10-QPeriod: Q3 FY2021

Cloudflare, Inc. Quarterly Report for Q3 Ended Sep 30, 2021

Filed November 5, 2021For Securities:NET

Summary

Cloudflare, Inc. reported strong revenue growth in the third quarter and first nine months of 2021, with a 51% and 52% year-over-year increase, respectively. This growth was driven by a 31% increase in paying customers and a robust dollar-based net retention rate of 124%. Despite this revenue expansion, the company continues to operate at a net loss, which increased to $107.3 million for the quarter and $182.8 million for the nine-month period. This is largely due to significant investments in sales and marketing, research and development, and general administrative expenses to support its rapid growth and expansion. The company's balance sheet shows substantial growth in cash and available-for-sale securities, reaching $618.2 million and $1.2 billion, respectively, by September 30, 2021. This increased liquidity is partly due to the successful issuance of convertible senior notes. Cloudflare's operational cash flow turned positive for the nine-month period, a positive development, though free cash flow remained negative. The company has a strong focus on long-term growth and continues to invest heavily in its network and product development, positioning itself for future market share gains despite the current unprofitability.

Financial Highlights

51 data points
Beta

Revenue

$172.35M

78.2% Gross Margin

Net Income

-$107.33M

-62.3% Net Margin

EPS (Diluted)

$-0.34

Total Assets

$2.32B

Cash & Equivalents

$618.23M

Free Cash Flow

-$35.73M

Financial Statements
Beta
Revenue$172.35M
Cost of Revenue$37.52M
Gross Profit$134.82M
R&D Expenses$46.77M
Operating Expenses$161.32M
Operating Income-$26.49M
Interest Expense$12.45M
Net Income-$107.33M
EPS (Basic)$-0.34
EPS (Diluted)$-0.34
Shares Outstanding (Basic)314.54M
Shares Outstanding (Diluted)314.54M

Key Highlights

  • 1Revenue grew by 51% year-over-year to $172.3 million for the three months ended September 30, 2021.
  • 2Paying customers increased by 31% year-over-year to 132,390 as of September 30, 2021.
  • 3Dollar-based net retention rate was 124% for the three months ended September 30, 2021, indicating strong expansion within the existing customer base.
  • 4Cash and cash equivalents increased significantly to $618.2 million as of September 30, 2021.
  • 5The company issued $1.29 billion in 0% convertible senior notes due 2026 in August 2021, strengthening its liquidity position.
  • 6Despite revenue growth, Cloudflare reported a net loss of $107.3 million for the quarter, reflecting ongoing investments in growth.

Frequently Asked Questions

Cloudflare's primary growth driver is the increase in its paying customer base, coupled with expansion within existing customer accounts, as evidenced by a 31% year-over-year increase in paying customers and a dollar-based net retention rate of 124%.

No, Cloudflare is not yet profitable. The company reported a net loss of $107.3 million for the three months ended September 30, 2021, and an accumulated deficit of $603.3 million as of that date. This is due to significant investments in sales, marketing, research and development, and general administrative expenses to support its growth strategy.

Cloudflare significantly strengthened its financial position by issuing $1.29 billion in 0% convertible senior notes due 2026 in August 2021, which increased its cash and cash equivalents to $618.2 million. The company also conducted an exchange of existing convertible senior notes.

The dollar-based net retention rate measures Cloudflare's ability to retain and grow recurring revenue from its existing customers. A rate of 124% indicates that for every dollar of revenue from customers a year ago, the company generated $1.24 in revenue from the same customer cohort in the current period, reflecting successful upselling and cross-selling efforts.