DigitalOcean Holdings, Inc.

Thank you for standing by. My name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to the DigitalOcean third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, Simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. Thank you. I would like to turn the call over to Melanie Strait, Head of Investor Relations. Please go ahead.

Thank you, Rebecca, and good morning. Thank you all for joining us today to review DigitalOcean's third quarter 2025 financial results. Joining me on the call today are Patty Trini-Vaughan, our Chief Executive Officer, and Matt Steinfort, our Chief Financial Officer. Before we begin, let me remind you that certain statements made on the call today may be considered forward-looking statements, which reflect management's best judgment based on currently available information. Our actual results may differ materially from those projected in these forward-looking statements, including our financial outlook. I direct your attention to the risk factors contained in our filings with the SEC, as well as those referenced in today's press release that is posted on our website. DigitalOcean expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made today. Additionally, non-GAAP financial measures will be discussed on this conference call and reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release, as well as in our investor presentation that outlines the financial discussion on today's call. A webcast of today's call is also available in the IR section of our website. And with that, I will turn the call over to Patty.

Thank you, Melanie. Good morning, everyone, and thank you for joining us today as we review our third quarter results. I'm very excited to share our results for the quarter and to give you an update on the progress that we are making against the goals that we articulated earlier this year during our April investor day. Our performance this quarter was very strong. We exceeded our Q3 guidance on both revenue and profitability metrics, delivering 16% revenue growth and the highest incremental organic ARR in the company's history. while generating 21% trailing 12 month adjusted free cash flow margins. We continued innovation in our comprehensive agentic cloud to support the needs of scaling AI and digital native enterprise customers, making sure there is no reason our highest spending customers ever need to leave our platform. We augmented our industry leading product led growth engine with focused direct sales motion driving customers to migrate workloads from the hyperscalers to our platform, and building traction with direct AI native customers. This progress is evident in the rapid growth of our largest customers and their increasing willingness to sign committed contracts with us, with customers having more than $1 million in annualized run rate, reaching $110 million in ARR, growing 72% year over year, and with multiple customers signing eight-figure committed contracts after the quarter closed. The demand for our agentic cloud has exceeded our supply. Our performance and the visibility we have into demand gives us the confidence both to increase our 2025 and 2026 revenue and adjusted free cash flow outlook. and to also increase our investments in data centers and GPU capacity to further accelerate growth while maintaining attractive margins. I will now dive deeper into all of this, starting with our third quarter financial results as highlighted on slide 10 of our earnings deck. Q3 revenue hit $230 million, up 16% year over year, marking the highest growth since Q3, 2023. We delivered our highest organic incremental ARR in company's history at $44 million. This growth was driven by a balanced performance across our comprehensive agentic cloud platform as direct AI revenue more than doubled year over year for the fifth consecutive quarter and our general purpose cloud products saw the highest incremental organic ARR since Q2 of 2022. We delivered this accelerating revenue growth in Q3 while exceeding our profitability guidance and materially strengthening our balance sheet. Adjusted EBITDA and non-GAAP earnings per share were both well above guidance on the back of strong execution, and we delivered a strong 21% trailing 12-month adjusted free cash flow margins as we introduced equipment leasing into our financial toolkit in Q3 to better align the timing of our investments with our revenue. To give us further flexibility to invest in growth, we also repurchased the majority of our 2026 convert in the quarter, strengthening our balance sheet. The primary drivers behind our accelerating top-line growth are threefold. Number one, The increasing momentum we are seeing with AI-native customers. Next, the material traction we continue to generate with our highest-spend digital native enterprise customers. And finally, the continued strength we are seeing in revenue from new customers. Our unified gradient AI-agentic cloud, which is outlined on slide seven of our investor presentation, is getting increasing traction with larger, well-funded AI-native companies that are in inference mode. These scaling companies increasingly leverage our unified agentic cloud with many of our top customers already leveraging both AI and general purpose cloud capabilities, and with many more having at least starting to test and experiment with AI on our platform. Evidence of this fraction is in the growth rates of our highest spending customers, Revenue from these customers who were at $100,000 plus annual run rate grew 41% year over year, increasing to 26% of total revenue. Growth is even higher for our largest digital native enterprise customers as the more our customers are spending, the faster they're growing on DL. The charts on slide 11 show that our customers with greater than $500,000 and greater than $1 million in annualized run rate grew revenue 55% and 72% respectively, providing clear evidence that our increasing ability to not just attract, but also retain and grow our largest customers, demonstrating that customers can keep scaling on our platform and never have a reason to leave. Let me now dive deeper into this fraction using slide 12 as the backdrop. to illustrate just how much progress we have made since the last earnings call. I will start with our AI infrastructure on the bottom right, which is a full stack inference platform targeting AI native customers that have their own models that they want to tune, optimize, and run in inference mode. These customers select our platform for our full set of capabilities. where we combine a powerful lineup of GPUs that are available in both bare metal and droplet configurations, including inference-optimized droplets, with advanced inference performance optimization, like page retention, flash attention, FP8 quantization, speculative decoding, model operations management, reduced time for first token, and compelling TCO economics. Our AI infrastructure provides comprehensive hardware plus software infrastructure for AI-native companies that are scaling up real-world inference workloads globally on DL. FAL.AI, or FALL, a generative media model platform that provides text-to-image and text-to-video models for major customers such as Canva, Shopify, Perplexity, and more, is a great example of a customer that is taking advantage of our unified agentic cloud. They leverage a range of our AI infrastructure solutions, including GPU droplets, both to host their media models in production, serving their end customers, and to do research and fine tune. Paul is more than just an important customer, as we have come together in a strategic partnership to accelerate generative AI content creation by making image and audio generation more accessible to startups and enterprises. Through this partnership, Paul will host and run hundreds of its models on DigitalOcean's infrastructure, powering applications across creative and enterprise use cases. This means customers can create agents that understand and generate not only text, but also images, data, and other forms of input. significantly expanding the range of real-world problems our customers can solve. Newsbreak is another example of an AI native customer leveraging our unified agency cloud. Driving the next generation of digital media, Newsbreak delivers timely and relevant local news and information to 40 million monthly active users. Newsbreak's AI-powered infrastructure makes sophisticated personalization accessible to mainstream users nationwide. They utilize our AI infrastructure to train and deploy complex recommender systems and natural language processing models that are foundational to their product. Our AI infrastructure's high throughput and memory capacity are critical for running inference at scale, which allows them to perform real-time content ranking and ad placement for millions of concurrent users. Gradient AI Agency Cloud unifies our integrated AI capabilities with our full-stack general-purpose cloud, which we've been optimizing for over a decade, enabling Newsbreak to pre-process their work on our CPU droplets and run their vector search service in advance of running their AI workloads, optimizing both cost and performance. Network File Storage, or NFS, which delivers high throughput performance for both GPU and non-GPU droplets, is an example of a unified agentic cloud capability. Customers can now attach and provision storage in just minutes, accelerating time to value by eliminating idle time. With seamless integration into our Kubernetes engine, NFS makes it easier than ever to scale applications and workloads while maintaining speed, reliability, and efficiency across environments. Moving up the stack outlined in slide seven, the AI platform layer on the middle right is typically leveraged by companies that are users or consumers of AI that are looking to build agentic applications without having to directly manage the infrastructure. As we know, the future of AI is an agent and agentic workflows which is a natural evolutionary step for all SaaS and other applications. We continue to evolve our AI platform as the foundation for building and deploying these intelligent agents and powering complex enterprise agentic workflows. It now supports serverless inferencing across the most popular models, including OpenAI, Anthropic, Mistral, Lama, DeepSeq, and others. including new generative media models from Falls. We've added a powerful knowledge-based service that lets customers bring their own data and improve accuracy, along with built-in guardrails for safety, visual agent orchestration, and enterprise-grade features like observability, Git integration, and auto-scaling. Together, these capabilities make our Gradient AI Agentech Cloud Platform one of the most intuitive and complete platforms for taking AI agents from prototype to production. These key capabilities help companies develop and operate AI agent fleet and manage their full lifecycle of these agents seamlessly from a single platform while leveraging the best of breed AI models from various providers. We are particularly excited about a major customer we signed for our AI platform after the Q3 quarter closed. This customer is a global digital systems integrator who signed an eight-figure-per-year multi-year contract to leverage our agentic cloud to drive AI transformation for its digital native enterprise customer base with a specific focus on agentifying the full software engineering lifecycle, including planning, backlog and roadmap management, release planning, release execution, and customer support. We'll provide more information on this exciting customer after we formally announce the partnership in the upcoming days. The AI platform layer continues to also gain broader momentum with over 19,000 agents created so far, of which more than 7,000 are already in production. one specific customer, Shaka Zamba, an Italian leader in GDPR-compliant, ethical, and secure AI solutions across Europe, chose to leverage the Gradient AI agency cloud over the hyperscalers. By using our platform, they're now able to create and roll out agents to automate customer support, knowledge management, and content creation while reducing development time and costs associated with the agent lifecycle. This quarter, We also expanded our AI ecosystem with the launch of the DigitalOcean AI Partner Program, with several of our partners outlined on slide 13. This is a major step in empowering AI and digital native enterprises that are building and scaling their businesses leveraging AI. These companies don't have time for a fragmented infrastructure. They instead want a unified cloud and an AI platform that lets them seamlessly build and scale intelligent applications using agents. This new partner program brings together AI native companies, integrators, and the venture ecosystem to help these builders reach more customers, accelerate innovation, and amplify their global reach. Combined with our AI platform and infrastructure, this ecosystem makes DigitalOcean the go-to destination for these AI native businesses who want simplicity, scalability, and reach without the hyperscale complexity. In Q3, we continue to deliver product innovation in our core cloud stack to support our highest spending customers by meeting their needs as they scale their business on DEO. One such example of a digital native enterprise customer scaling rapidly on DO is Bright Data, a leading provider of web data sets to global frontier LLM labs for training AI models. Bright Data leverages various components of our agentic cloud to scale high volume global workloads on our platform. VPN Super, who develops trusted VPN and security solutions It's the most downloaded VPN app in the world. It's another digital native enterprise growing on our platform. VPN Super empowers millions of users across the globe to browse securely and privately regardless of their location. They signed a seven-figure deal to migrate multiple workloads to DigitalOcean, and they selected VEO for our ability to handle large traffic spikes, platform reliability in our global scale. These growing customers require general purpose cloud capabilities that grow with their business. And we delivered a number of these new features during the quarter, as you can see highlighted on slide 12 of our earnings presentation. For example, we recently introduced Paces Cold Storage, an enterprise grade object storage solution designed for customers managing data at massive scale. With support for hundreds of petabytes and billions of objects per bucket, it offers free retrieval, predictable low cost, and immediate access to data, eliminating the trade-off between affordability and performance. This cold storage is secure, reliable, and resilient, providing our customers with the confidence to store and access mission-critical data sets seamlessly as their needs grow. During the quarter, we also enhanced our managed databases offering with automated storage auto scaling, enabling customers to scale seamlessly as their data needs grow. When capacity thresholds are reached, storage automatically scales in 10 gigabytes increments or higher with zero downtime and no disruption to workloads. This feature is available across all major database engines, including MongoDB, PostgreSQL, MySQL, and is fully customizable, allowing customers to set thresholds starting at 20% utilization. With a simple pay-as-you-go model, autoscaling eliminates the burden of manual intervention, ensuring that applications scale reliably and cost-effectively. The steady stream of new features is resonating with our AI and digital native enterprise customers. Over 35% of our customers with more than 100,000 in ARR have adopted at least one of our new features released over the past year. And those customers, having adopted at least one of these new products, have seen a several hundred basis points increase in their growth rate after adopting the new product. Our strong performance, our growing momentum through the first three quarters, and the visibility that we now have into demand gives us the confidence to raise our near and medium-term growth outlook. We are raising our full year 2025 guidance on both revenue and margin, and we now expect to achieve our 18 to 20% 2027 revenue growth target in 2026, a full year earlier than we had projected. It has also given us the confidence to accelerate our investments to drive growth in 2026 and beyond. When we outlined our 2027 growth objectives this past April, we indicated that we would increase our investments as we saw opportunities to accelerate our growth. We are now seeing more demand than we can support with our existing capacity, which is evident by us having signed multiple eight-figure committed contracts after the quarter ended that will materially increase our RPO in Q4. With this increased conviction, we began to put the foundational elements in place in Q3 to even further accelerate our growth. We started ordering more GPU capacity to meet the growing inference demands we are seeing from our AI-native customers. We also secured around 30 megawatts of incremental data center capacity to support growth in 2026 and beyond. We added equipment financing to better align our investments with revenue. We ramped engineering resources to accelerate our unified agentic cloud roadmap and continued our targeted investment in new sales and marketing initiatives to complement our industry-leading product-led growth engine. These investments will build on the success we have seen today and will set us up for a strong 2026 and 2027. Our Q4 and 2025 full year guidance implies a 16% exit 2025 growth rate. And while we won't provide 2026 guidance until our February earnings fall, we expect to comfortably deliver 18 to 20% growth in 2026, achieving our 2027 growth target a full year earlier than previously projected. We will deliver this growth while maintaining strong adjusted free cash flow margins in the mid to high teens. Matt will provide further color on these investments and the projected impact on our growth and profitability in his remarks. As I said in my opening, we delivered strong performance in Q3, beating our guidance on both revenue and profitability. We're seeing momentum with our unified agency cloud. And this momentum is evident in the rapid growth of our highest spending customers. And demand is exceeding our current capacity. All of this gives us the conviction both to raise our 2025 and 2026 revenue and adjusted pre-cash flow outlook and to increase our investments to take advantage of the opportunity in front of us. We look forward to sharing more on our progress and our outlook for 2026 over the upcoming months. Thank you, and I'll now turn it over to Matt.