DigitalOcean Holdings, Inc. Q3 FY2024 earnings call

• Financials: Revenue was $198.5 million in Q3, up 12% YOY; ARR was $798.3 million, up 12% YOY. Added $17 million of ARR in the quarter.
• Core cloud: Released 42 new product features in Q3, including VPC peering, global load balancer GA, daily backups GA, larger droplet configurations, Kubernetes log forwarding, and Malware Protection for managed hosting with 3,650 net activations in the first week.
• AI/ML: GPU droplets with NVIDIA H100 GPUs made GA, early availability of NVIDIA H100 nodes on DOK, early availability of GenAI platform, AI SRE agent developed, and partnerships with Hugging Face and Netlify announced.
• Developer ecosystem: Hosted 11th Hacktoberfest with over 65,000 developers from 172 countries and more than 10 DigitalOcean meetups.

Revenue growth was steady at 12% year-over-year in Q3 2024. Builders and scalers, who drive 88% of total revenue, grew 15% year-over-year, ahead of the overall 12% revenue growth. AIML products saw Q3 ARR grow close to 200% year-over-year. Core cloud had solid performance, and AI continued to grow despite difficult comps from prior periods.

• Increased full-year revenue guide: Lower end by $5M and upper end by $2M, projecting revenue $775M-$777M.
• Adjusted EBITDA margin: Full year 40%-41%.
• Adjusted free cash flow margin: Full year 15%-17%, consistent with prior guidance.

Q: Raimo Lenschow asked about product innovation uptake and NRR.

A: Paddy Srinivasan said product innovation is enabling customer migrations and multiyear contracts, with green shoots in adoption; Matt Steinfort mentioned core business NDR is trending ahead of blended NDR.

Q: Raimo Lenschow followed up on EBITDA sustainability.

A: Matt Steinfort said it was due to disciplined cost management and appropriate pacing of investments.

Q: Mike Cikos asked about Q4 EBITDA margin range and 2025 baseline growth.

A: Matt Steinfort said Q4 margin range was due to lumpy R&D spend; 2025 growth is based on self-serve funnel, managed hosting recovery, and AI growth.

Q: James Fish asked about GPU droplet adoption and supply.

A: Paddy Srinivasan said adoption is across new and existing customers; Matt Steinfort said supply chain is better with orders for next-gen tech.

Q: James Fish followed up on NRR and AI.

A: Matt Steinfort explained AI revenue isn't in NDR; core business NDR is improving but managed hosting is a headwind.

Q: Gabriela Borges asked about seasonality and Gen AI differentiation.

A: Matt Steinfort said no seasonality; Paddy Srinivasan said customers look top-down at AI, and Gen AI platform is differentiated by ease of use for non-experts.

Q: Jeff Hickey asked about AI customer expansion and GPU supply.

A: Paddy Srinivasan said AI customers are expanding; Matt Steinfort said GPU supply is sufficient.

Q: Josh Baer asked about focus shift and QOQ ARR.

A: Paddy Srinivasan said focus is on following customers' needs; Matt Steinfort said QOQ ARR difference was due to AI capacity surge in Q2.

Q: Pinjalim Bora asked about 2025 growth signals and multiyear commitments.

A: Paddy Srinivasan said growth signals are positive, and multiyear commitments are organic with plans to scale them next year.