UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM ~~10-Q/A~~

~~(Amendment No. 1)~~10-Q

(Mark One)

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

For the quarterly period ended March 31, ~~2023~~2024

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

For the transition period from ______ to ______

Commission File Number: 001-40252


DigitalOcean Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)


Delaware						45-5207470
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

101 6th Avenue

New York, New York 10013

(Address of principal executive offices and Zip Code)

(646) 827-4366

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.000025 per share	DOCN	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April 27, 2023,~~May 3, 2024, there were ~~88,812,515~~91,091,324 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~~, 202 4 and December 31, ~~2022~~20 23	12
	Condensed Consolidated Statements of Operations for the Three Months Ended March ~~31, 2023~~ 3 1 , 202 4 and ~~2022~~20	2
	~~Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022~~23	3
	Condensed Consolidated Statements of ~~Stockholders’ (Deficit) Equity~~Comprehensive Income (Loss) for the Three Months Ended March ~~31, 2023~~ 3 1 , 202 4 and ~~2022~~202 3	4
	Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March ~~31, 2023~~ 3 1 , 202 4 and ~~2022~~202 3	56
	Notes to Condensed Consolidated Financial Statements	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2320
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	3532

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item ~~1a.~~1A.	Risk Factors	3734
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	3836
	Signatures	3937

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This ~~Amended~~Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this ~~Amended~~Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. ~~These forward-looking statements include, but are not limited to, statements concerning the following:~~

•~~our expectations regarding our revenue, expenses and other operating results;~~

•~~our ability to achieve profitability on an annual basis and then sustain such profitability;~~

•~~future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;~~

•~~our ability to acquire new customers and successfully engage and expand usage of our existing customers;~~

•~~the costs and success of our marketing efforts, and our ability to promote our brand;~~

•~~our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;~~

•~~our ability to effectively manage our growth;~~

•~~our ability to successfully integrate acquired businesses, including Cloudways, and achieve expected synergies and benefits;~~

•~~our ability to compete effectively with existing competitors and new market entrants;~~

•~~the growth rates of the markets in which we 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 ~~Amended~~Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in ~~the section titled~~Part I, Item 1A. “Risk Factors” and elsewhere in our Annual Report on Form ~~10-K/A and elsewhere in this Amended Report.~~10-K. 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 ~~Amended Report.~~Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this ~~Amended Report. And while~~Quarterly Report on Form 10-Q. While we believe ~~that~~such available 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 ~~Amended~~Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this ~~Amended~~Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this ~~Amended~~Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations

disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

We may announce material business and financial information to our investors using our investor relations website (https://investors.digitalocean.com/). We therefore encourage investors and others interested in our company to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

(unaudited)

March 31, 2023 December 31, 2022
(restated)
Current assets:
Cash and cash equivalents $ 20,872 $ 140,772
Marketable securities 591,681 723,462
Accounts receivable, less allowance for credit losses of $6,148 and $6,099, respectively 54,972 53,833
Prepaid expenses and other current assets 31,087 27,924
Total current assets 698,612 945,991
Property and equipment, net 277,957 273,170
Restricted cash 1,747 1,935
Goodwill 296,579 315,168
Intangible assets, net 117,638 118,928
Operating lease right-of-use assets, net 185,081 153,701
Deferred tax assets 753 751
Other assets 5,594 5,987
Total assets $ 1,583,961 $ 1,815,631
Current liabilities:
Accounts payable $ 11,005 $ 21,138
Accrued other expenses 38,220 33,987
Deferred revenue 5,015 5,550
Operating lease liabilities, current 73,080 57,432
Other current liabilities 43,203 47,409
Total current liabilities 170,523 165,516
Deferred tax liabilities 4,379 20,757
Long-term debt 1,472,148 1,470,270
Operating lease liabilities, non-current 133,013 107,693
Other long-term liabilities 6,506 3,826
Total liabilities 1,786,569 1,768,062
Commitments and Contingencies (Note 8)
Preferred stock ($0.000025 par value per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 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) 2 2
Additional paid-in capital 28,781 263,957
Accumulated other comprehensive loss (679) (2,048)
Accumulated deficit (230,712) (214,342)
Total stockholders’ (deficit) equity (202,608) 47,569
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
March 31,
2023 2022
(restated)
Revenue $ 165,134 $ 127,327
Cost of revenue 71,879 47,202
Gross profit 93,255 80,125
Operating expenses:
Research and development 38,272 37,241
Sales and marketing 18,231 19,044
General and administrative 48,939 37,424
Restructuring and other charges 20,869 —
Total operating expenses 126,311 93,709
Loss from operations (33,056) (13,584)
Other (income) expense:
Interest expense 2,189 2,059
Loss on extinguishment of debt — 407
Other (income) expense, net (7,394) (820)
Other (income) expense (5,205) 1,646
Loss before income taxes (27,851) (15,230)
Income tax (benefit) expense (11,481) 3,338
Net loss attributable to common stockholders $ (16,370) $ (18,568)
Net loss per share attributable to common stockholders, basic
and diluted $ (0.17) $ (0.17)
Weighted-average shares used to compute net loss per share,
basic and diluted 95,565 106,980


	March 31, 2024		December 31, 2023
Current assets:
Cash and cash equivalents	$	419,063	$	317,236
Marketable securities	—		94,532
Accounts receivable, less allowance for credit losses of $5,811 and $5,848, respectively	63,866		62,186
Prepaid expenses and other current assets	32,884		29,040
Total current assets	515,813		502,994

Property and equipment, net	322,052		305,444
Restricted cash	1,747		1,747
Goodwill	348,322		348,322
Intangible assets, net	134,416		140,151
Operating lease right-of-use assets, net	156,002		155,201
Deferred tax assets	1,945		1,994
Other assets	5,276		5,114
Total assets	$	1,485,573	$	1,460,967

Current liabilities:
Accounts payable	$	4,536	$	3,957
Accrued other expenses	24,398		31,046
Deferred revenue	5,477		5,340

Operating lease liabilities, current	81,218		81,320
Other current liabilities	73,322		70,982
Total current liabilities	188,951		192,645

Deferred tax liabilities	3,517		3,533
Long-term debt	1,479,687		1,477,798
Operating lease liabilities, non-current	95,174		91,161
Other long-term liabilities	4,316		9,528
Total liabilities	1,771,645		1,774,665
Commitments and Contingencies (Note 8)



Preferred stock ($0.000025 par value per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023)	—		—
Common stock ($0.000025 par value per share; 750,000,000 shares authorized; 91,264,101 and 90,243,442 issued and outstanding as of March 31, 2024 and December 31, 2023, respectively)	2		2

Additional paid-in capital	44,615		30,989
Accumulated other comprehensive loss	(591)		(452)
Accumulated deficit	(330,098)		(344,237)
Total stockholders’ deficit	(286,072)		(313,698)

Total liabilities and stockholders’ deficit	$	1,485,573	$	1,460,967

See accompanying notes to condensed consolidated financial statements

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE LOSS~~OPERATIONS

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

(unaudited)

Three Months Ended
March 31,
2023 2022
(restated)
Net loss attributable to common stockholders $ (16,370) $ (18,568)
Other comprehensive loss:
Foreign currency translation adjustments, net of taxes 126 (18)
Unrealized gain (loss) on available-for-sale marketable securities, net of taxes 1,243 (1,908)
Comprehensive loss $ (15,001) $ (20,494)



	Three Months Ended
	March 31,
	2024		2023
Revenue	$	184,730	$	165,134
Cost of revenue	72,644		71,879
Gross profit	112,086		93,255
Operating expenses:
Research and development	33,971		38,272
Sales and marketing	20,804		18,231
General and administrative	45,773		48,939
Restructuring and other charges	—		20,869
Total operating expenses	100,548		126,311

Income (loss) from operations	11,538		(33,056)

Other income (expense):
Interest expense	(2,304)		(2,189)

Interest income and other income, net	5,021		7,394
Other income, net	2,717		5,205

Income (loss) before income taxes	14,255		(27,851)
Income tax (expense) benefit	(116)		11,481
Net income (loss) attributable to common stockholders	$	14,139	$	(16,370)
Net income (loss) per share attributable to common stockholders
Basic	$	0.16	$	(0.17)
Diluted	$	0.15	$	(0.17)
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders
Basic	90,794		95,565
Diluted	93,787		95,565

See accompanying notes to condensed consolidated financial statements

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ (DEFICIT) EQUITY~~COMPREHENSIVE INCOME (LOSS)

(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, 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 1,011,034 — — — 1,461 — — 1,461
Repurchase and retirement of common stock (7,759,973) — — — (268,560) — — (268,560)
Stock-based compensation — — — — 31,923 — — 31,923
Other comprehensive income — — — — — 1,369 — 1,369
Net loss attributable to common stockholders — — — — — — (16,370) (16,370)
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
Shares Amount Shares Amount
Balance at December 31, 2021 109,175,863 $ 2 (1,968,228) $ (4,598) $ 769,705 $ (374) $ (186,538) $ 578,197
Issuance of common stock under equity incentive plan, net of taxes withheld 1,357,665 — — — (6,709) — — (6,709)
Repurchase and retirement of common stock (2,577,471) — — — (150,000) — — (150,000)
Stock-based compensation — — — — 26,392 — — 26,392
Other comprehensive loss — — — — — (1,926) — (1,926)
Net loss attributable to common stockholders — — — — — — (18,568) (18,568)
Balance at March 31, 2022 107,956,057 $ 2 (1,968,228) $ (4,598) $ 639,388 $ (2,300) $ (205,106) $ 427,386



	Three Months Ended
	March 31,
	2024		2023
Net income (loss) attributable to common stockholders	$	14,139	$	(16,370)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes	(151)		126
Unrealized gain on marketable securities, net of taxes	12		1,243
Other comprehensive income (loss)	(139)		1,369
Comprehensive income (loss)	$	14,000	$	(15,001)

See accompanying notes to condensed consolidated financial statements

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ DEFICIT

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

(unaudited)

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


	Common Stock			Additional Paid-In Capital		Accumulated Other Compreh-ensive Loss		Accumulated Deficit		Total
	Shares	Amount
Balance at December 31, 2023	90,243,442	$	2	$	30,989	$	(452)	$	(344,237)	$	(313,698)
Issuance of common stock under equity incentive plan, net of taxes withheld	1,220,917	—		(1,888)		—		—		(1,888)

Repurchase and retirement of common stock	(200,258)	—		(7,795)		—		—		(7,795)
Excise taxes related to repurchase of common stock	—	—		(78)		—		—		(78)
Stock-based compensation	—	—		23,387		—		—		23,387
Other comprehensive loss	—	—		—		(139)		—		(139)
Net Income attributable to common stockholders	—	—		—		—		14,139		14,139
Balance at March 31, 2024	91,264,101	$	2	$	44,615	$	(591)	$	(330,098)	$	(286,072)


	Common Stock			Additional Paid-In Capital		Accumulated Other Compreh-ensive Loss		Accumulated Deficit		Total
	Shares	Amount
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	1,011,034	—		1,461		—		—		1,461


Repurchase and retirement of common stock	(7,759,973)	—		(265,901)		—		—		(265,901)
Excise taxes related to repurchase of common stock	—	—		(2,659)		—		—		(2,659)
Stock-based compensation	—	—		31,923		—		—		31,923
Other comprehensive income	—	—		—		1,369		—		1,369
Net loss attributable to common stockholders	—	—		—		—		(16,370)		(16,370)
Balance at March 31, 2023	89,983,568	$	2	$	28,781	$	(679)	$	(230,712)	$	(202,608)

See accompanying notes to condensed consolidated financial statements

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2024		2023
Operating activities
Net income (loss) attributable to common stockholders	$	14,139	$	(16,370)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	31,887		28,913
Stock-based compensation	22,877		31,531
Provision for expected credit losses	4,175		3,987
Operating lease right-of-use assets and liabilities, net	3,300		9,523

Net accretion of discounts and amortization of premiums on investments	2,569		(3,436)
Non-cash interest expense	1,993		1,983
Loss on impairment of long-lived assets	—		553

Deferred income taxes	—		1,589

Other	(53)		590
Changes in operating assets and liabilities:
Accounts receivable	(5,855)		(5,125)
Prepaid expenses and other current assets	(2,744)		(2,568)
Accounts payable and accrued expenses	(3,260)		(11,031)
Deferred revenue	137		(535)
Other assets and liabilities	(2,472)		(3,389)
Net cash provided by operating activities	66,693		36,215

Investing activities
Capital expenditures - property and equipment	(43,665)		(23,314)
Capital expenditures - internal-use software development	(1,563)		(1,794)


Cash paid for asset acquisitions	—		(2,500)
Purchase of marketable securities	—		(195,910)

Maturities of marketable securities	91,675		331,581
Purchased interest on marketable securities	—		(113)
Proceeds from sale of equipment	—		6
Net cash provided by investing activities	46,447		107,956

Financing activities











Proceeds related to the issuance of common stock under equity incentive plan	5,674		5,535


Principal repayments of finance leases	(1,359)		—
Employee payroll taxes paid related to net settlement of equity awards	(6,792)		(3,864)


Repurchase and retirement of common stock	(8,770)		(265,901)

Net cash used in financing activities	(11,247)		(264,230)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(66)		(29)
Increase (decrease) in cash, cash equivalents and restricted cash	101,827		(120,088)
Cash, cash equivalents and restricted cash - beginning of period	318,983		151,807
Cash, cash equivalents and restricted cash - end of period	$	420,810	$	31,719

See accompanying notes to condensed consolidated financial statements

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Supplemental disclosures of cash flow information:

Cash paid for interest

126

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

Cash paid for taxes, net of refunds

Operating cash flows paid for operating leases

Non-cash investing and financing activities:

Capitalized stock-based compensation

392

411

Capitalized stock-based compensation

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

Operating right-of-use assets obtained in exchange for operating lease liabilities

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 software tools for startups and ~~small and medium-sized businesses (“SMBs”).~~growing technology businesses. 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 solutions across Infrastructure-as-a-Service (“IaaS”), including Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (“PaaS”), including Managed Database and Managed Kubernetes offerings; Software-as-a-Service (“SaaS”)., including Managed Hosting and Marketplace offerings; and artificial intelligence and machine learning (“AI/ML”), including Machines, Notebooks and Deployments offerings.

The Company has adopted a holding company structure and the primary operations are performed globally through its ~~wholly-owned~~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~~wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of March 31, ~~2023,~~2024, results of operations for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, cash flows for the three months ended March 31, 2024 and 2023, and ~~2022, and stockholders’ (deficit) equity~~stockholders' deficit for the three months ended March 31, ~~2023~~2024 and ~~2022.~~

~~Restatement of Previously Issued Financial Statements~~

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 related reserves, useful lives and realizability of ~~long-lived~~long lived assets, capitalized internal-use software development costs, accounting for stock-based compensation including estimation of the probability of performance vesting conditions, the incremental borrowing rate used to determine lease liabilities, valuation allowances against deferred tax assets, fair value of financial instruments, 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:


		March 31,
		2023		2022
		March 31,
		March 31,
		March 31,
	2024					2024	2023
Cash and cash equivalents	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(2)	Restricted cash(2)	1,747		2,038
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	31,719	$	466,874

___________________

(1)Includes contingent compensation ~~deposits~~ related to the Cloudways ~~acquisition.~~Ltd. (“Cloudways”) acquisition, which was paid on September 1, 2023.

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

Accounts Receivable Net of Allowance for Expected Credit Losses

Accounts receivable primarily represents revenue recognized that was not invoiced at the balance sheet date and is primarily billed and collected in the following month. Trade accounts receivable are carried at the original invoiced amount less an estimated allowance for 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 expected credit losses through provision for expected credit losses and reverses the accounts receivable and related allowance after the potential for recovery is considered remote.

The following table presents the changes in our allowance for expected credit losses for the period presented:

Amount

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

~~6,099~~5,848

Provision for expected credit losses

~~3,987~~4,175

Write-offs and other

~~(3,938)~~(4,212)

Balance as of March 31, ~~2023~~2024

~~6,148~~5,811

Deferred Revenue

Deferred revenue was ~~$5,015~~$5,477 and ~~$5,550~~$5,340 as of March 31, ~~2023~~2024 and December 31, ~~2022,~~2023, respectively. Revenue recognized during the three months ended March 31, 2024 and 2023 was $2,112 and ~~2022 was~~ $2,118, ~~and $1,735,~~ respectively, which was included in each deferred revenue balance at the beginning of each respective period.

~~Restructuring Expenses~~

The Company records restructuring expenses when management commits to a restructuring plan, the restructuring plan identifies all significant actions, the period of time to complete the restructuring plan indicates that significant changes to the plan are not likely, and employees who are impacted have been notified.

Segment Information

The Company’s chief operating decision maker, the chief executive officer (“CEO”), 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 March 31,
		2023		2022
		Three Months Ended
		Three Months Ended
		Three Months Ended
		March 31,
		March 31,
		March 31,
		2024
		2024
		2024
North America
North America
North America	North America	38	%	38	%
Europe	Europe	29		29
Europe
Europe
Asia
Asia
Asia	Asia	23		23
Other	Other	10		10
Other
Other
Total	Total	100	%	100	%
Total
Total

Revenue derived from customers in the United States was 30% and 31% of total revenue for the three months ended March 31, 2024 and 2023, ~~and 2022.~~respectively.

109

Long-lived assets ~~includes~~include property and equipment and ~~operating~~ leases. The geographic locations of the Company’s long-lived assets, net, based on physical location of the assets is as follows:


		March 31, 2023		December 31, 2022
	March 31, 2024					March 31, 2024	December 31, 2023
United States	United States	$	207,013	$	206,118
Singapore	Singapore	57,150		60,307
Germany	Germany	71,232		50,274
Netherlands	Netherlands	54,777		35,951
Other	Other	72,866		74,221
Total	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 March 31, ~~2023~~2024 and December 31, ~~2022.~~2023. Additionally, no customer accounted for 10% or more of total revenue during the three months ended March 31, 2024 and 2023.

Recent Accounting Pronouncements – Pending Adoption

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, ASU 2023-09 requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in ASU 2023-09 are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the impact of adoption on our financial disclosures.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and ~~2022.~~for interim periods within fiscal years beginning after December 15, 2024, with early application permitted. The Company is currently evaluating the impact of adopting ASU 2023-07 on its consolidated financial statements and disclosures.

Note 3. Acquisitions, Goodwill and Intangible Assets

~~Cloudways Ltd.~~Paperspace Co.

On ~~September 1, 2022 (“~~July 5, 2023 (the “Paperspace Acquisition Date”), the Company ~~acquired~~consummated a business combination acquiring 100% of Paperspace Co. (“Paperspace”) for total cash consideration of $100,399. Included in the ~~outstanding equity interests~~consideration paid is a contribution of ~~Cloudways, Ltd. (“Cloudways”) pursuant~~$11,100 to an escrow account held by a ~~Share Purchase Agreement, dated as of August 19, 2022.~~ third party on the Paperspace Acquisition Date to support certain post-closing indemnification obligations.

This acquisition has been accounted for as a business ~~combination. The~~combination and the results of ~~Cloudways’~~Paperspace’s operations have been included in the accompanying ~~condensed~~ consolidated financial statements since the Paperspace Acquisition Date. The acquisition and integration of ~~Cloudways, a leading managed cloud hosting and software-as-a-service provider for SMBs, strengthens~~Paperspace’s advanced technology into the Company’s ~~ability to simplify cloud computing by~~platform will extend the Company’s offerings, enabling customers to ~~launch a business~~more easily test, develop and ~~scale it effortlessly. Cloudways was a customer of the Company prior to the acquisition,~~deploy artificial intelligence and ~~the Company recognized revenue of approximately $6,000 from Cloudways from January 1, 2022 through the Acquisition Date.~~machine learning (“AI/ML”) applications, and augment and enhance existing AI/ML applications.

The ~~acquisition purchase~~determination and allocation of total consideration is based on estimates of fair value. Measurement period adjustments, if any, will be recognized in ~~accordance with ASC 805, totaled $311,237 and was paid~~the reporting period in ~~cash. The Share Purchase Agreement includes customary representations and warranties and covenants of~~which the parties. The Company contributed $42,000 to an escrow account on the Acquisition Date to support certain post-closing indemnification obligations. The final accounting has been completed with the exception of tax procedures which is still in process. The provisional taxadjustment amounts ~~for this business combination~~ are ~~subject to revision until these evaluations are completed.~~determined within

1110

twelve months from the Paperspace Acquisition Date. As of March 31, 2024, the purchase price allocation for Paperspace remains open as the Company gathers additional information in relation to its assessment of tax related items.

The following table sets forth ~~the components and~~ the allocation of the purchase price for the business combination and summarizes the fair values of the assets acquired and liabilities assumed at the Paperspace Acquisition Date:


	Amount
~~Total consideration:~~Fair value of consideration transferred
Cash ~~paid to Cloudways sellers~~consideration	$	~~278,187~~100,399

~~Cash contributed to escrow accounts~~Recognized amounts of identifiable assets acquired and liabilities assumed	~~42,000~~
~~Other expenses~~Tangible assets acquired:	~~150~~
~~Less: Cash pre-funded from contingent compensation~~	~~(9,100)~~
~~Total consideration paid~~	$	~~311,237~~

Cash and cash equivalents	$	~~5,827~~1,376
Accounts receivable	~~4,753~~1,042
~~Prepayments~~Prepaid expenses and other current assets	~~547~~193
Property and equipment, net	4,515
Operating right-of-use asset, net	4,398
Finance lease right-of-use asset, net	11,958
Other ~~long term~~assets	367
Intangible assets	937,690
~~Identifiable intangible assets~~Liabilities assumed:	~~72,000~~
Accounts payable	~~(1,820)~~
~~Accrued~~ and accrued expenses	~~(957)~~(1,445)
Deferred revenue	~~(1,013)~~(105)
Operating lease liabilities, current	(1,475)
Operating lease liabilities, non-current	(2,923)
Finance lease liabilities, current	(5,707)
Finance lease liabilities, non-current	(6,251)
Deferred tax liabilities	~~(3,097)~~(1,074)
~~Other current liabilities~~	~~(29,660)~~
~~Net identifiable assets acquired~~	~~46,589~~
~~Goodwill~~	~~264,648~~
Total ~~fair value of~~identifiable net assets acquired	42,559
Goodwill recorded in acquisition	57,840
Total purchase price allocation	$	~~311,237~~100,399

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 fair values allocated to the identifiable intangible assets and their estimated useful lives are as follows:
Intangible assets Fair Value Weighted Average Useful Life in Years
Trade name $ 9,500 10
Developed technology 31,500 5
Customer relationships 31,000 7
Total identifiable intangible assets $ 72,000

~~Cloudways’~~


	Estimated Fair Value		Weighted Average Useful Life (years)
Trademark/Trade Name	$	300	1
Developed Technology	24,120		5
Customer Relationships	13,270		5
Total intangible assets	$	37,690

Paperspace’s assets and liabilities were measured at estimated fair values on ~~September 1, 2022.~~July 5, 2023. 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 management 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 integration of Paperspace’s advanced technology into the Company’s platform which will extend the Company’s offerings, resulting in incremental revenue ~~synergies expected~~ from ~~combining the operations of both entities,~~new and existing customers,

and to a lesser extent intangible assets that do not qualify for separate recognition, including the existing workforce acquired through the acquisition. None of the goodwill is expected to be deductible for income tax purposes.

~~Contingent compensation~~

Contingent compensation costs relate to payments due to a Cloudways seller for $38,830, of which $16,851 will be earned on September 1, 2023, and $7,326 will be earned on each of March 1, 2024, September 1, 2024 and March 1, 2025. Contingent compensation represents compensation for post-combination services because the payments are contingent on continuing employment of the Cloudways seller, with limited exceptions, at each payment date.

Unaudited Pro Forma Financial Information

The unaudited pro forma information below summarizes the combined results of the Company and ~~Cloudways~~Paperspace as if the Company’s acquisition of ~~Cloudways~~Paperspace closed on January 1, ~~2021~~2022 but does not necessarily reflect the combined actual results of operations of the Company and ~~Cloudways~~Paperspace 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,~~Paperspace, including additional amortization ~~adjustments for~~of acquired assets and the ~~fair value~~timing of ~~the assets acquired~~nonrecurring acquisition and ~~liabilities assumed~~integration related costs, and other adjustments the Company believes are reasonable for the pro forma presentation.

If Paperspace had been acquired on January 1, 2022, it would not have had a material impact to revenue for the three months ended March 31, 2023.

Pro Forma
for the

Three Months Ended March 31, ~~2022~~

~~Pro-forma revenue~~2023

Net loss

~~137,404~~21,200

~~Pro-forma net loss~~

~~23,044~~

~~Other Asset~~Contingent Compensation for Acquisitions

~~In January 2023,~~Contingent compensation represents compensation for post-combination services because 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 acquired was concentrated in a developed technology intangible asset and will be amortized over five years.

~~Additionally, the Company recognized a contingent compensation liability of $1,000 that is payable one year from the date of acquisition,~~payments are contingent on continuing employment of the Paperspace founders, Cloudways seller, and Snapshooter Limited founder at each payment date. Contingent compensation costs related to payments due to certain Paperspace founders for $10,120, of which $5,060 will be ~~recognized as~~earned on July 5, 2024, and $1,265 will be earned quarterly thereafter through July 5, 2025.

Contingent compensation ~~expense over~~costs related to payments due to a Cloudways seller for $38,830, of which $16,851 was earned and paid on September 1, 2023, $7,326 was earned and paid on March 1, 2024, and $7,326 will be earned on September 1, 2024 and March 1, 2025.

Contingent compensation costs related to payments due to a SnapShooter Limited founder for $1,000 was earned and paid during the ~~period that it is earned.~~three months ended March 31, 2024.

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 December 31, 2023. As of March 31, ~~2023 and December 31, 2022.~~2024, the Company reallocated its marketable securities to money market funds due to the more favorable yields.

March 31, 2023
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
U.S. treasury securities $ 469,846 $ 134 $ (107) $ 469,873
Commercial paper 121,856 25 (73) 121,808
Total Marketable securities $ 591,702 $ 159 $ (180) $ 591,681


	December 31, 2023											December 31, 2023
	Amortized Cost									Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
U.S. treasury securities
		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
Commercial paper
Commercial paper	Commercial paper	139,489		9		(367)		139,131
Total Marketable securities	Total Marketable securities	$	724,726	$	38	$	(1,302)	$	723,462

Interest income from investments was ~~$7,670~~$5,274 and ~~$946~~$7,670 for the three months ended March 31, 2024 and 2023, ~~and 2022,~~ respectively. ~~As of 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 intend to sell and expects that 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 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

December 31, 2022
Level I Level II Total
Cash and cash equivalents:
Cash $ 95,117 $ — $ 95,117
Money market funds 45,655 — 45,655
Total Cash and cash equivalents $ 140,772 $ — $ 140,772
Marketable securities:
U.S. treasury securities $ 549,124 $ — $ 549,124
Corporate debt securities — 35,207 35,207
Commercial paper — 139,131 139,131
Total Marketable securities $ 549,124 $ 174,338 $ 723,462


	March 31, 2024
	Level I		Level II		Total
Cash and cash equivalents:
Cash	$	44,301	$	—	$	44,301
Money market funds	374,762		—		374,762


Total Cash and cash equivalents	$	419,063	$	—	$	419,063


	December 31, 2023
	Level I		Level II		Total
Cash and cash equivalents:
Cash	$	54,871	$	—	$	54,871
Money market funds	262,365		—		262,365


Total Cash and cash equivalents	$	317,236	$	—	$	317,236

Marketable securities:
U.S. treasury securities	$	69,456	$	—	$	69,456

Commercial paper	—		25,076		25,076
Total Marketable securities	$	69,456	$	25,076	$	94,532

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 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 March 31, ~~2023~~2024 and December 31, ~~2022.~~2023.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The Company reports financial instruments at fair value, with the exception of the 0% Convertible Senior Notes due December 1, 2026 (“Convertible Notes”). Financial instruments that are not recorded at fair value on a recurring basis are measured at fair value on a quarterly basis for disclosure purposes. The carrying values and estimated fair values of financial instruments not recorded at fair value are as follows:

March 31, 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


	March 31, 2024				December 31, 2023
	Carrying Value		Fair Value		Carrying Value		Fair Value
Convertible Notes	$	1,479,687	$	1,261,500	$	1,477,798	$	1,235,625

The carrying value of the Convertible Notes as of March 31, ~~2023~~2024 and December 31, ~~2022~~2023 was net of unamortized debt issuance costs of ~~$27,852~~$20,313 and ~~$29,730,~~$22,202, 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:


		March 31, 2023		December 31, 2022
		March 31, 2024

		March 31, 2024

		March 31, 2024				December 31, 2023
Computers and equipment	Computers and equipment	$	575,294	$	564,763
Furniture and fixtures	Furniture and fixtures	1,511		1,511
Leasehold improvements	Leasehold improvements	6,820		6,820
Internal-use software	Internal-use software	80,132		78,649
Equipment under finance leases
Property and equipment, gross	Property and equipment, gross	$	663,757	$	651,743

Less: accumulated depreciation
Less: accumulated depreciation
Less: accumulated depreciation
Less: accumulated amortization	Less: accumulated amortization	$	(63,876)	$	(61,244)
Less: accumulated depreciation		(321,924)		(317,329)
Property and equipment, net	Property and equipment, net	$	277,957	$	273,170

Depreciation expense on property and equipment was $24,638 and $22,372 for the three months ended March 31, ~~2023~~2024 and ~~2022 was $22,372 and $20,326,~~2023, respectively.

The Company capitalized costs related to the development of computer software for internal use of ~~$2,199~~$2,072 and ~~$2,687~~$2,199 for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, respectively, which is included in internal-use software costs within Property and equipment, net. Amortization expense related to internal-use software was $1,514 and $2,750 for the three months ended March 31, ~~2023~~2024 and ~~2022 was $2,750 and $3,145,~~2023, respectively.

During the three months ended March 31, 2023, ~~and 2022,~~ the Company recorded an impairment loss of $553 ~~and $120, respectively,~~ related to software that is no longer being used. No such loss was recorded for the three months ended March 31, 2024. This impairment loss is included in Cost of revenue and Research and development on the Condensed Consolidated Statements of Operations.

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 March 31, ~~2023,~~2024, 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 March 31, ~~2023,~~2024, 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 ~~$125~~$126 and ~~$95~~$125 for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, respectively.

Amortization of deferred financing fees was $105 for both the three months ended March 31, ~~2023~~2024 and ~~2022 was $105 and $92, respectively.~~2023.

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 interest, and the principal amount of the Convertible Notes does not accrete. The Convertible Notes will mature on December 1, 2026 unless earlier converted, redeemed, or repurchased. ~~The net proceeds from this offering were $1,461,795 after deducting underwriting fees, expenses and commissions.~~ Amortization of deferred financing fees for the three months ended March 31, 2024 and 2023 was $1,888 and ~~2022 was~~ $1,879, ~~and $1,868,~~ respectively.

~~Each $1 of principal of~~During 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~~three months ended 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.~~

As2024, none of the ~~above~~ circumstances ~~have occurred as of March 31, 2023,~~allowing holders to convert the Convertible Notes were ~~not convertible for the fiscal quarter ending March 31, 2023.~~

On or after June 1, 2026 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Notes at the option of the holder regardless of the foregoing circumstances.

Upon conversion of the Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election.

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.met.

Note 8. Commitments and Contingencies

Purchase Commitments

As of March 31, ~~2023,~~2024, 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, ~~2022.~~2023.

Letters of Credit

In conjunction with the execution of certain office space operating leases, a letter of credit in the amount of $1,747 ~~and $1,935~~ was issued and outstanding as of March 31, ~~2023~~2024 and December 31, ~~2022, respectively.~~2023. No draws have been made under 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. The letter of credit was reduced on an annual basis until the end of 2022 and, beginning January 1, 2023, the deposit ~~required~~currently held is the minimum threshold 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.

On September 12, 2023, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York against the Company and certain of its current and former executive officers for alleged violations of the U.S. federal securities laws. The complaint in the lawsuit, captioned Agarwal v. DigitalOcean Holdings, Inc., et. al. (Case 1:23-cv-08060), asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a proposed class consisting of those who acquired common stock of the Company between February 16, 2023 and August 25, 2023 (the “Putative Class Period”), and alleged that the Company made materially false and misleading statements regarding its business during the Putative Class Period. On January 3, 2024, the plaintiff in the federal class action lawsuit voluntarily dismissed the action without prejudice.

On December 12, 2023 and December 14, 2023, respectively, the Company was named a nominal defendant in two putative stockholder derivative actions filed in the United States District Court for the District of Delaware against its directors and its former chief executive officer and member of the board. The complaints in the two lawsuits, captioned

Flanagan v. Spruill, et al. (Case No. 1:23-cv-01424-RGA) and Reynolds v. Spruill, et al. (Case No. 1:23-cv-01433-RGA), alleged, among other things, violations of federal law and breaches of fiduciary duty, in relation to substantially the same factual allegations as the above-described federal class action lawsuit captioned Agarwal v. DigitalOcean Holdings, Inc., et. al. (Case 1:23-cv-08060). On January 12, 2024, the two cases were consolidated. On February 7, 2024, the consolidated action was voluntarily dismissed without prejudice.

Note 9. Stockholders’ Equity

~~Common Stock~~

~~The Company’s amended and restated certificate of incorporation authorizes the issuance of common and preferred stock. Holders of common stock are entitled to one vote per share.~~

~~As of March 31, 2023 and December 31, 2022, the Company was authorized to issue 750,000,000 shares of common stock with a par value of $0.000025 per share.~~

~~Preferred Stock~~

In connection with the IPO, the Company’s 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 Board of Directors. No shares of preferred stock were issued or outstanding as of March 31, 2023 or December 31, 2022.

Share Buyback Program

On February ~~14, 2023,~~20, 2024, the Company’s Board of Directors approved the repurchase of up to an aggregate of ~~$500,000~~$140 million of ~~the Company’s~~its common stock ~~(the “2023~~(“2024 Share Buyback Program”). Pursuant to the ~~2023~~2024 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~~be made at prevailing market prices through open market purchases or in negotiated transactions off the ~~implementation of a 10b5-1 plan, and/or any other available methods in accordance with SEC and other applicable legal requirements.~~market. The ~~2023 Share Buyback Program~~repurchase program is authorized ~~throughout~~through fiscal year ~~2023;~~2025; however, the Company is not obligated to acquire any particular amount of common stock and the ~~2023 Share Buyback Program~~program may be extended, modified, suspended or discontinued at any time at the Company’s discretion.

During the three months ended March 31, ~~2023,~~2024, the Company repurchased and retired ~~7,759,973~~200,258 shares of common stock pursuant to the ~~2023~~2024 Share Buyback Program for an aggregate purchase price of ~~$265,901,~~$7,795, which excludes the 1%

excise tax of ~~$2,659~~$78 imposed under the Inflation Reduction Act. All purchased shares were retired and are reflected as a reduction of Common stock for the par value of shares, with the excess applied to Additional paid-in capital. As of March 31, ~~2023,~~2024, the dollar value of shares that remained available to be repurchased by the Company under the ~~2023~~2024 Share Buyback Program was ~~$234,099.~~$132,205.

Note 10. Stock-Based Compensation

Equity Incentive Plan

In March 2021, the Company’s Board of Directors adopted, and the stockholders approved, the 2021 Equity Incentive Plan. The 2021 Equity Incentive Plan is a successor to and continuation of the 2013 Stock Plan. The 2021 Equity Incentive Plan became effective on the date of the IPO with no further grants being made under the 2013 Stock Plan, however, awards outstanding under 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. 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 typically vest over a period of four years. Stock option activity for the three months ended March 31, ~~2023~~2024 was as follows:
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


	Number of Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Life in Years	Aggregate Intrinsic Value
Outstanding at January 1, 2024	3,289,019	$	9.43	4.17	$	89,671


Exercised	(823,221)	6.93
Forfeited or cancelled	(16,712)	18.22
Outstanding at March 31, 2024	2,449,086	$	10.18	4.85	$	68,577
Vested and exercisable at March 31, 2024	2,256,650	9.60		4.70	64,502
Vested and unvested expected to vest at March 31, 2024	2,439,890	$	10.15	4.84	$	68,388

The aggregate intrinsic value represents the difference between the fair value of common stock and the exercise price of outstanding in-the-money options. The aggregate intrinsic value of exercised options for the three months ended March 31, 2024 and 2023 was $24,426 and ~~2022 was~~ $21,037, ~~and $54,392, respectively. The tax benefit from stock options exercised was $1,129 and $5,758 for the three months ended March 31, 2023 and 2022,~~ respectively.

No options were granted during the three months ended March 31, ~~2023~~2024 and ~~2022.~~2023. The aggregate estimated fair value of stock options granted to participants that vested during the three months ended March 31, 2024 and 2023 was $2,020 and ~~2022 was~~ $3,836, ~~and $4,698,~~ respectively.

As of March 31, ~~2023,~~2024, there was ~~$12,600~~$3,384 of unrecognized stock-based compensation related to outstanding stock options granted that is expected to be recognized over a weighted-average period of ~~1.35~~0.63 years.

RSUs

RSUs granted typically vest over four years. RSU activity for the three months ended March 31, ~~2023~~2024 was as follows:
Shares Weighted-Average Fair Value
Unvested balance at January 1, 2023 4,802,435 $ 44.25
Granted 3,713,808 33.97
Vested (352,763) 48.46
Forfeited or cancelled (912,505) 46.69
Unvested balance at March 31, 2023 7,250,975 38.47
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.~~


	Shares	Weighted-Average Fair Value
Unvested balance at January 1, 2024	6,308,499	$	36.07
Granted	1,432,970	38.86
Vested	(501,216)	37.81
Forfeited or cancelled	(585,633)	37.49
Unvested balance at March 31, 2024	6,654,620	36.40
Vested and expected to vest at March 31, 2024	5,177,654	$	36.53

As of March 31, ~~2023,~~2024, there was ~~$165,227~~$174,375 of unrecognized stock-based compensation related to outstanding RSUs granted that is expected to be recognized over a weighted-average period of ~~3.15~~2.97 years.

PRSUs

The Company has issued PRSUs which will vest based on the achievement of each award’s established performance targets. PRSU activity for the three months ended March 31, ~~2023~~2024 was as follows:

Unvested balance at January 1, 2024

Weighted-Average Fair Value

Unvested balance at January 1, 2023

666,122

57.41

Granted

1,118,528

31.75

Vested

(21,947)

41.24

Forfeited or cancelled

(250,596)

34.25

Forfeited or cancelled

Adjusted by performance factor

(436,387)

60.72

Unvested balance at March 31, 2023

1,075,720

35.08

Adjusted by performance factor

Unvested balance at March 31, 2024

At the end of each reporting period, the Company will adjust compensation expense for the PRSUs based on its best estimate of attainment of 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.

LTIP PRSUs

The Company grants Long Term Incentive Plan (“LTIP”) PRSUs to certain executives of the Company typically during the first fiscal ~~quarter.~~quarter of each fiscal year. 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 Directors’~~Compensation Committee’s approval of the level of achievement against the approved performance targets.

Assuming the minimum performance ~~target~~level is achieved, one-third of the aggregate number of the achieved 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~~8 equal quarterly installments subject, in each case, to the individual’s continuous service through the applicable vesting date.

On February 24, 2022, the financial performance of the LTIP PRSUs granted in 2021 was determined to be achieved at 155% of the target amount. This resulted in a performance factor reduction of 89,769 shares from the original maximum shares achievable of 398,949.

On 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, 2023, the Company granted an LTIP PRSU award (the “2023 LTIP PRSU”) ~~with~~. The financial performance level under the PRSUs was the percentage equal to the sum of the revenue growth percentage and profitability percentage, which on February 21, 2024, was determined to be achieved at 38.5% of the target amount. This resulted in a performance factor reduction of 305,948 shares from the original maximum shares achievable of ~~1,118,528, subject to~~378,882, excluding forfeitures.

On April 11, 2024, the ~~above~~Company granted an LTIP PRSU award (the “2024 LTIP PRSU”). The financial performance level under the PRSUs can be attained based on the achievement of certain revenue and adjusted free cash flow margin targets. Under the 2024 LTIP PRSU, 75% of the award can be achieved based on the revenue targets and 25% of the award can be achieved based on the adjusted free cash flow margin targets. The target shares granted under the 2024 LTIP PRSU was 84,472. The actual number of shares that are received under the 2024 LTIP PRSU may be higher or lower than the target shares based on the actual financial metrics achieved relative to the target financial metrics for fiscal year ~~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.~~2024.

There is ~~$14,429~~$608 of unrecognized stock-based compensation that is expected to be recognized over a weighted-average period of ~~1.52~~2 years in regards to the LTIP PRSUs.

~~Other PRSUs~~MRSUs

~~In addition to~~On February 12, 2024, Padmanabhan Srinivasan joined the ~~above awards, certain other PRSUs have been awarded subject to other various performance measures including~~Company in the ~~achievement~~role of ~~revenue targets.~~

CEO. As part of ~~the Restructuring Plan, 20,000 PRSU shares were deemed achieved and $1,262~~his compensation package, Mr. Srinivasan received an MRSU with an estimated grant date fair value 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,approximately $8 million, which will vest upon the satisfaction of certain service conditions and the achievement of certain Company stock price goals during a five-year performance period, as described below.

~~The~~ A cumulative percentage of 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 thattarget 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)~~60 trading day period during the performance period as set forth in the table ~~below.~~below:


Tranche	Company Stock Price Target	Total Payout
1	$65.00	25% of Target MRSUs
2	$100.00	50% of Target MRSUs
3	$135.00	100% of Target MRSUs
4	$170.00	150% of Target MRSUs

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

ToThe target number of achievable shares is 193,178 and the ~~extent earned based on~~maximum number of achievable shares is 289,767. There will be no pro-rata or straight-line interpolation vesting for achievement of a stock price target between the stock price targets, ~~set forth above,~~except in the ~~MRSU~~event of a qualifying termination.

If the stock price targets are achieved during the first three years following the grant date (the “First Performance Period”), 50% of the MRSUs eligible to vest 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~~third anniversary of the grant date and the remaining 50% of ~~grant.~~the eligible MRSUs will vest on the fifth anniversary of the grant date. Each tranche of MRSUs whose stock price target was not achieved during the First Performance Period that is subsequently achieved during the period between the third anniversary of the grant date and fifth anniversary of the grant date will vest on the fifth anniversary of the grant date.

The unvested balance of 3,000,000 shares related to the former CEO’s MRSU ~~activity for~~were forfeited and canceled during the three months ended March 31, ~~2023~~2024. There was ~~as follows:~~

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
no unrecognized stock-based compensation related to the former CEO’s MRSU awards.

As of March 31, ~~2023,~~2024, there was ~~$46,142 of~~$7,720 unrecognized stock-based compensation related to the MRSUs granted ~~that is expected~~remaining to be ~~recognized over a weighted-average period of 3.37 years.~~

recognized.

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.

~~2022 Offerings~~2023 Offering

A new offering period commenced on ~~May 23, 2022~~November 21, 2023, and ~~was scheduled to consist~~consists of two purchase periods, ~~with~~the first of which will have a purchase ~~dates~~date of May 20, 2024 and the second and final purchase will have a purchase date of November ~~18, 2022 and May 19, 2023~~20, 2024 (the ~~“First 2022~~“2023 Offering”). In connection with the purchase period that ended on November 18, 2022, there were 111,851 shares of common stock, net of shares withheld for taxes, purchased by employees at a price of $24.03. Under the terms of the ESPP, since the Company’s stock price on the first day of the purchase period beginning on November 21, 2022 was lower than the stock price at the beginning of the First 2022 Offering, the First 2022 Offering terminated and a new 12 month offering automatically commenced on November 21, 2022, with scheduled purchase dates on May 19, 2023 and November 20, 2023 (the “Second 2022 Offering”).

The termination of the First 2022 Offering and commencement of the Second 2022 Offering was accounted for as a modification, which resulted in an incremental stock-based compensation of $2,069, which will be recognized over the remaining term of Second 2022 Offering.

During the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, the Company recorded stock-based compensation associated with the ESPP of ~~$625~~$463 and ~~$1,361,~~$625, respectively. As of March 31, ~~2023, $2,292~~2024, $1,633 has been withheld on behalf of employees.

~~Restricted Shares~~

In connection with the closing of the Nimbella acquisition on September 1, 2021, the Company issued 200,204 shares of restricted stock for $63.11 per share for a total value of $12,635 to the founders of Nimbella. These shares vest equally on March 1, 2023 and September 1, 2024 and are expensed on a straight line basis over 36 months. The restricted stock is subject to forfeiture and dependent upon each founder’s continuous service on the vesting date.

As part of the Restructuring Plan, 33,963 shares of restricted stock that were issued to a former founder were vested upon the employee’s departure during the first quarter of 2023 and $2,147 of stock-based compensation was included in Restructuring and other charges in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023.

Total stock-based compensation for the three months ended March 31, 2023 and 2022 was $934 and $1,053, respectively. As of March 31, 2023, there was $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 1.44 years.

Stock-Based Compensation

Stock-based compensation was included in the Condensed Consolidated Statements of Operations as follows:


		Three Months Ended March 31,
		2023		2022
	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2024					2024		2023
Cost of revenue	Cost of revenue	$	392	$	432
Research and development	Research and development	9,590		9,720
Sales and marketing	Sales and marketing	3,332		3,346
General and administrative	General and administrative	14,280		12,483
Restructuring and other charges	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
Total

Note 11. Net ~~Loss~~Income (Loss) per Share Attributable to Common Stockholders

The following table presents the calculation of basic and diluted net ~~loss~~income (loss) per share:
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)



	Three Months Ended
	March 31,
(In thousands, except per share amounts)	2024		2023
Basic net income (loss) per share:
Numerator:
Net income (loss) attributable to common stockholders	$	14,139	$	(16,370)
Denominator:
Weighted average shares used to compute net income (loss) per share	90,794		95,565
Basic net income (loss) per share attributable to common stockholders	$	0.16	$	(0.17)

Diluted net income (loss) per share:
Numerator:
Net income (loss) attributable to common stockholders	$	14,139	$	(16,370)


Denominator:
Number of shares used in basic calculation	90,794		95,565
Weighted-average effect of diluted securities:
Stock Options	1,931		—
RSUs	979		—
PRSUs	83		—

Number of shares used in diluted calculation	93,787		95,565
Diluted net income (loss) per share attributable to common stockholders	$	0.15	$	(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 March 31,

Three Months Ended

2023

2022

Three Months Ended

March 31,

(In thousands)

Stock Options

9,133,670

11,234,682

RSUs

7,250,975

3,937,760

RSUs

PRSUs

1,075,720

792,011

MRSU

3,000,000

ESPP

404,536

125,524

PRSUs

Convertible Notes

8,402,700

Total

29,267,601

27,492,677

Total

Note 12. Income Taxes

The computation of the provision for, or benefit from, income taxes for an interim ~~periods~~period is determined ~~by applying~~using an estimated annual effective tax rate, adjusted for discrete items, if any. Each quarter, the Company updates the estimated annual effective tax rate and records a year-to-date adjustment to ~~year-to-date income (loss) before~~the tax ~~and adjusting~~provision as necessary.

For the three months ended March 31, 2024, the Company recorded a tax expense of $116. The effective tax rate for ~~discrete~~the three months ended March 31, 2024 was 0.8%. The effective tax ~~items recorded~~rate differs from the statutory rate primarily as a result of having a full valuation allowance in the ~~period, if any.~~U.S. and the mix of income in the foreign jurisdictions in which the Company conducts business, and excess tax benefits from stock-based compensation.

For the three months ended 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 Organization for Economic Co-operation and Development Pillar Two guidelines published to date include transition and safe harbor rules around the ~~three months ended March 31, 2022,~~implementation of the Pillar Two global minimum tax of 15%. Based on current enacted legislation effective in 2024, the Company ~~recorded a tax expense~~is currently below the threshold of ~~$3,338.~~Pillar Two tax. The ~~effective tax rate for~~Company is monitoring developments and evaluating the three months ended March 31, 2022 was (21.9)%. The effective tax rate differs from the statutory rate primarily as a result of not recognizing deferred tax assets for U.S. losses due to a full valuation allowance against the U.S. deferred tax assets, and excess tax benefits from stock-based compensation.

The benefit 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 assetsimpacts these new rules will ~~not be realized. As such, the Company maintains a full valuation allowance~~have on its ~~U.S. deferred~~future income tax ~~assets.~~provision and effective income tax rate.

~~Note 13. Restructuring~~

In February 2023, the Company initiated the Restructuring Plan to adjust its cost structure and accelerate its timeline to achieve greater than 20% adjusted free cash flow margins, which includes both the elimination of positions across the Company as well as the shifting of additional positions across a broader geographical footprint. The aggregate restructuring charges in connection with the Restructuring Plan is approximately $24,000, which is expected to be substantially complete by the end of the third quarter of 2023.

The Company recorded Restructuring and other charges of $20,869 for the three months ended March 31, 2023, which consisted of $16,932 primarily related to one-time severance and benefit payments, as well as $3,937 of stock-based compensation related to vesting of certain equity awards.

~~The following table summarizes the Company’s restructuring liability that is included in Other current liabilities in the Condensed Consolidated Balance Sheets:~~


	~~Severance and Other Employee Costs~~
~~Balance as of December 31, 2022~~	$	—
~~Restructuring charges~~	~~16,932~~
~~Cash payments~~	~~(11,261)~~
~~Balance as of March 31, 2023~~	$	~~5,671~~

~~Note 14. Subsequent Events~~

From April 1, 2023 through May 5, 2023, the Company repurchased and retired 1,646,270 shares of common stock pursuant to the 2023 Share Buyback Program for an aggregate purchase price of $59,949, which excludes the 1% excise tax of $599 imposed under the Inflation Reduction Act.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be ~~read in conjunction~~considered together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form ~~10-Q/A~~10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2022.~~2023. This discussion, particularly information with respect to our ~~future results of operations or financial condition, business strategy,~~outlook, key trends and uncertainties, our plans and ~~objectives of management~~strategy for our business, and our performance and future ~~operations,~~success, 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/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.10-Q. Actual results could differ materially from those discussed below.

Overview

DigitalOcean is a leading cloud computing platform offering on-demand infrastructure and platform tools for startups and ~~small and medium-sized businesses (SMBs).~~growing technology businesses. We were founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. Our platform simplifies cloud computing, enabling our customers to rapidly accelerate innovation and increase their productivity and agility.

The lifecycle of a customer typically begins with users coming to our platform to explore a new technology or test an idea. Thousands of users come to DigitalOcean every month, paying a small amount to learn and to complete their discrete tasks. In many cases, these early users do not intend to remain on our platform beyond their initial testing. We refer to these users that spend less than or equal to $50 per month and utilize our platform for three months or less as “Testers”. Given their short time on our platform and their relatively small individual and aggregate spend, we do not consider Testers to be a meaningful part of our customer base. Once a user has remained on our platform for longer than three months, or spends greater than $50 per month, we consider them to be active and ongoing customers that have the intention to remain on our platform and to potentially scale their utilization of our products. We divide this customer population into the following three categories:

•Learners: users that both (i) spend less than or equal to $50 for the month-end period and (ii) have been on our platform for more than three months.

•Builders: users that spend greater than $50 and less than or equal to $500 for the month-end period.

•Scalers: users that spend greater than $500 for the month-end period.

As of March 31, ~~2023,~~2024, we had approximately ~~614,000~~637,000 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 viewsWe view Learners, Builders and Scalers as the most appropriate measure of our customer population, and Testers have therefore been excluded from the total customer population count.

Our users include software engineers, researchers, data scientists, system administrators, students and hobbyists. Our customers use our platform across numerous industry verticals and for a wide range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, ~~and~~ managed services, and, most recently, artificial intelligence and machine learning (AI/ML) applications, 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~~offerings; and ~~increasing productivity are core to~~AI/ML, including our ~~mission.~~Machines, Notebooks and Deployments offerings. Our cloud platform was designed with simplicity in mind to ensure that startups and ~~SMBs~~growing technology businesses can spend less time managing their infrastructure and more time building innovative applications that drive business growth. ~~Simplicity guides how we design~~Improving the developer experience and ~~enhance~~increasing productivity are core to our ~~easy-to-use-interface, the core capabilities we offer our customers and our approach to predictable and transparent pricing for our solutions.~~mission. In just minutes, developers can set up thousands of virtual machines, secure their projects, enable performance monitoring and scale up and down as needed.

We generate revenue from the usage of our cloud computing platform by our ~~customers, including but not limited to compute, storage and networking services.~~customers. We recognize revenue based on the customer utilization of ~~these resources.~~our offerings. Our pricing is primarily consumption-based and billed monthly in arrears, making it easy for our customers to track usage on an ongoing basis and optimize their deployments.

We have ~~historically generated almost all of our revenue from our~~a highly efficient self-service customer acquisition model, which we complement with a ~~targeted~~ sales force focused on inside sales, targeted 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 each of the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, our sales and marketing expense was approximately 11% ~~and 15%~~ of our ~~revenue, respectively.~~revenue. The efficiency of our go-to-market model and our focus on the needs of ~~the SMB market~~startups and growing technology businesses 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~~approximately 190 countries and around two-thirds of our revenue has historically come from customers located outside the United States. For the three months ended March 31, ~~2023, 38%~~2024, 37% of our revenue was generated from North America, 29% from Europe, ~~23%~~24% from Asia and 10% from the rest of the world.

Our average revenue per customer (consisting of the aggregate revenue and customer counts for our Learners, Builders and Scalers, but excluding revenue and ~~user~~customer counts for Testers), or ARPU, has increased ~~significantly~~ from ~~$76.45 in the quarter ended March 31, 2022 to~~ $88.35 in the quarter ended March 31, ~~2023.~~2023 to $95.13 in the quarter ended March 31, 2024. We had no material customer concentration as our top 25 customers made up approximately 7% ~~and 11%~~ of our revenue in each of the three months ended March 31, ~~2023~~2024 and ~~2022, respectively. We have experienced strong and predictable growth in recent periods.~~2023. Our annual run-rate revenue, or ARR, as of March 31, ~~2023~~2024 was ~~$669~~$749 million, up from ~~$524~~$669 million as of March 31, ~~2022.~~2023. ARR as of the end of each month represents total revenue for that month multiplied by 12.

Growing our Builders and Scalers ~~(which we collectively refer to as our higher spend customers)~~ is a critical focus for us, and we have successfully increased the number of these ~~higher spend~~ customers and their percentage of our total revenue. We had approximately ~~15,000~~17,000 Scalers as of March 31, ~~2023,~~2024, up from approximately ~~11,000~~15,000 as of March 31, ~~2022.~~2023. We had approximately ~~131,000~~140,000 Builders as of March 31, ~~2023,~~2024, up from approximately ~~91,000~~131,000 as of March 31, ~~2022.~~2023. Revenue from Builders andScalers increased ~~42%~~9% and ~~27%~~15%, respectively, for the three months ended March 31, ~~2023 and 2022.~~2024 from the three months ended March 31, 2023. Revenue from ~~higher spend customers~~Builders and Scalers as a percentage of total revenue was 87% in the three months ended March 31, 2024 and 86% in the ~~quarter~~three months 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 affecting Russia, Ukraine or elsewhere, could cause a decrease in business investments on information technology and negatively affect the growth of our business and our results of operations.

~~2023 Restructuring~~

On January 27, 2023, our Board of Directors approved a restructuring plan to adjust our cost structure and accelerate our timeline to achieve greater than 20% adjusted free cash flow margins. The restructuring plan includes both the elimination of positions across the company as well as the shifting of additional positions across a broader geographical footprint over the next several months, and 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~~start ups and ~~SMBs~~businesses and the increasing importance of developers, all of which are driving the adoption of our developer cloud platform. We believe our market opportunity is large and that these factors will continue to drive our growth.

Increasing Usage by Our Existing Customers

Our existing customer base represents a significant opportunity for further ~~consumption~~sales expansion through increased usage of our ~~services.~~platform and adoption of additional product offerings. We are highly focused on gaining a better understanding of the needs and growth plans of our existing customers. This deeper relationship with our customers will help us identify opportunities to educate our customer base on ways to utilize the platform more effectively for their individual use cases, as well as provide a feedback loop to inform our product roadmap. We ~~expect~~are focusing our sales and support teams to prevent customer churn by ensuring that our products and services provide a high level of value. Our goal is to continue to increase our revenue from existing customers through the introduction of new products and features tailored to our customer base in addition to expanded customer outreach, focused on larger customers and 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,~~Builders and Scalers, including ~~expansion of our sales team, and~~ new marketing initiatives that further optimize our self-service revenue funnel to help customers expand their ~~usage.~~usage and partnership initiatives to identify potential Builders and Scalers. In addition, our Cloudways ~~acquisition~~and Paperspace acquisitions added a significant number of ~~higher spend customers to our platform due to the higher price point of its Managed Hosting offering.~~Builders and Scalers as these offerings provide premium managed services and high value AI/ML offerings, respectively.

~~Enhancing~~Investing in 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. The market opportunity for our core IaaS services of compute, storage and networking continues to expand and we are making targeted investments to expand our IaaS revenue. Beyond IaaS, we continue to see large growth opportunities in the PaaS, SaaS and AI/ML markets and, accordingly, we have expanded our portfolio of products and offerings over the last few years. In addition, we may pursue both strategic partnerships and acquisitions, such as our acquisitions of Cloudways and Paperspace, 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.

Macroeconomic Conditions

Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, supply chain disruptions, inflationary pressures, 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, political instability and transitions of power in regions where we operate, including Pakistan following the most recent general election, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine, the Middle East or elsewhere, could cause a decrease in business investments in information technology and negatively affect the growth of our business and our results of operations.

While our business model provides some resilience against these factors, we will continue to monitor the direct and indirect impacts of these or similar circumstances on our business and our results of operations, and will take appropriate measures, as necessary, to minimize potential risk exposure.

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~~acquisitions beginning in the period in which they were acquired with respect to the metrics ~~disclosed for the three months ended March 31, 2023.~~disclosed.


	Three Months Ended March 31,												Three Months Ended March 31,
	2024										2024			2023
		Three Months Ended March 31,
		2023			2022

Learners		467,600			444,320
Builders		131,109			91,425
Scalers		15,398			11,055
Learners(1)
Learners(1)
Learners(1)
Builders(1)
Scalers(1)
ARPU	ARPU	$	88.35		$	76.45
ARR (in millions)	ARR (in millions)	$	669		$	524
Net dollar retention rate	Net dollar retention rate	107		%	117		%	Net dollar retention rate	97	%		107	%

______________

(1)Customer count

Learners, Builders & Scalers

While we believe the total number of these customers is an important indicator of the growth of our 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 representative of the ~~SMB~~startup and growing technology business customers that grow on our platform and use multiple products.

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~~from 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~~recurring 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 offer mission-critical solutions across ~~IaaS,~~Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; ~~PaaS,~~Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; ~~and SaaS,~~Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings; and AI/ML, including our Machines, Notebooks and Deployments 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 acquired technology, 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 the 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 provision for expected credit losses, software, payment processing fees, business insurance, depreciation and amortization expenses, rent and facilities costs, impairment of long-lived assets, acquisition related compensation, and other administrative costs. 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. The restructuring plan was substantially completed by the end of the third quarter of 2023.

Other ~~(Income) Expense~~Income (Expense), net

Other ~~(income) expense~~income (expense), net consists primarily of accretion/amortization of premium/discounts and interest income from our ~~available-for-sale investments, interest expense~~marketable securities, amortization of deferred financing fees on our convertible notes, ~~and existing credit facility,~~ loss on extinguishment of debt, and gains or losses on foreign currency exchange.

Income Tax (Expense) Benefit

Income ~~Tax (Benefit) Expense~~

~~For fiscal year 2022, Income~~ tax ~~(benefit) expense consists primarily~~(expense) benefit is attributable to the mix of income ~~taxes~~ in ~~certain foreign and state~~the 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

March 31,

2024

Three Months Ended

(in thousands)

March 31,

(in thousands)

2023

2022

(in thousands)

Revenue

165,134

127,327

Cost of revenue(1)

71,879

47,202

Cost of revenue(1)

Gross profit

93,255

80,125

Operating expenses:

Research and development(1)

38,272

37,241

Sales and marketing(1)

18,231

19,044

Sales and marketing(1)

General and administrative(1)

48,939

37,424

Restructuring and other charges(1)

20,869

—

Restructuring and other charges(1)

Total operating expenses

126,311

93,709

Loss from operations

(33,056)

(13,584)

Other (income) expense

(5,205)

1,646

Loss before income taxes

(27,851)

(15,230)

Income tax (benefit) expense

(11,481)

3,338

Net loss attributable to common stockholders

(16,370)

(18,568)

Income (loss) from operations

Other income, net

Income (loss) before income taxes

Income tax (expense) benefit

Net income (loss) attributable to common stockholders

___________________

(1) Includes stock-based compensation as follows:

Three Months Ended

March 31,

2024

Three Months Ended

(in thousands)

March 31,

(in thousands)

2023

2022

(in thousands)

Cost of revenue

392

432

Research and development

9,590

9,720

Research and development

Sales and marketing

3,332

3,346

General and administrative

14,280

12,483

General and administrative

Restructuring and other charges

3,937

—

Total stock-based compensation

31,531

25,981

Total stock-based compensation

2825

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

Three Months Ended

March 31,

2023

2022

Three Months Ended

March 31,

2024

Revenue

100

Cost of revenue

Gross profit

Operating expenses:

Research and development

Sales and marketing

General and administrative

Restructuring and other charges

—

Total operating expenses

Restructuring and other charges

Total operating expenses*

Loss from operations

(21)

(10)

Other (income) expense

(3)

Loss before income taxes

(18)

(11)

Income tax (benefit) expense

(7)

Net loss attributable to common stockholders*

(10)

(15)

Income (loss) from operations

Other income, net

Income (loss) before income taxes

Income tax (expense) benefit

Net income (loss) attributable to common stockholders*

* ~~Does~~May not foot due to rounding

Comparison of the Three Months Ended March 31, ~~2023~~2024 and ~~2022~~2023

Revenue
Three Months Ended March 31,
2023 2022 $ Change % Change
(in thousands)
Revenue $ 165,134 $ 127,327 $ 37,807 30 %


	Three Months Ended March 31,
	2024		2023		$ Change		% Change

	(in thousands)
Revenue	$	184,730	$	165,134	$	19,596	12	%

Revenue increased ~~$37.8~~$19.6 million, or ~~30%~~12%, for the three months ended March 31, ~~2023~~2024 compared to the three months ended March 31, ~~2022,~~2023, primarily due to ~~revenue~~contributions from acquiring new customers, and increases in utilization from the ~~Cloudways acquisition, a 16%~~existing customer base, our Managed Hosting offering and our AI/ML offerings. The increase in our existing customer base was primarily driven by an 8% increase in ARPU to $95.13 from $88.35, and a 13% increase in revenue from ~~$76.45,~~Builders and ~~an increase of 43% in the number of customers who spend more than $50 per month.~~Scalers. The increase in ARPU was primarily driven by continued adoption of our products by our customers leading to higher average usage on our platform.

Cost of Revenue
Three Months Ended March 31,
2023 2022 $ Change % Change
(in thousands)
Cost of revenue $ 71,879 $ 47,202 $ 24,677 52 %


	Three Months Ended March 31,
	2024		2023		$ Change		% Change

	(in thousands)
Cost of revenue	$	72,644	$	71,879	$	765	1	%

Cost of revenue increased ~~$24.7~~$0.8 million, or ~~52%~~1%, for the three months ended March 31, ~~2023~~2024 compared to the three months ended March 31, ~~2022,~~2023. The increase is primarily due to ~~operating~~increases in amortization from acquired finance leases and ~~variable lease costs relating to new co-location facilities, expansion of existing co-location facilities,~~acquired developed technology and in various other expenses, partially offset by decreases in ancillary equipment and bandwidth expenses due to a ~~lesser extent higher depreciation, to support the growth~~reduction in our ~~business.~~consumption from certain vendors. Gross profit ~~decreased~~increased to 61% for the three months ended March 31, 2024 from 56% for the three months ended March 31, 2023, ~~from 63% for the three months ended March 31, 2022,~~ primarily due to ~~an increase~~a decrease in ~~colocation~~ancillary equipment and ~~depreciation costs~~bandwidth expenses as a percentage of revenue.

2926

Operating Expenses


	Three Months Ended March 31,
		2024
		2024
		2024																2023							$ Change						% Change
		Three Months Ended March 31,
		2023		2022		$ Change		% Change

		(in thousands)
		(in thousands)
		(in thousands)
		(in thousands)
Research and development
Research and development
Research and development	Research and development	$	38,272	$	37,241	$	1,031	3	%	$	33,971			$		$	38,272			$			$	(4,301)			(11)			(11)		%
Sales and marketing	Sales and marketing	18,231		19,044		(813)		(4)	%	Sales and marketing		20,804			18,231				18,231			2,573					2,573		14				14	%
General and administrative	General and administrative	48,939		37,424		11,515		31	%	General and administrative		45,773			48,939				48,939			(3,166)					(3,166)		(6)				(6)	%
Restructuring and other charges	Restructuring and other charges	20,869		—		20,869		100	%	Restructuring and other charges		—			20,869				20,869			(20,869)					(20,869)		(100)				(100)	%
Total operating expenses	Total operating expenses	$	126,311	$	93,709	$	32,602	35	%	Total operating expenses		$	100,548		$			$	126,311		$				$	(25,763)		(20)				(20)	%

Research and development expenses ~~increased $1.0~~decreased $4.3 million, or 3%11%, for the three months ended March 31, ~~2023~~2024 compared to the three months ended March 31, ~~2022, primarily~~2023. The decrease is largely due to ~~higher~~a reduction in personnel costs primarily relating to the restructuring we announced in February 2023, and decreases in amortization of capitalized software ~~license~~ and ~~professional services costs, partially offset by depreciation~~acquired intangibles, and ~~amortization expense.~~in other expenses.

Sales and marketing expenses ~~decreased $0.8~~increased $2.6 million, or 4%14% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase is primarily due to increases in affiliate fees, advertising expenses, amortization of acquired intangible assets, and stock-based compensation, partially offset by decreases in personnel costs.

General and administrative expenses decreased $3.2 million, or 6%, for the three months ended March 31, ~~2023~~2024 compared to the three months ended March 31, ~~2022,~~2023. The decrease is primarily due to a reduction in stock-based compensation largely as a result of the departure of our former CEO, and decreases in ~~advertising costs~~deferred compensation and business insurance, partially offset by ~~amortization of acquired intangible assets.~~increases in costs relating to the executive reorganization, professional service fees, and personnel costs.

~~General~~There were $20.9 million in Restructuring and ~~administrative expenses increased $11.5 million, or 31%, for~~other charges during the three months ended March 31, 2023 ~~compared to~~and no such charges during the three months ended March 31, ~~2022, primarily due to acquisition related compensation, stock-based compensation, payment processing fees, and VAT and other foreign non-income taxes, partially offset by software license costs.~~

~~Restructuring and other~~2024. These charges ~~increased $20.9 million, or 100%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022,~~were 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 onin February ~~16,~~2023 which was substantially completed by the third quarter of 2023.

Other ~~(Income) Expense~~Income, net
Three Months Ended March 31,
2023 2022 $ Change % Change
(in thousands)
Other (income) expense $ (5,205) $ 1,646 $ (6,851) (416) %


	Three Months Ended March 31,
	2024		2023		$ Change		% Change

	(in thousands)
Other income, net	$	2,717	$	5,205	$	(2,488)	(48)	%

Other ~~(income) expense~~income, net decreased ~~$6.9~~$2.5 million, or ~~416%~~48%, for the three months ended March 31, ~~2023~~2024 compared to the three months ended March 31, ~~2022,~~2023, primarily due to the maturity of interest ~~income~~bearing marketable securities in order to fund our share repurchases throughout 2023 and ~~accretion from our marketable securities.~~into 2024.

Income Tax ~~(Benefit)~~ Expense
Three Months Ended March 31,
2023 2022 $ Change % Change
(in thousands)
Income tax (benefit) expense $ (11,481) $ 3,338 $ (14,819) (444) %


	Three Months Ended March 31,
	2024		2023		$ Change		% Change

	(in thousands)
Income tax (expense) benefit	$	(116)	$	11,481	$	(11,597)	(101)	%

Income tax ~~(benefit)~~ expense ~~decreased $14.8~~increased $11.6 million, or ~~444%~~101%, for the three months ended March 31, ~~2023~~2024 compared to the three months ended March 31, ~~2022,~~2023, primarily ~~due~~as a result of U.S. pre-tax losses creating a tax benefit in 2023 as compared to ~~being able to benefit from current year losses~~U.S. pre-tax income creating a tax expense in ~~the U.S., despite maintaining a valuation allowance against the remaining U.S. deferred tax assets.~~2024.

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. Cash provided from these sources is used primarily for operating expenses, such as personnel and co-location costs, and capital ~~expenditures.~~expenditures, including our investments in AI/ML and core product offerings. From time to time, we may also use excess cash for share ~~repurchases.~~

In February 2023, we began a common stock buyback program whereby we can repurchase up to an aggregate of $500.0 million of our common stock throughout fiscal year 2023. During the first quarter of 2023, we repurchasedrepurchases and ~~retired 7,759,973 shares of common stock for a purchase price of $265.9 million.~~

~~As of March 31, 2023, we had $20.9 million~~investments in ~~cash~~marketable securities and cash equivalents and $591.7 million in marketable securities. Our cash and cash equivalents primarily consist of cash and money market funds. Our marketable securities consist of U.S. treasury securities and commercial paper.equivalents.

We believe our existing cash and cash equivalents, cash flow from operations and availability under our Credit Facility (as defined below) will be sufficient to support working capital and capital expenditure requirements and our outstanding contractual commitments for at least the next 12 months ~~from~~and in the ~~date~~long term.

In February 2024, our Board of ~~issuance.~~Directors approved an additional repurchase program of up to an aggregate of $140 million of our common stock through fiscal year 2025. For the three months ended March 31, 2024, we repurchased and retired 200,258 shares of common stock for an aggregate purchase price of $7.8 million. The program will expire on December 31, 2025.

As of March 31, 2024, we had $419.1 million in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash and money market funds.

We may from time to time seek to retire or purchase our outstanding equity or debt, including the repurchase of our common stock or the Convertible Notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, any such purchases or exchanges may result in us acquiring and retiring a substantial amount of such indebtedness, which could impact the trading liquidity of such indebtedness.

The following table summarizes our cash flows for the periods presented:

Three Months Ended March 31,

(In thousands)

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 provided by operating activities

Net cash provided by investing activities

Net cash used in financing activities

(264,230)

(157,879)

Decrease in cash, cash equivalents and restricted cash

(120,088)

(1,248,551)

Net cash used in financing activities

Increase (decrease) in cash, cash equivalents and restricted cash

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 ~~$36.2~~$66.7 million and ~~$30.4~~$36.2 million for the three months ended March 31, 2024 and 2023, ~~and 2022, respectively, for which the increases in each year were~~respectively. The increase was primarily driven by an increase in cash collections from higher revenues ~~higher interest income~~ and ~~a lower cash bonus,~~less severance payments associated with our restructuring and reorganization plan. These increases were partially offset by ~~higher lease~~ payments for leases, acquisition related compensation and ~~restructuring costs.~~timing of insurance premiums.

Investing Activities

Net cash provided by investing activities was $46.4 million for the three months ended March 31, 2024 compared to $108.0 million for the three months ended March 31, ~~2023 compared to $1.1 billion used~~2023. The decrease in cash provided by investing activities ~~for the three months ended March 31, 2022. The change~~ was primarily driven by a $43.9 million reallocation of our ~~initial investment into the available-for-sale~~marketable securities portfolio to cash equivalents and an increase of $20.4 million in ~~the first quarter of 2022,~~cash payments for capital expenditures, partially offset by ~~portfolio maturities of $331.6~~a $2.5 million increase in ~~the first quarter of 2023.~~cash activity for asset acquisitions.

Financing Activities

Net cash used in financing activities of $11.2 million and $264.2 million for the three months ended March 31, 2024 and 2023, respectively, was primarily due to the repurchase and retirement of our common stock for $8.8 million and $265.9 ~~million.~~

~~Net cash used in financing activities of $157.9~~ million, ~~for the three months ended March 31, 2022 was primarily due to the repurchase and retirement of our common stock for $150.0 million.~~respectively.

Contractual Obligations and Commitments

There have been no material changes to our obligations under our operating leases and purchase commitments as compared to those disclosed in our Annual Report on Form ~~10-K/A~~10-K for the fiscal year ended December 31, ~~2022.~~2023.

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/A~~10-K for the fiscal year ended December 31, ~~2022.~~2023.

Recently Adopted Accounting Pronouncements

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 consolidated financial statements included in “Part II, Item 8. Financial Statements and Supplementary Data” included in the Form ~~10-K/A.~~10-K.

Non‑GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with non-GAAP financial measures including: (i) adjusted EBITDA and adjusted EBITDA ~~margin;~~margin and (ii) non-GAAP net income and non-GAAP diluted net income per ~~share; and (iii) adjusted free cash flow and adjusted free cash flow margin.~~share. 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 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 EBITDA and Adjusted EBITDA Margin

We define adjusted EBITDA as net ~~loss~~income (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.~~income, net. We define adjusted EBITDA margin as adjusted EBITDA as a percentage of revenue. We believe that adjusted EBITDA, when taken together with our GAAP financial results, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business, ~~determining incentive compensation,~~ evaluating our operating performance, and for internal planning and forecasting purposes.

Our calculation of adjusted 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~~income (loss) attributable to common stockholders and other GAAP results.

The following table presents a reconciliation of ~~net loss~~Net income (loss) attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to adjusted EBITDA for each of the periods presented:

Three Months Ended

March 31,

Three Months Ended

March 31,

(In thousands)

2023

2022

(In thousands)

GAAP Net income (loss) attributable to common stockholders

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

Depreciation and amortization

Stock-based compensation(1)

Interest expense

2,189

2,059

Acquisition related compensation

7,601

—

Acquisition related compensation

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

—

Acquisition and integration related costs

Income tax expense

Restructuring and other charges(1)

Restructuring related charges(1)(2)

Impairment of long-lived assets

553

908

Other expense(1)

(7,394)

(820)

Other income, net(3)

Adjusted EBITDA

55,682

37,192

As a percentage of revenue:

Net income (loss) margin

Adjusted EBITDA margin

___________________

(1)~~Other income (expense), net~~For the three months ended March 31, 2024, non-GAAP stock-based compensation excludes $0.1 million as it is presented in Restructuring related charges. For the three months ended March 31, 2023, non-GAAP stock-based compensation excludes $3.9 million as it is presented in Restructuring and other charges.

(2)For the three months ended March 31, 2024, primarily consists of executive reorganization charges. For the three months ended March 31, 2023, primarily consists of salary continuation charges.

(3)For the three months ended March 31, 2024 and 2023, primarily consists of interest and accretion income from our marketable securities.

Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share

We define non-GAAP net income as ~~Net loss~~net income (loss) attributable to common stockholders, excluding stock-based compensation, acquisition related compensation, amortization of acquired intangibles, acquisition and integration related costs, ~~loss on extinguishment of debt, impairment of long-lived assets,~~ restructuring and other charges, restructuring related ~~salary continuation~~ charges, impairment of long-lived assets, 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 diluted shares ~~including~~outstanding, which includes the potentially dilutive ~~effects~~effect of our stock options, RSUs, PRSUs, ~~ESPP~~ and Convertible Notes.

We believe non-GAAP diluted net income per share provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric generally eliminates the effects of unusual or non-recurring items from period to period for reasons unrelated to overall operating performance.

The following table presents a reconciliation of Net ~~loss~~income (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:

3330

Three Months Ended
March 31,
(In thousands) 2023 2022
GAAP Net loss attributable to common stockholders $ (16,370) $ (18,568)
Stock-based compensation 27,594 25,981
Acquisition related compensation 7,601 —
Amortization of acquired intangible assets 3,790 462
Acquisition and integration related costs 1,301 (46)
Loss on extinguishment of debt — 407
Impairment of long-lived assets 553 908
Restructuring and other charges 20,869 —
Restructuring related salary continuation charges 1,907 —
Non-GAAP income tax adjustment(1)
(17,560) 309
Non-GAAP net income $ 29,685 $ 9,453
Deferred financing fees(2)
1,879 1,868
Non-GAAP net income used in computing Non-GAAP diluted net income per share(2)
$ 31,564 $ 11,321
Weighted-average shares used to compute Non-GAAP diluted net income per share 111,224 126,555
Non-GAAP diluted net income per share $ 0.28 $ 0.09
~~___________________~~



	Three Months Ended
	March 31,
(In thousands, except per share amounts)	2024		2023
GAAP Net income (loss) attributable to common stockholders	$	14,139	$	(16,370)
Stock-based compensation(1)	22,730		27,594
Acquisition related compensation	4,530		7,601
Amortization of acquired intangible assets	5,735		3,790
Acquisition and integration related costs	19		1,301

Restructuring and other charges(1)	—		20,869
Restructuring related charges(1)(2)	3,620		1,907
Impairment of long-lived assets	—		553


Non-GAAP income tax adjustment(3)	(8,026)		(17,560)
Non-GAAP Net income	$	42,747	$	29,685

Non-cash charges related to convertible notes(4)	$	1,586	$	1,559
Non-GAAP Net income used to compute net income per share, diluted	$	44,333	$	31,244

GAAP Net income (loss) per share attributable to common stockholders, diluted	$	0.15	$	(0.17)
Stock-based compensation(1)	0.22		0.26
Acquisition related compensation	0.04		0.07
Amortization of acquired intangible assets	0.05		0.03
Acquisition and integration related costs	—		0.01

Restructuring and other charges(1)	—		0.19
Restructuring related charges(1)(2)	0.03		0.02
Impairment of long-lived assets	—		0.01


Non-cash charges related to convertible notes(4)	0.02		0.01
Non-GAAP income tax adjustment(3)	(0.08)		(0.15)
Non-GAAP Net income per share, diluted	$	0.43	$	0.28

GAAP weighted-average shares used to compute net income (loss) per share, diluted	93,787		95,565
Weighted-average dilutive effect of potentially dilutive securities	8,403		15,659
Non-GAAP weighted-average shares used to compute net income per share, diluted	102,190		111,224

______________

(1)~~Previously,~~For the three months ended March 31, 2024, non-GAAP stock-based compensation excludes $0.1 million as it is presented in Restructuring related charges. For the three months ended March 31, 2023, non-GAAP stock-based compensation excludes $3.9 million as it is presented in Restructuring and other charges.

(2)For the three months ended March 31, 2024, primarily consists of executive reorganization charges. For the three months ended March 31, 2023, primarily consists of salary continuation charges.

(3)For the periods in fiscal year 2024, we ~~calculated the income tax effects of non-GAAP adjustments based on the applicable statutory~~used a tax rate of 16%, which we believe is a reasonable estimate of our long-term effective tax rate applicable to non-GAAP pre-tax income for 2024. For the ~~relevant jurisdiction, except for those items which were non-taxable or subject to valuation allowances for which the tax expense (benefit) was calculated at 0%. Prior to~~periods in fiscal year 2023, ~~U.S. income~~we used a 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, which we believe was a reasonable estimate of our long-term effective tax rate applicable to non-GAAP pre-tax income for 2023.

~~(2)~~(4)~~Non-GAAP net income has been adjusted~~Consists of non-cash interest expense for ~~the dilutive impact~~amortization of deferred financing fees related to the Convertible Notes.

~~Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin~~

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 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 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. One limitation of adjusted 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~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in ~~accordance with GAAP:~~
Three Months Ended
March 31,
(In thousands) 2023 2022
GAAP Net cash provided by operating activities $ 36,215 $ 30,401
Adjustments:
Capital expenditures - property and equipment (23,314) (23,045)
Capital expenditures - internal-use software development (1,794) (2,276)
Restructuring related costs 11,261 —
Restructuring related salary continuation charges 1,907 —
Acquisition and integration related costs 1,468 97
Adjusted free cash flow $ 25,743 $ 5,177
As a percentage of revenue:
GAAP Net cash provided by operating activities 22 % 24 %
Adjusted free cash flow margin 16 % 4 %
market risk from the information provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

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 Chief Executive Officer and 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 March 31, ~~2023.~~2024. Based on that evaluation, at the 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 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,~~2024, 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~~As previously disclosed, we 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.~~2024. 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~~In the first quarter of 2024, we augmented our team with additional tax personnel ~~with~~who have 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~~We have supplemented 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~~first quarter of ~~2023,~~2024, we ~~began~~continued to evaluate the design ~~and implement~~of newly implemented controls to address the identification, accounting, reporting and review of complex tax transactions.

The Company continues to execute upon its remediation plan for the material weakness and reports the status of the remediation plan to the Audit Committee ~~has directed management to develop~~on a ~~detailed plan and timetable for the implementation of the foregoing remedial measures and will monitor their implementation.~~regular basis.

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

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 Amended Report~~quarter ended March 31, 2024 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 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.

3633

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in various legal proceedings. Defending such proceedings can be 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.

On September 12, 2023, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York against us and certain of our current and former executive officers for alleged violations of the U.S. federal securities laws. The complaint in the lawsuit, captioned Agarwal v. DigitalOcean Holdings, Inc., et. al. (Case 1:23-cv-08060), asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a proposed class consisting of those who acquired our common stock between February 16, 2023 and August 25, 2023 (the “Putative Class Period”), and alleged that we made materially false and misleading statements regarding our business during the Putative Class Period. On January 3, 2024, the plaintiff in the federal class action lawsuit voluntarily dismissed the action without prejudice.

On December 12, 2023 and December 14, 2023, respectively, we were named a nominal defendant in two putative stockholder derivative actions filed in the United States District Court for the District of Delaware against our directors and our former chief executive officer and member of the board. The complaints in the two lawsuits, captioned Flanagan v. Spruill, et al. (Case No. 1:23-cv-01424-RGA) and Reynolds v. Spruill, et al. (Case No. 1:23-cv-01433-RGA), alleged, among other things, violations of federal law and breaches of fiduciary duty, in relation to substantially the same factual allegations as the above-described federal class action lawsuit captioned Agarwal v. DigitalOcean Holdings, Inc., et. al. (Case 1:23-cv-08060). On January 12, 2024, the two cases were consolidated. On February 7, 2024, the consolidated action was voluntarily dismissed without prejudice.

ITEM 1A. RISK FACTORS

Please refer to Part I, Item ~~1A—Risk Factors~~1A. “Risk Factors” in our Annual Report on Form ~~10-K/A, Amendment No. 1~~10-K for the year ended December 31, ~~2022~~2023 for a description of certain ~~material~~significant 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/A, Amendment No. 1~~10-K for the year ended December 31, ~~2022, except as set forth below.~~2023.

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

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

The following table provides information with respect to repurchases of shares of common stock by the Company during the three months ended March 31, 2024:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program(1)	Approximate Dollar Value (in thousands) of Shares that May Yet Be Purchased Under the Program(1)
January 1-31, 2024	—	$	—	—	$	140,000
February 1-29, 2024	34,544	37.63		34,544	138,700
March 1-31, 2024	165,714	39.19		165,714	132,205
Total	200,258	$	38.92	200,258

(1)On February 20, 2024, the Company’s Board of Directors approved the repurchase of up to an aggregate of $140 million of the ~~end~~Company’s common stock (the “2024 Share Buyback Program”). Pursuant to the 2024 Share Buyback Program, repurchases of the ~~period covered by this report. While we are working~~Company’s common stock will be made at prevailing market prices through open market purchases or in negotiated transactions off the market. The repurchase program is authorized through fiscal year 2025; however, the Company is not obligated 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 fail to maintain an effective systemacquire any particular amount of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial reporting, which could harm our businesscommon stock and the ~~trading price of our common stock.~~

The Sarbanes-Oxley Act of 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, weprogram 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 thatextended, modified, suspended or discontinued at any time at 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.Company’s discretion.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

3734

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Trading Arrangements

None.

ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing Date

Filed Herewith

31.1

Certification of ~~Yancey Spruill,~~Padmanabhan Srinivasan, 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,~~Padmanabhan Srinivasan, 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.

3836

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:

~~August 11, 2023~~May 10, 2024

By:

/s/ ~~Yancey Spruill~~Padmanabhan Srinivasan

~~Yancey Spruill~~Padmanabhan Srinivasan

Chief Executive Officer

(Principal Executive Officer)

Date:

May 10, 2024

By:

/s/ W. Matthew Steinfort

W. Matthew Steinfort

Chief Financial Officer

(Principal Financial Officer)

3937


	March 31, 2023		December 31, 2022
	(restated)
Current assets:
Cash and cash equivalents	$	20,872	$	140,772
Marketable securities	591,681		723,462
Accounts receivable, less allowance for credit losses of $6,148 and $6,099, respectively	54,972		53,833
Prepaid expenses and other current assets	31,087		27,924
Total current assets	698,612		945,991

Property and equipment, net	277,957		273,170
Restricted cash	1,747		1,935
Goodwill	296,579		315,168
Intangible assets, net	117,638		118,928
Operating lease right-of-use assets, net	185,081		153,701
Deferred tax assets	753		751
Other assets	5,594		5,987
Total assets	$	1,583,961	$	1,815,631

Current liabilities:
Accounts payable	$	11,005	$	21,138
Accrued other expenses	38,220		33,987
Deferred revenue	5,015		5,550

Operating lease liabilities, current	73,080		57,432
Other current liabilities	43,203		47,409
Total current liabilities	170,523		165,516

Deferred tax liabilities	4,379		20,757
Long-term debt	1,472,148		1,470,270
Operating lease liabilities, non-current	133,013		107,693
Other long-term liabilities	6,506		3,826
Total liabilities	1,786,569		1,768,062
Commitments and Contingencies (Note 8)



Preferred stock ($0.000025 par value per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 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)	2		2

Additional paid-in capital	28,781		263,957
Accumulated other comprehensive loss	(679)		(2,048)
Accumulated deficit	(230,712)		(214,342)
Total stockholders’ (deficit) equity	(202,608)		47,569

Total liabilities and stockholders’ equity	$	1,583,961	$	1,815,631


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehen-sive Loss		Accumulated Deficit		Total
	Shares	Amount		Shares	Amount
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	1,011,034	—		—	—		1,461		—		—		1,461


Repurchase and retirement of common stock	(7,759,973)	—		—	—		(268,560)		—		—		(268,560)
Stock-based compensation	—	—		—	—		31,923		—		—		31,923
Other comprehensive income	—	—		—	—		—		1,369		—		1,369
Net loss attributable to common stockholders	—	—		—	—		—		—		(16,370)		(16,370)
Balance at March 31, 2023 (restated)	89,983,568	$	2	—	$	—	$	28,781	$	(679)	$	(230,712)	$	(202,608)


	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)


	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


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


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