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Form 8-K DigitalOcean Holdings, For: Aug 05

August 8, 2022 4:09 PM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (date of earliest event reported): August 5, 2022

DigitalOcean Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
001-40252
45-5207470
(State or other jurisdiction of incorporation or organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
101 6th Avenue
New York
New York
10013
(Address of Principal Executive Offices)
(Zip Code)
(646) 827-4366
Registrant's telephone number, including area code

Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.000025 per shareDOCNThe New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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Item 2.02 Results of Operations and Financial Condition

On August 8, 2022, DigitalOcean Holdings, Inc. (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended June 30, 2022. The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

This information is intended to be furnished under Item 2.02 and Item 9.01 of Form 8-K, “Results of Operations and Financial Condition” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

On August 5, 2022, William Sorenson, Chief Financial Officer of the Company, entered into a transition agreement with the Company (the “Transition Agreement”). The Transition Agreement provides that Mr. Sorenson will retire from employment with the Company, effective August 31, 2023 (the “Retirement Date”), and sets forth the terms of Mr. Sorenson’s employment with the Company through the Retirement Date.

Pursuant to the terms of the Transition Agreement, Mr. Sorenson will continue to serve as Chief Financial Officer until the earlier of (i) the date on which the Company appoints his successor and (ii) the Retirement Date. To the extent that a successor is appointed before the Retirement Date, Mr. Sorenson will continue to be employed by the Company as Executive Advisor from the date of such appointment until the Retirement Date to ensure a successful transition of his duties.

From the date of the Transition Agreement through the Retirement Date, Mr. Sorenson will (a) continue to receive his current annual base salary of $430,000; (b) remain eligible to receive a target annual discretionary performance bonus of 65% of his annual base salary with respect to calendar year 2022, based on the achievement of individual and corporate performance goals set forth in the existing bonus plan; (c) continue to vest in any outstanding equity awards; and (d) remain eligible to receive employee benefits in accordance with the Company’s established policies. Mr. Sorenson will also be entitled to the following: (i) a pro-rated annual bonus with respect to calendar year 2023 (equal to two-thirds of the full annual target amount) based on the achievement of performance goals set forth in the Company’s 2023 bonus plan, payable when such annual bonuses are paid to other Company executives; and (ii) an extended period of 12 months from the Retirement Date to exercise any outstanding vested nonstatutory stock options.

Except as otherwise set forth in the Transition Agreement, all other terms and conditions of the Employment Agreement between the Company and Mr. Sorenson, dated March 8, 2021 (the “Employment Agreement”), shall remain in full force and effect.

Mr. Sorenson’s decision to retire is not related to any financial or accounting issues and does not involve any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

The foregoing summary is qualified in its entirety by reference to the Employment Agreement and the Transition Agreement, copies of which are filed as Exhibit 10.1 and Exhibit 10.2, respectively, to this Form 8-K and which are incorporated by reference herein.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:August 8, 2022DigitalOcean Holdings, Inc.
By:/s/ William Sorenson
William Sorenson, Chief Financial Officer

Exhibit 10.1

EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”) is entered into on March 8, 2021 (the “Effective Date”) by and between DigitalOcean, LLC (collectively, the “Company”) and William Sorenson (the “Executive”) (collectively, the “Parties”).
Whereas, the Company and Executive desire to set forth the terms upon which the Executive will continue Executive’s employment with the Company;
Whereas, the Company and Executive are parties to an offer letter dated, July 3, 2019 (the “Existing Agreement”);
Whereas, the Company and Executive desire to supersede and replace the Existing Agreement with the below terms;
Now, Therefore, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:
1.Employment by the Company.
1.1Position. As of the Effective Date, Executive shall continue to serve as the Company’s Chief Financial Officer. Executive shall perform such duties as are required by the Chief Executive Officer to whom Executive will report, or by such other person(s) as that person may designate. During the term of Executive’s employment with the Company, Executive will devote Executive’s best efforts and substantially all of Executive’s business time and attention to the business of the Company, except for approved time off permitted by the Company’s general employment policies.
1.2Policies and Procedures. The employment relationship between the Parties shall be governed by the general employment policies and practices of the Company, except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, this Agreement shall control.
2.Compensation.
2.1Base Salary. For services to be rendered hereunder, Executive shall receive a base salary at the rate of Four Hundred Thousand Dollars ($400,000) per year (as modified from time-to-time, the “Base Salary”), subject to standard payroll deductions and withholdings and payable in accordance with the Company’s regular payroll schedule.
2.2Annual Bonus. Executive will be eligible for an annual discretionary cash bonus of up to sixty percent (60%) of Executive’s Base Salary (the “Annual Bonus”). Whether Executive receives an Annual Bonus for any given year, and the amount of any such Annual Bonus, will be determined by the Board of Directors (the “Board”) of DigitalOcean Holdings, Inc. (“Holdings”) (or the Compensation Committee of the Board) based upon the Company’s and Executive’s achievement of objectives and milestones to be determined on an annual basis. Any Annual Bonus that is awarded will



be paid within the first ninety (90) days of the calendar year following the applicable bonus year. Except for a Change in Control Annual Bonus (as defined below) payment, Executive will not be eligible for, and will not earn, any Annual Bonus (including a prorated bonus) if Executive’s employment terminates for any reason before the payment date.
3.Standard Company Benefits. Executive shall be entitled to participate in all employee benefit programs for which Executive is eligible under the terms and conditions of the benefit plans that may be in effect from time to time and provided by the Company to its employees. The Company reserves the right to cancel or change the benefit plans or programs it offers to its employees at any time.
4.Expenses. The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in furtherance or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.
5.Termination of Employment; Severance
5.1At-Will Employment. Executive’s employment relationship is at-will. Either Executive or the Company may terminate the employment relationship at any time, with or without cause or advance notice.
5.2Termination Without Cause; Resignation for Good Reason.
(i)The Company may terminate Executive’s employment with the Company at any time without Cause (as defined below). Further, Executive may resign at any time for Good Reason (as defined below).
(ii)In the event Executive’s employment with the Company is terminated by the Company without Cause, or Executive resigns for Good Reason, then provided such termination constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a “Separation from Service”), and provided that Executive remains in compliance with the terms of this Agreement, the Company shall provide Executive with the following severance benefits:
(a)The Company shall pay Executive, as severance, twelve (12) months of Base Salary, subject to standard payroll deductions and withholdings (the “Severance”). The Severance will be paid in equal installments on the Company’s regular payroll schedule over the twelve (12) month period following Executive’s Separation from Service; provided, however, that no payments will be made prior to the 60th day following Executive’s Separation from Service. On the 60th day following Executive’s Separation from Service, the Company will pay Executive in a lump sum the Severance that Executive would have received on or prior to such date under the standard payroll schedule but for the delay while waiting for the 60th day in compliance with the Internal Revenue Code (the “Code”) Section 409A, with the balance of the Severance being paid as originally scheduled.
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(b) Provided Executive timely elects continued coverage under COBRA, the Company shall pay Executive’s COBRA premiums to continue Executive’s coverage (including coverage for eligible dependents, if applicable) (“COBRA Premiums”) through the period (the “COBRA Premium Period”) starting on Executive’s Separation from Service and ending on the earliest to occur of: (i) twelve (12) months following Executive’s Separation from Service; (ii) the date Executive becomes eligible for group health insurance coverage through a new employer; or (iii) the date Executive ceases to be eligible for COBRA continuation coverage for any reason, including plan termination. In the event Executive becomes covered under another employer's group health plan or otherwise ceases to be eligible for COBRA during the COBRA Premium Period, Executive must immediately notify the Company of such event. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA Premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall pay to Executive, on the first day of each calendar month, a fully taxable cash payment equal to the applicable COBRA premiums for that month (including premiums for Executive and Executive’s eligible dependents who have elected and remain enrolled in such COBRA coverage), subject to applicable tax withholdings (such amount, the “Special Cash Payment”), for the remainder of the COBRA Premium Period. Executive may, but is not obligated to, use such Special Cash Payments toward the cost of COBRA premiums.
(c) (i) as of the Separation Agreement effective date, the vesting for all outstanding equity awards in Holdings, held by Executive immediately prior to the employment termination date (if any) subject to time-based vesting requirements, shall be accelerated by six (6) months from the employment termination date; and (ii) the vesting and exercisability of all outstanding equity awards subject to performance-based vesting will be treated as set forth in Executive’s equity award agreement governing such award; and (iii) with respect to any options granted to Executive, any vested options shall be exercisable until the date that is twelve (12) months following the termination of Executive’s employment with Company, subject to earlier termination in accordance with controlling stock plan, and in no event will the options be exercisable beyond the expiration date of the original ten (10) year term applicable to such options.
(iii)If the Company terminates Executive’s employment with the Company without Cause, or Executive resigns for Good Reason, in either case within three (3) months prior to or twelve (12) months following the closing of a Change in Control (as defined below), then instead of the severance benefits provided in Section 5.2(ii) above, the Company shall provide Executive with the following severance benefits:
(a)The Company shall pay Executive, as severance, twelve (12) months of Base Salary, subject to standard payroll deductions and withholdings (the “Change in Control Severance”). The Change in Control Severance will be paid in a single lump sum within sixty (60) days following Executive’s termination of employment; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the Change in Control Severance shall be paid in the second calendar year by the last day of such 60-day period. Notwithstanding the
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foregoing, if such termination occurs prior to a Change in Control, the Change in Control Severance shall commence to be paid in installments in accordance with Section 5.2(ii) above, and upon the occurrence of such Change in Control, the remainder of the Change in Control Severance shall be payable in a lump sum in accordance with this section.
(b)Provided Executive timely elects continued coverage under COBRA, the Company shall pay Executive’s COBRA premiums to continue Executive’s coverage (including coverage for eligible dependents, if applicable) (“Change in Control COBRA Premiums”) through the period (the “Change in Control COBRA Premium Period”) starting on Executive’s termination of employment and ending on the earliest to occur of: (i) 12 months following Executive’s termination of employment; (ii) the date Executive becomes eligible for group health insurance coverage through a new employer; or (iii) the date Executive ceases to be eligible for COBRA continuation coverage for any reason, including plan termination. In the event Executive becomes covered under another employer's group health plan or otherwise ceases to be eligible for COBRA during the Change in Control COBRA Premium Period, Executive must immediately notify the Company of such event. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the Change in Control COBRA Premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall pay to Executive, the Special Cash Payment for the remainder of the Change in Control COBRA Premium Period. Executive may, but is not obligated to, use such Special Cash Payments toward the cost of Change in Control COBRA Premiums.
(c)The Company shall pay Executive, as a bonus, one hundred percent (100%) of Executive’s Annual Bonus in effect as of the date of Executive’s employment termination for the fiscal year in which the termination of employment occurs (the “Change in Control Annual Bonus”). The Change in Control Annual Bonus will be subject to standard payroll deductions and withholdings and will be paid in a single lump sum within sixty (60) days following Executive’s termination of employment; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the Change in Control Annual Bonus shall be paid in the second calendar year by the last day of such 60-day period.
(d)(i) One hundred percent (100%) of all outstanding equity awards in Holdings held by Executive immediately prior to the employment termination date (if any) subject to time-based vesting requirements, shall be accelerated in full as of the effective date of the Separation Agreement (as defined below); and (ii) the vesting and exercisability of all outstanding equity awards subject to performance-based vesting will be treated as set forth in Executive’s equity award agreement governing such award; and (iii) with respect to any options granted to Executive, any vested options shall be exercisable until the date that is twelve (12) months following the termination of Executive’s employment with Company, subject to earlier termination in accordance with controlling stock plan, and in no event will the options be exercisable beyond the expiration date of the original ten (10) year term applicable to such options.
5.3Death or Disability.
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(i)Upon fourteen (14) days prior written notice from the Company, in the event of Disability (as defined below), Executive’s employment shall terminate and Executive shall be entitled to: (a) the severance benefits set forth in Section 5.2(ii)(a); (b) if eligible based on the terms set forth in the award agreements governing Executive’s equity pursuant to Holdings’ 2021 Equity Incentive Plan, acceleration of all of Executive’s outstanding equity awards in Holdings; and (c) Executive will not be entitled to any other severance benefits set forth herein.
(ii)In the event of Executive’s death, Executive’s employment with Company shall automatically terminate and the Company shall provide Executive’s estate with the following severance benefits: (a) the severance benefits set forth in Section 5.2(ii)(a); (b) if eligible based on the terms set forth in the award agreements governing Executive’s equity pursuant to Holdings’ 2021 Equity Incentive Plan, acceleration of all of Executive’s outstanding equity awards in Holdings; and (c) Executive will not be entitled to any other severance benefits set forth herein.
5.4Termination for Cause; Resignation Without Good Reason.
(i)The Company may terminate Executive’s employment with the Company at any time for Cause. Further, Executive may resign at any time without Good Reason.
(ii)If Executive resigns without Good Reason, or the Company terminates Executive’s employment for Cause, then (a) Executive will no longer vest in any Holdings’ equity awards granted to Executive, (b) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), and (c) Executive will not be entitled to any severance benefits set forth herein.
6.Conditions to Receipt of Severance Benefits. The receipt of the severance benefits set forth herein will be subject to Executive (or a representative from Executive’s estate in the event of Executive’s death) signing and not revoking a separation agreement and release of claims in a form satisfactory to the Company (the “Separation Agreement”) within a time period specified by the Company. No severance benefits will be paid or provided until the Separation Agreement becomes effective. Executive shall also resign from all positions and terminate any relationships as an employee, advisor, officer or director with the Company and any of its subsidiaries and/or affiliates, each effective on the date of termination.
7.Section 409A. It is intended that all of the severance benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section
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1.409A-2(b)(2)(iii)), Executive’s right to receive any installment payments under this Agreement (whether severance payments, reimbursements or otherwise) shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this Agreement, if Executive is deemed by the Company at the time of Executive’s Separation from Service to be a “specified employee” for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon Separation from Service set forth herein and/or under any other agreement with the Company are deemed to be “deferred compensation”, then to the extent delayed commencement of any portion of such payments is required in order to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments shall not be provided to Executive prior to the earliest of (i) the expiration of the six-month period measured from the date of Executive’s Separation from Service with the Company, (ii) the date of Executive’s death or (iii) such earlier date as permitted under Section 409A without the imposition of adverse taxation. Upon the first business day following the expiration of such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Paragraph shall be paid in a lump sum to Executive, and any remaining payments due shall be paid as otherwise provided herein or in the applicable agreement. No interest shall be due on any amounts so deferred.
8.Definitions.
(i)Cause. For purposes of this Agreement, “Cause” for termination will mean: (a) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company; (b) Executive’s material breach of any agreement between Executive and the Company; (c) Executive’s material failure to comply with the Company’s written policies or rules; (d) Executive’s conviction or, or plea of “guilty” or “no contest” to, a felony under the laws of the Unites States or any state or a similar violation outside the United States; (e) Executive’s gross negligence or willful misconduct in connection with Executive’s conduct as an employee of the Company, which causes material harm to the Company; (f) Executive’s continuing failure to perform assigned duties after receiving written notification of the failure from the Board; or (g) Executive’s failure to cooperate in good faith (as reasonably determined by the Board) with a governmental or internal investigation of the Company or its directors, office, or employees, if the Company has reasonably requested Executive’s cooperation.
(ii)Good Reason. For purposes of this Agreement, Executive shall have “Good Reason” for resignation from employment with the Company if any of the following actions are taken by the Company without Executive’s prior written consent: (a) a material reduction in Executive’s base salary, which the parties agree is a reduction of at least 10% of Executive’s base salary (unless pursuant to a salary reduction program applicable generally to the Company’s similarly situated employees); or (b) a material reduction in Executive’s duties (including responsibilities and/or authorities), provided, however, changes that result solely from the Company becoming a subsidiary or a division of an acquiring company in connection with a Change in Control will not be deemed a
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“material reduction” in and of itself unless Executive’s new duties are materially reduced from the prior duties; or (c) a material reduction in Executive’s target bonus, which the parties agree is a reduction of at least 10% of Executive’s target bonus (unless pursuant to an overall reduction program applicable generally to the Company’s similarly situated employees); or (d) a material breach by the Company of this Agreement. In order to resign for Good Reason, Executive must provide written notice to the Board within 30 days after the first occurrence of the event giving rise to Good Reason setting forth the basis for Executive’s resignation, allow the Company at least 30 days from receipt of such written notice to cure such event, and if such event is not reasonably cured within such period, Executive must resign from all positions Executive then holds with the Company not later than 90 days after the expiration of the cure period.
(iii)Disability. For purposes of this Agreement, “Disability” shall have the meaning set forth in Holdings’ 2021 Equity Incentive Plan.
(iv)Change in Control. For purposes of this Agreement, “Change in Control” shall have the meaning set forth in Holdings’ 2021 Equity Incentive Plan.
9.Proprietary Information Obligations.
9.1Confidential Information Agreement. Executive acknowledges Executive’s continuing obligations pursuant to the At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement that Executive entered into with the Company, dated on or around the date of the Existing Agreement (the “Confidentiality Agreement”). In the event of a conflict between the terms of this Agreement and the Confidentiality Agreement, this Agreement shall control.
9.2Third-Party Agreements and Information. Executive represents and warrants that Executive’s employment by the Company does not conflict with any prior employment or consulting agreement or other agreement with any third party, and that Executive will perform Executive’s duties to the Company without violating any such agreement. Executive represents and warrants that Executive does not possess confidential information arising out of prior employment, consulting, or other third party relationships, that would be used in connection with Executive’s employment by the Company, except as expressly authorized by that third party. During Executive’s employment by the Company, Executive will use in the performance of Executive’s duties only information which is generally known and used by persons with training and experience comparable to Executive’s own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by Executive in the course of Executive’s work for the Company.
10.Outside Activities During Employment.
10.1Non-Company Business. Executive will not during the term of Executive’s employment with the Company undertake or engage in any activity that materially interferes or creates a conflict of interest with the performance of Executive’s duties hereunder.
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10.2No Adverse Interests. Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise.
11.Dispute Resolution. To ensure the timely and economical resolution of disputes that may arise in connection with Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, the Confidentiality Agreement, or Executive’s employment, or the termination of Executive’s employment, including but not limited to all statutory claims, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration by a single arbitrator conducted in New York, New York by Judicial Arbitration and Mediation Services Inc. (“JAMS”) under the then applicable JAMS rules appropriate to the relief being sought (the applicable rules are available at the following web addresses: (i) https://www.jamsadr.com/rules-employment-arbitration/ and (ii) https://www.jamsadr.com/rules-comprehensive-arbitration/); provided, however, this arbitration provision shall not apply to sexual harassment and discrimination claims to the extent prohibited by applicable law that are not preempted by the Federal Arbitration Act (“Excluded Claims”). A hard copy of the rules will be provided to Executive upon request.  By agreeing to this arbitration procedure, both Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding.  In addition, all claims, disputes, or causes of action under this provision, whether by Executive or the Company, must be brought in an individual capacity, and shall not be brought as a plaintiff (or claimant) or class member in any purported class or representative proceeding, nor joined or consolidated with the claims of any other person or entity.  The Arbitrator may not consolidate the claims of more than one person or entity, and may not preside over any form of representative or class proceeding.  To the extent that the preceding sentences regarding class claims or proceedings are found to violate applicable law or are otherwise found unenforceable, any claim(s) alleged or brought on behalf of a class shall proceed in a court of law rather than by arbitration.  The Company acknowledges that Executive will have the right to be represented by legal counsel at any arbitration proceeding.  Questions of whether a claim is subject to arbitration under this agreement, if challenged by either party, shall be decided by a federal court located in the State of New York. Likewise, procedural questions which grow out of the dispute and bear on the final disposition are also matters for the arbitrator.  The arbitrator shall:  (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; (b) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award; and (c) be authorized to award any or all remedies that Executive or the Company would be entitled to seek in a court of law.  Executive and the Company shall equally share all JAMS’ arbitration fees.  To the extent JAMS does not collect or Executive otherwise does not pay to JAMS an equal share of all JAMS’ arbitration fees for any reason, and the Company pays JAMS Executive’s share, Executive acknowledges and agrees that the Company shall be entitled to recover from Executive half of the JAMS arbitration fees invoiced to the parties (less any amounts Executive paid to JAMS) in a federal or state court of competent jurisdiction.  Each party is responsible for its own attorneys’ fees,
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except as expressly set forth in Executive’s Confidentiality Agreement.  Nothing in this letter agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.  Any rendering of any portion of this arbitration provision void or unenforceable, as determined by a court of competent jurisdiction, shall not affect the validity of the remainder of the arbitration provision. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction. To the extent a New York federal court determines that any applicable law prohibits mandatory arbitration of Excluded Claims, if Executive intends to bring multiple claims, including one or more Excluded Claims, the Excluded Claim(s) may be publicly filed with a court, while any other claims will remain subject to mandatory arbitration.
11.Section 280G Matters.
12.1If any payment or benefit Executive will or may receive from the Company or otherwise (a “280G Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this Section, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then any such 280G Payment provided pursuant to this Agreement (a “Payment”) shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax, or (y) the largest portion, up to and including the total, of the Payment, whichever amount (i.e., the amount determined by clause (x) or by clause (y)), after taking into account all applicable federal, state, and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Executive’s receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in a Payment is required pursuant to the preceding sentence and the Reduced Amount is determined pursuant to clause (x) of the preceding sentence, the reduction shall occur in the manner (the “Reduction Method”) that results in the greatest economic benefit for Executive. If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata (the “Pro Rata Reduction Method”).
12.2Notwithstanding any provision of this Section 12 to the contrary, if the Reduction Method or the Pro Rata Reduction Method would result in any portion of the Payment being subject to taxes pursuant to Section 409A that would not otherwise be subject to taxes pursuant to Section 409A, then the Reduction Method and/or the Pro Rata Reduction Method, as the case may be, shall be modified so as to avoid the imposition of taxes pursuant to Section 409A as follows: (A) as a first priority, the modification shall preserve to the greatest extent possible, the greatest economic benefit for Executive as determined on an after-tax basis; (B) as a second priority, Payments that are contingent on future events (e.g., being terminated without Cause), shall be reduced (or eliminated) before Payments that are not contingent on future events; and (C) as a third priority, Payments that are “deferred compensation” within the meaning of Section 409A shall be reduced (or eliminated) before Payments that are not deferred compensation within the meaning of Section 409A.
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12.3The Company shall appoint a nationally-recognized accounting, consulting or law firm to make the determinations required by this Section 12. The Company shall bear all expenses with respect to the determinations by such firm required to be made hereunder.
12.4If Executive receives a Payment for which the Reduced Amount was determined pursuant to clause (x) of and the Internal Revenue Service determines thereafter that some portion of the Payment is subject to the Excise Tax, Executive agrees to promptly return to the Company a sufficient amount of the Payment (after reduction pursuant to clause (x) of Section 12(i)) so that no portion of the remaining Payment is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount was determined pursuant to clause (y) of Section 12(i), Executive shall have no obligation to return any portion of the Payment pursuant to the preceding sentence.
13.General Provisions.
13.1Notices. Any notices provided must be in writing and will be deemed effective upon the earlier of personal delivery (including personal delivery by fax) or the next day after sending by overnight carrier, to the Company at its primary office location and to Executive at the address as listed on the Company payroll.
13.2Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction to the extent possible in keeping with the intent of the parties.
13.3Waiver. Any waiver of any breach of any provisions of this Agreement must be in writing to be effective, and it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
13.4Complete Agreement. This Agreement, together with the Confidentiality Agreement, constitutes the entire agreement between Executive and the Company with regard to this subject matter and is the complete, final, and exclusive embodiment of the Parties’ agreement with regard to this subject matter. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations, including the Existing Agreement. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a writing signed by a duly authorized officer of the Company.
13.5Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.
10.



13.6Headings. The headings of the paragraphs hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.
13.7Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
13.8Tax Withholding and Indemnification. All payments and awards contemplated or made pursuant to this Agreement will be subject to withholdings of applicable taxes in compliance with all relevant laws and regulations of all appropriate government authorities. Executive acknowledges and agrees that the Company has neither made any assurances nor any guarantees concerning the tax treatment of any payments or awards contemplated by or made pursuant to this Agreement. Executive has had the opportunity to retain a tax and financial advisor and fully understands the tax and economic consequences of all payments and awards made pursuant to the Agreement.
13.9Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of New York.
In Witness Whereof, the Parties have executed this Agreement on the day and year written below.
DIGITALOCEAN, LLC

By: /s/ Alan Shapiro
Name: Alan Shapiro
Title: General Counsel

Date: 3/12/2021


    EXECUTIVE


    /s/ William Sorenson
    William Sorenson

Date: 3/12/2021
11.

Exhibit 10.2
TRANSITION AGREEMENT

This Transition Agreement (hereinafter also referred to as the “Agreement”) confirms the following understandings and agreements between DigitalOcean, LLC (the “Company”) and William Sorenson (“you” or “your”).

1.    (a)    You have indicated your desire to retire from the Company, and you and the Company have agreed that your last day of employment with the Company shall be August 31, 2023 (the “Separation Date”).

(b)    From the date of this Agreement through the Separation Date, you will remain a Company employee and you agree to perform your assigned duties and responsibilities in good faith. The Company intends to commence a search for your replacement as Chief Financial Officer. In the event that such replacement commences employment with the Company prior to August 31, 2023, you shall transition to an Executive Advisor title and will remain an employee through the Separation Date to assist the Company in the orderly transition of your responsibilities, and to perform other services as reasonably requested by the Company.
    (c)    You shall be paid your current salary (or an increased salary if the Company so desires in its discretion), continue to participate in the employee benefits in which you are currently participating, and continue to vest in any equity grants you have received from the Company through the Separation Date. Notwithstanding anything to the contrary in any other document, the deadline by which you must exercise any vested non-qualified stock options (NSOs) you hold as of the Separation Date will be extended to the twelve (12) month anniversary of the Separation Date, or if earlier, the date the option would have expired had you remained employed. You will be eligible to receive your bonus with respect to calendar year 2022 (the “2022 Bonus Payment”), although the 2022 Bonus Payment remains subject to the existing bonus plan approved by the Company’s Board of Directors and will be paid only if the conditions of such existing plan for Company executives approved by the Board are met. You will be eligible to receive a prorated bonus (i.e. for 8 months of 2023) with respect to calendar year 2023 (the “2023 Bonus Payment”), although the 2023 Bonus Payment remains subject to the existing bonus plan approved by the Company’s Board of Directors and will be paid (i) only if the conditions of such existing plan for Company executives approved by the Board are met and (ii) at the same time as any such bonus payments are made to the other Company executives. Your health coverage under the Company’s group health plan will terminate on the last day of the Separation Date’s month. Thereafter, you will be provided an opportunity to continue health coverage for yourself and qualifying dependents under the Company’s group health plan in accordance with the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).

    (d)    Notwithstanding any other provision of this Agreement, you will retain any rights that you have to: (i) vested benefits under the Company’s 401(k) plan, subject to the terms and conditions of such plan; (ii) your vested Company stock options and other equity subject to the terms and conditions of any Company equity plan or equity agreement between you and the Company and subject to the extended exercise provision in Section 1(c) above; and (iii) any existing rights you may have to indemnification and/or defense from the Company (including but



not limited to Company insurance policies, Company organizational documents, contract, and/or applicable law).

    (e)    After the Separation Date you shall no longer be entitled to any further compensation or any monies from the Company or any of its affiliates or to receive any of the benefits made available to you during your employment at the Company. Vesting in any equity grants received by you from the Company shall cease as of the Separation Date.

2.    Nothing herein shall amend the terms contained in the Employment Agreement executed by the Company and you dated March 8, 2021, and the terms of such agreement shall remain in full force and effect.
3.    On or around the Separation Date, or earlier upon request of the Company, you agree to return to the Company all Company property, including without limitation, mailing lists, reports, files, memoranda, records, computer hardware, software, credit cards, door and file keys, computer passwords, and other property that you received or prepared or helped prepare in connection with your employment with the Company, and that you will not retain any copies, duplicates, reproductions or excerpts thereof. Notwithstanding the foregoing, you shall be entitled to retain the Company-owned computer hardware and any Company-owned cell phone that is currently in your possession, subject to the Company’s IT department ensuring that all Company-owned files, data and/or technology have been removed, and you will be responsible for all costs related to such computer and cell phone after the Separation Date.
4.    You agree that in the course of your employment with the Company, you have had access to and acquired Confidential Information. The term “Confidential Information” as used in this Agreement means (a) confidential information of the Company, including without limitation, information received from third parties under confidential conditions, and (b) other nonpublic technical, business or financial information or trade secrets or proprietary information (including, but not limited to, account records, confidential plans for the creation or disposition of products, product development plans, marketing strategies and financial data and plans), the use or disclosure of which would be contrary to the interests of the Company, its affiliates or related companies, or the Group. You understand and agree that such Confidential Information has been disclosed to you in confidence and for the use of only the Company. You agree that (i) you will keep such Confidential Information confidential at all times after your employment with the Company, and (ii) you will not make use of Confidential Information on your own behalf, or on behalf of any third party, unless required to do so under compulsion of law.
    5.    The parties acknowledge that a copy of this Agreement, and a description of the terms contained herein, may be required to be filed with the Securities & Exchange Commission.
6.    This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Photographic and fax copies of such signed counterparts may be used in lieu of the originals of this Agreement for any purpose. No amendment or modification of this Agreement shall be valid or binding upon the parties unless in writing and signed by both parties. This Agreement shall inure to the benefit of and be binding upon the Company and you, as well as its and your successors, executors, administrators, and heirs.



7.    The terms of this Agreement and all rights and obligations of the parties thereto, including its enforcement, shall be interpreted and governed by the laws of the State of Delaware. Any dispute arising from or related to this Agreement or the interpretation or operation of this Agreement shall be resolved solely in state or federal courts located in the State of Delaware. The parties hereby consent to, elect, and waive any objection to the laying of jurisdiction and venue in such courts in the event of litigation under or relating to this Agreement. The parties further waive their rights to a jury trial and understand any dispute will be tried by a judge.

Agreed to and Accepted by:
                    
DIGITALOCEAN, LLC                
                            
By: /s/ Alan Shapiro            
Name: Alan Shapiro
Title: General Counsel
Date: 8/5/22            



WILLIAM SORENSON

/s/ William Sorenson
Date: 8/5/22




Exhibit 99.1
DigitalOcean Announces Second Quarter 2022 Financial Results
Company Meets Q2 Targets Despite Macro Headwinds
Profitability and Cash Flow Improvement Highlight its Second Quarter
Increases Operating Income and Free Cash Flow Outlook for Fiscal 2022

NEW YORK, August 8, 2022 – DigitalOcean Holdings, Inc. (NYSE: DOCN), the cloud for developers, startups and SMBs, today announced results for its second quarter ended June 30, 2022.
"We are taking a number of actions in the second half to deliver 30% growth with improving profitability and cash flow despite an uncertain environment driven by macroeconomic factors beyond our control," said Yancey Spruill, CEO of DigitalOcean.
Second Quarter 2022 Financial Highlights:
Revenue was $133.9 million, an increase of 29% year-over-year.
Annual Run-Rate Revenue (ARR) ended the quarter at $544.1 million, representing 28% year-over-year growth.
Gross profit of $86.6 million or 65% of revenue, an increase of 700 basis points year-over-year, and adjusted gross profit of $109.7 million or 82% of revenue.
Loss from operations was $7.4 million and operating margin was (6)%.
Non-GAAP income from operations was $22.3 million and non-GAAP operating margin was 17%.
Net loss per share was $(0.06) and non-GAAP diluted net income per share was $0.20.
Cash, cash equivalents, and marketable securities was $1.2 billion as of June 30, 2022.
Second Quarter 2022 Operational Highlights:
Net Dollar Retention Rate (NDR) was 112%.
Average Revenue Per Customer (ARPU) was $71.76, an increase of 24% from the second quarter of 2021.
Customers spending more than $50 per month grew 16% to 105,000 with revenue growth of 34% year-over-year. These customers had an NDR of 113% and represented 85% of revenue in the quarter.
The company repurchased approximately 10.0 million shares in the quarter through its share repurchase programs.
CFO Transition:
The Company is also announcing that Chief Financial Officer Bill Sorenson plans to retire from the Company in 2023 and that it will commence a search for his successor. Mr. Sorenson will continue in his capacity throughout the search process and then will serve as an advisor to the company until his departure in August 2023 ensuring a smooth transition and onboarding of a new chief financial officer.
“Bill has been an incredible partner, leader, and team builder,” said Yancey Spruill. “His financial acumen and experience have been critical over the past three years as we have turned the company around while dealing with a global pandemic, improved our financial profile through raising over $2.5 billion in capital and positioned the company to scale and achieve our first billion of revenue in 2024”.
Financial Outlook:
Based on information available as of August 8, 2022, for the third quarter of 2022 we expect:
Total revenue of $145.5 to $147 million.
Non-GAAP operating margin of 17% to 18%.
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Non-GAAP diluted net income per share of $0.22 to $0.23.
Fully diluted weighted average shares outstanding of approximately 113 to 115 million shares.
For the full year 2022, we expect:
Total revenue of $564 to $568 million.
Non-GAAP operating margin of 15% to 16%.
Free cash flow in the range of 9% to 10% of revenue.
Non-GAAP diluted net income per share of $0.74 to $0.75.
Fully diluted weighted average shares outstanding of approximately 117 to 119 million shares.
A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, expenses that may be incurred in the future. For example, stock-based compensation expense-related charges are impacted by the timing of employee stock transactions, the future fair market value of our common stock, and our future hiring and retention needs, all of which are difficult to predict and subject to constant change. Accordingly, a reconciliation is not available without unreasonable effort and we are unable to assess the probable significance of the unavailable information, although it is important to note that these factors could be material to our results computed in accordance with GAAP.
Conference Call Information:
DigitalOcean will host a conference call today, August 8, 2022, at 4:30 p.m. ET to review its results. The conference call can be accessed by dialing (888) 330-3637 with conference ID 7741047. A live webcast and replay of the conference call can be accessed from the DigitalOcean investor relations website at http://investors.digitalocean.com.
Following the completion of the call, a telephonic replay will be available through August 15, 2022, by dialing (800) 770-2030 with conference ID 7741047.
About DigitalOcean
DigitalOcean simplifies cloud computing so builders can spend more time creating software that changes the world. With its mission-critical infrastructure and fully managed offerings, DigitalOcean helps developers, startups and small and medium-sized businesses (SMBs) rapidly build, deploy and scale applications to accelerate innovation and increase productivity and agility. DigitalOcean combines the power of simplicity, community, open source and customer support so customers can spend less time managing their infrastructure and more time building innovative applications that drive business growth.
Forward‑Looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding our performance, including but not limited to statements in the section titled “Financial Outlook.” The forward-looking statements contained in this release and the accompanying earnings call referenced in this release are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause actual results or outcomes to be materially different from any future results or outcomes expressed or implied by the forward-looking statements. These risks, uncertainties, assumptions, and other factors include, but are not limited to: (1) our recent growth may not be indicative of our future growth; (2) our history of operating losses; (3) our limited operating history; (4) our ability to attract and retain customers and/or expand usage of our platform by such customers; (5) breaches in our security measures allowing unauthorized access to our platform, our data, or our customers’ data; (6) our ability to release updates and new features to our platform and adapt and respond effectively to rapidly changing technology or customer needs; (7) the competitive markets in which we participate; (8) the rapidly evolving laws and industry standards that relate to privacy, data security, liability for service providers regarding the activities of customers, and access to the internet; (9) risks associated with successfully managing our growth; and (10) general market, political, economic, and business conditions.
Further information on these and additional risks, uncertainties, assumptions and other factors that could cause actual results or outcomes to differ materially from those included in or contemplated by the forward-looking statements contained in this release are included under the caption “Risk Factors” and elsewhere in our Annual Report on Form 10-K
2


for the year ended December 31, 2021, filed with the SEC on February 25, 2022, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 5, 2022, and other filings and reports we make with the SEC from time to time.
We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this release. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur. The forward-looking statements made in this release relate only to events as of the date on which the statements are made. We assume no obligation to, and do not currently intend to, update any such forward-looking statements after the date of this release.
About Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with non-GAAP financial measures including: (i) adjusted gross profit and adjusted gross margin; (ii) non-GAAP income from operations and non-GAAP operating margin; (iii) non-GAAP net income and non-GAAP diluted net income per share; and (iv) free cash flow and free cash flow margin. These measures are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In particular, free cash flow is not a substitute for cash used in operating activities. Additionally, the utility of free cash flow as a measure of our financial performance and liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. Our calculations of each of these measures may differ from the calculations of measures with the same or similar titles by other companies and therefore comparability may be limited. Because of these limitations, when evaluating our performance, you should consider each of these non-GAAP financial measures alongside other financial performance measures, including the most directly comparable financial measure calculated in accordance with GAAP and our other GAAP results. A reconciliation of each of our non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP is set forth in the tables in the section “Reconciliation of GAAP to Non-GAAP Data.”
Adjusted Gross Profit and Adjusted Gross Margin
We believe adjusted gross profit and adjusted gross margin, when taken together with our GAAP financial results, provides a meaningful assessment of our performance, and is useful for the preparation of our annual operating budget and quarterly forecasts.
We define adjusted gross profit as gross profit exclusive of stock-based compensation, amortization of capitalized internal-use software development costs and depreciation of our data center equipment included within Cost of revenue. We exclude stock-based compensation, which is a non-cash item, because we do not consider it indicative of our core operating performance. We exclude depreciation and amortization, which primarily relates to our investments in our data center servers that are long lived assets with an economic life of five years, because it may not reflect our current or future cash spending levels to support our business. While we intend to spend a significant amount on capital expenditures on an absolute basis in the coming years, our capital expenditures as a percentage of revenue has declined significantly and will continue to decline. We define adjusted gross margin as a percentage of adjusted gross profit to revenue.
Non-GAAP Income from Operations and Non-GAAP Operating Margin
We define non-GAAP income from operations as (Loss) income from operations, excluding stock-based compensation, amortization of acquired intangibles, acquisition related costs, loss on sublease, asset impairment, restructuring and severance, and other unusual or non-recurring transactions as they occur. We define non-GAAP operating margin as non-GAAP income from operations as a percentage of revenue. We use non-GAAP income from operations to understand and evaluate our core operating performance and trends and to develop short-term and long-term operating plans. We believe that non-GAAP income from operations facilitates comparison of our operating performance on a consistent basis between periods, and when viewed in combination with our results prepared in accordance with GAAP, helps provide a broader picture of factors and trends affecting our results of operations.
Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share
We define non-GAAP net income (loss) as Net loss attributable to common stockholders, excluding stock-based compensation, amortization of acquired intangibles, acquisition related costs, release of VAT reserve, loss on sublease, loss on extinguishment of debt, asset impairment, restructuring and severance expense, revaluation of warrants, and other
3


unusual or non-recurring transactions as they occur. We define non-GAAP diluted net income per share as non-GAAP net income divided by the weighted-average shares including the dilutive effects of our convertible preferred stock, warrants, stock options, RSUs, PRSUs and Convertible Notes.
We believe non-GAAP net income per share provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric generally eliminates the effects of unusual or non-recurring items from period to period for reasons unrelated to overall operating performance.
Free Cash Flow and Free Cash Flow Margin
Free cash flow is a non-GAAP financial measure that we define as Net cash provided by operating activities less purchases of property and equipment, capitalized internal-use software costs and purchase of intangible assets. Free cash flow margin is calculated as free cash flow divided by total revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of Net cash provided by operating activities that is available (or not available) to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.
Key Business Metrics:
We utilize the key metrics set forth below to help us evaluate our business and growth, identify trends, formulate financial projections and make strategic decisions.
Customers
We define customers paying more than $50 per month as customers having generated an invoice of greater than $50 for that period.
ARPU
We calculate ARPU on a monthly basis as our total revenue in that period divided by the number of customers determined as of the last day of that period. For a quarterly or annual period, ARPU is determined as the weighted average monthly ARPU over such three or 12-month period.
ARR
We calculate ARR at a point in time by multiplying the latest monthly period’s revenue by 12.
Net Dollar Retention Rate
We calculate net dollar retention rate monthly by starting with the revenue from the cohort of all customers during the corresponding month 12 months prior, or the Prior Period Revenue. We then calculate the revenue from these same customers as of the current month, or the Current Period Revenue, including any expansion and net of any contraction or attrition from these customers over the last 12 months. The calculation also includes revenue from customers that generated revenue before, but not in, the corresponding month 12 months prior, but subsequently generated revenue in the current month and are therefore reflected in the Current Period Revenue. We include this group of re-engaged customers in this calculation because our customers frequently use our platform for projects that stop and start over time. We then divide the total Current Period Revenue by the total Prior Period Revenue to arrive at the net dollar retention rate for the relevant month. For a quarterly or annual period, the net dollar retention rate is determined as the average monthly net dollar retention rates over such three or 12-month period.
Investor Contact
Rob Bradley
investors@digitalocean.com
4


Media Contact
Spencer Anopol
press@digitalocean.com
5

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
June 30, 2022December 31, 2021
Current assets:
Cash and cash equivalents$72,177 $1,713,387 
Marketable securities1,093,977 — 
Accounts receivable, less allowance for doubtful accounts of $5,315 and $4,212, respectively
44,056 39,619 
Prepaid expenses and other current assets20,922 17,050 
Total current assets1,231,132 1,770,056 
Property and equipment, net268,418 249,643 
Restricted cash1,935 2,038 
Goodwill32,170 32,170 
Intangible assets, net52,205 42,915 
Deferred tax assets86 88 
Other assets4,762 4,085 
Total assets$1,590,708 $2,100,995 
Current liabilities:
Accounts payable$17,759 $12,657 
Accrued other expenses39,023 31,907 
Deferred revenue4,734 4,826 
Other current liabilities12,711 8,849 
Total current liabilities74,227 58,239 
Deferred tax liabilities421 421 
Long-term debt1,466,519 1,462,676 
Other long-term liabilities1,268 1,462 
Total liabilities1,542,435 1,522,798 
Commitments and Contingencies
Preferred stock ($0.000025 par value per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021)
— — 
Common stock ($0.000025 par value per share; 750,000,000 shares authorized; 98,856,183 and 109,175,863 issued; and 96,887,955 and 107,207,635 outstanding as of June 30, 2022 and December 31, 2021, respectively)
Treasury stock, at cost (1,968,228 shares at June 30, 2022 and December 31, 2021)
(4,598)(4,598)
Additional paid-in capital268,689 769,705 
Accumulated other comprehensive loss(4,968)(374)
Accumulated deficit(210,852)(186,538)
Total stockholders’ equity 48,273 578,197 
Total liabilities and stockholders’ equity $1,590,708 $2,100,995 
6

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

Three Months EndedSix Months Ended
June 30,June 30,
2022202120222021
Revenue$133,882 $103,810 $261,209 $197,471 
Cost of revenue47,246 43,145 94,003 82,689 
Gross profit86,636 60,665 167,206 114,782 
Operating expenses:
Research and development36,956 27,121 74,197 49,523 
Sales and marketing18,219 11,812 37,263 22,233 
General and administrative38,838 24,362 76,262 42,402 
Total operating expenses94,013 63,295 187,722 114,158 
(Loss) income from operations(7,377)(2,630)(20,516)624 
Other (income) expense:
Interest expense2,095 233 4,154 2,489 
Loss on extinguishment of debt— — 407 3,435 
Other (income) expense, net(2,112)(203)(2,932)(297)
Other (income) expense(17)30 1,629 5,627 
Loss before income taxes(7,360)(2,660)(22,145)(5,003)
Income tax (benefit) expense(1,169)(473)2,169 523 
Net loss attributable to common stockholders$(6,191)$(2,187)$(24,314)$(5,526)
Net loss per share attributable to common stockholders, basic and diluted$(0.06)$(0.02)$(0.23)$(0.07)
Weighted-average shares used to compute net loss per share, basic and diluted102,502 106,765 104,697 78,257 
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DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30,
20222021
Operating activities
Net loss attributable to common stockholders$(24,314)$(5,526)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization48,274 42,541 
Stock-based compensation54,164 18,825 
Bad debt expense8,070 3,467 
Loss on extinguishment of debt407 3,435 
Net accretion of discounts and amortization of premiums on investments(1,027)— 
Non-cash interest expense3,918 296 
Loss on impairment120 — 
Revaluation of warrants— (556)
Other739 (41)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable(12,507)(9,287)
Prepaid expenses and other current assets(3,872)1,563 
Accounts payable and accrued expenses(401)3,767 
Deferred revenue(93)157 
Other assets and liabilities2,174 1,556 
Net cash provided by operating activities75,652 60,197 
Investing activities
Capital expenditures - property and equipment(48,041)(47,036)
Capital expenditures - internal-use software development(4,330)(2,713)
Purchase of intangible assets(4,915)— 
Cash paid for asset acquisitions(5,400)— 
Purchase of available-for-sale securities(1,257,106)— 
Maturities of available-for-sale securities159,878 — 
Purchased interest on available-for-sale securities(1,549)— 
Proceeds from interest on available-for-sale securities1,370 — 
Proceeds from sale of equipment909 81 
Net cash used in investing activities(1,159,184)(49,668)
Financing activities
Repayment of notes payable— (33,214)
Repayment of term loan— (166,813)
Repayment of borrowings under revolving credit facility— (63,200)
Payment of debt issuance costs(1,492)— 
Proceeds related to the issuance of common stock under equity incentive plan8,553 7,487 
Proceeds from the issuance of common stock under employee stock purchase plan5,152 — 
Employee payroll taxes paid related to net settlement of equity awards(19,995)(1,007)
Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs— 723,125 
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DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Repurchase and retirement of common stock(550,000)— 
Net cash (used in) provided by financing activities(557,782)466,378 
(Decrease) increase in cash, cash equivalents and restricted cash(1,641,313)476,907 
Cash, cash equivalents and restricted cash - beginning of period1,715,425 102,537 
Cash, cash equivalents and restricted cash - end of period$74,112 $579,444 
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DIGITALOCEAN HOLDINGS, INC.
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited)
Adjusted Gross Profit and Adjusted Gross Margin
Three Months EndedSix Months Ended
June 30,June 30,
(In thousands)2022202120222021
Gross profit$86,636 $60,665 $167,206 $114,782 
Adjustments:
Depreciation and amortization22,574 20,042 44,836 39,266 
Stock-based compensation481 405 913 601 
Adjusted gross profit$109,691 $81,112 $212,955 $154,649 
Gross margin65 %58 %64 %58 %
Adjusted gross margin82 %78 %82 %78 %
Non-GAAP Income from Operations and Non-GAAP Operating Margin
Three Months EndedSix Months Ended
June 30,June 30,
(In thousands)2022202120222021
(Loss) income from operations$(7,377)$(2,630)$(20,516)$624 
Adjustments:
Stock-based compensation28,183 12,201 54,164 18,825 
Amortization of acquired intangibles564 76 1,026 152 
Acquisition related costs214 — 168 — 
Loss on sublease683 — 1,471 — 
Asset impairment— — 120 — 
Non-GAAP income from operations$22,267 $9,647 $36,433 $19,601 
Operating margin(6)%(3)%(8)%— %
Non-GAAP operating margin
17 %%14 %10 %
Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share
10

DIGITALOCEAN HOLDINGS, INC.
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited)
Three Months EndedSix Months Ended
June 30,June 30,
(In thousands)2022202120222021
GAAP Net loss attributable to common stockholders$(6,191)$(2,187)$(24,314)$(5,526)
Stock-based compensation28,183 12,201 54,164 18,825 
Amortization of acquired intangible assets564 76 1,026 152 
Acquisition related costs214 — 168 — 
Loss on sublease683 — 1,471 — 
Loss on extinguishment of debt— — 407 3,435 
Asset impairment— — 120 — 
Revaluation of warrants— — — (556)
Income tax effects of non-GAAP adjustments(1)
(27)(26)282 109 
Non-GAAP net income(2)
$23,426 $10,064 $33,324 $16,439 
Non-GAAP diluted net income per share(2)
$0.20 $0.08 $0.27 $0.15 
Weighted-average shares used to compute Non-GAAP diluted net income per share
119,855 118,778 123,231 111,241 
___________________
(1)The income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for the relevant jurisdiction, except for those items which are non-taxable or subject to valuation allowances for which the tax expense (benefit) was calculated at 0%. The tax benefit for amortization is calculated in a similar manner as the tax effects of the non-GAAP adjustments.
(2)Amounts are attributable for both the common and convertible preferred stockholders, treated as one class of stock.
Free Cash Flow and Free Cash Flow Margin
Six Months Ended
June 30,
(In thousands)20222021
Net cash provided by operating activities$75,652 $60,197 
Adjustments:
Capital expenditures - property and equipment(48,041)(47,036)
Capital expenditures - internal-use software development(4,330)(2,713)
Purchase of intangible assets(4,915)— 
Free cash flow$18,366 $10,448 
As a percentage of revenue:
Net cash provided by operating activities29 %30 %
Free cash flow margin%%
11

DIGITALOCEAN HOLDINGS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited)
Stock-Based Compensation
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Cost of revenue$481 $405 $913 $601 
Research and development10,661 5,059 20,381 7,695 
Sales and marketing3,851 1,902 7,197 3,039 
General and administrative13,190 4,835 25,673 7,490 
Total$28,183 $12,201 $54,164 $18,825 
12


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