- Third quarter revenue totaled $114.2 million, representing an
increase of 54% year-over-year
- Q3 GAAP net loss per share of $0.09, representing an
improvement of $0.26 year-over-year; non-GAAP net loss per share of
$0.02, representing an improvement of $0.14 year-over-year
- Strong large customer growth, adding a record of roughly 100
net large enterprise customers in the quarter, in addition to our
first $10 million ARR customer
Cloudflare, Inc. (NYSE: NET), the security, performance, and
reliability company helping to build a better Internet, today
announced financial results for its third quarter ended September
30, 2020.
“Our third quarter represented many significant milestones
including surpassing $100M in revenue, crossing 100,000 paying
customers, and releasing more than a dozen new products and
features,” said Matthew Prince, co-founder & CEO of Cloudflare.
“I’m incredibly proud that we exceeded financial, customer, and
innovation milestones, all while providing our services, at no
cost, to state and local governments to ensure that cyberattacks
don’t disrupt the United States 2020 elections. The world has never
needed the Internet more than it has over the last nine months, and
we're laser focused on helping to keep it fast, reliable, and
secure.”
Third Quarter Fiscal 2020 Financial Highlights
- Revenue: Total revenue of $114.2 million, representing
an increase of 54% year-over-year.
- Gross Profit: GAAP gross profit was $87.2 million, or
76.3% gross margin, compared to $57.9 million, or 78.3%, in the
third quarter of 2019. Non-GAAP gross profit was $88.2 million, or
77.3% gross margin, compared to $58.3 million, or 78.9%, in the
third quarter of 2019.
- Operating Loss: GAAP loss from operations was $21.3
million, or 18.6% of total revenue, compared to $41.1 million, or
55.6% of total revenue, in the third quarter of 2019. Non-GAAP loss
from operations was $4.5 million, or 4.0% of total revenue,
compared to $18.1 million, or 24.5% of total revenue, in the third
quarter of 2019.
- Net Loss: GAAP net loss was $26.5 million, compared to
$40.9 million in the third quarter of 2019. Non-GAAP net loss was
$5.7 million, compared to $18.5 million in the third quarter of
2019. GAAP net loss per share was $0.09, compared to $0.35 in the
third quarter of 2019. Non-GAAP net loss per share was $0.02,
compared to $0.16 in the third quarter of 2019.
- Cash Flow: Net cash flow from operations was $2.0
million, compared to negative $17.8 million for the third quarter
of 2019. Free cash flow was negative $17.9 million, or 16% of total
revenue, compared to negative $33.6 million, or 45% of total
revenue, in the third quarter of 2019.
- Cash, cash equivalents, and available-for-sale
securities were $1,051.3 million as of September 30, 2020.
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
The following forward-looking statements regarding our financial
outlook are subject to substantial uncertainty as a result of the
COVID-19 pandemic, reflect our estimates as of November 5, 2020
regarding the impact of the pandemic on our operations, and are
highly dependent on numerous factors that we may not be able to
predict or control, including, among others: the duration, spread,
and severity of the pandemic; actions taken by governments and
businesses in response to the pandemic and the resulting impact on
our customers, vendors, and partners; the impact of the pandemic on
global and regional economies and economic activity generally; our
ability to continue operating in impacted areas; and customer
demand and spending patterns.
For the fourth quarter of fiscal 2020, we expect:
- Total revenue of $117.5 to $118.5 million
- Non-GAAP loss from operations of $10 to $9 million
- Non-GAAP net loss per share of $0.04 to $0.03, utilizing
weighted average common shares outstanding of approximately 304
million
For the full year fiscal 2020, we expect:
- Total revenue of $422.5 to $423.5 million
- Non-GAAP loss from operations of $38 to $37 million
- Non-GAAP net loss per share of $0.13 to $0.12, utilizing
weighted average common shares outstanding of approximately 300
million
Conference Call Information
Cloudflare will host an investor conference call to discuss its
third quarter ended September 30, 2020 earnings results today at
2:00 p.m. Pacific time (5:00 p.m. Eastern time). Interested parties
can access the call by dialing (866) 211-4146 from the United
States or (647) 689-6734 internationally with conference ID
6459727. 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 30 days.
Supplemental Financial and Other Information
Supplemental financial and other information can be accessed
through the Company’s investor relations website at
https://cloudflare.NET. Beginning with the quarter ended March 31,
2020, we have transitioned the method for calculating our key
business metrics from a billings-based methodology to a
revenue-based methodology. We believe the change in methodology to
GAAP-based metrics provides improved disclosures for our investors
by better aligning our key business metrics with GAAP and our
financial statements and will provide a better representation of
these important components of our operating model and business
performance as we continue to scale. We have recast these metrics
for the eight trailing quarters to reflect this new methodology in
our supplemental materials.
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, and Twitter 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 net loss from operations and non-GAAP
net loss per share, and shares outstanding, the benefits to
customers from using our products, the expected functionality and
performance of our products, our plans and objectives for future
operations, growth, initiatives, or strategies, 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 extent and
duration of the impact of the COVID-19 pandemic and adverse
conditions in the general domestic and global economic markets; the
impact of the COVID-19 pandemic on our and our customers’,
vendors’, and partners’ operations and future financial
performance; our history of net losses; our limited operating
history; risks associated with managing our rapid growth; our
ability to attract and retain new customers; our ability to retain
and upgrade paying customers and convert free customers to paying
customers; problems with our internal systems, network, or data,
including actual or perceived breaches or failures; rapidly
evolving technological developments in the market; length of sales
cycles; and 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 August 10, 2020, 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. (www.cloudflare.com / @cloudflare) is on a
mission to help build a better Internet. Cloudflare’s platform
protects and accelerates any Internet application online without
adding hardware, installing software, or changing a line of code.
Internet properties powered by Cloudflare have all web traffic
routed through its intelligent global network, which gets smarter
with every request. As a result, they see significant improvement
in performance and a decrease in spam and other attacks. Cloudflare
was named to Entrepreneur Magazine’s Top Company Cultures 2018 list
and ranked among the World’s Most Innovative Companies by Fast
Company in 2019. Headquartered in San Francisco, CA, Cloudflare has
offices in Austin, TX, Champaign, IL, Seattle, WA, New York, NY,
San Jose, CA, Washington, D.C., Lisbon, London, Munich, Beijing,
Singapore, Sydney, and Tokyo.
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(thousands, except per share
data)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Revenue
$
114,162
$
73,941
$
305,133
$
203,092
Cost of revenue(1)(2)
27,005
16,033
71,990
45,225
Gross profit
87,157
57,908
233,143
157,867
Operating expenses:
Sales and marketing(1)
55,982
45,538
154,323
112,191
Research and development(1)(3)
30,902
27,863
92,387
64,380
General and administrative(1)(3)
21,525
25,593
68,460
59,300
Total operating expenses
108,409
98,994
315,170
235,871
Loss from operations
(21,252)
(41,086)
(82,027)
(78,004)
Non-operating income (expense):
Interest income
1,316
1,079
5,742
2,822
Interest expense(4)
(9,828)
(407)
(14,902)
(970)
Other expense, net
(208)
(651)
58
(1,030)
Total non-operating income (expense),
net
(8,720)
21
(9,102)
822
Loss before income taxes
(29,972)
(41,065)
(91,129)
(77,182)
Provision for (benefit from) income
taxes
(3,504)
(212)
(5,780)
491
Net loss
$
(26,468)
$
(40,853)
$
(85,349)
$
(77,673)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.09)
$
(0.35)
$
(0.29)
$
(0.81)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
301,689
118,056
298,628
96,393
____________
(1) Includes stock-based compensation and
related employer payroll taxes as follows:
Cost of revenue
$
354
397
$
988
$
463
Sales and marketing
4,761
4,880
12,315
5,434
Research and development
7,373
7,801
21,417
8,624
General and administrative
3,518
9,833
10,471
10,491
Total stock-based compensation and related
employer payroll taxes
$
16,006
$
22,911
$
45,191
$
25,012
(2) Includes amortization of acquired intangible assets as follows:
Cost of revenue
$
700
$
31
$
2,131
$
994
Total amortization of acquired intangible
assets
$
700
$
31
$
2,131
$
94
(3) Includes acquisition-related and other expenses as follows:
Research and development
$
—
$
—
$
5,725
$
—
General and administrative
—
—
554
—
Total acquisition-related and other
expenses
$
—
$
—
$
6,279
$
—
(4) Includes amortization of debt discounts and issuance costs as
follows:
Amortization of debt discounts and
issuance costs
$
8,562
$
—
$
12,865
$
—
Total amortization of debt discounts and
issuance costs
$
8,562
$
—
$
12,865
$
—
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except par
value)
(unaudited)
September 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents
$
111,959
$
138,976
Available-for-sale securities
939,338
497,972
Accounts receivable, net
48,783
33,867
Contract assets
2,086
2,063
Restricted cash short-term
2,187
—
Prepaid expenses and other current
assets
23,026
16,994
Total current assets
1,127,379
689,872
Property and equipment, net
122,423
101,466
Goodwill
17,167
4,083
Acquired intangible assets, net
3,500
31
Operating lease right-of-use assets
45,106
—
Deferred contract acquisition costs,
noncurrent
37,714
25,184
Restricted cash
6,660
6,660
Other noncurrent assets
11,276
3,528
Total assets
$
1,371,225
$
830,824
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable
$
16,995
$
11,463
Accrued expenses and other current
liabilities
38,630
28,314
Operating lease liabilities
17,265
—
Liability for early exercise of unvested
stock options
9,679
13,263
Deferred revenue
48,435
30,843
Total current liabilities
131,004
83,883
Long-term debt
374,511
—
Build-to-suit lease financing
obligation
—
10,506
Operating lease liabilities,
noncurrent
29,675
—
Deferred revenue, noncurrent
1,637
804
Other noncurrent liabilities
7,951
9,803
Total liabilities
544,778
104,996
Stockholders’ Equity:
Class A common stock; $0.001 par value;
2,250,000 shares authorized as of September 30, 2020 and December
31, 2019; 233,509 and 87,072 shares issued and outstanding as of
September 30, 2020 and December 31, 2019, respectively
233
87
Class B common stock; $0.001 par value;
315,000 shares authorized as of September 30, 2020 and December 31,
2019; 73,520 and 213,101 shares issued and outstanding as of
September 30, 2020 and December 31, 2019, respectively
69
207
Additional paid-in capital
1,212,074
1,027,179
Accumulated deficit
(386,499)
(301,706)
Accumulated other comprehensive income
570
61
Total stockholders’ equity
826,447
725,828
Total liabilities and stockholders’
equity
$
1,371,225
$
830,824
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September
30,
2020
2019
Cash Flows From Operating
Activities
Net loss
$
(85,349)
$
(77,673)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization expense
35,029
20,923
Non-cash operating lease costs
14,134
—
Amortization of deferred contract
acquisition costs
12,085
7,722
Stock-based compensation expense
40,091
25,012
Amortization of debt discount and issuance
costs
12,865
—
Net accretion of discounts and
amortization of premiums on marketable securities
248
(1,137)
Deferred income taxes
(6,808)
—
Provision for bad debt
2,794
861
Change in fair value of redeemable
convertible preferred stock warrant liability
—
1,517
Other
(73)
27
Changes in operating assets and
liabilities, net of effect of acquisitions:
Accounts receivable, net
(17,710)
(7,911)
Contract assets
(23)
82
Deferred contract acquisition costs
(24,615)
(12,923)
Prepaid expenses and other current
assets
(6,131)
(7,525)
Other noncurrent assets
(930)
(1,686)
Accounts payable
4,648
(994)
Accrued expenses and other current
liabilities
8,545
5,652
Operating lease liability
(15,131)
—
Deferred revenue
18,425
13,614
Other noncurrent liabilities
(410)
4,096
Net cash used in operating
activities
(8,316)
(30,343)
Cash Flows From Investing
Activities
Purchases of property and equipment
(45,962)
(30,981)
Capitalized internal-use software
(14,333)
(11,332)
Cash paid for acquisitions, net of cash
acquired
(13,691)
—
Purchases of available-for-sale
securities
(956,147)
(157,075)
Sales of available-for-sale securities
—
1,978
Maturities of available-for-sale
securities
515,044
132,398
Other investing activities
395
30
Net cash used in investing
activities
(514,694)
(64,982)
Cash Flows From Financing
Activities
Proceeds from initial public offering, net
of underwriting discounts and commissions
—
570,544
Gross proceeds from issuance of
convertible senior notes
575,000
—
Purchases of capped calls related to
convertible senior notes
(67,333)
—
Cash paid for issuance costs on
convertible senior notes
(12,542)
—
Proceeds from the exercise of stock
options
5,724
2,899
Proceeds from the early exercise of stock
options
180
2,871
Repurchases of unvested common stock
(113)
(155)
Payments on note payable
(200)
(218)
Proceeds from the issuance of common stock
for employee stock purchase plan
5,447
—
Proceeds from build-to-suit lease
financing obligation drawdown
—
58
Payments of deferred offering costs
—
(3,734)
Payment of tax withholding obligation on
RSU settlement
(7,607)
—
Payment of tax withholding obligation on
common stock issued under employee stock purchase plan
(376)
—
Net cash provided by financing
activities
498,180
572,265
Net increase in cash, cash equivalents,
and restricted cash
(24,830)
476,940
Cash, cash equivalents, and restricted
cash, beginning of period
145,636
31,426
Cash, cash equivalents, and restricted
cash, end of period
$
120,806
$
508,366
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Reconciliation of cost of
revenue:
GAAP cost of revenue
$
27,005
16,033
$
71,990
$
45,225
Less: Stock-based compensation and related
employer payroll taxes
(354)
(397)
(988)
(463)
Less: Amortization of acquired intangible
assets
(700)
(31)
(2,131)
(94)
Non-GAAP cost of revenue
$
25,951
$
15,605
$
68,871
$
44,668
Reconciliation of gross profit:
GAAP gross profit
$
87,157
$
57,908
$
233,143
$
157,867
Add: Stock-based compensation and related
employer payroll taxes
354
397
988
463
Add: Amortization of acquired intangible
assets
700
31
2,131
94
Non-GAAP gross profit
$
88,211
$
58,336
$
236,262
$
158,424
Non-GAAP gross margin
77.3%
78.9%
77.4%
78.0%
Reconciliation of operating
expenses:
GAAP sales and marketing
$
55,982
45,538
$
154,323
$
112,191
Less: Stock-based compensation and related
employer payroll taxes
(4,761)
(4,880)
(12,315)
(5,434)
Non-GAAP sales and marketing
$
51,221
$
40,658
$
142,008
$
106,757
GAAP research and development
$
30,902
27,863
$
92,387
$
64,380
Less: Stock-based compensation and related
employer payroll taxes
(7,373)
(7,801)
(21,417)
(8,624)
Less: Acquisition-related and other
expenses
—
—
(5,725)
—
Non-GAAP research and development
$
23,529
$
20,062
$
65,245
$
55,756
GAAP general and administrative
$
21,525
25,593
$
68,460
$
59,300
Less: Stock-based compensation and related
employer payroll taxes
(3,518)
(9,833)
(10,471)
(10,491)
Less: Acquisition-related and other
expenses
—
—
(554)
—
Non-GAAP general and administrative
$
18,007
$
15,760
$
57,435
$
48,809
Reconciliation of loss from
operations:
GAAP loss from operations
$
(21,252)
(41,086)
$
(82,027)
$
(78,004)
Add: Stock-based compensation and related
employer payroll taxes
16,006
22,911
45,191
25,012
Add: Amortization of acquired intangible
assets
700
31
2,131
94
Add: Acquisition-related and other
expenses
—
—
6,279
—
Non-GAAP loss from operations
$
(4,546)
$
(18,144)
$
(28,426)
$
(52,898)
Non-GAAP operating margin
(4.0)%
(24.5)%
(9.3)%
(26.0)%
Reconciliation of interest
expense:
GAAP interest expense
$
(9,828)
$
(407)
$
(14,902)
$
(970)
Add: Amortization of debt discount and
issuance costs
8,562
—
12,865
—
Non-GAAP interest expense
$
(1,266)
$
(407)
$
(2,037)
$
(970)
Reconciliation of provision for
(benefit from) income taxes:
GAAP provision for (benefit from) income
taxes
$
(3,504)
$
(212)
$
(5,780)
$
491
Income tax effect of non-GAAP
adjustments(1)
4,550
568
8,780
564
Non-GAAP provision for (benefit from)
income taxes
$
1,046
$
356
$
3,000
$
1,055
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Reconciliation of net loss and net loss
per share:
GAAP net loss attributable to common
stockholders
$
(26,468)
$
(40,853)
$
(85,349)
$
(77,673)
Add: Stock-based compensation expense
16,006
22,911
45,191
25,012
Add: Amortization of acquired intangible
assets
700
31
2,131
94
Add: Acquisition-related and other
expenses
—
—
6,279
—
Add: Amortization of debt discount and
issuance costs
8,562
—
12,865
—
Income tax effect of non-GAAP
adjustments(1)
(4,550)
(568)
(8,780)
(564)
Non-GAAP net loss
$
(5,750)
$
(18,479)
$
(27,663)
$
(53,131)
GAAP net loss per share
$
(0.09)
$
(0.35)
$
(0.29)
$
(0.81)
Add: Stock-based compensation expense
0.05
0.19
0.15
0.26
Add: Amortization of acquired intangible assets
—
—
0.01
—
Add: Acquisition-related and other
expenses
—
—
0.02
—
Add: Amortization of debt discount and
issuance costs
0.03
—
0.04
—
Income tax effect of non-GAAP
adjustments(1)
(0.02)
—
(0.03)
(0.01)
Non-GAAP net loss per share(2)
$
(0.02)
$
(0.16)
$
(0.09)
$
(0.55)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
301,689
118,056
298,628
96,393
____________
(1) Non-GAAP adjustment for Q1'20 includes
$0.7 million of income tax benefit from valuation allowance release
as a result of the S2 Systems acquisition.
(2) Totals may not sum due to rounding.
Figures are calculated based upon the respective underlying
non-rounded data.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Free cash flow
Net cash provided by (used in) operating
activities
$
1,973
$
(17,786)
$
(8,316)
$
(30,343)
Less: Purchases of property and
equipment
(15,357)
(11,991)
(45,962)
(30,981)
Less: Capitalized internal-use
software
(4,470)
(3,861)
(14,333)
(11,332)
Free cash flow
$
(17,854)
$
(33,638)
$
(68,611)
$
(72,656)
Net cash used in investing activities
$
(205,153)
$
(92,829)
$
(514,694)
$
(64,982)
Net cash provided by financing
activities
$
1,156
$
570,216
$
498,180
$
572,265
Net cash provided by (used in) operating
activities (percentage of revenue)
2
%
(24)
%
(3)
%
(15)
%
Less: Purchases of property and equipment
(percentage of revenue)
(14)
%
(16)
%
(15)
%
(15)
%
Less: Capitalized internal-use software
(percentage of revenue)
(4)
%
(5)
%
(4)
%
(6)
%
Free cash flow margin(1)
(16)
%
(45)
%
(22)
%
(36)
%
____________
(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.
Expenses 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. Employer payroll tax expenses
related to stock-based compensation was not material for all
previous periods presented, and therefore it was not excluded from
periods prior to March 31, 2020. 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 discount and issuance
costs, which is a non-cash expense, 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 Loss from Operations and Non-GAAP Operating
Margin. We define non-GAAP 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 Loss and Non-GAAP Net Loss per Share, Basic and
Diluted. We define non-GAAP net loss as GAAP net loss plus
stock-based compensation and related employer payroll taxes,
amortization of acquired intangible assets, acquisition-related and
other expenses, 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 debt discount and issuance costs. We define
non-GAAP net loss per share, basic and diluted, as non-GAAP net
loss divided by the weighted-average common shares outstanding.
Since we have reported net losses for all periods presented, we
have excluded all potentially dilutive securities from the
calculation of net loss per share as their effect is antidilutive
and accordingly, basic and diluted net loss per share is the same
for all periods presented. We believe that excluding these items
from non-GAAP net loss and non-GAAP net 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/20201105006007/en/
Investor Relations Information Jayson Noland
ir@cloudflare.com
Press Contact Information Daniella Vallurupalli
press@cloudflare.com
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