DOCN - Earnings call transcript Q2 2022 | DigitalOcean Holdings, Inc.

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Operator

Good and welcome to the DigitalOcean Second Quarter 2022 Earnings Conference call. Please note today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. will of call Investor I Bradley, to time, President Vice Relations. this turn over the Rob At

Rob Bradley

Thank you, and XXXX earnings welcome, everyone, to DigitalOcean's call. second quarter

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

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

for financial well industry call, outlook future as expectations and goals business will outlook, statements market our we and opportunities for quarter this making forward-looking about third During including similar items. full trends, and statements, performance be financial the year as and

of assumptions. these statements uncertainties All are subject risks, to and

in and You call. with between investor can turn With Also we found press review would to update the our the earnings our reconciliations everyone may more our Spruill. can afternoon Risk now discussing We CEO, no Yancey? be to SEC. will we that, results call in Yancey And section information that was this filings or financial be about obligation GAAP our and forward-looking IR our non-GAAP like actual website. measures revise on results these in on earlier differ, any our and of statements. remind non-GAAP our Factors the which our undertake release, I financial over issued presentation the to

Yancey Spruill

afternoon against deliver macro its of to facing. challenges share targets good joining us we review had that our we today. financial you ability headwinds Rob, and Thanks, for all despite to where thank quarter I am are a pleased our demonstrated the nonetheless

rapidly automatically resiliency us. of business, to environment. of uncertain right allows challenging are strength revenue within balance that financial The their within business they flow, prominently our our now. the business alongside pay the or positioning growth, simplicity what display scaling year and to our for in an despite cash including we consumption our customers improved – operating performance DigitalOcean Our free model, uncertain strong align economic of weakness coupled our The is revenue on and durability with for highlights outlook

material in in serve, that macroeconomic world. a of the with unionizing set stage For aren't change that us make customers dependent loyalty particular we at and as and say with in that segment spend, model a last we is project does from the The builds quarters. in believe grow our our for on platform, we us being of and are since We our year-over-year. quarter certain in is remained economic in customers control. less diversity efficiency we one they're And early business times near through to cash operating in trends but in it the the of not at Revenue bad while of good drive a transparent today, to cautious validation type region vulnerable reflecting us that continue free our QX seeing one margins QX the despite them. or recent large of environment use outperforming traction revenue aggregate industry, taken particularly for and significantly industries outlook least was we business both which growth To we our prior to the on update key year. this weakness, business market came The flow. for QX Europe and That platform, highly guide fully term gives strength clear has operating somewhat blockchain cash we confidence are seen a customers A maintain in levels principally $XXX.X be spend for being growth The in have year. million uncertainties QX XX% flow critical are drivers resulted offset revenue free increasing to we supports while challenging our our our actions expansion to prior premise our revenue regions reduced global are the Asia and up outlook slowly for setting to rate XX% and given serve the in of customers the more quarter is vertical. operating not have we growing and to customers macro churn in income approach than cases, midpoint similar margins within a in operating quarters. on our at of our full the and by forecast our nature expectations

the is support new and simplicity, operating on ARR grind three to $XXX quarter environment balance months expected the headwind we in with to and that so lower the expansion. QX Russia-Ukraine tough leverage. also points ARR in and to do impact growth this $XX are million Our enabling XX% another sequential the basis ended up open Premium June XXX software us of our year priced XXX last the and from launch ended at ARR net for net source community, points of value our QX due year-over-year was The focus QX added rate. as is represented XX. had slower million growth basis Droplet through to from our customers headwind for growth

that they dollars. is make pay to our we and build us customers is U.S. point Another

revenue, a generate on strengthening from a over now X,XXX up in significant direct dollar that to customers XXX,XXX impacts numbered added half per XXX total, year can't ago. basis the and We high nearly of have businesses which we spending of to way likely customers' to more $XX our total don't our are points the is first the than tie spend U.S. the revenue, FX month. ignore due XXXX. XX% we headwind Although of just In they

of environment markets customers rate. we in from pull to revenue the weaker faster this Importantly, the operate. significantly our than overall in the GDP up is revenue quarter, growth grew which from continuing cohort year-over-year Despite XX% in customers these growing

slimed party on our continue operational a focus leverage drove full driving margins These spend growth, leverage will areas well managing progress and of to of we core through prudently. margins initiatives our third the achieve efficiencies XX% to critical engine our XX% move in further gear, challenges, areas first that of as into spending procurement on As our that strong flow few dollars we greatest pay of the as dividends better have operating cash results economic beyond expect operating we put focused improvements to QX, revenue. we business billion The near-term spend. driving we were delivered or our We managed impact our of revenue. on free

capabilities the – cash company the generation that revenue. We cash of was flow quarter of with in the also powerful in demonstrated free the XX%

thing flow we growth approximately are no solid million leverage. will that Given top-line now of revenue in drive The key and continued takeaway challenging a prioritize we since XX.X is from this will shares meaningful adding accelerating results spend cash have delivering new focused environment, cautious March strong bought free until very One our XXXX back and margins margins about investing to QX and free we while better cash mistake clarity generating growth we we our uncertainty, and in flow flow. on delivered QX, period about Make outlook. free be principally have last cash the a IPO.

we for for while that we flexibility provides shareholders. free balance value always also long-term to goals However, doing so this is value business. shareholder and how deep leverage goals Driving will commitment highly our while on to are also cash with strategic achieve honoring this driving significant are earnings focused flow an sheet and our our compatible efficient maximizing run

last of number into pricing share revenue we challenges. now. each Investor have went of insights initiatives us outlook with As month. help into that our Day like to despite at them shared June, a Beginning achieve our XXXX, the growth that and macroeconomic we in we that May for announced some the changes in higher I'd effect

date are early in already impact to of our pricing. a to seeing few We the impact QX, recent of changes indicators meaningful

day customer First, accounted been acquisition than dramatically the base seen and lower have has our case. in since And unaffected. X we new since pricing, effective for new net churn announcement we for July

$X downgrades droplets. to droplet the and new anticipated with $X half our compliment roughly Second, less being in of modest $X droplets much than new remain with used

as we customer differentiators, when excited core historical to averages mention pricing with new line with proposition. with dialogue of a large factoring software a it these That I'm say, to customers with that created remains broader has our platform versus what experience. great support, price the the what our of about computing prior service blockchain community commitment offer you in And the a customers. customer value and source our get exception Finally, costs. open is market remained value a our enabling highly-performant cloud simplicity, changes. usage They have clarifies

$XX the serve to made developer tailor market. SMB is cloud platform Our billion and

to sales Next, results from strong our see we continue investments.

that we in investment from remain sales accelerating the growth channels. May, in continue acceleration in our in are quarter. plan company is confident QX accretive from approximately total it QX in we revenue progress continue We represented that track of to X% nicely, through up And as Obviously just prioritize deals making exceeded X% to first and As which and year-over-year. our second in our continued revenue on we channels is growth of additional we're up is see $XX,XXX, over our trend mentioned ARPU quarter QX, average below sales highly QX, total we this XX% to drive with just the to pleased ARPU. with the

community funnel from help content to to be along millions continue and the I point with a resource the soon learners of of regarding and efficiency continue We're more define JournalDev website on acquisition. a offering development June, our our Java the want to community efficient we monthly developer Content even will make JournalDev. other to to they of expand drive customer web leads breadth This building content where critical investments top content rich our that to acquired model. go-to-market visit we frameworks. Python from site source a has for customer make of trust. developers highly tutorial our In quality thrilled found Finally, benefit acquisition.

our and in growth of efficiency represents spend to over year, the area our product. but targets our months. is offer. for at period than And margins QX revenue, of improving sales ARR combined customer acquisition. six new and of payback $XX.X margins million less growth our to build to happening our paramount not this expense just drive with serverless XX% Functions of in higher we costs was we that's of launched non-GAAP paying This course net DigitalOcean gross Using come. and million May capabilities. ability years in sales while are ramping acquisition next is investments to the our in The new back Let's are sustain and customer marketing $XX.X revenue XXXX in look QX for

through shared customers. we've serverless been IaaS alongside adopting a As growth our has have and capabilities rate more that activations the customer accounts encouraging functions function been than is than a at more second well suited that saw Customers many high and a the quarter, is which of previously, an million that as strong we suite is is collectively how have times Emote. top PaaS X,XXX and or XX adjacency capability our request using functions, traction

the within and pleased net and NDR. growth, function with greater so expansion customer targets while half adoption We second us should against far acquisition, deliver feedback help ARPU propelling our are and

this Over the business now XX% past capabilities, and investments through years represents revenue. our of total past of few portion

the dollars billion to a as recent growth next has number run initiatives This We're to applications. I'm ARPU and results, financial of we This year of XXXX. additional of team strong as a resilience our help storm the summary, QX. we've to and managing experience In with and of process strength over that first and in to durability friction able $XX and a our applications significant we of been us. of testament value in that's can a serve. expect the that our our our to serving platform, commitment them of years. the they more have revenue building cloud within to to enhance can seamless product more headwinds, billion have the their they And expect deliver we demonstration customers, proposition in We that giving in removes our will scale we their the proud seen of of despite a customers our value source continue powerful the business many launch segment the market, weather

out I margin Bill, we've me We wanted and year to incredible and announce Bill from to growth better company have path in been we significant are as full and delivering who number has sustainable Today, Sorenson our growth XX levers team my CFO that we forward to half second a for free the will re-fashioned be take partner excited DigitalOcean. also free highest role gratitude while an retirement of deliver are for about our the leverage. and retiring here came the XX% high growth He to express cash at pulling or months. be cash flow to leadership CFO, and flowing company. our of a that

want to well has first over are revenue We to liquidity, are $X and base, from we profitable proactively express to phase a a next our which such now also team capitalized as billion many, working that in we built privately hiring the of on and CFO, the with new now. billion publicly have and plan, a this Bill with I smooth shareholder beyond. me. set have me transition can held our for $X.X up to served coach transitioned we a Bill to growth thanks to traded and March process for the on in mentor begins to including

organizations now. and updated turn With will Financial Bill, financial haul, of aspect and leaders job. proud Chief are I would over now of for our this provide critical our our for role to the details QX I'm that, the orderly we like full our demonstrating QX our outlook on who and As Officer, transitions, year. And results in to the call long

Bill Sorenson

kind today And review Thanks good everybody. our quarter words. Yancey. to And afternoon. us second those Thank joining you, for results. thanks for Hello,

As opportunity acceleration in in the without the leverage it for clearly inherent not revenue illustrated QX potential but the for the DigitalOcean, our mentioned, was challenges, for material Yancey business, operational generation its growth. the further and cash

op XX% covered DigitalOcean many soundly key met we to and investments on the revenue its While our second quarter, able of for in guidance. free beat earnings able drive midpoint flow to all the per for operational key improvements to questions. focus and the and the metrics rest uncertain non-GAAP we're and the cash of the quarter gross operating our grew I'd making. of Yancey flow income, taking guidance like were of In providing we the the was our targets in and cash financial highlights markets, outlook margin, how growth our before share. revenue by at profitability year

in a growth rates. similar at And have several directly to in growth we slight around America XX%, involved seen North improvement the Europe Excluding what would those up slower in saw quarters. countries Ukraine growth previous held while conflict, and Asia led with the in versus year rates to we have last

stable, Looking of see rate our slowed. under these that the but churn customers it dollar we regions remain expansion the in the hood, has is

XX%. well. are still dollar ago QX Net declined the growing XXX%, but still level XXX% So platform, businesses XXX% customers to than their on with and our in managing spend to compares are in greater period, steady ARPU QX. was in and as as from adjusting somewhat down they nicely their year is trends, which growing And in cautious these even retention

the that recall year, anniversary this slowing results. NDR was tough growth quarter our and that as NDR early year. referenced, to in last we of the impact through QX Droplet a as from strong last a XXXX. high which This advanced with contributed Premium conflict QX enjoyed Eastern XXXX, revenue, QX QX marked adoption product impacted and new just right of in expansion you Our introduced product offering first ARPU by Europe which chip both I last to XXXX a may performance year quarterly launch factors: created in of several in year's of compare the our customers and

our new that expanded see Additionally, we the this around declines pricing from Blockchain growth to our based in highs. initiatives for reiterate mentioning Yancey's our model, he in our and of funnel. on remarks half have world improve begun customers expectation in metrics the second growth I'll revenue these year their capabilities detailed previous is the sales to the from in by that

headwinds that and only as countries combatants, clearly Europe well. not for As tempered blowing other in we Eastern was economic the quarter, outlook QX, the as and disrupting war guidance we our began were but

Given our us growth critical all a both investments management that non-GAAP our focus prioritization areas, our outcome reviewed of free succeed on most with ongoing that income and targets. helped investment flow operating cash

As business discussed, repeatedly leverage we QX continue see we our to clearly exemplified opportunities that. in and

our strong year-over-year points XXXX. led Gross improvement, to the efforts a was amortization. past, In of of suppliers savings. we've each and details a we all over to opportunity only quarter some our but and each for up of in for the we've future. and led detailed margin. with hardware, in vast provide see savings In additional We've a our cloud achieved the to to and the rate future last XXX to reduce a relationship countries, have to To gross manufacturers. and as which our with working with with that the DigitalOcean co-location our customers valued as as which customer us our very been in well. a match in of of pricing to growth technology of center well, manufacturers, partner three starting pursued as equipment we're basis our to end maintenance valuable strategy areas, scope trajectory, XXX purchased our which these platform more world's all cost the decline Let server similar ancillary the delivered GAAP network. the initiatives QX from to not depreciation margin operators we our years, Similarly, of on me partners hardware million has savings starting XX% data led Several making a hardware you suppliers, XX% has to in in has this basis, with $XXX we the

along forthcoming for year, full With point improvement margins initiatives, would these XX% our planned which be gross the enhancements, from with are of XXX basis XXXX. targeting we a

As even future other territories, which we we expand as for go we detail into ahead margin improvement continued for into we gross our network quarters. see in will XXXX, you

gross the our highlight above well the operating in well with the strategy Another lead to increase by to goals a spend, guidance faster improvement sales record cash spending an our investments improvements operating a an delivered you ensure team as quarter would QX bad financial XXXX imagine continued disciplined efficient non-GAAP financial we profit, more of would at drive hiring was same time the revenue in The achieved in but our targets. growth management decision launched X% serverless financial at same generation, to was provided Functions operating DigitalOcean flow were margins the in as gross part made to real marketing improving results we XX%, new in growing with leverage. non-GAAP along estate expenses our of and as be our time and that delivery demonstrate aided team. we've up Both exceeded impressive margins our our lower margin multi-prong debt on disciplined the very margin and of May. This in product and and and we from

I our year, raising over Given expectations to momentarily. which we're will for get this delivery the profitability

will where investment in than investing want cash center in Even flow generated free new efficiency our I that flow more QX we Australia highlight represent million this period to cash the of opening showcasing XX% be in revenue. a we substantial that that during our in $XX Next, even were of court, we we with year. generated free data

metric. flow in for outlook our investors for $X raising flow we XX% And target expectations should confident towards pricing the to cash strategy will first revenue and the of half of our in Given our of trajectory towards year as free our first our tailwind flow strong in be be cash cash both and half margin journey to be this XXXX. our free a billion free continue generation

on capital to had the that outlook were per at net shares this $XX.XX was Finally, high million $XXX at double share a which has in $X.XX, made sufficient growth of sheet Street. our capital driver for end our one-factor repurchase remaining and previously two, that remaining the of shares flow on authorizations per with this reduction Higher approved we earnings balance and average and in that higher year shares existing that, our material in the on helped to earnings deployed growth Directors buybacks. the of as I an of want cash May, Today, announced year-over-year $XX $X.XX touch strategy, shares the result year; share margins repurchasing and our an was XXXX, our another $XXX and we've than spent present we to believe came have estimates that but consensus with put, share. we we Simply the substantial opportunity value outstanding in Based XX.X repurchase per price well Year-to-day to this free DigitalOcean discount authorization at million important in million million as per we our benefit Board invest opportunities. share our of accordingly. XXXX. providing have on the on

our but while time growth initiatives the I earlier in without half improvement pricing expect year. my same operating is made initiatives. back the new we remarks operating in investing our QX underway further in strategy, challenges, its our launch metrics at of those and our With in financial we As the in progress goals material said not the of

to expectation Before XXXX, on that for four-year cover back my guidance our was my with announced in Since run. I'd like updating along outlook you DO, and joining transition. Yancey a hope

the with in any opportunity allow Yancey transition. the role, time same provided my continue and a for but the search to anniversary to As and began at successor qualified and year next have in-orderly candidates find discussions To right chance to time current find pressure. ensure I that way public to approach our the allow end the most the allowing about sufficient Yancey that timing company the that me without best Board the manage handle, to we time

incredibly or until on a in will I am is ongoing and initial with our continue him missing the without capital transition, I helping billion my excited on framework to key CFO her and $X there as resources work goal work executives of revenue the the beyond. the initiatives ahead. orderly in are The critical found in for about and Board beat. to then is our and path prospects ensure DigitalOcean an strategic place, successor the fulfill So mission

Now is a do the so. to bring to time with forward on to that I executive goal financial look them working new to and achieve

Now let me provide you with our thoughts on QX and the full year.

For expect the midpoint. revenue which be in million, million $XXX XX% third at to we to reflects of quarter, growth $XXX.X the range the

We have margins expect XX% be the building range from XX% we operating to non-GAAP the momentum QX in QX. of on to

are revenue which maintaining For we represents in range the midpoint the to full at of million, growth. the XX% $XXX year be $XXX guides million to our

we XXXX at as in QX improving about our Given for full expect From spend we to and margins increasing we're are operating full-year expectations look to are XX%. be headwinds to are XXXX more our further our We'll year non-GAAP NDR, and range of that the prevalent despite profitability preliminary call benefit revenue standpoint, a targeting the ARPU XX% on have our expectations macro the confident for and usual practice. we well. customers high our outlook in share

midpoint. to for a concludes That which point going of basis our between flow Finally, turn outlook remarks. we're percentage revenue X% it XX Q&A. is at I'm previous increasing my free a XX%, cash the over improvement to call and as our from

Operator

line question of Tim Horan the with Your comes first from Oppenheimer. Instructions] [Operator

Tim Horan

years? price Yes. the of Thanks percentage talk bit? that does seeing in guys. kind little will layered of of your price the and think next Can increases you how a be you about revenue get a do over stream What couple increase

Yancey Spruill

this – and products it it, earlier. as phase-in Well into all if a all on of I new most July price Obviously lower not effect went point that's for the referenced existing price we pricing for And $X in went them Droplet Droplet a our in customers. increase. created saw no effect new

IaaS – the against serverless cetera, raise were concentrated in prices et applications we was so platform. general them, it not not on example, on did for PaaS Our and mostly database, products

Tim Horan

give under can your all a month-to-month? what termed not buying and you represents Or revenue percentage that And contracts? contracts, sense they or customer are of us two-year one is or are of larger

Yancey Spruill

monthly of Yes. XX% on our customers roughly IaaS just The I'm overwhelming XX%. subscription of our a are references and majority sorry, revenue, we

Tim Horan

Got suggest that I higher something it. either doing the increase on would unless math be quarter the should XX% revenue substantially I'm I Well, third mean, that, missing price on...

Yancey Spruill

Yes.

all some just of a be growing other a uncertain working you in well, that Blockchain. with this cautious will or given same at time we lot vertical and so product war sustainable can and of very is is those our terms working increases, that new we're in the you we know best I under flow. incremental that is that on customer don't or and which Let's control being by Asia, well, are new principally inflation, of on is efficiency of well, the the X% is prioritize to margins can we platform, and clear. Blockchain, extreme I cash platform don't we we that control uses mean, are customers platform attracted control so what offset in rate of you our the think we But that pricing revenue tailwinds highest did so free and serverless in exactly the dynamic we and QX what control control weakness got hit QX to more the and drive on perspective macro what net to about that spend in any as going slowly of pressure is money growth and we aggressively and drive outlook factors, expectations, on that, Europe if so represented there in very and this where working the we have That's managing against those it, don't spend, the rest deliver be can't outlook. very

the are there's principle We outlook which see them reflected clarity And that'll that's and with tough and QX our necessarily our customers we're our in be to help that times. until a on working in focused in don't guidance. certainly operating through we the absolutely better

Tim Horan

helpful. Thank you. Very Understood.

Operator

of Your comes line the next question J.P. Morgan. from with Pinjalim Bora

Pinjalim Bora

I for seeing So ask on you stable great, quarter. like a some, like the green us I think you're and congrats is of funnel understand across see in it to then far know. in the QX shoots, or you thank of August understand you the top want help you on various questions based traction taking like Could kind help QX, July sounded maybe, and said that? your so you, stabler something us the theaters, that activity don't the I

Yancey Spruill

Thanks Pinjalim. Yes.

Let me clarify.

So what for QX. outlook QX against that growth meant our was for balance, I on acceleration is

And so a in the expect in we that some balance, balance uncertainty to we in of guidance, my and our point we've have the on place, that's blank the pricing have product place, outweigh to taken portfolio the little that's reflected fill we and earlier. actions on in bit initiatives more

Pinjalim Bora

Understood.

you point Okay. is if guidance understand what Then of headwind. price components, the to follow-up it, the possible, the it increase what versus what you're the is if are I maintaining kind and macro assuming... assuming what – guess way are finer various put you a is for as help it us are Any

Yancey Spruill

full the for mean year? You sorry. I'm

Pinjalim Bora

you course second And you are from year. are half? of of here? full for environment a Yes. kind Or kind of the assuming deteriorating a state the ...for assuming environment

Yancey Spruill

before in the that the do war, would hours that When we war, we we that at the but rising. be set before suggested had war February full outlook we'd our than and better that an we year look before estimates

we and to by and that full year what Obviously headwinds ago, came doesn't in scenarios outlook, would the headwinds in our mean headwinds year maintaining months – maintaining are quarters set expecting the seeing base been the we're the can't there and – be is and is estimates full that. principally we in we're not eight a on. of we managing still uncertainty across February haven't shoots, occurring. full raise investors focused we many me saying mean we're trade-offs for against revenue why being offset that was the and the doesn't outlook a, had, which set we been case feel which we're we think this Blockchain. and for we are that will green in year we reflects told And grind our same say raised And we'd continue between there's there not for weakness which achieve, can outlook I what we're that's above what through that that that outlook what our as cohorts It headwinds you've having the year we the outlook, into of so the but and that would've those let's are in a for that If the set many macro that February yet. we year is –

So that's the context.

making Our that that raising against not progress just the the the doing year, that original we be we expected and for that guidance reflected and of course provided. in to we that's the set that over I are year, color

Pinjalim Bora

in get the back I'll Understood. queue. Thank you.

Operator

James from comes with Breen question William Blair. Your next

James Breen

Thanks for question. taking the

full talk versus customers the taking year good, growth that coming had you How year-over-year. Can product? attributable where pricing was about to Thanks. increases more there? from of much strengths the just You

Yancey Spruill

middle QX, pricing Well, announced in into was networking, our were storage, QX, it it – not et that of begin for impact Xst. July didn't to change the until went people paying cetera, pricing ARPU but the Droplets, actual did so

impact. had no it So

more business like managed adopt our other The as services continuing see managed ARPU So volumetrics serverless. is that the we now they platform. our are infrastructure on our Kubernetes fact databases, our trend on customers grow our can on growth their

collectively are customer’s us Our marketplace, wallet those towards as tailwind and our that's ARPU share a for ramp, extending growth. big of all

James Breen

Thanks. Great.

Operator

the of comes Turquoise Vinod Your Srinivasaraghavan [ph]. question line from with next

Vinod Srinivasaraghavan

is Barclays. Vinod from Hi, this

and buckets: At price and talked color those beyond questions. about buckets? the quarter Analyst two expansion be and of within your And cohorts three customer builders on you Day, frame would scales. each Can learners, cohorts Thanks. the these helpful? growth logo the difference on within in your increase in XQ new Just thoughts any and you during impact

Yancey Spruill

up Well, we $XX our talk and builders scales. about customers

the So revenue there customer growth. in we the spoke to and growth

of So strong be XX% and that's challenges to XX% logo XX% the us that around continues revenue customer mid-teen our despite growth, revenue. pretty growth

went we that on library. in aside And talk, impacts. effect Dot-Com in we customer learner up lot they infrastructure of testing I launching pricing idea platform a those who testing on see QX. business, is an continue, proportion a and acquisition move product, from up on more the XX% the to running people content of learners did And $XX into So beginning JournalDev, the the a and reference reflects And product our spend revenue. again, which the building roughly our

XX of the And about digital each substantial of conversion right are digital the – people our the as between logos drives total and XX% revenue. majority XX,XXX over to pretty vast those number X onto pieces contribute Now content and that people those million. of learners, the in platform for then million month platform –

Vinod Srinivasaraghavan

Got long-term AI better employing business month of it. you. update maybe internally productizing us then on if can on Thank also AI then is $XX target within kind you potential And for the a whether degree the per just both roadmap how to of an the offering is Thanks. company? CEO give customers, greater and an

Yancey Spruill

Well piece, to customers. better is to their to it offer them us customers, product a the serve priority for their absolutely customers help second target that

So our as evaluating product are it's that part of a something we strategy.

we've those few the a science to now, of investing early data using have. us one capabilities areas help earlier, aspect we ramping we've workflows, we us. the can Analytics, us stage we go us engage learners customers and them than potential area grab in whole heading rate who ramping builders a we think tools certain capabilities high degree, not target more early. in prioritizing We've be progress that optimization target other use for how They're And best right forward. a at in platform about just using And success early seen good and exactly our mode. high in to sales businesses triggers drive growth. to invest they're in continue they enormous of to with They're of to those and and I expect is sales. had principally are success relates with very when And in a currently deeper developed and their how could factor them into success of the about we're better mentioned critical enough our to are we're efficiently. they're critical analytics the growth better high I critical customer terms area they're It's trying area it customers could with much and in do growth revenue rapidly. a differently signals. very – cohorts or to to those signals, and this we where practices not potentially a stage As triggers, logo early mode, certain that's think that as go early better as $XX ramp, is there, or get it's every we driving to developed to analytics being these to for been a big we

Vinod Srinivasaraghavan

Thanks. Appreciate it.

Operator

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

Eric Heath

despite guys. headwinds. on macro quarter the is today. Congrats Michael Heath Eric for This solid Hi, delivering on

any see that at last just kind and do that that are on on you just margins you sales digit in outbound double sales remarks, given this and then about how alterations been? strategy but year staying the maybe that if all? you of of thinking focus still of And kind the Yancey So low mentioned range kind lines marketing just for it's

Yancey Spruill

payback leverage from where the sales we have acquire XX,XXX the to of ARPU in we see orders average those how up a as build inside higher as our a sales logos, magnitude, last our versus – substantially have sign on the company. I Yes, our motions, motions, – for customer we principally and I vast efficient able the learners, partner majority also we're just we from mentioned, higher of think our and the we our customers motion, that quarter pay referenced incredibly

that and to the dollar investments it offsets be efficient. so And continues

contributor we So And a generating of important see free cash of why as of DigitalOcean in to it's powerful attribute it's up over here. although and a the revenue think move that's we're business. really move I sales still we investments and and flow made up see from time we this marketing yet quarter may last leverage ramping meaningful a percentage because did

a be continue balance at of invest top time, to is And it's where also sales over growth balance so, and portfolio same of we're investments it's those of to and efficient. in is the in And going to proportion the the revenue we JournalDev. – why priorities do higher bought of funnel, the two And investment which to we'll as with sales time. continue goal driving

Eric Heath

you lot you, some Great. that should I the just about and we That's price the then curious the and macro helpful. net know factors how but metric going expansion about mean, the of have that increase. maybe And just comp a I kind on forward of rate, of think talked what Europe given tough headwinds the and

Yancey Spruill

be – up in we revenue in second growth that in and that, the on the platform higher was better tailwinds not of QX. the provide the but expansion Well, any to in the faster and from on of is And helps drives expect going especially sales percentage materially sales helping in it QX guidance some and efforts that QX ARPU the are specific to sales. growth a contributes around to that pricing expansion. we're half Again than doing terms get grow optimized pretty inside and when overall to managing and proportionally, base we're of the builders of

QX So the be higher net to in we of second than the it dollar expect year. half retention meaningfully was in

Eric Heath

Great. Thanks, guys.

Operator

question the of with comes from next DJ Your line Canaccord. Hynes

DJ Hynes

as seeing pertains managed hosting digital Hi, the update you opportunity for guys. Yancey were to Any guys. feeling distribution. a what you're untapped on came Day with or like Analyst it agencies partners partners away from big

Yancey Spruill

manage channel continue actually two managing of providers us. is those hosting very it to lot be partner themselves, which Managed Yes, service active customers, to want for are people. don't capabilities of aspects the who for a

to chief be of agencies, then a source and big continues a people for startups. who aspect digital outsourced opportunity the that marketing and so officers are And the channel

or touch set and again, of to – people agencies people service sort intuitive channel. agencies and who there good and of SMBs, so, any providers, making hosting DigitalOcean stats we're to of agencies good are the simple they does spend touch to not managed expand although for opportunity it. quote but for want deal partners we who on or who new whole a some on up providers, progress service whether it's prepared even to by is what these the don't it, is to and us areas, vertical on easy we're by a MS, And And providers that with signing don't today managed region want or is managed use, though time

outsource completely. they And so that

platform and your so that And right that fact infrastructure. we're sized business, medium small, doesn't as ramping stage run the change early to the still an

our have we're within in the opportunity the opportunity to what opportunity does general channel and don't with though And anything do SMB do for agency is addressable easy, or – simple, they the extends the it, so just or intuitive, it digital who even people space MSP want outsource to serviceable it. market

forward. go critical to of So a strategy as that's aspect be we channel going the

DJ Hynes

for up great you. then a that's Bill, And color. Yes, just follow

We to own but price. all step asked XX% number, it's is So question to maybe you all what ask of driven guidance. look, best I we're much take you're the is, our the assuming the tomorrow just in being think the of growth by get can how mid-point QX going is

Bill Sorenson

we are Well, uncertain remarks in that DJ, now. Yancey environment as his out out I macro pointed a right pointed in my remarks and in very

of price are beginning headwinds guidance. the increase, everyone are we seeing benefit had seeing some that with started forecasting We QX the also we for certainly but our

really still in and summary, as QX. But sales that the well macro that in the expect investments of deal with us tailwinds from from hopefully and flow. early this to growth of to So get on but XX% still did a We're beyond, improve number headwinds approaching tailwind cash the hasn't there we'll as to pushing quarter we're And the basically help pointing levers XX% plus changed. our increase. it's in we as we price during terms

DJ Hynes

the for Thanks Okay. color.

Operator

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

Wamsi Mohan

Hi, yes. and your after have versus FX has ultimate large guess. have –disproportionately moves obviously seeing in the expansion net well. international Are Thank increase customers international and the two rate proportionate vary you. up, there as you price those your gone U.S. I I been to price

uptake between price trends international And on and there you varying once So over I have follow will the or up. increases? your instituted are churn you seeing U.S.

Yancey Spruill

again effect Well, price went increase QX. into

obviously we where higher expansion QX, saw are than in the of are we first QX today. in quarter we half but for the We exceeding

we So this to want expect for about year. I low said that net clear just QX it's to be dollar that retention what and expansion a consistent from with as rebound

Many believe businesses. the have of businesses. customers to we're of the lot percent other customers little value on we that in obviously relative less have impacted our currencies half by in As digital even relates our Many making year far our some but in we've dollars strengthening we've some the U.S., couple share a charge in of of it impact U.S. to some has revenue tie all to XX-ish we but the customers' points all – terms think a over to have point the the we than is of seen and the see of in One, to Europe headwinds think think made macro impact can't And we the Asia. Europe our of for have our though there first there. bit, the more I of Asia, blockchain obviously increase them been and a and the remarks, seen our with And the in less Europe. have a Asia, we U.S. dollar, I seeing what seen of dollar U.S. of – or and macro are and what this in than of do directly of I two I

qualitative who so peers our a may I that reporting, it's us many different headwind, not for think matter but currency been we about. And of a currencies something have as think tech certainly is directly at in charge as

Wamsi Mohan

some of that blockchain – like back was of that much a sort And context, XXXX? as in what about think like to you there are the And comment? Is expecting be percent it Okay, the amount in a Was you that of I was just over that you. revenue talking QX follow of how then as what timeframe up category? about? unwind reasonable half maybe thanks, think, you a you year X%. Yancey. think are about for Thank said, from to would particular of And the just

Yancey Spruill

Well, uncertain I early as And growing last X% what was and the where today, think, we plays it QX. QX. now. we and it how half years a second volatile the in out and was see lower rapidly would based know single – than that year, been future in it segment upon was decline we X% a very to expect beyond It we'll through obviously it's that's are market than lower but digits percentage we'll

Wamsi Mohan

Okay. Thank you.

Operator

Fish Jim of Sandler. line with the from Piper comes question next Your

Quinton Gabrielli

at is for vertical helps? at verticals even Hey largest exposure terms Thanks of our risk you on revenue? potential of the could it is in that between a on back us risk Jim maybe other disclosure. Gabrielli guys, if at blockchain for taking whole, this startups, like fish. Maybe questions. tech help last that the Quinton the percentage Maybe of that as appreciated or fair crypto just size e-commerce, question, jumping we this the assume Is to

Yancey Spruill

vertical happening in there, or blockchain gaming else is that in aggregate the because by seeing a streaming, I a we're slowing seeing more meaningful of is do of the vertical say, others. outlier that more that lot don't most out of volatility specifically sort just is that we market. would I crypto. everybody with in that's line with What called on more is the think impact. of we say the big I seeing, media, Yes, It's an we're blockchain. And obviously would what's real e-commerce far what education,

it's if have of blockchain, as expansion, a sort The slower you not net others meaningful. but just out

Quinton Gabrielli

Thanks. across share you then then strong. team Got That's of Australia quarter further outside inorganic about helpful. forward it. are talk capital how for moving And geos thinking the customers building. coming asking the buildouts center is were the actually buybacks about obviously opportunities buybacks in Can allocation data and additional if

Yancey Spruill

Yes.

question. great So

capital principle been years. relatively it's the couple business, through last over growing M&A the where whether active of Our is inorganic we've use primary

You product mentioned investment, regional investment. expansion, sales

We expand that, coming Sydney, plans have data which relatively Australia online, to Australia year. coming We we'll online do have center disclosing be beyond later this soon.

continue authorization have from more the on do bit with balance million more we'll in continue to had make help relates we'll balance to We return, opportunities getting prioritizing And founders to mentioned driving adequate want So further – markets and the with say good find correct a and invest and left little the a that think, have right as to the I to on what M&A prior we M&A pay actions shape. board. sheet. public as lay a And we'll to valuations then growth the and in there's the and investment. typically sure to And I capital then have markets, we money that, earlier, think able other potentially strategy suspect start we for growth invest places we're capital efficiency at But it balance sheet on the our the sheet. to I $XXX of slowly. private immediately Bill the that we're in M&A, expand now, profitable continue land to all good about raise efficient to we've on over in drive time the of last business. for margins of in and organically. tend And who and the correct

some we'll it those at of the focus but but we somewhat do M&A so, bid-ask and a recently, to on the capital soon, challenge And opportunities. wrangling hope has been we'll keep have

Quinton Gabrielli

Appreciate it. Thanks.

Operator

from Securities. of Your comes Patrick next question Walravens the JMP with line

Patrick Walravens

I is Asia I just first I Europe have impact a in FX question. sure prices to understand that Oh, make the great, want right. customers, thank The to part and make want the raise you. those Yancey for just broader sure of effectively understand then I I something and is, changes

of the sort on shifts demand And them curve.

expensive. are talking issue less. the buy that Is And They we're about? more so things

Yancey Spruill

dollar. them Well, don't we again we charge in charge,

to is, say effect could we them yes, could the of have what spend helping manage deciding differently. it So

Patrick Walravens

want make you sure that. to said just I

Yancey Spruill

Yes.

Patrick Walravens

Yes.

on, My as So the my big are picture. here with is this CEO on for of this that's picture the all or is what two you right, going all things to question stuff rest focus one important most year? in big

Yancey Spruill

great question. a That's

inside dollars, firmly. that company that customers we customer-oriented that's delivering more the very priority behind us. get focus I to given drive to We and And analytics, prioritizing we for then is principal where will can't And we're growth effort, and of organization building are be driving we're sales, we there value for activities activities what the it the going very there partner the and driving mentioned think in a and our that the below the the think where near organization cohort our going and fired term. I what focused me And that have two on getting growth right makes terms And and slim focus areas those growth. the priorities productivity so are are environment. and sales and invest critical earlier out of is around down the and whole investing to for are to that control, to channel lot now. above are we the things. we that to manage And the have a can top of up going efficiencies I can. our a And to we're easier that challenging in line And getting out line. line control

Patrick Walravens

Thank you. right. All Great.

Operator

from comes of the [indiscernible] question next Your Stifel. with line

Unidentified Analyst

this on Mark Hi, for is Brad.

say QX, quick about contribution are putting QX. in of that the Belarus the in Russia, on you I’d guys for in Just X.X% Ukraine it's question assumption have a and

wondering if have is? to Thank attributed that anything so and you if So that you. just what

Yancey Spruill

consolidated year again is be Well, slower that our our consider seeing still under our we revenues, fit a for material in at little forecast will looking Russian is reduction of would which we pressure, expectations we headwinds when seen was the than that one of expectation macro a QX what did related be balance have bit we which overall the But we're forecast. thought. for the we

Unidentified Analyst

Great. Thank you.

Operator

from Sachs. the Goldman next Borges line comes with of Your question Gabriela

Gabriela Borges

of you. health introducing to question recall you've because and Bill, determine on. wanted Good Yancey visibility, early the doing been I the to some are you and the and positive more that it's becoming business I And to quarter you consumption, on philosophy mix the value given of a structural a look high that There see shift ask at indicators customer your tailwind the that work metrics any afternoon. something what time. before in products base Thank is flowing? pricing. is my from then over on your follow-up

what the or you to extent lever consistent do pricing think those of pricing you toolkit part increases long-term a increases growth? think your more On become annual as to about apples-to-apples could pull,

Yancey Spruill

Do take… you then want and visibility take to the I'll

Bill Sorenson

and now customers Gabriela see several revenues, look is overall things the visibility of is $XX terms represent and we at. One above greater there of than XX% where revenues in they our that the looking of Sure, our at we our spend. majority you as know,

of so most the components ways directly metrics at us more much see than We and and we expansion outreach customers the increase closely feedback our greater of individual customers in to obviously working any each, be that them look going $XX thousands at for churn is look us speaking the them items. for to requested what from them. internally the terms orient contraction, their terms continuing for Sales, this the they would we times in see, getting for we work see very most group. where you've functions, sales. mentioned trends, So also around that of our only we some do that month thousands directionally and us going forward. across are they rates inform we're the which things their not of for it's is to contribution. around we're in but to And importantly, spend of one closer with expectations increased heard some helping for like Yancey is respect several enablement, and want in finding And watch to things current the

around a a that we basis. that's look gleaning primary And more information on month-to-month customers. we're So, at and factor more those

Bill Sorenson

Yes.

pricing I And areas. from I couple relates now and speaks of love it years which up our of couple our philosophy, the up XX% One question quotes, to meaningfully up revenue customers. in getting customers, it total because leverage and a put As $XX because in to $XX pricing are business we're our the a that's because just ago.

could As basic we've five basic the ago can customer like services managed added more to compute, managed just we a wallet than network were serverless, kubernetes, share we from capture databases, three extending when basic we and managed storage. bandwidth years it's

the That's driving contributor the of effect infrastructure-as-a-service a ARPU mix example, product And from aggregate to so today. that three effect. revenue ago, what five big has XXX% that XX% going to has pricing leverages our, the for years of our drives mix in is to growth economics

We're them to to going their they the are workflow areas There stages early SMBs. helpful to products we AI going in mentioned as continue. in be our simplicity. scaler from the valuable also can we're maintaining So continue that earlier. to as to that invest are other grow evolves, while of stage I to customers builders the

a that ARPU will So on growth. be tailwind

that all our changes IaaS it XX-year As was price or really explicitly, price I – history changes, increase think here, example, in other in customers, free material regardless and the increase a mostly price point. support first over have XX,XXX relates made of community embraces which documents, that to I model amount investment substantial reflects think, customers, the for price a of price of our we tutorials, company, charge our

relates cloud up and contracts that part continue a People in for at the works as it near that. it and Our trying breaking consumption simplicity, side is people as that plus calling but beating capability to by the more barriers And platform, simplicity. of, works ensure of the and friction we to part model. and aren't term, renegotiate. scrambling and a to key of then simplicity more way, in add complexity products more the CIOs in to of minus that's of many competitors aspect we simplicity. Its have removing our And

product, need do, add effective the And our to are up And July a actions and is workflows, add product our scale. and to they proposition that the them make reflect to that their we're value have our which reliability, customers. proposition so value. that that security value our QX to jobs we the took to to going incredibly We with differentiation they proposition in great better, customers that do valuable platform. about and want as And $XX the the value the in we them conversation ramp are went a the of feel they customer and with continue grow help their on help customers to

extensions I the then, because for best right to will, get I tailwind customers. platform. deliver So people don't to in of the that XX%, this business. what's to for to be maintain And invest ARPU product differentiation We'll continue product mix. and to a but customers, increase workflow and annual value calendar our how if our build we'll necessarily against as how you COLA and And learn will about continue from going think of do flips. before we have which the that we the about philosophy employed learned that take more for And here, we're be be what more as be platform And a any the be years we price to the we'll to is, best actions to do we a package, value XX next innovate think won't I evolution, think we then future context the compelling hyperscalers for will like can action. their serve highly and performant forward. scale example, yet approach roughly reminder, that that's have

Gabriela Borges

Thank the appreciate detail. I you.

Operator

Baer from comes the question Stanley. Josh next with of line Your Morgan

Josh Baer

certainly you impact looking so uncertainty July? and increases appreciate from around of all month I commentary far for the was pricing question. the the the Thank Great. in the back, wondering, looking pricing ahead, what

Bill Sorenson

said was earlier in higher we've mentioned is expansion July. I What

our in net outlook. positive on so reflected – And that's pricing we're benefit a QX in seeing

highly Our outlook is also uncertainty. tempered by

Josh Baer

a digit I pricing, to range is mean, Okay, annualized take mid-to benefit away tonight? a got investors for reasonable high-single it. like from

Bill Sorenson

Our guidance for itself. stands

Josh Baer

it. Got

Okay. Thank you very much.

Operator

over closing I'll Yancey any There are no remarks. to turn call questions. further Spruill the for now

Yancey Spruill

time, in want the for Well, transparent. have support the company. We thank continued us. the our be available And for believe all very you much that you we we appreciate given and to market uncertainty the joining really

speak we potential test been A and limitless about to our day. will their potential we realized by and realize internally great the as their with developers Have the the entrepreneurs we be build over get has you enabling stronger through and together. tough are of conviction our this dreams. this that to team years time And never want of with their rest to ideas, evermore business. businesses, a so obviously expect with customers many of all ahead. doing coming weeks and you My And

Operator

Thank participating. you for

this disconnect at may You time.

DigitalOcean (DOCN) 9 Aug 222022 Q2 Earnings call transcript