0001582961-26-000049
SEC filingRevenue growth of 22% driven by DNE customers, but gross margin compressed 500 bps from data center expansion costs.
For the three months ended March 31, 2026, DigitalOcean reported revenue of $257.9 million, a 22% increase from $210.7 million in the prior-year period. The growth was primarily driven by a 35% increase in revenue from DNE Customers, reflecting both new customer additions and higher usage from existing customers. Gross profit rose 12% to $144.7 million, but gross margin contracted to 56% from 61%, as cost of revenue grew 39% due to data center expansions—including $15.6 million in additional depreciation and amortization and $9.0 million in higher co-location costs—incurred ahead of the revenue ramp from new data centers.
Operating income decreased 3% to $36.6 million, with operating margin falling to 14% from 18%. Operating expenses grew 18% overall, driven by a 23% increase in R&D ($9.2 million in higher personnel costs) and a 15% increase in G&A ($3.2 million in professional services and $1.6 million in personnel costs). Net income dropped 59% to $15.8 million, largely due to a $15.8 million swing in other expense/income, including $8.3 million higher interest expense, $4.1 million in unrealized foreign currency losses, and a $2.7 million loss on extinguishment of debt. EPS fell to $0.15 from $0.39.
DigitalOcean does not report traditional operating segments but provides key customer-based metrics. DNE Customers (those spending >$500/month) grew to 21,577 from 19,580, and their revenue share increased to 64% from 57%. Higher-value customer tiers also expanded: $100K+ customers rose to 626 from 558, $500K+ customers to 97 from 63, and $1M+ customers to 41 from 23. ARR reached $1.032 billion, up 22% from $843 million, while AI Customer ARR more than tripled to $170 million from $53 million. Net dollar retention improved to 101% from 100%, indicating better expansion among existing customers.
Management highlighted continued investment in platform and product offerings, particularly AI/ML capabilities, and expects R&D expenses to increase in absolute dollars. The company noted that macroeconomic conditions, including trade tensions and tariffs, remain uncertain and could affect business investment. No formal guidance was provided. Liquidity remains strong with $741.4 million in cash and cash equivalents, and the company believes existing resources are sufficient for at least the next 12 months. The 2025 Share Buyback Program authorizes up to $100 million in repurchases through July 2027, with no shares repurchased in the current quarter.
The condensed consolidated balance sheet reflects a dramatic improvement in liquidity, with cash and cash equivalents increasing to $741.4 million from $254.5 million at December 31, 2025. This was primarily fueled by the March 2026 follow-on public offering of 11.95 million shares, which generated net proceeds of $887.9 million after underwriting discounts and issuance costs. Total assets grew to $2.57 billion, driven by the cash inflow and increases in property and equipment (net) to $753.9 million, reflecting continued investment in servers and data center infrastructure. Goodwill remained largely flat at $350.7 million. On the liability side, total debt decreased from $1.30 billion to $919.7 million, as the company repaid the entire $500 million Term Loan Facility on March 27, 2026. The debt now consists of $625 million in 0.00% Convertible Senior Notes due 2030 and $312.3 million in 2026 Convertible Notes. Stockholders' equity swung from a deficit of $28.7 million to positive $887.4 million, due to the equity offering and net income of $15.8 million. The current ratio improved to 1.46 from 0.69.
The notes disclose significant off-balance-sheet commitments. As of March 31, 2026, the company had $668.4 million in estimated undiscounted fixed payment obligations for operating leases that had not yet commenced, primarily for co-location space at data center facilities, with a weighted-average lease term of 9.8 years. Subsequent to quarter-end, additional operating leases were entered into with total undiscounted payments of $1.27 billion. Finance leases for servers and related equipment were also entered into during the quarter, adding $132.5 million in finance lease liabilities with a weighted-average term of 6.0 years and an imputed interest rate of 6.4%. Purchase commitments for software licenses, bandwidth, and network services were noted as not materially changed from year-end, but no specific dollar amount was provided. Remaining performance obligations (RPO) totaled $243.1 million, of which $167.4 million is expected to be recognized as revenue within twelve months.
Capital allocation was heavily focused on deleveraging and growth investment. The company fully repaid its $500 million Term Loan Facility, using follow-on offering proceeds, and recorded a $2.7 million loss on extinguishment. No share repurchases occurred during the quarter; however, the $100 million buyback program authorized in August 2025 remains active. Capital expenditures (including internal-use software) were $44.7 million, representing 17.3% of revenue. Additionally, $11.8 million was acquired under equipment financing arrangements. No dividends were paid. The company also drew $120 million on the Term Loan earlier in the quarter before the full repayment. Post-quarter, on May 4, 2026, the company amended its credit agreement to increase the revolving facility by $112.5 million, providing additional flexibility.
The company operates as a single reportable segment, with the CEO serving as the chief operating decision maker. Revenue is disaggregated by customer annual run-rate (ARR) categories and geography. For Q1 2026, Digital Native Enterprise (DNE) customers contributed 64% of revenue ($164.6 million), up from 57% in Q1 2025, driven by growth in the Above $1M customer category (18% vs. 8%). Developers and other customers accounted for the remaining 36%. Geographically, North America was the largest region at 44% of revenue ($112.8 million), followed by Europe (24%), Asia (22%), and rest of world (10%). United States alone contributed 38% of total revenue. Long-lived assets (property and equipment and operating lease ROU assets) were concentrated in the U.S. ($848 million) with smaller amounts in the Netherlands, Germany, Singapore, Canada, and other countries.