- Q3 revenue grew 48% year-over-year to $73.9 million
- Q3 GAAP gross margin of 78.3%, representing an increase of 70
basis points year-over-year; Non-GAAP gross-margin of 78.9%,
representing an increase of 92 basis points year-over-year
- Raised net proceeds of $565 million in Initial Public
Offering
Cloudflare, Inc. (NYSE: NET), the security, performance, and
reliability company helping to build a better Internet, today
announced financial results for its third quarter ended September
30, 2019.
“In our first quarter as a public company, we delivered 48%
year-over-year revenue growth, and a solid non-GAAP gross margin of
79%,” said Matthew Prince, co-founder and CEO of Cloudflare.
“Cloudflare’s Initial Public Offering was an important milestone
for the company, and we are proud of the fact that we have always
been good stewards of capital, running Cloudflare like a public
company even in its earliest days. Our highly-efficient business
model creates a sustainable economic moat that we believe will
seize the shift from on-premise hardware to cloud-based
solutions.”
Q3 2019 Financial Highlights
- Revenue: Cloudflare achieved quarterly revenue of $73.9
million in its third quarter 2019, representing 48% percent
year-over-year growth.
- Gross Profit: GAAP gross profit was $57.9 million, or
78.3% gross margin, compared to $38.9 million, or 77.6% gross
margin in the third quarter of 2018. Non-GAAP gross profit was
$58.3 million, or 78.9% gross margin, compared to $39.0 million, or
78.0% in the third quarter of 2018.
- Operating Loss: GAAP loss from operations was $41.1
million, or 55.6% of total revenue, compared to $36.5 million in
the third quarter of 2018, or 72.8% of total revenue. Non-GAAP loss
from operations was $18.1 million, or 24.5% of total revenue,
compared to $11.9 million of the third quarter of 2018, or 23.7% of
total revenue.
- Net Loss: GAAP net loss was $40.9 million, compared to
$38.0 million in the third quarter of 2018. Non-GAAP net loss was
$18.5 million, compared to $13.4 million in the third quarter of
2018. GAAP net loss per share was $0.35, compared to $0.47 for the
third quarter of 2018. Non-GAAP net loss per share was $0.16 in
both the third quarter of 2019 and 2018.
- Cash Flow: Net cash flow from operations was negative
$17.8 million, compared to negative $14.0 million for the third
quarter of 2018. Free cash flow was negative $33.6 million, or 45%
of total revenue, compared to negative $22.1 million, or 44% of
total revenue, in the third quarter of 2018.
- Cash, cash equivalents, and marketable securities were
$645.1 million as of September 30, 2019.
The section titled "Non-GAAP Financial Information" below
describes our usage of non-GAAP financial measures. Reconciliations
between historical GAAP and non-GAAP information are contained at
the end of this press release following the accompanying financial
data.
Q4 2019 and FY2019 Financial Outlook
For the fourth quarter of 2019, we expect:
- Total revenue of $78.5 to $79.5 million
- Non-GAAP loss from operations of $21.0 to $22.0 million
- Non-GAAP net loss per share of $0.06 to $0.07, utilizing
weighted average common shares outstanding of approximately 295
million
For the full year 2019, we expect:
- Total revenue of $281.5 to $282.5 million
- Non-GAAP loss from operations of $74.0 to $75.0 million
- Non-GAAP net loss per share of $0.49 to $0.50, utilizing
weighted average common shares outstanding of approximately 146
million
Conference Call Information
Cloudflare will host a conference call for analysts and
investors to discuss its third quarter 2019 earnings results and
outlook for its fourth quarter today at 2:00 p.m. Pacific time
(5:00 p.m. Eastern time). Interested parties can access the call by
dialing (866) 211-4146 or (647) 689-6734 (Int’l) and using the
conference ID 3762307.
A live webcast of the conference call will be accessible from
the investor relations website at cloudflare.NET. A replay will be
available approximately two hours after the conclusion of the live
event and will be available following the call for 30 days.
Supplemental Financial and Other Information
Supplemental financial and other information can be accessed
through the Company’s investor relations website at
cloudflare.NET.
Non-GAAP Financial Information
Cloudflare believes that the presentation of non-GAAP financial
information provides important supplemental information to
management and investors regarding financial and business trends
relating to the Company’s financial condition and results of
operations. Reconciliations of non-GAAP financial measures to the
most directly comparable financial results as determined in
accordance with GAAP are included at the end of this press release
following the accompanying financial data. A reconciliation of
non-GAAP guidance measures to corresponding GAAP measures is not
available on a forward-looking basis without unreasonable effort
due to the uncertainty of expenses that may be incurred in the
future. For further information regarding why Cloudflare believes
that these non-GAAP measures provide useful information to
investors, the specific manner in which management uses these
measures, and some of the limitations associated with the use of
these measures, please refer to the “Explanation of Non-GAAP
Financial Measures” section at the end of this press release.
Available Information
Cloudflare intends to use its press releases, website, investor
relations website, news site, blog, and Twitter account, in
addition to filings made with the Securities and Exchange
Commission (SEC) and public conference calls, as a means of
disclosing material non-public information and for complying with
its disclosure obligations under Regulation FD.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which statements involve substantial risks and
uncertainties. In some cases, you can identify forward-looking
statements because they contain words such as “may,” “will,”
“should,” “expect,” “explore,” “plan,” “anticipate,” “could,”
“intend,” “target,” “project,” “contemplate,” “believe,”
“estimate,” “predict,” “potential,” or “continue,” or the negative
of these words, or other similar terms or expressions that concern
our expectations, strategy, plans, or intentions. However, not all
forward-looking statements contain these identifying words.
Forward-looking statements expressed or implied in this press
release include, but are not limited to, statements regarding our
future financial and operating performance, our reputation and
performance in the market, general market trends, our estimated and
projected revenue, non-GAAP net loss from operations and net loss
per share, shares outstanding, our plans and objectives for future
operations, growth, initiatives, or strategies, and comments made
by our CEO and CFO. There are a significant number of factors that
could cause actual results to differ materially from statements
made in this press release, including: our history of net losses;
our limited operating history; risks associated with managing our
rapid growth; our ability to attract and retain new customers; our
ability to retain and upgrade paying customers and convert free
customers to paying customers; problems with our internal systems,
network, or data, including actual or perceived breaches or
failures; rapidly evolving technological developments in the
market; length of sales cycles; and general market, political,
economic, and business conditions. Our actual results could differ
materially from those stated or implied in forward-looking
statements due to a number of factors, including but not limited
to, risks detailed in our filings with the SEC, including our final
prospectus dated September 12, 2019, as well as other filings that
we may make from time to time with the SEC.
The forward-looking statements made in this press release relate
only to events as of the date on which the statements are made. We
undertake no obligation to update any forward-looking statements
made in this press release to reflect events or circumstances after
the date of this press release or to reflect new information or the
occurrence of unanticipated events, except as required by law. We
may not actually achieve the plans, intentions, or expectations
disclosed in our forward-looking statements, and you should not
place undue reliance on our forward-looking statements.
About Cloudflare
Cloudflare is on a mission to help build a better Internet.
Cloudflare’s platform protects and accelerates any Internet
application online without adding hardware, installing software, or
changing a line of code. Internet properties powered by Cloudflare
have all web traffic routed through its intelligent global network,
which gets smarter with every request. As a result, they see
significant improvement in performance and a decrease in spam and
other attacks. Cloudflare was named to Entrepreneur Magazine’s Top
Company Cultures 2018 list and ranked among the World's Most
Innovative Companies by Fast Company in 2019. Headquartered in San
Francisco, CA, Cloudflare has offices in Austin, TX, Champaign, IL,
New York, NY, San Jose, CA, Washington, D.C., Lisbon, London,
Munich, Beijing, Singapore, and Sydney.
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited, in thousands,
except per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Revenue
$
73,941
$
50,070
$
203,092
$
137,175
Cost of revenue(1)(2)
16,033
11,209
45,225
30,581
Gross profit
57,908
38,861
157,867
106,594
Operating expenses:
Sales and marketing(1)
45,538
24,462
112,191
66,206
Research and development(1)
27,863
14,827
64,380
39,113
General and administrative(1)
25,593
36,040
59,300
69,081
Total operating expenses
98,994
75,329
235,871
174,400
Loss from operations
(41,086)
(36,468)
(78,004)
(67,806)
Non-operating income (expense):
Interest income
1,079
387
2,822
847
Interest expense
(407)
(251)
(970)
(726)
Other expense, net
(651)
(1,240)
(1,030)
(1,903)
Total non-operating income (expense),
net
21
(1,104)
822
(1,782)
Loss before income taxes
(41,065)
(37,572)
(77,182)
(69,588)
Provision for (benefit from) income
taxes
(212)
417
491
889
Net loss
$
(40,853)
$
(37,989)
$
(77,673)
$
(70,477)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.35)
$
(0.47)
$
(0.81)
$
(0.88)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
118,056
81,579
96,393
79,755
(1) Includes stock-based compensation as
follows:
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Cost of revenue
$
397
$
37
$
463
$
87
Sales and marketing
4,880
290
5,434
678
Research and development
7,801
461
8,624
1,078
General and administrative
9,833
23,648
10,491
24,442
Total stock-based compensation expense
$
22,911
$
24,436
$
25,012
$
26,285
(2) Includes amortization of acquired
intangible assets as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Cost of revenue
$
31
$
147
$
94
$
409
Total amortization of acquired intangible
assets
31
147
94
409
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited, in thousands,
except per share data)
September 30, 2019
December 31, 2018
Assets
Current assets:
Cash and cash equivalents
$
501,706
$
25,055
Marketable securities
143,399
135,602
Accounts receivable, net
32,205
25,155
Contract assets
1,470
1,552
Prepaid expenses and other current
assets
16,898
9,373
Total current assets
695,678
196,737
Long-term investments
16,169
—
Property and equipment, net
92,485
73,210
Goodwill
4,083
4,083
Acquired intangible assets, net
62
156
Deferred contract acquisition costs,
noncurrent
21,141
15,940
Restricted cash
6,660
6,371
Other noncurrent assets
3,569
1,883
Total assets
$
839,847
$
298,380
Liabilities, Redeemable Convertible
Preferred Stock and Stockholders’
Equity (Deficit)
Current liabilities:
Accounts payable
$
9,517
$
14,285
Accrued expenses and other current
liabilities
23,121
15,699
Note payable, current portion
37
255
Liability for early exercise of unvested
stock options
14,629
14,323
Deferred revenue
29,835
16,817
Total current liabilities
77,139
61,379
Build-to-suit lease financing
obligation
10,501
10,443
Deferred revenue, noncurrent
816
220
Redeemable convertible preferred stock
warrant liability
—
1,618
Other noncurrent liabilities
10,993
6,704
Total liabilities
99,449
80,364
Redeemable Convertible Preferred
Stock
Redeemable convertible preferred stock;
$0.001 par value; 168,108,000 and 168,108,000 shares authorized as
of September 30, 2019 and December 31, 2018, respectively; zero and
165,658,000 shares issued and outstanding with aggregate
liquidation preference of zero and $332,041,000 as of September 30,
2019 and December 31, 2018, respectively
—
331,521
Stockholders’ Equity (Deficit)
Class A common stock; $0.001 par value;
2,250,000,000 and 550,000,000 shares authorized as of September 30,
2019 and December 31, 2018, respectively; 86,839,000 and zero
shares issued and outstanding as of September 30, 2019 and December
31, 2018, respectively
87
—
Class B common stock; $0.001 par value;
315,000,000 and 300,000,000 shares authorized as of September 30,
2019 and December 31, 2018, respectively; 213,308,000 and
91,542,000 shares issued and outstanding as of September 30, 2019
and December 31, 2018, respectively
207
85
Additional paid-in capital
1,013,582
82,345
Accumulated deficit
(273,551)
(195,878)
Accumulated other comprehensive income
(loss)
73
(57)
Total stockholders’ equity (deficit)
740,398
(113,505)
Total liabilities, redeemable convertible
preferred stock and stockholders’ equity (deficit)
$
839,847
$
298,380
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited, in
thousands)
Nine Months Ended September
30,
2019
2018
Cash Flows From Operating
Activities
Net loss
$
(77,673)
$
(70,477)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization expense
20,923
13,397
Amortization of deferred contract
acquisition costs
7,722
4,990
Stock-based compensation expense
25,012
26,285
Net accretion of discounts and
amortization of premiums on available-for-sale securities
(1,137)
(78)
Deferred income taxes
—
7
Provision for bad debt
861
909
Change in fair value of redeemable
convertible preferred stock warrant liability
1,517
1,187
Other
27
62
Changes in operating assets and
liabilities, net of effect of acquisitions:
Accounts receivable, net
(7,911)
(15,269)
Contract assets
82
2,344
Deferred contract acquisition costs
(12,923)
(8,639)
Prepaid expenses and other current
assets
(7,525)
(3,293)
Other noncurrent assets
(1,686)
(228)
Accounts payable
(994)
5,037
Accrued expenses and other current
liabilities
5,652
5,065
Deferred revenue
13,614
5,263
Liability for early exercise of unvested
stock options
—
19
Other noncurrent liabilities
4,096
2,408
Net cash used in operating
activities
(30,343)
(31,011)
Cash Flows From Investing
Activities
Purchases of property and equipment
(30,981)
(12,507)
Capitalized internal-use software
(11,332)
(5,645)
Purchases of available-for-sale
securities
(157,075)
(87,115)
Sales of available-for-sale securities
1,978
—
Maturities of available-for-sale
securities
132,398
42,955
Other investing activities
30
42
Net cash used in investing
activities
(64,982)
(62,270)
Cash Flows From Financing
Activities
Proceeds from issuance of preferred stock,
net of issuance costs
—
149,975
Proceeds from initial public offering, net
of underwriting discounts and commissions
570,544
—
Proceeds from the exercise of stock
options
2,899
4,317
Proceeds from the early exercise of stock
options
2,871
14,525
Repurchases of unvested common stock
(155)
(48)
Payments on note payable
(218)
(266)
Proceeds from build-to-suit lease
financing obligation drawdown
58
107
Payments of deferred offering costs
(3,734)
—
Net cash provided by financing
activities
572,265
168,610
Net increase in cash, cash equivalents,
and restricted cash
476,940
75,329
Cash, cash equivalents, and restricted
cash, beginning of period
31,426
26,881
Cash, cash equivalents, and restricted
cash, end of period
$
508,366
$
102,210
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands,
except share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Reconciliation of gross profit:
GAAP gross profit
$
57,908
$
38,861
$
157,867
$
106,594
Add: Stock-based compensation expense
397
37
463
87
Add: Amortization of acquired intangible
assets
31
147
94
409
Non-GAAP gross profit
$
58,336
$39,045
$158,424
$107,090
Non-GAAP gross margin
78.9 %
78.0 %
78.0 %
78.1 %
Reconciliation of operating
expenses:
GAAP sales and marketing
$
45,538
$
24,462
$
112,191
$
66,206
Less: Stock-based compensation expense
(4,880)
(290)
(5,434)
(678)
Non-GAAP sales and marketing
$
40,658
$
24,172
$
106,757
$
65,528
GAAP research and development
$
27,863
$
14,827
$
64,380
$
39,113
Less: Stock-based compensation expense
(7,801)
(461)
(8,624)
(1,078)
Non-GAAP research and development
$
20,062
$
14,366
$
55,756
$
38,035
GAAP general and administrative
$
25,593
$
36,040
$
59,300
$
69,081
Less: Stock-based compensation expense
(9,833)
(23,648)
(10,491)
(24,442)
Non-GAAP general and administrative
$
15,760
$
12,392
$
48,809
$
44,639
Reconciliation of loss from
operations:
Loss from operations
$
(41,086)
$
(36,468)
$
(78,004)
$
(67,806)
Add: Stock-based compensation expense
22,911
24,436
25,012
26,285
Add: Amortization of acquired intangible
assets
31
147
94
409
Non-GAAP loss from operations
$
(18,144)
$
(11,885)
$
(52,898)
$
(41,112)
Non-GAAP operating margin
(24.5) %
(23.7) %
(26.0) %
(30.0) %
Reconciliation of net loss and net loss
per share:
GAAP net loss attributable to common
stockholders
$
(40,853)
$
(37,989)
$
(77,673)
$
(70,477)
Add: Stock-based compensation expense
22,911
24,436
25,012
26,285
Add: Amortization of acquired intangible
assets
31
147
94
409
Less: Provision for (benefit from) income
taxes
568
9
564
25
Non-GAAP net loss
$
(18,479)
$
(13,415)
$
(53,131)
$
(43,808)
GAAP net loss per share
$
(0.35)
$
(0.47)
$
(0.81)
$
(0.88)
Add: Stock-based compensation expense
0.19
0.30
0.26
0.33
Add: Amortization of acquired intangible
assets
0.00
0.00
0.00
0.01
Less: Provision for (benefit from) income
taxes
0.00
0.00
0.01
0.00
Non-GAAP net loss per share(1)
$
(0.16)
$
(0.16)
$
(0.55)
$
(0.55)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
118,056
81,579
96,393
79,755
(1) Totals may not sum due to rounding.
Figures are calculated based upon the respective underlying
non-rounded data.
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(unaudited, in
thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Free cash flow
Net cash provided by (used in) operating
activities
$
(17,786)
$
(13,912)
$
(30,343)
$
(31,011)
Less: Purchases of property and
equipment
(11,991)
(6,200)
(30,981)
(12,507)
Less: Capitalized internal-use
software
(3,861)
(2,029)
(11,332)
(5,645)
Free cash flow
$
(33,638)
$
(22,141)
$
(72,656)
$
(49,163)
Net cash provided by (used in) investing
activities
$
(92,829)
$
(77,874)
$
(64,982)
$
(62,270)
Net cash provided by (used in) financing
activities
$
570,216
$
165,447
$
572,265
$
168,610
Net cash provided by (used in) operating
activities (percentage of revenue)
(24) %
(28) %
(15) %
(23) %
Less: Purchases of property and equipment
(percentage of revenue)
(16) %
(12) %
(15) %
(9) %
Less: Capitalized internal-use software
(percentage of revenue)
(5) %
(4) %
(6) %
(4) %
Free cash flow margin
(45) %
(44) %
(36) %
(36) %
Explanation of Non-GAAP Financial Measures
In addition to our results determined in accordance with
generally accepted accounting principles in the United States (U.S.
GAAP), we believe the following non-GAAP measures are useful in
evaluating our operating performance. We use the following non-GAAP
financial information to evaluate our ongoing operations and for
internal planning and forecasting purposes. We believe that
non-GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and
comparability with past financial performance. However, non-GAAP
financial information has limitations as an analytical tool and
should not be considered in isolation or as a substitute for
financial information presented in accordance with U.S. GAAP. In
particular, free cash flow is not a substitute for cash provided by
(used in) operating activities. Additionally, the utility of free
cash flow as a measure of our liquidity is further limited as it
does not represent the total increase or decrease in our cash
balance for a given period. In addition, other companies, including
companies in our industry, may calculate similarly-titled non-GAAP
measures differently or may use other measures to evaluate their
performance, all of which could reduce the usefulness of our
non-GAAP financial measures as tools for comparison. A
reconciliation is provided above for each non-GAAP financial
measure to the most directly comparable financial measure stated in
accordance with U.S. GAAP. Investors are cautioned that there are a
number of limitations associated with the use of non-GAAP financial
measures as analytical tools. Investors are encouraged to review
the related U.S. GAAP financial measures and the reconciliation of
these non-GAAP financial measures to their most directly comparable
U.S. GAAP financial measures, and not to rely on any single
financial measure to evaluate our business.
Expenses Excluded from Non-GAAP Measures. We exclude stock-based
compensation expense, which is a non-cash expense, from certain of
our non-GAAP financial measures because we believe that excluding
this item provides meaningful supplemental information regarding
operational performance. We exclude amortization of intangible
assets, which is a non-cash expense, related to business
combinations from certain of our non-GAAP financial measures
because such expenses are related to business combinations and have
no direct correlation to the operation of our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin. We define
non-GAAP gross profit and non-GAAP gross margin as U.S. GAAP gross
profit and U.S. GAAP gross margin, respectively, excluding
stock-based compensation expense and amortization of acquired
intangible assets.
Non-GAAP Loss from Operations and Non-GAAP Operating Margin. We
define non-GAAP loss from operations and non-GAAP operating margin
as U.S. GAAP loss from operations and U.S. GAAP operating margin,
respectively, excluding stock-based compensation expense and
amortization of acquired intangible assets.
Non-GAAP Net Loss and Non-GAAP Net Loss per Share, Basic and
Diluted. We define non-GAAP net loss as GAAP net loss plus
stock-based compensation expense, amortization of acquired
intangible assets, and a non-GAAP provision for (benefit from)
income taxes. The difference between our GAAP and non-GAAP income
tax expense (benefit) is primarily due to adjustments in
stock-based compensation and amortization of intangibles associated
with business combinations. We define non-GAAP net loss per share,
basic and diluted, as non-GAAP net loss divided by the
weighted-average common shares outstanding. Since we have reported
net losses for all periods presented, we have excluded all
potentially dilutive securities from the calculation of net loss
per share as their effect is antidilutive and accordingly, basic
and diluted net loss per share is the same for all periods
presented. We believe that excluding these items from non-GAAP net
loss and non-GAAP net loss per share, diluted, provides management
and investors with greater visibility into the underlying
performance of our core business operating results.
Free Cash Flow and Free Cash Flow Margin. Free cash flow is a
non-GAAP financial measure that we calculate as net cash provided
by (used in) operating activities less cash used for purchases of
property and equipment and capitalized internal-use software. Free
cash flow margin is calculated as free cash flow divided by
revenue. We believe that free cash flow and free cash flow margin
are useful indicators of liquidity that provide information to
management and investors about the amount of cash generated from
our operations that, after the investments in property and
equipment and capitalized internal-use software, can be used for
strategic initiatives, including investing in our business, and
strengthening our financial position. We believe that historical
and future trends in free cash flow and free cash flow margin, even
if negative, provide useful information about the amount of cash
generated (or consumed) by our operating activities that is
available (or not available) to be used for strategic initiatives.
For example, if free cash flow is negative, we may need to access
cash reserves or other sources of capital to invest in strategic
initiatives. One limitation of free cash flow and free cash flow
margin is that these measures do not reflect our future contractual
commitments. Additionally, free cash flow does not represent the
total increase or decrease in our cash balance for a given
period.
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version on businesswire.com: https://www.businesswire.com/news/home/20191107005907/en/
Investor Relations Information Jayson Noland
ir@cloudflare.com Press Contact Information Daniella
Vallurupalli press@cloudflare.com
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