Cloudflare, Inc.

session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. I would like to turn the call over to Mr. Phil Winslow. Please go ahead.

Thank you for joining us today to discuss Cloudflare's financial results for the second quarter of 2024. With me on the call, we have Matthew Prince, co-founder and CEO of Michelle Zatlin, 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 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. our anticipated future financial and operating performance, and our expectations regarding future macroeconomic conditions. These statements and other comments are not guarantees of future performance, 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 may 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 moments ago. We would also like to inform you that we will be participating in the Steeple Tech Executive Summit on August 26th and the Goldman Sachs Communicopia and Technology Conference on September 10th. Now, I'd like to turn the call over to Matthew.

Thank you, Phil. We had a terrific quarter, even with the continued macroeconomic uncertainty. We crossed $1.6 billion in annualized revenue, achieving $401 million in the second quarter, up 30% year over year. During the quarter, we added 168 new large customers, those that pay us more than $100,000 per year, and now have 3,046 large customers, also up 30% year over year. Revenue contribution from these large customers during the quarter remained consistent at 67%, up from 64% in the second quarter last year. Our dollar-based net retention was 112%, down 3 percentage points quarter over quarter. Our gross margin was 79%, again, above our long-term target range of 75% to 77%. We delivered an operating profit of $57 million, representing an operating margin of 14.2%, underscoring our commitment to operational efficiency and productivity. We generated strong free cash flow of $38.3 million during the quarter, ahead of our expectations. This wasn't an easy quarter, but we continue to execute and deliver strong results. While I think we benefit from being a must-have, not a nice-to-have, We still had to fight for every deal as the IT buying environment continues to be challenging. But our investment in go-to-market improvements are showing dividends. Turns out, when you have the right players on the field, you can still play and win, even in the rain. In the second quarter, we again delivered another double-digit year-over-year improvement in sales productivity. In addition, close rates and sales cycles both also improved quarter to quarter and year over year. I'm proud of our team's execution. I also couldn't be more pleased about the early returns from Mark Anderson and the other go-to-market leaders with proven track records who have joined the team. In Q2, Mark hired a new VP of sales in the Americas, a new VP of revenue operations, and a global head of customer success. These are world-class go-to-market executives who recognize that we have the product, engineering, and go-to-market leadership for them to bet their careers. As Mark continues to focus on operationalizing productivity at scale and building a world-class go-to-market engine, a key focus in the second quarter involved making changes to the composition of our organization and bringing on more stage-appropriate talent. This really shows in the numbers. The sales manager and AE hiring in Q2 was up 150% quarter over quarter and 163% year over year. Again, the key to the quarter was excellent execution. We expect these additions to our go-to-market team to further add to our already building momentum with large enterprise customers, partners, and the public sector that we again delivered during the second quarter. That's a great segue to discuss some of our wins in the quarter. A leading Australian technology company expanded their relationship with Cloudflare, signing a two-year, $17.5 million contract, $7.2 million of which is expansion. They started with Cloudflare back in 2016 as a free customer and today use nearly all our products, spanning use cases as diverse as remote application access, worker service development, and bot management. Over the next two years, this customer expects to transmit over 180 petabytes and 3.9 trillion requests per month, and they see CloudFlare as essential to handling that level of connectivity while maintaining security. This is a great example of a land and expand customer who started with our free tier, sees the value, and expands over time. Sticking down under, another leading Australian technology company expanded their relationship with CloudFlare, signing a three-year, $2.6 million contract for 18,000 seats of Gateway, Access, Browser Isolation, CASB, DLP, and also our workers' development platform. This customer evaluated CloudFlare against three leading vendors in the market and selected us due to our superior technical solution, network performance, and future roadmaps. The customer called us after the deal closed and said, quote, you were the best solution today, but also for the future and the most strategic. We're very excited for this. One of the largest universities in the United States signed a five-year, $5.7 million contract. This customer is going all in on CloudFlare's SASE platform with 20,000 seats of Zero Trust, CASB, DLP, Email Security, Magic WAN, and Magic Firewall. This university approached us looking to modernize and scale their global network as their incumbent on-premise solution created bandwidth challenges and poor performance. With Cloudflare, they're able to replace multiple legacy vendors with a unified platform and cloud-first architecture. A large global research and development organization expanded their relationship with Cloudflare signing a two-year, $846,000 contract for CloudFlare's SASE portfolio with 3,500 seats of Access, Gateway, CASB, DLP, Browser Isolation, and Magic WAN, along with our Advanced Application Security Bundle. This was a very competitive process to displace legacy VPN providers, and CloudFlare was selected over three SASE competitors due to our superior network performance ease of use, and configuration, as well as our unified platform. A Fortune 500 financial services company expanded their relationship with CloudFlare, signing a one-year $895,000 contract for Magic Transit and Magic Firewall. Gaps in their incumbent products with two on-premise vendors left this customer vulnerable to attacks, creating significant urgency for our placement solutions. A number of channel partners mentioned CloudFlare as a leader in DDoS to this customer, and we are quick to come in and get this customer fully deployed, operational, and protected in just 10 days. A Fortune 500 gaming company signed a two-year, $3 million contract for advanced application security and performance, along with R2 storage. This customer was looking to improve availability for its technical infrastructure to support its large, global distribution of games. They are migrating all services from two incumbent vendors to Cloudflare due to the completeness of our solution, our superior network performance and scale, and unified platform giving them a single control plane. A leading AI company signed a one-year, $500,000 contract with Cloudflare to be their platform for AI for inference, storage, image optimization, and application security. This company was an existing R2 customer, allowing them to unlock the best prices and performance across multiple cloud providers. However, doing both training inference with a centralized hyperscale cloud created poor performance for their end users. With CloudFlare, this customer now has access to GPUs deployed across our network, close to their end users. Not only will inference tasks be more performant, but this customer is also realizing a 40% cost improvement with workers' AI. A leading technology company expanded their relationship with Cloudflare, signing a two-year, $4.8 million contract. This customer is focused on growing their enterprise and FedRAMP product lines and uses Cloudflare for Government along with Cloudflare Workers to dynamically route traffic in order to optimize reliability. This customer has significantly increased their usage as they unlock new use cases and lean further into standardizing on Cloudflare wherever possible across all their business units. After signing this deal, their team reached out to express interest in our AI products, so there should be more to come from this customer. I think there are two trends that stand out across all those customer stories. First, customers are adopting Cloudflare's broader platform and signing pool-of-fund deals. That can have some revenue recognition and DNR impacts, but we believe it is actually an extremely healthy sign as when customers buy into our broad platform that we know of no competitors that can match our feature set. Second, you'll notice that more and more of these large deals include CloudFlare workers, our developer platform. Last quarter, I announced that we crossed 2 million active developers on the platform. I checked in just the other day and we're already up to more than 2.4 million active developers and over 20% increase in just the last four months. This accelerated adoption following the announcements during our developer week in early April reinforces how developers are increasingly seeing Cloudflare as offering a complete solution for them to build and ship full stack applications. Workers' AI is growing even faster, with developer accounts taking advantage of our AI functions, increasing 67% quarter over quarter. Today, we have inference-tuned GPUs live in 167 cities worldwide, making us, we believe, the most global cloud inference solution. And inference requests powered by CloudFlare AI increased more than 700% quarter over quarter. Developers are turning to CloudFlare for their AI tasks that need to be fast, global, and compliant with an increasing patchwork of AI regulation. There's external validation as well. Back Overflow recently surveyed a broad base of developers on what platforms they're using today. Cloudflare came in fourth, just off the podium, ahead of 22 other developer platforms and behind only the three traditional hyperscale public clouds. What's even more exciting, however, is what the survey tells us about the future. When developers were asked what platform they were the most excited to work on in the coming year, Cloudflare came in second, ahead of AWS, Google, and Microsoft Azure. Cloudflare didn't even make the survey in 2022, so we're coming up fast. If we continue to increase developer interest at the same rate, it won't be long before we medal. And rest assured, our team won't be satisfied with anything short of gold. With that, I'll hand it off to Thomas, who looks after our gold. to walk through our financial results. Thomas, take it away.