W. Matthew Steinfort

Thanks Paddy, good morning, everyone and thanks for joining us today. As Paddy covered, we had a very successful Q3 both executing on key initiatives and delivering solid financial performance.
In Q3, we continued to see increased momentum from our AI/ML platform and steady growth across our core business while consistently delivering attractive adjusted EBITDA and adjusted free cash flow margins revenue in the third quarter was $198.5 million. Up 12% year over year annual run rate revenue or ARR in the third quarter was $798.3 million. Also up 12% year over year, we added $17 million of ARR in the quarter, most notably builders and scalars which are our largest customers together grew 15% year-over-year.
Contributing to our overall growth was healthy incremental revenue from new customers and increased momentum from our AI/ML platform which saw significant growth again, growing close to 200% year over year on an ARR basis.
Overall growth was partially muted by our managed hosting platform as we are lapping difficult comps related to the April 2023, managed hosting price increase and a temporal surge of managed hosting revenue in Asia. In late 2023 our Q3 net dollar retention rate was steady at 97%.
As with prior quarters, we continued to see consistent but below historical net expansion levels. While our churn levels have remained low for well over a year, we will continue efforts to improve growth in NDR including executing on our product road map and working to layer on additional go to market motions to complement our durable product led growth engine.
Turning to the P&L gross margin for the quarter was 60% which was 100 basis points lower than the prior quarter. And consistent with the prior year, we are able to maintain healthy growth margins while continuing our investment in AI infrastructure due to the success of our ongoing cost optimization efforts adjusted EBITDA was $87 million. An increase of 14% year per year adjusted even at the margin was 44% in the quarter, approximately 200 basis points higher than the prior quarter.
This increase quarter over quarter was primarily driven again by our ongoing operating cost discipline, diluted net income per share was $0.33. A 65% increase year over year and non-GAAP diluted net income per share was $0.52 an 18% increase year over year.
This increase is directly a result of our ability to increase our per share profitability levels by continuing to drive operating leverage while mitigating pollution through share buybacks.
Finally, Q3 adjusted free cash flow was $26 million or 13% of revenue. This is lower than the prior quarter by approximately 600 basis points due to timing of capital expense payments as we continue to make investments capitalized on the AI opportunity to future growth.
As a reminder, quarterly free cash flow margin will vary given the timing of capital spend and other working capital impacts, the lower free cash flow. In Q3 does not change our expected full year free cash flow margin.
Turning to our customer metrics, the number of builders and scalars on our platform, those that spend more than $50 per month was approximately $163,000. Representing an increase of 6% year over year. The revenue growth associated with builders and scalars was 15% year over year ahead of our overall revenue growth rate of 12%.
The number of builders and scalars on our platform which together represent 88% of our total revenue increased by $2,260 a quarter-on-quarter.
The continued growth of our larger spending cohorts is a direct result of our focused product development. Much of which is driven by direct customer feedback and the customer success and go to market investments that are concentrated on these builders and scalars. Our overall revenue mix continued to shift more towards our higher spend and higher growth customers. And we saw a total ARPU increase 11% year over year to $102.51.
Our balance sheet remains very strong as we ended the quarter with $440 million of cash and cash equivalent.
We also continue to execute against our share repurchase program with $11 million of repurchases in the quarter, bringing total share repurchases to $29.9 million during the first three quarters of the year with our healthy cash position and ongoing free cash flow generation.
We are well positioned to continue to balance investment in organic growth with share repurchases while moving towards our 2.5 times to 3 times net leverage target and maintaining appropriate flexibility to address our 2026 convert at the appropriate time.
Moving on to guidance, based on our performance year-to-date, we are increasing the bottom end of our full year 2024 revenue guide by $5 million and the top end by $2 million projecting revenue to be in the range of $775 million to $777 million. A $3.5 million increase in the midpoint of our guidance rates which will represent year over year growth of approximately 12%.
This full year guide implies Q4 revenue to be in the range of $199 million to $201 million representing approximately 11% year over year growth at the midpoint of our guidance range. While we are not yet going to provide 2025 revenue guidance, we expect to enter 2025 with baseline growth in the low to mid 10s.
As demonstrated throughout 2024 we remain committed to driving continued operating leverage in our core digitation platform.
Given our solid performance throughout the first three quarters of the year, we are raising our adjusted EBITDA margin guidance for the full year to be in the range of 40% to 41%.
This full year adjusted EBITA guide implies Q4 adjusted EBITDA margins to be in the range of 34% to 38% for the full year. We expect non-GAAP diluted earnings per share to be a $1.70 to $1.75.
This implies Q4 non-GAAP diluted earnings per share to be $0.27 to $0.32 based on approximately $103 million to $104 million in weighted average fully diluted shares outstanding, turning to adjusted free cash flow we expect adjusted free cash flow margins for the full year to be in the range of 15% to 17% consistent with what we guided in the prior quarter.
While free cash flow margin will continue to vary quarter to quarter. We anticipate remaining in a similar 15%l̥ to 17% range on a rolling average quarterly basis in 2025. As we continue to accelerate the pace of product innovation and make disciplined investment to expand our emerging AI capabilities.
That concludes our prepared remarks and we will now open up the call to Q&A.

Question and Answer Session

Operator

(Operator Instructions)
Raimo Lenschow, Barclays.

Raimo Lenschow

Perfect. Thank you. Paddy, there was a lot of product innovation that you kind of discussed and can you talk a little bit about how we have to think about those new innovations around product and how that feeds into the installed base in terms of like, you know, what's the uptake there? What's the timing there? And because you know the financial number of match, Matt and I will look at it the nr at 97% but it seems to be a little bit of a disconnect. Could you maybe talk to kind of timing here? And I had one follow up from that?

Paddy Srinivasan

Great. Thank you, Raimo for the question. Yes, we are seeing a lot of product innovation across the board both in the core cloud. That's why I spent so much time explaining all the things we are pumping out, especially aimed at our scalars and allowing them or enabling them to run larger workloads on DigitalOcean.
As you know, from a timing and sequence point of view, There's no magical answer that we can provide, which translates a product innovation to adoption and hence impact on our financial performance.
But we feel we have to do this to enable our customers move many of their larger workloads that they're currently running in other clouds and make it super compelling for them to run those workloads on the DO platform. And as I did just a few minutes ago, we will get into a habit of explaining some very concrete examples of customers that are starting to do that.
So the examples I gave, we are now starting to sign customers into multi-year contracts with commitments on our platform. We are also starting to see a steady dose of migrations coming from other clouds, especially the hyper scalars. So we are playing we have to ensure that we have patience in terms of building these capabilities, we are starting to see the; green shoots in terms of customer adoption and the translation of that into leading indicators.
And I have no question if we keep doing it. For a handful of quarters, we are going to start seeing the translation into other lagging indicators, including some of the ones, that you just mentioned Raimo.
So in terms of the NDR, I think Matt, alluded to the fact that we have what we're seeing from a core, the NDR of the core business is trending. A little bit ahead of what we, we are reporting on a blended basis. So it gives us enough reasons to believe that what we're doing is starting to be appreciated by our customers. And as you know, this, this takes time for the adoption to happen. I have to keep reminding ourselves that we have 6,38,000 plus customers. So it takes time for the propagation to happen across the board with our customer base.

Raimo Lenschow

Okay, perfect. Thank you. And then Matt one for you. Like if you look on the ear, that's kind of the one we're kind of at the moment are performing quite a bit. Can you talk a little bit about that? You know, how do you achieve that? Like how sustainable are the is the progression there, especially if you think about like more services coming on street, you probably want to support them more and then obviously more AI services coming as well. Thank you.

W. Matthew Steinfort

Thanks, Raimo. Yeah, I think from a cost standpoint, the Q3 was definitely a good, a good quarter from an even margin perspective as we brought on our new executives, you know, we had talked about, you know, implicit in our guide for the full year. We were making sure that we had enough room to invest, to enable them to really, you know, improve the page of innovation and later on additional go to market motions.
But at the same time, we were evaluating, okay, what costs do we have now that we just aren't earning a return on and can we clean those out before, you know, the team gets going with the new expenses? So we, I think did a really good job of optimizing for that.
And we also made some decisions to make sure that we were appropriately pacing, the increases to see if we're getting a return on the investments as we did it. So I'd say it was just disciplined kind of cost management in Q3. And as you saw from the guide in Q4, we are expecting to ramp our expenses heading into next year.
I don't think it's going to be a meaningful kind of a change in the overall expense level. We feel pretty good about the kind of the trailing margin profile that we have and being able to continue that into next year.

Raimo Lenschow

Okay, perfect. Thank you.

Operator

Mike Cikos, Needham.

Mike Cikos

Hey, thanks for taking the question guys. And I think the first would go to Matt just coming off of Raimo's question there. But if I look at the EBITDA guidance that we have today, the 34% to 38% margin guide in Q4 is, the widest range that I think we've had in recent memory and just wanted to get a little bit more granular there as far as I guess, what needs to go wrong or right or what you guys are waiting for, that gets you at the 34% margin versus the 38% margin in December quarter.

W. Matthew Steinfort

That's a good question, Mike. I think a part of it is as we've been ramping, particularly the R&D spend, we're evaluating kind of surge resources using contractors to accelerate a handful of things on the product road map and the timing of that, which again, I view that as a relatively lumpy potential investment and the timing of being able to get that spun up and fully staffed and moving, whether that hits in Q1 or it hits in Q4.
I think that's really what's causing the range. Again, I think on a go forward basis, we don't anticipate a material change in the overall kind of R&D as a percent of revenue, but we are advancing the expense. So in any one quarter, it may be a little bit lumpier. But again, over a longer period of time, we don't think we grow into that and some of that is surge resource.

Mike Cikos

Terrific and just another follow up, I know that you guys aren't providing explicit guidance for calendar '25 here. Do appreciate the qualitative commentary. Just wanted to see what gives you the confidence to kind of put that bogey out there for the baseline growth and how should we be thinking about what it takes for DigitalOcean to be in the year with that kind of baseline growth that you had commented on?

W. Matthew Steinfort

Yeah, I think it's very similar to what we described at the beginning of this year. What can you count on what you can count on the growth from the self-serve funnel and we're a little bit better doing a little bit better than that on that year-to-date than we had outlined at the beginning of the year.
You know, we've got the man of toasting business, which is kind of returning to growth after lapping some difficult comps. We've got AI/ML that we had said would contribute around three points of growth. It's a little bit ahead of that for the year. And then NDR while it's frustrating that we've had to print, you know, a bunch of 97 in a row.
As Paddy said, the core DO is actually ahead of that. You get a little bit of a headwind for manage hosting that, that's going to be in place for the next call, it through the first quarter of next year. And so if you take all those together, we've moved up a couple of points from the baseline growth that we had described coming into the year and you know, none of it is on the back of kind of macro improvements. It's all just steady kind of improvements and continuing to deploy products that our customers need.
And so as we look at that trajectory, we feel comfortable, kind of, you know, at the pace of growth that we're at right now and hopefully continuing to improve NDR, you know, every month going into next year and beyond to eventually get it to be above 100. So I'd say we're just, you know, making sure that folks understand that we feel pretty comfortable with the baseline growth that we're delivering.

Mike Cikos

Great answer. Thank you very much guys.

Operator

James Fish, Piper Sandler.

James Fish

Hey, guys, You know. Paddy for you, you guys are seeing adoption. Are you seeing adoption of the GPU droplet with more of the builders and scalars or more net new customers. And how should we think about the mix between on demand versus multi-year contracts and what you guys are seeing around supply availability with GPUs?

Paddy Srinivasan

Yeah, great. Thank you, Jim for the question. So in terms of the adoption, we're seeing adoption across the board, a lot of new customers which we absolutely love that are taking the tires and also as I explained on the call, building real world applications on our GPU infrastructure, both droplets as well as more hard and barometric type of services.
I would say from between on demand versus contract, we see more contracts when the customer is deploying live workloads, whether it is training or inferencing and sometimes these contracts are fairly short term, but some are longer term and on demand is typically for experimentation. This is what we had. We would have guessed when we started this journey, but that's where things are.
And from an on demand point of view, we're also seeing a very nice uptake and interest in our GenAI platform. So companies that don't have the deep bench in terms of AI/ML skill set, have a very easy time just using our GenAI platform standing something up very quickly many times in just a matter of few minutes just to see if they can prove to themselves that there's value in integrating GenAI into their platform. So, so that's what we are seeing broadly from a adoption point of view.

W. Matthew Steinfort

And from a supply chain standpoint. Yeah, on the supply chain, we don't see the same kind of headwinds that we had seen coming into the year. We've got orders out for, you know, the next generations of the technology,
We've got H200 is coming, you know, we're keeping an eye on, you know, on black. Well, to see the timing of that and it's, you know, it's certainly not so tight that you can get it, you know, in a week or two from ordering, but it's, I'd say the supply chain is open enough that we've been able to get the equipment in the time frames that we need it. And again, with our buildout and the Atlanta data center coming on kind of at the beginning of next year, we're in good shape from a logistics and a scheduling.

James Fish

Got it. And then Matt, for you going back in the 97% expansion rate. No, the AI side of things turned organic this quarter by my math, it's probably adding about 1 points to 2 points to NRR and it looks like Net New ARR for AI was, was up around $10 million.
So what's going on with that core business specifically? You, you are starting to mention around cloud wave, obviously, the price increase lapping. But why is that business kind of weaker than what you guys are anticipating and how should we think about the mix of cloud was hosting digital ocean versus other cloud platforms?

W. Matthew Steinfort

That's a great question and good clarification AI products are not in NDR. Let's make sure that everybody understands that the revenue from the AI products are not in dollar retention. And that's, you know, it's clear in the definitions that we have a lot of the AI revenue if you think about it is project based.
So someone's training something, somebody's coming in and experimenting. It's not yet at the point where people are coming in and running large scale inference workloads where you could say, well, that should the, you know, the revenue that you get from that inference workload should be bigger next year than it was this year because they're spending, you know, they have a lot more customers if someone comes in and trains a model for a month or two and then turns it off and then, you know, goes and focuses on inferencing, the revenue is going to be, is going to be lumpy.
And so at this point, and we could re-evaluate this going forward, but at this point AI is not reflected in NDR. So it contributes nothing to the improvement in the, what we have seen is steady improvement in the core cloud business, which we said is tracking above the reported NDR cloud ways, which has historically been literally until we the price increase.
It was always a positive contribution to NDR. It's been a headwind to NDR since April. And we continue to be probably until next April because of the varieties of a lagging metric like NDR. But we expect both the clouds that manage hosting business and the core business, We expect to be able to get those back above 100. And we're certainly working aggressively to accomplish that. And we can't tell you exactly when that's going to happen. But we're very encouraged by the green shoot that we're seeing in both businesses on that improvement in NDR.

James Fish

Very helpful. Thanks, Matt.

Operator

Gabriela Borges, Goldman Sachs.

Gabriela Borges

Hey, good morning. Thanks for taking the question. Matt, I wanted to follow up on some of your comments for 2025 and more specifically on how we should think about the seasonality of the business, given some of the moving pieces we've had this year versus last year.
So any comments on seasonality? And I'm noticing that the size of the beat this quarter was about 1% versus the 2% last quarter. Any things, any nuances we should be aware of there in terms of why the size of the beat was smaller this quarter. Thank you.

W. Matthew Steinfort

I don't think there's, there's any seasonality in the business that, that would, you know, would reflect that. I think that, you know, again, we've been, we've been very focused on the full year and, and providing guidance that's appropriate and reflective of that and that causes kind of, you know, bigger swings in the quarterly kind of beats. Right. So, we're more focused, I think from a, from an annual standpoint.
But I think that, you know, we look at the business going into next year again, going back to my earlier comments, we're very encouraged by the steady growth that we're seeing and improving growth and versus what we thought with the self-serve funnel, confident about that, you know, the managed hosting business is coming back from, again, some difficult comps, the AI business is slightly ahead of where we had expected.
And the kind of the last thing to move for us, which would give us the confidence to, you know, to increase the, you know, our outlook on the revenues is that NDR just needs to come up and expense steadily, but, you know, stubbornly moving up. And so I don't think there's anything seasonal that would suggest we would be more or less on an individual quarter.

Gabriela Borges

Got it. Okay. And then the follow up is for Paddy. So given the paper change that we're seeing in the GPUs as a service market, maybe you could walk us through. What are one or two of the areas where you feel like you've learned the most over the last three months as it relates to your AI services strategy and particularly around your LLM as a service offerings, the platform offerings, how you think you can differentiate versus something like a sage maker or a bedrock of the option. Thank you.

Paddy Srinivasan

Thank you, Gabriela. Great question. So in terms of what we have learned over the last 90 days, we have learned a lot as you can see, we have, we have also shifted a lot. So in in preparation of that, I think we have learned quite a bit on all three layers of our platform.
I would say for me, personally, the biggest learning has been that our customers which are typically companies that don't have a tremendous bench of deep machine learning, data scientists or data engineering skill sets. They look at the AI platform almost in an inverted fashion.
What I mean by that is everyone us included the market, everyone looks at it from infrastructure first and then platform and then finally applications, our customers actually look at it top down, they look at okay. What applications can I or agents, can I leverage today from GenAI that makes my app more product where my customers save money or deliver some innovation that was not possible so far. So it's almost a realization that we need to innovate more rapidly on the platform.
And application layer is why we accelerated some of our GenAI platform capabilities and we already have seen a customer push that into production, which is amazing. And the part two of your question is what makes our GenAI platform stand out against something like a stage maker or bedrock. As you know, we have very deep expertise in both stage maker and bedrock at DigitalOcean today. And the biggest difference is some of the technologies you mentioned are phenomenal, they're very broad and very powerful.
If you have a broad set of skills available to take all of that and build something fantastic for a very complex use case for our customers and the customer that I talked about during the prepared remarks, specifically tested a variety of different GenAI platforms and picked us primarily because of how easy it was for them to get started to inject their own custom data, to build a rack pipeline, to create a knowledge base and finally create a chatbot where they could project exactly how much it would cost them and develop a business model that would be friendly to their customers.
So all of these things individually are fairly complex. But when you add these different steps to build a productionized application, it just balloons in its complexity. And we have tried to measure every click it takes to simplify the journey for our customers.
I think that's how we establish ourselves as a credible cloud provider. And that's what we are doing to establish ourselves and differentiate ourselves in GenAI and also we should also not forget that there is a lot of differentiation we are we are pushing even in the agentic clearer as I explained. We just came out with our first agent. We are working with customers in early availability mode.
So we will learn and innovate on that faster. But the combination of the platform and application gives us the ability to make things that are super scalable. But at the same time, an order of magnitude simpler to use compared to other alternate platforms that are available.

Gabriela Borges

Thank you for the detail.

Operator

Jeff Hickey, UBS.

Jeff Hickey

Hey, everyone. Thanks for taking the question. The first one I wanted to ask is that it's very helpful. Just detailing that AI is not included in the NDR metric, but maybe with some of the existing AI customers that you've had for a few quarters that maybe do have some workloads already in production.
Do you have any sense of like how they're expanding their spend over time, maybe even just on a quarterly basis? Or do you typically see those customers kind of launch a workload and then have that spend at sort of a stable level from there?

W. Matthew Steinfort

We've seen good traction with a number of our early AI customers that have come in and experimented on the platform and they may have started with a kind of a small cluster and then as they test it, they've expanded their use of the platform.
So if the question is, when we land customers, do we see them grow or do we see a big rotation of customers in and out? We actually see, you know, fairly healthy expansion from the customers when they come in. But it again back to my earlier comments, it's in okay. I'm training a model, I need [eight more] and now I'm going to do something -- I need more, but it's not the same dynamic because they're still evaluating, they're still kind of going through the testing phases. But we've seen very good traction growing customers, the initial customers that we've had on the on the platform.

Paddy Srinivasan

And Matt, one thing I will add to that is it's interesting to note that our AI customers are also very similar to our core cloud customers in the sense that most of them, if not all of them are ISPs or independent software vendors or digital native application providers.
So they are taking our -- they're building solutions on our I platforms, whether it is infrastructure or GenAI to create software solutions for their customers. So as they grow and expand, they will they are expanding their footprint to match point on our platform. So that's a very interesting thing for us to notice where the customer that is coming to build a solution just for their internal use.

Jeff Hickey

Got it. That's really helpful. And then one just quick follow up, you mentioned earlier about just supply and that's gotten better relative to the beginning of the year for AI investments. Just curious with the October 1, launch of each 100 instances broadly available. Are you supply constrained at all right now as we're kind of in the fourth quarter or are you able to meet all the demand you currently have as well? Thanks.

W. Matthew Steinfort

We've ordered enough and we talked about this in the last call that because we have the ability to see the demand and plan out the capacity that we've been able to get enough capacity to, to meet the demand as we've gone, which is a very good sign because we don't have those supply constraints.
So again, because we're not spending hundreds of millions of dollars on GPU, we can get the quantum that we need to meet our requirements.
And you know, when you have something like the GPU droplet, which is more on demand and it's less committed contract. You have to see kind of what the utilization is and then plan your purchases based on that capacity utilization and we've been able to manage that effectively. So it hasn't been a drag or a constraint on us.

Jeff Hickey

Got it. Very helpful.

Operator

Josh Baer, Morgan Stanley.

Josh Baer

Great. Thanks for the question, one for Paddy, I guess just thinking about the 42 new product features more than prior period. And I think calling out some of them features that hyperscale customers are generally looking for moving contracts to committed contracts, even migrating workloads from hyper-scalars to do.
It's like in the past, the story was more about DigitalOcean's simplicity of the platform and better support lower pricing and maybe a little bit less about sort of getting into the competitive dynamic with hyperscale. I was just wondering, is the right takeaway that there is a little bit of a shift in focus either upmarket or a little bit of expansion outside the simplest startups in SMBs just to be a little bit more competitive in the market. Is there a strategy shift there?

Paddy Srinivasan

Yeah, thank you, Josh, and great question as always. The shift is essentially following our customers lead honestly. So as I made a point during the prepared statements to make sure that we are not abandoning or taking our eye off the importance of DigitalOcean in the developer community.
We continue to nurture that. In fact, we are doing a lot more with the developer ecosystem this year compared to the recent past. But at the same time, we do recognize that we have 17,000 plus scalars who on an average spend more than $25,000 with us. That's a big and that's 58% of our revenue. And if you add scalars, that's almost 88% of our revenues, which are growing much faster than our blended average growth rate. So we have a unique opportunity to follow their lead and make sure that we are delivering capabilities that will enable them to run or expand their footprint on DigitalOcean.
We are increasingly in a multi-cloud world even for smaller customers like the ones we target. And there is an opportunity for us to keep expanding our share of wallet with these companies. And the examples that I shared are just the starting point for what we believe are fair share slice of this enormous market. And if we keep doing what we're doing now, which is add compelling feature sets that enable our scalar customers to expand their footprint on us. I think there's a lot of value to be created for our customers on our platform.

Josh Baer

Very clear, if I could follow up with one for Matt, just on the, some of the factors called out the managed hosting, tough comp pricing increases the Asia influx of revenue. Even some of the M&A like get how that could be impacting some of the like the net dollar retention rate or the year over year growth. If I'm just looking at quarter-over-quarter, net new ARR out of $32 million last quarter and [$17 million] this quarter, anything to call out as far as that difference, just on a quarter-over-quarter basis.

W. Matthew Steinfort

Yeah, that's a good point, Josh, the big difference was that the availability like the we brought on a ton of AI capacity in Q2 which, you know, we had pent up demand for. So we got a bump, a material bump in in ARR last quarter. If you look at, we were, we were on [$17 million or $18 million], the quarter before and then we jump to the [$30 million back on $17 million].
I'd say last quarter was more of an anomaly than this quarter. Clearly, we're looking to add more incremental ARR going forward, but most of that change was the result of a surge in AI capacity last quarter.

Josh Baer

Got it. Thank you.

Operator

Pinjalim Bora, JP Morgan.

Pinjalim Bora

Great. Thanks guys. Just one question for me. The baseline growth outlook that you kind of share and entering 2025 seems pretty positive. It calls for an acceleration from the exit growth rate in this year. So we want to understand that a little bit more. Are you seeing some signals that prospect will accelerate next year around the core business based on some of the customer conversations? Does that assume 100% NDR as you as you going to be one? And how should we think about it?

W. Matthew Steinfort

I didn't hear the last part of that question and then I heard the first part but let me answer and then you can maybe come back with the question. Now we're seeing a lot of green shoots around, kind of like as you said, that the all the product traction that we're getting and some of our larger customers, you know, even being willing to commit to longer term to long term contracts and commitment contracts, which isn't something that the company has done extensively in the past. But then, you know, the core NDR is improving steadily.
We're not assuming that it gets to 100 by Q1 that's not implicit in the, in the, in that kind of comments that we made regarding next year. I mean, we're going to work aggressively to get it to be 100 but we can deliver the growth rates that we talked about because we're effectively delivering that now at a 12% growth with an NDR, that's only 97%. And we expect both the manage hosting NDR and the core cloud NDR to improve as we head into next year and we'll continue to get growth. You know, very positive growth contributions from our AI capabilities.
You know, we, we said earlier this year that we thought we'd get 3% of overall growth from AI and we'll end a little bit ahead of that this year. So that's also positive and encouraging as we think about what the baseline growth is heading into next year.

Pinjalim Bora

Understood one quick follow up. The multi-year commitments is definitely interesting. Are you leaning in on any way to drive those commitments? Is that largely coming from customers or are you putting in processes to kind of enable those discussions? Thank you so much.

Paddy Srinivasan

Yeah, I can take that. So we are at this point and we're just letting it happen organically. So we, we don't have any pronounced established go to market motion. We're not pushing it on our customers. We're just letting it organically happen. The most important thing for us is to learn the patterns, learn what kind of technologies we need to build, learn the migration process itself and things like that and going into next year.
We, of course, we look into packaging it a little bit productizing it and also expand our third party ecosystem that can help orchestrate some of these things. So there's a lot of work to be done to scale it. But right now, we are focused on mailing it and understanding exactly what it takes to be successful.

Pinjalim Bora

Thank you.

Operator

And that is all the time we have for questions. This concludes today's conference call. Thank you for your participation. You may now disconnect.