Cloudflare, Inc.

Thank you for standing by and welcome to the Cloudflare first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. Thank you. Now I'd like to turn the call over to your host, Phil Winslow, Vice President of Strategic Finance, Treasury, and Investor Relations. You may begin.

Thank you for joining us today to discuss Cloudflare's financial results for the first quarter of 2024. With me on the call, we have Matthew Prince, Co-Founder and CEO, Michelle Zatlin, Co-Founder, President and COO, Thomas Seifert, CFO, and Mark Anderson, President of Revenue. By now, everyone should have access to our earnings announcements. This announcement, as well as our supplemental financial information, may be found on our investor relations website. As a reminder, we will be making forward-looking statements during today's discussion, including, but not limited to, our customers, vendors, and partners' operations and future financial performance, our anticipated product launches and the timing and market potential of those products, and our anticipated future financial and operating performance, and our expectations regarding future macroeconomic conditions. These results and other comments are not guarantees of future performance and are subject to risks and uncertainties, much of which is beyond our control. Our actual results may differ significantly from those projected or suggested in any of our 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 SEC 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 non-GAAP basis. You will find a reconciliation of GAAP to non-GAAP financial measures that are included in our earnings release on our investor relations website. For historical periods, a gap to non-gap reconciliation can be found in the supplemental financial information referenced a few months ago. Before wrapping up, please save the date for our Investor Day on Thursday, May 30th, which is being held in conjunction with our user conference, CloudFlare Connect, in New York City. A live webcast will also be accessible from our Investor Relations website. Now, I'd like to turn the call over to Matthew.

Thank you, Phil. We had a very strong quarter. We achieved revenue of $378.6 million, up 30% year over year. We added 122 new large customers, those that pay us more than $100,000 per year, and now have 2,878 large customers, up 33% year over year. Revenue contribution from our large customers during the quarter increased to 67%, up from 62% in the first quarter last year. Digging into our largest customers, we added a record number of net new customers year over year, spending more than $100,000, $500,000, and $1 million on an annualized basis. We are successfully moving up market and becoming a larger and more strategic vendor to more and more of our customers. Our dollar-based net retention held steady quarter over quarter at 115%. Our gross margin was 79.5%, again, above our long-term target range of 75% to 77%, and up from 78.9% last quarter. We delivered operating profit of $42.4 million, representing an operating margin of 11.2%. Our gross margin and operating margin performance underscore cloud storage efficiency and increasing operational excellence. We again meaningfully outperformed on free cash flow, generating $35.6 million during the quarter. We have our hands firmly on the levers of our business. I'm proud of the fact that our team has been able to continue to build our network, service larger and larger customers, and launch entirely new categories of products, including in the AI space, while remaining disciplined with our CapEx, gross margin, operating margin, and cash flow. We have an elegant business that works because how all the pieces fit together and leverage our hyper-efficient network infrastructure in a way that we believe no competitors can match. If I reflect back on the history of CloudFlare, it divides fairly neatly in the seven-year eras. The first seven years, 2010 through 2017, were all about engineering and little else, figuring out if it was even possible to build the revolutionary network we have today. The next seven were all about products. taking that incredible engineering and packaging it up. As we got great at product, we didn't stop being incredible at engineering. We continue to build on and improve that foundation. Looking forward to the next seven years, we will continue to be the best in the world at engineering and product, but we'll add to that world-class sales and marketing. To that end, just 90 days ago, we announced that Mark Anderson would be joining Cloudflare as our new president of revenue to accelerate our next phase of growth at scale. He hit the ground running and has been enthusiastically embraced by our team. I thought it made sense for Mark to say a few words on what he's seen in his first 90 days. Mark?