Cloudflare (NET)

Jayson Noland Head IR
Matthew Prince Co-Founder & CEO
Michelle Zatlyn Co-Founder & COO
Thomas Seifert CFO
Sterling Auty J.P. Morgan
Phil Winslow Wells Fargo
Matt Hedberg RBC Capital Markets
Shaul Eyal Oppenheimer
Joel Fishbein SunTrust
Keith Weiss Morgan Stanley
Call transcript
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Ladies and gentlemen, thank you for standing by, and welcome to the Cloudflare Q1 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session [Operator Instructions]

I would now like to hand the conference over to your speaker today, Jayson Noland, Head of Investor Relations. Thank you. ahead. go Please

Jayson Noland

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

As financial be non-GAAP limited performance, non-GAAP today's the operating dollar-based anticipated and tax the our shares products, non-GAAP we'll the non-GAAP future a loss revenue, including, flow, Company's impact loss discussion, net and net and rate, and customers launches non-GAAP and and per our future cash effective time margin, outstanding, free net on those during paying reminder, operation customers. market statements forward-looking making share, operations, product customers of from performance, COVID-XX but free large vendors to rate, not retention operations and expenses, anticipated partners of gross operating performance, potential

and and some our adverse are the other These performance which rather guarantees economic and the the duration are of subject global and domestic expense control markets. the beyond of uncertainties, pandemic to conditions of of comments but are COVID-XX including but risks limited future not statements and not general impact the in

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

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

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

discussed talk basis. about ASC are than current and numbers all revenue financials non-GAAP adjusted today prior-period All be XXX. on Unless an otherwise other reflected noted, we will under

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

the non-GAAP through in in will be also on Xth. moments found XXth, For Baird and periods, Consumer and inform Morgan supplemental we that ago. Media the the information GAAP to and Communications a on historical financial reconciliation through few participating you We be would Conference like referenced can Global to May virtually June Tech the J.P. Tech Services Conference XXth, Xnd the the

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

Matthew Prince

you, Jason. Thank

very saying start say quarter. awkward what Let the strong almost me to had given We feels a by circumstances.

million, substantial X,XXX over gross path the That's efficiency year, revenue platform. on XX% QX XX%, basis operating finished our year. We improvement showing of points posted on year progress $XX up on we year leverage a toward part. profitability, our continued at Our margin made easy of of the realizing

first in earnings for said as they call to the usual. public years been as earnings already I company, calls that like As business a we've feel our practicing mock point

usual, the of give world quarter And just last the not a to to been take we're a I through our I've sat customers. through April focused so definitely I to to not be up. I as wanted in sense earnings write down our time team. a these what confess settle have as our as first, team, particular and because ways of I remarks, buckle in, living going I However, businesses all walk focusing what on in you to up bit four isn't areas is March call, seeing more this many struggled reacted we're more COVID-XX, our our to platform, business usual and on, to but wanted in

We’re products of is by cloud Cloudflare's all of ourselves. customer that very fortunate the first

transition to to use able for teams digital secure work. we're remote are natives and We products Cloudflare to and productive our like

felt agricultural Our I've friends it's Cloudflare's be or but internet other just before. the on of technology all to internet, crisis staffed at just was fully, network who operation is companies a right to and it's XX/X, been about securely would banking to likely as operation powerless the player's technical security mission build reliably continued empowers that as caused but this mission ever and than not us team. more do worldwide that all have better now, colleagues and crisis help lean center center many also our support center, an inspiring a

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you've honored just of support people up each and as well other, together. of and me. see of has excellence, as our to through these this challenging crisis collections proud times productivity Companies as to our are and of live reaffirmed you I'm kept level well we millions all how really customers most importantly

team. great a have We

has our across platform, platform. XX way have we to previous in unprecedented, flexibility efficient. traffic seen and every in continue saw to and every time has platform our of weeks been growth city load run our serve we engineering more Cloudflare internet our Second as as months. The a for every in traffic can used make our systems the us service in does allowed server as this in growth team better our XX We platform has all make customers. Stress to spread, much

the packet a scale. while a It doing at means and firewall team of the same of we gotten a deep network inspection at our every For has this analysis that less means improvements that time XX% tremendous full of in on also processing our acquiring series hardware. That millisecond shaved during instance, released our time actually threat request. are faster fraction crisis

expect these will innovations to for come. years and more We pay many dividends

parts of are partners. crisis multiple Cloudflare's we app, was rely concerns thoroughly early partners chain powers the infrastructure through chain, for that our the on first identifying These ODM our the Beginning our where virus the analyzed our light virus, of manufacturers supply bottlenecks. network the early in January sources, time team supply One they largely based in as the in had component hardware unnamed well many Asia potential of the hit. as

we time purchases the this pressure. and proof unprecedented. seen demand, year. has may we've Thus to to internet we become constrained to components of expand receive versus order unprecedented continue meaningful thought We've the the equipment been traffic some without We use delay moved nearly beginning up our this in needed far, of able key April been and during demand March of doubled network through the

Both crafts are all seeing global Different have for have we traffic others. has traffic and of still traffic more content, Demand than grown network increasing parenting educational regionally, more doubled. categories arts and content than kids plateau. and

serve well. diverse of sites estate has our about the hand, to real our globally base sports flexibility has The customer its distribute and travel ability declined. and and scalability unified On us traffic platform very load with scores other to served

closing you zoom our a in That March into you modest granularity I've business, we're few and QX days given our added of give in me but seeing. the we average saw to uptick highlights, let our more sales and a deals. the in March, April Third, what Beginning length cycle.

However, shorter our average sales XX under cycle well uptick a months it is than was just still even ago. and quarter modest remains the with

March the much marches last Our sales to week were closed in ahead strong, What of surprising our of in the was was us business finishing how of plan. quarter.

close to business to-date, continued are through business to a without new quarter. ability new April break our Our well plan we tracking this has and for

of took procurement our Our services figured well, a bit for that But their those a few once like processes. remote deals the got read those customers of world pause for mid March, critical weeks a provides, out, cloud figured out much done. in were companies is

One into showing sales We the our us. data more what closely. pipeline view are track

win than many February more are is may and in March. April slowing in there, pipeline proud of demand no of than we March in new have while things February, we more in impact added than more rates, still January, I'm in we the our intention and that in While encouraged team down.

professional of for a ability sending back an and fast, Part comes to on-premise. small services accounts key team to Businesses without reliable, service success our the large cycle secure our need or to network. acute sales have short sell our and

to running cycle, a our more have us because every as of them of few we as a ever, weeks minute can hours short compared day. and adapt sales quickly months. to they hour or Now our quickly. come every And And can competitors, we than up

to you were with sales teams for talking still we credit is for sign This who As on by without sales so thriving came business. going team. verticals, anyone make the current our be our as to our to industries crisis, a quarter. agreements to pay month we go segment was understand the their our resources on quarter shifted surprise could particularly to up that customers card One month and certain impacted

roots revenue, started a we it's over of our nine Today, portion but where our ago. it's small years

April. businesses more years. year-over-year a to important. very of segment strong impacted so our be exposure a its to big its because surprise, overall We quarter, To portion small it's bottom in still this And our individual That and last developers. revenue. show line of continued it's it And growth concerned strongest it's difference make relatively small were growth in had our to won't because may

but service requests. we're more about who the are businesses not good we you it's like to online of now uptick the news, That's startups concessions. sizes and shapes still will I them. there but for Thomas are you serve need survive, give in details, a businesses, are thinking and an to and we tell all helping individual I'm seeing proud small developers moving how requests rosy, ever, those Cloudflare to than more But we're wanted all

that analysis of base, vast of customers and the our through industries our this. believe most are impacted, on will majority the the Based we customer get

out however, relationship to beneficial Some these same of time, customers help of sheet term. We're using the our short at long working need and deepen their in strength need, over goodwill, terms build balance our help. the to may the time term

that ROI. save are unified because across effectively our cost leads customers our able and of money simplify especially offerings helping breadth together now, help and often services platform, customers compelling particularly to bundle vendors, of we're We operation a product to delivered their our legacy fortunate the replace

had of a as capacity, enough firewall vendors may this hardware narrower some luxury. set Our had short CIOs does competition transformation to hardware. Those they a with quarter emailing make offerings and again. scrambled never is have something to through may cartoon lived. that on Well, led want bump have VPN same this digital believe last or their CIOs company, sure we your History not this temporary that we network me the crisis, premise CEO, for who for circulating There's CTO record as well the this at are COVID-XX. asks, go gasp saying, like

are of Similarly, that solutions. a cloud number point there providers only limited offer

has conversations saving cost strategy current engage ways platform. about platform new this and seeing robots of our a in market moment, share. take us to effective are Our leveraging by we find number for more aggressively positioned of leveraging We're to it money well prospects

gross to our end, use as weapon said share. we a as To will we that margin to gain before, continue

to As an work, Xst. launched need for and solve and to hardware existing March in an that, which couldn't up. firewall keep for acute January VPN as made business their we just teams, for any example XXX% we Cloudflare September free call Cloudflare teams shifted make until the solutions remote companies of in

And time Cloudflare of nine trust their is and apparently made boarded now in onto that there right few In need. Cloudflare of all no businesses we've revenue. and part learned infrastructure, for they're once you're what opportunity. the last even we teams. builds it Since But we're costs years running that proud of we've some last in X,XXX months, the don't over on being for of free, companies

words, we with remain relentlessly our focused feel In we short other very results in on fortunate the the long term, term.

headwinds in However, make There will be term. no short the mistake.

some help business part as we be struggle internet. large the one are networks well are the to But economy of a of the positioned believe customers. will and portion out broader term, We long lose will and few that of we go we businesses of run

$XXX,XXX signed for service a a So, a government deal talk gaming per and for $XXX,XXX broad lastly, secure wins pay some wanted their features year, provider of a platform who I had customer reporting credit worth platforms We some three to over of about will like agency a and nuclear set a our to us reinsurance a year. with the to year wins worth three incredible network deal quarter. $XXX,XXX year, protect a years over million our per per dollars using research over major U.S.

some So, to on let moment. focus relevant customers uniquely that me this are

Cloudflare turned obviously they to of majority they physicians One the their in in to had providers the security as their on telemedicine to set crisis not. shift have legacy they did premise where homes United where largest of clinics from States the the hardware

for patients. As patient information regulated onto industry, highly a could on-boarded positions so is of they their clapper serving security keep critical, teams, they

after is on how just are many ago while deliver a March demand about $XXX,XXX January. deal their to In more CIO our This deal by up year. levels. per I ''I experience, perfect. increased that''. over said Homes food so was their Accompanying on was. much year than signed years they many what I their shelter-in-place, of per love wish $XXX,XXX Here's we relying in for had this it easy us Beautiful. we mean the seeing done so

couldn't their Amazon significantly and faster was cost One decrease platform. our Cloudflare ensure goals only robust, also could more was services. solve handful and edge Workers, challenges but found a on to They dependency other to that, platform any development they they're of of their effective Cloudflare computing using not more through they web

we're the customers through of could also support project critical us, customers initiative. proud doing Galileo who we paid the work Beyond our

City, track quarter, helped medical Epidemiologists the the which in ensure like hotspots, prevention Harvard projects to reliable, COVID-XX emotional suicide access and more facilitated masks, Last for we for resources providing fast, is XX,XXX to maskaherony.com, created York health beatcovidXXnow.org high which professionals of is donation project technology software of a It inspiring secure by New millions the and covidenearyou.org developers the and of support, theamerican.org, sense to that esteem lonely our develop and help lend public Australian of researchers many, many, behind people are to impacted and make these true more. and symptoms this by expertise track crisis, to we to organizations. IT our superheroes COVID-XX team whole able many than

replete like crisis. team has Iconic is a They opportunities this a and be My but born it's hard with to there no opportunity. are Finally, two time, for ours, doubt, take message clear. business companies will headwinds of to these our things, also even invest. out been do focus and

well I'm lucky the the during us as we of to Internet. long-term. are the an the of of we we focusing very iconic trust, to the on serve future in to greatest crisis. and products for the company investing There very that one So, feel the very will innovation be are ourselves fortunate, strive power small and Internet's long-term. companies establishing and We privileged guardians over And that, this returns, build the are leads will confident a number people highest building and hiring that

I'll take away. to off Thomas, it it hand that, Thomas. With

Thomas Seifert

to us. Thank you and joining thanks everyone again Matt for

exceeding high-end reflects for our guidance the continued a momentum models. and the COVID-XX, Today, business revenue our XXXX discuss for the and We critical strong quarter, from of We role XXXX. second quarter our first quarter in customers delivered year this guidance the update the helping believe plan review of of transform guidance. their provide digitize and to impact results, I full first

base. results, as strong growth terms was in existing expansion well million. the our quarter XX% of demand, as The customer new for logo to in revenue grew Turning total within customer acquisition driven to our first by year-over-year revenue $XX.X both

significant we our mentioned, with business. strengths pay-as-you-go Matthew saw As

a to of are of subscription model. our during plan businesses. Cloudflare contract, customers value strength to but and committed We predominantly speaks sized on rather business medium not pay-as-you-go a Our of the durability are and this in month-to-month composed global of pandemic a small cohort the network the believe

To customers strong provide customer our paying base. of our represent some pay-as-you-go transparency the majority additional

XX% of a perspective, a contract and represent Our year-over-year. our increased of customers revenue. XX% represented revenue, majority geographic U.S. strong From the

increased in represented year XX% business Europe making business. the hide to our XX% Europe, of revenue incremental was We year-over-year. started increased by pay-as-you-go in last international traction year-over-year. International which investments driven primarily growth Our and XX% sales

start pleased the We and events Germany are from to investments UK. take those to specific see hold

be As revenue better aligns a based KPIs. reminder, of peer revenue eight can beginning disclosed financials to Relations move group website. quarter historical information this purposes, based the basis scale. Investor to this in based on billings our and so quarter, with from shifted way as we of document this provided we revenue as to our believe which the our KPIs our and supplemental referenced publicly business We KPIs model financial continue for We comparison quarters

the representing added and customers at exit XX% to million free XXX,XXX an total roughly year-over-year. $X.X of quarter the during We total approximately customers quarter paying increase

the We within focused XX,XXX. customers and also customers XXX quarter and paying bringing of year-over-year. the over revenue, paying just We which in quarter, customers to enterprise added total the customers up expansion large XX% over existing customer paying then our number growing greater with annualize on with X,XXX remain base, $XXX,XXX than is first in

region. rate period. revenue was to in was Dollar retain Our year The sequentially by first the largely retention and higher slight and in base net driven quarter decreased customers existing base decline our X% XXX%, net X% year-over-year. which the from dollar expand measures retention Asia term ability Pacific prior

measurement take customers excludes of the churn benefit to contraction that this and of net of subscription. free Our net upgrades

business a for Teams all critical September traffic models, points significantly margin and new of customers and Xst. rates XX XXX Network strength Cloudflare like a higher offer for to no charge points to absorb continues at solution year-over-year. down basis to allowing XX.X%, was efficiency quarter up of First basis gross defining sequentially be us

we'll we margin As said our advantage as themselves. weapon a opportunities present previously, use strategic gross when

for are in we and be quarter, closer we XX% follow on the business targets XX%. crisis, of long-term our this focused long-term. customers During the expect right thing margin to see to in gross to second to doing our Therefore,

in quarter remain while expenses, the focused we expenses our operating million sequentially, investments our and on quarter, increase current year over the in at we our of for leverage growth. year, were Turning the year over XXXX X% operating employees up the to for the number year, XX% improving delay quarter. bringing expect our first balancing $XX.X of headcount and end by catch for Total saw we on-boarding, and total while we to which XX% business hiring up

First quarter a XX%. a and expenses sequentially decrease over revenue $XX.X Sales representing XX% and million year. and The due percentage of discretionary was expenses as X% and increase Sales year were an as travel, of decreased sequentially of marketing decrease over year response swift operating quarter, expenses for the X% to pandemic. marketing largely revenue, marketing of X% production in the and percentage spend year COVID-XX to to a sequential

decrease year, from XX% the and last XX% quarter. last quarter XX% in first from the

in COVID-XX quarter. XX% quarter, primarily of headcount of Research in XX% sequentially bad and of XX% last $X.X impact X% million driven an increase year XX% last percentage increase was representing decreased year. to an a to over of $XX and General over debt million and The the from QX sequential and XX% representing and administrative year XX% of by and expenses increased million. development a were over expense the sequentially decrease increase for year expenses from in primarily $XX.X increase year and for R&D revenue an year, the quarter, year. as

and was year. X% decrease X% revenue of percentage sequentially an of representing XX%, increase a as of a over year G&A

XXX over same over leverage XXXX operating first last loss sequentially. see to operating and million Operating to points year. quarter, the period was points in in business continue the basis improved $XX.X year as the million basis $XX.X year compared We margin in

period negative Net first We with free loss tax the or for securities.QX flow a or in negative for or $X.XX, ended the available $XX.X year. million in X%. $XXX cash cash, million revenue revenue, loss million XX% in effective to last sale equivalents of quarter net QX of negative quarter of first $XX.X or rate compared share was million XX% cash per same the $XX.X

mentioned to capital we cash in continued expect margins As business. and our fluctuations due previously, working ongoing we flow variability enterprise in the growth in to see

for associated would our I expectations COVID-XX the in risks rigorous Before We we customers outlook moving current pipelines. performed and year, understand for our analysis full customer the have second the seen current our factored and the our in begin related to have into the customers and of facing both and guidance to behavior like quarter the been to opportunities provisions, existing guidance. in impacts we environment. prior factored into challenges trends, views our and with We've

certain for bifurcation a with saw across a during blowback in customers, such customers two today's are taken who emerged and given industries in COVID retail. need, sales or would compressed have cycles notable some other base acceleration quarter an quarter We those as our that related urgent being customer macro example, well the sensitive significant from as affected. particularly as challenges, transportation, By highly hospitality among

X% approximately retail transportation, effective businesses of and associated only with highly industries. However, hospitality all

sourced deal potentially During closures. days continue we five the sales longer on and to to cycle which quarter, leading extended sales increase lead time worsen all dynamics by similar was and the expect an have

slowdown April. uptick contract also in March of customer requests customers with to a We XXX see modification notable an speaks began which to in

of spite in will headcount recent and the second reflect slowdown, our assumes these a the requests million quarter. $X continue guidance In roughly of

through contract helping in and customers with exchange our duration. flexibility challenging to often those committed are increased them times providing extended payment We for

the over We term. our to enables our we profile that our customers sheet long will and which benefit believe us to support shareholders fortunate provide strong also are and needs, balance margin community

Despite performance remain for and customers. internet partner security critical a as all our positioned uniquely mission these headwinds we

of than with and all We base have customer and a all sizes lending industry geographies contributing more large every and across diverse customer of no X% customers revenue.

down flat new our through DSO targets, In customer or we and first is our met to the renewal ACV trend our that's and quarter quarter. customer

it's on as perspective. from important planned April basis. this renewals ACB trended and point seen level organic a and think weekly inbound that's to a customer pipeline highest new that net we've Since our doubled out leads has also March reached We

Turning XX% to representing range $XX.X year to million to guidance we revenue $XX.X XX% in the our increase an over of quarter, expect for second the million of year.

the The $XX provisions, We primarily of sequential share to with set $XX expect and million. range $X.XX boarding to be assuming the increase tax COVID million effective a anticipate and net XXX expect expecting range in rate in outstanding $X.XX per we of negative approximately and loss hiring X.X%. QX on to operating related loss from million common shares the

rigorous the to total of the farm guidance uncertainty light per loss despite and for loss reaffirm the revenue pleased In we in the environment. share analysis, our XXXX net operating

As such of increase XX% year the an $XXX in million million XX% to year. XXX over to of respect range for revenue representing

subscription As revenue. a business near strong with a reminder, we visibility predictable have term into

We expect to operating loss in the range $XX of $XX million million.

be continue about X%. million to We outstanding, approximately assuming XXX an the weighing common of all rate headwinds range tailwinds long-term current loss negative expect for we $X.XX effective remain expect and opportunity. we share shares and offerings environment, our per optimistic and In to will of net the $X.XX demand in the the tax both

appropriately macro our we While closely monitor impact we unfolding, COVID-XX believe to still environment, is guidance from business full economy and the the continue of is prudent. the

thank our operations, they to continued customers delivering most. like these us to partners, be closing, we In critical We'd them privileged of we service customers, times, when communities. our for and the need there Cloudflare feel and mission to and very fortunate navigate to exceptional be in resiliency dedication as uncertain employees their for pillar a through

Operator And open questions. questions. poll for with that, up it to like for I'd please


from comes the question Auty Your line Sterling Instructions] [Operator first Morgan. of from J.P.

Sterling Auty

things there's of partnership the know quarter. agreement to item a China but in through, that during ton signed wasn't one you had you that noticeable another I was Listen, get mentioned

you some growth that us in wondering of, region what sense to could can the Just your if give moving forward? mean

Matthew Prince

Sterling thanks, the question. Yes, for

learned community. of, China think Chinese for I a We a it's partnership country really community, operating very And have and as is I've what in five been tight last very is with part in years we ourselves the China is good very five that years did big that Baidu, in tech a partner. think what knit the knit over tight prove I now

of approached the companies. end were by internet number different so we XXXX, a And Chinese beginning of of

position we We a partners in going diversify forward. had who we fits number partner well. Cloud be thought And incredibly able JD fortunate in China. to that the to And would choose be wanted great to bill were the of we that really

that it. adding so with augment And agreement incredibly an network for take new of little the a excited But to online. a signed we that I'm with of pumps per to get XXX us bit it's across going that time to them, about total existing have We're XX we cities China outside year will Baidu.

user which global through entire think global our allows outside Cloudflare extend spans customers think unique world And and their interface. and I to one are network inside what the manage for that is of Tesla, we there's very a both is traffic here us about single real opportunity to we that a

think terms that have risk right one this, China this And being think amount in on So while I'm we the as now. of going world a opportunity the recovers I through of there. it dependent excited we're provider there's I decreases from on about provides that what substantial

Sterling Auty

the That travel. sense. one Thomas, a you for on for information follow-up you. the And of industries exposed lot Thank then makes like

your as should as versus how way? your made that pay about to stratify we comments on a exposure But, SMB lot enterprise? you investors get characterize versus I think mid the of business market a for You business kind you between you go is, the question would program. How

Thomas Seifert

the we broadness our think across manage we out we I go-to-market have. pointed the earlier really that funnel of

current across the how manage broadness it We funnel. resilient shift mentioned in this It's you So, script, of as our strongest was surprised part. to this there's who really that to shows not from think business and it the is model, small I important a for crisis really of the important part efficiency of were to payers the his our how businesses Matthew medium focus big. and go

years and It highest also significant in message keeps can quarter. how you the and segment, progress acquisition our that it's in really small in load shows important our go-to-market in second so script. Nobody That managing continue model is developers costs deliver to of X it of the my efficient it their is keeps across companies first those and we the important Europe has to sized they, services growth to this convey funnel. just and in saw you medium the heard what strength

made fuel the that we invest sales us to the as we leading year, local and on demand. of data Following of investments, go in incremental the was behind the end provide to business. need continues It order last at pay our the be investments to from you strength based


Your from question Wells from Phil Fargo. next comes Winslow

Your line open. is

Phil Winslow

Matthew, are the obviously network on sheer seeing be the there from as right anything yet the volume stand talking sort now? incremental of it that solutions video of and highlight across well huge with balancing there you, going of that environment you teams, to enters, Argo, obviously, just we're whether the you been home where you you'd What out commented load that's it's just on you're menu seeing amount have And internet any mentioned etcetera. your this about based

Matthew Prince

real a was new through have product Xst seeing that it a the us to and a wasn't and teams. market I for way product overwhelming. been that a January. make as for to there awareness lot was in think more kind knew got say, let's businesses it in Cloudflare couldn't time has made for That has free that us. very that some announced for of a the this fortunate that really for We to it easy we thing for standout was of have, been actually decision the as September response were say in us struggle We result,

up base. we and be on signed We focused inspiring that sure team we our using strong is really generate quarter X,XXX that saw and businesses over was customers Cloudflare and me for for wanted products revenue entire sales make main closing across on-boarding what to our was to product demand teams onto are the

world on to their sessions team literally finance all had people had And X,XXX hands our our XX saying Thomas's businesses. raising our team, team product we'll customer over we on-boarding the around so on engineering support minute do we with on volunteer team,

that pay long dividends has will to think of the for come. substantially I And product awareness think a so that I that raised us and time very

I in terms revenue. of generated product has the think

what should If networks should future that should Cloudflare what you secure. think about It resilient. is the a be be reliable. be look network It we're and should fundamentally, like, of

their businesses in network more needed. saw what order so, what to internet and that on of world was shifted in And to to to as do modern more continue a keep online, relying work, the is we that the order they

one that Cloudflare. suite And And really our they think of meant all about here. expertise isn't don't it firewall, has so, want balancing, Customers I what that that QX. was, shown that's this different turning security, of to they're platform together. this, that, looking And think functions I product where I guys a another. you can I sort really over came have to really why strategy or have the and say, hey, for load crisis illustrated are


Bellini Your Goldman Heather Sachs. from next comes from question

line Your open. is

Unidentified Analyst

I deeper Hi. This families hope you the expansion for is taking well. question are into Caroline doing on rate. and and your a Thank little dive bit Heather. again you wanted for to net my

how retention as midsize small some changes AsiaPac. was your driven specifically enterprise Just having the within in customer rates enterprise that base, there been customer Or by the then diversified had as the weakness and customers? in customers? Was a larger the within trending base I'm well SMB churn curious,

Matthew Prince

Thanks for question. the Yes.

globally, customers SMB had actually to that segment, any growth we're paying strongest in customers and time. at we segment think its the who I that, When them were, think thing I solution. that gone by globally our is a And pay-as-you-go think proximate that with that, that was have SMB seen we've business, pleasantly not starting seeing we churn, switching for surprised from is what I that our in rough customers. another looking customers So have seen of period

portion We're bill. small they instances their pay-as-you-go of out is going very seeing But business. some we're seeing is small more relief some But even on a the is business, companies might our again, segment a just need overall where what portion. of are this that relatively

free is that number the one thing our pay-as-you-go products. business sort for And subscription Cloudflare's so, version the of competes of

downgrading. they we're are we're so, what struggling, And not on losing platform, seeing them our but them

That the through past, customers the existing to our I businesses well the said, us. is in small years in that pay-as-you-go has that customers the And becoming more I the think surprise. for that more continue pleasant as business actually them both and upgrading been tailwind QX very was into speaks to we've even several of in seen new expansion looking paying to as ways internet. to think customers strongest means that we've is, a in And that as seen are are and and operate, turning for what a

Asia, going of going to again various nothing that, I think had that some in on. we about And think terms we're excited terms In that, I forward. there's again, is we're Asia, factors what from I region a impacted we was think some to customers that. by systemic those In cases, that that of see

have definitely I market April. what been is the So drove not which in to weakness S&B which was the exposure

Thomas Seifert

is manner, Let you then because that's saw base, what larger volatility at perfectly will there. volatility see a me think will number we why XXX%, of first see additional that our that important level like business and performance so because but QX, higher expand give measurement expect some some this time don't their you the in color, the from DNR linear in you revenue a you it's I would good a very customers

backend and Just and out perspective bit March from much processes the more would ACD what a end perspective, so figured procurement as for a new also few how was never everybody the is has topics vertical a to we the that of trend high It's XX impacted. couple where in a in reflection a there. And verticals churn more not regional off, saw customers to topic. that a are that certainly of paused billing a exposure heard look a Asia is Matthew revenue much like loaded from from really not

Unidentified Analyst

really How landscape of crisis? hunters? are Matthew. I is about guess legacy currently mean, my you post the see replacements more do promise on the the you seeing conversations competitive follow-up I

Matthew Prince

that. that the still to of we've time cloud. The know for long hearing figuring out yes, and are be. strategy of sort my like, been CIOs is they to we're going I'm about sure I talking sort what For a don't

the just more I and crisis more current cloud. think that We're direction. accelerated has that seeing turning people that everyone move towards the

go. a us. And think some are very Cisco out for And of seeing continue full a have time for a we customers. that. that I bosses that are be lot to strong pulling again, starting got think tailwind There replaced. away already customers existing will both of, quite think is that I a that's that to as land our see that competition we've We And to there, I again, to product able What not a new very do be and growth with our businesses. suite lot to our to we're ability

how this again, on, in different, think more inevitably, going solution a climate. to excited out, exactly be look Cloudflare. is world world the to the come trying to any going we're don't and customers terms of impact where overall and is go more going And a I that is to use that think I are like know how to going it's to prudent long much understanding very risk us it's business think as be of I we But


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

Your line is open.

Matt Hedberg

taking trends. products aid for lot questions. can home Matthew, my Great, a to guys, work that of you thanks have from

talked them You've tonight. about

high to the level, benefit this you to long use term trend some case? about wanted continue your exposure talk broadly this from expect that particular is obviously can And more also to how and Just invest you way. changing

about all us think work. think of I

Matthew Prince

it hair, But closing is solutions have there companies other to of a that not like I've over XX terrible what much a fortunate switched I been think incredibly work we friends beat. crisis, continue lots and I all as right to we it first do is the And to feels require almost high. built course I that And work. XX And nervous work very out globally work was salons productivity at -- them able in from And what that deals. and not traditionally now years has we go the And to of think, a getting home I nail Well, cloud culture. is their have think and ourselves. workers are overall a missed from office hair, because overnight encouraging last that being as ago. restaurant cut allow years, society impacted of happen about been we our and all, hair. have we're Cloudflare, we're I've seen incredibly when didn't are who and we've culture this to a can cover is We're people been done, work jobs

like, we be to what place lot a of those what And the about lot to is business that And ourselves. of a support from the work how that's are the did that best aspects think to why of best offices. and able I able in what Working think aspects built do were And looks we the the are we remote illustration that an which for system future what of reason the we of were of was IP that. we had can products

a having think reliable which is I so what And fundamentally network,

provides, matter a that when doesn't work home one it it that of that is is that is why strategy. aspect is no that when Cloudflare foundational from performance, fail, secure, any

that, and based a interest business, of is but is so our what lot -- for we've on that this clouds on not then responsible then revenue, a there lot And is teams, of that which the top got is. of fact service and today

top or solutions of is think when home to going from that because then that on of provide the working all every not additional we're to their be is that to a going more but have play if and home. because they productive. got the in make going to a likely, that performance And role that I outbreak going like we've secure has home part a to they that of I ever work a that they from of secure, realize company work think just in forward, workforce office mix big by a I another be providing foundational can reliable and network, XXX% opportunity to fast, future of that forward, make sure the going solution of future think flexibility

Matt Hedberg

follow That's great immediate up. and

perspective opening people to seeing China what react about rest of up of work. you're I'm you can the when world trends back the You have curious to a and China on impact is how going up? unique How to opening go expanding that's talk now. potentially might if

Matthew Prince

We Beijing. office in have an

this crisis, think And acutely aware not have earlier that exposure so, might I maybe region. were we of other very to companies some than that

shifted leading support well, think of China. posture team been They're and what's Our out. interesting then was adjusting I And entirely place the back in now in has led work inside our it team they also China We the transitioning in sheltering remote in there. quick an to that is to outside of way -- way. way

so, And our we have reopened in office Beijing.

we don't team in which of the that everyone split team designated and up office team red it have terms a so every in yellow We day. that a have

tension, online. that's the what of that China trade is whatever practicing part around I but an term. just the think are We're as team, teams coming and not Chinese And the around economy the market over current and are around the are it. current concerns measures virus long and back the enormous our country we're concerns appropriate watching or

country. ways I that to find reengage with think we don't almost no way there's that

want is movement I companies that Cloudflare the And to network that goods the able of are the of or market China we the the JD, operate inside partner customers. then through be hands the with us, to think, deal on else. are really proud especially ground States they to incredible outside they work facilitate and to are one that global helped be work to a based with think outside are that their companies Chinese experts and opportunity then get for an that what China We did JD of the or I logistics they network base And we China, United to that and are I'm as of in bits. with that with anywhere of able Chinese whether in the actually

ahead to all are forward. is And world to going that's network back got think come a that be comes going and this like going that infrastructure. to source of real obviously Well the when of things what the then growth seeing you've invest of is I signals we're economic in this in for back


Your next line question Oppenheimer. Shaul comes the from of Eyal from

now is line open. Your

Shaul Eyal

but Congrats highly that any on officially Thank the appreciated? even qualitative quarterly provide RPO Thomas, color results. I perspective, afternoon on the from typically will Good or call, metric the guys. follow-up. a be Matthew quantitative, you. know not do that from And maybe I you a a have

Thomas Seifert

given deferred I for RPO, Normally, business. you our that for we but keep contract talk guidance, backlog ask about more mind is the RPO, revenue, backdrop, valid well primarily year transparency. your us, think so XX% the if remaining the economic don't XX to it's some it's and over for

business. second our which first So contributor the would strong base was heard quarter. business, contract Matthew and they're you our in And in the pay-as-you-go large the renewal from especially specifically, then exceptionally be

why slightly confidently XX% already near-term that subscription together, literally on ACV say if that's So pretty probably you those the XXX% and we add visibility into solid. is the two and is at contributor smallest based revenue business new you're then can especially or have our above we

Shaul Eyal

translate million, kind quarter, I things like? about million, the And as think will this X,XXX share could color. the this businesses of that million? when team rate also, renewal those appreciated? for greatly of might in you be you Is colors if what rate with start look XXXX What this the And be we if renewal what once like one, can another stick road? also, they down convert? us team in X thousand Whatever Thank Understood. during X few can into subscribers, businesses X number that we about joined those we

Thomas Seifert

We're coordinating in in our place. independent sheltering

for what into. a to that be will once trust in very what as But I mastering that you're infrastructure, part said somebody's builds business my So, that going businesses us. to we're because exactly conservative, and X,XXX build we're remarks turn into is am we relationship of optimistic, say, we're and that I that, that know don't it. know exactly. turn I builds not -- trying will don't still I think we

September. And on that not based that get more now. will we're so lot to right think when I forecasting a think I revenue know we'll we we And

Matthew Prince

paying underline how the conservative will Listing all in dollar that XXs, in from our this in very is been of our But the derive cross remainder this business we retention across revenue assumptions, customers. much year. the you've in general,


line Your from next Fishbein Joel question of comes SunTrust. from the

Joel Fishbein

one have I for Matthew, you.

quick your wanted but of you look metrics Obviously, love very was? you you you did what and testing have mean, as risk how I follow-up to commerce, the the do of a good us I'd at downside to and you, you song lot talked guidance. I about that pipeline, the well. kind I on hear your ask On one most for subscription have of businesses to gave

Matthew Prince

let Yes, here. me started

just quarter. I that to automatic think recovery we assume really, we did not want the an in would happen second

test So uncertainty the we really the impact And might the downside wanted of to risk. COVID around have. then especially

half. be crisis both those use that test automatic I second to we and downside, suffered [Monte industries run to verticals an simulation Carlo] rates. our at wanting understand conversion to to of understand, models so the runs in the So rates, then will in XXXX looked just We and it don't the at in XXXX probabilistic modeled against assume customer we size, the know default sudden not millions looked around we and recovery especially and life really exposure

Joel Fishbein

up, are anticipation the follow little that plan here? the that guess like April a sounds I tracking I bit as what and guess an are this I of as supposed guess the track of is as message things could that, trends ahead better a it far we're like have I and Okay, you to than

Matthew Prince

We there's uncertainty we prudent how of in a think of think front wanted in to year. lot about the the appropriately be us. of I remainder

in downside near and like student for I to think remainder prudent this we second that the the think this of reflected and and in have is quarter especially in the is guidance I just there and a more more the year. We half guidance term second visibility the the situation wanted uncertainty then and the for understand the there, in

Joel Fishbein

me from one actually. on real you DSOs the last then And is were quick flat

Your we forward customers I'm are up unexpended actually yours paying track to payment assuming DSOs as move expects terms? that

Matthew Prince

We have modeling. our in been conservative

We have either. not seen any April in uptick


of line the from comes Stanley. from Morgan Weiss Keith question final Your

Your line is open.

Keith Weiss

describing to just lot are fact going firewall vendors these they their mode, had of common without spending, they a towards just environment, do double catalyzing, to to versus how down on there forward that this the just forward crisis had around basis? because opportunity to The pull weigh shift the was guys security on move into a incumbency people ability the really get a that you

Matthew Prince

think that. spending lot any XX of talking I that been No, CIOs have worth that, that it's brought hasn't them and concern probing that, to fortune my will a very what a up. say of institutions have time I been I large

what it through way live I that lived I and think that made again, again. But hear current I they very band have it's think like over the that over I is decisions through become to having something their never crisis. to this aid clear, want again through

room imposed talked think that's getting hardware from on up it and we're single call has so which board the people continuing not interest And that and loss the of on-premise been really on to is that every My worth a that test in that's on to. witnessed I who them. continuing substantial a to is large that has while customers inbound relying solution, you're pain and been hearing our a a is that, brought we especially concern for hunch productivity refine,

think to saying, now, different a being they're I right over. we switch going need they're And and able to tolerate architecture

that, down have business, to nearly the outlay have trying a have because to benefit for think that you it the I we hardware. additional cash double on doesn't have we're subscription

Keith Weiss

the one bit came Got flow. it. for of expectations came One free sense. And that That guidance below makes numbers cash much expectations. ahead a board in pretty of was in the numbers little ahead a the you, lot of of across Thomas, and the number

overall lot a when in rest one on also There's the particular the purchases. anything free the modeling we flow in or year? hardware accelerated weighing items in of that some should on load network, we're cash keep about mind of QX talked any time You

Thomas Seifert


think This stay manage with going is gave. a the really crisis. trying I to the year we we through guidance are to

to earlier. some We things able by also were costs save certain paying

good on I team January there, year the year sure is and as infrastructure in first supply sure an making early quarter. on Matthew and over the flow heavily cash our the that So, chain should year, the good, is remainder already extraordinary well that out track. job, making the we that in did the balance protected guidance But for of think our said, weighed in that are


That concludes presenters question-and-answer final comments. to back for it session. turn I'll the

Matthew Prince

Thank working that you to I'm say conditions am make tuning of all just of I entire internet the the extraordinary under want you're the proud everyone how for again in. I function. to Cloudflare team. We're to proud fact helping that

And hope the Thanks you everyone who all next safe hands often. shareholders. quarter. your to I healthy washing we'll in is and our to and again all tuned analysts, and of talk


conference today's call. concludes That

may now disconnect. You