Cloudflare(NET) - 2025 Q1 - Quarterly Results

Executive Summary & Business Highlights First Quarter 2025 Overview Cloudflare reported strong Q1 2025 financial results, driven by significant revenue growth and key contract wins - Cloudflare reported strong financial results for its first quarter ended March 31, 2025[1] Key Business Achievements Cloudflare secured its largest contract (over $100 million) and longest SASE contract, highlighting innovation in networking, security, and AI - Landed the largest contract in Cloudflare's history, a more than $100 million deal, driven by the Workers developer platform[2] - Signed the longest-term SASE contract to date[2] - CEO Matthew Prince emphasized the company's scale, technology, and team to capture massive opportunities, citing innovation across networking, security, and AI[2] First Quarter Fiscal 2025 Financial Highlights Revenue and Gross Profit Cloudflare's Q1 2025 revenue grew 27% to $479.1 million, with GAAP gross margin at 75.9% and non-GAAP gross margin at 77.1% Q1 2025 Revenue and Gross Profit (YoY Comparison) | Metric | Q1 2025 | Q1 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $479.1 million | $378.6 million | +27% | | GAAP Gross Profit | $363.5 million | $293.6 million | +23.8% | | GAAP Gross Margin | 75.9% | 77.5% | -1.6 pp | | Non-GAAP Gross Profit | $369.3 million | $301.1 million | +22.6% | | Non-GAAP Gross Margin | 77.1% | 79.5% | -2.4 pp | Operating Income (Loss) GAAP operating loss improved to $53.2 million (11.1% of revenue); non-GAAP operating income rose to $56.0 million (11.7% of revenue) Q1 2025 Operating Income (Loss) (YoY Comparison) | Metric | Q1 2025 | Q1 2024 | YoY Change | | :--- | :--- | :--- | :--- | | GAAP Loss from Operations | $(53.2) million | $(54.6) million | Improved | | GAAP Operating Margin | (11.1)% | (14.4)% | +3.3 pp | | Non-GAAP Income from Operations | $56.0 million | $42.4 million | +32.1% | | Non-GAAP Operating Margin | 11.7% | 11.2% | +0.5 pp | Net Income (Loss) and EPS GAAP net loss widened to $38.5 million ($0.11 per share); non-GAAP net income remained stable at $58.4 million ($0.16 per diluted share) Q1 2025 Net Income (Loss) and EPS (YoY Comparison) | Metric | Q1 2025 | Q1 2024 | YoY Change | | :--- | :--- | :--- | :--- | | GAAP Net Loss | $(38.5) million | $(35.5) million | Widened | | GAAP Net Loss per Share (Basic & Diluted) | $(0.11) | $(0.10) | Widened | | Non-GAAP Net Income | $58.4 million | $58.2 million | +0.3% | | Non-GAAP Net Income per Diluted Share | $0.16 | $0.16 | Stable | Cash Flow and Liquidity Net cash from operations significantly increased to $145.8 million, free cash flow grew to $52.9 million (11% of revenue), maintaining a strong cash position Q1 2025 Cash Flow and Liquidity (YoY Comparison) | Metric | Q1 2025 | Q1 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net Cash Flow from Operating Activities | $145.8 million | $73.6 million | +98.1% | | Free Cash Flow | $52.9 million | $35.6 million | +48.6% | | Free Cash Flow Margin | 11% | 9% | +2 pp | | Cash, Cash Equivalents, and Available-for-Sale Securities (as of March 31, 2025) | $1,914.9 million | N/A | N/A | Financial Outlook Second Quarter Fiscal 2025 Guidance Cloudflare projects Q2 2025 total revenue of $500.0-$501.0 million, non-GAAP operating income of $62.5-$63.5 million, and non-GAAP EPS of $0.18 Q2 Fiscal 2025 Financial Guidance | Metric | Guidance Range | | :--- | :--- | | Total Revenue | $500.0 to $501.0 million | | Non-GAAP Income from Operations | $62.5 to $63.5 million | | Non-GAAP Net Income per Share | $0.18 | | Weighted Average Common Shares Outstanding | Approximately 364 million | Full Year Fiscal 2025 Guidance Cloudflare projects full-year 2025 total revenue of $2,090.0-$2,094.0 million, non-GAAP operating income of $272.0-$276.0 million, and non-GAAP EPS of $0.79-$0.80 Full Year Fiscal 2025 Financial Guidance | Metric | Guidance Range | | :--- | :--- | | Total Revenue | $2,090.0 to $2,094.0 million | | Non-GAAP Income from Operations | $272.0 to $276.0 million | | Non-GAAP Net Income per Share | $0.79 to $0.80 | | Weighted Average Common Shares Outstanding | Approximately 364 million | Company Information About Cloudflare Cloudflare is a leading connectivity cloud company building a better Internet with a unified platform for faster, more secure applications and networks, trusted globally - Cloudflare, Inc. (NYSE: NET) is a leading connectivity cloud company with a mission to help build a better Internet[17] - Empowers organizations with a full-featured, unified platform of cloud-native products and developer tools for faster, more secure employees, applications, and networks, reducing complexity and cost[17] - Powered by one of the world's largest networks, it blocks billions of online threats daily and is trusted by millions of organizations globally[18] Conference Call and Investor Information Cloudflare hosted a Q1 earnings investor conference call on May 8, 2025, with replay available, and provides supplemental financial information and contact details on its investor relations website - An investor conference call was held on May 8, 2025, at 2:00 p.m. Pacific time (5:00 p.m. Eastern time) to discuss Q1 2025 earnings results[9] - A live webcast and replay are available on the investor relations website (https://cloudflare.NET)[9](index=9&type=chunk) - Contact information for Investor Relations (Phil Winslow) and Press (Daniella Vallurupalli) is provided[19] Available Information Cloudflare uses press releases, its website, investor relations site, news site, blog, social media, SEC filings, and public conference calls for disclosing material non-public information and complying with Regulation FD - Cloudflare uses press releases, its website, investor relations website, news site, blog, X account, Facebook account, Instagram account, SEC filings, and public conference calls for disclosing material non-public information and complying with Regulation FD[12] Forward-Looking Statements This section contains forward-looking statements about future performance, market trends, and growth strategies, subject to substantial risks and uncertainties, including macroeconomic conditions, geopolitical tensions, and technological developments; the company undertakes no obligation to update these statements - The press release contains forward-looking statements concerning future financial and operating performance, market reputation, revenue, non-GAAP income, product benefits, demand, and growth strategies[13] - Actual results may differ materially due to significant risks and uncertainties, including adverse macroeconomic conditions, geopolitical conflicts (Middle East, Ukraine), net losses, challenges in managing growth, customer acquisition and retention, product innovation, sales force effectiveness, internal system issues, rapidly evolving technological developments (e.g., AI), sales cycle length, foreign currency fluctuations, and changes in legal/regulatory environments[15] - Cloudflare undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of the press release, except as required by law[16] Financial Statements (Unaudited) Condensed Consolidated Statements of Operations The Condensed Consolidated Statements of Operations detail Cloudflare's financial performance for Q1 2025 versus Q1 2024, including revenue, cost of revenue, gross profit, operating expenses, and net loss Condensed Consolidated Statements of Operations (Three Months Ended March 31) | Metric (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Revenue | $479,087 | $378,602 | | Cost of revenue | $115,576 | $85,038 | | Gross profit | $363,511 | $293,564 | | Total operating expenses | $416,758 | $348,114 | | Loss from operations | $(53,247) | $(54,550) | | Net loss | $(38,454) | $(35,543) | | Net loss per share, basic and diluted | $(0.11) | $(0.10) | Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets present Cloudflare's financial position as of March 31, 2025, and December 31, 2024, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (as of) | Metric (in thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $2,624,291 | $2,268,997 | | Total assets | $3,721,259 | $3,301,162 | | Total current liabilities | $821,009 | $793,654 | | Total liabilities | $2,295,381 | $2,254,961 | | Total stockholders' equity | $1,425,878 | $1,046,201 | Condensed Consolidated Statements of Cash Flows The Condensed Consolidated Statements of Cash Flows outline cash inflows and outflows from operating, investing, and financing activities for Q1 2025 versus Q1 2024 Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | Metric (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $145,784 | $73,579 | | Net cash provided by (used in) investing activities | $(92,438) | $96,950 | | Net cash provided by financing activities | $3,522 | $21 | | Net increase in cash, cash equivalents, and restricted cash | $56,868 | $170,550 | | Cash, cash equivalents, and restricted cash, end of period | $211,082 | $261,774 | Non-GAAP Financial Measures Reconciliation of GAAP to Non-GAAP Financial Measures This section provides detailed reconciliations between GAAP and non-GAAP financial measures for key line items, including revenue, gross profit, operating expenses, income, interest, taxes, net income, EPS, and free cash flow for Q1 2025 and 2024 Cost of Revenue and Gross Profit Reconciliation (Three Months Ended March 31) | Metric (in thousands) | 2025 (GAAP) | 2025 (Non-GAAP) | 2024 (GAAP) | 2024 (Non-GAAP) | | :--- | :--- | :--- | :--- | :--- | | Cost of revenue | $115,576 | $109,817 | $85,038 | $77,525 | | Gross profit | $363,511 | $369,270 | $293,564 | $301,077 | | Gross margin | 75.9% | 77.1% | 77.5% | 79.5% | Operating Expenses Reconciliation (Three Months Ended March 31) | Metric (in thousands) | 2025 (GAAP) | 2025 (Non-GAAP) | 2024 (GAAP) | 2024 (Non-GAAP) | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $214,011 | $183,418 | $194,102 | $156,752 | | Research and development | $115,089 | $76,820 | $87,703 | $58,723 | | General and administrative | $87,658 | $53,031 | $66,309 | $43,159 | Income (Loss) from Operations Reconciliation (Three Months Ended March 31) | Metric (in thousands) | 2025 (GAAP) | 2025 (Non-GAAP) | 2024 (GAAP) | 2024 (Non-GAAP) | | :--- | :--- | :--- | :--- | :--- | | Loss from operations | $(53,247) | $56,001 | $(54,550) | $42,443 | | Operating margin | (11.1)% | 11.7% | (14.4)% | 11.2% | Interest Expense and Income Taxes Reconciliation (Three Months Ended March 31) | Metric (in thousands) | 2025 (GAAP) | 2025 (Non-GAAP) | 2024 (GAAP) | 2024 (Non-GAAP) | | :--- | :--- | :--- | :--- | :--- | | Interest expense | $(1,443) | $(453) | $(1,100) | $(110) | | Provision for income taxes | $1,695 | $15,064 | $2,269 | $6,559 | Net Income (Loss) and EPS Reconciliation (Three Months Ended March 31) | Metric | 2025 (GAAP) | 2025 (Non-GAAP) | 2024 (GAAP) | 2024 (Non-GAAP) | | :--- | :--- | :--- | :--- | :--- | | Net loss attributable to common stockholders (in thousands) | $(38,454) | $58,415 | $(35,543) | $58,150 | | Net loss per share, basic | $(0.11) | N/A | $(0.10) | N/A | | Net loss per share, diluted | $(0.11) | $0.16 | $(0.10) | $0.16 | Free Cash Flow Reconciliation (Three Months Ended March 31) | Metric (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $145,784 | $73,579 | | Less: Purchases of property and equipment | $(85,889) | $(32,056) | | Less: Capitalized internal-use software | $(7,028) | $(5,916) | | Free cash flow | $52,867 | $35,607 | | Free cash flow margin | 11% | 9% | Explanation of Non-GAAP Financial Measures This section clarifies Cloudflare's rationale for using non-GAAP financial measures to evaluate operational performance and ensure consistency, detailing excluded items and defining non-GAAP gross profit, operating income, net income, and free cash flow - Non-GAAP financial information is used to evaluate ongoing operations, for internal planning and forecasting, and to provide consistency and comparability with past financial performance[34] - Items excluded from non-GAAP measures include stock-based compensation and related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses, one-time compensation charges, and amortization of debt issuance costs[35] - Definitions are provided for Non-GAAP Gross Profit, Non-GAAP Gross Margin, Non-GAAP Income from Operations, Non-GAAP Operating Margin, Non-GAAP Net Income, Non-GAAP Net Income per Share (Diluted), Free Cash Flow, and Free Cash Flow Margin, explaining how they are derived from GAAP measures[36][37][38]