DigitalOcean (ticker: DOCN), a provider of cloud-computing services to small businesses, has announced a restatement of previously reported results to correct accounting errors. The company disclosed in a Securities and Exchange Commission filing that it discovered "certain errors" in its March quarter results while preparing its June quarter financial statements.
The errors primarily related to the accounting for tax reporting of capitalized research expenses. As a result, the company overstated accrued taxes by approximately $18 million, leading to an understatement of reported non-GAAP earnings per share in the March quarter. DigitalOcean plans to file an amended quarterly earnings report with the SEC, including the disclosure of a material weakness in its internal controls and procedures as of March 31.
DigitalOcean further revealed that the material weakness also existed at the end of 2022. The company's auditor's opinion from Ernst & Young for the full year will be revised to reflect an adverse opinion regarding the effectiveness of internal control over financial reporting.
Despite these challenges, DigitalOcean achieved encouraging results for the June quarter. The company reported revenue of $170 million, representing a 27% increase from the previous year and meeting its guidance range of $169.5 million to $170.5 million. Adjusted Ebitda reached $72 million, with a margin of 43%, surpassing the guidance range of 37% to 38%. However, due to the ongoing tax-reporting issue, DigitalOcean was unable to provide a final earnings per share figure. Nonetheless, it expects the total to exceed the previously projected range of 40 cents to 41 cents.
DigitalOcean Faces Revenue Challenges
DigitalOcean, a leading cloud infrastructure provider, has reported its third-quarter revenue projections, falling slightly short of analysts' expectations. The company expects to generate between $172.4 million to $174 million in revenue, lower than the anticipated $170 million. Furthermore, DigitalOcean has revised its full-year revenue forecast downward from $700 million to a range of $680 million to $685 million.
Despite these challenges, DigitalOcean remains confident in its adjusted Ebitda margin and adjusted free-cash-flow margin, which are expected to range from 38% to 39% and 21% to 22%, respectively. The company will update its earnings-per-share outlook once it completes the correction of tax expense reporting errors.
DigitalOcean CEO, Yancy Spruill, expressed satisfaction with the company's overall performance, highlighting significant progress in cost controls during the quarter. However, he acknowledged that some customers continue to curb their spending growth due to a slowdown in their own businesses.
Spruill believes that recent declining trends are stabilizing but refrains from predicting an immediate turnaround. As a consumption-based model provider, DigitalOcean experiences swift adjustments in customer spending, particularly with smaller businesses. When a customer's business slows down, their spending corrects immediately.
Despite these challenges, DigitalOcean's stock has performed well this year, surging approximately 88% year-to-date.
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