Cloudflare, Inc.

Hello and welcome to the CloudFlare second quarter 2025 earnings 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, please press star one on your telephone keypad. I would now like to turn the conference over to Phil Winslow. You may begin.

Thank you for joining us today to discuss CloudFlare's financial results for the second quarter of 2025. With me on the call, we have Matthew Prince, co-founder and CEO, Michelle Zatlin, co-founder and president, 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 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 you're 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 TeBank's Technology Leadership Forum on August 12th, Stiefel's Tech Executive Summit on August 26th, and Goldman Sachsman's Communicopia and Technology Conference on September 9th. Now I'd like to turn the call over to Matthew.

Thank you, Phil. We had an excellent quarter. We crossed $2 billion in annual run rate revenue, achieving $512.3 million of revenue in the quarter. We started the year detailing our strategy to drive re-accelerating growth. Our Q2 results highlight that this formula is working and market key inflection points to the company, with revenue growing 28% year over year, up from .5% in the first quarter. We now have 3,712 customers paying us more than $100,000 per year, a 22% increase year over year. Revenue contribution from these large customers grew at 35% year over year, contributing to 71% of revenue during the quarter, up from 67% in the second quarter last year. Our dollar-based net retention was 114%, up 3% quarter over quarter. Our gross margin was 76.3%, in line with our long-term target range of 75% to 77%. We delivered an operating profit of $72.3 million, representing an operating margin of 14.1%, and we generated strong free cash flow of $33.3 million during the quarter, again exceeding expectations. Cloudflare keeps innovating faster than ever, and customers are voting with their wallets. You can see that in the momentum from our Q2 results. It's not just interest, it's real investments that drove record ACV bookings in the quarter. Beyond innovation, under the leadership of Mark Anderson, our President of Revenue, we also delivered significant operational and strategic progress along multiple -to-market areas in the second quarter. This set a strong foundation for the rest of the year and beyond. Some highlights of this. First, the number of ramped account executives increased year over year at the fastest pace in the last two years. We expect growth in our net sales capacity to continue to accelerate in the second half. Second, we delivered another year over year and quarter over quarter improvement in sales productivity. Third, we again saw particular strength with our largest customers, those that spend over $1 million and $5 million with Cloudflare annually, with both cohorts growing year over year at their highest level since 2022. And finally, new pipeline attainment exceeded our expectation and grew at the fastest rate in more than two years. I once again feel like the company is firing on all cylinders. The momentum you see in these results shows that we have the right technology, the right strategy, and importantly, the right team to accelerate Cloudflare's next phase of growth. That's a good segue to discuss some of our wins in the quarter. A rapidly growing AI company expanded their relationship with Cloudflare, signing a one-year $15 million pool of funds contract for workers AI. This is the third contract signed with this customer in the last year as they moved all of their inference workloads from a hyperscaler over to make Cloudflare their single inference cloud platform. The continued expansion with this customer demonstrates not only the tremendous value they realized from the Cloudflare platform, but also the truly unmatched scalability, efficiency, and speed of workers AI. Cloudflare is increasingly the platform the most innovative companies are choosing to power the future of AI. A Fortune 500 financial services company expanded their relationship with Cloudflare, signing two three-year contracts totaling $11.4 million for application services and magic transit. This customer initially approached us looking to bolster their network resiliency with a dual vendor strategy, and we were happy to come in as the number two behind their incumbent provider. Impressed with our superior reliability, best in class performance, and innovative product in just one month, this customer signed a second contract making Cloudflare their primary vendor. A Fortune 500 multinational financial services company expanded their relationship with Cloudflare, signing a three-year $7.1 million contract for application services, magic transit, and workers. This customer turned to Cloudflare to establish greater network resiliency by eliminating any single point of failure, migrating half of their traffic from a long time incumbent to us. A Fortune 100 global financial services company expanded their relationship with Cloudflare, signing a one-year $5 million pool of funds contract with initial use cases for magic transit, email security, threat intelligence, and application services. In addition to addressing pressing reliability and redundancy requirements in order to improve their network resiliency, this customer was also able to enhance their security posture and gain unparalleled threat intelligence collected from our vast global network. A large state government entity in the United States expanded their relationship with Cloudflare, signing a five-year $5.1 million contract for our SAP products, including secure Web Gateway, Magic WAN, DLP, and CASB. This customer's previous architecture was a mess of multiple vendors, including a first-generation zero-trust vendor that was only 30% deployed after three years. Consolidating onto Cloudflare's unified platform will improve the customer's overall security posture and simplify their architecture, while also realizing a roughly 60% cost savings. A Fortune 500 technology company expanded their relationship with Cloudflare, signing a three-year $2.4 million zero-trust contract. What's neat about this deal is we initially lost this RFP a year and a half ago to a first-generation zero-trust vendor who was ultimately unable to meet the company's requirements, leading the customer to come back to Cloudflare. They were blown away by how quickly our zero-trust products had matured in just 18 months. This pace of innovation, combined with our ease of deployment and superior performance, were key differentiators to securing this win this time around. A rapidly growing AI company signed a five-year $4.6 million contract for AI Gateway, Magic Firewall, Magic Transit, and Application Services. As a highly technical company, its customers turned to Cloudflare as a strategic partner to enable accelerated innovation, provide enhanced security, improve performance, and offer unmatched scale with our globally distributed connectivity cloud. This contract is just the beginning with its customers. They're already kicking the tires on our firewall for AI products. A leading digital travel company expanded their relationship with Cloudflare, signing a four-year $3.8 million contract primarily for our workers developer platform. This customer is transitioning workloads from an incumbent hyperscaler to Cloudflare workers to drive faster innovation and better empower developers, while also decreasing latency and improving their global end-user experience. In the words of this customer, quote, the performance improvement we saw with Cloudflare was crazy. This customer is a great example of our land and expand model across our product acts. They started with DNS in 2023, added application security and performance in 2024, and now are building atop our workers development platform. What's next? They're currently testing our zero-trust solution. Some of our most strategic customer wins in the quarter, however, weren't big ACV deals. Let me explain. Cloudflare has historically had relatively low penetration in media companies. They didn't spend a lot or have significant security concerns, so they weren't our top priority. However, over the last year, we've gotten to know their senior leaders and many of the leading publishers to understand new threats to their business. Historically, publishers online have made money primarily in two ways, subscriptions or ads. In either case, the key was generating traffic. In the past, one of the most effective ways to do that was through search. Over the last 25 years, publishers allowed Google and other search engines to copy their content in exchange for sending them traffic. But recently, that traffic has been falling dramatically. Based on the data that Cloudflare has observed, it's nearly 10 times harder to get traffic from Google than it was just 10 years ago. What's changed? The interface of the web is switching from search to AI. Even at Google, which has represented the dominant interface for discovering the web, most searches now include an AI overview, which Pew Research has found significantly decreases the likelihood of someone clicking on a link and reading original content. Pew's data aligns exactly with what we've observed based on our customers' traffic. It's even worse with pure AI companies. Every AI company we've trapped is worse than Google of old, with some being as much as 30,000 times harder to get traffic from. As the interface of the web switches from search to AI, it's clear more people will read derivatives of content rather than the original content itself. That means the new AI-driven web will kill the old web's business model. Cloudflare is in a unique position to help. More than 20% of the web sits behind us today. But maybe as importantly, around 80% of the leading AI companies know and use us. So in Q2, we partnered with the who's who of the publishing world, from the Associated Press to Ziff Davis and nearly everyone else in between, to help invent the new business model for content creators on an AI-driven web. The deals we are signing with these companies aren't high dollars, but they are highly strategic. The response has been incredibly positive from publishers for sure, but also from the majority of AI companies who understand that original content is the fuel that powers their engines. When seismic shifts happen in ecosystems as important as the web, new business models inherently emerge. We believe we are uniquely positioned to power the business model of content creation in the coming AI-driven web. But the opportunity may actually be much larger than that. The same rails that we are building to power payments from AI companies to publishers, we believe, will be used to facilitate transactions between AI agents, whatever they happen to be doing for you online. The fact that we sit in front of so much of the web and that more than half of our dynamic traffic is already between APIs means that we are strategically positioned to deliver the agentic web of the future. For those of you who have been following us for a while, you know that we talk about our product areas in terms of acts. Act 1 are our reverse proxy products, WAF, DDoS, mitigation, etc. Act 2 are our forward proxy products, Zero Trust, VPN, Network Firewall. Act 3 are our workers developer tools. What we are doing to help publishers empower agentic transactions is a big enough deal to us that we've begun to refer to it internally as Act 4. Now, you may not know this, but I was an English literature major in college with a computer science minor. I read a lot of Shakespeare and all of his plays had five acts. So don't think we're done here. We've still got a lot more up our sleeve. With that, I'll turn it over to Thomas, our CFO, who thankfully studied economics, not English literature. Thomas, take it away.