10-QPeriod: Q2 FY2026

Cloudflare, Inc. Quarterly Report for Q2 Ended Jun 30, 2026

Filed August 6, 2026For Securities:NET

Summary

Cloudflare, Inc.'s Q2 2026 10-Q filing shows continued strong revenue growth of 36% year-over-year for the quarter, driven by new customer acquisition and expansion within its existing customer base, as evidenced by a dollar-based net retention rate of 120%. Despite this growth, the company reported a net loss of $170 million for the quarter, widening from $50.4 million in the prior year's quarter. This increased loss is significantly impacted by $150.7 million in restructuring and other charges related to a workforce reduction aimed at accelerating an AI-first operating model. Financially, the company ended the quarter with substantial liquidity, holding $1.66 billion in cash and cash equivalents and $2.50 billion in available-for-sale securities. Investments in property and equipment, as well as capitalized internal-use software, continue, with net cash provided by operating activities remaining positive at $117.6 million for the quarter. However, the company's significant net losses and accumulated deficit of $1.4 billion underscore the ongoing investment phase. Investors should monitor the execution of the AI-first strategy and its impact on future profitability and cost structure, alongside macroeconomic factors that could influence customer spending.

Key Highlights

  • 1Revenue grew 36% year-over-year to $696.1 million for the three months ended June 30, 2026.
  • 2Dollar-based net retention rate was 120% for the three months ended June 30, 2026, indicating strong expansion from existing customers.
  • 3Net loss widened to $170.0 million for the three months ended June 30, 2026, compared to $50.4 million in the prior year period.
  • 4Restructuring and other charges of $150.7 million were recognized in the quarter due to a workforce reduction associated with the transition to an AI-first operating model.
  • 5Cash and cash equivalents stood at $1.66 billion as of June 30, 2026, providing ample liquidity.
  • 6Paying customers with annualized revenue over $100,000 increased to 4,698 from 3,712 in the prior year quarter.
  • 7Gross margin decreased to 72% from 75% year-over-year, impacted by increased cost of revenue.

Frequently Asked Questions

Cloudflare demonstrates strong revenue growth and robust liquidity with over $1.6 billion in cash and cash equivalents. However, the company is currently operating at a significant net loss, which widened year-over-year. This is largely due to substantial restructuring charges related to its AI-first operating model transition. While revenue growth is positive, the increasing loss indicates continued investment and potential ongoing profitability challenges in the near term.

The company has incurred $150.7 million in restructuring and other charges related to a workforce reduction and transition to an AI-first operating model. While the long-term benefits of this strategy are anticipated, the immediate financial impact includes significant one-time charges and potential increases in operational costs as AI tools are integrated. The company expects to complete these restructuring charges by September 30, 2026.

The gross margin decreased to 72% from 75% year-over-year. This decline is attributed to an increase in the cost of revenue, primarily driven by higher third-party technology services costs, increased expenses for co-location facilities and network bandwidth to support customer growth, and higher depreciation expenses from server acquisitions. Investors should monitor if these cost increases can be managed effectively as the company scales.

Cloudflare has substantial convertible senior notes outstanding, including $1.29 billion due in 2026 and $2.00 billion due in 2030. As of June 30, 2026, the 2026 notes' principal amount was classified as a current liability, indicating their near-term maturity. The company also has a $400 million revolving credit facility, though no amounts were outstanding as of the report date. The company believes its existing liquidity and borrowing capacity are sufficient for at least the next 12 months, but future capital needs remain a consideration.