- Fourth quarter revenue totaled $362.5 million, representing an
increase of 32% year-over-year; fiscal year 2023 revenue totaled
$1,296.7 million, representing an increase of 33%
year-over-year
- GAAP loss from operations of $42.8 million, or 11.8% of total
revenue, and non-GAAP income from operations of $39.8 million, or
11.0% of total revenue
- Achieved record operating cash flow and record free cash flow
for the fourth quarter; operating cash flow was $85.4 million, or
24% of total revenue, and free cash flow was $50.7 million, or 14%
of total revenue
Cloudflare, Inc. (NYSE: NET), the security, performance, and
reliability company helping to build a better Internet, today
announced financial results for its fourth quarter and fiscal year
ended December 31, 2023.
"We had an exceptionally strong fourth quarter. We grew revenue
by 32% percent year-over-year, to $362.5, blew away our previous
records for new ACV—delivering the highest quarterly growth since
2021—and signed both our largest new customer win and largest
customer renewal ever. Our pipeline close rates, sales force
productivity, average deal size, and linearity all improved
markedly quarter-over-quarter. To close out the year, strength in
our business was driven by robust momentum with large customers,
significant progress in the public sector, and growth in Cloudflare
One," said Matthew Prince, co-founder & CEO of Cloudflare. "The
machine that underlies Cloudflare is firing efficiently on all
cylinders, and while the macro environment remains challenging to
predict, customers continue to turn to us to connect, protect, and
optimize their systems so they can gain the control they need to
accelerate their businesses."
Fourth Quarter 2023 Financial Highlights
- Revenue: Total revenue of $362.5 million representing an
increase of 32% year-over-year.
- Gross Profit: GAAP gross profit was $279.2 million or
77.0% gross margin, compared to $206.9 million or 75.3%, in the
fourth quarter of 2022. Non-GAAP gross profit was $286.0 million or
78.9% gross margin, compared to $212.5 million, or 77.4%, in the
fourth quarter of 2022.
- Operating Income (Loss): GAAP loss from operations was
$42.8 million, or 11.8% of total revenue, compared to $50.7
million, or 18.5% of total revenue, in the fourth quarter of 2022.
Non-GAAP income from operations was $39.8 million, or 11.0% of
total revenue, compared to $16.8 million, or 6.1% of total revenue,
in the fourth quarter of 2022.
- Net Income (Loss): GAAP net loss was $27.9 million,
compared to $45.9 million in the fourth quarter of 2022. GAAP net
loss per basic and diluted share was $0.08 compared to $0.14 in the
fourth quarter of 2022. Non-GAAP net income was $53.5 million,
compared to $21.6 million in the fourth quarter of 2022. Non-GAAP
net income per diluted share was $0.15, compared to $0.06 in the
fourth quarter of 2022.
- Cash Flow: Net cash flow from operating activities was
$85.4 million, compared to $78.1 million for the fourth quarter of
2022. Free cash flow was $50.7 million, or 14% of total revenue,
compared to $33.7 million, or 12% of total revenue, in the fourth
quarter of 2022.
- Cash, cash equivalents, and available-for-sale
securities were $1,673.7 million as of December 31, 2023.
Full Year 2023 Financial Highlights
- Revenue: Total revenue of $1,296.7 million representing
an increase of 33% year-over-year.
- Gross Profit: GAAP gross profit was $989.7 million or
76.3% gross margin, compared to $742.6 million, or 76.1%, in fiscal
2022. Non-GAAP gross profit was $1,015.8 million, or 78.3% gross
margin, compared to $762.8 million, or 78.2%, in fiscal 2022.
- Operating Income (Loss): GAAP loss from operations was
$185.5 million, or 14.3% of total revenue, compared to $201.2
million or 20.6% of total revenue, in fiscal 2022. Non-GAAP income
from operations was $122.0 million, or 9.4% of total revenue,
compared to non-GAAP loss from operations of $35.7 million, or 3.7%
of total revenue, in fiscal 2022.
- Net Income (Loss): GAAP net loss was $183.9 million
compared to $193.4 million for fiscal 2022. GAAP net loss per basic
and diluted share was $0.55, compared to $0.59 for fiscal 2022.
Non-GAAP net income was $169.7 million compared to $44.4 million
for fiscal 2022. Non-GAAP net income per diluted share was $0.49,
compared to $0.13 for fiscal 2022.
- Cash Flow: Net cash flow from operating activities was
$254.4 million, compared to $123.6 million for fiscal 2022. Free
cash flow was $119.5 million, or 9% of total revenue, compared to
negative $39.8 million, or 4% of total revenue, for fiscal
2022.
The section titled "Non-GAAP Financial Information" below
describes our usage of non-GAAP financial measures. Reconciliations
between historical GAAP and non-GAAP information are contained at
the end of this press release following the accompanying financial
data.
Financial Outlook
For the first quarter of 2024, we expect:
- Total revenue of $372.5 to $373.5 million
- Non-GAAP income from operations of $34.0 to $35.0 million
- Non-GAAP net income per share of $0.13, utilizing weighted
average common shares outstanding of approximately 356 million
For the full year 2024, we expect:
- Total revenue of $1,648.0 to $1,652.0 million
- Non-GAAP income from operations of $154.0 to $158.0
million
- Non-GAAP net income per share of $0.58 to $0.59, utilizing
weighted average common shares outstanding of approximately 358
million
These statements are forward-looking and actual results may
differ materially. Refer to the Forward-Looking Statements safe
harbor below for information on the factors that could cause our
actual results to differ materially from these forward-looking
statements.
Conference Call Information
Cloudflare will host an investor conference call to discuss its
fourth quarter and fiscal year ended December 31, 2023 earnings
results today at 2:00 p.m. Pacific time (5:00 p.m. Eastern time).
Interested parties can access the call by dialing (877) 400-4517
from the United States or (332) 251-2620 internationally with
conference ID 3723782. A live webcast of the conference call will
be accessible from the investor relations website at
https://cloudflare.NET. A replay will be available approximately
two hours after the conclusion of the live event and will remain
available for approximately one year.
Supplemental Financial and Other Information
Supplemental financial and other information can be accessed
through the Company’s investor relations website at
https://cloudflare.NET.
Non-GAAP Financial Information
Cloudflare believes that the presentation of non-GAAP financial
information provides important supplemental information to
management and investors regarding financial and business trends
relating to the Company’s financial condition and results of
operations. Reconciliations of non-GAAP financial measures to the
most directly comparable financial results as determined in
accordance with GAAP are included at the end of this press release
following the accompanying financial data. A reconciliation of
non-GAAP guidance measures to corresponding GAAP measures is not
available on a forward-looking basis without unreasonable effort
due to the uncertainty of expenses that may be incurred in the
future. For further information regarding why Cloudflare believes
that these non-GAAP measures provide useful information to
investors, the specific manner in which management uses these
measures, and some of the limitations associated with the use of
these measures, please refer to the “Explanation of Non-GAAP
Financial Measures” section at the end of this press release.
Available Information
Cloudflare intends to use its press releases, website, investor
relations website, news site, blog, X account, Facebook account,
and Instagram account, in addition to filings made with the
Securities and Exchange Commission (SEC) and public conference
calls, as a means of disclosing material non-public information and
for complying with its disclosure obligations under Regulation
FD.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which statements involve substantial risks and
uncertainties. In some cases, you can identify forward-looking
statements because they contain words such as “may,” “will,”
“should,” “expect,” “explore,” “plan,” “anticipate,” “could,”
“intend,” “target,” “project,” “contemplate,” “believe,”
“estimate,” “predict,” “potential,” or “continue,” or the negative
of these words, or other similar terms or expressions that concern
our expectations, strategy, plans, or intentions. However, not all
forward-looking statements contain these identifying words.
Forward-looking statements expressed or implied in this press
release include, but are not limited to, statements regarding our
future financial and operating performance, our reputation and
performance in the market, general market trends, our estimated and
projected revenue, non-GAAP income from operations and non-GAAP net
income per share, shares outstanding, the benefits to customers
from using our products, the expected functionality and performance
of our products, the demand by customers for our products, our
plans and objectives for future operations, growth, initiatives, or
strategies, our market opportunity, and comments made by our CEO
and others. There are a significant number of factors that could
cause actual results to differ materially from statements made in
this press release, including: the impact of adverse macroeconomic
conditions, such as inflation, high interest rates, actual or
potential bank failures and recessionary concerns, on our and our
customers’, vendors’, and partners’ operations and future financial
performance; the impact of the Hamas-Israel and Russia-Ukraine
conflicts and other areas of geopolitical tension around the world;
our history of net losses; risks associated with managing our rapid
growth; our ability to attract and retain new customers (including
new large customers); our ability to retain and upgrade paying
customers and convert free customers to paying customers; our
ability to expand the number of products we sell to paying
customers; our ability to effectively increase sales to large
customers; our ability to increase brand awareness; our ability to
continue to innovate and develop new products and product features;
our ability to generate demand for our products; our ability to
effectively attract, train, and retain our sales force to be able
to sell our existing and new products and product features; our
sales team’s productivity; problems with our internal systems,
network, or data, including actual or perceived breaches or
failures; rapidly evolving technological developments, including
advancements in AI, in the market; length of our sales cycles and
the timing of payments by our customers; activities of our paying
and free customers or the content of their websites and other
Internet properties that use our network and products; foreign
currency fluctuations; changes in the legal, tax, and regulatory
environment applicable to our business; and other general market,
political, economic, and business conditions. Our actual results
could differ materially from those stated or implied in
forward-looking statements due to a number of factors, including
but not limited to, risks detailed in our filings with the SEC,
including our Quarterly Report on Form 10-Q filed on November 2,
2023, as well as other filings that we may make from time to time
with the SEC.
The forward-looking statements made in this press release relate
only to events as of the date on which the statements are made. We
undertake no obligation to update any forward-looking statements
made in this press release to reflect events or circumstances after
the date of this press release or to reflect new information or the
occurrence of unanticipated events, except as required by law. We
may not actually achieve the plans, intentions, or expectations
disclosed in our forward-looking statements, and you should not
place undue reliance on our forward-looking statements.
About Cloudflare
Cloudflare, Inc. (NYSE: NET) is the leading connectivity cloud
company. It empowers organizations to make their employees,
applications and networks faster and more secure everywhere, while
reducing complexity and cost. Cloudflare’s connectivity cloud
delivers the most full-featured, unified platform of cloud-native
products and developer tools, so any organization can gain the
control they need to work, develop, and accelerate their
business.
Powered by one of the world’s largest and most interconnected
networks, Cloudflare blocks billions of threats online for its
customers every day. It is trusted by millions of organizations –
from the largest brands to entrepreneurs and small businesses to
nonprofits, humanitarian groups, and governments across the
globe.
Learn more about Cloudflare’s connectivity cloud at
cloudflare.com/connectivity-cloud. Learn more about the latest
Internet trends and insights at radar.cloudflare.com.
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share
data)
(unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2023
2022
2023
2022
Revenue
$
362,473
$
274,700
$
1,296,745
$
975,241
Cost of revenue(1)(2)
83,283
67,788
307,005
232,610
Gross profit
279,190
206,912
989,740
742,631
Operating expenses:
Sales and marketing(1)(2)(3)
165,214
132,050
599,117
465,762
Research and development(1)(3)
96,401
79,703
358,143
298,303
General and administrative(1)
60,404
45,850
217,965
179,769
Total operating expenses
322,019
257,603
1,175,225
943,834
Loss from operations
(42,829
)
(50,691
)
(185,485
)
(201,203
)
Non-operating income (expense):
Interest income
20,190
8,323
68,167
14,877
Interest expense(4)
(1,069
)
(875
)
(5,872
)
(4,984
)
Loss on extinguishment of debt
—
—
(50,300
)
—
Other income (expense), net
(2,103
)
(1,602
)
(4,372
)
577
Total non-operating income, net
17,018
5,846
7,623
10,470
Loss before income taxes
(25,811
)
(44,845
)
(177,862
)
(190,733
)
Provision for income taxes
2,054
1,072
6,087
2,648
Net loss
$
(27,865
)
$
(45,917
)
$
(183,949
)
$
(193,381
)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.08
)
$
(0.14
)
$
(0.55
)
$
(0.59
)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
336,578
328,326
333,656
326,332
____________
(1) Includes stock-based compensation and
related employer payroll taxes as follows:
Cost of revenue
$
2,064
$
1,289
$
8,360
$
6,770
Sales and marketing
19,435
18,487
76,711
53,692
Research and development
36,932
30,276
140,074
112,277
General and administrative
18,873
12,572
62,355
45,027
Total stock-based compensation and related
employer payroll taxes
$
77,304
$
62,624
$
287,500
$
217,766
(2) Includes amortization of acquired
intangible assets as follows:
Cost of revenue
$
4,764
$
4,311
$
17,702
$
13,444
Sales and marketing
575
575
2,300
1,725
Total amortization of acquired intangible
assets
$
5,339
$
4,886
$
20,002
$
15,169
(3) Includes acquisition-related and other
expenses as follows:
Sales and marketing
$
—
$
—
$
—
$
265
Research and development
—
—
—
3,682
Total acquisition-related and other
expenses
$
—
$
—
$
—
$
3,947
(4) Includes amortization of debt issuance
costs as follows:
Interest expense
$
990
$
1,162
$
4,519
$
4,659
Total amortization of debt issuance
costs
$
990
$
1,162
$
4,519
$
4,659
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except par
value)
(unaudited)
December 31,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
$
86,864
$
204,178
Available-for-sale securities
1,586,880
1,445,759
Accounts receivable, net
248,268
148,544
Contract assets
11,041
8,292
Restricted cash short-term
2,522
10,555
Prepaid expenses and other current
assets
47,502
70,556
Total current assets
1,983,077
1,887,884
Property and equipment, net
322,813
286,600
Goodwill
148,047
148,047
Acquired intangible assets, net
19,564
32,483
Operating lease right-of-use assets
138,556
132,360
Deferred contract acquisition costs,
noncurrent
133,236
93,145
Restricted cash
1,838
471
Other noncurrent assets
12,636
6,918
Total assets
$
2,759,767
$
2,587,908
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable
$
53,727
$
35,607
Accrued expenses and other current
liabilities
63,597
68,327
Accrued compensation
63,801
42,014
Operating lease liabilities
38,351
33,275
Deferred revenue
347,608
218,647
Total current liabilities
567,084
397,870
Convertible senior notes, net
1,283,362
1,436,192
Operating lease liabilities,
noncurrent
113,490
107,624
Deferred revenue, noncurrent
17,244
11,732
Other noncurrent liabilities
15,540
10,526
Total liabilities
1,996,720
1,963,944
Stockholders’ Equity:
Class A common stock; $0.001 par value;
2,250,000 shares authorized as of December 31, 2023 and 2022;
298,089 and 286,561 shares issued and outstanding as of December
31, 2023 and 2022, respectively
297
286
Class B common stock; $0.001 par value;
315,000 shares authorized as of December 31, 2023 and 2022; 39,443
and 43,525 shares issued and outstanding as of December 31, 2023
and 2022, respectively
40
42
Additional paid-in capital
1,784,566
1,475,423
Accumulated deficit
(1,023,840
)
(839,891
)
Accumulated other comprehensive income
(loss)
1,984
(11,896
)
Total stockholders’ equity
763,047
623,964
Total liabilities, temporary equity, and
stockholders’ equity
$
2,759,767
$
2,587,908
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year ended December
31,
2023
2022
Cash Flows From Operating
Activities
Net loss
$
(183,949
)
$
(193,381
)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization expense
135,820
102,335
Non-cash operating lease costs
44,792
36,332
Amortization of deferred contract
acquisition costs
61,374
45,115
Stock-based compensation expense
273,989
202,777
Amortization of debt discount and issuance
costs
4,519
4,659
Net accretion of discounts and
amortization of premiums on available-for-sale securities
(44,441
)
(263
)
Deferred income taxes
2,264
(140
)
Provision for bad debt
13,637
4,828
Loss on extinguishment of debt
50,300
—
Other
829
629
Changes in operating assets and
liabilities, net of effect of acquisitions:
Accounts receivable, net
(113,361
)
(56,195
)
Contract assets
(2,749
)
(2,213
)
Deferred contract acquisition costs
(101,465
)
(67,940
)
Prepaid expenses and other current
assets
(22,125
)
(7,701
)
Other noncurrent assets
1,018
(539
)
Accounts payable
11,781
(9,605
)
Accrued expenses and other current
liabilities
25,788
(5,363
)
Operating lease liabilities
(40,046
)
(31,691
)
Deferred revenue
134,473
102,204
Other noncurrent liabilities
1,958
(253
)
Net cash provided by operating
activities
254,406
123,595
Cash Flows From Investing
Activities
Purchases of property and equipment
(114,396
)
(143,606
)
Capitalized internal-use software
(20,546
)
(19,758
)
Asset acquisitions and business
combinations, net of cash acquired
(6,083
)
(88,187
)
Purchases of available-for-sale
securities
(1,877,513
)
(1,132,951
)
Sales of available-for-sale securities
20,248
—
Maturities of available-for-sale
securities
1,812,015
1,148,770
Other investing activities
74
36
Net cash used in investing
activities
(186,201
)
(235,696
)
Cash Flows From Financing
Activities
Repayments of convertible senior notes
(207,649
)
(16,571
)
Proceeds from the exercise of stock
options
14,851
10,000
Proceeds from the early exercise of stock
options
—
113
Repurchases of unvested common stock
(34
)
(3
)
Proceeds from the issuance of common stock
for employee stock purchase plan
19,083
15,291
Payment of tax withholding obligation on
RSU settlement
(7,953
)
(2,483
)
Payment of indemnity holdback
(10,483
)
—
Net cash provided by (used in)
financing activities
(192,185
)
6,347
Net decrease in cash, cash equivalents,
and restricted cash
(123,980
)
(105,754
)
Cash, cash equivalents, and restricted
cash, beginning of period
215,204
320,958
Cash, cash equivalents, and restricted
cash, end of period
$
91,224
$
215,204
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2023
2022
2023
2022
Reconciliation of cost of
revenue:
GAAP cost of revenue
$
83,283
$
67,788
$
307,005
$
232,610
Less: Stock-based compensation and related
employer payroll taxes
(2,064
)
(1,289
)
(8,360
)
(6,770
)
Less: Amortization of acquired intangible
assets
(4,764
)
(4,311
)
(17,702
)
(13,444
)
Non-GAAP cost of revenue
$
76,455
$
62,188
$
280,943
$
212,396
Reconciliation of gross profit:
GAAP gross profit
$
279,190
$
206,912
$
989,740
$
742,631
Add: Stock-based compensation and related
employer payroll taxes
2,064
1,289
8,360
6,770
Add: Amortization of acquired intangible
assets
4,764
4,311
17,702
13,444
Non-GAAP gross profit
$
286,018
$
212,512
$
1,015,802
$
762,845
GAAP gross margin
77.0
%
75.3
%
76.3
%
76.1
%
Non-GAAP gross margin
78.9
%
77.4
%
78.3
%
78.2
%
Reconciliation of operating
expenses:
GAAP sales and marketing
$
165,214
$
132,050
$
599,117
$
465,762
Less: Stock-based compensation and related
employer payroll taxes
(19,435
)
(18,487
)
(76,711
)
(53,692
)
Less: Amortization of acquired intangible
assets
(575
)
(575
)
(2,300
)
(1,725
)
Less: Acquisition-related and other
expenses
—
—
—
(265
)
Non-GAAP sales and marketing
$
145,204
$
112,988
$
520,106
$
410,080
GAAP research and development
$
96,401
$
79,703
$
358,143
$
298,303
Less: Stock-based compensation and related
employer payroll taxes
(36,932
)
(30,276
)
(140,074
)
(112,277
)
Less: Acquisition-related and other
expenses
—
—
—
(3,682
)
Non-GAAP research and development
$
59,469
$
49,427
$
218,069
$
182,344
GAAP general and administrative
$
60,404
$
45,850
$
217,965
$
179,769
Less: Stock-based compensation and related
employer payroll taxes
(18,873
)
(12,572
)
(62,355
)
(45,027
)
Non-GAAP general and administrative
$
41,531
$
33,278
$
155,610
$
134,742
Reconciliation of income (loss) from
operations:
GAAP loss from operations
$
(42,829
)
$
(50,691
)
$
(185,485
)
$
(201,203
)
Add: Stock-based compensation and related
employer payroll taxes
77,304
62,624
287,500
217,766
Add: Amortization of acquired intangible
assets
5,339
4,886
20,002
15,169
Add: Acquisition-related and other
expenses
—
—
—
3,947
Non-GAAP income from operations
$
39,814
$
16,819
$
122,017
$
35,679
GAAP operating margin
(11.8
)%
(18.5
)%
(14.3
)%
(20.6
)%
Non-GAAP operating margin
11.0
%
6.1
%
9.4
%
3.7
%
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2023
2022
2023
2022
Reconciliation of interest
expense:
GAAP interest expense
$
(1,069
)
$
(875
)
$
(5,872
)
$
(4,984
)
Add: Amortization of debt issuance
costs
990
1,162
4,519
4,659
Non-GAAP interest expense
$
(79
)
$
287
$
(1,353
)
$
(325
)
Reconciliation of loss on
extinguishment of debt:
GAAP loss on extinguishment of debt
$
—
$
—
$
(50,300
)
$
—
Add: Loss on extinguishment of debt
—
—
50,300
—
Non-GAAP loss on extinguishment of
debt
$
—
$
—
$
—
$
—
Reconciliation of provision for income
taxes:
GAAP provision for income taxes
$
2,054
$
1,072
$
6,087
$
2,648
Income tax effect of non-GAAP
adjustments
2,244
1,179
8,698
3,722
Non-GAAP provision for income taxes
$
4,298
$
2,251
$
14,785
$
6,370
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2023
2022
2023
2022
Reconciliation of net income (loss) and
net income (loss) per share:
GAAP net loss attributable to common
stockholders
$
(27,865
)
$
(45,917
)
$
(183,949
)
$
(193,381
)
Add: Stock-based compensation and related
employer payroll taxes
77,304
62,624
287,500
217,766
Add: Amortization of acquired intangible
assets
5,339
4,886
20,002
15,169
Add: Acquisition-related and other
expenses
—
—
—
3,947
Add: Amortization of debt issuance
costs
990
1,162
4,519
4,659
Add: Loss on extinguishment of debt
—
—
50,300
—
Income tax effect of non-GAAP
adjustments
(2,244
)
(1,179
)
(8,698
)
(3,722
)
Non-GAAP net income
$
53,524
$
21,576
$
169,674
$
44,438
GAAP net loss per share, basic
$
(0.08
)
$
(0.14
)
$
(0.55
)
$
(0.59
)
GAAP net loss per share, diluted
$
(0.08
)
$
(0.14
)
$
(0.55
)
$
(0.59
)
Add: Stock-based compensation and related
employer payroll taxes
0.23
0.19
0.86
0.67
Add: Amortization of acquired intangible
assets
0.02
0.01
0.06
0.04
Add: Acquisition-related and other
expenses
—
—
—
0.01
Add: Amortization of debt issuance
costs
—
—
0.01
0.01
Add: Loss on extinguishment of debt
—
—
0.15
—
Income tax effect of non-GAAP
adjustments
(0.01
)
—
(0.03
)
(0.01
)
Effect of dilutive shares
(0.01
)
—
(0.01
)
—
Non-GAAP net income per share,
diluted(1)(2)
$
0.15
$
0.06
$
0.49
$
0.13
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic
336,578
328,326
333,656
326,332
Weighted-average shares used in computing
non-GAAP net income per share attributable to common stockholders,
diluted(2)
353,558
341,123
344,483
341,676
____________
(1) Totals may not sum due to
rounding. Figures are calculated based upon the respective
underlying non-rounded data.
(2) For the period in which we
had non-GAAP net income, diluted non-GAAP net income per share is
calculated using weighted-average shares, adjusted for dilutive
potential shares that were assumed outstanding during period.
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2023
2022
2023
2022
Free cash flow
Net cash provided by operating
activities
$
85,441
$
78,123
$
254,406
$
123,595
Less: Purchases of property and
equipment
(30,816
)
(40,145
)
(114,396
)
(143,606
)
Less: Capitalized internal-use
software
(3,909
)
(4,318
)
(20,546
)
(19,758
)
Free cash flow
$
50,716
$
33,660
$
119,464
$
(39,769
)
Net cash used in investing activities
$
(101,647
)
$
(19,956
)
$
(186,201
)
$
(235,696
)
Net cash provided by (used in) financing
activities
$
9,790
$
8,019
$
(192,185
)
$
6,347
Net cash provided by operating activities
(percentage of revenue)
24
%
28
%
20
%
13
%
Less: Purchases of property and equipment
(percentage of revenue)
(9
)%
(15
)%
(9
)%
(15
)%
Less: Capitalized internal-use software
(percentage of revenue)
(1
)%
(1
)%
(2
)%
(2
)%
Free cash flow margin(1)
14
%
12
%
9
%
(4
)%
____________
(1) Totals may not sum due to
rounding. Figures are calculated based upon the respective
underlying non-rounded data.
Explanation of Non-GAAP Financial Measures
In addition to our results determined in accordance with
generally accepted accounting principles in the United States (U.S.
GAAP), we believe the following non-GAAP measures are useful in
evaluating our operating performance. We use the following non-GAAP
financial information to evaluate our ongoing operations and for
internal planning and forecasting purposes. We believe that
non-GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and
comparability with past financial performance. However, non-GAAP
financial information is presented for supplemental informational
purposes only, has limitations as an analytical tool and should not
be considered in isolation or as a substitute for financial
information presented in accordance with U.S. GAAP. In particular,
free cash flow is not a substitute for cash provided by (used in)
operating activities. Additionally, the utility of free cash flow
as a measure of our liquidity is further limited as it does not
represent the total increase or decrease in our cash balance for a
given period. In addition, other companies, including companies in
our industry, may calculate similarly-titled non-GAAP measures
differently or may use other measures to evaluate their
performance, all of which could reduce the usefulness of our
non-GAAP financial measures as tools for comparison. A
reconciliation is provided above for each non-GAAP financial
measure to the most directly comparable financial measure stated in
accordance with U.S. GAAP. Investors are encouraged to review the
related U.S. GAAP financial measures and the reconciliation of
these non-GAAP financial measures to their most directly comparable
U.S. GAAP financial measures, and not to rely on any single
financial measure to evaluate our business.
Items Excluded from Non-GAAP Measures. We exclude
stock-based compensation expense, which is a non-cash expense, from
certain of our non-GAAP financial measures because we believe that
excluding this item provides meaningful supplemental information
regarding operational performance. We exclude employer payroll tax
expenses related to stock-based compensation which is a cash
expense, from certain of our non-GAAP financial measures because
such expenses are dependent on the price of our common stock and
other factors that are beyond our control and do not correlate to
the operation of our business. We exclude amortization of acquired
intangible assets, which is a non-cash expense, related to business
combinations from certain of our non-GAAP financial measures
because such expenses are related to business combinations and have
no direct correlation to the operation of our business. We exclude
acquisition-related and other expenses from certain of our non-GAAP
financial measures because such expenses are related to business
combinations and have no direct correlation to the operation of our
business. Acquisition-related and other expenses can be cash or
non-cash expenses and include third-party transaction costs and
compensation expense for key acquired personnel. We exclude
amortization of debt issuance costs and loss on extinguishment of
debt, which are non-cash expenses, from certain of our non-GAAP
financial measures because such expenses have no direct correlation
to the operation of our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin. We
define non-GAAP gross profit and non-GAAP gross margin as U.S. GAAP
gross profit and U.S. GAAP gross margin, respectively, excluding
stock-based compensation and related employer payroll taxes and
amortization of acquired intangible assets.
Non-GAAP Income (Loss) from Operations and Non-GAAP Operating
Margin. We define non-GAAP income (loss) from operations and
non-GAAP operating margin as U.S. GAAP loss from operations and
U.S. GAAP operating margin, respectively, excluding stock-based
compensation and related employer payroll taxes, amortization of
acquired intangible assets, and acquisition-related and other
expenses.
Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) per
Share, Diluted. We define non-GAAP net income (loss) as GAAP
net income (loss) adjusted for stock-based compensation and related
employer payroll taxes, amortization of acquired intangible assets,
acquisition-related and other expenses, amortization of issuance
costs, loss on extinguishment of debt, and a non-GAAP provision for
(benefit from) income taxes. Generally, the difference between our
GAAP and non-GAAP income tax expense (benefit) is primarily due to
adjustments in stock-based compensation and related employer
payroll taxes, amortization of acquired intangibles associated with
business combinations, acquisition-related and other expenses, and
amortization of issuance costs. We define non-GAAP net loss per
share, diluted, as non-GAAP net loss divided by the
weighted-average common shares outstanding. Calculation of non-GAAP
net loss per share, diluted excludes all potentially dilutive
securities as their effect is antidilutive. We define non-GAAP net
income per share, diluted, as non-GAAP net income divided by the
weighted-average common shares outstanding, adjusted for dilutive
potential shares that were assumed outstanding during period.
Currently, potential dilutive effect mainly consists of employee
equity incentive plans and convertible senior notes. We believe
that excluding these items from non-GAAP net income (loss) per
share, diluted, provides management and investors with greater
visibility into the underlying performance of our core business
operating results.
Free Cash Flow and Free Cash Flow Margin. Free cash flow
is a non-GAAP financial measure that we calculate as net cash
provided by (used in) operating activities less cash used for
purchases of property and equipment and capitalized internal-use
software. Free cash flow margin is calculated as free cash flow
divided by revenue. We believe that free cash flow and free cash
flow margin are useful indicators of liquidity that provide
information to management and investors about the amount of cash
generated from our operations that, after the investments in
property and equipment and capitalized internal-use software, can
be used for strategic initiatives, including investing in our
business, and strengthening our financial position. We believe that
historical and future trends in free cash flow and free cash flow
margin, even if negative, provide useful information about the
amount of cash generated (or consumed) by our operating activities
that is available (or not available) to be used for strategic
initiatives. For example, if free cash flow is negative, we may
need to access cash reserves or other sources of capital to invest
in strategic initiatives. One limitation of free cash flow and free
cash flow margin is that they do not reflect our future contractual
commitments. Additionally, free cash flow does not represent the
total increase or decrease in our cash balance for a given
period.
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version on businesswire.com: https://www.businesswire.com/news/home/20240208790531/en/
Investor Relations Information Phil Winslow
ir@cloudflare.com
Press Contact Information Daniella Vallurupalli
press@cloudflare.com
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