Summary
DigitalOcean closed FY2022 Q2 with revenue of $133.9 million, up 29% from the prior-year quarter. Gross profit was $86.6 million, up 42.8%. Gross margin was 64.7%, up from the prior-year quarter. The top line growth came from a 24% rise in ARPU to $71.76 and a 16% increase in customers spending more than $50 per month, which reached 105,355, up from 90,720 a year earlier. These customers represented 85% of revenue in the quarter, up from 82% a year earlier. ARR ended the quarter at $544.1 million, up 28% year-over-year. Net dollar retention rate was 112%. For the first six months, revenue was $261.2 million, up 32.3%.
GAAP profitability remained negative. Operating loss was $7.4 million, wider than the prior-year quarter. Operating margin was -5.5%, down from the prior-year quarter. Net loss was $6.2 million, and diluted EPS was -$0.06, both wider than the prior-year quarter. On a non-GAAP basis, income from operations was $22.3 million, compared with $9.6 million in the prior-year quarter. Non-GAAP operating margin was 17%, compared with 9% in the prior-year quarter. Non-GAAP diluted net income per share was $0.20, compared with $0.08 in the prior-year quarter. Adjusted gross profit was $109.7 million, or 82% of revenue. The gap between GAAP and non-GAAP results was driven by stock-based compensation, a loss on sublease, acquisition related costs, and amortization of acquired intangibles.
Cash generation improved. Operating cash flow was $45.4 million in the quarter, up 12.3% from the prior-year quarter. Year to date, operating cash flow was $75.7 million, up 25.7%. Capital expenditures were $25.1 million in the quarter, up 1.7%; year to date, they were $48.0 million, up 2.1%. Free cash flow, a non-GAAP measure, was $18.4 million for the first six months, or 7% of revenue, compared with 5% in the prior-year period. Deferred revenue was $4.7 million at quarter end, down 5.9% from a year earlier. The company repurchased approximately 10.0 million shares in the quarter through its share repurchase programs.
Guidance points to steady growth with better profitability. For the third quarter of 2022, DigitalOcean guided to a revenue range plus non-GAAP operating margin of 17% to 18% and non-GAAP diluted net income per share of $0.22 to $0.23. For the full year 2022, it guided to a revenue range plus non-GAAP operating margin of 15% to 16%, free cash flow of 9% to 10% of revenue, and non-GAAP diluted net income per share of $0.74 to $0.75. Management said a reconciliation of non-GAAP guidance measures to GAAP is not available without unreasonable effort.
Management cited macroeconomic headwinds and an uncertain environment. Revenue from customers with business activities in Russia, Belarus, and Ukraine was about 2.4% of total revenue in the quarter, compared with 3.6% a year earlier. The company has no employees or direct operations in Russia, Belarus, or Ukraine, but certain customers conduct business there. The company implemented a price increase on July 1, 2022. CFO Bill Sorenson plans to retire in 2023, and the company will search for a successor. Forward-looking risks include recent growth not being indicative of future growth, a history of operating losses, security breaches, competitive markets, privacy laws, and managing growth. The company had no material customer concentration, with its top 25 customers making up approximately 12% of revenue in the quarter. DigitalOcean operates in a competitive and rapidly changing environment, and new risks and uncertainties emerge from time to time.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $133.9M | $127.3M | +5.1% | $103.8M | +29.0% |
| Gross profit | $86.6M | $80.6M | +7.5% | $60.7M | +42.8% |
| Gross margin | 64.7% | 63.3% | +1.4 pp | 58.4% | +6.3 pp |
| Research & development | $37.0M | $37.2M | -0.8% | $27.1M | +36.3% |
| Sales & marketing | $18.2M | $19.0M | -4.3% | $11.8M | +54.2% |
| General & administrative | $38.8M | $37.4M | +3.8% | $24.4M | +59.4% |
| Total operating expenses | $94.0M | $93.7M | +0.3% | $63.3M | +48.5% |
| Operating income (loss) | -$7.4M | -$13.1M | +43.9% | -$2.6M | -180.5% |
| Operating margin | -5.5% | -10.3% | +4.8 pp | -2.5% | -3.0 pp |
| Net income (loss) | -$6.2M | -$18.1M | +65.8% | -$2.2M | -183.1% |
| Net margin | -4.6% | -14.2% | +9.6 pp | -2.1% | -2.5 pp |
| Diluted EPS | -$0.06 | -$0.17 | +$0.11 | -$0.02 | -$0.04 |
| Customers | 25 | 623,000 | -100.0% | 602,000 | -100.0% |
| Net retention rate | 112.0% | 117.0% | -5.0 pp | 113.0% | -1.0 pp |
Risks
Operating expenses increased 49% in the quarter ended June 30, 2022, driven by higher personnel costs and stock-based compensation, causing operating loss to widen to $7.4 million from $2.6 million and net loss to widen to $6.2 million from $2.2 million. Management expects operating expenses to continue increasing in absolute dollars.
The Russia-Ukraine conflict and related sanctions have impacted the company's ability to receive payments from customers with business activities in Russia, Belarus and Ukraine, which represented approximately 2.4% of total revenue for the three months ended June 30, 2022, down from 3.6% in the prior-year quarter. Further sanctions could continue to impact revenues.
Net dollar retention rate declined to 112% for the quarter ended June 30, 2022 from 113% in the prior-year quarter, potentially signaling reduced expansion or increased churn among existing customers.
The company implemented a price increase on its products beginning July 1, 2022, with the impact to be reflected in third quarter 2022 results. This may lead to customer churn or reduced usage.
SaaS KPIs
All quarters →Average Revenue Per Customer (ARPU)
Annual Run-Rate Revenue (ARR)
Adjusted Gross Margin
Net Dollar Retention Rate (NDR)
Non-GAAP Operating Margin
Adjusted Gross Profit
Customers paying more than $50 per month
Summary, forecast, risks and KPIs are extracted from DigitalOcean Holdings, Inc.'s SEC filings for Q2 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.