Business Wire | Nov 4, 2021 07:00AM EDT

DigitalOcean Announces Third Quarter 2021 Financial Results

Nov. 04, 2021

NEW YORK--(BUSINESS WIRE)--Nov. 04, 2021--DigitalOcean Holdings, Inc. (NYSE: DOCN), the cloud for developers, startups and SMBs, today announced results for its third quarter ended September 30, 2021.

"We are excited about the continued acceleration across our business," said Yancey Spruill, CEO of DigitalOcean. "We are building the foundation for durable 30%+ revenue growth with strong free cash flow generation driven by investments in product innovation to support our customers' needs and sales and marketing initiatives to further penetrate our massive market opportunity."

Third Quarter 2021 Financial Highlights:

* Revenue was $111.4 million, an increase of 37% year-over-year. * Annual Run-Rate Revenue (ARR) ended the quarter at $455 million, an increase of 36% year-over-year. * GAAP Gross Profit of $67.9 million or 61% of revenue, and adjusted Gross Profit of $89.0 million or 80% of revenue. * Loss from operations was $1.7 million and operating margin was (1)% as compared to loss from operations of $6.7 million and operating margin of (8)% in the prior year period. * Adjusted EBITDA was $36.4 million and adjusted EBITDA margin was 33% of revenue as compared to adjusted EBITDA of $26.4 million and adjusted EBITDA margin of 33% in the prior year period. * GAAP net loss per share was $(0.02) and non-GAAP diluted net income per share was $0.12. * Cash flow from operations was $40.2 million or 36% of revenue as compared to cash flow from operations of $23.3 million or 29% of revenue in the prior year period, an increase of 73%. * Capital expenditures were $26.7 million or 24% of revenue as compared to $26.1 million or 32% of revenue in the prior year period. * Cash, cash equivalents, and restricted cash were $592.0 million with zero debt as of September 30, 2021.

Third Quarter 2021 Operational Highlights:

* Net Dollar Retention Rate (NDR) was 116%, an increase of 1,200 basis points from the third quarter 2020. * Average Revenue Per Customer (ARPU) in the quarter was $61.97, an increase of 28% over the third quarter 2020. * Total customers of approximately 598K at the end of the quarter, up 7% as compared to the third quarter 2020. * Acquired Nimbella, a serverless platform, built on open-source software, that is designed to simplify the cloud programming experience and help developers and SMBs focus more on application development and business outcomes and less on managing the underlying infrastructure.

Financial Outlook

Based on information available as of November 4, 2021, for the fourth quarter of 2021 we expect:

* Total revenue of $117 to $119 million. * Adjusted EBITDA margin of 30% to 31%. * Fully diluted weighted average shares outstanding of 122 to 124 million shares.

For the full year 2021, we expect:

* Total revenue of $426 to $428 million. * Adjusted EBITDA margin of 30% to 31%. * Fully diluted weighted average shares outstanding of 116 to 118 million shares. * Capital expenditures as a percentage of revenue of 25% to 26%.

A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, expenses that may be incurred in the future. Stock-based compensation expense-related charges, including employer payroll tax-related items on employee stock transactions, are impacted by the timing of employee stock transactions, the future fair market value of our common stock, and our future hiring and retention needs, all of which are difficult to predict and subject to constant change. Accordingly, reconciliation is not available without unreasonable effort, although it is important to note that these factors could be material to our results computed in accordance with GAAP.

Conference Call Information:

DigitalOcean will host a conference call today, November 4, 2021, at 8:00 a.m. ET to review its results. The call can be accessed by dialing (833) 282-0024 from the United States or (236) 714-3495 internationally with conference ID 6675755. A live webcast and replay of the conference call can be accessed from the DigitalOcean investor relations website at http://investors.digitalocean.com.

Following the completion of the call, a telephonic replay will be available through 11:59 PM ET on November 11, 2021 at (800) 585-8367 from the United States or (416) 621-4642 internationally with conference ID 1553097.

About DigitalOcean

DigitalOcean simplifies cloud computing so developers and businesses can spend more time building software that changes the world. With its mission-critical infrastructure and fully managed offerings, DigitalOcean helps developers, startups and small and medium-sized businesses (SMBs) rapidly build, deploy and scale applications to accelerate innovation and increase productivity and agility. DigitalOcean combines the power of simplicity, community, open source and customer support so customers can spend less time managing their infrastructure and more time building innovative applications that drive business growth.

Forward?Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding our performance, including but not limited to statements in the section titled "Financial Outlook." The forward-looking statements contained in this release and the accompanying earnings call referenced in this release are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause actual results or outcomes to be materially different from any future results or outcomes expressed or implied by the forward-looking statements. These risks, uncertainties, assumptions, and other factors include, but are not limited to: (1) our recent growth may not be indicative of our future growth; (2) our history of operating losses; (3) our limited operating history; (4) our ability to attract and retain customers and/or expand usage of our platform by such customers; (5) breaches in our security measures allowing unauthorized access to our platform, our data, or our customers' data; (6) our ability to release updates and new features to our platform and adapt and respond effectively to rapidly changing technology or customer needs; (7) the competitive markets in which we participate; (8) the rapidly evolving laws and industry standards that relate to privacy, data security, liability for service providers regarding the activities of customers, and access to the internet; (9) risks associated with successfully managing our growth; and (10) general market, political, economic, and business conditions.

Further information on these and additional risks, uncertainties, assumptions and other factors that could cause actual results or outcomes to differ materially from those included in or contemplated by the forward-looking statements contained in this release are included under the caption "Risk Factors" and elsewhere in our Form 10-Q for the second quarter ended June 30, 2021 filed with the SEC on August 6, 2021 and the Form 10-Q that will be filed for the third quarter ended September 30, 2021 and other filings and reports we make with the Securities and Exchange Commission from time to time.

We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this release. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur. The forward-looking statements made in this release relate only to events as of the date on which the statements are made. We assume no obligation to, and do not currently intend to, update any such forward-looking statements after the date of this release.

About Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with non-GAAP financial measures including: (i) adjusted gross profit and adjusted gross margin; (ii) adjusted EBITDA and adjusted EBITDA margin; (iii) non-GAAP net income (loss) and non-GAAP diluted net income (loss) per share. These measures are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Our calculations of each of these measures may differ from the calculations of measures with the same or similar titles by other companies and therefore comparability may be limited. Because of these limitations, when evaluating our performance, you should consider each of these non-GAAP financial measures alongside other financial performance measures, including the most directly comparable financial measure calculated in accordance with GAAP and our other GAAP results. A reconciliation of each of our non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP as set forth in the tables in the section Reconciliation of GAAP to Non-GAAP data.

Adjusted Gross Profit and Adjusted Gross Margin

We believe adjusted gross profit and adjusted gross margin, when taken together with our GAAP financial results, provides a meaningful assessment of our performance, and is useful for the preparation of our annual operating budget and quarterly forecasts.

We define adjusted gross profit as gross profit exclusive of stock-based compensation, amortization of capitalized internal-use software development costs and depreciation of our data center equipment included within Cost of revenue. We exclude stock-based compensation, which is a non-cash item, because we do not consider it indicative of our core operating performance. We exclude depreciation and amortization, which primarily relates to our investments in our data center servers that are long lived assets with an economic life of five years, because it may not reflect our current or future cash spending levels to support our business. While we intend to spend a significant amount on capital expenditures on an absolute basis in the coming years, our capital expenditures as a percentage of revenue has declined significantly and will continue to decline. We define adjusted gross margin as a percentage of adjusted gross profit to revenue.

Adjusted EBITDA and Adjusted EBITDA Margin

We define adjusted EBITDA as net loss attributable to common stockholders, adjusted to exclude depreciation and amortization, stock-based compensation, interest expense, income tax expense, loss on extinguishment of debt, restructuring and severance expense, asset impairment, revaluation of warrants, acquisition related costs, a release of a VAT reserve and other charges. We believe that adjusted EBITDA, when taken together with our GAAP financial results, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business, determining incentive compensation, evaluating our operating performance, and for internal planning and forecasting purposes.

Non-GAAP net income (loss) and Non-GAAP diluted net income (loss) per share

We define non-GAAP net income (loss) as GAAP net loss, excluding stock-based compensation, amortization of acquired intangibles, acquisition related costs, and a release of a VAT reserve. We define non-GAAP diluted net income (loss) per share as non-GAAP net income (loss) divided by the weighted-average shares including the dilutive effects of our convertible preferred stock, warrants, stock options, RSUs and PRSUs.

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

Key Business Metrics:

We utilize the key metrics set forth below to help us evaluate our business and growth, identify trends, formulate financial projections and make strategic decisions.

Customers

We define a customer at the end of any period as a person or entity who has incurred usage in the period and, as a result, has generated an invoice of greater than $0 for that period. We treat each customer that generates an invoice as a unique customer, and a single organization with multiple divisions, segments or subsidiaries may be counted as multiple customers if they separately signed up on our platform.

ARPU

We calculate ARPU on a monthly basis as our total revenue in that period divided by the number of customers determined as of the last day of that period. For a quarterly or annual period, ARPU is determined as the weighted average monthly ARPU over such three or 12-month period.

ARR

We calculate ARR at a point in time by multiplying the latest monthly period's revenue by 12.

Net Dollar Retention Rate

We calculate net dollar retention rate monthly by starting with the revenue from the cohort of all customers during the corresponding month 12 months prior, or the Prior Period Revenue. We then calculate the revenue from these same customers as of the current month, or the Current Period Revenue, including any expansion and net of any contraction or attrition from these customers over the last 12 months. The calculation also includes revenue from customers that generated revenue before, but not in, the corresponding month 12 months prior, but subsequently generated revenue in the current month and are therefore reflected in the Current Period Revenue. We include this group of re-engaged customers in this calculation because our customers frequently use our platform for projects that stop and start over time. We then divide the total Current Period Revenue by the total Prior Period Revenue to arrive at the net dollar retention rate for the relevant month. For a quarterly or annual period, the net dollar retention rate is determined as the average monthly net dollar retention rates over such three or 12-month period.

Capital Expenditures as a Percentage of Revenue

We calculate capital expenditures as a percentage of revenue by dividing total capital expenditures during the period, including purchases of intangible assets, seller financed equipment purchases and acquisition of property and equipment from capital leases, by revenue.

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

(unaudited)

September December 30, 2021 31, 2020

Cash and cash equivalents $ 589,750 $ 100,311

Accounts receivable, less allowance for doubtful 36,505 28,098 accounts of $3,602 and $3,104, respectively

Prepaid expenses and other current assets 16,528 19,544

Total current assets 642,783 147,953



Property and equipment, net 241,083 238,956

Restricted cash 2,226 2,226

Goodwill 32,170 2,674

Intangible assets 43,266 34,649

Deferred tax assets 82 82

Other assets 4,215 3,712

Total assets $ 965,825 $ 430,252



Accounts payable 12,689 12,433

Accrued other expenses 28,412 27,025

Deferred revenue 5,136 4,873

Current portion of long-term debt - 17,468

Other current liabilities 11,340 22,986

Total current liabilities $ 57,577 $ 84,785



Deferred tax liabilities 207 211

Long-term debt - 242,215

Other long-term liabilities 1,608 2,061

Total liabilities $ 59,392 $ 329,272

Commitments and Contingencies



Convertible preferred stock $ - $ 173,074



Preferred stock ($0.000025 par value per share;10,000,000 and 0 shares authorized; 0 shares issued $ - $ - and outstanding as of September 30, 2021 and December31, 2020, respectively)

Common stock ($0.000025 par value; 750,000,000 and111,400,000 shares authorized; 110,990,479 and45,299,339 issued; and 109,022,251 and 43,331,111 2 1 outstanding as of September 30, 2021 and December 31,2020, respectively)

Treasury stock, at cost (1,968,228 shares at (4,598 ) (4,598 )September 30, 2021 and December 31, 2020)

Additional paid-in capital 1,085,788 99,783

Accumulated other comprehensive loss (346 ) (245 )

Accumulated deficit (174,413 ) (167,035 )

Total stockholders' equity (deficit) $ 906,433 $ (72,094 )



Total liabilities, convertible preferred stock and $ 965,825 $ 430,252 stockholders' equity (deficit)

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Revenue

$

111,428

$

81,160

$

308,899

$

230,863

Cost of revenue

43,506

37,063

126,195

106,951

Gross profit

67,922

44,097

182,704

123,912

Operating expenses:

Research and development

29,927

19,706

79,450

54,313

Sales and marketing

13,312

7,700

35,545

24,111

General and administrative

26,354

23,411

68,756

62,917

Total operating expenses

69,593

50,817

183,751

141,341

Loss from operations

(1,671

)

(6,720

)

(1,047

)

(17,429

)

Other (income) expense:

Interest expense

186

3,190

2,675

10,485

Loss on extinguishment of debt

-

-

3,435

259

Other (income) expense, net

140

438

(157

)

679

Other (income) expense

326

3,628

5,953

11,423

Loss before income taxes

(1,997

)

(10,348

)

(7,000

)

(28,852

)

Income tax (benefit) expense

(145

)

(134

)

378

865

Net loss attributable to common stockholders

$

(1,852

)

$

(10,214

)

$

(7,378

)

$

(29,717

)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.02

)

$

(0.24

)

$

(0.08

)

$

(0.72

)

Weighted-average shares used to compute net loss per share, basic and diluted

107,955

42,215

88,265

41,197

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Revenue $ 111,428 $ 81,160 $ 308,899 $ 230,863

Cost of revenue 43,506 37,063 126,195 106,951

Gross profit 67,922 44,097 182,704 123,912

Operating expenses:

Research and development 29,927 19,706 79,450 54,313

Sales and marketing 13,312 7,700 35,545 24,111

General and 26,354 23,411 68,756 62,917 administrative

Total operating expenses 69,593 50,817 183,751 141,341



Loss from operations (1,671 ) (6,720 ) (1,047 ) (17,429 )



Other (income) expense:

Interest expense 186 3,190 2,675 10,485

Loss on extinguishment of - - 3,435 259 debt

Other (income) expense, 140 438 (157 ) 679 net

Other (income) expense 326 3,628 5,953 11,423



Loss before income taxes (1,997 ) (10,348 ) (7,000 ) (28,852 )

Income tax (benefit) (145 ) (134 ) 378 865 expense

Net loss attributable to $ (1,852 ) $ (10,214 ) $ (7,378 ) $ (29,717 )common stockholders

Net loss per shareattributable to common $ (0.02 ) $ (0.24 ) $ (0.08 ) $ (0.72 )stockholders, basic anddiluted

Weighted-average sharesused to compute net loss 107,955 42,215 88,265 41,197 per share, basic anddiluted

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Nine Months Ended September 30,

2021

2020

Operating activities

Net loss attributable to common stockholders

$

(7,378

)

$

(29,717

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

64,922

55,203

Loss on impairment

212

1,222

Stock-based compensation

37,380

24,865

Non-cash interest expense

386

907

Loss on extinguishment of debt

3,435

259

Revaluation of warrants

(556

)

452

Bad debt expense

6,055

9,386

Release of VAT reserve

3,188

-

Other

477

(139

)

Changes in operating assets and liabilities:

Accounts receivable

(14,462

)

(13,045

)

Prepaid expenses and other current assets

(134

)

(8,934

)

Accounts payable and accrued expenses

4,001

824

Deferred revenue

263

(267

)

Other assets and liabilities

2,587

(869

)

Net cash provided by operating activities

100,376

40,147

Investing activities

Capital expenditures - property and equipment

(66,480

)

(69,807

)

Capital expenditures - internal-use software development

(4,297

)

(10,159

)

Purchase of intangible assets

(5,636

)

(5,118

)

Cash paid for acquisition of businesses, net of cash acquired

(5,000

)

-

Proceeds from sale of equipment

209

-

Net cash used in investing activities

(81,204

)

(85,084

)

Financing activities

Repayment of capital leases

-

(699

)

Repayment of notes payable

(33,214

)

(8,347

)

Proceeds from third-party secured financings

-

7,795

Repayment of term loan

(166,813

)

(72,438

)

Proceeds from issuance of term loan

-

170,000

Repayment of borrowings under revolving credit facility

(63,200

)

(84,500

)

Proceeds from borrowings under revolving credit facility

-

63,200

Payment of debt issuance costs

-

(3,274

)

Proceeds related to the issuance of common stock under equity incentive plan, net of taxes withheld

12,138

11,402

Proceeds from the issuance of convertible preferred stock

-

49,810

Payment of initial public offering costs

-

(247

)

Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs

723,126

-

Employee payroll taxes paid related to net settlement of restricted stock units

(1,770

)

-

Net cash provided by financing activities

470,267

132,702

Increase in cash, cash equivalents and restricted cash

489,439

87,765

Cash, cash equivalents and restricted cash - beginning of period

102,537

35,886

Cash, cash equivalents and restricted cash - end of period

$

591,976

$

123,651

DIGITALOCEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Nine Months Ended September 30,

2021 2020

Operating activities

Net loss attributable to common stockholders $ (7,378 ) $ (29,717 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 64,922 55,203

Loss on impairment 212 1,222

Stock-based compensation 37,380 24,865

Non-cash interest expense 386 907

Loss on extinguishment of debt 3,435 259

Revaluation of warrants (556 ) 452

Bad debt expense 6,055 9,386

Release of VAT reserve 3,188 -

Other 477 (139 )

Changes in operating assets and liabilities:

Accounts receivable (14,462 ) (13,045 )

Prepaid expenses and other current assets (134 ) (8,934 )

Accounts payable and accrued expenses 4,001 824

Deferred revenue 263 (267 )

Other assets and liabilities 2,587 (869 )

Net cash provided by operating activities 100,376 40,147



Investing activities

Capital expenditures - property and equipment (66,480 ) (69,807 )

Capital expenditures - internal-use software (4,297 ) (10,159 )development

Purchase of intangible assets (5,636 ) (5,118 )

Cash paid for acquisition of businesses, net of cash (5,000 ) - acquired

Proceeds from sale of equipment 209 -

Net cash used in investing activities (81,204 ) (85,084 )



Financing activities

Repayment of capital leases - (699 )

Repayment of notes payable (33,214 ) (8,347 )

Proceeds from third-party secured financings - 7,795

Repayment of term loan (166,813 ) (72,438 )

Proceeds from issuance of term loan - 170,000

Repayment of borrowings under revolving credit (63,200 ) (84,500 )facility

Proceeds from borrowings under revolving credit - 63,200 facility

Payment of debt issuance costs - (3,274 )

Proceeds related to the issuance of common stock 12,138 11,402 under equity incentive plan, net of taxes withheld

Proceeds from the issuance of convertible preferred - 49,810 stock

Payment of initial public offering costs - (247 )

Proceeds from initial public offering, net ofunderwriting discounts and commissions and other 723,126 - offering costs

Employee payroll taxes paid related to net settlement (1,770 ) - of restricted stock units

Net cash provided by financing activities 470,267 132,702



Increase in cash, cash equivalents and restricted 489,439 87,765 cash

Cash, cash equivalents and restricted cash - 102,537 35,886 beginning of period

Cash, cash equivalents and restricted cash - end of $ 591,976 $ 123,651 period

DIGITALOCEAN HOLDINGS, INC.

RECONCILIATION OF GAAP TO NON-GAAP DATA

(in thousands)

(unaudited)

Adjusted Gross Profit and Adjusted Gross Margin

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Gross profit

$

67,922

$

44,097

$

182,704

$

123,912

Adjustments:

Depreciation and amortization

20,838

17,934

60,105

50,846

Stock-based compensation

196

302

797

394

Adjusted gross profit

$

88,956

$

62,333

$

243,606

$

175,152

Gross margin

61

%

54

%

59

%

54

%

Adjusted gross margin

80

%

77

%

79

%

76

%

DIGITALOCEAN HOLDINGS, INC.

RECONCILIATION OF GAAP TO NON-GAAP DATA

(in thousands)

(unaudited)

Adjusted Gross Profit andAdjusted Gross Margin

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Gross profit $ 67,922 $ 44,097 $ 182,704 $ 123,912

Adjustments:

Depreciation and 20,838 17,934 60,105 50,846 amortization

Stock-based compensation 196 302 797 394

Adjusted gross profit $ 88,956 $ 62,333 $ 243,606 $ 175,152

Gross margin 61 % 54 % 59 % 54 %

Adjusted gross margin 80 % 77 % 79 % 76 %

Adjusted EBITDA and Adjusted EBITDA Margin

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Net loss attributable to common stockholders

$

(1,852

)

$

(10,214

)

$

(7,378

)

$

(29,717

)

Adjustments:

Depreciation and amortization

$

22,382

$

19,481

$

64,922

$

55,203

Stock-based compensation(1)

18,555

12,726

37,380

24,865

Interest expense

186

3,190

2,675

10,485

Income tax (benefit) expense

(145

)

(134

)

378

865

Loss on extinguishment of debt

-

-

3,435

259

Restructuring and severance(2)

-

254

-

4,176

Asset impairment(3)

212

536

212

1,222

Revaluation of warrants

-

165

(556

)

452

Acquisition related costs

280

-

280

-

Release of VAT reserve(4)

(3,188

)

-

(3,188

)

-

Other(5)

-

416

315

994

Adjusted EBITDA

$

36,430

$

26,420

$

98,475

$

68,804

Revenue

$

111,428

$

81,160

$

308,899

$

230,863

Adjusted EBITDA margin

33

%

33

%

32

%

30

%

Adjusted EBITDA andAdjusted EBITDA Margin

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Net loss attributable to $ (1,852 ) $ (10,214 ) $ (7,378 ) $ (29,717 )common stockholders



Adjustments:

Depreciation and $ 22,382 $ 19,481 $ 64,922 $ 55,203 amortization

Stock-based compensation^ 18,555 12,726 37,380 24,865 (1)

Interest expense 186 3,190 2,675 10,485

Income tax (benefit) (145 ) (134 ) 378 865 expense

Loss on extinguishment of - - 3,435 259 debt

Restructuring and - 254 - 4,176 severance^(2)

Asset impairment^(3) 212 536 212 1,222

Revaluation of warrants - 165 (556 ) 452

Acquisition related costs 280 - 280 -

Release of VAT reserve^ (3,188 ) - (3,188 ) - (4)

Other^(5) - 416 315 994

Adjusted EBITDA $ 36,430 $ 26,420 $ 98,475 $ 68,804

Revenue $ 111,428 $ 81,160 $ 308,899 $ 230,863

Adjusted EBITDA margin 33 % 33 % 32 % 30 %

___________________(1)

Stock-based compensation for the three and nine months ended September 30, 2020 includes compensation of $10.2 million and $18.3 million, respectively, related to secondary sales of common stock by certain current and former employees. There were no such expenses recorded for the three and nine months ended September 30, 2021.

(2)

Consists primarily of expenses related to changes in our senior leadership, sales and infrastructure teams.

(3)

Consists of internal-use software impairment charges related to software that is no longer being used.

(4)

Resolution of certain tax matters in certain jurisdictions with relevant authorities.

(5)

Consists primarily of third-party consulting costs to enhance our finance function.

___________________ Stock-based compensation for the three and nine months ended September 30, 2020 includes compensation of $10.2 million and $18.3 million,(1) respectively, related to secondary sales of common stock by certain current and former employees. There were no such expenses recorded for the three and nine months ended September 30, 2021.

(2) Consists primarily of expenses related to changes in our senior leadership, sales and infrastructure teams.

(3) Consists of internal-use software impairment charges related to software that is no longer being used.

(4) Resolution of certain tax matters in certain jurisdictions with relevant authorities.

(5) Consists primarily of third-party consulting costs to enhance our finance function.

DIGITALOCEAN HOLDINGS, INC.RECONCILIATION OF GAAP TO NON-GAAP DATA

(in thousands)

(unaudited)

Non-GAAP net income (loss) and Non-GAAP diluted net income (loss) per share

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

GAAP Net loss attributable to common stockholders

$

(1,852

)

$

(10,214

)

$

(7,378

)

$

(29,717

)

Stock-based compensation(1)

18,555

12,726

37,380

24,865

Amortization of acquired intangibles

168

76

320

228

Acquisition related costs

280

-

280

-

Release of VAT reserve(2)

(3,188

)

-

(3,188

)

-

Income tax effects of non-GAAP adjustments(3)

197

37

89

12

Non-GAAP Net income (loss)(4)

$

14,160

$

2,625

$

27,503

$

(4,612

)

Non-GAAP Diluted net income (loss) per share(4)(5)

$

0.12

$

0.03

$

0.24

$

(0.11

)

Weighted-average shares used to compute Non-GAAP diluted net income (loss) per share(5)

120,854

90,746

114,815

41,197

DIGITALOCEAN HOLDINGS, INC.RECONCILIATION OF GAAP TO NON-GAAP DATA

(in thousands)

(unaudited)

Non-GAAP net income (loss) and Non-GAAP diluted net income (loss) per share

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

GAAP Net loss attributable $ (1,852 ) $ (10,214 ) $ (7,378 ) $ (29,717 )to common stockholders

Stock-based compensation^ 18,555 12,726 37,380 24,865 (1)

Amortization of acquired 168 76 320 228 intangibles

Acquisition related costs 280 - 280 -

Release of VAT reserve^(2) (3,188 ) - (3,188 ) -

Income tax effects of 197 37 89 12 non-GAAP adjustments^(3)

Non-GAAP Net income (loss)^ $ 14,160 $ 2,625 $ 27,503 $ (4,612 )(4)

Non-GAAP Diluted net income $ 0.12 $ 0.03 $ 0.24 $ (0.11 )(loss) per share^(4)(5)

Weighted-average sharesused to compute Non-GAAP 120,854 90,746 114,815 41,197 diluted net income (loss)per share^(5)

___________________(1)

Stock-based compensation for the three and nine months ended September 30, 2020 includes compensation of $10.2 million and $18.3 million, respectively, related to secondary sales of common stock by certain current and former employees. There were no such expenses recorded for the three and nine months ended September 30, 2021.

(2)

Resolution of certain tax matters in certain jurisdictions with relevant authorities.

(3)

The income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for the relevant jurisdiction, except for those items which are non-taxable or subject to valuation allowances for which the tax expense (benefit) was calculated at 0%. The tax benefit for amortization is calculated in a similar manner as the tax effects of the non-GAAP adjustments.

(4)

Amounts are attributable for both the common and preferred stockholders, treated as one class of stock.

(5)

Basic weighted-average shares was used to compute both basic and diluted non-GAAP net loss attributable to common stockholders per share for the nine months ended September 30, 2020.

___________________ Stock-based compensation for the three and nine months ended September 30, 2020 includes compensation of $10.2 million and $18.3 million,(1) respectively, related to secondary sales of common stock by certain current and former employees. There were no such expenses recorded for the three and nine months ended September 30, 2021.

(2) Resolution of certain tax matters in certain jurisdictions with relevant authorities.

The income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for the relevant jurisdiction, except(3) for those items which are non-taxable or subject to valuation allowances for which the tax expense (benefit) was calculated at 0%. The tax benefit for amortization is calculated in a similar manner as the tax effects of the non-GAAP adjustments.

(4) Amounts are attributable for both the common and preferred stockholders, treated as one class of stock.

Basic weighted-average shares was used to compute both basic and diluted(5) non-GAAP net loss attributable to common stockholders per share for the nine months ended September 30, 2020.

DIGITALOCEAN HOLDINGS, INC.SUPPLEMENTAL FINANCIAL INFORMATION

(in thousands)

(unaudited)

Stock-Based CompensationThree Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Cost of revenue

$

196

$

302

$

797

$

394

Research and development

6,099

2,950

13,794

5,983

Sales and marketing

2,582

470

5,621

1,149

General and administrative

9,678

9,004

17,168

17,339

Total

$

18,555

$

12,726

$

37,380

$

24,865

View source version on businesswire.com: https://www.businesswire.com/news/home/20211104005601/en/

CONTACT: Investor Contact Rob Bradley investors@digitalocean.com

CONTACT: Media Contact Shannon Paulk press@digitalocean.com