Purchase of available-for-sale securities (1,379,277) —
Sales of available-for-sale securities 19,992 —
Maturities of available-for-sale securities 558,371 —
Purchased interest on available-for-sale securities (1,556) —
Proceeds from interest on available-for-sale securities 1,549 —
Proceeds from sale of equipment 967 209
Net cash used in investing activities (1,199,742) (81,204)
Financing activities
Repayment of notes payable — (33,214)
Repayment of term loan — (166,813)
Repayment of borrowings under revolving credit facility — (63,200)
Payment of debt issuance costs (1,520) —
Proceeds related to the issuance of common stock under equity incentive plan 10,352 13,145

~~See accompanying notes to condensed consolidated financial statements~~

~~DIGITALOCEAN HOLDINGS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

Proceeds from the issuance of common stock under employee stock purchase plan 5,245 —
Employee payroll taxes paid related to net settlement of equity awards (24,618) (2,777)
Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs — 723,126
Repurchase and retirement of common stock (600,000) —
Net cash (used in) provided by financing activities (610,541) 470,267
(Decrease) increase in cash, cash equivalents and restricted cash (1,680,275) 489,439
Cash, cash equivalents and restricted cash - beginning of period 1,715,425 102,537
Cash, cash equivalents and restricted cash - end of period $ 35,150 $ 591,976
Supplemental disclosures of cash flow information:
Cash paid for interest $ 349 $ 2,248
Cash paid for taxes (net of refunds) 1,669 541
Non-cash investing and financing activities:
Capitalized stock-based compensation $ 1,285 $ 587
Property and equipment received but not yet paid, included in Accounts payable and Accrued other expenses 19,964 14,291
Costs related to initial public offering included in accounts payable and accrued liabilities — 27,566

~~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 ~~September 30, 2022,~~March 31, 2023, results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, and ~~2021, and stockholders'~~stockholders’ (deficit) equity for the three ~~and nine~~ months ended ~~September~~March 31, 2023 and 2022.

Restatement of Previously Issued Financial Statements

As a result of the Section 174 Error, accrued taxes as of March 31, 2023 were overstated and the income tax expense for the three months ended March 31, 2023 was overstated by approximately $15 million. Additionally, the Company is correcting other immaterial errors, which includes the following: an income tax error related to transfer pricing reduced tax expense by approximately $4 million; and other immaterial errors that impacted operating lease right-of-use assets, net, operating lease liabilities, current, operating lease liabilities, non-current and sales and marketing expenses.The Company concluded these errors relating to the three months ended March 31, 2023 and other previously identified immaterial errors relating to the year ended December 31, 2022, which were originally recorded as out-of-period adjustments in the three months ended March 31, 2023, in aggregate, were material to the condensed consolidated financial statements. Therefore, the Company has corrected the errors and ~~2021.~~restated the previously issued unaudited condensed consolidated financial statements for the three months ended March 31, 2023.

The following table presents the impact of correcting the errors previously discussed on the affected line items of the previously issued condensed consolidated financial statements as of and for the three months ending March 31, 2023:


	March 31, 2023
Condensed Consolidated Balance Sheet	As Previously Reported		Adjustments		As Restated
Operating lease right-of-use assets, net	$	185,516	$	(435)	$	185,081
Total assets	$	1,584,396	$	(435)	$	1,583,961
Operating lease liabilities, current	$	73,058	$	22	$	73,080
Other current liabilities	$	58,856	$	(15,653)	$	43,203
Total current liabilities	$	186,154	$	(15,631)	$	170,523
Deferred tax liabilities	$	3,771	$	608	$	4,379
Operating lease liabilities, non-current	$	133,471	$	(458)	$	133,013
Total liabilities	$	1,802,050	$	(15,481)	$	1,786,569
Accumulated deficit	$	(245,758)	$	15,046	$	(230,712)
Total stockholders’ deficit	$	(217,654)	$	15,046	$	(202,608)
Total liabilities and stockholders’ equity	$	1,584,396	$	(435)	$	1,583,961


	Three Months Ended March 31, 2023
Condensed Consolidated Statement of Operations	As Previously Reported		Adjustments		As Restated
Sales and marketing	$	17,709	$	522	$	18,231
Total operating expenses	$	125,789	$	522	$	126,311
Loss from Operations	$	(32,534)	$	(522)	$	(33,056)
Loss before income taxes	$	(27,329)	$	(522)	$	(27,851)
Income tax expense (benefit)	$	7,608	$	(19,089)	$	(11,481)
Net loss attributable to common stockholders	$	(34,937)	$	18,567	$	(16,370)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.37)	$	0.20	$	(0.17)


	Three Months Ended March 31, 2023
Condensed Consolidated Statement of Comprehensive Loss	As Previously Reported		Adjustments		As Restated
Net loss attributable to common stockholders	$	(34,937)	$	18,567	$	(16,370)
Comprehensive loss	$	(33,568)	$	18,567	$	(15,001)


	Three Months Ended March 31, 2023
Condensed Consolidated Statement of Stockholders’ (Deficit) Equity	As Previously Reported		Adjustments		As Restated
Net loss attributable to common stockholders	$	(34,937)	$	18,567	$	(16,370)
Accumulated deficit	$	(245,758)	$	15,046	$	(230,712)
Total stockholders’ deficit	$	(217,654)	$	15,046	$	(202,608)

The impact of errors arising in periods commencing prior to January 1, 2023 have been reflected as a reduction to opening accumulated deficit in the amount of $3,521 in the Condensed Consolidated Statement of Stockholders’ Equity.


	Three Months Ended March 31, 2023
Condensed Consolidated Statement of Cash Flows	As Previously Reported		Adjustments		As Restated
Net loss attributable to common stockholders	$	(34,937)	$	18,567	$	(16,370)
Prepaid expenses and other current assets	$	(2,755)	$	187	$	(2,568)
Other assets and liabilities	$	12,804	$	(16,193)	$	(3,389)
Net cash provided by operating activities	$	36,215	$	—	$	36,215

In addition, the following footnotes have been updated to reflect the restated amounts:

•Note 11. Net Loss per Share Attributable to Common Stockholders

•Note 12. Income Taxes

Some of these errors, which are immaterial in aggregate, also impacted the year ended December 31, 2022 financial statements. Refer to the Form 10-K/A filed with the SEC on August 11, 2023 for additional disclosures.

Reclassifications

As previously disclosed in the Annual Report on Form 10-K/A 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.

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.

Restricted Cash

The following table reconciles cash, cash equivalents and restricted cash per the Condensed Consolidated Statements of Cash Flows:


		September 30,					March 31,
		2022		2021			2023		2022
Cash and cash equivalents	Cash and cash equivalents	$	24,115	$	589,750	Cash and cash equivalents	$	20,872	$	464,836
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 included in Prepaid expenses and other current assets(1)	9,100		—
Restricted cash(2)	Restricted cash(2)	1,935		2,226		Restricted cash(2)	1,747		2,038
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	35,150	$	591,976	Total cash, cash equivalents and restricted cash	$	31,719	$	466,874

___________________

(1)Includes contingent compensation deposits related to the Cloudways acquisition.

(2)Includes deposits in financial institutions related to letters of credit used to secure lease agreements.

~~Marketable Securities~~

~~The Company’s marketable securities consist~~Accounts Receivable Net 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 accountedAllowance for ~~its marketable~~Expected Credit Losses

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 related to credit loss are reported in Other (income) expense, net in the Condensed Consolidated Statements of Operations.

~~Accounts Receivable and Allowance for Doubtful Accounts~~

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

~~12,217~~3,987

~~Additions from Cloudways acquisition~~

~~691~~

Write-offs and other

~~(10,718)~~(3,938)

Balance as of ~~September 30, 2022~~March 31, 2023

~~6,402~~6,148

Deferred Revenue

Deferred revenue was ~~$5,476~~$5,015 and ~~$4,826~~$5,550 as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Revenue recognized during the three months ended ~~September 30,~~March 31, 2023 and 2022 was $2,118 and ~~2021 was $246 and $259, respectively, and $2,750 and $2,618 during the nine months ended September 30, 2022 and 2021,~~$1,735, respectively, which was included in each deferred revenue balance at the beginning of each respective period.

~~Business Combinations~~Restructuring Expenses

The Company ~~recognizes assets acquired, liabilities assumed, and any contingent consideration related~~records restructuring expenses when management commits to ~~business combinations based on estimates~~a restructuring plan, the restructuring plan identifies all significant actions, the period of ~~their respective fair values on~~time to complete the date of acquisition. The purchase price is allocated to the identifiable net assets acquired, including intangible assets and liabilities assumed, based on estimated fair values at the date of acquisition. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates, or actual results. All subsequentrestructuring plan indicates that significant changes to the ~~estimated fair values of the acquired assets~~plan are not likely, and ~~liabilities assumed that occur within the measurement period and~~employees who are ~~based on facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill.~~

Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the selection of valuation methodologies, estimates of future revenue and cash flows and discount rates in determining the fair value of intangible assets acquired and liabilities assumed. The assets purchased and liabilities assumedimpacted have been reflected on the Company’s Consolidated Balance Sheets, and the results are included on the Consolidated Statements of Operations and Consolidated Statements of Cash Flows from the date of acquisition.

Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition, are recognized separately from the acquisition and expensed as incurred in General and administrative on the Consolidated Statements of Operations.

~~Asset Acquisition~~

The Company applies the principles provided in ASC 805, Business Combinations ("ASC 805") to determine whether a transaction involves an asset or a business. If it is determined an acquisition is an asset acquisition, the purchase consideration (which will include certain transaction costs) is allocated to the acquired assets and liabilities based on their relative fair values.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 one 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 September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
North America	North America	38	%	38	%	38	%	38	%	North America	38	%	38	%
Europe	Europe	30		28		30		29		Europe	29		29
Asia	Asia	22		24		22		23		Asia	23		23
Other	Other	10		10		10		10		Other	10		10
Total	Total	100	%	100	%	100	%	100	%	Total	100	%	100	%

Revenue derived from customers in the United States was 31% of total revenue for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 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 48% and 50%~~assets is as ~~of September 30, 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	$	207,013	$	206,118
Singapore	57,150		60,307
Germany	71,232		50,274
Netherlands	54,777		35,951
Other	72,866		74,221
Total	$	463,038	$	426,871

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. Additionally, no customer accounted for 10% or more of total revenue during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~

~~Sublease~~

Under ASC 840, Leases, a sublease liability is recorded when the Company ceases to use leased space, which is included in Other current liabilities and Other noncurrent liabilities on the Condensed Consolidated Balance Sheets. A sublease loss is calculated as the present value of lease payments, net of expected sublease income, and other costs that do not have future economic benefit to the Company. 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 is in the process of completing 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 result in an increase to the reported assets and liabilities, the Company is currently evaluating the impact of adoption on the condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This amendment will be effective for public entities with fiscal years beginning after December 15, 2022, and for all other entities with fiscal years beginning after December 15, 2023, with early adoption permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 to have a material effect on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, with subsequent amendments, Financial Instruments – Credit Losses (Topic 326): Measurement 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 currently effective for public business entities, and effective for private companies with 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 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 in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted the new standard and there was an immaterial impact to the condensed consolidated financial statements and related disclosures.2022.

Note 3. Acquisitions,

Goodwill and Intangible Assets

Cloudways Ltd.

On September 1, 2022 (“Acquisition Date”), the Company acquired 100% of the outstanding equity interests of Cloudways, Ltd. (“Cloudways”) pursuant to 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 ~~small to medium-sized businesses,~~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 prior to the acquisition, and the Company recognized revenue of approximately $6,000 from Cloudways from January 1, 2022 through the Acquisition Date. ~~All intercompany transactions will be eliminated upon the consolidation of Cloudways.~~

The acquisition purchase consideration, in accordance with ASC 805, totaled $311,237 and was paid in cash. ~~The acquisition purchase consideration is subject to certain adjustments for working capital, cash, transaction expenses, accrued liabilities and indebtedness.~~ 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 ~~initial~~final accounting has been completed with the exception of tax procedures which is still in process. The provisional tax amounts for ~~the~~this business combination ~~is incomplete at the time of this filing due~~are subject to ~~the limited amount of time between the Acquisition Date and the date that~~revision until these ~~financial statements~~evaluations are issued. The Company has performed a preliminary valuation analysis of the fair market value of the assets and liabilities of the Cloudways business. The final purchase price allocation will be determined when the Company has completed its evaluation of the valuation analysis. The final allocation could differ materially from the preliminary allocation. The final allocation may include changes in allocations to acquired intangible assets as well as goodwill and other changes to assets and liabilities including deferred tax liabilities. The estimated useful lives of acquired intangible assets are also preliminary. Measurement period adjustments, if any, will be recognized in the reporting period in which the adjustment amounts are determined within twelve months from the Acquisition Date.completed.

The following table sets forth the components and the allocation of the purchase price for the business combination and summarizes the ~~preliminary~~ 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	~~(21,686)~~(3,097)
Other current liabilities	(29,660)
Net identifiable assets acquired	~~28,000~~46,589
Goodwill	~~283,237~~264,648
Total fair value of net assets acquired	$	311,237

During the three months ended March 31, 2023, the Company recorded a measurement period adjustment of $18,589 to decrease Goodwill and a corresponding decrease to Deferred tax liabilities on the Condensed Consolidated Balance Sheets. Additionally, the change to the provisional amount resulted in an increase to Income tax (benefit) expense and Deferred tax liabilities of $1,589. The measurement period adjustment is a result of new information obtained about facts and circumstances that existed as of the 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 ~~preliminary~~ fair values allocated to the identifiable intangible assets and their estimated useful lives are as follows:


Intangible assets	Intangible assets	Preliminary Fair Value		Weighted Average Useful Life in Years	Intangible assets	Fair Value		Weighted Average Useful Life in Years
Trade name	Trade name	$	9,500	10	Trade name	$	9,500	10
Developed technology	Developed technology	31,500		5	Developed technology	31,500		5
Customer relationships	Customer relationships	31,000		7	Customer relationships	31,000		7
Total identifiable intangible assets	Total identifiable intangible assets	$	72,000		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.

Acquisition related costs consist of miscellaneous professional service fees and expenses for acquisition related activities. The Company recognized approximately $2,139 of acquisition related costs that were expensed in the current period. These costs are shown primarily as part of general and administrative expenses in the accompanying condensed consolidated statements of operations.

The amount of Cloudways’ revenue and net loss included in the Company’s condensed consolidated statements of operations from the Acquisition Date through September 30, 2022, was $4,923 and $(3,581), respectively. The $4,923 does not include the impact of the elimination of $765 related to DO intercompany revenue with Cloudways.

Contingent compensation

Contingent compensation costs relate to payments due to a Cloudways seller for $38,830, of which $16,851 iswill be earned on September 1, 2023, and $7,326 iswill 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. For the nine months ended September 30, 2022, the Company recorded an acquisition related compensation expense of $2,361 related to estimated compensation earned by the Cloudways seller to date. This expense is shown as part of General and administrative in the accompanying condensed consolidated statements of operations.

Unaudited Pro Forma Financial Information

The unaudited pro forma information below summarizes the combined results of the Company and Cloudways as if the Company’s acquisition of Cloudways closed on January 1, 2021 but does not necessarily reflect the 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. ~~The pro forma net income (loss) for the three months ended September 30, 2022 was adjusted to exclude nonrecurring acquisition related costs of $2,139.~~
Pro Forma Three Months Ended September 30, Pro Forma Nine Months Ended September 30,
2022 2021 2022 2021
Pro-forma revenue $ 160,457 $ 119,703 $ 444,193 $ 330,993
Pro-forma net income (loss) 10,010 (9,713) (24,837) (31,593)


	Pro Forma Three Months Ended March 31, 2022
Pro-forma revenue	$	137,404
Pro-forma net loss	23,044

Other Asset Acquisitions

In ~~March 2022,~~January 2023, the Company acquired certain assets of SnapShooter Limited for $2,500, which was accounted for as an asset acquisition as substantially all of the fair value of the assets ~~of the CSS Tricks website (“CSS Tricks”) from Midwest Coast Studios LLC for total purchase consideration of $4,000. The~~acquired was concentrated in a developed technology intangible ~~assets~~asset and will be amortized over ~~3 to 5~~five years. ~~In June 2022,~~

Additionally, the Company ~~acquired intangible assets~~recognized a contingent compensation liability of $1,000 that is payable one year from ~~JournalDev IT Services Private Limited for total purchase consideration~~the date of ~~$1,400 to~~acquisition, contingent on continuing employment and will be ~~amortized~~recognized as compensation expense over ~~3 years.~~

~~Nimbella~~

~~The Company finalized and adjusted~~ the ~~purchase price for the Nimbella acquisition to reflect an decrease of $247 to Goodwill related to the final 2021 pre-acquisition tax return.~~period that it is earned.

Note 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 ~~September 30, 2022. The Company did not hold any available-for-sale marketable securities as of~~March 31, 2023 and December 31, ~~2021.~~2022.


		September 30, 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	$	568,706	$	14	$	(2,342)	$	566,378	U.S. treasury securities	$	469,846	$	134	$	(107)	$	469,873
Corporate debt securities		35,032		—		(340)		34,692

Commercial paper	Commercial paper	200,276		2		(809)		199,469		Commercial paper	121,856		25		(73)		121,808
Total Marketable securities	Total Marketable securities	$	804,014	$	16	$	(3,491)	$	800,539	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 ~~$3,309~~$7,670 and ~~$27~~$946 for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $6,899 and $36 for the nine months ended September 30, 2022 and 2021,~~ respectively. As of ~~September 30, 2022,~~March 31, 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 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

September 30, 2022
Level I Level II Total
Cash and cash equivalents:
Cash $ 23,436 $ — $ 23,436
Money market funds 679 — 679
Total Cash and cash equivalents $ 24,115 $ — $ 24,115
Marketable securities:
U.S. treasury securities $ 566,377 $ — $ 566,377
Corporate debt securities — 34,692 34,692
Commercial paper — 199,470 199,470
Total Marketable securities $ 566,377 $ 234,162 $ 800,539


		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 3 financial assets as of ~~September 30, 2022~~March 31, 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:

September 30, 2022 December 31, 2021
Carrying Value Fair Value Carrying Value Fair Value
Convertible Notes $ 1,468,393 $ 1,099,185 $ 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was net of unamortized debt issuance costs of ~~$31,607~~$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 6. Balance Sheet Details

Property and equipment, net

Property and equipment, net consisted of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Computers and equipment	Computers and equipment	$	566,749	$	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	75,992		68,321		Internal-use software	80,132		78,649
Property and equipment, gross	Property and equipment, gross	$	651,072	$	564,136	Property and equipment, gross	$	663,757	$	651,743

Less: accumulated amortization	Less: accumulated amortization	$	(58,410)	$	(49,268)	Less: accumulated amortization	$	(63,876)	$	(61,244)
Less: accumulated depreciation	Less: accumulated depreciation	(321,677)		(265,225)		Less: accumulated depreciation	(321,924)		(317,329)
Property and equipment, net	Property and equipment, net	$	270,985	$	249,643	Property and equipment, net	$	277,957	$	273,170

Depreciation expense on property and equipment for the three months ended ~~September 30,~~March 31, 2023 and 2022 was $22,372 and ~~2021 was $20,982 and $18,969, respectively, and $62,009 and $54,359 for the nine months ended September 30, 2022 and 2021,~~$20,326, respectively.

The Company capitalized costs related to the development of computer software for internal use of ~~$7,879~~$2,199 and ~~$4,884~~$2,687 for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ 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 ~~September 30,~~March 31, 2023 and 2022 was $2,750 and ~~2021 was $2,983 and $3,245, respectively, and $9,205 and $10,245 for~~$3,145, respectively.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively.~~

~~The~~the Company recorded an impairment loss of ~~$24~~$553 and ~~$144~~$120, respectively, related to software that is no longer being ~~used during the three and nine months ended September 30, 2022, respectively. The Company recorded an impairment loss of $212 for the three and nine months ended September 30, 2021.~~used. This impairment loss is included in Cost of revenue and Research and development on the Condensed Consolidated Statements of Operations.

~~Prepaid expenses and other current assets~~

~~Prepaid expenses and other current assets consisted of the following:~~
September 30, 2022 December 31, 2021
Prepaid expenses $ 13,884 $ 11,473
Restricted cash 9,100 —
VAT and sales tax receivable 7,328 5,116
Other current expenses 965 461
Total prepaid expenses and other current assets $ 31,277 $ 17,050

~~Other current liabilities~~

~~Other current liabilities consisted of the following:~~
September 30, 2022 December 31, 2021
Accrued taxes $ 39,822 $ 6,755
Contingent compensation 1,404 —
ESPP withholding 2,682 1,495
Sublease liability 725 —
Other current liabilities 292 599
Total other current liabilities $ 44,925 $ 8,849

Note 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 ~~September 30, 2022,~~March 31, 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 $100,000.

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 ~~September 30, 2022,~~March 31, 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 ~~$128~~$125 and ~~$96~~$95 for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $349 and $266 for the nine months ended September 30, 2022 and 2021,~~ respectively.

In connection with the Credit Facility, the Company incurred $1,295 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 nine months ended September 30, 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 ~~September 30,~~March 31, 2023 and 2022 was $105 and ~~2021 was $106 and $90, respectively, and $293 and $2,153 for the nine months ended September 30, 2022 and 2021,~~$92, 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 ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 was ~~$1,874~~$1,879 and ~~$5,605,~~$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 five business day period after any ten consecutive trading day period (such ten 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 ~~September 30, 2022,~~March 31, 2023, the Convertible Notes were not convertible for the fiscal quarter ending ~~September 30, 2022.~~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 8. 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 September 30, 2022 and 2021 was $15,356 and $12,798, respectively, and $40,187 and $37,128 for the nine months ended September 30, 2022 and 2021, respectively.

The Company entered into separate sublease agreements related to its New York office space effective as of March 2022 and June 2022, respectively. 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 sublessees do not perform their obligations under their respective leases. As a result of the sublease arrangements, future minimum rental commitments under operating leases will be offset by sublease amounts to be paid by the sublessees. The Company recognized a loss on the sublease of $1,471 for the nine months ended September 30, 2022. The total of minimum sublease amounts to be received in the future under non-cancelable subleases is $5,496 as of September 30, 2022.

~~Future minimum payments under operating lease agreements, net of sublease payments, as of September 30, 2022, were as follows:~~
2022 (three months remaining) $ 13,600
2023 66,467
2024 74,689
2025 40,847
2026 28,067
Thereafter 32,017
Total minimum operating lease payments $ 255,687

Note 9.8. Commitments and Contingencies

Purchase Commitments

As of ~~September 30, 2022,~~March 31, 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 $1,747 and $1,935 ~~and $2,038 were~~was issued and outstanding as of ~~September 30, 2022~~March 31, 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 ~~10.~~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 one vote per share.

As of ~~September 30, 2022~~March 31, 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 ~~our initial public offering in March 2021 (“IPO”),~~ the ~~Company's~~IPO, the 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 ~~September 30, 2022~~March 31, 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 “2023 Share Buyback Program”). Pursuant to the 2023 Share Buyback Program, 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 other applicable legal requirements. The 2023 Share Buyback Program is authorized throughout fiscal year ~~2022 (“Previous Program”). As of May 16, 2022,~~2023; however, the Company ~~repurchased shares representing~~is not obligated to acquire any particular amount of common stock and the ~~entire amount available under the Previous Program. On May 23, 2022,~~2023 Share Buyback Program may be extended, modified, suspended or discontinued at any time at the Company’s ~~Board of Directors approved a new stock repurchase program authorizing~~discretion.

During the ~~repurchase of up to an additional $300,000 of its common stock throughout fiscal year 2022 (the “Current Program”). As of August 19, 2022,~~three months ended March 31, 2023, the ~~Company repurchased shares representing the entire amount available under the Current Program.~~

~~The~~ Company repurchased and retired ~~1,078,650 and 13,626,594~~7,759,973 shares of common stock inpursuant to the ~~open market~~2023 Share Buyback Program for an aggregate purchase price of ~~$50,000 and $600,000 during~~$265,901, which excludes the ~~three and nine months ended September 30, 2022, respectively.~~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.

~~Treasury Stock~~

~~The Company records treasury stock at~~ As of March 31, 2023, the ~~cost~~dollar value of shares that remained available to acquire shares and is included as a component of Stockholders’ equity. The Company’s Board of Directors approved the retirement of the balance of treasury stock as of August 1, 2022. At December 31, 2021,be repurchased by the Company ~~had 1,968,228 shares of treasury stock which were carried at its cost basis of $4,598 on~~under the ~~Condensed Consolidated Balance Sheets.~~2023 Share Buyback Program was $234,099.

Note ~~11.~~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 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 September 30, 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 ~~nine~~three months ended ~~September 30, 2022~~March 31, 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 (1,656,764) 6.25
Forfeited or cancelled (423,967) 9.46
Outstanding at September 30, 2022 10,353,428 7.24 6.46 299,478
Vested and exercisable at September 30, 2022 6,929,561 6.32 6.15 206,875
Vested and unvested expected to vest at September 30, 2022 9,637,482 $ 7.00 6.39 $ 281,090


	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 ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 was $21,037 and ~~2021~~$54,392, respectively. The tax benefit from stock options exercised was ~~$78,012~~$1,129 and ~~$98,724,~~$5,758 for the three months ended March 31, 2023 and 2022, respectively.

No options were granted during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. The aggregate estimated fair value of stock options granted to participants that vested during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 was $3,836 and ~~2021 was $13,452 and $15,402,~~$4,698, respectively.

As of ~~September 30, 2022,~~March 31, 2023, there was ~~$19,329~~$12,600 of unrecognized stock-based compensation related to outstanding stock options granted that is expected to be recognized over a weighted-average period of ~~1.77~~1.35 years.

2118

RSUs

RSUs granted typically vest over four years. RSU activity for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 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	2,774,362	45.73		Granted	3,713,808	33.97
Vested	Vested	(1,107,936)	44.11		Vested	(352,763)	48.46
Forfeited or cancelled	Forfeited or cancelled	(329,516)	47.09		Forfeited or cancelled	(912,505)	46.69
Unvested balance at September 30, 2022		4,671,047	46.02
Vested and expected to vest at September 30, 2022		2,946,410	$	46.39
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 ~~September 30, 2022,~~March 31, 2023, there was ~~$125,828~~$165,227 of unrecognized stock-based compensation related to outstanding RSUs granted that is expected to be recognized over a weighted-average period of ~~3.06~~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 ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was as follows:


		Shares	Weighted-Average Fair Value			Shares	Weighted-Average Fair Value
Unvested balance at January 1, 2022		578,949	$	48.04
Unvested balance at January 1, 2023					Unvested balance at January 1, 2023	666,122	$	57.41
Granted	Granted	436,387	60.72		Granted	1,118,528	31.75
Vested	Vested	(207,001)	47.58		Vested	(21,947)	41.24
Forfeited or cancelled	Forfeited or cancelled	(30,497)	41.24		Forfeited or cancelled	(250,596)	34.25
Adjusted by performance factor	Adjusted by performance factor	(89,769)	41.24		Adjusted by performance factor	(436,387)	60.72
Unvested balance at September 30, 2022		688,069	$	56.94
Unvested balance at March 31, 2023					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 September 30, 2022, the Company determined that it was not probable that the Long Term Incentive Plan (“LTIP”) PRSUs granted to certain executives of the Company with respect to the Company’s 2022 financial performance, and the other PRSU awards would vest. There is $1,714 of unrecognized stock-based compensation that is expected to be recognized over a weighted-average period of 0.94 years in regards to the 2021 LTIP PRSUs with respect to the Company’s 2021 performance.

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) two trading days following the public release of the Company’s financial results, and the remainder shall vest in eight equal quarterly installments subject, in each case, to the individual’s continuous service through the applicable ~~vesting.~~vesting date.

2219

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 February 16, 2023, it was determined that the financial performance of the LTIP PRSUs granted in 2022 was not achieved. This resulted in a performance factor reduction of 436,387 shares from the original maximum shares 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 and product launches.~~targets.

~~On May 24, 2022, the financial performance of one~~As part of the ~~Company’s other PRSUs was determined to be achieved at 100% of the target amount due to a successful product launch. On June 1, 2022, all 60,000~~Restructuring Plan, 20,000 PRSU shares were ~~fully vested.~~deemed achieved and $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 has a grant date fair value of $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 five 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 ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was as follows:

Shares Weighted-Average Fair Value
Unvested balance at January 1, 2022 3,000,000 $ 25.12
Granted — —
Unvested balance at September 30, 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 ~~September 30, 2022,~~March 31, 2023, there was ~~$54,817~~$46,142 of unrecognized stock-based compensation related to the MRSUs granted that is expected to be recognized over a weighted-average period of ~~3.76~~3.37 years.

2320

ESPP

In March 2021, the Company’s Board of Directors adopted, and the stockholders approved, the 2021 Employee Stock Purchase Plan (“ESPP”). 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. ~~The ESPP provides for the grant of up to an aggregate of 3,272,076 shares of common stock as of September 30, 2022.~~

~~2021 Offering~~2022 Offerings

~~The initial~~A new offering period commenced on ~~the IPO date~~May 23, 2022 and ~~consisted~~was scheduled to consist of two purchase periods, ~~the first of which had a~~with purchase ~~date~~dates of November 18, 2022 and May 19, ~~2021 and the second and final purchase period had a purchase date of May 20,~~2023 (the “First 2022 ~~(the “2021~~ Offering”).

In connection with the purchase period that ended on November ~~19, 2021,~~18, 2022, there were ~~117,996~~111,851 shares of common stock, net of shares withheld for taxes, purchased by employees at a price of ~~$39.95. In connection with the purchase period that ended on May 20, 2022, there were 144,867 shares of common stock, net of shares withheld for taxes, purchased by employees at a price of $36.26.~~

~~2022 Offering~~

A new offering period commenced on May 23, 2022 and will consist of two purchase periods, the first of which will have a purchase date of November 18, 2022 and the second and final purchase will have a purchase date of May 19, 2023 (the “2022 Offering”).$24.03. Under the terms of the ESPP, insince the ~~event that the Company's~~Company’s stock price on the first day of the purchase period beginning on November 21, 2022 iswas lower than the stock price at the beginning of the ~~offering,~~First 2022 Offering, the ~~current offering will terminate immediately~~First 2022 Offering terminated and a new 12 month offering ~~will~~ automatically ~~begin~~commenced on November 21, 2022, with scheduled purchase dates on May 19, 2023 and November 20, ~~2023. As~~2023 (the “Second 2022 Offering”).

The termination of ~~September 30,~~the First 2022 ~~3,009,213 shares~~Offering and commencement of ~~common stock remain available~~the Second 2022 Offering was accounted for ~~issuance under~~as a modification, which resulted in an incremental stock-based compensation of $2,069, which will be recognized over the ~~ESPP.~~remaining term of Second 2022 Offering.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, the Company recorded stock-based compensation associated with the ESPP of ~~$902~~$625 and ~~$3,441, respectively, and $186 and $2,108 for the three and nine months ended September 30, 2021.~~$1,361, respectively. As of ~~September 30, 2022, $2,682~~March 31, 2023, $2,292 has been withheld on behalf of employees.

Restricted Shares

In connection with the closing of the Nimbella acquisition ~~of Nimbella,~~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 ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 was $934 and $1,053, ~~and $3,159, respectively, and $346 for the three and nine months ended September 30, 2021.~~respectively. As of ~~September 30, 2022,~~March 31, 2023, there was ~~$8,081~~$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 ~~2.20~~1.44 years.

Stock-Based Compensation

Stock-based compensation was included in the Condensed Consolidated Statements of Operations as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Cost of revenue $ 492 $ 196 $ 1,405 $ 797
Research and development 8,236 6,099 28,617 13,794
Sales and marketing 3,356 2,582 10,553 5,621
General and administrative 11,510 9,678 37,183 17,168
Total $ 23,594 $ 18,555 $ 77,758 $ 37,380


	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 ~~12.~~11. Net Loss per Share Attributable to Common Stockholders

2421

The following table presents the calculation of basic and diluted net loss per share:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Basic net income (loss) per share:
Net income (loss) attributable to common stockholders $ 10,097 $ (1,852) $ (14,217) $ (7,378)
Weighted average shares used to compute net income (loss) per share, basic and diluted 96,559 107,955 102,134 88,265
Basic net income (loss) per share $ 0.10 $ (0.02) $ (0.14) $ (0.08)
Diluted net income (loss) per share:
Net income (loss) attributable to common stockholders $ 10,097 $ (1,852) $ (14,217) $ (7,378)
Number of shares used in basic calculation 96,559 107,955 102,134 88,265
Weighted-average effect of diluted securities:
Stock Options 8,008 — — —
RSUs 275 — — —
PRSUs 89 — — —
Number of shares used in diluted calculation 104,931 107,955 102,134 88,265
Diluted net income (loss) per share $ 0.10 $ (0.02) $ (0.14) $ (0.08)

The effect of the Convertible Notes and ESPP were excluded from the calculation of diluted net income per share for the three months ended September 30, 2022 as the effect would have been anti-dilutive.


	Three Months Ended March 31,
	2023		2022
	(restated)
Numerator:
Net loss attributable to common stockholders	$	(16,370)	$	(18,568)
Denominator:
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	$	(0.17)	$	(0.17)

Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:


		As of September 30,			As of March 31,
		2022	2021		2023	2022

Stock Options	Stock Options	10,353,428	13,451,177	Stock Options	9,133,670	11,234,682
RSUs	RSUs	4,671,047	3,104,367	RSUs	7,250,975	3,937,760

PRSUs	PRSUs	688,069	578,949	PRSUs	1,075,720	792,011
MRSU	MRSU	3,000,000	3,000,000	MRSU	3,000,000	3,000,000
ESPP	ESPP	217,126	253,768	ESPP	404,536	125,524
Convertible Notes	Convertible Notes	8,402,700	—	Convertible Notes	8,402,700	8,402,700
Total	Total	27,332,370	20,388,261	Total	29,267,601	27,492,677

Note ~~13.~~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 ~~and nine~~ months ended ~~September 30,~~March 31, 2023, the Company recorded a tax benefit of $11,481. The effective tax rate for the three months ended March 31, 2023 was 41.2%. The effective tax rate differs from the statutory rate primarily as a result of being able to benefit from current year losses in the U.S., despite maintaining a valuation allowance against the remaining U.S. deferred tax assets, as well as the mix of income in foreign jurisdictions.

For the three months ended March 31, 2022, the Company recorded a tax expense of ~~$442 and $2,611, respectively.~~$3,338. The effective tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 was ~~4.2% and (22.5)~~(21.9)%~~, respectively.~~. 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 and nine months ended September 30, 2021, the Company recorded a tax~~The benefit of $145 and a tax expense of $378, respectively. The effective tax rate for the three and nine months ended September 30, 2021 was 7.3% and (5.4)%, respectively. 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 losses generated in the U.S. offset by 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~~

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 ~~and nine~~ months ended ~~September 30, 2022, uncertain tax positions recorded by~~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 ~~resulted in~~repurchased and retired 1,646,270 shares of common stock pursuant to the 2023 Share Buyback Program for an ~~expense~~aggregate purchase price of ~~$866 and $1,042, respectively. For~~$59,949, which excludes the ~~three and nine months ended September 30, 2021, uncertain~~1% excise tax ~~positions recorded by~~of $599 imposed under the Company resulted in an expense of $206 and $340, 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.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~~10-Q/A 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~~10-K/A 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, 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.~~10-Q/A.

Restatement of Previously Issued Financial Statements

We have restated our previously issued unaudited condensed consolidated financial statements and related notes for the period ended March 31, 2023. Information contained herein has been updated to take into consideration the impact of the restatement. For further information, including with respect to the impact of the restatement, refer to our Note 2. Summary of Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements.

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. ~~Individual~~

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 ~~business~~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 ~~including~~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, 2023, we had approximately 614,000 Learners, Builders and Scalers using our platform to build, deploy and scale 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, use our platform to build, deploy and scale software applications.~~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.

In September 2022, we acquired Cloudways, a leading managed cloud hosting and software-as-a-service (SaaS) provider for SMBs, which allows for simple onboarding and day-to-day management that is purpose-built for SMBs looking to offload the complexities of cloud infrastructure so they can spend more time running and scaling their businesses.

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 ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ our sales and marketing expense was approximately ~~13%~~11% and ~~12%~~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.

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 ~~September 30, 2022,~~March 31, 2023, 38% of our revenue was generated from North America, ~~30%~~29% from Europe, ~~22%~~23% from Asia and 10% from the rest of the world. Excluding Cloudways, revenue from customers paying more than $50 per month as a percentage of total revenue grew from 83% in the quarter ended September 30, 2021 to 86% in the quarter ended September 30, 2022.

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 ~~$61.97~~$76.45 in the quarter ended ~~September 30, 2021~~March 31, 2022 to ~~$79.22~~$88.35 in the quarter ended ~~September 30, 2022.~~March 31, 2023. We had no material customer concentration as our top 25 customers made up approximately 9%7% and ~~10%~~11% of our revenue in the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. We have experienced strong and predictable growth in recent periods. Our annual run-rate revenue, or ARR, as of ~~September 30, 2022~~March 31, 2023 was ~~$641~~$669 million up from ~~$455~~$524 million as of ~~September 30, 2021.~~March 31, 2022. ARR as of the end of each month represents total revenue for that month multiplied by 12.

~~Our larger customers paying more than $50 per month drive~~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 ~~great majority of our revenue and are an important measure of our growth. We have a growing~~ number of these higher spend customers ~~with higher spending levels~~ and ~~these larger customers are expanding~~ their ~~business with us at a faster rate than~~percentage of our ~~overall customer base.~~total revenue. We had approximately ~~142,000 customers paying more than $50 per month~~15,000 Scalers as of ~~September 30, 2022,~~March 31, 2023, up from approximately ~~95,000~~11,000 as of ~~September 30, 2021.~~

~~Impact~~March 31, 2022. We had approximately 131,000 Builders as of ~~Russia-Ukraine Conflict~~

~~In February 2022, Russian military forces invaded Ukraine. In response, Ukrainian military personnel~~March 31, 2023, up from approximately 91,000 as of March 31, 2022. Revenue from Builders and ~~civilians are actively resisting the invasion~~Scalers increased 42% 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, certain of our customers conduct business in these countries and regions. 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. Aggregate revenue from our customers with business activities in Russia, Belarus and Ukraine was approximately 2.1% and 3.6% of our total revenue27%, respectively, for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021, respectively. As~~2022. Revenue from higher spend customers as a percentage of total revenue was 86% in the ~~situation continues to evolve, further sanctions~~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 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 ~~may be forthcoming~~affecting Russia, Ukraine or elsewhere, could cause a decrease in business investments on information technology and ~~could continue to impact~~negatively affect the ~~revenues received from certain customers.~~

~~The full impact~~growth of ~~the conflict on~~ our business ~~operations~~ and ~~financial performance remains uncertain~~our results of operations.

2023 Restructuring

On January 27, 2023, our Board of Directors approved a restructuring plan to adjust our cost structure and ~~will depend on future developments, including~~accelerate our timeline to achieve greater than 20% adjusted free cash flow margins. The restructuring plan includes both the ~~severity and duration~~elimination of positions across 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.~~is expected to be substantially complete by the end of the third quarter of 2023. See Note 13, Restructuring, in our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q/A 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 ~~monitor~~drive our growth.

Increasing Usage by Our Existing Customers

Our customer base represents a significant opportunity for further consumption of our services. We are highly focused on gaining a better understanding of the needs and ~~assess~~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 ~~situation~~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 increase our revenue from existing customers through the introduction of new products and ~~pursue prudent decisions for~~features tailored to our ~~team members,~~customer base in addition to expanded customer outreach, focused on larger customers and ~~business.~~specific use cases.

Growing Our Base of Higher Spend Customers

We believe there is a substantial opportunity to further expand our customer base to attract more businesses that can scale on our platform. We are investing in strategies that we believe will attract higher spend customers, including expansion of our sales team, and new marketing initiatives that further optimize our self-service revenue funnel to help customers expand their usage. In addition, our Cloudways acquisition added a significant number of higher spend customers to our platform due to the higher price point of its Managed Hosting offering.

Enhancing Our Platform and Product Offerings

We believe the market opportunity for serving 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, 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.

2725

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 September 30,						Three Months Ended March 31,
		2022			2021					2023			2022

Customers paying more than $50 per month		142,000			95,000
Learners									Learners	467,600			444,320
Builders									Builders	131,109			91,425
Scalers									Scalers	15,398			11,055
ARPU	ARPU	$	79.22		$	61.97			ARPU	$	88.35		$	76.45
ARR (in millions)	ARR (in millions)	$	641		$	455			ARR (in millions)	$	669		$	524
Net dollar retention rate	Net dollar retention rate	118		%	116		%		Net dollar retention rate	107		%	117		%

~~Customers~~Learners, Builders & Scalers

~~The~~While we believe the total number ~~and~~of these customers is an important indicator of the growth of our ~~larger customers~~business and future revenue opportunity, the trends relating to our Builders and 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, loss on extinguishment of debt, ~~accretion/amortization of premium/discounts and interest income from our available-for-sale investments,~~ and gains or losses on foreign currency exchange.

Income Tax (Benefit) Expense ~~(Benefit)~~

For fiscal year 2022, Income tax (benefit) expense ~~(benefit)~~ consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. Beginning January 1, 2023, Income tax (benefit) expense consists primarily of losses generated in the U.S. 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
		Three Months Ended				Nine Months Ended					March 31,
		September 30,				September 30,					2023		2022
		2022		2021		2022		2021

		(in thousands)									(in thousands)
Revenue	Revenue	$	152,115	$	111,428	$	413,324	$	308,899	Revenue	$	165,134	$	127,327
Cost of revenue(1)	Cost of revenue(1)	54,536		43,506		148,539		126,195		Cost of revenue(1)	71,879		47,202
Gross profit	Gross profit	97,579		67,922		264,785		182,704		Gross profit	93,255		80,125
Operating expenses:	Operating expenses:									Operating expenses:
Research and development(1)	Research and development(1)	30,243		29,927		104,440		79,450		Research and development(1)	38,272		37,241
Sales and marketing(1)	Sales and marketing(1)	19,097		13,312		56,360		35,545		Sales and marketing(1)	18,231		19,044
General and administrative(1)	General and administrative(1)	38,847		26,354		115,109		68,756		General and administrative(1)	48,939		37,424
Restructuring and other charges(1)										Restructuring and other charges(1)	20,869		—
Total operating expenses	Total operating expenses	88,187		69,593��		275,909		183,751		Total operating expenses	126,311		93,709

Income (loss) from operations		9,392		(1,671)		(11,124)		(1,047)
Loss from operations										Loss from operations	(33,056)		(13,584)
Other (income) expense	Other (income) expense	(1,147)		326		482		5,953		Other (income) expense	(5,205)		1,646
Income (loss) before income taxes		10,539		(1,997)		(11,606)		(7,000)
Income tax expense (benefit)		442		(145)		2,611		378
Net income (loss) attributable to common stockholders		$	10,097	$	(1,852)	$	(14,217)	$	(7,378)
Loss before income taxes										Loss before income taxes	(27,851)		(15,230)
Income tax (benefit) expense										Income tax (benefit) expense	(11,481)		3,338
Net loss attributable to common stockholders										Net loss attributable to common stockholders	$	(16,370)	$	(18,568)

___________________

(1) Includes stock-based compensation as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2022		2021		2022		2021			2023		2022

		(in thousands)									(in thousands)
Cost of revenue	Cost of revenue	$	492	$	196	$	1,405	$	797	Cost of revenue	$	392	$	432
Research and development	Research and development	8,236		6,099		28,617		13,794		Research and development	9,590		9,720
Sales and marketing	Sales and marketing	3,356		2,582		10,553		5,621		Sales and marketing	3,332		3,346
General and administrative	General and administrative	11,510		9,678		37,183		17,168		General and administrative	14,280		12,483
Total		$	23,594	$	18,555	$	77,758	$	37,380
Restructuring and other charges										Restructuring and other charges	3,937		—
Total stock-based compensation										Total stock-based compensation	$	31,531	$	25,981

3028

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


											Three Months Ended
		Three Months Ended				Nine Months Ended					March 31,
		September 30,				September 30,					2023		2022
		2022		2021		2022		2021
Revenue	Revenue	100	%	100	%	100	%	100	%	Revenue	100	%	100	%
Cost of revenue	Cost of revenue	36		39		36		41		Cost of revenue	44		37
Gross profit	Gross profit	64		61		64		59		Gross profit	56		63
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	20		27		25		26		Research and development	23		29
Sales and marketing	Sales and marketing	13		12		14		12		Sales and marketing	11		15
General and administrative	General and administrative	26		24		28		22		General and administrative	30		29
Restructuring and other charges										Restructuring and other charges	13		—
Total operating expenses	Total operating expenses	59		63		67		60		Total operating expenses	77		73

Income (loss) from operations		5		(2)		(3)		(1)
Loss from operations										Loss from operations	(21)		(10)
Other (income) expense	Other (income) expense	(1)		—		—		2		Other (income) expense	(3)		1
Income (loss) before income taxes		6		(2)		(3)		(3)
Income tax expense (benefit)		—		—		1		—
Net income (loss) attributable to common stockholders		6	%	(2)	%	(4)	%	(3)	%
Loss before income taxes										Loss before income taxes	(18)		(11)
Income tax (benefit) expense										Income tax (benefit) expense	(7)		3
Net loss attributable to common stockholders*										Net loss attributable to common stockholders*	(10)	%	(15)	%

* Does not foot due to rounding

Comparison of the Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

Revenue
Three Months Ended September 30,
2022 2021 $ Change % Change
(in thousands)
Revenue $ 152,115 $ 111,428 $ 40,687 37 %


	Three Months Ended March 31,
	2023		2022		$ Change		% Change

	(in thousands)
Revenue	$	165,134	$	127,327	$	37,807	30	%

Revenue increased ~~$40.7~~$37.8 million, or ~~37%~~30%, for the three months ended ~~September 30, 2022, including a $4.1 million net revenue contribution from the Cloudways acquisition,~~March 31, 2023 compared to the three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to revenue from the Cloudways acquisition, a ~~28%~~16% increase in ARPU to ~~$79.22~~$88.35 from ~~$61.97~~$76.45, and an increase of ~~50%~~43% in the number of customers 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 September 30,
2022 2021 $ Change % Change
(in thousands)
Cost of revenue $ 54,536 $ 43,506 $ 11,030 25 %


	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 ~~$11.0~~$24.7 million, or ~~25%~~52%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021,~~March 31, 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 depreciation, ~~and co-location and ancillary costs of our network equipment~~ to support the growth in our ~~business, as well as costs associated with our revenue share programs.~~business. Gross profit ~~increased~~decreased to ~~64%~~56% for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~61%~~63% for the three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to ~~a decline~~an increase in ~~depreciation as a percentage of revenue and lower~~ colocation and ~~maintenance~~depreciation costs as a percentage of revenue.

3129

Operating Expenses


											Three Months Ended March 31,
		Three Months Ended September 30,									2023		2022		$ Change		% Change
		2022		2021		$ Change		% Change

		(in thousands)									(in thousands)
Research and development	Research and development	$	30,243	$	29,927	$	316	1	%	Research and development	$	38,272	$	37,241	$	1,031	3	%
Sales and marketing	Sales and marketing	19,097		13,312		5,785		43	%	Sales and marketing	18,231		19,044		(813)		(4)	%
General and administrative	General and administrative	38,847		26,354		12,493		47	%	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	$	88,187	$	69,593	$	18,594	27	%	Total operating expenses	$	126,311	$	93,709	$	32,602	35	%

Research and development expenses increased ~~$0.3~~$1.0 million, or 1%3%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to higher ~~stock-based compensation.~~software license and professional services costs, partially offset by depreciation and amortization expense.

Sales and marketing expenses ~~increased $5.8~~decreased $0.8 million, or ~~43%~~4%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to ~~higher stock-based compensation, increases~~decreases in advertising costs ~~and~~partially offset by amortization of acquired intangible assets.

General and administrative expenses increased ~~$12.5~~$11.5 million, or ~~47%~~31%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to ~~higher~~acquisition related compensation, stock-based compensation, payment processing fees, and ~~increases in~~ VAT and other foreign non-income taxes, ~~bad debt expense~~partially offset by software license costs.

Restructuring and ~~transaction related expenses.~~

~~Other (Income) Expense~~
Three Months Ended September 30,
2022 2021 $ Change % Change
(in thousands)
Other (income) expense $ (1,147) $ 326 $ (1,473) (452) %

~~Other (income) expense decreased 452%~~other charges increased $20.9 million, or 100%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to 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 decreased $6.9 million, or 416%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to interest income and accretion from our marketable ~~securities, partially offset by amortization expense from our convertible notes.~~securities.

Income Tax (Benefit) Expense ~~(Benefit)~~
Three Months Ended September 30,
2022 2021 $ Change % Change
(in thousands)
Income tax expense (benefit) $ 442 $ (145) $ 587 (405) %


	Three Months Ended March 31,
	2023		2022		$ Change		% Change


	(in thousands)
Income tax (benefit) expense	$	(11,481)	$	3,338	$	(14,819)	(444)	%

Income tax (benefit) expense ~~(benefit)~~ decreased ~~$0.6~~$14.8 million, or ~~(405)%~~444%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to ~~income taxes related~~being able to ~~international jurisdictions in which we conduct business.~~

~~Comparison of the Nine Months Ended September 30, 2022 and 2021~~

~~Revenue~~
Nine Months Ended September 30,
2022 2021 $ Change % Change
(in thousands)
Revenue $ 413,324 $ 308,899 $ 104,425 34 %

~~Revenue increased $104.4 million, or 34%, for the nine months ended September 30, 2022, including a $4.1 million net revenue contribution~~benefit from ~~Cloudways, compared to the nine months ended September 30, 2021, primarily due to a 27% increase in ARPU to $73.36 from $57.95 and an increase of 50%~~current year losses in the ~~number of customers 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~~
Nine Months Ended September 30,
2022 2021 $ Change % Change
(in thousands)
Cost of revenue $ 148,539 $ 126,195 $ 22,344 18 %

~~Cost of revenue increased $22.3 million, or 18%~~U.S., ~~for~~despite maintaining a valuation allowance against the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to higher co-location costs and depreciation of our network equipment to support the growth in our business, as well as costs associated with our revenue share programs. Gross profit increased to 64% for the nine months ended September 30, 2022 from 59% for the nine months ended September 30, 2021, primarily due to a decline in depreciation as a percentage of revenue and lower colocation and maintenance costs as a percentage of revenue.

~~Operating Expenses~~
Nine Months Ended September 30,
2022 2021 $ Change % Change
(in thousands)
Research and development $ 104,440 $ 79,450 $ 24,990 31 %
Sales and marketing 56,360 35,545 20,815 59 %
General and administrative 115,109 68,756 46,353 67 %
Total operating expenses $ 275,909 $ 183,751 $ 92,158 50 %

Research and development expenses increased $25.0 million, or 31%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to higher personnel costs and stock-based compensation.

Sales and marketing expenses increased $20.8 million, or 59%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to higher personnel costs and stock-based compensation, and increases in advertising costs.

General and administrative expenses increased $46.4 million, or 67%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to higher personnel costs and stock-based compensation, and increases in bad debt expense, insurance and software licensing fees, professional service fees, transaction related expenses, foreign taxes and loss on sublease.

~~Other (Income) Expense~~
Nine Months Ended September 30,
2022 2021 $ Change % Change
(in thousands)
Other (income) expense $ 482 $ 5,953 $ (5,471) (92) %

Other (income) expense decreased $5.5 million, or 92%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to lower interest expense due to the payoff of the term loan and notes payable in the first quarter of 2021, interest income from our marketable securities for the current period, and a loss on extinguishment of debt in the prior period, partially offset by amortization expense from our convertible notes.

~~Income Tax Expense~~
Nine Months Ended September 30,
2022 2021 $ Change % Change
(in thousands)
Income tax expense $ 2,611 $ 378 $ 2,233 591 %

~~Income~~remaining U.S. deferred tax expense increased $2.2 million, or 591%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to income taxes related to international jurisdictions in which we conduct business.assets.

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 16.5 million 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, our Board of Directors approved the~~2023, we began a common stock buyback program whereby we can repurchase of up to an aggregate of ~~$300.0~~$500.0 million of our common stock throughout fiscal year ~~2022 (“Previous Program”). As~~2023. During the first quarter of May 16, 2022, we repurchased the shares representing the entire amount available under the Previous Program. On May 23, 2022, our Board of Directors approved a new stock repurchase program authorizing the repurchase of up to an additional $300.0 million of our common stock throughout fiscal year 2022 (the “Current Program”). As of August 19, 2022, we repurchased the shares representing the entire amount available under the Current Program. As of September 30, 2022,2023, we repurchased and retired ~~13.6 million~~7,759,973 shares of common stock ~~at an average price of $44.03 per share~~ for ~~an aggregate~~a purchase price of ~~$600.0 million, representing the entire amount available under the Previous Program and the Current Program.~~

~~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~~$265.9 million. ~~As of September 30, 2022, we had not drawn on the credit facility.~~

As of ~~September 30, 2022,~~March 31, 2023, we had ~~$24.1~~$20.9 million in cash and cash equivalents and ~~$800.5~~$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~~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:
Nine Months Ended September 30,
(In thousands) 2022 2021
Net cash provided by operating activities $ 130,008 $ 100,376
Net cash used in investing activities (1,199,742) (81,204)
Net cash (used in) provided by financing activities (610,541) 470,267
(Decrease) increase in cash, cash equivalents and restricted cash (1,680,275) 489,439


	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 ~~$130.0~~$36.2 million and ~~$100.4~~$30.4 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ 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 provided by investing activities was $108.0 million for the three months ended March 31, 2023 compared to $1.1 billion used in investing activities ~~was $1.2 billion~~ for the ~~nine~~three months ended ~~September 30, 2022 compared to $81.2 million for the nine months ended September 30, 2021.~~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 ~~$1.4 billion, the acquisition of Cloudways of $305.2 million and purchase of intangible assets of $4.9 million,~~2022, partially offset by portfolio maturities of ~~available-for-sale marketable securities~~$331.6 million in the first quarter of ~~$558.4 million.~~

2023.

Financing Activities

Net cash used in financing activities of ~~$610.5~~$264.2 million for the ~~nine~~three months ended ~~September 30,~~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 ~~$600.0 million.~~

Net cash provided by financing activities of $470.3 million for the nine months ended September 30, 2021 was primarily due to net proceeds from our IPO of $723.0 million, partially offset by repayments on the credit facility and notes payable of $263.2$150.0 million.

Contractual Obligations and Commitments

WeThere have ~~various contractual~~been no material changes to our obligations under our operating leases and ~~commitments, such as long-term leases,~~ purchase commitments ~~and long-term debt, that are~~as compared to those disclosed in ~~the footnotes to the condensed consolidated financial statements. See Note 7. Debt, Note 8. Operating Leases, and Note 9. Commitments and Contingencies to~~ our ~~Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly~~Annual Report on Form ~~10-Q~~10-K/A for ~~further information regarding these commitments.~~the fiscal year ended December 31, 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~~10-K/A 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.

Based on the market value of our common equity held by non-affiliates as of June 30, 2022 (the last business day of our most recently completed second fiscal quarter), we will cease to qualify as an emerging growth company as of the end of the fiscal year ending December 31, 2022. As a result, we will no longer be able to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, we will no longer be able to use the extended transition period for complying with new or revised accounting standards available to emerging growth companies and will be required to adopt new or revised accounting standards as of the effective dates for public companies.10-K/A.

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 Nine Months Ended
September 30, September 30,
(In thousands) 2022 2021 2022 2021
Gross profit $ 97,579 $ 67,922 $ 264,785 $ 182,704
Adjustments:
Depreciation and amortization 23,442 20,838 68,278 60,105
Stock-based compensation 492 196 1,405 797
Adjusted gross profit $ 121,513 $ 88,956 $ 334,468 $ 243,606
Gross margin 64 % 61 % 64 % 59 %
Adjusted gross margin 80 % 80 % 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, acquisition related compensation, amortization of acquired intangibles, acquisition and integration related costs, loss on sublease, asset impairment, restructuring and severance, and other unusual or non-recurring transactions as they occur. 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 Income (loss) 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:

3632

Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2022 2021 2022 2021
Income (loss) from operations $ 9,392 $ (1,671) $ (11,124) $ (1,047)
Adjustments:
Stock-based compensation 23,594 18,555 77,758 37,380
Acquisition related compensation 2,361 — 2,361 —
Amortization of acquired intangibles 1,661 168 2,687 320
Acquisition and integration related costs 2,700 280 2,868 280
Loss on sublease — — 1,471 —
Asset impairment 24 212 144 212
Non-GAAP income from operations $ 39,732 $ 17,544 $ 76,165 $ 37,145
Operating margin 6 % (1) % (3) % — %
Non-GAAP operating margin 26 % 16 % 18 % 12 %


	Three Months Ended
	March 31,
(In thousands)	2023			2022

GAAP Net loss attributable to common stockholders	$	(16,370)		$	(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 (benefit) expense	(11,481)			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	$	55,682		$	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 ~~(loss)~~ as Net loss attributable to common stockholders, excluding stock-based compensation, acquisition related 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 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 ~~income (loss)~~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:

3733


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022
GAAP Net income (loss) attributable to common stockholders		$	10,097	$	(1,852)	$	(14,217)	$	(7,378)

GAAP Net loss attributable to common stockholders										GAAP Net loss attributable to common stockholders	$	(16,370)	$	(18,568)
Stock-based compensation	Stock-based compensation	23,594		18,555		77,758		37,380		Stock-based compensation	27,594		25,981
Acquisition related compensation	Acquisition related compensation	2,361		—		2,361		—		Acquisition related compensation	7,601		—
Amortization of acquired intangible assets	Amortization of acquired intangible assets	1,661		168		2,687		320		Amortization of acquired intangible assets	3,790		462
Acquisition and integration related costs	Acquisition and integration related costs	2,700		280		2,868		280		Acquisition and integration related costs	1,301		(46)

Reclaim of VAT reserve		—		(3,188)		—		(3,188)
Loss on sublease		—		—		1,471		—
Loss on extinguishment of debt	Loss on extinguishment of debt	—		—		407		3,435		Loss on extinguishment of debt	—		407
Asset impairment		24		212		144		212
Impairment of long-lived assets										Impairment of long-lived assets	553		908
Restructuring and other charges										Restructuring and other charges	20,869		—
Restructuring related salary continuation charges										Restructuring related salary continuation charges	1,907		—

Revaluation of warrants		—		—		—		(556)
Income tax effects of non-GAAP adjustments(1)		710		(19)		992		90
Non-GAAP income tax adjustment(1)										Non-GAAP income tax adjustment(1)	(17,560)		309
Non-GAAP net income~~(2)~~	Non-GAAP net income~~(2)~~	$	41,147	$	14,156	$	74,471	$	30,595	Non-GAAP net income~~(2)~~	$	29,685	$	9,453
Non-GAAP diluted net income per share(2)(3)		$	0.38	$	0.12	$	0.69	$	0.27
Deferred financing fees(2)										Deferred financing fees(2)	1,879		1,868
Non-GAAP net income used in computing Non-GAAP diluted net income per share(2)										Non-GAAP net income used in computing Non-GAAP diluted net income per share(2)	$	31,564	$	11,321
Weighted-average shares used to compute Non-GAAP diluted net income per share	Weighted-average shares used to compute Non-GAAP diluted net income per share	113,334		120,854		114,509		114,815		Weighted-average shares used to compute Non-GAAP diluted net income per share	111,224		126,555
Non-GAAP diluted net income per share										Non-GAAP diluted net income per share	$	0.28	$	0.09

___________________

(1)~~The~~Previously, we calculated 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~~were 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~~Prior to fiscal year 2023, U.S. income tax effects of non-GAAP adjustments were subject to a valuation allowance and, therefore, were taxed at 0%. Beginning January 1, 2023, the Company projects to be a U.S. taxpayer and will use a long term fixed forecasted rate of 17% on non-GAAP ~~adjustments.~~pre-tax income for 2023.

(2)~~Amounts are attributable for both the common and convertible preferred stockholders, treated as one class of stock, for the periods presented for 2021.~~

~~(3)~~Non-GAAP net income has been adjusted for the dilutive impact of deferred financing fees related to the Convertible ~~Notes of $1,480 and $4,428 for the three and nine months ended September 30, 2022. The Convertible Notes were issued in November 2021.~~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~~

3834

measure calculated in accordance with GAAP:


		Nine Months Ended								Three Months Ended
		September 30,								March 31,
(In thousands)	(In thousands)		2022			2021			(In thousands)		2023			2022
Net cash provided by operating activities			$	130,008		$	100,376
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		(77,717)			(66,480)			Capital expenditures - property and equipment		(23,314)			(23,045)
Capital expenditures - internal-use software development	Capital expenditures - internal-use software development		(6,593)			(4,297)			Capital expenditures - internal-use software development		(1,794)			(2,276)
Purchase of intangible assets			(4,915)			(5,636)
Free cash flow			$	40,783		$	23,963

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			31		%	32		%

Free cash flow margin			10		%	8		%
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.~~

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~~Chief Executive Officer and ~~principal financial officers,~~our Chief Financial Officer, 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 ~~September 30, 2022.~~March 31, 2023. Based on that evaluation, at the ~~evaluation of our disclosure controls and procedures as of September 30, 2022,~~time the Quarterly Report on Form 10-Q was filed on May 9, 2023, our Chief Executive Officer and Chief Financial Officer, concluded that, as of ~~such date,~~March 31, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

Subsequent to that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2023, our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting described below.

Material Weakness in Internal Control over Financial Reporting

We have identified a material weakness in our internal control over financial reporting that existed as of December 31, 2022 and continued to exist as of March 31, 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. We did not design and maintain effective controls over the accounting for income taxes. Specifically, we did not have the appropriate skills and level of experience to assess complicated tax matters. Additionally, we did not properly identify, risk assess, design and maintain effective controls related to the income tax provision, including controls related to the evaluation of tax deductions and the impact on our tax provision. This material weakness resulted in immaterial errors to the income tax expense, deferred taxes, accrued tax liabilities and income tax disclosures which were adjusted in the Company's revised consolidated financial statements for the year ended December 31, 2022. The material weakness also resulted in material errors to the income tax expense, deferred taxes and accrued tax liabilities which were adjusted in the Company's restated consolidated financial statements for the three months ended March 31, 2023. This material weakness could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

Remediation Plan with Respect to Material Weakness

Management is committed to taking the necessary steps to remediate the above identified material weakness. We are implementing a plan to remediate the material weakness as follows:

a.In March 2023, we hired a VP of Tax with over 25 years of tax leadership experience.

b.We plan to augment our team with additional tax personnel with the appropriate knowledge, training and experience to analyze, record and disclose tax accounting matters timely and accurately, and to design and maintain appropriate accounting policies, procedures and controls over income and other taxes, commensurate with our financial reporting requirements.

c.In the second quarter of 2023, we began to supplement our tax resources through the use of a third-party tax advisor and intend to continue utilizing the third-party tax advisor.

d.In the second quarter of 2023, we began to design and implement controls to address the identification, accounting, reporting and review of complex tax transactions.

The Audit Committee has directed management to develop a detailed plan and timetable for the implementation of the foregoing remedial measures and will monitor their implementation.

We have made progress remediating the material weakness, and we believe our remediation plan to be sufficient to remediate the identified material weakness. However, the implementation of these remediation measures requires validation and testing of the design and operating effectiveness of internal control over a sustained period of financial reporting prior to reaching a determination that the material weakness has been remediated. As we continue to validate and test our internal control over financial reporting, we may determine that additional measures or modifications to the remediation plan are necessary or appropriate.

Changes in Internal Control Over Financial Reporting

~~There~~Except as described above, 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~~Amended 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.

4036

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~~10-K/A, Amendment No. 1 for the year ended December ~~31, 2021 and Item 1A—Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March~~ 31, 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 to the risk factors discussed in our Annual Report on Form ~~10-K~~10-K/A, Amendment No. 1 for the year ended December ~~31, 2021 and our Quarterly Report on Form 10-Q for the quarter ended March~~ 31, 2022, except as set forth below.

We have identified a material weakness in our internal control over financial reporting, and our management has concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of the end of the period covered by this report. While we are working to remediate the identified material weakness, we cannot assure you that additional material weaknesses or significant deficiencies will not occur in the future. If we ~~are unsuccessful at integrating or developing the business~~fail to maintain an effective system of ~~Cloudways, a recent acquisition,~~internal controls, we may not be a~~ble~~able to ~~achieve~~accurately report our ~~growth objectives.~~

~~In September 2022, we acquired Cloudways Ltd.,~~financial results or ~~Cloudways,~~prevent fraud. As a ~~leading managed cloud hosting and software-as-a-service provider for small to medium-sized businesses,~~result, our stockholders could lose confidence in ~~order to strengthen~~ our ~~ability to simplify cloud computing and enable customers to launch a business and scale it effortlessly. We have limited experience in operating a managed cloud hosting service,~~financial reporting, which may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the business, technologies, data, platform, personnel or operations of Cloudways. The integration process may disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. Furthermore, we may find retention or cultural challenges associated with integrating Cloudways’ employees into our organization. If we are unsuccessful in integrating Cloudways or grow the business in the coming years, the acquisition may not result in the synergies and other benefits we had expected to achieve, and the revenue and operating results of the combined company could ~~be adversely affected. In addition, the acquisition may not ultimately strengthen our competitive position or could be viewed negatively by our customers, investors or securities analysts.~~

We could also face risks related to liability for Cloudways’ activities before the acquisition, including intellectual property infringement claims, violations of legal, regulatory or compliance requirements, commercial disputes, tax liabilities and other known and unknown liabilities, and litigation or other claims in connection with Cloudways, including claims from users, former stockholders, former employees or other third parties, and our efforts to limit such liabilities could be unsuccessful. We may incur costs and expenses necessary to address any pre-acquisition failure to comply with legal, regulatory or compliance requirements. Cloudways may also need to implement or improve its controls, procedures and policies, and we may face risks if any of those controls, procedures or policies are insufficiently effective. Our failure to address these risks or other problems encountered in connection with the Cloudways acquisition could cause us to fail to realize the anticipated benefits of the acquisition, cause us to incur unanticipated liabilities, and harm our business ~~generally.~~and the trading price of our common stock.

~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

~~(c) Issuer Purchases~~The Sarbanes-Oxley Act of ~~Equity Securities~~2002, or the Sarbanes-Oxley Act, requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. As disclosed in this Amended Report, in the course of preparing our interim financial statements for the fiscal quarter ended June 30, 2023, we identified a material weakness in our internal control over financial reporting, which existed as of December 31, 2022. The material weakness was caused by inadequate controls over our tax processes, described in more detail under the heading Part I — Item 4. Controls and Procedures in this Amended Report. We have commenced efforts to remediate the material weakness as described in more detail under the heading Part I — Item 4. Controls and Procedures in this Amended Report. The material weakness in our internal control over financial reporting will not be considered remediated until the controls operate for a sufficient period of time and management has concluded, through testing, that these controls operate effectively. If we do not successfully remediate the material weakness, or if other material weaknesses or other deficiencies arise in the future, we may be unable to accurately report our financial results, which could cause our financial results to be materially misstated and require restatement. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the control deficiencies that led to a material weakness in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses.

~~The following table provides information with respect to repurchases of shares of common stock by the Company during the three months ended September 30, 2022:~~
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)
July 1-31, 2022 — $ — — $ 50,000
August 1-31, 2022 1,078,650 46.35 1,078,650 —
September 1-30, 2022 — — — —
Total 1,078,650 $ 46.35 1,078,650

~~(1)~~On May 23, 2022, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $300.0 million of its common stock throughout fiscal year 2022 (the “Current Program”). As of August 19, 2022, we repurchased the shares representing the entire amount available under the Current Program.

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~

~~Not applicable.~~

~~ITEM 4. MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5. OTHER INFORMATION~~

~~Not applicable.~~

4237

ITEM 6. EXHIBITS

Incorporated by Reference
Exhibit No. Exhibit Description Form File No. Exhibit Filing Date Filed Herewith
2.1
Share Purchase Agreement, dated as of August 19, 2022, by and among DigitalOcean, LLC, Cloudways Ltd., each of the shareholders of Cloudways identified on the signature pages thereto and Shareholder Representative Services LLC.
8-K 001-40252 2.1 August 23, 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.

4338

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:

~~November 7, 2022~~August 11, 2023

By:

/s/ Yancey Spruill

Yancey Spruill

Chief Executive Officer

(Principal Executive Officer)

~~Date:~~

~~November 7, 2022~~

~~By:~~

~~/s/ William Sorenson~~

~~William Sorenson~~

~~Chief Financial Officer~~

~~(Principal Financial Officer)~~

4439


	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	—	—		2,785,069	—		—	—		10,368		—		—		10,368
Exercise of common stock warrants	—	—		296,848	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		—	—		37,966		—		—		37,966
Issuance of common stock for acquisition	—	—		636,994	—		—	—		27,566		—		—		27,566
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	—	—		—	—		—	—		—		(101)		—		(101)
Net loss attributable to common stockholders	—	—		—	—		—	—		—		—		(7,378)		(7,378)
Balance at September 30, 2021	—	$	—	110,990,479	$	2	(1,968,228)	$	(4,598)	$	1,085,788	$	(346)	$	(174,413)	$	906,433


Proceeds from the issuance of common stock under employee stock purchase plan	5,245		—

Employee payroll taxes paid related to net settlement of equity awards	(24,618)		(2,777)
Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs	—		723,126

Repurchase and retirement of common stock	(600,000)		—

Net cash (used in) provided by financing activities	(610,541)		470,267

(Decrease) increase in cash, cash equivalents and restricted cash	(1,680,275)		489,439
Cash, cash equivalents and restricted cash - beginning of period	1,715,425		102,537
Cash, cash equivalents and restricted cash - end of period	$	35,150	$	591,976

Supplemental disclosures of cash flow information:
Cash paid for interest	$	349	$	2,248
Cash paid for taxes (net of refunds)	1,669		541
Non-cash investing and financing activities:
Capitalized stock-based compensation	$	1,285	$	587
Property and equipment received but not yet paid, included in Accounts payable and Accrued other expenses	19,964		14,291


Costs related to initial public offering included in accounts payable and accrued liabilities	—		27,566


	Pro Forma Three Months Ended September 30,				Pro Forma Nine Months Ended September 30,
	2022		2021		2022		2021
Pro-forma revenue	$	160,457	$	119,703	$	444,193	$	330,993
Pro-forma net income (loss)	10,010		(9,713)		(24,837)		(31,593)


	September 30, 2022		December 31, 2021
Prepaid expenses	$	13,884	$	11,473
Restricted cash	9,100		—
VAT and sales tax receivable	7,328		5,116
Other current expenses	965		461
Total prepaid expenses and other current assets	$	31,277	$	17,050


	September 30, 2022		December 31, 2021
Accrued taxes	$	39,822	$	6,755

Contingent compensation	1,404		—
ESPP withholding	2,682		1,495
Sublease liability	725		—
Other current liabilities	292		599
Total other current liabilities	$	44,925	$	8,849


2022 (three months remaining)	$	13,600
2023	66,467
2024	74,689
2025	40,847
2026	28,067
Thereafter	32,017
Total minimum operating lease payments	$	255,687


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)
July 1-31, 2022	—	$	—	—	$	50,000
August 1-31, 2022	1,078,650	46.35		1,078,650	—
September 1-30, 2022	—	—		—	—
Total	1,078,650	$	46.35	1,078,650