-
Fourth quarter revenue totaled $274.7 million, representing an increase of 42% year-over-year; fiscal
year 2022 revenue totaled $975.2 million, representing an increase of 49% year-over-year
-
Delivered GAAP loss from operations of $50.7 million, or 18.5% of total revenue, and record non-GAAP
income from operations of $16.8 million, or 6.1% of total revenue
-
Achieved record operating cash flow and record free cash flow for the fourth quarter; operating cash
flow was $78.1 million, or 28% of total revenue, and free cash flow was $33.7 million, or 12% of
total revenue
SAN FRANCISCO--(BUSINESS WIRE)--
Cloudflare, Inc. (NYSE: NET), the security, performance, and reliability company helping to build a better
Internet, today announced financial results for its fourth quarter and fiscal year ended December 31, 2022.
"In the fourth quarter, we delivered record operating profit, operating margin, and free cash flow. We also
surpassed more than 2,000 large customers paying us over $100,000 per year and signed a record number of deals
greater than $500,000," said Matthew Prince, co-founder & CEO of Cloudflare. "During economic slowdowns, we
believe that it's important to show discipline and optimize for efficiency. We have our hands on the levers of
our business and a full-throttle innovation engine that is the envy of the industry. There's no better time to
outpace the competition and continue to deliver products on our customers' ‘must-have’ list.”
Fourth Quarter 2022 Financial Highlights
-
Revenue: Total revenue of $274.7 million representing an increase of 42% year-over-year.
-
Gross Profit: GAAP gross profit was $206.9 million or 75.3% gross margin, compared to $151.1 million or 78.0%,
in the fourth quarter of 2021. Non-GAAP gross profit was $212.5 million or 77.4% gross margin, compared to
$153.3 million, or 79.2%, in the fourth quarter of 2021.
-
Operating Income (Loss): GAAP loss from operations was $50.7 million, or 18.5% of total revenue, compared to $41.1 million,
or 21.2% of total revenue, in the fourth quarter of 2021. Non-GAAP income from operations was $16.8 million,
or 6.1% of total revenue, compared to $2.3 million, or 1.2% of total revenue, in the fourth quarter of 2021.
-
Net Income (Loss): GAAP net loss was $45.9 million, compared to $77.5 million in the fourth quarter of 2021. GAAP net
loss per basic and diluted share was $0.14 compared to $0.24 in the fourth quarter of 2021. Non-GAAP net
income was $21.6 million, compared to $0.1 million in the fourth quarter of 2021. Non-GAAP net income per
diluted share was $0.06, compared to $0.00 in the fourth quarter of 2021.
-
Cash Flow: Net cash flow from operating activities was $78.1 million, compared to $40.6 million for the fourth
quarter of 2021. Free cash flow was $33.7 million, or 12% of total revenue, compared to $8.6 million, or 4%
of total revenue, in the fourth quarter of 2021.
-
Cash, cash equivalents, and available-for-sale securities were $1,649.9 million as of December 31,
2022.
Full Year 2022 Financial Highlights
-
Revenue: Total revenue of $975.2 million representing an increase of 49% year-over-year.
-
Gross Profit: GAAP gross profit was $742.6 million or 76.1% gross margin, compared to $509.3 million, or 77.6%,
in fiscal 2021. Non-GAAP gross profit was $762.8 million, or 78.2% gross margin, compared to $515.9 million,
or 78.6%, in fiscal 2021.
-
Operating Income (Loss): GAAP loss from operations was $201.2 million, or 20.6% of total revenue, compared to $127.7 million
or 19.5% of total revenue, in fiscal 2021. Non-GAAP income from operations was $35.7 million, or 3.7% of
total revenue, compared to non-GAAP loss from operations of $7.0 million, or 1.1% of total revenue, in
fiscal 2021.
-
Net Income (Loss): GAAP net loss was $193.4 million compared to $260.3 million for fiscal 2021. GAAP net loss per
basic and diluted share was $0.59, compared to $0.83 for fiscal 2021. Non-GAAP net income was $44.4 million
compared to non-GAAP net loss of $15.1 million for fiscal 2021. Non-GAAP net income per diluted share was
$0.13, compared to non-GAAP net loss per diluted share of $0.05 for fiscal 2021.
-
Cash Flow: Net cash flow from operating activities was $123.6 million, compared to $64.6 million for fiscal
2021. Free cash flow was negative $39.8 million, or 4% of total revenue, compared to negative $43.1 million,
or 7% of total revenue, for fiscal 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 challenging general economic conditions, including inflation, rising interest rates, and other
impacts of the ongoing COVID-19 pandemic or Russia-Ukraine conflict, reflect our estimates as of February 9,
2023 regarding the impact of these factors on our operations, and are highly dependent on numerous factors that
we may not be able to predict or control, including, among others: the COVID-19 pandemic, the Russia-Ukraine
conflict, and related challenging macroeconomic conditions and the resulting impact on our customers, vendors,
and partners, and the impact on global and regional economies, financial markets, and economic activity
generally, such as inflation, rising interest rates, changes in monetary policy, supply chain disruptions, and
foreign currency fluctuations; our ability to continue operating in impacted areas; and customer demand and
spending patterns.
For the first quarter of 2023, we expect:
-
Total revenue of $290.0 to $291.0 million
-
Non-GAAP income from operations of $11.5 to $12.5 million
-
Non-GAAP net income per share of $0.03 to $0.04, utilizing weighted average common shares outstanding of
approximately 342 million
For the full year 2023, we expect:
-
Total revenue of $1,330.0 to $1,342.0 million
-
Non-GAAP income from operations of $54.0 to $58.0 million
-
Non-GAAP net income per share of $0.15 to $0.16, utilizing weighted average common shares outstanding of
approximately 344 million
Conference Call Information
Cloudflare will host an investor conference call to discuss its fourth quarter and fiscal year ended December
31, 2022 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 extent and duration of the impact of the
COVID-19 pandemic, the Russia-Ukraine conflict and resulting adverse macroeconomic conditions, such as inflation
and rising interest rates, 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; our ability to increase brand awareness; our ability to generate demand for our
products; 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; foreign currency fluctuations; 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
November 3, 2022, 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
D
ecember 31,
|
|
Year Ended
D
ecember 31,
|
|
|
2022
|
|
|
|
2021
|
|
|
|
2022
|
|
|
|
2021
|
|
Revenue
|
$
|
274,700
|
|
|
$
|
193,596
|
|
|
$
|
975,241
|
|
|
$
|
656,426
|
|
Cost of revenue(1)(2)
|
|
67,788
|
|
|
|
42,496
|
|
|
|
232,610
|
|
|
|
147,134
|
|
Gross profit
|
|
206,912
|
|
|
|
151,100
|
|
|
|
742,631
|
|
|
|
509,292
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Sales and marketing(1)(2)(3)
|
|
132,050
|
|
|
|
96,219
|
|
|
|
465,762
|
|
|
|
328,065
|
|
Research and development(1)(3)
|
|
79,703
|
|
|
|
61,762
|
|
|
|
298,303
|
|
|
|
189,408
|
|
General and administrative(1)
|
|
45,850
|
|
|
|
34,183
|
|
|
|
179,769
|
|
|
|
119,503
|
|
Total operating expenses
|
|
257,603
|
|
|
|
192,164
|
|
|
|
943,834
|
|
|
|
636,976
|
|
Loss from operations
|
|
(50,691
|
)
|
|
|
(41,064
|
)
|
|
|
(201,203
|
)
|
|
|
(127,684
|
)
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
Interest income
|
|
8,323
|
|
|
|
668
|
|
|
|
14,877
|
|
|
|
1,970
|
|
Interest expense(4)
|
|
(875
|
)
|
|
|
(16,108
|
)
|
|
|
(4,984
|
)
|
|
|
(49,234
|
)
|
Loss on extinguishment of debt
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(72,234
|
)
|
Other income (expense), net
|
|
(1,602
|
)
|
|
|
(426
|
)
|
|
|
577
|
|
|
|
(794
|
)
|
Total non-operating income (expense), net
|
|
5,846
|
|
|
|
(15,866
|
)
|
|
|
10,470
|
|
|
|
(120,292
|
)
|
Loss before income taxes
|
|
(44,845
|
)
|
|
|
(56,930
|
)
|
|
|
(190,733
|
)
|
|
|
(247,976
|
)
|
Provision for income taxes
|
|
1,072
|
|
|
|
20,571
|
|
|
|
2,648
|
|
|
|
12,333
|
|
Net loss
|
$
|
(45,917
|
)
|
|
$
|
(77,501
|
)
|
|
$
|
(193,381
|
)
|
|
$
|
(260,309
|
)
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.14
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.83
|
)
|
Weighted-average shares used in computing net loss per share attributable to common
stockholders, basic and diluted
|
|
328,326
|
|
|
|
320,331
|
|
|
|
326,332
|
|
|
|
312,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation and related employer payroll taxes as follows:
Cost of revenue
|
$
|
1,289
|
|
|
$
|
1,337
|
|
|
$
|
6,770
|
|
|
$
|
3,703
|
|
Sales and marketing
|
|
18,487
|
|
|
|
10,184
|
|
|
|
53,692
|
|
|
|
32,869
|
|
Research and development
|
|
30,276
|
|
|
|
24,747
|
|
|
|
112,277
|
|
|
|
61,056
|
|
General and administrative
|
|
12,572
|
|
|
|
5,830
|
|
|
|
45,027
|
|
|
|
19,706
|
|
Total stock-based compensation and related employer payroll taxes
|
$
|
62,624
|
|
|
$
|
42,098
|
|
|
$
|
217,766
|
|
|
$
|
117,334
|
|
(2) Includes amortization of acquired intangible assets as follows:
Cost of revenue
|
$
|
4,311
|
|
|
$
|
846
|
|
|
$
|
13,444
|
|
|
$
|
2,946
|
|
Sales and marketing
|
|
575
|
|
|
|
—
|
|
|
|
1,725
|
|
|
|
—
|
|
Total amortization of acquired intangible assets
|
$
|
4,886
|
|
|
$
|
846
|
|
|
$
|
15,169
|
|
|
$
|
2,946
|
|
(3) Includes acquisition-related and other expenses as follows:
Sales and marketing
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
265
|
|
|
$
|
—
|
|
Research and development
|
|
—
|
|
|
|
—
|
|
|
|
3,682
|
|
|
|
—
|
|
General and administrative
|
|
—
|
|
|
|
380
|
|
|
|
—
|
|
|
|
380
|
|
Total acquisition-related and other expenses
|
$
|
—
|
|
|
$
|
380
|
|
|
$
|
3,947
|
|
|
$
|
380
|
|
(4) Includes amortization of debt discounts and issuance costs as follows:
Amortization of debt discounts and issuance costs*
|
$
|
1,162
|
|
|
$
|
15,686
|
|
|
$
|
4,659
|
|
|
$
|
46,174
|
|
Total amortization of debt discounts and issuance costs
|
$
|
1,162
|
|
|
$
|
15,686
|
|
|
$
|
4,659
|
|
|
$
|
46,174
|
|
* The Company recorded amortization of debt discount as interest expense prior to the adoption of ASU 2020-06 on
January 1, 2022.
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
|
|
|
|
|
|
|
|
December 31,
2
022
|
|
December 31,
2
021
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
204,178
|
|
|
$
|
313,777
|
|
Available-for-sale securities
|
|
|
1,445,759
|
|
|
|
1,508,066
|
|
Accounts receivable, net
|
|
|
148,544
|
|
|
|
95,543
|
|
Contract assets
|
|
|
8,292
|
|
|
|
6,079
|
|
Restricted cash short-term
|
|
|
10,555
|
|
|
|
2,958
|
|
Prepaid expenses and other current assets
|
|
|
70,556
|
|
|
|
29,433
|
|
Total current assets
|
|
|
1,887,884
|
|
|
|
1,955,856
|
|
Property and equipment, net
|
|
|
286,600
|
|
|
|
183,736
|
|
Goodwill
|
|
|
148,047
|
|
|
|
23,530
|
|
Acquired intangible assets, net
|
|
|
32,483
|
|
|
|
1,254
|
|
Operating lease right-of-use assets
|
|
|
132,360
|
|
|
|
130,314
|
|
Deferred contract acquisition costs, noncurrent
|
|
|
93,145
|
|
|
|
70,320
|
|
Restricted cash
|
|
|
471
|
|
|
|
4,223
|
|
Other noncurrent assets
|
|
|
6,918
|
|
|
|
2,838
|
|
Total assets
|
|
$
|
2,587,908
|
|
|
$
|
2,372,071
|
|
Liabilities, Temporary Equity, and Stockholders’ Equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
35,607
|
|
|
$
|
26,086
|
|
Accrued expenses and other current liabilities
|
|
|
66,425
|
|
|
|
38,085
|
|
Accrued compensation
|
|
|
42,014
|
|
|
|
65,905
|
|
Operating lease liabilities
|
|
|
33,275
|
|
|
|
25,175
|
|
Liability for early exercise of unvested stock options
|
|
|
1,902
|
|
|
|
4,651
|
|
Deferred revenue
|
|
|
218,647
|
|
|
|
116,546
|
|
Current portion of convertible senior notes, net
|
|
|
—
|
|
|
|
12,117
|
|
Total current liabilities
|
|
|
397,870
|
|
|
|
288,565
|
|
Convertible senior notes, net
|
|
|
1,436,192
|
|
|
|
1,146,877
|
|
Operating lease liabilities, noncurrent
|
|
|
107,624
|
|
|
|
109,037
|
|
Deferred revenue, noncurrent
|
|
|
11,732
|
|
|
|
4,680
|
|
Other noncurrent liabilities
|
|
|
10,526
|
|
|
|
7,114
|
|
Total liabilities
|
|
|
1,963,944
|
|
|
|
1,556,273
|
|
|
|
|
|
|
Temporary equity, convertible senior notes
|
|
|
—
|
|
|
|
4,439
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
Class A common stock; $0.001 par value; 2,250,000 shares authorized as of December 31, 2022 and
2021; 286,561 and 277,708 shares issued and outstanding as of December 31, 2022 and 2021,
respectively
|
|
|
286
|
|
|
|
277
|
|
Class B common stock; $0.001 par value; 315,000 shares authorized as of December 31, 2022 and
2021; 43,525 and 45,904 shares issued and outstanding as of December 31, 2022 and 2021,
respectively
|
|
|
42
|
|
|
|
44
|
|
Additional paid-in capital
|
|
|
1,475,423
|
|
|
|
1,494,512
|
|
Accumulated deficit
|
|
|
(839,891
|
)
|
|
|
(680,829
|
)
|
Accumulated other comprehensive loss
|
|
|
(11,896
|
)
|
|
|
(2,645
|
)
|
Total stockholders’ equity
|
|
|
623,964
|
|
|
|
811,359
|
|
Total liabilities, temporary equity, and stockholders’ equity
|
|
$
|
2,587,908
|
|
|
$
|
2,372,071
|
|
|
|
|
|
|
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
Year ended December 31,
|
|
|
2022
|
|
|
|
2021
|
|
Cash Flows From Operating Activities
|
|
|
|
Net loss
|
$
|
(193,381
|
)
|
|
$
|
(260,309
|
)
|
Adjustments to reconcile net loss to cash provided by operating activities:
|
|
|
|
Depreciation and amortization expense
|
|
102,335
|
|
|
|
66,607
|
|
Non-cash operating lease costs
|
|
36,332
|
|
|
|
25,091
|
|
Amortization of deferred contract acquisition costs
|
|
45,115
|
|
|
|
29,267
|
|
Stock-based compensation expense
|
|
202,777
|
|
|
|
90,137
|
|
Amortization of debt discount and issuance costs
|
|
4,659
|
|
|
|
46,174
|
|
Net accretion of discounts and amortization of premiums on available-for-sale securities
|
|
(263
|
)
|
|
|
8,357
|
|
Deferred income taxes
|
|
(140
|
)
|
|
|
8,738
|
|
Provision for bad debt
|
|
4,828
|
|
|
|
3,804
|
|
Loss on extinguishment of debt
|
|
—
|
|
|
|
72,234
|
|
Exchange of convertible senior notes attributable to the accreted interest related to debt
discount
|
|
—
|
|
|
|
(29,353
|
)
|
Other
|
|
629
|
|
|
|
511
|
|
Changes in operating assets and liabilities, net of effect of acquisitions:
|
|
|
|
Accounts receivable, net
|
|
(56,195
|
)
|
|
|
(35,848
|
)
|
Contract assets
|
|
(2,213
|
)
|
|
|
(2,541
|
)
|
Deferred contract acquisition costs
|
|
(67,940
|
)
|
|
|
(55,411
|
)
|
Prepaid expenses and other current assets
|
|
(7,701
|
)
|
|
|
(2,395
|
)
|
Other noncurrent assets
|
|
(539
|
)
|
|
|
1,534
|
|
Accounts payable
|
|
(9,605
|
)
|
|
|
2,462
|
|
Accrued expenses and other current liabilities
|
|
(5,363
|
)
|
|
|
58,897
|
|
Operating lease liabilities
|
|
(31,691
|
)
|
|
|
(23,071
|
)
|
Deferred revenue
|
|
102,204
|
|
|
|
64,390
|
|
Other noncurrent liabilities
|
|
(253
|
)
|
|
|
(4,627
|
)
|
Net cash provided by operating activities
|
|
123,595
|
|
|
|
64,648
|
|
Cash Flows From Investing Activities
|
|
|
|
Purchases of property and equipment
|
|
(143,606
|
)
|
|
|
(92,986
|
)
|
Capitalized internal-use software
|
|
(19,758
|
)
|
|
|
(14,752
|
)
|
Cash paid for acquisitions, net of cash acquired
|
|
(88,187
|
)
|
|
|
(5,605
|
)
|
Purchases of available-for-sale securities
|
|
(1,132,951
|
)
|
|
|
(1,589,265
|
)
|
Sales of available-for-sale securities
|
|
—
|
|
|
|
25,714
|
|
Maturities of available-for-sale securities
|
|
1,148,770
|
|
|
|
967,519
|
|
Other investing activities
|
|
36
|
|
|
|
53
|
|
Net cash used in investing activities
|
|
(235,696
|
)
|
|
|
(709,322
|
)
|
Cash Flows From Financing Activities
|
|
|
|
Gross proceeds from issuance of convertible senior notes
|
|
—
|
|
|
|
1,293,750
|
|
Purchases of capped calls related to convertible senior notes
|
|
—
|
|
|
|
(86,293
|
)
|
Cash consideration paid in exchange of convertible senior debt
|
|
—
|
|
|
|
(370,647
|
)
|
Cash paid for issuance costs on convertible senior notes
|
|
—
|
|
|
|
(19,797
|
)
|
Repayments of convertible senior notes
|
|
(16,571
|
)
|
|
|
—
|
|
Proceeds from the exercise of stock options
|
|
10,000
|
|
|
|
21,385
|
|
Proceeds from the early exercise of stock options
|
|
113
|
|
|
|
115
|
|
Repurchases of unvested common stock
|
|
(3
|
)
|
|
|
(189
|
)
|
Payments on note payable
|
|
—
|
|
|
|
—
|
|
Proceeds from the issuance of common stock for employee stock purchase plan
|
|
15,291
|
|
|
|
14,984
|
|
Payment of tax withholding obligation on RSU settlement
|
|
(2,483
|
)
|
|
|
(3,634
|
)
|
Payment of tax withholding obligation on common stock issued under employee stock purchase plan
|
|
—
|
|
|
|
—
|
|
Payment of indemnity holdback
|
|
—
|
|
|
|
(2,188
|
)
|
Net cash provided by financing activities
|
|
6,347
|
|
|
|
847,486
|
|
Net (decrease) increase in cash, cash equivalents, and restricted cash
|
|
(105,754
|
)
|
|
|
202,812
|
|
Cash, cash equivalents, and restricted cash, beginning of period
|
|
320,958
|
|
|
|
118,146
|
|
Cash, cash equivalents, and restricted cash, end of period
|
$
|
215,204
|
|
|
$
|
320,958
|
|
|
|
|
|
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
D
ecember 31,
|
|
Year Ended
D
ecember 31,
|
|
|
|
2022
|
|
|
|
2021
|
|
|
|
2022
|
|
|
|
2021
|
|
Reconciliation of cost of revenue:
|
|
|
|
|
|
|
|
|
GAAP cost of revenue
|
|
$
|
67,788
|
|
|
$
|
42,496
|
|
|
$
|
232,610
|
|
|
$
|
147,134
|
|
Less: Stock-based compensation and related employer payroll taxes
|
|
|
(1,289
|
)
|
|
|
(1,337
|
)
|
|
|
(6,770
|
)
|
|
|
(3,703
|
)
|
Less: Amortization of acquired intangible assets
|
|
|
(4,311
|
)
|
|
|
(846
|
)
|
|
|
(13,444
|
)
|
|
|
(2,946
|
)
|
Non-GAAP cost of revenue
|
|
$
|
62,188
|
|
|
$
|
40,313
|
|
|
$
|
212,396
|
|
|
$
|
140,485
|
|
Reconciliation of gross profit:
|
|
|
|
|
|
|
|
|
GAAP gross profit
|
|
$
|
206,912
|
|
|
$
|
151,100
|
|
|
$
|
742,631
|
|
|
$
|
509,292
|
|
Add: Stock-based compensation and related employer payroll taxes
|
|
|
1,289
|
|
|
|
1,337
|
|
|
|
6,770
|
|
|
|
3,703
|
|
Add: Amortization of acquired intangible assets
|
|
|
4,311
|
|
|
|
846
|
|
|
|
13,444
|
|
|
|
2,946
|
|
Non-GAAP gross profit
|
|
$
|
212,512
|
|
|
$
|
153,283
|
|
|
$
|
762,845
|
|
|
$
|
515,941
|
|
GAAP gross margin
|
|
|
75.3
|
%
|
|
|
78.0
|
%
|
|
|
76.1
|
%
|
|
|
77.6
|
%
|
Non-GAAP gross margin
|
|
|
77.4
|
%
|
|
|
79.2
|
%
|
|
|
78.2
|
%
|
|
|
78.6
|
%
|
Reconciliation of operating expenses:
|
|
|
|
|
|
|
|
|
GAAP sales and marketing
|
|
$
|
132,050
|
|
|
$
|
96,219
|
|
|
$
|
465,762
|
|
|
$
|
328,065
|
|
Less: Stock-based compensation and related employer payroll taxes
|
|
|
(18,487
|
)
|
|
|
(10,184
|
)
|
|
|
(53,692
|
)
|
|
|
(32,869
|
)
|
Less: Amortization of acquired intangible assets
|
|
|
(575
|
)
|
|
|
—
|
|
|
|
(1,725
|
)
|
|
|
—
|
|
Less: Acquisition-related and other expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
(265
|
)
|
|
|
—
|
|
Non-GAAP sales and marketing
|
|
$
|
112,988
|
|
|
$
|
86,035
|
|
|
$
|
410,080
|
|
|
$
|
295,196
|
|
GAAP research and development
|
|
$
|
79,703
|
|
|
$
|
61,762
|
|
|
$
|
298,303
|
|
|
$
|
189,408
|
|
Less: Stock-based compensation and related employer payroll taxes
|
|
|
(30,276
|
)
|
|
|
(24,747
|
)
|
|
|
(112,277
|
)
|
|
|
(61,056
|
)
|
Less: Acquisition-related and other expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,682
|
)
|
|
|
—
|
|
Non-GAAP research and development
|
|
$
|
49,427
|
|
|
$
|
37,015
|
|
|
$
|
182,344
|
|
|
$
|
128,352
|
|
GAAP general and administrative
|
|
$
|
45,850
|
|
|
$
|
34,183
|
|
|
$
|
179,769
|
|
|
$
|
119,503
|
|
Less: Stock-based compensation and related employer payroll taxes
|
|
|
(12,572
|
)
|
|
|
(5,830
|
)
|
|
|
(45,027
|
)
|
|
|
(19,706
|
)
|
Less: Acquisition-related and other expenses
|
|
|
—
|
|
|
|
(380
|
)
|
|
|
—
|
|
|
|
(380
|
)
|
Non-GAAP general and administrative
|
|
$
|
33,278
|
|
|
$
|
27,973
|
|
|
$
|
134,742
|
|
|
$
|
99,417
|
|
Reconciliation of income (loss) from operations:
|
|
|
|
|
|
|
|
|
GAAP loss from operations
|
|
$
|
(50,691
|
)
|
|
$
|
(41,064
|
)
|
|
$
|
(201,203
|
)
|
|
$
|
(127,684
|
)
|
Add: Stock-based compensation and related employer payroll taxes
|
|
|
62,624
|
|
|
|
42,098
|
|
|
|
217,766
|
|
|
|
117,334
|
|
Add: Amortization of acquired intangible assets
|
|
|
4,886
|
|
|
|
846
|
|
|
|
15,169
|
|
|
|
2,946
|
|
Add: Acquisition-related and other expenses
|
|
|
—
|
|
|
|
380
|
|
|
|
3,947
|
|
|
|
380
|
|
Non-GAAP income (loss) from operations
|
|
$
|
16,819
|
|
|
$
|
2,260
|
|
|
$
|
35,679
|
|
|
$
|
(7,024
|
)
|
GAAP operating margin
|
|
|
(18.5
|
)%
|
|
|
(21.2
|
)%
|
|
|
(20.6
|
)%
|
|
|
(19.5
|
)%
|
Non-GAAP operating margin
|
|
|
6.1
|
%
|
|
|
1.2
|
%
|
|
|
3.7
|
%
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
D
ecember 31,
|
|
Year Ended
D
ecember 31,
|
|
|
|
2022
|
|
|
|
2021
|
|
|
|
2022
|
|
|
|
2021
|
|
Reconciliation of interest expense:
|
|
|
|
|
|
|
|
|
GAAP interest expense
|
|
$
|
(875
|
)
|
|
$
|
(16,108
|
)
|
|
$
|
(4,984
|
)
|
|
$
|
(49,234
|
)
|
Add: Amortization of debt discount and issuance costs(1)
|
|
|
1,162
|
|
|
|
15,686
|
|
|
|
4,659
|
|
|
|
46,174
|
|
Non-GAAP interest expense
|
|
$
|
287
|
|
|
$
|
(422
|
)
|
|
$
|
(325
|
)
|
|
$
|
(3,060
|
)
|
Reconciliation of loss on extinguishment of debt:
|
|
|
|
|
|
|
|
|
GAAP loss on extinguishment of debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(72,234
|
)
|
Add: Loss on extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,234
|
|
Non-GAAP loss on extinguishment of debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Reconciliation of provision for income taxes:
|
|
|
|
|
|
|
|
|
GAAP provision for income taxes
|
|
$
|
1,072
|
|
|
$
|
20,571
|
|
|
$
|
2,648
|
|
|
$
|
12,333
|
|
Income tax effect of non-GAAP adjustments
|
|
|
1,179
|
|
|
|
(18,622
|
)
|
|
|
3,722
|
|
|
|
(6,109
|
)
|
Non-GAAP provision for income taxes
|
|
$
|
2,251
|
|
|
$
|
1,949
|
|
|
$
|
6,370
|
|
|
$
|
6,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Company recorded amortization of debt discount as interest expense prior to the adoption of
ASU 2020-06 on January 1, 2022.
|
|
|
|
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
D
ecember 31,
|
|
Year Ended
D
ecember 31,
|
|
|
|
2022
|
|
|
|
2021
|
|
|
|
2022
|
|
|
|
2021
|
|
Reconciliation of net income (loss) and net income (loss) per share:
|
|
|
|
|
|
|
|
|
GAAP net loss attributable to common stockholders
|
|
$
|
(45,917
|
)
|
|
$
|
(77,501
|
)
|
|
$
|
(193,381
|
)
|
|
$
|
(260,309
|
)
|
Add: Stock-based compensation and related employer payroll taxes
|
|
|
62,624
|
|
|
|
42,098
|
|
|
|
217,766
|
|
|
|
117,334
|
|
Add: Amortization of acquired intangible assets
|
|
|
4,886
|
|
|
|
846
|
|
|
|
15,169
|
|
|
|
2,946
|
|
Add: Acquisition-related and other expenses
|
|
|
—
|
|
|
|
380
|
|
|
|
3,947
|
|
|
|
380
|
|
Add: Amortization of debt discount and issuance costs(1)
|
|
|
1,162
|
|
|
|
15,686
|
|
|
|
4,659
|
|
|
|
46,174
|
|
Add: Loss on extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,234
|
|
Income tax effect of non-GAAP adjustments
|
|
|
(1,179
|
)
|
|
|
18,622
|
|
|
|
(3,722
|
)
|
|
|
6,109
|
|
Non-GAAP net income (loss)
|
|
$
|
21,576
|
|
|
$
|
131
|
|
|
$
|
44,438
|
|
|
$
|
(15,132
|
)
|
|
|
|
|
|
|
|
|
|
GAAP net loss per share, basic
|
|
$
|
(0.14
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
GAAP net loss per share, diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.83
|
)
|
Add: Stock-based compensation and related employer payroll taxes
|
|
|
0.19
|
|
|
|
0.13
|
|
|
|
0.67
|
|
|
|
0.38
|
|
Add: Amortization of acquired intangible assets
|
|
|
0.01
|
|
|
|
—
|
|
|
|
0.04
|
|
|
|
—
|
|
Add: Acquisition-related and other expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
—
|
|
Add: Amortization of debt discount and issuance costs(1)
|
|
|
—
|
|
|
|
0.05
|
|
|
|
0.01
|
|
|
|
0.15
|
|
Add: Loss on extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.23
|
|
Income tax effect of non-GAAP adjustments
|
|
|
—
|
|
|
|
0.06
|
|
|
|
(0.01
|
)
|
|
|
0.02
|
|
Effect of dilutive shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Non-GAAP net income (loss) per share, diluted(2)(3)
|
|
$
|
0.06
|
|
|
$
|
0.00
|
|
|
$
|
0.13
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net loss per share attributable to common
stockholders, basic
|
|
|
328,326
|
|
|
|
320,331
|
|
|
|
326,332
|
|
|
|
312,321
|
|
Weighted-average shares used in computing non-GAAP net income (loss) per share attributable to
common stockholders, diluted(3)
|
|
|
341,123
|
|
|
|
345,838
|
|
|
|
341,676
|
|
|
|
312,321
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Company recorded amortization of debt discount as interest expense prior to the adoption of
ASU 2020-06 on January 1, 2022.
|
(2)
|
|
Totals may not sum due to rounding. Figures are calculated based upon the respective underlying
non-rounded data.
|
(3)
|
|
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
D
ecember 31,
|
|
Year Ended
D
ecember 31,
|
|
2022
|
|
|
|
2021
|
|
|
|
2022
|
|
|
|
2021
|
|
Free cash flow
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
78,123
|
|
|
$
|
40,617
|
|
|
$
|
123,595
|
|
|
$
|
64,648
|
|
Less: Purchases of property and equipment
|
|
(40,145
|
)
|
|
|
(28,334
|
)
|
|
|
(143,606
|
)
|
|
|
(92,986
|
)
|
Less: Capitalized internal-use software
|
|
(4,318
|
)
|
|
|
(3,647
|
)
|
|
|
(19,758
|
)
|
|
|
(14,752
|
)
|
Free cash flow
|
$
|
33,660
|
|
|
$
|
8,636
|
|
|
$
|
(39,769
|
)
|
|
$
|
(43,090
|
)
|
Net cash used in investing activities
|
$
|
(19,956
|
)
|
|
$
|
(354,795
|
)
|
|
$
|
(235,696
|
)
|
|
$
|
(709,322
|
)
|
Net cash provided by financing activities
|
$
|
8,019
|
|
|
$
|
9,774
|
|
|
$
|
6,347
|
|
|
$
|
847,486
|
|
Net cash provided by operating activities (percentage of revenue)
|
|
28
|
%
|
|
|
21
|
%
|
|
|
13
|
%
|
|
|
10
|
%
|
Less: Purchases of property and equipment (percentage of revenue)
|
|
(15
|
)%
|
|
|
(15
|
)%
|
|
|
(15
|
)%
|
|
|
(14
|
)%
|
Less: Capitalized internal-use software (percentage of revenue)
|
|
(1
|
)%
|
|
|
(2
|
)%
|
|
|
(2
|
)%
|
|
|
(2
|
)%
|
Free cash flow margin(1)
|
|
12
|
%
|
|
|
4
|
%
|
|
|
(4
|
)%
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
(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 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. Prior to adoption of ASU
2020-06 on January 1, 2022, we recorded amortization of debt discount as interest expense.
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.
Source: Cloudflare, Inc.