Cloudflare, Inc.

At this time, I would like to welcome everyone to the Cloudflare Q1 2025 earnings call. All lines have been placed on mute to prevent any background noise. And 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 followed by the number one on your telephone keypad. If you'd like to withdraw your question at any time, it's just that star followed by number one again. We do ask that you please limit yourself to an initial question and then a single follow-up when you're given the opportunity to speak. Thank you. With that, I'm pleased to turn the call over to Phil Winslow, VP of Strategic Finance, Treasury, and Investor Relations. Phil, please begin.

Thank you for joining us today to discuss Cloudflare's financial results for the first quarter of 2025. With me on the call, we have Matthew Prince, co-founder and CEO, and Thomas Seifert, CFO. Michelle Zatlin, co-founder and president, is traveling internationally and will not be available on today's call. 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 websites. 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 and are subject to risks and uncertainty 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 GAAP to non-GAAP 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 J.P. Morgan's 53rd Annual Global Technology, Media, and Communications Conference on Tuesday, May 13th. Now, with that, I'd like to turn the call over to Matthew.

Thank you, Phil. We had a strong start to 2025. We achieved revenue of $479.1 million, up 27% year over year. We closed the quarter with 3,527 customers paying us more than $100,000, a 23% increase year over year. Revenue contribution from these large customers grew 32% year over year, and they now contribute 69% of revenue, up from 67% of revenue in the first quarter last year. We saw particular strength with our largest customers, those that spend over $1 million and $5 million with CloudFlare per year. Within both of these cohorts, we added a record number of customers, increasing 48% and 54% year over year respectively, which shows the strong return on investment from our go-to-market improvements and large enterprise sales. Our dollar-based net retention was 111%, which is flat quarter to quarter. Our churn rates improved in the quarter. We are seeing stabilization in our customers' businesses and reduced pricing pressure from competition. Our gross margin was 77.1%, again, above our long-term target of 75% to 77%. We delivered operating profits of $56 million, representing an operating margin of 11.7%. And we generated strong free cash flow of $52.9 million during the quarter. As we've talked about before, we have a unique view of the global economy based on the volume and diversity of data that flows through CloudForge networks. In the past, that's given us an ability to make calls on the macro environment that turned out to be prescient. Given the nature of the uncertainty this time, we have less of a unique view into what lies ahead. But even without our privileged view, it's clear to everyone, the world is a more volatile place today than it was even a quarter ago. I'm incredibly proud of how our team has navigated this volatility. That starts on the cost side. We've been able to manage the continued expansion of our network without a significant change to our CapEx plan. We continue to invest behind actual demand to not get too far over our skis and have robust and diversified supply chains to mitigate tariff and trade risk. This is unique compared with some of our on-prem hardware competition, where we're seeing the last potential customer holdouts begin to migrate away from them because of the uncertainty tariffs will pose if your solution is a box that has to be shipped. On the revenue side, our investment in our go-to-market team remains early, but it's already paying off. This quarter, we achieved a number of milestones. We landed the largest contract in CloudFlare's history, a milestone deal of more than $100 million driven by our workers' developer platform. We closed the longest duration contract in CloudFlare's history for Zero Trust. We delivered another double-digit year-over-year improvement in sales productivity. We saw quarter-over-quarter improvement in our sales cycles, even as we closed larger deals with more sophisticated buyers, and our new pipeline attainment was ahead of our forecasts. What you see in these results is evidence of what we've been building towards, a company committed to disciplined execution regardless of external factors, a company becoming more mission critical to our customers each day, and a company with growing strategic importance at the center of the internet. The short term may continue to be volatile in terms of external influences, but the long term remains as full of opportunities for Cloudflare as ever. So we're going to keep a firm grip on the levers of our business. stay prudent with how we forecast, and invest in what we know works, an incredible go-to-market team, world-class engineering, and innovative products that redefine what's possible for our customers and reinvent the future of the Internet. That's the playbook for winning that has worked for us before, and we're confident it is the winning strategy regardless of the external environment. And that seems like a good segue to discuss some of our wins in the quarter. A leading technology company signed a five-year, $130 million pool of funds contract, primarily for our workers' developer platform. This marks the largest deal in Cloudflare's history. This existing customer significantly expanded their relationship with Cloudflare. They chose workers, durable objects, containers, and our real-time products. The customer was well down the line with a traditional hyperscaler, but made the decision to switch to Cloudflare when they saw our better performance, lower development costs, and more modern platforms. In the words of this customer, quote, the scale and performance of Cloudflare's network and its proximity to our user base was the most powerful driver to doing more with Cloudflare. Being close to users improves every element of their experience on our platform, end of quote. That's something the legacy model of the hyperscalers just can't match. And With the confidence of deals like this, our team is actively humming several more $100 million plus deals. A large technology company expanded their relationship with CloudFlare, signing a two-year $9.4 million contract, which includes a $2 million workers upsell along with Zero Trust and application services. CloudFlare Zero Trust products were significantly more performant than a first-generation competitor due to our network's expansive global presence including our distributed international FedRAMP points of presence. Cloudflare is displacing three vendors with this contract, showcasing the strong value proposition of our platform and significant ROI we provide our customers. An international critical infrastructure provider signed a seven-year, $12.7 million contract, marking our longest duration contract in Cloudflare's history. This customer is going all in on Cloudflare's SASE portfolio with access Gateway, DLP, Magic WAN, and Magic Firewall, along with application services. The strength and breadth of CloudFlare's holistic platform for both application services and SASE security controls allowed for seamless product integration and was a key differentiator from first-generation Zero Trust competitors. In the words of this customer, CloudFlare has by far the broadest and most programmable cloud security and connectivity platform on the market. A global 2000 international business services company expanded their relationship with Cloudflare, signing a five-and-a-half-year, $6.4 million contract for our full zero-trust portfolio. With Cloudflare's unified platform, this customer will display three vendors as they look to simplify operations, reduce latency, and improve the security gaps they have with their incumbent multi-vendor architecture. A large U.S. government entity signed a two-year, $6.2 million contract for Zero Trust. This customer evaluated several vendors to comply with new federal Zero Trust requirements, and CloudFlare ultimately stood out as the vendor of choice due to our world-class security products and the breadth of our network. This was a partner-led deal and a great example of the progress we continue to make with our partner-first motions. A government agency in Asia Pacific signed a three-year, $4.8 million contract for Magic Transit and Application Services. This government entity was looking to modernize its security posture with a cloud-first, best-in-class solution for both Layer 3 DDoS protection and Layer 7 application security. They view CloudFlare as a key enabler to their digital transformation and have been blown away by the visibility and intelligence they have at the network layer with CloudFlare. A Fortune 500 technology company expanded their relationship with CloudFlare, sending a three-year, $9.3 million contract for application services. This customer is migrating traffic from a hyperscaler to CloudFlare due to our ability to offer more robust security solutions and greater automation. With this customer also seeing the benefits of our platform, we're currently in discussions on a number of additional opportunities. These Q1 wins not only serve as a great springboard for the rest of 2025, but are also reminders that while the world may be uncertain, what's absolutely certain is that innovation wins and no company out-innovates Cloudflare. We invest early and are able to develop quickly with nimble teams because of the power and flexibility of our platform. Two products are just over a year old and have seen remarkable growth. The number of Cloudflare workers' AI inference requests powered by our network, are up nearly 4,000% year-over-year. The number of requests running through our AI gateway are up more than 1,200% year-over-year. We continue to invest in the future, building the first, fastest, and most powerful model context protocol, or MCP, server. This technology is key to enabling AI agents. I'm proud that great companies like Asana, Atlassian, Block, PayPal, Sentries, Stripe, and many more are building the interface for AI agents to work with their own platforms on top of CloudFlare workers. These companies are choosing CloudFlare because we have a rich developer platform, but also because we combine it with an understanding of internet performance and security. The security challenges of an agentic internet are not trivial, but the best companies know that CloudFlare will be a thoughtful partner in addressing them as we build the future together. A great enduring story is made up of more than one act. We're not bolting AI security through haphazard acquisitions, but instead building the unified platform that supports the future. That shows in the size of the deals we're closing, the length of those deals, and the caliber of the logos of customers that are betting on Cloudflare. The opportunity ahead of us is as massive as ever. We have the scale, the technology, and the team to capture it. The volatility in the world doesn't appear to be going away anytime soon, but we will continue to focus on our customers and execute on our strategy, just as we did this quarter. With that, I'll turn it over to Thomas. Thomas, take it away.