Cloudflare(NET) - 2025 Q2 - Quarterly Results

Company Overview and Q2 2025 Performance Summary Cloudflare reported strong Q2 2025 results, exceeding $2 billion in annualized revenue with reaccelerated growth, driven by large customer demand and strategic positioning in the AI-driven internet Introduction and CEO Commentary Cloudflare announced strong second quarter 2025 financial results, exceeding $2 billion in annualized revenue with reaccelerated year-over-year growth of 28%, highlighting rapid innovation and robust demand from large customers - Annualized revenue exceeded $2 billion[2] - Revenue growth reaccelerated to 28% year-over-year[2] - Largest customers increased their investments with Cloudflare at the highest levels since 2022[2] - Strategic wins are centered around inventing new business models for content creators on the AI-driven Internet[2] - Cloudflare is uniquely positioned, sitting in front of more than 20% of all websites, with over half of dynamic traffic flowing through APIs[2] About Cloudflare Cloudflare, Inc. is a leading connectivity cloud company focused on building a better internet, providing a comprehensive, unified platform of cloud-native products and developer tools to enhance speed and security globally - Cloudflare, Inc. (NYSE: NET) is the leading connectivity cloud company[17] - Mission: to help build a better Internet by empowering organizations to make their employees, applications, and networks faster and more secure everywhere, reducing complexity and cost[17] - Delivers a full-featured, unified platform of cloud-native products and developer tools[17] - Powered by one of the world's largest and most interconnected networks, blocking billions of online threats daily[18] - Trusted by millions of organizations globally, from large brands to small businesses, nonprofits, and governments[18] Second Quarter Fiscal 2025 Financial Highlights This section details Cloudflare's Q2 2025 GAAP and non-GAAP financial performance, including revenue, profitability, cash flow, and provides forward-looking guidance for Q3 and full fiscal year 2025 Key Financial Metrics (GAAP & Non-GAAP) Cloudflare reported Q2 2025 revenue of $512.3 million, a 28% year-over-year increase, with GAAP operating loss widening to $67.3 million while non-GAAP operating income grew to $72.3 million Q2 2025 Financial Performance (GAAP vs. Non-GAAP) | Metric | Q2 2025 (GAAP) | Q2 2024 (GAAP) | YoY Change (GAAP) | Q2 2025 (Non-GAAP) | Q2 2024 (Non-GAAP) | YoY Change (Non-GAAP) | | :---------------------------------- | :--------------- | :--------------- | :---------------- | :----------------- | :----------------- | :------------------ | | Revenue | $512.3 million | $401.0 million | +28% | $512.3 million | $401.0 million | +28% | | Gross Profit | $383.6 million | $312.0 million | +23% | $390.7 million | $316.6 million | +23% | | Gross Margin | 74.9% | 77.8% | -2.9 pp | 76.3% | 79.0% | -2.7 pp | | Operating Income (Loss) | $(67.3) million | $(34.7) million | -94% | $72.3 million | $57.0 million | +27% | | Operating Margin | (13.1)% | (8.7)% | -4.4 pp | 14.1% | 14.2% | -0.1 pp | | Net Income (Loss) | $(50.4) million | $(15.1) million | -234% | $75.1 million | $69.5 million | +8% | | Net Income (Loss) per Share (Diluted) | $(0.15) | $(0.04) | -275% | $0.21 | $0.20 | +5% | | Net Cash Flow from Operating Activities | $99.8 million | $74.8 million | +33% | N/A | N/A | N/A | | Free Cash Flow | $33.3 million | $38.3 million | -13% | N/A | N/A | N/A | | Free Cash Flow Margin | 6% | 10% | -4 pp | N/A | N/A | N/A | | Cash, cash equivalents, and available-for-sale securities (as of Jun 30, 2025) | $3,959.7 million | N/A | N/A | N/A | N/A | N/A | - Current RPO (Remaining Performance Obligations) year-over-year growth was 33%[5] - Total RPO year-over-year growth was 39%[5] Financial Outlook Cloudflare provided financial guidance for the third quarter and full fiscal year 2025, projecting continued revenue growth and non-GAAP profitability, with specific ranges for key financial metrics Third Quarter Fiscal 2025 Outlook Cloudflare's Q3 2025 financial outlook projects total revenue between $543.5 million and $544.5 million, with non-GAAP income from operations of $75.0 million to $76.0 million Q3 2025 Financial Outlook | Metric | Expected Range | | :-------------------------- | :------------- | | Total Revenue | $543.5 to $544.5 million | | Non-GAAP Income from Operations | $75.0 to $76.0 million | | Non-GAAP Net Income per Share | $0.23 | | Weighted Average Common Shares Outstanding | Approximately 376.5 million | Full Year Fiscal 2025 Outlook The full year 2025 financial outlook forecasts total revenue between $2,113.5 million and $2,115.5 million, with non-GAAP income from operations of $284.0 million to $286.0 million Full Year 2025 Financial Outlook | Metric | Expected Range | | :-------------------------- | :------------- | | Total Revenue | $2,113.5 to $2,115.5 million | | Non-GAAP Income from Operations | $284.0 to $286.0 million | | Non-GAAP Net Income per Share | $0.85 to $0.86 | | Weighted Average Common Shares Outstanding | Approximately 370 million | Condensed Consolidated Financial Statements This section presents Cloudflare's condensed consolidated statements of operations, balance sheets, and cash flows for the periods ended June 30, 2025, detailing revenue, expenses, assets, liabilities, and cash movements Condensed Consolidated Statements of Operations The Condensed Consolidated Statements of Operations show Cloudflare's financial performance for the three and six months ended June 30, 2025, reporting increased revenue but a higher net loss due to rising operating expenses Condensed Consolidated Statements of Operations (Selected Data, in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $512,316 | $400,996 | $991,403 | $779,598 | | Cost of revenue | $128,677 | $89,011 | $244,253 | $174,049 | | Gross profit | $383,639 | $311,985 | $747,150 | $605,549 | | Total operating expenses | $450,903 | $346,683 | $867,661 | $694,797 | | Loss from operations | $(67,264) | $(34,698) | $(120,511) | $(89,248) | | Total non-operating income, net | $19,975 | $20,766 | $36,463 | $42,042 | | Net loss | $(50,446) | $(15,078) | $(88,900) | $(50,621) | | Net loss per share, basic and diluted | $(0.15) | $(0.04) | $(0.26) | $(0.15) | | Weighted-average shares (basic and diluted) | 347,489 | 340,648 | 346,605 | 339,617 | - Footnotes detail adjustments for stock-based compensation, amortization of acquired intangible assets, acquisition-related expenses, one-time compensation charges, amortization of debt issuance costs, and lease impairment charges within various line items[21][22] Condensed Consolidated Balance Sheets Cloudflare's balance sheet as of June 30, 2025, reflects a substantial increase in total assets, primarily driven by significant growth in cash and cash equivalents and available-for-sale securities, alongside a considerable rise in total liabilities due to convertible senior notes Condensed Consolidated Balance Sheets (Selected Data, in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :-------------- | :---------------- | | Assets: | | | | Cash and cash equivalents | $1,518,608 | $147,691 | | Available-for-sale securities | $2,441,112 | $1,708,228 | | Total current assets | $4,405,831 | $2,268,997 | | Total assets | $5,562,361 | $3,301,162 | | Liabilities: | | | | Total current liabilities | $857,593 | $793,654 | | Convertible senior notes, net | $3,260,506 | $1,287,321 | | Total liabilities | $4,322,634 | $2,254,961 | | Stockholders' Equity: | | | | Total stockholders' equity | $1,239,727 | $1,046,201 | - Cash and cash equivalents increased significantly from $147.7 million at December 31, 2024, to $1.52 billion at June 30, 2025[24] - Convertible senior notes, net, increased from $1.29 billion to $3.26 billion[24] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, Cloudflare reported a significant increase in net cash provided by operating activities to $245.6 million, with substantial outflows from investing activities and large inflows from financing activities Condensed Consolidated Statements of Cash Flows (Selected Data, in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $245,580 | $148,394 | | Net cash used in investing activities | $(885,463) | $(86,792) | | Net cash provided by financing activities | $2,011,125 | $7,164 | | Net increase in cash, cash equivalents, and restricted cash | $1,371,242 | $68,766 | - Net cash provided by operating activities increased by 65% year-over-year[26] - Investing activities included $1.53 billion in purchases of available-for-sale securities and $145.8 million in purchases of property and equipment[26] - Financing activities were significantly boosted by $2.0 billion in gross proceeds from the issuance of 2030 convertible senior notes[26] Non-GAAP Financial Measures and Reconciliations This section provides detailed reconciliations of GAAP to non-GAAP financial measures and explains the rationale for using non-GAAP metrics to offer a clearer view of Cloudflare's core operating performance Reconciliation of GAAP to Non-GAAP Financial Measures This section provides detailed reconciliations of GAAP to non-GAAP financial measures for key metrics, adjusting for items such as stock-based compensation, amortization of acquired intangibles, and other non-recurring or non-cash expenses Reconciliation of GAAP to Non-GAAP (Selected Adjustments, Three Months Ended June 30, 2025, in thousands) | Metric | GAAP | Stock-based Comp. & Payroll Taxes | Amortization of Acquired Intangibles | Acquisition-related & Other | Lease Impairment | Amortization of Debt Issuance Costs | Income Tax Effect | Non-GAAP | | :---------------------------------- | :----- | :-------------------------------- | :--------------------------------- | :-------------------------- | :--------------- | :-------------------------------- | :---------------- | :------- | | Cost of revenue | $128,677 | $(3,693) | $(3,329) | — | — | — | — | $121,655 | | Gross profit | $383,639 | $3,693 | $3,329 | — | — | — | — | $390,661 | | Sales and marketing | $219,359 | $(36,818) | $(417) | — | — | — | — | $182,124 | | Research and development | $134,557 | $(50,956) | — | — | — | — | — | $83,601 | | General and administrative | $96,987 | $(40,526) | — | — | $(3,840) | — | — | $52,621 | | Loss from operations | $(67,264) | $131,993 | $3,746 | — | $3,840 | — | — | $72,315 | | Net loss | $(50,446) | $131,993 | $3,746 | — | $3,840 | $1,199 | $(15,275) | $75,057 | | Net loss per share, diluted | $(0.15) | $0.38 | $0.01 | — | $0.01 | — | $(0.04) | $0.21 | - Free cash flow is reconciled by subtracting purchases of property and equipment and capitalized internal-use software from net cash provided by operating activities[33] Explanation of Non-GAAP Financial Measures Cloudflare provides a detailed explanation of its non-GAAP financial measures, emphasizing their role in offering supplemental information for evaluating operating performance and trends by excluding specific non-cash or non-recurring items - 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[35] - Key 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, lease impairment charges, amortization of debt issuance costs, and a one-time compensation charge[36] - Specific 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[37][38][39][40] - Free cash flow is considered a useful indicator of liquidity but is not a substitute for cash provided by operating activities and does not represent the total increase or decrease in the cash balance[35][40] Additional Information This section provides details on Cloudflare's investor conference call, public information disclosure channels, forward-looking statement disclaimers, and contact information for investor and press inquiries Conference Call and Supplemental Information Cloudflare will host an investor conference call on July 31, 2025, to discuss its second quarter earnings, with details provided for accessing the call and supplemental financial information - Cloudflare will host an investor conference call on July 31, 2025, at 2:00 p.m. Pacific time (5:00 p.m. Eastern time) to discuss Q2 2025 earnings[9] - Access to the call is available by dialing (646) 968-2727 or toll-free at (888) 596-4244 with conference ID 3723782[9] - A live webcast and replay will be accessible from the investor relations website at **https://cloudflare.NET**[9](index=9&type=chunk) - Supplemental financial and other information can be accessed through the Company's investor relations website[10] Available Information Cloudflare utilizes various public communication channels, including press releases, its website, investor relations site, news site, blog, social media, SEC filings, and public conference calls, to disclose material non-public information and ensure Regulation FD compliance - Cloudflare uses press releases, its website, investor relations website, news site, blog, X account, Facebook account, and Instagram account for disclosing material non-public information[12] - The company also uses filings made with the Securities and Exchange Commission (SEC) and public conference calls for disclosure obligations under Regulation FD[12] Forward-Looking Statements This section serves as a comprehensive disclaimer, indicating that the press release contains forward-looking statements subject to substantial risks and uncertainties, with actual results potentially differing materially due to various factors - This press release contains forward-looking statements, and actual results may differ materially due to substantial risks and uncertainties[8][13][15] - Significant factors that could cause actual results to differ include: adverse macroeconomic conditions; geopolitical conflicts and tensions; history of net losses; risks associated with managing growth; ability to attract, retain, and upgrade customers; ability to innovate and develop new products; sales team productivity; problems with internal systems or data; rapidly evolving technological developments, including advancements in AI; length of sales cycles; foreign currency fluctuations; and changes in the legal, tax, and regulatory environment[15] - The company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of the press release or new information, except as required by law[16] Investor and Press Contacts This section provides the contact information for Cloudflare's investor relations and press inquiries - Investor Relations Contact: Phil Winslow, ir@cloudflare.com[19] - Press Contact: Daniella Vallurupalli, press@cloudflare.com[19]