Welcome to BofA's Global Tech Conference, day two. I know it's the session after lunch, but that's why we got Matt over here, to keep you all on your toes and stay awake. Welcome to DigitalOcean. We have the CFO, Matt Steinfort. Matt, thank you for joining us. You guys have done an incredible job here over the past few years in changing the entire model of the company, going from a developer cloud to what you are today. Do you want to take a minute to maybe talk about what has changed over the last couple of years, and we'll get into Q&A. Yeah. Thanks, Wamsi, and thanks for having me, and thanks for the nice walk-up music with a little Colorado. Appreciate that. Yeah. You and I were talking about, before the session, how much the company's changed in the last couple of years, and how the narrative has changed in terms of the questions that we get. A couple of years ago, we were still the third largest cloud by customer count, but we were viewed as the smaller toy cloud that was largely targeting developers and small businesses. I think that the narrative there was, okay, don't your biggest customers tend to just go away from you because they outgrow you and they graduate? We spent a lot of time. Literally, the number one question, the hard question when we would prepare for these sessions was, "Why do you guys exist?" "Why can't the hyperscalers do what you guys do?" We had to spend a lot of time explaining that we have carved out a niche, and we serve an underserved portion of the market in the core cloud by those customers who aren't well-served by the hyperscalers because they need more attention, they're digital native, and they need more care and feeding. They need simpler. They need less requirements for long-term contracts and those kind of things. We couldn't explain away the fact that, yeah, we did have a challenge, a leaky bucket in our top customers. You roll that forward to today, not only have we fixed that particular issue in the core cloud, where now our $1 million-plus customers are growing, I think it's like 180%, we hadn't had any churn in the last four quarters in that bucket. We've also launched and taken the same fundamental value proposition into the world of AI, we've developed a very compelling full stack AI native cloud that is resonating incredibly well with our AI customers, the AI customer revenue is growing 220%. We built a very strong business there with a number of marquee inference-oriented customers. Very different business in just 18-24 months. It required a lot of development, required retooling the leadership team at all levels of the company, and rediscovering our roots around focusing on the technology customers and the end experience, but not on the individual single developer, but more on the larger digital and AI native companies. Yeah. This has been a dramatic shift. Yeah. No, it sure has. It's getting reflected in the guidance that you have provided, which you have upped a few times now. I guess, as you look over the last, call it, I don't know, six months or 90 days, what has really changed in what you're seeing in discussions with customers that's giving you the confidence to keep adding this power, and expansion plan that you have, that you have communicated to investors, and also taken the guidance up now to 40%-50% for next year? Yeah. It's the traction that we're getting with the customers is, it's a virtuous cycle, right? When we won Character a while back, that was the first marquee recognizable name that we had won. We had a lot of smaller customers who were interesting. Winning Character gave us credibility in the market to be able to secure the Cursors of the world, and start to win some of their business, but like Hippocratic and Ideogram and others. The more we learn from them, the more we can develop our software in a differentiated way and build on the platform advantage. The more we do that, we're getting more attractive customers are coming on. It's snowballing. That gives us the ability and the confidence to take down incremental capacity. As we're getting more experience deploying that capacity, we're having more confidence in our ability to execute on the timelines and turn up some of the new technology, like liquid cooling is very new for the industry. The first ones that we turned up are, in fact, the first of the data centers we turned up this year was air-cooled. We're just now getting into the liquid cooling, but we're delivering even our second data center that came on in April, which was fully liquid-cooled, came on ahead of schedule. We're just getting more confidence in our ability to execute, so that's one part of the guide. The other part is just the customer traction that we're getting and the reaction we're getting, and the demand signals that we're getting from those customers, and the customers in the pipeline is very compelling and enabling us to really lean in. Yeah, you've gone from 40-plus MW and added another 30+, now 60+ more. How should we think about this incremental 60, when does that come online? Yeah, it comes online over the course of 2027. It's not entirely at the beginning, and it's not back-end loaded. Think about it's going to come on, it's four different data centers, so there's diversity there of providers and locations. We feel good about our ability to manage those, and they'll come on over the course of the year. We'll provide more clarity when we get to the 2027, the more formal guide. Okay. We feel really good about the providers and the partners that we have. They're all very experienced data center operators. These are generally existing facilities where they're building out a data hall for us, or they're existing campus, where there's a building that's like a shell that's ready to go, and they just need to kit out for us. Okay. We feel good about the operational execution risk associated with that. Yeah. It's not like you're targeting a gig of capacity. These are much more measured sort of incrementals. Even despite that, it looks as though the market's relatively tight in terms of being able to procure, whether it's servers, whether it's everything in our power, or it's getting all the liquid cooling in place. Are there any particular constraints that you see, or what are maybe the tightest constraints that are going to somewhat determine how that 60 MW gets rolled out? Yeah. It's June now, which is crazy. It's June, and we just announced 60 megawatts that will come online in 2027. Yeah. We're 12-18 months. Yeah in front of that. Clearly, the data center providers need to deliver on schedule. Like I said, this is not data center capacity being built from dirt, right? This is existing facilities. Power's already there, so there's not as much risk there, but they still need to kit it out. The equipment side is less a scarcity thing than it is a timing and cost. You can get the capacity, particularly at our quantity. You want the amount of GPUs that we're buying, you can find them. Yeah. Multiple OEMs have them, like, we work with Dell, and Supermicro, and HPE, and Lenovo. We work with a lot of them. The question is: Can they get it to you when you want it, and can they give you some kind of certainty on the price? Because the component costs clearly are going up. That's something that we have to deal with. It's less of a can you get it than it is can you get it when you want it. We've been pretty good about our relationships, working our relationships with the OEMs, and the evidence of that is we turned on the 6 MW of the 31 MW we're deploying this year. We said second quarter when we provided guidance. We delivered in March. The second of the three is a 10 MW. We said second half, and we delivered it in April. When we say we delivered it, when we deliver it comes with the GPUs are right behind, and the CPUs are right behind it. Yeah. Okay. That's helpful. How much visibility do you need to go ahead and put this incremental capacity and sign these data center leases? What sort of visibility do you have from your customers, both in terms of duration and as well as magnitude? Well, we've been, I think, very clear multiple times externally that the demand that we have right now from our existing customers could fill up the capacity that we have, and that we've got three to four times the capacity or the demand than the capacity that we're bringing online. That's what gives us the confidence, and the signals that we're getting from our customers, the feedback that they're giving us on the impact we're having on their total cost of ownership, and some of the new capabilities that we've announced that are very compelling to our customers, many of them developed jointly with our customers, like the Inference Router capability. Yes. All of that gives us the confidence. Plus, the market opportunity is just You're seeing it. You have a number of other companies here at your conference that are doing very well, very good companies that are also seeing similar demand. Like, the demand in the market is, I won't say limitless, but there's certainly not enough capacity to meet the demand that's out there right now. Yeah. I think we're benefiting in that customers are beginning to understand the difference between coming to someone who can provide them a full set of inference capabilities with a full cloud stack next to it, versus someone who can provide them with access to bare metal, which is valuable but requires you to do a lot more and invest a lot more. Our customers tend to not want to spend their effort and their resources worrying about infrastructure level, and they want to focus on building their own software. Yeah, that makes a lot of sense. Matt, you just said demand's like 3x-4x, literally aware what you're able to potentially scale to. Why is 60 MW the right number in terms of getting when demand is so strong? Yeah, I think that's probably the single question that everybody in the audience has got on their mind as well. 60 MW is what we had signed as of the last earnings. There was no magic number there. It was the number that happened to be signed at the time that we did earnings. What we had said is we're continuing to actively evaluate incremental capacity for 2027. We're looking at 2028 capacity already. Clearly, we're looking at how do we grow even faster. Part of the executive team and the board, one of our primary focuses is exactly that. Like, how fast can we go? There are a lot of dimensions to that. Like, how fast can you go without being too highly levered? Like, okay, well, there's a throttle we have to have, and fortunately, we've demonstrated the ability to tap into the equity markets and do things to give ourselves an incredibly strong and flexible balance sheet. It has implications on, okay, well, what about the capacity? Like, how many megawatts do you have that you could sign right now? It also has the balancing that you just described of, okay, how much of it are we willing to do with our business model of not having a five-year bare metal offtake with a investment-grade kind of counterpart. Sure. We look at our customers and their credit profiles and their growth trajectories and their funding, and we allocate capacity to try to optimize in that. I'd say we're in a more nuanced game because we're investing ahead of the security of the committed revenue where a lot of our peers, they're approaching it more from a neocloud bare metal side. They tend to have a customer and then secure the, like that then gives them the finance and gives them the data center kind of financing, etc. Yeah. No, that's a great point. You mentioned on the cost side, right, like that it's not about just maybe just availability, it's the cost of sort of bringing up this capacity. In the past, you've spoken about $20 million-$25 million per megawatt from a cost standpoint. The market's been very inflationary in terms of all these components, including now CPUs and memory obviously has been ongoing for a while. As you think about putting that all together, what do you think about the incremental cost? Is that still the right range and it's the high end of that range, or are we sort of talking about a big step up in sort of the cost to bring this up? Yeah. It's the $20 million-$25 million per megawatt in CapEx that we talked about was for the 31 MW that we're turning on this year. Yes. Again, you can see that in, if you look at our first quarter results, we added about $144 million of equipment finance obligations, and that was associated with the first six megawatts. It puts you right in that range that we had talked about. As you pointed out, the costs are higher now, and they're higher on two dimensions. One dimension is just component costs. The cost of storage, or memory is the primary driver. Even storage, like NVMe drives, or I'm probably missing a letter in there, are a lot more expensive than they were. You're starting to see component costs across GPU and CPU go up. I'd say the bigger thing is actually the type of gear, the versions of some of NVIDIA's latest technology that we're putting in, the B300s. You get more tokens per megawatt. They cost you more. Yeah You get more tokens per megawatt. The revenue potential is higher, which is good because that drives our $13 million in ARR per megawatt, that'll drive that up. Yeah. There is extra cost in there, too. Yeah. I'd say the good news with that is, well, everybody's got that cost. Sure cost in the industry. At this point, we've been able to pass that on as just part of the pricing. That's why I think you're seeing some of the prices of older generation also increasing just because you've got scarcity and you've got rising cost structures. It's very difficult for an industry investing this much to absorb that. It's got to be kind of passed on to the end customers. What have you seen lately from your perspective on pricing in that regard? Yeah. I think you're seeing, and this has been definitely a surprise for me, which is when we underwrote our investment in the 31 megawatts, and even when we underwrote the investment into the 60 MW, we're projecting costs come down. I mean, not costs, prices come down, right? Sure. The older generations, you got new generations technology, prices will come down. You got to be comfortable that you're underwriting a good business case, even if that happens. Well, that hasn't been happening, right? The prices for H100s and H200s are increasing. You've had a lot of people that, Jensen and other folks, again, some of the folks at this conference talking about explicit increases in the pricing. We've seen that, and we're actually in a really interesting position in that because we don't have long-term contracts, we can rotate through a contract from 12 months ago, comes up for renewal. We're not renewing that at even close to what the price was before. We'll either increase the price, we'll move them off if they were a bare metal customer, we got a little bit of that left. We'll move them off. We won't even offer that to them, and we'll move them to a higher grade level service. We can literally repurpose it and say, "We're not going to sell it as GPU per hour. We're going to sell it as tokens." We can increase the monetization even then. In general, the pricing for older generation technology is not only stabilized, it's increasing, which is a really good thing from a near-term perspective. Perversely, you actually want a higher churn in some ways. We're churning a higher price. Yeah. Yeah. We were talking about this in one of the sessions earlier today. Traditional SaaS metrics are really not super relevant right now. People ask me about NDR and when are you going to include AI and NDR, I mean, I don't know if we ever will. You got to be like 12, 13 months in before that actually makes sense. If I rotate out a customer at a certain price because maybe they were a marketplace, at the time, we didn't have a go to market, we were selling through marketplace, I say, "Okay, we're not going to sell to you anymore. We're going to sell to Cursor." If you looked at NDR, you'd say, "Oh, you had churn." I'm like, "Did I? Right. I'm using the exact same equipment. I had no gap in revenue with a better customer at a higher price." Like you said, it's a different world and different metrics matter. Yeah. Interesting monetization opportunity. Yeah that maybe doesn't get reflected in some of the metrics. As you think about these new capacity ramps, how should you be thinking about sort of the margin trajectory as well, as you're bringing on this capacity? Clearly you had some pressure at gross levels, but can you just talk about sort of how we should be thinking around some of the puts and takes on margins? Yeah. No, that's a great point. When you add data capacity, it drives margins down. Like, point blank. Sure. You can't get around that. Why? Well, because as soon as you turn the data center lease on, you take lease expense. Because we pay for our equipment over time, instead of largely, as soon as you take the delivery of that, the equipment finance depreciation-related expense hits right away. Your gross margin takes a pop right out of the gate, and then you grow into it as you fill up the capacity and you generate revenue. It has near-term, temporal margin kind of impacts. You also have, as AI is growing, it was, what was it? It was a mid-teens percentage of our overall ARR, right, in the last quarter. Yeah. As that becomes a bigger mix, well, the margins on the core cloud business are, if you didn't have AI, they'd be in the 65%-ish range. Right? Sure. You're weaving in margins that are not that high. They're not 25% margins like you would get if you were just doing bare metal, but they're not 65%. Right. You've got two things going on. You've got the merging of the mix shift of more AI that's got lower inherent margins, you've got some temporal stuff every time you turn on data centers. To me, the more important thing is to look at the aggregate margins when you include OpEx and you include everything else, because the actual resulting margins are pretty strong. Yeah. Maybe to touch on sort of what you announced at Deploy, right? You spoke about this agentic stack that customers can now use. What's the adoption? I know it's very early days, right? What are you looking at? What should investors be focused on in terms of across the several layers of the stack that you described, obviously at the infrastructure layer, you have significant penetration, but as you go up the stack, how should we be thinking of the progression of some of those in terms of adoption rates? What are you anecdotally seeing, maybe if it's too early to sort of make a final judgment on where things are? Yeah. I think that the simplest way to assess whether the strategy is working is to look at ARR per megawatt. Right? It's like, are we getting more value, higher layer services for the investments that we're making in capacity? That's a simple metric. We also break down within the AI customer revenue, how much of it is coming from each layer of the stack, right? How much is being sold at bare metal? It's 19% now. It's going to go down fast, it's not only going down on a percentage, but on an absolute basis. We don't need to sell bare metal anymore. The inference layer will be where you'll see the most expansion, because that's growing like crazy, that's the products like you talked about that we launched at Deploy, the Inference Router, we're now selling per token. We're selling serverless, where it's like people come in, and they're like, "Hey, I want Kimi tokens, and here's my latency and my throughput. Here's the price." They don't even know what the infrastructure is. That's starting to really take off. A lot of the agent layer capabilities that we're selling, that's been really, really interesting. We're the, I think, the top deployment of OpenClaw. We got like 70,000 active OpenClaw instances where things are happening so fast, there's a new one, Hermes. Yes that we're one of the top in that. We're starting to see a lot of that. Those things are going to be hard for the market to see outside, other than the anecdotes, if you look at ARR per megawatt, and you see that continue to progress, and then as we'll continue to disclose the mix of bare metal versus inference versus core cloud pull-through, and you'll see more core cloud pull-through, I think, as well. I think those are the, "Hey, is there really a differentiation here? Is this five-layer software stack, is this real or is it marketing speak and they're just talking about software?" Everybody talks about software. Sure. If you're talking about software and you're getting $9 million-$10 million in ARR per megawatt, you might have some really interesting software. Yeah. It might be a differentiator. You're winning more bare metal. Yeah than your fair share, but you're not getting higher layer services. Yeah on top of it, and that's where I think the proof is in the, "Okay, well, how are you monetizing that investment? As you think about that, getting customers into incremental layers, where does that go from a $13 million per megawatt kind of range that you articulated currently to where could that go when you think about using more and more pieces of the agentic stack? Yeah. It's probably too early to say how far it could go, but what I could say is it's already going higher than 13. We underwrote the 60 MW at a higher ARR per megawatt than that. Part of it was because of the incremental token capacity, as we talked about, that we get from the higher CapEx that we're investing. Yeah. Also, we just launched a lot of those inference capabilities. We're getting now, I'll give you an example. When we won Character.ai a while ago, we were unproven. We had to prove to them technologically that we could provide the service, that we had to demonstrate that it would save them 30%-40%, or improve their throughput by 30%-40%. We got their inference workloads, but we didn't get any core cloud. Now, when you're talking to Cursor, they come with core cloud. They're like, "Hey, we need this, and we need NFS, and we need other stuff." Our confidence in the core cloud pull-through is increasing, so we're definitely confident in our ability to drive that above 13 on an incremental basis, and we're seeing that in the customer wins that we're getting. Okay. Well, look, the stock's had a phenomenal move, right? I think it's reflecting sort of the enthusiasm around, A, the product offering, B, your execution, and C, frankly, your guidance has gone up a lot. You've shown revenue acceleration, which is very, very meaningful going from mid-teens to now a pathway to 50%+. What do you think are maybe some of the key risks that investors should watch out for, especially on the execution side, and anything else that you would point out? Yeah. I think that if you think of the competitive dynamic, you've got kind of four different players. You've got the hyperscalers that are very, very focused on supplying their own capacity for their own internal use and on some of the frontier models. You've got the neoclouds that started with scale and capacity and are trying to layer on software because they see the same thing we do, which is inferencing is going to be a much bigger opportunity than training, and there's a lot of better characteristics of it because it's a production workload that runs, it's not episodic and it's harder to move, and it requires all these other things. They're trying to add software capabilities. You've got inference wrappers that are taking advantage of, hey, well, it's really expensive, and so if I can optimize this, I can sell to people because I can save them money, but they don't own any infrastructure. They don't own GPUs, they don't own CPUs, they don't have any core cloud capabilities. You think about all of those four players, and then you take us, where we started with software, and we've got a very differentiated cloud, where other than hyperscalers, the only one who has a CPU full cloud plus all the AI capabilities, but we don't have as much scale. Sure. It's a race, right? It's like everybody knows what they're missing, and the question is how quickly and how hard is it to fill that. For us, it's like, okay, how do we add scale in a way that's still profitable and not over-leveraging ourselves, etc? For the other folks, they've got to worry about, okay, how do you actually build software if you've never run a cloud and your primary customer is 95% of them, you actually don't even see their software, they just run it on your infrastructure. That's a different challenge. If you're the wrapper, you're like, "I don't have any scale at all. I've got features and functions, what do I do?" I think, if you fast-forward this in two or three years, the question will be, well, who won in that regard? We like our chances of adding scale and growing from a capacity standpoint because we believe that running a production cloud, both AI and core compute, is pretty difficult. There's only a handful, three maybe four other players, all called hyperscalers, that do that. Yeah. No, I'd bet on your chances too, because it just seems as though filling the gaps of the other places is a lot harder, and you already had customer evidence that has shown that if they were customers of some of these competitors, it was probably more economical and easier to move on to your platform and use the stack as a whole. Definitely excited about the opportunity here. Maybe to wrap up here, since we've only got a couple of minutes over here, Matt. What should investors be most excited about as we look to the future over here? It feels like you've got this tremendous open-ended opportunity, would love to hear your parting thoughts on what investors should be most excited about. Well, I think that the thing that I'm most excited about, and I would hope that the investors would be excited about, is this is still such an early part of the growth trajectory of this market, right? There's clear evidence that there's going to be a massive amount of compute required, right? I don't think anybody questions that. I think there's some questions around, okay, well, once there's a little bit more of an equilibrium and you don't have the scarcity, will there be commoditization and will there be people who got too far over their skis and are going to struggle? When I look at what we're doing, it's like, well, what would you want to have when that happens? You would want to have highly differentiated services with more than just a rental kind of a business. You would want to have customers that are embedded in your full stack of not just compute, but storage and database where there's gravity, right? Where it's really difficult to move those kind of workloads. We're just, I think, well, like you said, we've had a good run and the people are now paying attention to us. We're just getting started. Yeah. There's so much that we can do, and I think that we add some scale, we get some heft, we'll be able to do some really exciting things. Yeah. No, that's fantastic. In 23 years of doing this, I would say this is probably the BofA Tech Conference where the infrastructure bullishness that we've heard from across the board has been so consistent. Everyone thinks it's early days, just because the demand is strong, but the pipelines are exploding higher. Yeah. Tremendous opportunity ahead of you. Great execution, and thanks for being here. Great. Thanks, Wam. Thank you, Matt. Thank you. Thanks, everyone.