Cloudflare(NET) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved revenue of $479.1 million, representing a 27% year-over-year increase [8][26] - Gross margin was 77.1%, above the long-term target of 75% to 77% [10][29] - Operating profit was $56 million, with an operating margin of 11.7%, an increase of 50 basis points year-over-year [32] - Free cash flow was $52.9 million, or 11% of revenue, compared to $35.6 million, or 9% of revenue, in the same period last year [34] Business Line Data and Key Metrics Changes - The number of large customers (paying over $100,000) increased by 23% year-over-year to 3,527 [8][28] - Revenue contribution from large customers grew to 69% of total revenue, up from 67% in the same quarter last year [8][28] - Dollar-based net retention was 111%, consistent quarter-over-quarter [9][29] Market Data and Key Metrics Changes - U.S. revenue represented 49% of total revenue, increasing by 20% year-over-year [26] - EMEA accounted for 28% of revenue, with a 27% year-over-year increase [26] - APAC represented 15% of revenue, showing a significant 54% year-over-year growth [26][28] Company Strategy and Development Direction - The company is focused on disciplined execution and investing in go-to-market strategies, which have shown positive returns [12][13] - Cloudflare is positioning itself as a mission-critical partner for customers, emphasizing the importance of its innovative products and engineering capabilities [12][23] - The company aims to capture opportunities in a volatile environment while maintaining operational efficiency [23][36] Management's Comments on Operating Environment and Future Outlook - Management noted that the global environment is more volatile than before, but the company has navigated this effectively [10][11] - There is confidence in the long-term growth opportunities despite short-term volatility [12][23] - The company expects revenue for Q2 2025 to be in the range of $500 million to $505 million, representing a 25% year-over-year increase [36][37] Other Important Information - The company signed its largest contract in history, exceeding $100 million, driven by its workers developer platform [12][14] - The longest duration contract in the company's history was also secured during the quarter [12][25] - Remaining Performance Obligations (RPO) increased by 39% year-over-year to $1.864 billion [35] Q&A Session Summary Question: Trends observed through early May regarding traffic and tariff rhetoric - Management indicated that there has been no significant change in internet traffic patterns despite tariff discussions, with traffic remaining steady [40][45] Question: Insights on margin performance and CapEx spending - Management reiterated a focus on the 40% rule for margins and indicated that there are still margin opportunities despite revenue growth [46][47] Question: Sales productivity and capacity tracking in the enterprise segment - Management expressed satisfaction with improvements in sales productivity and anticipated continued capacity ramp-up in the coming quarters [51][52] Question: Impact of increased DDoS attacks on business - Management noted that the company’s architecture allows it to absorb large-scale DDoS attacks without incurring additional costs, differentiating it from competitors [57][62] Question: Trends in the SaaS market and winning larger deals - Management highlighted that the company has caught up on critical features and offers superior performance, leading to increased success in securing larger contracts [67][70] Question: Government sector traction and Zero Trust solutions - Management reported strong interest from government agencies in adopting Cloudflare's Zero Trust solutions, reflecting a shift away from on-premise hardware [74][75] Question: Details on the $100 million workers deal - Management explained that the deal reflects the comprehensive capabilities of Cloudflare Workers, which provide better performance and lower costs compared to traditional hyperscalers [78][80] Question: Customer additions and go-to-market strategy - Management attributed strong overall customer additions to effective go-to-market strategies, while noting that timing affected the number of large customer additions [83][88]