NET - Earnings call transcript Q2 2021

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Operator

Good day and thank you for standing by and welcome to the Cloudflare Q2 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers remarks there will be a question-and-and session [Operator Instructions]. I would now like to hand the conference over to your speaker today, Jayson Noland. Please go ahead.

Jayson Noland

us XXXX. Cloudflare's joining the results for quarter second you to financial discuss for Thank on call, COO; me Michelle CFO. With the Zatlyn, and Prince, Co-Founder, CEO; Co-Founder President and and Seifert, we Thomas have Matthew now, By earnings should to have our everyone announcement. access as well financial supplemental our as found information Relations website. announcement be in our This may Investor

including, to, potential the products; tax are operations but to and performance, our the and company's loss general beyond are global customers', other a be future forward-looking operating of and and loss and in retention making product non-GAAP anticipated limited As performance, are customers, timing rate, non-GAAP conditions financial statements which during anticipated of and and not non-GAAP dollar-based future to net comments partners' rather markets. flow, adverse and outstanding, per operations, of non-GAAP operating the those reminder, we'll cash revenue, expenses, uncertainty, subject today's economic net share, future shares risks non-GAAP the financial gross COVID-XX performance; statements total not performance discussion, large impact the but These effective our from paying rate, but free domestic of customers. including, the of market not guarantees vendors' duration net launches customers extent pandemic some and control, limited and margin,

suggested today, undertake statements. update views in our on Our actual obligation and future. as rely forward-looking results not as this statements significantly the after We may should them any differ in or forward-looking projected call. these to you statements those These from apply no of representing

are well and that revenue filings reflected prior in and today's as other press the of on about Exchange operating our discussion Securities see our discussed with otherwise XXX. complete current period more will under basis. All and numbers Unless please condition, future than risks noted, we non-GAAP Commission earnings could and today financials release. uncertainties as financial adjusted be impact all the talk a ASC For results an

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Matthew Prince

a Thank XX% million, as you, our company. of In We Jason. year-over-year. had public revenue up achieved $XXX quarter we QX, strongest

and customer our continue now we the large to to that growth XXX revenue are of strength XXXX XX% more all Our Fortune ended across with customers, saw and pay continue customers In accelerate customers those business. particular, strength the by we a segments. than we added per as paying large year particular of their $XXX,XXX XXXX across quarter see out record enterprise

and wins, gross in year-over-year. Our If some was up with the wanted This process even to up in expansion every organizations QX, and customer were the is of Services we to in attacks. strong companies with chose Security over The a it reaching XX%, dollar growth, agencies XXX% Department very customer Cloudflare basis points solutions cyber most the the the secure rate based the a Accenture XXX We and against net branch help end, also the a highlight winning retention improved are space. threat States our revenue improved QX theme vendor executive for largest federal jump and sophisticated all starting To federal I nearly there buyer. that world. business margin as right the with competitive quarter, Federal contract Cloudflare's where the rising Trust agencies. government world's of won to our protection Zero in and partnered to a against United offer civilian other IT with largest Homeland in order to

recognized we and increasingly solutions many highlights organizations Zero organizations win This larger Trust working and larger how like we're States there example the with our is as also class. Our leading how government. of service now are larger as good a GSIs aren't than United world Accenture,

credibility believe gives believe it to don't in that a proud space be will and ultimately will Zero in are contribution this deal it While leader be Trust us revenue, we the XXXX. the as of meaningful a contributor the we we and significant

through As and deal do in along other have this a deals quarter, show with in RPO we won some the result, the of included up end guidance the we strategic year. not the impact them in our of not

our of like the States as QX. as QX other in won anticipate in deals, deals to in customer will us large a United the these Anticipating increase These investments continued began servicing through we the However, we investments government network. increased require investments strategic year. in we well continue second QX does half and making

we the believe strategy Even still with long-term strategic We continues and proves XXXX. we of reach are in winning this customers investment, the to initial investing anticipate QX will pay breakeven for off. how we

to While next with time I a some I the you wanted of of profitability anticipate we're this conversation, having year. on preview topic

really profit We get aggressively intend our there. target, back have reach the From we that a an are which not model, to gross long-term in reach long-term, confident rush we to at it. reinvest As we point ability part our of but into we target excess When in XX%. margin operating remain of we say breakeven, long-term we growth. mean to

driving signed to add growth a relentlessly major One for gas A their cyber facing. and a and foreseeable annual to nowhere to They buy build pipeline portion the protect customers for referred in together were for plan continued provider for a continue and theme integrator infrastructure. reinvest them. products wins. system our to we critical and new customers a optimized infrastructure close attacks contract protect future. out in we for products, they being solution. help oil the were of We against They better are customer is to execute to and help were ideas news to new sophisticated Cloudflare Security to be launch Cloudflare major looking of by innovation the more $XXX,XXX us was their

believe first for provider $XXX,XXX signed companies Fortune of A Cloudflare is solution. One a contract calls. four portion threat. conversation is A transportation number components. hacker industrial A this signed group. the similar through is a Cloudflare deal. One size targeted a Fortune cybersecurity They auto faced provider team there's Cloudflare manufacturing spend opportunity a enable us. very a CISO I face to there of another signed and than coming This our advisers Fortune think increasingly XXX for deal This that it. $XXX,XXX double and channel able the said, a is services solution three-year to partner. this customer an parts threat a We us of our that We to more challenges two-year by was customer The and Cloudflare We with their mitigate when first XXX the so-called seriously. threat of our relationship to hours $XXX,XXX the year. for was us annual deal were evident with of their XXX one Cloudflare our solve fancy took company came to Lazarus the over turned phone this fantastic.

make only You a XX% of can't car the parts. with

with delivery Zero the sophisticated that and customers the So e-commerce two-year up about team Cloudflare. to were contract. Their all enterprises of feels looking will the WAF the their turned Trust content being leader now. of signed and born top of problems Zero us of we their Cloudflare's million also It products. referred how signed for firm annually work second network new very CISO went their right this services. use one can we process, network and to of third process a making the solution. them. of using Fortune grow facto Fortune web provider two-year security. products when $XXX,XXX expanded This who on expanded of us on $XXX,XXX are customer's now contract. they everyone. solve our contracts like chain XXX A provider. with for The exclusive over of A won use choice malicious were already expect another win for solutions Fortune the spend that They provider and In a programmable expand we In $X manufacturing shows security using our company increasingly XXX he technically over technology That's Trust they attack referred secure with vendors, business. network exchange their because we manufacturing supply our impacts some In complete in future spirit, in firm de to us network. million one the that a XXX developer-friendly a our customers is they This becoming are us large thinking every competitive mind cryptocurrency from $X who other a to that

solutions. to in programming order million million. of for of technology and some some software of traditional the expanded how using leaned and developer products. economy but heavily performance new more as on note applications and They rich XXX largest fast in cryptocurrency United than application middleware they customers network developers Cloudflare's as tested their their of with replace They have more million, global as double future base. We the looking language performance. for quarter cities as programmable is the secure. million spend distributed us a programmable more production platform, four the customer workers now using deal deliver resonating because it companies using $X.X over cycle from our a spend smart up to government the largest are geographies be They been platform. As of appreciate services States annual provider vendor around down making their particularly I compute of on our exchanges number to the of their the assessed number love flexibility financial use presence performance. high-profile a use support see running Cloudflare battle It's a provider across They Cloudflare Workers' geographically exchange, on a increasingly cryptocurrency, providers. and network. easy someone are annually. Argo their provides, as signed the team as three-year they their compute accelerate ease signed tools $X this and whenever old-school their together expanded with We $X.X use are fast an the is deal. in and and the nearly Cloudflare's An get spend contract stitch use for Workers of fastest ago. global our to to four quarter answer $X.X development hyper also and industry of three segments drivers hyperscale They're products, since how now A company in Cloudflare. fintech Workers world, the that Asian They possible a Workers three-year to years routing building A struck Workers key scalable They of literally delivery cited million their was building by in our launched with decision secure well worldwide. our the on $X.X it that to manufacturing and for multiple of get honed and broad From

make I catch had a sure wanted week. Finally, announcement to you to chance all last our

about a We have hosting was year. products where tradition per weeks Impact Week. new weeks, our features. host we eight of and of first launch Last these week We innovation typically

to the as build We shows Internet. and of human continued helping really about I to work. and carbon what incredible drive retaining every financials. what which team a and walk a number they and deeply we our in attracting future in we the customers it you outstanding ancillary. do and sustainable customers we environmental commitment highlighted our With the And believe rights, During are to core of through our to our down them underserved to A What inclusive that, more have. impact initiatives of Pangea Thomas all company. They was Thank aren't the week that off worldwide. winning we a efforts to cut Internet is for I'll connectivity cost output, a vision better provides day who help living workforce Cloudflare's for mission success to that these Project up communities their are like an hand quarter. of at no

Thomas Seifert

and joining you you, Thank us. thank Matthew, to for everyone

We net continued records in quarter retention the both customer large momentum and and saw from the new first additions. dollar-based

this We base. From internationally. represented China, of we represented saw The geographic new this to JD continue while quarter, second growth as another was and results acquisition, XX% to year-over-year. perspective, demand, existing of we XX% we see $XXX.X continue Our customer the deliver well. success to year-over-year. local as revenue pleased to to Baidu successfully international strength expansion go-to-market transition is pleased million. investments the increased the well U.S. quarter we with within year, that our In XX% of and anywhere half ability quarter from year in first accelerate positioned to of XX% innovation revenue and our year-over-year to the The strong well Total U.S. world. revenue benefiting work ramp are in in the increased revenue increased continued go-to-market a due and in part execution. EMEA are revenue year-over-year. and XX% product ramp we made believe see increased a footprint. in both of to from our progressing We represented of U.S. last both consistent continue to XX% customer driven to APAC the firmly customers disciplined terms from revenue XX% for were of employees in in by

In addition network of served expanded already historical network past have performance metrics due equation. in and China, JD to performance streamlined coverage

XX% quarter representing an expansion saw exited We an XXX with the quarter paying of customers, a XXX metrics. adding customers, customer retention X,XXX saw year-over-year. which in number the year-over-year. additions significant large large and of basis We of ended record XX% to drive increase XXX%, sequentially year-over-year. large points customers, helped the representing XXX,XXX representing of quarter, our net our large to dollar-based of a with second a Turning We an customers record from increase sequentially. customer rate We increase XXX

encouraged to in are our this to customer We continue to continue large activities. giving see favorably costs invest go-to-market trend to confidence our acquisition us quarter enterprise

XX sequentially. quarter. represented basis margin revenue Network representing an was in XX%, of gross increase Second quarter of second CapEx points X% the

We continue revenue to network for XX% CapEx of be fiscal to to XX% XXXX. expect

Turning operating to expenses. the

General year-over-year Second quarter of quarter hiring total X% our expenses at operating revenue We Sales to and of percentage number the Sales of strong bringing decreased development year-over-year expenses in as a XX% of the X% were percentage revenue, revenue, G&A, decreased XX% X% for XX%. sequentially approximately marketing million expenses were XXXX and the another XX% Research administrative percentage percentage quarter. an of and increase the R&D, million year. sequentially of to to and with $XX.X and as quarter. year-over-year decreased and and quarter. X% decreased XX%. were XX% decreased to quarter. quarter X% of as employees and sequentially a from $XX.X year-over-year a million as same expenses revenue end to in the marketing had $XX.X sequentially a XX% for the decreased from from XX%. last

points basis share $X in loss quarter improving Net million strong year. operating period to see $X.X or continue same in second to XXX $X.X year-over-year. was loss operating million quarter net margin of with compared million in was loss $X.XX. last leverage the a per the We Operating the

for rate second XX%. the quarter tax effective Our negative was

flow cash $X was balance compared or same revenue billion was cash, or available-for-sale or of flow ended year-over-year. of period quarter $X.X million positive revenue XX% quarter $X.X decreased in and $X.X year. in and which revenue, million $XX the Free the negative $XX.X X% in to million securities. with to sheet. equivalents million second of last Operating We million sequentially second cash increased X% the negative cash the Turning

factors. previously, and enterprise cash obligations Current large seasonal variability $XXX ARPU. our flow due to increase continue ARPU the XX% in of in see As to and remained in Remaining or quarter, an capital, to performance year-over-year. XX% in business some working was the we've mentioned level second ARPU million, sequentially total ongoing expect of representing in of at growth we fluctuations strong margins coming XX%

Given the strong optimistic momentum and the we of are growth we continued our seeing, remain business. confident in

the year. such, quarter again and outlook we once our revenue As full for are both pleased to the raise

expand of the give some into deals, store. engineering lean of saw quarter mentioned wins the these customer investments the and continue and enhance our and investment further we will platform the in anticipate in and wins through we network previously, the second second second quarter. in a Matthew began first increased aspect security heavily the These these to we These our As continued Anticipating strategic map our will partnerships. half road quarter, exciting investments in which us year. necessitate offering making

to Turning guidance.

we range the Recall, XX% a Without customer quarter million, increase of to quarter, one-time year-over-year. third we a of to our For revenue quarter million representing the $XXX third an million increase third benefit revenue, this in an had guidance onetime to XX% XXXX expect XX% in renewal. would our represent of year-over-year. related $X.X benefit, of $XXX

million We outstanding. approximately loss assuming $X.XX expect range expect loss and of the share we operating the of range share million and in to million $X.XX per $X.X XXX net $X.X to common in

an rate effective of expect XX%. tax negative We

$XXX range to representing of expect XXXX, year of to For the an the increase XX% revenue year-over-year. in we XX% full $XXX million, million

the expect we $X.XX, net assuming of million operating to for in the loss million, of XXX in per range full outstanding. shares the approximately expect year range to loss over common share the and $XX period We $X.XX million $XX

closing, negative In an XXXX for completed expect we quarter. another of effective very rate strong tax XX%. We

mentioned, first take also ESG and Matthew everyone launched encourage disclosures week. highlight As Impact website Impact we where we a Week look last our centralized to our at initiatives. I sustainability

up gas aligns We our which open network like Operator, XXX% expand also continue also first of but please with only efforts, report, renewable work the financial our removing durability only tightly affiliated emission of that, and to not not mission sustainability business also strengthens it all I'd With powering energy, our questions. of Cloudflare. XXXX. our our our our to excited greenhouse first historic to is for poll report, published with by We're additive commitment to our for questions. and diversity but the to emissions

Operator

our Thank [Operator have line coming RBC with the Capital Instructions] We you. Matt first of question from Markets. Hedberg

Your line is open.

Matt Hedberg

little sector could Hi, a and sector that because congrats are behind of on guys? putting on clear your extensive opportunity. stood for down pretty about, resources impressive, it's It you Matthew, out federal you general hit you you've here. some guys. to a be taking you're And just more I you bit how in quarter Thanks that large levels like certification, that? the but or FedRAMP governments just all more how additional guess for me public really my talked bit public and the and way talk journey. GSIs, state think a question, more seems I is local Can strong Fed deal in but the early little to about still increasing

Matthew Prince

Matt. Sure

the already going we in half and year process we're process, -- will smoothly we will of anticipate FedRAMP and be going since but continue that through As in go getting go the you to we're marketplace well. in our that next it's first certified, anticipate fully mentioned, certification that we of very and the FedRAMP are the

been face. that -- federal because has solution customer stopping I U.S. for that's they most there, of and Library in are number a understand the the quite have the threat some a We a And for the the think of had under threats the at that cyber and look always organizations long that set Congress some world increasingly that we're look best are State of have out constant The when time others. at Department, for a FBI solutions broad they sophisticated time, customers.

significant a so I And that opportunity. think there is

We government people over both be think out efforts job the like, are really able service US that and And be paying own last GSIs to are able done with XX Accenture now with a years, of that's to partnerships cybersecurity really building in that. building investing -- then terms also relationships I the team of to our off. to but in terrific the leading we've the federal just

the fundamentally important of things products. number Cloudflare companies a build is One this their on the which top about of of important that's reasons other the one us and foundation, is is of why

our our the what And that world. the other across companies companies we've Zero looking again proud so buyer entire the resonating IT as solution success And can we that they these really of in is I'm for wins had are trust industry. literally biggest for Trust see the selling team to

Matt Hedberg

customers more some And fantastic. the or bundles. thing then That's Callon guess in on know record of year was successful I large I a about of Can in But Thomas, just know that in enterprise is it products. leveraging bigger maybe this how And last certainly, other introduced growth impressive. driving XX% XX that’s but momentum wins? particular. was I thoughts your you and talk I add taking deals the success think of in large are some bundling?

Thomas Seifert

from Matthew, or Cloudflare You part in that the of Cloudflare couple that he deals out heard during quarter were you one. picked one a

those as migrate the a important bundles and portfolio So product us. we within and currently broader projects our the products in It's bundling I Cloudflare becomes one more becomes of sophistication the we Michelle evolution into our order of are for huge get and that to do deeper in pricing approach. of running more opportunity the strategic,

happened customers especially commitments Salesforce the big larger and and journey customers larger like increased expanding deals. really revenue we and with per And in to net were sophisticated getting of Microsoft of admire successfully their up more because we effort. it companies has primarily going XXX% large and part a been retention we getting at look bundling bundled you dollar If accounts

huge making it's So a of front we good opportunity in too. but us still progress, are

Matt Hedberg

a lot guys. Thanks

Operator

from Jefferies. next question our of Brent line have Thill We coming the with

Your line open. is

Brent Thill

the have guidance the bigger the significant Thanks. deceleration. that there asked of comps in keep in that modeling up on? should in second Is a than coming we anything Thomas, mind half you're pretty in terms many the other just is implying

Thomas Seifert

expectation growth our Brent, a -- headwinds with it before the you but quarter continue getting to the in served growth remarks the over you last taking our now we And renewal we and about we how be well we prudent my us said from guidance onetime making also that I as up we be last where have this third our year to and in account quarters guidance everything -- public thoughtful. XX% and to perspective future this driven year-over-year we consistent as have into mind the account sure into company life if strongest that in XX% by so have. to far was guidance to is a eight So think tailwinds were to take the is keep customer is in a probably know the given

Brent Thill

just are that all your something maybe come about as or move? there given And the things a architecting Matthew, you're for see that or that maybe proud the surfacing didn't is really surprising financials leadership of that that in quick particularly seeing maybe that from you follow-up we through this are surprised perspective you're can't two one maybe

Matthew Prince

team. the and across have we that for team the to that applicants that back seeing strength come we're I'll think I

bunch both our in of as that sales come can so caliber And industry, team seen work to people organization exceed ever I fact who of yet their do thinking at out I is I've of talented it want that a our other of a lot next the but I that of career. career marketing not there time a I that's, just a expectations well they COVID the organization. Cloudflare, "If Everyone their people companies of R&D and sets continue we see the other thinking current scale. we have most just across chunk are of And can gets are and that And the do spend the and are of where build we the just to that quality as places. with who our also of saying best of some execute are think think are us my that to what but job retention to we really the want for and people can about, what that end with better is about, it be what people doing." this collections career the I just what at helping people Internet are continuing part they up think across

So I'm really raising think proud I of our it's that keep we that that amazing on team. team and bar the

Operator

of We the question line Jim Piper next Fish from have our with coming Sandler.

open. is line Your

Jim Fish

Hey, guys. Thanks for the questions.

question changed Apple quarter announced, offering? like about say a to this. view? about you You that your that the industry It cloud to start what wanted confidence can Is guys for dynamics on really across is clearly private off think already seems traffic got the coming the really guys, can in nice don't this a Matthew But And with about have for enough on like up. your coming I reports it? way how this schedule relationship in right the relay

Matthew Prince

Steve that. So, we had venture them weeks an capital. Rockefeller were idea actually, personal to and about that, call Steve there we here the developers. now feel in the because the and went family, computer, to their Cloudflare hobbyists to and Jim, went Wozniak when with as was capital a I a had Apple. Jobs I a they I that But speculate first hanging their were And we But arm have kinship capital and Cloudflare, policy Venrock permission. raised going three which when certain time, customers without they tell Apple. two that started, first runs were what a talking at known is have build not to ago, XXXX, to Brian is not Venrock, will the the about capital he firm's I guess I'm in said in stories, who on certainly of Back few history with our that surpassed of and to Roberts, firm with now out actually Cloudflare venture return first they company any the

of. something that's proud we're So that

think Jobs coming Apple. school. and of worked a which was in bit, up later actually year is is the XXXX, my a back broker, saved at I bit the years in personal the I little I that, And second heard was Steve dad a actually more stock before to little law a was instructor time and bit money. I ski And as XX

said, and called Cloudflare I good school decision, ability few And and so my to shares of I we out years met turned able to I him largely to pretty think, buy to a from other a later, go business which will where I to And X,XXX I I for stock. among were Michelle, that start pay be that. Apple want things,

about So news talk long also I've smallest And would it a tech closed the big was story we remember for XX I of of of against it's about a company same how which There technology various tech there. time it And the not in company started that this last was Apple really gathering And Android with TV definitely were about can was were about remember, I boy the meeting importance The you invited a talk it senior requests law time, around in Cook on we clear running Tim privacy place, sort with about was was leaders privacy after enforcement small group. meeting And government I a very the Apple or been officials an whether tech that deep as that, leaders, who Apple help and before a was companies human pretty who's definitely phone – personal was a incredible and to actually in right. commercials It privacy. fundamental and was talk companies. unlock XX terrorism. admire. really know, long that to and and to fan that the is from the that. a of years came the way fight

deeply a flak investors that's definitely with a at I that seen gotten times marketing, we about senior that And so little something that's think of leadership but something them. they that, a that I've think I they value from care have and share their bit that's

I've for answer answering so your fan a been enough boy hopefully And time some question. and Apple not quite long an that's

Jim Fish

honestly. was away of and good large move go a how changing? towards the up Cloudflare's time? premium market is like about engagement moving more direct should we guys. enterprises market, answer funnel But evolution from market away over you that to that the Thanks think sell-side continue as That to to go How

Matthew Prince

sort of Yeah, We so is think that of that's as But The we've just we think can, time-to-time, great traditional premium been be get of that I don't and and purpose – well. the and large customers funnel. a the that of free ever purpose in not customer. as from of we quickly innovate that. that's with off – incredibly don't such really really set by customers, through to able to that's broad paid come

forward, fast looks go-to-market you XX we're out. just years enterprise that if building I And motion other think any from now, I that, company. think like big Cloudflare's

we deals, increasingly with named systems reps, have sales team, specific now channel working number a heard accounts, increasingly of integrators. an enterprise and partners where You sales

we servicing us data what's into and have our we to the what tell to, go-to-market to along allows a think, out company think, is us gets of customers up that and misstep same new geographies markets invest relentlessly that to we've to don't about any it than go that do rather allowed very curve likely and used different use sales point data believe a do customer data company. again, the and in that's you here that, our to execute function same not move that segments And to salespeople. make behind customers way way make and the less our the new from it both to that that think larger we existing demand way. much the terms enterprise gets We we're is in use what But ahead need us us the to And do. industries in of able curve. been I that we demand while I is I across build entire we

Operator

next line with the have question Shaul Cowen. Eyal of our from coming We

Your line is open.

Shaul Eyal

Thomas, you for But you. relative afternoon Matthew addition on the concedes total or Thank can even And and any customers thanks the an update I or the Good ongoing the of this large also outperformance. count appreciated. provide a customer with quarter. paying congrats be on color us and follow-up. customer will have

Matthew Prince

Shaul. Thanks Sure.

reporting back. count pausing this it quarter, So the customer we're bring total going actually although, the of to we're

looked paying that the was customers, The saw business active a than strength in actually Cloudflare both relied like problem total covered didn't include products really Internet of free of others. included throughout quarter just only website. those that. and customers and new that lot and a sort really at we And different reminder, having in It today. and continued properties One the the like products that we're that a As on described

that we so don't was statistic And representative. feel like

something to going you sign-up of services report kind see that In to pausing across on lot back. WXTechs continued of if to basis. do track that what are the a meantime continue we're bring a like strength we've want So it. We're rates track to that it that, month-to-month are there external

our to more And want in to get continue the that's I to back so place to that look track forward. going forward that's we're something be would that customer looking a that. that you would bringing total if count way And that accurate

Shaul Eyal

And Understood. one another or then Matthew it. Got Thomas. maybe

topic? think maybe this metric within could where community the of billings topic cloud investment using RPO to underlying as misconstrue some preferred trends relates investors internal thinking on are. to some the could be Do as billings you metric the it it the RPO, healthy to track? the On track versus What's the actually how are

Thomas Seifert

Yes.

the up north a we we -- is on And sheet Let that that how up business. closely as last started certainly of you me the KPIs run XX better cycles business how for XX%. RPO and months over as the of on over in is focusing is year-over-year Billings that how balance for the better health here. can quarter. what be the the the next RPO number focused are recognize think sometimes it's we That XX% current said, quarter And the the is get indicator RPO RPO our on. in We we that are we is an us. run We arbitrary we the number depending is that number health tranche. from think billing many metric we just

Shaul Eyal

luck. it. you. Thank Got Good Understood.

Operator

question We coming JPMorgan. next have line with Auty from Sterling the our of

line open. Your is

Unidentified Analyst

Hey, on time and the the surrounding most? lean expand that trajectory guys. including could This of areas your what Drew to into expecting upon line you're commentary long-term for Sterling. you Matthew, investment is the

Matthew Prince

Drew. Sure,

we go two again, So, in and we to marketing to invest to we market, about motion think areas. I Obviously, continue is as in we have to the believe think continue marketing about our the the what's us team able that. behind we up place and sales we're that do how demand. And that do service But invest believe salespeople matters. unique and

our and have want that them part the We they will who also that. are to we And those as people invest a entire set it customers that. to do as talk when that expand across want can continue can be we because to be customers of helps to advocates you're large servicing in as have us who to product

and order continue have runs I efforts. entire in area be in development really to designed research where think second innovation our innovation we the to business Cloudflare an our is invest and we on machine.

on we of the down have a anytime do slowing that think we as largest take that what in on. design battle-tested number don't see it's to broad like way continue our definitely is, is making -- area, we us about soon. and new by course R&D we those And for it base. our we to time so the that year run across that And something continue customers, then we the of iterating release. number to I the a And that of quickly something to ready customer over the products to

that across don't I back rate should formula breakeven pour as do think to at which that company. I to the innovation the that just are the So we to think able into being accelerate changes. drive able we anything resources real But get if

Unidentified Analyst

it. That’s you. Got Okay. helpful. Thank

Operator

Oppenheimer. next question our have line Horan from the with We of coming Tim

is Your open. line

Tim Horan

Thanks.

against seeing you a pursuing that's retention the you're implying really think become think a you? still One are there And/or strategy go? how you here. you questions. are I out partnering little can with you? else Do cloud then providers. pivot high the secondly, bit that net can out there it dollar they some be you carriers pretty of competitor number maybe can some and two Can could of And basically is the better anyone a to Thanks. similar can where Just to a improve it improve which talk

Matthew Prince

Sure.

both first. take to So may me want the questions Thomas add let to then and

I that we directly see obviously cloud continue and quite and partnerships your carrier closely So the and down be just we watching continue that to able we to able yet, the those I answering we I to to our we time. opportunity the as first in deliver for invest that can public drive to quickly? around carriers of that. is relationship to repeat of with are the are our work carriers all, are And the we costs have but into question of We're wherever and carefully. was. what have the clouds go public to in had it's both what and traffic first apologize a able deploying with been some don't Most build. the them services you of forgot into with see And that across flows something But there's to symbiotic much have we're for carriers very partner process to think with partnerships have they great be networks. that the we a And world that continue new some deployment it carriers' resonance

Tim Horan

what's a retention net really Well dollar fine. good rate on to number? That's just you Okay. do prove how

Matthew Prince

Yes.

-- we're when is that something good it. something about at love What we're on that again So Cloudflare I is we on. focus improving we really focused

to but sell by new us model subscription been I since and trombone over a it usage-based it's products products. it. that's more think a we driven I And requires and don't where really can that revenue of piece think been down that time model we sort have of a instead, have up

that think about retention and that I have the little able number a hard over above definitely to feels some the metric. we of like earlier over There in noise opportunity is. We're get time that's say to that that for it to But that continue from in time. bit where improve to spoke that back we quarter-to-quarter metric. we not might be can do noise XXX% as going with I worked the net be number improve great. think it dollar-based may satisfied opportunity think to us that continue to there we will where what Thomas bundling be

Tim Horan

Thank you.

Thomas Seifert

it's lagging dollar to for so net in addition maybe keep One mind the indicator that retention report good is how it. us a we

drive. it's initiatives that the we So lagging

expand. we business We a a efficiency us remember is how business important the model. to of said that terms pay-as-you-go it's But also very is business we difficult drive in have in that that for always

drag is indicator the you the lagging of we business an and happens everything outperformance from see to So a perspective with started. the have initiatives

Operator

you. Thank

our next Ruykhaver have with Baird. of line question We the from Jonathan coming

is open. Your line

Jonathan Ruykhaver

would kind and you there be price I might for tech it's group of to what change a provide Workers looking solution. be criteria I'm mature could if revenue. when evaluating about emerging taking nothing as might in more thinking for the in any and market still that wondering to this insights you've you discussed so into specific compared adoption Yes, and past

Matthew Prince

Thanks, Jonathan. Yes.

pretty mature seeing -- So and I We very, we're their on it's a solution. companies is workers. think large XXXX in very, it launched very businesses it bet

I think solution. is that large a So it that --

the But people but companies hesitant building building using how solution. sophisticated in and strength been out what specific component be we're selling have we our workers. the do start-ups, complicated part tends application Workers. we is because of revenue see larger We sophisticated what that to is large think random really I to see of to break continue not it

workloads the And it and so find and clouds traditional off is it already of taking just people the organization public the magical.

today we think us. at the is margin prices for I accretive Workers even it charge that again that So that for very

very edge ourselves of cost-effective competing platforms. important platform. a And that products. so think think think think I don't competing is big as it is We being We the public computing with when with ourselves as competitive niche again We cloud of other product. cloud selling you're

when pricing we for margin clouds with and in think that even about it accretive us. about competitive is way public other those a it's rates And think so those at we again pricing

Jonathan Ruykhaver

Right.

Okay. That's helpful. a then just And as quick follow-on.

more of drivers the Matthew on market the terms is just can just in to you this yet? things hit one touch if of of serverless take the to on you seeing bit In case. And a that that compliance hold you're starting

Matthew Prince

Yes.

the piece is but how what computing like to to edge where same data, the is do around a do require I and hard the storage. they a So particular piece them is leave of time And their have way you've heads us is still piece the can first things bit think wrap The easy build, of computing seen of piece. the for geography. distributed that gives in developers think at through easy storage a never flexibility

coming country more so from of more is And and people we're for users keep that of putting to of like environment EU. customers data are that's in just hear think and regulatory the the particular tip and what also to that require that the for and others in Brazil places out get place are obviously attention iceberg from China region. But I India their the requirements and that which complex concerns in regulatory lot seeing continues the a customers we our

more complex perfectly so environment. regulatory I much that a what And positioned think for Workers is is

very many and keep world. satisfy what computing enterprises. And large other And XXX a be allows FedRAMP. up any regulatory path worldwide. compliance virtually We're the efforts, with sets platform. we and U.S.-focused. the world. to needs for increasingly Again very killer real that And customers to earlier comply country distinguishes as to regulations with similar today these from help over the able do in Workers German the every of our talked us what hearing I complex doing example, equivalent is, again, think, around the well around on worldwide. us about in We well countries are being We that it's that's to others feature We're that

Jonathan Ruykhaver

you. Thank great. That’s

Operator

coming We Henderson the Alex next with have Needham. our from line question of

line Your is open.

Alex Henderson

such Thanks. I the California to some the Matt, Could first, thought that side of your the I just data commentary integration financial talk quantify and well hoping something a the please? about in Everybody adoption, of done. think I talk it. key was you change really wanted community metrics Amazon the that rates, to developer any could blog. the but you and on metrics it qualify piece. it, Hotel bit community us for, was is any you I compliment or on little on size give around focuses DevOps a

Matthew Prince

Yes, sure.

the this So, that's building. time. That's We more go and wrote for and signed deliver something grow their retention can first more to than away, over applications, code and more of those sophisticated see not developers. what or code tend to as They don't XX,XXX and are developers Workers an actually them write application. but then and -- application that an just And more we wrote deployed continuing and account. we more up to developers watch continues time script

it which, for agree a yes, CIO Yes, platform and Counsel incredibly you, so, developers and about CTO with the completely whoever General most has regulatory And satisfies we compliance. effective. want the think, we when platform is I make cost win, I the its think to

to But in ecosystem. to we is already that's We're continue consistent. out the it invest making that really course, in developing Of -- then platform's incredibly fastest need that there.

largely how both big because things of platforms. don't it scratch and a excitement other that have excited area ecosystem. integration it's we've that's of bring whether and is, increasingly and on to And build great you exciting, great are about fervent One we using communities But really We're as the talked acquisitions either seeing startups technical even risk that it's that different about from potential be a for companies is platform. customers not building the into there a marketplace very or that I'm looking well, maybe the here. just be build applications entire were tuck-in also features really they are way natural companies small be completely would if us that might out, develop Workers that maybe things that or can

I'm excited So, about it.

you'll developers are steam. Discord go again you our picking you excited search it's in if and on see about Twitter, the up it If channel,

Alex Henderson

Thanks. Great.

Operator

our have Blair. William with from We next line of question the Jim coming Breen

Your line is open.

Jim Breen

over From that -- some moving et taking given you is then time update for little sort you base Thanks products just And customer addressable security around sort of your you the now? you bit and question side just believe guys of the of existing changed they're there sort growth. market in Thanks. maybe Tim paying Any product questions. that's talk your the cetera, on just about all how what customers your taking see Horan's time? of off many new metrics terms the of a how launches, how can

Matthew Prince

the first half. on can the take that comment I'll of So, second then half Thomas and

XX% really our span that reliability. one I'm last to About so if performance we from we all it's you the updated a at -- and Day XX% XX% of the mischaracterizes marketplace. products. -- that about get of have reliability. correct from those tends platform which solution. ourselves But performance, our revenue we think be of So, security -- both is four that the in is to magic I sort us security our somewhat about products, customers of our in that three using of XX% across me number Tom, really Investor today that differentiating wrong, from more of and terms also think our north of unified are in XX% it's but initial then interest for customers I And having or really And Cloudflare what stickiness typically that allows things comes will

is taking see new we base can that think of of into to -- as we I existing again, get -- to once very are engine products understand it it customer broad power we us building that And customers with we're we continue that the that our adopted. platform more to is very the products our launch that them have. we our makes using quickly have so So, that really out difficult compete customers and that products

Thomas Seifert

ability and for that But to providers disclose made point needs the any new there. I just effectively portfolio want point to the to additional customize more our this compete opportunity bundles is is ability think as Yes, that product wouldn't think I broader bundle our is important that and customer data. to broader gets I Matthew our solution relating specific against

Matthew Prince

customers the I at And XX% are looked more -- and that five contracted used quickly. product or I got or our four XX% cloud It's of more.

Jim Breen

you very Thank much. Great.

Operator

our have We question next Moskowitz coming Mizuho. line with of Gregg the from

is open. line Your

Gregg Moskowitz

Thank if level. Okay. as a I some afternoon mentioned starting and you enterprise for the at this good Matthew you compete this guys. wondering times important Cloudflare to as of driving couple a quarter. head-to-head basis was And on is Trust Zero more wins for frequently you of Teams part

Matthew Prince

Yes, absolutely.

by are government targeted the offering of be that That's going make I product what fall malware to States civilian all scams. think for subset the government if workers to order that federal phishing chose you look Cloudflare United sure agencies. is a don't in Teams to not for example for at and

wins we're strong. rates solution. against there so, And really many that our win. were Teams that many, of more that only And Trust do sort of where is very going But types up for win Zero are companies Cloudflare proud many, of

of use. the where I heritage really can, resonate it we've developer we sort the we how easy with think to community. both of make I use. the needs then, comes And really of either have excelled thought which really deployment, ease always we place use think incredibly about, secondly, that in And is again things from

order path and making of And But about in key we and to consideration sideways. progress we these in set the that we And up, to customer wins great being is demonstrate is briefings. make Gartner left, again, the Zero well so And starting sure win where the from I they with we're for think order to deals -- for have are anyone we in Trust and the Forrester technical and to more down, we the that right the think analyst top are industry. on other is that of thinking to will all able buyers, right invest some solutions. those who continue be we where

Gregg Moskowitz

then for All scale follow-up even workers, a quick margin-accretive very on its just you? offering right. And That's so really is somewhat a helpful. at this today low

Matthew Prince

XX% at margin. -- accretive margin is It even gross Yes.

Gregg Moskowitz

much. Thanks terrific. very right, All

Operator

I no any for back are turn questions now at There the comments. will further this you. over the call Thank to closing time. presenters,

Matthew Prince

had an our absolutely hard we appreciate deliver results of We to terrific quarter. have. working Really that team, the all

at going Looking forward a upcoming to to to helping the better technology conferences build seeing many and of work get you. and back you we're shareholder Internet. Thank to

Operator

for This conference you concludes participating. Thank today's call.

now You disconnect. may

Cloudflare (NET) 6 Aug 212021 Q2 Earnings call transcript