DigitalOcean Holdings, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This 10-K reports full-year results; it does not provide standalone fourth-quarter financial results. DigitalOcean sells consumption-based cloud infrastructure and platform services primarily to startups and small and medium-sized businesses.
Financial and operating highlights
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $576.3 million | $428.6 million |
| Revenue growth | 34% | Not stated here |
| Gross profit / margin | $364.4 million / 63% | $258.0 million / 60% |
| Operating loss / margin | $(26.2) million / (5)% | $(11.2) million / (3)% |
| Net loss attributable to common stockholders | $(24.3) million | $(19.5) million |
| Net cash from operating activities | $195.2 million | $133.1 million |
| Free cash flow, non-GAAP | $77.8 million; 13% margin | $24.5 million; 6% margin |
| Adjusted EBITDA, non-GAAP | $198.4 million; 34% margin | $136.6 million; 32% margin |
At year-end, cash and cash equivalents were $140.8 million and marketable securities were $723.5 million. Current assets were $946.6 million versus current liabilities of $164.3 million. Long-term debt was $1.47 billion, representing $1.5 billion principal of 0% convertible senior notes due December 2026; no borrowings were outstanding under the $250 million revolving credit facility. The company said available liquidity, operating cash flow and borrowing capacity were expected to cover requirements for at least the next 12 months and long term.
Changes versus FY 2021
- Revenue rose 34%, with average revenue per customer increasing 25% to $75.19. Net dollar retention improved to 115% from 113%.
- Gross margin increased to 63% from 60%, while operating expenses grew 45% to $390.6 million and the operating loss widened.
- Operating cash flow increased to $195.2 million from $133.1 million; non-GAAP free cash flow rose to $77.8 million from $24.5 million.
- DigitalOcean acquired Cloudways on September 1, 2022 for total consideration of $311.2 million in cash. Management attributed $16.7 million of FY 2022 revenue growth to the acquisition; the acquisition note reports $20.5 million of Cloudways revenue from closing through year-end, including intercompany revenue.
- The company repurchased and retired 13.6 million shares for $600 million during 2022. Cash and cash equivalents declined substantially, while marketable securities increased to $723.5 million.
Outlook, risks and unusual items
- The filing provides no specific FY 2023 revenue or earnings guidance. Management’s stated priorities include growing usage among existing customers and higher-spend customers, and investing in IaaS, PaaS and SaaS products.
- In February 2023, the company initiated a restructuring involving position eliminations and geographic shifts. It expected $25–$27 million of charges and substantial completion by the end of Q3 2023, with the aim of adjusting costs and accelerating free-cash-flow-margin objectives.
- In February 2023, the board authorized a separate share repurchase program of up to $500 million during 2023; repurchases are discretionary.
- Key risks include economic pressure on SMB and startup spending, customer churn and usage variability under month-to-month contracts, intense competition, cybersecurity and service availability, data-center capacity and energy costs, international and privacy regulation, and integration of Cloudways.
- Stock-based compensation was $105.8 million in 2022, a substantial non-cash expense. The $1.5 billion convertible notes may create liquidity or dilution considerations if converted; the company stated its current intent was to settle principal in shares.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Cloudways was excluded from management’s and the auditor’s internal-control assessment and represented 20% of consolidated assets and 4% of revenue in 2022.
- The company reported no current litigation expected to have a material adverse effect. Its 2022 adoption of the lease accounting standard brought operating lease assets and liabilities onto the balance sheet; prior-year balance-sheet amounts are not directly comparable.
Investor verification points
- Reconcile Cloudways revenue contribution across the MD&A and acquisition note, and assess its post-acquisition performance and integration.
- Review the restructuring’s actual charges, workforce effects, and progress toward management’s free-cash-flow-margin objective.
- Track customer growth, ARPU, net dollar retention, and the share of revenue from higher-spend customers.
- Evaluate liquidity after the $600 million 2022 buyback, the proposed 2023 repurchase authorization, capital spending, and contractual lease commitments.
- Assess dilution and potential cash obligations related to convertible notes and equity compensation, including the large stock-based compensation expense.
- Monitor operating expense growth, credit-loss provisions, service reliability, and data-center investment needs against revenue growth.