DigitalOcean Holdings, Inc.

All participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Rob Bradley, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you and welcome everyone to DigitalOcean's earnings call. Today we will be highlighting our results for the second quarter of the fiscal year 2021. With me on the call today is Yancey Spruill, our Chief Executive Officer, and Bill Sorensen, our Chief Financial Officer. As we did last quarter, we will begin with commentary from Yancey and Bill, and then we will answer questions we've received from our analysts. Our goal, as always, is to help investors understand our business model and outlook in the most efficient way possible. After we address those questions, we will turn the call over to the operator to manage an open Q&A period. Turning now to our Steve Harper statement, I'd like to remind everyone that during this conference call, we will be making forward-looking statements, including our financial outlook for the third quarter and full year of 2021, as well as statements about goals and business outlook and industry trends and market opportunities, expectations for future financial performance, and similar items, all of which are subject to risks, uncertainties, and assumptions. You can find more information about these risks and uncertainties in the risk factors section of our filings with the SEC. We remind everyone that our actual results may differ, and we undertake no obligation to revise or update any forward-looking statements. And finally, we will be discussing non-GAAP financial measures today. Reconciliations between our GAAP and non-GAAP financial results and discussions of the limitations of our non-GAAP financial measures can be found in our earnings press release, which was issued earlier this morning. With that, let me turn the call over to our CEO, Yancey Spruill.

Yancey? Thanks, Rob. Good morning, and thank you for joining us today. We are excited to review our strong second quarter results with you, a quarter in which we saw acceleration across all key metrics. We see continued opportunity to accelerate revenue growth, and as important, we believe we will sustain a 30% plus growth rate in the near to medium term. Now let's turn to our second quarter results. Simply put, it was an outstanding quarter. Total revenue was just under $104 million and grew at 35%. A 1,000 basis point improvement year over year and 600 basis points sequentially. ARR was up 36% to $426 million. a 1,200 basis point improvement year over year, and 600 basis point improvement sequentially. And importantly was higher exiting the quarter, pointing to continued growth acceleration in the second half. We generated $31.4 million of adjusted EBITDA, which represents a 30% margin and continues to highlight our ability to generate strong margins even as we invest to accelerate growth. We will continue to drive operating leverage and adjusted EBITDA while continuing to make targeted investments to sustain our strong growth rate. I'd like to share some insights into our revenue performance as well as highlight a customer example that demonstrates how we enable entrepreneurs to build their businesses on DigitalOcean. Three pillars to accelerating and sustaining our business trajectory are customer growth, net dollar retention, and average revenue per customer. I'd like to walk you through the progress we are making on all three pillars, beginning with customer growth. In Q2, we increased total customers by 9% year over year to 602,000. We see customer growth as key to setting the table for robust long-term growth. As we bring in thousands of customers per month who start relatively small in terms of revenue, but they test and learn, and over time they grow. And when they get liftoff on their idea and build a business rapidly on DigitalOcean. Having a healthy and steady supply of customers is a very good indicator of the sustainability of our high growth expectations. We're working deliberately to engage our customers early as they join DigitalOcean to ensure that they have an excellent experience and stay on our platform. Historically, the overwhelming majority of our churn occurs within the first 12 months in a customer's journey with DigitalOcean, and within that first year, the first 90 to 120 days. We have focused our teams very specifically on improving the onboarding experience of customers. We are leveraging data science and proactive measures in order to identify improvement opportunities in how, when, and the frequency with which to interact with newly onboarded customers. We are pleased with our progress increasing customer growth. However, we are focused on managing customer growth to 10% or better year over year on a sustained basis. Next, I'd like to turn to net dollar retention, a critical indicator of the value proposition we offer our customers and durability of our higher growth rate targets. NDR measures revenue efficiency across customers that are part of the one-year and older cohort, who typically represent more than 80% of total revenue in any given period. We are managing specific initiatives to improve retention and expansion, and we saw excellent progress in Q2. NDR in the quarter was 113%, which was an improvement of 1,100 basis points year over year and 600 basis points sequentially over Q1. The expansion of existing customer spend and the improvement in churn were the key drivers of the significant improvement that we saw quarter over quarter. Broadly speaking, more than 80% of the 1,100 basis point improvement we saw in NDR was driven by customers expanding their spend with us, and nearly 20% was attributable to a reduction in churn. While we are extremely proud of the progress we have made in improving NDR, we still see near-term opportunity to meaningfully improve from the level reported today. The final pillar supporting our revenue growth acceleration is average revenue per customer, or ARPU. ARPU is driven by organic growth inherent within developer, startup, and SMB customers who are early in their life cycle and they are realizing significant growth. Also influencing growth is our introduction of new products to capture increasing share of our customers' evolving workflow. We are also adding day one larger ARPU SMB customers through our nascent sales effort. We saw a robust increase of 25% in Q2, resulting in ARPU of $58.07. In summary, across the three major pillars of revenue growth, We are near our minimum target of 10% for customer growth and see a path to get there. We've made enormous progress on NDR improvement and still see more meaningful near-term growth in NDR. And we are in our targeted range for ARPU growth. Collectively, delivering on these metrics gives us confidence that we will sustain a 30% plus growth rate for the rest of 2021 and in 2022. At our recent deploy conference, we announced the launch of Managed MongoDB, a new fully managed database as a service offering in partnership with and certified by MongoDB. MongoDB is one of the most popular and fastest growing NoSQL database technologies used by developers, startups, and SMBs today. And we are proud to be part of a very small set of MongoDB certified cloud providers offering MongoDBaaS in the market today. This new product offering is consistent with our strategy to routinely enhance our core infrastructure and managed services offerings to provide relevant choices for our customers as their businesses evolve. Now I'd like to share a customer story to highlight how we are a destination for developers and entrepreneurs to learn, to grow, and to ultimately launch their idea, their dream, into a business. This customer is a global online education platform that is both free and open source, serving both K through 12 educational institutions and higher ed universities. and they have been a customer of DigitalOcean since 2013. They were on our platform for many years testing and refining their ideas, ultimately leading to the launch of their business, which began ramping a few years ago and is growing rapidly today. When the pandemic kicked in, their business experienced hypergrowth, and with it, their usage of DigitalOcean's infrastructure. This is a great example of a customer starting out small while testing their ideas on our platform and generating a low level of revenue for a period of time. Then a catalyst occurs. Their idea gets traction and their idea becomes a business that experiences rapid growth. Our platform is fully capable of supporting the early phases of discovery and the later phases of rapidly scaling businesses. So why did they stay with us for so long before seeing liftoff? It's because of our simple, easy to use technology. It's because we provide documentation and support to help them get unstuck when they get stuck. It's because we support open source software so we never force their technology decisions and enable them to have flexibility to build their applications. And finally, we are competitively priced. We are able to support customers in their early periods of formation through their dramatic scale. This customer is passionate about fulfilling their mission to educate people, and they are trusting DigitalOcean to help them fulfill that mission. I can't think of a better example of why we are differentiated from others in the marketplace. We love these customers. They are fundamental to what we do. They are the very essence of our company. That is to say, we are a place for developers and entrepreneurs to test their ideas, build their businesses, and realize their dreams. In summary, it was an outstanding second quarter and first half of 2021. And I'm so proud of our entire DigitalOcean team for our accomplishments so far this year. We are poised and excited for additional growth acceleration in the second half of this year coupled with accelerating free cash flow. I'm confident in our ability to create a durable, high-growth, and highly profitable business serving developers and entrepreneurs throughout the world. I'd now like to turn the call over to Bill Sorensen, our Chief Financial Officer, who will provide details on our financial results in Q2 and our updated outlook for this year.