Good day and welcome to the DigitalOcean Q1 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's 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, please press star one again. We ask that you limit your questions to one per person so we are able to get as many questions as possible. For operator assistance throughout the call, please press star zero. Finally, I would like to advise all participants that this call is being recorded. Thank you. I would now like to welcome Melanie Strate, Head of Investor Relations, to begin the conference. Melanie, over to you.
Thank you and good morning. Thank you all for joining us today to review DigitalOcean's first quarter 2025 financial results. Joining me on the call today are Paddy Srinivasan, our Chief Executive Officer, and Matt Steinfort, 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 management's best judgment based on currently available information. Our 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 today's press release that is posted on our website. DigitalOcean 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 reconciliations 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. A webcast of today's call is also available in the IR section of our website. With that, I will turn the call over to Paddy.
Thank you, Melanie. Good morning, everyone, and thank you for joining us today as we review our solid first quarter 2025 results. The top-line growth momentum we generated in 2024 continued into Q1, and the results provide further evidence of our continued execution of our strategy. This strategy, as outlined in slide four of our earnings presentation, includes scaling with our digital native enterprise customers by helping them run large and complex workloads on our cloud platform and continuing to democratize the access of AI for both new generation AI native startups as well as for our existing 600,000-plus customers. I'm very pleased to share today the excellent progress we are making on both of these strategic priorities.
My comments today will include a quick recap of our first quarter results, details on the progress we are making for our customers as we invest in product innovation and go-to-market for both Core Cloud and AI platforms, and a quick summary of the progress we are making on our financing strategy that Matt will detail later in the call. Let me start with the first quarter financial results and turn to slide five of our earnings stat. We had another solid quarter as revenue growth increased in the first quarter to 14% year-over-year to $211 million, with our AI ARR continuing to grow north of 160% year-over-year. Q1 Net Dollar Retention rate, or NDR, improved to 100% for the first time since Q2 of 2023, and we expect NDR to remain in a similar range as the last two quarters for the remainder of the year.
In addition, we made further progress with our continued focus on our higher spending Digital Native Enterprise customers, increasing revenue from customers who were at $100,000-plus annual run rate up 41% year-over-year and to 23% of total revenue. This is well above market growth rates and was driven by a 27% year-over-year increase in customer count and an 11% increase in their average spend with DigitalOcean. This improved growth was not confined to just this segment, as our higher spend customers as a whole, which includes our builders, scalers, and scalers-plus customers, grew to over 170,000 in number, and their revenue grew 16% year-over-year, making up 88% of our total revenue. The growth of these customers is a clear sign that our product innovation efforts and investments in strategic and targeted go-to-market motions are helping digital native enterprises scale rapidly on our platform.
While we continued investments and drove higher growth, we did so while delivering healthy profitability metrics, including 61% gross margin and 41% EBITDA margins in Q1. Our 61% gross margins in Q1 is 200 basis points higher than the prior year, an improvement that came from cost optimization that mitigated the near-term increase in cost of revenue that comes with the incremental capacity that we brought online in our new Atlanta Data Center. This new data center hosts multiple AI inferencing fabrics, some of which are already live for customers, powering real-world customer inferencing workloads, and is the first step in our long-term data center optimization strategy, which includes both our cloud and AI workloads, giving us a path to further gross margin optimization. Our 2025 capital program was heavily front-loaded in Q1, which drove the decline in quarterly adjusted free cash flow margin.
While lumpy, this spend was contemplated in our full year 2025 plan, and we remain on track for our full year free cash flow margin guidance. Having this new AI inferencing infrastructure in place in the new Atlanta Data Center enables us to go even faster on our AI initiatives, helping us observe and learn from these customer workloads, ultimately enabling us to innovate faster in this rapidly evolving space. It also enables us to win even larger inferencing workloads, like the $20 million-plus multi-year inferencing commitment we closed with a strategic customer and partner early in Q2. With our focus now on large digital native enterprises, our push to win large workload migrations from other clouds, and our funnel of larger AI native inferencing workloads, we are now seeing and winning larger and even multi-million dollar deals than we have in the past.