DigitalOcean Holdings, Inc. Q3 FY2025 earnings call

• Strong Q3 performance with 16% revenue growth and highest incremental organic ARR. Exceeded Q3 guidance on revenue and profitability metrics, achieving 21% trailing 12-month adjusted free cash flow margins.
• Continued innovation in the agentic cloud to support AI and digital native enterprise customers. Augmented product-led growth engine with direct sales motion, driving customer migrations from hyperscalers.
• Rapid growth of largest customers, with those spending over $1 million in ARR reaching $110 million in ARR, growing 72% year-over-year. Multiple customers signed 8-figure committed contracts after Q3.
• Expanded AI ecosystem with launch of DigitalOcean AI Partner program, empowering AI and digital native enterprises. Product innovations like Spaces Cold Storage and automated storage auto-scaling for enterprise customers.

Q3 revenue hit $230 million, up 16% year-over-year. Organic incremental ARR was $44 million, the highest in the company's history. AI revenue more than doubled year-over-year for the fifth consecutive quarter. Revenue from customers with an annualized run rate of $100,000-plus grew 41% year-over-year, accounting for 26% of total revenue. Customers with greater than $500,000 and greater than $1 million in annualized run rate grew revenue 55% and 72%, respectively.

• Raised 2025 revenue and margin guidance; now expects 18%-20% 2027 revenue growth in 2026, a year earlier than projected. Q4 2025 revenue expected to be in the range of $237 million to $238 million (16% y-o-y growth). Full-year 2025 revenue projected at $896 million to $897 million (15% y-o-y growth). Adjusted EBITDA margin for full-year 2025 expected at ~41%.
• 2026 expected to deliver 18%-20% growth, with accelerated investments in data centers (30 megawatts of incremental capacity) and GPU capacity to support growth.

Q: This is Nick on for Pat. Are there other factors in deciding what to build next besides customer-driven?

A: We are competitor aware but customer obsessed. Focused on agent development life cycle for AI-native companies. Unmatched software expertise and platform depth drive our strategy.

Q: Are you thinking about including AI in net dollar retention as it becomes larger?

A: We are looking at incorporating resilient growth of inferencing into metrics. AI revenue from scaled production workloads is more predictable, and we'll revisit NDR once we have better '26 outlook.

Q: Can you walk through key puts and takes in NDR?

A: Expansion from large customers drives growth. NDR is affected by a large base of small customers. Expansion from big customers (>$100k ARR) is strong, masking the impact of small customers on NDR.

Q: What's the sum total of CapEx plus equipment leasing over next couple of years?

A: Continued disciplined behavior to drive durable revenue growth while maintaining attractive free cash flow margin. Investments in data centers and GPUs for durable revenue growth with good returns.

Q: Transition to leveraging leasing and comparison of gross margins from leased vs owned capacity?

A: We lease all data centers. Costs are variable with revenue. Taking down additional data center capacity behaves similarly to previous expansions, with lumpy expenses initially but gross margin returning to steady state as capacity is utilized.