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Cloudflare (NET)

Participants
Jayson Noland Head, IR
Matthew Prince Co-Founder and CEO
Thomas Seifert CFO
Phil Winslow Wells Fargo
Sterling Auty JPMorgan
Brent Thill Jefferies
James Fish Piper Sandler
Matt Hedberg RBC Capital Markets
Keith Weiss Morgan Stanley
James Breen William Blair
Gray Powell BTIG
Amit Daryanani Evercore ISI
Call transcript
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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Cloudflare Q3, 2020 Earnings 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] Please be advised that today's conference is being recorded. now today, hand Investor Jayson would to conference Relations. I speaker your Noland, Instructions] like the to over [Operator Head of Thank you. Please ahead. go

Jayson Noland

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

cash but in risks beyond rate, conditions not of the of retention the extent of general paying performance free the and but comments subject a market and are As customers. and the discussion, impact making financial product some and are future our dollar-based vendors adverse and our statements to, including, COVID-XX the not during domestic which economic customers, and guarantees duration pandemic pandemic COVID-XX net impact on expenses, performance, anticipated non-GAAP reminder, today’s non-GAAP including, be the gross we’ll tax of performance, control, limited markets. and and operating limited operations potential but those financial partners large free launches, future not rate, loss customers are to, These our per non-GAAP future forward-looking net non-GAAP and outstanding, loss and and share, of anticipated time global statements effective uncertainty, operating from of to the rather revenue, company’s launches flow, operations, performance, other net margin, non-GAAP and shares the

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

all could as Exchange that filings operating and and today’s discussion and the in results see are today will earnings noted, discussed complete current as non-GAAP period otherwise of more prior impact under financials a financial adjusted XXX. be press and Commission our ASC condition, basis. release. well risks we uncertainties than Unless reflected Securities For our other All talk on revenue the numbers please an future with about

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

Wells information Morgan Annual on and will the in Fargo Future December For X, November December historical GAAP XX, The periods, Jefferies non-GAAP The on like TMT Stanley referenced few the in X, on participating reconciliation a ago. Conference would December The on to Conference December moments be Suisse Application Summit Conference of TIMT be financial virtually the RBC on Conference we can that you XX. X, to found also We Cybersecurity supplemental Technology Credit a inform

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

Matthew Prince

We Thank crossed Jason. In had of an QX, you, exceptional milestones. a we significant number quarter.

XXX,XXX. XX% XXX,XXX through $XXX We ending the of with just paying quarterly million achieving quarter customers First, year-over-year. up we million, $XXX blew crossed shy revenue, in

brought the a leaders us Fortune we bit customer win on them. $XX their had that this been customer started relationships one initially we our will had staff. XXXX go-to-market was has the to million since anticipate in alongside We've customer About and continue an his of and success accounted at new in grow we on We're stunning half service our revenue of with tightly company XX% in of first more XXX, That and per year signing It's existing free enterprise our quite up for beginning $XX,XXX nearly network about our software our us. we per customers great a now we quarter, revenue expect the version a this with spending of to our our partnership, forward. our customers. and annual quarter. with of achieved from precisely customers because proud will and half had run-rate than especially has large their revenue large the and basis. goal For us large XXX the Today, contract. that customized a year new from added It's QX, half our to efforts into terrific site. total came These quarter work, customers. in $XXX,XXX more make then. One and of we experience XXX engineering expanding deep XX than they logos used personal integrated loved grown going He products XXXX, with

well Even more a very total number under record large our And customers our remain as sign enterprise mix. to customers, remain top we X% revenue. revenue. account for of than our of the diversity with None happy of XX% XX continue customers we of customer of

our financial and strength our something business, talk wanted really of also proud incredibly results proud we're While the we're of. I about to of else,

United in of election a story some didn't did there's carefully, uncertainty some cyber-attacks. technology around undermine We still our going was who the team Four any with of infrastructure about which as our concern various how shortly election. elections Athenian fair provides years for its well. launched ensure One and decided was played enterprise In many as use ago to the that able ultimate case. and subvert as will free were election don't disrupt be stories States that votes lot We provide around election voted results. parts deep after have impact sure the expertise watched we officials. to service this and in and those project, to state into to government it And at attackers competence cyber-attacks Well, Cloudflare the local watched duty the we class week our the techniques or been outcome. I'm wasn't Our that. of there the role you We XXXX were worried counted. materialize to

Athenian messy of and which about in from of vote. ability We services to we reporting, of the our proud were citizens violating Federal U.S. impacted big depends Switching can continues a at they democracy top a campaigns Congress. project We're work up can for instances you the half digital Election This of most presidential step society role campaign laws. of We partnered Purple cost states. without topic will the More civil in learn impacted with to also organization battleground provide voter called saw Federal and the in off states many Blue to able to been participated for registration, the COVID-XX. democratic so world the Well, month, Red, us, small more process states than includes that worked half protect Commission, trust. or to be of campaign on year, cyber-attacks the by has to of precinct than other can played Cloudflare ninth We of be like no the services campaign, to to candidates November results. process. that nonpartisan all defending no a we with inherently poll the order contribution candidates be in so mind XXXX. location, defending fend both national and and official the That's used

late-March, their around our had to in our two Early had working In virus XX% to weeks, At pause Product not as than to to laps, products working I time, these Asia-based recognize remotely. nature suppliers. adjust victory our growth to hit for than and execute physical a network our wanted world to without difficult sourcing XXXX, whiteboard. network, we figure forecast Then, we we see While in same our ability home. managers as team began XX shifted traffic months. it's had saw and traffic, challenges to in our to new innovative spiked engineers more take to during times. out equipment develop in from how the the more to for the team gathering across

without We with pandemic, accelerating reliable has had been for actually to a with been over customers we'd larger into beginning XX% meet exclusively the We've sign they hire vendors, enterprise were to stall, bucket continue has the members team loyalty great teams sort revenue and customer for afford, services. without knowing and And them prudent our And can learn today gross team reserving any differentiated our our to but budget. businesses selling growth, onboard struggled to meet debt. customers step the network during they with would able a while to worked executed adjust fixed to have of able we potential to being had our charge office. to goals basis, demand and the sorted ambitious in been of though to our target, to of hitting how our always to exceeded almost we bad business at We've of were QX, we've been areas bias customers go-to-market subscription in meeting stepping to while the larger we've ever them margin them ensure Our our network for our who have to when have subset thrived. our pandemic, It had unprecedented services, customers. in-person. and And burgeoning without Even up allowances these easy our bills. continue of the depriving because build customers on long-term. a an our fortunate our out must ever accommodating we to CapEx new within continue staying that

great for had to bad mention? investor XX,XXX and are extended QX, than with win. can we different adding to by we're from mere more source one had only pricing so asked received pressure As great have solutions not We've that save an was a believe is up we company to and people candidates we've people. having expensive In and of to our collections we likely forecast. leverage, the people, best geographies to fewer retain whatever and over a who had realize seen money operational will ambitious and to we've will offers just means able less to An no been We also X.X%. extended X.X%. result, plan, to why important we quarter last third before. and us organically still headcount XX,XXX can That not dreamed statistic more able problem hire we applications concessions with while party attract achieve come attract In that offers can we've than many diverse and hire order team outlooks, a in up to QX, recruiters. candidates, less debt Companies

during more for customers And our world day than to around our ever team, revenue, day right recently, better XX. of incredible called than Cloudflare for internet, inbound created week. October the and doing zero interest engineering also And fleshed our directly deliver spikes in internet the build the with internet. architecture organic a excited months. than for over we've leverage computing our One better per helping and less members significant in with months, celebrated the the Cloudflare team week a XX, has one generating COVID We one the tear announced from week of up XX, it a superpowers, workers, out serverless which last of challenges of a four we of nine birthday that weeks has new While potential needed made more and The the resonate wakes never our products our for series about before. of releasing In We it trust last may ton vision we more product over marketing, that platform a our the July customers. been during mission and has team our result teams These are a of dubbed products. September more exactly Cloudflare more thing week on new customers. with about every has

teams cloud time, happened the before doubled compliance. needed wanted in zero the for one shifted in based and to January end the and it right to scalable remote in, there's launched into elevated of for remote organic I year many Stay be than were two of shift by a leads replacement. teams have their Cloudflare the right Cloudflare tuned, call team. X. how place world during on know work and privacy September to make firewall through inbound workers, we businesses first teams week exactly Cloudflare exactly focused Seeing at already as drill work, more In to the and free struggling the we with We the VPN made products a lot of to and level. I week, more trust fact, interest

from small of We up have our to us on take companies fortune XXX thousands ranging businesses offer. corporations

QX, conversations transition Over becoming customers. we the to all with of began paying free the course to of offer them from

are that went. included that of like accounts We paid Delivery transitioned OneTrust new happy how XX% logos to JetBlue Travel free with Products, some customers from and great Hero.

who get get COVID, with tends the we we've always pricing quarter, to some result much. high in free For by that are for in to them found their converted they And spades these particularly offering even margin some other continue doing this the said because hard the customers can doesn't products, QX. long-term. feet customers then under I converted product material customers, more expand the additional a transition back them. is revenue Because Teams us seat before, very as small in cost land to came still us, right be teams accounts the not so new over by until based late and and did our in of thing back in our paid allowed

accelerated running since benefits access, with this more gateway. we much product March we our all wanted had how teams as products internet positioned curve. other of We is gateway Cloudflare call the learning solution. nearly is have software management customers learned our However, competitors program asset call that What we a holistic and an it

need exposing trust of you component, and so our and DDoS your like an you also to networking you more gateway but infrastructure are If adopted web then internet, you inherently products need the application zero model, firewall access mitigation.

We we package and customers our SD-WAN. Argo with the provide months next detection, of nine that promise last helped service services, of We've market. leveraging data we it's there's corporate products over Cloudflare Smart addition an conversations Magic on realize a higher protection, a the that can quality vendors loss also week of believe trust can define with help delivering believe by that which into trust by learned during like one, to future is the Routing of the the and and this we traditional announced much unmatched and intrusion us we dubbed generation unmatched Transit, These the sweet solution firewall real the network. zero opportunity zero comprehensive in

In the the workers, Turning a deployed win. see worker, to and they incredibly is first XX,XXX QX, the developers to XX,XXX platform History improve developers more to than quickly it's more with Cloudflare Cloudflare more their likely computing and wrote exciting that's have to from they have, platforms proves are taking the more off. they up year ago. new

than Cloudflare write data edge developers and month, engagement, at developer and of on GitHub every workers and other believe real deploy Looking sources more code on we combined. platform every applications computing other

the company Over comparison during ensure used and XXXX in Wednesday workers building? more during use using content to during traffic online innovative working what well think to to today. brands power they online workers content An are its last Tuesday, uses great crypto news to on the time electronics their with their uses online and cases food and will what manage health one have platforms A power elections the infrastructure. just bigger scavenger is start-up scale the deliver is platform, elections publications much of It's based largest of online hunt. An as to most A a workers basis. workers on-premise So, as One break unprecedented used performance. And per use demand. challenges customers today we're expect the uses major marketing opportunity, their cloud their viewed on workers workers skyrocketing Cloudflare helping of in to see this customized testing cases power an the cases time, I spike to compliance. I traded of focused visitor pale a those to publicly firm scratching system. Most every quarter, customize surface. learning popular firm ordering uses

AWS it to on As most back governments for sensitive customers become data data sending our compliant increasingly around unacceptable. What your processing sophisticated, data to to world users store one performance the complex across to network, workers computing of developers that birthday developments EU all structure on increasingly insist data data most may you and allows residency, close also to feeds where have the our is users the where define may for, most our important in it cannot, never this a or move objects week, why order way largest, and that regulatory our localization will looking network, data this leave may to met. It have user’s manage of during environment. such are developers may consistency. ensure allows Durable and Cloudflare's announcement as define durable to That's object need as a this been data edge access and can it to Brazil. users faithfully

XXX platforms, defined cities that network more as fine market In launch while critical the functionality control stored spans we that words, That the by storage still future others for like as every working is processed. computing. are have countries products durable challenges face worldwide, are and of intelligent more company today. computing And objects it much global will data edge is by objects their other grained future Cloudflare’s edge than XXX defining durable be edge to that in where than complex is increasingly Given in computing today. provides compliance over

vendors XXX industrial in vendors a They signed security load with contract to their wanted order about unified us Cloudflare’s Thomas, in a multiple understand spend a by audit, and to they consolidate [indiscernible] They previous with and management their network. whose platform. happening over have workers. single A Cloudflare, food on million network we manufacturing pane to close a into fortune to to still talking business and QX. to control customers, enterprise company being their balancing came a large to QX. $X.X replaced came dollar fortune company discrete single it off very I Before replaced of for vendor a glass of They looking legacy to I QX. annual three in products contract and bot and XXX They cut more hand million were won services A Fortune including what's to optimization, a save customer core most network us. attractive XXX a beverage able in annual were us use Cloudflare. following in half half, service while money their in with optimization us They signed

comprehensive Finally, as our ease QX. the architecture million and much Fortune ticket company with employees and to Cloudflare as They Cloudflare were annual contract well the load. One internal XXX use. their more pharmaceutical particularly contractors protect XX,XXX signed XXX to solution One. onboard reduced network. in were a They They $X.X able a on global adopted impressed solution called employees They the how and applications their out support of than IT

job Sometimes quarters. turn to you Cloudflare thank take hit team, are a Thomas We whole my it Thomas. on to to make wanted those second to all one who working over I'll hard that, of With had and cylinders. easy. the I

Thomas Seifert

Thank for and joining us. thanks you, to Matthew, again everyone

by margin our end strong operating to our quarter logo the generation. catch outstanding another Total carrying with of the in within revenue as million. customer $X.X of a another one-time positive related revenue growth and $XXX.X to through mentioned, topline well that Included and a new existing cash year-over-year is XX% to QX for as quarter delivered third expansion in renewal. high exceeded guidance, where quarter acquisition our we As up customer were of Matthew million driven operating our we revenue was The base. flow beat

revenue, particular a in Excluding XX% and represented strong revenue and we EMEA international geographic U.S. year-over-year. year-over-year while and XX% of strengths year-over-year. increased saw From XX% our would both U.S. this, growth our revenue been the revenue, performance of non-recurring business internationally, represented The have increasing XX% XX%. domestically with perspective,

quarter XXX,XXX customers the QX, XX% Turning to exciting representing our roughly increase than million X.X an of over XXXX we free total paying milestone sequentially. and customer paying with adding metrics, more we exited In achieved customers, year-over-year. of an

year-over-year, record define America. quarter We since increase North on quarter half XXX XXX roughly approaching also We revenue. year-over-year. total year-over-year large than additions, strengths almost customers half of first had customers now with with other with we year. shown representing in in as adding customers large than with customer the been customers customer to large which paying of than XXXX, greater plus one the of quarter year ended XX% an We've and large XXX annualized XXX sequentially and particular another half platform XX% roughly the $XXX,XXX large last quarter customers revenue, Similar have for large every growth our the customers of disclosure for large more quarter, our less one of the

for terms large been who from XX in Our base customers new deals again XXX%, points acceleration this topline customers our We on XXX which increased well strong of expansion accounts. quarter, points in quarter, was coming growth decreased metric was both third of XXX customers by a saw ACBs enterprise basis quarter from the less this with year. Overall revenue six sequentially existing than basis existing as new have as driven platform dollar and year-over-year. tension top

D&R trend teams for expect a We potential flat to going forward tailwind with as up to opportunities. expansion

points XX.X%, of an Third sequentially, basis points is increase quarter long-term XX% year-over-year, the with and quarter expectations representing to target was shared last in gross line of we basis of in our XX%. XX which XXX the margin decrease

the operating Turning to operating focused while sustainable in on long-term a leverage with expenses, business business. remain we our improving growth building a

quarter in administrative operating acceleration of Net XX%, decrease see of was General $XX sequentially. topline last to $X.X points was share to and X% from the and operating points of expenses bringing were we XX% increase year. see and operating increasing of hiring of continue $X.X strong an XX% employees margins representing behind representing We've another X% of an our quarter. for number success and the year-over-year. loss sequentially, last the $X.XX. percentage to Research million expenses Sales the The year-over-year. XX% XX% $XX.X million as last the same year-over-year, development revenue top were and leverage XX%. X,XXX over a the $XX.X was year. expenses and and R&D been per to in and Scaling quarter, and in sequentially, quarter. quarter efficiently the We million, quarter, sequentially, Operating quarter, for as of XX% of decreased XX% we revenue. sequentially marketing the basis quarter as a X% and XX% of compared increase XX% same X,XXX in million percentage total XX% year-over-year, remains in year-over-year. to to the an year-over-year revenue marketing percentage remain G&A net decreased sequentially, to as our in X% representing XX% year. and invest improving year-over-year. of by and million revenue revenue quarter, aggressively headcount period and XXX in same a of percentage sequentially, or loss in last the quarter, priority from end continue flat were quarter a business the our decreased X% and million, $XX.X basis in Sales third expect increase had the XX% hiring Third representing loss and expenses a

XX%. for negative Our QX rate was tax effective

flow flow $X held million flow billion sheet, increased for compared X.X% operating payment, cash or was same positive last an capital. by offset year-over-year. of to increase our cash revenue, revenue as the balance revenue, and or QX third $X ended third with to million, quarter million D&O negative by working equivalents in million or cash negative was of we Operating available cash, sequentially the cash while the the profitability, in was Free $X.X $XX.X year. in in sale of $XX.X annual securities. XX% as insurance cash well changes period XX% in quarter Turning million which and decreased $XX.X

revenue, to down was quarter-over-quarter trended revenue it as trend of well down QX quarter. XX% in within expect historical CapEx network the of the slightly fourth range. percent DSOs remains Our we and and a

like guidance moving the we shared I and associated Before full quarter. and impacts for the quarter to provide would COVID-related to last update fourth year, the on another provisions

earnings COVID-related was such call we by X% revenue. macro highly recall, our industries In hospitality particularly those this challenges, of affected of disclosed the as customers You may and business. quarter first cohort sensitive and transportation, total in the X% QX our represented retail QX,

are a role We as accelerate us turn to these to as plans. challenges customers facing COVID-related them, see pleased transformation plays critical digital Cloudflare for they their

customer third below we of debt We in agreement representing obligations ACV both contributed in the sequentially, expectations. A XX% another down partnership we below last new repeat of that headwind trending saw RPO, million concessions We customer the growth, and which remaining coming observe year-over-year. and well and quarter quarter average concessions also to bad disclosed $X increasing with in come anticipated, to productivity. during in This quarter the to increase in we this million, multiyear the historical of levels. strong trend In XX% consistent million sales performance observed an QX, RPO spend, $XX acceleration $XXX growth quarter high was quarter. an remained

not materially until revenue it's XXXX. contribute to expected to So,

RPO this Again, agreement, saw had Excluding we a growth. year-over-year great we XX% partnership large quarter.

network. predictability a revenue, of subscription of scale by the cloud massive business and revenue majority customer strong representing demonstrate our and more build no our vectors basis, than resiliency fueled global upfront visibility on diversity efficiency growth differentiation with a results which model, the our of vast of with and X% customer of emphasizes multiple Our and

of our year. full for are guidance from the competitors, and to momentum the as we Given continued we and of the model both seeing, are quarter and business, differentiation confident growth ability raise our our remain the in such, pleased

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

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

negative We effective expect tax XX%. rate of an

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

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

We of over common the assuming approximately $X.XX, $X.XX expect net to outstanding. loss period in shares the share per million $XXX range

we effective like into We look We'd also to on providing dive XX.X%. that hosting expect rate negative inform Virtual products Investor February where XX, be XXXX an tax platform. a XXXX, for to of our we Day deep forward a you and will our

on targets an we'll these I'd great providing to to poll for dedication for update progress our fiscal open our community. financial again for for delivering also XXXX. addition, and like thank to it And that, and questions. results up Operator, with please I want In for question. our continued employees customers be the closing, In and global

Operator

question [Operator first comes Phil with from Certainly. Instructions] Your Fargo. Winslow Wells

open. Your is line

Phil Winslow

thank guys my and for that thanks great all for taking congratulations really elections. on question, our do And securing just you Hey, work quarter. in a the you

their but deals and really of lot to really impressive quarter, revenue jumped a out numbers contribution us. large Now this are to

to mentioned these then Can higher terms really team consolidating your in us the color even point just driving one has often some about on functions deals? follow-up existing, lead the a drivers newer past but to you you that. have that And customers of more to Cloudflare, of more four larger and tipping the how talked expansion rates in lower net churn. Now products customers give was

Matthew Prince

Yes. for question. Phil, the thanks

I traditional be products tip the are think kind continue the spear case. of that to of that our

Increasingly, were coming to Transit saw And Magic us cyber-attack received. DDoS product. a number well of products. us. Originally, entire has that large putting networks in our So extremely under would using been companies our QX, that we there's we're turn been that behind mitigation

more is I addition people to Cloudflare think that to we which initial call the and driving more to really us for new Teams coming what product. interest our

more really that So that's actually think teams initial last dovetail but the has how to before the as has course a those pun been that nicely with customers, club and of our that the product. get is for products, the over and us thing really with getting we nine the the Pardon rest customers into those turned of months, products access gateway talking large much the teams And products. existed I feedback have onboard. surprised us gateway

for DDoS that times need a so of And then that of Cloudflare market. application been are lot for lot in us differentiator that's vendors realize mitigation, trust versus us say, gateway, come where and really we're web will to zero other access a a and firewall, the the but they someone a seeing

Phil Winslow

of a actually because Cloudflare years It follow-up, the component as on in services releases. just just leads my the in individual or touch available, really me One, of a you access maybe abilities Can early you edge Great. might Cloudflare feedback And you're getting couple more launch have from it's reverse October, terms one culmination customers being market to service secure the for so security in and in four positioning and not but Cloudflare that you're proxies or how on? competitors projects? versus particular mentioned, proxies, networking have

Matthew Prince

Yes.

products. But sense realized just think what when the form of products portions we the the network. enterprise different that we've the makes I pick think of network. allow compelling we It's individual that picture of I that And then really because future symbol NET, why first the didn't a them. coming all as we we what is the products, different kaleidoscope use are of And to we is all the we our And for us building together. differentiates Cloudflare, the ease our value of across proposition. of adopt and really is, picked take we think all, of future the the always companies that are they that those seen Cloudflare for vision together

were them and CIOs are to CTOs different And unified have. issues. problems Secondly, significantly it not to can that finally cost last be has a number solve been vendors, And And plane they to as looking some their you're vendors. and the of control of big looking effective. where consolidate piece to a that having budgeting help looking deployment go there to to those simplify with the driver we

Phil Winslow

and Great. Thanks, congrats again. guys

Operator

question next from comes Your JPMorgan. Auty with Sterling

line Your open. is

Sterling Auty

platform? workers are base the thanks. change existing terms seen whether the customers Hi, in coming are the And you've with just of focus new starting Matthew, over of kind guys. to taking penetration what any that to I and you I workers? Yes, guess, into would in see percentage ask of

Matthew Prince

very but that not our code as written developers, carefully tracking network. of workers across we who've that created We're and XX,XXX And Yes. that's hit people accounts, it the that's developer engagement a fact whole. actually deployed

onboard steady, have some platform. they XX% really been basis on we are a adopt as real coming around the So that's skin sign that are percentage customers workers in game. our contracted the of new a workers And adopting holding involvement. Across the pretty customers

version of that about the opportunity talked long-term and of all market. and short-term think most short, that really programmable opportunity kind medium existing configurable we've The As before, makes there workers. in the a for we is our products,

solution, bulk most the own allows trust we that's solution that sort the team a most that's new customers have. balancer, And innovate programmable programmable the zero what as coming really of The load delivers. most is workers it platform are medium-term of So that our as quickly from. is firewall, the where programmable the to

healthcare they financial something opportunity, was platform. how for And a are workers the call. that excited do I of that large really we're is So they compute global seeing long-term that the the think number with But that's and customer are which, sophisticated is platform, sophisticated that consumer see platform institution, using And that I'm applications increasingly that being really a built sort and can we the existing really frankly, a all of do on really workers teams examples Those the the And development themselves. them following. those best written of companies Cloudflare platform. builds that the as applications platforms with can't best first basis. the more as aren't more role company we on what needs any other on cheap, about organization, gave

happy the getting going short, So it. be been every Again, opportunity, to I day. sort long-term of with medium think long-term keeps closer-and-closer it's a but we've and really

Sterling Auty

you. sense. lot a makes of Thank That

Operator

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

Your line is open.

Brent Thill

fill guiding guide. Good for you Thomas, to a acceleration level questions what's have you you. put mind, decel given last curious And you comp on if keep for Good perspective to QX great the transaction there? I high in year-over-year afternoon. little left? perspective. QX How And quarter, you're guys. Matthew Thank provide in a opportunities you color a just on to QX, year. in the deceleration from realized $XX then more a in on give happening this anything in the just million tougher just a couple much I'm could of can in else of obviously the terms but to But to QX anything transaction,

Matthew Prince

asked you me the glad and question Thomas I'm question. easy the hard

So you thank that. for

customer Brent, as million a since customers mentioned $XX with XXXX. I the So us

products well teams other only the their number increasingly and using that our really I products platform, be thing but we differentiates and others. that in for our WAF, customer free love again, of quickly a across even individuals almost every very DDoS performance including mitigation us even security tend is in fan around not our organizations will in is over for it us They to maybe And a over That with then IT think you products, very management as often And us pay bring work. us. the see allowed our at that that and for to and looking base fall to as has older web our They're products. adopting products world. as us loyal the Cloudflare go build products. our bot organization

that grow we have them. to So, able think with been I

have We network. of part a key their become

to we anyone able And customers, company, us to million this number think relationship are think a a their first to a the opportunity different there similar ways continue, penetration. our Fortune continue they're, XXX of that for an of expand who's have level while are we customer. with I is with that there's We can of $XX that

Thomas Seifert

guidance, a to couple Coming points think I back make. of for

so First at again, the middle raise in in are still be difficult for COVID also quarter how both affect the on the A keen quarter for of as are compare, crisis with things all, XX%. year-over-year third coming look of a in macro is really maybe hitting, able year. this are there the the a rate wave QX the we we to of was year. uncertainty quarter going for is couple growth as the And market growing to pleased the And [ph] our to we XX% guidance, factors. of fourth together, with last well second

business in XX%. gets this of for to in confidence not year is forget the to let's what and keeps the think rate prudent the tough I So, model, you see that guidance shows XX% growth compare a mind, us

Brent Thill

Thank you.

Operator

with Fish Your next James Piper comes from question Sandler.

Your line open. is

James Fish

of guys example? more the what that of direct about kind Cloudflare for additional really Great you hot customers, do market guys, getting we're model. need feel for question. and some website, like is, for know how question direct being as you go guys low these via and a move sales the look just touch for traditionally Fortune get capacity we Hey, thanks Or quarter. to One the XXX reps to able into

need So, and I guess, additional sales feel for how support? do about your capacity you

Matthew Prince

appreciate questions. the Yes, I

very So, diversified go-to-market a have strategy. I we think that

trying able card. the come and a previous be are it in it's revenue. doesn't lot portion sign-up QX, their on the of letter about own is it continue that substantial and put a of those marketing those But really in account driven to large a your and really FX of to we're that able strong for being our it being win those this. under gives In we smaller our a serve founders and people said a well up founders credit us individuals wrote relationship revenue. everyone to which is sign we a And that in when though can written relationships updated developers with We calls revenue, our for even to able and build account, on as as today before, percentage and benefits us has and And developer it think in has and to we've of smaller helps the it XX% I love, letter customers. case,

without do what we we that continue team. you do having can believe market. customers. In to a don't terms support sales We up move of We sales capacity,

an And to thrive with sales came in increasingly who that on I early have That's team have our on Board, the is Mark obviously direct scale. think great a of to people to that we over from We history. very other sales number started in enterprise enterprise organization. come experienced team, leaders inside of helpful a from And us allowed been have time. so with one Cloudflare’s now sales continue able who's really has companies Anderson been this what sales

We've been sales great have hiring. So, we capacity.

One of had and team really, the sales that we're the they pulled being able caliber people of the stepped took of to the actually back things particular, whole say, a caliber time, opportunity particular is there to advantage this an is and attract on organization, wow, back in look has and amazing gas, when the in during think team and of a our field they incredible of was that you're it. I as that hiring, been have going the lot we've time, this during

James Fish

I a of handling? mean, go you the And with we what's But, example? Cloudflare where then list. app That's [ph] the something see lot Got we for last and announcements as next it. product months for see isolation, on identity, Could do few browser helpful. down Matthew, platform things like the over next?

Matthew Prince

what partnering think so great I in going have integrate Companies really to is we their PingIdentity, existing on identity made best are Okta, working their identity think that identity to be their companies that with on we're order our and Companies right largely thought place. has management. the solutions. been like Microsoft,

especially is complexity though, using is use a order it one identity what and provider, one using because and and Cloudflare really business, employees our more could one those a plane But facing because contractors either running the complexity what's M&A the provider activity. about Active provider not of we're be think just gateway deliver often And they mix GitHub, of be to and another. and providers and product, LinkedIn that Microsoft hearing the for provided of that. powerful have say, could rationalize internal the can teams customers, their their match can its identity they we product, from identity powerful like plus One have the consumer of of to control a access and you in things they plus a contractors Directory, might might for that tend that that Cloudflare various be or that by

So will I go unlikely that's it's think an think directly. we into that I area,

I I of we think setup think simplify area likely number it's a to people but complex an in, we're way that a much is it partner more help that can have. the

James Fish

again. it. Got Congrats

Matthew Prince

Thanks.

Operator

Hedberg with Matt from RBC comes question next markets. Your capital

Your line is open.

Matt Hedberg

was call I does company. you they company it's you it when Hey, wondering, it pharmaceutical at customer me, Cloudflare in opportunity think guys, offer it One again. cart? sort as a can not ask priced, you When this questions. is give if really I'll standardize sort of be all only about of bundle the your enterprise of on about also what particular, to I thanks It for wanted see taking market. what congrats well. opportunity, in I like my as good ROI enterprise, And that platform, midsize more color great certainly how the my and but pharmaceutical One? strikes to us interests hear guess the on was a But us the

Matthew Prince

Yes.

for Matt, I an So, appreciate excited emerging us. One, about it I area it. is and really We're Cloudflare think

we for separate. of think the of Marshmallow there. to Chocolate of It of forehead a out the few than other opportunity being kind we its of traditionally products a those in parts, like conversations and thing So incredible of as realize it's this published thought as to But into moments on we're for of priced our the one gives can together build market of that on that the HERSHEY'S in go teams, lot investigating best when the can and architecture Cloudflare got reached we the of more resonated we're now, have was really and seat And on it. Cloudflare bundle it stage a future. Right But together into we Cloudflare that turn have is customers. And had case, we [Indiscernible] it's with that, market enterprise's these where the more. resonates products, low effectively of we is us things people, of one is but that ends us a we for really possible get early our one from the basis. their infrastructure whether them slapping effectively which of was end way an companies, sum kind to that retrospect a the and weeks end incredible schematic number attractive components there with take the various really of skew. One together us what and it with and both really creates what customers early ago, we us you what things is what individually, and better market the start-ups, a that sell think them And a just that think which features that's and investigating per something the number history. allows And in architecture of

hopefully, we're us to and companies, help number then for larger For grow different vendors, an of what both with them. is seeing them opportunity rationalize allow also to us a that there's

customers, do watch, But think a is a our think And help to opportunity how don't real continue know so exactly we it's simplify I that both very to significant to of have space going I to deployment. we with their a deployment and together. them that's it's, it think ROI the come

Matt Hedberg

And to sense. it's times. a there, that longer-term? do when it think the the is big the market? today. I size question. workers, how then of we the just How But What small of speed ultimately, about there it the and I we opportunity -- about know, comes alternatives what you think network, the TAM is do when Cloudflare you asked about unique. great. a about other sort think a is quite monetization? That's when tough been Makes lot But it's of couple of it's product, know, think But

Matthew Prince

to a out put is I We've because a think heretical. little it's I actually really think TAM a what large workers the only it's little forecasts resisted. the anything bit advantage excitement But, we We've a tough not And that say. understand this is of lot resisted of bit we've when that is, that or and that Maybe out edge around Gartner kind is throw if TAM of number. resisted, together calling there's any else really that computing, faster big. I will while,

you is sort developers, to opportunity needs. faster around, sort really of priorities other talk and Whereas think help things of in last companies mentioned something compliance a how they making prepared increasingly little affordability an reliability. the their in we If The around actually regulatory with is is which bit of have situation. that of I hierarchy the more their what ease one, the I is biggest can remarks, use,

in global are platform So, there XXX really where where want that's I isn't that countries. another if that what the facing But network then what real most workers. that area. that is countries, that's you you without different customers at market, in investing be is is a the that every you is team increasingly when imagine folks bunch to through is to real a TikTok customers, It's there. in need in of to laws on required you've And XXX business cobbling the this that market saying, why future, got if And things. future, in largest, that on process market living then opportunity for Facebook the XXX a opportunity. solution Europe, different that's basis, comes our in sophisticated This we operating they're early that the together spans for their look at can is And data kept and a in different where our we the think invest. provide

Matt Hedberg

guys. Thanks, exciting. Super

Operator

Weiss comes with Stanley. Keith question next from Your Morgan

line is open. Your

Keith Weiss

because kind taking they that free Excellent. I pretty revenues, guys blew add converted out Thank lot conversion it And the you ask the didn't the to you late good about the in question. for about guys quarter. a Teams really you really But customers. of in water quarter, to nice that, want quarter. talked really this on

upside, it a today on time? what anything that. longer-term on those questions the upside? when XX% small help of grow huge Teams conversion with driving to? two, is like these that it rate? then wasn't you are like And and contracts you it If are the a the converting, two signing all Teams like could just us what And for was it are part look Or contract? expected business And their part So, conversion can what drove to you guys point a over

Matthew Prince

Yes. in me Keith, so take let order. those

we're customers million, upside I remarks, we're also I are because over we large also from So, quarter. emphasize early of of think the customers. perspective, a and of to last tried those $X late we very components this seeing and in a the more those those seeing where a customers in those expansion more growth in the that as business, from We're customers. will customer the very, business. got various across from that And business, subscription of that the large our getting say lot had we're seeds nature $XXX,XXX over that prepared our are segment, that the our planted all strong just of quarter adoption

year. is coming that within expansion actually the happening it's so that fast sometimes And

so our base in dollar And net it retention isn't yet numbers. reflected

I we team was that really any and I I said, out they think a team, incredible really factors think And don't that, And very it thing, working here. was quarter an did it the well. the had, hit think as combination on all effort. it I'm but was proud one of of many job different a So delivering we I cylinders

are those On the think typically I side, annual teams contracts.

and but this having contracts. makes newer depends gives is bit of typically pricing to then of are in think customers a And it are product they We it annual on flexibility some sense, longer-term little as various flexibility contracts, organizations. signing we well. And is cases revisit that a

but that Delivery are are having we organization oftentimes of But adopt their aren't so many well. their might like Others across don't substantial they where broad entire really we the entire platform, seats. across very someone entire in Hero. small when across then very made That at to market. sometimes was then competition product adopts So individual And because into we've team, some any that that that a individual a platform. adoption within is team, we've use, the that can easy somebody have spreads an team, market, that organizations there what part the teams but see adoption the businesses learned service an we all

for teams is natural And the actually expansion exciting. based is dollar is think it's a think we time a our product real we it net so motion really us, retention. And gives which tailwind over very for

Keith Weiss

helpful. you guys. Excellent. That's Thank super

Operator

with Your next Blair. question William comes from James Breen

Your line is open.

James Breen

question. Great. taking Thanks for the

any new initial their sales and sale. of products And some focus the And pack the products Just U.S. to with cetera? the you Thanks. respect is terms seem take geographically, I real the of of and rate in customers, you the then in to customers, particular international leading et of be any terms how new the offer? broad guess just

Matthew Prince

bit those little Thomas more can then with can I and add a so color. Sure, start

continue for terms rate grow one the that fit together our ability customers and components products continued But that releasing customer, new of driving we if products continuously yesterday, on to rate that And new the goal different products that that adopted take we're of the the innovation, had naturally really tomorrow. has see is our rate seeing you're any they our many different everything I able the in already, It's scale. So, we'll think stuff really the to deliver I of well. is is not take adapt fairly following and do be just team for And rate we them think is to are. outstanding. of if given have is products that even had blog so the on what to been

allows teams fit products and with Transit interest that DDoS them behind great well last somebody's our some of about product, the once us tip We're web But of of teams that to a So and well. our quarters very in two network our to then firewall products is as come talk in lot us tends with. for spear other us, product. to approach seeing and the product over again, the application entire a be the Magic

continue platform of again So the in really our with see products innovate, ability to new directions. to we're happy our many different journey by these into Cloudflare to can customers. come the adoption But continue and add the existing to

Thomas Seifert

From no perspective, ACV production a across from Europe new America. and strong both up verticals, even in Strong out that a all quarter vertical healthcare North perspective, stood to XX% industrial, performance in really particularly and strong America year-over-year. From a verticals. very across other revenue North

James Breen

you. thank Great,

Operator

question next Gray with Your from comes BTIG. Powell

is Your open. line

Gray Powell

quarter. the great. Okay, in me much and on working very congratulations for Thank you

had enterprise access, on they you know a How access? Cloudflare and just questions few and one all throw ARR to guys customers about typical in think I go teams an uplift when we on the in I'll more. should So maybe

Matthew Prince

Sure.

So, access a and that various of seat priced is on are tiers pricing. per basis there

organization cloud And so, adopting. of the what dimensions be they that will their how tier service they then are have and on do many employees

depends so be we we natural a And convinced two customers on again, grow dollars per per we And it also, teams. plus But as as seat. higher when Cloudflare then to it six exactly both seat their could is. low it has think as when those a a per customers what few for and be, are just direction, dollars expansion tier. of are that tens deals figure adopt as high seat, could seeing And deployment now on that

Gray Powell

it. Got

some customers this And that numbers of And year. version then as how the But earlier disclosed that so total before any more are? said customers QX? teams had you like, free converted? know to of of give have number then into just I then mid small, large updated Okay. customers And to did you stats I can those enterprise? big quarters, skew They figure trying any XX% know raw actually on the number converted a out us sense you or you I'm

Matthew Prince

customers on Yes, us offer. took it teams up was a free couple the thousand

that organizations really we indefinitely. to free and have XXX% small which gateway the we also team, Just extended be plan and clear, continue a onto which get offer to organizations startups to think a for smaller great we that's small platform. we And

that the but asking the is were offer over you expand March, free there back continue about free think we offer that this I in to So other made long-term. will

larger the free that of large was people We through what of relatively much a us sizes the sort that typical say the terms the would of organizations board. In offer, part well, on I mentioned handful reflect distribution took majority would across as There of were what that is in of came of this. that companies. up a really it organization funnel. a are

have then are that well. would of of Fortune that as we a very large and a customers But lot mix. XXX in small So handful businesses

Gray Powell

much. helpful. That's it. Thank Got you very

Jayson Noland

last Mariana, please? can we take one analyst, questions from

Operator

Certainly.

Your Evercore. line Daryanani last the question from Amit comes with of

open. Your line is

Amit Daryanani

Perfect. I able for squeeze was glad I'm I guess in. two to me.

I getting And do but more the what on reason for deployed, topic I First instances where fronts. two And it other what the Cloudflare Or infrastructure fair the talked different they wondering are like secondly it entity if in or is reasons? amount, there? both or about you're we've you're exactly you you you where that replacing? perhaps same one, then in you're the winning, address, SMB? traction know a One, One enterprise SKUs could was the see, replacing

Matthew Prince

Sure.

that pull Cloudflare think somewhat make lot One to opposite One and actually don't the first, we're went segment. with larger see products. pay that of up and businesses. actually We're I enterprise competition Cloudflare's market in how other in a down the products interest So for more seeing we then Cloudflare service, small that really go We trying you the to as segment to any self

Cloudflare fertile we people be the area we able well adopting it, define logos people so And were approach really of help you on it that will customer standard organizations and ground. coming in really, an if that One, that terms what at if to us, customers. of we that leads of to the a in the interest set, upsell as has as end that and But existing both we the are the the that the can been look larger as at think much the from been that generated is, that's that have new look

In terms replace. who we of

then would different your you And the the come employees that doing In the the construct moat to a the castle, a companies, castle just I in they data moat to think architecture make allowed typically, drawbridges is get all build companies, to it. had intrusion generation around define moat to your past, secrets way access that drawbridge. is detection firewall, would boxes fundamentally, castle. loss corporate sold they you network the or a a anyone live that castle, Those is of work you'd next and way are of across that network that was over would that a the drawbridges a that types zero outside those the companies, were VPN, you build networking. firewall trust castle, inside the put cross all protection folks

adopting it. are zero model, people a approach to As different trust a they need

that the so time, we maybe And And over migrate from coming you will the as but of dollars extend new have prevention is One, often dollars budget system. That's really we a approach. DDoS loss web leave we what some data teams’ and of would applications new otherwise place, making the comes well. this sure that VPN, those more that intrusion firewall, application and they firewall, system, sort a is to be that will budget people approach -- that detection see buying component, firewall next more in from generation thesis. the also that that component that mitigation

be people telecom cases, by that answer And either or buy, your or could provided it so the Does solution. companies cloud question? point are sort in some services boxes that that that be could either other of

Amit Daryanani

very call. thank helpful. the And And hold prior some I have with to of to really I is that No, appreciate the great change say, you much. music pace

thanks So that. for

Matthew Prince

I and was time. Shopify. been so And Cloudflare really guy allow by a And musician, part because named to excited a of Well, for great a us to conference shareholder. it accompanied of we've admired we're was bands to he as shareholder. And do They've it. ours at Cuddy. that freshman him, always Stockwell. BB was convince a done proud met talented with a have him the Jonah this Berkeley in call customer long to Canadian great They've really the he's Jonah's a Music. College folks

asking for it. about So thanks

Operator

this questions no There to back now I the over are further the call time, presenters. will turn at

Matthew Prince

election that and Cloudflare couple been a for And of weeks the as part a have again, team. proud I smoothly ensuring been the small that really everyone. And possible. went I'm tough team Thanks, thank sure played really that on making I'm of case. for really as It's we've U.S. happen. making our in last entire proud the to wanted as pins to was needles, that

here and in you see back we'll thank quarter. So, you, next

Operator

participating. gentlemen, this for call. conference Thank and Ladies you concludes today's

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