Q3 2025 DigitalOcean Holdings Inc Earnings Call

125 earnings conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you would like to withdraw.

Your question press the Star one again, thank you I would like to turn the call over to Melanie straight head of Investor Relations. Please go ahead.

Thank you Rebecca and good morning. Thank you all for joining us today to review digital Ocean third quarter 2025 financial results Joe.

Joining me on the call today are Pat is really Boston, our Chief Executive Officer, and Matt thing for our Chief Financial Officer before we begin let me remind you that certain statements made on the call today may be considered forward looking statements, which reflect managements best judgment based on currently available information.

Actual results may differ materially from those projected in these forward looking statements, including our financial outlook I direct your attention to the risk factors contained in our filings with the SEC as well as those referenced in todays press release that is posted on our website.

Digital Ocean expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements made today.

Additionally, non-GAAP financial measures will be discussed on this conference call and reconciliation to the most directly comparable GAAP financial measures can be found in today's earnings press release as well as in our investor presentation that outlines the financial discussion on today's call and webcast of today's call is also available in the IR section.

<unk> of our website and with that I will turn the call over to Patti.

Thank you Melanie.

Good morning, everyone and thank you for joining us today as we review our third quarter results.

I'm very excited to share our results for the quarter and to give you an update on the progress that we're making against the goals that we articulated earlier this year during our April Investor day.

Our performance this quarter was very strong.

We exceeded our Q3 guidance on both revenue and profitability metrics, delivering 16% revenue growth and the highest incremental organic air or in the company's history.

While generating 21% trailing 12 months adjusted free cash flow margin.

We continued innovation in our comprehensive agent to cloud to support the needs of scaling AI and digital native enterprise customers, making sure. There is no reason, our highest spending customers ever need to leave our platform.

We augmented our industry, leading product led growth engine.

With focused direct sales motion driving customers to migrate workloads from the hyperscale or through our platform and building traction with direct AI native customers.

This progress is evident in the rapid growth of our largest customers and their increasing willingness to sign committed contracts with us.

With customers, having more than $1 million in annualized run rates, reaching $110 million in Iraq.

Growing 72% year over year.

And with multiple customers signing eight figure committed contracts after the quarter close.

The demand for our agent to cloud has exceeded our supply.

Our performance and the visibility we have into demand gives us the confidence both to increase our 2025 and 2026 revenue and adjusted free cash flow outlook.

And to also increase our investments in data centers and GPU capacity to further accelerate growth, while maintaining attractive margins.

I will now dive deeper into all of this starting with our third quarter financial results as highlighted on slide 10 of our earnings deck.

Q3 revenue hit $230 million up 16% year over year, marking the highest growth since Q3 2023.

We delivered our highest organic incrementals are are in company's history at $44 million.

This growth was driven by a balanced performance across our comprehensive agent to cloud platform as direct AI revenue more than doubled year over year for the fifth consecutive quarter.

Our general purpose cloud products saw the highest incremental organic air or since Q2 of 2022.

We delivered this accelerating revenue growth in Q3, while exceeding our profitability guidance and materially strengthening our balance sheet.

Adjusted EBITDA and non-GAAP earnings per share were both well above guidance on the back of strong execution and we delivered a strong 21% trailing 12 months adjusted free cash flow margin as we introduced equipment leasing into our financial toolkit in Q3 to better align.

The timing of our investments with our revenue.

To give us further flexibility to invest in growth.

We also repurchased the majority of our 2026 convert in the quarter strengthening our balance sheet.

The primary driver behind our accelerating topline growth are threefold.

One the increasing momentum you're seeing with AI native customers.

Next the material traction we continue to generate with our highest spend digital native enterprise customers.

And finally, the continued strength, we're seeing in revenue from new customers.

Our unified gradient aia's into cloud, which is outlined on slide seven of our investor presentation is getting increasing traction with larger well funded AI native companies that are in inference mode.

These scaling companies increasingly leverage our unified agent to cloud with many of our top customers already leveraging both AI and general purpose cloud capabilities.

And with many more having at least starting to test and experiment with AI on our platform.

Evidence of this fraction isn't the growth rates of our highest spending customers.

To give us further flexibility to invest in growth. We also repurchased the majority of our 2026 convert in the quarter, strengthening our balance sheet.

Revenue from these customers who are at $100000 plus annual run rate grew 41% year over year, increasing to 26% of total revenue.

The primary drivers behind our accelerating topline growth are threefold. Number one, the increasing momentum we are seeing with AI-native customers.

Growth is even higher for our largest digital native enterprise customers as the more.

Next, the material traction may continue to generate with our highest spend digital native Enterprise customers.

Our customers are spending the faster they're growing on deal.

The charts on slide 11 show that our customers with greater than 500000, and greater than $1 billion in annualized run rate grew revenue, 55% and 72% respectively.

And finally, the continued strength we are seeing in revenue from new customers.

<unk> clear evidence that our increasing ability to not just attract but also retain and grow our largest customers demonstrating that customers can keep scaling on our platform and never have a reason to leave.

Our unified gradient AI agency Cloud which is outlined on slide 7 of our investor presentation is getting increasing traction with larger well-funded AI native companies that are in inference mode.

These scaling companies increasingly leverage, our unified agentic cloud with many of our top customers already leveraging, both Ai and general, purpose, Cloud capabilities.

Let me now dive deeper into this fraction using slide 12, as the backdrop to illustrate just how much progress we have made.

And with many more having at least starting to test and experiment with AI on our platform.

Since the last earnings call.

Evidence of distraction is in the growth rates of our highest spending customers.

I will start with our AI infrastructure on the bottom right.

As a full stack inference platform targeting AI native customers that have their own models that they want to to optimize and run an infant smoke.

Revenue from these customers who are at $100,000 plus annual run rate. Grew 41% year-over-year, increasing to 26% of total revenue.

growth is even higher for our largest digital native Enterprise customers as the more

This customer selected our platform for a full set of capabilities.

Our customers are spending, the faster, they're growing on DL.

Where we combine a powerful lineup of GPU that are available at both bare metal and droplet configurations, including influence optimized droplets.

With advanced inference performance optimization.

The charts on slide 11 show that our customers with greater than 500,000 and greater than 1 million dollars. In annualized, 1 rate, grew Revenue, 55% and 72% respectively.

Like page retention slash attention.

Eight quantization speculative decoding model operations management reduce time for first token and compelling pcos and all of it.

Providing clear evidence that are increasing ability to not just attract but also retain and grow our largest customers demonstrating that customers can keep scaling on our platform and never have a reason to leave.

Our AI infrastructure provides comprehensive hardware plus software infrastructure for AI native companies that are scaling up real world inference workloads globally on deal.

Let me now dive deeper into this traction, using Slide 12 as the backdrop to illustrate just how much progress we have made.

Since the last earnings call.

F L dot AI or fall.

I will start with our AI infrastructure on the bottom, right?

Generative media model platform that provides text to image and text video models for major customers such as canvas Shopify perplexity and more is a great example of a customer that is taking advantage of our unified agent to cloud.

Which is a full stack inference platform targeting AI native customers that have their own models that they want to tune optimized and run in inference mode.

These customers select our platform for our full set of capabilities.

They leverage a range of our AI infrastructure solutions, including GPU droplet.

Both to host their media models in production, serving their end customers and to do research and fine tuning.

where we combine a powerful lineup of gpus that are available in both bare metal and droplet configurations, including inference optimized droplets,

Paul is more than just an important customer as we have come together in a strategic partnership to accelerate generative AI compensation by making image and audio generation more accessible to startups and enterprises.

With Advanced inference performance. Optimization like page retention flash attention fp8. Quantization speculative decoding model operations management reduce time for first token and compelling. TCO economics,

Through this partnership.

Paul will Holston Ron.

Hundreds of its bottles on digital oceans infrastructure powering applications across creative and enterprise use cases.

This means customers can create agents that understand and generate not only text, but also images data and other forms of input.

Significantly expanding the range of real world problems, our customers can solve.

New Sprague is another example of an AI native customer leveraging our unified it to the cloud.

Fali or fall a generative media model platform, that provides text to image and text to video models for major customers, such as canva. Shopify perplexity. And more is a great example of a customer that is taking advantage of our unified agent to Cloud.

Driving the next generation of digital media Newsbreak delivers timely and relevant local news and information to 40 million monthly active users.

They leverage a range of our AI infrastructure Solutions, including GPU droplets,

Both to host their medium models in production serving their end customers and to do research and fine-tuning.

Newsbreak AI powered infrastructure mix sophisticated personalization accessible to mainstream users nationwide.

You place, our AI infrastructure to train and deploy complex recommended system and natural language processing models that are foundational to their product.

Call is more than just an important customer as we have come together in a strategic partnership to accelerate generative, AI content creation by making image and audio generation more accessible to startups and Enterprises.

Through this partnership.

Call will host and run.

Our AI infrastructure high throughput and memory capacity are critical for running inference at scale, which allows them to perform real time content franking and AD placement for millions of concurrent users.

Hundreds of its models on digital ocean infrastructure. Powering applications across creative and Enterprise use cases.

Great into AI agency clouds, unifies, our integrated AI capabilities with our full stack general purpose cloud, which we have been optimizing for over a decade.

This means customers can create agents that understand and generate not only text, but also images data and other forms of input.

Significantly expanding the range of real world problems. Our customers can solve

Enabling new Sprague to pre process their work on our CPU droplets.

News. Break is another example of an AI native customer leveraging, our unified agency cloud.

And run their vectors third service in advance of running their AI workloads.

Optimizing both cost and performance.

Driving the next generation of digital, media news, break delivers timely and relevant, local news and information to 40 million, monthly active users.

Network file storage, our NFS, which delivers high throughput performance for both GPU and non GPU droplet.

News breaks AI powered infrastructure makes sophisticated personalization accessible to mainstream users Nationwide.

As an example of a unified AT&T cloud capability cusp.

Customers can now attach and provision storage in just minutes accelerating time to value by eliminating idle time.

They utilize our AI infrastructure to train and deploy complex recommender systems and natural language processing models that are foundational to their products.

With seamless integration into our kubernetes engine.

NFS makes it easier than ever to scale application and workload, while maintaining speed reliability and efficiency across environments.

Our AI infrastructure, high, throughput and memory capacity are critical for running inference at scale, which allows them to perform real-time content ranking and at placement for millions of concurrent users.

Moving up the stack outlined on slide seven.

The AI platform layer on the middle right. It's typically leveraged by companies that our users are consumers of that are looking to build agentic applications without having to directly manage the infrastructure.

Gradient AI agency Cloud. Unifies our integrated AI capabilities with our full stack general. Purpose Cloud, which we have been optimizing for over a decade.

Enabling news break to be processed their work on our CPU droplets.

As we know the future of AI is an agent and agent take workflows.

And run their Vector, search service in advance of running their AI workloads.

Which is a natural evolutionary step.

Optimizing both cost and performance.

For all staff and other applications.

We continue to evolve our AI platform as the foundation for building and deploying these intelligent agents and powering complex enterprise they didn't take workflows.

Network file storage or NFS, which delivers high throughput performance for both GPU and non GPU droplets.

Is an example of a unified, agentic Cloud capability.

It now supports flavorless inferencing across the most popular model.

Including open AI and profit Mitchell Lama deep seek and others.

Customers can now attach and provision storage in just minutes, accelerating time to value by eliminating idle time.

Including new generative media model from Paul.

We've added a powerful knowledge base service that lets customers bring their own data and improve accuracy.

With seamless integration into our kubernetes engine, NFS makes it easier than ever to scale applications and workloads, while maintaining speed reliability and efficiency across environments.

Moving up, the stack outlined in slide 7.

Along with built in guardrails for safety.

Visual agent orchestration and enterprise grade features like observe ability.

Get integration and auto scaling.

Together these capabilities make our great into AI agent to cloud platform one of the most intuitive and complete platforms for taking AI agents from prototype to production.

The AI platform layer on the middle, right? Is typically leveraged by companies that are users or consumers of AI that are looking to build agentic applications without having to directly manage the infrastructure.

As we know the future of AI is an agent, an agentic workflows

Which is a natural evolutionary step.

For all staff and other applications.

These key capabilities help companies develop and operate AI agent fleet and manage the full lifecycle of these agents seamlessly from a single platform, while leveraging the best of breed AI models from various providers.

We continue to evolve our AI platform as the foundation for building, and deploying these intelligent agents and powering complex, Enterprise agentic, workflows

It now supports serverless, inferencing across the most popular models.

We are particularly excited about a major customer we signed for our AI platform. After the Q3 quarter close.

Including open AI, anthropic Mistral llama, deep, sea, and others.

This customer is a global digital systems integrator, who signed an eight figure per year multi year contract to leverage our AT&T cloud to drive AI transformation.

Include including new generative media models from fall.

We've added a powerful knowledge Base Service, that lets customers bring their own data and improve accuracy.

For its digital native enterprise customer base with a specific focus on agent defying the full software engineering lifecycle.

Along with built-in guard. Rails for safety.

Visual agent. Orchestration and Enterprise grade features like observability.

Including planning backlog and roadmap management.

Get integration and autoscaling.

Released planning release execution and customer support.

I'll provide more information on this exciting customer after we formally announced the partnership in the upcoming days.

Together these capabilities make our gradient AI agent. A cloud platform, 1 of the most intuitive and complete platforms for taking AI Agents from prototype to production.

The AI platform layer continues to also gain broader momentum with over 19000 agents created so far.

It's more than 7000 are already in production.

One specific customer Shockers, Amber and Italian leader in GDP are compliant ethical and secure AI solutions across Europe.

Capabilities, help companies, develop and operate AI agent, Fleet, and manage their full life. Cycle of these agents seamlessly from a single platform while leveraging, the best of breed AI models from various providers.

Choose to leverage the great into AI agent to cloud over the Hyperscale as well.

We are particularly excited about a major customer. We signed for our AI platform after the Q3 quarter closed.

By using our platform. They are now able to create and rollout agents to automate customer support knowledge management and content creation, while reducing development time and costs associated with the agents lifecycle.

This customer is a global digital systems integrator, who signed an 8 figure per year. Multi-year contract to leverage our, agentic Cloud to drive AI transformations,

This quarter, we also expanded our AI ecosystem with the launch of the digital Ocean AI partner program.

For its digital native Enterprise customer base with a specific focus on identifying the full software engineering life cycle.

With several of our partners.

Including planning backlog and roadmap management.

Outlined on slide 13.

Release planning, release execution, and customer support.

This is a major step in empowering AI and digital native enterprises that are building and scaling their businesses leveraging AI.

We'll provide more information on this exciting customer after we formally announce the partnership in the upcoming days.

These companies don't have time for a fragmented infrastructure.

They instead water unified cloud and an AI platform that lets them seamlessly build and scale intelligent applications using agents.

The AI platform layer continues to also gain broader momentum with over 19,000 agents created so far.

Of which more than 7,000 are already in production.

This new partner program.

1 specific customer Chaka.

Brings together AI native companies.

Integrators and the venture ecosystem to help these builders leached reach more customers accelerate innovation and amplify their global reach.

An Italian leader in gdpr compliance, ethical and secure AI Solutions across Europe.

Chose to leverage the gradient AI agency Cloud over the hyperscalers.

Combined with our AI platform and infrastructure. This ecosystem makes digital ocean. The go to destination for these AI native businesses, who want simplicity.

By using our platform. They're now able to create and roll out agents to automate customer support Knowledge Management and content creation. While reducing development time and cost associated with the agent life cycle.

All ability and reach without the Hyperscale complexity.

In Q3, we continued to deliver product innovation in our core cloud stack.

This quarter, we also expanded our AI ecosystem with the launch of the digital ocean AI partner program.

With several of our partners.

To support our highest spending customers by meeting their needs as they scale their business on deal.

Outlined on slide 13.

One such example of a digital native enterprise customers scaling rapidly on deal is bright data.

This is a major step in empowering AI and digital-native enterprises that are building and scaling their businesses leveraging AI.

These companies don't have time for a fragmented infrastructure.

A leading provider of data sets to global frontier LLM labs for training AI models.

They instead want a unified cloud and an AI platform that lets them seamlessly build and scale, intelligent applications using agents.

Bright data leverages various components of our agent to cloud to scale high volume global workloads on our platform.

This new partner program.

Brings together AI native companies.

VPN Super who develops.

<unk> VPN and security solutions.

Is the most downloaded VPN app in the World is another digital native enterprise drawing on our platform.

Integrator and the Venture ecosystem to help these Builders reach reach, more customers accelerate Innovation and amplify their Global reach.

Vpns Hooper empower millions of users across the globe to browse securely and privately regardless of their location.

They signed a seven figure deal to migrate multiple workloads to the solution and they selected deal.

Combined with our AI platform and infrastructure. This ecosystem makes digital ocean. The go-to destination for these AI native businesses who want Simplicity scalability and reach without the hyperscale complexity.

For our ability to handle large traffic spikes.

Platform reliability and our global scale.

in Q3, we continue to deliver product innovation in our 4 Cloud Stacks to support our highest spending customers by meeting their needs, as they scale their business on go

This growing customer require general purpose cloud capabilities that drove it their business.

And we delivered a number of these new features during the quarter as you can see highlighted on slide 12 of our earnings presentation.

1. An example of a digital native enterprise customer scaling rapidly on our platform is Bright Data.

For example, we recently introduced basis cold storage.

The leading provider of web data sets to Global Frontier llm labs for training, AI models.

And enterprise grade object storage solution designed for customers managing data at massive scale.

Write data leverages various components of our agentic Cloud to scale, high volume Global workloads on our platform.

With support for hundreds of Petabytes in billions of objects per bucket.

VPN super, Who develops?

Trusted VPN and Security Solutions.

It offers free retrieval predictable low cost and immediate access to data eliminating the tradeoff between affordability and performance.

Is the most downloaded VPN app in the world, is another digital native Enterprise growing on our platform.

This cold storage, a secure reliable and resilient, providing our customers with the confidence to store and access mission critical dataset seamlessly.

VPN Super empowers. Millions of users across the globe to browse securely and privately regardless of their location.

They signed a 7-figure d to migrate multiple workloads to digital ocean and they selected do.

As their needs grow.

During the quarter, we also enhanced our managed database offerings with automated storage auto scaling enabling customers to scale seamlessly as their data needs grow.

For our ability to handle large traffic Stripes platform. Reliability in our global scale.

These growing customers require general purpose. Cloud capabilities. That drove with their business.

When capacity thresholds reached storage automatically Gail in 10 gigabyte increments are higher.

And we delivered a number of these new features during the quarter, as you can see, highlighted on slide, 12 of our earnings presentation.

With zero downtime and no disruption to workloads.

This feature.

For example, we recently introduced spaces Cold Storage.

Is available across all major database engine, including Mongo DB Postscript sequel, My sequel.

An Enterprise grade object storage solution designed for customers managing data at massive scale.

And is fully customizable.

Allowing customers to set thresholds starting at 20% utilization.

With support, for hundreds of terabytes, and billions of objects per bucket.

But the simple pay as you go model auto scaling eliminates the burden of manual intervention.

Ensuring that application ale reliably and cost effectively.

The steady stream of new features is resonating with our AI and digital native enterprise customers.

This call storage is secure reliable and resilient providing our customers with the confidence to store and access Mission critical data sets seamlessly as their needs grow.

Over 35% of our customers with more than 100000 and they are adopted at least one of our new features released over the past year and those customers having adopted at least one of these new products have seen a several hundred basis points increase in their growth rates after adopting the new product.

During the quarter, we also enhanced, our managed databases offering with automated storage, autoscaling enabling customers to scale seamlessly as their data needs grow.

Our strong performance.

When capacity thresholds, are reached storage automatically scales in 10 gigabytes increments are higher with zero downtime and no disruption to workloads.

This feature.

Our growing momentum through the fourth quarter and.

And the visibility that we now have into demand gives us the confidence to raise our near and medium term growth outlook.

Is available across all major database engines, including mongodb postcrete. SQL MySQL

And is fully customizable.

We are raising our full year 2025 guidance on both revenue and margin.

Allowing customers to set thresholds. Starting at 20% utilization.

And we now expect to achieve our 18% to 20% 2027 revenue growth targets in 2020.

With a simple pay. As you go model, autoscaling eliminates the burden of manual intervention.

Full year earlier than we had projected.

Ensuring that applications scale. Reliably and cost-effectively

It has also given us the confidence to accelerate our investments to drive growth in 2026 and beyond.

The steady stream of new features is resonating with our Ai and digital native Enterprise customers.

When we outline our 2027 growth objective. This past April we indicated that we would increase our investment as we saw opportunities to accelerate our growth.

We are now seeing more demand than we can support with our existing capacity, which is evidenced by us having signed multiple eight figure committed contracts after the quarter ended.

Over 35% of our customers. With more than 100,000 in ARR. Have adopted at least 1 of our new features, released over the past year and those customers having adopted, at least 1 of these new products have seen a several hundred basis points increased in their growth rates after adopting the new product,

That will materially increase our <unk> in Q4.

Our strong performance.

With this increased conviction we began to.

Our growing momentum through the first 3 quarter.

Put the foundational elements in place in Q3.

To even further accelerate our growth.

And the visibility that we now have into demand, gives us the confidence to raise our near and medium-term growth Outlook.

We started ordering more GPU capacity to meet the growing influence demand we are seeing from our AI native customers.

We are raising our fully year, 2025 guidance on both revenue and margin.

Also secured around 30 megawatts of incremental data center capacity to support growth in 2026 and beyond.

And we now expect to achieve our 18% to 20% 2027 revenue growth targets in 2026.

We added equipment financing to better align our investments with revenue.

A full year earlier than we had projected.

We ramped engineering resources to accelerate our unified agent to cloud roadmap and continued our targeted investment in new sales and marketing initiatives to complement our industry, leading product led growth engine.

It has also given us the confidence to accelerate our investments to drive growth in 2026 and Beyond.

These investments will build on the success, we have seen to date and will set us up for a strong 2026 and 2027.

When we outline our 2027 growth objectives. This past April, we indicated that we would increase our investments as we saw opportunities to accelerate our growth

Our Q4, and 2025 full year guidance implies a 16% exit 2025 growth rate.

We are now seeing more demand than we can support with our existing capacity, which is evident by us having signed multiple eight-figure committed contracts after the quarter ended.

And while we won't provide 2020 guidance until our February earnings call. We.

that will materially increase our RPO and Q4

We expect to comfortably deliver 18% to 20% growth in 2026 achieve.

with this increase conviction. We began to

Put the foundational elements in place in Q3.

Achieving our 2027 growth target a full year earlier than previously projected.

To even further accelerate our growth.

We will deliver this growth while maintaining strong adjusted free cash flow margins in the mid to high teens.

We started ordering more GPU capacity, to meet the growing inference demand. We are seeing from our AI native customers.

Matt will provide further color on these investments.

We also secured around, 30 megawatts of incremental Data Center capacity to support growth in 2026 and Beyond.

And the projected impact on our growth and profitability in his remarks.

We added equipment financing to better align our investments with Revenue.

As I said in my opening.

We delivered strong performance in Q3, beating our guidance on both revenue and profitability.

We're seeing momentum with our unified agent to cloud.

We ran the engineering resources to accelerate our unified, agentic Cloud, road map and continued or targeted investment in new sales and marketing. Initiatives to complement, our industry-leading product LED growth engine.

And this momentum is evident that the rapid growth of our highest spending customers.

And demand is exceeding our current capacity.

These investments will build on the success we have seen today and will set us up for a strong 2026 and 2027.

All of this gives us the conviction both to raise our 2025 and 2026 revenue and adjusted free cash flow outlook.

Our Q4 and 2025 full year, guidance implies a 16% exit, 2025 growth rate.

And while we won't provide 2026 guidance until our February earnings call.

And to increase our investments to take advantage of the opportunity in front of us.

We look forward to sharing more on our progress and our outlook for 2026 over the upcoming months.

We expect a comfortably deliver, 18 to 20% growth in 2026.

Achieving or 2027 growth Target a full year earlier than previously projected.

Thank you and I'll now turn it over to Matt.

Thanks, Patty and good morning, everyone and thanks for joining us today.

We will deliver this growth while maintaining strong adjusted free cash flow margins in the mid to high teens.

As Tony discussed we are excited about our strong Q3 2025 performance.

Matt will provide further color on these Investments.

We are gaining traction with our unified agenda cloud, which is resulting in strong revenue growth from our highest spending customers and we're seeing more demand satisfied with their current capacity.

And the projected impact on our growth and profitability in his remarks.

As I said in my opening,

This momentum and visibility it gives us conviction both to increase our 2025 and 26 revenue and adjusted free cash flow elements.

we delivered strong performance in Q3 beating our guidance on both revenue and profitability.

We are seeing momentum with our unified agency cloud.

And to put in place the foundation to further accelerate growth in 2026 and beyond.

And this momentum is evident in the rapid growth of our highest spending customers.

In my comments I'll walk through our Q3 results in detail.

And demand is exceeding our current capacity.

Our fourth quarter and updated full year financial outlook.

And also provide an update on our 2026 expectations.

Starting with the top line revenue in the third quarter was $230 million up 16% year over year.

And to increase our investments to take advantage of the opportunity in front of us.

The highest revenue growth since Q3 of 2023.

This growth was balanced across our unified agenda cloud and was primarily driven by increasing traction with our higher spending.

We look forward to sharing more on our progress, and our outlook for 2026 over the upcoming months.

Thank you and I'll now turn it over to Matt.

Native enterprise customers.

With steady contributions from our product like brokerage.

Thanks Patty. Good morning everyone and thanks for joining us today.

We continued to see strong AI ml revenue growth in Q3, with AI revenue more than doubling year over year, which it has done every quarter since we launched our AI platform.

It's Patty discuss. We are excited about our strong Q3 2025 performance.

We are gaining traction with our unified agentic Cloud, which is resulting in strong revenue growth from our highest spending customers.

We also delivered the highest incremental organic ADR.

And we are seeing more demand and satisfied with our current capacity.

Any history at $44 million.

Bringing <unk> to $919 million.

With rapid product innovation across our unified agenda cloud platform and with the strategic go to market investments. We made earlier. This year are proving to be effective we're having increasing success, attracting and growing larger well funded.

This momentum and visibility give us conviction, both to increase our 2025 and 2026 revenue and adjusted free cash flow elements.

And to put in place the foundations to further accelerate growth in 2026 and Beyond.

And my comments, I'll walk through our Q3 results in detail.

Share our fourth quarter and updated full year Financial Outlook.

And digital customers.

This is evident in the revenue from our customers, whose annualized run rate revenue in the quarter was greater than $100000, which now.

And also provide an updated on our 2026 expectations.

Presents 26% of overall revenue growing 41% year over year 200 basis points higher than the growth, we saw from that cohort and the prior year.

Starting with the top line revenue. In the third quarter was 230 million up 16% year-over-year. The highest revenue growth since Q3 of 2023.

Adding to this growth revenue from general purpose cloud customers in their first 12 months on our platform continues to be strong.

This growth was balanced across our unified, agentic, cloud and was primarily driven by increasing fraction with our higher spending AI digital native Enterprise customers.

And we have stabilized into Europe as net dollar retention remained at 99% in the quarter up 200 basis points from 97% in the third quarter of 2024.

With steady contributions from our product. LED growth mention.

Turning to the P&L, while we accelerated revenue. We also delivered strong performance on all of our key profitability measures.

We continued to see strong AIML Revenue growth in Q3 with AI Revenue, more than doubling year-over-year which it is done every quarter. Since we launched our AI platform,

We also delivered, the highest incremental organic are and Company history at 44 million.

Gross profit was $137 million up 17% year over year with a 60% gross margin for the third quarter.

Bringing ARR to 9919 million.

100 basis points higher than the prior year.

Adjusted EBITDA was $100 million, a 15% increase year over year, and an adjusted EBITDA margin of 43%.

With rapid product Innovation across our unified, agentic Cloud platform. And with the Strategic, go to market Investments, we made earlier this year, proving to be effective, we are having increasing success, attracting and growing larger, well-funded, Ai and digital customers.

non-GAAP diluted net income per share was <unk> 54.

A 4% increase year over year.

This result was impacted by the $625 million convertible note we issued in August the repurchase of $1. One 9 billion of our 2026 notes.

This is evident in the revenue from our customers whose annualized run rate, revenue and quarter was greater than $100,000. Which now represents 26% of overall Revenue, growing 41%, year-over-year 200 basis points higher than the growth. We saw from that cohort in the prior year.

And the interest expense from the $380 million drawn on the term loan a component of our existing credit facility.

The net impact on non-GAAP net income per share of these balance sheet activities was a reduction of <unk> in Q3.

Adding to this growth, revenue from general purpose cloud customers, and their first 12 months on our platform, continues to be strong.

And excluding these charges non-GAAP diluted net income per share would have been 59 cents.

and we have stabilized ndr as net, dollar, retention remained at 99% in the quarter up, 200 basis points from 97% in the third quarter of 2024,

GAAP diluted net income per share was $1 51.

358% increase year over year.

Turning to the p&l while we accelerated Revenue, we also delivered strong performance on all of our key profitability measures.

This increase is primarily driven by the one time reversal of our tax valuation allowance and gain on debt extinguishment, which is slightly offset by the impact of our new Dutch.

Gross profit was $137 million, up 17% year-over-year, with a 60% gross margin for the third quarter.

100 basis points higher than the prior year.

Q3, adjusted free cash flow was $85 million or.

For 37% of revenue, which is up significantly from the prior year's $19 million or 10% of revenue.

Adjusted. Even though it was 100 million dollars, a 15% increase year-over-year and an adjusted ebita margin of 43%.

And on a trailing 12 month basis was 21% of revenue.

Non-gaap diluted, net income per share was 54, cents a 4% increase year-over-year.

This increase was driven in part by the equipment financing in Q3.

During the quarter, we entered into an equipment financing arrangements with third party financial institution for $28 million to better align our investments with the future revenue that they will generate.

Absent the leasing of this equipment, our adjusted free cash flow would have been 25% of revenue in Q3.

Is impacted by the 6255 million convertible notes. We issued in August the repurchase of 1.19 billion of our 2026 notes and the interest expense from the 380 million drawn on the terminal and a component of our existing credit facility.

Turning to the balance sheet, we strengthened our balance sheet by repurchasing approximately 80% of our 2026 convertible notes through a combination of the issuance of a new $625 million 2020, 2030 convertible note off.

The net impact on non-gaap, net income per share of these balance sheet activities was a reduction of 5 cents in Q3.

And excluding these charges non-gaap diluted. Net income per share. Would have been 59 cents.

The 380 million draw on the term loan component of our existing credit facility and approximately $230 million of cash.

Gap diluted. Net income per share. Was a151 a 358% increase year-over-year.

Following these actions our cash and cash equivalents balance remains healthy at $237 million.

Is primarily driven by the 1 time reversal of our tax valuation allowance and gain on a debt extinguishment which is slightly offset by the impact of our new debt structure.

The combination of cash on hand.

<unk> terminal capacity and projected cash flow generation is collectively more than the remaining balance of our outstanding 2026 convertible notes.

Q3 adjusted free cash flow was 85 million or 37% of Revenue which is up significantly from the prior Year's 19 million or 10% abroad.

And on a trailing 12-month basis, was 21% of Revenue.

We repurchased $2 $9 million of shares in Q3.

This increase was driven in part by the equipment financing in Q3.

Going back approximately 101000 shares.

Our cumulative share repurchase since IPO to $1 6 billion and $34 9 million shares through September 30 of 2025.

during the quarter, we entered into an equipment financing arrangement with the third-party financial institution for 28 million to better, align our investments with the future Revenue that they will generate

These Q3 repurchases completed our 2020 for buyback program and we will operate our repurchase program through July 31, 2027 under the new 100 million authorization, we announced during the quarter.

Absent. The leasing of this equipment is adjusted free; cash flow would have been 25% of revenue in Q3.

During the quarter, we repurchased a portion of our zero percent coupon 2026 convertible notes.

according to the balance sheet, we strengthened our balance sheet by repurchasing Approximately. 80% of our 2026. Convertible notes through a combination of the issuance of a new 625 million 20202030 convertible note off.

Heart with an interest bearing term loan a as initially at <unk>, plus 175 basis points roughly six 1%.

Existing credit facility and approximately 230 million cash.

As a result, we now project to have modest interest expense in the near to medium term where interest expense was previously immaterial.

Given this we have added a new disclosure metrics for Unlevered adjusted free cash flow.

We will provide in addition to the current adjusted free cash flow metric, which has delivered adjusted free cash.

Following these actions are cash and cash equivalents balance, remained, healthy at 237 million, and the combination of cash on hand remaining terminal on a capacity and projected cash. Flow. Generation is collectively more than the remaining balance of our outstanding 2026 convertible notes.

We believe that Unlevered adjusted free cash flow is an important metric.

We repurchased 2.9 Million of shares, in Q3 buying back approximately 101,000 shares.

It provides a clearer view of our cash generation before the impact of financing system and many investors and analysts use this unlevered adjusted free cash flow as the basis for their enterprise value calculation.

bringing our cumulative share repurchases since IPO to 1.6 billion and 34.9 million shares through September 30th of 2025

Our Q3, Unlevered adjusted free cash flow was $85 million.

35, 37% of growth.

The strong demand, we've seen across our unified agenda cloud and the traction we're seeing with our higher spending AI and digital native enterprise.

These q3b purchases completed. Our 2024 buyback program and we will operate our repurchase program through July. 31st 2027 under the new 100 million authorization. We announced during the quarter.

Coupled with the increased visibility we have from having signed multiple eight figure committed contracts after Q3 closed.

Gives us the confidence to raise our outlook on both revenue and adjusted free cash flow margin for both 2025 and 26.

During the quarter. We repurchased a portion of our 0% coupon 2026 convertible notes in part with an interest-bearing Term Loan. A that is initially at. So, for plus, 175 basis points for roughly 6.1%,

For the fourth quarter of 2025, we expect revenue to be in the range of $237 million to $238 million.

As a result. We now project to have moderate interest expense in the near to medium term where interest expense was previously in material

Which is approximately 16% year over year growth.

For the full year 2025, we project revenue of $896 million to $897 million representing.

Given this we have added a new disclosure metric for unlevered adjusted free, cash flow, which we will provide in addition to the current adjusted free cash flow metric, which is a levered adjusted free cash.

Representing approximately 15% year over year growth and incremental 100 basis points higher than our prior guidance.

For the fourth quarter of 2025, we expect our adjusted EBITDA margins to be in the range of $38 five to 39, 5% with an adjusted EBITDA margin of approximately 41% for the full year.

We believe that unlevered adjusted free cash flow is an important measure as it provides a clear view of our cash generation before the impact of financing decisions. And many investors and analysts use this unlevered adjusted free cash flow as the basis for their Enterprise Value calculation.

Our Q3 unlevered adjusted free. Cash flow was 855 million or 35% 37% of Revenue.

For the fourth quarter of 2025, we expect non-GAAP diluted earnings per share to be 35 to 40.

The strong demand we've seen across our unified agentic cloud and the traction we are seeing with our higher spending Ai and digital native Enterprises.

Just on approximately $111 million to $112 million and weighted average fully diluted shares outstanding.

Coupled with the increase in visibility, we have from having signed multiple 8, figure committed contracts after Q3 flows.

For the full year 2025, we expect non-GAAP diluted earnings per share to be $2 to $2 five based on approximately $106 million to $107 million and weighted average fully diluted shares outstanding.

Gives us the competence to raise our outlook on both revenue and adjusted free. Cash flow, margins for both 2025 and 2026.

Q4, and full year non-GAAP diluted earnings per share guidance includes a projected impact of a range of about five to 10 cents reduction in Q4.

For the fourth quarter of 2025, we expect Revenue to be in the range of 237 to 238 million.

Which is approximately 16% year-over-year growth?

15% to 20 reduction for the full year from the net impact of our Q3 refinancing actions.

We project, our full year adjusted free cash flow margin of 18% to 19%.

For the full year. 2025, we project revenue of 896 to 897 million representing, approximately 15% year-over-year growth in incremental 100 basis points higher than our prior guy.

Looking further ahead I would also like to provide a brief update on our 2026 of them.

While we will provide more fulsome details on 2026 expectations during our earnings call in February.

For the fourth quarter of 2025, we expect our adjusted Evita margins be in the range of 38.5 to 39.5% with an adjusted ebita margin of approximately 41% for the full year.

We have already begun to put the foundations in place to further accelerate growth.

Given our momentum and the increased visibility into demand on the back of several recent customer wins, we have committed investment in additional data centers and GPU capacity that will come online over the course of 'twenty six that will accelerate growth ahead of our previously communicated time.

For the fourth quarter of 2025, we expect non-gaap diluted earnings per share to be 35 to 40 cents based on approximately 111 to 112 million. In weighted, average fully diluted shares outstanding.

We have signed leases for approximately 30 megawatts of incremental data center capacity across several new data centers that will commence over the course of 2026.

For the full year. 2025, we expect non-gaap diluted earnings per share to be 2 dollars to $2.05 based on approximately 106 to 107 million and weighted average fully diluted shares outstanding

These new data centers and our corresponding investments in incremental GPU capacity will enable us to comfortably deliver 18% to 20% growth in 2020 sets achieving our 27 revenue growth targets a full year earlier than we had projected.

The Q4 and full year non-gaap diluted earnings per share guidance. Includes the projected impact of a range of about 5 to 10 cents, reduction in Q4 and about 15 to 20% reduction, for the full year, from the net impact of our Q3 refinancing actions.

And while our Cogs and operating expenses will increase in early 2026, as we ramp into our new data center capacity, we anticipate delivering high 30% to 40% adjusted EBITDA margins, while maintaining mid to high teens adjusted free cash flow.

We project a full year, adjusted free cash flow margin of 18 to 19%.

Looking further ahead, I would also like to provide a brief update on our 2026 Outlook.

We also remain committed to maintaining a healthy balance sheet and we anticipate that our net leverage will end 2026 in the mid threes range, including the impact on net debt from any incremental lease up.

While we will provide more wholesome details on 2026 expectations during our earnings. Call February, we have already begun to put the foundations in place to further accelerate growth.

We look forward to sharing more on the traction we're getting with our unified agenda cloud the growth, we're seeing from our highest spending customers. The investments we are making to further accelerate growth and our outlook for 2026 and beyond when we get together again in February.

Given our momentum and the increase visibility into Demand on the back of several recent customer wins. We have to commit and investment in additional data centers and GPU capacity that will come online over the course of 2026, that will accelerate growth ahead of our previously communicated timeline.

That concludes our prepared remarks, and we will now open the call for Q&A.

We have signed leases for approximately 30 megawatts of incremental Data Center capacity. Across several new data centers that will commence over the course of 2026.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we ask that you limit to one question due to time restrictions, we will pause for just a moment to compile the Q&A roster.

These new data centers and our corresponding investments in incremental, GPU capacity, will enable us to comfortably deliver 18 to 20% growth in 2026, achieving our 2027 Revenue growth targets a full year earlier than we had projected

Your first question comes from the line of gambling yellow box with Goldman Sachs.

Expenses will increase in early 2026 as we ramp into our new Data Center capacity. We anticipate delivering high 30s to 40% adjusted. Eva margins while maintaining mid to high teams adjusted free cash flow.

Hey, good morning, and thank you for taking my question and congratulations on a really exciting 2026 preliminary preliminary forecast.

Hey, Matt.

He about multiple eight figure committed contracts that you're talking about tell us a little bit about the cohort of customers to what extent, there's an overlap with some of the AI revenue that you're talking about and I know you've been working with the private equity community as well and talk about my question. So maybe just a little bit about the type of customer that's frightening.

We also remain committed to maintaining a healthy balance sheet and we anticipate that our net leverage will end 2026 in the mid-30s range including the impact on net. Debt from any incremental, Lisa.

We look forward to sharing more on the traction. We are getting with our unified agentic Cloud. The growth we are seeing from our highest spending customers the Investments. We are making to further accelerate growth, and our outlook, for 2026, and Beyond when we get together again in February,

Set of contract and the extent to which I know in the past the AI. So far has been much more fluky ex ability to ramp up and down in some kind of an intersection between extra Clark. Thank you.

That concludes our prepared remarks and we will now open the call to Q&A.

Yes, Thank you Gabriella.

Great question.

So the the <unk>.

Figure commitment contracts that we just talked about come in different different forms.

At this time, I would like to remind everyone in order to ask a question. Press star, then the number 1 on your telephone keypad, we ask that you limit to 1 question due to time. Restrictions will pause for just a moment. To compile the Q&A roster.

Primarily these are AI native companies that are looking to take advantage of our infrastructure as.

Your first question comes from the line of Gabriella boohers with Goldman Sachs.

The other.

Customer that I was just talking about offer our AI platform looking too.

Build a series of agent take experiences for our software engineering.

Taking advantage of a gradient AI platform layer.

It's a combination of all of these and as I was explaining in my prepared remarks it is increasingly.

Getting difficult to this.

Just separate out.

Their AI starts and stops and where core cloud again, because most of the customers.

That are starting their experience with the solution from the AISI are increasingly using ours.

Hey, good morning, thank you for clicking the question and congratulations on a really exciting 2026 preliminary. Preliminary forecasts, um Patty and Matt, I want to ask you about the multiple 8, figure committed contracts that you're talking about. Tell us a little bit about this cohort of customers to what extent does it overlap with some of the AI Revenue that you're talking about? Um I know you've been working with the private Equity Community as well. You've talked about migration, so maybe just a little bit about the type of customer, that's signing the 8, figure contract and the extent to which I know in the past the AI cohort has been much more flaky in its ability to ramp up and down. And so I'm trying to understand the intersection between those 2 co-ops. Thank you.

Yeah, thank you Gabriella. Um, great question.

Various storage artifact.

Network file system.

System are.

<unk>.

<unk>.

The BPC capabilities are.

And number of the networking capabilities and things like that.

So the crossover is becoming more and more between the AI side of our platform and cloud. So that's why we're now starting to see a more unified cloud platform from us, which we are calling us the agent to cloud so a lot of these.

So the, uh, the 8 figure commitment contracts that we just talked about, um, come in different, different forms. Uh, primarily these are AI, uh, Native companies that are looking to take advantage of, uh, of our infrastructure as well as, uh, the other, um, uh, customer that I was just talking about, uh, for our AI platform, uh, looking to, uh, build a series of uh, agentic experiences for software engineering. Um,

Commitments and contracts that we are starting to take on now typically start with AI, but also spillover to our AI cloud side as well. So what is exciting for US is that some of these customers start their journey with deal using a fairly small proof of concept type of foot.

Sprint and now they're starting to scale and this is also one of the many reasons why.

We are <unk>.

Expanding our datacenter footprint, so that we can keep scaling with these customers and the other attribute I wanted to call out here is that these AI workloads are predominantly influencing if not all on the inferencing side. So it is durable it is predictable and we.

You also have a great opportunity to keep scaling with these customers as they find real world faction and scaled globally. So that's why it's really important for us to start looking at our capacity as we place bets on some of these.

Taking advantage of our gradient. AI platform layer. So it's a combination of all of these. And as I was, um, explaining in my prepared remarks, it is increasingly, um, getting difficult to, um, just separate out, um, where AI starts and stops and where, for cloud begins, because most of the customers, um, that are starting their experience with, uh, digital ocean from the AI side areas using or, um, various uh, storage artifacts like, uh, network files, uh, system or, um, uh the uh, the VPC capabilities or um, um, n number of, uh, the networking, uh, capabilities and things like that. Um, so the crossover is becoming, uh, more and more between the AI side of our plat platform and Cloud. So that's why we're now starting to see a more

Real marquee AI native companies that are finding traction with real end customers both on the consumer side as well as on the enterprise side.

Your next question comes from the line of Ratty Sultan with UBS.

Awesome guys. Thanks for taking my question guys and yeah. Good to see the platform traction coming in ahead of schedule I guess.

More unified Cloud platform from us, uh, which we are calling as the agent to Cloud. So, uh, a lot of these, um, commitments and contracts that we are starting to take on now, um, typically start with AI, but, um, also, spill over to our AI, uh, Cloud side as well. So, what is exciting for us, is that, um, some of these customers, um, start their Journey with go, um, using a fairly small, uh, proof of concept type of footprint, and now they're starting to scale.

For me, just AWS and Azure, both had some pretty high profile outages recently and just curious like is that having any near term impact are catalyzing more migrations from the Hyperscale orders and is that driving more tracks for partner network can act or some of the other multi cloud offerings and then just curious how many of those eight figure deals were migrations from the Hyperscale.

Thank you.

Yes. Thank you were ready for the question.

We've been seeing a steady increase in migration workloads since they've made it into an explicit go to market motion.

And as you know migration of <unk>.

Sophisticated workloads, it's always a combination of factors, but I would tell them all we see a disruption from a cloud provider and they're just going to move a fairly sophisticated global workload.

Are Finding Traction with real, uh, end customers both on the consumer side as well as on the Enterprise side.

But it is a combination of factors some are driven by dissatisfaction with an incumbent but mostly it is driven by something they find attractive in the new cloud provider like <unk> solution. So as we have started building out our cloud capabilities, especially the ones that I described in slide 12 of our deck.

Your next question comes from the line of Ratty sultan with UBS.

Like more advanced networking various flavors of our droplet configuration or storage like cold storage is a really really important capability that many of our.

Large customers, but sophisticated workloads have been asking us for the auto scaling of our DFAST I mean these are all very fundamentally building.

Awesome. Yeah, thanks for taking the question, guys. And yeah, good to see the platform traction uh coming in ahead of schedule, I guess. Um, you know for me just uh, AWS. And Azure both have some pretty high profile outage as recently and just curious like, is that having any near-term impact or catalyzing more migrations from the hyperscalers? You know, as I draw more tracks for partner Network, connect or some of your other multi Cloud offerings and then just curious, you know, how many of those 8 figure deals were migrations from the hyperscalers? Thank you.

Building block type of capabilities for attracting more migration workloads not to mention some of the stuff. We did in the last couple of quarters like virtual private cloud and direct connect and things like that so even though a single incident doesn't necessarily precipitate major shifts and workloads. These are all paper cuts.

And us having these other.

Digital native enterprise ready capabilities, just makes us all the more attractive to us.

The incoming migration.

And the AI native workloads typically are new workloads that are starting on our platform, but many of the workloads that we're seeing that I talked about.

Yeah, thank you. Ready for the question. So, uh, we've been seeing a steady increase in migration workloads, um, since we made it into an explicit, go to market motion. And, uh, as you know, migrations of, um, sophisticated workloads is always a combination of factors, right? It's seldom. Oh, we see A disruption, um, from a cloud provider. And we're just going to move a fairly sophisticated Global workload, uh, but it is a combination of factors. Some are driven by dissatisfaction with an incumbent, but mostly it is driven by something. They find attractive in a new cloud provider like this solution. So as we have started building out, our Cloud capabilities, especially the ones that I, uh, described in slide 12 of Our Deck.

During my prepared remarks on the.

<unk> cloud.

Our migration coming from various other hyperscale or cloud.

Your next question comes in line of Josh <unk> with Morgan Stanley.

Great. Thanks for the question and congrats on the acceleration I wanted to follow up on the <unk>.

Figure contracts signed after quarter close if im wondering do you have capacity to serve some of those in the coming weeks or is that all really what the 30 megawatts of new data center capacity is.

Is geared toward and then hoping to get a little sense of like the ramp in that capacity.

Yes.

Basically any context for the go live times for these big contracts and like how to think about the shape of 2026.

Um, like more advanced networking various flavors of our droplet configurations or, um, storage. Like cold storage. Is a really, really important, uh, capability that many of our um, large customers with sophisticated workloads have been asking us for uh, the autoscaling of our dbas. I mean, these are all very fundamentally um building block type of uh capabilities for uh attracting more. Migration workloads, not to mention some of the stuff we did in the last couple of quarters, like virtual, private cloud, and direct connect, and things like that. So even though a single incident doesn't, uh, necessarily precipitate major shifts in workloads, these are all paper cuts and us having these other, um, digital native Enterprise ready, capabilities just makes us, uh, all the more attractive to, uh, um, to incoming migration and, um, the AI native workloads typically are new workloads that are starting on our

Yeah.

So I'll I'll get started math and then you can chime in so.

From from.

The ramp up perspective, some of these customers are already doing business with us and as as we think about the capacity. There is some capacity we are bringing online anr.

Platform. But many of the workloads that we are seeing, uh, that I talked about, um, during my prepared remarks on the um Cloud, or migration coming from various other hyperscaler clouds.

In our existing data centers, and then of course, a lot of the the visibility that we now have with these customers and their infant scale up is the reason why we have taken up expanded data center capacity.

Your next question. Constantly, line of Josh Brier with Morgan Stanley.

And these data centers will come online progressively through 2026 right. So we do have a build schedule from these providers and they've worked very very closely with them to make sure that we get the warm shell and then we move in and we start.

Racking arm servers, and Theres a lot a lot of moving parts in terms of bringing that capacity online, but we don't have to wait for this new capacity to start lighting up these workloads.

Great. Thanks for the question, and congrats on the acceleration. I wanted to follow up on the, uh, 8 figure contracts, signed after quarter close, guess I'm wondering. Do, do you have capacity to serve some of those in the coming weeks? Or is that all really what the, the 30 megawatts of new data? Center capacity is um, is geared toward, and then hoping to get a little sense of like the ramp in that capacity. Um,

Basically, any context for the go live times for these big contracts and like, how to think about the shape of 2026.

Yeah. Um,

As I said, we do have some capacity in our existing data center. So it is the combination of these things you're absolutely right that this visibility into the influence adoption of our AI native customers is the reason why we are expanding our data center footprint.

I'll just add that.

Most of the capacity is going to come out come online in the first half of next year in fact, youll see in our fourth quarter.

Financials and this is included in the guidance for the adjusted free cash flow. We have for 2025 that we're gonna be paying some of the nrc's for some of these build outs.

Uh, so I'll, I'll get started, Matt, and then you can chime in so, um, from uh, from uh, the ramp up perspective, some of these customers are already doing business with us. And as, as we think about the capacity, there's some capacity. We are bringing online, um, uh, in our existing data centers and then, uh, of course, a lot of the, the visibility that we now have with these customers and their inference scale up is the reason why we have, uh, taken up expanded data center capacities. And these data centers will come online progressively through 2020,

In the fourth quarter and so we expect that the capacity will become online in the months and quarters. Following that so it'll it'll be in early <unk>.

Ramp of the datacenter capacity, but then clearly you have incremental time to deploy.

Deploy the gpus into the customers to ramp so we expect the revenue ramp to be to be relatively smooth over the course of the year, but we'll be bringing on a fair bit of capacity in the first half.

Your next question comes from the line of Kingsley Crane with Canaccord Genuity.

Hi, Thanks for taking my question I want to Echo My Congrats insurance credit.

Gratifying for the team.

With a larger peer new Cogs here has acquired a handful of paths capabilities over the past six months, including more recently in Python notebook I think.

Reinforcement learning for agents, what's your take on that could you just give credence to your strategy and how do you see competition evolving as you continue to cater towards customers up market.

Yeah. Thanks, Lee Thank you for the question.

So we our approach.

When we laid out our strategy in April.

We start our strategy with.

With a deep understanding of who our customers are and what it would take for us to serve them well.

And of course that understanding has deepened over the last six months as we have started working very very closely with these customers in terms of the Python notebook.

Expanding our data center footprint. Yeah and I I'll just add that. Um most of the capacity is going to come out come online and and pull it the first half of next year. Um, in fact, you'll see in our fourth quarter, um, uh financials. And this is included in the guidance, uh, for the adjusted free cash flow. We have for 2025 that we're going to be paying some of the nrc's for some of these buildout um, in in the fourth quarter. And so we expect that that uh the capacity will become online, you know, in the in the months and quarters uh following that. So it'll it'll be an early um, ramp of the data center capacity but then clearly, you have incremental time to uh, to deploy the gpus and for the customers to wrap. So we expect the revenue ramp, to be to, to be relatively smooth, over the the course of the, um, the year, but we'll be bringing on a fair bit of, um, of capacity in the first half.

This has been a capability that would be a path for a for a couple of years now and some of the storage enhancements that we are seeing in the market is also something that has been long as part of our very rich and deep software stack. So if you take a step back and think about our strategy.

your next question comes from the line of Kingsley crane with canaccord genuity

Hi, thanks for taking my question. I want to Echo. I can grab some shirts.

Saturday is.

Now from an AI perspective targeting AI native companies that are building real businesses.

And running.

Models, and an inferencing mode and these are real world applications that require not just.

Gratifying for the team, um, with a larger Pierre. Neo Cloud Pier has acquired a handful of past capabilities over the past, 6 months, including more recently in Python notebook. I think reinforcement learning for agents. What's your take on that? Just, just give Credence to your strategy and how do you see competition evolving as you continue to cater towards customers up Market?

Yeah, Kingsley, thank you for the question. Um,

GPU and inferencing capabilities, but they need agent take workflow.

Our capabilities they need.

Storage databases authentication authorization they need.

Orchestration from our coordinated perspective, so essentially they need a unified HMT.

Cloud stack, which is what we provide so we.

We have been executing on our strategy and if you look at.

Slide seven you'll see the richness of the stack that we have built all the way from infrastructure on both cloud and AI.

<unk> Middle Ware with platform as a service or the agent take development lifecycle and slide 12 shows how much we have enhanced that Vince just the last earnings call. So we have been super busy and every Orange box you see on slide 12 has been a result of feed.

Back that you're getting from customers real time. Some of these features have been laid up in just a matter of days and that is the power of <unk>.

So, we are approached. Um, when we laid out our strategy in April, um, we we start our strategy, uh, with a deep understanding of who our customers are and what it would take for us to serve them. Well, uh, and of course that understanding has deepened over the last 6 months, as we have started working very, very closely with these customers. In terms of the Python notebook, this was, uh, uh, this is being, uh, a capability that we have had for, uh, for a couple of years now. And, uh, some of the storage enhancements that we are seeing in the market, is also something that has been long a part of our very rich and deep software stack. So, if you take a step back and think about our strategy, our strategy is, um, is now, uh, from an AI perspective, um, targeting AI native companies that are building real businesses, um, and running um, models in an inferencing mode, and these are real world.

Really call inventing some of these pieces working hand in hand with our customers.

And I feel.

Building on our strength, which is software differentiation.

And leveraging the strength of our.

12 year old.

Cold stacked general purpose cloud really puts us in a very favorable position when it comes to.

Applications that require not just um GPU and inferencing capabilities but they need agentic workflow cap um uh capabilities they need um storage databases authentication authorization, they need um orchestration from a kubernetes perspective so essentially they need a unified agentic um Cloud stack which is what we provide. So we

Being attractive to these.

Mailing AI data company.

It's hardware a part of it absolutely, but we think as companies become more and more sophisticated and they start serving real vault enterprise needs.

<unk>.

Of gravity is going to shift from hardware and networking.

Move more and more towards the software stack as we have seen and in every way that we have encountered over the last two.

Two or three decades, so we feel really good about where we are and will be aggressive in adding new functionality.

Into our platform as they start seeing opportunities for those in from our customers out in the market.

Your next question comes from the line of Patrick Wall Ravens, which citizens.

Um, we have been executing on our strategy and if you look at um slide 7, um you see the richness of the stack that we have built all the way from infrastructure on both cloud and AI uh, to middleware with platform as a service or, um, the agentic development life cycle and, uh, slide 12 shows, uh, how much we have enhance that since just the last earnings call. So we've been super busy. Uh, and every Orange Box, you see on slide 12 has been a result of feedback that we are getting from customers real time. Some of these features have been lit up in just a matter of days. And that is the power of uh uh, really co- inventing, some of these pieces working hand in hand with our customers. And, and I feel uh, building on our strengths, which is software differentiation and leveraging the strength of our

Hi, Thank you guys. So much for taking the question and congrats on the quarter. This is Nick on for Pat Pat do you have one for you you kind of answered this already but.

Are there any other factors that you guys take into account when deciding what to build next like you mentioned that it's primarily customer driven are there the competitive positioning or how.

How do you how do you balance the idea of what a customer wants with competitive positioning and long term revenue opportunity, especially in something that could be seen as more experimental.

Um, 12 year old um uh, full stack general purpose Cloud, really puts us in a very favorable position when it comes to, um, being attractive to these, um, scaling AI, data companies, um, is Hardware a part of it. Absolutely, but, uh, we think as companies become more and more sophisticated and they start serving real world Enterprise needs the, um, center of gravity is going to shift from hardware and Network.

Yeah, Nick Thank you for the question so.

That's why they have widened about VR competitor of air Bud customer obsessed so we.

And that strategy has really worked for us, especially in the fast evolving AI landscape, where they have been very very disciplined in not chasing the bright shiny Trey.

Working and um, move more and more towards the software stack as we have seen in in every wave that we have, uh, encountered over the last, um, 2 or 3 decades. So, we feel really good about where we are and we'll be aggressive in adding new functionality. Um,

Um, into our platform as we start seeing, uh, opportunities for those in from our customers and in the market.

Training workloads and.

Trying to be somebody that we are not but they have been patient and now we see an opportunity to decisively.

Your next question comes from the line of Patrick Wall Ravens with citizens.

Move to take a pole position in the world of influencing and offer a software platform that combines the the raw power of having the best of breed flexible AI infrastructure and combine it with where the puck is going which is.

Hi. Thank you guys so much for taking the question and congrats on the quarter. This is Nick on for Pat Uh Patty 1 for you. You kind of answered this already but

There's a whole generation like 20 years of App developed.

Applications that have been developed over the last 20 years.

We'll need to be replaced and modernized with agents and agent take workflows. So managing that whole lifecycle is starting to already create a tremendous amount of.

Uh, are there any other factors that you guys take into account when deciding what to build next, like you mentioned that? It's primarily customer-driven. But are there, like, competitive positioning or, you know, how do you, how do you balance the idea of what a customer wants with competitive positioning and long-term Revenue opportunity, especially in something that could be seen as more experimental?

Problems for companies to build operate and manage so we think there is a phenomenal opportunity for us to be.

One of the first movers into the world of agent development lifecycle and that is exactly what we're focused on so while it is important to be aware of what our competition is doing especially the the new cloud I feel very confident that.

We have unmatched software expertise and depth of our platform as you can see from slide seven and 12 so.

If we keep doing what we are doing our strategy is resonating with the AI native and these are customers that are doubling and tripling their footprint on a month by month basis. So if we can keep pace with them and keep.

Yeah, Nick, thank you for the question. So, um, just just for the avoidance of doubt, we are competitor of air but customer obsessed. So we, um, and that strategy has really worked for us. Um, especially in the fast evolving AI landscape, where we've been very, very disciplined and not chasing the bright shiny, um, training workloads and, um, trying to be somebody that we are not, but we've been patient. And now we see an opportunity to decisively, uh, move to take a poll position in the world of inferencing and offer a software platform that combines the, the raw power of, uh, having the best of breed flexible, AI infrastructure.

Keep shipping at their speed I think everything else is going to take care of itself.

And combine it with where the puck is going, which is, uh, uh, there's a whole generation, like 20 years of app developed, uh, applications that have been developed over the last 20 years.

Your next question comes from the line of James Fish with Piper Sandler.

Hey, guys nice quarter, just on the 2026.

Starting point kudos on bringing that forward.

Understanding what's driving the confidence and visibility at this point, but how should we think about our total knee between core managed service in AI and can we still expect that AI business to continue to double given you've done it for five straight quarters now thanks guys.

Thanks Krish.

We think that if you look at the success that we're having it's coming from a combination of things it's coming from our success with our largest customers regardless of whether their AI or for Oh core cloud growing.

Will need to be replaced and modernized with agents and agentic workflows. So managing that whole life cycle is, starting to already create a tremendous amount of uh, uh, problems for companies to uh, to build operate and manage. So we think there's a, a phenomenal opportunity for us to be, um, 1 of the first movers into the world of, uh, agent development life cycle, and that is exactly what we are focused on. So, while it is important to be aware of what our competition is doing, especially the, um, the Neo clouds. I feel very confident that, um, we have unmatched software, expertise, and depth of our platform. As you can see, from slide 7 and 12. So,

Very very rapidly with the million dollar plus customers growing 72%, we think that continues and a lot of the migration workloads that we've been working on and some of these longer term committed contracts are also on the core cloud side. So growth of our biggest customers is kind of the lower number one number two is as you said is AI growth.

Um, if we keep doing what we're doing, our strategy is resonating with the AI native. And these are customers that are doubling and tripling their footprint on a month-by-month basis. So if we can keep pace with them and keep shipping at their speed, I think everything else is going to take care of itself.

It has been doubling.

Your next question comes from the line of James fish with Piper Sandler.

Every quarter since we launched it and we're expecting that to continue.

So we're going to get a big chunk of growth from that'll become a more material part of our business it'll it'll get into the mid teens, maybe even high teens as a as a percent of revenue and and then we're still generating very good incremental revenue from from a product led growth engine.

Our customers in <unk> are still at.

Hey guys, uh, nice quarter. Just on the 2026 starting point, you know, kudos on bringing that forward. Understanding what's driving the confidence and visibility at this point, but how should we think about the parts underneath between Corps, managed service, and AI? And do we still expect that AI business to continue to double, given you've done it for five great quarters now? Thanks, guys.

At a very high levels relative to historical and it's really those three levers that that gives us confidence and as you said, we have we have better visibility now than we've ever had.

You said, how many how many eight figure committed contracts have we ever had in the company. It's I don't know how many it's not that many it's maybe one or two and now we've got multiple that we've signed just in the last.

A month or so so we're very confident in the 18% to 20% revenue for 26 and are excited to be able to pull that in a couple of years.

Your next question comes from the line of Mike <unk> with Needham and company.

Hey, guys. This is Matt <unk> on for Mike CECO Silver at Needham Thanks for taking our questions and great to see the strength with large deals.

I know AI is not included in net dollar retention.

Thanks fish. Um, we think that, you know, if you look at the success that we're having, it's coming from a combination of things. It's coming from our success, with our largest customers, you know, regardless of whether they're AI or or core Cloud, growing very, very rapidly with the million dollar plus customers growing 72%. Um, we think that continues and and, um, a lot of the migration workloads that we've been working on, and, and some of these longer term committed, contracts are also on the, the core Cloud side. So, growth of our biggest customers is, is kind of the the lever number 1 lever. Number 2 is, as you said is, is AI growth. It it has been doubling, um, you know, every quarter since we we launched it, and, and we're expecting that to to continue. Um, so we're going to get a, a big chunk of growth from AI, that'll become a more material part of our business. It'll, it'll get into the, you know, to the mid teens, uh maybe even High Teens, is a, as a percent of Revenue and

But yeah.

Are you thinking about starting to included as it becomes a larger part of the business and more predictable and what other puts and takes that you're considering as you look to drive and Dr back over 100%.

Yeah. That's a great question, we are looking very hard at.

At how to incorporate.

The resilient growth of inferencing into our metrics Nd ours is one metric.

<unk> used a lot in a SaaS environment captures.

The ongoing growth of our customer.

To date, we haven't included it in India are because a lot of the early traction that we were getting and I think in a lot of folks were getting in the industry was more project based and more experimental.

In the 18-20%, uh, revenue for 2026 and are excited to be able to pull that in a whole year.

As we are seeing customers like some of the ones that Eddie mentioned and like Paul and others that are bringing scaled workloads to us where they have more predictability in their demand and growth.

Your next question comes from the line of Mike seos with Needham and Company.

We believe it's appropriate to start to figure out how to include that will likely revisit.

Hey guys, this is Matt Cleon from Mike secos, over at nem, thanks for taking our questions and and great to see the strength of large deals.

Well, I know AI is not included in net dollar retention.

Revisit this once we get into the beginning of next year, and we get a better sense for the 26 outlook.

We're providing more specific guidance.

What I would say the key takeaway is the AI revenue that we're seeing now that we're getting committed contracts for is behaving more like the traditional cloud where customers come in with scale production workloads and then they have more visibility into the growth of that.

but are you thinking about starting to include it as if it becomes a larger part of the business and more predictable and and what other puts and takes you considering as you look to drive ndr back over 100%,

Workload overtime.

A metric like endear becomes more relevant and we're confident that and doing that that would be additive to our.

Our communications.

The resilience of the growth that we're seeing.

Your next question comes from the line of Mark Zhang with Citigroup.

Hey, good morning, guys. Thanks for taking the questions.

Just.

And D R.

Obviously still at nine 8%.

Yeah, that's a great question. Um, we we are looking very hard at, um, at how to incorporate, um, the the resilient growth of inverting into our metrics, um, ndr is, is 1 metric. Um, and, and it captures, it's used a lot in the SAS environment. It captures the, you know, the ongoing growth of a customer, um, to date, we haven't included it in ndr because a lot of the early traction that we were getting and I think in a lot of folks were getting in in the industry was more Project based and more experimental. Um as we're seeing customers, like some of the ones that Patty mentioned like fall and and others, um, they're bringing, you know, scaled workloads to us where they have more predictability in their demand and and growth. Um, we believe it's appropriate to to

Being good expansion momentum then portfolio momentum. So can you maybe just walk through some of the key puts and takes there and.

Additionally, I think expansion activity Hudson Max not smashed in that metric. So can you maybe speak to some of the behavior stay on any discernible changes in customer behavior versus last quarter. They were 12 months ago, whether its on pace of expansion or how theyre spending. Thank you.

Thanks, Mark it's a great great question that expansion is definitely the driver of the growth. If you look at the big customers the customers that spend 100000 or more and there are as we showed you know if it gets better even as you get bigger spenders.

We're driving a lot of our growth and it is.

Start to, to figure out how to include that, we'll likely um, you know, revisit this once we get into the beginning of next year and and we have a better sense for the 26 Outlook, I mean, we're providing more specific guidance. Um, but what what I say the key takeaway is the AI Revenue that we're seeing. Now that we're getting committed, contracts for is behaving more like the traditional Cloud where customers come in with scaled production workloads. And then they have more visibility into the growth of that um of that workload over time and you know a metric like ndr becomes more relevant. And um and and we're confident that, you know, in in doing that that would be additive to our um, you know, our Communications of of the resilience of the growth that we're seeing.

As a as you would expect the MTR is better the thing that people lose sight of I think when they think about the digital businesses. They forget that we have 640000, plus customers and and 450 or so or more thousand of those are effectively paid premium they're small customers they spend.

Your next question comes from the line of Mark Zhang with Citigroup.

$10 $15, a month and many of them stay on for long periods of time. The average age of that cohort is something like four and a half years, but you also have a lot of customers come and go they experiment.

So the MBR of that paid premium segment of our customers is below 100, and so that weights down the overall.

The overall, India or the company and the masks. The fact that with our largest customers. We're actually seeing very very strong growth driven by increased expansion in that.

Hey, good morning guys. Um, thanks for taking the questions. Um, maybe just um, on ndr um, you know, obviously still at the 99% but, you know, we're seeing good expansion momentum and portfolio momentum. So can you maybe just walk through some of the key puts and takes there and, you know, traditionally, I think you know, expansion activity has been maxed Mass nest in that metric. So can you maybe speak to some of the behaviors there and they need to certain little changes in customer Behavior versus, you know, last quarter or 12 months ago whether it's on Pace of expansion or how they're expanding.

Thank you.

Another you know.

All up to the question prior to this that's another metric that we're thinking about is because we are blending this.

Where the real growth engine is for the company, we're blending that N D are with the NDA are of a.

Giant cohort, which is fantastic for us because it gives us access to a lot of developers, but it just by its nature. It's gonna have like slightly below a 100 M D. R.

That's masking a lot of the underlying Uh huh.

Performance that we're seeing.

Your next question comes from the line of <unk> Mohan with Bank of America.

Yes. Thank you so much on nice results here.

Just given the strong growth trajectory and the confidence can you just talk about.

Where do you think the net of both sort of explicit capex plus.

Thanks, Mark, it's a great, great question. That expansion is definitely the the driver of, um, of the growth. If you look at the big customers, the customers that that spend 100,000, or more in ARR, and as we showed, you know, if it gets better, even as you get bigger Spenders, um, they're they're driving a lot of our growth in this as, um, as, uh, as you would expect, the ndr is better. The thing that that people lose sight of? I think when they think about, um, the digital businesses, they forget that we have 6004000, you know, plus customers and and 450 or so or or or more thousand of those are effectively a paid premium. Um, you know, their small customers, they spend 10 15 dollars a month and, and many of them stay on for long periods of time. The average age of of that cohort is something like 4 and a half years. But you also have, um, a lot of customers come and go, they experiment. And so the ndr of that paid premium segment of our customers is below 100. And so that weight down the overall, um, uh, the over.

Sure.

Equipment leasing.

What the sum total of that could be as you look over the next couple of years in dollar terms and how large could you see that delta growing between adjusted free cash flow in your adjusted Unlevered free cash flow margins over the next few years. Thank you.

Hey, Mike.

It's a great question I think.

As we said, where we're trying to give preliminary guidance for 2006 to give the directional.

Overall ndr of the company and then masks the fact that with our largest customers, we're actually seeing very, very strong growth, um, driven by increased expansion. And that's, that's another, you know, in follow up to the, the question, prior to this. That's another metric that we're we're thinking about is, um, because we're blending this, you know, the the where the real growth engine is for the company. We're blending that ndr with the ndr of a, you know, a giant cohort which is fantastic for us because it's

Kind of growth rates, and we feel very confident that we can deliver.

That 18% to 20% revenue growth, while still delivering the kind of the mid to high teens and adjusted free cash flow and when I say that number that's the levered number that I'm referring to.

It gives us access to a lot of developers but it just by its nature. It's going to have like slightly below 100 MD. Um, we think that's masking a lot of the underlying uh performance that we're we're seeing

And I think at this point that the market is evolving so fast that it's hard to say what you know what the capex would be or what the the impact on adjusted free cash flow margin would be even in the second half of next year much less 27 or beyond what I can tell you is.

Your next question comes from the line of wsy Moen with Bank of America.

Confidence.

And you've seen us.

In terms of our behavior, we didn't chase the training opportunity we didnt pursue.

What we viewed as you know as as revenue that we weren't sure how durable that was going to be for us and we didn't know if we had a competitive differentiation there but.

But what we said is where we see opportunities to to deliver durable revenue growth with a differentiated product that has good returns that we will make investments pursued that and you've seen that with our willingness to take down additional data center capacity and and secured new Gpus. So I'd say what you can expect is continued.

Can you just talk about, um, where you think the net of both sort of explicit capex, plus your, um, equipment leasing, uh, what the sum total of that could be, as you look over the next couple of years in dollar terms and and how, how large could you see that Delta growing between adjusted free, cash flow and your adjusted unlevered free cash flow margins uh over the next few years. Thank you.

One behavior.

We're trying to drive durable revenue growth, while maintaining attractive free cash flow mode.

Your final question comes from the line of Robert Galvin with stifle.

Hi, Thanks for taking the question I wanted to ask you about the transition to leveraging leasing and how the gross margins of Datacenters and equipment, you own and operate compared to gross margins reduced capacity. Thanks.

Alright, so just to clarify there we don't we leased all of our data sets, where a colocation tenants in each of our data centers. We don't we don't own any so the the taking down of additional data center capacity.

We've just referred to will behave the same way that it did when we took down the Atlanta data center.

Hey, Mom see. Um, it's a great question. I think, you know, as we said, we're we're trying to give um, preliminary guidance for 26 to give the directional um, kind of the growth rates and we feel very confident that we can deliver. Um, that 18 to 20% Revenue growth, while still delivering the um, kind of the mid to high teams and adjusted free cash flow. And when I say that number, that's delivered number that that I'm referring to. Um, and, you know, I think at this point that the market is evolving so fast that it's, it's hard to say what, you know, what the capex would be, or what the, um, the, the impact of adjusted Precast, or margin would be even in the second half of next year, much less 27, or beyond what I can tell you is, um, we and you've seen us, uh, in terms of our Behavior, we didn't chase the training opportunity, we didn't pursue, um, what we viewed as uh, you know, as as Revenue that we weren't sure how durable that was going to be for us. And we didn't know if we had a a competitive differentiation there. Um but what we said is where we see opportunity,

And earlier this year and when we took down the Sydney data Center.

Oh several years ago, and what that does is our costs. If you think about our cost of goods are variable with revenue over the long term, but in the very short term. There are somewhat lumpy you take down an incremental data center. You have you know not only do you have incremental upfront costs and NRC that happens.

Needs to to deliver durable Revenue growth, with a differentiated product that has good returns, that will make investments pursue that. And, and you've seen that with our willingness to take down additional Data Center capacity and, um, and secure new gpus. So I I say what you can expect is continued discipline behavior. Um where we're trying to drive, you know, durable Revenue growth while maintaining attractive free cash flow.

Before you're generating revenue, but the day you turn on the datacenter you start paying for the space and then some of the power then you build it out and get it out with gear and you fill it up and it takes some period of time to generate.

Your final question. Constantly line of Robert Galvin with ful.

The fully utilized revenue in that facility. So there's always a lump of of higher expenses in the beginning when you turn on data center capacity and you grow into it and see.

Hi, thanks for taking the question. I want to ask about the transition to leveraging Leasing and how the gross margins of data centers and Equipment, you own and operate compared to gross margins from at least capacity. Thanks,

Can you grow into it over a series of even just a couple of quarters and your gross margin gets back to whats more of a steady state.

Gross margin so can we expect that to happen in the beginning of.

Of Oh next year of 26, but we factored that in and incorporated that into our guidance for the year in terms of the free cash flow margins that we expect to generate so it's just normal course for us it's nothing different than.

What we have done previously with respect to the dentist.

Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

All right, so just to clarify there we we don't um we lease all of our data sets. We're a a collocation tenant in each of our our data centers. We don't we don't own any. So the the taking down of additional Data Center capacity, um, that that we've just referred to will behave the same way that it it did when we took down the Atlanta data center, um, in the earlier this year and when we took down the Sydney data center, um, uh, several years ago and and what that does is our costs. If you think about our, our cost of goods are um variable with Revenue over the long term but in the very short term there they're somewhat lumpy you take down an incremental data center, you have you know, not only do you have incremental upfront costs and NRC

Um, that happens before you're generating Revenue. But the the day you turn on the data center, you start paying um, for the space and and some of the power and you build it out and get it out with gear and and you fill it up and it takes some period of time to generate. Um, you know, the fully utilized Revenue in that facility so there's always a lump of um, of higher expenses in the beginning when you turn on data center capacity and you grow into it and um, you know, it's you grow into it over a series of even just a couple of quarters and your gross margin gets back to what's more of a steady state, um, gross margin. So we expect that to happen in in the beginning of um of uh of next year 2026. But we've factored that in and Incorporated that into our, our guidance, for the year in terms of the free cash flow margins that we expect to generate. So it's it's just normal course. Uh, for us, it's nothing different than, um, what we had done previously, with respect to the data

Ladies and gentlemen, that concludes today's call, thank you all for joining. You may now disconnect