- Third quarter revenue totaled $430.1 million, representing an
increase of 28% year-over-year
- GAAP loss from operations of $30.8 million, or 7% of revenue,
and non-GAAP income from operations of $63.5 million, or 15% of
revenue
- Operating cash flow of $104.7 million, or 24% of revenue, and
free cash flow of $45.3 million, or 11% of revenue
Cloudflare, Inc. (NYSE: NET), the leading connectivity cloud
company, today announced financial results for its third quarter
ended September 30, 2024.
"I am pleased with our results for the third quarter—exceeding
expectations for revenue, operating margin, and free cash flow
while also reaching a key inflection point in the transformation of
our go-to-market organization. In addition, we added a record 219
large customers and achieved a new milestone—35% of the Fortune 500
are now paying Cloudflare customers,” said Matthew Prince,
co-founder & CEO of Cloudflare. “I’m also proud of what we did
to support causes even bigger than ourselves—helping to ensure
cyber attacks did not play a role in impacting the outcome of the
United States 2024 election. We exceeded financial, customer, and
innovation milestones, all while protecting both presidential
candidates and providing our services, at no cost, to hundreds of
government websites in more than half of U.S. states. I want to
thank our team for coming to the aid of election officials and
campaigns whenever they had a need and for playing a vital role in
upholding the democratic process."
Third Quarter Fiscal 2024 Financial Highlights
- Revenue: Total revenue of $430.1 million, representing
an increase of 28% year-over-year.
- Gross Profit: GAAP gross profit was $334.1 million, or
77.7% gross margin, compared to $257.5 million, or 76.7%, in the
third quarter of 2023. Non-GAAP gross profit was $339.1 million, or
78.8% gross margin, compared to $264.2 million, or 78.7%, in the
third quarter of 2023.
- Operating Income (Loss): GAAP loss from operations was
$30.8 million, or 7.2% of revenue, compared to $39.2 million, or
11.7% of revenue, in the third quarter of 2023. Non-GAAP income
from operations was $63.5 million, or 14.8% of revenue, compared to
$42.5 million, or 12.7% of revenue, in the third quarter of
2023.
- Net Income (Loss): GAAP net loss was $15.3 million,
compared to $23.5 million in the third quarter of 2023. GAAP net
loss per basic and diluted share was $0.04, compared to $0.07 in
the third quarter of 2023. Non-GAAP net income was $72.6 million,
compared to $55.3 million in the third quarter of 2023. Non-GAAP
net income per diluted share was $0.20, compared to $0.16 in the
third quarter of 2023.
- Cash Flow: Net cash flow from operating activities was
$104.7 million, compared to $68.1 million for the third quarter of
2023. Free cash flow was $45.3 million, or 11% of revenue, compared
to $34.9 million, or 10% of revenue, in the third quarter of
2023.
- Cash, cash equivalents, and available-for-sale
securities were $1,823.8 million as of September 30, 2024.
The section titled "Non-GAAP Financial Information" below
describes our usage of non-GAAP financial measures. Reconciliations
between historical GAAP and non-GAAP information are contained at
the end of this press release following the accompanying financial
data.
Financial Outlook
For the fourth quarter of fiscal 2024, we expect:
- Total revenue of $451.0 to $452.0 million
- Non-GAAP income from operations of $57.0 to $58.0 million
- Non-GAAP net income per share of $0.18, utilizing weighted
average common shares outstanding of approximately 360 million
For the full year fiscal 2024, we expect:
- Total revenue of $1,661.0 to $1,662.0 million
- Non-GAAP income from operations of $220.0 to $221.0
million
- Non-GAAP net income per share of $0.74, utilizing weighted
average common shares outstanding of approximately 357 million
These statements are forward-looking and actual results may
differ materially. Refer to the Forward-Looking Statements safe
harbor below for information on the factors that could cause our
actual results to differ materially from these forward-looking
statements.
Conference Call Information
Cloudflare will host an investor conference call to discuss its
third quarter ended September 30, 2024 earnings results today at
2:00 p.m. Pacific time (5:00 p.m. Eastern time). Interested parties
can access the call by dialing (877) 400-4517 from the United
States or (332) 251-2620 internationally with conference ID
3723782. A live webcast of the conference call will be accessible
from the investor relations website at https://cloudflare.NET. A
replay will be available approximately two hours after the
conclusion of the live event and will remain available for
approximately one year.
Supplemental Financial and Other Information
Supplemental financial and other information can be accessed
through the Company’s investor relations website at
https://cloudflare.NET.
Non-GAAP Financial Information
Cloudflare believes that the presentation of non-GAAP financial
information provides important supplemental information to
management and investors regarding financial and business trends
relating to the Company’s financial condition and results of
operations. Reconciliations of non-GAAP financial measures to the
most directly comparable financial results as determined in
accordance with GAAP are included at the end of this press release
following the accompanying financial data. A reconciliation of
non-GAAP guidance measures to corresponding GAAP measures is not
available on a forward-looking basis without unreasonable effort
due to the uncertainty of expenses that may be incurred in the
future. For further information regarding why Cloudflare believes
that these non-GAAP measures provide useful information to
investors, the specific manner in which management uses these
measures, and some of the limitations associated with the use of
these measures, please refer to the “Explanation of Non-GAAP
Financial Measures” section at the end of this press release.
Available Information
Cloudflare intends to use its press releases, website, investor
relations website, news site, blog, X account, Facebook account,
and Instagram account, in addition to filings made with the
Securities and Exchange Commission (SEC) and public conference
calls, as a means of disclosing material non-public information and
for complying with its disclosure obligations under Regulation
FD.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which statements involve substantial risks and
uncertainties. In some cases, you can identify forward-looking
statements because they contain words such as “may,” “will,”
“should,” “expect,” “explore,” “plan,” “anticipate,” “could,”
“intend,” “target,” “project,” “contemplate,” “believe,”
“estimate,” “predict,” “potential,” or “continue,” or the negative
of these words, or other similar terms or expressions that concern
our expectations, strategy, plans, or intentions. However, not all
forward-looking statements contain these identifying words.
Forward-looking statements expressed or implied in this press
release include, but are not limited to, statements regarding our
future financial and operating performance, our reputation and
performance in the market, general market trends, our estimated and
projected revenue, non-GAAP income from operations and non-GAAP net
income per share, shares outstanding, the benefits to customers
from using our products, the expected functionality and performance
of our products, the demand by customers for our products, our
plans and objectives for future operations, growth, initiatives, or
strategies, our market opportunity, and comments made by our CEO
and others. There are a significant number of factors that could
cause actual results to differ materially from statements made in
this press release, including: the impact of adverse macroeconomic
conditions, such as inflation, high interest rates, actual or
potential bank failures and recessionary concerns, on our and our
customers’, vendors’, and partners’ operations and future financial
performance; the impact of the conflicts in the Middle East and
Ukraine and other areas of geopolitical tension around the world,
or any potential worsening or expansion of those conflicts or
geopolitical tensions and other geopolitical events such as
elections and other governmental changes; our history of net
losses; risks associated with managing our rapid growth; our
ability to attract and retain new customers (including new large
customers); our ability to retain and upgrade paying customers and
convert free customers to paying customers; our ability to expand
the number of products we sell to paying customers; our ability to
effectively increase sales to large customers; our ability to
increase brand awareness; our ability to continue to innovate and
develop new products and product features; our ability to generate
demand for our products; our ability to effectively attract, train,
and retain our sales force to be able to sell our existing and new
products and product features; our sales team’s productivity; our
ability to effectively attract, integrate and retain key personnel;
problems with our internal systems, network, or data, including
actual or perceived breaches or failures; rapidly evolving
technological developments in the market, including advancements in
AI; length of our sales cycles and the timing of payments by our
customers; activities of our paying and free customers or the
content of their websites and other Internet properties that use
our network and products; foreign currency fluctuations; changes in
the legal, tax, and regulatory environment applicable to our
business; and other general market, political, economic, and
business conditions. Our actual results could differ materially
from those stated or implied in forward-looking statements due to a
number of factors, including but not limited to, risks detailed in
our filings with the SEC, including our Quarterly Report on Form
10-Q filed on August 1, 2024, as well as other filings that we may
make from time to time with the SEC.
The forward-looking statements made in this press release relate
only to events as of the date on which the statements are made. We
undertake no obligation to update any forward-looking statements
made in this press release to reflect events or circumstances after
the date of this press release or to reflect new information or the
occurrence of unanticipated events, except as required by law. We
may not actually achieve the plans, intentions, or expectations
disclosed in our forward-looking statements, and you should not
place undue reliance on our forward-looking statements.
About Cloudflare
Cloudflare, Inc. (NYSE: NET) is the leading connectivity cloud
company on a mission to help build a better Internet. It empowers
organizations to make their employees, applications and networks
faster and more secure everywhere, while reducing complexity and
cost. Cloudflare’s connectivity cloud delivers the most
full-featured, unified platform of cloud-native products and
developer tools, so any organization can gain the control they need
to work, develop, and accelerate their business.
Powered by one of the world’s largest and most interconnected
networks, Cloudflare blocks billions of threats online for its
customers every day. It is trusted by millions of organizations –
from the largest brands to entrepreneurs and small businesses to
nonprofits, humanitarian groups, and governments across the
globe.
Learn more about Cloudflare’s connectivity cloud at
cloudflare.com/connectivity-cloud. Learn more about the latest
Internet trends and insights at radar.cloudflare.com.
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share
data)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Revenue
$
430,082
$
335,603
$
1,209,680
$
934,272
Cost of revenue(1)(2)
95,967
78,069
270,016
223,722
Gross profit
334,115
257,534
939,664
710,550
Operating expenses:
Sales and marketing(1)(2)(4)
185,221
150,214
553,824
433,903
Research and development(1)
110,911
90,593
301,161
261,742
General and administrative(1)(3)
68,777
55,939
204,721
157,561
Total operating expenses
364,909
296,746
1,059,706
853,206
Loss from operations
(30,794
)
(39,212
)
(120,042
)
(142,656
)
Non-operating income (expense):
Interest income
22,471
17,954
65,438
47,977
Interest expense(5)
(1,433
)
(1,138
)
(3,751
)
(4,803
)
Loss on extinguishment of debt
—
—
—
(50,300
)
Other income (expense), net
(3,066
)
115
(1,673
)
(2,269
)
Total non-operating income (expense),
net
17,972
16,931
60,014
(9,395
)
Loss before income taxes
(12,822
)
(22,281
)
(60,028
)
(152,051
)
Provision for income taxes
2,509
1,254
5,924
4,033
Net loss
$
(15,331
)
$
(23,535
)
$
(65,952
)
$
(156,084
)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.04
)
$
(0.07
)
$
(0.19
)
$
(0.47
)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
342,356
334,666
340,539
332,600
____________
(1) Includes stock-based compensation and
related employer payroll taxes as follows:
Cost of revenue
$
2,943
$
2,367
$
8,776
$
6,296
Sales and marketing
24,677
20,674
71,081
57,276
Research and development
40,459
36,353
106,545
103,142
General and administrative
23,688
17,463
71,599
43,482
Total stock-based compensation and related
employer payroll taxes
$
91,767
$
76,857
$
258,001
$
210,196
(2) Includes amortization of acquired
intangible assets as follows:
Cost of revenue
$
2,054
$
4,313
$
8,364
$
12,938
Sales and marketing
363
575
1,301
1,725
Total amortization of acquired intangible
assets
$
2,417
$
4,888
$
9,665
$
14,663
(3) Includes acquisition-related and other
expenses as follows:
General and administrative
$
78
$
—
$
240
$
—
Total acquisition-related and other
expenses
$
78
$
—
$
240
$
—
(4) Includes one-time compensation charge
as follows:
Sales and marketing
$
—
$
—
$
15,000
$
—
Total one-time compensation charge
$
—
$
—
$
15,000
$
—
(5) Includes amortization of debt issuance
costs as follows:
Interest expense
$
990
$
1,059
$
2,970
$
3,529
Total amortization of debt issuance
costs
$
990
$
1,059
$
2,970
$
3,529
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except par
value)
(unaudited)
September 30,
2024
December 31,
2023
Assets
Current assets:
Cash and cash equivalents
$
182,883
$
86,864
Available-for-sale securities
1,640,963
1,586,880
Accounts receivable, net
252,927
248,268
Contract assets
13,458
11,041
Restricted cash short-term
1,000
2,522
Prepaid expenses and other current
assets
72,647
47,502
Total current assets
2,163,878
1,983,077
Property and equipment, net
396,552
322,813
Goodwill
157,200
148,047
Acquired intangible assets, net
19,247
19,564
Operating lease right-of-use assets
151,513
138,556
Deferred contract acquisition costs,
noncurrent
152,380
133,236
Restricted cash
2,023
1,838
Other noncurrent assets
19,953
12,636
Total assets
$
3,062,746
$
2,759,767
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable
$
74,110
$
53,727
Accrued expenses and other current
liabilities
68,885
63,597
Accrued compensation
65,797
63,801
Operating lease liabilities
43,028
38,351
Deferred revenue
389,795
347,608
Total current liabilities
641,615
567,084
Convertible senior notes, net
1,286,332
1,283,362
Operating lease liabilities,
noncurrent
121,374
113,490
Deferred revenue, noncurrent
21,990
17,244
Other noncurrent liabilities
18,345
15,540
Total liabilities
2,089,656
1,996,720
Stockholders’ Equity
Class A common stock; $0.001 par value;
2,250,000 shares authorized as of September 30, 2024 and December
31, 2023; 305,386 and 298,089 shares issued and outstanding as of
September 30, 2024 and December 31, 2023, respectively
305
297
Class B common stock; $0.001 par value;
315,000 shares authorized as of September 30, 2024 and December 31,
2023; 37,661 and 39,443 shares issued and outstanding as of
September 30, 2024 and December 31, 2023, respectively
37
40
Additional paid-in capital
2,046,593
1,784,566
Accumulated deficit
(1,089,792
)
(1,023,840
)
Accumulated other comprehensive income
15,947
1,984
Total stockholders’ equity
973,090
763,047
Total liabilities and stockholders’
equity
$
3,062,746
$
2,759,767
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September
30,
2024
2023
Cash Flows from Operating
Activities
Net loss
$
(65,952
)
$
(156,084
)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization expense
91,476
99,640
Non-cash operating lease costs
35,624
32,899
Amortization of deferred contract
acquisition costs
56,707
44,757
Stock-based compensation expense
243,969
199,565
Amortization of debt issuance costs
2,970
3,529
Net accretion of discounts and
amortization of premiums on available-for-sale securities
(33,980
)
(31,039
)
Deferred income taxes
(1,338
)
(588
)
Provision for bad debt
7,357
9,527
Loss on extinguishment of debt
—
50,300
Other
361
713
Changes in operating assets and
liabilities, net of effect of acquisitions:
Accounts receivable, net
(12,016
)
(60,451
)
Contract assets
(2,417
)
(3,397
)
Deferred contract acquisition costs
(75,851
)
(66,766
)
Prepaid expenses and other current
assets
(25,313
)
(17,115
)
Other noncurrent assets
621
(1,189
)
Accounts payable
7,817
5,252
Accrued expenses and other current
liabilities
11,316
8,378
Operating lease liabilities
(36,020
)
(31,096
)
Deferred revenue
46,933
81,075
Other noncurrent liabilities
857
1,055
Net cash provided by operating
activities
253,121
168,965
Cash Flows from Investing
Activities
Purchases of property and equipment
(111,884
)
(83,580
)
Capitalized internal-use software
(22,076
)
(16,637
)
Asset acquisitions and business
combinations, net of cash acquired
(15,015
)
—
Purchases of available-for-sale
securities
(1,187,287
)
(1,293,014
)
Sales of available-for-sale securities
—
20,248
Maturities of available-for-sale
securities
1,173,041
1,288,364
Other investing activities
29
65
Net cash used in investing
activities
(163,192
)
(84,554
)
Cash Flows from Financing
Activities
Repayments of convertible senior notes
—
(207,649
)
Cash paid for issuance costs on revolving
credit facility
(2,148
)
—
Proceeds from the exercise of stock
options
9,031
11,384
Proceeds from the early exercise of stock
options
6
—
Repurchases of unvested common stock
—
(34
)
Proceeds from the issuance of common stock
for employee stock purchase plan
10,455
10,450
Payment of tax withholding obligation on
RSU settlement
(12,591
)
(5,643
)
Payment of indemnity holdback
—
(10,483
)
Net cash provided by (used in)
financing activities
4,753
(201,975
)
Net increase (decrease) in cash, cash
equivalents, and restricted cash
94,682
(117,564
)
Cash, cash equivalents, and restricted
cash, beginning of period
91,224
215,204
Cash, cash equivalents, and restricted
cash, end of period
$
185,906
$
97,640
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Reconciliation of cost of
revenue:
GAAP cost of revenue
$
95,967
$
78,069
$
270,016
$
223,722
Less: Stock-based compensation and related
employer payroll taxes
(2,943
)
(2,367
)
(8,776
)
(6,296
)
Less: Amortization of acquired intangible
assets
(2,054
)
(4,313
)
(8,364
)
(12,938
)
Non-GAAP cost of revenue
$
90,970
$
71,389
$
252,876
$
204,488
Reconciliation of gross profit:
GAAP gross profit
$
334,115
$
257,534
$
939,664
$
710,550
Add: Stock-based compensation and related
employer payroll taxes
2,943
2,367
8,776
6,296
Add: Amortization of acquired intangible
assets
2,054
4,313
8,364
12,938
Non-GAAP gross profit
$
339,112
$
264,214
$
956,804
$
729,784
GAAP gross margin
77.7
%
76.7
%
77.7
%
76.1
%
Non-GAAP gross margin
78.8
%
78.7
%
79.1
%
78.1
%
Reconciliation of operating
expenses:
GAAP sales and marketing
$
185,221
$
150,214
$
553,824
$
433,903
Less: Stock-based compensation and related
employer payroll taxes
(24,677
)
(20,674
)
(71,081
)
(57,276
)
Less: Amortization of acquired intangible
assets
(363
)
(575
)
(1,301
)
(1,725
)
Less: One-time compensation charge
—
—
(15,000
)
—
Non-GAAP sales and marketing
$
160,181
$
128,965
$
466,442
$
374,902
GAAP research and development
$
110,911
$
90,593
$
301,161
$
261,742
Less: Stock-based compensation and related
employer payroll taxes
(40,459
)
(36,353
)
(106,545
)
(103,142
)
Non-GAAP research and development
$
70,452
$
54,240
$
194,616
$
158,600
GAAP general and administrative
$
68,777
$
55,939
$
204,721
$
157,561
Less: Stock-based compensation and related
employer payroll taxes
(23,688
)
(17,463
)
(71,599
)
(43,482
)
Less: Acquisition-related and other
expenses
(78
)
—
(240
)
—
Non-GAAP general and administrative
$
45,011
$
38,476
$
132,882
$
114,079
Reconciliation of income (loss) from
operations:
GAAP loss from operations
$
(30,794
)
$
(39,212
)
$
(120,042
)
$
(142,656
)
Add: Stock-based compensation and related
employer payroll taxes
91,767
76,857
258,001
210,196
Add: Amortization of acquired intangible
assets
2,417
4,888
9,665
14,663
Add: Acquisition-related and other
expenses
78
—
240
—
Add: One-time compensation charge
—
—
15,000
—
Non-GAAP income from operations
$
63,468
$
42,533
$
162,864
$
82,203
GAAP operating margin
(7.2
)%
(11.7
)%
(9.9
)%
(15.3
)%
Non-GAAP operating margin
14.8
%
12.7
%
13.5
%
8.8
%
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Reconciliation of interest
expense:
GAAP interest expense
$
(1,433
)
$
(1,138
)
$
(3,751
)
$
(4,803
)
Add: Amortization of debt issuance
costs
990
1,059
2,970
3,529
Non-GAAP interest expense
$
(443
)
$
(79
)
$
(781
)
$
(1,274
)
Reconciliation of loss on
extinguishment of debt:
GAAP loss on extinguishment of debt
$
—
$
—
$
—
$
(50,300
)
Add: Loss on extinguishment of debt
—
—
—
50,300
Non-GAAP loss on extinguishment of
debt
$
—
$
—
$
—
$
—
Reconciliation of provision for income
taxes:
GAAP provision for income taxes
$
2,509
$
1,254
$
5,924
$
4,033
Income tax effect of non-GAAP
adjustments
7,346
4,005
19,718
6,454
Non-GAAP provision for income taxes
$
9,855
$
5,259
$
25,642
$
10,487
Reconciliation of net income (loss) and
net income (loss) per share:
GAAP net loss attributable to common
stockholders
$
(15,331
)
$
(23,535
)
$
(65,952
)
$
(156,084
)
Add: Stock-based compensation and related
employer payroll taxes
91,767
76,857
258,001
210,196
Add: Amortization of acquired intangible
assets
2,417
4,888
9,665
14,663
Add: Acquisition-related and other
expenses
78
—
240
—
Add: One-time compensation charge
—
—
15,000
—
Add: Amortization of debt issuance
costs
990
1,059
2,970
3,529
Add: Loss on extinguishment of debt
—
—
—
50,300
Income tax effect of non-GAAP
adjustments
(7,346
)
(4,005
)
(19,718
)
(6,454
)
Non-GAAP net income
$
72,575
$
55,264
$
200,206
$
116,150
GAAP net loss per share, basic
$
(0.04
)
$
(0.07
)
$
(0.19
)
$
(0.47
)
GAAP net loss per share, diluted
$
(0.04
)
$
(0.07
)
$
(0.19
)
$
(0.47
)
Add: Stock-based compensation and related
employer payroll taxes
0.27
0.23
0.76
0.63
Add: Amortization of acquired intangible
assets
0.01
0.01
0.03
0.04
Add: Acquisition-related and other
expenses
—
—
—
—
Add: One-time compensation charge
—
—
0.04
—
Add: Amortization of debt issuance
costs
—
—
0.01
0.01
Add: Loss on extinguishment of debt
—
—
—
0.15
Income tax effect of non-GAAP
adjustment
(0.02
)
(0.01
)
(0.06
)
(0.02
)
Effect of dilutive shares
(0.02
)
—
(0.03
)
—
Non-GAAP net income per share,
diluted(1)(2)
$
0.20
$
0.16
$
0.56
$
0.34
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic
342,356
334,666
340,539
332,600
Weighted-average shares used in computing
non-GAAP net income per share attributable to common stockholders,
diluted(2)
356,855
351,709
356,789
343,432
____________
(1)
Totals may not sum due to rounding.
Figures are calculated based upon the respective underlying
non-rounded data.
(2)
For the period in which we had non-GAAP
net income, diluted non-GAAP net income per share is calculated
using weighted-average shares, adjusted for dilutive potential
shares that were assumed outstanding during period.
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Free cash flow
Net cash provided by operating
activities
$
104,727
$
68,100
$
253,121
$
168,965
Less: Purchases of property and
equipment
(50,203
)
(27,291
)
(111,884
)
(83,580
)
Less: Capitalized internal-use
software
(9,245
)
(5,934
)
(22,076
)
(16,637
)
Free cash flow
$
45,279
$
34,875
$
119,161
$
68,748
Net cash used in investing activities
$
(76,400
)
$
(100,229
)
$
(163,192
)
$
(84,554
)
Net cash provided by (used in) financing
activities
$
(2,411
)
$
(34,610
)
$
4,753
$
(201,975
)
Net cash provided by operating
activities
(percentage of revenue)
24
%
20
%
21
%
18
%
Less: Purchases of property and
equipment
(percentage of revenue)
(11
)%
(8
)%
(9
)%
(9
)%
Less: Capitalized internal-use
software
(percentage of revenue)
(2
)%
(2
)%
(2
)%
(2
)%
Free cash flow margin(1)
11
%
10
%
10
%
7
%
____________
(1)
Totals may not sum due to rounding.
Figures are calculated based upon the respective underlying
non-rounded data.
Explanation of Non-GAAP Financial Measures
In addition to our results determined in accordance with
generally accepted accounting principles in the United States (U.S.
GAAP), we believe the following non-GAAP measures are useful in
evaluating our operating performance. We use the following non-GAAP
financial information to evaluate our ongoing operations and for
internal planning and forecasting purposes. We believe that
non-GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and
comparability with past financial performance. However, non-GAAP
financial information is presented for supplemental informational
purposes only, has limitations as an analytical tool and should not
be considered in isolation or as a substitute for financial
information presented in accordance with U.S. GAAP. In particular,
free cash flow is not a substitute for cash provided by operating
activities. Additionally, the utility of free cash flow as a
measure of our liquidity is further limited as it does not
represent the total increase or decrease in our cash balance for a
given period. In addition, other companies, including companies in
our industry, may calculate similarly-titled non-GAAP measures
differently or may use other measures to evaluate their
performance, all of which could reduce the usefulness of our
non-GAAP financial measures as tools for comparison. A
reconciliation is provided above for each non-GAAP financial
measure to the most directly comparable financial measure stated in
accordance with U.S. GAAP. Investors are encouraged to review the
related U.S. GAAP financial measures and the reconciliation of
these non-GAAP financial measures to their most directly comparable
U.S. GAAP financial measures, and not to rely on any single
financial measure to evaluate our business.
Items Excluded from Non-GAAP Measures. We exclude
stock-based compensation expense, which is a non-cash expense, from
certain of our non-GAAP financial measures because we believe that
excluding this item provides meaningful supplemental information
regarding operational performance. We exclude employer payroll tax
expenses related to stock-based compensation, which is a cash
expense, from certain of our non-GAAP financial measures because
such expenses are dependent on the price of our Class A common
stock and other factors that are beyond our control and do not
correlate to the operation of our business. We exclude amortization
of acquired intangible assets, which is a non-cash expense, related
to business combinations from certain of our non-GAAP financial
measures because such expenses are related to business combinations
and have no direct correlation to the operation of our business. We
exclude acquisition-related and other expenses from certain of our
non-GAAP financial measures because such expenses are related to
business combinations and have no direct correlation to the
operation of our business. Acquisition-related and other expenses
can be cash or non-cash expenses and include third-party
transaction costs and compensation expense for key acquired
personnel. We also excluded the one-time cash compensation charge
incurred during the three months ended March 31, 2024 from certain
of our non-GAAP financial measures because it was not attributable
to services provided and did not correlate to the ongoing operation
of our business. We exclude amortization of debt issuance costs and
loss on extinguishment of debt, which are non-cash expenses, from
certain of our non-GAAP financial measures because such expenses
have no direct correlation to the operation of our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin. We
define non-GAAP gross profit and non-GAAP gross margin as U.S. GAAP
gross profit and U.S. GAAP gross margin, respectively, excluding
stock-based compensation and related employer payroll taxes and
amortization of acquired intangible assets.
Non-GAAP Income from Operations and Non-GAAP Operating
Margin. We define non-GAAP income from operations and non-GAAP
operating margin as U.S. GAAP loss from operations and U.S. GAAP
operating margin, respectively, excluding stock-based compensation
expense and its related employer payroll taxes, amortization of
acquired intangible assets, acquisition-related and other
expenses.
Non-GAAP Net Income and Non-GAAP Net Income per Share,
Diluted. We define non-GAAP net income as GAAP net income
(loss) adjusted for stock-based compensation expense and its
related employer payroll taxes, amortization of acquired intangible
assets, acquisition-related and other expenses, amortization of
issuance costs, loss on extinguishment of debt, and a non-GAAP
provision for (benefit from) income taxes. Generally, the
difference between our GAAP and non-GAAP income tax expense
(benefit) is primarily due to adjustments in stock-based
compensation and related employer payroll taxes, amortization of
acquired intangibles associated with business combinations,
acquisition-related and other expenses, and amortization of
issuance costs. We define non-GAAP net income per share, diluted,
as non-GAAP net income divided by the weighted-average common
shares outstanding, adjusted for dilutive potential shares that
were assumed outstanding during period. Currently, potential
dilutive effect mainly consists of employee equity incentive plans
and convertible senior notes. We believe that excluding these items
from non-GAAP net income per share, diluted, provides management
and investors with greater visibility into the underlying
performance of our core business operating results.
Free Cash Flow and Free Cash Flow Margin. Free cash flow
is a non-GAAP financial measure that we calculate as net cash
provided by operating activities less cash used for purchases of
property and equipment and capitalized internal-use software. Free
cash flow margin is calculated as free cash flow divided by
revenue. We believe that free cash flow and free cash flow margin
are useful indicators of liquidity that provide information to
management and investors about the amount of cash generated from
our operations that, after the investments in property and
equipment and capitalized internal-use software, can be used for
strategic initiatives, including investing in our business, and
strengthening our financial position. We believe that historical
and future trends in free cash flow and free cash flow margin, even
if negative, provide useful information about the amount of cash
generated by our operating activities that is available (or not
available) to be used for strategic initiatives. For example, if
free cash flow is negative, we may need to access cash reserves or
other sources of capital to invest in strategic initiatives. One
limitation of free cash flow and free cash flow margin is that they
do not reflect our future contractual commitments. Additionally,
free cash flow does not represent the total increase or decrease in
our cash balance for a given period.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241107791655/en/
Investor Relations Information Phil Winslow
ir@cloudflare.com
Press Contact Information Daniella Vallurupalli
press@cloudflare.com
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