DigitalOcean Holdings, Inc. Q4 FY2024 earnings call

• Product Innovation: In Q4, released 49 new products/features, including VPC peering, internal load balancer, droplet auto scale pools, Per-Bucket Access Keys for Spaces, and flexible management in App Platform. - Go-to-Market Motions: Bolstered engagement with top 1,500 customers, increasing awareness and adoption of new products, aiding migration from other clouds. - AI Initiatives: Strong adoption of GPU droplets, GenAI platform in public beta with over 1,000 agents created by existing customers in 4 weeks, cloud-based co-pilot in beta, and internal use of GenAI agents for operations. - Deploy Conference: Launched migrations program, introduced AI variant of Hatch, and highlighted customers migrating from hyperscalers due to simplicity and cost.

Core Cloud: Revenue from builders and scalers (highest spending customers) represented 88% of total revenue, growing 16% year-over-year in Q4. Scalers+ customers, who are those with an annual run rate of $100,000+, represented 22% of total revenue in Q4, grew 37% year-over-year with a 17% increase in customer count. AI/ML Platform: Exceeded the 3 points of overall growth contribution guided for 2024, with Q4 ARR growth north of 160%.

• Q1 2025: Revenue expected in the range of $207 million to $209 million, representing ~13% year-over-year growth at the midpoint. Adjusted EBITDA margin expected in the range of 38% to 40%. - Full Year 2025: Revenue expected in the range of $870 million to $890 million, ~13% year-over-year growth at the midpoint. Adjusted EBITDA margin expected in the range of 38% to 40%. Adjusted free cash flow margin expected in the range of 16% to 18%. Non-GAAP diluted EPS expected $1.85 to $1.95.

• Market Competition: Competition in cloud and AI/ML spaces could impact market share and pricing. - Macroeconomic Factors: Economic conditions could affect customer spending on cloud services. - Technology Execution: Ensuring successful execution of product innovation and AI strategies to meet customer needs.

Q: At your recent Deploy Conference, you talked about customers migrating from hyperscalers. Expand on what types of customers and workloads you're targeting.

A: Paddy Srinivasan said customers are tech native, digital native cloud application software companies running globally distributed, network and bandwidth-intensive workloads with bursty traffic patterns. The migrations program helps with smooth transition and a scalable platform.

Q: On EBITDA guidance, explain main drivers of outperformance and conservatism in 2025 guide.

A: Matt Steinfort said R&D team reallocated resources, and EBITDA guide is wide due to front-end loaded investments and expenses like AI capital, Atlanta data center, and Q1 cash events.

Q: Refresh on ARR capture per dollar of GPU-related CapEx and gross margin profile of AI services.

A: Matt Steinfort said GenAI services have higher margins and drive pull-through revenue for other cloud services. Infrastructure layer margins are less spectacular but expected to improve over time.

Q: Size of AI/ML ARR base and ARR composition.

A: Matt Steinfort said AI revenue is intermingled with other products, not disaggregated at product level. A healthy chunk of AI is in Scalers+, but not the vast majority.

Q: Areas of investment in 2025 and growth of Scalers+ cohort.

A: Paddy Srinivasan said core cloud will focus on meeting larger customers' needs, AI will fortify infrastructure, GenAI platform, and agentic layer. Growth of Scalers+ is driven by focus on top customers and wallet share opportunity.

Q: Behaviors of Scalers+ vs non-plus and drivers of Scalers growth.

A: Matt Steinfort said breaking out Scalers+ addresses graduation concern, and focus is on top-spending customers first, with plans to target other layers as the year progresses.