DOCN - Earnings call transcript Q3 2021 | DigitalOcean Holdings, Inc.

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Operator

Good day and thank you for standing by. Welcome to the DigitalOcean Q3 '21 Earnings Conference Call. [Operator Instructions] And now I would like to hand the conference over to your first speaker today, Rob Bradley, Vice President of Investor Relations. Thank you. Please go ahead.

Rob Bradley

everybody, Third welcome, Call. XXXX and you, to Quarter DigitalOcean's Earnings Thank me is our Bill today the CFO. Spruill, With call and Yancey on our CEO; Sorenson, Today, our analysts. and from will we questions the then answer from and we Yancey received we will start Bill, commentary

in always, address outlook period. those to turn call most goal, questions, model as understand the business possible. over manage Q&A to we'll is Our efficient an operator investors way help our and the we open to After the

and subject safe as making Turning like outlook and remind similar performance including our and I'd industry outlook to and harbor call, and to quarter opportunities to financial assumptions. everyone all future statement. well goals trends, conference which of risks, financial full this we as items, statements our uncertainties year for fourth are that forward-looking during the business and about will be statements, market expectations for

these You the about can that uncertainties section revise and remind results We the our find forward-looking Factors we our everyone actual in any obligation may statements. Risk more filings or to no SEC. differ, with information risks undertake and update of

the discussing non-GAAP over our which Yancey? between and measures financial GAAP and call to earlier this found Spruill. our issued was our Yancey let our Finally, today, turn earnings that, be financial we'll me be non-GAAP can release, CEO, results reconciliations in press With morning.

Yancey Spruill

for and joining you today. morning, Good thank Rob. Thanks, us

quarter delivered with in EBITDA acceleration and cash We adjusted are share strong where you, revenue pleased to again we very flow. results our growth, third growing

or of of in XXXX of revenue our XXXX. increasing are confidence for billion well better achieving XXXX. $X and XX% and first DigitalOcean underway, remain is growth our reiterate transformation we laser-focused in our we balance in the The sustaining result, a on As outlook

points top line or second bit QX step-up dollar in growth new to largely dive strength revenue per nearly will an growth was products. a and versus last XXXX, million. quarter, This QX. QX customer, ARR moment. in and accelerated customers, points year from across acceleration basis and Relative more revenue each to from the saw XX% in acceleration a improvement drivers: a key number year-over-year $XXX to more X,XXX growth prior a basis I the ARR significant September QX, from into our year. ago of ARPU. uptick For growth This we quarter. from point X,XXX sequential XXX results basis lapping a consecutive net to the period improved than relative of increased retention revenue the flat on to basis due XXXX represents continued

we and to XXXX. about We are into in confident great rest in of our the feel QX, are for a heading outlook the strong start quarter momentum our off and

faster. profitability an accelerate. attractive ask DigitalOcean's willing In differentiator Our even the generated a The margin to underscoring into today. to is represents answer we whose we more business be of of of company Investors even invest million we to for model. so the QX, adjusted often XX%, a grow business efficiency doing is are continues whether growth which EBITDA, rate $XX would

current than XXXX. growth that a have to margins to head on our we happy opportunities order been more in acceleration and product give initiatives, EBITDA and in into driving innovation will QX, XXXX see higher are hold adjusted could in us to our fact, go-to-market but invest growth on margins In enhance start back

base. the shared QX, headline I'd our that opportunity this take like Now granular results insight into for to to more I've provide customer

A formation stage percentage businesses. small- small customers are code percentage large learning the long-tail where our a in how medium-sized base a customer and are testing large dynamic, to growing emerge rapidly business. to a have build launch very and We of idea a and ideas, of our of customers with launching

over revenue we drivers that XX% our our our SMB. customers would products in in rapidly than with than digits also and our and consider larger of mid-single One as XXX% key roughly our double ARPU growth NDR platform, rate of the QX, XXX% XXXX. more better much yet the of faster up businesses customers revenue. net a at meaningfully our expansion have faster top These churn are the what growth low many digits the customer increasingly for total company nurturing of rate, They lower we entire them growing buy a QX typical of to growth multiple is reported base, average generate substantially larger represent XX% in These of of line company. and XX%. higher and from roughly of total attracting versus grow

times of overall number the customers rate. Importantly, customer our than faster larger growing are several growth

higher NDR of and share over larger We where revenue represent faster, will grow expect to customers these our trends therefore a these continue mix time. have a larger total

Our continued and market. gets our on their of base size bigger, before businesses ramp. the of these incubated Many direct fast-growing focus on sales a period of investment time and customer support as we paying for and is product, the of our launch SMB platform off customers they in more have customer attract

the this at decline X% and traction. from increase to the an acquisition as and nurture off incredible certain from economics, and low customers, remove The sequential of To very per revenue net of QX security ended on NDR our unit their Beginning dollar that early-stage XXX,XXX our sustained until with performance and customer. at retention average our get customer costs they drive the discuss by enhanced let's our is: levers results. do customer growth. implementing developers have a revenue rapidly as growth, of customer With of to We that SMBs We low-value context customer lift was result we slight expressed of with we our boot, customer compelling nature QX increasingly get and growth, year-over-year. growing mix, QX they ecosystem an protocols customers growth support ideas where entrepreneurs start-ups platform.

XXX customer material Importantly, although points, these had impact actions basis they roughly revenue. on reduced no reported by our count reported

the revenue build and proud to with improved security. area ARPU accelerated our for vitally and to very be to business customers. of in our platform us from and of On team trust important and all contrary, as the look It's their NDR I'm QX. to leading growth, they customers relationship the their sequentially

to are all We more have our their confidence robust which customers and while ability a revenue for growth. businesses to secure making platform our on of not accelerate impacting to build DO

We one growth of the retention NDR we important driver is strong Next, of believe that near the gauges let's net on focus QX. and improvement dollar the business term most health enduring potential. saw critical of and of a in in our

Our and have in customers NDR older XX% of XX-month calculation represented historically of the reported cohort over revenue.

our sustaining to NDR more NDR customer pillar as The reduced the So as the customers a platform, stay and less. to to churn in In quarter. we improved QX, very the in is drive are on growth was product XXX%, consume and third on churn combined spend this it key existing overall acceleration. NDR focused improvement expansion we continue see of

to we churn. And by acceleration. on NDR are reduced continue expansion keeping dramatically to for platform, net have now the drive customers set up We more

ARPU. contributor to results a strong was improvement in Finally, key in our year-over-year QX XX%

and infrastructure not their infrastructure, a as robust will these own larger suited to well current of leads SMBs. for mentioned are earlier, consume creating continue just the organic are inherent more us Rather, a our increase growth growth Service. This spend particularly XX% total not Service we giving us, success can X SMBs, for levels billion as Yet offering them revenue. of had of dynamic XX% revenue X in platform we're roughly services. experiencing customer customers' at well more achieve we our our products when years $X illustrate, of growing track also revenue target their Infrastructure our on that drives coming ago, purchase our doing experience and first I sustain only Platform revenue This them we customers of growth. we additional spend stickier but to from growth. revenue organic also This our they As products years. in generate relevant few expense outside today, to solidly of while of DO and from over at To our confidence on as little total is our product offerings broaden infrastructure a helps these our roughly a a

we strategy. X to since are very There earnings Turning our highlight that call to excited today. product our last developments were

development we First, our Gabe Monroy ago. started who us lead Chief and Officer, Product a strategy. Azure few new will joined weeks product from hired a

product as that helping experience as on of strategy Given are lever component more our Service revenue his confident the we the and much will and expertise Platform those prominent a in ahead. years significantly scale in be a platforms, infrastructure markets growth a innovation

and have aboard plans our XXXX. move to to into as for sharing we innovation excited Gabe look more are We forward product of

with is second run exciting X development. our rapidly to without market news a a offering applications cloud-native acquisition that The and more to Serverless that and Nimbella expands FaaS allows growing customer to front even a the focus and with focus opportunity agility application occurred on productivity. DigitalOcean offerings. will background their and Nimbella. that Functions as product or delegating mission offerings. IaaS to and a the Service can on been simplify having closely and computing, attract complements our of their of our they request This increasing manage is on piece in top PaaS build developers FaaS aligns customers' so servers, customers cloud our adjacent has

given a as Additionally, be create NDR the of services it serverless as offerings. net infrastructure ARPU revenue a deals well usage complementary with both other our increased will as nature new stream will growth driver serverless and of of

the product to Nimbella our get next us In team and momentum ability to XX% increase in all top our continue growth X to and the growth These our get for -- front, on give our into positive in trajectory, pleased and line balance platform, of drivers greater customers' XXXX. are in into product to is as we of XXXX. we as were hands sustain the busy with our this sum, Our moves integrating than excited as in which we XXXX expect progress well strong confidence with we on our year.

that garnered and a using customers action, one in offerings. Next, increased accelerating our exemplifies spend This XXX,XXX a NDR. is: hands-on to and who self-driven by is users' has of our all I platform hacking and users professionals and of highlight gamified breadth are testing challenges complex advanced And training contributing series scenarios. drivers ARPU offers points customer as on customer solving our penetration that by our learning The their in IT advance through experiences, methodology, a to growth an training progressively ability research. scaled result, including and these and hackers for SMB security of where want vulnerability is is rankings completing

on Over last database. performance, platform DigitalOcean. CTO employees But their to they advantage Driven customer grown was of user simplicity, to need takes our them customer runs from workloads more X capability. by virtual our to a appreciated familiar members, over machines on manage Their performing infrastructure XXX their the years, and for and and DigitalOcean than XX% simplicity platform product X XXX,XXX benchmarking was XXX, than representing of our with portfolio hyperscaler tests, the more approximately our exceeds conducted Today, have running migrated and and their support base and full which organizations. relational the They engaged community their confirmed highly with the on and DigitalOcean. DigitalOcean. focus a ability

overall relevant mix. billion customers and flow-generating market more architecture lift-off developers ahead. our metrics. our $XXX,XXX rate their I ago, continue about annual the business leveraging in as early-stage up customer how a experience Service their the growth. and $XX in summary, X get from XX% their ramp X platform quickly tens sharing In billion few cash that today, just services others leveraging of infrastructure, a we As They we like products perfect are transforming our and in of our of they more a as spend revenue scaling run Kubernetes, durable, a in spend they as high-growth growing massive a the in quarter managed product a the from DigitalOcean app businesses then third with to and businesses their coming forward of over to similar growth. strong our the and driving from board, is and free since are $XXX was Database into overall grow, illustration rapid set our our support platform well. to is XX% supporting years This they quarters platform to and the as across help platform our over up powerful launching that's are and of years. demonstration This is accelerating of next and just just this, thousands There one example rapid DigitalOcean's company look

of financial this driving Financial success. We confident with over turn year Officer, our and trajectory, will who will great to hard like our wish and finish this to my a I XXXX a for our that deal work is details are now who in our team, results to into expect Chief each of the I'd us outlook this we for of thanks and gratitude DO strong member of the Sorenson, year. take call updated to on provide express balance momentum. QX our the Bill

William Sorenson

Thanks, key next our today another operating initiatives for provide year provides XX%-plus to are the in the paying durable but for growth. of acceleration growth I'd metrics. to the joining and look deliver quarter thanks continued continue yet The on additional and management to off Yancey. traction. discuss points remarks, foundation great detail This Good our strong to morning, like covered many growth. revenue we and us fiscal clearly and sustainable our to year for our his team Yancey showing in a results key drivers revenue some everyone, undertook as of this continued that and key

our meaningful the taking clearly we your continue dashboard: the have focused revenue that growth, and that before growth Yancey indicators make. In all financial levers the on metrics highlighted, demonstrate Management provide the in these consistent outlook are our monthly which questions. X Following of and ARPU and NDR. shown have will quarters, really Each keenly metrics that, is of last I critical X progress improvement. most to

NDR just last reflect is QX up XX%, XX% we infrastructure need spend NDR QX a to driving ARPU grow acquired products. rate third us, XXX% XXX NDR a additional results the we a further and in For over with our quarter. and XXX% the component see to the from substantially year the the launch last side. App to both tools of that and basis us, than importantly, and and This as the technology quarter, many up are overall for these product are this and combination and customers, those more is exciting our growth. third $XX.XX, in in that our uplift reduction from grew and the averaged products XXX%. We our if a this trend of with is with point in from reducing serverless And offering as dollar improvement in growth up they net ARPU us giving our expansion X,XXX consume clearly XX%-plus service as quarter, they Nimbella, strength revenue larger in offerings, development continues average customers. the more, quarter in whom the growth managed is and basis XX% less MongoDB coming $XX.XX infrastructure XX%. see grow What grew for well. multiples offering of several Kubernetes, their customers at database from by before. of as of as our last driving churning the And ARPU business. side particularly This average equation critical expand who from our revenue such of accelerated mentioned. they heard of particularly These durable NDR to turn of recently these growth. have managed and us These customers of more points we and than of customers of our churn, customers and But from core trend more the the stay just expanding churn and consume and future in just consume seeing further clearly for discuss QX, Investors healthy NDR, our when faster easy was was spending a opportunity and grow. evident access services, year-over-year up because growth was up in expansion We're larger Platform, consumers I

same us profitability on our us. adjusted While on we margin to and for reached customer time, the investing with EBITDA maintain return in In and investment, the while also we at but remain XX% XX%. in continued focused the experience, growth front on allowed terms margins focus gross EBITDA in QX, efficiency, their of capitalize of we've focus improvements Cost revenue on on QX. the to will has large control, along moderate opportunity further future expect to to a due overperformance, adjusted that above and capital

operating We business, support; onboarding authorities, direct years note adjusted practices, during the of low-value after able part we quarter, customer was will of in outstanding. but invest determined which this liability to reserve from billable through total established the $X.X were sales, million. Also in X removed it finally, liability increasingly reduced best discussions EBITDA focusing that One was our acquisition, additional calculation. customers. from is from excluded as ongoing over the ago. customers we European no the quarter, number This that the our the during slightly and was And elimination tax customer development. continue of self-serve security platform, item that and both product new increased and release of income quarter, on to is in to reserve across The of new with

Customer improving growth overall, our in reflected of and allowed security a in growth early and continued acquisitions. or QX achieve that continuing introduction DigitalOcean is our investments ARPU in quality additional meaningful the options as measures the in accelerating payment are bad recent paid campaign brand advertising NDR. and value have customer with while indications reduction refreshed to debt Our in customers of

get for in been Given operating to growth, support the our the ground XXXX. we our running hit 'XX. want people performance, to to needed order of By improved investing year well this accelerating in investments we've ahead as as fiscal systems

XX%. adjusted slightly plan EBITDA at QX above in noted, in As came

of For will result in our EBITDA initial QX, we anticipate increased in line XX%, that with hiring approximately guidance.

to importantly, CapEx support invest as fleet. to continue existing we in our upgrade and growth our Finally, to

$XX.X planning consistent with and between of XXXX, we guidance beginning while delays, CapEx revenue, investments revenue XXXX, the XX% these combined optimization at In XX% For revenue-generating year. for infrastructure XX% to increase that also CapEx of we the Fleet which of modernization, important be the our have or million It's we're provided the is represented increasing invested QX, was note will efforts some capability number per was been a the of our since with material million. as full of guidance infrastructure to have of This server. global from significant shipment our CapEx slightly our is to in modernizing growth XXXX, rapid as XX% improvement QX lower return We've existing a than our This $XXX on our the made of result revenue. where support for footprint. in investment year fleet. architecture, rectified.

XX% in $XX flow of revenues, year-over-year. has million quarter, over not Our operations, just more infrastructure, which ongoing DigitalOcean flow. generated from disciplined and in the cash commitment is our than reduced to up XX% generating cash however, In investment

provide to QX I'd outlook. our full and year Now like

of For to the revenue range to million the be quarter, $XXX million. fourth we in expect $XXX

XX%. to of be EBITDA range adjusted the to expect XX% We in margin

the to to we $XXX a range year, in to we be expect to For and range between of the XX%. XX% EBITDA adjusted $XXX percentage expect and expect revenue to margin XX% as of XX% be the be full CapEx million, we in revenue of million

for Our DigitalOcean this want take opportunity In to foundation forecasted fiscal large advantage of that for exciting well we're XXXX we XX% results I investors is to us. for provides 'XX. closing, ahead growth targeting have positioned time, and a great of the At remind approximately XXXX.

country every that a have customers the We virtually delighting SMB world. product in in offering is

turn aggressive respected, and with we're fast-growing to developer the We over have flow we that that remarks, to global all profitability, player this, with major of name product brand recognized cash With debt. a a further it set increasing is Q&A. my no expand along growth. That in and and our pursue intend improving now concludes community, and combined let's

Rob Bradley

for thank QX as today strong Thanks, Bill. over across we you And us saw results, acceleration go board. these where the joining we

questions As will is issues up ahead our then which open Q&A address the some process, some we've with time, and thematic operator. we'll for asked of

Oppenheimer. he asked, today they And first a Tim Horan How have on small behind? catching some niche? many The landscape? or companies falling provide with color you came is your at can focus from And on question the up there competitor you are

Yancey Spruill

and there's Thanks, That for SMBs sort the developer we're is growing would of as a playing space. I'd morning. compete providers the SMB and in targeting Good Tim, the and of market What developers. who Service on market I small Infrastructure in question. is say a XX%. a handful $XX billion small say the

now substantially cloud. SMB cloud, than are developer our growing market for We and faster

competitive and happening And pulling scaling options to expansion more a our and platform who more of from customer away on our more And customers retention with initiatives strategy combination then are we product from to that's so set go-to-market to see it. drive give as we're the do us. conversion, a

landscape about we excited feel well at competitive we're So well XXXX point time. We positioned into away like positioned really we're and and are. like vis-à-vis are the we accelerating pulling feel are in where this and

Rob Bradley

next constraints Reback he there The at purchasing to And CapEx? chain new Great. from Brad asked, supply question any Stifel. are came

William Sorenson

is This Sorenson. everyone. Bill morning, Good

we in quarters good delays. any one was we requirements a both we so reference And in growth of projects had we the As next plan have for across to upgrading in this we're as we year, delay feel our investing far little QX bit which for experienced talked fleet. in a we've are. that slight our did we in well material as overall for advance, in that repeatedly, view We again, But a a X to the CapEx scheduled meant terms very of our X not about the had our needs position what board, that relative because take lower.

We of requirements in conversation visibility them number are that being are suppliers. with X-quarter-type X- that major pretty what industries. into going mindful of a ongoing are to be, suffered give our regular again, constraints We're our by horizon. We with to

given indeed they So with that we us pretty that it good experience we visibility do in potential delays, if can that us, think any they that and accordingly. have position puts a we're well ahead of adjust

like to a move not we're position. feel out we'll there relative growth I very and we're continue forward. invest in meeting to we a that good a be spot we the to in We'll in as experiencing. accelerating are We never caught So want spot be where

Rob Bradley

can to change comes what he Product most? stood Walravens next Pat Monroy. And from What out strategy, hiring table? background JMP your Securities. his the he you this talk all? about did of question asked, might Officer, at the bring at the The about And product new Chief How Gabe if

Yancey Spruill

Thanks, migration, Pat. there, business have developers started has developer really take business scale. then on, of a start teams we're product building journey in sort same aboard. that to in stayed and on trajectory excited at leading that leading understands a Well, that large to And that significant able a the it to to entrepreneur, had we're was an Azure and builder, success company, He's a then Gabe Azure. sell and

to road lay can't the more helping relevant the as with you a of be marketplace, we're driver and delighted exciting get product just amount the we of us with We next years. customers of priorities, to going And our incredible we had have we base, the which in that forward And on here value incredible excited responsible and the ran interested our the customer people all next an a for to be him ahead, experience validation is very for Gabe scale. an opportunities. search. And and our market role, I taking a into investors where we're sharing out is our And he'll so think in as strong of business. already we But point come our look over view be our year. particularly map about several

Rob Bradley

support at from as mature cloud requirements, understand And us DigitalOcean. they customers does new they Could you. - grow and Do DO have to ever next customers? how investors evolve become how customers he Turits grow, and as still question either one asked, you Thank of or the existing you KeyBanc. workloads those help Q how And public more add are major trying larger, came understand move Michael to vendors? see with net the workloads

Yancey Spruill

Thanks, Michael.

and We have of here ecosystem learn just to unique to every how are as grow tens this test where learn who attract customers developers code, and month we of ideas, thousands test code, entrepreneurs.

website. here. We X million nearly cost, have a visitors We customers very our those to low acquisition very get low to generate friction

We tools applications needs. go have earnings before as grow, us customers is their for software just number grow, excited And how our marketplace, example scales, incremental managed month, cited They of customer managed example product from their that they sets years come our here, serve to unique global X employees powerful with customer them. geographies side grow, demonstration who customers and the their test, of those call, evolve, learn. their their tutorials And they platform of workflows an to to the grow we're was be to last could months, can here their doing services we with they the on have documentation. business. And and that on really we we grow, they growth. In X about And we incremental a X we X months. an a a enable other journey. and can dollar then that, a and we are at as And read launched infrastructure customers driving XX customers, that's well, seeking that's have their revenue our that that by come say ability end, engine our et support those having are of Kubernetes, over they revenue And to gave that customers we our net App customers of we and support their do infrastructure here time. have driving ARPU, then serverless, a long-term soon in nurture cetera. their Platform, network low-friction, databases, fueling that's growth our increasingly we the of those customers, scale be low-cost way, this opportunity then if have that our front services thousands retention driving And the to the our customers for very

Rob Bradley

at Q of better growth than Mohan well the of few Thank talk - the asked, comes function to XX% in penetrated growth drive your accelerating And And ASPs base? now Wamsi you. The has that. question America. over points XX he Bank the as last about a over customer digits? blended beyond two, of, double from years, you opportunity are next how target Can one, you been drivers

Yancey Spruill

XXXX. heading XX million year. XXX the $XX Thanks, first in software foremost, and a decade. today, XX million and businesses playing Wamsi. we're that XX new Collectively, cloud market. about and developers Well, end are massive There in those this added the $XXX of small- billion in by the There's to billion to each million by world spend going is medium-sized million groups today,

us at and at of unit high rate sustain designed than at growth $XXX million churn really attach the rates, a our a And And roughly go-to-market given in customer to strong per our opportunity market customers, strategies terms customer and XXX,XXX of net to the growth penetration. and better penetration, revenue run rate, time. massive early are double-digit in expansion NDR in we're product here really rates So expressed help strategies robust and economics our opportunities. great journey over growth really of

So sea improving business our core have of in we lot of And and made us. opportunity free cash the NDR terms metrics and flow. operating we're unit an growth terms attractiveness of we've the rates, progress of on of incredible a early. ahead in and in ARPU of And margin, just economics

that XXXX of grab sea for big track and excited well and as the and well. that. we're we've again, revenue said So beyond by chunk on first opportunity early And in that billion $X go to positioned a opportunity of of

Rob Bradley

last chooses - He has the we And before your Barclays. and Raimo been Lenschow line can to up lower hyperscale the have the primary that advantages providers from Amazon an we hyperscale Excellent. Is than the SMB you lower keep How given over reason asked, consistently is Q Azure. DOCN cheaper prices afford at pricing pricing providers? scale question the Lightsail offer? open Microsoft cloud

Yancey Spruill

Thanks, Raimo.

But We because reason and primary have capabilities. really of highly stay the of with is a come set us simplicity. differentiated customers

call, up been a time in running could as customer. simple, earnings the It's intuitive. on Just we've easy, this and you be

and services, products solutions. offerings, is as valuable. add early-stage is people nature of Even business needs IT get teams to the which with for to running simplicity incredibly more our don't up an It be and foundational, small of we have easy. They

-- big drives our of becoming to pieces whether tutorials, to and Our on we community help enable tens grow, of somebody a website. digital our people of they're thousands We big customers' have millions we customer their documentation a investment, and journey people success. today a that launching of business, just learn help or

I think proposition. the foundational that's to value

That's the software in Hacktoberfest, a velocity. a differentiated we every regardless and open support source. the all highly size. virtually support, We of concluded entrepreneurs We hackathon launch early-stage every code for largest We're out to improve alternatives many just at open get the to from of in evangelized. Open other XXX,XXX-plus source. Third, world, world participate. the country facilitate human there. customer We cost, people multiplier get their is in businesses low source force

fuel our and -- helps we enable ecosystem So entrepreneurs.

not So not and broad we're the a those of we breadth and for enterprise. -- complexity services, set of then offer innovating differentiation, relevant

targeting are tools building customers simplicity, that the need. We our and blocks basic

that But on our to value. differentiation the model we come, and at simplicity and support and able why open agilized principles compelling us do enables -- that it's community, stay DigitalOcean. a that fact of so we're those people And source, have are grow to

Rob Bradley

Paul, Thank very we'd appreciate line if could Q&A, up much. open Great. that. the instructions you in And you for

Operator

line of JPMorgan. Mark the [Operator with Instructions] Murphy is Your question from first

open. Your line is

Mark Murphy

Thank and I -- to you, guys, touch on [indiscernible]. congrats wanted the

Yancey Spruill

Mark, we you. cannot hear

Rob Bradley

maybe we get to next queue? Why have don't Paul, with back question like they go and in problem it their sounds a the connection. the then

Operator

question Hynes [Operator Canaccord. sir. with Instructions] from next Our is DJ Definitely,

is open. Your line

David Hynes

That's I'm questions. this point where want questions guys. a dynamics. morning, Hey, point finer my Yancey, taking getting for customer Thanks to on I account the some good morning.

the protocols have to So Maybe just the that's follow-up. platform. with in Could were And about customer those in thing? customers. a off was talk security based we right, put impact more QX? customers XXX about count math the a what churned issue If you then Was this enhanced that basis see we I onetime point on is place. mentioned my headwind X,XXX

Yancey Spruill

constantly that, is bad that increase the The where first our to in customers, have And opportunity do place dials month come did things. number a things took customer some for people people QX led do to Internet to and why nature of come to the to good customers. we of We platform activity. we a monitor

place no I'd world We do So the revenue periodically little month But dials customer what's we a We're of the And in will good go This and because get some terms in change customers a don't set. day. locations in initiatives impact, referenced on in general bit not every of customer we basically assess relatively to some to lap we the and We've but Bill expect people. to remarks. exit normally. many happening say change really we platform, some market the count his the our change issue. we was broaden a new this actually -- start higher We'll our routinely Internet, that off of a soon. people. to put we in in did protocol. growth.

is the things who of they because come an that about fundamentally is secure have Whether to stance their Internet, business, running will taking the to to idea don't feel run IT excited on So this just that come a fact are types customers it to here to intact, And to the doing. Internet. of that business test a and be the and we takes people us want to we to reputations is of them sell. that we going be base trust customer what certain trust the come manage be is do we proactive the to build what that requires platform part or DO to

David Hynes

Yes. be not attention of or customer new for would if get we like seen follow-up relevant last below pay over And the Yes, normalize from we've kind but rate even It's this okay. Makes to customers, net folks year ARR adds metric. that are change, customer the these sense. The so. are adds realize run the metric. I that again, I

terms bit talk the in of of seeing are kind little you're expectations for a what conversion? to And maybe top of about your So just QX. bridge funnel in could maybe you that what

those potential mentioned I there think Anything there be acceleration. was a along helpful. lines some comment would in that

Yancey Spruill

Yes.

So customer first, a target. we think some changes acceleration previously annualized as made XX% say, Obviously, growth. get talked but to near we holding that year, about We're let -- see we've growth. to we've that customer start me we into customer should of next term,

obviously, the quarter options Our top journey, to and improve the customer experience, driving all as healthy, we're funnel. through the changes on helps is as to lot make of did adding adding We customer this we of funnel conversion. working get mid-funnel a payment conversion we products, sorts

every Again, on don't increased we the issue. off of thesis. some They retention. in I'd few to focus of removed number change tend the dollar customer month, that will So the the count quite ARPU And revenue. customers the we a But dials net a increased impact you we in and platform. people platform. no renew It's

first scale. were today year they term. as metrics terms That's always and dollar or the quarter customer customer is the retention health small. certainly many said many that have of expansion where the net ago and ARPU. their of of more and nature we've X drives they're retention the the or economics of we through journey of the a seen start thousands was they they're support life one and the near ago that of We learning, over what customers a and launch of over a X It's time. that's day tremendous And longer-term day each them are tens versus over those the they're so a customer where then experience in nurture of Our And that testing, become a them of self-serve What growth month, Because growing. improvement, us they nurturing or business our customer. indicator and in time, business. scales will in the bringing

And and support ARPU confident we revenue look a results. NDR near term, term, the And then Longer sustain, in near-term so if we're to it's get and can and a longer-term indicator. growth. growth sustain customer to XX% to revenue you

David Hynes

Thanks for the color.

William Sorenson

just add DJ. could I if that, Yes, to

the data last historically we've seeing point quarter, early in the X Just with over really X month what first is one our it's quarters. been the to is but consistent

So economies, that things we're up some payment really -- for opening that the some to particularly Yancey developing of methodologies mentioned, help. starting the of we're is around certainly the

good feel we So about that.

David Hynes

Great, thanks for the guys. color

Operator

question is from KeyBanc. Michael next line Your Turits with the of

open. is line Your

Michael Turits

Thank you, Yancey.

of couple a So things.

mean call Bill are last, involuntary the or what let's next at all done churn? to it, expect should quarter? you on you kind we can I of adds with have Yancey, all, net follow-up of about this, specific you be First maybe -- just

Yancey Spruill

of customer what annualized. about the couple been last Well, I is X% growth say X% quarters, would we've to

impact. quarter, basis net This XXX point X% of

ramp we're quarter get to to going near sustain or again, and start to through So term, And next and and year. this year-over-year growth. in lap back expect this get annualized a into we to to then we XX% customer the as get

of attract again, just last time customers, the this we're should product what doing top funnel, on what very and dollar you retention quarter on XXX%. sales, So sales, bottom inside that sales outbound hundreds to the year. side last I'd doing customers XX% direct net this et into we're take of ramping remind we about And next low and both was good of bounce we'll off in feel doing, see and off year. the and ARPU quarter, you we're growth cetera. And what that of

get to a nurturing or today last driving of back despite the still then fulfilling and XX% success driving X% and customer customers, XX% grew customers that's with sustain and them we're get we're year-over-year So expansion, increasing level much cohort. support it. confident we'll the to feel we dials I quarter, we're And higher

get So in start were sustainment. that seeing us quarters XX% from ramp at above you back recent where to then in should QX we hump and

Michael Turits

then Okay. And is my about follow-up investment.

XX% like it you asking you're more? sales in to people that is I for investing The roughly about spending the stable of opportunity the it was question talked in and margin. of higher? be most you're think go And sounded I marketing could the kind You range -- recently, referenced and there. pretty back it could mean

get next we are and what expectations So for marketing as year let's say, sales into over, margin? your the

Yancey Spruill

at this and grow XX% rate, stay growth still sales can revenue. marketing Yes. of spend at XX% and Well,

meaning in revenue sales we opportunities, ahead are and about to revenue growth. growth, are faster than where the evaluate an investing and team, love that heavily marketing. invest We'd We them. rate at we a of talk So constantly as executive

side we're and So we the don't We're the go-to-market think growth. growing We faster. at and do We can better. product on done investing towards biased both do so, are marketing XX% sales to side.

so. -- we XX% and of to revenue players from bias our go we so look And a a in look to you have of lot sector, other room have we at higher if to do

don't margins the that we going need we we're flow like always generating That's of rate. peg and an cash flow the that's We're some EBITDA have flow looking cash and at EBITDA and sustain at this to the to growth bias. because cash be generate our strong philosophy. free that time, we to our our bias, can growth a needle fact So on same that will accelerating when rate. higher to to invest We're today. free and drive continue we But

Michael Turits

Thanks, Yancey.

Operator

from the is Bank Wamsi America. Mohan of question next of Your with line

is line open. Your

Wamsi Mohan

you. Yes. Thank guys. Hi,

the the was larger your it that's the usage? customer disaggregate very within was revenue your Or just Is the usage and ARPU, that trend what growth it XX% much XX% sort base from increase customers? of And increased the more a this comments, in of higher driving consumption sort is quarter. the configurations? of came more ARPU there of coming sort to significant how you from And customers. underlying of obviously, think the Your from ARPU in Any sort seeing is trends? I those of contribution, in of way like underlying What the noted how is strong remaining? you're product growth are that much

Yancey Spruill

Wamsi. thanks, So

that I you of higher the of XX% X% XX% look than company think represent rate. XX%. about X%, logo several growing substantially faster growth, our those that our is run total they're customers, points. growing of of than couple at the revenue the annualized When growth a higher The -- substantially customer multiples than

customer. Customers their are moving adding we're launching through of So customers more ecosystem scaling revenue they grow rapidly there. then per those businesses, our and and and

So have growth. organic they

our employees they need use need world. adding to et customers, ecosystem capabilities. other those to so App that they for software to Kubernetes, Just $X They as a -- more the Service they're $XXX,XXX big getting Infrastructure customers, And Platform, to soon more from they're Well, an million natural but a goes just it launched, cetera, million. they're to need adding serverless the an they write of they $XXX,XXX you because if manage use around $X as need products, $X business they example, deployment that's those They more then They customers, the use $X to et and tools, add using cetera. adding as services. think they'll to million percentage about million growth. databases. huge aggregate a targeting, are numbers people indicator analytics Not in

able We that have in other they're our to marketplace leverage. tools

represents to from first with every team, a just scale Service growth as of launching organic that's of they And month, a customers as our because growing, not organic software a they organic now a those flat synergy -- expense Service, a a allows a then Infrastructure grower. because small then things graduates very DigitalOcean, have And that's ARPU that rapidly. customers business as on a on Platform developer on because and our between platform we're to that they're as That growing growth. do more services that have Software those ramp IaaS and And cohort to growth. a as the adding somebody the that it's have strong they growth. floor that, grows Platform we're robustly that that they and platform what's Service, XX%, as is at So driving the Service

just rapid turbocharge scaling on platform. of rates then SMBs, sustaining them organic is natural there's of product growth So And products integral and to able giving on we're floor that we're strategy that's more to ARPU by now the ARPU so from a that services rapidly our growth the demonstrating. and these why

Wamsi Mohan

You talk of Yancey. requests? or this? can Conceptually, asking is are of base acquisition? to you is top And for user also request. Okay. serverless likely this percent Nimbella top other some customer And the said utilize your the X customer what what Thanks, about

Yancey Spruill

development, I Platform Yes. more product fits we making say generic configurable. represents in theme was a launched application simplifying would a ago software What that that category. that App around it year this is Nimbella the

want want year. you we this customers We have our was another who a flexibility. Mongo number for request I'll customers earlier example. of the this And that They our functions top give launched capability. another

growth into excited We're seeing very We're excited to be It's really have hands to our the to product X Nimbella team on more well. going responsive the we and board, get us you're much really platform. this get customer have customers' we're like next into scaling So to integration. needs product on next year. hands months our our serverless as lot year. for into a and databases. will a starts like the Kubernetes contribute meaningful half in the of we get a of as capabilities of that's in be as managed core pillar Platform that think first We that our to And Service customer expectation to going

Wamsi Mohan

so Thank you much.

Operator

And line your Barclays. with last Lenschow Raimo question of is from the

Your line is open.

Raimo Lenschow

more quick and longer The one. Bill. quick quick, you. one One thank for Real one question

cetera. hundreds much will and If the Because that different think you that. Mongo, the next seem level about, how because Like you And this do with if the the from into think years? portfolio Yancey, at beginning far you like AWS, you want few only if last you over that of have more. the journey you look good out of kind about that don't moment, kind like detail I like congrats a more just very Thank for that kind talked and at at of very, seems as tens expansions too there? you the a product product now differentiate at of more you and for the play is little you versions, on journey of you like what it serverless, complexity. growth, to you et like at same then very the mentioned was go reason create some Could ARR bit that the the Azure quarter, an look the of by beginning numbers. But moment for to go

William Sorenson

the Okay. monthly number. Quick ARR. this a now, right is Remember, on

saw customers what improvements basically So year. was a purchasing look eliminated to taking tier some at up, a September of had us. was offerings that had strong in improve we last our that way. We very, very a it's relative tiers. pricing for effectively, very And customers per so the September. were beneficial number We to actual a that We

good lap and expect We But a to so going along count, So it that we're forward. just to year monthly September with lapping number is we move accelerating very that. ago. would is against a as a be revenue

Yancey Spruill

Yes.

looking the you forefront at the is our of longer-term coming excited foremost I'm to product So landscape. Gabe is first have What simplicity. up at in terms sort and of around to Raimo, which the critical, off issue our said, really of speed and so thinking here strategy,

embedded on because a our XXX platform. capabilities and than the in makes them customers and services that to are platform ensures new fewer relevant will We'll way both and we infrastructure customers, So add relevant features And our the less in so existing -- that capabilities, to their do journey, SMBs and these and simplicity is are of creates employees. across. early software

as million and the overlap customer new how Whereas the You're They maybe have use of $XXX of every use set case every set much the complex. narrower is talking a simplistic of about product you're millions, much in there's becomes a businesses those corner cases, high. so cases that's of almost much tens and customizing enterprise, you're -- set, -- more as and revenue. is

customers contrary as million an On the us, need anymore. spreadsheet target Excel can't from revenue their they customers, database go with million more revenue and $X add use to service, $X customers a they just of to of

database. so And a need all they

capability of what in much is, so complexity customers so a and think crave they have that with because have their or depth complexity innovation their to the journey, even of our early serverless, our makes when strategy they're I And add of nowhere is doesn't level it it we theme are database near enterprise early simplicity. because an easier

in we've from revenue, that marketplace App capabilities with X is demonstrated Having years. X Platform growth So simplicity get concretely very we're databases, with to to without gone of [ph]. relevant can very will the and about we innovation be the Kubernetes, that, year. weaved do. last talking And And look just adding said more we've on focused more there's rapid platform, we XX% with our which to next forward our in as into plans that

now a that incredibly over seeing to be that those And and strong to over you're replicate growth that rates we're time. and the looking several so pillar sustaining next strong, years, buttress will

Raimo Lenschow

done. well thank Yes, you,

Operator

And now Yancey that concludes I to will the closing Spruill hand question-and-answer for session conference back the for the call. remarks.

Yancey Spruill

want thank everybody us to today. joining for I

realize are our us. to And hard the entrepreneurs we're look to incredibly of their continuing ahead. and results DigitalOcean. forward here rest their limitless Have excited driven about of tell, by test As you ideas, the realize working in weeks, at We opportunity build and their conversation the enabling And and potential this can we in it's dreams. businesses day. about months developers front great the to a potential incredibly and a that's years

Operator

This concludes joining. for call. conference today's you Thank

Stay day. You Have great may safe. disconnect. now a

DigitalOcean (DOCN) 4 Nov 212021 Q3 Earnings call transcript