10-QPeriod: Q1 FY2021

Cloudflare, Inc. Quarterly Report for Q1 Ended Mar 31, 2021

Filed May 7, 2021For Securities:NET

Summary

Cloudflare, Inc. (NET) reported its first quarterly results for 2021, showing robust revenue growth driven by an expanding customer base and strong retention rates. Revenue increased by 51% year-over-year, demonstrating continued demand for its security, performance, and reliability services. While the company continues to invest heavily in research and development and sales and marketing to fuel growth, resulting in an operating loss, key performance indicators like paying customers and customers spending over $100,000 annually show significant year-over-year increases. The company also reported positive cash flow from operations, a notable improvement from the prior year, and maintained a strong balance sheet with substantial cash and investments. Despite ongoing investments that widen the net loss, the company's strategic expansion and customer growth trajectory signal a positive outlook for future revenue generation and potential profitability.

Financial Highlights

52 data points
Beta

Revenue

$138.06M

76.8% Gross Margin

Net Income

-$39.96M

-28.9% Net Margin

EPS (Diluted)

$-0.13

Total Assets

$1.41B

Cash & Equivalents

$187.48M

Free Cash Flow

$1.23M

Financial Statements
Beta
Revenue$138.06M
Cost of Revenue$32.08M
Gross Profit$105.97M
R&D Expenses$39.53M
Operating Expenses$137.22M
Operating Income-$31.25M
Interest Expense$10.23M
Net Income-$39.96M
EPS (Basic)$-0.13
EPS (Diluted)$-0.13
Shares Outstanding (Basic)305.95M
Shares Outstanding (Diluted)305.95M

Key Highlights

  • 1Revenue surged by 51% to $138.1 million in Q1 2021 compared to Q1 2020, indicating strong market demand and customer adoption.
  • 2The number of paying customers increased by 34% year-over-year to 119,206, showcasing continued business expansion.
  • 3Dollar-based net retention rate was strong at 123%, demonstrating Cloudflare's ability to retain and grow revenue from existing customers.
  • 4Cloudflare reported positive net cash provided by operating activities of $23.5 million, a significant improvement from the prior year's $14.3 million used.
  • 5Despite a net loss of $39.96 million, operating expenses increased to support growth, with sales and marketing expenses up 49% and R&D up 19%.
  • 6The company maintained a solid financial position with $187.5 million in cash and cash equivalents and $847.7 million in available-for-sale securities as of March 31, 2021.
  • 7Customers with over $100,000 in annualized revenue grew by 69.9% to 945, highlighting success in acquiring and retaining larger enterprise clients.

Frequently Asked Questions

Cloudflare reported a 51% increase in revenue, reaching $138.1 million for the three months ended March 31, 2021, compared to $91.3 million in the same period of 2020. This growth was driven by new customer acquisition and expansion within existing customer relationships, as evidenced by a 123% dollar-based net retention rate.

No, Cloudflare is not yet profitable. The company reported a net loss of $39.96 million for the first quarter of 2021, a slight increase from the $32.75 million net loss in the first quarter of 2020. This is largely due to significant ongoing investments in sales and marketing, research and development, and general administrative expenses to support its growth strategy.

Cloudflare generated $23.5 million in net cash provided by operating activities for the first quarter of 2021, a substantial improvement from using $14.3 million in the prior year. However, free cash flow was negative at ($2.2) million, primarily due to capital expenditures.

Cloudflare experienced strong customer growth, with the number of paying customers increasing by 34% year-over-year to 119,206. The company also saw a significant increase in larger customers, with those spending over $100,000 annually growing by nearly 70% to 945. The dollar-based net retention rate of 123% indicates that existing customers are expanding their spending with Cloudflare.