NET - Earnings call transcript Q2 2024

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Operator

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cloudflare Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Phil Winslow. Please go ahead.

Philip Winslow

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

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

Our is anticipated subject statements are our macroeconomic our beyond of future and financial regarding These and which and performance to and control. risks guarantees operating conditions. not future expectations performance and other uncertainties, are comments of future much

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

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

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

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

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

and Executive you the XX Summit September in also be Stifel to Goldman Technology Tech participating XX. on and inform would will August we Conference like We Sachs Communacopia that on the

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

Matthew Prince

$XXX uncertainty. a with in terrific million year-over-year. annualized Phil. We the achieving quarter, revenue, you, macroeconomic even Thank quarter, $X.X XX% second billion crossed up in continued We the had

at up customers, now new XX% quarter we X,XXX large quarter, the XXX year also and in us customers, during added XX% contribution the large the up from have $XXX,XXX these than pay remained per from those customers second large XX%, year-over-year. consistent year. that Revenue During more last quarter

net Our points percentage was quarter-over-quarter. XXX%, X dollar-based retention down

during efficiency to Our We our an We continue of and above representing of again, profit This target free $XX productivity. easy to delivered ahead an XX%, commitment strong an margin our XX.X%, range of flow operating the strong XX%. deliver operating of million $XX.X to cash and of wasn't quarter, but million, XX% our generated results. quarter, gross was expectations. operational we execute underscoring margin long-term

must-have, the players While benefit I to buying showing even being Turns for our we investment every fight we win from have in IT field, deal a right have you on when out think have, the improvements be rain. to can as the challenging, dividends. but continues not and still in you go-to-market environment play a the are nice to still

quarter, again sales second in another improvement year-over-year double-digit the In delivered we productivity.

addition, proud cycles quarter-to-quarter our of close and both improved rates team's also execution. I'm and In sales year-over-year.

Anderson careers. and leadership in Mark These for the other product, proven joined VP their a Head be have and we Operations have to records VP about the track of who them a from new Global of QX, hired go-to-market bet Success. a In who the of Americas couldn't team. Revenue executives the early leaders that and pleased Customer also go-to-market world-class I recognize Sales Mark returns new engineering are go-to-market more with the

more composition talent. numbers. in productivity and building involved at scale operationalizing stage go-to-market the bringing shows organization of changes This continues a appropriate focus Mark and to a focus key on engine making world-class quarter the in the As on second to really our

key up was to XXX% manager hiring sales excellent AE Again, execution. QX was the the and and quarter year-over-year. in The quarter-over-quarter XXX%

sector additions momentum again building partners go-to-market with quarter. the expect large discuss enterprise some in of We public quarter. delivered further these customers, during already and wins team to our to we a segue to that the our our add That's second great to the

a development expanded A of management. company use They leading as products, $X.X use remote their expansion. Workers as relationship started cedulas Cloudflare Australian with technology all Cloudflare, access, million $XX.X spanning customer X-year and in application XXXX diverse as today cases and with nearly bot signing back [ is which ] free our contract, million a

handling with connectivity a see great our X to expand customer customer next expects and sees security. started to over free a example the X.X as who level expands and over years, the trillion value petabytes and Cloudflare maintaining this of of time. land tier, while XXX month transmit they Over that essential per is requests This and

our Cloudflare Sticking this. selected "you evaluated Cloudflare and after for Australian DLP contract seats most best leading due customer future We're million superior vendors workers' This but also today, and a solution the were map. us platform. down the performance under the company, network in another technology The leading XX,XXX strategic." road closed future, solutions, deal their for gateway, and our relationship to expanded against also $X.X excited us the X-year the with called very technical access, and for customer said, browser development CASB, signing isolation, market three and of

contract. DLP, and the in million Cloudflare's Trust, X-year CASB, e-mail $X.X universities United with going on of Zero largest platform seats Firewall. States WAN the XX,XXX Magic signed customer is This in a SASE Magic of security, One all

legacy selected superior challenges SASE for with network process a a providers Cloudflare architecture. A ease solutions due This Cloudflare's looking gateway, portfolio replace research with browser our three global very well CASB, large network VPN and and displace created to bundle. modernize organization incumbent access, multiple configuration unified contract Cloudflare poor a unified Magic and of their along our platform to legacy With with expanded us development security was performance, global X,XXX advanced X-year isolation performance. DLP, competitors was WAN, able our and their university approached they seats use vendors of and SASE as with and application $XXX,XXX to This to scale are as competitive Cloudflare, and cloud-first relationship bandwidth their on-premise as over signing platform.

A a $XXX,XXX financial their company services signing significant to Firewall, contract Magic Fortune their DDoS channel and protected days. XX XXX X-year with and customer, operational on-premise number in placement our come vendors, partners this and for get this is leader fully Magic to of Transit vulnerable we for a are Cloudflare deployed, and in customer quick A urgency just in two products to with Cloudflare expanded customer mention this relationship attacks creating in incumbent gaps let solution.

looking improve XXX vendors to signed A distribution to security single and of network availability the infrastructure solution, along our completeness million Cloudflare $X them its its and technical application incumbent control Fortune games. This scale global a performance due for plane. They to and gaming performance two of storage. company large X-year advanced contract RX support our unified customer migrating from to was with all a services are superior giving platform for

be allowing providers. X-year and company platform prices A AI best $XXX,XXX leading AI was and storage, cloud signed them multiple security. for optimization inference, company RX an for This contract their customer, with performance across Cloudflare existing unlock application image to a the to

Workers' performance our performant, However, has now Cloudflare, users, with across will be only this a end to doing cost improvement customer this XX% with task inference poor access AI. and also close both customer GPUs is influence for their cloud their more not With a deployed network, users. training to centralized hyperscale end realizing created but

on business increased this technology leading million significantly their unlock units. they traffic along with expanded possible come order is standardizing FedRAMP team to focused there usage more this company reliability. across A with Cloudflare customer product cases our $X.X their signing interest should Cloudflare and dynamically from their products, further deal, customer. all a new reached in use in After optimize relationship out and to express signing their Cloudflare This on wherever be to so uses as lines for to lean and AI growing X-year enterprise This Workers into Cloudflare has customer contract. route government, their

think there stand trends are stories. all out two those customer I that across

deals and no of competitors an recognition healthy we of feature customers revenue actually Cloudflare extremely buy adopting First, match know fund some have customers is can broader into DNR that it when believe as but are our we platform sign impacts, that and that signing our can pool platform broad set.

April, X of the X.X other platform. that Second, our day, you'll more that more developers I I we and active to up Workers, early on announced and solution accelerated This million just complete Cloudflare these announcements notice and the active week million large developers the we're to more Cloudflare just for the in crossed Last applications. and developer already build increasingly than months. offering in deals how XX% checked include last as over seeing quarter, during in them developer platform. increase stack following developers are our adoption X reinforces ship full a

growing faster, worldwide, tuned turning inference more the and patchwork quarter-over-quarter. AI global solution, Developers cities we increasing believe, Today, in making cloud have AI inference live advantage quarter-over-quarter. Workers' we XX% even our AI developer accounts with is taking of most XXX functions, GPUs us, global and be need that increasing Cloudflare for than their AI powered compliant XXX% to of increased to by tasks with are AI regulations. an requests inference fast, Cloudflare

developers Microsoft in however, exciting, they're in even to year, XXXX. surveyed well. today. traditional most clouds. broad is a Cloudflare and developer When of as and came even platform using just coming what on hyperscale ahead the the Azure. Cloudflare AWS, public in of second, recently What's There's were work they the platforms Cloudflare the what survey platforms off more the of came about didn't the future. external podium, validation base Google the Stack make asked only us fourth, what tells behind were Overflow in on other XX survey ahead three developers excited

we're If short walk I'll we off with results. continue to at the team won't before same hand to won't take looks satisfied it of through we that, our out gold to interest it gold. With it Thomas, metal. our rate, So financial increase rest anything be after developer coming And away. our assured, who long be Thomas, fast.

Thomas Seifert

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

sector customers, large generated public significant free and stewards and progress Continuing responsible cash than customers. fiscally investors' we capital, quarter. commitment again our acting ongoing also security during second by good being continued progress the doubled to flow the during an sales new in we as prioritization during million close profit of again cycles. more of we We double-digit make We on quarter another momentum in are saw rates second productivity highlighted uptick our sustained delivered sales quarter. in pleased with second The go-to-market transformation. and with quarter increase year-over-year our And improvement an was execution the of continuous the high in operating and as our strong year-over-year, by $XX.X

Turning XX% of XX% revenue year-over-year $XXX growth to EMEA second APAC revenue increased geographic Total see the year-over-year upticks represented XX% early quarter increased the were and of year-over-year. in perspective, the XX% in APAC U.S. revenue year-over-year. go-to-market XX% begin represented number and pleased for returns. XX% increased and revenue. to a in From million. of a increased and XX% to initiatives year-over-year. revenue of notable sequential region a deliver to both We as represented

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

impact structure pool as rate this retention to contracts, X transition of increase portfolio deals platform quarter. current in but which that during and a customer Pro cohorts, was the friction recognition increased net well decline by larger percentage our decrease existing Our expansion across net as our the was adoption product slower pay-as-you-go dollar-based of sequentially. the last of especially driven in The DNR points revenue price in revenue anniversarying XXX% plans deferred of RPO, funds can representing form to reduced for our and the customers year. shape second business and into

to customers quarter. second our contribute revenue next to the the higher overall percentage several of growth. similar quarters, a we new For expect year-over-year

Moving to gross margin.

revenue year-over-year. margin Network increase gross in the basis an half XXXX. of to XX% second XX to quarter Second second of to of on XX%, represented CapEx increase quarter. investments, expect representing certain points we sequentially basis X% points timing revenue reach full-year a the network of in was Based of CapEx decrease and XXX XX% the for

operating to Turning expenses.

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

at year-over-year, the count XX% to total increased employees the of of X,XXX end bringing number head total Our our quarter.

This and same a decreased focus the for primarily as from quarter marketing million revenue appropriate XX% expenses transition to the $XXX.X XX% stature go-to-market more was percentage Sales last of year. Sales our in in quarter. marketing organization were to the and due talent. decline on

in encouraged this expect the and are the the second account trend XXXX. Matthew continue which by quarter We in we second half executive acceleration of exiting earlier, mentioned hiring to

G&A same quarter. the $XX in percentage and in from expenses million to development year. a million Operating R&D last to administrative $XX.X same decreased year. last decreased revenue last as from a in of as the to in the income Research percentage of XX% were XX% quarter this million $XX.X same million the quarter. was were $XX.X expenses for revenue General and year. XX% XX% quarter period compared

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

to net balance income the and Turning sheet.

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

third XXXX. full-year quarter the and Moving for to guidance

pleased are for execution we during outlook in our the quarter, second our XXXX. remain and with We prudent

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

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

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

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

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

expect XX% for effective tax rate We an of XXXX.

to We that $X.XX expect per XXX income share $X.XX, over diluted assuming be outstanding. shares approximately net to period million

We are strategies tax future manage and ability to analyzing tax order certain our in cash to current implement liabilities. planning currently

XXXX. outcome tax once were our an provide rate impact will completed non-GAAP planning the this of We is to update half expectations review effective Cloudflare's tax the for in if second

the our $XXX to free flow of be to guidance $XXX full-year implied approximately XXXX. cash with expect prior We million consistent million for

employees questions. driving closing, as us excellence, open with mission and I'd help secure to poll operational for modernize, long-term significant our team their ensuring our I'd and dedication like In our committed delivering to transform them questions. businesses. like well value. that, growth remains their trusting customers shareholder for up to And thank as for Operator, it for to our please to

Operator

the [Operator Instructions] of from line comes Your Hedberg of question Capital first Markets. RBC Matt

Matthew Hedberg

Mark in consistency you, really is quarter seen other it's macros Obviously, to result? start of and guess quarter. that improvements. was see the accelerated great. to cause double-digit And improved broader the changes, rates? sales important also are some maybe productivity Matthew, implementing I you to the challenging, sales productivity with close what on environment. and Congrats is really, given -- drive the guess remain and a it of challenging And really cycles the of increased I helped that is said most really team Anderson

Matthew Prince

Matt. Thanks, Yes.

transparent very be about what seeing. we've think to tried were I we

mid-XXXX. productivity And the -- was quarter, then in I the we us back to QX the back nature think in sales we're in this saw that real productivity XXXX. for same sales in of

So we're it rebounding well. -- is

that's Mark I started the we're Mark think real lot joined But has change starting -- entire hiring benefits you're that just accelerating the a Anderson through. And leaders. in what people. flow really what's follow amazing with do in And really upgrade organization. excellent even is I to dramatic metrics, to is have great and seeing bit. the And really already And a more. been having the seeing up-leveling of changes doing gets people for our that training, credit place much great that today. What then even performance we're better then management lieutenants over us. to much is that think better the a watch across want sales of operational before It's I think excellent putting of really Mark of last and lot discipline putting place just to team, starts our

existing bringing people they And who not really productive more and so we're -- seeing then him followed number is as huge are those people, get Mark him well. follow they're amazing are who to our now has a more our only helping And team. people of amazing team up-leveling productive, want in but have who what

disciplined think Anderson. that started execution, I So Mark before

And in, accelerating just We've demand never here up selling can't problem leader it's discipline to I think Anderson. my problem. and real what in and wait what says that's product a put get Mark is product. to every place we had I with sales the sleeves, never have had incredible out roll comes an is, who

Matthew Hedberg

That's great.

does Sounds like that In that a this obviously, noted negatively a called ticked factors XX-month just for a And of points real out a metric, prepared impacted Thomas. maybe remarks, quick number trailing you and flywheel And one you your that is future? see some down effect. sequentially. X you DNR guidance guess growth a you percentage noted full-year that could customers given will the in the more than QX DNR raised new pressure Or I fact that larger from has that come further revenue bottomed? beat, metric. revenue of imply the it

Thomas Seifert

Yes.

what by Matthew pool we prepared the funds a in decrease also it my so by driven -- on as described, expansion -- deal. net said remarks, impacted of was there the was So but large

of nature, all large deals. the million of year, million $XX anywhere between ended total we've pool these $XX They as biggest entered very of fiscal this value. in funds ones into several contract So we to are

funds a to deals And of As and XX of are are longer to funds our of annual compared matter these generally durations. have a top fact, customers pool X upfront pool they of as monthly tend now customers. built billings

it of and And DNR. And on So most on RPO revenue. deferred as also very years. very different existing X pool customer the impact impacts of transitions, north very fund an different. financial is and the it's of these are current revenue, contracts these different on It's it's deals result, that of different if it's a

the because relates and it time the record as deferred result, recognition over deferred those lower the this revenue and terms, because the is deals have So result we customer billing monthly to consumes upfront and also might as revenue a be the then ramp duration not current as revenue to can do is service, deferred growth. And recognized revenue report contract now is in revenue, might RPO with longer. nonlinear then impacted respect revenue,

So RPO. current upfront in you recognize less

healthy So to noise generate while deals in are They the this business. our and DNR there the and transition beneficial the in some very metrics. in other

healthy very I the are I KPIs. with very those year. and some lumpy rolling trends. more last look of large right the KPIs have But We'll the bit to very think So healthy still from but average a you but deals, transition. as perspective, business little make in them noise lumpiness a development, think more at

Operator

of from question Cowen. Shaul Eyal TD from the line next Your comes

Shaul Eyal

CrowdStrike was which your longer-term assist and And to a Congrats swift cloud have connectivity question predominantly. customers team. entire the capabilities focus? is some action appears some be follow-up. and given recent focus results seeing given by could Mark the the this whether I called IT be what you given benefit and was on-premise by on Matthew, outage, and whether to a My Cloudflare

Matthew Prince

Yes, Shaul.

a or help all product but don't CrowdStrike. I think directly to customers the we we time, replaces get that competes have called

partner. offer they directly or out could, And out team, I'd that is they thing say any we our helping CrowdStrike that communications get way whole first the think review them helping that I been have in to help we a patches releases great any had.

rest continue in faith customer have of We leadership and the its and theirs of are to George we and their a team. product

which make generally, Cloudflare. day the that sole like ones sourced sure providing with network going one word customers that are they be that the to And is not includes to of going resilient, think that any want are we at are on to do more vendors security I vendor. though, is like the

large so the else. and institutions, when on pressure I going someone financial they're older, talking is That, to us put want is to And of to providers. some think, what to you saying we more we're legacy use

in potentially I we think and actually us, before for had a rip convince replace. to because it us places is where tailwind to someone for

Now end increasingly And disruptor the you since instead, place. we in second a enterprises. up going the have need say, low we from have in larger to to just market and into have moving provider the been

up time. opens actually it for opportunity think more over I more and us

that resilience So reliant wanting -- what because else. is going in customers to us think accounts that we in someone any vendor. larger are I'm with especially actually get key the people hearing we're to open entirely going after, sit And larger one to increasingly from for that opportunity not side on side that that be by an is I can in it up is means

is else though, else these time to vendor, is and but our we realized security and we #X. that start next may very out CASB again, else great, at, know better, space, we the should put and in our time, us time, that you anyone anyone better, is anybody if be quickly, SASE are What's looking vendors the space, #X performance they in as

Shaul Eyal

stood specifically prepared Understood. was as whether out it as the remarks product hitting you relates question there any quarter? the cylinders. is listening this Transit, Workers, I you're firewall, two your specific SASE, it. all to was virtual one to But on product, services seems carefully name Magic or that And if

Matthew Prince

to first of for Cloudflare the people say we what are When they are what pool use really for thing a just signing I'd echoes the talking is and platform. deals, was Thomas that really up signing say that is think funds this up entire about. I

solution I'm not feature security because picking one are all it more, entire platform another. my we're to performance, and so reliability I'm gives me And or and you that network saying, seeing a needs. the for picking people more

think larger a driving that's incredibly what's And think results. I customers. an our so deals with encouraging larger And our lot that's I of

you got it's developer I seen we've the one area that's that me was developer away increase force to XX% That If out, active to is accounts. especially really quarter-over-quarter, in platform. be pick blown standing just showing up are of the able be to in folks our platform. We've out it. Workers' AI with flocking developers to been to able the Meta versions like platform, to get latest just and Llama partner on

And so I more in developer Twitter, on think the our are you future on around application see that more whatever around betting if you channels, look you'll their look that if developers is channel, our discord and of the us found they and that what I and Cloudflare you future get saying, alone team build us can just applications, from report which, Workers. every believe our platform, day, they won't new somebody to again, built a on Workers' use

of force but you to out been the it's the say generally, quarter, real was if Workers I'm the state me going platform. thing, So to one pick

Operator

Piper Fish Your next question comes of Jim the from line of Sandler.

James Fish

additions. know it's in a customer not I Look, largest guys focusing but it on, the net completely metric was you

company I have think had as a public aggregate. you guys in

a and So tightness you calling did still. IT record spending Matthew, of you've had out say some trends, really track phenomenal

moving so budgets balancing Cloudflare ownership are versus projects cost tightness new of And later total next to question of at is for spending, set to the in terms this of by IT savings really with you if of that my as year this a of could how be actually. potential customers change all, half kind year, on sort and are how kind begin this in second thinking

Matthew Prince

start, and then Yes. might to else Maybe Thomas something I'll have add.

by that benefit our team spaces. getting that -- over quarter. of this the of I and as flooding game to our and crystal tech, environment will do over in ahead. it we IT must companies inevitably it's increased the execution environment, ball that environment I does and really, I execution challenging by a So continues dividends in quarters think that the overall do that, being might IT proud really marketing easy still think here. the means IT be no something be pay even IT other productivity name an rebound have, buying for was I'm think challenging was And tech, that while shows time. But budgets cut the that

one continuing is had is where first to of we've Cloudflare so we the don't high-profile invest. But solve powerful totality incidents what really security about are year. an area and is security areas, We customer needs. think need. half of many think is over I one of solve I the the The people just this security security security

a consolidating And different four so Cloudflare. these oftentimes, they're when deals, vendors of signing one replacing funds three, pool two, is of behind and customer

want we And so single I a the what that own, the where network that. is nuts, is we to security And completely can to to beneficiary customers. of for time that a on we vendor a think that that are solution we tough, over people have they see that area consolidate in is want times to where are consolidate, space and budgets IT soup that want place and as a

Thomas Seifert

was driven to wanted add mainly quarter, add just customer I three strong It Yes. a introduction. to net by effects. your very

developers because benefit onetime well a customer migrated there and in second quarter-over-quarter increase, customer quarter about. quarter billing had in a Workers talked catch-up, but it as And on was benefit, increase a we we by beyond driven that as up Matthew platform strong very the platforms, onetime their So our that XX%. the two was at

car. So those factors three driving were the

So a strong very quarter.

James Fish

on this obviously said are contract. had And quarter. I few X just of of you ago, XX it of now theme funds type And this sense. Thomas, that guys you believe, customers a moments Makes of is another was pool the top

now pool on just additionally, imply of today? -- like four And of average is much understand would a $XX-ish a could of is rate that XX% the look few So that RPO of kind there those sort even of at RPO funds about down way how kind to million path of what the road? years

Thomas Seifert

revenue Well, asked always that. that and the get up will a and Matthew drive is path, indication. ACVs think But million dollar not just be can this what for you cooler customer I give said, reasons I been how good information. a you TCVs, you funds to We've final then how that outlined X-digit will we and

but deals, In pool in million. handful large very funds of well on the very revenue and RPO addition a forecasting and $X north of those all we the recognition of a deferred impacts are And -- arrangements, we similar also revenue. subscription to second more perspective, predictable entered from quarter, into there's

a arrangements us large subscription quarter, of addition to in this in in and the impacting the generating too. the So lumpiness quarter pool we very second successful structure also signing funds were

Operator

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

Andrew Nowinski

Congrats quarter. another on amazing

wanted of I techy to a start a bit to here. So question ask

As and know privacy Edge was as comment data your revenue but way I customers on wondering your give opportunity and us the relates might if there? a offering, it OHTTP, of of I your using could be the how to it OHTTP to maybe idea an on AI cofounders one you you're preserve

Matthew Prince

a who things. sin address else, spin Sure. of I'm cloud is bunch but forget little alone -- this original -- your it that OHTTP, your And -- about the not the you geeky, a Internet this other do ton cookies, the reveals where are, anything are you and how might the of make not and original sure bit IP a forgetting of to

all Your in change home, your IP address doesn't instance, for often. that

you. And so anything people without build profiles else, without even can of cookies, even

more then as more and more -- and we being As recognized as important become privacy important online. more has and

your I can IP the leaders things number other our think team partners sin? really a we industry has address How focused of we on that your from can how disassociate and with identity. is eliminate original that one of

think is, a system. it's to about it And hops in the technology two The it. way so does best OHTTP is essentially that

proxy going. that to the So connected thing if looks your first in device it. like second knows is knows wrap proxy identity That traffic out the there. that, handing device that is But can it only then connects off it an to second is up a that proxy. And encryption it where to piece putting that and envelope what use to that proxy

both, knows where where can and So they're who any one one behind can neither is going, but individual know party going. other party party is know the something

of handsets can may go a you because then to off third handset their about they Cloudflare hand So they online. never manufacturer, have in in proxy imagine that operate party the operate information first that where like but like to the themselves, a order customers the case

think an I of about what's protocol party. is nature that interesting this requires the very the that third independent

hop so no choice soup second think to breadth technical of that core we of both to as this at our large the expertise, reasons, nuts. privacy third I solution. one So and they manufacturers need party private we of the and our companies to point, third party. the think complete more is can who to that because say, has They as when thinking an Cloudflare place about going to do in terms just be independent then regulatory we're have and in for and for core is philosophical of as have recognizing an to and what values that products, be is also been part possible. preferred in because And this, handset are more in five OHTTP reasons, about but Cloudflare that

modern limited extent, are growth we privacy it's I direction. continues would leading, to can is lot that very a surprised may the some think will leading now -- about see develop are use getting AI actually relatively I more of it you have different I if how Internet where introduced an am people to been I we standards. this cases. continued that as that And So thought have be think in area of I that the and cases a AI into. many I space, this built is incorporate specific use that companies of lot in and there rethinking how this thinking the they And -- think for

Andrew Nowinski

Maybe well. That Great. really for as question a was Thomas helpful.

year wondering you least expansion and I about year, leverage your for guide Just really model us year. the could next the raise year. was fiscal how operating for this a know operating operating for giving I leverage margin the expect operating margin at to whether given you're And and but guidance above new you'd if not yet, this gave the in you're impressive strong tell substantial 'XX you thinking guidance

Thomas Seifert

we will to guidance Matthew of years, will I'm stewards try, will Nice operating giving leverage, and I in think have been but going the continue, this money of give over for Yes. the continue. from strong investment and year. -- I for large business deviate think us you is the Me, we how business described this next capital, and rate good and but long not into not guidance. year, And best market we we we this But we how away about of the that that philosophy in next growth as And philosophy, run I as that a really and the rates return that TAM this served terms of keeping how and Michelle earn. the see balance well we well. we'll in deliver disrupt terms we think, growth can shy investors' from Cloudflare,

Operator

comes question of Adam Borg from next the line of Your Stifel.

Adam Borg

on little back the Maybe bit and wins last question you about overall talked opportunity some just think inference obviously, do about do how looks and clouds, device relationship of earlier how the you a the to like off hyperscale themselves, as today it network building about AI. even you over edge when think How the tying how your as time? well that that think that edge you evolves you built

Matthew Prince

is happen my that Adam, places. primarily in Yes, going two take inference to is

be either there model going But else. your tasks more a mental to my that number see handset what And directly on is right, no of powerful hand first a idea and XX% of inference and if The as but just it themselves. bring doing is will have devices. And are GPUs can I TPUs to maybe already others manufacturers that you rough way, cases, which models inference something to device. to don't older or your is will chips maybe device hand are able on pass the compute them handled more than off handheld always And power deliver. on bigger that and to latest gets be you're those in require have devices that and are devices

that send sort or public to One is traditional model cloud. some to Ashburn, that back centralized Virginia of of

think can -- with that, performant as can going that color no whereas U.K., have just close to with means you're spell because have more the it as in rapidly that so the the also because that possible. That differences U.S., benefit around if you getting possible. U, also U. easily concerns the privacy, of of keep as AI responding regulatory I the responding AI regulated especially AI to spell concerns of is it want in an where that, regional it as making And the it that's it's that a the if you're has can

a I those be lot tasks of to things think of Cloudflare. XX% a then running of all network inference drive like at the other

we make as then inference a very so are that answer to to that to network inference standard-based that so your that can't ahead, possible any that can from make that task us on in seamless user. and end device it determined out device get way, easy are from we to as us the API-driven get it's own And build to trying sure tasks device close that

that becoming think jurisdiction hyperscale maybe run users that and in network traditional and to some inference is maybe where some incredibly spans globe that small themselves devices will And public There Cloudflare way will its to every big end But us, that really a is tasks might still back the tasks. smaller end I going at that between like is too is close there's and a be. a cloud. list although smaller that of be the percent and makes be to even be

Operator

the Your of Fatima from next comes of Citi. Boolani question line

Fatima Boolani

picture and strategy portfolio. Matthew had I a is you this pricing bare Thomas, the the around across for both. question

you how So wondering And those at if are have innings how deep the ones if the of base. kind the of you base? pervaded Thomas we to could a that terms can talk had you on meaningful level, price terms far increases that some in first tactical where ever. installed in you're of just in opine inferred

you if Matthew, generally more you the prepared about then should of payment deals, bigger as as is, we together a fund impact remarks portfolio you the relates I piece of elasticity, pool think And the modalities consumption, you business the will. of more for what pay picture how lot Workers' if revenue and as sort in scales, go, it question shared especially

Matthew Prince

I'll have can start both and to pieces. on think add and we then might say something Thomas both I

-- it after That So our it's about important we're year is a relatively part our price business, pay-as-you-go a part small an is business. of but our across increase business. a of

that to business, I because apply prices more were to surprised customers, of right, we're long a pay-as-you-go platform. do. wrote it much very to the and for not didn't customers, I creases that we but us our that value -- that just the had that even didn't Pricing the churn the increase. But tiny time reluctant only across many think value pleasantly was how thing was of were we, And incredibly of the rest added we so the And thought right due rates time, good. raise we much price that said, on really, to added. there's part actually so about you've really

dramatic the any, increase about there calls, any wasn't on results talk customers customers enterprise we price So these there.

to a vendors are are ways existing always typically, trying highest And ROI efficiency over the customers. the we can XX% savings while substantial because can find that we the large I to XX%, still think the our business, our And whatever market. do have be in we margins. in maintaining have gross we for

ahead to target and think gross what have. allows again, I that's that, gross coming intensity complexity operational been long-term And software-like that. very even are XX%, Our we network has with healthy do think we to network. their we for to what we to be I the a all want And be -- margins philosophically, margins customers. us the deliver around solve we've the XX% And a the that all returns and customer in of to our for that want of that is business problems can. Generally, of

with And so connectivity cloud and cloud running to started that on-premise a just traditional public their connectivity opportunity really works I think whatever cloud, that we great things being connectivity think they really, works they're penetrate. with in hyperscale a very, that whatever those of that devices have as And substantial great only and we very have sits and between but we're one it very, layer things. that's

Fatima Boolani

that. appreciate I

Thomas Seifert

Matthew There's just not much said. to what add to

Some numbers our about or little impact we of lumpy. seen, you a talked of have funds more deal this pool the bit of transition, make impacts the lumpiness how

We will small also is will over our this time. while numbers, have meaningful and share an of it revenue in grow today, number still increasingly higher variable

is fills And implies. driven platform less But values. with structural the higher said, by Matthew stickiness, this driven this but deals, and all more with the total capability contract of by longer-duration overall significantly that increases, transition price changes more benefits it's expansion as better

Operator

comes Morgan next Fodderwala of the Your Hamza from Stanley. of question line

Hamza Fodderwala

the close to that the are in that federal you last ahead of November. sector the one Matthew, public be September, a of you. an what momentum been especially election customers had saw space question I I'm strong public momentum federal in What going from sector year. year what's agency has work in fiscal curious into with? head in you lot we like, We space on for just over the as the hearing

Matthew Prince

Yes.

a been lot real we But federal certification, FedRAMP really of which started government has business. since, the federal seen us of achieved since ever a world. we've point strong U.S. around business we So and it, strength investing in also for ever unlocked

can't first I can all, and trust. people a would you have unless have incredibly you We couldn't important. functioning democracy elections is democracies election have say, built stable the of that stable without Cloudflare functioning

excuse XXXX cost is mistrust the Athenian we've directly or me, so select we lot to world well. And started increasingly United around although helping -- doing services the an administer response our what no world. since we election to And provide around where it in anyone -- around and countries rather who as States, the tempering a the we the of actually in Project, in the election, XXXX, launched call at

a you care fundamental state we or Like don't United election around largely And some patriot what this county real I'm the our the are it's of country that a hero to proud elections a bono And and success and a administer if you're or people of real team to heroes, on red give. need support purple state. protection and we an pro our our the that the all think you're administering the can do help of I'm incredibly the I success on for company. and proud state the I if blue our work full it's help to basis in States, unsung provides are because helping that of is of the services fundamental and suite a who the country fact

how very that they again, mission the political servants they mission-driven. And that I this And right collect United -- think would revenue, importance the go to, the I'm most very much that the it do What talked how democracy. drives spending, it's work the did, I that underlying it's who say duty certainly that to call think most of what I talked our a feel Cloudflare always we I've up of kind this on about to, believe all the not country officials sure services for government and they across pay rational all So and that. in in I've will like is they it's listening in but just are companies States respect the most is say are of spectrum, of thing to best. With the if it's the to public in that people the of and we say, not the government doesn't these of the I little provide cases. election I itself gross upticks when significant step in function see thing not protect because our think

and big And winning large us big so when you deals are hear revenue-producing deals. numbers that about

vendor and extremely It's we the think from that to accelerate and servants. I about over that, work And for will mission-driven momentum by very are had pick protecting patriotic, I that Project problem people only the on to and part quarters the incredibly that to with of lot of turn that And the when elections. why when they're had come. we've of have federal the that we success the think they business. things are continue like do that we've fact they are Athenian the and those years comes a thinking going public well they hard a thought a who who

Operator

from question of Walsh next the Your line Trevor JMP. comes of

Trevor Walsh

you one for me a your and prepared parts. of story that good in maybe a had question Matthew, you had couple remarks. Maybe just win

with that such you they against X coming into it Descaler where then kind of within to tech was had competitor SASE of as that also important SASE your into company campaign handle how one market? And how where deal, is in think Workers. Curious purchase I kind you year space. kind as the the Act last those you're had that differentiator of your Workers of deals see leaning a much particular Australian And particular an follow-up, fold? campaign a product

other months and you're shift coming are at past. thoughts there's another get kind there? might competitive similar in Just the overall if come in about that landscape XX who the you've parts curious players you're up market seeing in up we not and deals see your overall of the kind competitor if if standard just ones that campaign seeing the against from of a that the Just all maybe different of last

Matthew Prince

Yes.

difficult I vendor the point is comprehensive any do that's to think can any, compete solution. provide with solution that for thing a that very we

as funds, pool of of It security. if part is And as deals, is not a application big theme traditional of platform our the so deals, Workers a broad again, part is that.

network the a the only a you do traffic we're vendor make do the smart going just to really it's deal traffic doesn't should it network SASE both kind and going and the providing DDoS the holistic vendor from same in network. space -- the provide you're But be should also that of your out that solution. you not if network it your sense coming into and like mitigation, your If be have should can one any to

platform. of powerful start any There to vendors have use Workers of customers any and to together. to places the then where that, our I sort build where developer that, that yet a built are solutions that SASE to because or needed then Workers don't internal We -- using to opportunities, able Oh, itself. I'm where people more build your are said, going to origin configure, platform. of we choose developer platform be about Workers be real of Workers. can people of same saw other forward. The Workers said, have out that means zero that more different didn't going is any using of developer sell I'm real vendor go see powerful are it on to built same the used platform story What's those adapt, know people these of because are you'll for and really we so thing there back the it can solution our But We to either you customize things any they you're comes I team, and than that SASE solution that's because customer that solutions. with think all

in I customers. there don't think that terms -- we're don't I think of yet

I not And over running the go still think entire when kind first want a just us, a the think all, people I get I just in stage. we're across up think I network. and new space, is enough But saying, time, secure of it category. from SASE of

it's sure reliable. to Secondly, I want make

it Third, I it's make want that to performance. is fast, sure

make thing want sure people next to I that think the come is I it's programmable. to

think I the secure reliable we stage. kind still and in of are

Trust other the able there to that are pretty I because a is think there's match. secure, killer reliable be we combination over time, to programmable and don't vendors SASE vendor away coming us Zero think to and out fast. reliable, are But and of I fast from first-generation, customers any some secure, that's going

Operator

now closing our concludes That conference I the for Matthew Prince over Q&A Mr. turn back session. remarks. will to

Matthew Prince

to the Cloudflare to Just you wanted thank say entire team.

the to out Thank here quarter. was team. the really, to well. a next you It all guys all. around world you complicated continues customers. helping Thank better Cloudflare our executed Thank incredibly quarter, execution everywhere there. the be See you you secure The networks theme world. you and of This is back to

Operator

today's Ladies call. that concludes you Thank joining. for all and gentlemen,

You may now disconnect.

Cloudflare (NET) 1 Aug 242024 Q2 Earnings call transcript