Cloudflare Announces Second Quarter 2023 Financial Results

August 3, 2023
  • Second quarter revenue totaled $308.5 million, representing an increase of 32% year-over-year
  • Delivered GAAP loss from operations of $56.2 million, or 18% of revenue, and non-GAAP income from operations of $20.3 million, or 7% of revenue
  • Achieved operating cash flow of $64.5 million, or 21% of revenue, and free cash flow of $20.0 million, or 6% of revenue

Cloudflare, Inc. (NYSE: NET), the security, performance, and reliability company helping to build a better Internet, today announced financial results for its second quarter ended June 30, 2023.

“In the second quarter, we grew revenue 32% year-over-year to $308.5 million, had a record quarter for new ACV bookings, and delivered the fourth consecutive quarter of record operating profit. Our team has proven that we can execute in good times and can also deliver operational improvements while we're in more challenging times,” said Matthew Prince, co-founder & CEO of Cloudflare. “Our innovation engine remains in high gear, and by our estimates, Cloudflare is the most commonly used cloud provider across leading AI startups. In the second quarter alone, we shared ten major announcements and features to extend Cloudflare Workers as the preeminent development platform built for the age of AI. We believe we’re uniquely positioned to become a leader in AI inferencing and have a lot more in store across the entire AI lifecycle to help enable companies to build the future.”

Second Quarter Fiscal 2023 Financial Highlights

  • Revenue: Total revenue of $308.5 million, representing an increase of 32% year-over-year.
  • Gross Profit: GAAP gross profit was $233.3 million, or 75.6% gross margin, compared to $178.7 million, or 76.2%, in the second quarter of 2022. Non-GAAP gross profit was $239.7 million, or 77.7% gross margin, compared to $185.0 million, or 78.9%, in the second quarter of 2022.
  • Operating Income (Loss): GAAP loss from operations was $56.2 million, or 18.2% of revenue, compared to $64.5 million, or 27.5% of revenue, in the second quarter of 2022. Non-GAAP income from operations was $20.3 million, or 6.6% of revenue, compared to non-GAAP loss from operations of $0.9 million, or 0.4% of revenue, in the second quarter of 2022.
  • Net Income (Loss): GAAP net loss was $94.5 million, compared to $63.5 million in the second quarter of 2022. GAAP net loss per basic and diluted share was $0.28, compared to $0.20 in the second quarter of 2022. Non-GAAP net income was $33.7 million, compared to $0.3 million in the second quarter of 2022. Non-GAAP net income per diluted share was $0.10, compared to $0.00 in the second quarter of 2022.
  • Cash Flow: Net cash flow from operating activities was $64.5 million, compared to $38.3 million for the second quarter of 2022. Free cash flow was $20.0 million, or 6% of revenue, compared to negative $4.4 million, or 2% of revenue, in the second quarter of 2022.
  • Cash, cash equivalents, and available-for-sale securities were $1,584.6 million as of June 30, 2023.

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

Financial Outlook

For the third quarter of fiscal 2023, we expect:

  • Total revenue of $330.0 to $331.0 million
  • Non-GAAP income from operations of $20.0 to $21.0 million
  • Non-GAAP net income per share of $0.10, utilizing weighted average common shares outstanding of approximately 347 million

For the full year fiscal 2023, we expect:

  • Total revenue of $1,283.0 to $1,287.0 million
  • Non-GAAP income from operations of $81.0 to $85.0 million
  • Non-GAAP net income per share of $0.37, utilizing weighted average common shares outstanding of approximately 345 million

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

Conference Call Information

Cloudflare will host an investor conference call to discuss its second quarter ended June 30, 2023 earnings results today at 2:00 p.m. Pacific time (5:00 p.m. Eastern time). Interested parties can access the call by dialing (877) 400-4517 from the United States or (332) 251-2620 internationally with conference ID 3723782. A live webcast of the conference call will be accessible from the investor relations website at https://cloudflare.NET. A replay will be available approximately two hours after the conclusion of the live event and will remain available for approximately one year.

Supplemental Financial and Other Information

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

Non-GAAP Financial Information

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

Available Information

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

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “explore,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these words, or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. However, not all forward-looking statements contain these identifying words. Forward-looking statements expressed or implied in this press release include, but are not limited to, statements regarding our future financial and operating performance, our reputation and performance in the market, general market trends, our estimated and projected revenue, non-GAAP net income (loss) from operations and non-GAAP net income (loss) per share, shares outstanding, the benefits to customers from using our products, the expected functionality and performance of our products, the demand by customers for our products, our plans and objectives for future operations, growth, initiatives, or strategies, our market opportunity, and comments made by our CEO and others. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: the impact of adverse macroeconomic conditions, such as inflation, changes in interest rates, actual or potential bank failures and recessionary concerns, on our and our customers’, vendors’, and partners’ operations and future financial performance; the impact of the Russia-Ukraine conflict and other areas of geopolitical tension around the world; our history of net losses; risks associated with managing our rapid growth; our ability to attract and retain new customers (including new large customers); our ability to retain and upgrade paying customers and convert free customers to paying customers; our ability to expand the number of products we sell to paying customers; our ability to effectively increase sales to large customers; our ability to increase brand awareness; our ability to continue to innovate and develop new products and product features; our ability to generate demand for our products; our ability to effectively attract, train, and retain our sales force to be able to sell our existing and new products and product features; our sales team’s productivity; problems with our internal systems, network, or data, including actual or perceived breaches or failures; rapidly evolving technological developments, including advancements in AI, in the market; length of our sales cycles and the timing of payments by our customers; activities of our paying and free customers or the content of their websites and other Internet properties that use our network and products; foreign currency fluctuations; changes in the legal, tax, and regulatory environment applicable to our business; and other general market, political, economic, and business conditions. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in our filings with the SEC, including our Quarterly Report on Form 10-Q filed on April 27, 2023, as well as other filings that we may make from time to time with the SEC.

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

About Cloudflare

Cloudflare, Inc. (www.cloudflare.com / @cloudflare) is on a mission to help build a better Internet. Cloudflare’s suite of products protect and accelerate 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 awarded by Reuters Events for Global Responsible Business in 2020, named to Fast Company's Most Innovative Companies in 2021, and ranked among Newsweek's Top 100 Most Loved Workplaces in 2022.

CLOUDFLARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2023

 

2022

 

2023

 

2022

Revenue

$

308,494

 

 

$

234,517

 

 

$

598,669

 

 

$

446,684

 

Cost of revenue(1)(2)

 

75,221

 

 

 

55,804

 

 

 

145,653

 

 

 

102,855

 

Gross profit

 

233,273

 

 

 

178,713

 

 

 

453,016

 

 

 

343,829

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing(1)(2)(3)

 

146,688

 

 

 

117,622

 

 

 

283,689

 

 

 

217,679

 

Research and development(1)(3)

 

89,610

 

 

 

75,114

 

 

 

171,149

 

 

 

142,168

 

General and administrative(1)

 

53,147

 

 

 

50,518

 

 

 

101,622

 

 

 

88,547

 

Total operating expenses

 

289,445

 

 

 

243,254

 

 

 

556,460

 

 

 

448,394

 

Loss from operations

 

(56,172

)

 

 

(64,541

)

 

 

(103,444

)

 

 

(104,565

)

Non-operating income (expense):

 

 

 

 

 

 

 

Interest income

 

16,536

 

 

 

1,641

 

 

 

30,023

 

 

 

2,702

 

Interest expense(4)

 

(1,539

)

 

 

(1,040

)

 

 

(3,665

)

 

 

(2,597

)

Loss on extinguishment of debt

 

(50,300

)

 

 

 

 

 

(50,300

)

 

 

 

Other income (expense), net

 

(1,527

)

 

 

233

 

 

 

(2,384

)

 

 

(254

)

Total non-operating income (expense), net

 

(36,830

)

 

 

834

 

 

 

(26,326

)

 

 

(149

)

Loss before income taxes

 

(93,002

)

 

 

(63,707

)

 

 

(129,770

)

 

 

(104,714

)

Provision for (benefit from) income taxes

 

1,465

 

 

 

(170

)

 

 

2,779

 

 

 

204

 

Net loss

$

(94,467

)

 

$

(63,537

)

 

$

(132,549

)

 

$

(104,918

)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.28

)

 

$

(0.20

)

 

$

(0.40

)

 

$

(0.32

)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

 

332,297

 

 

 

325,197

 

 

 

331,448

 

 

 

324,574

 

____________

(1) Includes stock-based compensation and related employer payroll taxes as follows:

Cost of revenue

$

2,126

 

$

2,001

 

$

3,929

 

$

3,324

Sales and marketing

 

20,734

 

 

12,907

 

 

36,602

 

 

23,286

Research and development

 

36,573

 

 

27,873

 

 

66,789

 

 

51,952

General and administrative

 

12,156

 

 

14,674

 

 

26,019

 

 

20,692

Total stock-based compensation and related employer payroll taxes

$

71,589

 

$

57,455

 

$

133,339

 

$

99,254

(2) Includes amortization of acquired intangible assets as follows:

Cost of revenue

$

4,314

 

$

4,312

 

$

8,625

 

$

4,819

Sales and marketing

 

574

 

 

575

 

 

1,150

 

 

575

Total amortization of acquired intangible assets

$

4,888

 

$

4,887

 

$

9,775

 

$

5,394

(3) Includes acquisition-related and other expenses as follows:

Sales and marketing

$

 

$

265

 

$

 

$

265

Research and development

 

 

 

1,043

 

 

 

 

3,682

Total acquisition-related and other expenses

$

 

$

1,308

 

$

 

$

3,947

(4) Includes amortization of debt issuance costs as follows:

Amortization of debt issuance costs

$

1,307

 

$

1,162

 

$

2,470

 

$

2,332

Total amortization of debt issuance costs

$

1,307

 

$

1,162

 

$

2,470

 

$

2,332

CLOUDFLARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)

 

 

June 30,
2023

 

December 31,
2022

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

159,318

 

 

$

204,178

 

Available-for-sale securities

 

1,425,302

 

 

 

1,445,759

 

Accounts receivable, net

 

177,920

 

 

 

148,544

 

Contract assets

 

8,673

 

 

 

8,292

 

Restricted cash short-term

 

2,797

 

 

 

10,555

 

Prepaid expenses and other current assets

 

44,050

 

 

 

70,556

 

Total current assets

 

1,818,060

 

 

 

1,887,884

 

Property and equipment, net

 

293,259

 

 

 

286,600

 

Goodwill

 

148,047

 

 

 

148,047

 

Acquired intangible assets, net

 

22,708

 

 

 

32,483

 

Operating lease right-of-use assets

 

130,043

 

 

 

132,360

 

Deferred contract acquisition costs, noncurrent

 

107,482

 

 

 

93,145

 

Restricted cash

 

2,264

 

 

 

471

 

Other noncurrent assets

 

11,345

 

 

 

6,918

 

Total assets

$

2,533,208

 

 

$

2,587,908

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

32,376

 

 

$

35,607

 

Accrued expenses and other current liabilities

 

54,600

 

 

 

66,425

 

Accrued compensation

 

46,774

 

 

 

42,014

 

Operating lease liabilities

 

35,366

 

 

 

33,275

 

Liability for early exercise of unvested stock options

 

693

 

 

 

1,902

 

Deferred revenue

 

267,979

 

 

 

218,647

 

Current portion of convertible senior notes, net

 

35,330

 

 

 

 

Total current liabilities

 

473,118

 

 

 

397,870

 

Convertible senior notes, net

 

1,281,383

 

 

 

1,436,192

 

Operating lease liabilities, noncurrent

 

106,992

 

 

 

107,624

 

Deferred revenue, noncurrent

 

18,860

 

 

 

11,732

 

Other noncurrent liabilities

 

11,021

 

 

 

10,526

 

Total liabilities

 

1,891,374

 

 

 

1,963,944

 

 

 

 

 

Stockholders’ Equity

 

 

 

Class A common stock; $0.001 par value; 2,250,000 shares authorized as of June 30, 2023 and December 31, 2022; 291,832 and 286,561 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

291

 

 

 

286

 

Class B common stock; $0.001 par value; 315,000 shares authorized as of June 30, 2023 and December 31, 2022; 41,807 and 43,525 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

41

 

 

 

42

 

Additional paid-in capital

 

1,620,251

 

 

 

1,475,423

 

Accumulated deficit

 

(972,440

)

 

 

(839,891

)

Accumulated other comprehensive loss

 

(6,309

)

 

 

(11,896

)

Total stockholders’ equity

 

641,834

 

 

 

623,964

 

Total liabilities and stockholders’ equity

$

2,533,208

 

 

$

2,587,908

 

CLOUDFLARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

2023

 

2022

Cash Flows From Operating Activities

 

 

 

Net loss

$

(132,549

)

 

$

(104,918

)

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

Depreciation and amortization expense

 

65,182

 

 

 

45,352

 

Non-cash operating lease costs

 

21,925

 

 

 

18,106

 

Amortization of deferred contract acquisition costs

 

29,011

 

 

 

20,218

 

Stock-based compensation expense

 

125,793

 

 

 

88,780

 

Amortization of debt issuance costs

 

2,470

 

 

 

2,332

 

Net accretion of discounts and amortization of premiums on available-for-sale securities

 

(19,050

)

 

 

3,798

 

Deferred income taxes

 

(613

)

 

 

(1,833

)

Provision for bad debt

 

6,037

 

 

 

2,010

 

Loss on extinguishment of debt

 

50,300

 

 

 

 

Other

 

494

 

 

 

264

 

Changes in operating assets and liabilities, net of effect of acquisitions:

 

 

 

Accounts receivable, net

 

(35,413

)

 

 

(26,947

)

Contract assets

 

(381

)

 

 

(1,116

)

Deferred contract acquisition costs

 

(43,348

)

 

 

(30,604

)

Prepaid expenses and other current assets

 

(13,996

)

 

 

(5,067

)

Other noncurrent assets

 

(1,991

)

 

 

371

 

Accounts payable

 

6,602

 

 

 

8,174

 

Accrued expenses and other current liabilities

 

1,454

 

 

 

(30,479

)

Operating lease liabilities

 

(18,149

)

 

 

(20,523

)

Deferred revenue

 

56,460

 

 

 

34,477

 

Other noncurrent liabilities

 

627

 

 

 

389

 

Net cash provided by operating activities

 

100,865

 

 

 

2,784

 

Cash Flows From Investing Activities

 

 

 

Purchases of property and equipment

 

(56,289

)

 

 

(61,565

)

Capitalized internal-use software

 

(10,703

)

 

 

(10,034

)

Cash paid for acquisitions, net of cash acquired

 

 

 

 

(86,941

)

Purchases of available-for-sale securities

 

(795,096

)

 

 

(422,374

)

Sales of available-for-sale securities

 

20,248

 

 

 

 

Maturities of available-for-sale securities

 

857,456

 

 

 

414,036

 

Other investing activities

 

59

 

 

 

25

 

Net cash provided by (used in) investing activities

 

15,675

 

 

 

(166,853

)

Cash Flows From Financing Activities

 

 

 

Repayments of convertible senior notes

 

(172,249

)

 

 

(16,571

)

Proceeds from the exercise of stock options

 

7,059

 

 

 

5,977

 

Proceeds from the early exercise of stock options

 

 

 

 

62

 

Repurchases of unvested common stock

 

(34

)

 

 

(3

)

Proceeds from the issuance of common stock for employee stock purchase plan

 

10,450

 

 

 

8,688

 

Payment of tax withholding obligation on RSU settlement

 

(3,383

)

 

 

(1,264

)

Payment of indemnity holdback

 

(9,208

)

 

 

 

Net cash used in financing activities

 

(167,365

)

 

 

(3,111

)

Net decrease in cash, cash equivalents, and restricted cash

 

(50,825

)

 

 

(167,180

)

Cash, cash equivalents, and restricted cash, beginning of period

 

215,204

 

 

 

320,958

 

Cash, cash equivalents, and restricted cash, end of period

$

164,379

 

 

$

153,778

 

CLOUDFLARE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

(unaudited)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2023

 

2022

 

2023

 

2022

Reconciliation of cost of revenue:

 

 

 

 

 

 

 

GAAP cost of revenue

$

75,221

 

 

$

55,804

 

 

$

145,653

 

 

$

102,855

 

Less: Stock-based compensation and related employer payroll taxes

 

(2,126

)

 

 

(2,001

)

 

 

(3,929

)

 

 

(3,324

)

Less: Amortization of acquired intangible assets

 

(4,314

)

 

 

(4,312

)

 

 

(8,625

)

 

 

(4,819

)

Non-GAAP cost of revenue

$

68,781

 

 

$

49,491

 

 

$

133,099

 

 

$

94,712

 

Reconciliation of gross profit:

 

 

 

 

 

 

 

GAAP gross profit

$

233,273

 

 

$

178,713

 

 

$

453,016

 

 

$

343,829

 

Add: Stock-based compensation and related employer payroll taxes

 

2,126

 

 

 

2,001

 

 

 

3,929

 

 

 

3,324

 

Add: Amortization of acquired intangible assets

 

4,314

 

 

 

4,312

 

 

 

8,625

 

 

 

4,819

 

Non-GAAP gross profit

$

239,713

 

 

$

185,026

 

 

$

465,570

 

 

$

351,972

 

GAAP gross margin

 

75.6

%

 

 

76.2

%

 

 

75.7

%

 

 

77.0

%

Non-GAAP gross margin

 

77.7

%

 

 

78.9

%

 

 

77.8

%

 

 

78.8

%

Reconciliation of operating expenses:

 

 

 

 

 

 

 

GAAP sales and marketing

$

146,688

 

 

$

117,622

 

 

$

283,689

 

 

$

217,679

 

Less: Stock-based compensation and related employer payroll taxes

 

(20,734

)

 

 

(12,907

)

 

 

(36,602

)

 

 

(23,286

)

Less: Amortization of acquired intangible assets

 

(574

)

 

 

(575

)

 

 

(1,150

)

 

 

(575

)

Less: Acquisition-related and other expenses

 

 

 

 

(265

)

 

 

 

 

 

(265

)

Non-GAAP sales and marketing

$

125,380

 

 

$

103,875

 

 

$

245,937

 

 

$

193,553

 

GAAP research and development

$

89,610

 

 

$

75,114

 

 

$

171,149

 

 

$

142,168

 

Less: Stock-based compensation and related employer payroll taxes

 

(36,573

)

 

 

(27,873

)

 

 

(66,789

)

 

 

(51,952

)

Less: Acquisition-related and other expenses

 

 

 

 

(1,043

)

 

 

 

 

 

(3,682

)

Non-GAAP research and development

$

53,037

 

 

$

46,198

 

 

$

104,360

 

 

$

86,534

 

GAAP general and administrative

$

53,147

 

 

$

50,518

 

 

$

101,622

 

 

$

88,547

 

Less: Stock-based compensation and related employer payroll taxes

 

(12,156

)

 

 

(14,674

)

 

 

(26,019

)

 

 

(20,692

)

Non-GAAP general and administrative

$

40,991

 

 

$

35,844

 

 

$

75,603

 

 

$

67,855

 

Reconciliation of income (loss) from operations:

 

 

 

 

 

 

 

GAAP loss from operations

$

(56,172

)

 

$

(64,541

)

 

$

(103,444

)

 

$

(104,565

)

Add: Stock-based compensation and related employer payroll taxes

 

71,589

 

 

 

57,455

 

 

 

133,339

 

 

 

99,254

 

Add: Amortization of acquired intangible assets

 

4,888

 

 

 

4,887

 

 

 

9,775

 

 

 

5,394

 

Add: Acquisition-related and other expenses

 

 

 

 

1,308

 

 

 

 

 

 

3,947

 

Non-GAAP income (loss) from operations

$

20,305

 

 

$

(891

)

 

$

39,670

 

 

$

4,030

 

GAAP operating margin

 

(18.2

)%

 

 

(27.5

)%

 

 

(17.3

)%

 

 

(23.4

)%

Non-GAAP operating margin

 

6.6

%

 

 

(0.4

)%

 

 

6.6

%

 

 

0.9

%

CLOUDFLARE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

(unaudited)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2023

 

2022

 

2023

 

2022

Reconciliation of interest expense:

 

 

 

 

 

 

 

GAAP interest expense

$

(1,539

)

 

$

(1,040

)

 

$

(3,665

)

 

$

(2,597

)

Add: Amortization of debt issuance costs

 

1,307

 

 

 

1,162

 

 

 

2,470

 

 

 

2,332

 

Non-GAAP interest expense

$

(232

)

 

$

122

 

 

$

(1,195

)

 

$

(265

)

Reconciliation of loss on extinguishment of debt:

 

 

 

 

 

 

 

GAAP loss on extinguishment of debt

$

(50,300

)

 

$

 

 

$

(50,300

)

 

$

 

Add: Loss on extinguishment of debt

 

50,300

 

 

 

 

 

 

50,300

 

 

 

 

Non-GAAP loss on extinguishment of debt

$

 

 

$

 

 

$

 

 

$

 

Reconciliation of provision for (benefit from) income taxes:

 

 

 

 

 

 

 

GAAP provision for (benefit from) income taxes

$

1,465

 

 

$

(170

)

 

$

2,779

 

 

$

204

 

Income tax effect of non-GAAP adjustments

 

(88

)

 

 

963

 

 

 

2,449

 

 

 

2,247

 

Non-GAAP provision for income taxes

$

1,377

 

 

$

793

 

 

$

5,228

 

 

$

2,451

 

Reconciliation of net income (loss) and net income (loss) per share:

 

 

 

 

 

 

 

GAAP net loss attributable to common stockholders

$

(94,467

)

 

$

(63,537

)

 

$

(132,549

)

 

$

(104,918

)

Add: Stock-based compensation and related employer payroll taxes

 

71,589

 

 

 

57,455

 

 

 

133,339

 

 

 

99,254

 

Add: Amortization of acquired intangible assets

 

4,888

 

 

 

4,887

 

 

 

9,775

 

 

 

5,394

 

Add: Acquisition-related and other expenses

 

 

 

 

1,308

 

 

 

 

 

 

3,947

 

Add: Amortization of debt issuance costs

 

1,307

 

 

 

1,162

 

 

 

2,470

 

 

 

2,332

 

Add: Loss on extinguishment of debt

 

50,300

 

 

 

 

 

 

50,300

 

 

 

 

Income tax effect of non-GAAP adjustments

 

88

 

 

 

(963

)

 

 

(2,449

)

 

 

(2,247

)

Non-GAAP net income

$

33,705

 

 

$

312

 

 

$

60,886

 

 

$

3,762

 

 

 

 

 

 

 

 

 

GAAP net loss per share, basic

$

(0.28

)

 

$

(0.20

)

 

$

(0.40

)

 

$

(0.32

)

 

 

 

 

 

 

 

 

GAAP net loss per share, diluted

$

(0.28

)

 

$

(0.20

)

 

$

(0.40

)

 

$

(0.32

)

Add: Stock-based compensation and related employer payroll taxes

 

0.22

 

 

 

0.18

 

 

 

0.40

 

 

 

0.30

 

Add: Amortization of acquired intangible assets

 

0.01

 

 

 

0.02

 

 

 

0.03

 

 

 

0.02

 

Add: Acquisition-related and other expenses

 

 

 

 

 

 

 

 

 

 

0.01

 

Add: Amortization of debt issuance costs

 

 

 

 

 

 

 

0.01

 

 

 

0.01

 

Add: Loss on extinguishment of debt

 

0.15

 

 

 

 

 

 

0.15

 

 

 

 

Income tax effect of non-GAAP adjustment

 

 

 

 

 

 

 

(0.01

)

 

 

(0.01

)

Effect of dilutive shares

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net income per share, diluted(1)(2)

$

0.10

 

 

$

0.00

 

 

$

0.18

 

 

$

0.01

 

 

 

 

 

 

 

 

 

Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, basic

 

332,297

 

 

 

325,197

 

 

 

331,448

 

 

 

324,574

 

Weighted-average shares used in computing non-GAAP net income (loss) per share attributable to common stockholders, diluted(2)

 

343,187

 

 

 

341,063

 

 

 

342,667

 

 

 

341,556

 

____________

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

CLOUDFLARE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

2023

 

2022

 

2023

 

2022

Free cash flow

 

 

 

 

 

 

 

Net cash provided by operating activities

$

64,451

 

 

$

38,251

 

 

$

100,865

 

 

$

2,784

 

Less: Purchases of property and equipment

 

(38,748

)

 

 

(37,084

)

 

 

(56,289

)

 

 

(61,565

)

Less: Capitalized internal-use software

 

(5,733

)

 

 

(5,581

)

 

 

(10,703

)

 

 

(10,034

)

Free cash flow

$

19,970

 

 

$

(4,414

)

 

$

33,873

 

 

$

(68,815

)

Net cash provided by (used) in investing activities

$

108

 

 

$

(56,048

)

 

$

15,675

 

 

$

(166,853

)

Net cash provided by (used in) financing activities

$

(168,612

)

 

$

11,143

 

 

$

(167,365

)

 

$

(3,111

)

Net cash provided by operating activities

(percentage of revenue)

 

21

%

 

 

16

%

 

 

17

%

 

 

1

%

Less: Purchases of property and equipment

(percentage of revenue)

 

(13

)%

 

 

(16

)%

 

 

(9

)%

 

 

(14

)%

Less: Capitalized internal-use software

(percentage of revenue)

 

(2

)%

 

 

(2

)%

 

 

(2

)%

 

 

(2

)%

Free cash flow margin(1)

 

6

%

 

 

(2

)%

 

 

6

%

 

 

(15

)%

____________

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

Explanation of Non-GAAP Financial Measures

In addition to our results determined in accordance with generally accepted accounting principles in the United States (U.S. GAAP), we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In particular, free cash flow is not a substitute for cash provided by (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 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 employer payroll tax expenses related to stock-based compensation which is a cash expense, from certain of our non-GAAP financial measures because such expenses are dependent on the price of our common stock and other factors that are beyond our control and do not correlate to the operation of our business. We exclude amortization of acquired intangible assets, which is a non-cash expense, related to business combinations from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. We exclude acquisition-related and other expenses from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. Acquisition-related and other expenses can be cash or non-cash expenses and include third-party transaction costs and compensation expense for key acquired personnel. We exclude amortization of debt issuance costs and loss on extinguishment of debt, which are non-cash expenses, from certain of our non-GAAP financial measures because such expenses have no direct correlation to the operation of our business.

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

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

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

Free Cash Flow and Free Cash Flow Margin. Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by (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 they do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.

Investor Relations Information
Phil Winslow
ir@cloudflare.com

Press Contact Information
Daniella Vallurupalli
press@cloudflare.com

Source: Cloudflare, Inc.