Cloudflare Announces Second Quarter 2024 Financial Results

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Insights

Cloudflare's Q2 2024 results demonstrate robust growth and improving profitability, signaling strong market positioning in the connectivity cloud sector. The 30% year-over-year revenue growth to $401 million is impressive, especially considering the current macroeconomic challenges. This growth rate outpaces many peers in the tech sector, indicating Cloudflare's products remain in high demand.

Particularly noteworthy is the improvement in profitability metrics. The non-GAAP operating income margin expanded significantly from 6.6% to 14.2% year-over-year, showcasing the company's ability to scale efficiently. This margin expansion, coupled with revenue growth, suggests Cloudflare is successfully leveraging its infrastructure and controlling costs.

The company's free cash flow also saw substantial improvement, reaching $38.3 million or 10% of revenue, up from 6% in Q2 2023. This increase in cash generation provides Cloudflare with more financial flexibility for investments in growth initiatives or potential M&A activities.

Looking ahead, Cloudflare's Q3 and full-year 2024 guidance indicate continued strong growth and profitability improvement. The projected full-year revenue of $1.657-$1.659 billion represents a significant scale-up from the current run rate, implying accelerated growth in the latter half of the year.

While the GAAP net loss of $15.1 million might concern some investors, it's a substantial improvement from the $94.5 million loss in Q2 2023. The divergence between GAAP and non-GAAP results is largely due to stock-based compensation, a common practice in high-growth tech companies to attract and retain talent.

Overall, Cloudflare's Q2 results and forward guidance paint a picture of a company successfully balancing high growth with improving profitability, positioning it well in the competitive cloud services market.

Cloudflare's strong performance in Q2 2024 underscores its growing importance in the evolving digital infrastructure landscape. The company's self-described position as the "leading connectivity cloud company" is increasingly justified by its financial results and market traction.

A key highlight is the mention of "double-digit year-over-year improvement in sales productivity." This suggests that Cloudflare is not just growing through market expansion, but is also becoming more efficient in its go-to-market strategy. In the competitive cloud services space, this improved sales efficiency can be a significant differentiator.

The CEO's statement about Cloudflare helping customers "solve some of the hardest problems they face when modernizing, transforming and securing their businesses" points to the company's strategic focus on being a comprehensive solution provider. This approach positions Cloudflare as more than just a CDN or security provider, but as a critical partner in digital transformation initiatives.

The reference to Cloudflare's position on "'must-have' lists" is particularly telling. It suggests that the company is successfully transitioning from a "nice-to-have" to an essential service for many businesses. This shift can lead to stronger customer retention and potentially higher pricing power in the future.

However, it's worth noting that while Cloudflare is showing impressive growth, it's still operating at a GAAP loss. The transition to profitability on a GAAP basis will be an important milestone for the company to achieve in the coming quarters or years.

From a technological standpoint, Cloudflare's continued growth indicates that its edge computing and network services are resonating with the market. As more businesses adopt multi-cloud and edge computing strategies, Cloudflare's position as a connectivity layer between various cloud providers and end-users could become increasingly valuable.

08/01/2024 - 04:15 PM

Second quarter revenue totaled $401.0 million, representing an increase of 30% year-over-year
GAAP loss from operations of $34.7 million, or 9% of revenue, and non-GAAP income from operations of $57.0 million, or 14% of revenue
Operating cash flow of $74.8 million, or 19% of revenue, and free cash flow of $38.3 million, or 10% of revenue

SAN FRANCISCO--(BUSINESS WIRE)-- Cloudflare, Inc. (NYSE: NET), the leading connectivity cloud company, today announced financial results for its second quarter ended June 30, 2024.

“We had a strong second quarter, crossing $1.6 billion in annualized revenue and growing 30% year-over-year. The world is still complicated, but our team remained focused on execution and delivered terrific results, including a double-digit year-over-year improvement in sales productivity,” said Matthew Prince, co-founder & CEO of Cloudflare. “I'm proud of how Cloudflare rises to the occasion to help our customers solve some of the hardest problems they face when modernizing, transforming, and securing their businesses—checking off even more value with the promise of our connectivity cloud and reinforcing Cloudflare's position on 'must-have' lists.”

Second Quarter Fiscal 2024 Financial Highlights

Revenue: Total revenue of $401.0 million, representing an increase of 30% year-over-year.
Gross Profit: GAAP gross profit was $312.0 million, or 77.8% gross margin, compared to $233.3 million, or 75.6%, in the second quarter of 2023. Non-GAAP gross profit was $316.6 million, or 79.0% gross margin, compared to $239.7 million, or 77.7%, in the second quarter of 2023.
Operating Income (Loss): GAAP loss from operations was $34.7 million, or 8.7% of revenue, compared to $56.2 million, or 18.2% of revenue, in the second quarter of 2023. Non-GAAP income from operations was $57.0 million, or 14.2% of revenue, compared to $20.3 million, or 6.6% of revenue, in the second quarter of 2023.
Net Income (Loss): GAAP net loss was $15.1 million, compared to $94.5 million in the second quarter of 2023. GAAP net loss per basic and diluted share was $0.04, compared to $0.28 in the second quarter of 2023. Non-GAAP net income was $69.5 million, compared to $33.7 million in the second quarter of 2023. Non-GAAP net income per diluted share was $0.20, compared to $0.10 in the second quarter of 2023.
Cash Flow: Net cash flow from operating activities was $74.8 million, compared to $64.5 million for the second quarter of 2023. Free cash flow was $38.3 million, or 10% of revenue, compared to $20.0 million, or 6% of revenue, in the second quarter of 2023.
Cash, cash equivalents, and available-for-sale securities were $1,757.4 million as of June 30, 2024.

The section titled "Non-GAAP Financial Information" below describes our usage of non-GAAP financial measures. Reconciliations between historical GAAP and non-GAAP information are contained at the end of this press release following the accompanying financial data.

Financial Outlook

For the third quarter of fiscal 2024, we expect:

Total revenue of $423.0 to $424.0 million
Non-GAAP income from operations of $50.0 to $51.0 million
Non-GAAP net income per share of $0.18, utilizing weighted average common shares outstanding of approximately 359 million

For the full year fiscal 2024, we expect:

Total revenue of $1,657.0 to $1,659.0 million
Non-GAAP income from operations of $196.0 to $198.0 million
Non-GAAP net income per share of $0.70 to $0.71, utilizing weighted average common shares outstanding of approximately 358 million

These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Conference Call Information

Cloudflare will host an investor conference call to discuss its second quarter ended June 30, 2024 earnings results today at 2:00 p.m. Pacific time (5:00 p.m. Eastern time). Interested parties can access the call by dialing (877) 400-4517 from the United States or (332) 251-2620 internationally with conference ID 3723782. A live webcast of the conference call will be accessible from the investor relations website at https://cloudflare.NET. A replay will be available approximately two hours after the conclusion of the live event and will remain available for approximately one year.

Supplemental Financial and Other Information

Supplemental financial and other information can be accessed through the Company’s investor relations website at https://cloudflare.NET.

Non-GAAP Financial Information

Cloudflare believes that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. Reconciliations of non-GAAP financial measures to the most directly comparable financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty of expenses that may be incurred in the future. For further information regarding why Cloudflare believes that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the “Explanation of Non-GAAP Financial Measures” section at the end of this press release.

Available Information

Cloudflare intends to use its press releases, website, investor relations website, news site, blog, X account, Facebook account, and Instagram account, in addition to filings made with the Securities and Exchange Commission (SEC) and public conference calls, as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “explore,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these words, or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. However, not all forward-looking statements contain these identifying words. Forward-looking statements expressed or implied in this press release include, but are not limited to, statements regarding our future financial and operating performance, our reputation and performance in the market, general market trends, our estimated and projected revenue, non-GAAP income from operations and non-GAAP net income per share, shares outstanding, the benefits to customers from using our products, the expected functionality and performance of our products, the demand by customers for our products, our plans and objectives for future operations, growth, initiatives, or strategies, our market opportunity, and comments made by our CEO and others. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: the impact of adverse macroeconomic conditions, such as inflation, high interest rates, actual or potential bank failures and recessionary concerns, on our and our customers’, vendors’, and partners’ operations and future financial performance; the impact of the Hamas-Israel and Russia-Ukraine conflicts and other areas of geopolitical tension around the world, or any potential worsening or expansion of those conflicts or geopolitical tensions and other geopolitical events such as elections and other governmental changes; our history of net losses; risks associated with managing our rapid growth; our ability to attract and retain new customers (including new large customers); our ability to retain and upgrade paying customers and convert free customers to paying customers; our ability to expand the number of products we sell to paying customers; our ability to effectively increase sales to large customers; our ability to increase brand awareness; our ability to continue to innovate and develop new products and product features; our ability to generate demand for our products; our ability to effectively attract, train, and retain our sales force to be able to sell our existing and new products and product features; our sales team’s productivity; our ability to effectively attract, integrate and retain key personnel; problems with our internal systems, network, or data, including actual or perceived breaches or failures; rapidly evolving technological developments, including advancements in AI, in the market; length of our sales cycles and the timing of payments by our customers; activities of our paying and free customers or the content of their websites and other Internet properties that use our network and products; foreign currency fluctuations; changes in the legal, tax, and regulatory environment applicable to our business; and other general market, political, economic, and business conditions. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in our filings with the SEC, including our Quarterly Report on Form 10-Q filed on May 2, 2024, as well as other filings that we may make from time to time with the SEC.

The forward-looking statements made in this press release relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

About Cloudflare

Cloudflare, Inc. (NYSE: NET) is the leading connectivity cloud company on a mission to help build a better Internet. It empowers organizations to make their employees, applications and networks faster and more secure everywhere, while reducing complexity and cost. Cloudflare’s connectivity cloud delivers the most full-featured, unified platform of cloud-native products and developer tools, so any organization can gain the control they need to work, develop, and accelerate their business.

Powered by one of the world’s largest and most interconnected networks, Cloudflare blocks billions of threats online for its customers every day. It is trusted by millions of organizations – from the largest brands to entrepreneurs and small businesses to nonprofits, humanitarian groups, and governments across the globe.

Learn more about Cloudflare’s connectivity cloud at cloudflare.com/connectivity-cloud. Learn more about the latest Internet trends and insights at radar.cloudflare.com.

CLOUDFLARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Revenue	$	400,996		$	308,494		$	779,598		$	598,669
Cost of revenue⁽¹⁾⁽²⁾		89,011			75,221			174,049			145,653
Gross profit		311,985			233,273			605,549			453,016
Operating expenses:
Sales and marketing^(1)(2)(4)		174,501			146,688			368,603			283,689
Research and development⁽¹⁾		102,547			89,610			190,250			171,149
General and administrative⁽¹⁾⁽³⁾		69,635			53,147			135,944			101,622
Total operating expenses		346,683			289,445			694,797			556,460
Loss from operations		(34,698	)		(56,172	)		(89,248	)		(103,444	)
Non-operating income (expense):
Interest income		21,715			16,536			42,967			30,023
Interest expense⁽⁵⁾		(1,218	)		(1,539	)		(2,318	)		(3,665	)
Loss on extinguishment of debt		—			(50,300	)		—			(50,300	)
Other income (expense), net		269			(1,527	)		1,393			(2,384	)
Total non-operating income (expense), net		20,766			(36,830	)		42,042			(26,326	)
Loss before income taxes		(13,932	)		(93,002	)		(47,206	)		(129,770	)
Provision for income taxes		1,146			1,465			3,415			2,779
Net loss	$	(15,078	)	$	(94,467	)	$	(50,621	)	$	(132,549	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.04	)	$	(0.28	)	$	(0.15	)	$	(0.40	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		340,648			332,297			339,617			331,448
____________

(1) Includes stock-based compensation and related employer payroll taxes as follows:
Cost of revenue	$	3,011	$	2,126	$	5,833	$	3,929
Sales and marketing		24,629		20,734		46,404		36,602
Research and development		37,106		36,573		66,086		66,789
General and administrative		24,761		12,156		47,911		26,019
Total stock-based compensation and related employer payroll taxes	$	89,507	$	71,589	$	166,234	$	133,339

(2) Includes amortization of acquired intangible assets as follows:
Cost of revenue	$	1,619	$	4,314	$	6,310	$	8,625
Sales and marketing		363		574		938		1,150
Total amortization of acquired intangible assets	$	1,982	$	4,888	$	7,248	$	9,775

(3) Includes acquisition-related and other expenses as follows:
General and administrative	$	162	$	—	$	162	$	—
Total acquisition-related and other expenses	$	162	$	—	$	162	$	—

(4) Includes one-time compensation charge as follows:
Sales and marketing	$	—	$	—	$	15,000	$	—
Total one-time compensation charge	$	—	$	—	$	15,000	$	—

(5) Includes amortization of debt issuance costs as follows:
Interest expense	$	990	$	1,307	$	1,980	$	2,470
Total amortization of debt issuance costs	$	990	$	1,307	$	1,980	$	2,470

CLOUDFLARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (unaudited)

	June 30, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	156,967		$	86,864
Available-for-sale securities		1,600,430			1,586,880
Accounts receivable, net		250,213			248,268
Contract assets		12,917			11,041
Restricted cash short-term		1,000			2,522
Prepaid expenses and other current assets		71,491			47,502
Total current assets		2,093,018			1,983,077
Property and equipment, net		339,124			322,813
Goodwill		156,162			148,047
Acquired intangible assets, net		21,663			19,564
Operating lease right-of-use assets		141,870			138,556
Deferred contract acquisition costs, noncurrent		144,330			133,236
Restricted cash		2,023			1,838
Other noncurrent assets		18,483			12,636
Total assets	$	2,916,673		$	2,759,767
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	59,528		$	53,727
Accrued expenses and other current liabilities		66,916			63,597
Accrued compensation		57,813			63,801
Operating lease liabilities		40,740			38,351
Deferred revenue		370,968			347,608
Total current liabilities		595,965			567,084
Convertible senior notes, net		1,285,342			1,283,362
Operating lease liabilities, noncurrent		112,508			113,490
Deferred revenue, noncurrent		23,579			17,244
Other noncurrent liabilities		17,734			15,540
Total liabilities		2,035,128			1,996,720
Stockholders’ Equity
Class A common stock; $0.001 par value; 2,250,000 shares authorized as of June 30, 2024 and December 31, 2023; 303,321 and 298,089 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		302			297
Class B common stock; $0.001 par value; 315,000 shares authorized as of June 30, 2024 and December 31, 2023; 38,216 and 39,443 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		39			40
Additional paid-in capital		1,956,984			1,784,566
Accumulated deficit		(1,074,461	)		(1,023,840	)
Accumulated other comprehensive income (loss)		(1,319	)		1,984
Total stockholders’ equity		881,545			763,047
Total liabilities and stockholders’ equity	$	2,916,673		$	2,759,767

CLOUDFLARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

	Six Months Ended June 30,
	2024			2023
Cash Flows from Operating Activities
Net loss	$	(50,621	)	$	(132,549	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense		59,767			65,182
Non-cash operating lease costs		23,124			21,925
Amortization of deferred contract acquisition costs		36,991			29,011
Stock-based compensation expense		155,714			125,793
Amortization of debt issuance costs		1,980			2,470
Net accretion of discounts and amortization of premiums on available-for-sale securities		(24,028	)		(19,050	)
Deferred income taxes		(1,310	)		(613	)
Provision for bad debt		4,770			6,037
Loss on extinguishment of debt		—			50,300
Other		291			494
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net		(6,715	)		(35,413	)
Contract assets		(1,876	)		(381	)
Deferred contract acquisition costs		(48,085	)		(43,348	)
Prepaid expenses and other current assets		(24,726	)		(13,996	)
Other noncurrent assets		1,941			(1,991	)
Accounts payable		15,996			6,602
Accrued expenses and other current liabilities		254			1,454
Operating lease liabilities		(25,031	)		(18,149	)
Deferred revenue		29,695			56,460
Other noncurrent liabilities		263			627
Net cash provided by operating activities		148,394			100,865
Cash Flows from Investing Activities
Purchases of property and equipment		(61,681	)		(56,289	)
Capitalized internal-use software		(12,831	)		(10,703	)
Asset acquisitions and business combinations, net of cash acquired		(13,977	)		—
Purchases of available-for-sale securities		(790,675	)		(795,096	)
Sales of available-for-sale securities		—			20,248
Maturities of available-for-sale securities		792,354			857,456
Other investing activities		18			59
Net cash provided by (used in) investing activities		(86,792	)		15,675
Cash Flows from Financing Activities
Repayments of convertible senior notes		—			(172,249	)
Cash paid for issuance costs on revolving credit facility		(2,148	)		—
Proceeds from the exercise of stock options		7,614			7,059
Proceeds from the early exercise of stock options		6			—
Repurchases of unvested common stock		—			(34	)
Proceeds from the issuance of common stock for employee stock purchase plan		10,455			10,450
Payment of tax withholding obligation on RSU settlement		(8,763	)		(3,383	)
Payment of indemnity holdback		—			(9,208	)
Net cash provided by (used in) financing activities		7,164			(167,365	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		68,766			(50,825	)
Cash, cash equivalents, and restricted cash, beginning of period		91,224			215,204
Cash, cash equivalents, and restricted cash, end of period	$	159,990		$	164,379

CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Reconciliation of cost of revenue:
GAAP cost of revenue	$	89,011		$	75,221		$	174,049		$	145,653
Less: Stock-based compensation and related employer payroll taxes		(3,011	)		(2,126	)		(5,833	)		(3,929	)
Less: Amortization of acquired intangible assets		(1,619	)		(4,314	)		(6,310	)		(8,625	)
Non-GAAP cost of revenue	$	84,381		$	68,781		$	161,906		$	133,099
Reconciliation of gross profit:
GAAP gross profit	$	311,985		$	233,273		$	605,549		$	453,016
Add: Stock-based compensation and related employer payroll taxes		3,011			2,126			5,833			3,929
Add: Amortization of acquired intangible assets		1,619			4,314			6,310			8,625
Non-GAAP gross profit	$	316,615		$	239,713		$	617,692		$	465,570
GAAP gross margin		77.8	%		75.6	%		77.7	%		75.7	%
Non-GAAP gross margin		79.0	%		77.7	%		79.2	%		77.8	%
Reconciliation of operating expenses:
GAAP sales and marketing	$	174,501		$	146,688		$	368,603		$	283,689
Less: Stock-based compensation and related employer payroll taxes		(24,629	)		(20,734	)		(46,404	)		(36,602	)
Less: Amortization of acquired intangible assets		(363	)		(574	)		(938	)		(1,150	)
Less: One-time compensation charge		—			—			(15,000	)		—
Non-GAAP sales and marketing	$	149,509		$	125,380		$	306,261		$	245,937
GAAP research and development	$	102,547		$	89,610		$	190,250		$	171,149
Less: Stock-based compensation and related employer payroll taxes		(37,106	)		(36,573	)		(66,086	)		(66,789	)
Non-GAAP research and development	$	65,441		$	53,037		$	124,164		$	104,360
GAAP general and administrative	$	69,635		$	53,147		$	135,944		$	101,622
Less: Stock-based compensation and related employer payroll taxes		(24,761	)		(12,156	)		(47,911	)		(26,019	)
Less: Acquisition-related and other expenses		(162	)		—			(162	)		—
Non-GAAP general and administrative	$	44,712		$	40,991		$	87,871		$	75,603
Reconciliation of income (loss) from operations:
GAAP loss from operations	$	(34,698	)	$	(56,172	)	$	(89,248	)	$	(103,444	)
Add: Stock-based compensation and related employer payroll taxes		89,507			71,589			166,234			133,339
Add: Amortization of acquired intangible assets		1,982			4,888			7,248			9,775
Add: Acquisition-related and other expenses		162			—			162			—
Add: One-time compensation charge		—			—			15,000			—
Non-GAAP income from operations	$	56,953		$	20,305		$	99,396		$	39,670
GAAP operating margin		(8.7	)%		(18.2	)%		(11.4	)%		(17.3	)%
Non-GAAP operating margin		14.2	%		6.6	%		12.7	%		6.6	%

CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Reconciliation of interest expense:
GAAP interest expense	$	(1,218	)	$	(1,539	)	$	(2,318	)	$	(3,665	)
Add: Amortization of debt issuance costs		990			1,307			1,980			2,470
Non-GAAP interest expense	$	(228	)	$	(232	)	$	(338	)	$	(1,195	)
Reconciliation of loss on extinguishment of debt:
GAAP loss on extinguishment of debt	$	—		$	(50,300	)	$	—		$	(50,300	)
Add: Loss on extinguishment of debt		—			50,300			—			50,300
Non-GAAP loss on extinguishment of debt	$	—		$	—		$	—		$	—
Reconciliation of provision for income taxes:
GAAP provision for income taxes	$	1,146		$	1,465		$	3,415		$	2,779
Income tax effect of non-GAAP adjustments		8,082			(88	)		12,372			2,449
Non-GAAP provision for income taxes	$	9,228		$	1,377		$	15,787		$	5,228
Reconciliation of net income (loss) and net income (loss) per share:
GAAP net loss attributable to common stockholders	$	(15,078	)	$	(94,467	)	$	(50,621	)	$	(132,549	)
Add: Stock-based compensation and related employer payroll taxes		89,507			71,589			166,234			133,339
Add: Amortization of acquired intangible assets		1,982			4,888			7,248			9,775
Add: Acquisition-related and other expenses		162			—			162			—
Add: One-time compensation charge		—			—			15,000			—
Add: Amortization of debt issuance costs		990			1,307			1,980			2,470
Add: Loss on extinguishment of debt		—			50,300			—			50,300
Income tax effect of non-GAAP adjustments		(8,082	)		88			(12,372	)		(2,449	)
Non-GAAP net income	$	69,481		$	33,705		$	127,631		$	60,886

GAAP net loss per share, basic	$	(0.04	)	$	(0.28	)	$	(0.15	)	$	(0.40	)

GAAP net loss per share, diluted	$	(0.04	)	$	(0.28	)	$	(0.15	)	$	(0.40	)
Add: Stock-based compensation and related employer payroll taxes		0.26			0.22			0.49			0.40
Add: Amortization of acquired intangible assets		0.01			0.01			0.02			0.03
Add: Acquisition-related and other expenses		—			—			—			—
Add: One-time compensation charge		—			—			0.04			—
Add: Amortization of debt issuance costs		—			—			0.01			0.01
Add: Loss on extinguishment of debt		—			0.15			—			0.15
Income tax effect of non-GAAP adjustment		(0.02	)		—			(0.04	)		(0.01	)
Effect of dilutive shares		(0.01	)		—			(0.01	)		—
Non-GAAP net income per share, diluted⁽¹⁾⁽²⁾	$	0.20		$	0.10		$	0.36		$	0.18

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic		340,648			332,297			339,617			331,448
Weighted-average shares used in computing non-GAAP net income per share attributable to common stockholders, diluted⁽²⁾		356,096			343,187			356,359			342,667

____________
(1)		Totals may not sum due to rounding. Figures are calculated based upon the respective underlying non-rounded data.
(2)		For the period in which we had non-GAAP net income, diluted non-GAAP net income per share is calculated using weighted-average shares, adjusted for dilutive potential shares that were assumed outstanding during period.

CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Free cash flow
Net cash provided by operating activities	$	74,815		$	64,451		$	148,394		$	100,865
Less: Purchases of property and equipment		(29,625	)		(38,748	)		(61,681	)		(56,289	)
Less: Capitalized internal-use software		(6,915	)		(5,733	)		(12,831	)		(10,703	)
Free cash flow	$	38,275		$	19,970		$	73,882		$	33,873
Net cash provided by (used in) investing activities	$	(183,742	)	$	108		$	(86,792	)	$	15,675
Net cash provided by (used in) financing activities	$	7,143		$	(168,612	)	$	7,164		$	(167,365	)
Net cash provided by operating activities (percentage of revenue)		19	%		21	%		19	%		17	%
Less: Purchases of property and equipment (percentage of revenue)		(7	)%		(13	)%		(8	)%		(9	)%
Less: Capitalized internal-use software (percentage of revenue)		(2	)%		(2	)%		(2	)%		(2	)%
Free cash flow margin⁽¹⁾		10	%		6	%		9	%		6	%

____________
(1)		Totals may not sum due to rounding. Figures are calculated based upon the respective underlying non-rounded data.

Explanation of Non-GAAP Financial Measures

In addition to our results determined in accordance with generally accepted accounting principles in the United States (U.S. GAAP), we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In particular, free cash flow is not a substitute for cash provided by operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided above for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Items Excluded from Non-GAAP Measures. We exclude stock-based compensation expense, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance. We exclude employer payroll tax expenses related to stock-based compensation, which is a cash expense, from certain of our non-GAAP financial measures because such expenses are dependent on the price of our Class A common stock and other factors that are beyond our control and do not correlate to the operation of our business. We exclude amortization of acquired intangible assets, which is a non-cash expense, related to business combinations from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. We exclude acquisition-related and other expenses from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. Acquisition-related and other expenses can be cash or non-cash expenses and include third-party transaction costs and compensation expense for key acquired personnel. We also excluded the one-time cash compensation charge incurred during the three months ended March 31, 2024 from certain of our non-GAAP financial measures because it was not attributable to services provided and did not correlate to the ongoing operation of our business. We exclude amortization of debt issuance costs and loss on extinguishment of debt, which are non-cash expenses, from certain of our non-GAAP financial measures because such expenses have no direct correlation to the operation of our business.

Non-GAAP Gross Profit and Non-GAAP Gross Margin. We define non-GAAP gross profit and non-GAAP gross margin as U.S. GAAP gross profit and U.S. GAAP gross margin, respectively, excluding stock-based compensation and related employer payroll taxes and amortization of acquired intangible assets.

Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin. We define non-GAAP income (loss) from operations and non-GAAP operating margin as U.S. GAAP loss from operations and U.S. GAAP operating margin, respectively, excluding stock-based compensation expense and its related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses.

Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) per Share, Diluted. We define non-GAAP net income (loss) as GAAP net income (loss) adjusted for stock-based compensation expense and its related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses, amortization of issuance costs, loss on extinguishment of debt, and a non-GAAP provision for (benefit from) income taxes. Generally, the difference between our GAAP and non-GAAP income tax expense (benefit) is primarily due to adjustments in stock-based compensation and related employer payroll taxes, amortization of acquired intangibles associated with business combinations, acquisition-related and other expenses, and amortization of issuance costs. We define non-GAAP net loss per share, diluted, as non-GAAP net loss divided by the weighted-average common shares outstanding. Calculation of non-GAAP net loss per share, diluted excludes all potentially dilutive securities as their effect is antidilutive. We define non-GAAP net income per share, diluted, as non-GAAP net income divided by the weighted-average common shares outstanding, adjusted for dilutive potential shares that were assumed outstanding during period. Currently, potential dilutive effect mainly consists of employee equity incentive plans and convertible senior notes. We believe that excluding these items from non-GAAP net income (loss) per share, diluted, provides management and investors with greater visibility into the underlying performance of our core business operating results.

Free Cash Flow and Free Cash Flow Margin. Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by operating activities less cash used for purchases of property and equipment and capitalized internal-use software. Free cash flow margin is calculated as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property and equipment and capitalized internal-use software, can be used for strategic initiatives, including investing in our business, and strengthening our financial position. We believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of cash generated by our operating activities that is available (or not available) to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240801447304/en/

Investor Relations Information

Phil Winslow

ir@cloudflare.com

Press Contact Information

Daniella Vallurupalli

press@cloudflare.com

Source: Cloudflare, Inc.

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What was Cloudflare's (NET) revenue for Q2 2024?

Cloudflare (NET) reported revenue of $401.0 million for Q2 2024, representing a 30% increase year-over-year.

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Cloudflare's (NET) free cash flow for Q2 2024 was $38.3 million, or 10% of revenue.

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Cloudflare (NET) expects revenue between $423.0 to $424.0 million for Q3 2024.

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Cloudflare's (NET) non-GAAP income from operations improved to $57.0 million (14.2% of revenue) in Q2 2024, compared to $20.3 million (6.6% of revenue) in Q2 2023.

Cloudflare Announces Second Quarter 2024 Financial Results

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Cloudflare Announces Second Quarter 2024 Financial Results

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