Earnings call transcript Q4 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Hello, everyone, and welcome to the Cloudflare Q4 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After today's remarks, there will be a question-and-answer session. [Operator Instructions].

I would now like to hand the conference over to Mr. Strategic of VP Winslow, Finance. Phil sir. Please go ahead,

Phil Winslow

announcement. CEO; Cloudflare's Thank the for call, our have Co-Founder Co-Founder, discuss Michelle well COO, our me us you the joining us we call have and our Prince, Asia unable our customers. for prospect with everyone President information, on financial found today should Matthew Thomas in fourth Zatlyn, the may Seifert, as CFO. join on results Relations By on to access This to supplemental financial earnings our and our is quarter being to and as Web as With XXXX. she announcement, now, be is site. Investor

but future and to, comments performance, These operations subject which those future market not vendors, performance. partners, As uncertainties, timing performance; and financial much our customers, statements limited products, statements reminder, a are future be including, of making operating our and guarantees we'll anticipated of and of forward-looking beyond other financial the control. product our and and risks potential not and launches discussion, during anticipated our to and are today's are

may forward-looking suggested projected from significantly any of in our results those actual statements. Our differ or

after and call. These the representing statements rely our to forward-looking future. obligation you views We of statements this apply on as these today, update in not should them as undertake no

impact our today's filings results more a operating with risks in well complete and For future as release. earnings as discussion could of financial that see SEC condition, uncertainties and press please our the

adjusted on than numbers revenue, Unless today, be about basis. all other otherwise noted, non-GAAP an we talk will

site. measures Relations of included GAAP may release our are You that Web on in our a to non-GAAP earnings reconciliation financial Investor find

reconciliation For ago. few historical financial periods, referenced information GAAP the a supplemental moments non-GAAP can be in to found a

and March We’d and conference XX. Silicon that Annual Tech Morgan conference Technology, on William event Innovators participating to XXXX Media Stanley inform we on Telecom X, Slopes Baird’s like March Blair’s you X, Xth be in will on March the also

invite Now webcast you be May before wrapping from in live to our for us in X, like A Day also Cloudflare conjunction our Thursday, being Investor with conference join Investor to City. York is will New held which accessible Relations Web up, I would our user Connect also on site.

that, with to the to I'd like Now turn Matthew. call over

Matthew Prince

profit the you, Thank representing had achieved of another to an up over We great of on million, quarter operating $XXX.X revenue, of operating year-over-year. challenging side table. generated in strong Phil. $XX.X you macroeconomic conditions. this XX% It's of have margin continued We of spite million record a We X%.

to market While slowdowns, for of, it's we us, efficiency. of capture we're economic like important discipline huge invest one during and we in continue the the to believe show that optimize midst the to ahead

adjusting levers the based macroeconomic hands on on business and We have are the conditions. our them our of

Our flow cash XXXX. second a XX% representing $XX million of of $XX cash the free cash in and free million, half us flow the generate allowing was in of free to flow quarter margin

after be the our free target achieved our will flow range long-term in XX% flow margin quarterly, in cash variability and be free expect to above of While there XX% that. XX%. cash gross positive in over years some to XXXX we a We

and customers in others Procurement definitely are us. sign XXX%, we retention get to like renewal a until of while RX, Zero as retention clear XXX% in or We take new be dollar-based as Trust one. like there. ramp as dollar-based path ticked still satisfied high to products remain mode and two expansion see three won't cutting we we times like measure Our ever, industry, to longer seat-based with the deals net down and our net over gross seeing before rates products, storage-based the we're departments

over of us customers pay they and e-commerce who see X,XXX those in customers, XX% contribute in the XXX. we grew total large slowdown to from customers, that Fortune now year, year-over-year, XX% a of our revenue. $XXX,XXX and per Revenue the December trends, large XX% We large of have traffic now XXX all and overall including into added Internet were the economy started visibility given way fortunate our back XXXX. the We

market. more Based and pace over for like get give paid drastic on has approximately to to kept also of Cloudflare XXXX, our slowing peers. many in to year, that, remaining allowed sense, as sensibly XXX,XXX to continue It's on positions X,XXX have our That incredible team us to talent given we we hiring us around from comes this To began invest off ability in in skis. didn't time at over last our of you having ensure take work the to at while we talent disciplined us some amazing hire Cloudflare. demand compensation. overall the apply our people That actions

well the slowing engineering ahead, Jen we is who industry. lined net has had the targeting dilution for on X% our delivered many than that Cloudflare definitely Taylor, assess the to like of innovation team peers up rate long below times committed economic make not are annually. an burn product We down. and leads that strengths these team, and have briefed of recently less equity year weaknesses. everything and compensation Tough a you incremental your engine envy that is me the engine

and innovation launching Trust next especially around in with number Zero week, products new security our a be we'll is products. week feature Our of enhancements, March where

our honest the been yet if industry unlocked best with our of innovation $XXX has ourselves, is engine billion and optimized. we hasn't market fully in total organization addressable us, While ahead go-to-market the we're have

reaction basic it's sales. last some there as we we many larger have week, are Michelle his initial our second our quarter that Last up better. reaction, selling XXX us Boroditsky things product increasingly the clear to was more need and sales to who lead Marc are step to and improve. been we on and embarrassment should complicated organization. joined to opportunities honest, excitement if of in our and so me he introduced was larger game doing briefed first marketing My for days. But As my become customers, I'm I over

In our Marc, team us previously services. and our career Services to Brent at and prepared His seen was early in for QX QX, CMO of Cloudflare’s of We've coming quarter addition at joined FireEye AWS. him in last marketing of Core security perfectly January to ahead Brent team. Brent's targets. CMO lead cloud delivery of pipeline results generating Remai

on leaders been side. engineering the and We’ve product

and world from to Now what important teams We're to discipline go-to-market new side leader Cloudflare. existing the are sales the from as the I watching becoming we're at Brent marketing seeing focusing bringing a hear on rigor another and excitement is Marc our and I'm in team And pipeline well. teams. carefully sales people those of at in the incredible pipeline, leading work sales apply the talent. the

in nothing to we engine, cognizant the all formulate believe sales rebound improvement economy That's marketing not in why the our improve of that for our us world. take substantial organizations the at less ahead than And We one time. can any exciting. any I'm efforts these while guidance. as and the we're in also or I go-to-market or relying look efficiency to leading year sales on build for aim That's there's a opportunity

first-generation highlight networking company was million signed a on Trust a deal focusing from a let energy some quarter. that me XXX present, customer three-year of takeout Zero wins the Fortune $X.X So competitor. the A

the and placing unified actually were are the network competitor's were their replace underperforming and performance network, feature with both is clouds Gateway reliability to We Secure Because Trust and access into multiple their competitor's Zero our distinct Web products. set customers' network We more. compared the expectations. broken as able

customer of and as customer we'll attracted to channel glass be single purchased them platform. worked use and with as well partner forward. performance service this remote with doing The a the and pane filtering. to of DNS going ease access, was customer better of more large browser our pricing, and ultimately manageability gateway, win our expect isolation We The

from signing Trust financial Fortune [indiscernible] Zero their many relationship since and company hearing Cloudflare, as million a they their architecture. using Like three-year a well we're reduce to our deal, of consolidate as traffic application A our flows $X.X costs flexibility customer more core have Cloudflare services control XXXX wanted vendors, a implementing and services. customers, XXX with expanded over

a on-premise They ground platform isolation, terrific cloud-based modern technology M&A. built our to up The have we move remote They're a is through customer. a that rather and from loves bolted hardware to the single and on than single Frankenstein customer together that gateway, a They Firewall. services. Magic Magic wanted WAN away glass solution legacy access, from solution of browser pane purchased

After This Cloudflare's Cloudflare’s telecom evaluating portion one-year Zero to security reliable will XXX filtering lead to the Fortune it valuable the Zero deal into deal bundling most DNS they is $XXX,XXX not extend signed consumer market. Trust a base. Cloudflare because A their consumer found feed bring to bundle. competition. of services further solutions to to back the content competition, their in also security a our be products They're data their and secure reasons, over only for Trust but the obvious

out company A opportunity this one-year originally to $X gateway million XXXX. replace our relatively as signed The been had leading And company Umbrella. since started a of a generative AI deal tier DNS free deal. user a Cisco small

the adoption. browser-based content their AI-generated when of absolutely rates debuted for exploded demand November, late company's However, unprecedented in application with

as massive their bot Their keeping as well services and fraudulent off from at Azure DDoS, load legitimate They the their management, DNS Front exhausting Door insufficient had gateway resources. from quickly CVM, with users proved more. started handling on users

well and are Worker, applications exploring various imagery sizing AI We support their Shield, to use with incredible emerging expansion for paths more. and of growth cases as Cloudflare models their API actively as

with the other in as quarter well. We success saw companies AI

as it's for Given to all reasons how came security multiple Worker. obvious many for Enter policies they data large to Cloudflare it run of need well. solutions target move as by the effective attractive to companies, as of their wherever fraudulent in all the are well across different AI but multi-cloud, the most are as models nature, prohibitive them cost Cloudflare providers. particular, an constraints cloud between choice users, are, face to us resource sets very them. to egress they But make a other They training their find clouds.

AI. use largest for What of super their is course, become anywhere. cloud efficiently these these glue to us natural data. exactly purpose it and a neutral at being the other naturally store from that order to is a can that using the to the our workers' we're it's a training become we in And, place problem finding has to of center the their isn't and multi-cloud obvious training place But Today, RX sure AI accessed be ecosystem. products cloud It's make company store retrospect. companies stitches data companies didn't neutral network with RX traditional public inexpensively of another in together neutral being a AI for anticipate. case a RX customer the exclusive AI

European with and transactions a world. largest security million different millions dozen financial network governments a This of for company banks signed deal, settles the A Cloudflare. $X.X services five-year and securities hundreds replacing vendors of the in company annually

result, are security glass and wanted solution. their them. consolidate into of numerous pane to a compliance point single As regulatory simplify and for paramount a They solutions

across After solutions core both Trust approval, Cloudflare multiple One, network services receiving regulatory well Zero as as Magic services DNS Transit. the access, and for including filtering application portfolio and on in customer signed our

have In addition on particular, not across broad Competing over. data an won solution them equivalent platform, spend Cloudflare's multiple our simply in localization vendors vendors suite, solution. point do to consolidating their to

data and localization face and geographies, data becoming is differentiated customers. in our becoming increasingly more critical companies suite requirements to more various residency localization law As

have company X,XXX intelligent cool a Cloudflare's really IoT even network our help opens another XX-month utility materials. to rollout. and positioned use This industrial using monitor is and Africa more sensors, customer wouldn't signed deal million one we $X.X Cloudflare's imagined we're public to for network opportunities. in deliver tracking markets of shipments case A but own, the support to of uniquely on a now They're

the using under The free signed election state us power originally across deal elections Project us learned of three-year, security. their to state XX protect had $X for and of North Carolina protection infrastructure our a million with Cloudflare come The Athenian to help expand state agencies. Cloudflare’s deal. the signed to They

full of started than longer officially Finally, the e-mail process, security our acquired at it renewal. certification of nearly which DMV, with proverbial to our expect The add to FedRAMP Cloudflare’s suite certification. we covers wait exception FedRAMP we but notable X a I'm happy products after FedRAMP at to we after product, Area report that received we our certification the expected the

contract federal a our first was Our after great certification start.

the government awarded cyber every deal to most five-year to $X.X the sent We because infrastructure, contract technical now the and of registry. U.S. million, Internet we'll and we largest have in proven only .gov our this We're to to network. White only relentless X% and of the the business, other doing future. against operate Cloudflare ability the awarded it's won attacks. public ways to the of Every the proud but beginning were the defend revenue is prowess, of be We were agency's believe the webpage connects e-mail modern the depend our so innovation House, today, on sector what our space

With over that, I'll to take turn it it Thomas, Thomas. away.

Thomas Seifert

to to new you, Winslow, want VP Strategic Thank of thank team. moment to Investor everyone Treasury take for you a our the Phil I Matthew, us. to joining and Finance, Relations and welcome

and IPO, our relationships board. have Cloudflare, influential Phil a an following are who of excited to on analyst even expertise his and brings wealth before been at equity As research we to role him knowledge, has Cloudflare

fourth Economic resulted longer being making sales including to ultimately the cautious technology uncertainty across during the revenue Cloudflare. in their businesses with cycles quarter, spending, quarter. industry, to pressuring growth processes Turning longer leading and decision more the

in which to we to control, is a allocate controlling our and business economics shareholder to what maximizing value. the with of the prudently focused commitment unit our efficient capital on However, focus remain on is maintain

delivered result, forward. our flow. operating record free of generation and to operating going cash continuing the in margin flow we proud we fourth during to flow and scale quarter, performance profit, cash a free a committed I'm free cash As are terms particularly of quarter

for the XX% represented Total to perspective, of increased quarter year-over-year. XX% revenue and year-over-year. the revenue EMEA XX% and Turning From increased revenue of increased year-over-year. to million. a U.S. $XXX.X represented fourth XX% XX% geographic of revenue APAC increased year-over-year represented and revenue. XX% XX%

XXXX representing in customer roughly Turning retention levels an customers, the XX% base the XXXX. quarter the increase achieved We metrics customer an and in fourth XX,XXX XXX,XXX XXXX to quarter. addition see paying year-over-year. the fourth We improve to early of the in paying in late to in our pleased through returning of had customers pay-as-you-go we were

customers. to X,XXX an year-over-year increase XX% quarter customers with addition large large the large of representing We Turning an and XXX of ended customers, in the quarter.

we also paying record a quarter, a number customers the net During added year. $XXX,XXX more of us than new

to last revenue in the As Matthew mentioned earlier, again revenue, increase we XX% from see of customer are contribution also up pleased to XX% sequentially quarter year. large fourth

large For XXXX. to compared fiscal of XXXX XX% XX% customers revenue revenue represented in of XX% total total XXXX, and in

and of For the full who year, than we are also breaking out large spend customers into $XXX,XXX those cohorts million. $X greater

with with We XX% year ended with a ended year-over-year. that $X the customers spent that million XX over spent year the customers increase $XXX,XXX increase year-over-year. XXX with us, XX% over We us, an

less churn. points decrease expansion spending Our net less pay-as-you-go sequentially $XXX,XXX decrease elevated Instead, well similar net of retention than by the points XXX% decline experienced dollar-based last XXX as Cloudflare quarter, customers driven was the as basis was a XXX during to and rate customers. fourth a primarily worth basis We've of quarter, not year-over-year. in

customer remains end large net XXXX. for quarter-to-quarter consistent expansion our our average since DNR this flat customer quarterly and Conversely, with the of segment was

before, We has continue in to to spending, cycles. of which, impacted DNR long-term I upward particularly to cautious expect time XXX% time more our Also, are over as to from we their as time anticipate mentioned trend customers some plus. near-term variability sales target

in XX.X% both gross of and remain of XX.X% Moving XX% XX%. gross our long-term for target CapEx Fourth to quarter. represented of above margin which Network to margin. XX% XXXX, the quarter range fourth was revenue fiscal

at demonstrates our flexibility, XX% the the to of our the full we compared scalability network. elasticity XX% in beginning year of have achieved which network as revenue XXXX, year XX%, For and guidance at CapEx with represented

XXXX, XX% expect fiscal to network For we be XX% CapEx to of revenue.

took Turning challenges the spending. Also for again efficiency control measures to fourth their business operating expenses. economic improve every to we during operational currently, proactive quarter and discretionary

decreased X% revenue a As and a quarter expenses result year-over-year sequentially to fourth percentage as operating these of actions, XX%. of X%

employees allocating with year year-over-year productively. our current results the We'll for end years number XX% to quarter. key deliver approximately to in of achieve predictably on continue bringing hiring based of total total areas increased conditions X,XXX so to do at revenue focus market help our the consistent pace of Our the to keen in five talent to on objective annualized our and to us strategic of $X a business profitably, and billion the headcount

to to quarter. sequentially of of Sales in and from quarter quarter. a consistent as $XX.X the expenses consistent percentage decreased year. year. and the remained and million sequentially XX% quarter revenue marketing last and were marketing and from were a $XXX last million percentage as in for XX% R&D decreased expenses the same in the XX% Sales same XX% revenue Research development remained

General XX% was revenue $X.X sequentially percentage of and period of to quarter were administrative and expenses quarter. income compared in last an for operating million income in the last as same same $XX.X year. a decreased million G&A by million decreased the X% Operating year. to $XX.X from XX% the

increase XXX remain results market Fourth spending quarter X.X%, Cloudflare's of key our elasticity as which meet scale to our ability down model underscore operating of our the margin elements of and points year-over-year. responsiveness business success. highlighting to efficiency scale was needed and an up demand, These our conditions basis to or

and income net the to Turning sheet. balance

a income billion the the ended in million. for in net the fourth share quarter Our compared flow X% period $X.X of net million Tax or equivalents was $XX.X of year. revenue the quarter million in cash, revenue to the Free $X.X of last same or cash and in cash available-for-sale XX% income $XX.X securities. or quarter We $X.X dilutive was quarter was fourth million $X.XX. expense with per

last or in million performance of of in of compared of year. fourth period Operating obligations, XX% Remaining or RPO revenue or Current RPO, came the revenue $XX.X RPO. at to increase sequentially million cash XX% XX% flow XX% million, the an total representing was $XXX quarter same year-over-year. X% was and in $XX.X

guidance quarter we across the opportunities to begin and with current ACV multiple well We factored vectors the first our and productivity the expectations as scenario year, both performed into guidance. economic in to to Before to our for pipeline analysis understand from full have provisions moving as company-specific risks order the uncertainty. would like I and growth rigorous from

our not our improvement in factored from environment go-to-market the In any have macroeconomic we initiatives. guidance, in or

our in the a to pipeline despite sales have, lows. the year, notable we the the compared incorporated close have which as in in therefore, cycle, observed year, increase half first and last of exiting XXXX we assumed XXXX of second improvement Specifically, recent half in historical with rates below continues

with marketing continuously as and discussed and that and optimized. process earlier, and are and be be how consistent Furthermore, Brent customers structure, a Matthew series model broken sales organized, we a and believe establishing down interact measured of into processes prospects, we that can we partners. can how operate simplifies Marc

Because has productivity. other improve models which of revenue the ramp already assembled of implementing growth ultimately and these in successfully expect are have and leadership we these go-to-market new companies, the playbooks executed tactics team will we at we before confident

we XXXX, below not incorporated our have productivity levels lows. historical However, for any improvement fact our guidance productivity sales in in embedding recent in

for turning the first quarter. to Now guidance

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

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

expect effective rate of We tax an XX%.

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

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

an rate effective expect XX%. We of tax

the for is full XXXX, minimum last the subject of flow which is increased in the achieved free cash positive [indiscernible] driver year Beginning flow being second year-over-year. free primary year, to the in tax, After for positive we rate half having the Cloudflare anticipate XXXX. be tax cash

breakeven. generation upward While to our variability free we purposes we'll enormous remain to half durability opportunity operational cash first on to with be flow of the expected and elasticity we relatively the of modeling confident an the and basis, bar We on business in anticipate trend XXXX ongoing our raising while flow model, pursue excellence. expect in the us continue ahead our for of cash near-term

thank like mission, and In customers closing, please employees questions. open partners. Operator, that, questions. like poll dedication for it I'd our And for our up I'd to continued with to their for to

Operator

Thank you, [Operator sir. Instructions].

RBC take Capital We our Markets. will first question Matt Hedberg, from

Matthew Hedberg

on Great. Thanks taking questions, role. Phil, new guys, congrats, my for and your

Looking the But year getting year, of your this talked something working I is comps like a with maybe I'm year, in that there kicks around in growth questions large you on as and full the QX conservatism. table. half about the increase you the customer the linearity the both the forward obviously, QX maybe year? that you guess of drive Obviously, one announced of or 'XX during with second last of guess But perhaps the your year, ease conservatism some or renewal progresses. levers is that side would of the outlook. revenue Tom, to XX% for I price

Thomas Seifert1

thoughtful rather I trying think rule in to we our the to be and prudent uncertain future, especially how we environment. about a think stick of

been we not initiatives environment. gave. there conservative that we have we've put accelerate not productivity rather that get we the the lot control. that takeaway terms guidance in from will that things important things plan did would guidance that macroeconomic think a assume of And we can sales the anticipated forward is what the that in But We we growth, in better. of I too did help we and any accelerate

hands call variables I what what work that think some keeping But stability said and Matthew on in prudent during where is are we during on the as a can and around we COVID steering where I think control. can what ground said So was on COVID, wheel it thoughtful I it our shift we forward. which would philosophy, from we stick and we that to build of of goal think moving find is a to world there our lot

Matthew Hedberg

noted Great. security just I'm the customers about customers And wins your noted deals, one, Matthew. win that some on on you your talk call? you quick then specifically enterprise-grade you some Within Zero within wondering, of guess, maybe in Trust the rates can I a just nice portfolio, some best-of-breed your maybe against remarks. specifically prepared

Matthew Prince

Yes.

something that or aware think really customer our in happy Trust space, the literally is What sure that oftentimes have with are is think frustration we I build that Zero that is are know Zscaler that a making us, winning that's I Trust customers with Zero rates. when we is about Trust still space are the meet the services in do. I’ll say, I not Networks. but in with that customers something they'll challenge should win competing our Palo and market The Alto for you Zero that

so in deals, ourselves find we when And we're those winning very often.

But that are we the challenge from we that products. sure Marc increase awareness? we're how end you're to they possible rates care measure developer rival in a best we very have doing is And think our that. do about and to think performance now, rigorous user I space and making especially that other Brent really companies and tend technical win experience. our strong and the are focused very, of lot But see in when we see have us our going what that I deal, on, successful very with especially what

Matthew Hedberg

Thanks, guys. Great.

Operator

SVB. we'll Auty, hear Sterling up, from Next

Sterling Auty

Thanks, guys.

to Matthew, for So would be helpful investors think understand. it I

revenue use but actually and that understand of AI talked opportunity help versus cases, you types a model the customers had about the model. those ramped subscription consumption since have how You with opportunity investors the

Matthew Prince

Yes.

thought way the products we've way consume the been opportunity the of there like subscription-based way has that those our been would companies would are AI security many at aren't natural there's as And that Cloudflare but be yet said, you we there, sort -- AI really that, some and it companies. looking that that So companies products. are

opportunity about. get is fine. really excited it's that anything would that think don't But we So I

what in though forward for is, their that that for seeing a I data. that model think cluster GPUs companies, cheapest the wherever looking what the real some different I is leaning somewhat of which we from say, AI use we're have the is It companies. other process is are best see are than and they would cloud constantly more or they to case wherever

AWS wherever cloud and GPU we it then much them training so can sets that looking to cloud they and, can has And that's they're AI take is whether always bring position locations or And but is people model or actually or providers, and put clouds. challenge one in or lot across shared to we're but multiple they sort and the out what And multiple then workers location is, in different advantage to as lumps what one access are as for all be RX the want And that of of as seeing that for products in that use they in that of the a not wherever is bring different they what the that well. that space, are big data Microsoft of the for able data AI just saying, of the Google in get around particular, our product, neutral across to neutral RX have these a of to just that is. in appealing possible. that very other data not way around anyone natural case,

very big an for what data product. doing. us think is to is store much every network, enterprise is way into And and And is be trying having service today RX opportunity a embed in that to network the is the to case, into so who I data frankly that anybody a by consumption-based multi-cloud, which

customers, as RX be and with expect models. we and their remarks, larger, able we I AI they data rates so larger put largest is that. actually, RX the prepared AI more growing And get our to And company grow as data in revenue along extraordinary an mentioned that sets will into as just they're at

Sterling Auty

full the how guide? that quick And follow year up then is, just ramp much into of factored a is

Matthew Prince

I for exotic think that here. we are anything looking not

very think hot on the is And I quarter sort prudence that thing down sort on us. of for new think, is the doubling the again, of word we're I that something not Cloudflare. of much counting

And we're have quarterly space, while the RX ecosystem, workers a overall in excited of in we think like a opportunity so and very and what still the proud XXXX we're AI of companies than opportunity. products as done long-term that short-term we the even ramp or about more with

we miracle up. in on so relying And we're order I not sort an AI of to numbers put that the that think make

Sterling Auty

you. Thank Understood.

Operator

question Blair. take we'll Breen, James a from Next, William

James Breen

for questions. taking the Thanks

one a a from is one. Just bit of little that runoff

a some that one products Thanks. year, then about what's you the And and quarter, those bit in us the being into helped challenging DDR operating full give more there of up sales around the little stable Thomas, if otherwise little the more of sequentially around one. first that's seasonality RX just Could it as been? launching keep last environment picking maybe back happening? the half have the talk a you how financially, you in the commentary some into can Just launched, and than new just just could income decline

Matthew Prince

Jim. Yes,

Thomas take then and can I'll the So second start part.

of these thought happy another. really we're with of S curves one think we've always Cloudflare, ramps behind as new ourselves I the stacking products.

products of of second as think we think of always application sort I our And our workers Zero so think Trust We as our our And of our services as act. act. third of first act. our products sort products

rates and excited And continue to from maturing that at us happy coming so and make and more we're that think that more very are seeing new that. cases use I they're

the interesting trade-offs I have around been think here. of some DNR

cash in I we we think as drag the possible. as that times, was optimize ongoing made right on sure last things that do. of customers to as I be us not on quarter. the times was think allow I for quarter collections for us that's DNR. much we much optimizing talked to of getting a for more That And quickly converting that that saying a And cash to want continues was be just One be did would and expand trade-off We of an to that how in really to And can that as to at optimize that for effort the we as can might possible, customers us. this us those think these paying one thing upfront. making on paid customers paying more we upfront. But things upfront about collect

think as an remember that those to But a I DNR us been you'll with new customer only that start to kick see will in come for starts positive. for entire products those be that's year. online

actually in even our in show that months those successful, the for new, the won't if So are numbers are market. wildly after up were expansion the products actually XX products until they

Thomas Seifert

the the business. the All our where of really down the this especially hiring, in of our and to reacted course we to our last year of slowing committed And this the the hiring. And early velocity stay expenses. was a development year slowdown of course did active environment management to we year very of macro during spending we'll by align

companies SX. of something that out prospects talked point company the letter always of Cloudflare, efficiencies. in lot calls So to the DNA about there wrote there is that the like out efficiencies a that for and for earnings during I that Michelle their already in Matthew the of founder were the season's

So what remainder the it this the quarter, is. want as us, what from environment is expect but this as for is long only not for to first of the you year

James Breen

Great. Thanks.

Operator

Shaul Cowen. We'll go with to Eyal

Shaul Eyal

you. role. Thank Congrats, on the afternoon, new Good guys. Phil,

Looking product-related forward to questions Matthew. with two for working you. Actually

release their a speeding press today, is with storefront so XXXX. starting Cloudflare So workers, workers. actually on [Indiscernible] like up with earlier came it out based discussing Shopify in

think actually, where now to Cloudflare. blog a in the opting internal they their confirmed the also project shutdown I back they of Oxygen had summer

on about you relations, maybe Matthew, rate? talk just us, win Shopify and an additional workers a flavor can to So

Matthew Prince

Yes.

work has Shopify to look, we've of number with terrific the calls a a is great that adoption different So been talked products, developer for of Cloudflare in other about for customer most workers that effective an partners including one us previous ways ecosystem. of the think, is to sort have turbocharge existing I workers. And our of

really turbocharge overall worked sure that's platform more are them make you proud that again, companies of what's it. top of for And a things the for And workers. have like standardized really as and open that again, involved. We've we adopt a run that team Shopify, as for incredible the more everyone think time that's again we're that Shopify as is developer them And better talented opportunity workers. their workers and really on I what platform doing how with the reps smart sure for around proud source, customer. And with community the and workers make see for are developers that just just to the watching that we like to, is that so get example, real us we more at were engineering teams workers has to Cloudflare right making we

Shaul Eyal

to back Understood. security about things. X in maybe big talked win security displacement. side just your the kind remarks, also you of the the curious prepared Area whether security it e-mail of Matthew, involved I'm But related And product? that

Matthew Prince

I that to might misspeak, in want but that particular X believe Yes. was deal. be Area I that careful I included don't

opportunity customer. do way. move expansion organization, security people to how Zero that can into use within challenges security many organization does Trust enumerating an get that in e-mail we e-mail Zero to entry seats The is that very if still first that a many is that's defines with how Trust somebody So our are the product, that terrific is up. an why inherently is And natural make effectively to a that We our reason people getting one platform. see

makes to and e-mail effectively traffic don't change. we product of use go security proxy done application existing as portfolio have continue the And to are provide then portfolio natural so our that, rest it enhancement e-mail of just to the can is click. it additional sort to Zero of Once our that to It's and And layers we've able e-mail Trust simple well. step security a they suite. very from services any a from to -- they migrating somebody vendors, one of DNS their and our security

But a play go the Zero can other that of reason and so us company, standard the well. But And that successful. is in wasn't as direction that oil for case we this hopefully, we gas the Trust. run. they It's particular it adopted very

Shaul Eyal

Thank you.

Operator

Securities. Next Truist up Fishbein, Joel is

Joel Fishbein

to current in to questions. love to to Thanks Congrats the a three economic Phil priorities for Matthew, barriers step as of well. you, want business? top back, just situation, the for entry terms years my I take your the growing for would about taking for talk notwithstanding the I next Cloudflare and

Matthew Prince

what And you do you by competing entry, competitors for us barriers to exactly that? mean or do against by mean Joel,

Joel Fishbein

Matthew. exactly, Yes,

difficult of there's what you thought -- there's of a little I the bit know, both But community, important you perspective think And the do? I easy how it's what services in from explain investment a that's provide little to process you do -- to true. is I think that that for not the that you bit to Cloudflare and it it's as does. of

Matthew Prince

Sure.

the at So into, Cloudflare I of network, that money something And that something the not ticker over clouds to your and us that think hyper-scale is a that thing the public just not you the our is large reason that and core build. fundamentally taken not XX years some we at it way it's is have. fact even [ph] the buy that is of of are NET is And can has our CLOFLARE network. throw network because

network anything very as network corners there. hear a and universe, it companies bit counterintuitive Zero from wow, the so guys of like expand a functions data that run that's further like, the you of service that capable is is somewhat you've something them services various network that even like other of out have and St. but provide opening different bit that else Zscaler competitors that some services. we center of built, across into not to to our But of inefficient are independent we single our an Microsoft someone And and things we about those is note that What's lot network. us that additional their that unlike very And relentlessly our M&A whether special actually lower need networks customers regularly more from than us or customers help we for. running setbacks said they're the in there, whether of switching that's entire one Zscaler when are for space only the in services. out costs their are we a that's acquisitions it in single going those the cost of using different about Djibouti, series those because drives any to time is experience Louis application performance is it have is Trust performing that services customers, that may And in time again. all or it customers grown competitors of delivering that they're actually the runs And means very the into important something those different those us have every server that of multiple any through are our delivering down services. space, the And

quickly, And scale continue by as incredibly us them the deliver is paying that possible. to today to off us efficiently efficiently allowing so we our to as means as and services, and allows incredibly that that it world, grow anywhere in

build years to allowed think unique that clouds opportunities period a conditions I got so the us the started it when XX.X And was ago that of and time, company.

be products to one I replicate our for we us allow challenging the to think two that deliver entry act are more efficiency and the Trust and services, fundamental to has. the products the network those network three to where and barrier that And products, somebody it I traditional that that's it or more the would that super our act network which today brokers, rely products we that's services, services, even very our on have, Zero to application that with the continues products; cloud whether is. our act think all of have

a of One significant make is number important network data just piece security experienced is different with is we our that see, effects, better. that to which ways. products we able just thing in we're significantly of other The comes and every

Zero than front into that. have network, never then that which is that more ISP leave to in across smarter to product. that Trust of that the fact uses So just customers use fact much of means that somewhere The that rolling to and XX%, feeding of XX% deliver the consumer if XX% we out it's us that. system, But significant security that's their web that are and our products, makes today a more smarter their us they data customers going to bundle, us, all Cloudflare’s are they the XX% of web for can our we use back

are for of the So front in makes which, network the is catch more are in both that network again, up with. experience and front that sides of we for difficult to effect, competitors as more very other better better eyeballs, content and catalyzes we as of just that and

the we in like of three be position. years, and to we goal committed last for billion continue next where We years five our run of rate from are to our we So like getting quarter. to $X

Joel Fishbein

it. Thank you appreciate much. so Really

Operator

from hear We will Nowinski, Andrew Fargo. now Wells

Andrew Nowinski

mentioned that interesting big $X.X Thank Congrats Fed I of to a wanted the deal and the a with quarter for year. five-year to great deal. start know on Great. really the on question want Fed. deals. you million I you. dig lot strong guidance the with the into I

the your next be lot bake in years? very that five -- that big expansions of like in do in strong competitors might included yet that Because as recognized they well. certainly seems as revenue any will guess, that space And not it $X I are First, be million? a of sort over that's ratably

like So what you how the want progress, how I was down it road might deal? it be also just and that will curious in

Thomas Seifert

expansion bit get we it that more over will how start. we no signed the contract is be assume necessarily deal is and of the I’ll Maybe opportunity. that deal contract expansion It's But That's And little if opportunity, the fast there Revenue period. add into of entities deal. It's the for announced. distribution good ratably. a started baked our the and probably amount to that's network. will purposes, there’s signing up are tricky. over It's and linear the they recognized modeling lifetime on a a are ratable not the to

Andrew Nowinski

from? quarter, that for where GSIs like is from channel been. I of that revenue momentum this the ever Thomas. channel traditional Is continued you the then your you, looks think Thank accounted guess And I are and Okay. resellers? which more the about it's it or has seeing the XX% traction highest

Matthew Prince

channel think us, and Marc real we're for opportunity of priority big the remains as that a that but proud a we've it's he’s made progress for I there.

products. that of well with the extent, think big think both And we're some then I really seeing traditional as and the here act that those GSIs three are increasingly is some act opportunity as resellers to Cloudflare. I the adopting those two

seeing spend we're cloud a figure we're that is money. we're toolkit save forward. channel in partners that are customers future so that unlock looking how products And partner. in with wins the in thing our on that And a are to are more is times, that we're And seeing cooperation of some of money our winning are we're those that we're to then looking trying as in coming to they for who solution can to two vendors, consolidate Cloudflare that people to save going say, the act lot more out their we seeing much products, products, initial those oftentimes very wins act seeing is help second a three and

And from to savings. nontraditional moving SX an is a substantial an that some So partners. seeing RX with we're even

was we're was been are a we money of So as oftentimes, lot throughout They solution. again, money wasted their customers to but that those And be saving we customers trends. to all they someone that's consolidating were workloads advantage built public conclusion cloud take early to work more tool of move of their a XXXX, Those definitely workers, to understand partners driving -- cloud was. trends be they some a think that's the going they what to with positioned days to saw very them. vendors. saving able customers came could people a spend Palantir to their much clouds with, Cloudflare real And that and of for that it's like help well partnership money, if their announced to help the so and their how in

Andrew Nowinski

guys. Phil. you, Thank Okay. Congrats,

Operator

Needham is Henderson, up next. Alex

Alex Henderson

to are coders us you year little the that a many at have I think Thanks was currently and on for great I the talk end could welcome you of about that major update Phil. earlier here board, hoping about that? have give going the bit your you positive word the the is on print how advantage an working strategic question. platform and to on an

Matthew Prince

more through but the further we with more were I are end continued the to that. of Yes, have are don't crossed think like Shopify X the workers. what and numbers last who announced more that that have the developers And Cloudflare -- we using workers. latest we were million number know ecosystem that, companies building again, developers that rates I growth And drive just year Cloudflare of to on people on that at developer more. partnerships their and doing accelerate we're own that

yesterday be they developer application. client small of Twitter that beautifully open can way to run think not them Cloudflare scales, just built and And announced next deploy where sort a on generation I the could was have to of able scales Cloudflare any a done side, that but that one which to proven a wanted kind then is for workers. they scales to see of Cloudflare. to exciting only of sophisticated Federated, team be fairly and you on if get it that things Twitter just that the very to deploy that we top build for on And scales Mastodon our they workers, source on if the wanted that's

that more an us. And workers, more that's and see we get to are I starting built for on sophisticated think and so development applications like exciting

Alex Henderson

wanted second But in of in end it was just that which for 'XX low back you and to and we a full lever strategy I question whether talk around look know The November, your time amazing itself. entry the you I magnitude at for the can about is is as and prices at decade, pricing. raised the the first was of the year than pricing broader fees? address

Matthew Prince

Yes.

Cloudflare were and clients, fundamentally is and for and raising for predictable very pricing. about reliable nervous we we our I little to a them. want think infrastructure that be bit hesitant

was a shift this we goal to thought annually. one our The than price pay-as-you-go about so paid only which less well was a And the revenue. upfront payment business was mostly from is business, what goal monthly of But XX% increase primary which business and that really lot. to of Cloudflare primary was the for that

if So we've obviously can -- same added handful I there's breath had increases over we've tolerance increases gone years, XX the a upfront all with the had think additional so seen seen if where happy from we been that value the well. I customers Cloudflare really our the we you I last that Shopify, was, with keep us of the many you I'm they’ve we've that think were of pushback price companies has what sort did but examples a over pay price you how much surprised pay our historically. And have hold work think out happens. And where have we of were users, us really to received. annually, And pleasantly very talking they've to want what handful of and more. to Slack, your that of that price And said, figuring anything, customers, see course they

us so of about a price have It and well But possibly second That's received churn we had could seen increases -- was pull XX%. went And seen billing, is misspeaking. already important. of have And $XX to XX% price as to that cash, elevated some went is increase, forward who the the is we number so -- it's for, that a we from which it people convert then not actually great about hoped. it $XX, that as result annual because that. helped was which those we've so smoothly as a not and substantial

Phil Winslow

for have we time Operator, question. one last

Operator

come from will today Walsh, question Trevor JMP Securities. final our And

Trevor Walsh

for and in squeezing on the the my taking FedRAMP certification. color and me around question. business thanks congrats hitting the Thanks Matthew, for SLED Great.

only X%. You've low indicated thought X% you at I think that was

kind So and of your kind that you sector now? and curious of public expand And held what that kind marketing, on think help you business, part to of new plans back the have kind maybe the around of your that leaders the business. to Thanks. up any opportunities of if sales there what just

Matthew Prince

Yes.

I some -- think have business had we around

Thomas Seifert

line he We as just local business, until lost back. business. a Matthew. his Federal you I’ll know, The very gets step is in

in for U.S., I you with But from and the from business grow one U.S. in giving a up both concrete this year. away expect progress have place heard and Europe, especially of we So would to target or number targets. And it. across also the the And excited getting globe finally great all shy overwhelming certifications the with here and opportunity this are was now Europe in And we we front certifications big as the quite in that the hired, made Matthew, outside of the certifications the we in in data get have now parallel, certified, products also of think have the and and building only been have space. centers gets team in as an in and the the in here coming not the we U.S., we about teams place but been us

Trevor Walsh

you. Thank Great.

Thomas Seifert

question. I I cut think wanted his was -- off Alex last on to

how in out to baked price much in, I find of the increase was think you wanted guidance. our

from Most to to have it's for prices assume, you a draw than in the tailwind Matthew's think fair lock billing more the and one a to is of year. to cash flow it conclusion in tailwind that it's annual probably revenue. more historic customers I for to convert opted this can year and comments,

less So for year, more flow a tailwind but cash for least. tailwind this of of a at revenue, free

Matthew Prince

Cloudflare cell doesn't it use out. turns My apologies. phone And provider

exactly sure So right. dropped. were Thomas’ my call answers But That's I'm first. a

Operator

you And any closing session. that question-and-answer remarks? our have does conclude Did

Matthew Prince

Yes.

Cloudflare Sorry team. about especially end thanking really snafu. all our I the partners technical customers, of and by to the wanted just

that for all proven work world. I'm to Internet in can all proud keep of economic the even very around that the do we more have customers We difficult doing secure, safe, we're the our reliable of times.

the and the a So for being to I thank us great on everyone helping quarter, be going you appreciate team. deliver XXXX. it's

Operator

does that for everyone you like And conclude today's We participation to all thank your would conference. today.

may disconnect. You now

Cloudflare (NET) 9 Feb 232022 Q4 Earnings call transcript