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What changed in DigitalOcean Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of DigitalOcean Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+526 added−476 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-22)

Top changes in DigitalOcean Holdings, Inc.'s 2023 10-K

526 paragraphs added · 476 removed · 366 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

107 edited+24 added−31 removed54 unchanged
Biggest changeAs of December 31, 2022, we had approximately 677,000 customers using our platform to build, deploy and scale applications, including approximately 129,000 customers paying between $50 and $500 per month (which we refer to as builders) and approximately 15,000 customers paying more than $500 per month (which we refer to as scalers).
Biggest changeAs of December 31, 2023, we had collectively approximately 644,000 Learners (users that have a monthly spend less than or equal to $50 and have been on our platform for more than three months), Builders (users that have a monthly spend between $50 and $500) and Scalers (users that have a monthly spend greater than $500) using our platform to build, deploy and scale applications.
Cloud Firewalls are free to our customers and are used for staging and production deployments of software. ◦ Managed Load Balancers : A software service that allows customers to load balance traffic to their software applications located on multiple Droplets, enabling them to scale their applications and improve availability, security and performance across their infrastructure in a few clicks with affordable pricing. ◦ Virtual Private Cloud (VPC) : A private network interface for DigitalOcean resources collections.
Cloud Firewalls are free to our customers and are used for staging and production deployments of software. • Managed Load Balancers : A software service that allows customers to load balance traffic to their software applications located on multiple Droplets, enabling them to scale their applications and improve availability, security and performance across their infrastructure in a few clicks with affordable pricing. • Virtual Private Cloud (VPC) : A private network interface for collections of DigitalOcean resources.
We enable our customers to completely control their spending and ensure there are no hidden charges that appear at the end of the month. Like everything we do, we approach billing with a customer-first focus, enabling our customers to spend more time developing and deploying innovative applications rather than interpreting and navigating convoluted invoices. • Differentiated Customer Support .
We enable our customers to control their spending and ensure there are no hidden charges that appear at the end of the month. Like everything we do, we approach billing with a customer-first focus, enabling our customers to spend more time developing and deploying innovative applications rather than interpreting and navigating convoluted invoices. • Differentiated Customer Support .
We focus heavily on enabling a self-service, low-friction model that makes it easy for users to try, adopt and use our products. We attract visitors to our website through a combination of high-quality content, developer outreach and highly-targeted paid demand generation campaigns.
We focus heavily on enabling a self-service, low-friction model that makes it easy for users to try, adopt and use our products. We 12 attract visitors to our website through a combination of high-quality content, developer outreach and highly-targeted paid demand generation campaigns.
We remove the complexity of securing infrastructure for our customers and make it simple for them to build the security layers required for their use cases. We are also committed to customer data privacy and utilize best-in-class access, encryption and data protection technologies and processes. • Open Source .
We remove the complexity of securing infrastructure for our customers and make it simple for them to build the security layers required for their use cases. We are also committed to customer data privacy and utilize best-in-class access, encryption and data protection technologies and processes. 7 • Open Source .
Our network engineering team manages the global backbone to ensure that we are making the best connectivity peering agreements to get customer traffic to the destination via the best available path. Our operations team actively monitors the cloud environment, responding to network incidents to ensure that customer impact is minimized and service availability is managed.
Our network engineering team manages the global backbone to ensure that we are making the best connectivity peering agreements to get customer traffic to the destination via the best available path. Our security operations team actively monitors the cloud environment, responding to network incidents to ensure that customer impact is minimized and service availability is managed.
Our Managed Databases, a fully-managed database solution, provides our customers with the application performance they need without the operational demands that come with building and running a database server. We currently offer managed offerings for relational databases (SQL) such as PostgreSQL & MySQL, as well as NoSQL databases such as Redis.
Our Managed Databases offering, a fully-managed database solution, provides our customers with the application performance they need without the operational demands that come with building and running a database server. We currently offer managed offerings for relational databases (SQL) such as PostgreSQL & MySQL, as well as NoSQL databases such as Redis.
We staff our data center operations team to ensure that we can provide the physical security, reliability and availability necessary for our customers—and that team additionally manages the physical server capacity to ensure that we are able to meet our customers’ demands.
We staff our data center operations team to ensure that we can provide the physical security, reliability and availability necessary for our customers—and that team additionally manages the physical server capacity to ensure that we 9 are able to meet our customers’ demands.
Our key networking product offerings include: 8 ◦ Cloud Firewalls : A software service that allows customers to quickly secure their infrastructure from common vulnerabilities and define what services are visible on their infrastructure.
Our key networking product offerings include: • Cloud Firewalls : A software service that allows customers to quickly secure their infrastructure from common vulnerabilities and define what services are visible on their infrastructure.
We believe that our focus on community drives brand loyalty amongst a fast-growing developer and SMB community and spurs our community followers to become advocates for us and our platform.
We believe that our focus on community drives brand loyalty amongst a fast-growing developer community and spurs our community followers to become advocates for us and our platform.
Our goal is to address the core needs of this underserved customer base instead of offering thousands of complex products and services that are more suited to large enterprise companies or companies looking to move from an on-premise environment to the cloud. We offer IaaS, PaaS and SaaS solutions to our customers.
Our goal is to address the core needs of this underserved customer base instead of offering thousands of complex products and services that are more suited to large enterprise companies or companies looking to move from an on-premise environment to the cloud. We offer IaaS, PaaS, SaaS and AI/ML solutions to our customers.
Our platform can support a wide range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects and managed services, among many others. Our offerings give customers the ability to select their desired level of technical infrastructure management.
Our platform can support a wide range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, managed services, and AI/ML applications, among many others. Our offerings give customers the ability to select their desired level of technical infrastructure management.
Our pricing is consumption-based and billed monthly in arrears, making it easy for our customers to track usage on an ongoing basis and optimize their deployments. We have a highly efficient self-service customer acquisition model, which we complement with a targeted sales force focused on inside sales, outside sales and partnership opportunities to drive revenue growth.
Our pricing is primarily consumption-based and billed monthly in arrears, making it easy for our customers to track usage on an ongoing basis and optimize their workloads. We have a highly efficient self-service customer acquisition model, which we complement with a sales force focused on inside sales, targeted outside sales and partnership opportunities to drive revenue growth.
Our infrastructure is offered to our customers across 15 data centers worldwide that are connected by a high-speed private backbone, enabling our customers to deploy their solutions across nine different geographic regions.
Our infrastructure is offered to our customers across 16 data centers worldwide that are connected by a high-speed private backbone, enabling our customers to deploy their solutions across nine different geographic regions.
We expect to make additional investments to offer an enhanced and tailored suite of PaaS and SaaS offerings that address the changing needs of our business customers. • Augmenting Our Platform through Opportunistic Strategic Acquisitions . We believe that acquisitions and strategic partnerships will allow us to accelerate our key platform, product and marketing initiatives.
We expect to make additional investments to offer an enhanced and tailored suite of IaaS, PaaS, SaaS and AI/ML offerings that address the changing needs of our business customers. • Augmenting Our Platform through Opportunistic Strategic Acquisitions . We believe that acquisitions and strategic partnerships will allow us to accelerate our key platform, product and marketing initiatives.
Our Managed Hosting offering provides simple onboarding and day-to-day management for hosting that is purpose-built for startups and SMBs looking to outsource their on-ramp to the internet and offload the complexities of cloud infrastructure so they can spend more time running and scaling their businesses.
Our Managed Hosting offering provides simple onboarding and day-to-day management for hosting that is purpose-built for startups and growing digital businesses looking to outsource their on-ramp to the internet and offload the complexities of cloud infrastructure so they can spend more time running and scaling their businesses.
This offering is particularly attractive for startups and SMBs without the knowledge or resources to fully manage their hosting infrastructure, including digital 9 agencies, entrepreneurs creating eCommerce sites, bloggers, freelancers, and other users hosting on WordPress, PHP and Magento. • Marketplace . We operate the DigitalOcean Marketplace, a platform where developers can find pre-configured applications and solutions quickly.
This offering is particularly attractive for startups and growing digital businesses without the knowledge or resources to fully manage their hosting infrastructure, including digital agencies, entrepreneurs creating eCommerce sites, bloggers, freelancers, and other users hosting on WordPress, PHP and Magento. ◦ Marketplace . We operate the DigitalOcean Marketplace, a platform where developers can find pre-configured applications and solutions quickly.
We work closely with hardware manufacturers when designing our server platforms to continue to reduce acquisitions costs while at the same time optimizing reliability and performance for our customers. Our procurement and engineering teams work closely with CPU manufacturers to align our long-term server strategy to future technology advancements.
We work closely with hardware manufacturers when designing our server platforms to continue to reduce acquisition costs while at the same time optimizing reliability and performance for our customers. Our procurement and engineering teams work closely with manufacturers to align our long-term server strategy to future technology advancements.
Our Solution DigitalOcean was founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. We pioneered our cloud platform to simplify cloud computing, enabling startups and SMBs to quickly deploy and scale applications, collaborate efficiently and improve business performance.
Our Solution DigitalOcean was founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. We pioneered our cloud platform to simplify cloud computing, enabling startups and growing digital businesses to quickly deploy and scale applications, collaborate efficiently and improve business performance.
We handle the infrastructure, application runtimes and dependencies so that developers can push code to production in just a few clicks, enabling them to deliver applications to market faster and on a global scale. • Functions . In 2022, we launched our Functions offering, a serverless compute solution that leverages our App Platform product.
We handle the infrastructure, application runtimes and 11 dependencies so that developers can push code to production in just a few clicks, enabling them to deliver applications to market faster and on a global scale. ◦ Functions . Our Functions offering is a serverless compute solution that leverages our App Platform product.
Our community education websites contain more than 7,500 high-quality technical tutorials and a forum with tens of thousands of questions and answers that guide developers in creating and delivering modern applications—not just focused on DigitalOcean products and services, but relevant to any cloud service.
Our community education websites contain high-quality technical tutorials and a forum with tens of thousands of questions and answers that guide developers in creating and delivering modern applications—not just focused on DigitalOcean products and services, but relevant to any cloud service.
The issued patents are each scheduled to expire in 2039 and 2040 and the pending patent applications, if issued, would be scheduled to expire in 2039 and 2042. In addition, we license third-party software and use open source software and other technologies that are used in 15 the provision of or incorporated into some elements of our services.
The issued patents are each scheduled to expire in 2039 and 2040 and the pending patent application, if issued, would be scheduled to expire in 2039. In addition, we license third-party software and use open source software and other technologies that are used in the provision of or incorporated into some elements of our services.
Our Platform and Product Offerings We have designed our global cloud platform to ensure a simple, reliable and affordable cloud computing experience for our customer base of startups and SMBs. This entails maintaining a high-performance global infrastructure, offering a highly curated set of solutions and providing a superior customer experience.
Our Platform and Product Offerings We have designed our global cloud platform to ensure a simple, reliable and affordable cloud computing experience for our customer base of startups and growing digital businesses. This entails maintaining a high-performance global infrastructure, offering a highly curated set of solutions and providing a superior customer experience.
Our Product Portfolio We provide a variety of cloud products and services that are specifically designed to address the needs of startups and SMBs. We listen carefully to our customers’ feedback so we understand what they want and need to simplify cloud computing for them.
Our Product Portfolio We provide a variety of cloud products and services that are specifically designed to address the needs of startups and growing digital businesses. We listen carefully to our customers’ feedback so we understand what they want and need to simplify cloud computing for them.
More than 12 million unique visitors interact with our websites on a monthly basis, including our developer community, each month to learn, share and educate others. We are committed to supporting and expanding this community of innovators and technologists through high-quality content and expanded developer-focused programs and events around the world.
More than 7 million unique visitors interact with our websites, including our education websites, on a monthly basis to learn, share and educate others. We are committed to supporting and expanding this community of innovators and technologists through high-quality content and expanded developer-focused programs and events around the world.
We lease data center space from leading providers to provide us the flexibility to quickly enter new markets and align our global footprint with our go-to-market strategy. We launched our Australia data center in November 2022 and expect to expand into additional new locations in the future.
We lease data center space from leading providers to provide us the flexibility to quickly enter new markets and align our global footprint with our go-to-market strategy. We expect to expand into additional new locations in the future.
The primary vendors in this category include Amazon (AWS), Microsoft (Azure), Google (GCP), IBM and Oracle. We also compete with smaller and/or niche cloud service providers that typically target individuals and smaller businesses, simple use cases and/or narrower geographic markets. Examples in this category include OVHcloud, Vultr and Heroku.
The primary vendors in this category include Amazon (AWS), Microsoft (Azure), Google (GCP), IBM (IBM Cloud), Alibaba (Alibaba Cloud) and Oracle (Oracle Cloud). 14 We also compete with smaller and/or niche cloud service providers that typically target individuals and smaller businesses, simple use cases and/or narrower geographic markets. Examples in this category include OVHcloud, Vultr, Akamai (Linode), Hetzner and Heroku.
Startups and SMBs especially value open source technology as it allows them greater choice, affordability and flexibility, and our platform is designed to take advantage of open source technology to provide our customers with a much more efficient way to work.
Startups and growing digital businesses especially value open source technology as it allows them greater choice, affordability and flexibility, and our platform is designed to take advantage of open source technology to provide our customers with a much more efficient way to work.
We focus on solutions for startups and SMBs—and combine the power of simplicity, love for the developer community, an obsession for customer service and the advantages of open source. This differentiates us dramatically from the enterprise cloud competitors.
We focus on solutions for startups and growing digital businesses—and combine the power of simplicity, love for the developer community, an obsession for customer service and the advantages of open source. This differentiates us dramatically from the enterprise cloud competitors.
We also recently introduced two new paid support plans, which enable users to get faster response times and dedicated support from technical managers. Customers cite our attentive support as a key driver of their decision to start and grow their businesses on our platform. • Security and Data Protection .
We also offer paid support plans, which enable users to get faster response times and dedicated support from technical managers. Customers cite our attentive support as a key driver of their decision to start and grow their businesses on our platform. • Security and Data Protection .
We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; and Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings.
We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings; and AI/ML, including our Machines, Notebooks and Deployments offerings.
Our simple and predictable pricing makes this offering very attractive compared to established public cloud providers. ◦ Volumes (Block Storage) : Our block storage product allows customers to add more storage space and mix and match compute and storage to suit their database, file storage, application, service, mobile and backup needs.
Our simple and predictable pricing makes this offering very attractive compared to our competitors. ▪ Volumes (Block Storage) : Our block storage product allows customers to add more storage space and mix and match compute and storage to suit their database, file storage, application, service, mobile and backup needs.
Our Culture We believe our culture is critical to our success and has delivered tangible financial and operational benefits for our customers, our employees and our stockholders. Our values guide our business, our product development, our practices and our brand. We were recognized in Inc.
Our Culture We believe our culture is critical to our success and has delivered tangible financial and operational benefits for our customers, our employees and our stockholders. Our values guide our business, our product development, our practices and our brand.
In the United States, these include health insurance, unlimited vacation, retirement benefits, a generous parental leave program, emotional well-being services through our Employee Assistance Program and a variety of additional resources to support employees’ overall well-being. We continue to evolve our programs to meet our employees’ health and wellness needs.
In the United States, these include health insurance, flexible personal time off, retirement benefits, a generous parental leave program, emotional well-being services through our Employee Assistance Program and a variety of additional resources to support employees’ overall well-being. We continue to evolve our programs to meet our employees’ health and wellness needs.
Our pricing is consumption-based and renewable monthly, making it easy for our customers to optimize their deployments. We provide detailed monthly invoices, irrespective of the customer’s size or number of products purchased, making it easy to track usage on an ongoing basis.
Our approach to billing and pricing is simple, intuitive and transparent. Our pricing is primarily consumption-based and renewable monthly, making it easy for our customers to optimize their deployments. We provide detailed monthly invoices, irrespective of the customer’s size or number of products purchased, making it easy to track usage on an ongoing basis.
This customer-centric focus underpins our mission of simplifying cloud computing so startups and SMBs can spend more time creating software that changes the world.
This customer-centric focus underpins our mission of simplifying cloud computing so startups and growing digital businesses can spend more time creating software that changes the world.
These teams focus on inside and outbound sales, partnership and channel development, customer acquisition and self-service funnel optimization, and customer support and success. We have historically generated almost all of our revenue from our efficient self-service marketing model, which enables customers to get started on our platform very quickly and without the need for assistance.
These teams focus on inside sales, targeted outside sales, partnership and channel development, customer acquisition and self-service funnel optimization, and customer support and success. We have historically generated a significant majority of our revenue from our efficient self-service marketing model, which enables customers to get started on our platform very quickly and without the need for assistance.
We are also focused on partnership opportunities that introduce new avenues for customer growth. We recently launched the DigitalOcean Partner Pod, our new partner program that offers sales training, co-marketing opportunities and market development funds to help partners launch their campaigns and acquire new customers utilizing DigitalOcean products.
We are also focused on partnership opportunities that introduce new avenues for customer growth, such as the DigitalOcean Partner Pod, which offers sales training, co-marketing opportunities and market development funds to help partners launch their campaigns and acquire new customers utilizing DigitalOcean products.
As of December 31, 2022, we owned ten registered trademarks in the United States and eleven registered trademarks in various non-U.S. jurisdictions. We have filed applications for registration for one additional trademark in the United States and two additional trademarks in various non-U.S. jurisdictions.
As of December 31, 2023, we owned eleven registered trademarks in the United States and eleven registered trademarks in various non-U.S. jurisdictions. We have filed applications for registration for two additional trademarks in the United States and two additional trademarks in various non-U.S. jurisdictions.
We have developed a product roadmap designed to enhance our ability to offer secure, scalable and reliable solutions for customers to grow their applications or businesses. We also provide management and collaboration tools to enable our customers to monitor and manage their usage of our platform. IaaS Offerings . Our Infrastructure-as-a-Service (IaaS) offerings include our compute, storage and networking products.
We have developed a product roadmap designed to enhance our ability to offer secure, scalable and reliable solutions for customers to grow their applications or businesses. We also provide management and collaboration tools to enable our customers to monitor and manage their usage of our platform. • IaaS Offerings .
In terms of type of business and specific use cases, our customers primarily use our IaaS, PaaS and SaaS products for the following: • SaaS applications across numerous industry verticals, including education, finance, advertising, e-commerce, media, gaming and many more • Customer relationship management (CRM) products, developer tools, API services and technology products and services • Digital agencies operating eCommerce or other websites for their customers • Personal web projects and education-related services regarding cloud computing and modern technologies, whether it be programming languages, application frameworks or open source technologies.
In terms of type of business and specific use cases, our customers primarily use our IaaS, PaaS, SaaS and AI/ML products for the following: • SaaS applications across numerous industry verticals, including education, finance, advertising, e-commerce, media, gaming and many more; • Customer relationship management (CRM) products, developer tools, API services and technology products and services; • Digital agencies operating eCommerce or other websites for their customers; • Startups and growing digital businesses launching AI/ML applications, including generative media, text analysis, natural language understanding, recommendation engines, and image classification; and • Personal web projects and education-related services regarding cloud computing and modern technologies, whether it be programming languages, application frameworks or open source technologies.
We have expanded our product portfolio with product innovations such as Dedicated Droplets, Premium Droplets, Spaces, Managed Kubernetes, Managed Databases, App Platform, and Functions, which have proven our ability to successfully launch many new products to market and serve our customers’ needs.
We have expanded our product portfolio with product innovations such as Dedicated Droplets, Premium Droplets, Spaces, Managed Kubernetes, Managed Databases, App Platform, Functions and, most recently, our AI/ML offerings, which have proven our ability to successfully launch or acquire new products to market and serve our customers’ needs.
We complement our efficient self-service customer acquisition model with an inside sales team that is focused on responding to inbound inquiries, outbound prospecting targeting specific use cases, volume expansion of our self-service customers, expanding our revenue in specific international markets and seeking partnership opportunities to drive revenue growth.
We complement our efficient self-service customer acquisition model with a sales force focused on inside sales, outbound prospecting targeting specific use cases, volume expansion of our self-service customers, expanding our revenue in specific international markets and seeking partnership opportunities to drive revenue growth.
ITEM 1. BUSINESS Overview Our mission is to simplify cloud computing so builders and businesses can spend more time creating software that changes the world. DigitalOcean is a leading cloud computing platform offering on-demand infrastructure and platform tools for startups and small and medium-sized businesses (SMBs).
ITEM 1. BUSINESS Overview Our mission is to simplify cloud computing so businesses can spend more time creating software that changes the world. DigitalOcean is a leading cloud computing platform offering on-demand infrastructure and platform tools for developers at startups and growing digital businesses.
Our Chief People Officer provides regular reports on the progress of our human capital management metrics and initiatives, including our diversity programs, to our executive officers and the Compensation Committee of our Board of Directors. As of December 31, 2022, we had a total of 1,204 employees, including 524 located outside the United States.
The head of our People team provides regular reports on the progress of our human capital management metrics and initiatives, including our diversity programs, to our executive officers and the Compensation Committee of our Board of Directors. As of December 31, 2023, we had a total of 1,156 employees, including 659 located outside the United States.
We have implemented a comprehensive information security program, which is discussed in greater detail below, that includes administrative, technical and physical safeguards designed to maintain the confidentiality, integrity, and availability of our company’s and our customers’ information. 7 In combination, our infrastructure and network provide our customers with a reliable, highly-performant and cost-effective platform to confidently build, deploy and scale their optimal solution, from single node based applications to globally distributed systems.
“Cybersecurity” below, that includes administrative, technical and physical safeguards designed to maintain the confidentiality, integrity, and availability of our company’s and our customers’ information. In combination, our infrastructure and network provide our customers with a reliable, highly-performant and cost-effective platform to confidently build, deploy and scale their optimal solution, from single node based applications to globally distributed systems.
These higher spend customers represented 85% of our total revenue in 2022, up from 83% in 2021 and 79% in 2020. • Investing in Our Platform and Product Offerings . We have a history of, and will continue to invest significantly in, delivering innovative products, features and functionality targeted at our core customer base.
These Builders and Scalers represented 86% of our total revenue in 2023, up from 85% and 83% in 2022 and 2021, respectively. • Investing in Our Platform and Product Offerings . We have a history of, and will continue to invest significantly in, delivering innovative products, features and functionality targeted at our core customer base.
We believe that our focus on simplicity, community, open source and customer support are the four key differentiators of our business, driving a broad range of customers around the world to build their applications on our platform. Cloud computing is revolutionizing how companies across the globe develop and deploy applications.
We believe that our focus on simplicity, community, open source and customer support are the four key differentiators of our business, driving a broad range of customers around the world to build their applications on our platform.
We were founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. Our platform simplifies cloud computing, enabling our customers to rapidly accelerate innovation and increase their productivity and agility.
We were founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. Our platform simplifies cloud computing, enabling our customers to rapidly accelerate innovation and increase their productivity and agility. Our users include software engineers, researchers, data scientists, system administrators, students and hobbyists.
Customers have the ability to choose from managing their own infrastructure and building their own bespoke solutions using our IaaS offerings, offloading the technical infrastructure entirely through our Managed Hosting offering or delegating certain aspects of the management using our managed PaaS offerings. • Transparent and Predictable Pricing . Our approach to billing and pricing is simple, intuitive and transparent.
Customers with any type of use case have the ability to choose from managing their own infrastructure and building their own bespoke solutions using our IaaS or AI/ML offerings, offloading the technical infrastructure entirely through our Managed Hosting offering or delegating certain aspects of the management using our managed PaaS or AI/ML offerings. • Transparent and Predictable Pricing .
In addition, we own one International Registration through the World Intellectual Property Organization, which has been extended to registrations in six additional jurisdictions and could be extended in another four jurisdictions. As of December 31, 2022, we owned four issued patents and had two patent applications pending for examination in the United States.
In addition, we own one International Registration through the World Intellectual Property Organization, which has been extended to registrations in seven additional jurisdictions. As of December 31, 2023, we owned five issued patents and had one patent application pending for examination in the United States.
We also provide the flexibility to customize backup windows, choose retention policies and elect which files to back up. In 2022, we introduced performance upgrades to Spaces and Volumes that better address the increasing needs of our customers’ applications.
We 10 also provide the flexibility to customize backup windows, choose retention policies and elect which files to back up. In 2023, we introduced upgrades to our Backups offering and expanded the geographic availability of our Spaces offering to better address the increasing needs of our customers’ applications.
We had approximately 15,000 scalers as of December 31, 2022, up from approximately 11,000 as of December 31, 2021 and approximately 8,000 as of December 31, 2020. We had approximately 129,000 builders as of December 31, 2022, up from approximately 89,000 as of December 31, 2021 and approximately 73,000 as of December 31, 2020.
We had approximately 17,000 Scalers as of December 31, 2023, up from approximately 15,000 and 11,000 as of December 31, 2022 and December 31, 2021, respectively. We had approximately 139,000 Builders as of December 31, 2023, up from approximately 129,000 and 89,000 as of December 31, 2022 and December 31, 2021, respectively.
The cloud offers lower upfront cost and superior flexibility, extensibility and scalability as compared to on-premise software development environments. These benefits are especially valuable for startups and SMBs, as they typically have more limited financial resources, operational expertise and IT personnel.
Cloud computing has revolutionized how companies across the globe develop and deploy applications. The cloud offers lower upfront cost and superior flexibility, extensibility and scalability as compared to on-premise software development environments. These benefits are especially valuable for startups and growing digital businesses, as they typically have more limited financial resources, operational expertise and IT personnel.
Our cloud platform was designed with simplicity in mind to ensure that startups and SMBs can spend less time managing their infrastructure and more time building innovative applications that drive business growth.
Our cloud platform was designed with simplicity in mind to ensure that startups and growing digital businesses can spend less time managing their infrastructure and more time building innovative applications that drive business growth. The markets in which we operate continue to grow.
Our developer community enables students, hobbyists and experienced developers alike to learn new skills and technologies and create and deliver new applications. The DigitalOcean community is based on forging genuine relationships through a series of meaningful and memorable interactions.
Our Community We focus heavily on building a large highly-engaged community that can connect and educate developers across the globe. Our developer community enables students, hobbyists and experienced developers alike to learn new skills and technologies and create and deliver new applications. The DigitalOcean community is based on forging genuine relationships through a series of meaningful and memorable interactions.
Our storage solutions allow our customers to store and quickly access any amount of data reliably in the cloud. We offer several kinds of storage offerings, depending on the customer’s needs, including: ◦ Spaces (Object Storage): Our object storage with a built-in content delivery network (CDN) makes scaling easy, reliable and affordable.
We offer several kinds of storage offerings, depending on the customer’s needs, including: ▪ Spaces (Object Storage) : Our object storage with a built-in content delivery network (CDN) makes scaling easy, reliable and affordable.
In 2022, we published our second annual diversity, equity, inclusion and belonging report that highlighted our employee workforce data for 2021. Our goal is for our employee population to reflect the communities that we service and ensure equal total rewards opportunities for all employees regardless of gender identity, ethnicity, location, sexual orientation, disability status and more.
Our goal is for our employee population to reflect the communities that we service and ensure equal total rewards opportunities for all employees regardless of gender identity, ethnicity, location, sexual orientation, disability status and more.
Revenue from builders and scalers increased 30% and 45%, respectively, for the year ended 4 December 31, 2022, compared to the year ended December 31, 2021. Revenue from higher spend customers as a percentage of total revenue was 85% in 2022, 83% in 2021 and 79% in 2020.
Revenue from Builders and Scalers increased 26% and 18%, respectively, for the year ended December 31, 2023, compared to the year ended December 31, 2022. Revenue from Builders and Scalers as a percentage of total revenue was 86%, 85% and 83% in 2023, 2022 and 2021, respectively.
See the section titled “Risk Factors” for a more comprehensive description of risks related to our intellectual property. Corporate Information We were incorporated in Delaware in 2012 under the name Digital Ocean, Inc. In 2016, as part of a restructuring, Digital Ocean, Inc. was converted into DigitalOcean, LLC, and DigitalOcean Holdings, Inc. was formed as the ultimate parent holding company.
Corporate Information We were incorporated in Delaware in 2012 under the name Digital Ocean, Inc. In 2016, as part of a restructuring, Digital Ocean, Inc. was converted into DigitalOcean, LLC, and DigitalOcean Holdings, Inc. was formed as the ultimate parent holding company.
We believe that the principal factors on which we compete include: • ease of use and operation; • speed of deployment; • price, total cost of ownership and transparency; • customer experience, support and service; • community engagement and education; • features, functionality and quality of tools; • performance, reliability, scalability and security; • brand awareness and reputation; • geographic reach; and • open source support. 12 We compete primarily with large, diversified technology companies that focus on large enterprise customers and provide cloud computing as just a portion of the products and services that they offer.
We believe that the principal factors on which we compete include: • ease of use and operation; • speed of deployment; • price, total cost of ownership and transparency; • customer experience, support and service; • community engagement and education; • features, functionality and quality of tools; • performance, reliability, scalability and security; • brand awareness and reputation; • geographic reach; and • open source support.
For example, we acquired Cloudways in the third quarter of 2022, which added a managed hosting offering to our platform. We believe that additional acquisition opportunities will supplement our organic growth strategy.
For example, we acquired Paperspace in 2023, which launched our AI/ML offerings, and Cloudways in 2022, which added our Managed Hosting offering to our platform. We believe that additional acquisition opportunities will supplement our organic growth strategy.
We expect to continue to increase our revenue from existing customers through the introduction of new products and features tailored to our customer base in addition to expanded customer outreach, focused on larger customers and specific use cases. • Growing Our Base of Higher Spend Customers .
While NDR decreased from 2022 to 2023, as we lapped the effects of the price increase and addition of revenue from our Cloudways acquisition, each of which occurred in 2022, we expect to increase our revenue in the future from existing customers through the introduction of new products and features tailored to our customer base in addition to expanded customer outreach, focused on larger customers and specific use cases. • Growing Our Base of Higher Spend Customers .
We provide flexible server configurations sized for any application, attractive price-to-performance and highly predictable pricing that is the same across regions and usage volumes. Our current IaaS offerings include: • Droplets . Droplets are our core compute offering. Developers can spin up the virtual machine of their choice in under a minute.
Our Infrastructure-as-a-Service (IaaS) offerings include our compute, storage and networking products. We provide flexible server configurations sized for any application, attractive price-to-performance and highly predictable pricing that is the same across regions and usage volumes. Our current IaaS offerings include: ◦ Droplets . Droplets are our core compute offering.
DO Impact is a social impact effort designed to empower changemakers around the globe through products and philanthropy, enable our people to do good in their communities, and ensure our footprint is sustainable. The four pillars of DO Impact are as follows: • Product .
In 2022, we launched DO Impact, our social impact effort designed to empower changemakers around the globe through products and philanthropy, enable our employees to do good in their communities, and ensure our footprint is sustainable.
We give back to the community by sponsoring projects to create content and tools that help developers build great software and hosting events that are focused on driving the growth of open source. 5 • Broad-Based Community Ecosystem .
We give back to the community by sponsoring projects to create content and tools that help developers build great software and hosting events that are focused on driving the growth of open source. • Broad-Based Community Ecosystem . We have built one of the world’s largest developer learning communities, with numerous high-quality developer tutorials and community-generated questions and answers.
In addition to cash and equity compensation, we also offer employees a wide array of benefits designed to be aligned with local reward practices and competitive with those offered by companies with whom we compete with for talent.
We maintain a global compensation program that is intended to promote a pay-for-performance culture that is both internally equitable as well as externally competitive. 15 In addition to cash and equity compensation, we also offer employees a wide array of benefits designed to be aligned with local reward practices and competitive with those offered by companies with whom we compete for talent.
Our users include software engineers, researchers, data scientists, system administrators, students and hobbyists. Our customers use our platform across numerous industry verticals and for a wide range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, and managed services, among many others.
Our customers use our platform across numerous industry verticals and for a wide range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, managed services, and, most recently, artificial intelligence and machine learning (AI/ML) applications, among many others.
Alerts are triggered when customer assets are slow, down, or vulnerable to attack. SaaS Offerings . Our Software-as-a-Service (SaaS) offerings are designed for companies in the SMB space. Our current SaaS offerings include: • Managed Hosting . In 2022, we acquired Cloudways, a managed cloud hosting company.
Alerts are triggered when customer assets are slow, down, or vulnerable to attack. • SaaS Offerings . Our Software-as-a-Service (SaaS) offerings are designed for startups and growing digital businesses. Our current SaaS offerings include: ◦ Managed Hosting .
Furthermore, to encourage employee involvement in our social impact initiatives, we offer a generous donation match program with respect to our employees’ charitable giving and also provide employees with credits at certain milestones to donate to a charitable organization of their choosing.
Through our previous program, Hollie’s Hub for Good, we have supported 2,762 organizations with donated credits. • Employee Giving . We offer our employees a generous donation match program with respect to our employees’ charitable giving and also provide employees with credits at certain milestones to donate to a charitable organization of their choosing.
In addition, all DigitalOcean products come with detailed product and technical documentation to help our customers deploy to our cloud platform more quickly. • Designed to Help Businesses Easily Scale .
In addition, all DigitalOcean products come with detailed product and technical documentation to help our customers deploy to our cloud platform more quickly. • Designed to Help Businesses Easily Scale . Our highly-curated set of solutions are designed to address the needs of startups and growing digital businesses as they scale their businesses and require more cloud capabilities.
Harness DigitalOcean technology, open source and technical expertise to support non-profit organizations, educational institutions, open source initiatives and others who are working to advance social good. • Philanthropy .
We harness DigitalOcean technology, open source and technical expertise to support non-profit organizations, educational institutions, social enterprises and others who are working to advance social good. We have a product donation program that offers DigitalOcean infrastructure credits and resources to nonprofits and social enterprises.
This feedback has influenced, and will continue to influence, our product roadmap, the content strategy for our community tutorials and other business decisions. We closely track various metrics to ensure we are providing exceptional customer support. We internally monitor our customer satisfaction score (CSAT) to gauge the quality of our interactions with customers and our ability to increase loyalty.
We closely track various metrics to ensure we are providing exceptional customer support. We internally monitor our customer satisfaction score (CSAT) and net promoter score (NPS) to gauge the quality of our interactions with customers and our ability to increase loyalty.
As our community grows and generates more valuable content for our platform, we are able to attract more users, which ultimately increases our customer base and reinforces our highly efficient self-service model. Key Benefits to Our Customers Our solution is designed to empower our target customers with best-in-class cloud technologies, while supporting them with superior customer service.
The strength of our community ecosystem is predicated on differentiated content on our community education websites, which ultimately attracts users and reinforces our highly efficient self-service model. Key Benefits to Our Customers Our solution is designed to empower our target customers with best-in-class cloud technologies, while supporting them with superior customer service.
In addition to publishing company-wide diversity numbers, we also analyze and publish statistics regarding our manager population and individual contributor population, both through the lens of gender (globally) and ethnicity/race (U.S. only) to ensure that diversity exists across the company.
To examine our progress, we monitor our diversity numbers across the company and analyze statistics regarding our manager population and individual contributor population, both through the lens of gender (globally) and ethnicity/race (U.S. only) to ensure that diversity exists across the company. We have demonstrated meaningful progress against this goal and continue to identify areas for continued improvement.
The market opportunity for our core IaaS services of compute, storage and networking continues to expand and we are making targeted investments to expand our IaaS revenue.
The market opportunity for our core IaaS services of compute, storage and networking continues to expand and we are making targeted investments to expand our IaaS revenue. For example, in 2023, we invested in our content delivery network, launched Scalable Storage for our Managed Databases offering and broadened the geographic availability of our Spaces offering.
Our offerings give customers the ability to select their desired level of technical infrastructure management. Customers have the ability to choose from managing their own infrastructure and building their own bespoke solutions using our IaaS offerings, offloading the technical infrastructure entirely through our Managed Hosting offering or delegating certain aspects of the management using our managed PaaS offerings.
Customers have the ability to choose from managing their own infrastructure and building their own bespoke solutions using our IaaS or AI/ML offerings, offloading the technical infrastructure entirely through our Managed Hosting offering or delegating certain aspects of the management using our managed PaaS or AI/ML offerings. 13 Our customers are spread across approximately 190 countries with approximately two-thirds of our revenue coming from customers located outside the United States in 2023.
We focus heavily on securing our network, products and customer data from potential security threats with a dedicated team of security professionals.
We focus heavily on securing our network, products and customer data from potential security threats with a dedicated team of security professionals. We have implemented a comprehensive information security program, which is discussed in greater detail under Part I, Item 1C.
The efficiency of our go-to-market model and our focus on the needs of the SMB market has helped us build a global customer base. Our customers are spread across over 190 countries, and approximately two-thirds of our revenue has historically come from customers located outside the United States.
Our customers are spread across approximately 190 countries, and approximately two-thirds of our revenue has historically come from customers located outside the United States.
In 2022, we acquired learning-focused websites CSS-Tricks and JournalDev to add quality educational content to further our goal of enhancing our community engagement. Supporting and educating the developer community is one of our core values, but it also drives brand loyalty, expands our customer base and drives increased adoption of our products.
Supporting and educating the developer community is one of our core values, but it also drives brand loyalty, expands our customer base and drives increased adoption of our products.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeUnfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, labor shortages, supply chain disruptions, inflationary pressures, rising interest rates, financial and credit market fluctuations, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine or elsewhere, could cause a decrease in business investments on information technology, disrupt the timing and cadence of key industry events, and negatively affect the growth of our business and our results of operations.
Biggest changeUnfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, supply chain disruptions, inflationary pressures, interest rates, financial and credit market fluctuations, volatility in the capital markets, liquidity concerns at, and failures of, banks and other financial institutions, international trade relations, political turmoil, political instability and transitions of power in regions where we operate, including in Pakistan following the most recent general election, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine, the Middle East or elsewhere could cause a decrease in business investments in information technology and negatively affect the growth of our business and our results of operations.
We also expect our costs and expenses will increase in future periods, which could negatively affect our future results of operations if our revenue does not increase.
We also expect our costs and expenses will increase in future periods, which could negatively affect our future results of operations if our revenue also does not increase.
The Digital Millennium Copyright Act, or DMCA, provides service providers a safe harbor from monetary damages for copyright infringement claims, provided that service providers comply with various requirements designed to stop or discourage infringement on their platforms by their users.
The Digital Millennium Copyright Act (DMCA), provides service providers a safe harbor from monetary damages for copyright infringement claims, provided that service providers comply with various requirements designed to stop or discourage infringement on their platforms by their users.
Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock; • require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer; • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • establish that our board of directors is divided into three classes, with each class serving three-year staggered terms; • prohibit cumulative voting in the election of directors; • provide that our directors may be removed for cause only upon the vote of at least 66 2/3% of our outstanding shares of voting stock; • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and • require the approval of our board of directors or the holders of at least 66 2/3% of our outstanding shares of voting stock to amend our bylaws and certain provisions of our certificate of incorporation.
Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock; • require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer; 45 • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • establish that our board of directors is divided into three classes, with each class serving three-year staggered terms; • prohibit cumulative voting in the election of directors; • provide that our directors may be removed for cause only upon the vote of at least 66 2/3% of our outstanding shares of voting stock; • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and • require the approval of our board of directors or the holders of at least 66 2/3% of our outstanding shares of voting stock to amend our bylaws and certain provisions of our certificate of incorporation.
Other factors, many of which are beyond our control, that can affect the delivery, performance, and availability of our platform and products include: • the development, maintenance, and functioning of the infrastructure of the internet as a whole; 22 • the performance and availability of third-party telecommunications services with the necessary speed, data capacity, and security for providing reliable internet access and services; • the failure of our redundancy systems, in the event of a service disruption at one of the facilities hosting our network infrastructure, to redistribute load to other components of our network; • the failure of our disaster recovery and business continuity plans; and • decisions by the owners and operators of the co-location and ISP-partner facilities where our network infrastructure is deployed or by global telecommunications service provider partners who provide us with network bandwidth to terminate our contracts, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy, breach their contracts with us, or prioritize the traffic of other parties.
Other factors, many of which are beyond our control, that can affect the delivery, performance, and availability of our platform and products include: • the development, maintenance, and functioning of the infrastructure of the internet as a whole; • the performance and availability of third-party telecommunications services with the necessary speed, data capacity, and security for providing reliable internet access and services; • the failure of our redundancy systems, in the event of a service disruption at one of the facilities hosting our network infrastructure, to redistribute load to other components of our network; • the failure of our disaster recovery and business continuity plans; and • decisions by the owners and operators of the co-location and ISP-partner facilities where our network infrastructure is deployed or by global telecommunications service provider partners who provide us with network bandwidth to terminate our contracts, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy, breach their contracts with us, or prioritize the traffic of other parties.
If there is a reduction in demand caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data security or privacy concerns, governmental regulation, competing technologies and products, or decreases in information technology spending or otherwise, either now or in the future, the market for our platform and products might not continue to develop or might develop more slowly than we expect, which would adversely affect our business, financial condition and results of operations.
If there is a reduction in demand caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data security or privacy concerns, governmental regulation, competing technologies and products, or decreases in information technology spending or 21 otherwise, either now or in the future, the market for our platform and products might not continue to develop or might develop more slowly than we expect, which would adversely affect our business, financial condition and results of operations.
These restrictions limit the ability of our subsidiaries, and effectively limit our ability to, among other things: • incur or guarantee additional debt or issue disqualified equity interests; • pay dividends and make other distributions on, or redeem or repurchase, capital stock; • make certain investments; • incur certain liens; • enter into transactions with affiliates; • merge or consolidate; • enter into agreements that restrict the ability of restricted subsidiaries to make certain intercompany dividends, distributions, payments or transfers; and • transfer or sell assets.
These restrictions limit the ability of our subsidiaries, and effectively limit our ability to, among other things: • incur or guarantee additional debt or issue disqualified equity interests; • pay dividends and make other distributions on, or redeem or repurchase, capital stock; • make certain investments; • incur certain liens; • enter into transactions with affiliates; 34 • merge or consolidate; • enter into agreements that restrict the ability of restricted subsidiaries to make certain intercompany dividends, distributions, payments or transfers; and • transfer or sell assets.
The success of our business will depend, in 21 part, on our ability to adapt and respond effectively to these changes on a timely basis, anticipate and respond to customer demands and preferences, address business model shifts, optimize our go-to-market execution by improving our cost structure, align sales coverage with strategic goals, improve channel execution and strengthen our services and capabilities in our areas of strategic focus.
The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis, anticipate and respond to customer demands and preferences, address business model shifts, optimize our go-to-market execution by improving our cost structure, align sales coverage with strategic goals, improve channel execution and strengthen our services and capabilities in our areas of strategic focus.
In addition to the other risks described herein, factors that may affect our results of operations include the following: • fluctuations in demand for or pricing and usage of our platform and products; • our ability to attract new customers and retain existing customers; • customer expansion rates; • integration of new products; • timing and amount of our investments and capital expenditures related to successfully optimizing, utilizing and expanding our data center facilities; • the investment in and integration of new products and features relative to investments in our existing infrastructure and products; • our ability to control costs, including our operating expenses, and the timing of payment for expenses; • the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges; • the amount and timing of costs associated with recruiting, training and integrating new employees and retaining and motivating existing employees; • the effects of acquisitions, including the Cloudways acquisition, and their integration; • general economic conditions, both domestically and internationally, and economic conditions specifically affecting industries in which our customers participate; • the impact of new accounting pronouncements; • changes in regulatory or legal environments that may cause us to, among other elements, be unable to continue operating in a particular market, remove certain customers from our platform, and/or incur expenses associated with compliance; • changes in the competitive dynamics of our market, including consolidation among competitors or customers or new entrants into our market; • our ability to control fraudulent registrations and usage of our platform, reduce bad debt and lessen capacity constraints on our data centers, servers and equipment; and • significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our products and platform capabilities.
In addition to the other risks described herein, factors that may affect our results of operations include the following: • fluctuations in demand for or pricing and usage of our platform and products; • our ability to attract new customers and retain existing customers; • customer expansion rates; • integration of new products; • timing and amount of our investments and capital expenditures related to successfully optimizing, utilizing and expanding our data center facilities; • the investment in and integration of new products and features relative to investments in our existing infrastructure and products; • our ability to control costs, including our operating expenses, and the timing of payment for expenses; • the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges; • the amount and timing of costs associated with recruiting, training and integrating new employees and retaining and motivating existing employees; • the effects of acquisitions, including the recent Paperspace acquisition and previous Cloudways acquisition, and their integration; • general economic conditions, both domestically and internationally, and economic conditions specifically affecting industries in which our customers participate; • the impact of new accounting pronouncements; • changes in regulatory or legal environments that may cause us to, among other elements, be unable to continue operating in a particular market, remove certain customers from our platform, and/or incur expenses associated with compliance; • changes in the competitive dynamics of our market, including consolidation among competitors or customers or new entrants into our market; • our ability to control fraudulent registrations and usage of our platform, reduce bad debt and lessen capacity constraints on our data centers, servers and equipment; and • significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our products and platform capabilities.
Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance with law, such as the EEA and UK’s standard contractual clauses, these mechanisms are 36 subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States.
Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance with law, such as the EEA and UK’s standard contractual clauses, these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States.
Additionally, although we maintain cybersecurity insurance coverage, we cannot be certain that such coverage will be adequate for data security liabilities actually incurred, will cover any indemnification claims against us relating to any incident, will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
Additionally, although we maintain cybersecurity insurance coverage, we cannot be 24 certain that such coverage will be adequate for data security liabilities actually incurred, will cover any indemnification claims against us relating to any incident, will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
However, the current strengthening of the U.S. dollar increases the real cost of our platform to our customers outside of the United States, which could adversely affect our results of operations. Our operating expenses incurred 29 outside the United States are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates.
However, the current strengthening of the U.S. dollar increases the real cost of our platform to our customers outside of the United States, which could adversely affect our results of operations. Our operating expenses incurred outside the United States are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates.
Section 230 of the Communications Decency Act, or CDA, protects providers of an interactive computer service from liability with respect to most types of content provided over their service by others, including users. Both the DMCA safe harbor and Section 230 of the CDA face regular and current, calls for revision.
Section 230 of the Communications Decency Act (CDA), protects providers of an interactive computer service from liability with respect to most types of content provided over their service by others, including users. Both the DMCA safe harbor and Section 230 of the CDA face regular and current, calls for revision.
Moreover, 26 the harm to our reputation and legal liability related to such defects or errors may be substantial and could similarly harm our business. The markets in which we participate are competitive, and if we do not compete effectively, our business, financial condition and results of operations could be harmed.
Moreover, the harm to our reputation and legal liability related to such defects or errors may be substantial and could similarly harm our business. The markets in which we participate are competitive, and if we do not compete effectively, our business, financial condition and results of operations could be harmed.
As we increase our international sales and business, we may engage with business partners and third party intermediaries to market our products and to obtain necessary permits, licenses, and other regulatory approvals, and may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities.
As we increase our international business, we may engage with business partners and third party intermediaries to market our products and to obtain necessary permits, licenses, and other regulatory approvals, and may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities.
You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. Even if our revenue continues to increase, our revenue growth rate may decline in the future as a result of a variety of factors, including the maturation of our business.
In particular, you should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. Even if our revenue continues to increase, our revenue growth rate may decline in the future as a result of a variety of factors, including the maturation of our business.
We are exposed to fluctuations in currency exchange rates and interest rates, which could negatively affect our results of operations and our ability to invest and hold our cash. Our sales are primarily denominated in U.S. dollars, and therefore, our revenue is generally not subject to foreign currency risk.
We are exposed to fluctuations in currency exchange rates and interest rates, which could negatively affect our results of operations and our ability to invest and hold our cash. 32 Our sales are primarily denominated in U.S. dollars, and therefore, our revenue is generally not subject to foreign currency risk.
If a court were to find either choice of forum 42 provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
If a court were to find either choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
In light of our privacy commitments, we may legally challenge law enforcement requests to provide access to our systems, customer Droplets, or other user content but may face complaints that we have provided information improperly to law enforcement or in response to third party abuse complaints.
In light of our privacy commitments, we may legally challenge law enforcement requests to provide access to our systems, customer Droplets, or other user 40 content but may face complaints that we have provided information improperly to law enforcement or in response to third party abuse complaints.
We cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase.
We cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international business, our risks under these laws may increase.
If any internal restructuring activities we 19 have undertaken or undertake in the future fail to achieve some or all of the expected benefits therefrom, our business, results of operations and financial condition could be materially and adversely affected.
If any internal restructuring activities we have undertaken or undertake in the future fail to achieve some or all of the expected benefits therefrom, our business, results of operations and financial condition could be materially and adversely affected.
As we continue to add product and service capabilities, our data center networks become increasingly complex and operating them becomes more challenging. The terms of our existing data center agreements and leases vary in length and expire on various dates.
As we continue to add product and service capabilities, our data center networks become increasingly complex and operating them becomes more challenging. 23 The terms of our existing data center agreements and leases vary in length and expire on various dates.
Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our facilities or the facilities of our public cloud providers could result in disruptions, outages, and other 33 performance and quality problems.
Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our facilities or the facilities of our public cloud providers could result in disruptions, outages, and other performance and quality problems.
New rules related to the ePrivacy Regulation are likely to include enhanced consent requirements in order to use communications content and metadata, which may negatively impact our platform and products and our relationships with our customers.
New rules related to the ePrivacy Regulation are likely to include enhanced consent requirements in order to use 39 communications content and metadata, which may negatively impact our platform and products and our relationships with our customers.
From time to time, we are subject to legal claims arising from the conduct of certain of our customers and may be subject to additional lawsuits or regulatory enforcement actions relating to the content or actions by our customers or users.
From time to 36 time, we are subject to legal claims arising from the conduct of certain of our customers and may be subject to additional lawsuits or regulatory enforcement actions relating to the content or actions by our customers or users.
Complying with the GDPR and the ePrivacy Regulation, if and when the latter becomes effective, may cause us to incur substantial operational costs or require us to change our business practices.
Complying with the EU GDPR and the ePrivacy Regulation, if and when the latter becomes effective, may cause us to incur substantial operational costs or require us to change our business practices.
In November 2021, we issued $1.5 billion aggregate principal amount of 0% convertible senior notes due 2026 in a private placement. As of December 31, 2022, we had no outstanding indebtedness, but significant borrowing capacity, under our credit facility with KeyBank National Association, as administrative agent, and the other lenders party thereto.
In November 2021, we issued $1.5 billion aggregate principal amount of 0% convertible senior notes due 2026 in a private placement. As of December 31, 2023, we had no outstanding indebtedness, but significant borrowing capacity, under our credit facility with KeyBank National Association, as administrative agent, and the other lenders party thereto.
Foreign Corrupt Practices Act, or FCPA, U.S. domestic bribery laws, the UK Bribery Act, and other anti-corruption and anti-money laundering laws in the countries in which we conduct activities.
Foreign Corrupt Practices Act (FCPA), U.S. domestic bribery laws, the UK Bribery Act, and other anti-corruption and anti-money laundering laws in the countries in which we conduct activities.
In Canada, the Personal Information Protection and Electronic Documents Act (PIPEDA) and various related provincial laws, as well as Canada’s Anti-Spam Legislation (CASL), may apply to our operations. In addition to the GDPR, the European Commission has another draft regulation, known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, that would replace the current ePrivacy Directive.
In Canada, the Personal Information Protection and Electronic Documents Act (PIPEDA) and various related provincial laws, as well as Canada’s Anti-Spam Legislation (CASL), may apply to our operations. In addition to the EU GDPR, the European Commission has another draft regulation, known as the Regulation on Privacy and Electronic Communications (ePrivacy Regulation), that would replace the current ePrivacy Directive.
As noted below in “Risks Related to Our Intellectual Property,” there also are risks that we may not be able to adequately enforce and protect our trademark rights in our brand. If we fail to successfully promote and maintain our brand, our business, financial condition and results of operations may suffer.
As noted below in “Risks Related to Our Intellectual Property,” there also are risks that we may not be able to adequately enforce and protect our trademark rights in our brands. If we fail to successfully promote and maintain our brands, our business, financial condition and results of operations may suffer.
If we fail to integrate our platform with new third-party applications that our customers use, we may not be able to offer the functionality that our customers need, which would harm our business. We rely heavily on the reliability, security and performance of our internally developed systems and operations.
If we fail to integrate our platform with third-party applications that our customers use, we may not be able to offer the functionality that our customers need, which would harm our business. 26 We rely heavily on the reliability, security and performance of our internally developed systems and operations.
There is also a risk that regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons, could cause our existing NOLs to expire or otherwise be unavailable to reduce future income tax liabilities, including for state tax purposes.
There is also a risk that regulatory changes, such as suspensions on the use of NOLs or other tax credits, or other unforeseen reasons, could cause our existing NOLs or tax credits to expire or otherwise be unavailable to reduce current or future income tax liabilities, including for state tax purposes.
We believe that maintaining and enhancing the DigitalOcean and Cloudways brands are important to support the marketing and sale of our existing and future products to new customers and expand sales of our platform and products to existing customers. We also believe that the importance of brand recognition will increase as competition in our market increases.
We believe that maintaining and enhancing our brands are important to support the marketing and sale of our existing and future products to new customers and expand sales of our platform and products to existing customers. We also believe that the importance of brand recognition will increase as competition in our market increases.
In addition, various countries regulate the import of certain technology and have enacted 37 or could enact laws that could limit our ability to provide our customers access to our platform or could limit our customers’ ability to access or use our platform in those countries. Furthermore, we incorporate encryption technology into certain of our products.
In addition, various countries regulate the import of certain technology and have enacted or could enact laws that could limit our ability to provide our customers access to our platform or could limit our customers’ ability to access or use our platform in those countries. We incorporate encryption technology into certain of our products.
If our self-service customer acquisition model is not as effective as we anticipate or our sales team is not successful at growing our customer base, specifically our higher spend customers, our future growth will be impacted. In addition, we must persuade potential customers that our products offer significant advantages over those of our competitors.
If our self-service customer acquisition model is not as effective as we anticipate or our sales force is not successful at growing our customer base, specifically our higher spend customers, our future growth will be impacted. 20 In addition, we must persuade potential customers that our products offer significant advantages over those of our competitors.
In order to expand our commercial relationship with our customers, existing customers must decide that the incremental cost associated with such an increase in usage or subscription to additional products is justified by the additional functionality.
In order to expand our commercial relationships with our customers, existing customers must decide that the incremental cost associated with such an increase in usage or subscription to additional products is justified by the additional functionality.
If our efforts to expand our relationship with our existing customers are not successful, our financial condition and results of operations may materially suffer. 20 In addition, to encourage awareness, usage, familiarity and adoption of our platform and products, we may offer a credit or other incentives to new customers who sign up for and use our platform.
If our efforts to expand our relationships with our existing customers are not successful, our financial condition and results of operations may materially suffer. In addition, to encourage awareness, usage, familiarity and adoption of our platform and products, we may offer a credit or other incentives to new customers who sign up for and use our platform.
These changes could affect, among other things, areas related to our business such as the following: • the liability of online service providers for actions by customers or users, including fraud, illegal content, spam, phishing, libel and defamation, hate speech, infringement of third-party intellectual property and other abusive conduct; • other claims based on the nature and content of internet materials; • user data privacy and security issues; • consumer protection risks; • digital marketing aspects; • characteristics and quality of services, including changes to networking relationships and anti-circumvention technologies; • the contractual terms within our terms of service and other agreements with customers; • cross-border e-commerce issues; and • ease of access by our users to our platform.
These changes could affect, among other things, areas related to our business such as the following: • the liability of online service providers for actions by customers or users, including fraud, illegal content, spam, phishing, libel and defamation, hate speech, infringement of third-party intellectual property and other abusive conduct; • other claims based on the nature and content of internet materials; • user data privacy and security issues; • consumer protection risks; • evolving regulatory framework for AI/ML; 37 • digital marketing aspects; • characteristics and quality of services, including changes to networking relationships and anti-circumvention technologies; • the contractual terms within our terms of service and other agreements with customers; • cross-border e-commerce issues; and • ease of access by our users to our platform.
As we expand our international activities, our exposure to unauthorized copying and use of our products, services, and other intellectual property, such as our trademarks, will likely increase. As we further expand internationally, we may be unable to register, obtain the right to use, or stop others from using, the DigitalOcean or Cloudways names in certain jurisdictions.
As we expand our international activities, our exposure to unauthorized copying and use of our products, services, and other intellectual property, such as our trademarks, will likely increase. As we further expand internationally, we may be unable to register, obtain the right to use, or stop others from using, our brand names in certain jurisdictions.
While we utilize data centers in the EEA to maintain certain customer and user data (which may include personal data) originating from the EU in the EEA, we may find it necessary to establish additional systems and processes to maintain such data in the EEA, which may involve substantial expense and distraction from other aspects of our business.
While we utilize data centers in the European Economic Area (EEA) to maintain certain customer and user data (which may include personal data) originating from the EU in the EEA, we may find it necessary to establish additional systems and processes to maintain such data in the EEA, which may involve substantial expense and distraction from other aspects of our business.
We may not successfully accomplish any of these objectives and, as a result, it is difficult for us to forecast our future results of operations.
We may not successfully accomplish any of our objectives and, as a 18 result, it is difficult for us to forecast our future results of operations.
Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the European Economic Area (EEA) and the United Kingdom (UK) have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate.
Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the EEA and the United Kingdom (UK) have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate.
Our current and future international business and operations involve a variety of risks, including: • slower than anticipated availability and adoption of cloud-based infrastructures and platforms by international businesses; • the need to adapt and localize our products for specific countries; • greater difficulty collecting accounts receivable and longer payment cycles; • potential changes in trade relations, regulations, or laws; • more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information, particularly in Europe; • challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs that are specific to each jurisdiction; • payment issues and other foreign currency risks, including fluctuations in exchange rates; • laws and business practices favoring local competitors or general market preferences for local vendors; • political instability or terrorist activities; • potential changes in laws, regulations and costs affecting our U.K. operations and local employees due to Brexit; • an outbreak of a contagious disease may cause us or our third-party providers and/or customers to temporarily suspend our or their respective operations in the affected city or country; and • adverse tax burdens and foreign exchange restrictions that could make it difficult to repatriate earnings and cash.
Our current and future international business and operations involve a variety of risks, including: • slower than anticipated availability and adoption of cloud-based infrastructures and platforms by international businesses; • the need to adapt and localize our products for specific countries; • potential changes in trade relations, regulations, or laws; • more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information, particularly in Europe; • challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs that are specific to each jurisdiction; • greater difficulty collecting accounts receivable and longer payment cycles; • payment issues and other foreign currency risks, including fluctuations in exchange rates; • inflation in certain regions where we operate; • laws and business practices favoring local competitors or general market preferences for local vendors; • political instability or terrorist activities; • an outbreak of a contagious disease or a natural disaster that may cause us or our third-party providers and/or customers to temporarily suspend our or their respective operations in the affected city or country; and • adverse tax burdens and foreign exchange restrictions that could make it difficult to repatriate earnings and cash.
If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we or our customers could be subject to lawsuits, and we could incur significant legal expenses defending against such allegations, be subject to significant damages resulting from the suits, enjoined from the sale of our products that contained the open source software, and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these products.
If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses or such third party changes the type of open source license applicable to such software without our knowledge, we or our customers could be subject to lawsuits, and we could incur significant legal expenses defending against such allegations, be subject to significant damages resulting from the suits, enjoined from the sale of our products that contained the open source software, and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these products.
Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays, and other unknown factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our business, financial position and results of operations may be harmed, and we may not achieve or maintain profitability in the future.
Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays, and other unknown factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our business, financial position and results of operations may be harmed, and we may not sustain profitability in the future.
In addition to liability based on our activities in the U.S., we may also be deemed subject to laws in other countries that may not have the same protections or that may impose more onerous obligations on us, which may impose additional liability or expense on us, including additional theories of intermediary liability.
In addition to liability based on our activities in the United States, we may also be deemed subject to laws in other countries that may not have the same protections or that may impose more onerous obligations on us, which may impose additional liability or expense on us, including additional theories of intermediary liability.
For example, in 2019, the EU approved a copyright directive that will impose additional obligations on online platforms, and failure to comply could give rise to significant liability.
For example, in 2019, the European Union approved a copyright directive that will impose additional obligations on online platforms, and failure to comply could give rise to significant liability.
Our reliance on these suppliers exposes us to risks, including: • reduced control over production costs and constraints based on the then current availability, terms, and pricing of these components; • limited ability to control the quality, quantity and cost of our products or of their components; • the potential for binding price or purchase commitments with our suppliers at higher than market rates; • limited ability to adjust production volumes in response to our customers’ demand fluctuations; • labor and political unrest at facilities we do not operate or own; • geopolitical disputes disrupting our supply chain; • business, legal compliance, litigation and financial concerns affecting our suppliers or their ability to manufacture and ship our products in the quantities, quality and manner we require; • impacts on our supply chain from adverse public health developments, including outbreaks of contagious diseases; and • disruptions due to floods, earthquakes, storms and other natural disasters, particularly in countries with limited infrastructure and disaster recovery resources.
Our reliance on these suppliers exposes us to risks, including: • reduced control over production costs and constraints based on the then current availability, terms, and pricing of these components; • competition with larger cloud computing companies and other consumers with respect to high demand equipment, such as GPUs; • limited ability to control the quality, quantity and cost of our products or of their components; • the potential for binding price or purchase commitments with our suppliers at higher than market rates; • limited ability to adjust production volumes in response to our customers’ demand fluctuations; • labor and political unrest at facilities we do not operate or own; • geopolitical disputes disrupting our supply chain; • business, legal compliance, litigation and financial concerns affecting our suppliers or their ability to manufacture and ship our products in the quantities, quality and manner we require; • impacts on our supply chain from adverse public health developments, including outbreaks of contagious diseases; and • disruptions due to floods, earthquakes, storms and other natural disasters, particularly in countries with limited infrastructure and disaster recovery resources.
The primary vendors in this category include Amazon (AWS), Microsoft (Azure), Google (GCP), IBM and Oracle. We also compete with smaller, niche cloud service providers that typically target individuals and smaller businesses, simple use cases or narrower geographic markets. Some examples in this category include OVHcloud, Vultr and Heroku.
The primary vendors in this category include Amazon (AWS), Microsoft (Azure), Google (GCP), IBM (IBM Cloud), Alibaba (Alibaba Cloud) and Oracle (Oracle Cloud). We also compete with smaller, 27 niche cloud service providers that typically target individuals and smaller businesses, simple use cases or narrower geographic markets. Some examples in this category include OVHcloud, Vultr, Akamai (Linode), Hetzner and Heroku.
In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products and platform capabilities, personnel or operations of any acquired companies, particularly if the key personnel of an acquired company choose not to work for us, their infrastructure is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise.
In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products and platform capabilities, personnel or operations of any acquired companies, particularly if the key personnel of an acquired company choose not to work for us, if we do not have sufficient internal expertise to integrate and grow the acquired business, their infrastructure is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise.
We may experience a future ownership change under 30 Section 382 of the Code that could affect our ability to utilize the NOLs to offset our income. Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations.
We may experience a future ownership change under Section 382 of the Code that could affect our ability to utilize the NOLs to offset our income. Furthermore, our ability to utilize NOLs and tax credits of companies that we have acquired or may acquire in the future may be subject to limitations.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” (as defined under Section 382 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), a corporation that undergoes an “ownership change” (as defined under Section 382 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs or other tax credits to offset future taxable income.
Any outstanding indebtedness could have a material adverse effect on our business and financial condition, including: • requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness; • exposing us to increased interest expense; • making it more difficult for us to satisfy our obligations with respect to our indebtedness; • restricting us from making strategic acquisitions; • limiting our ability to obtain additional financing for working capital, capital expenditures, product development, satisfaction of debt service requirements, acquisitions and general corporate or other purposes; • increasing our vulnerability to adverse economic, industry or competitive developments; and • limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who may be better positioned to take advantage of opportunities that our leverage prevents us from exploiting.
Any other indebtedness we incur could impact our business and financial condition in one or more of the following ways: • requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness; • exposing us to increased interest expense; • making it more difficult for us to satisfy our obligations with respect to our indebtedness; • restricting us from making strategic acquisitions; • limiting our ability to obtain additional financing for working capital, capital expenditures, product development, satisfaction of debt service requirements, acquisitions and general corporate or other purposes; • increasing our vulnerability to adverse economic, industry or competitive developments; and • limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who may be better positioned to take advantage of opportunities that our leverage prevents us from exploiting.
For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability, which could potentially result in increased future tax liability to us and could adversely affect our operating results and financial condition.
For these reasons, we may not be able to utilize a material portion of the NOLs and tax credits reflected on our balance sheet, which could potentially result in increased future tax liability to us and could adversely affect our operating results and financial condition.
The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including: • actual or anticipated fluctuations in our financial condition or results of operations; • variance in our financial performance from expectations of securities analysts or the financial guidance we provide to the public; • changes in the pricing of our products and platform; • changes in our projected operating and financial results; • changes in laws or regulations applicable to our platform and products; • announcements by us or our competitors of significant business developments, acquisitions, or new offerings; • significant data breaches, disruptions to or other incidents involving our software; • our involvement in litigation; • future sales of our common stock by us or our stockholders, as well as the anticipation of lock-up releases; • changes in senior management or key personnel; • the trading volume of our common stock; • changes in the anticipated future size and growth rate of our market; and • general economic and market conditions.
The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including: • actual or anticipated fluctuations in our financial condition or results of operations; • variance in our financial performance from expectations of securities analysts or the financial guidance we provide to the public; • changes in the pricing of our products and platform; • changes in our projected operating and financial results; • changes in laws or regulations applicable to our platform and products; • announcements by us or our competitors of significant business developments, acquisitions, or new offerings; • significant data breaches, disruptions to or other incidents involving our software; • our involvement in litigation; • future sales of our common stock by us or our stockholders; • changes in senior management or key personnel; • the trading volume of our common stock; • changes in the anticipated future size and growth rate of our market; and • general economic and market conditions. 44 Broad market and industry fluctuations, as well as general economic, geopolitical, regulatory, and market conditions, may also negatively impact the market price of our common stock.
Further, due to political uncertainty and military actions involving Russia, Ukraine and surrounding regions, we and the third parties upon which we rely may be vulnerable to a heightened risk of cyber-attacks, computer malware, viruses, supply chain attacks, social engineering (including spear phishing and ransomware attacks) and general hacking that could materially disrupt our systems and operations.
Further, due to political uncertainty and military actions, we and the third parties upon which we rely may be vulnerable to a heightened risk of cyber-attacks, computer malware, viruses, supply chain attacks, social engineering 31 (including spear phishing and ransomware attacks) and general hacking that could materially disrupt our systems and operations.
We could also face risks related to liability for activities of Cloudways or any other acquired company before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities, and litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties, and our efforts to limit such liabilities could be unsuccessful.
In addition, we could face risk related to liability for activities of any acquired company prior to the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities, and litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties, and our efforts to limit such liabilities could be unsuccessful.
For example, we initiated a restructuring plan in February 2023 that resulted in a reduction in our workforce. We incur substantial costs to implement restructuring plans, and our restructuring activities may subject us to reputational risks and litigation risks and expenses.
For example, in 2023 we completed a restructuring that resulted in a reduction in our workforce. We incur substantial costs to implement restructuring plans, and our restructuring activities may subject us to reputational risks and litigation risks and expenses.
We (like other intermediary online service providers) rely primarily on two sets of laws in the U.S. to shield us from legal liability with respect to user activity.
We (like other intermediary online service providers) rely primarily on two sets of laws in the United States to shield us from legal liability with respect to user activity.
Furthermore, legal and regulatory authorities, both in the U.S. and internationally, may characterize or recharacterize us and our business, products, or services in ways that would apply additional or different regulations to us.
Furthermore, legal and regulatory authorities, both in the United States and internationally, may characterize or recharacterize us and our business, products, or services in ways that would apply additional or different regulations to us.
If we are unsuccessful in integrating Cloudways or growing the business in the coming years, the acquisition may not result in the synergies and other benefits we had expected to achieve, and the revenue and operating results of the combined company could be adversely affected.
If we are unsuccessful in integrating or growing any acquired business, the acquisition may not result in the synergies and other benefits we had expected to achieve, and the revenue and operating results of the combined company could be adversely affected.
There can be no assurance that any restructuring activities that we have undertaken or undertake in the future will achieve the cost savings, operating efficiencies or other benefits that we may initially expect.
There can be no assurance that any restructuring activities that we undertake will achieve the cost savings, operating efficiencies or other benefits that we may initially expect.
We believe that the startup and SMB markets are underserved, and we intend to continue to devote substantial resources to such markets. However, these customers and potential customers frequently have limited budgets and may choose to allocate resources to items other than our solutions, especially in times of economic uncertainty or recessions.
We believe that the markets for startups and growing digital businesses are underserved, and we intend to continue to devote substantial resources to such markets. However, these customers and potential customers frequently have limited budgets and may choose to allocate resources to items other than our solutions, especially in times of economic uncertainty or recessions.
It is difficult to predict customer adoption rates and demand for our products and services, the entry of competitive products or services or the future growth rate and size of the Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) markets.
It is difficult to predict customer adoption rates and demand for our products and services, the entry of competitive products or services or the future growth rate and size of the Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), Software-as-a-Service (SaaS) and artificial intelligence and machine learning (AI/ML) markets.
Our failure to comply with the restrictive covenants described above as well as other terms of our indebtedness or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date.
Our failure to comply with any of the existing restrictions described above or any other restrictions associated with the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date.
Further, increased inflation rates and related increases in interest rates could have a material and adverse effect on our business, financial condition or results of operations.
Further, fluctuations in inflation rates and interest rates could have a material and adverse effect on our business, financial condition or results of operations.
The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations.
The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations.
In the past, companies that have experienced volatility in the market price 40 of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.
In addition, technology stocks have historically experienced high levels of volatility. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.
Our core customer base consists of startups and small and medium-sized businesses (SMBs). As these individuals and organizations grow, if we are unable to meet their evolving needs, we may not be able to retain them as customers.
Our core customer base consists of startups and growing digital businesses. As these individuals and organizations grow, if we are unable to meet their evolving needs, we may not be able to retain them as customers.
We may undertake internal restructuring activities that could result in disruptions to our business or otherwise materially harm our results of operations or financial condition. From time to time, we may undertake internal restructuring activities in an effort to better align our resources with our business strategy.
We have in the past and may in the future undertake internal restructuring activities that could result in disruptions to our business or otherwise materially harm our results of operations or financial condition. We have in the past and may in the future undertake internal restructuring activities in an effort to better align our resources with our business strategy.
Additional financing may not be available on terms 32 favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results, and financial condition.
If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results, and financial condition.
In addition, we expect to continue to expend substantial financial and other resources on: • our technology infrastructure, including systems architecture, scalability, availability, performance, security, hardware, equipment and other capital expenditures, including expenses to increase or maintain data center capacity and to successfully optimize and operate data center facilities; • our sales and marketing organization to engage our existing and prospective customers, increase brand awareness and drive adoption of our products; • product development, including the development of new products and new functionality for our platform as well as investments in both further optimizing our existing products and infrastructure and expanding our integrations and other add-ons to existing products and services; • acquisitions or strategic investments; and • general administration, including increased legal and accounting expenses associated with being a public company.
If we are unable to sustain profitability, the value of our business and common stock may significantly decrease. 19 In addition, we expect to continue to expend substantial financial and other resources on: • our technology infrastructure, including systems architecture, scalability, availability, performance, security, hardware, equipment and other capital expenditures, including expenses to increase or maintain data center capacity and to successfully optimize and operate data center facilities; • our sales and marketing organization to engage our existing and prospective customers, increase brand awareness and drive adoption of our products; • product development, including the development of new products and new functionality for our platform as well as investments in both further optimizing our existing products and infrastructure and expanding our integrations and other add-ons to existing products and services; • acquisitions or strategic investments; and • general administration, including increased legal and accounting expenses.
We do not have sufficient history with our pricing model to accurately predict the optimal pricing necessary to attract new customers and retain existing customers. Our pricing model subjects us to various challenges that could make it difficult for us to derive sufficient value from our customers.
We may be unable to accurately predict the optimal pricing necessary to attract new customers and retain existing customers. Our pricing model subjects us to various challenges that could make it difficult for us to derive sufficient value from our customers.
If we do not continue to maintain our corporate culture as we grow and expand to new geographies, we may be unable to foster the innovation, creativity and entrepreneurial spirit we believe we need to support our growth.
If we do not continue to maintain our corporate culture as we grow and expand to new geographies or as a result of any reductions in workforce, we may be unable to foster the innovation, creativity and entrepreneurial spirit we believe we need to support our growth.
While we have experienced significant revenue growth in recent periods, we are not certain whether or when we will obtain a high enough volume of sales to sustain or increase our growth or achieve or maintain profitability in the future.
We have incurred significant losses in the past and continue to have an accumulated deficit. While we have experienced revenue growth in recent periods, we are not certain whether or when we will obtain a high enough volume of sales to sustain or increase our growth or maintain profitability in the future.
Our success depends to a significant degree on our ability to obtain, maintain, protect and enforce our intellectual property rights. We rely on a combination of trademarks, service marks, trade secrets, patents, copyrights, contractual restrictions, and confidentiality procedures to establish and protect our intellectual and proprietary rights, including in our technology, know-how, and brand.
We rely on a combination of trademarks, service marks, trade secrets, patents, copyrights, contractual restrictions, and confidentiality procedures to establish and protect our intellectual and proprietary rights, including in our technology, know-how, and brand.
Such changes may require us to incur additional costs for compliance. 41 Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Our credit agreement imposes significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities. 31 The credit agreement that governs our credit facility imposes significant operating and financial restrictions on us.
Our credit agreement currently imposes and any other debt we incur may impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities. The credit agreement that governs our credit facility imposes significant operating and financial restrictions on us.
Our actual or perceived failure to comply with such obligations could harm our business. We are subject to a variety of enacted and proposed federal, state, local and international laws, directives and regulations relating to the collection, use, security, transfer and other processing of personally identifiable information, 35 along with other similar laws (e.g., wiretapping laws).
We are subject to a variety of enacted and proposed federal, state, local and international laws, directives and regulations relating to the collection, use, security, transfer and other processing of personally identifiable information, along with other similar laws (e.g., wiretapping laws).
Privacy and data security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and foreign countries, including, for example, India, where new legislation is expected in the near term.
Privacy and data security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and foreign countries, including, for example, India, where new legislation is expected in the near term. Furthermore, in order to offer our products to certain customers, we may be required to comply with additional regulations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAdditionally, we lease space to operate 15 data centers worldwide, including in the United States, Australia, Canada, Germany, India, the Netherlands, Singapore and the United Kingdom. We do not own any real property.
Biggest changeThe lease and the related subleases terminate in July 2025. We also have entered into leases for small spaces in a number of co-working locations. Additionally, we lease space to operate 16 data centers worldwide, including in the United States, Australia, Canada, Germany, India, the Netherlands, Singapore and the United Kingdom. We do not own any real property.
Removed
The lease and the related subleases terminate in July 2025. 43 We also have entered into leases for small spaces in a number of co-working locations. Furthermore, we have recently entered into an arrangement with a third party to allow employees the opportunity to access a shared work space.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeDefending such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. ITEM 4.
Biggest changeThe results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Removed
ITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various legal proceedings arising from the normal course of business activities. We are not presently a party to any litigation the outcome of which, if determined adversely to us, would in our estimation, have a material adverse effect on our business, operating results, cash flows or financial condition.
Added
ITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various legal proceedings. Defending such proceedings can be costly and can impose a significant burden on management and employees.
Removed
MINE SAFETY DISCLOSURES Not applicable. 44 PART II
Added
On September 12, 2023, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York against us and certain of our current and former executive officers for alleged violations of the U.S. federal securities laws. The complaint in the lawsuit, captioned Agarwal v. DigitalOcean Holdings, Inc., et. al.
Added
(Case 1:23-cv-08060), asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a proposed class consisting of those who acquired our common stock between February 16, 2023 and August 25, 2023 (the “Putative Class Period”), and alleged that we made materially false and misleading statements regarding our business during the Putative Class Period.
Added
On January 3, 2024, the plaintiff in the federal class action lawsuit voluntarily dismissed the action without prejudice.
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On December 12, 2023 and December 14, 2023, respectively, we were named a nominal defendant in two putative stockholder derivative actions filed in the United States District Court for the District of Delaware against our directors and our former chief executive officer and member of the board. The complaints in the two lawsuits, captioned Flanagan v. Spruill, et al.
Added
(Case No. 1:23-cv-01424-RGA) and Reynolds v. Spruill, et al. (Case No. 1:23-cv-01433-RGA), alleged, among other things, violations of federal law and breaches of fiduciary duty, in relation to substantially the same factual allegations as the above-described federal class action lawsuit captioned Agarwal v. DigitalOcean Holdings, Inc., et. al. (Case 1:23-cv-08060). On January 12, 2024, the two cases were consolidated.
Added
On February 7, 2024, the consolidated action was voluntarily dismissed without prejudice. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 49 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock Our common stock trades on The New York Stock Exchange (“NYSE”) under the symbol “DOCN”. Holders of Record As of February 9, 2023, there were 50 stockholders of record of our common stock.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock Our common stock trades on The New York Stock Exchange (“NYSE”) under the symbol “DOCN”. Holders of Record As of February 8, 2024, there were 36 stockholders of record of our common stock.
Stock Performance Graph The graph below shows a comparison, from March 24, 2021 (the date our common stock commenced trading on the NYSE) through December 31, 2022, of the cumulative total return to stockholders of our common stock relative to the Standard & Poor’s 500 Index (“S&P 500”) and the S&P Information Technology Index (“S&P Information Technology”).
Stock Performance Graph The graph below shows a comparison, from March 24, 2021 (the date our common stock commenced trading on the NYSE) through December 31, 2023, of the cumulative total return to stockholders of our common stock relative to the Standard & Poor’s 500 Index (“S&P 500”) and the S&P Information Technology Index (“S&P Information Technology”).
The stock price performance shown in the graph represents past performance and should not be considered an indication of future stock price performance. 45 Information used in the graph was obtained from a source we believe to be reliable, but we do not assume responsibility for any errors or omissions in such information.
The stock price performance shown in the graph represents past performance and should not be considered an indication of future stock price performance. 50 Information used in the graph was obtained from a source we believe to be reliable, but we do not assume responsibility for any errors or omissions in such information.
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Use of Proceeds Not applicable. Issuer Purchases of Equity Securities There were no repurchases of our common stock during the three months ended December 31, 2022.
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Issuer Purchases of Equity Securities The following table provides information with respect to repurchases of shares of common stock by the Company during the three months ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program (1) Approximate Dollar Value (in thousands) of Shares that May Yet Be Purchased Under the Program (1) October 1-31, 2023 481,114 $ 22.87 481,114 $ 14,046 November 1-30, 2023 117,691 21.24 117,691 11,545 December 1-31, 2023 — — — — Total 598,805 $ 22.55 598,805 (1) On February 14, 2023, the Company’s Board of Directors approved the repurchase of up to an aggregate of $500.0 million of the Company’s common stock (the “2023 Share Buyback Program”).
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Pursuant to the 2023 Share Buyback Program, repurchases of the Company’s common stock could occur using a variety of methods, which could include but was not limited to open market purchases, the implementation of a 10b5-1 plan, and/or any other available methods in accordance with SEC and other applicable legal requirements.
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The 2023 Share Buyback Program expired on December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

97 edited+40 added−35 removed34 unchanged
Biggest changeThe following table presents a reconciliation of Net loss attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to Non-GAAP Net income for each of the periods presented: 61 Year Ended December 31, (In thousands except per share data) 2022 2021 2020 GAAP Net loss attributable to common stockholders $ (24,283) $ (19,503) $ (43,568) Stock-based compensation 105,829 61,577 29,456 Acquisition related compensation 9,443 — — Amortization of acquired intangible assets 6,301 671 304 Acquisition and integration related costs 5,439 469 — Release of VAT reserve — (3,188) — Loss on extinguishment of debt 407 3,435 259 Impairment of long-lived assets 1,635 285 1,222 Restructuring and severance — — 4,213 Revaluation of warrants — (556) 12,825 Income tax effects of non-GAAP adjustments (1) (34) 235 6 Non-GAAP Net income (2) $ 104,737 $ 43,425 $ 4,717 Non-GAAP Diluted net income per share (2)(3) $ 0.94 $ 0.37 $ 0.11 Weighted-average shares used to compute Non-GAAP diluted net income per share 118,178 118,028 41,658 ___________________ (1) 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%.
Biggest changeThe following table presents a reconciliation of Net income (loss) attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to Non-GAAP Net income for each of the periods presented: 66 Year Ended December 31, (In thousands, except per share amounts) 2023 2022 2021 GAAP Net income (loss) attributable to common stockholders $ 19,409 $ (27,804) $ (19,503) Stock-based compensation (1) 115,019 105,829 61,577 Acquisition related compensation 27,763 9,443 — Amortization of acquired intangible assets 18,967 6,301 671 Acquisition and integration related costs 6,145 5,439 469 Loss on extinguishment of debt — 407 3,435 Restructuring and other charges 20,887 — — Restructuring related charges (2) (23,535) — — Impairment of long-lived assets 1,140 1,635 285 Revaluation of warrants (3) — — (556) Release of VAT reserve (4) — — (3,188) Non-GAAP income tax adjustment (6) (25,469) (34) 235 Non-GAAP Net income $ 160,326 $ 101,216 $ 43,425 Non-cash charges related to convertible notes (5) $ 6,249 $ 5,910 $ 696 Non-GAAP Net income used to compute net income per share, diluted $ 166,575 $ 107,126 $ 44,121 GAAP Net income (loss) per share attributable to common stockholders, diluted $ 0.20 $ (0.28) $ (0.21) Stock-based compensation (1) 1.10 0.91 0.54 Acquisition related compensation 0.26 0.09 — Amortization of acquired intangible assets 0.18 0.06 0.02 Acquisition and integration related costs 0.06 0.06 — Loss on extinguishment of debt — — 0.04 Restructuring and other charges 0.20 — — Restructuring related charges (2) (0.23) — — Impairment of long-lived assets 0.01 0.01 — Revaluation of warrants (3) — — (0.01) Release of VAT reserve (4) — — (0.03) Non-cash charges related to convertible notes (5) 0.06 0.06 0.02 Non-GAAP income tax adjustment (6) (0.25) — — Non-GAAP Net income per share, diluted $ 1.59 $ 0.91 $ 0.37 GAAP weighted-average shares used to compute net income (loss) per share, diluted 96,415 100,806 93,224 Weighted-average dilutive effect of potentially dilutive securities 8,403 17,372 24,804 Non-GAAP weighted-average shares used to compute net income per share, diluted 104,818 118,178 118,028 ______________ (1) For the year ended December 31, 2023, non-GAAP stock-based compensation excludes the $31.3 million reversal related to the former CEO’s forfeited MRSU award that is reported in Restructuring related charges, as well as $3.9 million that is reported in Restructuring and other charges, in the table above. 67 (2) Primarily consists of the $31.3 million reversal of stock-based compensation related to the former CEO’s forfeited MRSU award, partially offset by salary continuation charges, executive reorganization charges including severance, CEO search firm fees, and other legal and professional service costs.
This discussion, particularly information with respect to our outlook, key trends and uncertainties, our plans and strategy for our business, and our performance and future success, includes forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below.
This discussion, particularly information with respect to our outlook, key trends and uncertainties, our plans and strategy for our business, and our performance and future success, includes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below.
Net cash provided by financing activities of $1.6 billion for the year ended December 31, 2021 was primarily due to net proceeds from our Convertible Notes issuance of $1.5 billion and IPO of $723.0 million (including $1.4 million paid in fiscal year 2020), partially offset by repayments on the Credit Facility and notes payable of $263.2 million and repurchase of our common stock of $350 million.
Net cash provided by financing activities of $1.6 billion for the year ended December 31, 2021 was primarily due to net proceeds from our Convertible Notes issuance of $1.5 billion and IPO of $723.0 million (including $1.4 million paid in fiscal year 2020), partially offset by repayments on the Credit Facility and notes payable of $263.2 million and repurchase of our common stock of $350.0 million.
Customer contracts are primarily month-to-month and do not include any minimum guaranteed quantities or fees. Fees are billed monthly, and payment is typically due upon invoicing. Revenue is recognized net of allowances for credits and any taxes collected from customers, which are subsequently remitted to governmental authorities. Our global cloud platform is supported by various third parties.
Customer contracts are primarily month-to-month and generally do not include any minimum guaranteed quantities or fees. Fees are billed monthly, and payment is typically due upon invoicing. Revenue is recognized net of allowances for credits and any taxes collected from customers, which are subsequently remitted to governmental authorities. Our global cloud platform is supported by various third parties.
We believe non-GAAP net income 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.
We believe non-GAAP diluted net income 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.
Our primary uses of cash from operating activities are for personnel costs, data center co-location expenses, marketing expenses, payment processing fees, bandwidth and connectivity, server maintenance and software licensing fees.
Our primary uses of cash from operating activities are for personnel costs, data center co-location expenses, payment processing fees, bandwidth and connectivity, server maintenance and software licensing fees.
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 50 the current month and are therefore reflected in the Current Period Revenue.
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.
ARR Given the renewable nature of our business, we view annual run-rate revenue as an important indicator of our current progress towards meeting our revenue targets and projected growth rate going forward. We calculate ARR at a point in time by multiplying the latest monthly period’s revenue by 12.
ARR Given the recurring nature of our business, we view annual run-rate revenue as an important indicator of our current progress towards meeting our revenue targets and projected growth rate going forward. We calculate ARR at a point in time by multiplying the latest monthly period’s revenue by 12.
We believe our existing cash and cash equivalents, cash flow from operations and availability under our Credit Facility (as defined below) and Convertible Notes (as defined below) will be sufficient to support working capital and capital expenditure requirements and our outstanding contractual commitments for at least the next 12 months and in the long term.
We believe our existing cash and cash equivalents, cash flow from operations and availability under our Credit Facility (as defined below) will be sufficient to support working capital and capital expenditure requirements and our outstanding contractual commitments for at least the next 12 months and in the long term.
Key Factors Affecting Our Performance Increasing Importance of Cloud Computing and Developers Our future success depends in large part on the continuing adoption of cloud computing, proliferation of cloud-native start-ups and SMBs and the increasing importance of developers, all of which are driving the adoption of our developer cloud platform.
Key Factors Affecting Our Performance Increasing Importance of Cloud Computing and Developers Our future success depends in large part on the continuing adoption of cloud computing, proliferation of cloud-native start-ups and businesses and the increasing importance of developers, all of which are driving the adoption of our developer cloud platform.
Our Credit Facility will mature on the earlier of (a) March 29, 2027 and (b) 90 days before the maturity date applicable to any outstanding convertible notes issued by the Company in an aggregate principal amount equal to or greater than $100,000. Our Credit Facility is secured by a first-priority security interest in substantially all of our assets.
Our Credit Facility will mature on the earlier of (a) March 29, 2027 and (b) 90 days before the maturity date applicable to any outstanding convertible notes issued by the Company in an aggregate principal amount equal to or greater than $100.0 million. Our Credit Facility is secured by a first-priority security interest in substantially all of our assets.
Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share We define non-GAAP net income as Net loss attributable to common stockholders, excluding stock-based compensation, acquisition related compensation, amortization of acquired intangibles, acquisition and integration related costs, release of VAT reserve, loss on extinguishment of debt, impairment of long-lived assets, restructuring and severance expense, revaluation of warrants, and other unusual or non-recurring transactions as they occur.
Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share We define non-GAAP net income as net income (loss) attributable to common stockholders, excluding stock-based compensation, acquisition related compensation, amortization of acquired intangibles, acquisition and integration related costs, loss on extinguishment of debt, restructuring and other charges, restructuring related charges, impairment of long-lived assets, revaluation of warrants, release of VAT reserve and other unusual or non-recurring transactions as they occur.
Sales and marketing expenses also include costs for marketing programs, advertising and professional service fees. We expect sales and marketing expenses to continue to increase in absolute dollars as we enhance our product offerings and implement new marketing strategies.
Sales and marketing expenses also include costs for marketing programs, commissions, advertising and professional service fees. We expect sales and marketing expenses to increase in absolute dollars as we enhance our product offerings and implement new marketing strategies.
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.
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, evaluating our operating performance, and for internal planning and forecasting purposes.
The increase was driven by our investment in available-for-sale marketable securities of $1.7 billion, the acquisition of Cloudways of $305.2 million and purchase of property and equipment of $9.3 million, partially offset by maturities of available-for-sale marketable securities of $956.8 million.
The increase was driven by our investment in marketable securities of $1.7 billion, the acquisition of Cloudways of $305.2 million and purchase of property and equipment of $9.3 million, partially offset by maturities of marketable securities of $956.8 million.
We apply judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, we apply security checks and validate their payment method. 2.
We apply judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, we apply security checks and validate their payment method. 2. Identify the performance obligations in the contract.
In addition, we may pursue both strategic partnerships and acquisitions that we believe will be complementary to our business, accelerate customer acquisition, increase usage of our platform and/or expand our product offerings in our core markets.
In addition, we may pursue both strategic partnerships and acquisitions, such as our acquisitions of Cloudways and Paperspace, that we believe will be complementary to our business, accelerate customer acquisition, increase usage of our platform and/or expand our product offerings in our core markets.
We were in compliance with all covenants under our Credit Facility as of December 31, 2022.
We were in compliance with all covenants under our Credit Facility as of December 31, 2023.
We expect to continue to increase our revenue from existing customers through the introduction of new products and features tailored to our customer base in addition to expanded customer outreach, focused on larger customers and specific use cases.
Our goal is to continue to increase our revenue from existing customers through the introduction of new products and features tailored to our customer base in addition to expanded customer outreach, focused on larger customers and specific use cases.
In this context, these measures are used solely to provide information on the extent to which we are in compliance with these financial covenants and may not be comparable to consolidated total debt and consolidated EBITDA used by other companies or any other non-GAAP measures we present elsewhere in this prospectus.
In this context, these measures are used solely to provide information on the extent to which we are in compliance with these financial covenants and may not be comparable to consolidated total debt and consolidated EBITDA used by other companies or any other non-GAAP measures we present elsewhere in this Annual Report on Form 10-K.
Overview DigitalOcean is a leading cloud computing platform offering on-demand infrastructure and platform tools for startups and small and medium-sized businesses (SMBs). We were founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable.
Overview DigitalOcean is a leading cloud computing platform offering on-demand infrastructure and platform tools for startups and growing digital businesses. We were founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable.
Components of Results of Operations Revenue We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; and Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings. We recognize revenue based on the customer utilization of these resources.
We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings; and AI/ML, including our Machines, Notebooks and Deployments offerings. We recognize revenue based on the customer utilization of these resources.
On May 23, 2022, our Board of Directors approved a new stock repurchase program authorizing the repurchase of up to an additional $300.0 million of our common stock throughout fiscal year 2022 (the “Second Program”). As of August 19, 2022, we repurchased the shares representing the entire amount available under the Second Program.
As of May 16, 2022, we repurchased the shares representing the entire amount available under the First 2022 Share Buyback Program. On May 23, 2022, our Board of Directors approved a new stock repurchase program authorizing the repurchase of up to an additional $300.0 million of our common stock throughout fiscal year 2022 (the “Second 2022 Share Buyback Program”).
Our annual run-rate revenue, or ARR, as of December 31, 2022 was $659 million, up from $490 million as of December 31, 2021 and $357 million as of December 31, 2020.
Our annual run-rate revenue, or ARR, as of December 31, 2023 was $730 million, up from $659 million as of December 31, 2022 and $490 million as of December 31, 2021.
Our users include software engineers, researchers, data scientists, system administrators, students and hobbyists. Our customers use our platform across numerous industry verticals and for a wide range of use cases, such as web and mobile applications, 46 website hosting, e-commerce, media and gaming, personal web projects, and managed services, among many others.
Our users include software engineers, researchers, data scientists, system administrators, students and hobbyists. Our customers use our platform across numerous industry verticals and for a wide range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, managed services, and, most recently, artificial intelligence and machine learning (AI/ML) applications, among many others.
Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in the section entitled “Special Note Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors.” In addition, for more information regarding key factors affecting our performance, see “Key Factors Affecting Our Performance” below.
Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in Part I, Item 1A. “Risk Factors.” In addition, for more information regarding key factors affecting our performance, see “Key Factors Affecting Our Performance” below.
Customer contracts are primarily month-to-month and do not include any minimum guaranteed quantities or fees. Fees are billed monthly, and payment is typically due upon invoicing. Revenue is recognized net of allowances for credits and any taxes collected from customers, which are subsequently remitted to governmental authorities.
We recognize revenue based on the customer utilization of these resources. Customer contracts are primarily month-to-month and generally do not include any minimum guaranteed quantities or fees. Fees are billed monthly, and payment is typically due upon invoicing. Revenue is recognized net of allowances for credits and any taxes collected from customers, which are subsequently remitted to governmental authorities.
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.
We calculate ARPU on a monthly basis as our total revenue from Learners, Builders and Scalers in that period divided by the total number of Learner, Builder and Scaler 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.
Identify the performance obligations in the contract Our performance obligation is to provide our cloud-based infrastructure for customers to use at the customers’ election. The availability of services is free of charge, and therefore we have no performance obligation until the customer elects to use the services. 3.
Our performance obligation is to provide our cloud-based infrastructure for customers to use at the customers’ election. The availability of services is free of charge, and therefore we have no performance obligation until the customer elects to use the services. 3. Determine the transaction price.
ARR as of the end of each month represents total revenue for that month multiplied by 12. 47 Growing our builders and scalers (which we collectively refer to as our higher spend customers) is a critical focus for us, and we have successfully increased the number of these higher spend customers and their percentage of our total revenue.
ARR as of the end of each month represents total revenue for that month multiplied by 12. 52 Growing our Builders and Scalers is a critical focus for us, and we have successfully increased the number of these customers and their percentage of our total revenue.
Contractual Obligations and Commitments We have various contractual obligations and commitments, such as long-term leases, purchase commitments and long-term debt, that are disclosed in the footnotes to the consolidated financial statements. See Note 7. Debt, Note 8. Operating Leases, and Note 9.
Contractual Obligations and Commitments We have various contractual obligations and commitments, such as long-term leases, purchase commitments and long-term debt, that are disclosed in the footnotes to the consolidated financial statements. See Note 7. Debt; Note 8. Leases; and Note 9. Commitments and Contingencies to our Consolidated Financial Statements included in Part II, Item 8.
Cost of Revenue Cost of revenue consists primarily of fees related to operating in third-party co-location facilities, personnel expenses for those directly supporting our data centers and non-personnel costs, including amortization of capitalized internal-use software development costs and depreciation of our data center equipment. Third-party co-location facility costs include data center rental fees, power costs, maintenance fees, network and bandwidth.
Cost of Revenue Cost of revenue consists primarily of fees related to operating in third-party co-location facilities, personnel expenses for those directly supporting our data centers and non-personnel costs, including amortization of acquired technology, amortization of capitalized internal-use software development costs, and depreciation of our data center equipment.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information included in Item 8 of this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be considered together with our consolidated financial statements and related notes and other financial information included in Part II, Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Determine the transaction price The transaction price is calculated based on the customer’s usage for the month at an hourly rate that is published on the Company’s website. None of our contracts contain a significant financing component. 4.
The transaction price is calculated based on the customer’s usage for the month at an hourly rate that is published on the Company’s website. None of our contracts contain a significant financing component. 62 4. Allocate the transaction price to performance obligations in the contract.
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. In particular, free cash flow is not a substitute for cash used in operating activities.
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.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
Non‑GAAP Financial Measures To supplement our 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) non-GAAP income from operations and non-GAAP operating margin; (iii) adjusted EBITDA and adjusted EBITDA Margin; (iv) non-GAAP net income and non-GAAP diluted net income per share; and (v) free cash flow and free cash flow margin.
Non‑GAAP Financial Measures To supplement our 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 EBITDA and adjusted EBITDA margin and (ii) non-GAAP net income and non-GAAP diluted net income per share.
Financing Activities Net cash used in financing activities of $610.4 million for the year ended December 31, 2022 was primarily due to the repurchase and retirement of our common stock for $600.0 million.
Financing Activities Net cash used in financing activities of $468.9 million and $610.4 million for the years ended December 31, 2023 and 2022, respectively, was primarily due to the repurchase and retirement of our common stock for $488.5 million and $600.0 million, respectively.
We are not aware of any uniform standards for calculating these key metrics, and other companies may not calculate similarly titled metrics in a consistent manner, which may hinder comparability. The table below includes the impact of our Cloudways acquisition with respect to the metrics disclosed for the year ended December 31, 2022.
We are not aware of any uniform standards for calculating these key metrics, and other companies may not calculate similarly titled metrics in a consistent manner, which may hinder comparability. The table below includes the impact of our acquisitions beginning in the year in which they were acquired with respect to the metrics disclosed.
Commitments and Contingencies to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding these commitments. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.
“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further information regarding these commitments. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.
In just minutes, developers can set up thousands of virtual machines, secure their projects, enable performance monitoring and scale up and down as needed. We generate revenue from the usage of our cloud computing platform by our customers, including but not limited to compute, storage and networking services. We recognize revenue based on the customer utilization of these resources.
In just minutes, developers can set up thousands of virtual machines, secure their projects, enable performance monitoring and scale up and down as needed. We generate revenue from the usage of our cloud computing platform by our customers. We recognize revenue based on the customer utilization of our offerings.
Subsequent to the measurement period or our final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our consolidated statement of operations and could have a material impact on our results of operations and financial position.
Subsequent to the measurement period or our final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our consolidated statement of operations and could have a material impact on our results of operations and financial position. 63 Recently Adopted Accounting Pronouncements There were no recently adopted accounting pronouncements during the year ended December 31, 2023.
We had approximately 15,000 scalers as of December 31, 2022, up from approximately 11,000 as of December 31, 2021 and approximately 8,000 as of December 31, 2020. We had approximately 129,000 builders as of December 31, 2022, up from approximately 89,000 as of December 31, 2021 and approximately 73,000 as of December 31, 2020.
We had approximately 17,000 Scalers as of December 31, 2023, up from approximately 15,000 as of December 31, 2022 and 11,000 as of December 31, 2021. We had approximately 139,000 Builders as of December 31, 2023, up from approximately 129,000 as of December 31, 2022 and 89,000 as of December 31, 2021.
Revenue Recognition We recognize revenue in accordance with Accounting Standards Codification (or ASC), Topic 606, Revenue from Contracts with Customers, or ASC 606. We account for revenue using the following steps: 1. Identify the contract with a customer We consider the terms and conditions of the contract and our customary business practices in identifying our contracts under ASC 606.
We account for revenue using the following steps: 1. Identify the contract with a customer We consider the terms and conditions of the contract and our customary business practices in identifying our contracts under ASC 606.
As of December 31, 2022, we had $140.8 million in cash and cash equivalents and $723.5 million in marketable securities. Our cash and cash equivalents primarily consist of money market funds and commercial paper. Our marketable securities consist of U.S. treasury securities, commercial debt securities, and commercial paper.
As of December 31, 2023, we had $317.2 million in cash and cash equivalents and $94.5 million in marketable securities. Our cash and cash equivalents primarily consist of cash and money market funds. Our marketable securities consist of U.S. treasury securities and commercial paper.
To help us measure our performance in this area, we monitor our 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 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 had no material customer concentration as our top 25 customers made up approximately 10%, 10% and 9% of our revenue in the years ended December 31, 2022, 2021 and 2020, respectively. We have experienced strong and predictable growth in recent periods.
We had no material customer concentration as our top 25 customers made up approximately 7%, 10%, and 10% of our revenue in the years ended December 31, 2023, 2022 and 2021, respectively.
We are investing in strategies that we believe will attract higher spend customers, including expansion of our sales team, and new marketing initiatives that further optimize our self-service revenue funnel to help customers expand their usage.
We are investing in strategies that we believe will attract Builders and Scalers, including new marketing initiatives that further optimize our self-service revenue funnel to help customers expand their usage and partnership initiatives to identify potential Builders and Scalers.
Allocate the transaction price to performance obligations in the contract The transaction price is calculated based on actual monthly usage and pricing that is published on the Company’s website. This is considered a single performance obligation, and thus the entire transaction price is allocated to the single performance obligation. 5.
The transaction price is calculated based on actual monthly usage and pricing that is published on the Company’s website. This is considered a single performance obligation, and thus the entire transaction price is allocated to the single performance obligation. 5. Recognize revenue when or as we satisfy a performance obligation.
ASC 805 requires that we evaluate whether a transaction pertains to an acquisition of assets or to an acquisition of a business. A business is defined as an integrated set of assets and activities that is capable of being conducted and managed for the purpose of providing a return to investors.
A business is defined as an integrated set of assets and activities that is capable of being conducted and managed for the purpose of providing a return to investors.
Investing Activities Net cash used in investing activities was $1.1 billion for the year ended December 31, 2022 compared to $113.6 million for the year ended December 31, 2021.
Investing Activities Net cash provided by investing activities was $401.2 million for the year ended December 31, 2023 compared to $1.1 billion used in investing activities for the year ended December 31, 2022.
Scalers We define scalers as customers having generated an invoice of greater than $500 for the month end period. ARPU We believe that our average revenue per customer, which we refer to as ARPU, is a strong indication of our ability to land new customers with higher spending levels and expand usage of our platform by our existing customers.
ARPU We believe that our average revenue per customer, which we refer to as ARPU, is a strong indication of our ability to land new customers with higher spending levels and expand usage of our platform by our existing customers.
We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; and Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings. Improving the developer experience and increasing productivity are core to our mission.
We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings; and AI/ML, including our Machines, Notebooks and Deployments offerings.
Liquidity and Capital Resources We have funded our operations since inception primarily with cash flow generated by operations, private offerings of our equity and debt securities, borrowings under our existing credit facility and capital expenditure financings. Cash provided from these sources is used primarily for operating expenses, such as personnel costs, and capital expenditures.
Liquidity and Capital Resources We have funded our operations since inception primarily with cash flow generated by operations, private offerings of our equity and debt securities, borrowings under our existing credit facility and capital expenditure financings.
As of December 31, 2022, we repurchased and retired 13.6 million shares of common stock at an average price of $44.03 per share for an aggregate purchase price of $600.0 million, representing the entire amount available under the First Program and the Second Program.
As of August 19, 2022, we repurchased the shares representing the entire amount available under the Second 2022 Share Buyback Program. For the year ended December 31, 2022, we repurchased and retired 13,626,594 shares of common stock for an aggregate purchase price of $600.0 million.
General and administrative expenses also include provision for expected credit losses, software, payment processing fees, business insurance, depreciation and amortization expenses, rent and facilities costs, loss on sublease, and other administrative costs.
General and administrative expenses also include provision for expected credit losses, software, payment processing fees, business insurance, depreciation and amortization expenses, rent and facilities costs, impairment of long-lived assets, acquisition related compensation, and other administrative costs.
Income Tax (Benefit) Expense Income tax (benefit) expense consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. We maintain a valuation allowance on our U.S. federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be realized.
We maintain a full valuation allowance on our U.S. federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be realized.
Net cash provided by operating activities was $195.2 million, $133.1 million and $58.5 million for the years ended December 31, 2022, 2021 and 2020, respectively, for which the increases in each year were primarily driven by an increase in cash collections from higher revenues, partially offset by an increase in cash expenses for personnel related costs.
Net cash provided by operating activities was $234.9 million, $195.2 million and $133.1 million for the years ended December 31, 2023, 2022 and 2021, respectively, for which the increases in each year were primarily driven by an increase in cash collections from higher revenues, higher interest income in our marketable securities portfolio resulting from higher interest rates and a lower cash bonus, partially offset by higher lease payments, restructuring costs and acquisition related compensation payments.
We believe our market opportunity is large and that these factors will continue to drive our growth. Increasing Usage by Our Existing Customers Our customer base of approximately 677,000 customers as of December 31, 2022 represents a significant opportunity for further consumption of our services.
We believe our market opportunity is large and that these factors will continue to drive our growth. Increasing Usage by Our Existing Customers Our existing customer base represents a significant opportunity for further sales expansion through increased usage of our platform and adoption of additional product offerings.
Comparison of the Years Ended December 31, 2022 and 2021 Revenue Years Ended December 31, 2022 2021 $ Change % Change (in thousands) Revenue $ 576,322 $ 428,561 $ 147,761 34 % Revenue increased $147.8 million, or 34%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Comparison of the Years Ended December 31, 2023 and 2022 Revenue Year Ended December 31, 2023 2022 $ Change % Change (in thousands) Revenue $ 692,884 $ 576,322 $ 116,562 20 % Revenue increased $116.6 million, or 20%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Recognize revenue when or as we satisfy a performance obligation We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; and Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings. We recognize revenue based on the customer utilization of these resources.
Components of Results of Operations Revenue We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings; and AI/ML, including our Machines, Notebooks and Deployments offerings.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 can be found under Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022, which is available on the SEC’s website at www.sec.gov.
“Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2022, filed with the SEC on August 11, 2023, which is available on the SEC’s website at www.sec.gov.
The Convertible Notes are senior unsecured obligations and do not bear regular interest, and the principal amount of the Convertible Notes does not accrete. The Convertible Notes will mature on December 1, 2026 unless earlier converted, redeemed, or repurchased.
The Convertible Notes are senior unsecured obligations and do not bear regular interest, and the principal amount of the Convertible Notes does not accrete.
Further, any such purchases or exchanges may result in us acquiring and retiring a substantial amount of such indebtedness, which could impact the trading liquidity of such indebtedness. 55 The following table summarizes our cash flows for the periods presented: Years Ended December 31, (In thousands) 2022 2021 2020 Net cash provided by operating activities $ 195,152 $ 133,109 $ 58,458 Net cash used in investing activities (1,148,158) (113,605) (115,633) Net cash (used in) provided by financing activities (610,363) 1,593,379 124,026 (Decrease) increase in cash, cash equivalents and restricted cash (1,563,618) 1,612,888 66,651 Operating Activities Our largest source of operating cash is cash collections from sales to our customers.
The following table summarizes our cash flows for the periods presented: Year Ended December 31, (In thousands) 2023 2022 2021 Net cash provided by operating activities $ 234,942 $ 195,152 $ 133,109 Net cash provided by (used in) investing activities 401,152 (1,148,158) (113,605) Net cash (used in) provided by financing activities (468,903) (610,363) 1,593,379 Increase (decrease) in cash, cash equivalents and restricted cash 167,176 (1,563,618) 1,612,888 Operating Activities Our largest source of operating cash is cash collections from sales to our customers.
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.
For our net dollar retention rate calculations, we include the total revenue from all customers, 55 including Testers, Learners, Builders and Scalers. 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.
Macroeconomic Conditions Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, labor shortages, supply chain disruptions, inflationary pressures, rising interest rates, financial and credit market fluctuations, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions 48 affecting Russia, Ukraine or elsewhere, could cause a decrease in business investments on information technology and negatively affect the growth of our business and our results of operations. 2023 Restructuring On January 27, 2023, our Board of Directors approved a restructuring plan to adjust our cost structure and accelerate our timeline to achieve our desired free cash flow margins.
Macroeconomic Conditions Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, supply chain disruptions, inflationary pressures, interest rates, financial and credit market fluctuations, volatility in the capital markets, liquidity concerns at, and failures of, banks and other financial institutions, international trade relations, political turmoil, political instability and transitions of power in regions where we operate, including Pakistan following the most recent general election, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine, the Middle East or elsewhere, could cause a decrease in business investments in information technology and negatively affect the growth of our business and our results of operations.
For the years ended December 31, 2021 and 2020, amounts are attributable to third-party consulting costs to enhance our finance function.
(5) For the years ended December 31, 2023 and 2022, Other income, net primarily consists of interest income from our marketable securities. For the year ended December 31, 2021, amounts are attributable to third-party consulting costs to enhance our finance function.
Operating Expenses Research and Development Expenses Research and development expenses consist primarily of personnel costs including salaries, bonuses, benefits and stock-based compensation.
The level, timing and relative investment in our infrastructure could affect our cost of revenue in the future. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of personnel costs including salaries, bonuses, benefits and stock-based compensation.
The restructuring plan includes both the elimination of positions across the company as well as the shifting of additional positions across a broader geographical footprint over the next several months. See Note 16. Subsequent Events to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding these commitments.
The restructuring plan included both the elimination of positions across the company as well as the shifting of additional positions across a broader geographical footprint. See Note 15, Restructuring, in our Notes to Consolidated Financial Statements included in Part II, Item 8.
Net Dollar Retention Rate Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue from our existing customers. We have a history of retaining customers for multiple years and in many cases increasing their spend with us over time.
We have a history of retaining customers for multiple years and in many cases increasing their spend with us over time. To help us measure our performance in this area, we monitor our net dollar retention rate.
The efficiency of our go-to-market model and our focus on the needs of the SMB market has enabled us to drive organic growth and establish a truly global customer base across a broad range of industries. Our customers are spread across over 190 countries and around two-thirds of our revenue has historically come from customers located outside the United States.
The efficiency of our go-to-market model and our focus on the needs of startups and growing digital businesses has enabled us to drive organic growth and establish a truly global customer base across a broad range of industries.
Sales and marketing expenses increased $30.7 million, or 60%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to higher personnel costs and stock-based compensation, and increases in advertising costs and amortization of our acquired intangibles.
Sales and marketing expenses decreased $8.0 million, or 10%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to decreases in advertising costs due to cost saving initiatives and personnel costs, partially offset by increases in amortization of acquired intangible assets, affiliate fees and stock-based compensation.
Personnel expenses include salaries, bonuses, benefits, and stock-based compensation. We intend to continue to invest additional resources in our infrastructure to support our product portfolio and scalability of our customer base. The level, timing and relative investment in our infrastructure could affect our cost of revenue in the future.
Third-party co-location facility costs include data center rental fees, power costs, maintenance fees, network and bandwidth. Personnel expenses include salaries, bonuses, benefits, and stock-based compensation. We intend to continue to invest additional resources in our infrastructure to support our product portfolio and scalability of our customer base.
Revenue from builders and scalers increased 30% and 45%, respectively, for the year ended December 31, 2022, compared to the year ended December 31, 2021. Revenue from higher spend customers as a percentage of total revenue was 85% in 2022, 83% in 2021 and 79% in 2020.
Revenue from Builders and Scalers increased 26% and 18%, respectively, for the year ended December 31, 2023 compared to the year ended December 31, 2022. Revenue from Builders and Scalers increased 30% and 45%, respectively, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Results of Operations The following table sets forth our results of operations for the periods presented: Year Ended December 31, 2022 2021 2020 (in thousands) Revenue $ 576,322 $ 428,561 $ 318,380 Cost of revenue (1) 211,927 170,595 145,532 Gross profit 364,395 257,966 172,848 Operating expenses: Research and development (1) 143,885 115,684 74,970 Sales and marketing (1) 81,544 50,878 33,472 General and administrative (1) 165,185 102,590 80,197 Total operating expenses 390,614 269,152 188,639 Loss from operations (26,219) (11,186) (15,791) Other (income) expense (1,812) 7,015 26,866 Loss before income taxes (24,407) (18,201) (42,657) Income tax (benefit) expense (124) 1,302 911 Net loss attributable to common stockholders $ (24,283) $ (19,503) $ (43,568) ___________________ (1) Includes stock-based compensation as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Cost of revenue $ 1,820 $ 1,147 $ 545 Research and development 39,354 23,315 7,765 Sales and marketing 14,909 8,471 1,924 General and administrative 49,746 28,644 19,222 Total $ 105,829 $ 61,577 $ 29,456 Stock-based compensation for the year ended December 31, 2020 included compensation of $18.3 million related to secondary sales of common stock by certain current and former employees, which is primarily included in General and administrative.
Results of Operations The following table sets forth our results of operations for the periods presented: Year Ended December 31, 2023 2022 2021 (in thousands) Revenue $ 692,884 $ 576,322 $ 428,561 Cost of revenue (1) 283,967 211,927 170,595 Gross profit 408,917 364,395 257,966 Operating expenses: Research and development (1) 140,365 143,885 115,684 Sales and marketing (1) 73,027 81,022 50,878 General and administrative (1) 162,742 165,185 102,590 Restructuring and other charges (1) 20,887 — — Total operating expenses 397,021 390,092 269,152 Income (loss) from operations 11,896 (25,697) (11,186) Other income (expense), net 14,880 1,812 (7,015) Income (loss) before income taxes 26,776 (23,885) (18,201) Income tax expense (7,367) (3,919) (1,302) Net income (loss) attributable to common stockholders $ 19,409 $ (27,804) $ (19,503) ___________________ 57 (1) Includes stock-based compensation as follows: Year Ended December 31, 2023 2022 2021 (in thousands) Cost of revenue $ 1,836 $ 1,820 $ 1,147 Research and development 43,315 39,354 23,315 Sales and marketing 15,751 14,909 8,471 General and administrative 23,508 49,746 28,644 Restructuring and other charges 3,937 — — Total $ 88,347 $ 105,829 $ 61,577 The following table sets forth our results of operations as a percentage of revenue for the periods presented: Year Ended December 31, 2023 2022 2021 Revenue 100 % 100 % 100 % Cost of revenue 41 37 40 Gross profit 59 63 60 Operating expenses: Research and development 20 25 27 Sales and marketing 11 14 12 General and administrative 23 29 24 Restructuring and other charges 3 — — Total operating expenses* 57 68 63 Income (loss) from operations* 2 (4) (2) Other income (expense), net 2 — (2) Income (loss) before income taxes* 4 (4) (3) Income tax expense (1) (1) — Net income (loss) attributable to common stockholders* 3 % (5) % (5) % *May not foot due to rounding A discussion regarding our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 is presented below.
Because of these limitations, when evaluating our performance, you should consider adjusted EBITDA and adjusted EBITDA margin alongside other financial performance measures, including our net loss attributable to common stockholders and other GAAP results. 60 The following table presents a reconciliation of Net loss attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to adjusted EBITDA for each of the periods presented: Year Ended December 31, (In thousands) 2022 2021 2020 Net loss attributable to common stockholders $ (24,283) $ (19,503) $ (43,568) Adjustments: Depreciation and amortization $ 102,232 $ 88,371 $ 75,574 Stock-based compensation 105,828 61,577 29,456 Interest expense 8,396 3,744 13,610 Acquisition related compensation 9,443 — — Acquisition and integration related costs 5,439 469 — Income tax (benefit) expense (124) 1,302 912 Loss on extinguishment of debt 407 3,435 259 Restructuring and severance — — 4,213 Impairment of long-lived assets 1,635 285 1,222 Revaluation of warrants — (556) 12,825 Release of VAT reserve — (3,188) — Other (1) (10,615) 707 1,564 Adjusted EBITDA $ 198,358 $ 136,643 $ 96,067 Adjusted EBITDA margin 34% 32% 30% ___________________ (1) For the year ended December 31, 2022, amount is Other income (expense), net and consists primarily of interest and accretion income from our marketable securities.
The following table presents a reconciliation of Net income (loss) attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to adjusted EBITDA for each of the periods presented: 64 Year Ended December 31, (In thousands) 2023 2022 2021 GAAP Net income (loss) attributable to common stockholders $ 19,409 $ (27,804) $ (19,503) Adjustments: Depreciation and amortization 117,866 102,232 88,371 Stock-based compensation (1) 115,019 105,829 61,577 Interest expense 8,945 8,396 3,744 Acquisition related compensation 27,763 9,443 — Acquisition and integration related costs 6,145 5,439 469 Income tax expense 7,367 3,919 1,302 Loss on extinguishment of debt — 407 3,435 Restructuring and other charges 20,887 — — Restructuring related charges (2) (23,535) — — Impairment of long-lived assets 1,140 1,635 285 Revaluation of warrants (3) — — (556) Release of VAT reserve (4) — — (3,188) Other income, net (5) (23,825) (10,615) 707 Adjusted EBITDA $ 277,181 $ 198,881 $ 136,643 As a percentage of revenue: Net income (loss) margin 3 % (5) % (5) % Adjusted EBITDA margin 40 % 35 % 32 % ___________________ (1) For the year ended December 31, 2023, non-GAAP stock-based compensation excludes the $31.3 million reversal related to the former CEO’s forfeited MRSU award that is reported in Restructuring related charges, as well as $3.9 million that is reported in Restructuring and other charges, in the table above.
Our cloud platform was designed with simplicity in mind to ensure that startups and SMBs can spend less time managing their infrastructure and more time building innovative applications that drive business growth. Simplicity guides how we design and enhance our easy-to-use-interface, the core capabilities we offer our customers and our approach to predictable and transparent pricing for our solutions.
Our cloud platform was designed with simplicity in mind to ensure that startups and growing digital businesses can spend less time managing their infrastructure and more time building innovative applications that drive business growth. Improving the developer experience and increasing productivity are core to our mission.
Our pricing is consumption-based and billed monthly in arrears, making it easy for our customers to track usage on an ongoing basis and optimize their deployments.
Our pricing is primarily consumption-based and billed monthly in arrears, making it easy for our customers to track usage on an ongoing basis and optimize their deployments. We have a highly efficient self-service customer acquisition model, which we complement with a sales force focused on inside sales, targeted outside sales and partnership opportunities to drive revenue growth.
Our results of operations may fluctuate as we make these investments to drive usage and take advantage of our expansive market opportunity. 49 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.
Our results of operations may fluctuate as we make these investments to drive usage and take advantage of our expansive market opportunity.
We focus heavily on enabling a self-service, low-friction model that makes it easy for users to try, adopt and use our products. For the years ended December 31, 2022, 2021 and 2020 our sales and marketing expense was approximately 14%, 12% and 11% of our revenue, respectively.
For the years ended December 31, 2023, 2022 and 2021, our sales and marketing expense was approximately 11%, 14% and 12% of our revenue, respectively.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2022, the effect of a hypothetical 10% increase in interest rates would have changed the fair value of our investments in available-for-sale securities by approximately $23 million, while a hypothetical 10% decrease in interest rates would have changed the fair value of our investments in available-for-sale securities by approximately $11 million.
Biggest changeAs of December 31, 2023, the effect of a hypothetical 10% change in interest rates would have changed the fair value of our investments in marketable securities by an immaterial amount.
Our cash equivalents and investments consist of highly liquid investments in money market funds, U.S. treasury securities, U.S. government agency securities and corporate debt securities. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments.
Our cash equivalents and marketable securities consist of highly liquid investments in money market funds, U.S. treasury securities, U.S. government agency securities and corporate debt securities. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments.
To date, we have not entered into any hedging arrangements with respect to foreign currency risk 63 or other derivative financial instruments, although we may choose to do so in the future. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on our operating results. 64
To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on our operating results. 69
Fluctuations in the fair value of our investments in available-for-sale securities caused by a change in interest rates (gains or losses on the carrying amount) are recorded in other comprehensive income (loss), and are realized only if we sell the underlying securities prior to maturity.
Fluctuations in the fair value of our investments in marketable securities caused by a change in interest rates (gains or losses on the carrying amount) are recorded in other comprehensive income (loss), and are realized only if we sell the underlying securities prior to maturity.
Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. Interest Rate Risk At December 31, 2022, we had cash, cash equivalents and marketable securities of $864 million, which were held for working capital purposes.
Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. Interest Rate Risk At December 31, 2023, we had cash, cash equivalents and marketable securities of $412 million, which were held for working capital purposes.
Fair Value Measurements, Financial Instruments Not Recorded at Fair Value on a Recurring Basis and Note 7, Debt, to the Consolidated Financial Statements included in Part II, Item 1 of this Annual Report on Form 10-K.
Fair Value Measurements, Financial Instruments Not Recorded at Fair Value on a Recurring Basis and Note 7. Debt, to the Consolidated Financial Statements included in Part II, Item 8.
Foreign Currency Exchange Risk Our sales are primarily denominated in U.S. dollars, and therefore our revenue is generally not currently subject to significant foreign currency risk.
“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. 68 Foreign Currency Exchange Risk Our sales are primarily denominated in U.S. dollars, and therefore our revenue is generally not currently subject to significant foreign currency risk.

Other DOCN 10-K year-over-year comparisons