NET - Earnings call transcript Q1 2024

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Operator

Thank you for standing by, and welcome to the Cloudflare First Quarter 2024 Earnings Conference Call.

[Operator Instructions]

I now like to turn the call over to your host, Phil Winslow, Vice President of Strategic Finance, Treasury and Investor Relations.

You may begin.

Philip Winslow

Thank you for joining us today to discuss Cloudflare's financial results for the first quarter of 2024. revenue. call, Co-Founder, Matthew Seifert, President Mark President the CEO; Co-Founder CFO; on Anderson, Zatlyn, Michelle and of me we Prince, have and and With COO; Thomas

our By earnings as now, supplemental may Relations our information found financial have website. everyone access our announcement. announcement as should This well on Investor be to

product As discussion, and limited anticipated not customers, performance vendors and including, partners future performance, regarding we and launches to, products be financial macroeconomic anticipated expectations future forward-looking making and of will reminder, financial timing but a statements and today's future operations market operating during the those our conditions. our our and our potential and

uncertainties, and guarantees beyond are not is other and our of control. results are comments of risks much which performance These and future subject to

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

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

For earnings noted, discussion talk revenue SEC and could results today risks our the see impact Unless complete release. be in will of and we an other operating that condition, as today's filings basis. well on uncertainties with future as please our all the numbers non-GAAP press otherwise financial than more about a adjusted

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

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

conference, be Relations from which conjunction will XX, for A up, New Day please Thursday, Investor with CloudFlare is website. accessible May also York in held wrapping webcast the City. being Investor date in live Connect, our our Before save our user on

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

Matthew Prince

to We year now more had that large a have $XXX,XXX We per customers, up large XXX up $XXX.X of million, Revenue We achieved and contribution XX% than Thank those increased we pay quarter. up an Digging the a basis. strong $XXX,XXX us into quarter our revenue XX% spending added first large year-over-year. very largest customers customers, on record year-over-year. new last Phil. number XX% you, customers, $X X,XXX new from in and XX%, than $XXX,XXX, from million added more quarter annualized during customers year. of net year-over-year the our

vendor successfully We and and more becoming are moving our larger to customers. of strategic a more and upmarket more

Our dollar-based at steady held net retention quarter-over-quarter XXX%.

profit long-term to Our our from target XX.X% gross and an of margin $XX.X of operating XX.X%. XX.X%, operating XX% representing XX% margin was again, last up above of million, We delivered range quarter.

margin flow, We operating and $XX.X efficiency and margin on gross Our increasing performance generating free outperformed meaningfully cash quarter. the excellence. during underscore million Cloudflare's again operational

levers on to has our We operating flow. service to our cash the gross able our CapEx, disciplined network, in fact entirely categories our business. build have our been of hands of new the customers team margin that products space, remaining margin, of while with and larger the and AI larger proud I'm launch firmly including continue and

and together X-year that Cloudflare, of network the an believe how defies way we our on leverage all infrastructure neatly it reflect match. I that in fairly can fit have history competitors the elegant business a because pieces in If We the back works hyper-efficient no eras.

was The have network else, even little XXXX X revolutionary out we to engineering through figuring first XXXX and the years, about all today. build were to possible it if

were incredible X next all and that it engineering taking The about up. packaging product,

stop As we incredible being greater engineering. product, got at we didn't

improve that and on build foundation. to continue We

of that as sales add Mark announced XX phase made growth marketing. be say will new running President next for team. that few to we sense of thought Cloudflare has He that and next to a our enthusiastically Mark at accelerate the has days. XX we Mark? to but his To forward end, on in best the by I the and X words will engineering it be and embraced ground product joining scale. Looking he's continue the days in in Anderson Revenue seeing world-class just first to years, been world to ago, our our we'll what

Mark Anderson

anything a competitors. we've world-class The better team enterprise stopping gas, Thanks, I [ than emerge, the strategic trenches improvement surprised space, last I not And and us most Fortune for to the got this also the this much the team was is. best-of-breed the ] Cloudflare is sales enterprise gosh, leaps a Matthew. know away Cloudflare's to is with I'm I to one I go-to-market about becoming world. we I getting be is every Cloudflare's last been product has But are thing great can the products experiences. our incredible out great key organization. member excited. step early year to that What that from organization the me can results, see how clearing X.X the more for some building everywhere the just single as every me enabling surprised XXX see people, signing the any and don't company Board take of and bounds on years. for room there there, and in of how vendors for couldn't most

Matthew Prince

Mark. Thanks,

short hiring. XX% definitely Partner world-class their year. new that appointment. out of stood in a number leaders hard track measure proven multiple positions last March Mark February strategic leader regional renewals Sales several account me. added up with and over to over We Across sales areas leaders. QX, records Head but applicants senior increased strategic of and term, quarter clearly We're sales we same including the XX% expertise, account following new in and you go-to-market Officer, XXX,XXX a all be to Some can Anderson's the a Global that applicants for the of had positions, in of The Chief give enterprise benefits in I'll and measured of X versus are

products wants the who is great professional of to Cloudflare leadership, word with career. bet stage sales and the next a win is the your out, world-class place to you're If

from Sales actually sales last existing can of members attainment team quarter similar cycles for productivity our incredible Beyond very new our take that and Mark yet, which pipeline think encouraging. year-over-year. is credit improved don't exceeded were any to I expectations. hiring,

We opportunity for and in and feel have the room confident to But improvement, right front to I go-to-market our leadership said. foundation of Cloudflare efforts level. as have us. we in extremely has the clear long-term that we take the next now

new Internet. lot visibility, watching short firmly if we're outlook all to business increased on increasing see my well In short-term war of going factors benefit that Asia. forward. fortunate uncertain no be anything privileged the as that us government in we're and in Middle cloudy our the in; want value think to but based as with b, ball. in term East, actually to near-term our at live the It's always our the Ukraine running of hands all, invest without That is We're in can our already that careful you've get products on at winning trends. the we sales things incredible that not certain engineering and of however, past, again once potential deliver in signals insight and tensions. space, the global risky recent it's and position we do one efforts on and cybersecurity uncertain, tensions and is in bright, in long that our have the crystal instability good seeing chunk acknowledge Even history that so term sectors in levers short-term can crystal news that we worse. ball also The the even been the served of an strategy, will few world and to medium we the look short is But into been, thoughtfully less keep term, a see the the our from our world we prove that in macro especially uncertain, the great approach customers clear. what business, the of We're investments We I from forecast times. term, impact signs that, and go-to-market prudent perhaps we know Russia, a disciplined especially will the from going for is in is clear our a disruptive the

Accenture, deliver Speaking threats. a in their more with signing which its we're central public a $XX with the local emergency Center, $X.X pool from its rigorous of service wins with process was of sector technical let to We me customers, of domain U.K.'s protective a are malware technical for government, U.K. working evaluation. expansion. technology tightly over cyber U.K. threats, relationship government, with vendors several X-year closely signed Cybersecurity great a health Cyber and X,XXX contract, collaborate This some expanded services The care and million name share and protecting a contract company, organizations million PBNS, the competitive Cloudflare with funds leading even National for a looking on landmark X-year win, Cloudflare very authority quarter. partner

increasingly class parts an in which customer Magic customers a strategic as than dive quick the RX opt is deal for One, example Transit, XX to that with include workers' we're for start and as These deal trialing. rate platform seeing of well card This a and more Cloudflare services. AI, was

XXX this customer first came deal of $XX allocation us Cloudflare's for years a security over has this vast similar majority in with story, As our A of X-year Fortune the continued to a company land-and-expand deal. services the expand to textbook signed million XXXX and funds pool platform. services financial encompassing

a major for This successfully resilient, new different sovereignty level, requirement with complete able country that Cloudflare to the and was single and logo We to platform main proof customer X represents the other with accommodate. business a meet concepts from efficiency unified of the flexibility a data largest were our drivers requirements institution. vendor ability win at completed our going financial no operational with

platform more company going for with large us contract. along the due with against all consolidate the This $X.X Trust financial for customers deal America this isolation, million this of our XX X,XXX with with process serve contract several WAF vendor, first-generation their Zero looking Magic access Zero optimize and participants. financial platform services. in Zero were from to Zero as in and leading integrated SASE win. a and looking large seats X-year value a This key innovation, with the efficiency speed as WAN scalability for application signed portfolio Cloudflare's marketplace our pace signed seats and X-year, latency energy a in reduce A anticipate win vendors very simplify, CASB, application in contractors, and along digital Cloudflare's rest. customer their same for competitive superior and to to us benefits. competing WAN security our apart beachhead a $X.X institution contract service DDoS We for employees security is million A with on company delivering signed MAGIC X-year agentless $XXX,XXX new ability and will a security, A to browser set Trust platform. architecture a Latin factors significant WAN Trust DLP, performance is overall for deployment, as well Firewall, and focus the was Trust of international the MAGIC

a Magic and With and Transit, a customer This attack products. firewall on resilient, platform With and products. security platform, out government-sponsored consistent consolidate DDoS can Magic able Cloudflare, this need with X better pane that With merging protection architected their eliminate they Firewall and difficult million with Fortune onto network solutions found Cloudflare's incumbent for where solution company glass on the roll incumbent performant X-year products network, security their manage a company signed $X of unified single was to run is than a manage single DNS for services incumbent A more our looking XXX is control posture our dedicated improve and for and to customer contract unified able network to financial mitigation this to was Cloudflare customer multiple teams solution. solution, plane. outcomes this together. it modernized security

with and Customer X-year underway. $XXX,XXX contract A for customer Another shift Magic looking vendor hub-and-spoke a Cloudflare this signed deal Firewall., ease SASE superior at is leading speed network, job Zero to eliminating to One use construction pace costly cloud-native from Zero hardware Trust already against our a of deployment. Trust, modern, company Magic is a first-generation appliances and architecture, legacy model. the due to innovation, of WAN of sites

a and The a WAN Object A point a Zero agency eliminate Cloudflare Trust was our and wins. platform. Storage. integrated to ease modernize what multiple U.S. Zero complete a legacy solution is X-year plane. think we're customers contract platform feed single are and first-generation more of RX again, looking government to deployment displaced agency vendors. $XXX,XXX the infrastructure seeing for to Trust, of provider complex turning great signed with control of I These use Magic And all are and due network more Cloudflare

hand Cloudflare the few it I Workers, a The to to ecosystem. months about couple were workers' entire I talking over incredible platform. wanted of last minutes Before Thomas, for our developer spend

First, we crossed building developers over million applications Workers. Cloudflare active X on

and our AI, number allows Second, globally and models distributed; database makes April, serverless AI a of global DY, in run SQL database; which we it's any tune products hyperdrive, to our GA-ed traditional Workers across perform key like developers network. like which

running more our GPUs out we AI is believe cloud XXX rolling network margin. the than We're most what and in by huge us making ahead now have widely them schedule a distributed of globally, cities across

next Our one-click are models announced. generally and language bleeding by we're Llama-X of QX applications. begin and influence support roll it of incredible our GPUs support to releasing new it was for partnership Workers the making Python, with them. the to in for building we using complicated day built added and servers simultaneously Face, models, common popular have easy We faster simple We Cloudflare's second and added making programming out applications more default generation their the Meta's that other it will edge in language most of Hugging models. increasingly even Developers for most AI, production catalog out larger, most deploy including network, to AI rolled in

to engine cylinders. us I Cloudflare excited users to the intelligent, proud and need our future when delivering are my we're that of scalable innovation this of more world. enjoy talk into my continues fast get will build to around aspects never is they favorite lightning all many I'm see of One in on aspects said, Internally Workers. fire job of Cloudflare, building feel I for on I developers the benefits who all I been our future to like and Internet tools the that applications are and externally, I've innovation And who the as about lives. so to get of the the

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

Thomas Seifert

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

continued new cyber sector, public well also contract seeing given uncertainty high One. application last customers as priority again highlighted businesses Sales We're execution high-profile this government quarter. sustained and pleased are the and were cycles with continued We attainment new and the and our geopolitical with including progress our as our our major demand win The first with our with quarter, during the a quarter. financial by our Sales productivity improved pipeline to largest our new customers. large for remain in expectations. similar including logo foreign year-over-year a attacks, for exceeded security was quarter Cloudflare momentum institution driving network largest customers security

of being commitment as capital. act We fiscally good and also stewards responsible Investors to our maintained strong

more and a we During quarter, $XX.X profit year-over-year, million, notable accounts on Operating our in than free driven generated collections the cash strong flow first receivable. uptick doubled by of

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

we X,XXX quarter. of our year-over-year We quarter an XX% about XXX,XXX first year-over-year. customers of large with In customer in XXX increase an ended an the large paying customers addition the to representing increase the customers and Turning about XX% metrics. quarter, representing had of

were from quarter the increased see we mentioned, customers to year. quarter revenue, of during to revenue from in first Matthew large contribution again As XX% last pleased up XX% the

Cloudflare. annualized customers We a basis net $XXX,XXX an large also is added all on new with record X spending across than those number that and million customer of cohorts $X more year-over-year $XXX,XXX,

dollar-based XXX% and the sequentially. Our first rate during natural pension quarter consistent was

can these metric near decelerating stabilizing quarter-to-quarter, to mentioned in prior in last variability trend there is levels. some we quarter, the we be continue this DNR As but believe

to Moving margin. gross

margin revenue great increase year-over-year. sequentially we gross basis quarter to increase XX from of XXX Network continue basis represented points from X% an focus to our the workloads. first in infrastructure benefit points efficiency XX.X%, First an was our on as quarter uniqueness of and representing platform new CapEx onboard the of our and driving of

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

expenses. operating to Turning

year-over-year efficiency First revenue operations. by productivity and XX% quarter decreased of X% as operating remain expenses we percentage our greater as committed a driving across to to higher

year-over-year, end to number XX% $XXX.X same a expenses total the to Sales for and headcount at Sales our and X,XXX quarter increased decreased of million revenue the of were percentage of quarter. XX% in total marketing year. marketing Our quarter. employees last from the X% bringing as the

Over on strategies X go-to-market focused and we the last quarters, refining our operations.

year-over-year We double-digit we of that year are in and levels during last XXXX. from first upward to quarter, delivered trough improvement again consistently the trend the early XXXX sales continues encouraged the by productivity which the in the we early achieved productivity

based positive and this and the Matthew of onboarding expect Anderson trajectory the We earlier. the senior on of continue leaders referenced analysis our Mark go-to-market to other with pipeline

and times, sales many make and say pace hiring. economics us expand data-driven our decisions of and confidence we capacity. in our heard to improvements business invest unit of additional go-to-market you've us to the other committed improvement The business give leading underlying sales are productivity in indicators to As further

in in coming expenses second expenses was were $XX.X million the revenue to decreased same Research percentage income of to compared same last the in we G&A million year. headcount revenue as General quarter. result, from R&D as Operating percentage intend development quarters XX% the quarter. compared to a $XX.X $XX.X as the the a of $XX.X additions and last As for were XX% to million XX% in million quarter. in the XX% and a quarter accelerate to first from year. period year. decreased quarter administrative the last

XX.X%, operating given competitive focus quarter increase continued on was and First excellence of our efficient a more becoming productive These an XXX that highlight points margin year-over-year. advantage. is long-term results basis more operational

net Turning the to sheet. balance on income

X% Our quarter a the $X.XX in cash, was We and of $XX.X with Remaining income of same or or XX% performance per securities. came quarter year. increase flow million year-over-year. billion, was revenue X% first billion and in last $X.X million representing revenue diluted $XX.X compared at obligations, the equivalents an $XX.X RPO, cash cash RPO to net the available-for-sale net of or first ended the share. period in in million in X% $X.XXX income Current was XX% total quarter of Free RPO. or of sequentially

and guidance Moving full year the second to for quarter XXXX.

We with quarter. during the first our pleased execution are

However, to points uncertainty geopolitical heightened business remind that us to macroeconomic continue ongoing challenging a predict. that operate data mixed [indiscernible] environment remains and in we

our As remain a result, XXXX. we outlook prudent in for

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

in $XX income of effective to of million and range expect the XX%. operating million, $XX we expect an rate tax We

net assuming diluted per XXX approximately $X.XX, share of income expect We million shares outstanding.

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

to the expect $XXX year for We the income $XXX operating range million. in full million of

XX% to XXX tax $X.XX, We $X.XX that expect shares be for XXXX we and to million diluted net assuming income approximately rate period per of outstanding. share an expect over effective

full flow XXXX year cash half the to free compared lower profit and for with with relatively expect first profit. consistent the operating be second half the higher We operating with

that significant mission our our growth operational for committed securing ensuring Operator, please that, closing, customers well face some us their team like thank to open problems value. to our I'd for hardest remains for to the as and delivering as with trusting to for transforming And them they solve our long-term driving employees shareholder In their up and I'd when businesses. like to excellence, it help questions. modernizing, of poll dedication questions.

Operator

Instructions] [Operator

the of RBC from Capital Matt line Markets. comes from question Hedberg first Your

Matthew Hedberg

checks why about taking to like a for continue that you Maybe you SASE. one for one in in relevant what you're more feels the first be Matthew, it talk Matthew competitive more progress becoming appear bit more our share and show then a to And market? market Can on Thomas. today?

Matthew Prince

Yes.

products, are we're ability our there. Cloudflare's network. We who for And use the our proxy proxy forward to make do on sell. using top true online think only get sure those you of forward malware, that proxy Internet solution platform. we're malicious your it as you execute we extremely SASE reverse protected possible. is of are but a as SASE the sites were something in able a from and for the the our Not it that networks it's that is SASE products that in lot the those total protected can of that employees really aren't to you platform with are existing secure compelling team means proud is And as bundling from who business vendor that other of marketplace, It build part familiar match. no that I times, our advantage that people products. that of helps get as

And newer we've entrant we are quickly. think but up so space, a very caught this into I

Forrester companies You the can more notice. space Gartner than improved vendor have rankings, the in are in this rankings see taking other and any we in

never that. loves most have, not that is performance everybody really a We sort I thing is that security must nice think of companies have. other think to The a accepted

our so anyone platform SASE is significantly and faster than else. better And

significantly log And what it in VPN if anyone our SASE into, after new because cloud who's that, it's with if so it winning listening that actually service, with this for platform service you even that after customer and customer at better. if that's space. a it's do customer seeing is harder and to you're if And from slowing can down to to making we're is you whatever give you're that work, us this call have the it's frustrated improve you frustrated Cloudflare providing we next-generation a make

Matthew Hedberg

I'm a for billings in great how on for model, billings isn't we guys but Thomas. of your metric based then the maybe wondering think just one about a you And expanded pricing know I usage-based context your calculated should model. Excellent. quick

Thomas Seifert

if for strong to quarter a Yes. as business fourth both terms of as well the compare significant renewal. deals, quarter, in new comparability as what in fourth we was large a you the federal as quarter Especially special terms very this about of space. But in just -- as a from both made well Matthew very heard in perspective, talked commercial some quarter,

more of happy Some away. in to very really very noise of and indication then And are you have doubt see taken with deals, them the and in the shape from and of more these this it's neutralized large pool any overall, different deals more current fund where RPO from they quarter. this X XX% complex. is this reflected a some some becoming year-over-year, are But billings RPO, But up a perspective. perspective. momentum is quarter-to-quarter -- is we performance without also in of business the noise And

Operator

from of from line comes Fargo. Wells question Nowinski Andrew next the Your

Andrew Nowinski

because think wanted a with on products I to you one nice most in that of I a quarter. portfolio. exciting AI your on start Congrats it's Great. question Workers have the

there? some using are to maybe out alternatives and developers and AI those Can us they platform among build other what chose some to AI Workers many mentioned build You just you examples of why AI applications. your the give apps on are Workers new

Matthew Prince

building. -- the I I to job of one of said, most fun see my developers Andrew, parts are is Yes, as what getting

of the my are of and of handful a examples these any you if give interesting. top me see off let So head

get if boring. stop can they me You

their starting one classification taking AI do models imagery service is and image to Workers into AI platforms there I in it A globe. do the the for and of they the think largest Workers e-commerce out around shops. keywords is that and space turning generate XD to drone using to use startup

And as in for handful X transcribing, online those once submit A description, of a while interesting. picture public a using ordering for does video dishes. Workers are [indiscernible] the an translation, of so food restaurant the that's companies company, multinational things all platform every AI

pictures food Hopefully, that AI of Workers the disclosed they're with actual not generate that an And actually serving. experimenting you're so to it's picture. they

and exciting in doing another hands people see that's how that's who look these gaming are you with before adding different that's this imagine of do of team actually consulting is actually AI in it Workers you can summarize start-up summarization local mean, gateway they in order generating handful make are sense. I songs generation and of e-mails power We're us to speak they're There's hire languages finding to I ways day, the on space, like our fraud There creating doing very to after in and in language them using detection. in the search executive AI evaluating just every public and a into a in contract to large space what another Workers a teams they're people so better. There's that understand renovation company their and Startup it's video can platform. companies, after example startup which using A using Workers. to example enterprise on the photo so are enhancement or platforms going thinking image you order There's Shadow are using an and their worried and order are using quickly sum about or at reports. bunch of And and AI, space go look are a they're it. Workers services AI tools companies, where on is big engine. a about all example. to using public company, in and AI to series a space the and what ways real-time how just that own financial the whatever

there think that's In about I terms Cloudflare of that out things it to X me about unique? why, what is sort are of it. stand

serve globally, first give to central performance locations around of your back audience, ship the much that customers of are in and just we some is over all experience a AI we The global distributed having because can to the world as XXX code Workers location. a Cloudflare today, we just serve them better

effective. can is second be actually cost that more The we significantly

hyperscale big the any it's sort in manage cloud you of one using to AI up to of efficiency. to you're task, If do order

getting sure model do to that what serverless whereas run. the AI GPU actually that a have of make You we you most of the renting much more you're you is out where that for pay the task you're only

you in they're better they just soup-to-nuts that the cost get deliver efficiency, a a globally thing third we of the got because platform get that to AI significant have models. rich And experience AI of better such their start-ups, fact So people it to that is our use a we lot in allowing distributed ecosystem experience. can that's finding if built, can that because fine-tune we've especially they where significant and then order actually that the

And reasons that's going something local and my silly spelled C-O-L-O-U-R. you normative AI the really back sell be something for U.K., all reasons, world. can I important of going run be In locally versus regulatory C-O-L-O-R, That's example don't what be are looks if a an out that these think, is but actually the because get in anywhere both the to for this you the to We the to around and for inference of user, tasks. also all that. describing U.S. the else. you regional want They're a that that, to experienced like correspond U.S., responding differences And there. be and to that British so wanted you can to user we want have tune regionally is color

proud actually super being space. rollout. up our for that think, the seeing AI We location of excited from and our of on what AI ahead we're XXX end we of be physically team we're still about cities I'm track able Cloudflare by to really nearly I'm this So to get do every geared over worldwide, had makes to network. the inference in year,

Matthew Hedberg

comprehensive incredibly a an was that just one Thomas. Well, for answer. Maybe quick

hires QX. strong I raising you -- but You of you're made despite are guys great course, guidance your changes on term, conservatism have some the make of your uncertain new wondering the beefing in channel was perhaps for the sort and I Anderson. annual reason with if factoring in Tom Mark you talked go-to-market that for guys the not Evans into macro might short as side about up the go-to-market your a any outlook know

Thomas Seifert

but that see, And conservative that In to too. major word evolution. is be it. know, is about of our risk, a thoughtful giving it's an prudent we guidance, you actually and guidance, case, not we and And uncertainty also there. we use course, transformation. and balance tend about more talk in of tailwinds when our reflected we a out is go-to-market the it's the As in every There it's

Operator

from comes Jefferies. Thill Your of next question line Brent from the

Brent Thill

giving big pretty penetration federal to is? in business? where had the you on couple curious here, think I'm you last are what from And us is give federal, wins. sense quarters, some of the least theme around terms of Matthew, guys a if And faster of could at you it the just you us say spinning the is fair flywheel of breadcrumbs a

Matthew Prince

Yes.

to I us. think of FedRAMP Last a achieved opened year, federal is exciting deals we lot that's excuse federal FedRAMP certification, for of -- me, us.

with a of federal relationship always we've government. a had the great lot the think of I members

in anywhere when an United who I to I the the United think and this been election obviously, running that, election to us up no is how provides that customers ask in with step XXXX, help, talked to helping year the an services States. hard much federal we've they which our is so they help appreciate is which States, our cost at something, to appreciate we thing Athenian year, is since project the anyone administer as

schools in federal most and White I the amount of protect similar trust which the on the the House all order of safe built the think of incredible amount an things a of goodwill world. and done with initiatives, schools We've around Project number is foundation, in the the incredible vulnerable rest to worked We've an country. has space. And communities that across including

now there's And have seeing more significant certifications and a that's true for fact world as across and that we've I driven the country, where that being that just generating are the institution getting helped that that true so products, think, our great federal revenue attacks. today, And relationship federal that we're when think in up the we sure that help. we is scarier we the incredible required need vendor more an -- and the and serve federal more business, cyber is government The scarier by business the step being to but fact as have anywhere the also we make fact built is not is turning any I trusted us. and have public a into partner more and

Brent Thill

And you efficiently. you this debate, do big do take CapEx How then all just CapEx the up. quickly for hyperscalers you and war Thomas, this way AI saw

[ Or a way way Explain there only cities in ] do is you're you bringing efficient this can which to gear to only XXX GDP is mentioned there others? in rollout. than do costs? maybe a way are with how one way ahead -- more You

Matthew Prince

may more Thomas add. and start I'll then to have

which -- I is all together about well. so really is the elegant fits thing magical really business, think it that Cloudflare's which is

require AI ability of additional CapEx up for CapEx. products, high-margin are including Zero in to So they sell those our we then products, a instance, as frees other and of the in more SASE space. and significant amount Trust don't that our extremely That areas, invest

we very and I the would we reserving that knowing in story think point deployed made decisions, AI part future. of space that some specifically at equipment the some be smart our

we support of deploy That really that that the sure the shipping in all things as CapEx allowed fact any has deploy just CapEx, That that's we be works an not again, us. helped has function every of The server that cards us because that X flexibility has it enormous an literally existing is servers that so the go in make network. amount That it server means and that need. the deployed. Cloudflare's And reduces but to performing platform capable case. it's how entire running amount across to field. can GPU we is on AI, we to And entire of shipping unified are wanted into

that is make figuring part or machine, We're different. of we can sure is more to be means can they're equipment is how the players. lot the utilization they're our hyperscale provided, multi-tenant bit then selling What full allow that efficient we What that that really do. of and business we machines a have a the high. doing little at renting a use a those full the The whereas is GPU much is that out extremely other actual work out that

-- don't hyperscalers characteristics. the if exact each I and slightly the these of again, they know So all are and numbers -- for have -- different different

out can in we're average hyperscaler, be getting many terms the we maybe CPUs times utilization XX% or utilization almost in deployed, where in of GPU that utilization. the if But they've of CPU XX% seeing often resources that a they're

So out that dollar. efficiency more every allows us CapEx to get of

would different training. I is than Finally, say that inference

And different resources so you need for that.

tasks. order You GPUs in do the to don't mean inference cutting-edge necessarily most

It's out so have that efficient a to that think over the provide haven't type quantity. between And best a X is their time, meant as us GPU that how be that had particular choosing we down -- customers rent picking workloads and to or can And meant let figure just over rent are people is smarter be service. of different trying that that gives much I it significant advantage who that can GPU we what possible. as to and and to limited matching chase whoever vendors GPUs has also about

Thomas Seifert

revenue includes to the We in location close will of XX, GPU every X% to rollout we every to much CapEx first not the to of and capacity in quarter. have. of X% said pretty year this. add XX the were There's at be much network the range and with server to We this

variety that us the huge just there's our or think we with in how use card what variety cases based optimize CapEx our in insight efficient ability Matthew capacity, cases big the this additional said, that gives mix -- so for capacity we to of about Matthew see we when need factor talked is, good deployment AI just is developers, every to on and huge he X huge spend. I I the talked GPU be to not this think, of us underline and about use inference investment that allows an that see optimize task to and with

Operator

question of from Your Fishbein Securities. from line the Truist Joel next comes

Joel Fishbein

and to on be Matthew, go-to-market you Thomas. a Matthew, Great talent for quarter, How talked execution inflecting on and that. war seems in X hiring talent of top there for line is the you growth. XX% AI engineers. a a just about lot for follow-up --

few capacity. You've Cloudflare if companies talent Curious they're hiring fitting hires where talent. seen just compensation and draining retaining do it's into where normal things and is with [indiscernible] a your

Matthew Prince

sell as if the place some to market go. invent you finance Yes. the want with on I think if incredible them where innovative, are if want that is really of work on or you team, a want I to products to future, or fortunate a seen we world's very mean you or you policy work are public to across issues help hardest the frankly, -- you board, we Thomas coolest that or Cloudflare the place can that get where be

in And so extraordinary We Anderson, are winning think coming people fortunate we a that's every work war is Mark And engineers at roughly, QX in an the last you see where Cloudflare year, I'm jobs are XXX had was to know, that when like see who that Cloudflare to when Cohen, you see Stephanie and someone -- position is we but applied like of XX% you day. up real, talent are for, that's someone XXX,XXX year-over-year. don't QX up what -- I extraordinary. war. almost over that the I

seen of working to any We -- an we're attrition. hardest fortunate in have problems. been regrettable it's -- I think some the not world's uptick It's very on be

some in to us the of And the on this. and people come smartest want world help

Joel Fishbein

are That's experienced shorter? hires, hires? expect time change to to sales hiring you really you new great. more And of their with that productivity productivity, Do strong sales terms people Thomas, in so for acceleration again. Or the improvement you, is just of

Thomas Seifert

comes This that hire ramp-up course, is, goal there's people, it. even a along what curve of But the if is. you with

We are up moving market.

more more customers, larger strategic more and complex. larger to They're There's getting are accounts. We overlay.

side So productivity in hire might great when said potential We I we see the be that as transformation earlier, talent. we trade this every implied. be itself there downside evolution with comes thoughtful try give and guidance to risk, or out. improvement. balances go-to-market But We

Operator

William of from line Blair. Ho question the from comes Your Jonathan next

Jonathan Ho

think understand question a last value? just can Mark what that on standpoint, try productivity up we and to in? where follow most do sales to are And wanted just I the inning add from you better

Matthew Prince

I'll has he add if Thomas start some then and can more maybe it.

in still think early think of I journey at really I great are being the that Enterprise. we

on. the real about large I board, think sell up to he company how all become to There what where is can needs about drive more that we last great, That our board, and every but product in that all their world. is on large comments, for is think on sales our do we enterprises were in sell. we Mark's us the -- is it relationship I months XX strategic it's understand to to cleaning with that something strategic company are vendor we literally really for ability that the of work a that continuing Mark said professionals of now the is get organization have now and large need doesn't a sort no

nailed really where is What done have we that. I really we that, encouraging think is where have

vendors largest those We of are the X companies. becoming for IT

And of some large those very companies. are

and to them who we process, to that yet. And better him for the was again, financial I as vendor is a to imagine use lean we became I talent strategic in much forward think, think I of them. financial the can the who a won time. we financial Mark added that him know and institutions it That us for the is great. and in need. organization mature high beachhead And said, gotten so excited And plan Board not absolutely over it's And us to security than with to and us see someone but our he's do the to -- a that, But many we're want very more go I say share. of I aren't all for and Almost major take many services strategic We're -- vendor going in a for large that services things States United be. that something. for that caliber period networking they to when of as is ago, incredible this Anderson. role can't forward. space we, work it's just years going X fact the

Jonathan Ho

you quick of terms additional little concern on Anything Excellent. a causing something the follow-up. of that the in point you a specific bit And macro that's can in there sort pause? Is maybe to that of just outlook.

Matthew Prince

on direction. lot it's Internet. of is where the I we that, in a based one that being sure think, reason and responsible think data-driven taking now would lot always that any But not to of much a number is I of think be nature get give any pointing cautious on us, sit one signal different directions And our we and way. making that that a we're I clear I in is right that making there's we signal in a as very thing what say pointing in noise investments

behavior. And in so That I geopolitical causes think the world. absolutely is the the around obvious changes buying uncertainty thing

we're those as buying have that in seeing, On the been -- our uncertainty. that behavior for government especially because positive us pick up of of hand, in other some business, changes

responsibility puts we trusted as that investments with being they've that capital What that are we is do are the there. to to we we have with. make out we So and and through that prudent are and sure just handle and takes investors thoughtful as how want think us make and responsible there

Operator

Your KeyBanc of line next question from comes from Tom the Capital Blakey Markets.

Thomas Blakey

hear Trust Zero multi-cloud guess acquisition prior technology wondering follow-up. have Zero pent-up was I Trust comments of could SASE act love a this the around there. maybe maybe this [indiscernible] perspective, on I to reach a I there deal, about networking recent maybe And networking addition the your and the multi-cloud expand demand was Matt, acceleration to possible of maybe that interest from I'd Cloudflare's specifically, some question services. a

Matthew Prince

networking excited Yes. in is board. think Nephila the have the space. want it that -- incredibly the we to Cloudflare make space team and We competes on security to the We're in in

either that something through to own it buy. we pad our and to resources critical platform making launch to build is going like that part have build. team in use cloud a And very so having start-ups And in our we easy a aspect. And on to were connect because the any to just other -- network traffic seemed workers' especially or order to to is across [indiscernible] it Cloudflare's came which they customers that program, came program our in in and get

about ourselves. that use platform What we that is is powerful build to same

any teams we kind platform when out on there. signing integration, uses, in the your of exciting, find just space any we of building of platform, that team our is decreases that so And think that's the of risk platform and technical frank same working kind same own of sort great a the that

interesting we Nafelli -- spaces, for and for remains so We But announce worked think was incredibly our were And where very, has small very hurdle the acquisitions really to we rate great, teams of these well again, M&A working in and that, some these great acquisitions it. us. high. found excited team

it's of where again, were the are order real-time other couple using in extension for. platform what our we're build a we giving time doing. is it's acquired a examples a observability observability that found serve it integration service very #X to that and similar we is to platform, looking is, And another again, great one again, developers out A that baseline of which just our there. platform on natural of kit, that things some own platform our is Party

I think large So again, very extremely none of these acquisitions, they're strategic. but are

founders to of platform, to are M&A. there they're incredibly have the the over technical using accelerate X all and means I from on have oftentimes people own our to excited hear Cloudflare you'll rest about just that that And as so they easy and for proud of go we that sort risk those decrease all more more developer Cloudflare which with what is that are team, those In the are cases, think people wins and also, were areas and the I team. the the like quarters. ability integrate our get into And they think we I with markets. of existing love the they us just

Thomas Blakey

that great GPU be the question unique built I'd with on think applications the multi-tenancy. is you to this just handful about of it gave of to to as folks revenue DSPs these way and the explosive have But relatively growth to characterize like a Well, here. be seeing approach would and more of there, something a great Brent's taking platform there. architecture to say, question other of the go kind that CoPilot. a if, it back And that on up explode fair to go this would get are segue I SASE CapEx high-margin and Is your the like platform significantly like a

Matthew Prince

Cloudflare what has that that's been behind And not ahead magical CapEx I look able think we've I the Well, that of as would to of demand, at been always is demand. the think invest a percentage I one been revenue. things the of about

And out so wherever more we it. at we're good need rolling capacity really

it would that we -- so we have problem to an may And end of on percentage at dollars we that percentage -- amazing a it going comfortable we up be service on be the that more GPUs. of -- we that basis, to well revenues If in But our pure can as applications revenue, very so these a feel have. just is forward. spending very forecast

Thomas Seifert

want an revenue GPUs architecture this. into is in is the allows -- The into would we really I efficiency factor revenue additional goes Trust that driven talked us architecture What products. more to about is to of the here We add efficiency and mix driving that invest hardware that by this. the by is more driven the Zero

of It's of architecture. little We bit have this we our what XX% to Generation total now it's in of more service are in call ownership the generation. a reduction than rollout cost XX new

of towards GPUs. CapEx is So XX% can more deploy we that

incredible one is So the levers are in they of the combination many driving are and place, in just this really not places efficiency.

Thomas Blakey

Well, AI on of days these or look breaking gen us. great. you AI That's for revenue one out we'll maybe

Thomas Seifert

sided to significantly as is well, so soon more use approach is thing see get us tired At has is the that think This the served million being shouldn't cases continue developers far in more it benefit we with efficiency than we'll adoption driving why and X the in on revenue this As high is from right it. important the term. do. moment, I we short the the platform many driving is

Operator

Henderson Needham. line comes of question the next Our from Alexander from

Alex Henderson

occurred and it And to to about Great. I an ago, years were the comments think, About signs question it you guys wanted conditions. early months your macro risks was ask I seeing warning slowdown. that X, about had economy X X, you a the that XX of that actually later. gave some

visibility this that to this suggesting with similar commentary are so conditions? and therefore, it, on just you're you of just going being yet. And is Can any little several this call, you more caution? to gave that years the that's to noise you happen bit to have contrast prudent, ago you but to seeing this whether don't kind event Or characteristics you're when a

Matthew Prince

Yes, Alex.

optimism. -- some a give as today -- us say X also we I but it's slowing So worry signal -- level that that economy us, things we see we down. things have ago, years felt pretty of that had of was that the that's I signal clear I case. the would we clear like We don't that see

much and be surprising future is the any just investments can cloudy because we us think can we I we ball And to think through though we average not what well. part as so have crystal the think thing. company I is more I the in think has in that served think gets. describing And And way. crystal I SaaS make a ball. What than enterprise like that, I signal that that We right try like looks get

thought same -- it uncertainty much, quarter. the see was as and characterize that, 'XX quarter clearer. I saw of say last QX an that sort But potential much we we what certainly of as -- over in I this so was is what And downside had I 'XX where there uptick that not would concerns in we would

not we of to take well the on the So am business But concern proud of rest the we've continue heightened think more -- quarters. our that to the of hands of definitely of was how recent of their this. but I in at my QX continue same Thomas lot I'm the feel level not keep seen is have watch team like XXXX, is and execute. in it and a levers what to I ability over that level and Again, I it

Alex Henderson

guidance nothing of the outlook struggling you if So still half the for here, really back with is I'm spooking year. and the the

strengthening that you're or -- that guidance given pipeline, seeing you're commentary You've significant you're of your stable. duration saying

You're closure seeing solid rates.

deals accelerating capacity, you're large winning sales more adding rate. at an You're customer

force with significantly above implies and guidance improving. quarter people more your first sales much hiring is quarter in on Yet beat productivity the your Street, more spending and the half second Your is conservative. the the back are

ultimately, to just is, realigned So feather that as sounds it on guess Mark be the particular organization and the like in issues? or in is is to not due weakness specific a political to I trying for a of drives geography acceleration, imply question the comes mechanics function Or it sales deceleration. an opportunity things more a because

Matthew Prince

bit more right that Alex, lot nothing was on Yes. a statement, push I'll start and color. me can which initial I me, back then little now. Thomas your spooks spooks a would give

I environment that are that we in we're signal -- just make the and more So much is just because clear, seeing uncertain uncertainty it want and up. a is to

I that, correct to comes you a risk think addition with change, there leadership you're that whenever is have that In it. sales

QX. back seeing much in bells was we there mean same, to worry And in the is feels there's QX at in QX more But were that the so alarm of primary signals -- a the that. -- much like that we just there's XXXX. sound the macro feels a that it factor like doesn't the bit it is here it than it more look reason that But overall of as in economy, was

Alex Henderson

Great.

it. it. I just So appreciate derisked essentially

Operator

from the comes question Your Tim of last from line Horan Oppenheimer.

Timothy Horan

this kind than cloud low what the hyperscale guidance. is latency. of in onramp on-ramp about thesis? actually segments anything capacity on what's really serverless Particularly, the seeing accelerate guidance why like between And of quarter, And talking being you're there of the macro? accelerated disconnect the the guys. other constrained. on also the versus saw concerns seeing fastest-growing kind revenues But right changed I guess they're cloud to you're you're they're We those the guess Or and I out now? in on what

Matthew Prince

Yes.

usage-based very down. big to And usage-based models. of think both purely is they the that good I point to tend the be they that thing, Tim, react and I'd models quickly, that up is

more we is think the be more are And to things subscription-based stability. good you I But down. tend that and so a slowing much that that whereas lot model, and of of helps stability a it when has --

growth in this few faster significantly we're had than they and where now hyperscalers the last are around quarter. we So the quarters,

some it. explains bit little And I so the of usage-based I think we models. of moderated And are a that than more some think more

That's think monetization, that a think pricing monetizing is But the that of top listed some products, decide well not contribute we second some examples, we're again, we to optimizing is products, plenty around said, months. I AI attractive will very, see growth. still while it was will are that received, in we in it opportunity help those And pricing around right being we from for our the as And the the really to of place I when we extremely something time of I Thomas heavily line think published the very margin there. yet. is that the that add as on turn for thing and addition where I'd especially perspective of last us to adoption. some a

Timothy Horan

you quick revenue competitors offer a follow-ups. stable Are other more or real I on coming basis? here. we've And accelerate any you a more for it I just [indiscernible] you next to second said, think of these the potentially very, positive. and about on half like years? seems your very guess, incredibly accelerate seems like could mean, really what global visibility, X you been call just guide enable steps seeing at the will XX%, growth point, guess this couple low I environment what down Do And -- everything talking serverless, in mean low-latency you some into to I implying be. you're should macro versus do in

Matthew Prince

the We people all. on in cloud architecture. is are talk the who So we sort unique rolling think There a we out much you the people are position. when anybody true front, have some are turns are don't connectivity yet that business game There of businesses. pull We serverless space in don't. good competition see type covers back don't very at else buying but with who a really out legacy of it this very

perform, And think what's but think, business will we true in provide a so lead, position Other is great that the businesses are, us like then with that have the about are just Trust that Zero which workers' edge stable things have a to very accelerating clear ecosystem. And the services forever. and richest think offering. that we I people we I platform. we're that existing, up Cloudflare's SASE don't we And of here, like we lot stay bleeding unique have our have newer will S-curve. businesses for have continue businesses, our I opportunity we

of so And are and going and is think want, we we'll companies customer curves, about investing iconic and technology another TAM, lot to we so making is for that areas every market, every how figure than to we run choice S transaction. new continue company think is we I make think a we're And what trying truly think all single with of innovate behind to for we what stacking optimizing long into that term, long formula which add over able an money at adoption companies building the of behind be we're where X the to technology out of the times single out of that's term. way run Cloudflare a rather achieve for I one from another the out iconic that, including right in

Operator

Prince closing question-and-answer Matthew over back for will concludes turn I to some our the now session. That call remarks.

Matthew Prince

function, to that drives the force the continues Just I lot tension imagine there's Internet that be of every forward. going continues important scary be that on. economy do around on. entire things in the I lot want a right it anything day to can't that now, sure what team world going a we There's the world thank a our to and making more know of of to working for executing.

you. the terrific now, delivering you So yet back for quarter. We're getting quarter. entire again next we'll and for team to another thank all see Thank work you

Operator

This for concludes Thank today's call. conference your participation. you

now may disconnect. You

Cloudflare (NET) 2 May 242024 Q1 Earnings call transcript