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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2022
OR
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
 Commission File Number: 001-40252
DigitalOcean Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 45-5207470
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
101 6th Avenue
New York, New York 10013
(Address of principal executive offices and Zip Code)
(646) 827-4366
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName 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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  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.
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of October 27, 2022, there were 96,297,098 shares of the registrant’s common stock, with a par value of $0.000025 per share, outstanding.



TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1.Financial Statements (unaudited)
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1a.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our expectations regarding our revenue, expenses and other operating results;
our ability to achieve profitability on an annual basis and then sustain such profitability;
future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
our ability to acquire new customers and successfully engage and expand usage of our existing customers;
the costs and success of our marketing efforts, and our ability to promote our brand;
our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;
our ability to effectively manage our growth;
our ability to successfully integrate acquired businesses, including Cloudways, and achieve expected synergies and benefits;
our ability to compete effectively with existing competitors and new market entrants; and
the growth rates of the markets in which we compete.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, as well as Item 1A-Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2025, and Item 1A-Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 5, 2022, as such factors may be updated from time to time in our periodic filings with the SEC. Moreover, 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 Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.



We may announce material business and financial information to our investors using our investor relations website (https://investors.digitalocean.com/). We therefore encourage investors and others interested in our company to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls.


PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
September 30, 2022December 31, 2021
Current assets:
Cash and cash equivalents$24,115 $1,713,387 
Marketable securities800,539  
Accounts receivable, less allowance for doubtful accounts of $6,402 and $4,212, respectively
52,425 39,619 
Prepaid expenses and other current assets31,277 17,050 
Total current assets908,356 1,770,056 
Property and equipment, net270,985 249,643 
Restricted cash1,935 2,038 
Goodwill315,161 32,170 
Intangible assets, net122,543 42,915 
Deferred tax assets82 88 
Other assets4,625 4,085 
Total assets$1,623,687 $2,100,995 
Current liabilities:
Accounts payable$11,762 $12,657 
Accrued other expenses36,645 31,907 
Deferred revenue5,476 4,826 
Other current liabilities44,925 8,849 
Total current liabilities98,808 58,239 
Deferred tax liabilities22,107 421 
Long-term debt1,468,393 1,462,676 
Other long-term liabilities4,162 1,462 
Total liabilities1,593,470 1,522,798 
Commitments and Contingencies (Note 9)
Preferred stock ($0.000025 par value per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021)
  
Common stock ($0.000025 par value per share; 750,000,000 shares authorized; 96,229,736 and 109,175,863 issued; and 96,229,736 and 107,207,635 outstanding as of September 30, 2022 and December 31, 2021, respectively)
2 2 
Treasury stock, at cost (0 shares at September 30, 2022 and 1,968,228 shares at December 31, 2021)
 (4,598)
Additional paid-in capital235,278 769,705 
Accumulated other comprehensive loss(4,308)(374)
Accumulated deficit(200,755)(186,538)
Total stockholders’ equity 30,217 578,197 
Total liabilities and stockholders’ equity $1,623,687 $2,100,995 
See accompanying notes to condensed consolidated financial statements
1

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
Revenue$152,115 $111,428 $413,324 $308,899 
Cost of revenue54,536 43,506 148,539 126,195 
Gross profit97,579 67,922 264,785 182,704 
Operating expenses:
Research and development30,243 29,927 104,440 79,450 
Sales and marketing19,097 13,312 56,360 35,545 
General and administrative38,847 26,354 115,109 68,756 
Total operating expenses88,187 69,593 275,909 183,751 
Income (loss) from operations9,392 (1,671)(11,124)(1,047)
Other (income) expense:
Interest expense2,127 186 6,281 2,675 
Loss on extinguishment of debt  407 3,435 
Other (income) expense, net(3,274)140 (6,206)(157)
Other (income) expense(1,147)326 482 5,953 
Income (loss) before income taxes10,539 (1,997)(11,606)(7,000)
Income tax expense (benefit)442 (145)2,611 378 
Net income (loss) attributable to common stockholders$10,097 $(1,852)$(14,217)$(7,378)
Basic and diluted net income (loss) per share$0.10 $(0.02)$(0.14)$(0.08)
Weighted average shares used to compute basic net income (loss) per share96,559 107,955 102,134 88,265 
Weighted average shares used to compute diluted net income (loss) per share104,931 107,955 102,134 88,265 
See accompanying notes to condensed consolidated financial statements
2

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
Net income (loss) attributable to common stockholders$10,097 $(1,852)$(14,217)$(7,378)
Other comprehensive loss:
Foreign currency translation adjustments, net of taxes(252)(73)(458)(101)
Unrealized gain (loss) on available-for-sale marketable securities, net of taxes912(3,476)
Comprehensive income (loss)$10,757 $(1,925)$(18,151)$(7,479)
See accompanying notes to condensed consolidated financial statements
3

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehen-sive LossAccumulated DeficitTotal
SharesAmountSharesAmount
Balance at June 30, 202298,856,183 $2 (1,968,228)$(4,598)$268,689 $(4,968)$(210,852)$48,273 
Issuance of common stock under equity incentive plan, net of taxes withheld420,431 — — — (2,894)— — (2,894)
Repurchase and retirement of common stock(1,078,650)— — — (50,000)— — (50,000)
Retirement of treasury stock(1,968,228)— 1,968,228 4,598 (4,598)— —  
Stock-based compensation— — — — 24,081 — — 24,081 
Other comprehensive loss— — — — — 660 — 660 
Net loss attributable to common stockholders— — — — — — 10,097 10,097 
Balance at September 30, 202296,229,736 $2  $ $235,278 $(4,308)$(200,755)$30,217 
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehen-sive LossAccumulated DeficitTotal
SharesAmountSharesAmount
Balance at June 30, 2021109,213,693 $2 (1,968,228)$(4,598)$1,035,514 $(273)$(172,561)$858,084 
Issuance of common stock under equity incentive plan, net of taxes withheld907,272 — — — 3,888 — — 3,888 
Exercise of common stock warrants232,520 — — — — — —  
Stock-based compensation— — — — 18,820 — — 18,820 
Issuance of common stock for acquisition636,994 — — — 27,566 — — 27,566 
Other comprehensive loss— — — — — (73)— (73)
Net loss attributable to common stockholders
— — — — — — (1,852)(1,852)
Balance at September 30, 2021110,990,479 $2 (1,968,228)$(4,598)$1,085,788 $(346)$(174,413)$906,433 
See accompanying notes to condensed consolidated financial statements
4

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehen-sive LossAccumulated DeficitTotal
SharesAmountSharesAmount
Balance at December 31, 2021109,175,863 $2 (1,968,228)$(4,598)$769,705 $(374)$(186,538)$578,197 
Issuance of common stock under equity incentive plan, net of taxes withheld
2,503,828 — — — (14,116)— — (14,116)
Issuance of common stock under employee stock purchase plan, net of taxes withheld144,867 — — — 5,244 — — 5,244 
Repurchase and retirement of common stock(13,626,594)— — — (600,000)— — (600,000)
Retirement of treasury stock(1,968,228)— 1,968,228 4,598 (4,598)— —  
Stock-based compensation— — — — 79,043 — — 79,043 
Other comprehensive loss— — — — — (3,934)— (3,934)
Net loss attributable to common stockholders
— — — — — — (14,217)(14,217)
Balance at September 30, 202296,229,736 $2  $ $235,278 $(4,308)$(200,755)$30,217 
See accompanying notes to condensed consolidated financial statements
5

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
Convertible Preferred StockCommon StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehen-sive LossAccumulated DeficitTotal
SharesAmountSharesAmountSharesAmount
Balance at December 31, 202045,472,229 $173,074 45,299,339 $1 (1,968,228)$(4,598)$99,783 $(245)$(167,035)$(72,094)
Issuance of common stock under equity incentive plan, net of taxes withheld
— — 2,785,069 — — — 10,368 — — 10,368 
Exercise of common stock warrants
— — 296,848 — — — — — —  
Stock-based compensation— — — — — — 37,966 — — 37,966 
Issuance of common stock for acquisition— — 636,994 — — — 27,566 — — 27,566 
Issuance of common stock in connection with initial public offering, net of underwriting discounts and issuance costs— — 16,500,000 1 — — 723,125 — — 723,126 
Conversion of convertible preferred stock to common stock in connection with initial public offering(45,472,229)(173,074)45,472,229 — — — 173,074 — — 173,074 
Conversion of redeemable preferred stock warrants to common stock warrants
— — — — — — 13,906 — — 13,906 
Other comprehensive loss— — — — — — — (101)— (101)
Net loss attributable to common stockholders— — — — — — — — (7,378)(7,378)
Balance at September 30, 2021 $ 110,990,479 $2 (1,968,228)$(4,598)$1,085,788 $(346)$(174,413)$906,433 
See accompanying notes to condensed consolidated financial statements
6

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
20222021
Operating activities
Net loss attributable to common stockholders$(14,217)$(7,378)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization73,900 64,922 
Stock-based compensation77,758 37,380 
Bad debt expense12,217 6,055 
Loss on extinguishment of debt407 3,435 
Net accretion of discounts and amortization of premiums on investments(3,099) 
Release of VAT reserve 3,188 
Non-cash interest expense5,898 386 
Loss on impairment144 212 
Revaluation of warrants (556)
Deferred income taxes247  
Other2,396 477 
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable(20,270)(14,462)
Prepaid expenses and other current assets(4,580)(134)
Accounts payable and accrued expenses(5,771)4,001 
Deferred revenue(364)263 
Other assets and liabilities5,342 2,587 
Net cash provided by operating activities130,008 100,376 
Investing activities
Capital expenditures - property and equipment(77,717)(66,480)
Capital expenditures - internal-use software development(6,593)(4,297)
Purchase of intangible assets(4,915)(5,636)
Cash paid for acquisition of businesses, net of cash acquired(305,163)(5,000)
Cash paid for asset acquisitions(5,400) 
Purchase of available-for-sale securities(1,379,277) 
Sales of available-for-sale securities19,992  
Maturities of available-for-sale securities558,371  
Purchased interest on available-for-sale securities(1,556) 
Proceeds from interest on available-for-sale securities1,549  
Proceeds from sale of equipment967 209 
Net cash used in investing activities(1,199,742)(81,204)
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(1,520) 
Proceeds related to the issuance of common stock under equity incentive plan10,352 13,145 
See accompanying notes to condensed consolidated financial statements
7

DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Proceeds from the issuance of common stock under employee stock purchase plan5,245  
Employee payroll taxes paid related to net settlement of equity awards(24,618)(2,777)
Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs 723,126 
Repurchase and retirement of common stock(600,000) 
Net cash (used in) provided by financing activities(610,541)470,267 
(Decrease) increase in cash, cash equivalents and restricted cash(1,680,275)489,439 
Cash, cash equivalents and restricted cash - beginning of period1,715,425 102,537 
Cash, cash equivalents and restricted cash - end of period$35,150 $591,976 
Supplemental disclosures of cash flow information:
Cash paid for interest$349 $2,248 
Cash paid for taxes (net of refunds)1,669 541 
Non-cash investing and financing activities:
Capitalized stock-based compensation$1,285 $587 
Property and equipment received but not yet paid, included in Accounts payable and Accrued other expenses19,964 14,291 
Costs related to initial public offering included in accounts payable and accrued liabilities 27,566 
See accompanying notes to condensed consolidated financial statements
8

DIGITALOCEAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)

Note 1. Nature of the Business and Organization
DigitalOcean Holdings, Inc. and its subsidiaries (collectively, the “Company”, “we”, “our”, “us”) is a leading cloud computing platform offering on-demand infrastructure and platform tools for developers, start-ups and small-to-medium size businesses. The Company was founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. The Company’s platform simplifies cloud computing, enabling its customers to rapidly accelerate innovation and increase their productivity and agility. The Company offers mission-critical infrastructure solutions across compute, storage and networking, and also enables developers to extend the native capabilities of the Company’s cloud with fully managed application, container and database offerings.
The Company has adopted a holding company structure and the primary operations are performed globally through our wholly-owned operating subsidiaries.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include accounts of the Company and all wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of September 30, 2022, results of operations for the three and nine months ended September 30, 2022 and 2021, cash flows for the nine months ended September 30, 2022 and 2021, and stockholders' equity for the three and nine months ended September 30, 2022 and 2021.
Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make, on an ongoing basis, estimates, judgments and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Such estimates include, but are not limited to, those related to revenue recognition and allowance for doubtful accounts, useful lives and realizability of long-lived assets, capitalized internal-use software development costs, accounting for stock-based compensation, valuation allowances against deferred tax assets, fair value of marketable securities, the fair value and useful lives of tangible and intangible assets acquired and liabilities assumed resulting from business combinations. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Restricted Cash
The following table reconciles cash, cash equivalents and restricted cash per the Condensed Consolidated Statements of Cash Flows:
September 30,
20222021
Cash and cash equivalents$24,115 $589,750 
Restricted cash included in Prepaid expenses and other current assets(1)
9,100  
Restricted cash(2)
1,935 2,226 
Total cash, cash equivalents and restricted cash$35,150 $591,976 
___________________
(1)Includes contingent compensation related to the Cloudways acquisition.
(2)Includes deposits in financial institutions related to letters of credit used to secure lease agreements.
Marketable Securities
The Company’s marketable securities consist of commercial paper, U.S. treasury securities and commercial debt securities. The Company determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable
9


securities as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, the Company classifies its marketable securities within Current assets on the Condensed Consolidated Balance Sheets.
Available-for-sale securities are recorded at fair value each reporting period. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective interest method. Interest income is recognized when earned. Unrealized gains and losses on these marketable securities are presented net of tax and reported as a separate component of Accumulated other comprehensive loss until realized. Realized gains and losses are determined based on the specific identification method and are reported in Other (income) expense, net in the Condensed Consolidated Statements of Operations.
The Company periodically evaluates its marketable securities to assess whether an investment’s fair value is less than its amortized cost basis and if the decline in the fair value is attributable to a credit loss. Declines in fair value judged to be related to credit loss are reported in Other (income) expense, net in the Condensed Consolidated Statements of Operations.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable primarily represents revenue recognized that was not invoiced at the balance sheet date and is primarily billed and collected in the following month. Trade accounts receivable are carried at the original invoiced amount less an estimated allowance for doubtful accounts based on the probability of future collection. Management determines the adequacy of the allowance based on historical loss patterns, the number of days that customer invoices are past due and an evaluation of the potential risk of loss associated with specific accounts. When management becomes aware of circumstances that may further decrease the likelihood of collection, it records a specific allowance against amounts due, which reduces the receivable to the amount that management reasonably believes will be collected. The Company records changes in the estimate to the allowance for doubtful accounts through bad debt expense and reverses the allowance after the potential for recovery is considered remote.
The following table presents the changes in our allowance for doubtful accounts for the period presented:
Amount
Balance as of December 31, 2021$4,212 
Bad debt expense, net of recoveries12,217 
Additions from Cloudways acquisition691 
Write-offs(10,718)
Balance as of September 30, 2022$6,402 
Deferred Revenue
Deferred revenue was $5,476 and $4,826 as of September 30, 2022 and December 31, 2021, respectively. Revenue recognized during the three months ended September 30, 2022 and 2021 was $246 and $259, respectively, and $2,750 and $2,618 during the nine months ended September 30, 2022 and 2021, respectively, which was included in each deferred revenue balance at the beginning of each respective period.
Business Combinations
The Company recognizes assets acquired, liabilities assumed, and any contingent consideration related to business combinations based on estimates of their respective fair values on the date of acquisition. The purchase price is allocated to the identifiable net assets acquired, including intangible assets and liabilities assumed, based on estimated fair values at the date of acquisition. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates, or actual results. All subsequent changes to the estimated fair values of the acquired assets and liabilities assumed that occur within the measurement period and are based on facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill.
Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the selection of valuation methodologies, estimates of future revenue and cash flows and discount rates in determining the fair value of intangible assets acquired and liabilities assumed. The assets purchased and liabilities assumed have been reflected on the Company’s Consolidated Balance Sheets, and the results are included on the Consolidated Statements of Operations and Consolidated Statements of Cash Flows from the date of acquisition.
10


Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition, are recognized separately from the acquisition and expensed as incurred in General and administrative on the Consolidated Statements of Operations.
Asset Acquisition
The Company applies the principles provided in ASC 805, Business Combinations ("ASC 805") to determine whether a transaction involves an asset or a business. If it is determined an acquisition is an asset acquisition, the purchase consideration (which will include certain transaction costs) is allocated to the acquired assets and liabilities based on their relative fair values.
Segment Information
The Company’s chief operating decision maker, the chief executive officer, reviews discrete financial information presented on a consolidated basis for purposes of regularly making operating decisions, allocation of resources, and assessing financial performance. Accordingly, the Company has one operating and reporting segment.
Geographical Information
Revenue, as determined based on the billing address of the Company’s customers, was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
North America38 %38 %38 %38 %
Europe30 28 30 29 
Asia22 24 22 23 
Other10 10 10 10 
Total100 %100 %100 %100 %
Revenue derived from customers in the United States was 31% of total revenue for the three and nine months ended September 30, 2022 and 2021.
No country outside of the United States had revenue greater than 10% of total consolidated revenue in any period presented.
Property and equipment located in the United States was 48% and 50% as of September 30, 2022 and December 31, 2021, respectively, with the remainder of net assets residing in international locations, primarily in the Netherlands, Singapore and Germany.
Concentration of Credit Risk
The amounts reflected in the Condensed Consolidated Balance Sheets for cash and cash equivalents, marketable securities, restricted cash, and trade accounts receivable are exposed to concentrations of credit risk. Although the Company maintains cash and cash equivalents with multiple financial institutions, the deposits, at times, may exceed federally insured limits. The Company believes that the financial institutions that hold its cash and cash equivalents are financially sound and, accordingly, minimal credit risk exists with respect to these balances.
The Company’s customer base consists of a significant number of geographically dispersed customers. No customer represented 10% or more of accounts receivable, net as of September 30, 2022 and December 31, 2021. Additionally, no customer accounted for 10% or more of total revenue during the three and nine months ended September 30, 2022 and 2021.
Sublease
Under ASC 840, Leases, a sublease liability is recorded when the Company ceases to use leased space, which is included in Other current liabilities and Other noncurrent liabilities on the Condensed Consolidated Balance Sheets. A sublease loss is calculated as the present value of lease payments, net of expected sublease income, and other costs that do not have future economic benefit to the Company. The sublease loss is included in General and administrative on the Condensed Consolidated Statements of Operations.
11


Recent Accounting Pronouncements – Pending Adoption
The following effective dates represent the requirements for private companies which the Company has elected as an emerging growth company.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842), and additional changes, modifications, clarifications, or interpretations related to this guidance thereafter (“ASU 2016-02”). ASU 2016-02 requires a reporting entity to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases to increase transparency and comparability. ASU 2016-02 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022 with early adoption permitted. The Company expects to elect the package of transition practical expedients, which allows it to carry forward its historical assessment of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs. In addition, the Company expects to elect the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all classes of underlying assets.
The Company has made substantial progress in executing its implementation plan. It is in the process of revising its controls and processes to address the lease standard and is in the process of completing the implementation and data input for the lease accounting software tool that it will use post-adoption. ASU 2016-02 also requires expanded disclosure regarding the amounts, timing and uncertainties of cash flows related to a company’s lease portfolio. The Company is evaluating these disclosure requirements and is incorporating the collection of relevant data into its existing financial reporting processes. While the Company expects the adoption of this standard to result in an increase to the reported assets and liabilities, the Company is currently evaluating the impact of adoption on the condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This amendment will be effective for public entities with fiscal years beginning after December 15, 2022, and for all other entities with fiscal years beginning after December 15, 2023, with early adoption permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 to have a material effect on its consolidated financial statements and disclosures.
In June 2016, the FASB issued ASU 2016-13, with subsequent amendments, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires immediate recognition of management’s estimates of current expected credit losses. ASU 2016-13 is currently effective for public business entities, and effective for private companies with annual reporting periods beginning after December 15, 2022, and interim periods within annual periods beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of adoption on the condensed consolidated financial statements.
Recent Accounting Pronouncements – Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 eliminates certain exceptions in FASB Topic 740: Income Taxes (“ASC 740”) related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted the new standard and there was an immaterial impact to the condensed consolidated financial statements and related disclosures.
Note 3. Acquisitions
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Cloudways Ltd.
On September 1, 2022 (“Acquisition Date”), the Company acquired 100% of the outstanding equity interests of Cloudways, Ltd. (“Cloudways”) pursuant to a Share Purchase Agreement, dated as of August 19, 2022. This acquisition has been accounted for as a business combination. The results of Cloudways’ operations have been included in the accompanying condensed consolidated financial statements since the Acquisition Date. The acquisition of Cloudways, a leading managed cloud hosting and software-as-a-service provider for small to medium-sized businesses, strengthens the Company’s ability to simplify cloud computing by enabling customers to launch a business and scale it effortlessly. Cloudways was a customer of the Company prior to the acquisition, and the Company recognized revenue of approximately $6,000 from Cloudways from January 1, 2022 through the Acquisition Date. All intercompany transactions will be eliminated upon the consolidation of Cloudways.
The acquisition purchase consideration, in accordance with ASC 805, totaled $311,237 and was paid in cash. The acquisition purchase consideration is subject to certain adjustments for working capital, cash, transaction expenses, accrued liabilities and indebtedness. The Share Purchase Agreement includes customary representations and warranties and covenants of the parties. The Company contributed $42,000 to an escrow account on the Acquisition Date to support certain post-closing indemnification obligations.
The initial accounting for the business combination is incomplete at the time of this filing due to the limited amount of time between the Acquisition Date and the date that these financial statements are issued. The Company has performed a preliminary valuation analysis of the fair market value of the assets and liabilities of the Cloudways business. The final purchase price allocation will be determined when the Company has completed its evaluation of the valuation analysis. The final allocation could differ materially from the preliminary allocation. The final allocation may include changes in allocations to acquired intangible assets as well as goodwill and other changes to assets and liabilities including deferred tax liabilities. The estimated useful lives of acquired intangible assets are also preliminary. Measurement period adjustments, if any, will be recognized in the reporting period in which the adjustment amounts are determined within twelve months from the Acquisition Date.
The following table sets forth the components and the allocation of the purchase price for the business combination and summarizes the preliminary fair values of the assets acquired and liabilities assumed at the Acquisition Date:
Total consideration:
Cash paid to Cloudways sellers$278,187 
Cash contributed to escrow accounts42,000 
Other expenses150 
Less: Cash pre-funded from contingent compensation(9,100)
Total consideration paid $311,237 
Cash and cash equivalents$5,827 
Accounts receivable 4,753 
Prepayments and other current assets 547 
Other long term assets9 
Identifiable intangible assets72,000 
Accounts payable(1,820)
Accrued expenses(957)
Deferred revenue(1,013)
Deferred tax liabilities(21,686)
Other current liabilities(29,660)
Net identifiable assets acquired28,000 
Goodwill 283,237 
Total fair value of net assets acquired$311,237 
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The Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed (the useful life). The preliminary fair values allocated to the identifiable intangible assets and their estimated useful lives are as follows:
Intangible assetsPreliminary Fair ValueWeighted Average Useful Life in Years
Trade name$9,500 10
Developed technology31,500 5
Customer relationships31,000 7
Total identifiable intangible assets$72,000 
Cloudways’ assets and liabilities were measured at estimated fair values on September 1, 2022. Estimates of fair value represent management’s best estimate and require a complex series of judgments about future events and uncertainties. Third-party valuation specialists were engaged to assist in the valuation of these assets and liabilities.
The goodwill is attributable primarily to the revenue synergies expected from combining the operations of both entities, and intangible assets that do not qualify for separate recognition, including the existing workforce acquired through the acquisition. None of the goodwill is expected to be deductible for income tax purposes.
Acquisition related costs consist of miscellaneous professional service fees and expenses for acquisition related activities. The Company recognized approximately $2,139 of acquisition related costs that were expensed in the current period. These costs are shown primarily as part of general and administrative expenses in the accompanying condensed consolidated statements of operations.
The amount of Cloudways’ revenue and net loss included in the Company’s condensed consolidated statements of operations from the Acquisition Date through September 30, 2022, was $4,923 and $(3,581), respectively. The $4,923 does not include the impact of the elimination of $765 related to DO intercompany revenue with Cloudways.
Contingent compensation
Contingent compensation costs relate to payments due to a Cloudways seller for $38,830, of which $16,851 is earned on September 1, 2023, and $7,326 is earned on each of March 1, 2024, September 1, 2024 and March 1, 2025. Contingent compensation represents compensation for post-combination services because the payments are contingent on continuing employment of the Cloudways seller, with limited exceptions, at each payment date. For the nine months ended September 30, 2022, the Company recorded an acquisition related compensation expense of $2,361 related to estimated compensation earned by the Cloudways seller to date. This expense is shown as part of General and administrative in the accompanying condensed consolidated statements of operations.
Unaudited Pro Forma Financial Information
The unaudited pro forma information below summarizes the combined results of the Company and Cloudways as if the Company’s acquisition of Cloudways closed on January 1, 2021 but does not necessarily reflect the combined actual results of operations of the Company and Cloudways that would have been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma information reflects certain adjustments that were directly attributable to the acquisition of Cloudways, including additional amortization adjustments for the fair value of the assets acquired and liabilities assumed and other adjustments the Company believes are reasonable for the pro forma presentation. The pro forma net income (loss) for the three months ended September 30, 2022 was adjusted to exclude nonrecurring acquisition related costs of $2,139.
Pro Forma Three Months Ended September 30,Pro Forma Nine Months Ended September 30,
2022202120222021
Pro-forma revenue$160,457 $119,703 $444,193 $330,993 
Pro-forma net income (loss)10,010 (9,713)(24,837)(31,593)
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Other Asset Acquisitions
In March 2022, the Company acquired the assets of the CSS Tricks website (“CSS Tricks”) from Midwest Coast Studios LLC for total purchase consideration of $4,000. The intangible assets will be amortized over 3 to 5 years. In June 2022, the Company acquired intangible assets from JournalDev IT Services Private Limited for total purchase consideration of $1,400 to be amortized over 3 years.
Nimbella
The Company finalized and adjusted the purchase price for the Nimbella acquisition to reflect an decrease of $247 to Goodwill related to the final 2021 pre-acquisition tax return.
Note 4. Marketable Securities
The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents, on the Condensed Consolidated Balance Sheets as of September 30, 2022. The Company did not hold any available-for-sale marketable securities as of December 31, 2021.
September 30, 2022
Amortized
Cost
Gross Unrealized GainsGross Unrealized LossesFair
Value
U.S. treasury securities$568,706 $14 $(2,342)$566,378 
Corporate debt securities35,032  (340)34,692 
Commercial paper200,276 2 (809)199,469 
Total Marketable securities$804,014 $16 $(3,491)$800,539 
Interest income from investments was $3,309 and $27 for the three months ended September 30, 2022 and 2021, respectively, and $6,899 and $36 for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, all of the Company’s available-for-sale short-term investments were due within one year.
The Company does not believe that any unrealized losses are attributable to credit-related factors based on its evaluation of available evidence. To determine whether a decline in value is related to credit loss, the Company evaluates, among other factors: the extent to which the fair value is less than the amortized cost basis, changes to the rating of the security by a rating agency and any adverse conditions specifically related to an issuer of a security or its industry. Unrealized gains and losses on marketable securities are presented net of tax.
Note 5. Fair Value Measurements
The fair value of our financial assets measured on a recurring basis is as follows:
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September 30, 2022
Level ILevel IITotal
Cash and cash equivalents:
Cash$23,436 $ $23,436 
Money market funds679  679 
Total Cash and cash equivalents$24,115 $ $24,115 
Marketable securities:
U.S. treasury securities$566,377 $ $566,377 
Corporate debt securities 34,69234,692 
Commercial paper 199,470199,470 
Total Marketable securities$566,377 $234,162 $800,539 
December 31, 2021
Level ILevel IITotal
Cash and cash equivalents:
Cash$1,093,425 $ $1,093,425 
Commercial paper 269,945 269,945 
Certificate of deposits 350,017 350,017 
Total Cash and cash equivalents$1,093,425 $619,962 $1,713,387 
The Company classifies its highly liquid money market funds and U.S. treasury securities within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its commercial paper, corporate debt securities and certificates of deposit within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded. The Company had no Level 3 financial assets as of September 30, 2022 and December 31, 2021.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
The Company reports financial instruments at fair value, with the exception of the 0% Convertible Senior Notes due December 1, 2026 (“Convertible Notes”). Financial instruments that are not recorded at fair value on a recurring basis are measured at fair value on a quarterly basis for disclosure purposes. The carrying values and estimated fair values of financial instruments not recorded at fair value are as follows:
September 30, 2022December 31, 2021
Carrying ValueFair ValueCarrying ValueFair Value
Convertible Notes$1,468,393 $1,099,185 $1,462,676 $