Earnings call transcript Q2 2023

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Operator

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the DigitalOcean Second Quarter 2023 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Rob Bradley, Vice President of Investor Relations. ahead. go Please

Rob Bradley

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

today our Joining and Yancey is me Spruill, our Financial Matt Chief Chief Officer. Steinfort, Officer; Executive

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

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

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

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

discussing Reconciliations IR financial call afternoon earlier financial non-GAAP our and earnings in GAAP and issued investor be between our non-GAAP can release presentation on today. website. be results found this the press our measures we Finally, was our which will on

turn me to let our that, Yancey? Spruill. the With Yancey CEO, over call

Yancey Spruill

Good Rob. pleased for another joining of results DigitalOcean. thank afternoon quarter you I'm for the share strong to us today. and Thanks,

As generate margins position returns higher XXXX this in the cash priority to the challenges generates of discussed regardless growth a durable to company year, macro we made flow platform a environment. to throughout shareholder create free that significantly it compelling the of

growth on a rapidly development. attractive intelligence balance Paperspace and to sheet QX, learning with our accelerate growing In focused machine artificial with profitability. in of leveraging us which positions of application we also the with business market combination delivered an been acquisition We immediate and have our offerings quarter for the

cash XX% healthy making top in We base XX% perspective, XX% diversified moderate the adjusted line with a delivered most industry solid strength continue saw weakness the core EBITDA which faced growth to transforming of free verticals cloud margins a are business. that and all the of growth our margins strong broad cost our From we seeing the quarter. on see slower grew structure. and we of DigitalOcean progress across year-over-year. market the delivered We flow slower customer technology growth growth in to regions points Revenue during

pressure headwinds growth. half ongoing to these second put further expect on our We

Although of and been which stable stabilization we signs saw both positive of churn QX. contraction, across during have

for low puzzle churn, bottom The stable third With occurs cohort it about at QX, piece only broader a although are moderate we in stabilize to is slowdown X value was expansion can where before been proposition. a we decelerating we Until of all deceleration. to pace. the which must our reached performance continued say is growth that respect of stability that but the the have yet strength a which in metrics, of bottoming indicator has the see in not double positive digits it

managing change also the Contraction been us, in several reflects are trend we expect cloud practices. This quarter, that more may remains a stabilized began. when that than slowdown about customers' second usage, hundred with behind moving while. much although their us points the higher potentially basis in for have optimizations disciplined They a indicating our be it a

more this are not Even growing. of in though sequential have were This us they we optimistic. the previously, are remain slowly bottomed, with certainly that speaking are we the as expansion, we have optimism pleased they they to year. customers, deceleration moved we've see bottoming. than process still our of been although declines for with the through they As growing provides In

the Our half. second process that lowered outlook bottoming revenue expectation today announced the reflects in our continues

our leveraging which transformation global. transformation, QX. spend, more be to capabilities, our including components prudently efficiently our our to cost this talent shifting the mix We more operating we continue managing in our structure to third-party and infrastructure several announced There capital strong of on procurement deliver are

We made accelerate driving Doing future so flow our growth. towards to progress provides margins. to free us organically cash target longer-term invest in quarter inorganically both the and significant the flexibility

have inorganic fronts. and from to expanding on better businesses focused customers platform, taken by scalers. both of this to expand their on investing grow flexibility the the learners capabilities advantage needs on We meet is builders they Internal as organic of and investment our our our to graduating own

process use such us as to While the more product such as their our us identify ARPU. as the well ARPU more which increase the yields life capabilities, opportunity. serve global enable at as which customer of to onboarding data tailored better of premium accelerate Sydney in cycle new them customers bandwidth-intensive perspective investments the us they such expansion do use the higher-growth our are need higher such services optimized to early our as center, evolving match physical and launched to to product Previously the droplet to footprint, support effectively enabling from cloud cases, are their specific a earlier get them share enabled potential market Other better footprint, --

under of is rates of mismatch them instead their their solution with for directly of platform example optimization candidates this cloud self-serving good of identifying onto the the through A hosting experience. a leading needs, DigitalOcean managed to

faster XX than the we've that are past our growing introduced is overall company. capabilities newer significantly The months over

such other the map be offerings road our these drivers our to future growth. expect material our capabilities half of and enhancements to as capabilities on more second We storage

augment build out go-to-market to self-serve sales continue direct invest channels to also We and partner loan. our proven to

is yet to it new in they innings While the not contributors establishment these of growth. early channels and material are

and see year to them levers next growth continue beyond. as We important

strategic the inorganic are front, date. with that we made we have we to are the results acquisitions very the happy realizing investment from On

managed our excited incredibly our a announced. addition that business are with we We performance when reached the acquisition exceeds initial very about expectations. to continues strong be to we platform The hosting Cloudways

enhancements revenue cross-selling year-over-year in activities We've and the overall which our rapidly Cloudways both customers of to grow customer revenue seen increasingly be efficient acquisition net a highly XX% is driving beyond. new mix to continues our to meaningful -- focus contributor of larger from overall XXXX by aided more contributor the an acquisition, and our a and company company top growth, strength therefore, grew and higher time of Cloudways in a growth and funnel QX becoming strong of self-serve model. our percentage rate growth on since benefiting

the Which brings opportunities whose million. projected and highly economy. about exciting and we that about dynamic global excited synergistic month to made the $XXX Paperspace strategic me how acquisition sector more is driving transformative be for that in we to this AI/ML impacted couldn't the acquired be announcement market, ago We the growing explosively technology a to

while on leverage We our simplicity, that focused the an platform of to and and we building these developers are AI how in enables deliver run of very capabilities. applications SMBs build power these differentiation maintaining to technologies

Paperspace has tremendous potential.

years their them We having over have have dimensions. of on X been the The the as very sense they DigitalOcean built tracked carefully Paperspace tremendous key team, addition to the business. familiar with platform makes

and aligned that the versus both how DigitalOcean are providers. we ourselves larger of segment target in philosophically market the the First, enterprise-focused Paperspace in we and differentiate

the on of We this individual to leverage market their to be long-term than level companies enabling contracts these customers cost-effective growth the providers. both both from of more consumption to focused with simpler, of businesses. from a segment can startups support on are constraints technology grow to solutions providing a get customers larger SMB developers basis that customers We the smaller higher by leveraged without win emerging in

the allowing barriers will the cloud be scale as medium-sized will and entry more AI/ML will to and expect computing efficiently innovative business. of them We and to to in and small ways. anyone businesses, to compete AI a novel believe developers for the advent We new similar geography creation multiplier and accelerant eliminated to create a that create SMB subsequent startups their start many digital of any force business, solutions enable to provide dynamic and just a growth in as for it to new

layer storage be to differentiators. to This able very multiple platform. to GPUs rather use simply on AI/ML strategy on key software integrated products physical these customers with compute and for databases, cases, provide cases allows simplicity just AI DigitalOcean's Paperspace's and including scale With demand. access Paperspace, allowing SMBs to well execute ML fits we will DigitalOcean's providing than use

computational of do that allows brings market of capacity DigitalOcean and rates. are Paperspace there both combination growth importance of is to the while between customers segment scale. AI that our will dimension providing AI accelerate and the substantial compute fast-growing together build required second platforms which synergies Paperspace the accelerated at The this maintain of applications serves the and to

GPU-based AI/ML invested that player paying itself market this portion in SMB the that the be customers over as years. this serves Today, compound will estimates little despite go-to-market. IDC leading marketing X Together, having proven XX% growth market very a with differentiated of today serving over Paperspace has established the next a XX,XXX product of of

be leveraging growth learners, many for business. evaluating to accelerate to more and sell DigitalOcean's scale, can new Paperspace go-to-market and businesses. XXX,XXX Paperspace leveraged funnel will There We customers how accelerate their marketing top to builders also opportunity the to capabilities drive already is motions significant of increase Paperspace's AI/ML and of cross-selling a DigitalOcean's by plus global whom scalers are

future and infrastructure will and of capture In and to combined loyalty those platforms. and to networking, had more addition, capability Paperspace AI leverage broader production customers compute no GPU-based and us cloud stickiness but more needs cases customers' the database-as-a-service, requirements creating paper driving DigitalOcean other workloads platform capture compute clearly space's platform. requiring use and high-throughput increased software to current additional spaces enable higher ARPU drive Kubernetes, for high-performance The AI/ML on

we market. a excited helps our third with with clearly will this immediately Paperspace, platform so to this demonstrated a product With clear that bring team time operating it valuable market. The dimension offering experience have have market to in and and integrate accelerate a our capability it has with comes us dynamic how AI/ML and fit dramatically proven is

players the entrepreneurial tied plans is Also have SMB only relationships, will player NVIDIA. an with other not the The build more industry than important to experience the be own own team Paperspace X of has critical chips to talented has adds relationships thousands their to hyperscalers strengthened ecosystem that strong dozen having combined DigitalOcean active industry its providing employees and on that team brings up the AI These the DigitalOcean in with as solutions relationships when and market. status customers. with scale significant elite Paperspace as in AI and larger that with such

up already We ramp these Paperspace's combined leveraging investment to are GPU capacity. in relationships

coming are Clearly, you potential we that over us this expect very the possibilities on paper more and the from us should to space brings to quarters. excited about hear

a walk few our unequivocally overall business can had through our will While on greater deal expected. that weeks, in Paperspace of just say potential short the Paperspace later after owning the we I you Matt than financial the for implications far is discussion,

We from acquired growing we X at least rate expect triple-digit year. that Paperspace our accelerate a next growth we towards here. And business contribute percentage points total such, can confident we feel to as

We the in the strategy. AI are be path to market, differentiated on implications on aggressive of our an current projected with and cloud set of and cash our into for of capabilities many a margins flow you to acquisition allocation capital the are excited Paperspace deliver be a entry With AI/ML interested aspiration to our truly SMBs. likely

go-forward While to share how we level capital business how this our our commentary, impact in framework. like on translates projections to the view Matt specific strategic thoughts will economic allocation and cover a I'd on at the his my

diluted on the focus well clear billion $X.X a we employees in over since With returns our public. years, invested million shares going the guiding shares time demonstrated principle have granted for past have as attractive shares more lowered XX X than and the capital driving frame. that on fully outstanding over We of excess our same repurchased to

fiscal XXX%. in public the XXXX, cash have cash a company. we actions, share more by Through than first flow When combined since these with free flow per Xx increased as free our increase year

our addressable As of which driven on customer and have have another growth acquisitions invested technology acquisitions, this part content, market. million bolstered meaningfully and capital capability nearly ARPU $XXX we allocation increased strategy,

M&A enhancing core that with and growing our business. profitable we position market opportunities are Although which to the in the of the In Cloudways to we are both prioritizing faster term, Paperspace, continue than are of integration growth. substantially DigitalOcean near our drive goals evaluate investments consistent

a driving under to returns free so, result delivering Paperspace. margins required any conditions as do not into to long-term the attractive our does Our entry flow market to AI/ML the cash and change with market commitment of shareholder

same this growing Our across exciting and both the new and, million flow return cash delivering time, in delivering and our sheet focus $XXX the to free growth entire balance capital on at investors. market margin maintain afford the flexibility appropriately the profitable invest to our business on us

as that that organic We priority inorganic and in investing true. have consistently growth and first use said capital remains for our

are growth levels. Given from key at moderate the buybacks with XXXX of may looking opportunity magnitude we significant levers, the we

will we the going repurchases remain However, share through balanced managing of growth portfolio return committed to forward. capital and

I'll in the in XXXX. close maintaining flexibility through to our progress first growth by while efficiency saying half attractive several we've profile the improved aggressively made our We've good dramatically greater by business, invest driving financial core opportunities. of

business. We will we potential we optimize our in higher core the to X in highest work fastest-growing continue invest to and investment revenue return Cloudways opportunities while to in growth of target profitability segments our and Paperspace, in as

billion-plus opportunity well share. to SMB market see continue material a addressable growing fair our and to are increasingly in in market expanding $XXX capture infrastructure cloud positioned for an We the

to QX outlook balance and over financial the provide Matt year. details and to of for on our Now, for this our results

Matt Steinfort

for another improving quarter, while to Good afternoon meaningfully have in targets, towards us margins. and Yancey. Thanks, achieving long-term quarter our the thank highlighted profitability material solid delivering solid joining progress made growth that revenue the you our today discuss we

and to continue regardless environment. cash macro the of We durable growth growth attractive free flow deliver

our commentary year. our the and for will my QX second impact anticipated financial share In updated through full both outlook into review and today, Paperspace's financial provide our on results, additional financials insight I quarter

today. error Before we commentary, to weakness tax context provide earlier I'd the and described material the in X-K on I begin like filed that expense some the

have recently tax calculation past of we our leadership in upgrades third-party several support to expense made the tax the context we treatment months, related the With identified of place capabilities expertise. and to new XXX. in and tax meaningful in tax the with expense an of advisers, Section our error Over R&D incremental

level higher million material XXXX $XX XXXX. and operating on expense result on The in a roughly periods. will the impact but reported immaterial full our share of loss overstatement non-GAAP as result XX, correction an impact in XXXX rose QX the lower had a of of XXXX error a loss December financials material year and earnings weakness did in of QX will financials The net our have to of balance QX per tax and lower net in both

we we more have remediate tax will confidence made tax to enable external confident added and are the new our the We that issue and leadership, other changes in incremental organization to this and internal forward. provide estimates our have resources finance to us going

million growth first the NDR from from saw Turning performance. X% to was our QX contraction XXX Revenue and was QX in QX NDR QX QX basis XXXX a growth deceleration Net of components: point XXX main which X XX% over the basis XXXX quarter. for the quarter XXXX. XXXX. declined from of $XXX.X which retention was XXX% sequentially was decline of we year-over-year has of churn. to points and expansion, dollar

QX as since churn our at near in early historical in platform our customers levels. stable are remaining has on call, remaining discussed been last As --

or of components, seen past cycles. contraction decelerating, bottom macro to flattening of in we've expansion we conclude able similar growth will reached we a that are the the the We signal end These which that positive deceleration either in months their is be be the of or see the a X reaching looking may headwinds.. deceleration optimization flat before of a to have customers also X slowdown

in higher QX customers builders represented customer we scalers graduation the spend in added than of of front, XX% total revenue builders are and saw are overall growing than added revenue of We and are year-over-year which XX% a bringing more QX. versus growth customers year-over-year -- to continued $XX.XX. driver our our more QX, XX% the and our we scalers in in On X,XXX key as increased XXX,XXX approximately X,XXX collectively to total these

QX new interest of was we good strong and gives The progress addition result disciplined as capabilities in execution another our initiatives. rates its and with of ARPU into very made -- have scaler further cross-sell the base Profitability cost a our our savings ability to builder AMI to on us AI/ML our increase

grew base to XX% late we and the we in GAAP expense cost of as other gross cost co-location increases improved that in sold X/X continued had impact Roughly both XXXX of Mexico. announced QX QX in bandwidth in and made full capacity in XX% to from capability remaining margin reductions and into margin early structure. This centers the drove people-related increase that Pakistan management, the the we in goods cost by of the driven was driven quarter QX. delivered into driven our efficiency EBITDA of X/X savings, our was the reductions. and point XXXX above XX% we was and global that of February India, cost was employee XX% with significantly efficiencies XXX Adjusted increase and by we cost in which impact more shifting basis structural our by

was have cash This representing basis EBITDA XX% X,XXX of very our remaining flow sequential program from point consistent QX shown with the in higher QX we discipline adjusted XX% Free and margin higher continued gross expenditures million, improvement strong investment capital margin, from revenue, $XX at capital resulted levels. at of with revenue.

$XX.XX per Given and anticipate QX share we're the diluted that our QX fully down QX from in of share. will on price of be XXX will share. the share QX million expense million overstatement XXXX however, with share finalizing $XXX for non-GAAP guided We diluted correction income increase of of previously QX per share an for XXX that I diluted approximately XXXX. outstanding shares net above QX that repurchase shares million in in XXXX to earlier shares, and QX Contributing $XX net of million a QX of forward, income QX QX growth do, to the per per XXXX. diluted for in net average was We earnings per the reported X.X $X.XX looking income our total non-GAAP non-GAAP $X.XX million call, per anticipated at ended still tax previously to the mentioned

progress in cost the on us cushion of will ongoing On had disclosed exceed made opportunity in based front, pressure. which full we that we locking the run the initial substantial give top estimates progress, expect in line savings rate that $XX year And savings operational QX. to our million we face

materially healthy -- impacting of balance target. flexibility achieve significant to to sheet segments ability profitability without our and levels invest strong the give our Our business long-term to our accelerate profitability us faster-growing

and some additional financial year, that Before on details acquisition the provide financial for exciting in I our announced providing outlook July. will we full QX the Paperspace early

As the Yancey that is growth opportunity AI/ML shared, market tremendous DigitalOcean. we a believe for

Paperspace is SMB a fit and addressable growing profile customer market our target with is cloud existing aligned the expands very the great highly large acquisition market. as it and our total within

DigitalOcean's to XXXX. that we growth revenue line we proven sizable to and XXX% and Paperspace's base, can go-to-market efficient begin and contribute accelerate rate Given growth early top customer as believe and ARPU, NDR overall Paperspace already will meaningfully the plus model as

As up in increasing have growing we have already we them, we modest investment less Paperspace Paperspace's overall XXXX GPU to this short second in our than on demand in have expect owned impact known revenue $X demand growth in capacity. X the least of revenue rapidly points previously disclosed, growth impact, [indiscernible] accelerated XXXX DigitalOcean's XXXX, DigitalOcean To the for Despite it attributing an will contribute planned the keep on time million based half. facilitate the seen in at and in have with we immaterial that to the and

million Cloudways within NDR XX% guidance took lap the approximately as growth $XXX of in XXXX On reach current over decline towards higher growth our to will July price XX% the effect XXXX; NDR revenue back roughly Cloudways in the trajectory, to half implies comfort. the begins to quarter for expect our mid-XXs QX. of we third financial NDR for increase to which as and our X-year of the steadily our of XX% for to that will contribute we increase XXXX. of the million $XXX.X we year-over-year be range anniversary Turning QX acquisition

XX%. EBITDA XXX weighted diluted at adjusted range to million For in quarter, we expect shares the end the will We to estimate XX% be QX. million to margins XXX outstanding of fully average be third of the

non-GAAP our provide the in finalize will net an per file our share and diluted weeks revised financials. income estimate QX We we after directions of coming

by full $XXX Given on are the seeing X% guidance for X% to expansion, outlook to be the projection XXXX. our we reduction are XXXX $XXX of growth between cohort half year second continued in net full million. weaker-than-anticipated driven a revenue pressure our to million in year we This updating is

our made and these durable funnel. are faster and than we steady Cloudways that continues expect as planned were monetization it customer XXXX [indiscernible]. solid we contributions growth we performance original projected net seen lower-than-anticipated the it revenue new on growing on self-serve to before from our progress have shortfall to grow efforts our We've acquired look But from the part offset in of not guidance. we was ahead,

in lower we're million the Paperspace margins $XX XX% Paperspace remain our to the million be in taking to will XX% impact improving the expenses that to to Despite to additional driving $X adjusted XXXX, non-GAAP million that will continue in the execution, delivering efficiencies. we onetime have of previously fund Paperspace $X to investment we We to revenue our Despite flow free the our million margin flow growth investments. on operational core year. metrics. to for expect leverage to range acquisition, this a as costs XX% full roughly be strong Thanks estimate in integration guided cash investment, our $XX the in projected we DigitalOcean excluding free EBITDA year full XX% margins our our on from cash confident excluded and

on our XXXX, margins margins, we full target million we shares for longer-term core a to diluted year the between to leverage as mid- XXXX. cash free despite business. the weighted Paperspace taxpayer in XXs and becoming to cash federal we impact continue from average U.S. in the Despite $XXX will high flow cash percentage $XXX an fully free to have operating We outstanding X X estimated that point in to additional in long-term million see flow opportunities incremental estimate beginning drive

non-GAAP indicated our an for I revised financials. calculations our diluted QX, in after we weeks estimate income share year net per for As and full the file we coming will provide finalize

prepared will now That our the to concludes we open call remarks up and Q&A.

Operator

will with Raimo [Operator from Barclays. the Lenschow come of line Instructions] question first Our

Raimo Lenschow

with Can everyone. Paperspace. exciting a coming I topic Obviously, it's start AI it's really one. is -- for a into

If you and be cases for Is a think very or your broad-based installed of you? doing I about going of more specialized to see base going use be them, do are work that adoption like kinds spend this X you please. is some uptick kind lot product? going And doing this that? had side to what like as follow-up a what with where I'm people to me, are then Or kind with with

Yancey Spruill

standard compute. and other learning the we've versus Well, seen we've over customers sort related that's I complex really and of year, rising models capacity been Paperspace in us large of that AI AI and and of to GPU utilizing capabilities. brings is the last in language potential participating for machine that high-performance What said -- think as is inference to the inquiries before, aspect. we've require algorithms our investment or a AI tide portion in with the What our applications

cases use a long again, industry etcetera. we of tail verticals, so serve And

and excited to to ago we're this folks educating of most so and our you figure And them consistent get out our else folks, how customer customers historical around most terms across think with is the what And our the accelerated really on base, leveraged. bring. the trying that in a acquisition we capabilities leveraged, that's everybody sales simplicity. our with And like month where success world I get SMB inquiries since tell customer could process Paperspace capability to I in now bring we've engaging can landscape have the everywhere made

would paper platform. and on broad and help any the customers. tied industry a expect compute to leverage customer they cases that they developed, sort with application And the platform have them customers I have out a their really drive adoption, the AI ops to want be invest those now and capabilities to to start go very base, use broader to space just may build resources do paper to narrow, likewise, to particular whatever can the historically to we So see really case people that as for to the once productivity, necessarily has had our can ML elsewhere space on development. of applications wanted serve were not When

So we we're that. on in of line And here. see about lot synergies top synergy exciting a both really again, directions

Raimo Lenschow

Yes.

Okay, then, middle in full changing team. a is, makes tough obviously And one Matthew perfect. for the for you, guidance a That sense. the year management is of decision year always like

you driving If that you a to think for the about thing how like it level? okay, what to up say with like was did you new as come decision, you like, I need change And it?

takes and puts in the of kind are there? What

Matt Steinfort

always tough decision. a it's Yes,

was And flattening and was they a moderate everyone and saw second in things. we've about two embedded first moderate couldn't delivered the the cohort we But But as ramp our with continuing the what to and of worse which ramp than etcetera, of the line cohort just One, is the pressure had in missed pretty growth growing two growth, the we think much as that I we data needed is launched, investments the in we monetization least expected. monetization see guidance, increase we expected only are quarters the new of we the in what some made. news to and seeing other we the around products generally city are of initiatives we good some And of kind center, the longer the we at that. see talked -- get thought. the we had then the initiatives flattening of to see anticipated. needed half

is beat here guidance sat we to in And as the expansion. I some slowdown the coming it We decelerating. have revenue for around that saw continued we're it clearly, quarter. there though the would and think we to seeing or contraction Even the continued of of second mean, kind being green line out that hold as in still. of we have appropriate And of the July, ahead instead was we didn't deceleration saw with liked expectations just shoots

is done So given that's we've mid-XXs current NDR doesn't been where have at a it rate what it's change the in the about it in continues is today, -- and fairly from see. which decline the of is tight kind of second decline it half range that we've you'll what here of reflective if

improvement It million. It monetization around And a the in than cohort. or impact at dramatic very in the assume on go-to-market initiatives so rates growth doesn't the doesn't assumes our assume any that any less Paperspace modest improvement the $X from of initiatives.

we that that reasonably to we the I'd until So think a that's say, can't we hoping bottom keep half. a view rotated conservative because the potential of for appropriate And what see hit month we believe every second I is a a, bottom.

reality may We of the for a quarters. couple or it accept that more not months have to

Operator

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

Patrick Walravens

Maybe first. Paperspace,

general And a just different? they you're by area. Yancey, that Just How did saw -- a so, NVIDIA. It billion company part that entering a I like debt financing same this think secured the morning, these how $X.X there's are businesses called similar? Paperspace [indiscernible] I that are in seems

Yancey Spruill

delivered and it's for have I Well, are on top for the Paperspace focusing the don't of sort a GPU renting higher other prepared for And -- traditional applications, capability comments, build of models a don't as GPU -- you. who think easy to has it have the other with have what people other an folks cloud makes applications, of API essentially the on and or learning machine service build-outs. for sort and language on we I mentioned applications that product simple

customer we base, capabilities to and that have, end dedicate to because, big think don't to DevOps, whatever need And again, they're that development have products. our IT so customers our they want they for going their

our enterprise in large And think towards well. start-ups what other the businesses. so developers, I is folks as is large We I have small space tailored and opportunity. an the we offering to think catering opportunity are think And

So know all. a take if don't I winner it's

sticking people we're of of we'll simplicity. knitting our people X we lot a -- it's have community our and where the our are is end And value in We to which think focusing support, think the to this I need win core market -- the of market. differentiators on be which investment is going them.

Patrick Walravens

And seeing Matt, it. explicit really All churn? addressed Are just but higher to think be it you right. Great. I about then, you

Matt Steinfort

last No. historical talked then and term elevate The we levels of steady. to in balance as year about, the been relatively more moderated over saw churn, the beginning the year of it's but

the X really leaving probably it's higher staying for biggest but X us. combination us months that the of customers headwind the first customers has contraction platform on been It's over the which So drivers, year. of that optimizing not of is are the this

but historically. come And an it's as said level elevated at hundred Yancey in continues bit. But to -- moderating basis a It's it's than several points been remarks, that we've it But it's is increasing. getting has not down higher seen his not expansion worse. what still

that, we've that So kind a seen the little growing of as ago to month-over-month a as get customers worse. just they bit continued has year aren't and were fast

we we're recently in seen decline contraction good And We've of expansion. we've looking say continued spot. we've which kind in a And the a seen to so of is rate stability but in it's stability see churn elevated. still in deceleration, when that seen

as expansion, level flatten that to we're elevated turn has going to able in But contraction you're year. you to growth contraction before we're the expansion but be is direction weaken. is going bottom at okay, to one, an the need now churn to start And decline more. that's what continuing rate the last moderates this the and and or of fine stable say, at And it's pick see that up been to

Operator

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

Unidentified Analyst

Billy [ph] on is Michael. for This

about are there how optimizations indication behind potentially is talked some You moving that us.

that hyperscalers? differences So DigitalOcean? when like? Is it heard customers more some what great. would about optimize optimization from we've base, you speak on kind be customer or Just in of on look color are less there that more Or what does how your in the spend

Yancey Spruill

points that. were volumes year -- deceleration have demand not a versus saw the consumption-based as as there's has as two customers They're happened Well, slowed payments we business model, weaker ago; today saw immediately; than less their have so so contract because saw be aspect. much slowing than year, that's to about we -- macro, a There's and we last have, faster aspect where lower we to people we our that model because they dramatically. One, the in committed a spend corrects second might this just a because there's longer-term need others correct that what contracts. growth XX-day

in my correct early we've way? How for in still am year, this customers a What what demand? using right been do sort late calling on And use less the satisfy seeing pickup saying, they're so spending year, last of customers but I this I buying. current our

a in Kubernetes have too potentially different Did compute Am infrastructure. That support too a been the customer use engagements from year, this droplets. of seeing. really and is instances, with terms talked has optimization locations. I pretty couple conversations. of efficient earnings say we've activate cloud Can I And more to first deploy I customers. too the many would my many many I we active slowed our That success calls about in customer

lower-growth efficient a think much want as they're more a talked I time and we're stable, as good any about, seeing we higher flattens -- they think say, which or be going in to are it's environment, I possible. flat instance about we're a because contraction I a let's I over they're level at as be vigilant as operationally is as executing that are spot new a people they mentioned, quarter, how different to the in or in

Our customers bootstrap tend to company. be

So they -- $X earned is saved them. for $X

how in that use into community are plays strength on to that. is really we is high also our here think high-touch with tutorials a ours And I involved customers aspect key investment, best which our cloud, to the our of So stay. engage support, that

And we're but it more seeing said is going sticking help a to in so We it customers I clearly this -- going their environment, year dramatically be to flat which point our churn we're able a in certainly is value with it think it's deceleration this we're this our year. so much reflects through of call Even at slowed this high. at in whole started fact than growth really to that beginning bottom, the growth, a relative where was to slowdown time flat because the us why slower the very by slowdown slowing it's the where challenging their proposition rate not and heartened or their they're critical. churn, that's a I'm is has last being it and time

when reflected changed a that which leading bounce, stable ultimately know recovery is that to customers we because consumption-based operational can immediately tricks for our on of going as outlook when to why we've don't the having me we've positioned model efficiency well so And for bounce their see help is process. things focus We can that churn this but helping sort that's through indicator that. significant we're And today the do as we're they and the been them a happens. we happen going spend

Operator

question comes line Needham Mike next Company. Your Cikos & of with the from

Mike Cikos

May all the about real-time from tie that you us linearity into for just contraction I of you June, some comments trended of the about just what's that over of sense course is I the I you're to up and and behind it guys the guess, those we data some and seeing? just June wanted even If on a earlier on quarter points can a angle. expansion. been how but out I quarter played think that from July those give the us, talking churn take of going know things the discuss went in to as month circle up have to now April to different

Matt Steinfort

Yes.

kind in Mike, kind on addition were When it and that's gotten we quarterly to a a there; is was of hasn't contraction meaning year-over-year, low basis, increase moderated. off in each change it, getting those contraction range XX%, and the look It's smaller. of you taking said which of stayed stayed the double-digit, I But this a looking churn flat, as thanks. at worse. at relatively look what has platform saw at in Yancey. the decrease an our we of means of month, in XX% money of continued So is each are a amount rate any people meters What monthly it adding basis is though are expansion, people

It actually It's it which So it fact, month a not of back the amount last saw other And -- as in the as fast in flipped it's it we've in this down was year. the the sign. we getting in actually last we as direction that saw -- seen and it absolute contraction go basis. in on positive was earlier worse decelerating. really an went is month

row of the just is deceleration but other the in in the multiple driver smaller. kind expansion other So, get flip direction months continued with a which and actual to

we is? looking the And X-month continue the as in at level trend coming of that continue at we is guidance can't enough and going when and providing continue moderate? the update through Or it's we've at so through over without on a third that's with course And the the go couldn't to is seeing stay of bottom just couldn't get headwind growth the been why good providing saying we're is the that have to quarter on whether and because initiatives level smaller it we're looked of our quarter other to expansion we call say the contraction fourth months uncertainty, of pursuing. other we is we those this going the we're months, the that self-serve into that to that and it offsetting an funnel

Mike Cikos

the guys as it like clear we when all But And number I crystal I again, color, like Street -- really the turn juggling as churn are then your achieve that appreciate characterize be just seems time. transparency contraction that assumptions your you there assumptions communicating which to those I to in well. don't of wanted the far investors? a have are guidance the in pieces that in embedding you confidence to ability between to to you're the Matt. but different we're I want as gives you expansion, what appreciate the and numbers is real outlook, today

Matt Steinfort

what better assuming currently we're nothing than seeing. we're say that I'd gets

imply we're landing the don't in that not we're guidance. Stay that the level on of the and So see have those things bottom which We stabilized. in our same. declined any improvement a the forecasting an would rates

Mike Cikos

That's clear exactly to in with understanding. X my great. X That's other up

Operator

the Pinjalim comes line Bora with JPMorgan. from question Your of next

Pinjalim Bora

you're talk Yancey, can some Paperspace about to the those customers half. million $X use for customers maybe the more look you as I the about a you saying Paperspace. second talk cases, the brings at on. And think the that little I bit numbers, working Can of table are

the million XX,XXX $XX So call year, for $XX million, million, $XX it, customers.

on that. Ops So about. is are it something platform of what kind portion lastly, versus then like core infrastructure? Help And through of the ML customers $X,XXX understand the ACV Paperspace's me

Yancey Spruill

cases. some etcetera, some Obviously, I over that all the a place. think or would whatever very based of we case. very a analytics never dynamic business models is of heard emerging Lots of. call. their one, customers around advertising, I at media, Media near of subsequent Similar in provide a more similar big What are is sort through They're our the have small mix, different the as detail would to you ours. we'll customer vertical in very startups, etcetera base on terms the many names upon Generative from growth use the is to interesting driver a use video term. of language the say

logos, the customers. do to names our we the in in people It's AI/ML. I ability it's the And is lot long in a the fact that at very people the have for So about -- like that now at is all of over that's terms of can their the taking And learned is outcomes planet look the you to ideas leverage What and lot enable data and business, exciting. you look a leveraging tail. it of that can we cloud.

is And so think higher. ARPU the I

really and average to our the and dimensions. and around -- of experience in apps versa in have the and And community building the over they've model and application hands that DigitalOcean those Paperspace had once glove hand that in so customers terms customers support platform AI ease-of-use, fit vice the think investment said than I that. experience get more customer the many give similar later the a give specifics our think this low of or And are run business will what of that's we they earlier. same hump their -- simplicity, can excited get our kind I It's the same I'm cost. Then a to -- in on running it's

Operator

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

Quinton Gabrielli

to as you changed what acquisition offering? competitive you to now Jim for QX, know platform. Paperspace, any the time AI is trends be talked maybe Yancey, to And QX on line where little first whether or service was attractive on would the This like need Quinton QX, this bidding back CPUs about anything QX, support maybe from it GPU are or GPUs transitioned this for to Fish. you. process I'd touch coming side a how probably of can to deal. bit then to the helpful. have Paperspace you Can of of And workloads. And obviously, we Paperspace inputs would be a then you to an around through kind able bit of provide the offering. talk little a QX, now kind we we then QX, color expansion QX, Thinking

Yancey Spruill

Yes.

business because AI-based So fine. that there algorithmic a I don't platform think were of said. know models that ever we our high-performance we're need never compute I that that -- on said was GPUs. we ever were What we we didn't running I clarifying number is type

to that in be market versus language I the the more model tended inference market. think

want just I clear. to be So

to that platform we've AI/ML a been build We since public. and capability, we certainly said capability GPU wanted have always

years. for founders the I very known We've became stayed since close CEO XXXX. to Paperspace I've in

once change see get needs plays it wants to threshold GPUs maybe model So pickup DigitalOcean certainly, late language let's and certainly, market last certainly and perception part level early we're of to capability market the those, level say, in opportunity the But of customers' not the have is that a out. running how for running, model finally this compute we them which family. to, the saw year, the to and year, the use interest up excited hands, operate model in the with and we'll in of

here this lot compute a announcement Paperspace to add not new to to or to and this wanted now month a on what of a this dimension going conversations excited our that platform. in able to be that is think accelerated of led capability learning the middle I and very get I'm year. the ago. led this We're the on And process of we're done rapidly. not, comment to excited have the the But to we whether was

Quinton Gabrielli

you. for Yes. Understand. And Matt, then, maybe

As I clear deceleration I that the the like is you've it's churn. of saw the that And customer segment, ARR looked some scalers been the think look really at in business pretty it segment the not really growth.

optimizations the hit to heaviest of So maybe this learners? business, is think segment of the some your builders the it fair to that or compared

Matt Steinfort

kind very, The have in all scalers the slowdown gave policy But change larger platform very a large what model, our seen examples, lower big used and why in it and might But and larger of happens we That's happen. fair we consumption versus platform, use, and customer a get the the typically the and that base. store customer, XX much customer rethought need and of in that's more scalers storing can more think with make products And say, can examples we consume accurate. the XX we've to got the not we the their you've as That's of of The customer others. a just of we've the they that churn. opportunity data the a the Yes. our more ARPU Yancey, -- growth for on given churn don't optimization. -- lowest bit the away few some but where gets they data that of segments. our on it's -- the we've that customer days they the

more incredibly in we're that So the churn expect. contraction is seeing in you attractive scalers area, churn that level, just as

Operator

question And the will line Oppenheimer. Tim final with of our come from Horan

Timothy Horan

it's said flow free XX% high mean cash maybe flow, you I you timing And growth here? about for with GPUs. mentioned some how the balance I demand Yancey, because only think cash there. talk I on can free basically you insatiable generation

If you spend doubled your CapEx could revenue probably growth. you double your

the do like it now that. opportunity is -- So to and seems

So, how just you're out? us can that you thinking balancing walk through about

Yancey Spruill

what and say but purchases support to stepped what month on space, us getting get acceleration we're a already will significantly the this a already we that potential higher see we again, is we now I'm we've up think that acquired rate, a capital growth to it's very And is ago this, ahead we we've see. reflected ago. not the of month growth today quantitive than it in right triple-digit on our see And Well, I the XXXX through accelerate that ability significant. month Paper saw rate what opportunity. to I thought put the month growth what's to which going we a pretty in. of year we've focused

issue cash was on growth capital we're to is I allocation this what around misread we where I reframing grow. very flow just about point, presents X talked your were a grow to year And We'll think and see that. -- we this in think because lot expectations people we know I that the And of as sort reasons XXX%, of we if do opportunity that. look can to a will the are itself allergic the year free hope focused I didn't uncertain. we

could the it's to hands Board generated all going We've take excited. I we're we're margins more with of air. whether and we And there capital or primary what internal always to we're demonstrating had our externally was and space from now been conversation invest said have they want the we in uses growth that or to that in remember paper the when invest down

about it's going more days, it the the a pace at into what opportunity excited because just we'll So update and paper we're we And Obviously, a space see of as update, that this. next of we'll out. have XX call in continues this on seeing. we'll first we're lot of to see it But exciting very earnings say a have. money plays an I'll continue where the has opportunity formal

Timothy Horan

and reductions really an in AI developing strategy expense on looks Congratulations impressive.

Operator

the now back over closing I'll hand for Spruill to conference remarks. Yancey

Yancey Spruill

and you us everybody, joining today. thanks, Thank for

are heading. the you really we're where talking we're you about much. forward we And your to good we so support. and rest of where appreciate a and the usual, over And that all we with hope Thank coming As looking weeks you have months day.

Operator

conference and will conclude now all may We for call. That joining disconnect. you today's you thank

DigitalOcean (DOCN) 4 Aug 232023 Q2 Earnings call transcript