cloud-20240630FALSE0001477333Q22024--12-310.02671870.02859130.00522631xbrli:sharesiso4217:USDiso4217:USDxbrli:sharesxbrli:purecloud:daycloud:votecloud:tranchecloud:segment00014773332024-01-012024-06-300001477333us-gaap:CommonClassAMember2024-07-180001477333us-gaap:CommonClassBMember2024-07-1800014773332024-06-3000014773332023-12-310001477333us-gaap:CommonClassAMember2023-12-310001477333us-gaap:CommonClassAMember2024-06-300001477333us-gaap:CommonClassBMember2023-12-310001477333us-gaap:CommonClassBMember2024-06-3000014773332024-04-012024-06-3000014773332023-04-012023-06-3000014773332023-01-012023-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2024-03-310001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2024-03-310001477333us-gaap:AdditionalPaidInCapitalMember2024-03-310001477333us-gaap:RetainedEarningsMember2024-03-310001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-3100014773332024-03-310001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2024-04-012024-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2024-04-012024-06-300001477333us-gaap:AdditionalPaidInCapitalMember2024-04-012024-06-300001477333us-gaap:RetainedEarningsMember2024-04-012024-06-300001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-04-012024-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2024-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2024-06-300001477333us-gaap:AdditionalPaidInCapitalMember2024-06-300001477333us-gaap:RetainedEarningsMember2024-06-300001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2023-03-310001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2023-03-310001477333us-gaap:AdditionalPaidInCapitalMember2023-03-310001477333us-gaap:RetainedEarningsMember2023-03-310001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-3100014773332023-03-310001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2023-04-012023-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2023-04-012023-06-300001477333us-gaap:AdditionalPaidInCapitalMember2023-04-012023-06-300001477333us-gaap:RetainedEarningsMember2023-04-012023-06-300001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-04-012023-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2023-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2023-06-300001477333us-gaap:AdditionalPaidInCapitalMember2023-06-300001477333us-gaap:RetainedEarningsMember2023-06-300001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-06-3000014773332023-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2023-12-310001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2023-12-310001477333us-gaap:AdditionalPaidInCapitalMember2023-12-310001477333us-gaap:RetainedEarningsMember2023-12-310001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2024-01-012024-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2024-01-012024-06-300001477333us-gaap:AdditionalPaidInCapitalMember2024-01-012024-06-300001477333us-gaap:RetainedEarningsMember2024-01-012024-06-300001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2022-12-310001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2022-12-310001477333us-gaap:AdditionalPaidInCapitalMember2022-12-310001477333us-gaap:RetainedEarningsMember2022-12-310001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-3100014773332022-12-310001477333us-gaap:CommonStockMemberus-gaap:CommonClassAMember2023-01-012023-06-300001477333us-gaap:CommonStockMemberus-gaap:CommonClassBMember2023-01-012023-06-300001477333us-gaap:AdditionalPaidInCapitalMember2023-01-012023-06-300001477333us-gaap:RetainedEarningsMember2023-01-012023-06-300001477333us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-06-300001477333us-gaap:TechnologyEquipmentMember2023-12-310001477333us-gaap:TechnologyEquipmentMember2024-01-010001477333us-gaap:ServiceLifeMemberus-gaap:TechnologyEquipmentMember2024-01-012024-06-300001477333country:US2024-04-012024-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMembercountry:US2024-04-012024-06-300001477333country:US2023-04-012023-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMembercountry:US2023-04-012023-06-300001477333country:US2024-01-012024-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMembercountry:US2024-01-012024-06-300001477333country:US2023-01-012023-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMembercountry:US2023-01-012023-06-300001477333us-gaap:EMEAMember2024-04-012024-06-300001477333us-gaap:EMEAMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-04-012024-06-300001477333us-gaap:EMEAMember2023-04-012023-06-300001477333us-gaap:EMEAMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-04-012023-06-300001477333us-gaap:EMEAMember2024-01-012024-06-300001477333us-gaap:EMEAMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-01-012024-06-300001477333us-gaap:EMEAMember2023-01-012023-06-300001477333us-gaap:EMEAMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-01-012023-06-300001477333srt:AsiaPacificMember2024-04-012024-06-300001477333srt:AsiaPacificMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-04-012024-06-300001477333srt:AsiaPacificMember2023-04-012023-06-300001477333srt:AsiaPacificMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-04-012023-06-300001477333srt:AsiaPacificMember2024-01-012024-06-300001477333srt:AsiaPacificMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-01-012024-06-300001477333srt:AsiaPacificMember2023-01-012023-06-300001477333srt:AsiaPacificMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-01-012023-06-300001477333cloud:OtherGeographicalRegionsMember2024-04-012024-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMembercloud:OtherGeographicalRegionsMember2024-04-012024-06-300001477333cloud:OtherGeographicalRegionsMember2023-04-012023-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMembercloud:OtherGeographicalRegionsMember2023-04-012023-06-300001477333cloud:OtherGeographicalRegionsMember2024-01-012024-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMembercloud:OtherGeographicalRegionsMember2024-01-012024-06-300001477333cloud:OtherGeographicalRegionsMember2023-01-012023-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMembercloud:OtherGeographicalRegionsMember2023-01-012023-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-04-012024-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-04-012023-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-01-012024-06-300001477333us-gaap:GeographicConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-01-012023-06-300001477333us-gaap:SalesChannelThroughIntermediaryMember2024-04-012024-06-300001477333cloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:SalesChannelThroughIntermediaryMember2024-04-012024-06-300001477333us-gaap:SalesChannelThroughIntermediaryMember2023-04-012023-06-300001477333cloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:SalesChannelThroughIntermediaryMember2023-04-012023-06-300001477333us-gaap:SalesChannelThroughIntermediaryMember2024-01-012024-06-300001477333cloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:SalesChannelThroughIntermediaryMember2024-01-012024-06-300001477333us-gaap:SalesChannelThroughIntermediaryMember2023-01-012023-06-300001477333cloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:SalesChannelThroughIntermediaryMember2023-01-012023-06-300001477333us-gaap:SalesChannelDirectlyToConsumerMember2024-04-012024-06-300001477333us-gaap:SalesChannelDirectlyToConsumerMembercloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-04-012024-06-300001477333us-gaap:SalesChannelDirectlyToConsumerMember2023-04-012023-06-300001477333us-gaap:SalesChannelDirectlyToConsumerMembercloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-04-012023-06-300001477333us-gaap:SalesChannelDirectlyToConsumerMember2024-01-012024-06-300001477333us-gaap:SalesChannelDirectlyToConsumerMembercloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-01-012024-06-300001477333us-gaap:SalesChannelDirectlyToConsumerMember2023-01-012023-06-300001477333us-gaap:SalesChannelDirectlyToConsumerMembercloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-01-012023-06-300001477333cloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-04-012024-06-300001477333cloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-04-012023-06-300001477333cloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2024-01-012024-06-300001477333cloud:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2023-01-012023-06-3000014773332024-07-012024-06-300001477333us-gaap:CashMember2024-06-300001477333us-gaap:CashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CashAndCashEquivalentsMember2024-06-300001477333us-gaap:CashMembercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001477333us-gaap:CashMembercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001477333us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2024-06-300001477333us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CashAndCashEquivalentsMember2024-06-300001477333cloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001477333cloud:RestrictedCashMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001477333us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateBondSecuritiesMember2024-06-300001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:CashAndCashEquivalentsMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2024-06-300001477333us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2024-06-300001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMemberus-gaap:CashAndCashEquivalentsMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2024-06-300001477333us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2024-06-300001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:CashAndCashEquivalentsMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2024-06-300001477333us-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2024-06-300001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMemberus-gaap:CashAndCashEquivalentsMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2024-06-300001477333us-gaap:FairValueInputsLevel2Member2024-06-300001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CashAndCashEquivalentsMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001477333us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CashAndCashEquivalentsMember2024-06-300001477333cloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001477333cloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001477333us-gaap:CashMember2023-12-310001477333us-gaap:CashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CashAndCashEquivalentsMember2023-12-310001477333us-gaap:CashMembercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001477333us-gaap:CashMembercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001477333us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2023-12-310001477333us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CashAndCashEquivalentsMember2023-12-310001477333cloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001477333cloud:RestrictedCashMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001477333us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateBondSecuritiesMember2023-12-310001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:CashAndCashEquivalentsMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2023-12-310001477333us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2023-12-310001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMemberus-gaap:CashAndCashEquivalentsMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2023-12-310001477333us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2023-12-310001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:CashAndCashEquivalentsMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2023-12-310001477333us-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2023-12-310001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMemberus-gaap:CashAndCashEquivalentsMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2023-12-310001477333us-gaap:FairValueInputsLevel2Member2023-12-310001477333us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CashAndCashEquivalentsMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001477333us-gaap:FairValueInputsLevel2Membercloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001477333us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CashAndCashEquivalentsMember2023-12-310001477333cloud:DebtSecuritiesAvailableForSaleCurrentMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001477333cloud:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001477333us-gaap:MoneyMarketFundsMember2024-06-300001477333us-gaap:MoneyMarketFundsMember2023-12-310001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:ConvertibleDebtMember2024-06-300001477333us-gaap:TechnologyEquipmentMember2024-06-300001477333us-gaap:ConstructionInProgressMember2024-06-300001477333us-gaap:ConstructionInProgressMember2023-12-310001477333us-gaap:SoftwareDevelopmentMember2024-06-300001477333us-gaap:SoftwareDevelopmentMember2023-12-310001477333us-gaap:OfficeEquipmentMember2024-06-300001477333us-gaap:OfficeEquipmentMember2023-12-310001477333us-gaap:FurnitureAndFixturesMember2024-06-300001477333us-gaap:FurnitureAndFixturesMember2023-12-310001477333us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2024-06-300001477333us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2023-12-310001477333us-gaap:LeaseholdImprovementsMember2024-06-300001477333us-gaap:LeaseholdImprovementsMember2023-12-310001477333us-gaap:RemediationPropertyForSaleAbandonmentOrDisposalMember2024-06-300001477333us-gaap:RemediationPropertyForSaleAbandonmentOrDisposalMember2023-12-310001477333us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2024-04-012024-06-300001477333us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2023-04-012023-06-300001477333us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2024-01-012024-06-300001477333us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2023-01-012023-06-300001477333cloud:BastionZeroMember2024-04-012024-06-300001477333us-gaap:DevelopedTechnologyRightsMember2024-06-300001477333us-gaap:TradeNamesMember2024-06-300001477333us-gaap:DevelopedTechnologyRightsMember2023-12-310001477333us-gaap:CustomerRelationshipsMember2023-12-310001477333us-gaap:TradeNamesMember2023-12-310001477333cloud:BastionZeroMemberus-gaap:DevelopedTechnologyRightsMember2024-04-012024-06-300001477333cloud:CoLocationAssetLeaseMember2024-06-300001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:ConvertibleDebtMember2021-08-310001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:ConvertibleDebtMember2021-08-012021-08-310001477333cloud:SeniorConvertibleNotesDue2026Membercloud:ScenarioOneMemberus-gaap:ConvertibleDebtMember2021-08-012021-08-310001477333cloud:SeniorConvertibleNotesDue2026Membercloud:ScenarioTwoMemberus-gaap:ConvertibleDebtMember2021-08-012021-08-310001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:CommonClassAMembercloud:CappedCallsMemberus-gaap:LongMemberus-gaap:ConvertibleDebtMember2021-08-012021-08-310001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:CommonClassAMembercloud:CappedCallsMemberus-gaap:LongMemberus-gaap:ConvertibleDebtMember2021-08-310001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2020-05-310001477333cloud:SeniorConvertibleNotesDue2025Member2020-05-310001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2024-06-300001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2023-12-310001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2021-12-310001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2021-01-012021-12-310001477333us-gaap:CommonClassAMemberus-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2021-01-012021-12-310001477333cloud:CertainHoldersConversionMemberus-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2022-01-012022-12-310001477333us-gaap:CommonClassAMemberus-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2022-01-012022-12-310001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2023-01-012023-12-310001477333cloud:CertainHoldersConversionMemberus-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2023-01-012023-12-310001477333us-gaap:CommonClassAMemberus-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2023-01-012023-12-310001477333us-gaap:CommonClassAMembercloud:CappedCallsMemberus-gaap:LongMemberus-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2020-05-312020-05-310001477333us-gaap:CommonClassAMembercloud:CappedCallsMemberus-gaap:LongMemberus-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2020-05-310001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2024-01-012024-06-300001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:ConvertibleDebtMember2023-12-310001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:ConvertibleDebtMember2024-04-012024-06-300001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2024-04-012024-06-300001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:ConvertibleDebtMember2023-04-012023-06-300001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2023-04-012023-06-300001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:ConvertibleDebtMember2024-01-012024-06-300001477333cloud:SeniorConvertibleNotesDue2026Memberus-gaap:ConvertibleDebtMember2023-01-012023-06-300001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2023-01-012023-06-300001477333us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2024-05-310001477333us-gaap:LetterOfCreditMemberus-gaap:LineOfCreditMember2024-05-310001477333us-gaap:LineOfCreditMemberus-gaap:BridgeLoanMember2024-05-310001477333us-gaap:RevolvingCreditFacilityMembersrt:MinimumMemberus-gaap:LineOfCreditMember2024-05-012024-05-310001477333us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMembersrt:MaximumMember2024-05-012024-05-310001477333us-gaap:RevolvingCreditFacilityMemberus-gaap:FederalFundsEffectiveSwapRateMemberus-gaap:LineOfCreditMember2024-05-012024-05-310001477333us-gaap:SecuredOvernightFinancingRateSofrMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2024-05-012024-05-310001477333us-gaap:SecuredOvernightFinancingRateSofrMembercloud:VariableRateComponentOneMembersrt:MinimumMemberus-gaap:LineOfCreditMember2024-05-012024-05-310001477333us-gaap:SecuredOvernightFinancingRateSofrMembercloud:VariableRateComponentOneMemberus-gaap:LineOfCreditMembersrt:MaximumMember2024-05-012024-05-310001477333us-gaap:SecuredOvernightFinancingRateSofrMembercloud:VariableRateComponentTwoMembersrt:MinimumMemberus-gaap:LineOfCreditMember2024-05-012024-05-310001477333us-gaap:SecuredOvernightFinancingRateSofrMembercloud:VariableRateComponentTwoMemberus-gaap:LineOfCreditMembersrt:MaximumMember2024-05-012024-05-310001477333us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2024-05-012024-05-310001477333us-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2020-05-012020-05-310001477333cloud:CertainHoldersConversionMemberus-gaap:ConvertibleDebtMembercloud:SeniorConvertibleNotesDue2025Member2020-05-312020-05-310001477333us-gaap:EmployeeStockOptionMember2024-06-300001477333us-gaap:EmployeeStockOptionMember2023-12-310001477333cloud:EquityIncentivePlan2019Member2024-06-300001477333cloud:EquityIncentivePlan2019Member2023-12-310001477333cloud:RestrictedStockUnitsAndPerformanceStockUnitsMember2024-06-300001477333cloud:RestrictedStockUnitsAndPerformanceStockUnitsMember2023-12-310001477333us-gaap:EmployeeStockMember2024-06-300001477333us-gaap:EmployeeStockMember2023-12-310001477333cloud:StockOptionsWithMarketConditionsMembersrt:ExecutiveOfficerMember2022-01-012022-12-310001477333cloud:StockOptionsWithMarketConditionsMembercloud:OtherKeyEmployeesMember2022-01-012022-12-310001477333cloud:OtherPerformanceAwardsMemberus-gaap:CommonClassAMember2024-01-012024-06-300001477333cloud:OtherPerformanceAwardsMembercloud:OtherKeyEmployeesMember2022-01-012022-12-310001477333cloud:OtherPerformanceAwardsMembersrt:ExecutiveOfficerMember2022-01-012022-12-310001477333cloud:OtherPerformanceAwardsMemberus-gaap:CommonClassAMember2023-05-012023-05-010001477333cloud:OtherPerformanceAwardsMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2024-01-012024-06-300001477333cloud:OtherPerformanceAwardsMember2024-04-012024-06-300001477333cloud:OtherPerformanceAwardsMember2023-04-012023-06-300001477333cloud:OtherPerformanceAwardsMember2024-01-012024-06-300001477333cloud:OtherPerformanceAwardsMember2023-01-012023-06-300001477333cloud:OtherPerformanceAwardsMember2024-06-300001477333cloud:RestrictedStockUnitsAndPerformanceStockUnitsMember2024-04-012024-06-300001477333cloud:RestrictedStockUnitsAndPerformanceStockUnitsMember2023-04-012023-06-300001477333cloud:RestrictedStockUnitsAndPerformanceStockUnitsMember2024-01-012024-06-300001477333cloud:RestrictedStockUnitsAndPerformanceStockUnitsMember2023-01-012023-06-300001477333us-gaap:EmployeeStockMemberus-gaap:CommonClassAMembercloud:TwoThousandAndNineteenEmployeeStockPurchasePlanMember2024-01-012024-06-300001477333us-gaap:EmployeeStockMemberus-gaap:CommonClassAMembercloud:TwoThousandAndNineteenEmployeeStockPurchasePlanMember2023-01-012023-06-300001477333us-gaap:EmployeeStockMembercloud:TwoThousandAndNineteenEmployeeStockPurchasePlanMember2024-06-300001477333us-gaap:EmployeeStockMembercloud:TwoThousandAndNineteenEmployeeStockPurchasePlanMember2024-01-012024-06-300001477333us-gaap:CostOfSalesMember2024-04-012024-06-300001477333us-gaap:CostOfSalesMember2023-04-012023-06-300001477333us-gaap:CostOfSalesMember2024-01-012024-06-300001477333us-gaap:CostOfSalesMember2023-01-012023-06-300001477333us-gaap:SellingAndMarketingExpenseMember2024-04-012024-06-300001477333us-gaap:SellingAndMarketingExpenseMember2023-04-012023-06-300001477333us-gaap:SellingAndMarketingExpenseMember2024-01-012024-06-300001477333us-gaap:SellingAndMarketingExpenseMember2023-01-012023-06-300001477333us-gaap:ResearchAndDevelopmentExpenseMember2024-04-012024-06-300001477333us-gaap:ResearchAndDevelopmentExpenseMember2023-04-012023-06-300001477333us-gaap:ResearchAndDevelopmentExpenseMember2024-01-012024-06-300001477333us-gaap:ResearchAndDevelopmentExpenseMember2023-01-012023-06-300001477333us-gaap:GeneralAndAdministrativeExpenseMember2024-04-012024-06-300001477333us-gaap:GeneralAndAdministrativeExpenseMember2023-04-012023-06-300001477333us-gaap:GeneralAndAdministrativeExpenseMember2024-01-012024-06-300001477333us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-06-300001477333cloud:SeniorConvertibleNotesDue2025Member2024-01-012024-06-300001477333cloud:SeniorConvertibleNotesDue2025Member2023-01-012023-06-300001477333cloud:SeniorConvertibleNotesDue2026Member2024-01-012024-06-300001477333cloud:SeniorConvertibleNotesDue2026Member2023-01-012023-06-300001477333cloud:ShareBasedPaymentArrangementSharesSubjectToRepurchaseMember2024-01-012024-06-300001477333cloud:ShareBasedPaymentArrangementSharesSubjectToRepurchaseMember2023-01-012023-06-300001477333us-gaap:EmployeeStockOptionMember2024-01-012024-06-300001477333us-gaap:EmployeeStockOptionMember2023-01-012023-06-300001477333cloud:RestrictedStockAwardAndRestrictedStockUnitRSUsAwardMember2024-01-012024-06-300001477333cloud:RestrictedStockAwardAndRestrictedStockUnitRSUsAwardMember2023-01-012023-06-300001477333us-gaap:EmployeeStockMember2024-01-012024-06-300001477333us-gaap:EmployeeStockMember2023-01-012023-06-300001477333cloud:BastionZeroMember2024-05-012024-05-310001477333cloud:BastionZeroMember2024-05-310001477333country:US2024-06-300001477333country:US2023-12-310001477333us-gaap:NonUsMember2024-06-300001477333us-gaap:NonUsMember2023-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM 10-Q
__________________________________________________
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-39039
__________________________________________________
Cloudflare, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________________ | | | | | | | | |
Delaware |
| 27-0805829 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
101 Townsend Street
San Francisco, California 94107
(Address of principal executive offices and zip code)
(888) 993-5273
(Registrant’s telephone number, including area code)
__________________________________________________
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Class A Common Stock, $0.001 par value | NET | The New York Stock Exchange |
| | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | |
Large accelerated filer | ☒ |
| Accelerated filer | ☐ |
|
|
|
|
|
Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ |
|
|
|
|
|
|
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 18, 2024, 303,675,639 shares of the registrant's Class A common stock were outstanding and 38,027,095 shares of the registrant's Class B common stock were outstanding.
TABLE OF CONTENTS | | | | | | | | |
| | |
| | Page |
| | |
Item 1 | | |
| | |
| | |
| | |
| | |
| | |
| | |
Item 2 | | |
Item 3 | | |
Item 4 | | |
| | |
| | |
| | |
Item 1 | | |
Item 1A | | |
Item 2 | | |
Item 5 | | |
Item 6 | | |
| | |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words, or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.
Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•our ability to retain and upgrade paying customers;
•our ability to attract new paying customers, including large customers, or convert free customers to paying customers;
•our future financial performance, including trends in revenue, costs of revenue, gross profit or gross margin, operating expenses, paying customers, and free cash flow;
•our ability to achieve or maintain profitability and positive cash flow;
•the impact of adverse economic conditions on our customers’ spending ability and the overall demand for our products;
•the consequences we may face resulting from the activities of our customers and the actions we take in response, including associated theories of liability;
•the demand, and our ability to generate demand, for our products or for solutions for security, performance, and reliability in general;
•possible harm caused by significant disruption of service, loss or unauthorized access to customers’ content, or the actual or perceived failure of our products to prevent security incidents;
•our ability to compete successfully in competitive markets;
•our ability to respond to rapid technological changes;
•our ability to continue to innovate and develop new products;
•our expectations and management of future growth;
•the impact of the Hamas-Israel and Russia-Ukraine conflicts and other areas of geopolitical tension around the world, or any worsening or expansion of those conflicts or geopolitical tensions, other geopolitical events such as elections and other governmental changes, and any related challenging macroeconomic conditions globally, including on our and our customers', vendors', and partners' respective businesses and the markets in which we and our customers, vendors, and partners operate;
•our ability to maintain favorable co-location relationships, Internet service provider (ISP) partnerships, and other interconnection arrangements around the world;
•our ability to offer high-quality customer support;
•our ability to manage our global operations;
•our expectations of and ability to comply with applicable laws around the world;
•our ability to correctly estimate our tax obligations around the world;
•our ability to repay our convertible senior notes and any outstanding borrowings under our revolving credit facility when due;
•our ability to attract, integrate, and retain key personnel and other highly qualified personnel;
•our ability to maintain our brand;
•our ability to prevent serious errors or defects across, and to otherwise maintain the uninterrupted operation of, our network;
•our ability to maintain, protect, and enhance our intellectual property; and
•our ability to successfully identify, acquire, and integrate companies and assets.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (SEC) that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q 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. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
SELECTED RISKS AFFECTING OUR BUSINESS
Investing in our Class A common stock involves numerous risks, including those set forth below. This summary does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. Below are summaries of some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
•We have a history of net losses and may not be able to achieve or sustain profitability in the future.
•We have experienced rapid revenue growth, which may not be indicative of our future performance.
•Adverse economic conditions, including reduced spending on products and solutions for network security, performance, and reliability, may adversely impact our revenue and profitability.
•The Hamas-Israel and Russia-Ukraine conflicts and other areas of geopolitical tension around the world, or any worsening or expansion of those conflicts or tensions, other geopolitical events such as elections and other governmental changes, and any related challenging macroeconomic conditions globally and in various countries in which we and our customers operate may materially adversely affect our customers, vendors, and partners, and the duration and extent to which these factors may impact our future business and operations, results of operations, financial condition, and cash flows remain uncertain.
•If we are unable to attract new paying and free customers, our future results of operations could be harmed.
•Our business depends on our ability to retain and upgrade paying customers, expand the number of products we sell to paying customers, and, to a lesser extent, convert free customers to paying customers, and any decline in renewals, upgrades, expansions, or conversions could adversely affect our future results of operations.
•If we are unable to effectively attract, expand, and retain sales to large customers, or we fail to mitigate the additional risks associated with serving large customers, our business, results of operation, and financial condition may suffer.
•Activities of our paying and free customers or the content of their websites or other Internet properties, as well as our response to those activities, could cause us to experience significant adverse political, business, and reputational consequences with customers, employees, suppliers, government entities, and others.
•We face intense and increasing competition, which could adversely affect our business, financial condition, and results of operations.
•If we do not effectively attract, train, and retain our sales force to be able to sell our existing and new products and product features, we may be unable to add new contracted customers, or increase sales to our existing customers and our business would be adversely affected.
•We rely on our co-founders and other key technical, sales, and management personnel to grow our business, and the loss of one or more key employees or the inability to successfully attract, integrate, and retain qualified senior management and other personnel, or the failure of new members of our management team to successfully lead and scale our business, could harm our business.
•Problems with our internal systems, networks, or data, including actual or perceived breaches or failures, could cause our network or products to be perceived as insecure, underperforming, or unreliable, our customers to lose trust in our network and products, our reputation to be damaged, and our financial results to be negatively impacted.
•If our global network that delivers our products or the core co-location facilities we use to operate our network are damaged, interfered with, or otherwise fail to meet the requirements of our business or local regulations, our ability to provide access to our network and products to our customers and maintain the performance of our network could be negatively impacted, which could cause our business, results of operations and financial condition to suffer.
•Detrimental changes in, or the termination of, any of our co-location relationships, ISP partnerships, or our other interconnection relationships with ISPs could adversely impact our business, results of operations, and financial condition.
•The actual or perceived failure of our products to block malware or prevent a security breach or incident could harm our reputation and adversely impact our business, results of operations, and financial condition.
•Activities of our paying and free customers or the content of their websites and other Internet properties may violate applicable laws and/or our terms of service and could subject us to lawsuits, regulatory enforcement actions, and/or liability in various jurisdictions.
•Our actual or perceived failure to comply with privacy, data protection, information security, and other applicable laws, regulations, and obligations could harm our business.
•Our network presence within China is dependent upon our commercial relationship with JD Cloud, and any detrimental changes in, or the termination of, that relationship could jeopardize our ability to offer an integrated global network that includes China.
•The trading price of our Class A common stock may be volatile, and you could lose all or part of your investment.
•The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of our initial public offering, and it may depress the trading price of our Class A common stock.
•Repaying and servicing our existing and future debt, including our 2026 Notes (as defined below) and borrowings under our revolving credit facility, may require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our indebtedness.
PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited) | | | | | | | | | | | | | | |
| | June 30, 2024 | | December 31, 2023 |
| | | | |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 156,967 | | | $ | 86,864 | |
Available-for-sale securities | | 1,600,430 | | | 1,586,880 | |
Accounts receivable, net | | 250,213 | | | 248,268 | |
Contract assets | | 12,917 | | | 11,041 | |
Restricted cash short-term | | 1,000 | | | 2,522 | |
Prepaid expenses and other current assets | | 71,491 | | | 47,502 | |
Total current assets | | 2,093,018 | | | 1,983,077 | |
Property and equipment, net | | 339,124 | | | 322,813 | |
Goodwill | | 156,162 | | | 148,047 | |
Acquired intangible assets, net | | 21,663 | | | 19,564 | |
Operating lease right-of-use assets | | 141,870 | | | 138,556 | |
Deferred contract acquisition costs, noncurrent | | 144,330 | | | 133,236 | |
Restricted cash | | 2,023 | | | 1,838 | |
Other noncurrent assets | | 18,483 | | | 12,636 | |
Total assets | | $ | 2,916,673 | | | $ | 2,759,767 | |
Liabilities and Stockholders’ Equity | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 59,528 | | | $ | 53,727 | |
Accrued expenses and other current liabilities | | 66,916 | | | 63,597 | |
Accrued compensation | | 57,813 | | | 63,801 | |
Operating lease liabilities | | 40,740 | | | 38,351 | |
| | | | |
Deferred revenue | | 370,968 | | | 347,608 | |
| | | | |
Total current liabilities | | 595,965 | | | 567,084 | |
Convertible senior notes, net | | 1,285,342 | | | 1,283,362 | |
Operating lease liabilities, noncurrent | | 112,508 | | | 113,490 | |
Deferred revenue, noncurrent | | 23,579 | | | 17,244 | |
Other noncurrent liabilities | | 17,734 | | | 15,540 | |
Total liabilities | | 2,035,128 | | | 1,996,720 | |
| | | | |
Commitments and contingencies (Note 8) | | | | |
| | | | |
Stockholders’ Equity | | | | |
Class A common stock; $0.001 par value; 2,250,000 shares authorized as of June 30, 2024 and December 31, 2023; 303,321 and 298,089 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | | 302 | | | 297 | |
Class B common stock; $0.001 par value; 315,000 shares authorized as of June 30, 2024 and December 31, 2023; 38,216 and 39,443 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | | 39 | | | 40 | |
Additional paid-in capital | | 1,956,984 | | | 1,784,566 | |
Accumulated deficit | | (1,074,461) | | | (1,023,840) | |
Accumulated other comprehensive income (loss) | | (1,319) | | | 1,984 | |
Total stockholders’ equity | | 881,545 | | | 763,047 | |
Total liabilities and stockholders’ equity | | $ | 2,916,673 | | | $ | 2,759,767 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2024 | | 2023 | | 2024 | | 2023 |
| | | | | | |
| | |
Revenue | $ | 400,996 | | | $ | 308,494 | | | $ | 779,598 | | | $ | 598,669 | |
Cost of revenue | 89,011 | | | 75,221 | | | 174,049 | | | 145,653 | |
Gross profit | 311,985 | | | 233,273 | | | 605,549 | | | 453,016 | |
Operating expenses: | | | | | | | |
Sales and marketing | 174,501 | | | 146,688 | | | 368,603 | | | 283,689 | |
Research and development | 102,547 | | | 89,610 | | | 190,250 | | | 171,149 | |
General and administrative | 69,635 | | | 53,147 | | | 135,944 | | | 101,622 | |
Total operating expenses | 346,683 | | | 289,445 | | | 694,797 | | | 556,460 | |
Loss from operations | (34,698) | | | (56,172) | | | (89,248) | | | (103,444) | |
Non-operating income (expense): | | | | | | | |
Interest income | 21,715 | | | 16,536 | | | 42,967 | | | 30,023 | |
Interest expense | (1,218) | | | (1,539) | | | (2,318) | | | (3,665) | |
Loss on extinguishment of debt | — | | | (50,300) | | | — | | | (50,300) | |
Other income (expense), net | 269 | | | (1,527) | | | 1,393 | | | (2,384) | |
Total non-operating income (expense), net | 20,766 | | | (36,830) | | | 42,042 | | | (26,326) | |
Loss before income taxes | (13,932) | | | (93,002) | | | (47,206) | | | (129,770) | |
Provision for income taxes | 1,146 | | | 1,465 | | | 3,415 | | | 2,779 | |
Net loss | $ | (15,078) | | | $ | (94,467) | | | $ | (50,621) | | | $ | (132,549) | |
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.04) | | | $ | (0.28) | | | $ | (0.15) | | | $ | (0.40) | |
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted | 340,648 | | | 332,297 | | | 339,617 | | | 331,448 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2024 | | 2023 | | 2024 | | 2023 |
| | | | | | |
Net loss | $ | (15,078) | | | $ | (94,467) | | | $ | (50,621) | | | $ | (132,549) | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Change in unrealized gain (loss) on investments | (915) | | | (171) | | | (3,799) | | | 5,587 | |
Cash flow hedges: | | | | | | | |
Change in unrealized gain (loss) on cash flow hedges | 910 | | | — | | | 910 | | | — | |
Reclassification of gain (loss) included in net loss | (414) | | | — | | | (414) | | | — | |
Net changes on cash flow hedges | 496 | | | — | | | 496 | | | — | |
Other comprehensive income (loss), net of tax | (419) | | | (171) | | | (3,303) | | | 5,587 | |
Comprehensive loss | $ | (15,497) | | | $ | (94,638) | | | $ | (53,924) | | | $ | (126,962) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2024 |
| Class A common stock | | Class B common stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Total stockholders’ equity |
| Shares | | Amount | | Shares | | Amount | | |
Balance as of March 31, 2024 | 301,023 | | | $ | 300 | | | 38,710 | | | $ | 39 | | | $ | 1,857,168 | | | $ | (1,059,383) | | | $ | (900) | | | $ | 797,224 | |
| | | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock options | 72 | | | — | | | 576 | | | 1 | | | 3,191 | | | — | | | — | | | 3,192 | |
| | | | | | | | | | | | | | | |
Issuance of common stock related to early exercised stock options | — | | | — | | | 2 | | | — | | | — | | | — | | | — | | | — | |
Vesting of shares issued upon early exercise of stock options | — | | | — | | | — | | | — | | | 32 | | | — | | | — | | | 32 | |
Issuance of common stock related to settlement of restricted stock units (RSUs) and performance stock units (PSUs) | 1,040 | | | 1 | | | — | | | — | | | (1) | | | — | | | — | | | — | |
Tax withholding on RSU settlement | (59) | | | — | | | — | | | — | | | (4,362) | | | — | | | — | | | (4,362) | |
Conversion of Class B to Class A common stock | 1,072 | | | 1 | | | (1,072) | | | (1) | | | — | | | — | | | — | | | — | |
Common stock issued under employee stock purchase plan | 173 | | | — | | | — | | | — | | | 10,455 | | | — | | | — | | | 10,455 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other | — | | | — | | | — | | | — | | | 1,689 | | | — | | | — | | | 1,689 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 88,812 | | | — | | | — | | | 88,812 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (15,078) | | | — | | | (15,078) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (419) | | | (419) | |
Balance as of June 30, 2024 | 303,321 | | | $ | 302 | | | 38,216 | | | $ | 39 | | | $ | 1,956,984 | | | $ | (1,074,461) | | | $ | (1,319) | | | $ | 881,545 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
11
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 |
Class A common stock | | Class B common stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Total stockholders’ equity |
Shares | | Amount | | Shares | | Amount | | |
Balance as of March 31, 2023 | 289,372 | | | $ | 289 | | | 42,395 | | | $ | 41 | | | $ | 1,536,367 | | | $ | (877,973) | | | $ | (6,138) | | | $ | 652,586 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock options | 147 | | | — | | | 567 | | | — | | | 3,754 | | | — | | | — | | | 3,754 | |
Repurchases of unvested common stock | (17) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Vesting of shares issued upon early exercise of stock options | — | | | — | | | — | | | 1 | | | 580 | | | — | | | — | | | 581 | |
Issuance of common stock related to settlement of RSUs | 818 | | | 1 | | | 133 | | | — | | | (1) | | | — | | | — | | | — | |
Tax withholding on RSU settlement | (20) | | | — | | | (5) | | | — | | | (1,325) | | | — | | | — | | | (1,325) | |
Conversion of Class B to Class A common stock | 1,283 | | | 1 | | | (1,283) | | | (1) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Common stock issued under employee stock purchase plan | 249 | | | — | | | — | | | — | | | 10,450 | | | — | | | — | | | 10,450 | |
| | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | — | | | — | | | 70,426 | | | — | | | — | | | 70,426 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (94,467) | | | — | | | (94,467) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (171) | | | (171) | |
Balance as of June 30, 2023 | 291,832 | | | $ | 291 | | | 41,807 | | | $ | 41 | | | $ | 1,620,251 | | | $ | (972,440) | | | $ | (6,309) | | | $ | 641,834 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
12
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2024 |
| Class A common stock | | Class B common stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive income (loss) | | Total stockholders’ equity |
| Shares | | Amount | | Shares | | Amount | | |
Balance as of December 31, 2023 | | 298,089 | | | $ | 297 | | | 39,443 | | | $ | 40 | | | $ | 1,784,566 | | | $ | (1,023,840) | | | $ | 1,984 | | | $ | 763,047 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock options | | 186 | | | — | | | 1,592 | | | 2 | | | 7,612 | | | — | | | — | | | 7,614 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock related to early exercised stock options | | — | | | — | | | 2 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Vesting of shares issued upon early exercise of stock options | | — | | | — | | | — | | | — | | | 63 | | | — | | | — | | | 63 | |
Issuance of common stock related to settlement of RSUs and PSUs | | 2,154 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | | | — | |
Tax withholding on RSU settlement | | (102) | | | — | | | — | | | — | | | (8,763) | | | — | | | — | | | (8,763) | |
Conversion of Class B to Class A common stock | | 2,821 | | | 3 | | | (2,821) | | | (3) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Common stock issued under employee stock purchase plan | | 173 | | | — | | | — | | | — | | | 10,455 | | | — | | | — | | | 10,455 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other | | — | | | — | | | — | | | — | | | 1,689 | | | — | | | — | | | 1,689 | |
Stock-based compensation | | — | | | — | | | — | | | — | | | 161,364 | | | — | | | — | | | 161,364 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (50,621) | | | — | | | (50,621) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | (3,303) | | | (3,303) | |
Balance as of June 30, 2024 | | 303,321 | | | $ | 302 | | | 38,216 | | | $ | 39 | | | $ | 1,956,984 | | | $ | (1,074,461) | | | $ | (1,319) | | | $ | 881,545 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
13
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2023 |
| Class A common stock | | Class B common stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Total stockholders’ equity |
| Shares | | Amount | | Shares | | Amount | |
Balance as of December 31, 2022 | | 286,561 | | | $ | 286 | | | 43,525 | | | $ | 42 | | | $ | 1,475,423 | | | $ | (839,891) | | | $ | (11,896) | | | $ | 623,964 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock options | | 240 | | | — | | | 1,280 | | | 1 | | | 7,058 | | | — | | | — | | | 7,059 | |
Repurchases of unvested common stock | | (17) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Vesting of shares issued upon early exercise of stock options | | — | | | — | | | — | | | 1 | | | 1,170 | | | — | | | — | | | 1,171 | |
Issuance of common stock related to settlement of RSUs | | 1,533 | | | 2 | | | 322 | | | — | | | (2) | | | — | | | — | | | — | |
Tax withholding on RSU settlement | | (41) | | | — | | | (13) | | | — | | | (3,383) | | | — | | | — | | | (3,383) | |
Conversion of Class B to Class A common stock | | 3,307 | | | 3 | | | (3,307) | | | (3) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Common stock issued under employee stock purchase plan | | 249 | | | — | | | — | | | — | | | 10,450 | | | — | | | — | | | 10,450 | |
| | | | | | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | | — | | | — | | | 129,535 | | | — | | | — | | | 129,535 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (132,549) | | | — | | | (132,549) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 5,587 | | | 5,587 | |
Balance as of June 30, 2023 | | 291,832 | | | $ | 291 | | | 41,807 | | | $ | 41 | | | $ | 1,620,251 | | | $ | (972,440) | | | $ | (6,309) | | | $ | 641,834 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
14
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2024 | | 2023 |
| | | | |
Cash Flows from Operating Activities | | | | |
Net loss | | $ | (50,621) | | | $ | (132,549) | |
Adjustments to reconcile net loss to cash provided by operating activities: | | | | |
Depreciation and amortization expense | | 59,767 | | | 65,182 | |
Non-cash operating lease costs | | 23,124 | | | 21,925 | |
Amortization of deferred contract acquisition costs | | 36,991 | | | 29,011 | |
Stock-based compensation expense | | 155,714 | | | 125,793 | |
Amortization of debt issuance costs | | 1,980 | | | 2,470 | |
Net accretion of discounts and amortization of premiums on available-for-sale securities | | (24,028) | | | (19,050) | |
Deferred income taxes | | (1,310) | | | (613) | |
Provision for bad debt | | 4,770 | | | 6,037 | |
Loss on extinguishment of debt | | — | | | 50,300 | |
Other | | 291 | | | 494 | |
Changes in operating assets and liabilities, net of effect of acquisitions: | | | | |
Accounts receivable, net | | (6,715) | | | (35,413) | |
Contract assets | | (1,876) | | | (381) | |
Deferred contract acquisition costs | | (48,085) | | | (43,348) | |
Prepaid expenses and other current assets | | (24,726) | | | (13,996) | |
Other noncurrent assets | | 1,941 | | | (1,991) | |
Accounts payable | | 15,996 | | | 6,602 | |
Accrued expenses and other current liabilities | | 254 | | | 1,454 | |
| | | | |
Operating lease liabilities | | (25,031) | | | (18,149) | |
Deferred revenue | | 29,695 | | | 56,460 | |
Other noncurrent liabilities | | 263 | | | 627 | |
Net cash provided by operating activities | | 148,394 | | | 100,865 | |
Cash Flows from Investing Activities | | | | |
Purchases of property and equipment | | (61,681) | | | (56,289) | |
Capitalized internal-use software | | (12,831) | | | (10,703) | |
Asset acquisitions and business combinations, net of cash acquired | | (13,977) | | | — | |
Purchases of available-for-sale securities | | (790,675) | | | (795,096) | |
Sales of available-for-sale securities | | — | | | 20,248 | |
Maturities of available-for-sale securities | | 792,354 | | | 857,456 | |
Other investing activities | | 18 | | | 59 | |
Net cash provided by (used in) investing activities | | (86,792) | | | 15,675 | |
Cash Flows from Financing Activities | | | | |
Repayments of convertible senior notes | | — | | | (172,249) | |
Cash paid for issuance costs on revolving credit facility | | (2,148) | | | — | |
Proceeds from the exercise of stock options | | 7,614 | | | 7,059 | |
Proceeds from the early exercise of stock options | | 6 | | | — | |
Repurchases of unvested common stock | | — | | | (34) | |
Proceeds from the issuance of common stock for employee stock purchase plan | | 10,455 | | | 10,450 | |
| | | | |
Payment of tax withholding obligation on RSU settlement | | (8,763) | | | (3,383) | |
| | | | |
Payment of indemnity holdback | | — | | | (9,208) | |
Net cash provided by (used in) financing activities | | 7,164 | | | (167,365) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | 68,766 | | | (50,825) | |
Cash, cash equivalents, and restricted cash, beginning of period | | 91,224 | | | 215,204 | |
Cash, cash equivalents, and restricted cash, end of period | | $ | 159,990 | | | $ | 164,379 | |
Supplemental Disclosure of Cash Flow Information: | | | | |
Cash paid for interest | | $ | 63 | | | $ | 595 | |
Cash paid for income taxes, net of refunds | | $ | 2,741 | | | $ | 2,557 | |
Cash paid for operating lease liabilities | | $ | 22,788 | | | $ | 18,306 | |
Supplemental Disclosure of Non-cash Investing and Financing Activities: | | | | |
Stock-based compensation capitalized for software development | | $ | 4,950 | | | $ | 3,525 | |
Accounts payable and accrued expenses related to property and equipment additions | | $ | 14,243 | | | $ | 8,347 | |
Vesting of early exercised stock options | | $ | 63 | | | $ | 1,171 | |
Indemnity holdback consideration associated with business combinations | | $ | 2,023 | | | $ | — | |
| | | | |
Operating lease right-of-use assets obtained in exchange for operating lease liabilities | | $ | 22,870 | | | $ | 16,636 | |
Maturity of marketable securities in other current assets | | $ | 5,000 | | | $ | — | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
15
CLOUDFLARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization and Basis of Presentation
Organization and Description of Business
Cloudflare, Inc. (the Company, Cloudflare, we, us, or our) is a global cloud services provider that delivers a broad range of services to businesses of all sizes and in all geographies, making them more secure, enhancing the performance of their business-critical applications, and eliminating the cost and complexity of managing individual network hardware. Cloudflare’s network serves as a scalable, easy-to-use, unified control plane to deliver security, performance, and reliability across on-premises, hybrid, cloud, and software-as-a-service (SaaS) applications. The Company was incorporated in Delaware in July 2009. The Company is headquartered in San Francisco, California.
Basis of Presentation and Principles of Consolidation
The accompanying interim condensed consolidated financial statements and accompanying notes have been prepared in conformity with generally accepted accounting principles in the United States (U.S. GAAP) and applicable regulations of the Securities and Exchange Commission (the SEC) regarding interim financial reporting, and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year ends on December 31.
Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable required disclosures and regulations of the SEC. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Unaudited Interim Condensed Consolidated Financial Information
The accompanying interim condensed consolidated balance sheet as of June 30, 2024, the condensed consolidated statements of operations and of comprehensive loss for the three and six months ended June 30, 2024 and 2023, the condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2024 and 2023, and the related footnote disclosures are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited interim condensed consolidated financial statements include all adjustments necessary to state fairly the Company’s financial position as of June 30, 2024, its results of operations for the three and six months ended June 30, 2024 and 2023, and its cash flows for the six months ended June 30, 2024 and 2023. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results expected for the full year ending December 31, 2024 or any future period. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes to the condensed consolidated financial statements. Such estimates include, but are not limited to, allowance for doubtful accounts, deferred contract acquisitions costs, the period of benefit generated from the Company’s deferred contract acquisition costs, the capitalization and estimated useful life of internal-use software, valuation of acquired intangible assets, the assessment of recoverability of intangible assets and their estimated useful lives, useful lives of property and equipment, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation and recognition of stock-based compensation awards, uncertain tax positions, and the recognition and measurement of current and deferred income tax assets and liabilities. Management bases these estimates and assumptions on historical experience and on various other assumptions that are believed to be reasonable. Due in part to the Hamas-Israel
and Russia-Ukraine conflicts, the potential worsening and expansion of such conflicts, and other macroeconomic and geopolitical conditions, there is ongoing uncertainty and significant disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or assumptions or a revision of the carrying value of its assets or liabilities as of August 1, 2024, the date of issuance of this Quarterly Report on Form 10-Q. These estimates and assumptions may change in the future, however, as new events occur and additional information is obtained. Actual results could differ materially from these estimates.
Note 2. Summary of Significant Accounting Policies
Significant Accounting Policies
The Company's significant accounting policies are discussed in the "Notes to Consolidated Financial Statements, Note 2. Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no significant changes to these policies that have had a material impact on the Company's condensed consolidated financial statements and related notes, except as noted below.
Change in Accounting Estimate
In January 2024, the Company completed an assessment of the useful lives of our servers-network infrastructure, resulting in a change in the estimated useful lives of our servers-network infrastructure from four years to five years. This change in accounting estimate was effective beginning fiscal year 2024. Based on the carrying value of assets in service as of December 31, 2023, the change resulted in a reduction of depreciation expense of $11.9 million for the six months ended June 30, 2024, recorded primarily in cost of revenue.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
There have been no recently adopted accounting pronouncements since the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 that may have a material impact on the Company's condensed consolidated financial statements.
Note 3. Revenue
Disaggregation of Revenue
Subscription and support revenue is recognized over time and accounted for substantially all of the Company’s revenue for the three and six months ended June 30, 2024 and 2023.
The following table summarizes the revenue by region based on the billing address of customers who have contracted to use the Company’s global network and products:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | | | | | | | | | |
| (dollars in thousands) | | (dollars in thousands) |
| Amount | | Percentage of Revenue | | Amount | | Percentage of Revenue | | Amount | | Percentage of Revenue | | Amount | | Percentage of Revenue |
United States | $ | 207,008 | | | 51 | % | | $ | 161,692 | | | 53 | % | | $ | 403,471 | | | 52 | % | | $ | 314,610 | | | 53 | % |
Europe, Middle East, and Africa | 110,968 | | | 28 | % | | 84,346 | | | 27 | % | | 216,352 | | | 28 | % | | 162,677 | | | 27 | % |
Asia Pacific | 52,126 | | | 13 | % | | 40,399 | | | 13 | % | | 99,777 | | | 13 | % | | 79,617 | | | 13 | % |
Other | 30,894 | | | 8 | % | | 22,057 | | | 7 | % | | 59,998 | | | 7 | % | | 41,765 | | | 7 | % |
Total | $ | 400,996 | | | 100 | % | | $ | 308,494 | | | 100 | % | | $ | 779,598 | | | 100 | % | | $ | 598,669 | | | 100 | % |
The following table summarizes the revenue from contracts by type of customer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | | | | | | | | | |
| (dollars in thousands) | | (dollars in thousands) |
| Amount | | Percentage of Revenue | | Amount | | Percentage of Revenue | | Amount | | Percentage of Revenue | | Amount | | Percentage of Revenue |
Channel partners | $ | 76,686 | | | 19 | % | | $ | 47,148 | | | 15 | % | | $ | 147,137 | | | 19 | % | | $ | 88,151 | | | 15 | % |
Direct customers | 324,310 | | | 81 | % | | 261,346 | | | 85 | % | | 632,461 | | | 81 | % | | 510,518 | | | 85 | % |
Total | $ | 400,996 | | | 100 | % | | $ | 308,494 | | | 100 | % | | $ | 779,598 | | | 100 | % | | $ | 598,669 | | | 100 | % |
Contract Balances
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period. For the six months ended June 30, 2024 and 2023, the Company recognized revenue of $270.3 million and $169.7 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.
The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. Standard payment terms are due upon receipt. Contract assets include amounts related to the Company’s contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced.
The following table summarizes the activity of the deferred contract acquisition costs: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
| (in thousands) | | (in thousands) |
Beginning balance | $ | 137,527 | | | $ | 98,427 | | | $ | 133,236 | | | $ | 93,145 | |
Capitalization of contract acquisition costs | 25,687 | | | 23,957 | | | 48,085 | | | 43,348 | |
Amortization of deferred contract acquisition costs | (18,884) | | | (14,902) | | | (36,991) | | | (29,011) | |
Ending balance | $ | 144,330 | | | $ | 107,482 | | | $ | 144,330 | | | $ | 107,482 | |
The Company did not recognize any impairment losses of deferred contract acquisition costs during the periods presented.
Remaining Performance Obligations
As of June 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,421.0 million. As of June 30, 2024, the Company expected to recognize 69% of its remaining performance obligations as revenue over the next 12 months with the remainder recognized thereafter.
Note 4. Fair Value Measurements
Fair value is defined as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Assets and liabilities measured at fair value are classified into the following categories:
•Level I: Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;
•Level II: Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments; and
•Level III: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.
The Company's cash equivalents and restricted cash are comprised of highly liquid money market funds. The Company classifies money market funds within Level I of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its investments, which are comprised of U.S. treasury securities, U.S. government agency securities, commercial paper, and corporate bonds, within Level II of the fair value hierarchy because the fair value of these securities is priced by using inputs based on non-binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each period. There were no transfers between levels during the periods presented.
The following table summarizes the Company’s cash and available-for-sale securities’ amortized cost, unrealized gains (losses), and fair value by significant investment category reported as cash and cash equivalents, restricted cash short-term, restricted cash, or available-for-sale securities as of June 30, 2024 and December 31, 2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | | | | | | | Reported as: |
June 30, 2024 | | Amortized Cost | | Unrealized Gain | | Unrealized (Loss) | | Fair Value | | Cash & Cash Equivalents | | Available-for-sale securities | | | | Restricted Cash (Current and Non-Current) |
Cash | | $ | 60,979 | | | $ | — | | | $ | — | | | $ | 60,979 | | | $ | 57,956 | | | $ | — | | | | | $ | 3,023 | |
Level I: | | | | | | | | | | | | | | | | |
Money market funds | | 99,011 | | | — | | | — | | | 99,011 | | | 99,011 | | | — | | | | | — | |
Level II: | | | | | | | | | | | | | | | | |
Corporate bonds | | 408,749 | | | 40 | | | (690) | | | 408,099 | | | — | | | 408,099 | | | | | — | |
U.S. treasury securities | | 1,036,063 | | | 162 | | | (1,178) | | | 1,035,047 | | | — | | | 1,035,047 | | | | | — | |
U.S. government agency securities | | 59,151 | | | — | | | (73) | | | 59,078 | | | — | | | 59,078 | | | | | — | |
Commercial paper | | 98,205 | | | 1 | | | — | | | 98,206 | | | — | | | 98,206 | | | | | — | |
Subtotal | | 1,602,168 | | | 203 | | | (1,941) | | | 1,600,430 | | | — | | | 1,600,430 | | | | | — | |
Total assets measured at fair value on a recurring basis | | $ | 1,762,158 | | | $ | 203 | | | $ | (1,941) | | | $ | 1,760,420 | | | $ | 156,967 | | | $ | 1,600,430 | | | | | $ | 3,023 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | | | | | | | Reported as: |
December 31, 2023 | | Amortized Cost | | Unrealized Gain | | Unrealized (Loss) | | Fair Value | | Cash & Cash Equivalents | | Available-for-sale securities | | | | Restricted Cash (Current and Non-Current) Cash |
Cash | | $ | 51,189 | | | $ | — | | | $ | — | | | $ | 51,189 | | | $ | 46,829 | | | $ | — | | | | | $ | 4,360 | |
Level I: | | | | | | | | | | | | | | | | |
Money market funds | | 40,035 | | | — | | | — | | | 40,035 | | | 40,035 | | | — | | | | | — | |
Level II: | | | | | | | | | | | | | | | | |
Corporate bonds | | 312,510 | | | 718 | | | (378) | | | 312,850 | | | — | | | 312,850 | | | | | — | |
U.S. treasury securities | | 1,020,167 | | | 2,344 | | | (544) | | | 1,021,967 | | | — | | | 1,021,967 | | | | | — | |
U.S. government agency securities | | 84,154 | | | 14 | | | (96) | | | 84,072 | | | — | | | 84,072 | | | | | — | |
Commercial paper | | 167,989 | | | 2 | | | — | | | 167,991 | | | — | | | 167,991 | | | | | — | |
Subtotal | | 1,584,820 | | | 3,078 | | | (1,018) | | | 1,586,880 | | | — | | | 1,586,880 | | | | | — | |
Total assets measured at fair value on a recurring basis | | $ | 1,676,044 | | | $ | 3,078 | | | $ | (1,018) | | | $ | 1,678,104 | | | $ | 86,864 | | | $ | 1,586,880 | | | | | $ | 4,360 | |
As of June 30, 2024, the Company had $3.0 million in total restricted cash mainly related to indemnity holdback consideration associated with asset acquisitions and business combinations.
The aggregate fair value of the Company’s money market funds approximated amortized cost and, as such, there were no unrealized gains or losses on money market funds as of June 30, 2024 and December 31, 2023. Realized gains and losses, net of tax, were not material for any of the periods presented.
The amortized cost of available-for-sale investments with maturities less than one year was $1,117.9 million and $1,185.1 million as of June 30, 2024 and December 31, 2023, respectively. The amortized cost of available-for-sale investments with maturities greater than one year was $484.3 million and $399.7 million as of June 30, 2024 and December 31, 2023, respectively.
As of June 30, 2024, net unrealized loss on investments was $1.8 million and was included in accumulated other comprehensive income on the condensed consolidated balance sheet. As of December 31, 2023, net unrealized gain on investments was $2.0 million and was included in accumulated other comprehensive income on the condensed consolidated balance sheet. The unrealized gains and losses on available-for-sale investments are related to U.S. treasury securities, U.S. government agency securities, commercial paper, and corporate bonds. The Company determined any unrealized losses to be temporary. Factors considered in determining whether a loss is temporary include the financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, the expected cash flows from the security, the Company’s intent to sell the security, and whether or not the Company will be required to sell the security before the recovery of its amortized cost. As of June 30, 2024, the Company's investment portfolio consisted of investment grade securities with an average credit rating of AA.
The Company carries the 2026 Notes (as defined below) issued in August 2021 at face value less the unamortized issuance costs on its condensed consolidated balance sheets and presents that fair value for disclosure purposes only. As of June 30, 2024, the fair value of the 2026 Notes was $1,176.4 million. The fair value of the 2026 Notes, which are classified as Level II financial instruments, was determined based on the quoted bid prices of the 2026 Notes in an over-the-counter market on the last trading day of the reporting period. For further details on the 2026 Notes, refer to Note 7 to these condensed consolidated financial statements.
The Company classifies financial instruments in Level III of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or
liability. There were no financial instruments classified as Level III of the fair value hierarchy as of June 30, 2024 and December 31, 2023.
Note 5. Balance Sheet Components
Accounts Receivable, Net
As of June 30, 2024 and December 31, 2023, the Company’s allowance for doubtful accounts was $7.7 million and $6.0 million, respectively. Provision for bad debt for the three months ended June 30, 2024 and 2023 was $1.5 million and $4.4 million, respectively, and for the six months ended June 30, 2024 and 2023 was $4.1 million and $6.0 million, respectively. Write-off of uncollectible accounts receivable for the three months ended June 30, 2024 and 2023 was $1.0 million and $2.7 million, respectively, and for the six months ended June 30, 2024 and 2023 was $2.4 million and $3.7 million, respectively.
Property and Equipment, Net
Property and equipment, net consisted of the following: | | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
| | | |
| (in thousands) |
Property and equipment: | | | |
Servers—network infrastructure | $ | 383,716 | | | $ | 330,295 | |
Construction in progress | 33,728 | | | 45,557 | |
Capitalized internal-use software | 92,944 | | | 75,163 | |
Office and computer equipment | 35,784 | | | 32,043 | |
Office furniture | 8,998 | | | 9,003 | |
Software | 5,513 | | | 5,422 | |
Leasehold improvements | 44,469 | | | 42,984 | |
Asset retirement obligation | 826 | | | 826 | |
Gross property and equipment | 605,978 | | | 541,293 | |
Less accumulated depreciation and amortization | (266,854) | | | (218,480) | |
Total property and equipment, net | $ | 339,124 | | | $ | 322,813 | |
Depreciation and amortization expense on property and equipment for the three months ended June 30, 2024 and 2023 was $26.3 million and $28.4 million, respectively, and for the six months ended June 30, 2024 and 2023 was $50.4 million and $54.2 million, respectively. This includes amortization expense for capitalized internal-use software which totaled $5.9 million and $5.3 million for the three months ended June 30, 2024 and 2023, respectively, and $11.4 million and $10.7 million for the six months ended June 30, 2024 and 2023, respectively.
Goodwill
As of June 30, 2024 and December 31, 2023, the Company's goodwill was $156.2 million and $148.0 million, respectively. During the three months ended June 30, 2024, the Company recorded $8.1 million of goodwill in connection with the acquisition of BastionZero. For further details on this acquisition, refer to Note 13 to these condensed consolidated financial statements. No goodwill impairments were recorded during the six months ended June 30, 2024 and 2023.
Acquired Intangible Assets, Net
Acquired intangible assets, net consisted of the following: | | | | | | | | | | | | | | | | | |
| June 30, 2024 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| | | | | |
| (in thousands) |
Developed technology | $ | 16,431 | | | $ | 3,105 | | | $ | 13,326 | |
| | | | | |
Customer relationships | 11,600 | | | 3,263 | | | 8,337 | |
Total acquired intangible assets, net | $ | 28,031 | | | $ | 6,368 | | | $ | 21,663 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| | | | | |
| (in thousands) |
Developed technology | $ | 47,183 | | | $ | 36,893 | | | $ | 10,290 | |
Trade name | 1,700 | | | 1,488 | | | 212 | |
Customer relationships | 11,600 | | | 2,538 | | | 9,062 | |
Total acquired intangible assets, net | $ | 60,483 | | | $ | 40,919 | | | $ | 19,564 | |
During the three months ended June 30, 2024, the Company acquired $9.3 million of developed technology, primarily through the acquisition of BastionZero, which accounted for $5.1 million of the total acquired intangible assets. Refer to Note 13 to these condensed consolidated financial statements for further details on this acquisition.
Amortization of acquired intangible assets was $2.0 million and $4.9 million for the three months ended June 30, 2024 and 2023, respectively, and $7.2 million and $9.8 million for the six months ended June 30, 2024 and 2023, respectively.
As of June 30, 2024, the estimated future amortization expense of acquired intangible assets was as follows: | | | | | |
| Estimated Amortization |
| (in thousands) |
Year ending December 31, | |
2024 (remaining six months) | $ | 4,833 | |
2025 | 9,065 | |
2026 | 3,053 | |
2027 | 1,450 | |
2028 | 1,450 | |
Thereafter | 1,812 | |
Total | $ | 21,663 | |
Note 6. Leases
The Company's lease portfolio consists of real estate and co-location agreements in the United States and internationally. The real estate leases include leases for office space and have remaining lease terms of up to 7.1 years. Certain of these leases contain options that allow the Company to extend or terminate the lease agreement. The Company's co-location leases have remaining lease terms of up to 8.2 years. All of the Company's leases are classified as operating leases.
The components of lease cost related to the Company's operating leases included in the condensed consolidated statements of operations were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| | | | | | | |
| 2024 | | 2023 | | 2024 | | 2023 |
| (in thousands) | | (in thousands) |
Operating lease cost | $ | 11,261 | | | $ | 10,864 | | | $ | 23,124 | | | $ | 21,925 | |
Total lease cost | $ | 11,261 | | | $ | 10,864 | | | $ | 23,124 | | | $ | |