- Fiscal year 2019 revenue totaled $287 million, growing 49%
year-over-year
- Q4 revenue grew 51% year-over-year to $84 million
- Q4 GAAP gross margin of 78.3%, representing an increase of 160
basis points year-over-year; Non-GAAP gross-margin of 78.7%,
representing an increase of 180 basis points year-over-year
Cloudflare, Inc. (NYSE: NET), the security, performance, and
reliability company helping to build a better Internet, today
announced financial results for its fourth quarter and fiscal year
ended December 31, 2019.
“I’m proud of everything we accomplished in 2019. We capped off
an exciting year with 51% year-over-year revenue growth for the
quarter, and added a record number of total customers while
accelerating large customer momentum,” said Matthew Prince,
co-founder and CEO of Cloudflare. "We also entered an entirely new
enterprise security market with our Cloudflare for Teams offering,
leveraging our unified, global platform to expand our addressable
market and outperform the hardware solutions built for businesses
of the past.”
Fourth Quarter Fiscal 2019 Financial Highlights
- Revenue: Total revenue of $83.9 million, representing an
increase of 51% year-over-year.
- Gross Profit: GAAP gross profit was $65.7 million, or
78.3% gross margin, compared to $42.5 million, or 76.7%, in the
fourth quarter of 2018. Non-GAAP gross profit was $66.0 million, or
78.7% gross margin, compared to $42.7 million, or 76.9%, in the
fourth quarter of 2018.
- Operating Loss: GAAP loss from operations was $29.9
million, or 35.7% of total revenue, compared to $17.1 million, or
30.8% of total revenue, in the fourth quarter of 2018. Non-GAAP
loss from operations was $18.3 million, or 21.8% of total revenue,
compared to $15.9 million, or 28.7% of total revenue, in the fourth
quarter of 2018.
- Net Loss: GAAP net loss was $28.2 million, compared to
$16.7 million in the fourth quarter of 2018. Non-GAAP net loss was
$16.4 million, compared to $15.6 million in the fourth quarter of
2018. GAAP net loss per share was $0.10, compared to $0.20 in the
fourth quarter of 2018. Non-GAAP net loss per share was $0.06,
compared to $0.18 in the fourth quarter of 2018.
- Cash Flow: Net cash flow from operations was negative
$8.6 million, compared to negative $12.3 million for the fourth
quarter of 2018. Free cash flow was negative $23.5 million, or 28%
of total revenue, compared to negative $29.0 million, or 52% of
total revenue, in the fourth quarter of 2018.
- Cash, cash equivalents, and available-for-sale
securities were $636.9 million as of December 31, 2019.
Full Year Fiscal 2019 Financial Highlights
- Revenue: Total revenue of $287.0 million, representing
an increase of 49% year-over-year.
- Gross Profit: GAAP gross profit was $223.6 million, or
77.9% gross margin, compared to $149.1 million, or 77.4%, in fiscal
2018. Non-GAAP gross profit was $224.4 million, or 78.2% gross
margin, compared to $149.8 million, or 77.7%, in fiscal 2018.
- Operating Loss: GAAP loss from operations was $107.9
million, or 37.6% of total revenue, compared to $84.9 million, or
44.1% of total revenue, in fiscal 2018. Non-GAAP loss from
operations was $71.2 million, or 24.8% of total revenue, compared
to $57.0 million, or 29.6% of total revenue, in fiscal 2018.
- Net Loss: GAAP net loss was $105.8 million, compared to
$87.2 million for fiscal 2018. Non-GAAP net loss was $69.5 million,
compared to $59.5 million for fiscal 2018. GAAP net loss per share
was $0.72, compared to $1.08 for fiscal 2018. Non-GAAP net loss per
share was $0.48, compared to $0.73 for fiscal 2018.
- Cash Flow: Net cash flow from operations was negative
$38.9 million, compared to negative $43.3 million for fiscal 2018.
Free cash flow was negative $96.2 million, or 34% of total revenue,
compared to negative $78.1 million, or 41% of total revenue, for
fiscal 2018.
The section titled "Non-GAAP Financial Information" below
describes our usage of non-GAAP financial measures. Reconciliations
between historical GAAP and non-GAAP information are contained at
the end of this press release following the accompanying financial
data.
Financial Outlook
For the first quarter of fiscal 2020, we expect:
- Total revenue of $87 to $88 million
- Non-GAAP loss from operations of $20 to $19 million
- Non-GAAP net loss per share of $0.06 to $0.05, utilizing
weighted average common shares outstanding of approximately 297
million
For the full year fiscal 2020, we expect:
- Total revenue of $389 to $393 million
- Non-GAAP loss from operations of $65 to $61 million
- Non-GAAP net loss per share of $0.21 to $0.19, utilizing
weighted average common shares outstanding of approximately 303
million
Conference Call Information
Cloudflare will host an investor conference call to discuss its
fourth quarter and fiscal year ended December 31, 2019 earnings
results today at 2:00 p.m. Pacific time (5:00 p.m. Eastern time).
Interested parties can access the call by dialing (866) 211-4146
from the United States or (647) 689-6734 internationally with
conference ID 5227499. A live webcast of the conference call will
be accessible from the investor relations website at
cloudflare.NET. A replay will be available approximately two hours
after the conclusion of the live event and will remain available
for approximately 30 days.
Other Upcoming Events:
Cloudflare Lock-up Expiration: In connection with our
initial public offering of Class A common stock, all of our
executive officers, directors, and stockholders as of the IPO were
parties to market standoff agreements with us or entered into
lock-up agreements with the IPO underwriters that restrict their
ability to sell or transfer their Cloudflare shares (the
“lock-up”). Pursuant to the lock-up agreements, if (i) at least 120
days have elapsed since September 12, 2019, (ii) we have publicly
released earnings results for the fiscal year ended December 31,
2019, and (iii) the lock-up is scheduled to end during or within
five trading days prior to a broadly applicable period during which
trading in our securities would not be permitted under our insider
trading policy (the “blackout period”), then the lock-up will end
up to ten trading days prior to the commencement of the blackout
period; so long as we have publicly announced the lock-up
expiration at least two trading days in advance of such
expiration.
The lock-up is scheduled to end on March 11, 2020, which falls
within the quarterly blackout period under our insider trading
policy that commences on March 1, 2020. Therefore, in accordance
with the lock-up agreements, the lock-up will end at the beginning
of trading on February 19, 2020. We will also release all of our
market standoff agreements when the lock-up expires.
Supplemental Financial and Other Information
Supplemental financial and other information can be accessed
through the Company’s investor relations website at
cloudflare.NET.
Non-GAAP Financial Information
Cloudflare believes that the presentation of non-GAAP financial
information provides important supplemental information to
management and investors regarding financial and business trends
relating to the Company’s financial condition and results of
operations. Reconciliations of non-GAAP financial measures to the
most directly comparable financial results as determined in
accordance with GAAP are included at the end of this press release
following the accompanying financial data. A reconciliation of
non-GAAP guidance measures to corresponding GAAP measures is not
available on a forward-looking basis without unreasonable effort
due to the uncertainty of expenses that may be incurred in the
future. For further information regarding why Cloudflare believes
that these non-GAAP measures provide useful information to
investors, the specific manner in which management uses these
measures, and some of the limitations associated with the use of
these measures, please refer to the “Explanation of Non-GAAP
Financial Measures” section at the end of this press release.
Available Information
Cloudflare intends to use its press releases, website, investor
relations website, news site, blog, and Twitter account, in
addition to filings made with the Securities and Exchange
Commission (SEC) and public conference calls, as a means of
disclosing material non-public information and for complying with
its disclosure obligations under Regulation FD.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which statements involve substantial risks and
uncertainties. In some cases, you can identify forward-looking
statements because they contain words such as “may,” “will,”
“should,” “expect,” “explore,” “plan,” “anticipate,” “could,”
“intend,” “target,” “project,” “contemplate,” “believe,”
“estimate,” “predict,” “potential,” or “continue,” or the negative
of these words, or other similar terms or expressions that concern
our expectations, strategy, plans, or intentions. However, not all
forward-looking statements contain these identifying words.
Forward-looking statements expressed or implied in this press
release include, but are not limited to, statements regarding our
future financial and operating performance, our reputation and
performance in the market, general market trends, our estimated and
projected revenue, non-GAAP net loss from operations and net loss
per share, shares outstanding, our plans and objectives for future
operations, growth, initiatives, or strategies, and comments made
by our CEO and others. There are a significant number of factors
that could cause actual results to differ materially from
statements made in this press release, including: our history of
net losses; our limited operating history; risks associated with
managing our rapid growth; our ability to attract and retain new
customers; our ability to retain and upgrade paying customers and
convert free customers to paying customers; problems with our
internal systems, network, or data, including actual or perceived
breaches or failures; rapidly evolving technological developments
in the market; length of sales cycles; and general market,
political, economic, and business conditions. Our actual results
could differ materially from those stated or implied in
forward-looking statements due to a number of factors, including
but not limited to, risks detailed in our filings with the SEC,
including our Quarterly Report on Form 10-Q filed on November 12,
2019, as well as other filings that we may make from time to time
with the SEC.
The forward-looking statements made in this press release relate
only to events as of the date on which the statements are made. We
undertake no obligation to update any forward-looking statements
made in this press release to reflect events or circumstances after
the date of this press release or to reflect new information or the
occurrence of unanticipated events, except as required by law. We
may not actually achieve the plans, intentions, or expectations
disclosed in our forward-looking statements, and you should not
place undue reliance on our forward-looking statements.
About Cloudflare
Cloudflare, Inc. (www.cloudflare.com / @cloudflare) is on a
mission to help build a better Internet. Cloudflare’s platform
protects and accelerates any Internet application online without
adding hardware, installing software, or changing a line of code.
Internet properties powered by Cloudflare have all web traffic
routed through its intelligent global network, which gets smarter
with every request. As a result, they see significant improvement
in performance and a decrease in spam and other attacks. Cloudflare
was named to Entrepreneur Magazine’s Top Company Cultures 2018 list
and ranked among the World’s Most Innovative Companies by Fast
Company in 2019. Headquartered in San Francisco, CA, Cloudflare has
offices in Austin, TX, Champaign, IL, New York, NY, San Jose, CA,
Seattle, WA, Washington, D.C., Lisbon, London, Munich, Beijing,
Singapore, and Sydney.
CLOUDFLARE, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share
data)
(unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2019
2018
2019
2018
Revenue
$
83,930
$
55,499
$
287,022
$
192,674
Cost of revenue (1)(2)
18,198
12,956
63,423
43,537
Gross profit
65,732
42,543
223,599
149,137
Operating expenses:
Sales and marketing (1)
47,107
28,188
159,298
94,394
Research and development (1)
26,289
15,350
90,669
54,463
General and administrative (1)
22,278
16,098
81,578
85,179
Total operating expenses
95,674
59,636
331,545
234,036
Loss from operations
(29,942
)
(17,093
)
(107,946
)
(84,899
)
Non-operating income (expense):
Interest income
2,965
1,048
5,787
1,895
Interest expense
(142
)
(266
)
(1,112
)
(992
)
Other expense, net
(412
)
(188
)
(1,442
)
(2,091
)
Total non-operating income (expense),
net
2,411
594
3,233
(1,188
)
Loss before income taxes
(27,531
)
(16,499
)
(104,713
)
(86,087
)
Provision for (benefit from) income
taxes
624
188
1,115
1,077
Net loss
$
(28,155
)
$
(16,687
)
$
(105,828
)
$
(87,164
)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.10
)
$
(0.20
)
$
(0.72
)
$
(1.08
)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
294,418
84,618
146,306
80,981
(1) Includes stock-based compensation as
follows:
Three Months Ended
December 31,
Year Ended December
31,
2019
2018
2019
2018
Cost of revenue
$
253
$
32
$
716
$
119
Sales and marketing
3,275
301
8,709
979
Research and development
4,413
454
13,037
1,532
General and administrative
3,674
275
14,165
24,717
Total stock-based compensation expense
$
11,615
$
1,062
$
36,627
$
27,347
(2) Includes amortization of acquired intangible assets as
follows:
Three Months Ended
December 31,
Year Ended December
31,
2019
2018
2019
2018
Cost of revenue
$
31
$
108
$
125
$
517
Total amortization of acquired intangible
assets
$
31
$
108
$
125
$
517
CLOUDFLARE, INC.
CONSOLIDATED BALANCE
SHEETS
(in thousands, except per share
data)
(unaudited)
December 31,
2019
2018
Assets
Current assets:
Cash and cash equivalents
$
138,976
$
25,055
Available-for-sale securities
497,972
135,602
Accounts receivable, net
33,867
25,155
Contract assets
2,063
1,552
Prepaid expenses and other current
assets
16,994
9,373
Total current assets
689,872
196,737
Property and equipment, net
101,466
73,210
Goodwill
4,083
4,083
Acquired intangible assets, net
31
156
Deferred contract acquisition costs,
noncurrent
25,184
15,940
Restricted cash
6,660
6,371
Other noncurrent assets
3,528
1,883
Total assets
$
830,824
$
298,380
Liabilities, Redeemable Convertible
Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable
$
11,463
$
14,285
Accrued expenses and other current
liabilities
28,314
15,699
Note payable, current portion
—
255
Liability for early exercise of unvested
stock options
13,263
14,323
Deferred revenue
30,843
16,817
Total current liabilities
83,883
61,379
Build-to-suit lease financing
obligation
10,506
10,443
Deferred revenue, noncurrent
804
220
Redeemable convertible preferred stock
warrant liability
—
1,618
Other noncurrent liabilities
9,803
6,704
Total liabilities
104,996
80,364
Redeemable Convertible Preferred
Stock
Redeemable convertible preferred stock;
$0.001 par value; zero and 168,108 shares authorized as of December
31, 2019 and 2018, respectively; zero and 165,658 shares issued and
outstanding with aggregate liquidation preference of zero and
$332,041 as of December 31, 2019 and 2018, respectively
—
331,521
Stockholders’ Equity (Deficit)
Class A common stock; $0.001 par value;
2,250,000 and 550,000 shares authorized as of December 31, 2019 and
2018, respectively; 87,072 and zero shares issued and outstanding
as of December 31, 2019 and 2018, respectively
87
—
Class B common stock; $0.001 par value;
315,000 and 300,000 shares authorized as of December 31, 2019 and
2018, respectively; 213,101 and 91,542 shares issued and
outstanding as of December 31, 2019 and 2018, respectively
207
85
Additional paid-in capital
1,027,179
82,345
Accumulated deficit
(301,706
)
(195,878
)
Accumulated other comprehensive income
(loss)
61
(57
)
Total stockholders’ equity (deficit)
725,828
(113,505
)
Total liabilities, redeemable convertible
preferred stock and stockholders’ equity (deficit)
$
830,824
$
298,380
CLOUDFLARE, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
(unaudited)
Year Ended December
31,
2019
2018
Cash Flows From Operating
Activities
Net loss
$
(105,828
)
$
(87,164
)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization expense
29,479
18,905
Amortization of deferred contract
acquisition costs
10,821
7,060
Stock-based compensation expense
36,627
27,347
Net accretion of discounts and
amortization of premiums on available-for-sale securities
(1,801
)
(570
)
Deferred income taxes
370
385
Provision for bad debt
2,488
1,080
Change in fair value of redeemable
convertible preferred stock warrant liability
1,517
1,220
Other
304
46
Changes in operating assets and
liabilities, net of effect of acquisitions:
Accounts receivable, net
(11,200
)
(14,758
)
Contract assets
(511
)
2,158
Deferred contract acquisition costs
(20,065
)
(12,235
)
Prepaid expenses and other current
assets
(7,621
)
(5,942
)
Other noncurrent assets
(1,575
)
(352
)
Accounts payable
(1,328
)
4,386
Accrued expenses and other current
liabilities
12,334
6,824
Deferred revenue
14,610
4,903
Other noncurrent liabilities
2,462
3,426
Net cash used in operating
activities
(38,917
)
(43,281
)
Cash Flows From Investing
Activities
Purchases of property and equipment
(43,289
)
(25,466
)
Capitalized internal-use software
(13,990
)
(9,373
)
Purchases of available-for-sale
securities
(537,382
)
(145,269
)
Sales of available-for-sale securities
1,978
—
Maturities of available-for-sale
securities
174,998
59,249
Other investing activities
44
64
Net cash used in investing
activities
(417,641
)
(120,795
)
Cash Flows From Financing
Activities
Proceeds from issuance of preferred stock,
net of issuance costs
—
149,975
Proceeds from the exercise of stock
options
3,058
4,412
Proceeds from the early exercise of stock
options
2,909
14,525
Repurchases of unvested common stock
(283
)
(65
)
Payments on note payable
(255
)
(356
)
Payments on related party promissory note
payable
—
—
Proceeds from build-to-suit lease
financing obligation drawdown
63
130
Payments of deferred offering costs
(5,268
)
—
Net cash provided by financing
activities
570,768
168,621
Net increase in cash, cash equivalents,
and restricted cash
114,210
4,545
Cash, cash equivalents, and restricted
cash, beginning of period
31,426
26,881
Cash, cash equivalents, and restricted
cash, end of period
$
145,636
$
31,426
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2019
2018
2019
2018
Reconciliation of cost of
revenue:
GAAP cost of revenue
$
18,198
$
12,956
$
63,423
$
43,537
Less: Stock-based compensation expense
(253
)
(32
)
(716
)
(119
)
Less: Amortization of acquired intangible
assets
(31
)
(108
)
(125
)
(517
)
Non-GAAP cost of revenue
$
17,914
$
12,816
$
62,582
$
42,901
Reconciliation of gross profit:
GAAP gross profit
$
65,732
$
42,543
$
223,599
$
149,137
Add: Stock-based compensation expense
253
32
716
119
Add: Amortization of acquired intangible
assets
31
108
125
517
Non-GAAP gross profit
$
66,016
$
42,683
$
224,440
$
149,773
Non-GAAP gross margin
78.7
%
76.9
%
78.2
%
77.7
%
Reconciliation of operating
expenses:
GAAP sales and marketing
$
47,107
$
28,188
$
159,298
$
94,394
Less: Stock-based compensation expense
(3,275
)
(301
)
(8,709
)
(979
)
Non-GAAP sales and marketing
$
43,832
$
27,887
$
150,589
$
93,415
GAAP research and development
$
26,289
$
15,350
$
90,669
$
54,463
Less: Stock-based compensation expense
(4,413
)
(454
)
(13,037
)
(1,532
)
Non-GAAP research and development
$
21,876
$
14,896
$
77,632
$
52,931
GAAP general and administrative
$
22,278
$
16,098
$
81,578
$
85,179
Less: Stock-based compensation expense
(3,674
)
(275
)
(14,165
)
(24,717
)
Non-GAAP general and administrative
$
18,604
$
15,823
$
67,413
$
60,462
Reconciliation of loss from
operations:
GAAP loss from operations
$
(29,942
)
$
(17,093
)
$
(107,946
)
$
(84,899
)
Add: Stock-based compensation expense
11,615
1,062
36,627
27,347
Add: Amortization of acquired intangible
assets
31
108
125
517
Non-GAAP loss from operations
$
(18,296
)
$
(15,923
)
$
(71,194
)
$
(57,035
)
Non-GAAP operating margin
(21.8
)%
(28.7
)%
(24.8
)%
(29.6
)%
Reconciliation of provision for
(benefit from) income taxes:
GAAP provision for (benefit from) income
taxes
$
624
$
188
$
1,115
$
1,077
Income tax effect of non-GAAP
adjustments
(127
)
129
437
154
Non-GAAP provision for (benefit from)
income taxes
$
497
$
317
$
1,552
$
1,231
Reconciliation of net loss and net loss
per share:
GAAP net loss attributable to common
stockholders
$
(28,155
)
$
(16,687
)
$
(105,828
)
$
(87,164
)
Add: Stock-based compensation expense
11,615
1,062
36,627
27,347
Add: Amortization of acquired intangible
assets
31
108
125
517
Income tax effect of non-GAAP
adjustments
127
(129
)
(437
)
(154
)
Non-GAAP net loss
$
(16,382
)
$
(15,646
)
$
(69,513
)
$
(59,454
)
GAAP net loss per share
$
(0.10
)
$
(0.20
)
$
(0.72
)
$
(1.08
)
Add: Stock-based compensation expense
0.04
0.01
0.25
0.34
Add: Amortization of acquired intangible
assets
—
—
—
0.01
Income tax effect of non-GAAP
adjustments
—
—
—
—
Non-GAAP net loss per share (1)
$
(0.06
)
$
(0.18
)
$
(0.48
)
$
(0.73
)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
294,418
84,618
146,306
80,981
(1) Totals may not sum due to rounding. Figures are
calculated based upon the respective underlying non-rounded data.
CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands)
(unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2019
2018
2019
2018
Free cash flow
Net cash used in operating activities
$
(8,574
)
$
(12,270
)
$
(38,917
)
$
(43,281
)
Less: Purchases of property and
equipment
(12,308
)
(12,959
)
(43,289
)
(25,466
)
Less: Capitalized internal-use
software
(2,658
)
(3,728
)
(13,990
)
(9,373
)
Free cash flow
$
(23,540
)
$
(28,957
)
$
(96,196
)
$
(78,120
)
Net cash used in investing activities
$
(352,659
)
$
(58,525
)
$
(417,641
)
$
(120,795
)
Net cash provided by (used in) financing
activities
$
(1,497
)
$
11
$
570,768
$
168,621
Net cash used in operating activities
(percentage of revenue)
(10
)%
(22
)%
(14
)%
(22
)%
Less: Purchases of property and equipment
(percentage of revenue)
(15
)%
(23
)%
(15
)%
(13
)%
Less: Capitalized internal-use software
(percentage of revenue)
(3
)%
(7
)%
(5
)%
(5
)%
Free cash flow margin (1)
(28
)%
(52
)%
(34
)%
(41
)%
(1) Totals may not sum due to rounding. Figures are
calculated based upon the respective underlying non-rounded data.
Explanation of Non-GAAP Financial Measures
In addition to our results determined in accordance with
generally accepted accounting principles in the United States (U.S.
GAAP), we believe the following non-GAAP measures are useful in
evaluating our operating performance. We use the following non-GAAP
financial information to evaluate our ongoing operations and for
internal planning and forecasting purposes. We believe that
non-GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and
comparability with past financial performance. However, non-GAAP
financial information has limitations as an analytical tool and
should not be considered in isolation or as a substitute for
financial information presented in accordance with U.S. GAAP. In
particular, free cash flow is not a substitute for cash provided by
(used in) operating activities. Additionally, the utility of free
cash flow as a measure of our liquidity is further limited as it
does not represent the total increase or decrease in our cash
balance for a given period. In addition, other companies, including
companies in our industry, may calculate similarly-titled non-GAAP
measures differently or may use other measures to evaluate their
performance, all of which could reduce the usefulness of our
non-GAAP financial measures as tools for comparison. A
reconciliation is provided above for each non-GAAP financial
measure to the most directly comparable financial measure stated in
accordance with U.S. GAAP. Investors are cautioned that there are a
number of limitations associated with the use of non-GAAP financial
measures as analytical tools. Investors are encouraged to review
the related U.S. GAAP financial measures and the reconciliation of
these non-GAAP financial measures to their most directly comparable
U.S. GAAP financial measures, and not to rely on any single
financial measure to evaluate our business.
Expenses Excluded from Non-GAAP Measures. We exclude
stock-based compensation expense, which is a non-cash expense, from
certain of our non-GAAP financial measures because we believe that
excluding this item provides meaningful supplemental information
regarding operational performance. We exclude amortization of
intangible assets, which is a non-cash expense, related to business
combinations from certain of our non-GAAP financial measures
because such expenses are related to business combinations and have
no direct correlation to the operation of our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin. We
define non-GAAP gross profit and non-GAAP gross margin as U.S. GAAP
gross profit and U.S. GAAP gross margin, respectively, excluding
stock-based compensation expense and amortization of acquired
intangible assets.
Non-GAAP Loss from Operations and Non-GAAP Operating
Margin. We define non-GAAP loss from operations and non-GAAP
operating margin as U.S. GAAP loss from operations and U.S. GAAP
operating margin, respectively, excluding stock-based compensation
expense and amortization of acquired intangible assets.
Non-GAAP Net Loss and Non-GAAP Net Loss per Share, Basic and
Diluted. We define non-GAAP net loss as GAAP net loss plus
stock-based compensation expense, amortization of acquired
intangible assets, and a non-GAAP provision for (benefit from)
income taxes. The difference between our GAAP and non-GAAP income
tax expense (benefit) is primarily due to adjustments in
stock-based compensation and amortization of intangibles associated
with business combinations. We define non-GAAP net loss per share,
basic and diluted, as non-GAAP net loss divided by the
weighted-average common shares outstanding. Since we have reported
net losses for all periods presented, we have excluded all
potentially dilutive securities from the calculation of net loss
per share as their effect is antidilutive and accordingly, basic
and diluted net loss per share is the same for all periods
presented. We believe that excluding these items from non-GAAP net
loss and non-GAAP net loss per share, diluted, provides management
and investors with greater visibility into the underlying
performance of our core business operating results.
Free Cash Flow and Free Cash Flow Margin. Free cash flow
is a non-GAAP financial measure that we calculate as net cash
provided by (used in) operating activities less cash used for
purchases of property and equipment and capitalized internal-use
software. Free cash flow margin is calculated as free cash flow
divided by revenue. We believe that free cash flow and free cash
flow margin are useful indicators of liquidity that provide
information to management and investors about the amount of cash
generated from our operations that, after the investments in
property and equipment and capitalized internal-use software, can
be used for strategic initiatives, including investing in our
business, and strengthening our financial position. We believe that
historical and future trends in free cash flow and free cash flow
margin, even if negative, provide useful information about the
amount of cash generated (or consumed) by our operating activities
that is available (or not available) to be used for strategic
initiatives. For example, if free cash flow is negative, we may
need to access cash reserves or other sources of capital to invest
in strategic initiatives. One limitation of free cash flow and free
cash flow margin is that these measures do not reflect our future
contractual commitments. Additionally, free cash flow does not
represent the total increase or decrease in our cash balance for a
given period.
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version on businesswire.com: https://www.businesswire.com/news/home/20200213005892/en/
Investor Relations Information Jayson Noland
ir@cloudflare.com
Press Contact Information Daniella Vallurupalli
press@cloudflare.com
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