DOCN - Earnings call transcript Q4 2021 | DigitalOcean Holdings, Inc.

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Operator

Good day and thank you for standing by. Welcome to the DigitalOcean Q4 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Rob Bradley, Vice President of Investor Relations. ahead. go Please

Rob Bradley

welcome, year and DigitalOcean's quarter fourth Thank earnings everybody, conference full XXXX call. and you, to

Joining me today and is Yancey Spruill, our our Financial Bill Chief Chief Officer. Sorenson, Executive Officer;

harbor I cover want Before we our begin, safe statement. to

items, and During performance business our outlook of year, uncertainties outlook trends, including all as and this forward-looking as and statements and opportunities first financial conference industry be for we subject making expectations call, are about financial statements, to quarter assumptions. well and the similar for full future will goals which market and risks,

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

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

Yancey Spruill

our excited for morning XXXX, Thanks, I'm joining as us. had about share as year some you insights well preview for Good and the in thank XXXX. incredible Rob. to we plans

today grow able projected be next infrastructure We is are the annually large $XXX small market and and years. growing developers, spend serve fortunate to Platform-as-a-Service, over this to startup medium-sized Collectively, on to roughly billion per billion spend few $XX the businesses. of and and through entrepreneurs to in IDC, they

being early services high purpose-built enable pursue launching opportunity, given and of the DigitalOcean for to trend performance held of individuals traded and of on in infrastructure which our review XXXX a also testing SMB. software did every privately scaling relevant a entrepreneurship. was within and the sort I the strong ideas growth declining, large that a from year from any of of the cash with resulted global across XXXX, the to context to transformation and global this the this publicly of through key only to Not transition that in transformation. cumulatively offerings want frame we intensity reflects that are accelerating, but company cost of needs leverage indicator, year in have computing, them improving, flow. profitability business application of software is positive dream serve capital businesses achieving executed of cloud resulting first free the base of we customer Our that low our building

we a year XX% at And revenue XXXX just XX%. improved are with few our much share in growth capture reporting full limitless growth. the and we this QX faster even growing today, positioning on line, with we details have how growth exited our was to me XXXX Beginning Let top revenue XX%, year of opportunity.

Our in dollar was and X,XXX improvement by retention growth growth. acceleration driven XXX net an basis in point point improvement ARPU basis

up exiting revenue both and XXXX. much growth Importantly, ARPU stronger XXXX in sustain XXXX, entering MDR robust us which sets than to were

our customers. XX% growth our ARPU with this on altering we acceleration improved MDR level revenue raised engage, And the sustainable our into relationships the of and of service XXXXX growth from dramatically has floor achieve growth and in have We results XX% we rate. durability build the also to overall how fundamentally can today rate.

business. ideas of to of demonstrating in to first are tens $XX platform, on into evolve to their businesses per an month many a just customers months they to As long few in as thousands cases, $XX from growing our our idea dollars their they runway have scale a

basis million This to to or XXXX. generate in XX% negative a single we've of enabled a the cash in of margins from margins us we XX% $XX drove in year. X,XXX CapEx in cash negative radically compared in improvement in revenue a or That's last million flow is free year XX% that over as $XX point our X% to free transformation margins flow decline XXXX. exciting we altered Another XXXX intensity, how have made of where revenue

We are our efficiencies, to on will actively and across free with operating working capital business further to coupled that leverage in higher drive XXXX significant drive beyond. improvements us enable lower flow intensity cash

year. This cash XX% focused to and flow in achieve we billion are We expect as is digits of a full on for In and for the will driving XX combination first approaching flow a we that margin. standard XX% cloud to single objective big for plus margins take free revenue target of XXXX, cash the step rate better or cash of growth revenue. the world margins or the software, year, flow $X we in high growth our towards free efficient free better

on a X% from we've While in basis single score X,XXX XXXX, a our year, that improvement. to business XX transformed point XXXX in in

progress, our cash very done with are growth XX% free with happy further on flow. efficient improvements and very to driving time focused and growth over are aren't and we rate we exceed Although on

see, down scorecard, are and of flow we cash fundamentally the growth have can generation. business transformed up now up set and you our free As profile for sustained and the economic high

mix QX, just grew our growth customers start and with the of revenue to business, rate. growth month, We customer this In that in realize from grew early as vetting sub-segment testing and roughly In acceleration spent and our than idea are small foundation turning an the growth. as a business. of has key XX% for idea other $XX revenue year-over-year total DigitalOcean's compared company specifically X%. this still customers are Their driving represented XXX,XXX within customer that started. well-above of words, per growth come spend are company A customers overall more and they are to the a aspiration getting XX% into incredible XX% potential paying the we year-over-year, QX, of total that

be customer rapid our at are service journey of We successful. simple, high easy and as our support has thousands an a rates use now to on set on providing our graduate that platform customers by with and this see, IAS help combine to succeeding and a documentation We can of As customers tutorials fuel degree capabilities of they you platform. access addition enabling by applications PaaS evolving earlier organic business. and entrepreneurs, tailored from who developers to growth businesses cycle they in support of needs do their that and testing growth business. the their evolving their are the launching scaling life their in natural in PaaS infrastructure workflow are building DigitalOcean, and scaling realized them applications more of to on in of to code These their to

camp and we in to adding this overall rate. We than are X% our four growth time that cohort have customers today, roughly faster XXX,XXX customer

our those We continue ARPU revenue growth and option less month customer $XX future time, acceleration. expect improvements as same result an spend per mix a than their and evolution, success. that than NDR customers where the month with driving $XX see on At to of customers greater per incredible to DigitalOcean our in us are spending give

of a so they on that ultimately many these thriving turn it idea growing launch customers an business. into rapidly will As test and and DigitalOcean

best-in-class platforms customer on marketing efficient to customers generate growth to platform. with free the while efficient unique flow I'd enables still our of to and our DigitalOcean coupled above month and the where customers our while for them and incubating platform. get infrastructure, engine, This XXXX we XXXX. customer because have as nature per and customer our ideas and of each started month. highly strategy works to business the go-to-market and employees. taken an Initially, onto perfectly They was incubating have enabling journey of $XX XXX,XXX more demonstrate majority XX%, with month This acquisition XXX Our about graduated sustainably the our over incredibly scaling spend, than manage grew eight-person $XX,XXX with vast today meaningful as model their self-serve lift-off a tens new on cash the yet flywheel world's add sales future of a a is of for customer us highlights an low today. to they This platform up customer spend years in on nearly that as Web on build our traction. typical leading model and seek at one enables average of per majority acquisition startup then efficient model have us customers to that share DigitalOcean several ARPU us even time generating of early-stage example like attracting customers they data thousands

to we saw that ultimately examples However, They our their many as the pandemic began high-growth growth this along businesses, about started their $XXX,XXX DO like business our could had us, due thousands ARR eye. a journey just one, platform. This their and $X high-spend their they growing of with with began a per emerged customers when month million top of currently one traction usage of meaningful spend rapidly customer is day an in so SMB. as the tweak line idea that who on a driving share customer

represented customers is We from our app product managed in new revenue, and MongoDB databases, Launched Kubernetes platform our XX% marketplace of adoption continue offering. managed to QX, and to managed actively of impact through In XXXX, Adding late database to as rapid that XX% been will see our of QX services. acceleration Customer we adoption they up materially of this in June XXXX. very move and QX. rate strong year. has using our growth more managed similar managed than as we been have to uplift offerings, X,XXX start our has MongoDB other

of in overall it's exited our times XXXX services database managed Our with several growth ARR rate. growing million QX, rate $XX and the of growth revenue a north

a strategy We managed in material and year. be expect contributor our managed a MongoDB to pillar EV strong this

expect developer in our to through the highest priority. of early-stage ecosystem generally Broadening developers half beta, strategy to to see in to their and year adoption their of Serverless platform, the to and beyond. growth. it most one been ramp first be year product we of expect to this set year. and SMB aspect is ideas of acquired customers the critical add rapidly acquisition and second our to create services needed the of growth relevant we test of is last businesses our and a innovation Product that and by requests to contribution rapid portfolio our is the is top half our now product serverless QX in has in to Nandella available Our this

sales traction dollars customers X early the The second investments of customers of our X% of been sales. metrics portfolio acceleration very full stages who and have bringing opportunity X is their reach be We through principally during has solely year. tens earlier and inorganic in in to earliest to highly accelerate to to targets. help this self-serve revenue our This expect motion monthly years idea I journey. these revenue. organic sustain generated are the bringing to existing box our that to to get the invest we since our include going upselling an of and continue both takes of of $XX Self-serve hear per opportunity. for This It leverage they to out to past SMBs and thousands grow versus both in total in are large that excited SMBs incredible the the meaningfully year. XXXX. SMB improvement we high-volume know MDR to our good our future sales the month. $XX our opportunity to efforts efforts in efficient to platform right to outbound each on this Sales time to day new years, in growth are to to are incredible philosophy and numbers in In traction revenue products that excited further Direct in growth high be expect journey, have been on onto model. growth, leverage able tend platform. ARPU the sales one launch it and in to maximize an build inside thousands existing we've am their these at We first on our incubating of month our contributed presents generates on supplement focused the exciting customers as customers

years. and adding upper can expect growth direct X to sales more X outbound our calling to We by ones the revenue mix next we more effort, percentages take in single-digit can capture

of we we invest fourth and will we yield partners. also the of our Rather, margins. group materially the regionally in Importantly, to our DigitalOcean, was across of model. required the go-to-market as that will sales focused unique XXXX more great quarter acceleration targeted rate onto entire build couldn't revenue sales above the change investment use fueling channel the platform that more economic cases transformation on is be from SMBs to sales summary, or up platform. investment and DigitalOcean is performance success. calling maintaining indicators. company of just is bringing expect growth expect saw growth, at benefit to efficient will capability a SMBs of point select our the an build-out marketing our while existing our our for our capability through was don't We a excellent our strong our sustainable continuing change explanation outbound on year a in to network results key be prouder Similarly, of leveraging I effort focused for spend our enduring that and set team to In

a and to business. guidance that's to core for flow, how are increase we growth cash our introduce We to free manage revenue for this measure outlook excited

a business the market building developers serving $XX SMB's billion-plus in cloud unique are We infrastructure. for

the revenue momentum in have are XXXX. for business on have we achieving our sustained cash free a and economics focus billion as poised and We our in transformed of with flow $X first growth fundamental

to like comment equity internal buyback from stock to announcement targeted I'd concluding, next few over grants today's dilution offset the Before on years.

opportune share our operating to equity managing strong outlook through strength the significant who buyback. by grants Bill free is cash year. of as a this this shareholder cash details and Officer, our Given ability time financial to the Chief We our over employees Sorenson, generate and a from sheet generating growth while over way stock an create and model for Financial common million our flow, I'd provide revenue to dilution turn time. to flow $XXX dilution manage value like view now to this balance call free our results on and will to

Bill Sorenson

today in million cost a public the quarter and successes performance in of in gains up our everyone another revenue, and to terms achieved with Good and Investments we this XXXX strong been to before customer company. towards key on with and free of in generating us we in cash like cash our making I'd flow. all us of our Once thanks pleased clearly which comments remarks paying free I'm again, management, by financial outlook retention, are off, followed and begin and that achieving strong path metrics discuss some Thanks on XXXX, my $XXX well Yancey. morning our operating our set $X to in for joining finish turning quarter year as KPI first color in billion flow improvements quarter our to generation. on financial we've acquisition XXXX, for and year. revenue saw

in year XXXX was million recurring and than quarterly XX% at in we've are seeing. particularly and progression XXXX growing quarter. even exciting the we revenue which encouraging, scorecard the revenue acceleration total, As were key full $XXX and consecutive in fourth growth for and year ARR high operating revenue, the added total we foundation the our discussed metrics versus XX% second NDR, the the display balance quarter. faster exited is we results Revenue for and year new marks that ARR, in very for past, achieved million faster we of the results added of was grew of ARR, are In ARPU while growth, the the clearly $XX XX% up Annual or XXXX. XXXX. annual our and formed for And and what

still progress results, profitability In efficiency make we operating while key also in investments areas. continued incremental making addition in and topline have to solid to

achieved by gross increase of data reducing by in up key the on engineering in profit and to discipline product output. year-over-year of and basis with increase These cost offset a R&D closely to our higher previously, were order overall sales margin, teams by from focus and revenue XXXX. team this points improved bandwidth. and marketing and cost At in increase XX% delivering results beyond. design on model. to We continue a We continue with substantial last focus to focused our adjusted with XXXX to year, the we've XXX%. XXX XX%, higher of to the infrastructure contribution stock-based and number G&A. maintain from are mentioned in stellar to XX.X%. serverless been and of our combined in still investment, configuration key EBITDA XX% We'll in XX% demonstrate hardware, driving working roughly service out centers, same our revenues notably able reducing our total netting increased on at Driven As improving by sales as by that comp, to while storage, increasing demonstrated really vendors and gross revenues paying efficiency their a focused our Their areas the time, part efforts we're spend the of our results this in year-over-year self-serve able investing to off are

CapEx as order Improved we carefully their than amortization, Of our important investment in and and notable to million the excludes my profitability, has X% cash exciting flow free of with us combined allowed capital impact stock-based free of but the focus drive and in CapEx of was cash and year, we of becoming vantage will from improvement our with We to of positive. prior operating peers XXXX. of with manage $XX in growing results. this This some This, $XX From will our focusing improvement our continue flow milestone. In financial to delivered decreased XXXX point, a improvements on period. note, million moving absolute continue depreciation was grow reduced efficient to sub-XX% XXXX compensation. Even into revenues. continued accelerating most make XX% better our off, result same our in our CapEx, XX%. a that a the profitability, flow free achieve XX% rather during or percentage as of cash margin originally management investments non-GAAP expenses for targeted is which in This improvements year aligns direct business dollars efficiency from how Clearly, management is paying combined goal community investment on $XX closely forward, $XXX report year-over-year which we believe the was million spend, EBITDA, the towards achieve we mantras, improvements towards the our and we it will while our million we drive to measure more of adjusted by one revenue. smarter. roughly XXXX yield includes to revenue of be as

variety faster line another is the key In testament we its our year saw we three broadened model I'll net long-term indicators December we growth been strong durability monthly especially And our saw the most rate of full functionality have full service, another has set early over to of popular very product fourth central Kubernetes alone. offerings ARPU XX%. all than and model, year recurring end to managed them. be XXX% we our continue our the in in past scale mentioned, our managed our our We our help improvement. XX% Customers instrumental grow of will QX, as of are grew it ARPU a and to which is a of exceed platform will June. our XXX% and our ARPU and from indicators. dollar XXXX, serverless is in ARPU our expand growth. kind, to database include And full XXX%, Turning basis we was yet our fall. by the the in With premium of continue Mongo Even We're on growth the our retention, on in these customers, the of again, point growth adoption to growth those NDR droplet, have These encouraged an average year acquisition growth. offering at the Both improvement of other was deliver churning confidence that Yancey which year at contribute revenue months XX%. strength improvement customers key less. database for customers' last been to Nimbella a highlight that performance quarter Customer expanding offering, for calculus, is ARPU we and in acceleration. XXXX. to coming platform spend us see in and as the growth ARPU of a long-term new and achieving that a as the exciting, dollar cohort, our helped our and runway ample higher total in more introduced which on momentarily. in for touch grow and excellent our higher was for launching X,XXX top retention Net to our a

total For the grew and X%. year the quarter, customers we

XX% in They have is significantly greater our our churn than a of acquisition, revenue seen detail of base per to represents customer and revenues. which spend grows press in much who Its XX% more better spend less up NDR XX% customer faster customers, of up per you've to terms As $XX faster, performance release, higher continued the quarter. and our provided we on strong year, in XX,XXX. $XXX of or Customers additional performance. year-over-year XXX. grows cohort have month This at our XX% than a our total the key drive

we attract While small developers the total important customer for acquisition will growth the an as is metric towards larger become business, more potential of that the of the point it of customers of us to tomorrow, future buying and be our infrastructure. products who SMB consuming these multiple today continue

we going growth. objectives customer growth group developing to the are targeting, As and forward, acceleration this in potential have we they focus as our further supporting prioritizing, on our drive

join as these sales pleased keep We board new on our pursue platform. the continued they recent efforts support them in to to to as help in well finding customers customer once investment are leadership months brought have these in

provide quarter full I'd and to Turning first the to XX. year XX outlook. like to our page

target XXXX We be raising to on call. growth our outlook our pleased we earnings provided our initial November are since recent for

increasing are at growth We to XX.X% XX.X% our guide. revenue outlook midpoint full our of the from year for

always, aim our our exceed results. to we actual As with outlook

we to the in $XXX for quarter, revenue of Now expect be the to million. million first $XXX.X range

profitability operating As the on we expect move for the quarter, to of forward. as a And income mentioned, be we non-GAAP for XX% are XX%. range metric focusing investors margin first we in to operating

full the million For be in revenue the we expect million. of year, $XXX $XXX to range to

We XX% operating non-GAAP expect margin to to be XX%. in of the range

and to Lastly, we a to of achieving XX% further building turn gives concludes are expect we manage and of And us we margin let's a in continued XXXX, our in my we free in be excited free our growth of our That cash XX% flow, long-term progress flow range XXXX combining revenue foundation very CapEx. as Q&A. remarks. about solid We're of to those percentage make will the revenue cash as goal the XX% two and our now safety X% believe plus increase to [ph]. rule profit

Operator

Thank you. Instructions] question Horan Tim from Oppenheimer. from Your comes first [Operator

is line Your open.

Tim Horan

other products? new are on now? the out you what that do versus that you on margins there on that what's of Can then Thanks. can and roll revenues that kind how on core have thinking And services? your us of go to many total how products top where compare can you guys. your now? compare the to -- update of Maybe percentage And Thanks does value-added

Yancey Spruill

service growth for a talked in us. example, ending the We database for about That's as years. the huge mid-XXs of, into This X area our just in ARR year. a last is

they their so companies supplements they and engineering we need serverless. database need And They enable and marketplace they growth. to tools a them deployment Kubernetes found headcount, to as the scale go those grow infrastructure our And tool. their as go is scaling teams a their workforce from need like and adding database, -- businesses, then also

Look, targeted invest We'll customer Nanea a revenue is capabilities other So services. aspect given need don't our that important but early to and these customers relevant this We'll adding our capabilities. expand We the in. year of to this But of long-extended product continue strategy. producing there have base in coming areas the available total generally serverless with targeted online is add we the -- sort it's approaching now, services will in are beginning look exited revenue XX% list. QX. our here we'll as we journey. core of We of be mentioned tools will

do incremental need is that tool example, to comes some mind. and we for So AI capabilities, in one of sort

by as both organic looking do to at new same time we're we year So, through period can move we'll more services as have that. do areas. both And in on to and look around We'll say so and well the new leveraging sheet we balance of parallel M&A, innovation moving more as with the the organic organic.

$X as supplement the years, would managed the on addition billion expect infrastructure using a services upper probably over get more consume we first of to they couple for the where services. companies scale, to in land mid-XXs to So because longer be part of the we'll portfolio We And IS XXs would a time, in good prioritize it in to that's we target. that and grow would as fashion. that in these term

growth to tend cost. very our these in accelerated adding they So seen you've IAS work fashion. hasn't a rate as services, our and of a complementary also other result software growth has And platform just acceleration been in

Tim Horan

we get we think think to were maybe XX% were ago, And you revenue. just comparison, -- it a thinking XX% can a I was to of revenue of year and I closer

seems or much it up expected have faster So than to ramped than I expected anyway.

Just clear? to be

Yancey Spruill

clearly X relative that Yancey's of speaking the to, They're it, comprised clear, optimized to the areas. of X Tim, element revenues there's of is the just which XX%. service there value-added to the it. and pieces elements be There is is

running XX% our look optimized, other X% that's you added at to related to around or if value terminology, use So products, so. is more the rather And which your XX%. the infrastructure to core is

we little of a So internally which at both. call an look innovation includes bit we index, something

group XX%. in that that's that going is the of probably key reason a the look Nancy piece XX%, be as that additional up the basically is for at with that of complemented towards mentioned XX% confusion. to whole a So the And we offerings. sort focus product terms that of If will new

Tim Horan

Got it. Thanks clarification. for

Operator

comes Your DJ next from Canaccord. Hynes question from

Your line is open.

DJ Hynes

and quarter work the Thanks Bill. Good here. Yancey on

seems nurture group high you're XX,XXX expand and growth. this you and of just a direct is about it's spend of fueling what company's kind of lot you sales And it this really investments powering customers? So obviously, talk of the cohort Can expansion? expansion a improvement. planning on of what's like little double-click Can and bit NRR ARPU to product kind to do customers

Bill Sorenson

-- doing so the the there's monetizing and Well, or accelerating mostly channel. seen bring of our expand and have going just platform. customers inbound, traction that quite new bringing cohort we partner outbound, the net in one, to on faster also to sales to on are multiple, a we've to investment two also inbound focusing day over in from capability, customers inside last the sales larger one. a who of bit years We're add more -- And

capabilities acquisition is is set product adding side it. sort expanding new relevant, of for So We're these businesses. really there's customer the of --

share attractive the go really from businesses And makes tutorials when what we're have, So great the we obviously, simple, supports, documentation, is the to customers, they on these cloud the they more other is the of lion's use, launching offer we us of what scaling easy and enabling platform. testing we And competitive getting price most to relevant runway of a product them for the strategy get stuck. services capabilities customers found The to to spend lot more have. help are customers.

differentiation, in it's every customers they more support the our support customer the pillar is model, SMB experience, huge which highly another value to which aspect value platforms. differentiation from that's and customized gets a on the have larger alternative platform. have a nurturing support a customer supporting We critical a and And

channel. So on net new sales capabilities and

they DigitalOcean. the building their feel on like partner our is strategy cited to study help in model for then more build like and businesses, platform where business gives product just on support customers supplements they have they're we longer a really so helping foundational and customer and them our runway case do people Our get can experience a to these the as

DJ Hynes

Yeah, hear less know that any have yeah. entry Akamai's Linode. for to business size they DigitalOcean. implications But any thoughts of specifically? of than DigitalOcean thoughts I'd kind Maybe a in on the one-quarter that space. Super bought or space you love of the is the helpful. follow-up, I if on Obviously,

Bill Sorenson

validation put opportunity. of people of the capital sector and the think is always our validation I in the thesis a Well,

been that enterprise. their infrastructure clearer it think to pivot have I their from into intentions couldn't the comments,

it was I the think rate I notable. the that they thought that growth being Linode interesting also quoted in of mid-teens. was

we're have data billion now and XX%, So of growth $XX teens for Linode a OVH you developer space talk SMB couple growing billion, our about points $XX and the with growing rate. We XX%. cloud Cloud, in being

node. faster So our you of in by growth we're growing validated see statistics you some OVH market segment for being the And for the the cloud. see in that of that could

is part strategy our of that cloud it PaaS to working we where the infrastructure speaks to, capture the share think market in operate. I and So

the last that note I so, call from thought interesting week. that And was that, to

DJ Hynes

helpful. you, That’s guys. Yes, super yes. Thank

Yancey Spruill

you, Thank DJ.

Operator

Your America. next from Wamsi Bank Mohan of question comes from

Wamsi Mohan

Hi. Yes. Thank you. this mentioned outbound focus. motion sales Yancey, you

that providers. of targeting and a larger going customers the you're some to clearly, share for be from take existing So need support have cloud

thoughts you clear And pipeline? have a marketing And this increase, that So can how develop follow-up. me, intend to won't maybe I to us that? or maybe thought give on its the sales you and misunderstood intensity you go why some wasn’t I early

Yancey Spruill

Well, and go obviously this we area. depends acceleration the our to and is at flat it business from ability doesn't see acquisition as can may bit. little if it levels it of We'll bit up us little much, could than -- current change XX%, so we That growth. a it want into keep we on But if because we we And not to model it substantial get drive XX%, a grow more take up a our of change is that. little on percentage a revenue. XX%-plus sales we current And efficient XX But grow if might -- spend percentage of revenue. percentage total self-serve. revenue, helping do customer If at a or if bit. as spend

focused a And percentage the differentiated to again, calling, customers platform. And the very of sort was what America. leverage to South Asia, message this small of and on in that on businesses. to Europe, as with the changing we're to go and of we're materially trying after focusing just terms traction as we're to well So marketing partner channel overall outbound was, that come to a opportunity to regionally a both reference not sales getting But in spend.

and and focused strategy. in that's regional the traction. X% excited investments direct about be see be It's It going of the of sales have segment those the sort of will continue And they're optimistic really are will and So to gotten to revenue outbound, on And last It total market. to nature. targeted our we're year. make channel.

total we that that We upper rate tailwind of move growth the a into will percentage digits as revenue, expect to move our and of as be single a the forward.

Wamsi Mohan

if Okay. have follow-up. Thanks, a Yancey. And then, I

and that can that, I still still do given acts call overall customer of you think it, a, get back details of on bad part your platform. pipeline customers that, appreciate overall deceleration rate of function providing growth want you out that didn’t there? dynamics quarter, -- But you're And that that I as the high And number eventually Your are scale? actors the that the you the single-digit segmentation What a meaningfully here. incubate a to decelerated. last that think you called is some growth

Yancey Spruill

call about growth the talked we rate customers quarter headwinds for last in our in QX. line set expectations of with some the at Well, Yes. is last with we

we we year to expect as So it to into through get of that – it and start lap certainly next sort and and this year. outgrow

that in we smaller sustained table number certainly importance the or majority still XX% of The be customers. And get upper And in of into an platform, study nurture. those the them the sit cited them, where $XX, month more we incubate we option value sets relevance we and you area, the if to vast a that, and call. digits. a we SMB So are the more that of $XX, And graduating single like get to target on the on the for that again, better. platform customers expect back term on longer is we will. the the a the they to case have $XX have customers we We onboard

get get back last what have. big we to objectives was long-term sort expect a that. to think growth upper quarter – expected. us that from haven't to we So this of a we double in start digits be expect we'll line And still hopefully growth digits, we half our customer back to time. but And that to with And lift supporting – of see over And we we I year, tailwind as near-term. that's in the be going to range in some then single

However, from essentially or expect drives economics the been we've in those $XX to rates above, the see growth of business, recently. which ranges the we experiencing

Wamsi Mohan

it. Yancey. Thanks, Appreciate

Yancey Spruill

Thanks, Wamsi.

Operator

Your Turits next from question comes from KeyBanc. Michael

Michael Turits

little interesting you seemed to a Hey, bit really morning, that One what do was revenue. NRR well great question, more December. that accelerate a ARR also and metrics. seemed guys And thing that commented than to in guys. Good one

particular towards the end stronger growth happening that even be to in quarter the very in might positively So having the more seem that of indicating next be year? anything

Yancey Spruill

net was the I ARR as the same growth roughly revenue in – quarter. don't

in ahead great call. our it Yeah. dollar we expectations the were. strong. over retention see think at We take very up I last growth creates And ARPU mean, I we a looking for So on did of floor. where the this just ARPU month call time. was from acceleration Net that slightly

to and So public time year. we're last we we over year, seeing as business certainly, are today outlook. a a growing And this was business faster it than ready seeing go stronger the much were about

cohort and tools. ARPU platform. are So coming that year expansion add will as scaling there's We'll invest They that that's they we'll our more capabilities of tools expand. hope who have SMBs, – customers other from on add more and share this of capture platform. I don't will and And those the that more grow and on this fuel think to

the they graduate. And we strategy. then those the – and more that's adding get So customers, on platform, that smaller that

get business growing now, right and into all are working and well year those we're to into XXs. excited so to this drive the And the continue

Michael Turits

And way? last percentage Bill, we're did for Yancey. that XXXX target are of you a able you you give do, it with us it, as And Thanks, maybe making if on CapEx help right just also miss a defining revenue? sure the CapEx to

Bill Sorenson

to other folks have Michael, of we of from which look we're a that terminology technology moving in metrics quarter, that done to the the companies is performance other sort is equate space. terms before, lot at in comparing doing we're of the trying this of Yes. What away some of

our low free the look of income, we're XX%, this flow progression in as continued however, margin. calling way, improve look at to to think is to probably is around you're And margins, if you're year I to traditional CapEx to going you flow. a our worth XX%. to But the allow be So down If going thing at the continue more moving get less free non-GAAP terms to CapEx. cash other out CapEx sort us to revenue which to look operating The is the not efficiencies, the us in benefit that GAAP the you start that a see move in you're those going above of only to of when at XX%, seeing margins, number, seeing QX XX%. cash it percentage overall want you going of in profit

us monthly period, to around traction previously. months, a is us key we've on say see to and lowering down heard which And from a You'll margin for the of around is to payback D&A. drives towards our costs services also reduced continuing progression we're relative steady get efforts XX which that metric lower down server, to to nine I revenue you've know our per eight increase our acquiring before, we're XX, up

up requestion are number that improve as your cash a overall but XX% factors So then XX%, working flow of earlier. XX%, towards probably to free Yancey mentioned margin other simple

Michael Turits

That's at helpful. up were? we XX% margins, said GAAP clarify, where sounds towards heading to And gross just this steadily from point you your like

Bill Sorenson

we crossed XX%. where in clearly QX, over And saw that That's correct. you

You'll ahead. the see to continuing in that year improve

Michael Turits

Thanks guys. lot, a

Bill Sorenson

Thanks, Michael.

Operator

comes question Mark next from from JPMorgan. Your Murphy

Your line is open.

Mark Murphy

finish the Yes, my congrats nice And year. to on I'll you. thank add a

So pricing. DigitalOcean very for attractive has been known always Yancey,

I'm that? perhaps they're philosophically, that seeing do You've pricing seeing all which extremely you increases in your kind And rising wondering lower XX% had to when customers you at environment, all would how do be can AWS and inflationary. times. estate expect at of be price these prices own around salaries sense actually costs real rising XX% that some to their approach than this is

Yancey Spruill

think But value I to and the more I as infrastructure. deflation. we staying a premise core the for real on especially to inflation, our creating productivity about Well, compelling of alternative lever larger platforms complex, a is price price and cloud think our us, is isn't services competitive platform robustness to the about add

value modest the core at a of that's the to stay Vultr, premium proposition. to At same it us the segment Linode, OVH a end think at our time, market. I the allows of small

do growth And then could services more we're big our or growth differentiators. can a customers our with We're on And support aspect open as able competitively grows think their actually orient platform. model base view see other community, source ARPU XXs. ARPU priced our supplement complexity So turbocharge our that differentiation And consumption-based model, as employees buy they to in their simplicity they you upper real our reinforces being around the that. of growing and grow growth pricing, organically. of are and I we that a work

foundational from and flow of we're today we being expect and will, see, us. some proposition creates of But cash the as macro to successfully. environment it think packaging And business lever use if would cases more of product that's leverage outrun, lever, we're you you seen a as positive to and do of value last through in premium manage So competitively price time. do that environment sort the do I see our priced packaging we over and XX% uplift at this a can free pricing giving and or will, through we've driving the I compelling efficiencies the And in droplet a for this think able that and we're like how grow -- things year we to macro. to operational and if opportunities all a you launch alternative

Mark Murphy

two? us follow-up, Yancey, give materially And had Okay. that start of quick your rate growth that, so just why year. give in is that the as not offering version sure quite Understood. look growth or MongoDB database are a next a threshold the of you a to quick I'm saying you will for a year could or scaling tailwind rapidly. commented product materiality you -- that what Can And maybe your but point is, particular two you this of

Yancey Spruill

a the be this going real rate. tailwind many Definitely to dollars growth is millions of And into on I meant year. material

some So from foundational. that's customer, But is database first capability several you customers, spreadsheet. When a be It's what an to The growth having it's is. Excel is can tools manage somebody rate a foundational database going more early-stage at ramping. that I next a to for their a level But what material capability overall that's tenth on business XX meant. driver. sophisticated growing goes times a our and napkin start point, having customer

And why that. of seeing so incredible that's such you're adoption

won't services. other doesn't Mongo launch product so to add with and need supplements is of we're that certainly businesses, that. that customer look dozens last of for in seeing We just one because partner base why of validation capabilities popular And have more year. decided expansive and uplift digital the traction database to Mongo we've Mongo that the But our We'll set. of and

Mark Murphy

Thank you. Excellent.

Yancey Spruill

Mark. Thanks

Operator

comes from next Your Barclays. from Raimo question Lenschow

Your line is open.

Raimo Lenschow

think increase Can If obviously AWF? But more my away database about I one adding Thank a first shying the how about with things complex think we of other lot only on the stay it's cetera. a becoming this kind popular you. et could that like talk evolving there from a little see just versus about. to between that actually offering, Yancey? very it's database, That’s you like I you bit target customer is just Mongo products a subject, better. use kind base but is real Can more in is kinds cross-sell to effort, sales that like, efforts steel the customer from kind guys of question the then up-sell, to to at kind those second an of customers look service they the you base have Mongo, effort of, like other adding on a -- sales the get If see, that to it are And I question. better. understand they I'm for example, use benefit and those big would ARPU

it congrats. bit more to Great that Sounds more a Can is Thank kind was you numbers. confusing you me? this elaborate new because and on like getting customers. of little like

Yancey Spruill

geography add second but question. of use a on our don't that databases first customer it's business that's Raimo. not at Thanks, will question, bigger typical And enterprise, models, the couple of their because we the a profile to complex. re-ask have, complex customers in that you more so industry, have alternatives The -- the platforms of when might right. scope will there's are But look I'll and we other the more scale, have terms

be customers Our customers tight. tend pretty to the then diagram of overlap our businesses, tend to

can we So, over databases that. other year more or the we need don't much one than or two add but next two,

what that's was so And I mentioning.

and foundational of that core. easy a platform and and the The products, fundamental. products, can scale the and use, Simplicity in grow integration valuable second is the of our value proposition. attribute and the the be is aspect to ease your is Simplicity it's customers loan simple, test at the to most experience grow question which as across onboard may

room, we product middle the simplicity our think customer the when team time. elephant -- in so in about of And the the business, the all when our across the experience, room is

and customer, a but I the source critical time, what experience simplicity customers. and entire And small also database why reinforces tutorials, the and for add simplicity and that will support our integral experience course, a handful, -- reinforce for will that's it's tools experience be the be engines So open maintaining say of that's lot. over the more we'll having that's documentation not is

-- benefit, developer the this of being able think, So ecosystem. on I They that's we will SMB not demand to focus simplicity.

that's we for interesting So, something even and sort them. get to wanted of if not out do beyond that,

very roots simplicity. stay our so and focused through And around on to we're them going

the and to on revenue and able we're obviously see capabilities the been do product significant new We've to customers platform. adding that worry to uplift need last adopt that few no set. making the traction years over easy it because So, for to

can If clear repeat, question? your I second you wasn't what

Raimo Lenschow

Yes.

sales. of work wondering, an your installed upsell just investment of is in customer additional of talked of customers more and back You those are going about direct kind kind to deals kind these better, And I'm or effort? kind into and kind or trying new this be more direct of base

Yancey Spruill

Yes.

Okay.

revenue if mix of So, has optimizing of -- in the sales first of help go using the get platform. tools been cohort analytics and sales capability, X% that to over data them launched into sort inside this couple the of sales a predominance years the we that

effort. more you with to will a customer to call $XX just into may who example, $XX. use triggers For engage then or waited them, proactive whereas some to them see And go then support, we have might quickly have we $XX, at $XX to we for start

been we've sales customers and helping very inside effort, at successful get that So optimized. better

Some that we're driver use this good of when direct could to they with engage And businesses of fast big found they outbound to either in lift X%. leveraging platform. them early-stage they're small really clear. them Yeah. : half get out our help. that ways that so the that been a growing The tools off, partner this other and year, we about or sourcing business Thank partners -- adding that's engage is to very much. hunt and our you the back tools, businesses, building and of for and existing their go on year That’s with last innovative

Yancey Spruill

you. Thank

Operator

from Your comes James question William next Breen Blair. from

is open. line Your

James Breen

taking the question. Thanks for

sort strategy. Just overall on the of growth

growth case, the cash And is the yield, sort leverage think just earnings I it and growth plow you free accelerate previously, increases and given business sort moved from Thanks. current sort flow levels? back we in you're cash of see in can increases of seeing of free the that in to flow plan And in. still breakeven that sort the to level? of

Yancey Spruill

Yeah.

successful like little investing we We'd And we'll that we Our growing been manage we as be and time, to to and growth a leverage. obviously leverage, invest. continue the strategy that. At acceleration we've at we bit and to will free are, fast think driving acceleration, operating do where we're can. cash growth can flow than drive faster also to same be as grow

to of emblematic from term. in And of across free is other couple capital sort where prioritize year, expect top you And certainly invest near so down we're see typical capabilities little as basis of could flow business. investing operating of across back that than growth our we're you parts investing growth long the of share in in sustain obviously, that, of could and a up a lion's us the maybe better obviously, a year XX%, better referenced. bit into certain a business. haul leverage while in I hundred points in in sales. and leverage the cash and drive faster heavily areas year the think obviously, over This this new to line business and intensity, rate Bill see We'll a going what And the rate

James Breen

Thanks. Great.

Operator

comes question next from Your from Pat Walravens JMP.

is open. line Your

Pat Walravens

to a needed ask I to new got it's a question, see. Yes, anyway. Yes. Yancey but what on and business memo on running the team, hard getting environment we the and tight it congratulations think

this tragically Russia morning, invaded obviously, the Ukraine. So has

employees you have So partners. And key if I and any look are just ahead of for if points make the thought that customers of investors? I think sort wondered and and risks to you at any businesses the given situation time, and of there guys our the can need to all

Yancey Spruill

will today. people what there. in we're pandemic. Ukraine I have so have unfortunate terms percentage revenue offering we material and context small revenue, in people has zone broader of expect helped revenue, cloud Well, And war help But generating amount in business of the of obviously, circumstances a the the through small that, really in in Russia. very the the And not of we our do a in

creative to We that's circumstances finding So enable helpful. and I'm will there sure to people difficult on work we're creative. be mission. And themselves whatever our be collaborate get of individuals and in together need part help that will that people

and I was months that – business, it's in So happened the to built we're of small – say, not And material, or of to pie. is recent not materiality even would in kicked revenue any haven't relevance up revenue as amount off of this but seeing the been seeing in dislocation overall what terms today.

Pat Walravens

Okay. Thank you.

Operator

remarks. And the that concludes Spruill the over now to would the call question-and-answer back closing session. like Yancey to turn for I

Yancey Spruill

a joining us. thank day tough all for I Thank very know, you, you for this humanity. and is

it's – don't progress not us in we've this though, So do transforming it's are made I lost on excited business. that that the fact. hope incredibly about obvious, we

is we If massive the are it’s a cloud service market opportunity machine. into as set-up you different the and what a a seeking and were today, to place. and free look flow this in growing where back business be at ago, to this rapidly where to you we entrepreneurs year are cash continue business in and windows, also fundamentally developers going to

continuing the our weeks in And track to of limitless we we And we're potential months are we So at look DigitalOcean. of generate our about believe really, this hard XXXX. what opportunity this dollars in solidly is realize conversation billion business first ahead. revenue to forward on to really working and

thank of rest So great so the much day. and you a have

Operator

This concludes Thank you joining. call. conference for today’s all

You may now disconnect.

DigitalOcean (DOCN) 24 Feb 222021 Q4 Earnings call transcript