10-QPeriod: Q1 FY2022

Cloudflare, Inc. Quarterly Report for Q1 Ended Mar 31, 2022

Filed May 5, 2022For Securities:NET

Summary

Cloudflare, Inc. reported strong revenue growth of 54% year-over-year for the first quarter of 2022, reaching $212.2 million. This growth was driven by a 29% increase in paying customers and a robust dollar-based net retention rate of 127%, indicating successful expansion within its existing customer base. Despite the revenue growth, the company continued to experience net losses, with a reported loss of $41.4 million. Operating expenses increased significantly, particularly in sales and marketing (43%) and research and development (70%), reflecting substantial investments in growth initiatives and headcount expansion. Free cash flow was negative $64.4 million, a deterioration from the prior year's period, highlighting the company's focus on reinvesting in its infrastructure and growth rather than immediate profitability. The company ended the quarter with a strong liquidity position, boasting $152.0 million in cash and cash equivalents and $1.57 billion in available-for-sale securities, suggesting ample resources to fund operations and strategic investments in the near to medium term.

Financial Highlights

51 data points
Beta

Revenue

$212.17M

77.8% Gross Margin

Net Income

-$41.38M

-19.5% Net Margin

EPS (Diluted)

$-0.13

Total Assets

$2.35B

Cash & Equivalents

$151.98M

Free Cash Flow

-$59.95M

Financial Statements
Beta
Revenue$212.17M
Cost of Revenue$47.05M
Gross Profit$165.12M
R&D Expenses$67.05M
Operating Expenses$205.14M
Operating Income-$40.02M
Interest Expense$1.56M
Net Income-$41.38M
EPS (Basic)$-0.13
EPS (Diluted)$-0.13
Shares Outstanding (Basic)323.33M
Shares Outstanding (Diluted)323.33M

Key Highlights

  • 1Revenue increased by 54% to $212.2 million in Q1 2022 compared to Q1 2021.
  • 2The number of paying customers grew by 29% year-over-year.
  • 3Dollar-based net retention rate was 127% for Q1 2022, indicating strong expansion from existing customers.
  • 4Net loss widened to $41.4 million from $39.9 million in the prior year period.
  • 5Operating expenses surged, with Sales & Marketing up 43% and R&D up 70%, reflecting significant investments in growth.
  • 6Free cash flow was negative $64.4 million, down from negative $2.2 million in Q1 2021.
  • 7The company maintained a strong liquidity position with $152.0 million in cash and cash equivalents and $1.57 billion in available-for-sale securities as of March 31, 2022.

Frequently Asked Questions

Cloudflare reported a strong revenue increase of 54% year-over-year, reaching $212.2 million for the first quarter of 2022. This growth was primarily attributed to an increase in paying customers and effective expansion within its existing customer base, as evidenced by a dollar-based net retention rate of 127%.

No, Cloudflare continued to experience net losses. The net loss for the first quarter of 2022 was $41.4 million, a slight increase from $39.9 million in the same period of 2021. This reflects the company's strategy of investing heavily in growth, particularly in sales and marketing, and research and development.

Cloudflare's free cash flow for the first quarter of 2022 was negative $64.4 million, an increase in cash burn compared to the prior year's negative $2.2 million. This negative free cash flow is a result of significant investments in property and equipment and capitalized internal-use software, supporting the company's ongoing expansion and product development. Despite the negative free cash flow, the company maintains a strong liquidity position with substantial cash and available-for-sale securities.

The dollar-based net retention rate of 127% is a key indicator of Cloudflare's ability to retain and grow revenue from its existing paying customers. A rate above 100% signifies that the revenue generated from existing customers in the current period (including upsells and cross-sells) exceeded the revenue generated from those same customers in the prior period, after accounting for any churn or contraction. This demonstrates strong customer loyalty and successful expansion of services within the existing client base.