Cloudflare, Inc.

Is this love? So dancing all night. Your head's pressed against mine. I can't help it this time. Can't you tell when I look at you in my room and my saying is too soon, but I love you. Or is this feeling? There's something I don't know. Should we try to take it slow? When do I let go? What do I do? When you look at me in my room, am I saying this to you? Do you want to run a shop I'm buying? Damn, you make me want to run a shop. And I wish I could tell you some crime. I think you know, but I can't tell. Let's slow down for a shake. Talk about life and our regrets. Can't stop smoking cigarettes. Hey, hey, hey, hey, hey. Hey, hey, hey, hey, hey. Thank you. The empty room where you used to stay And kissed me till it got better again An empty hallway, my mind may stay. Your lips taste like sugar candy. One, two, three, sway. Will I be okay? Should I keep watching? Thank you. When it gets you down, when it gets you down, when it gets you down, all the time it gets you down. All the time it gets you down, when it gets you down, when it gets you down, all the time it gets you down. I will not run. I will not hide. You can find me. Find me now. I will not run. I will not hide. You can find me. © BF-WATCH TV 2021 Thank you. I don't know that you're mine But I've been exposed to pain, pain All right. All right. Thank you. I'm waiting for another day I want to go on every ride. Try something that I've never tried. I want to reach deep inside. I'm not going home without you I'm not going home without you When you're stuck in imagination, we can't take back the memories that we've lost before. I travel to a time and place where I want to let love depart away. i can't do it is I'm not going home without you. Not going home without you. I'm not going home, not going home. I'm not going home without you. Oh, since you've been mine, I wonder. Besides you and me, no other.

Good day, and thank you for standing by, and welcome to the CloudFlare Q221 earnings call. At this time, all participants are in a listen-only mode. After the speaker's remark, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jason Noland. Please go ahead.

Thank you for joining us to discuss Cloudflare's financial results for the second quarter 2021. With me on the call, we have Matthew Prince, co-founder and CEO, Michelle Datlin, co-founder, president and COO, and Thomas Seifert, CFO. By now, everyone should have access to our earnings announcement. This announcement, as well as our supplemental financial information, may be found in our investor relations website. As a reminder, we'll be making forward-looking statements during today's discussion, including, but not limited to, our customers, vendors, and partners' operations and future financial performance, anticipated product launches and the timing and market potential of those products, The company's anticipated future revenue, financial performance, operating performance, non-GAAP gross margin, non-GAAP net loss from operations, non-GAAP net loss per share, shares outstanding, non-GAAP operating expenses, free cash flow, non-GAAP effective tax rate, dollar-based net retention rate, total customers, paying customers, and large customers. These statements and other comments are not guaranteed the future performance, but rather are subject to risks and uncertainty, some of which are beyond our control, including but not limited to the extent and duration of the impact of the COVID-19 pandemic and adverse conditions in the general domestic and global economic markets. Our actual results may differ significantly from those projected or suggested in any forward-looking statements. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, Please see our filings with the Securities and Exchange Commission, as well as in today's earnings press release. Unless otherwise noted, all numbers we talk about today, other than revenue, will be on an adjusted gap basis. All current and prior period financials discussed are reflected under ASC 606. You may find a reconciliation of gap to non-gap financial measures in our earnings release on our industrial relations website. For historical periods, a gap-to-none gap reconciliation can be found in the supplemental financial information referenced a few moments ago. We would also like to inform you that we will be virtually participating in the Oppenheimer Technology, Internet, and Communications Conference on August 10th, the KeyBank Technology Conference on August 11th, the Deutsche Bank Technology Conference on September 9th, the Citi Technology Conference on September 13th, the Piper Sandler Global Technology Conference on September 14th, and the Jeffrey Zucker Conference on September 15th. Now, I'd like to turn the call over to Matthew. Thank you, Jason. We had our strongest quarter as a public company. In Q2, we achieved revenue of $152 million, up 53% year over year. Our revenue growth continued to accelerate as we saw strength across all customer segments. In particular, we added a record 143 large customers, those that pay us more than $100,000 per year, and ended the quarter with 1,088 large customers. 19% of the Fortune 1000 are now paying CloudFlare customers, and we continue to see particular strength across our enterprise business. Our expansion rates also improved over Q1, with dollar-based net retention reaching 124% in Q2. Even with this strong revenue and customer growth, our gross margins improved to 78%, up 120 basis points year over year. If there were a theme for the quarter, it was Cloudflare winning the business of the largest and most sophisticated companies and organizations in the world. To that end, I wanted to jump right in and highlight some customer wins, starting with the world's largest IT buyers. The United States federal government chose Cloudflare's Zero Trust solutions in order to help secure federal agencies against the rising threat of cyber attacks. We partnered with Accenture Federal Services and won a contract with the Department of Homeland Security to offer our protection to all civilian executive branch agencies. This was a very competitive process where we were up against nearly every other vendor in the space. Our win highlights how our Zero Trust solutions are now recognized as world-class This is also a good example of how we're increasingly working with leading GSIs like Accenture as we service larger and larger organizations. And there aren't many organizations larger than the United States government. While we are proud of this deal and the credibility it gives us as a leader in the zero trust space, and we believe it will ultimately be a significant contributor to revenue, we don't believe that the contribution will be meaningful in 2021. As a result, this deal, along with some other strategic deals we won in the quarter, do not show up in RPO, and we have not included the impact of them in our guidance through the end of the year. However, servicing a large customer like the United States government, as well as other strategic deals we won in Q2, does require us to increase investments in our network. Anticipating these deals, we began making increased investments in Q1 These investments continued in Q2, and we anticipate will continue through the second half of the year. We are investing for the long term, and we believe winning strategic customers proves how this strategy continues to pay off. Even with the initial investment, we still anticipate we will reach break-even in Q1 of 2022. While we're on the topic of profitability, I wanted to preview a conversation I anticipate having with some of you this time next year. As part of our long-term model, we have an operating margin target of 20%. When we say long-term, we really mean it. We remain confident in our ability to reach that long-term target, but we are not in a rush to get there. From the point at which we reach break-even, we intend to aggressively reinvest excess gross profit back into growth. We are nowhere close to being out of ideas for new products to build or customers to buy them. Cloudflare is optimized for innovation, and we plan to continue to launch new products, add more customers, relentlessly execute, and reinvest in growth for the foreseeable future. Security continued to be in the news and was a theme driving customer wins. A major oil and gas pipeline provider signed a $210,000 annual contract for a portion of our Cloudflare One solution. They were looking to help protect their infrastructure against the sophisticated cyber attack they were facing. They were referred to us by a major systems integrator, and together we helped better protect their critical infrastructure. I think this is evidence that when companies and their advisors face cybersecurity challenges, Cloudflare is increasingly one of their first phone calls. A Fortune 500 transportation provider signed a three-year, $340,000 contract for a portion of our Cloudflare One solution. This is another deal that came to us through a channel partner. We believe there's an opportunity to more than double the size of our relationship with this customer over the coming year. A Fortune 500 industrial services provider signed a two-year, $895,000 deal for a number of Cloudflow One components. This customer was targeted by the so-called Fancy Lazarus hacker group. We were able to enable our solution within four hours of our first conversation and mitigate the threat. A Fortune 500 auto parts manufacturing company faced a similar threat and turned to us to solve it. They signed a $300,000 annual deal. DeCito said, the Cloudler team was fantastic. We took this threat very seriously. Cloudler was there for us. You can't make a car with only 99% of the parts, so one malicious attack in the supply chain impacts everyone. In that spirit, he referred us to another Fortune 500 manufacturing company who signed a two-year, $320,000 contract. The CISO of that second firm referred us to a third Fortune 500 manufacturing firm who signed a two-year, $570,000 contract. That's over a million dollars in new contracts because our solutions worked and solved some of the problems that are top of mind for every technology leader right now. It increasingly feels like Cloudflare is becoming the de facto choice for enterprises when they are thinking about the future of their network security. A Fortune 500 born-on-the-web e-commerce provider expanded their use of Cloudflare. They were already using our WAF and content delivery products. Their team turned to us when they were looking for a developer-friendly zero-trust security solution. In a competitive process with other zero-trust vendors, we won this technically sophisticated customer service. In the process, they also went all-in on us, making us their exclusive provider of network services. This win shows how we can expand customers from using one of our products to being their complete, secure, programmable network provider. This customer's spend with us is now over $4 million annually, and we expect we will grow with them. A very large cryptocurrency exchange expanded the use of our network. As an exchange, they are obsessed with the fastest possible performance. They lean heavily on our Argo smart routing technology, as well as our global presence in more than 200 cities worldwide. They expanded their contract with us in the quarter and now spend over $4 million annually. It's also of note that three of the four largest cryptocurrency exchanges use Cloudflare's network to be fast and secure. We see more and more customers building applications around Cloudflare Workers, our compute platform. A high-profile new economy delivery company signed a $1.3 million three-year deal. They use a number of our products, but increasingly are building their application using workers in order to get fast, scalable performance. They appreciate the flexibility it provides as they literally deliver for their geographically distributed customer base. A financial services software provider signed a three-year, $3.3 million deal for a number of our products. They're using workers as a hyper-programmable middleware to stitch together multiple vendor solutions. They love how easy it is for developers on their team to get up and running on the platform because of the broad programming language support and rich developer tools that have been honed and battle tested in production since workers launched nearly four years ago. An Asian FinTech provider expanded their use of Cloudflare by half a million dollars, making their annual spend now $1.3 million. They're using workers to accelerate their development cycle and replace spend with some of the traditional hyperscale compute providers. They cited workers' ease of use and global performance as key drivers of their decision to double down on CloudFlare. From old-school manufacturing and cryptocurrency, from the United States government to some of the largest companies in the world, I was particularly struck this quarter how CloudFlare is resonating across industry segments and geographies as the answer whenever someone is looking for the future of a secure, programmable network. Finally, I wanted to make sure you all had a chance to catch our announcements last week. We have a tradition of hosting innovation weeks where we launch new products and features. We typically host about eight of these weeks per year. Last week was our first impact week. During the week, we highlighted Project Pangea, which provides internet connectivity at no cost to underserved communities worldwide. A number of initiatives to drive down Cloudflare's environmental impact and help our customers cut their carbon output. Our commitment to human rights, a sustainable workforce, and our vision for a more inclusive future of work. What I really like about these efforts is that they aren't ancillary. They are core to who we are and what we do as a company. We deeply believe in our mission of helping build a better Internet. And living that every day shows up in the continued success, winning customers, and attracting and retaining the incredible team we have. Thank you to all of them for what was an outstanding quarter. With that, I'll hand it off to Thomas to walk through the financials.