Cloudflare, Inc. (NET) Q1 2022 Earnings Name Transcript

Cloudflare, Inc. (NET -15.68%)
Q1 2022 Earnings Name
Could 05, 2022, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Girls and gents, thanks for standing by, and welcome to Cloudflare’s first quarter 2022 earnings name. [Operator instructions] Thanks. Jayson Noland, head of investor relations, it’s possible you’ll start your convention.

Jayson Noland — Head of Investor Relations

Thanks for becoming a member of us to debate Cloudflare’s monetary outcomes for the primary quarter of 2022. With me on the decision, now we have Matthew Prince, co-founder and CEO; Michelle Zatlyn, co-founder, president, and COO; and Thomas Seifert, CFO. By now, everybody ought to have entry to our earnings announcement. This announcement, in addition to our supplemental monetary data, could also be discovered on our Investor Relations web site.

As a reminder, we’ll be making forward-looking statements throughout right this moment’s dialogue, together with, however not restricted to, our prospects, distributors, and companions operations and future monetary efficiency; anticipated product launches and the timing and market potential of these merchandise, the corporate’s anticipated future income, monetary efficiency, working efficiency, non-GAAP gross margin, non-GAAP web earnings or loss, non-GAAP web earnings or loss per share, shares excellent, non-GAAP working bills, free money stream, non-GAAP tax expense, dollar-based web retention fee, paying prospects and huge prospects. These statements and different feedback usually are not ensures of future efficiency, however quite are topic to dangers and uncertainty a few of that are past our management, together with, however not restricted to, the extent and length of the impression of the COVID-19 pandemic and adversarial circumstances within the basic home and international financial markets. Our precise outcomes could differ considerably from these projected or instructed in any forward-looking statements. These forward-looking statements apply as of right this moment, and you shouldn’t depend on them as representing our views sooner or later.

We undertake no obligation to replace these statements after this name. For a extra full dialogue of the dangers and uncertainties that would impression our future working outcomes and monetary situation, please see our filings with the Securities and Alternate Fee, in addition to in right this moment’s earnings press launch. Until in any other case famous, all numbers we discuss right this moment, aside from income, will likely be on an adjusted non-GAAP foundation. All present and prior interval financials mentioned are mirrored underneath ASC 606.

Chances are you’ll discover a reconciliation of GAAP to non-GAAP monetary measures in our earnings launch on our Investor Relations web site. For historic durations, a GAAP to non-GAAP reconciliation could be discovered within the supplemental monetary data referenced just a few moments in the past. Earlier than ending up, I might like to ask you to hitch us for our investor day subsequent week on Thursday, Could 12. It is being held at the side of our person convention, Cloudflare Join, in New York Metropolis.

This occasion will begin at 9:00 a.m. Jap and end round 11:45 with a dwell webcast accessible from our investor relations web site. Moreover, we will likely be collaborating within the Jefferies software program convention in San Francisco on June 1. Now I might like to show the decision over to Matthew.

Matthew Prince — Co-Founder and Chief Govt Officer

Thanks, Jayson. We had a terrific quarter. In Q1, we achieved income of $212 million, up 54% 12 months over 12 months. We added a quarterly report of greater than 14,000 new paying prospects, up 10% quarter over quarter, bringing our complete paying buyer rely to over 154,000.

We add 121 new giant prospects, those who pay us over $100,000 per 12 months, up 53% 12 months over 12 months to a complete of 1,537. In the present day, 58% of our income comes from these giant prospects. Our largest prospects proceed to get bigger and bigger. These spending over $500,000 a 12 months, rising 68% 12 months over 12 months, and people spending over $1 million a 12 months, rising 72% 12 months over 12 months.

We now have 12 prospects and companions spending over $5 million per 12 months with us. And but, we stay extremely diversified, with no buyer representing greater than 5% of income. Our land-and-expand movement continues to enhance, with dollar-based web retention hitting a brand new report of 127% within the quarter, up 400 foundation factors 12 months over 12 months. New merchandise and an elevated curiosity in consolidating behind a single trusted vendor for community providers has been the important thing to our continued buyer enlargement.

Effectivity has at all times been an indicator of our enterprise. And even in these inflationary instances, we achieved a gross margin within the quarter of 78.7%, up 110 foundation factors 12 months over 12 months. That continues to be above our goal gross margin vary of 75% to 77% and affords us the chance to selectively goal opponents’ prospects, providing them bundles of merchandise that work seamlessly collectively, lowering the variety of distributors they want and offering them with fashionable options, all whereas saving them cash on the identical time. We’re discovering this in an particularly compelling worth proposition when it appears everybody else is elevating costs or cannot even say for sure after they’ll be capable to ship their legacy {hardware} containers.

We closed our largest acquisition ever within the quarter, shopping for Space 1 Safety for $162 million. We’ve a really excessive hurdle fee for acquisitions being strongly biased towards inner growth however Space 1 know-how and staff are particular. We began out as a buyer. I bear in mind shortly after we applied their answer, writing to our Chief Safety Officer to ask if one thing was unsuitable, I hadn’t seen any phishing experiences in just a few weeks, the place often our staff would report double digits per day.

It turned out Space 1 and their unbelievable electronic mail safety tech was the reply. By the best way, in case you’re nonetheless seeing phishing messages in your personal field, inform your IT staff to name us. We now have an awesome answer. Over the previous couple of years, the shopper of Space 1, we received to know their staff.

At Cloudflare, we’re a bunch of geeks. We’re good at snipping out when tech is actual and when it is BS. The Space 1 staff shares the identical spirit, so that they have been enjoyable to work with, and their tech positively is not BS. We talked to them briefly a few partnership, nevertheless it grew to become rapidly clear and made much more sense for them to hitch Cloudflare and totally combine with our zero belief suite.

Let me provide you with a way of how that is going. We prolonged provides to all of the Space 1 staff, and even on this sizzling labor market, 98% of them selected to hitch Cloudflare. And I am not giving up hope on that final one Space 1 staff member who hasn’t but. I feel that claims one thing about how good it match the 2 firms are collectively, the applied sciences and the tradition.

E-mail is the No. 1 supply of community threats that no main zero belief vendor has actually built-in electronic mail safety is a serious blind spot the trade was responsible of. As you see others within the area now scramble to construct, purchase, or companion to fill the opening we identified of their choices, know that it is the greatest sign that Cloudflare’s zero belief answer is resonating available in the market and taking share it doesn’t matter what they might say. And good luck to them.

We received the very best staff and the very best tech within the enterprise. Let’s discuss some buyer wins within the quarter, beginning with Space 1. Within the second half of Q1, Cloudflare and Space 1 gross sales staff began working collectively. We noticed quite a lot of buyer wins from present Cloudflare prospects including Space 1, in addition to from Space 1 pipeline offers that accelerated after information broke of our acquisition.

Practitioners belief Cloudflare and know that if we purchase an organization, the tech works and can scale. New prospects who onboarded to Space 1 within the quarter included a serious Asian airline, a U.S. bulge bracket funding financial institution, and a Fortune 1000 trucking firm. Let me dig into that trucking firm instance of it.

They have been an present Cloudflare buyer. They have been within the midst of a pilot testing a variety of electronic mail safety distributors. In these assessments, Space 1 caught twice as many phishing emails as the subsequent greatest competitor, that the tech was now a part of Cloudflare made the choice a no brainer. The trucking firm signed a 7,500 seats, $385,000 two-year deal.

Watch this area. There’s going to be much more tales like this one. We proceed to see success with our different zero-trust merchandise. A Midwestern U.S.

state purchased 75,000 seats in a three-year $5.1 million deal. The state was changing legacy {hardware} and had determined to maneuver to a cloud-based answer after they started speaking to us. It was a aggressive deal, however the popular Cloudflare’s tightly built-in strategy that gave them a single pane of glass, with built-in insurance policies and risk intelligence. In addition they love our efficiency and community that had presence inside their state borders.

This was an instance of the sale in partnership with a serious methods integrator, which we count on will likely be a part of increasingly more giant zero belief gross sales. We’re assured our implementation of those merchandise has loads of margin to assist a sturdy companion ecosystem. A big Indian media platform selected Cloudflare over Zscaler and Palo Alto Networks for his or her zero-trust community. They signed a $150,000 deal for five,000 seats.

They appreciated how rather more tightly built-in our options have been than the competitors. We’re going head-to-head with Zscaler and Palo Alto Networks increasingly more, and we like our win charges once we do. A European Fortune 500 automotive firm adopted Cloudflare’s zero-trust strategy to assist handle their international fleet of greater than 10 million autos. They signed a contract value $320,000 per 12 months.

We’re seeing increasingly more of those IoT zero belief use circumstances, and consider there may be vital alternative to develop with this buyer. Talking of enlargement, a Fortune 500 software program firm expanded their relationship with us, bringing their annual run fee to $15 million per 12 months. The brand new contract expanded our relationship to a different inner IT division. We’re serving to them construct their future scalable, safe, fashionable community.

They repeatedly tell us, we have been the one vendor they trusted within the area for such a mission-critical service. On the theme of belief, a big social community signed a $3 million five-year contract. They’re utilizing our international community to authenticate the safety of considered one of their messaging merchandise. They’ve constructed the authentication utility on Staff, our serverless compute platform, that Staff can sustain with their large scale and quantity is a testomony to its easy scalability.

Sticking with Staff, a big Australian software program firm adopted Staff to assist energy a collaboration software. They signed a $145,000 contracts. They’re utilizing Staff’ sturdy object performance to construct real-time international synchronization into the product. What we’re seeing with Staff is that there is a pure enlargement as sensible software program groups notice what they’ll do after they can write code and successfully deploy it straight into the Web cloth.

We count on this buyer will proceed to make use of Staff for extra of their initiatives now that they’ve confirmed success with this one. A Fortune 500 healthcare firm signed a $1.2 million three-year deal. It is a fairly normal community safety and efficiency use case for us, changing legacy {hardware}. What I believed was attention-grabbing with that the IT staff had moved from a big monetary providers buyer of ours.

As they modify jobs, they introduced Cloudflare to their new employer. I feel we will see much more of this as practitioners have succeeded of their final job by leaning on us are shifting on and shifting up of their careers to new alternatives. A Fortune 500 monetary providers firm went all-in on Cloudflare. They stated that they see us as the longer term.

They signed a $1.5 million three-year deal. It was pushed by their Chief Safety Officer. From begin to end, the gross sales cycle was round 4 months. They ripped out quite a lot of legacy distributors and consolidated quite a lot of community providers behind us.

They have been bored with looking for better of breed with each product and as an alternative ending up with a Frankenstein map. They realized they might with us have the best-of-breed community that was tightly built-in with the options all environment friendly work collectively. We count on they are going to proceed to develop their contracts now that they introduced totally into Cloudflare structure. One final story.

A Fortune 1000 gaming firm signed a $3.3 million three-year contract. I like this story. They have been utilizing AWS however discovered their safety could not stop the assaults they have been seeing. After struggling to maintain their utility on-line, AWS’s staff finally advised them, “You need to simply use Cloudflare.” And they also did.

We aspect to allow them to and many different prospects know that R2 is progressing to open beta subsequent week, and we count on we’ll be capable to save them a number of AWS egress charges as properly. I needed to shut by speaking about what we’re seeing in Russia and Ukraine. I discussed the area on the finish of the final earnings name. Numerous you reached out to say a theme misplaced on the time.

Sadly, it proved stress. At Cloudflare, our international community serves as an early warning sensor for what’s taking place throughout the Web. Within the month main as much as Russia invasion, we noticed traits cyber probing and different warning indicators that have been just like what we have seen in Georgia and Crimea years earlier. Involved, we have briefed Western authorities and supplied our providers to vital infrastructure suppliers and authorities establishments in Ukraine properly earlier than the bodily invasion started.

Many organizations there took us up on our provide of safety. One of many tales of the warfare has been the relative lack of cyberattacks. That is not precisely correct. There have been assaults.

Nevertheless, the quantity which were profitable are fortunately few. I am happy with the function that Cloudflare has performed to that finish. In Russia, Belarus, and the Russian-occupied areas of Ukraine. We terminated all customers tied to sanction events and put extra checks in place for brand spanking new prospects signing up for our providers.

The area, together with Ukraine, represents lower than 1% of income. So we don’t anticipate significant monetary impression to our enterprise, however we’re conservatively reserving for the worst case, similar to we did firstly of COVID. One shocking factor that occurred within the quarter was that our 1.1.1.1 app rose to No. 1 within the Russian app shops.

We construct that app and provides it away to shoppers free of charge because the world’s largest testbed for a key element of our zero belief answer. It turned out in what was an more and more considerate community setting inside Russia. Residents there desirous to see what was actually happening, put in the app with the intention to entry Western media. Now we cannot make any cash on this.

So a few of it’s possible you’ll marvel why am I telling you about it throughout the earnings name. As a result of it seems doing the precise factor and being there when some on the Web wants us has at all times been core to Cloudflare and has at all times turned out to be good enterprise for us over the long run. It is why I like my job. Efficiently working contained in the hostile community setting that’s Russia right this moment makes our cellular app higher for our enterprise zero belief prospects.

Guaranteeing Ukrainian vital infrastructure stays on-line means we are able to stand as much as the most important nation state-sponsored assaults for our largest authorities, monetary providers, and different off-targeted prospects, and briefing authorities on what’s about to occur proves the facility and distinctive perception we get from our international community. We’re within the belief enterprise. We at all times have been. And in Q1, we constructed a number of belief in a number of quarters.

Even in what I consider will show to have been the toughest quarter for the trade since Q1 of 2020. Belief is the key to why we proceed to develop paying prospects in a report tempo. It is why we acquired 133,000 job purposes and noticed attrition really ticked down, whereas many others are struggling to rent. And whereas we proceed to have a seat on the desk in conversations across the future regulation of the Web alongside right this moment’s examine giants.

We will likely be there because the Web wants us in Ukraine, Russia, and in all places else. And as we’re, we’re sowing the seeds to construct what we intend to grow to be not simply what a few of it’s possible you’ll consider a SaaS, a gentle, environment friendly, fast-growing SaaS firm right this moment, however an iconic trusted know-how firm that may outline the way forward for the Web for many years to return. With that, I will flip it over to Thomas to dive into our regular, environment friendly fast-growing numbers. Thomas, take it away.

Thomas Seifert — Chief Monetary Officer

Thanks, Matthew, and thanks to everybody for becoming a member of us. We continued the momentum from the fourth quarter and delivered a powerful Q1, exceeding the excessive finish of our income steerage with energy in a number of areas of the enterprise. Turning to income. Complete income for the primary quarter elevated 54% 12 months over 12 months to $212.2 million.

The expansion in income was pushed by robust adoption of our product portfolio and continued traction with our enterprise buyer base. From a geographic perspective, in Q1, we noticed continued energy in each the U.S. and internationally. The U.S.

represented 53% of income and elevated 56% 12 months over 12 months. EMEA represented 26% of income and elevated 57% 12 months over 12 months. APAC represented 14% of income and elevated 31% 12 months over 12 months. We’re happy to see development proceed to speed up in APAC and see EMEA repeat as our highest development geography this quarter.

Turning to buyer metrics. We exited the quarter with 154,109 paying prospects, representing a rise of 29% 12 months over 12 months. We ended the 12 months with 1,537 giant prospects, representing a rise of 63% 12 months over 12 months or an addition of 121 giant prospects within the quarter. We have been happy to see giant buyer income contribution improve once more sequentially.

Important enlargement from our giant prospects contributed to a report dollar-based web retention fee of 127%, representing a rise of 200 foundation factors sequentially. We proceed to see broad-based energy throughout our enterprise go-to-market efforts, which we sit up for offering extra insights throughout our investor day subsequent week. Shifting to gross margin. First quarter gross margin was 78.7%, per final quarter.

Community capex represented 9% of income within the first quarter. Going ahead, we count on to see some stage of quarter-to-quarter variability given strategic buy selections and proceed to count on community capex to be 12% to 14% of income for fiscal 2022. Turning to working bills. First quarter working bills as a proportion of income decreased 2% sequentially and decreased 7% 12 months over 12 months to 76%.

We had one other robust hiring quarter the place we noticed our complete variety of staff elevated 42% 12 months over 12 months, bringing our complete variety of staff to roughly 2,750 on the finish of the quarter. Gross sales and advertising and marketing bills have been $89.7 million for the quarter. Gross sales and advertising and marketing as a proportion of income decreased 2% sequentially and decreased to 42% from 46% in the identical quarter final 12 months. Analysis and growth bills have been $40.3 million within the quarter.

R&D as a proportion of income stayed flat sequentially and decreased to 19% from 21% in the identical quarter final 12 months. G&A bills have been $32 million for the quarter. G&A as a proportion of income elevated 1% sequentially and decreased to fifteen% from 17% in the identical quarter final 12 months. We noticed continued working leverage energy within the first quarter with working margin enhancing 770 foundation factors 12 months over 12 months.

Working earnings was $4.9 million, in comparison with an working lack of $7.5 million in the identical interval final 12 months. Q1 was our third consecutive quarter of reaching working revenue. And as a reminder, we intend to develop our working bills according to the income staying right here or at breakeven and reinvest extra profitability again into the enterprise to handle the large alternative in entrance of us. Turning to web earnings and the stability sheet.

Our web earnings within the quarter was $3.5 million or web earnings per share of $0.01. Tax expense for the primary quarter was $1.7 million. We ended the primary quarter with $1.7 billion in money, money equivalents, and available-for-sale securities. Free money stream was detrimental $64.4 million or 30% of income, in comparison with detrimental $2.2 million or 2% of income in the identical interval final 12 months.

Working money stream was detrimental $35.5 million within the first quarter or 70% of income, in comparison with $23.5 million or 17% of income in the identical interval final 12 months. The lower in money stream was primarily associated to a singular withholding tax fee of roughly $30 million. As talked about final quarter, we anticipated to see some money stream variability within the first half of 2022, however we proceed to count on to return to constructive free money stream within the second half of this 12 months. Remaining efficiency obligations, or RPO, got here in at $688 million, representing a rise of 10% sequentially and 57% 12 months over 12 months.

Present RPO was 76% of complete RPO. Turning to steerage. As Matthew talked about, we closed the Space 1 acquisition on April 1, which is anticipated to contribute lower than 1% to income, and the dilutive impression on profitability is mirrored in steerage in each the second quarter and full 12 months. Moreover, within the first quarter, we additionally ended all relationships with customers tied to sanction events in Russia, which represented lower than a 1% impression to income.

For the second quarter, we count on income within the vary of $226.5 million to $227.5 million, representing a rise of 49% 12 months over 12 months. We count on an working loss, together with Space 1, within the vary of $2 million to $1 million. We count on a web loss per share of $0.01 to breakeven. For modeling functions, please observe that if we report constructive web earnings within the second quarter, we count on our share rely to be 344 million totally diluted share for the 325 million primary shares if we report a web loss.

We count on a tax expense of $1.8 million. For the total 12 months 2022, we count on income within the vary of $955 million to $959 million, representing a rise of 45% to 46% 12 months over 12 months. We count on working earnings for the total 12 months within the vary of $10 million to $14 million, and we count on web earnings per share over that interval within the vary of $0.03 to $0.04, assuming roughly 345 million frequent shares excellent. We count on a tax expense of $7.7 million.

In closing, it was one other very robust quarter. I, once more, wish to thank our staff for delivering these nice outcomes and for his or her continued dedication. We sit up for internet hosting our second investor day subsequent Thursday, the place we’ll do a deeper dive on our product portfolio and up to date acquisitions, in addition to updates on our monetary progress and market alternative. And with that, I might wish to open it up for questions.

Operator, please ballot for questions.

Questions & Solutions:

Operator

[Operator instructions] Your first query of Matt Hedberg with RBC Capital Markets. Your line is open.

Dan Bergstrom — RBC Capital Markets — Analyst

Hey, it is Dan Bergstrom for Matt Hedberg. Thanks for taking our query. So dollar-based web retention continues to trace properly, the 127% was very nice to see, clearly having success with giant buyer enlargement. Perhaps just a little extra, in case you might, and what’s it that will get prospects to purchase into the broader set of the platform? And what actually will get these enterprise prospects to the subsequent stage of utilization?

Matthew Prince — Co-Founder and Chief Govt Officer

Certain. Thanks for the query. I feel that what now we have seen is that when the shopper is on our community, we are able to see site visitors throughout their methods sometimes and make clever suggestions over what extra merchandise. So I will provide you with a selected instance.

We’re — now we have an unbelievable bot administration product that’s good at stopping malicious automated site visitors on a buyer’s website. One of many issues we do is even earlier than somebody is utilizing the bond administration product, we are able to have a look at their site visitors patterns, see what number of bots they’ve after which generate a report for them that claims, “You will have a bot drawback. Here is what we see. Would you want us that can assist you with it?” And so I feel that these types of clever suggestions have been excellent at getting prospects to undertake extra merchandise on our platform.

I feel going ahead, as we have talked about in earlier earnings calls, what you may see us do increasingly more is bundle collectively our providers into a lot broader licenses. And so you’ll be able to see that with even a number of the examples that I introduced up on the ready remarks earlier, the place firms that purchase into our complete infrastructure decide to a sure spend with us, after which they’re able to simply repeatedly add extra merchandise, and we true that up on an annual foundation. I feel we’re actually distinctive in that now we have that broad set of various merchandise, the place when you’re utilizing our service, we are able to begin making clever suggestions, and we are able to clear up so many issues for purchasers that these type of sitewide licenses make sense. And I feel that that may proceed to be a giant piece of our development going ahead.

Thomas Seifert — Chief Monetary Officer

I needed so as to add to that tie again to the unbelievable innovation engine that it’s best to bear in mind, too. Not solely the enlargement working, however there are extra merchandise and options out there to promote each quarter. That performs into our DNR technique shifting ahead.

Dan Bergstrom — RBC Capital Markets — Analyst

Very useful from each of you. After which new buyer technology, actually strong within the quarter, a report, as you talked about. Something value pointing on the market as a driver or accounting for that robust new buyer quantity?

Matthew Prince — Co-Founder and Chief Govt Officer

Yeah. I do not imply to critique your work, however your early observe that went out instructed that we now have 14,000 prospects. In reality, we really added 14,000 new prospects within the quarter, paying prospects within the quarter, and are actually at over 150,000 paying prospects throughout the platform. I feel that that once more is simply us exhibiting that throughout whatever the measurement of buyer, we have been capable of very successfully get them onto our platform, nurture them over time, get them to make use of extra services and develop them into bigger and bigger prospects.

And so I feel it is — at some stage, once you have a look at development like that, there’s by no means one explicit factor that you could level to and say, “That was what was happening.” As a result of, once more, we service such a broad set of shoppers from very small to very, very giant. However I am actually happy with the staff and the onerous work that they’ve completed with the intention to ship in persevering with to develop our complete buyer base. And that is — and it is nice to see us have a report add of 14,000 new prospects within the quarter.

Dan Bergstrom — RBC Capital Markets — Analyst

That is nice. Thanks, Matt.

Operator

Your subsequent query comes from the road of Joel Fishbein with Truist. Your line is open.

Joel Fishbein — Truist Securities — Analyst

Good night, and implausible execution once more. Matthew, a few different firms which might be cloud-centric have reported that Web site visitors has been trending down over the previous a number of months. I might love to only get your tackle what’s taking place and the way Cloudflare is positioned and the way your Web site visitors has been flowing.

Matthew Prince — Co-Founder and Chief Govt Officer

Yeah. We’ve not seen that. I feel it has been continued development. So to, to begin with, reply your query, simply straight up, we stated year-over-year site visitors development throughout our community of 75.8%, quarter-over-quarter development of 15.9%, and that is according to type of the quarter-over-quarter development that we have seen for the final interval.

It is value remembering that we do not invoice based totally on utilization. We invoice in a way more predictable method. And so I feel that that may be a good indication that we’re taking share from the remainder of the trade. However even within the post-COVID instances, the site visitors throughout our community continues to develop.

And we do this whereas nonetheless sustaining above what our goal gross margins are. I feel the opposite factor which you did not ask about, however I feel it is attention-grabbing to check, is how a lot utilization has grown throughout our community. And the place bandwidth has grown 75.8% 12 months over 12 months, CPU utilization has really grown 89.1%. And over the quarter, it is 15.9% for bandwidth and 21.8% development for CPU utilization.

What I feel is — why that is attention-grabbing and that is vital, as a result of I feel that that is really exhibiting the place individuals are not simply utilizing Cloudflare for shifting bits round, however they’re utilizing Cloudflare with the intention to do clever processing of these bits, and that intelligence, which is de facto pushed by like our Staff’ edge computing product, in addition to a few of our safety merchandise, that is really rising sooner than bandwidth. And I feel that that delta exhibits why we’re capable of proceed to develop income on the 54% that we did within the quarter. Does that reply your query?

Joel Fishbein — Truist Securities — Analyst

Greater than I needed, however thanks. That was nice. Admire it.

Operator

Your subsequent query comes from the road of Brent Thill with Jefferies. Your line is open.

Brent Thill — Jefferies — Analyst

Matthew, the Space 1 acquisition, I feel, is a singular one for you and sort of possibly outdoors your core lane that you’ve got gone. Are you able to simply discuss to that? After which Additionally, when you consider the go-to-market and the synergies among the many different suite, are you able to simply discuss by way of the way you suppose that unveils over the subsequent a number of quarters? Thanks.

Matthew Prince — Co-Founder and Chief Govt Officer

Yeah. I feel — so to begin with, any acquisition is a bit uncommon for us as a result of now we have such a powerful bias towards inner growth and constructing merchandise ourselves. I feel although, Space 1 and electronic mail safety, specifically, makes only a ton of sense for us to do one thing round. In the event you look throughout each different protocol that’s despatched throughout the Web, we shield whether or not it is HTTP site visitors or it is your SIP site visitors to your cellphone system or it is SSH site visitors, something that is on the market, any protocol, we shield.

And we had simply not dived into defending SMTP and the e-mail protocols. And I feel just a little little bit of that’s, truthfully, my fault and our CTO john’s fault, as a result of each of us had labored in electronic mail safety prior to return to Cloudflare. And I feel now we have the scar tissue to show from it. And so on a regular basis, our gross sales staff would come to us and say, “Hey, prospects actually would love us to have an electronic mail safety product.” Our engineering staff would say, “We’ve a ton of information that would assist inform an electronic mail safety product.

We should always construct it.” And I feel John and I might typically veto that. I feel that that, frankly, was a blind spot on each of our websites. As a result of in case you have a look at the info, electronic mail safety is by far the No. 1 supply of threats that come into a corporation.

Virtually each headline hacking incident that you’ve got examine within the final two years, electronic mail was the preliminary method that that vulnerability was taken under consideration. So I feel it makes a ton of sense for us to have an answer. It is also extremely highly effective as a result of we are the DNS supplier that we are able to make it one-click deployment, the place it is a buyer of ours clicks a single button and immediately, they get the advantages of the Space 1 answer, and so they can proceed to make use of whoever their present electronic mail supplier is, whether or not that is Outlook and Microsoft Workplace or its G-suite or if it is one thing that they are internet hosting on-premise. Very like Cloudflare, Space 1 is a proxy, nevertheless it’s only a proxy for electronic mail site visitors.

So I feel it is a very pure level for us to combine. I feel it is a very simple gross sales movement for our prospects to undergo. And to the second a part of your query, I feel it integrates with the remainder of our zero belief suite extraordinarily properly. So as an illustration, once you get an electronic mail from an unknown sender.

We will robotically isolate that electronic mail utilizing our browser isolation product in order that any hyperlink that you just click on on in that hyperlink do not really render in your laptop computer, however they’re really rendered on the fringe of our community. So any malicious content material that is in these hyperlinks, we are able to cease. And so I feel that that is going to be a really efficient technique to introduce our zero belief suite to the market. It will get individuals to begin to undertake a seat-based strategy to our product very straightforward for our present prospects to deploy with one click on.

And I feel it is going to be a gateway to the remainder of our zero belief product, promoting extra of our gateway and entry and browser isolation merchandise as properly. Does that reply your query?

Brent Thill — Jefferies — Analyst

That was very complete. Thanks.

Operator

Your subsequent query comes from the road of James Fish with Piper Sandler. Your line is open.

James Fish — Piper Sandler — Analyst

Hey, guys. Good quarter there. I needed to listen to just a little bit extra in regards to the wave 2 merchandise like Groups and Magic Transit, Magic WAN are doing, particularly because it looks as if these are driving the most important greenback development nonetheless. Moreover, how has Cloudflare for Places of work progress this quarter? And is there any method to think about what number of prospects are a penetration fee of utilizing a few of these wave 2 options that I am speaking about right here?

Matthew Prince — Co-Founder and Chief Govt Officer

Yeah. So I feel that the wave 2 options, and I might characterize it just a little bit otherwise. I might say that now we have merchandise like Magic Transit, Magic Firewall, that basically do complement a few of our extra conventional merchandise. They’re all about defending content material, defending your infrastructure.

After which now we have merchandise like Gateway and Entry and Browser Isolation, that are all about defending customers. And so I feel you pumped these type of into wave 2. And that is true from a timing perspective, however they really are barely completely different and so they — and I feel that they’re each rising very properly. However they’re considerably completely different when it comes to the best way that we go to market with these merchandise.

And in some circumstances, who the precise purchaser is inside a corporation for these merchandise. And so I feel we have seen actually robust adoption for the Magic Transit product. That’s changing a number of the standard community DDoS safety providers. I feel explicit energy in carriers which might be beginning to use the product as properly, which I feel — which is a extremely thrilling alternative.

And it is — we’re getting that due to the truth that we are able to simply stand in entrance of rather more site visitors than doable — as doable by way of any type of box-based answer. I feel on the user-based merchandise, we’re seeing actually good adoption of these, each for purchasers who’re coming first for these merchandise however then additionally for us to have the ability to promote these merchandise to our present prospects. And there is a actually pure extension between our conventional firewall merchandise and the entry product, and people dovetail very properly collectively. I feel Cloudflare for Places of work continues to progress rather well, though it’s extremely early when it comes to what that may appear to be.

We’ve, within the quarter, we introduced a number of the {hardware} that we’re deploying, and we’re beginning to construct that out inside networks. I might say that quite than that us measuring the success of that product right this moment based mostly on the income that it generates, I feel we’re rather more measuring the success of that product based mostly on the willingness of landlords and community suppliers to ask us into their services and permit us to straight interconnect. And I feel that that’s in each area the place we have deployed the Cloudflare for Places of work. That’s trending at or forward of what our expectations are.

James Fish — Piper Sandler — Analyst

Nice for the main points, Matthew.

Operator

Your subsequent query comes from the road of Phil Winslow with Credit score Suisse. Your line is open.

Phil Winslow — Credit score Suisse — Analyst

Hey, guys. Thanks for taking the query, and congrats on one other nice quarter. I needed to focus in on Staff and R2. You talked about some fairly vital wins there, Matthew.

One of many belongings you’ve additionally talked about, too, is how type of it takes a very long time to type of get escape velocity and a platform when it comes to developer adoption, and so forth. How are you excited about type of the place we stand proper now? And is there something type of shocking you in type of the speed and tempo of adoption of Staff or simply type of name it the broader platform when you consider R2?

Matthew Prince — Co-Founder and Chief Govt Officer

Certain. So to begin with, as I discussed, R2 goes to progress from a closed beta to an open beta subsequent week. And subsequent week, now we have platform week, which is de facto very a lot centered on all the completely different ways in which Cloudflare is usually a platform for builders to develop on, however actually a spotlight across the numerous Staff’ merchandise. And I feel we’ll have some very thrilling surprises as a part of what we’re rolling out over the course of the week as properly.

I feel that in case you research developer platforms, for them to actually attain escape velocity, takes between eight and 12 years. And so Staff was launched in late 2017, so we’re persevering with to develop it. We’re on that curve. I feel the factor that has shocked me is that we’re seeing very large firms with very refined growth groups getting enthusiastic about and realizing that Staff is an answer for lots of the issues they’ve.

The 2 examples that I discussed within the ready remarks, one main social community, that is a really refined developer staff that selected to construct utilizing Staff. And I feel what we discovered is that when a staff like that sees the facility of what they’ll do with Staff, that basically excites them, each throughout the group they’re at and in addition as they modify jobs, and go to different locations the place they take the know-how with them. The identical factor is true with the Australian software program firm, the place doing one thing like real-time collaboration throughout a number of continents, in case you’re making an attempt to do this with a standard public cloud, it is a ton of labor. With sturdy objects and Staff, it nearly simply works out of the field.

And in reality, now we have examples of how that is completed. And I feel that that was one thing that was, once more, extremely well-received by that very refined software program engineering staff, and we count on that they are going to proceed to do extra with the product. So I feel, once more, it is going to be a while earlier than it is one thing that we’d — that’s dramatically contributing to income. However I’m very pleasantly shocked at what number of builders are flocking to the employees ecosystem, and we’ll be speaking much more about it subsequent week.

Phil Winslow — Credit score Suisse — Analyst

Superior. Trying ahead to it Thanks quite a bit.

Operator

Your subsequent query comes from the road of Keith Weiss with Morgan Stanley. Your line is open.

Matt Wilson — Morgan Stanley — Analyst

Hello, it is Matt Wilson on for Keith Weiss. Matt, you once more talked about the chance to make use of gross margins as a weapon in opposition to prospects who — or in opposition to opponents who’re extra weak to pricing and value pressures. Are you able to element what has allowed Cloudflare to withstand these pressures, each on the pricing and value entrance?

Matthew Prince — Co-Founder and Chief Govt Officer

I feel effectivity is simply at our core. And so our community has at all times been designed in such a method to have the ability to get to be as environment friendly as doable. And in order that has allowed us to ship the providers that we do. I feel we generally get in contrast with a number of the extra conventional CDN-type distributors, and that is simply by no means how now we have seen ourselves, and it is not enterprise that now we have chased.

And so I feel that the place, in case you’re promoting simply bit supply, it seems that being just a little bit sooner — actually the returns are extremely diminishing. Whereas in case you’re promoting safety, in case you’re promoting intelligence, which is constructed into the community, in case you’re promoting the power to drive that that has a really compelling use case. I feel from the start, we additionally at all times stated that Cloudflare, one of many first tenants of Cloudflare was by no means lose on worth. And I feel that compelled us to be environment friendly from the start.

And so prospects, I feel, on this time the place everyone seems to be searching for methods to determine how they’ll get monetary savings on their IT budgets and the place many different distributors are attempting to determine how they’ll both maintain or increase costs, I feel we are able to proceed to be pushing ahead and taking share and particularly taking that high-margin share from each present {hardware} distributors who’re having a tough time even delivering their merchandise, in addition to different cloud distributors that, once more, I feel usually are not as environment friendly as we have been. So I feel that is been key to our story for the reason that earliest days. It can proceed to be key to our story. And I feel it is that effectivity is a trademark of who we’re at Cloudflare.

Matt Wilson — Morgan Stanley — Analyst

Superior. Thanks for these particulars. And possibly on this one for Thomas. When can we sort of count on this gross margin technique to point out off within the numbers?

Thomas Seifert — Chief Monetary Officer

I am unsure what you imply by exhibiting up within the numbers. I feel that now we have been capable of digest the numerous income development that now we have been capable of digest the numerous site visitors development that Matthew simply alluded to, and been capable of scale at a flat to up gross margin, I feel is already a testomony to the elasticity of the community. And I simply wish to reiterate that as a result of I feel that’s our — considered one of our aggressive mote, the power that every one merchandise are working on each server in each metropolis. And due to that, the entire community service, are your lower of freedom to handle price and demand and provide each server that we add, each metropolis that we add no matter the place on the earth at lower of freedom to handle the flexibleness and the elasticity of this community.

So I feel you see that already right this moment. We have seen large development product-wise, revenue-wise, traffic-wise, each metric that you just have a look at that might measure that and have been capable of digest that in secure to barely up gross margins. I feel it is already a testomony to that.

Matt Wilson — Morgan Stanley — Analyst

Understood. Thanks.

Operator

Your subsequent query comes from the road of James Breen with William Blair. Your line is open.

James Breen — William Blair — Analyst

Thanks for taking the query. Simply type of on that time just a little bit. So are you principally type of managing to sort of a breakeven non-GAAP working earnings line, plus or minus a few million right here simply to maximise the income? After which simply from an enlargement standpoint. As you construct out extra community, extra level of presence, does that allow you to go deeper into a number of the multinationals that proper now possibly you do not have entry to due to that? Thanks.

Matthew Prince — Co-Founder and Chief Govt Officer

Certain, Jim. So I feel that we have been very constant at saying that we’re going to maintain as near breakeven on our working margin as we are able to. I stated on a earlier name that if we confirmed massively constructive earnings per share, that might imply one thing that we did one thing unsuitable as a result of if we are able to proceed to develop on the charges that we’re guiding towards, there’s nowhere else we must be placing that cash aside from again into the enterprise to develop the enterprise as rapidly as doable. And so I feel that we’re doing that, we have been very constant in delivering that message.

I do not suppose there’s something that has modified about that technique. And once more, I feel we’re managing towards a breakeven on working margin. When it comes to the POPs, I feel that — I imply, we’re already in properly over 100 nations world wide. I feel that when multinationals look to us, it is not our POP presence that has ever been, actually, since we went public, standing in the best way of them adopting us.

And I feel that in case you have a look at the businesses that we’re highlighting in a number of the examples, these are nearly all huge, multinational firms that depend on our community, and suppose that it is the case. I feel the factor which is highly effective about as we construct out extra POPs is that counterintuitively, due to the design of our community and due to the effectivity of our community that each Thomas and I simply alluded to, it really drives our price down over time quite than driving it up. It takes a specific amount of servers with the intention to course of a sure variety of requests. So your capex is definitely pushed by the quantity of utilization of your service greater than anything.

What’s highly effective is as a result of now we have completed the onerous work on the networking and software program aspect to make it in order that any server, wherever can deal with any request, that signifies that as we proceed to develop our community out that we’re capable of straight interconnect with the varied ISPs and eyeball networks world wide and drive our price down for issues like bandwidth, co-location and different variable prices which might be a part of our enterprise. And so I feel that that is decomposing just a little bit what the rationale for our capability to proceed to develop. And if sooner or later we’d like the darn snorkels and dive to the underside of the ocean so as as a result of we are able to get extra effectivity in our community by placing a POP someplace there, we’re going to proceed to do no matter is critical to have the ability to ship our providers as effectively and cheaply as doable.

James Breen — William Blair — Analyst

Nice. Thanks.

Operator

Your subsequent query comes from the road of Adam Borg with Stifel. Your line is open.

Adam Borg — Stifel Monetary Corp. — Analyst

Hey, guys Thanks a lot for taking the query. Perhaps only for Matthew on the federal vertical. I simply hoping you possibly can present an replace simply on fed ramp and the alternatives that you just see. Clearly, you’ve got seen some traction there with the joint win with Accenture, however simply curious the way you’re excited about the federal alternative in 2022 extra broadly.

Thanks a lot.

Matthew Prince — Co-Founder and Chief Govt Officer

Yeah. Federal is a giant alternative for us. FedRAMP we predict we’ll proceed to unlock that. We received phrase really right this moment that now we have thumbs up from our sponsoring company and are simply ready sort of according to the general federal company to get that accepted.

So we predict that is all going properly. We have completed the whole lot that we are able to do, and it is just a little bit like being on the DMV. You have to sort of simply wait in your quantity to get known as. However we’re assured that it’s going to get known as hopefully prior to later.

And if anybody federal DMV is listening in, there’s a number of businesses that wish to use us. So hopefully, we are able to meet that requirement. That isn’t holding us again from working with Accenture, in addition to different companions, and we have continued to see vital curiosity. I feel the factor that I might come again to is the quantity of belief that now we have constructed within the type of C-level equal of the federal authorities.

The variety of calls that our staff, and together with myself, have acquired from the people who find themselves actually trusted with securing the U.S. infrastructure, to grasp what is going on on in Ukraine, to ask us for assist, defending the infrastructure in america, I feel that that speaks extremely properly of us. We really launched, in partnership with CrowdStrike, in addition to Ping Identification, within the quarter the Important Infrastructure Safety Act. I used to be actually honored by the White Home is stepping up and saying that that was one thing that they really useful any hospitals, utilities, or vitality firms undertake as rapidly as doable.

So I feel that now we have an unlimited quantity of goodwill throughout the authorities. I feel we’re shifting ahead and suppose that there’s an unlimited alternative to proceed to ship on that goodwill. And any day now, hopefully, the FedRAMP DMV will name our quantity, and we’ll be capable to announce that. That course of is formally behind us.

Adam Borg — Stifel Monetary Corp. — Analyst

Nice. Thanks a lot.

Operator

Your subsequent query comes from the road of Alex Henderson with Needham. Your line is open.

Alex Henderson — Needham and Firm — Analyst

Nice. Thanks. First off, I needed to actually praise you guys on what an awesome job you’ve got completed defending each the Ukrainian infrastructure, in addition to the reporters that wanted there and persevering with to ship entry to Western information stream into Russia. It is actually vital stuff.

The query I needed to ask was actually across the Web site visitors query requested earlier. And possibly you possibly can give us a few knowledge factors on the change in your coding complete. However the site visitors, clearly, up 75%, is properly forward of the expansion within the market, which I feel is round 30%. So are you able to replace us on the place you’re when it comes to what proportion of Web site visitors you are carrying? And second, alongside the identical strains, it is my understanding that API site visitors has greater than doubled over the past 18 months when it comes to its fee of development, from over 150% to one thing in extra of 300%, which in the end suggests that there is very excessive charges of development within the area, the area and area to person site visitors, which is clearly a key a part of what you guys do, defending and optimizing and accelerating that site visitors.

So are you able to discuss to us just a little bit about the place you’re on the statistics when it comes to share? And what the implication of that API development fee is? I notice you are not being paid per bit, however quite that might suggest very speedy acceleration within the variety of domains which might be being site visitors, too. Thanks.

Matthew Prince — Co-Founder and Chief Govt Officer

Yeah, Alex, to begin with, thanks for the kudos firstly. It has been 1 / 4 the place a number of our staff has been working tireless nights to be sure that as a lot of the Ukrainian infrastructure stays on-line and that providers like 1.1.1.1 proceed to permit individuals in elements of the world the place they might not have free entry to the Web for them to have the ability to see what’s taking place. And I feel that that that is one thing that I am actually happy with our staff to have completed, and I respect you calling it out. When it comes to Cloudflare’s proportion of Web site visitors, I feel it is — we do not actually — we all know what our numerator is, however we do not know what the denominator is.

And I do not suppose there is a good supply of that. I feel that we have a look at some proxies for that in different places. One is what proportion of the highest million web sites are behind us. And that quantity is round 20% right this moment.

I feel what that underrepresents is a number of our different merchandise. It does not take into consideration merchandise like our zero belief merchandise, it does not take into consideration issues like Magic Transit and different merchandise. However from a simply pure what proportion of the net makes use of Cloudflare on, in case you measure that utilizing third-party sources, it is proper round 20%. For API, I feel that that has been a development that we have seen for fairly a while, increasingly more of the site visitors that passes by way of Cloudflare, its API site visitors.

Within the quarter, we introduced our up to date API safety suite. We have seen actually nice adoption for that. Once more, I feel it is one of many issues the place it is all type of the identical protocols, however having the ability to perceive that that is an API, validate that API, assist builders actually be sure that the schema that’s being despatched to and from that API is appropriate. These are all issues that our community is excellent at delivering, and we’re seeing robust buyer curiosity and robust buyer development from that.

And the very last thing I might say is that Staff is a giant — there is no such thing as a simpler technique to construct an API right this moment than on Staff. And I feel that subsequent week, throughout Platform Week, we will have a bunch of examples of shoppers and corporations and builders which might be doing precisely that. And I feel that that is going to be a much bigger and larger piece of the Staff story going ahead.

Alex Henderson — Needham and Firm — Analyst

If I might simply throw one extra query. In India and China. Are you able to give us an replace on why that site visitors is not reaccelerating at a sooner fee? And when it is going to begin to eclipse the corporate averages? Thanks.

Matthew Prince — Co-Founder and Chief Govt Officer

So I do not suppose we have damaged out the site visitors from India and China, and I do not know exactly what the expansion charges are.

Alex Henderson — Needham and Firm — Analyst

Sure, that was a income query, Matt.

Matthew Prince — Co-Founder and Chief Govt Officer

Oh, I apologize, from a income perspective. So once more, I feel that these are each areas which might be attention-grabbing to us. They’re very completely different from each other. I feel that now we have seen a number of success promoting into the Indian market and been capable of proceed to develop our providers there.

And we have completed an awesome job at each promoting to prospects, in addition to discovering methods to interconnect with what’s a really sophisticated ISP mannequin in India. In China, we have at all times labored with companions. And so now we have been a longtime companion with Baidu. We’re a more moderen companion with JD Cloud.

And I feel that in each — in that case, that partnership goes extraordinarily properly. And once more, it’s sophisticated for any Western firm to be working in China. And so the truth that now we have now been doing so since 2015, I feel exhibits — that exhibits the facility of what we have been capable of ship. Additionally, it is not at all times the aim that we’re making an attempt to generate income from within China.

The worth of us having a community that extends into China is not less than in equal half, if not higher, that we are able to kind multinational firms that you could with one single community, ship providers to each nation on earth, together with within China. And I feel that that’s distinctive for us to have the ability to do this and have the identical options and performance largely there that now we have round the remainder of the world. So I feel each of these are markets at have their very own issues, however we proceed to function in and see success.

Alex Henderson — Needham and Firm — Analyst

Thanks.

Jayson Noland — Head of Investor Relations

Operator, can we take another query, please?

Operator

Definitely. Your final query comes from the road of Amit Daryanani with Evercore. Your line is open.

Amit Daryanani — Evercore ISI — Analyst

Good. Thanks for squeezing me in. I suppose I’ve two as properly. I will ask them on the identical time.

First off, I hoped you possibly can simply discuss this rising concern of a recession in Europe and in America. So in that context, are you seeing any shift in your prospects’ shopping for patterns or deal closing charges or something? Simply any impression from threat of recession to how your gross sales staff is working? After which if you too can simply make clear, from an M&A perspective, how is that embedded into your income and working revenue information for June quarter? What’s the impression from the offers, in case you could? Thanks.

Matthew Prince — Co-Founder and Chief Govt Officer

Certain. I will take the primary query, after which Thomas can shut out with the second. As I stated, I feel that this can — when the historical past books are written, develop into probably the most sophisticated quarter that tech firms have lived by way of, actually since Q1 of 2020. And I feel that there’s actual threat of a recession going ahead.

And even apart from that, I feel that there’s positively we’re all seeing the inflationary setting and the considerations round that. What I like, although, is I am unable to think about an organization that’s higher positioned for a scenario like that than we’re. We’re providing a service which isn’t a pleasant to have, however vital. We’re providing a service in a method which saves prospects cash over what their present options are.

We have deployed the community in such a method that we are able to be sure that we service prospects as we’d like them. And so what we noticed within the quarter was positively fires concern over what was happening on the earth. However in lots of circumstances, that was really having them come to us. And so I feel that as there are difficult financial instances, we’re extraordinarily well-positioned to offer what are vital providers to ensure the Web continues to work.

And to me, it feels quite a bit like the start of COVID, the place I feel there’s a number of concern that is on the market. However over time, what we discover is, time and time and time once more, prospects are turning to us, saying we wish to consolidate our spend from as an alternative of spending throughout 10 completely different distributors, we wish to put all of it behind you. They like the truth that now we have that bundled built-in strategy, and so they like the truth that we’re capable of save them cash over what their legacy options are which might be in place. So I feel that that positions us very properly for what could also be — what was — what I feel was already a difficult quarter for a lot of firms.

and I feel it could be a difficult interval for firms over the subsequent interval to return.

Thomas Seifert — Chief Monetary Officer

And addressing your steerage query, I feel we adopted our normal strategy of making an attempt to be considerate and prudent. When it got here to the publicity to Russia, Ukraine, and Belarus. So we already talked about that we — that was a lower than 1% headwind income within the first quarter, and we mirrored this additionally within the steerage we issued for the present quarter and for the remainder of the 12 months. And as I stated within the ready remarks, the acquisition of Space 1 can also be mirrored in steerage, each for the second quarter, in addition to for the total 12 months.

And that’s true each for income, however lower than 1% contribution for the 12 months. But it surely’s additionally true for the dilutive impression on profitability. So all are mirrored within the steerage we gave.

Operator

That is on a regular basis now we have for questions. I might like to show the decision again to CEO Matthew Prince, for closing remarks.

Matthew Prince — Co-Founder and Chief Govt Officer

This has been a difficult quarter as we have watched what world occasions have taken place. I am extremely happy with our staff for having made certain that the Ukrainian infrastructure stayed on-line, that the individuals on the earth might see what was actually taking place and offering a community with Cloudflare that basically can stand as much as any problem that is forward. I actually respect all of the work of all the Cloudflare staff. I respect all of our prospects.

I am wanting ahead to seeing lots of you at our investor day and our buyer day, which is subsequent week in New York, and keep tuned for lots of bulletins. It may be a busy week for us, as a result of it is also platform week, which is considered one of our innovation weeks, and we’re anticipating to announce quite a lot of actually nice options. Thanks a lot.

Operator

[Operator signoff]

Period: 66 minutes

Name contributors:

Jayson Noland — Head of Investor Relations

Matthew Prince — Co-Founder and Chief Govt Officer

Thomas Seifert — Chief Monetary Officer

Dan Bergstrom — RBC Capital Markets — Analyst

Joel Fishbein — Truist Securities — Analyst

Brent Thill — Jefferies — Analyst

James Fish — Piper Sandler — Analyst

Phil Winslow — Credit score Suisse — Analyst

Matt Wilson — Morgan Stanley — Analyst

James Breen — William Blair — Analyst

Adam Borg — Stifel Monetary Corp. — Analyst

Alex Henderson — Needham and Firm — Analyst

Amit Daryanani — Evercore ISI — Analyst

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