Cloudflare Announces Second Quarter 2021 Financial Results

August 5, 2021
  • Second quarter total revenue totaled $152.4 million, representing an increase of 53% year-over-year
  • Record dollar-based net retention of 124%, representing an increase of 900 basis points year-over-year
  • Strong large customer growth, with a record addition of roughly 140 large customers in the quarter, bringing the total number of large customers to 1,088

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, 2021.

“We had our strongest quarter ever as a public company, and our revenue growth continued to accelerate, growing 53% year-over-year. We also added a record number of large customers, signing the equivalent of more than two six-figure customers every single business day in Q2.” said Matthew Prince, co-founder & CEO of Cloudflare. “Whether we’re offering Zero Trust security solutions to the world’s most sophisticated organizations, or enabling the next billion dollar business with Cloudflare Workers, we remain focused on delivering secure, programmable network solutions that our customers rely on.”

Second Quarter Fiscal 2021 Financial Highlights

  • Revenue: Total revenue of $152.4 million, representing an increase of 53% year-over-year.
  • Gross Profit: GAAP gross profit was $117.4 million, or 77.0% gross margin, compared to $75.6 million, or 75.8%, in the second quarter of 2020. Non-GAAP gross profit was $118.9 million, or 78.0% gross margin, compared to $76.6 million, or 76.8%, in the second quarter of 2020.
  • Operating Loss: GAAP loss from operations was $28.9 million, or 18.9% of total revenue, compared to $24.7 million, or 24.8% of total revenue, in the second quarter of 2020. Non-GAAP loss from operations was $4.0 million, or 2.6% of total revenue, compared to $9.5 million, or 9.5% of total revenue, in the second quarter of 2020.
  • Net Loss: GAAP net loss was $35.5 million, compared to $26.1 million in the second quarter of 2020. Non-GAAP net loss was $7.3 million, compared to $9.6 million in the second quarter of 2020. GAAP net loss per share was $0.12, compared to $0.09 in the second quarter of 2020. Non-GAAP net loss per share was $0.02, compared to $0.03 in the second quarter of 2020.
  • Cash Flow: Net cash flow from operating activities was $7.5 million, compared to $4.0 million for the second quarter of 2020. Free cash flow was negative $9.8 million, or 6% of total revenue, compared to negative $20.2 million, or 20% of total revenue, in the second quarter of 2020.
  • Cash, cash equivalents, and available-for-sale securities were $1,033.5 million as of June 30, 2021.

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

The following forward-looking statements regarding our financial outlook are subject to substantial uncertainty as a result of the ongoing COVID-19 pandemic, reflect our estimates as of August 5, 2021 regarding the impact of the pandemic on our operations, and are highly dependent on numerous factors that we may not be able to predict or control, including, among others: the duration, spread, and severity of the pandemic; actions taken by governments and businesses in response to the pandemic and the resulting impact on our customers, vendors, and partners; the timing of administering COVID-19 vaccines around the world and the long-term efficiency of these vaccines; the impact of the pandemic on global and regional economies and economic activity generally; our ability to continue operating in impacted areas; and customer demand and spending patterns.

For the third quarter of fiscal 2021, we expect:

  • Total revenue of $165.0 to $166.0 million
  • Non-GAAP loss from operations of $9.5 to $8.5 million
  • Non-GAAP net loss per share of $0.04 to $0.03, utilizing weighted average common shares outstanding of approximately 310 million

For the full year fiscal 2021, we expect:

  • Total revenue of $629 to $633 million
  • Non-GAAP loss from operations of $28 to $24 million
  • Non-GAAP net loss per share of $0.12 to $0.11, utilizing weighted average common shares outstanding of approximately 309 million

Conference Call Information

Cloudflare will host an investor conference call to discuss its second quarter ended June 30, 2021 earnings results 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 from the United States or (647) 689-6734 internationally with conference ID 5798218. 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 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 loss from operations and non-GAAP net loss per share, shares outstanding, the benefits to customers from using our products, the expected functionality and performance of our products, our plans and objectives for future operations, growth, initiatives, or strategies, 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 extent and duration of the impact of the COVID-19 pandemic and resulting adverse conditions in the general domestic and global economic markets; the impact of the COVID-19 pandemic on our and our customers’, vendors’, and partners’ operations and future financial performance; our history of net losses; our limited operating history; 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 effectively increase sales to large 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; activities of our paying and free customers or the content of their websites and other Internet properties that use our network and products; changes in the legal, tax, and regulatory environment applicable to our business; 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 Quarterly Report on Form 10-Q filed on May 07, 2021, 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 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, Seattle, WA, Washington, D.C., Toronto, Lisbon, London, Munich, Paris, Beijing, Singapore, Sydney, and Tokyo.

CLOUDFLARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2021

 

2020

 

2021

 

2020

Revenue

$

152,428

 

 

$

99,721

 

 

$

290,483

 

 

$

190,971

 

Cost of revenue(1)(2)

35,029

 

 

24,164

 

 

67,113

 

 

44,985

 

Gross profit

117,399

 

 

75,557

 

 

223,370

 

 

145,986

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing(1)

75,995

 

 

51,376

 

 

145,969

 

 

98,341

 

Research and development(1)(3)

41,349

 

 

28,131

 

 

80,876

 

 

61,485

 

General and administrative(1)(3)

28,927

 

 

20,754

 

 

56,651

 

 

46,935

 

Total operating expenses

146,271

 

 

100,261

 

 

283,496

 

 

206,761

 

Loss from operations

(28,872

)

 

(24,704

)

 

(60,126

)

 

(60,775

)

Non-operating income (expense):

 

 

 

 

 

 

 

Interest income

373

 

 

1,857

 

 

917

 

 

4,426

 

Interest expense(4)

(10,444

)

 

(5,007

)

 

(20,678

)

 

(5,074

)

Other income (expense), net

(877

)

 

(219

)

 

(729

)

 

266

 

Total non-operating income (expense), net

(10,948

)

 

(3,369

)

 

(20,490

)

 

(382

)

Loss before income taxes

(39,820

)

 

(28,073

)

 

(80,616

)

 

(61,157

)

Benefit from income taxes

(4,310

)

 

(1,938

)

 

(5,143

)

 

(2,276

)

Net loss

$

(35,510

)

 

$

(26,135

)

 

$

(75,473

)

 

$

(58,881

)

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

$

(0.12

)

 

$

(0.09

)

 

$

(0.25

)

 

$

(0.20

)

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

308,263

 

 

299,321

 

 

307,115

 

 

297,392

 

____________

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

Cost of revenue

$

803

 

 

$

329

 

 

$

1,326

 

 

$

634

 

Sales and marketing

7,579

 

 

3,975

 

 

14,414

 

 

7,554

 

Research and development

11,280

 

 

6,917

 

 

22,338

 

 

14,044

 

General and administrative

4,486

 

 

3,347

 

 

9,134

 

 

6,953

 

Total stock-based compensation and related employer payroll taxes

$

24,148

 

 

$

14,568

 

 

$

47,212

 

 

$

29,185

 

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

Cost of revenue

$

700

 

 

$

700

 

 

$

1,400

 

 

$

1,431

 

Total amortization of acquired intangible assets

$

700

 

 

$

700

 

 

$

1,400

 

 

$

1,431

 

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

Research and development

$

 

 

$

(51)

 

 

$

 

 

$

5,725

 

General and administrative

 

 

 

 

 

 

554

 

Total acquisition-related and other expenses

$

 

 

$

(51)

 

 

$

 

 

$

6,279

 

 

 

 

 

 

 

 

 

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

Amortization of debt discounts and issuance costs

$

9,183

 

 

$

4,303

 

 

$

18,154

 

 

$

4,303

 

Total amortization of debt discounts and issuance costs

$

9,183

 

 

$

4,303

 

 

$

18,154

 

 

$

4,303

 

CLOUDFLARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)

 

 

June 30,
2021

 

December 31,
2020

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

247,551

 

 

$

108,895

 

Available-for-sale securities

785,991

 

 

923,201

 

Accounts receivable, net

75,853

 

 

63,499

 

Contract assets

5,249

 

 

3,538

 

Restricted cash short-term

2,659

 

 

2,591

 

Prepaid expenses and other current assets

28,650

 

 

28,230

 

Total current assets

1,145,953

 

 

1,129,954

 

Property and equipment, net

156,719

 

 

123,688

 

Goodwill

17,167

 

 

17,167

 

Acquired intangible assets, net

1,400

 

 

2,800

 

Operating lease right-of-use assets

44,456

 

 

43,148

 

Deferred contract acquisition costs, noncurrent

56,587

 

 

44,176

 

Restricted cash

6,660

 

 

6,660

 

Other noncurrent assets

16,990

 

 

13,058

 

Total assets

$

1,445,932

 

 

$

1,380,651

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

29,558

 

 

$

14,485

 

Accrued expenses and other current liabilities

33,483

 

 

20,217

 

Accrued compensation

31,098

 

 

25,410

 

Operating lease liabilities

20,031

 

 

17,717

 

Liability for early exercise of unvested stock options

6,477

 

 

8,603

 

Deferred revenue

79,829

 

 

54,945

 

Total current liabilities

200,476

 

 

141,377

 

Convertible senior notes, net

401,428

 

 

383,275

 

Operating lease liabilities, noncurrent

26,936

 

 

27,309

 

Deferred revenue, noncurrent

4,728

 

 

1,891

 

Other noncurrent liabilities

11,268

 

 

9,859

 

Total liabilities

644,836

 

 

563,711

 

Stockholders’ Equity:

 

 

 

Class A common stock; $0.001 par value; 2,250,000 shares authorized as of June 30, 2021 and December 31, 2020; 263,096 and 249,401 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

263

 

 

249

 

Class B common stock; $0.001 par value; 315,000 shares authorized as of June 30, 2021 and December 31, 2020; 49,269 and 59,239 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

46

 

 

55

 

Additional paid-in capital

1,296,824

 

 

1,236,993

 

Accumulated deficit

(495,993

)

 

(420,520

)

Accumulated other comprehensive income (loss)

(44

)

 

163

 

Total stockholders’ equity

801,096

 

 

816,940

 

Total liabilities and stockholders’ equity

$

1,445,932

 

 

$

1,380,651

 

CLOUDFLARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Six Months Ended June 30,

 

2021

 

2020

Cash Flows From Operating Activities

 

 

 

Net loss

$

(75,473

)

 

$

(58,881

)

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

 

 

 

Depreciation and amortization expense

31,245

 

 

22,113

 

Non-cash operating lease costs

11,004

 

 

9,332

 

Amortization of deferred contract acquisition costs

12,915

 

 

7,462

 

Stock-based compensation expense

38,589

 

 

25,346

 

Amortization of debt discount and issuance costs

18,154

 

 

4,303

 

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

3,864

 

 

(367

)

Deferred income taxes

(6,616

)

 

(2,621

)

Provision for bad debt

2,009

 

 

2,493

 

Other

84

 

 

(95

)

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

 

 

 

Accounts receivable, net

(14,363

)

 

(12,272

)

Contract assets

(1,711

)

 

(161

)

Deferred contract acquisition costs

(25,326

)

 

(16,158

)

Prepaid expenses and other current assets

(1,465

)

 

(171

)

Other noncurrent assets

1,590

 

 

(894

)

Accounts payable

6,767

 

 

4,333

 

Accrued expenses and other current liabilities

10,936

 

 

4,179

 

Operating lease liabilities

(10,371

)

 

(10,205

)

Deferred revenue

27,721

 

 

13,371

 

Other noncurrent liabilities

1,396

 

 

(1,396

)

Net cash provided by (used in) operating activities

30,949

 

 

(10,289

)

Cash Flows From Investing Activities

 

 

 

Purchases of property and equipment

(35,840

)

 

(30,605

)

Capitalized internal-use software

(7,103

)

 

(9,863

)

Cash paid for acquisitions, net of cash acquired

 

 

(13,691

)

Purchases of available-for-sale securities

(381,205

)

 

(579,437

)

Maturities of available-for-sale securities

514,344

 

 

323,832

 

Other investing activities

50

 

 

223

 

Net cash provided by (used in) investing activities

90,246

 

 

(309,541

)

Cash Flows From Financing Activities

 

 

 

Gross proceeds from issuance of convertible senior notes

 

 

575,000

 

Purchases of capped calls related to convertible senior notes

 

 

(67,333

)

Cash paid for issuance costs on convertible senior notes

 

 

(12,520

)

Proceeds from the exercise of stock options

11,519

 

 

4,335

 

Proceeds from the early exercise of stock options

95

 

 

80

 

Repurchases of unvested common stock

(169

)

 

(101

)

Payments on note payable

 

 

(200

)

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

7,174

 

 

5,447

 

Payment of tax withholding obligation on RSU settlement

(1,090

)

 

(7,308

)

Payment of tax withholding obligation on common stock issued under employee stock purchase plan

 

 

(376

)

Net cash provided by financing activities

17,529

 

 

497,024

 

Net increase in cash, cash equivalents, and restricted cash

138,724

 

 

177,194

 

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

118,146

 

 

145,636

 

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

$

256,870

 

 

$

322,830

 

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,

 

 

2021

 

2020

 

2021

 

2020

Reconciliation of cost of revenue:

 

 

 

 

 

 

 

 

GAAP cost of revenue

 

$

35,029

 

 

$

24,164

 

 

$

67,113

 

 

$

44,985

 

Less: Stock-based compensation and related employer payroll taxes

 

(803

)

 

(329

)

 

(1,326

)

 

(634

)

Less: Amortization of acquired intangible assets

 

(700

)

 

(700

)

 

(1,400

)

 

(1,431

)

Non-GAAP cost of revenue

 

$

33,526

 

 

$

23,135

 

 

$

64,387

 

 

$

42,920

 

Reconciliation of gross profit:

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

117,399

 

 

$

75,557

 

 

$

223,370

 

 

$

145,986

 

Add: Stock-based compensation and related employer payroll taxes

 

803

 

 

329

 

 

1,326

 

 

634

 

Add: Amortization of acquired intangible assets

 

700

 

 

700

 

 

1,400

 

 

1,431

 

Non-GAAP gross profit

 

$

118,902

 

 

$

76,586

 

 

$

226,096

 

 

$

148,051

 

GAAP gross margin

 

77.0

%

 

75.8

%

 

76.9

%

 

76.4

%

Non-GAAP gross margin

 

78.0

%

 

76.8

%

 

77.8

%

 

77.5

%

Reconciliation of operating expenses:

 

 

 

 

 

 

 

 

GAAP sales and marketing

 

$

75,995

 

 

$

51,376

 

 

$

145,969

 

 

$

98,341

 

Less: Stock-based compensation and related employer payroll taxes

 

(7,579

)

 

(3,975

)

 

(14,414

)

 

(7,554

)

Non-GAAP sales and marketing

 

$

68,416

 

 

$

47,401

 

 

$

131,555

 

 

$

90,787

 

GAAP research and development

 

$

41,349

 

 

$

28,131

 

 

$

80,876

 

 

$

61,485

 

Less: Stock-based compensation and related employer payroll taxes

 

(11,280

)

 

(6,917

)

 

(22,338

)

 

(14,044

)

Less: Acquisition-related and other expenses

 

 

 

51

 

 

 

 

(5,725

)

Non-GAAP research and development

 

$

30,069

 

 

$

21,265

 

 

$

58,538

 

 

$

41,716

 

GAAP general and administrative

 

$

28,927

 

 

$

20,754

 

 

$

56,651

 

 

$

46,935

 

Less: Stock-based compensation and related employer payroll taxes

 

(4,486

)

 

(3,347

)

 

(9,134

)

 

(6,953

)

Less: Acquisition-related and other expenses

 

 

 

 

 

 

 

(554

)

Non-GAAP general and administrative

 

$

24,441

 

 

$

17,407

 

 

$

47,517

 

 

$

39,428

 

Reconciliation of loss from operations:

 

 

 

 

 

 

 

 

GAAP loss from operations

 

$

(28,872

)

 

$

(24,704

)

 

$

(60,126

)

 

$

(60,775

)

Add: Stock-based compensation and related employer payroll taxes

 

24,148

 

 

14,568

 

 

47,212

 

 

29,185

 

Add: Amortization of acquired intangible assets

 

700

 

 

700

 

 

1,400

 

 

1,431

 

Add: Acquisition-related and other expenses

 

 

 

(51

)

 

 

 

6,279

 

Non-GAAP loss from operations

 

$

(4,024

)

 

$

(9,487

)

 

$

(11,514

)

 

$

(23,880

)

GAAP operating margin

 

(18.9

)%

 

(24.8

)%

 

(20.7

)%

 

(31.8

)%

Non-GAAP operating margin

 

(2.6

)%

 

(9.5

)%

 

(4.0

)%

 

(12.5

)%

Reconciliation of interest expense:

 

 

 

 

 

 

 

 

GAAP interest expense

 

$

(10,444

)

 

$

(5,007

)

 

$

(20,678

)

 

$

(5,074

)

Add: Amortization of debt discount and issuance costs

 

9,183

 

 

4,303

 

 

18,154

 

 

4,303

 

Non-GAAP interest expense

 

$

(1,261

)

 

$

(704

)

 

$

(2,524

)

 

$

(771

)

Reconciliation of provision for (benefit from) income taxes:

 

 

 

 

 

 

 

 

GAAP benefit from income taxes

 

$

(4,310

)

 

$

(1,938

)

 

$

(5,143

)

 

$

(2,276

)

Income tax effect of non-GAAP adjustments(1)

 

5,807

 

 

2,979

 

 

7,910

 

 

4,230

 

Non-GAAP provision for income taxes

 

$

1,497

 

 

$

1,041

 

 

$

2,767

 

 

$

1,954

 

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,

 

 

2021

 

2020

 

2021

 

2020

Reconciliation of net loss and net loss per share:

 

 

 

 

 

 

 

 

GAAP net loss attributable to common stockholders

 

$

(35,510

)

 

$

(26,135

)

 

$

(75,473

)

 

$

(58,881

)

Add: Stock-based compensation and related employer payroll taxes

 

24,148

 

 

14,568

 

 

47,212

 

 

29,185

 

Add: Amortization of acquired intangible assets

 

700

 

 

700

 

 

1,400

 

 

1,431

 

Add: Acquisition-related and other expenses

 

 

 

(51

)

 

 

 

6,279

 

Add: Amortization of debt discount and issuance costs

 

9,183

 

 

4,303

 

 

18,154

 

 

4,303

 

Income tax effect of non-GAAP adjustments(1)

 

(5,807

)

 

(2,979

)

 

(7,910

)

 

(4,230

)

Non-GAAP net loss

 

$

(7,286

)

 

$

(9,594

)

 

$

(16,617

)

 

$

(21,913

)

GAAP net loss per share

 

$

(0.12

)

 

$

(0.09

)

 

$

(0.25

)

 

$

(0.20

)

Add: Stock-based compensation and related employer payroll taxes

 

0.08

 

 

0.05

 

 

0.15

 

 

0.10

 

Add: Amortization of acquired intangible assets

 

 

 

 

 

 

 

 

Add: Acquisition-related and other expenses

 

 

 

 

 

 

 

0.02

 

Add: Amortization of debt discount and issuance costs

 

0.03

 

 

0.01

 

 

0.06

 

 

0.01

 

Income tax effect of non-GAAP adjustments(1)

 

(0.02

)

 

(0.01

)

 

(0.03

)

 

(0.01

)

Non-GAAP net loss per share(2)

 

$

(0.02

)

 

$

(0.03

)

 

$

(0.05

)

 

$

(0.07

)

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

 

308,263

 

 

299,321

 

 

307,115

 

 

297,392

 

____________

(1) Non-GAAP adjustment for Q1'20 includes $0.7 million of income tax benefit from valuation allowance release as a result of the S2 Systems acquisition.

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

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

2021

 

2020

 

2021

 

2020

Free cash flow

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$

7,455

 

 

$

3,987

 

 

$

30,949

 

 

$

(10,289

)

Less: Purchases of property and equipment

(13,572

)

 

(19,200

)

 

(35,840

)

 

(30,605

)

Less: Capitalized internal-use software

(3,658

)

 

(4,941

)

 

(7,103

)

 

(9,863

)

Free cash flow

$

(9,775

)

 

$

(20,154

)

 

$

(11,994

)

 

$

(50,757

)

Net cash provided by (used) in investing activities

$

42,470

 

 

$

(300,769

)

 

$

90,246

 

 

$

(309,541

)

Net cash provided by financing activities

$

10,150

 

 

$

501,702

 

 

$

17,529

 

 

$

497,024

 

Net cash provided by (used in) operating activities

(percentage of revenue)

5

%

 

4

%

 

11

%

 

(5

)%

Less: Purchases of property and equipment

(percentage of revenue)

(9

)%

 

(19

)%

 

(12

)%

 

(17

)%

Less: Capitalized internal-use software

(percentage of revenue)

(2

)%

 

(5

)%

 

(3

)%

 

(5

)%

Free cash flow margin(1)

(6

)%

 

(20

)%

 

(4

)%

 

(27

)%

____________

(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 discount and issuance costs, which is a non-cash expense, 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 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 and related employer payroll taxes, amortization of acquired intangible assets, and acquisition-related and other expenses.

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 and related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses, 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 debt discount and issuance costs. 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 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
Jayson Noland
ir@cloudflare.com

Press Contact Information
Daniella Vallurupalli
press@cloudflare.com

Source: Cloudflare, Inc.